The United Way Payable account would normally be shown on the balance sheet under
current liabilities.
A corporation is a separate legal entity that is organized independently of its owners.
When using the allowance method, Allowance for Bad Debts is debited when an
account receivable is written off.
When replenishing the petty cash fund, the company debits either the associated
expense incurred or the asset purchased with the fund.
A subsidiary ledger is a record of accounts that provides supporting details on
individual balances, the total of which appears in a general ledger account.
GAAP requires publicly traded companies to prepare a post-closing trial balance and
publish it in their annual report.
The cash payments journal is a special journal used to record cash payments by
currency but not by check.
Although the direct method is easier to use, the Financial Accounting Standards Board
(FASB) prefers the indirect method of reporting cash flows from operating activities.
The direct method of reporting cash flows from operating activities provides clearer
information about the sources and uses of cash than does the indirect method.
Both wholesalers and retailers are merchandisers.
The accounting analysis system is used to record the dual effects of each transaction.
If a transaction does not involve cash, such as the purchase of supplies on account, it
will not be reported on the statement of cash flows.
A debtor of Adams Company owes $500,000 but does not have enough cash to repay
the debt. Following lengthy negotiations, the parties agreed that the debtor will issue
200,000 shares of common stock to settle the debt. This transaction will be reported in
the investing activities section of the statement of cash flows for Adams Company.
Assuming that costs are changing during the accounting period, under the last-in,
first-out inventory costing method, the amount of cost of goods sold calculated using
the perpetual inventory system will usually differ from the amount calculated using the
periodic inventory system.
A high rate of inventory turnover indicates difficulty in selling inventory.
Accounts receivable are also called trade receivables.
Bank errors are posting errors made by the bank that either incorrectly increase or
decrease the depositor’s bank balance.
The periodic inventory system works well for small businesses in which the inventory
is not large in size or dollar amounts.
The journal entry to replenish a petty cash fund includes a debit to the Petty Cash
account and a credit to the proper expense account(s).
Bad debt expense is a cost to the seller of extending credit.
Under the equity method, the Equity Investments account is debited for the receipt of a
dividend because the dividend increases the investee’s equity.
When using a computerized accounting information system, sales transactions are only
recorded when the cash is received.
Lower-of-cost-or-market (LCM) requires that merchandise inventory be reported in the
financial statements at the lower of the historical cost or the current selling price of the
inventory.
While preparing a statement of cash flows using the indirect method, an increase in
current assets is added to net income to arrive at net cash provided by operating
activities.
When using the effective-interest amortization method, the amount of the interest
expense is calculated using the carrying value of the bonds and the market interest rate.
Jamison Enterprises estimates that it will pay a 5% bonus on annual net income after
deducting the bonus. If Jamison reports net income of $480,000 before the calculation
of the bonus, the amount of the bonus is $24,000.
A company that reports a discontinued operation must also report earnings per share for
this item in the notes to the financial statements.
An underwriter usually assumes some of the risk of issuing stock by agreeing to buy all
of the stock the firm cannot sell to its clients.
In an accounting information system, outputs are the reports used for decision making,
which include the financial statements.
When preparing an amortization schedule, the interest expense increases each year
because the principal decreases with each installment payment.
When a customer returns goods to the seller, the seller needs to debit Estimated Returns
Inventory. The seller uses the perpetual inventory system.
All items on the book side of the bank reconciliation require journal entries.
The financing activities section of the statement of cash flows includes activities that
affect current assets and current liabilities.
The Sales Discounts Forfeited account ________.
A) is a contra Sales Revenue account
B) represents additional sales revenue
C) is a balance sheet account
D) represents the discount lost when a customer does not pay within the discount period
Which of the following is NOT a decision tool based on working capital?
A) cash ratio
B) acid-test ratio
C) current ratio
D) dividend payout ratio
Which of the following accounts would appear in the income statement debit column of
the worksheet?
A) Unearned Revenue
B) Service Revenue
C) Depreciation Expense
D) Prepaid Insurance
April, Inc. issued 4000 shares of preferred stock for $240,000. The stock has a par value
of $60 per share. The journal entry to record this transaction would ________.
A) credit Cash $240,000, debit Preferred Stock—$60 Par Value $4000, and debit
Paid-In Capital in Excess of Par—Preferred $236,000
B) debit Cash $240,000, credit Preferred Stock—$60 Par Value $4000, and credit
Paid-In Capital in Excess of Par—Preferred $236,000
C) credit Cash $240,000 and debit Preferred Stock—$60 Par Value $240,000
D) debit Cash $240,000 and credit Preferred Stock—$60 Par Value $240,000
A company ships goods to a customer and pays transportation costs. To the seller, the
transportation costs are ________.
A) freight out
B) freight in
C) sales commission
D) brokerage
Assets that are expected to be converted to cash, sold, or used up during the next 12
months, or within the business’s normal operating cycle if the cycle is longer than a
year, are called ________ assets.
A) intangible
B) plant
C) long-term
D) current
The Allowance for Bad Debts account has a credit balance of $8,300 before the
adjusting entry for bad debts expense. After analyzing the accounts in the accounts
receivable subsidiary ledger using the aging-of-receivables method, the company’s
management estimates that uncollectible accounts will be $14,700. What will be the
balance of the Allowance for Bad Debts reported on the balance sheet?
A) $14,700
B) $6,400
C) $23,000
D) $13,230
Under the perpetual inventory system, the journal entry to record the freight paid by the
seller on goods sold is:
A)
B)
C)
D)
Specialty Foods, Inc. maintains a separate accounts receivable account for each
customer. Regarding this accounting treatment, which of the following statements is
incorrect?
A) The separate customer accounts receivable are called subsidiary accounts.
B) When a customer makes a payment on account, a debit is posted to the accounts
receivable subsidiary account as well as to the accounts receivable control account.
C) The sum of all balances in the subsidiary accounts receivable equals a control
account balance.
D) The purpose of this accounting treatment is to account for payments received from
the customer and the amounts still owed.
Cameron Corp. purchased a mine on January 1, 2018, for $530,000, which is estimated
to contain 35,000 tons of iron ore. There is no residual value. The business extracted
and sold 7500 tons of ore in 2018 and 10,800 tons of ore in 2019. What is the depletion
expense for 2019?(Round any intermediate calculations to two decimal places, and your
final answer to the nearest dollar.)
A) $113,550
B) $277,062
C) $163,512
D) $252,838
Olsteen, Inc., earned revenues of $65,000 and incurred expenses of $73,000. No
dividends were declared. Which of the following statements is correct?
A) The entry to close Income Summary is the same regardless of a net income or a net
loss.
B) Retained Earnings will be debited for $8,000 and Income Summary will be credited
for $8,000.
C) The entries to close revenues and expenses will differ if there is a net loss.
D) The entry to close Income Summary requires a debit to the Income Summary
account.
Which of the following statements regarding the management’s discussion and analysis
(MD&A) part of the annual report is NOT correct?
A) Investors are not interested in the MD&A because it is written by the company and
could present a biased view of the company’s financial condition and performance.
B) It often contains information that is not found in the financial data.
C) It provides forward-looking formation.
D) The MD&A is the company’s attempt to explain its financial statements and to
discuss its performance.
The following details are provided by Western Wear Merchandisers. The company uses
the periodic inventory system.
Calculate the amount of net purchases.
A) $153,500
B) $88,800
C) $90,500
D) $104,000
A company that uses the perpetual inventory system sold goods to a customer for cash
for $4,200. The cost of the goods sold was $1,000. Which of the following journal
entries correctly records this transaction?
A)
B)
C)
D)
On June 30, 2018, Clooney Printers purchased a printer for $59,000. It expects the
printer to last for four years and have a residual value of $6000. Compute the
depreciation expense on the printer for the year ended December 31, 2018, using the
straight-line method. (Round any intermediate calculations to two decimal places, and
your final answer to the nearest dollar.)
A) $13,250
B) $6625
C) $14,750
D) $7729
Hank earns $24.00 per hour with time-and-a-half for hours in excess of 40 per week. He
worked 50 hours at his job during the first week of March 2018. Hank pays income
taxes at 15% and 7.65% for OASDI and Medicare. All of his income is taxable under
FICA. Determine Hank’s net pay for the week. (Do not round any intermediate
calculations, and round your final answer to the nearest cent.)
A) $1122.00
B) $1021.02
C) $835.80
D) $799.80
Which of the following is true of consolidated statements?
A) They combine the balance sheets, income statements, and statements of cash flows
of the parent company with those of its peer group firms.
B) They combine the balance sheets, income statements, but not the statements of cash
flows of the subsidiary company using the consolidation method.
C) They combine the balance sheets, income statements, and statements of cash flows
of the subsidiary company with those of its investee firms.
D) They combine the balance sheets, income statements, and statements of cash flows
of the parent company with those of its controlling interest affiliates.
