Mott Company uses the units-of-activity method in computing depreciation. A new
plant asset is purchased for $48,000 that will produce an estimated 100,000 units over
its useful life. Estimated salvage value at the end of its useful life is $4,000. What is the
depreciation cost per unit?
a. $4.40
b. $4.80
c. $.44
d. $.48
Answer:
A post-closing trial balance will show
a. zero balances for all accounts.
b. zero balances for balance sheet accounts.
c. only balance sheet accounts.
d. only income statement accounts.
Answer:
Treasury Stock is a(n)
a. contra asset account.
b. retained earnings account.
c. asset account.
d. contra stockholders’ equity account.
Answer:
Christine Company had an increase in inventory of $55,000. The cost of goods sold was
$95,000. There was a $6,000 decrease in accounts payable from the prior period. What
were Christine’s cash payments to suppliers?
a. $156,000
b. $61,000
c. $144,000
d. $101,000
Answer:
Which of the following is incorrect regarding a trial balance?
a. It proves that the debits equal the credits after posting.
b. It proves that the company has recorded all transactions.
c. A trial balance uncovers errors in journalizing and posting.
d. A trial balance is useful in the preparation of financial statements.
Answer:
Inventories affect
a. only the balance sheet.
b. only the income statement.
c. both the balance sheet and the income statement.
d. neither the balance sheet nor the income statement.
Answer:
Gains on an exchange of plant assets that has commercial substance are
a. deducted from the cost of the new asset acquired.
b. deferred.
c. not possible.
d. recognized immediately.
Answer:
In a perpetual inventory system, a return of defective merchandise by a purchaser is
recorded by crediting
a. Purchases.
b. Purchase Returns.
c. Purchase Allowance.
d. Inventory.
Answer:
If the market rate of interest is lower than the stated rate, bonds will sell at an amount
a. equal to face value.
b. not determinable from the given information.
c. lower than face value.
d. higher than face value.
Answer:
Each of the following decreases total stockholders’ equity except a
a. cash dividend.
b. liquidating dividend.
c. stock dividend.
d. All of these decrease total stockholders’ equity.
Answer:
Short-term liquidity ratios include the
a. profit margin ratio.
b. payout ratio.
c. debt to assets ratio.
d. acid-test ratio.
Answer:
Eneri Company’s inventory records show the following data:
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method. What is the difference in taxes if LIFO rather than FIFO is used?
a. $1,760 additional taxes
b. $992 additional taxes
c. $786 additional taxes
d. $992 tax savings
Answer:
Under IFRS, equity is described as each of the following except
a. retained equity.
b. shareholders’ funds.
c. owners’ equity.
d. capital and reserves.
Answer:
Depreciation is a process of
a. asset devaluation.
b. cost accumulation.
c. cost allocation.
d. asset valuation.
Answer:
Costner’s Market recorded the following events involving a recent purchase of
merchandise:
Received goods for $40,000, terms 2/10, n/30.
Returned $800 of the shipment for credit.
Paid $200 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s inventory
a. increased by $38,416.
b. increased by $38,612.
c. increased by $38,616.
d. increased by $39,400.
Answer:
Dreamtime Laundry purchased $7,000 worth of supplies on June 2 and recorded the
purchase as an asset. On June 30, an inventory of the supplies indicated only $1,000 on
hand. The adjusting entry that should be made by the company on June 30 is
a. Debit Supplies Expense, $1,000; Credit Supplies, $1,000.
b. Debit Supplies, $1,000; Credit Supplies Expense, $1,000.
c. Debit Supplies, $6,000; Credit Supplies Expense, $6,000.
d. Debit Supplies Expense, $6,000; Credit Supplies, $6,000.
Answer:
A Discount on Bonds Payable account
a. is a contra account to Bonds Payable.
b. will cause interest expense to be less than cash interest payable.
c. is increased over the life of the bond until it equals the bond’s face value.
d. is an adjunct account to Bonds Payable.
Answer:
A supplier to a company would be most interested in the company’s
a. asset turnover.
b. profit margin.
c. current ratio.
d. earnings per share.
Answer:
The paid absence that is most commonly accrued is
a. voting leave.
b. vacation time.
c. maternity leave.
d. disability leave.
Answer:
The entries in a sales journal will show
a. all sales of merchandise.
b. the cash sales of the company.
c. the credit sales of merchandise.
d. all sales of the company.
Answer:
Gwynn Company has an accounting fiscal year which ends on June 30. The company
also has a policy of paying the weekly payroll on Friday. Payroll records indicate the
following salary costs were incurred.
Instructions
(a) Prepare any necessary adjusting journal entries that should be made at year end on
June 30.
(b) Prepare the journal entry to record the payment of the weekly payroll on July 2.
Answer:
Kennedy Company reported the following balances at December 31, 2014: common
stock $500,000; paid-in capital in excess of par value $200,000; retained earnings
$450,000. During 2015, the following transactions affected stockholders’ equity.
1> Issued preferred stock with a par value of $250,000 for $290,000.
2> Purchased treasury stock (common) for $80,000.
3> Earned net income of $220,000.
4> Declared and paid cash dividends of $86,000 ($16,000 preferred).
Instructions
(a) Prepare the stockholders’ equity section of Kennedy Company’s December 31, 2015,
balance sheet.
(b) Compute Kennedy’s 2015 return on common stockholders’ equity.
Answer:
After journal entries are posted, the reference column
a. of the general journal will be blank.
b. of the general ledger will show journal page numbers.
c. of the general journal will show “Dr” or “Cr”.
d. of the general ledger will show account numbers.
Answer:
The conceptual framework that underlies IFRS
a. is very similar to that used to develop GAAP.
b. does not define assets or liabilities.
c. does not define equity.
d. does not define income or expenses.
Answer:
Hoyt Company provides this information for the month of November, 2015: sales on
credit $170,000; cash sales $70,000; sales discounts $2,000; and sales returns and
allowances $9,000. Prepare the sales revenues section of the income statement based on
this information.
Answer:
If bonds are issued at a premium, the carrying value of the bonds will be greater than
the face value of the bonds for all periods prior to the bond maturity date.
Answer:
Prepare the necessary journal entries for the following transactions for Kennedy Co.
Answer:
McIntyre Company made a purchase of merchandise on credit from Marvin Company
on August 8, for $9,000, terms 3/10, n/30. On August 17, McIntyre makes the
appropriate payment to Marvin. The entry on August 17 for McIntyre Company is:
Answer:
Luis Rodriguez wants to buy a car in 3 years. He will need $3,000 for a down payment.
The annual interest rate is 9%. How much money must Luis invest today for the
purchase?
Answer:
______________ analysis, also called trend analysis, is a technique for evaluating a
percentage increase or decrease for a financial statement item over a period of time.
Answer:
A contingent liability should be recorded in the accounts if it is ________________ that
the contingency will occur and the amount is ________________.
Answer:
Using the following operating data for Complex Corporation, illustrate horizontal analysis.
Answer:
Both a stock split and a stock dividend will _________________ the number of shares
outstanding and have _________________ on total stockholders’ equity.
Answer:
The responsibility for keeping the records for an asset should be separate from the
physical custody of that asset.
Answer: