The gross profit percentage measures the profitability of each sales dollar above the
cost of goods sold.
There are three parties to a check: the depositor, the maker, and the bank.
The financial statements under the periodic inventory system and the perpetual
inventory system are the same.
Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an
employee during a pay period, after taxes or any other deductions.
A stock split decreases par value per share, whereas stock dividends do not affect par
value per share.
Many liabilities have the word receivable in their titles.
The accounting period used for the annual financial statements is called the fiscal year.
Laramie, Inc. signed a contract with a service provider for security services at a rate of
$310 per month for the period of January through June. Laramie, Inc. will pay the
service provider the entire amount at the end of June. Laramie, Inc. makes adjusting
entries each month. During the month of June, it should record total security expense of
$620.
The journal entry for the purchase of treasury stock includes a credit to Cash.
International Financial Reporting Standards (IFRS) is the main U.S. accounting rule
book and is currently created and governed by the Financial Accounting Standards
Board.
All cash receipts should be deposited in the bank at the end of each week.
In a bank reconciliation, outstanding checks will be shown on the bank side of the
reconciliation.
For equity investments with no significant influence, the unrealized holding gain or loss
is reported as a component of stockholders’ equity.
The balance sheet section of the worksheet includes the asset and liability accounts and
all equity accounts except revenues and expenses.
An adjusted trial balance does not list the revenues and expenses of a business.
The perpetual inventory system keeps a running computerized record of inventory and
cost of goods sold.
Sales through credit or debit cards transfer the risk of collection of receivables from the
seller to the card issuer.
Journal entries are required if the bank reconciliation includes a book error.
The statement of retained earnings reports how the company’s retained earnings balance
changed from the beginning of the period to the end of the period.
Investment income may come from interest earned from debt investments, dividends
earned from stock investments, and/or increases in the market value of the security.
On a multi-step income statement, Sales Discounts Forfeited is reported as part of
operating income.
The direct method restates the income statement in terms of cash.
Since net income increases the equity account Retained Earnings, if net income is
understated, then equity will also be understated.
Violators of the Sarbanes-Oxley Act may be sentenced to prison for making false sworn
statements.
A trademark represents the exclusive right to reproduce and sell a book, musical
composition, film, other work of art, or intellectual property.
The higher the debt ratio, the lower the risk of default.
In 2018, Spirit Company’s net income was 10% of net sales revenue. In 2019, the net
income was 5% of net sales revenue. There is no need for investors to be alarmed
because a drop from 10% to 5% is not significant.
The specific identification method of inventory requires businesses to keep detailed
records of inventory sales and purchases and to also be able to carefully identify the
inventory that is sold.
A company’s investments in stock or bonds cannot include the acquisition of an entire
company.
A fully depreciated plant asset that is still in service is not reported as an asset on the
balance sheet.
The double-declining-balance method ignores the residual value until the depreciation
expense takes the book value below the residual value.
At the end of the period, the accounting cycle includes adjusting the accounts, preparing
financial statements, and closing the accounts.
The dividend payout ratio measures the annual dividend per share as a proportion of the
market price per share.
The trial balance verifies the equality of debits and credits on a specific date.
By accepting credit and debit cards, companies are able to attract more customers.
Prepaid Rent is always classified as a long-term asset.
The audit report in the annual report is prepared by an internal auditor of a company.
The face value of a bond payable minus the current balance of the discount account or
plus the current balance of the premium account is the bond’s carrying amount.
Petty cash is a fund containing a small amount of cash that is used to pay for minor
expenditures.
Randall, an employee of Ramsay’s, Inc., has gross salary for March of $4,000. The
entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is
also subject to federal income tax at a rate of 18%. Randall has a deduction of $320 for
health insurance and $80 for United Way. Which of the following is included in the
entry to record the liabilities for payroll withholding deductions
A) debit to Salaries Payable
B) credit to United Way Payable
C) debit to FICA Taxes Payable
D) debit to Cash
When a periodic inventory system is used, ________.
A) an adjusting entry is needed to record the ending Merchandise Inventory account
balance
B) the process for closing the Income Summary and Dividends accounts differs from
the process used in the perpetual inventory system
C) beginning Merchandise Inventory, Purchases, and Freight In accounts are closed via
the Income Summary Account
D) there is no need to take a physical count of inventory
Which of the following is an entry-level software package for accounting information
systems?
A) Microsoft Word
B) QuickBooks
C) Cloud Computing
D) Oracle
Danube Corp. purchased a used machine for $21,000. The machine required installation
costs of $6000 and insurance while in transit of $1800. At which of the following
amounts would the machine be recorded?
A) $21,000
B) $27,000
C) $22,800
D) $28,800
Which of the following is a characteristic of a current liability?
A) It creates a present obligation for future payment of cash or services.
B) It cannot be settled with services.
C) It is an avoidable obligation.
D) It occurs because of a future transaction or event.
Which of the following is an objective of internal control?
A) to encourage employees to follow company policies
B) to ensure timely payment of accounts payable
C) to ensure timely collection of accounts receivable
D) to guarantee that a business makes a profit
The Sales Revenue, Delivery Expense, and Sales Discounts Forfeited accounts will be
closed via the ________ account.
A) Income Summary
B) Retained Earnings
C) Dividends
D) Stockholders’ Equity
In regards to benchmarking, which of the following statements is correct?
A) The two main types of benchmarks in financial statement analysis include
benchmarking against a prior year of the same company and benchmarking against a
key competitor.
B) Benchmarking is the practice of comparing a company with information provided by
the Financial Standards Accounting Board.
C) The Risk Management Association provides common-size statements for most
industries.
D) It is not helpful to provide common-size percentages in a graphical manner.
Which of the following is used by companies to separate cash duties and establish
stronger control over cash receipts?
A) an encryption system
B) an imprest system
C) a lock-box system
D) a firewall system
Which of the following is a liability account?
A) Prepaid Advertising
B) Cash
C) Building
D) Unearned Rent
Organic Produce, Inc. has 49,000 shares of common stock outstanding and 6000 shares
of preferred stock outstanding. The common stock is $0.08 par value; the preferred
stock is 4% noncumulative with a $100.00 par value. On October 15, 2019, the
company declares a total dividend payment of $56,000. How much dividend will be
paid to the preferred stockholders?
A) $56,000
B) $48,000
C) $24,000
D) $3920
If $30,000 is invested for one year at an annual interest rate of 13%, it will grow in
value to ________.
A) $33,900
B) $36,208
C) $3900
D) $32,308
Which of the following is a reason for a company to announce a stock split?
A) to reward investors
B) to increase total stockholders’ equity
C) to decrease the market price at which the stock is trading
D) to provide the shareholders with something of value, when the company cannot
afford a cash dividend
Which of the following items will NOT appear as deductions on a bank statement?
A) NSF checks
B) EFT
C) Service Charge
D) Deposits
Doug, an employee of Cayman Travels, Inc., has gross salary for March of $4,000. The
entire amount is under the OASDI limit of $118,500, and thus subject to FICA. His
year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Provide the
journal entry to record the employer’s payroll taxes. (Assume a FICA—OASDI Tax of
6.2% and FICA—Medicare Tax of 1.45%.) Omit explanation.
State Street Beverage Company issues $805,000 of 9%, 10-year bonds on March 31,
2017. The bonds pay interest on March 31 and September 30. Which of the following
statements is true?
A) If the market rate of interest is 10%, the bonds will issue at a premium.
B) If the market rate of interest is 10%, the bonds will issue at a discount.
C) If the market rate of interest is 10%, the bonds will issue at par.
D) If the market rate of interest is 10%, the bonds will issue above par.
A company purchased inventory for $3,000 from a vendor on account, FOB shipping
point, with terms of 2/15, n/30. The company paid $100 cash for freight in. The entry to
record the payment of the invoice within 15 days of the invoice date by the purchaser
would include ________. (Assume a perpetual inventory system.)
A) a debit to Accounts Payable for $2,940 and a credit to Cash for $2,940
B) a debit to Accounts Payable for $3,000, a credit to Merchandise Inventory for $100,
and a credit to Cash for $2,900
C) a debit to Accounts Payable for $3,000, a credit to Merchandise Inventory for $60,
and a credit to Cash for $2,940
D) a debit to Accounts Payable for $2,940, a debit to Merchandise Inventory for $60,
and a credit to Cash for $3,000
When applying the rules of the equity method, the Equity Investments account is
credited for the receipt of a cash dividend because ________.
A) the dividend decreases the investor’s investment
B) the dividend is treated as earnings rather than a return of capital
C) there is a decrease in the dividend liability
D) the dividend increases the total assets
Two methods of estimating uncollectible receivables are ________.
A) the allowance method and the amortization method
B) the aging-of-accounts-receivable method and the percent-of-sales method
C) the gross-up method and the direct write-off method
D) the direct write-off method and the percent-of-completion method
The par value of stock is ________.
A) the current selling price of stock
B) the highest price for which a share can sell
C) the price paid if the corporation purchases its own stock back
D) the amount assigned by a company to a share of its stock
Which of the following is the correct formula to calculate days’ sales in inventory?
A) Days’ sales in inventory = 365 days × Inventory turnover
B) Days’ sales in inventory = 365 days + Inventory turnover
C) Days’ sales in inventory = 365 days / Inventory turnover
D) Days’ sales in inventory = 365 days – Inventory turnover
Which of the following is true of a sales journal prepared under the perpetual inventory
system?
A) It includes a Cost of Goods Sold DR, Merchandise Inventory CR column.
B) It records both cash and credit sales transactions.
C) All transactions recorded in a sales journal also are entered in the general journal.
D) It cannot be used with a perpetual inventory system.
Stone’s gross pay for the week is $1600. Stone’s year-to-date pay is under the limit for
OASDI. Assume that the rate for state and federal unemployment compensation taxes is
6% and that Stone’s year-to-date pay has not yet exceeded the $7000 cap. What is the
amount of state and federal unemployment tax that his employer must record as payroll
tax expense and pay to the federal and state governments?
A) $225.84
B) $215.20
C) $119.20
D) $96.00
A contingency was evaluated at year-end. Management felt it was probable that this
would become an actual liability and the amount could be reasonably estimated. If this
was not reported on the balance sheet or in the notes to the financial statements, what is
the effect on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
What does “2/10” mean, with respect to “credit terms of 2/10, n/30”?
A) A discount of 2 percent will be allowed if the invoice is paid within 10 days of the
invoice date.
B) Interest of 2 percent will be charged if the invoice is paid after 10 days from the date
on the invoice.
C) A discount of 10 percent will be allowed if the invoice is paid within two days of the
invoice date.
D) Interest of 10 percent will be charged if invoice is paid after two days.
A photocopier cost $105,000 when new and has accumulated depreciation of $96,000.
If the business discards this plant asset, the result is ________.
A) a loss of $9000
B) a loss of $96,000
C) a gain of $9000
D) no gain or no loss
Allen Services purchased 20 delivery vehicles by issuing a 20-year installment note
payable for $720,000. On the statement of cash flows, this transaction would be shown
in the ________.
A) investing activities section
B) non-cash investing and financing activities section
C) operating activities section
D) financing activities section
A business makes a cash payment to a supplier for office supplies that were purchased
earlier on account. Which of the following accounts is debited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Office Supplies Expense
A company’s accountant capitalized a payment that should have been recorded as a
revenue expenditure. How will this error affect the company’s financial statements?
A) Net income will be overstated.
B) Revenues will be understated.
C) Assets will be understated.
D) Liabilities will be understated.
Regarding the ledger, which of the following statements is incorrect?
A) Both the chart of accounts and the ledger list the account names and numbers of the
business.
B) Companies use the ledger to fulfill the task of showing all of the increases and
decreases in each account.
C) Both the chart of accounts and the ledger provide the balance of each account at a
specific point in time.
D) The ledger provides more detail than the chart of accounts.
Net sales revenue is calculated by ________.
A) subtracting cost of goods sold from sales revenue
B) subtracting sales discounts and selling expenses from sales revenue
C) adding sales discounts and sales returns and allowances to sales revenue
D) subtracting sales discounts and estimated sales returns and allowances from sales
revenue
On January 1, Five Star Services has the following balances:
Accounts Receivable $24,000 (debit)
Bad Debts Expense $0
Five Star Services has the following transactions during January: Credit sales of
$120,000, collections of credit sales of $86,000, and write-offs of $20,000. Five Star
Services uses the direct write-off method. At the end of January, the balance of
Accounts Receivable is ________.