Which of the following is a characteristic of a plant asset, such as a building?
A) It is used in the operations of a business.
B) It is available for sale to customers in the ordinary course of business.
C) It has a short useful life.
D) It will have a negligible value at the end of its useful life.
Mountain Valley Sales, Inc. has gross pay for March of $45,000. Which of the
following is included in the journal entry to record salaries expense?
A) credit Salaries and Wages Expense
B) debit Cash
C) debit Salaries and Wages Payable
D) debit Salaries and Wages Expense
Which of the following serves as the “journal of last resort”?
A) purchases journal
B) sales journal
C) general journal
D) cash payments journal
Which of the following is a characteristic of a corporation?
A) Corporations are separate taxable entities.
B) Lenders of a corporation do not have the right to claim the corporation’s assets to
satisfy their obligations.
C) Corporations are subjected to less governmental regulation than other forms of
businesses.
D) Each stockholder has the authority to commit the corporation to a binding contract
through his/her actions.
On a multi-step income statement, which of the following is added to operating income
to arrive at net income?
A) sales revenue
B) interest expense
C) sales discounts forfeited
D) operating expenses
Utah Corp. uses the indirect method to prepare the statement of cash flows. Refer to the
following section of the comparative balance sheet:
Utah Corp.
Comparative Balance Sheet
December 31, 2018 and 2017
How will the change in Merchandise Inventory be shown on the statement of cash flows?
A) addition to net income under the operating activities section
B) subtraction from net income under the operating activities section
C) positive cash flow under the financing activities section
D) negative cash flow under the investing activities section
Match each term with its description.
A) Sent by the vendor after the inventory has been shipped to the purchaser.
B) Sent to the vendor when goods are ordered.
C) Prepared by the purchaser when the goods are received.
D) Sent to the vendor after all approving documents have been submitted.
Receiving Report
Regarding the Cost of Goods Sold account, which of the following statements is
incorrect?
A) In a perpetual inventory system, the Cost of Goods Sold account keeps a current
balance throughout the period.
B) Cost of Goods sold is a contra revenue account.
C) Cost of Goods Sold is based on the company’s cost, not the retail price.
D) Cost of Goods Sold represents the cost of inventory that has been sold to customers.
Which of the following will be recorded in the Other Accounts CR column of the cash
receipts journal?
A) cash sales
B) receipt of interest revenue
C) receipt of accounts receivable
D) sales discounts forfeited
Tim’s gross pay for this month is $8950. His gross year-to-date pay, prior to this month,
totaled $111,500. What is the amount of FICA tax withheld from Tim’s pay for this
month? (Assume an OASDI rate of 6.2%, applicable on the first $118,500 earnings, and
a Medicare rate of 1.45%, applicable on all earnings. Do not round any intermediate
calculations, and round your final answer to the nearest cent.)
A) $434.00
B) $129.78
C) $563.78
D) $554.90
Which of the following principles states that a business should NOT report anticipated
gains?
A) conservatism
B) materiality concept
C) disclosure
D) consistency
Uptown, Inc. has determined that an account receivable of $125 is uncollectible. The
company uses the direct write-off method. Which of the following entries is required to
record the write-off?
A)
B)
C)
D)
Ottawa, Inc. provides the following data:
For the year ending December 31, 2019:
Calculate the days’ sales in inventory for 2019. (Use 365 days for any calculations. Round
any intermediate calculations and your final answer to two decimal places.)
A) 53.68
B) 118.09
C) 48.67
D) 85.88
When a bond is issued at a price higher than the face value, the difference is known as a
________.
A) premium
B) discount
C) maturity value
D) face value
Mercury Company established a petty cash fund with a $500 balance. Which of the
following statements is incorrect?
A) A journal entry is needed to debit the Cash account and credit the Petty Cash account
for $500.
B) There is no net effect on current assets.
C) The sum of the cash plus the total of the petty cash tickets should equal $500 at all
times.
D) The petty cash custodian cashes a check for $500 and places the currency in the
petty cash fund box.
Which of the following statements is NOT correct?
A) In a perpetual inventory system, the “cash register” at the store is a computer
terminal that records sales and updates inventory records.
B) Even in a perpetual inventory system, a business must count inventory at least one a
year.
C) Restaurants and small retail stores often use the periodic inventory system.
D) In a periodic inventory system, merchandise inventory and purchasing systems are
integrated with the records for Accounts Receivable and Sales Revenue.