The Common Stock account is increased by a debit.
On a multi-step income statement, merchandisers report operating expenses in two
categories—selling expenses and administrative expenses.
In a periodic inventory system, businesses must obtain a physical count of inventory to
determine quantities on hand.
When a sale is made on account, Accounts Receivable is debited.
The debt to equity ratio measures the proportion of total liabilities relative to the total
equity.
A company may purchase treasury stock to support the company’s stock price.
Electronic funds transfers move cash by electronic communications.
To accurately determine the financial performance of a company, it is necessary to
compare its performance from year to year, with a competing company, and with the
same industry as a whole.
If the total debits equal the total credits on the trial balance, the individual account
balances will be error free.
A business starts each new time period with a zero beginning balance in permanent
accounts.
When a business pledges its accounts receivable, it transfers the right to collect cash
from customers to the bank.
The matching principle requires businesses to record Warranty Expense when the
warranty costs are incurred.
An accounting firm collected cash on account. As a result of this transaction, assets and
revenues increase.
Under the going concern principle, accountants assume that the business will remain in
operations long enough to use existing resources for their intended purpose.
Net income (loss) is the difference between the total debits and the total credits in the
income statement columns of the worksheet.
The post-closing trial balance shows the updated Retained Earnings balance.
On June 1, Edison, Inc. borrowed $21,000 on a one-year Note Payable with an interest
rate of 10% per year. It will repay the principal and interest at the end of the one-year
period. The company makes accrual adjustments at the end of each month. The
company should record interest expense of $2,100 on June 30.
Certified Management Accountants (CMAs) specialize only in financial management
knowledge and always work for a single company.
A balance sheet prepared in the report form lists the assets on the left and the liabilities
and stockholders’ equity on the right.
Interest on a $70,000 note at 6% for 45 days is $518. (Use a 360 day year. Round your
answer to the nearest dollar.)
A stream of unequal cash payments made at equal time intervals is called an annuity.
When a bond is issued at a premium, the interest expense calculation using the
effective-interest amortization method uses the carrying amount of the bonds and the
market rate of interest.
Indicate the effects on the accounting equation of the following business transactions of
Garland Service Corporation for b) to d) below. Use proper account titles. Transaction
a) is answered as a guide.
a) Received cash from Trent Garland issued common stock to him.
Electric, Inc. was incorporated on January 1, 2016. Electric issued 4000 shares of
common stock and 1200 shares of preferred stock on that date. The preferred stock is
cumulative, $100 par, with an 12% dividend rate. Electric has not paid any dividends
yet. In 2019, Electric had its first profitable year, and on November 1, 2019, Electric
declared a total dividend of $63,000. What is the total amount that will be paid to
preferred shareholders?
A) $14,400
B) $57,600
C) $13,200
D) $63,000
Which of the following financial statements shows the dividends distributed to
stockholders?
A) Income statement
B) Statement of retained earnings
C) Budgeted balance sheet
D) Balance sheet
The bookkeeper of Wilson Electric Supply, Inc. recorded a $1,500 check as $15,000 in
payment of the current month’s rent. Which of the following journal entries is needed to
adjust for this error in the books of the company?
A)
B)
C)
D)
Maxwell Plumbing Services earned $500 by completing a job for Smith Company. The
$500 earned by Maxwell Plumbing Services is its ________.
A) revenue
B) equity
C) gain
D) debt
If a business uses the periodic inventory system, the sales journal will ________.
A) record both the cash and credit sales
B) include a Purchase DR and Account Receivable CR column
C) exclude the Accounts Receivable DR and Sales Revenue CR column
D) exclude the Cost of Goods Sold DR and Merchandise Inventory CR column
During 2018, Landers Corp. had net sales of $17,000,000. The beginning total assets
were $8,300,000. The asset turnover ratio was 1.6 times. Calculate the ending total
assets of Landers. (Round any intermediate calculations to two decimal places, and
your final answer to the nearest dollar.)
A) $12,950,000
B) $8,300,000
C) $14,675,000
D) $6,375,000
Which of the following is the correct accounting equation?
A) Assets + Liabilities = Equity
B) Assets = Liabilities + Equity
C) Assets + Revenues = Equity
D) Assets + Revenues = Liabilities + Expenses
Fast selling inventory is less likely to ________.
A) become worthless
B) require higher storage costs
C) require higher insurance costs
D) All statements are correct.
If a company retires preferred stock, ________.
A) total stockholders’ equity will decrease
B) total stockholders’ equity will increase
C) the company can record a gain or loss on retirement of stock
D) the number of outstanding shares will increase
Daniel Corporation had net income for 2018 of $75,000. Daniel had 6000 shares of
common stock outstanding at the beginning of the year and 22,000 shares of common
stock outstanding at the end of the year. There were 8000 shares of preferred stock
outstanding all year. During 2018, Daniel declared and paid preferred dividends of
$26,000. On December 31, 2018, the market price of Daniel’s common stock is $45 per
share and the market price of its preferred stock is $73 per share. What is Daniel’s
price/earnings ratio at December 31, 2018? (Round any intermediate calculations and
your final answer to the nearest cent.)
A) 12.86
B) 20.86
C) 13.20
D) 13.63
Which of the following actions will decrease Retained Earnings?
A) repayment of bond principal
B) stock split
C) stock dividend declared
D) purchase of treasury stock
On January 1, 2018, Ling Services issued $168,000 of six-year, 12% bonds when the
market interest rate was 11%. The issue price of the bonds was $177,110. Ling uses the
effective-interest method to amortize the bond premium. Semiannual interest payments
are made on June 30 and December 31 of each year. How much interest expense will be
recorded when the first interest payment is made? (Round the final answer to the
nearest dollar.)
