Using the allowance method of accounting for uncollectible receivables requires an
estimate of the amount of receivables that will not be collected.
In preparing a bank reconciliation, typical adjustments to the bank balance are deposits
in transit and outstanding checks.
If a company chooses to call some of its callable bonds before their maturity, generally
it will have to pay an amount that is greater than the carrying value of the bonds.
Certified public accountants are obligated to act in a way that serves the public interest.
If a company offers a warranty on the products it sells, the company records the
warranty expense at the time that service is provided to customers under the terms of
the warranty.
International Financial Reporting Standards (IFRS) do not permit the use of the LIFO
cost flow assumption.
An asset source transaction increases a business’s assets and the claims to assets.
To record the acquisition of office supplies on account, an accountant would credit
Office Supplies.
Gross margin is equal to the amount of change (increase or decrease) in Merchandise
Inventory during a period.
A business learns about customers’ NSF checks through debit memos that are included
with the bank statement.
A cash payment to purchase treasury stock is reported on the statement of cash flows as
a financing activity.
A trademark is a tangible asset with an indefinite useful life.
Goodwill is the value attributable to a business’s ability to generate a high return.
When a company purchases a depreciable asset, it must estimate the asset’s useful life
and salvage value.
Recognition of depreciation expense is an asset use transaction.
If a company overstates its Inventory balance at the end of 2015 due to an error, its
Retained Earnings will also be overstated on the 2015 balance sheet.
An increase to the account Dividends would be recorded as a credit; as a result, the
account Dividends normally has a credit balance.
With an accelerated depreciation method, an asset can be depreciated below its salvage
value.
A classified balance sheet is one that distinguishes between operating and non-operating
assets.
When an uncollectible account receivable is written off, the amount of total assets is
unchanged.
Jones Company requires prepayment from all customers. Jones Company reported
revenue of $258,000 on its 2016 income statement. The balance in its Unearned
Revenue account was $12,000 at the start of 2016 and $4,000 at the end of the year.
Based on this information alone, the amount of cash that Jones collected from
customers for 2016 was $250,000.
The governance of a corporation includes the roles and responsibilities of the board of
directors, managers, shareholders, and auditor.
A trial balance can be in balance, even if there are errors in the accounting system.
Profitability ratios attempt to assess the company’s ability to generate earnings.
An error is considered material if it would trigger an IRS audit.
The year-end adjusting entry to accrue interest on a note receivable is an asset source
transaction.
A savings account or certificate of deposit that imposes a substantial penalty for early
withdrawals should not be classified as Cash on the balance sheet.
The use of estimates and revision of estimates are uncommon in financial reporting.
An impairment of an intangible asset reduces the asset, stockholders’ equity, and net
income.
Debits decrease asset accounts.
The internal controls of a business are designed to reduce the probability of occurrence
of fraud.
The ethical standards for certified public accountants only require that such accountants
comply with applicable laws and regulations.
At the end of its fiscal year, a company must adjust its accounting records for
unrecorded accruals and deferrals before it can prepare financial statements.
Generally accepted accounting principles require that a business’s fiscal year must end
on December 31.
One of the disadvantages of the specific identification inventory cost flow method is
that it can allow managers of a business to manipulate the amount of income the
business reports.
The most frequently quoted measure of earnings performance is the stockholders’ equity
ratio.
Nelson Company experienced the following transactions during 2016, its first year in
operation.
1) Issued $12,000 of common stock to stockholders.
2) Provided $4,600 of services on account.
3) Paid $3,200 cash for operating expenses.
4) Collected $3,800 of cash from accounts receivable.
5) Paid a $200 cash dividend to stockholders.
The total amount of assets shown on Nelson Company’s December 31, 2016 balance
sheet is:
A.$12,400.
B.$12,600.
C.$13,400.
D.$13,200.
The current ratio is computed as follows:
A.Current assets divided by total assets.
B.Current assets minus current liabilities.
C.Current assets divided by current liabilities.
D.Retained earnings divided by current liabilities.
The study of an individual financial statement item over several accounting periods is
called:
A.Horizontal analysis.
B.Vertical analysis.
C.Ratio analysis.
D.Time and motion analysis.
Foote Company recorded a purchase discount of $200 on merchandise the company had
purchased a few days ago. Foote uses the perpetual inventory system. Which of the
following answers reflects the effects of this event on the financial statements?
A.
B.
C.
D.
Which of the following terms is used to identify the process of expense recognition for
property, plant and equipment?
A.Amortization
B.Depreciation
C.Depletion
D.Revision
Joseph Company purchased a delivery van on January 1, 2016 for $35,000. The van is
estimated to have a 5-year useful life and a $5,000 salvage value. How much expense
should Joseph recognize in 2016 related to the use of the van?
A.$6,000
B.$7,000
C.$30,000
D.$5,000
Madison Company owned an asset that had cost $44,000. The company sold the asset
on January 1, 2016 for $16,000. Accumulated depreciation on the day of sale amounted
to $32,000. Based on this information, the sale would result in:
A.A $16,000 cash inflow in the investing activities section of the cash flow statement.
