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On December 1, 2014, Crawley Corporation incurs a 15-year $600,000 mortgage
liability in conjunction with the acquisition of an office building. This mortgage is
payable in monthly installments of $7,200, which include interest computed at the rate
of 12% per year. The first monthly payment is made on December 31, 2014. The
portion of the second monthly payment made on January 31, 2015, which represents
repayment of principal is:
a. $1,200.
b. $1,212.
c. $7,200.
d. $5,988.
Answer:
The final step in the accounting cycle is to prepare
a. closing entries.
b. financial statements.
c. a post-closing trial balance.
d. adjusting entries.
Answer:
Land Inc. has retained earnings of $800,000 and total stockholders' equity of
$2,000,000. It has 300,000 shares of $5 par value common stock outstanding, which is
currently selling for $30 per share. If Land declares a 10% stock dividend on its
common stock:
a. net income will decrease by $150,000.
b. retained earnings will decrease by $150,000 and total stockholders' equity will
increase by $150,000.
c. retained earnings will decrease by $900,000 and total stockholders' equity will
increase by $900,000.
d. retained earnings will decrease by $900,000 and total paid-in capital will increase by
$900,000.
Answer:
In order to close the dividends account, the
a. income summary account should be debited.
b. income summary account should be credited.
c. retained earnings account should be credited.
d. retained earnings account should be debited.
Answer:
Recording depreciation each period is necessary in accordance with the
a. going concern principle.
b. historical cost principle.
c. expense recognition principle.
d. asset valuation principle.
Answer:
At the beginning of the year, Hunt Company had an inventory of $750,000. During the
year, the company purchased goods costing $2,400,000. If Hunt Company reported
ending inventory of $900,000 and sales of $3,750,000, the company's cost of goods sold
and gross profit rate must be
a. $1,500,000 and 66.7%.
b. $2,250,000 and 40%.
c. $1,500,000 and 40%.
d. $2,250,000 and 60%.
Answer:
Evidence that the monthly posting of the sales journal total has been accomplished is
indicated by
a. a signature of the accountant doing the posting.
b. a date under the double-line total.
c. the general ledger account numbers under the double-lined total.
d. inspecting the postings in the accounts payable subsidiary ledger.
Answer:
Bell Company and Kene Company exchanged trucks on January 1, 2015.
Bell's truck cost $140,000, had accumulated depreciation of $115,000, and
has a fair value of $15,000. Kene's truck cost $105,000, had accumulated
depreciation of $90,000, and has a fair value of $15,000.
Instructions
(a) Journalize the exchange for Bell Company.
(b) Journalize the exchange for Kene Company.
Answer:
The following exhibit is for Kmart bonds.
On the day of trading referred to above,
a. no Kmart bonds were traded.
b. bonds with market prices of $3,500 were traded.
c. at closing, the selling price of the bond was higher than the previous day's price.
d. the bond sold for $100.25
Answer:
The contra-account, Fair Value Adjustment, is also called a(n)
a. offset account.
b. adjustment account.
c. valuation account.
d. opposite account.
Answer:
Starting with net income and adjusting it for items that affected reported net income but
which did not affect cash is called the
a. direct method.
b. indirect method.
c. working capital method.
d. cost-benefit method.
Answer:
If a corporation declares a dividend based upon paid-in capital, it is known as a
a. scrip dividend.
b. property dividend.
c. paid dividend.
d. liquidating dividend.
Answer:
The first step in designing a computerized accounting system is the creation of the
a. general ledger.
b. general journal.
c. trial balance.
d. chart of accounts.
Answer:
Allowing only designated personnel to handle cash receipts is an example of
a. establishment of responsibility.
b. segregation of duties.
c. documentation procedures.
d. independent internal verification.
Answer:
Characteristics associated with faithfully representative accounting information are
a. verifiable and timely.
b. neutral and verifiable.
c. complete and neutral.
d. relevance and verifiable.
Answer:
If a company has both an inflow and outflow of cash related to property, plant, and
equipment, the
a. two cash effects can be netted and presented as one item in the investing activities
section.
b. cash inflow and cash outflow should be reported separately in the investing activities
section.
c. two cash effects can be netted and presented as one item in the financing activities
section.
d. cash inflow and cash outflow should be reported separately in the financing activities
section.
Answer:
The following information is available for Dennehy Company:
Dennehy's cost of goods sold is
a. $262,500.
b. $285,000.
c. $292,500.
d. $345,000.
Answer:
Fugazi City College sold season tickets for the 2015 football season for $240,000. A
total of 8 games will be played during September, October and November. In
September, three games were played. The adjusting journal entry at September 30
a. is not required. No adjusting entries will be made until the end of the season in
November.
b. will include a debit to Cash and a credit to Ticket Revenue for $60,000.
c. will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for
$90,000.
d. will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for
$80,000.
Answer:
The following information pertains to Rural Company. Assume that all balance sheet
amounts represent both average and ending balance figures. Assume that all sales were
on credit.
What is the return on assets for Rural?
a. 16%
b. 9.7%
c. 8%
d. 17%
Answer:
If sixty $1,000 convertible bonds with a carrying value of $70,000 are converted into
9,000 shares of $5 par value common stock, the journal entry to record the conversion
is
Answer:
Jay Farrar Company is a manufacturing company that specializes in writing
instruments. The past year was a difficult one for the company, as it sought to retain its
share in a market in which the largest competitors were also rapid innovators. Jay Farrar
introduced a new product late in the year, even though testing was not complete. It was
a pen designed with two cartridges: one supplying ink and the other correction fluid. A
person could then switch easily between writing and correcting errors. It was priced
fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the
product was named, was an overwhelming success.
The success of the product has Josh Ritter, the manager of the New Products division,
worried, however. He was concerned that quality problems would begin occurring,
since the longevity of the pen and stability of the correction fluid formulation had not
been tested. He did not want sales personnel to get the bonuses that appeared to be
indicated, since they might aggressively promote a product that would fail in use. He
preferred to complete testing of the pen first, so that more confidence could be placed in
the results.
Top management, however, declined the tests. Mr. Ritter then instructed you, the
accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to
show them as current expenses in total. In this way, the new product would appear to be
only slightly profitable.
Answer:
Wellington Company had the following transactions involving notes payable.
Nov. 1, 2014 Borrows $180,000 from Olathe State Bank by signing a 3-month, 10%
note.
Dec. 31, 2014 Prepares the adjusting entry.
Feb. 1, 2015 Pays principal and interest to Olathe State Bank.
Instructions
Prepare journal entries for each of the transactions.
Answer:
The income statement of Fezzik's Shoe Repair is as follows:
On April 1, the Retained Earnings account had a balance of $12,900. During April, the
company paid $3,000 in dividends.
Instructions
[a] Prepare closing entries at April 30.
[b] Prepare a retained earnings statement for the month of April.
Answer:
A cash register tape shows cash sales of $3,500 and sales taxes of $210. The journal
entry to record this information is
Answer:
In preparing net cash flow from operating activities using the direct method, each item
in the income statement is adjusted from the accrual basis to the cash basis.
Answer:
