The purchasing department prepares a purchase requisition addressed to the vendor
(seller) containing instructions related to the items ordered.
There is no limit to the amount of income subject to the FUTA tax.
Contributed capital is shown on a corporate balance sheet as two amounts: the par value
of the issued stock and retained earnings.
Other revenues and expenses appears as a separate section on a single-step income
statement.
A liquidating dividend is usually paid when a company is going out of business or
reducing its operations.
Consistency in accounting means that a company uses the same generally accepted
accounting principles from one accounting period to the next accounting period.
Product warranties are an expense of the period in which the related product is sold.
An effective system of internal control centralizes functions in a single, capable
individual.
The principal difference between the indirect and the direct methods appears in the cash
flows from investing activities section of the statement of cash flows.
Under the perpetual inventory system, when merchandise is sold, its cost is transferred
from the Merchandise Inventory account to the Sales account.
When there are material differences between the results of using the straight-line
method and using the effective interest method of amortization, the effective interest
method should be used.
Under a capital lease, the lessee, not the lessor, should record depreciation.
The Balance Sheet columns of the work sheet show one account that needs to be closed.
In a liquidation, partners are given back the assets that they originally invested.
When taking a physical inventory under the retail method, it is necessary to know only
the quantity of items on hand.
The evaluation and interpretation of financial statements and related performance
measures is called technical analysis.
One example of a periodic independent verification is the bank reconciliation.
To increase their levels of inventory, many merchandisers and manufacturers use
supply-chain management in conjunction with a just-in-time operating environment.
The taking of a physical inventory is an example of periodic independent verification.
The admission of a partner does not change the composition of partners’ equity if the
new partner purchases the old partner’s interest by paying the old partner directly.
The carrying value of a bond is also referred to as its present value.
Common examples of commitments are leases and purchase agreements.
Long-term notes and bonds have similar effects on the financial statements.
Interest on a promissory note is recognized when the note is issued.
Accountants focus on the needs for financial information by both internal and external
decision makers.
The liability of a stockholder is usually limited to the stockholder’s investment in the
corporation.
Management’s regular assessment of its internal controls is part of monitoring.
The product warranty liability is an example of an estimated liability.
A purchase requisition is prepared after a purchase order.
Permanent accounts are also known as nominal accounts.
If the face interest rate at the date of bond issuance exceeds the market interest rate, the
bond will probably be sold at a premium.
When the terms are FOB shipping point, the title passes at the destinationand the seller
pays the transportation costs.
Companies that sell goods that have a high unit value tend to use the perpetual
inventory system.
Under the allowance method, uncollectible accounts must be estimated if the matching
rule is to be followed.
The financing period is also referred to as the cash gap.
The authoritative body currently responsible for establishing accounting practice is the
A. Internal Revenue Service.
B. Financial Accounting Standards Board.
C. American Institute of Certified Public Accountants.
D. Federal Reserve Board.
Proper __________ depends on correctly analyzing the effect of each transaction and
on maintaining a system of accounts that reflects that effect.
A. classification
B. valuation
C. recognition
D. realization
Use this information to answer the following question.
The following totals for the month of September were taken from the payroll register of
Meadors Company:
The entry to record the payment of net payroll would include a
A. debit to Salaries Payable for $24,000.
B. debit to Salaries Payable for $15,900.
C. debit to Salaries Payable for $17,000.
D. credit to Cash for $18,100.
In a period of rising prices, the liquidation of base-layer inventory will result in an
unusually high income tax liability under which of the following methods?
A. Specific identification
B. Average-cost
C. LIFO
D. FIFO
The board of directors of Meadow Corporation declared a cash dividend on January 18,
20×5 , to be paid on February 18, 20×5 , to shareholders holding the stock on February
2, 20×5 . Given these facts, the date February 2, 20×5 , is referred to as the
A. date of declaration.
B. date of payment.
C. ex-dividend date.
D. date of record.
Which of the following items has no effect on owner’s equity?