B.A $16,000 increase in total assets.
C.A $4,000 gain in the investing activities section of the statement of cash flows.
D.A $4,000 cash inflow in the financing activities section of the cash flow statement.
The Baltimore Company issued a $9,000 face value discount note to Bank of the
Chesapeake on March 1, 2016. The note carried a 5% discount rate and a one-year term
to maturity.
How would the adjusting entry to record interest expense on December 31, 2016 affect
the financial statements?
A.
B.
C.
D.
The Platte Corporation issues a 5-year note payable on January 1, 2016 for $5,000. The
interest rate is 5% and the annual payment of $1,156, due each December 31, includes
both interest and principal.
Which of the following answers correctly shows the effect of the issuance of the note
on Platte’s financial statements?
A.
B.
C.
D.
Solvency ratios are used to assess a company’s:
A.Short-term debt paying ability.
B.Long-term debt paying ability.
C.Profitability.
D.Efficiency in use of its assets.
On December 31, 2015, Owings Corporation overstates the ending inventory account
by $5,000. How will this affect Retained Earnings in the December 31, 2016 balance
sheet?
A.Retained Earnings will be correctly stated.
B.Retained Earnings will be understated by $5,000.
C.Retained Earnings will be overstated by $5,000.
D.Cannot be determined with the above information.
On January 1, 2016, the City Taxi Company purchased a new taxi cab for $36,000. The
cab has an expected salvage value of $2,000. The company estimates that the cab will
be driven 200,000 miles over its life. It uses the units of production method to
determine depreciation expense. The cab was driven 45,000 miles the first year and
48,000 the second year. What would be the depreciation expense reported on the 2017
income statement and the book value of the taxi at the end of 2017?
A.$8,640/$19,260.
B.$8,640/$17,260.
C.$8,160/$20,190.
D.$8,160/$18,190.
Good Company paid cash to purchase mineral rights on a large parcel of land. Which of
the following choices accurately reflects how this event would affect Good’s financial
statements?
A.
B.
C.
D.
Selling $130 of merchandise to a customer for $200 cash in a state where the sales tax
rate is 4%:
A.Increases cash flow from operating activities by $208.
B.Increases total assets by $78.
C.Increases equity by $70.
D.All of these answer choices are correct.
Which of the following transactions does not involve an accrual?
A.Recording interest earned that will be received in the next period.
B.Recording operating expense incurred but not yet paid.
C.Recording salary expense incurred but not yet paid.
D.Recording the pre-payment of two years’ worth of insurance.
Which of the following statements best describes the term “par value?”
A.The number of shares currently in the hands of stockholders.
B.The amount that must be paid to purchase a share of stock.
C.Determined by dividing total stockholder’s equity by the number of shares of stock.
D.An amount used in determining a corporation’s legal capital.
If a company uses the effective interest method of amortizing a bond discount, the
interest expense that is recognized each year
A.will be greater than the interest payment.
B.will increase from year to year.
C.will remain the same from year to year.
D.will be greater than the interest payment and also will increase from year to year.
On January 1, 2016, Warren Co. purchased a machine for $120,000. Warren estimated
the useful life of the machine to be 10 years and the salvage value to be $20,000.
Indicate whether each of the following statements is true or false.
_____ a) Depreciation expense for 2016 under the straight-line method would be
$12,000.
_____ b) Depreciation expense for 2016 under the double declining method would be
$24,000.
_____ c) The accumulated depreciation at the end of 2017 under the straight-line
method would be $20,000.
_____ d) The accumulated depreciation at the end of 2017 under the double declining
method would be $48,000.
_____ e) The book value of the machine under both the double declining method and
the straight-line method at the end of 10 years would be $20,000.
Indicate whether each of the following statements is true or false. If a company made
the following journal entry,
this entry would cause:
_____ a) total claims to stay the same.
_____ b) total assets to remain the same.
_____ c) liabilities to decrease.
_____ d) cash flows from operating activities to increase.
_____ e) owners’ equity to stay the same.
The Warren Company uses the perpetual inventory system and has computed the cost of
its inventory to be $12,800 as follows: 200 units of Product A at a unit cost of $20; 300
units of Product B at a unit cost of $24; and 100 units of Product C at a unit cost of $16.
The current replacement cost of each of the above items is $25, $22 and $14,
respectively. Warren’s accountant is not sure yet whether to apply the
lower-of-cost-or-market rule by individual items or by the entire stock in aggregate.
Indicate whether each of the following statements pertaining to the Warren Company is
true or false.
_____ a) When referring to Product B, the “cost” totals $7,200.
_____ b) If Warren selects to apply the lower-of-cost-or-market rule by individual
items, Product A would be listed at $25 per unit.
_____ c) Warren would record a write-down of inventory it is uses the individual items
approach, but would not have a write-down if it uses the aggregate approach.
_____ d) If Warren uses the individual items approach, $12,000 will be reported for
inventory on the balance sheet.
_____ e) For Product C, the lower of cost or market is $1,600.
As of December 31, 2014, Gatewood Corporation had a current ratio of 1.49, quick
ratio of 1.15, and working capital of $48,000. The company uses a perpetual inventory
system and sells merchandise for more than its cost.
On January 1, 2015, Gatewood paid $4,600 on accounts payable. Which of the
following statements is incorrect?
A. Gatewood’s current ratio will increase.
B.Gatewood’s quick ratio will increase.
C.Gatewood’s quick ratio will increase and its current ratio will decrease.
D. Gatewood’s working capital will not change.
Accounts receivable turnover is computed by dividing:
A.Sales by Accounts Receivable.
B.Accounts receivable by Sales.
C.Cost of goods sold by Inventory.
D.365 by Accounts Receivable.
Callable bonds may be:
A.called for early retirement at the option of the issuer.
B.called for early retirement at the option of the bondholder.
C.converted to common stock at the option of the bondholder.
D.converted to common stock at the option of the issuer.
Rhodes Company reports the following information for the 2016 fiscal year:
Determine the average number of days it takes Rhodes to collect its accounts
receivable. (Round intermediate calculations to 2 decimal places.)
A.37
B.14
C.39
D.20
Rowan Company has four different categories of inventory. Quantity, cost, market value
for each inventory category is shown below:
The company carries inventory at lower-of-cost-or-market applied to the inventory in
aggregate. The implementation of the lower-of-cost-or-market rule would:
A.increase assets and equity by $55.50.
B.reduce assets and equity by $101.00.
C.reduce assets and equity by $79.00.
D.leave total assets and equity unchanged.
Which of the following statements about types of business entities is true?
A.For accounting purposes a sole proprietorship is not a separate entity from its owner.
B.Ownership in a partnership is represented by having shares of capital stock.
C.One advantage of a corporation is ability to raise capital.
D.Sole proprietorships are subject to double taxation.
The following information is for Choi Company for 2016:
Beginning inventory 120 units @$100
Units purchased 180 units @ $112
Choi sold 250 units for $190 each.
Required:
a) Calculate gross margin assuming Choi uses FIFO, LIFO, Weighted average.
b) Disregarding the effect of income taxes, what would be the dollar amount of
difference in net income between FIFO and LIFO?
c) Calculate the 2016 cash flow from operating activities assuming that Choi uses
LIFO, FIFO. Again, disregard the effect of income taxes.
Which method of depreciation is used by most U. S. companies for financial reporting
purposes?
A.Straight line
B.Units of production
C.Double declining balance
D.MACRS
At a time of declining prices, which cost flow assumption will result in the highest
ending inventory?
A.Weighted average
B.FIFO
C.LIFO
D.Either weighted average or FIFO
Which of the following entities would report income tax expense on its income
statement?
A.A sole proprietorship.
B.A corporation.
C.A partnership.
D.All of these answer choices are correct.
You are considering an investment in General Motors stock and wish to assess the
firm’s long-term debt-paying ability and its use of debt financing. All of the following
ratios can be used to assess solvency except:
A.Number of times interest is earned.
B.Net margin.
C.Debt to equity ratio.
D.Debt to assets ratio.
On January 1, 2016, the Niagara Corporation arranges a $6,000 line of credit with the
Centennial Bank. It accepted the bank’s offer of 1% above the prime rate with interest
payments on December 31 of each year. All borrowings and repayments are to take
place on January 1 of each year.
Niagara begins its loan transactions with Centennial Bank by borrowing $2,000 on
January 1, 2016. Which of the following answers shows the effect of this event on the
financial statements?
A.
B.
C.
D.
Gladding, Inc. applies the lower-of-cost-or-market rule to its inventory in aggregate. At
the end of the accounting period, it is determined that the cost of the inventory is
$26,985 and the market (replacement) value is $25,886. If an adjustment is necessary,
what is its effect on the financial statements?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
On April 1, 2017, Jenkins Company repaid a $20,000, one-year, 6% note and interest to
Community Bank. Interest on the note had been accrued on December 31, 2016.
What are some of the costs a business incurs in making credit sales to customers? What
are some of the benefits of making credit sales?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Pierce Co. paid $40,000 cash to purchase land.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Use only one letter
for each element. You do not need to enter amounts.
On December 31, 2016, Flagler Corporation had a balance of $20,000 on a
line-of-credit with City Bank. Flagler made a payment of $11,200, which included
$10,000 on the principal and $1,200 interest. Show the effects of this transaction on
Flagler’s financial statements.
What type of account is Accumulated Depreciation?
Describe where on the Statement of Cash Flows one would find a noncash purchase of
equipment.
Discuss possible reasons why a corporation may establish an appropriation of retained
earnings.
What are the three types of audit opinion, and what is the meaning of each? Which type
of opinion is considered the best?
What effect do debits have on asset accounts? On liability accounts?
Discuss briefly the costs of making sales on account.
What account is debited to record an expenditure that extends the life of a plant asset
such as equipment?
What is a fidelity bond and what is its purpose?