A) $10,627
B) $9741
C) $10,080
D) $9240
When bonds are issued at face value, ________.
A) the amount of cash received depends on the amount of bond discount or premium
B) for each interest payment, the amount of Interest Expense equals the amount of cash
paid
C) for each interest payment, the amount of Interest Expense depends on the
amortization of the bond discount or premium
D) the journal entry to record the issuance of the bonds includes a debit to the Bonds
Payable account
The bank made an EFT payment of a telephone bill of $5,000. How would this
information be included on the bank reconciliation?
A) an addition on the bank side
B) a deduction on the book side
C) an addition on the book side
D) a deduction on the bank side
Which of the following accounting elements does the matching principle help to match?
A) revenues and liabilities
B) expenses and assets
C) expenses and revenues
D) expenses and liabilities
A company originally issued 13,000 shares of $6 par value common stock at $12 per
share. The board of directors declares a 12% stock dividend when the market price of
the stock is $22 a share. Which of the following is included in the entry to record the
declaration of a stock dividend?
A) Stock Dividends is debited for $34,320.
B) Stock Dividends is credited for $34,320.
C) Stock Dividends is debited for $18,720.
D) Paid-In Capital in Excess of Par—Common is credited for $18,720.
When using the allowance method, the write-off of a receivable ________.
A) involves a contra-revenue account
B) reduces the amount of the Allowance for Bad Debts account
C) decreases net income
D) affects the net realizable value of accounts receivable
Accrued revenue is revenue that ________.
A) has been collected and earned
B) the business has collected in cash, but not yet earned
C) the business has earned, but not yet collected in cash
D) will be collected and earned in the future
Barron, Inc. sold goods for $883,500 on account. The company operates in a state that
imposes a 9% sales tax. What is the amount of the sales tax payable to the state?
A) $79,515
B) $39,758
C) $19,879
D) $159,030
Which of the following events is NOT recorded by accountants?
A) purchase of a building for $200,000 cash
B) effects of an economic boom
C) sale of merchandise on account
D) signing a $400,000 note to purchase land
Which of the following is an important internal control over payroll?
A) separating the duties of the disbursement of paychecks from the recording of payroll
transactions in the ledger
B) separating the duties of safeguarding property from record-keeping of property
C) separating the duties of approving invoices from signing disbursement checks
D) separating the duties of cash disbursement from bank reconciliations
The statement of stockholders’ equity ________.
A) reports the number of shares and any changes during the year in preferred, common,
and treasury stock
B) is required to be presented along with the statement of retained earnings
C) is not required by IFRS
D) does not show the changes to the Retained Earnings account because that
information is provided in the statement of retained earnings
The data of Graham Brothers Corp. for two years are given below.
Based on the above information, which of the following statements is true?
A) Cash ratio has increased from 0.02 in 2018 to 0.03 in 2019.
B) Cash ratio has increased from 0.05 in 2018 to 0.08 in 2019.
C) Cash ratio has increased from 0.356 in 2018 to 0.238 in 2019.
D) Cash ratio has increased from 0.238 in 2018 to 0.356 in 2019.
During a period of declining inventory costs, which of the following inventory costing
methods should be used by a company that intends to minimize its income tax
expenses?
A) first-in, first-out
B) last-in, first-out
C) weighted-average
D) specific identification
Which of the following is NOT a part of a corporation’s annual report?
A) report of independent registered public accounting firm
B) MD&A
C) notes to financial statements
D) employees’ pay rates
Dividends is a(n) ________ account that has a normal ________ balance.
A) liability; credit
B) equity; debit
C) liability; debit
D) equity; credit
Classic Sales Corporation offers warranties on all their electronic goods. Warranty
expense is estimated at 3% of sales revenue. In 2018, the company had $602,000 of
sales. In the same year, it paid out $12,000 of warranty payments. Which of the
following is the entry needed to record the estimated warranty expense?
A)
B)
C)
D)
Which of the following is included in comprehensive income?
A) Owners’ investments
B) Purchase of capital assets
C) Preferred dividends
D) Deferred gains or losses from derivatives
Adjusting entries are needed to correctly measure the ________.
A) ending balance in the Cash account
B) net income (loss) on the balance sheet
C) net income (loss) on the income statement
D) beginning balance in the Cash account
Saturn, Inc. paid $13,000 on accounts payable. How does this transaction affect the
accounting equation of Saturn?
A) Assets decrease by $13,000 and equity increases by $13,000.
B) Assets decrease by $13,000 and liabilities decrease by $13,000.
C) Assets increase by $13,000 and equity decreases by $13,000.
D) Assets increase by $13,000 and liabilities increase by $13,000.
A deposit receipt is ________.
A) retained by the customer as proof of a deposit transaction
B) the same as a signature card
C) used by the bank as an alternative to a remittance advice
D) given by the customer to the bank as a proof of deposit
The main expense of a merchandiser is usually ________.
A) cost of goods sold
B) merchandise inventory
C) selling and administrative expenses
D) purchasing expense
Amounts owed for products or services purchased on account are called ________.
A) accounts payable
B) unearned revenue
C) accrued expense
D) warranty payable
Rosewood Corporation purchased land for $100,000 by making a cash payment of
$38,000 and promising to pay the remaining amount in a later accounting period. What
is the net effect of this transaction on Rosewood’s accounting equation?
A) Assets increase by $100,000 and liabilities decrease by $38,000.
B) Assets increase by $100,000 and liabilities decrease by $62,000.
C) Assets and equity increase by $62,000.
D) Assets and liabilities increase by $62,000.