A debit to an asset account indicates
a. an error.
b. a credit was made to a liability account.
c. a decrease in the asset.
d. an increase in the asset.
Answer:
Lester Company sells many products. Hackenberry is one of its popular items. Below is
an analysis of the inventory purchases and sales of Hackenberry for the month of
March. Lester Company uses the periodic inventory system.
Instructions
(a) Using the FIFO assumption, calculate the amount charged to cost of goods sold for
March. (Show computations)
(b) Using the weighted average method, calculate the amount assigned to the inventory
on hand on March 31. (Show computations)
(c) Using the LIFO assumption, calculate the amount assigned to the inventory on hand
on March 31. (Show computations)
Answer:
Cash equivalents are highly liquid investments that can be converted into a specific
amount of cash with maturities of
a. 1 month or less when purchased.
b. 3 months or less when purchased.
c. 6 months or less when purchased.
d. 1 year or less when purchased.
Answer:
The net income (or loss) for the period
a. is found by computing the difference between the income statement credit column
and the balance sheet credit column on the worksheet.
b. cannot be found on the worksheet.
c. is found by computing the difference between the income statement columns of the
worksheet.
d. is found by computing the difference between the trial balance totals and the adjusted
trial balance totals.
Answer:
Two methods of accounting for uncollectible accounts are the
a. allowance method and the accrual method.
b. allowance method and the net realizable method.
c. direct write-off method and the accrual method.
d. direct write-off method and the allowance method.
Answer:
A company may purchase a noncontrolling interest in another firm in a related industry
a. to house excess cash until needed.
b. to generate earnings.
c. for strategic reasons.
d. for speculative reasons.
Answer:
The interest rate specified on any note is for a
a. day.
b. month.
c. week.
d. year.
Answer:
Which one of the following is not an application of revenue recognition?
a. Recording revenue as an adjusting entry on the last day of the accounting period.
b. Accepting cash from an established customer for services to be performed over the
next three months.
c. Billing customers on June 30 for services completed during June.
d. Receiving cash for services performed.
Answer:
The preparation of adjusting entries is
a. straight forward because the accounts that need adjustment will be out of balance.
b. often an involved process requiring the skills of a professional.
c. only required for accounts that do not have a normal balance.
d. optional when financial statements are prepared.
Answer:
Marion, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock
and 20,000 shares of $1 par value common stock outstanding at December 31, 2015.
There were no dividends declared in 2014. The board of directors declares and pays a
$65,000 dividend in 2015. What is the amount of dividends received by the common
stockholders in 2015?
a. $0
b. $25,000
c. $65,000
d. $40,000
Answer:
Short-term investments are securities held by a company that are
a. readily marketable.
b. intended to be converted into cash within the next year.
c. readily marketable and intended to be converted into cash within the next year or
operating cycle, whichever is longer.
d. readily marketable and intended to be held until maturity.
Answer:
The acid-test ratio
a. is a quick calculation of an approximation of the current ratio.
b. does not include all current liabilities in the calculation.
c. does not include inventory as part of the numerator.
d. does include prepaid expenses as part of the numerator.
Answer:
Financial information is presented below:
Gross profit would be
a. $30,000.
b. $90,000.
c. $165,000.
d. $225,000.
Answer:
Stockholders’ equity is increased by
a. dividends.
b. revenues.
c. expenses.
d. liabilities.
Answer:
A corporation recognizes a gain or loss
a. only when bonds are converted into common stock.
b. only when bonds are redeemed before maturity.
c. when bonds are redeemed at or before maturity.
d. when bonds are converted into common stock and when they are redeemed before
maturity.
Answer:
An accountant has debited an asset account for $1,300 and credited a liability account
for $500. Which of the following would be an incorrect way to complete the recording
of the transaction?
a. Credit an asset account for $800.
b. Credit another liability account for $800.
c. Credit a Stockholders’ account for $800.
d. Debit a Stockholders’ account for $800.
Answer:
Cash which is restricted for a specific use should be separately reported.
Answer:
The cost and fair value of an asset are the same at the time of acquisition and in all
subsequent periods.
Answer:
On November 1, 2015, Tech Corporation’s stockholders’ equity section is as follows:
On November 1, Tech declares and distributes a 15% stock dividend when the market
value of the stock is $16 per share.
Instructions
Indicate the balances in the stockholders’ equity accounts after the stock dividend has
been distributed.
Answer:
Goods out on consignment should be included in the inventory of the consignor.
Answer:
Indicate the respective effects of the declaration of a cash dividend on the following
balance sheet sections:
Answer:
Income from operations is determined by subtracting total operating expenses from
________________.
Answer:
Mike Stephenson, the president and CEO of Earth Systems, Inc., a waste
management firm, was recently hospitalized, suffering from exhaustion and
a heart ailment. Immediately prior to his hospitalization, Earth Systems had
experienced a sharp decline in its stock price, and trading activity became
almost nonexistent. The primary reason for this was concern expressed in
the media over a new untested waste management system implemented by
the company. Mr. Stephenson had been unwilling to submit the procedure
to testing before implementation, but he reluctantly agreed to limited tests
after the system was operational. No problems have been identified by the
tests to date.
The other members of management called a meeting to determine what
they should do. Roger Carlson, the marketing manager, suggested that the
company purchase a large number of shares of treasury stock. In that way,
investors might notice that activity had picked up, and might decide to buy
some more shares. This plan would use up most of the company’s available
cash, so that there will be no money available for a cash dividend. Earth
Systems has paid cash dividends every quarter for over ten years.
1> Is Mr. Carlson’s suggestion ethical? Explain.
2> Is it ethical to discontinue the cash dividend? Explain.
Answer: