The entry to record the issuance of an interest-bearing note credits Notes Payable for
the note’s
a. maturity value.
b. market value.
c. face value.
d. cash realizable value.
Answer:
Martin Corporation purchased land in 2007 for $290,000. In 2015, it purchased a nearly
identical parcel of land for $460,000. In its 2015 balance sheet, Martin valued these two
parcels of land at a combined value of $920,000. By reporting the land in this manner,
Martin Corp. has violated the
a. historical cost principle
b. convergence
c. economic entity assumption
d. monetary unit assumption
Answer:
With regard to accounting for a merchandising company versus a service company,
which of the following is false?
a. Additional accounts and entries are typically required for a merchandising company.
b. Both retail and wholesale enterprises generally use accounting techniques of a
merchandising company.
c. The process of measuring net income is conceptually different.
d. There are just as many steps as in the accounting cycle for a merchandising company.
Answer:
The condensed financial statements of Howard Corporation for 2015 are presented
below.
Additional data as of December 31, 2014: Inventory = $100,000; Total assets =
$800,000; Common stockholders’ equity = $450,000.
Instructions: Compute the following listed ratios for 2015 showing supporting
calculations.
(a) Current ratio = .
(b) Debt to assets ratio = .
(c) Times interest earned = .
(d) Inventory turnover = .
(e) Profit margin = .
(f) Return on common stockholders’ equity = .
(g) Return on assets = .
Answer:
The par value of a stock
a. is legally significant.
b. reflects the most recent market price.
c. is selected by the SEC.
d. is indicative of the worth of the stock.
Answer:
On November 1, Gentle Company received a $3,000, 6%, three-month note receivable.
The cash to be received by Gentle Company when the note becomes due is:
a. $3,000.
b. $3,030.
c. $3,045.
d. $3,180.
Answer:
The primary purpose of the statement of cash flows is to report
a. a company’s investing transactions.
b. a company’s financing transactions.
c. information about cash receipts and cash payments of a company.
d. the net increase or decrease in cash.
Answer:
The one characteristic that all entries recorded in a multiple-column purchases journal
have in common is a
a. credit to the Cash account.
b. debit to the Cash account.
c. debit to the Accounts Payable account.
d. credit to the Accounts Payable account.
Answer:
On March 1, Jordan Company borrows $240,000 from Ottawa State Bank by signing a
6-month, 8%, interest-bearing note.
Instructions
Prepare the necessary entries below associated with the note payable on the books of
Jordan Company.
(a) Prepare the entry on March 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the
semi-annual financial statements. Assume no other interest accrual entries have been
made.
(c) Prepare the adjusting entry at August 31 to accrue interest.
(d) Prepare the entry to record payment of the note at maturity.
Answer:
The heading for a post-closing trial balance has a date line that is similar to the one
found on
a. a balance sheet.
b. an income statement.
c. a retained earnings statement.
d. the worksheet.
Answer:
If a check correctly written and paid by the bank for $584 is incorrectly recorded on the
company’s books for $548, the appropriate treatment on the bank reconciliation would
be to
a. deduct $36 from the book’s balance.
b. add $36 to the book’s balance.
c. deduct $36 from the bank’s balance.
d. deduct $584 from the book’s balance.
Answer:
Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock
outstanding at December 31, 2015. No dividends have been paid on this stock for 2014
or 2015. Dividends in arrears at December 31, 2015 total
a. $0.
b. $500.
c. $5,000.
d. $10,000.
Answer:
Under IFRS, some companies present which section of the cash flow statement as a
single line item?
a. Operating activities
b. Investing activities
c. Financing activities
d. Noncash investing and financing activities
Answer:
A credit to a liability account
a. indicates an increase in the amount owed to creditors.
b. indicates a decrease in the amount owed to creditors.
c. is an error.
d. must be accompanied by a debit to an asset account.
Answer:
Listed below are two independent situations involving the disposition of receivables.
1> Morales Company sells $320,000 of its receivables to Instant Factors, Inc. Instant
Factors assesses a finance charge of 3% of the amount of receivables sold.
Instructions
Prepare the journal entry to record the sale of the receivables on Morales Company’s
books.
2> A restaurant is the site for a large company party. The bill totals $3,400 and is
charged by the patron on a Visa credit card.
Instructions
Assume a 3% service fee is charged by Visa. Record the entry for the transaction on the
restaurant’s books.
Answer:
If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry
to recognize the loss
a. is not required since the share prices will likely rebound in the long run.
b. will show a debit to an expense account.
c. will show a credit to a contra-asset account that appears in the stockholders’ equity
section of the balance sheet.
d. will show a debit to an unrealized loss account that is deducted in the stockholders’
equity section of the balance sheet.
Answer:
The financial statements of Gervais Manufacturing Company report net sales of
$500,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of
the year, respectively. What is the average collection period for accounts receivable in
days?
a. 29.2 days
b. 36.5 days
c. 43.8 days
d. 57.9 days
Answer:
A private accountant can perform many activities in a business organization but would
not work in
a. budgeting.
b. accounting information systems.
c. external auditing.
d. tax accounting.
Answer:
In preparing a statement of cash flows, a conversion of bonds into common stock will
be reported in
a. the financing section.
b. the “extraordinary” section.
c. a separate schedule or note to the financial statements.
d. the stockholders’ equity section.
Answer:
An asset’”expense relationship exists with
a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.
Answer:
Each of the following is correct regarding treasury stock except that it has been
a. issued.
b. fully paid for.
c. reacquired.
d. retired.
Answer:
Viejo Inc. earns $600,000 and pays cash dividends of $150,000 during 2014. Cruz
Corporation owns 73,500 of the 210,000 outstanding shares of Viejo.
What amount should Cruz show in the investment account at December 31, 2014 if the
beginning of the year balance in the account was $40,000?
a. $197,500
b. $210,000
c. $157,500
d. $250,000
Answer:
On January 1, 2015, Donahue Company, a calendar-year company, issued $600,000 of
notes payable, of which $150,000 is due on January 1 for each of the next four years.
The proper balance sheet presentation on December 31, 2015, is
a. Current Liabilities, $600,000.
b. Long-term Debt , $600,000.
c. Current Liabilities, $150,000; Long-term Debt, $450,000.
d. Current Liabilities, $450,000; Long-term Debt, $150,000.
Answer:
Current liabilities generally appear
a. after long-term debt on the balance sheet.
b. in decreasing order of magnitude on the balance sheet.
c. in order of maturity on the balance sheet.
d. in increasing order of magnitude on the balance sheet.
Answer:
When assets are distributed to the owners of a corporation, these distributions are
termed
a. depletions.
b. consumptions.
c. dividends.
d. a credit line.
Answer:
If the market interest rate is greater than the contractual interest rate, bonds will sell at a
discount.
Answer:
Preferred stock has contractual preference over common stock in certain areas.
Answer:
Research and development costs which result in a successful product which is
patentable are charged to the Patent account.
Answer:
Every adjusting entry affects one balance sheet account and one income statement
account.
Answer:
Sales Returns and Allowances and Sales Discounts are both ______________ accounts
and have _______________ normal balances.
Answer:
During July, the following purchases and sales were made by Big Dan Company. There
was no beginning inventory. Big Dan Company uses a perpetual inventory system.
Under the LIFO method, the cost of goods sold for each sale is:
Answer:
On June 1, 2015, Secretly Canadian Company prepared a balance sheet that shows the
following:
Shortly thereafter, all of the assets were sold for cash. How would the balance sheet
appear immediately after the sale of the assets for cash for each of the following cases?
Answer:
The contractual interest rate is always equal to the market interest rate on the date that
bonds are issued.
Answer:
The statement of cash flows classifies cash receipts and payments as operating,
nonoperating, financial, and extraordinary activities.
Answer: