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The left side of the accounting equation measures the amount that the business owes to
creditors and to the stockholders.
To complete the statement of cash flows, the net change in cash and its effects on the
beginning cash balance must be shown.
In a periodic inventory system, accounting for sales discounts is the same as in a
perpetual inventory system, except there is no entry for merchandise inventory.
The effective-interest amortization method allocates an amount of bond discount or
premium, based on the stated rate of interest, to each interest period over the life of the
bond.
The use of the Modified Accelerated Cost Recovery System (MACRS) is acceptable for
financial reporting under GAAP.
The worksheet is not a journal, a ledger, or a financial statement.
The spreadsheet starts with the beginning statement of cash flows and concludes with
the ending statement of cash flows.
Mason Company purchased land for $30,000. The president of Mason Company
believes that the land is actually worth $35,000. The land can be recorded at $35,000.
A contra account's normal balance (debit or credit) is the opposite of the normal balance
of the related account.
A basic procedure of internal control over cash receipts is that the deposit of the cash
and the recording of the receipts into the journal should be separated.
The bank statement reports the activity in the customer's account and is issued on an
annual basis.
When businesses accept payment by credit and debit cards, there is almost always a fee
to the purchaser to cover the processing costs charged by the card issuer.
Long-term investments include debt and equity securities that the investor expects to
hold longer than one year or debt or equity securities that are not readily marketable.
When using the effective-interest amortization method, the amount of the interest
payment is calculated using the face value of the bonds and the stated interest rate.
The journal entry to record the purchase of treasury stock includes a debit to Treasury
Stock - Common for the shares purchased multiplied by the par or stated value of the
stock.
Financial statements can be prepared from the unadjusted trial balance.
Freight out is an addition to the Merchandise Inventory account if the seller uses the
perpetual inventory system.
If a bond is issued at a discount, the issue price is greater than face value.
An overstatement of ending merchandise inventory in the current period results in an
overstatement of net income in the current period.
When using the effective-interest amortization method, the amount of the interest
expense is calculated using the face value of the bonds and the stated interest rate.
In a perpetual inventory system, the Cost of Goods Sold account is debited at the time
of each sale.
In order to keep accurate records about the collection of cash for a previously written
off account, a business should re-establish the Accounts Receivable by crediting the
receivable account.
A small stock dividend, a large stock dividend and a stock split have no effect on total
assets.
A high current ratio indicates that current liabilities are greater than current assets.
To ensure that there is no collusion between the manager and sales clerks, the
accounting department employees deposit the cash in the bank and use the deposit slip
to prepare the journal entry for cash receipts and sales revenue.
A net loss from the balance sheet decreases Retained Earnings.
The rate of return on common stockholders' equity shows the relationship between net
income available to common stockholders and their average common equity invested in
the company.
The party who issues a check is the maker.
Freight in is recorded in the Merchandise Inventory account if the purchaser uses the
perpetual inventory system.
After a company has written off an account, the company continues to attempt to collect
on the receivable.
A trial balance is the list of only a company's asset and liability accounts, along with
their account numbers, at a point in time.
In a perpetual inventory system, the entry that adjusts the Merchandise Inventory
account based on the physical count equals the merchandise inventory balance before
adjustment less actual merchandise inventory on hand.
Accounting starts with economic activities that accountants review and evaluate using
critical thinking and judgment to create useful information that helps individuals make
good decisions.
When constructing a building for plant operations, payments for materials, labor, and
miscellaneous costs are recorded as expenses.
IFRS permits the presentation of plant assets at their fair market value.
City Auto Parts recently traded in store fixtures. The exchange had commercial
substance. The old fixtures had a cost of $48,000 and accumulated depreciation of
$14,000. City paid $101,000 for the new store fixtures. These new fixtures had a market
value of $117,000. There is a loss of $18,000 on this exchange.
An accrual adjusting entry records an expense after the cash is paid, or it records
revenue before the cash is received.
A company reports net accounts receivable of $152,000 on its December 31, 2019
balance sheet. The Allowance for Bad Debts has a credit balance of $19,000. What is
the balance of Accounts Receivable?
A) $157,000
B) $152,000
C) $171,000
D) $133,000
Revenue is earned when ________.
A) there is a binding agreement to provide goods or services
B) the journal entry to record revenue has been prepared
C) the business has received cash from the customer
D) (or as) the business satisfies each performance obligation
Improvements, a home improvement magazine, collected $960,000 in subscription
revenue on June 30. Each subscriber will receive an issue of the magazine in each of the
next 12 months, beginning with the July issue. The company uses the accrual method of
accounting. What is the amount of Subscription Revenue that has been earned by the
end of December? (Round any intermediate calculations to two decimal places, and
your final answer to the nearest whole number.)
A) $400,000
B) $560,000
C) $960,000
D) $480,000
Which of the following items are NOT reported after income from continuing
operations?
A) earnings per share
B) gross profit
C) discontinued operations
D) net income
During June 2019, Andy Company had the following transactions:
1. Sales of $185,000 ($142,000 on account, $43,000 for cash).
2. Collections on account, $128,000
3. Write-offs of uncollectible receivables, $1,900
4. Recovery of receivable previously written off, $600.
Additional information:
Ignore Cost of Goods Sold
Andy uses the allowance method for uncollectibles.
Andy estimates that 4.50% of its accounts receivable will be uncollectible.
On June 1, 2019, the Accounts Receivable balance was $25,000 and the Allowance for
Bad Debts had a normal account balance of $1,125.
Requirements:
a. Prepare the journal entries for the June 2019 transactions. Because the transactions
represent a summary of events, use June 30 for all dates. Omit explanations.
b. Prepare the June 30, 2019 adjusting journal entry. Omit explanation.
c. What is the net realizable value of Accounts Receivable on June 30, 2019 (after the
adjusting journal entry has been posted)? Show computations and label your work.
Unearned revenue, for services to be performed in six months, appears on the balance
sheet as ________.
A) long-term investments
B) current liabilities
C) current assets
D) long-term assets
Public companies ________.
A) must issue an internal control report which states that the outside auditor is
responsible for the adequacy of internal controls
B) are audited by accounting firms that do not also provide certain consulting services
to the public company
C) are required by the Financial Accounting Standards Board to maintain a system of
internal controls
D) are overseen by the Public Company Accounting Oversight Board
Under the perpetual inventory system, when a wholesaler returns the goods purchased
on account, the ________ account is credited.
A) Accounts Receivable
B) Merchandise Inventory
C) Cost of Goods Sold
D) Accounts Payable
The following is a summary of information presented on the financial statements of a
company on December 31, 2019.
With respect to net income, a horizontal analysis reveals ________. (Round your answer to
two decimal places.)
A) that net income is 14.55% of net sales revenue
B) a $22,000 increase in net income
C) a 145.45% decrease in net income
D) a 145.45% increase in net income
The financial statements of Carrier Office Furniture Company include the following
items:
What is working capital for 2019?
A) $190,000
B) $65,500
C) $37,500
D) $100,500
On October 1, 2020, Jewelry Specialists, Inc. made a loan to one of its customers. The
customer signed a 6-month note for $120,000 at 15%. Calculate the total interest earned
on the note. (Round any intermediate calculations to two decimal places, and your final
answer to the nearest dollar.)
A) $9,000
B) $4,500
C) $1,500
D) $18,000
For expenses, the category of account and its normal balance is ________.
A) equity and a credit balance
B) assets and a debit balance
C) assets and a credit balance
D) equity and a debit balance
The accounting records for Social Event Planning Services include the following select
unadjusted balances on December 31, 2018: Salaries Expense, $6,000; Service
Revenue: $18,000; Unearned Revenue, $400; Supplies Expense, $600; Rent Expense,
$300; Depreciation Expense—Equipment, $200.
During December, the company worked with a new client and provided event planning
services for an upcoming event. It will receive the full amount of $1,800 when the event
is completed in January 2019. As of the end of December 2018, it performed one-third
of the services covered by the contract. The company made the accrual adjustments.
The balance of Service Revenue, as shown on the adjusted trial balance, should be a
________.
A) debit balance of $19,800
B) credit balance of $18,000
C) debit balance of $1,800
D) credit balance of $18,600
In a manual accounting information system, cash purchases are generally recorded in
the ________.
A) sales journal
B) cash receipts journal
C) cash payments journal
D) purchases journal
Two or more people working together to circumvent internal controls and defraud a
company is known as ________.
A) encryption
B) firewall
C) collusion
D) separation of duties
Which of the following deductions is paid by both the employer and employee?
A) federal income taxes
B) federal unemployment taxes
C) FICA taxes
D) SUTA taxes
A modern perpetual inventory system ________.
A) records the quantity, but not the cost, of merchandise inventory on hand
B) achieves better control over inventory
C) eliminates the need for a physical count of inventory
D) is required by U.S. GAAP
On April 1, 2019, Orbit Services received $8000 in advance of performing the services
from a customer for three months of service — April, May and June. What would be the
journal entry to adjust the accounts at the end of May? (Do not round any intermediate
calculations, and round your final answer to the nearest dollar.)
A) Debit Service Revenue $2667, and credit Unearned Revenue $2667.
B) Debit Unearned Revenue $5333, and credit Service Revenue $5333.
C) Debit Unearned Revenue $8000, and credit Service Revenue $8000.
D) Debit Service Revenue $5333, and credit Accounts Receivable $5333.
Advance cash payments of future expenses are called ________.
A) accrued revenues
B) deferred expenses
C) deferred revenues
D) accrued expenses
Which of the following statements regarding a lock-box system is incorrect?
A) Customers send their checks directly to a post office box that belongs to the
company.
B) Internal control is tight because company personnel never touch incoming cash.
C) A bank employee empties the box daily and records the deposits into the company's
bank account.
D) Cash is put into the company's bank account quickly.
Which of the following sections of the statement of cash flows includes the issuance of
stock and the payment of cash dividends?
A) the investing activities section
B) the financing activities section
C) the operating activities section
D) the non-cash investing and financing section
Marley Investments, Inc. purchased 45% of the common stock of Beige Corporation on
January 1, 2019. Beige Corporation reports a net income of $720,000 for the 2019 year.
Which of the following is the correct journal entry?
A)
B)
C)
D)
Landon Jewelers uses the perpetual inventory system. On April 2, Landon sold
merchandise with a cost of $1,300 for $6,400 to a customer on account with terms of
1/15, n/30. The journal entry to record the cost of goods sold would be:
A)
B)
C)
D)
The general ledger shows a balance of $66,600 in the Merchandise Inventory account at
the end of the period. The physical inventory count shows inventory of $63,400.
(Assume a perpetual inventory system.) The adjusting entry includes a ________.
A) debit to Cost of Goods Sold and a credit to Merchandise Inventory for $3,200
B) debit to Cost of Goods Sold and a credit to Cash for $3,200
C) debit to Merchandise Inventory and a credit to Cost of Goods Sold for $3,200
D) debit to Merchandise Inventory and a credit to Cash for $3,200
A Plus Appliances sells dishwashers with a four-year warranty. In 2019, sales revenue
for dishwashers is $94,000. The company estimates warranty expense at 4.5% of
revenues. What is the total estimated warranty payable of A Plus Appliances as of
December 31,2019? A Plus Appliances began operating in 2019. (Round your final
answer to the nearest dollar.)
A) $4230
B) $1058
C) $1548
D) $3318
Rosiland, Inc. purchases 16,000 shares of its previously issued $2 par value common
stock for $460 per share. Which of the following is the correct journal entry to record
this transaction?
A) Debit Common Stock—$2 Par Value $7,360,000, and credit Cash $7,360,000.
B) Debit Cash $7,328,000, and credit Paid-In Capital in Excess of Par—Common
$7,328,000.
C) Debit Cash $7,328,000, and credit Treasury Stock—Common $7,328,000.
D) Debit Treasury Stock—Common $7,360,000, and credit Cash $7,360,000.
The financial statements for Uptown Service Company include the following items:
Compute working capital for 2019.
A) $135,000
B) $95,000
C) $151,000
D) $31,000
At the beginning of 2018, Uptown Travel, Inc. has the following account balances:
Accounts receivable $45,000 (Debit)
Allowance for Bad Debts $5,000 (Credit)
During the year, credit sales were $810,000. Cash collected on credit sales was
$760,000, and $18,000 was written off. Uptown uses the aging-of-receivables method
to record bad debts expense. The amount estimated as uncollectible was $30,000. The
amount of Bad Debts Expense for 2018 is ________.
A) $43,000
B) $30,000
C) $13,000
D) $12,000
Which of the following inventory costing methods is based on the actual cost of each
particular unit of inventory?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Dynamic Software, Inc. invests excess cash of $100,000 in corporate bonds on March
30, 2019. The bonds mature 20 years from the date of purchase. Dynamic plans to hold
the bonds until maturity and has the ability to do so. How does the March 30, 2019
transaction affect the accounting equation?
A) liabilities will increase
B) equity will decrease
C) long-term assets will decrease
D) total assets will remain unchanged
Green Lawns Corporation earned $500 for landscaping services rendered. The customer
promised to pay at a later time. Which of the following accounts increased as a result of
this transaction?
A) Accounts Payable
B) Supplies
C) Cash
D) Accounts Receivable
A company received a bank statement with a balance of $6,400. Reconciling items
included a bookkeeper error of $400—a $400 check recorded as $800—two
outstanding checks totaling $830, a service charge of $24, a deposit in transit of $260,
and interest revenue of $21. What is the adjusted bank balance?
A) $5,475
B) $5,430
C) $5,027
D) $5,830
There are three main ways to analyze financial statements. Which of the following does
NOT represent one of these ways of analyzing financial statements?
A) horizontal analysis
B) ratio analysis
C) financial statement analysis
D) vertical analysis
Dynamic Services, Inc. purchased computers that are to be used in its consulting
services. Based on the matching principle, the related account that should appear on the
income statement for the year ended December 31, 2018 is ________.
A) Depreciation Expense - Equipment
B) Service Revenue
C) Accumulated Depreciation - Equipment
D) Equipment Expense
List and discuss two common reasons why companies invest in debt or equity
securities.
Armstrong Services has a weekly payroll of $50,000. December 31 falls on Thursday
and Armstrong will pay its employees the following Monday (January 4) for the
previous full week. Assume that the company has a five-day workweek and has an
unadjusted balance in Salaries Expense of $845,000 at December 31. Prepare the
January 4 journal entry. Reversing entries are not made.
The following is the adjusted trial balance as of December 31, 2019 of Barone Brothers,
Inc.:
Prepare the closing entry for expenses. Omit explanation.
On December 15, 2018, Donald Services, Inc. collected revenue of $3,000 in advance
from a new client, and agreed to provide services to the client for the period of
December 15 through January 15 of the following year. Assume that the company
records deferred revenues using the alternative treatment. Prepare the December 15,
2018 journal entry. Omit explanation.
What is the only difference between present value and future value?
Nashville Records Company uses the indirect method to prepare its statement of cash
flows. Refer to the following sections of the comparative balance sheet:
Nashville Records Company
Comparative Balance Sheet
December 31, 2018 and 2017
Additional information for 2018:
• No stock was retired.
• No treasury stock was sold.
• The company repaid $60,000 of long-term notes payable.
• The company borrowed $51,000 on a new long-term note payable.
• Net income for the year was $68,000.
Prepare the financing section of the statement of cash flows for the year ended December
31, 2018.
Provide definitions for the following terms.
1. Depreciation
2. Extraordinary Repair
3. Property, Plant, and Equipment
For each of the following items, relating to the adjustments made to reconcile net
income to net cash provided by operating activities section, state whether the
adjustment is an increase or decrease to net income.
On October 1, 2018, North Co. invested excess cash of $80,000 by purchasing bonds of
South Inc. At year-end, December 31, 2018, the market price of the bonds was $77,000.
The investment is categorized as a trading debt investment. Journalize the adjusting
entry needed at December 31, 2018. Omit explanation.
Journalize the following sales transactions for Power Equipment using the periodic
inventory system. Explanations are not required.
July 1 Sold $4,200 of equipment on account, credit terms are n/30, FOB destination.
July 5: Paid $90 on freight out.
July 11: Received payment from the customer for the full amount due on the July 1
sale.
Fashion Barn, Inc., a retailer, accepts payment through credit cards. During August,
credit card sales amounted to $12,000. The processor charges a 3% fee. Assume that the
processor deposits the net amount. Prepare the journal entry for credit card sales.
(Ignore cost of goods sold.) Omit explanation.
What is the difference between cash basis accounting and accrual basis accounting?
West Electrical, Inc. performed services of $8,000 on January 24 and invoiced the
customer. West received the $8,000 on January 31. Provide the journal entry on January
31 when the cash was received. (Ignore explanation.)
For each transaction, identify which account is debited and which account is credited.
Use proper account titles.
On December 15, 2018, Donald Services, Inc. collected revenue of $3,000 in advance
from a new client, and agreed to provide services to the client for the period of
December 15 through January 15 of the following year. Assume that the company
records deferred revenues using the alternative treatment, and journalize the adjusting
entry recorded on December 31, 2018. Omit explanation.
XD7, Inc. has 50,000 shares of common stock outstanding and 2,000 shares of
preferred stock outstanding. The common stock has a $1.00 par value. The preferred
stock has a $100 par value, a 5% dividend rate, and is noncumulative. On October 31,
2018, the company declares the annual preferred dividend and dividends of $0.25 per
share for common. Prepare the journal entry for the declaration of dividends. Omit
explanation.
Edgewood Home Improvement Store reported the following selected items at June 30,
2019 (previous year - 2018 - amounts are also given as needed):
Compute Edgewood's days' sales in receivables for the year ending June 30, 2019. Show
your computations.
Prepare a vertical analysis for the balance sheet data given below. (Round to two
decimal places.)
Petals, Inc.
Balance Sheet
December 31, 2019
Assets
For each of the following statements, indicate whether it applies to:
the cash basis of accounting (cash basis)
the accrual basis of accounting (accrual basis)
both the cash and accrual basis of accounting (both)
neither the cash nor the accrual basis of accounting (neither).
Your response should be cash basis, accrual basis, both, or neither.