A. Receipt of cash owed to the business (accounts receivable)
B. Sale of a service
C. Payment of an expense
D. Withdrawal by the owner
The carrying value of a depreciable asset purchased 3 years ago equals
A. original cost minus depreciation expense for the current period.
B. original cost minus accumulated depreciation.
C. the estimated cost to replace the asset at today’s price.
D. the estimated amount that the asset could be sold for in today’s market.
Use the following information regarding Larson Company to answer the question
below.
1. Established a petty cash fund in the amount of $250.
2. Reimbursed the petty cash fund given the following petty cash fund disbursements:
a. Payment for postage, $20.
b. Payment for supplies, $70.
3. Increased the petty cash fund to $300.
4. Cash over at the end of the first period was $5.
The entry to record the reimbursement of the petty cash fund would include a
A. credit to Postage Expense for $20.
B. debit to Petty Cash for $90.
C. credit to Cash for $85.
D. debit to cash for $5.
An auditor maintains no direct financial interest in the company he or she is auditing.
The principle being followed is
A. independence.
B. integrity.
C. objectivity.
D. due care.
If it takes Diamondback Enterprises 90 days to sell inventory, 46 days to collect from
the sale, and creditors’ payment terms are 60 days, the financing period is
A. 196 days.
B. 46 days.
C. 90 days.
D. 76 days.
Partners April, Melissa, and Valerie share profits and losses in a 3:1:2 ratio,
respectively. Melissa wishes to leave the partnership, so the assets are revalued and are
found to be overvalued by $60,000. If each partner had a capital balance of $100,000
prior to Melissa’s notification of withdrawal, the entry to record the Melissa’s
withdrawal is:
Salvage value is not the same as
A. carrying value.
B. residual value.
C. disposal value.
D. scrap value.
Tomlin Enterprises has a credit balance of $80,000 in its Allowance to Adjust
Long-Term Investments to Market account before adjustment. Its investment portfolio
has a total cost of $500,000 and a market value of $450,000. The year-end adjustment
entry that would be recorded in the books of Tomlin Enterprises is:
A. Long-Term Investments 30,000
Allowance to Adjust Long-Term Investments to Market 30,000
B. Allowance to Adjust Long-Term Investments to Market 30,000
Unrealized Loss on Long-Term Investments 30,000
C. Allowance to Adjust Long-Term Investments to Market 50,000
Long-Term Investments 50,000
D. Unrealized Loss on Long-Term Investments 50,000
Long-Term Investments 50,000
The topic of foreign exchange rates relates most closely to the concept of
A. separate entity.
B. money measure.
C. nonexchange transactions.
D. business transactions.
Assume the direct method is used to compute net cash flows from operating activities.
For this item extracted from the financial statements—Gain on Sale of Investment—
indicate the effect on cash flows from operating activities by choosing one of the
following:
A. Gain on sale is added to other cash flows to arrive at net cash from operating
activities.
B. Gain on sale is subtracted from other cash flows to arrive at net cash from operating
activities.
C. Gain on sale is not used to arrive at net cash from operating activities.
The amount of depletion of a coal mine in a year may differ from the depletion expense
in the same year because
A. depletion expense includes other costs in addition to depletion.
B. depletion is based on the passage of time, whereas depletion expense is not.
C. the mine is not in operation all year.
D. some coal is unsold at the end of the year.
The payables turnover is measured
A. in days.
B. as a percentage.
C. in dollars.
D. in times.
Use the following information to calculate ending inventory on (a) a LIFO basis, (b) a
FIFO basis, and (c) an average-cost basis. Assume a perpetual inventory system.
a. LIFO: 50 $28 = $1,400.00
b. FIFO: (5 $28) + (30 $32) + (15 $36) = $1,640.00
c. Average-cost: 50 $30.33* = $1,516.50
Assume that on February 25, a customer who owes Berry Sales Company $2,000 is
declared bankrupt by a federal court. The entry that would be made to write off this
account is:
A. Allowance for Uncollectible Accounts 2,000
Accounts Receivable/Customer Account 2,000
B. Accounts Receivable/Customer Account 2,000
Allowance for Uncollectible Accounts 2,000
C. Accounts Receivable 2,000
Notes Receivable 2,000
D. Cash 2,000
Conrad Corporation has the following information. Calculate the payables turnover and
days’ payable. Round answers to two decimal places.