A) $14,333
B) $38,000
C) $27,907
D) $58,000
Financial statements are prepared after an entity’s transactions are analyzed and
recorded. Which of the following reports is one of the required financial statements?
A) Statement of cash flows
B) Statement of return on assets
C) Statement of dividends
D) Expense statement
Refer to the following bank reconciliation:
Journalize the adjusting entry for the first reconciling item: Note collected by bank. Omit
explanation.
Calculate the debt ratio using the following trial balance of Superior Instruments, Inc.
as of December 31, 2019.
Superior Instruments, Inc.
Trial Balance
December 31, 2019
Define the following terms:
O’Connors, Inc. provides the following information for 2018:
Calculate the return on common stockholders’ equity. (Round to two decimals.)
On January 1, 2019, Outdoor Services issued $20,000 of 8% bonds that mature in five
years. They were issued at par. The bonds pay semiannual interest payments on June 30
and December 31 of each year. Provide the journal entry for the payment made on June
30, 2019. Omit explanation.
List and briefly discuss three measures that can be taken to maintain good controls over
merchandise inventory.
On May 18, 2018, Fran Co. invested excess cash of $50,000 by purchasing bonds of
Hans Inc. At year-end, December 31, 2018, the market price of the bonds was $52,000.
The investment is categorized as a trading debt investment. Journalize the adjusting
entry needed at December 31, 2018. Omit explanation.
The following is the adjusted trial balance columns from the worksheet for Picture
Perfect Photography.
Picture Perfect Photography
Adjusted Trial Balance
December 31, 2018
Using the information provided in the worksheet above, prepare an income statement for
Picture Perfect Photography.
What is the accounting equation? Briefly explain each of the three parts.
On January 1, 2017, Apex Solutions paid $200,000 to acquire Fancy Phones, Inc., an
electronic gadget-advertising website. At the time of the acquisition, Fancy Phones’
balance sheet reported total assets of $200,000 and liabilities of $100,000. The fair
market value of Fancy Phones’ assets was $200,000. The fair market value of its
liabilities was $100,000. At the end of 2020, goodwill was measured, and its fair value
was determined to be $60,000. Record the impairment of goodwill. Omit explanation.
Office Supplies, Inc. uses a perpetual inventory system. Journalize the following sales
transactions for this company. Explanations are not required.
July 3: Sold $15,400 of merchandise on account, credit terms are n/30. Cost of goods is
$9,300.
July 7: Received a $750 sales return from the customer. Cost of the goods is $435.
July 20: Received payment from the customer.
After the December 31, 2019 adjusting journal entries have been posted, Tri-State
Distributors has the following account balances (all accounts have normal balances)
are:
Use this information to prepare, in good form, the Balance Sheet (partial) on December,
31, 2019. Include a proper heading.
On July 1, Delta, Inc. prepaid rent for an equipment storage building. Delta paid
$20,000 to rent the building from July 1 through the end of the year. Prepare the journal
entry needed on July 1 when the payment is made. (Ignore explanation). Assume the
deferred expense is initially recorded as an asset.
Musical Instruments, Inc. sells musical instruments. On December 31, 2019, after its
first month of business, Musical Instruments, Inc. had the following balances in its
accounts, listed alphabetically.
Determine the balance in the cash account and prepare the trial balance.
Both Smith Enterprises and Jones Enterprises have credit terms of 2/10, net 30. The
days’ sales in receivables are 40 for Smith Enterprises and 35 for Jones Enterprises.
Analyze this information.
Briefly describe each of the following source documents:
Beary, Inc. provides the following historical data:
Prepare the trend analysis report. Use 2014 as the base year, and round answers to the
nearest percent.
The Hartman Dental Corporation prepays the rent on its dental office. On July 1, the
corporation paid $18,000 for 6 months of rent. The rent period begins on July 1. How
much Rent Expense should the corporation record for the three months ended
September 30 under the accrual basis? Why?
What does inventory turnover measure? What does a high rate of inventory turnover
indicate?
On April 1, 201, Arbor Gardening Products borrowed $100,000 on a 15%, 10-year note
with annual installment payments of $10,000 plus interest due on April 1 of each
subsequent year. Prepare the journal entry for the issuance of the note. Omit
explanation.