a. Payables turnover
b. Days’ payable
The withdrawal of cash by the owner will
A. decrease net income.
B. increase liabilities.
C. not affect total assets.
D. decrease owner’s equity.
The equity method generally should be used to account for an investment in stock when
the level of ownership is
A. between 20 and 50 percent.
B. 10 percent or more.
C. less than 20 percent.
D. between 10 and 40 percent.
During August, Radio City sold 200 ipods for $50 each. Each ipod had cost Audio City
$31 to purchase and carried a two-year warranty. If 5 percent typically need to be
replaced over the warranty period and one actually is replaced during August, the entry
to record the Product Warranty Expense is
A. Product Warranty Expense 31
Estimated Product Warranty Liability 31
B. Product Warranty Expense 155
Cash 155
C. Product Warranty Expense 310
Estimated Product Warranty Liability 310
D. Estimated Product Warranty Liability 620
The direct method of preparing a statement of cash flows
A. eliminates the need for a schedule of noncash investing and financing transactions.
B. provides a different result than the indirect method.
C. adjusts net income for changes in current accounts.
D. shows cash receipts from sales.
Which of the following accounts could increase as a result of adjusting entries?
A. Prepaid Insurance.
B. Accounts Receivable.
C. Unearned Fees.
D. Office Equipment.
A large stock dividend should be recorded on the basis of
A. par or stated value.
B. original issue price.
C. market value.
D. cost.
The owner’s Capital, Withdrawals, and Income Summary accounts for Harmon Repair
Company for the accounting period are presented below in T account form after the
recording and posting of closing entries:
The amount of net income (or net loss) for the period is
A. $300 net income.
B. $900 net income.
C. $600 net income.
D. $300 net loss.
Which of the following most likely is a definitely determinable liability during interim
periods?
A. Estimated property tax payable
B. Accrued interest payable
C. Estimated product warranty liability
D. Estimated income taxes payable
The interest coverage ratio equals
A. income before income taxes minus interest expense divided by income before
income taxes.
B. income before income taxes minus interest expense divided by interest expense.
C. income before income taxes plus interest expense divided by interest expense.
D. income before income taxes plus interest expense divided by total assets.
Below are the adjusted accounts of Carter Harper Co.
From the following alphabetical list of account balances, all of which are normal, for
Cannon Company on September 30, 2014, prepare a trial balance in proper form (the
amount of Tina Cannon, Withdrawals must be computed) .
Cruz Corporation purchased a warehouse by signing a long-term $1,600,000 mortgage
with monthly payments of $12,400. The mortgage carries an interest rate of 9 percent.
Prepare entries in journal form without explanations to record the purchase and the first
two monthly payments. Round answers to the nearest dollar.
Using the following data, prepare a multistep income statement for Romano’s Catering
Co. for the month ended February 28, 20×5.
Why do businesses need to keep some currency on hand?
Why should a dishonored note receivable be transferred to an individual account
receivable for the debtor?
1) How is return on equity computed?
2) If a company sells more shares of its stock, what is the impact on the return on
equity?
3) Which ratio is considered a measure of investors’ confidence in a company’s future?
Why?
What are the steps in the posting process for the debit side of an entry?
When leases meet 3 conditions, accounting standards require that they be treated as a
capital lease. What are the 3 conditions?
Assume that part of accounts and other receivables on Trejada Toys’ balance sheet is $8
million as of February 2, 2014. Also assume that Allowance for Uncollectible Accounts
has a credit balance of $275,000, that Trejada estimates its uncollectible accounts as 0.1
percent of net sales, and the amount of sales is $5,509,500,000. Record the adjusting
entry to recognize uncollectible accounts using the percentage of net sales method.
Which of the following depreciation methods is the most logical for a machine that
produces discrete (i.e., separate) units?
Emily Holmes owns and operates a large antique shop.
Identify and briefly discuss the three approaches for determining fair value identified by
the FASB.
Assuming the use of the periodic inventory system, use the data below to calculate the
net cost of purchases and the cost of goods available for sale for the year ended
December 31, 20×5.
What is independence, and why is it important for a CPA to maintain it when
conducting an audit?