Present value is based on
a. the dollar amount to be received.
b. the length of time until the amount is received.
c. the interest rate.
d. all of these.
Answer:
Which of the following is a true statement about inventory systems?
a. Periodic inventory systems require more detailed inventory records.
b. Perpetual inventory systems require more detailed inventory records.
c. A periodic system requires cost of goods sold be determined after each sale.
d. A perpetual system determines cost of goods sold only at the end of the accounting
period.
Answer:
The current balance sheet of Greyson Inc. reports total assets of $40 million, total
liabilities of $4 million, and stockholders’ equity of $36 million. Greyson is considering
several financing possibilities in order to expand operations. Each question based on
this data is independent of any others. What will be the effect on Greyson’s debt to
assets ratio if Greyson issues an additional $8 million in stock to finance its expansion?
a. The debt to assets ratio will decrease from .1(4/40) to .083 (4/48) after the additional
stock sale.
b. The debt to assets ratio will decrease from 4/36 before to 4/44 after the additional
stock sale.
c. The debt to assets ratio will increase from 40 before to 48 after the additional
investment.
d. The additional stock issuance will have no effect on the debt to assets ratio.
Answer:
Which of the following would not be true of a privately held corporation?
a. It is sometimes called a closely held corporation.
b. Its shares are regularly traded on the New York Stock Exchange.
c. It does not offer its shares for sale to the general public.
d. It is usually smaller than a publicly held company.
Answer:
A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money.
b. when an employee is suspected of fraud.
c. to explain any difference between the depositor’s balance per books and the balance
per bank.
d. by the person who is authorized to sign checks.
Answer:
TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash
and signed a note for the balance. TransAm debited the Equipment account, credited
Cash and
a. nothing further must be done.
b. debited the retained earnings account for $2,100.
c. credited another asset account for $400.
d. credited a liability account for $2,100.
Answer:
Accounting consists of three basic activities which are related to economic events of an
organization. These include
a. identifying, recording, and communicating
b. identifying, calculating, and responding
c. classifying, numbering, and reporting
d. issuing, reporting, and classifying
Answer:
Larson Supply bought equipment at a cost of $72,000 on January 2, 2012. It originally
had an estimated life of ten years and a salvage value of $12,000. Larson uses the
straight-line depreciation method. On December 31, 2015, Larson decided the useful
life likely would end on December 31, 2019, with a salvage value of $6,000. The
depreciation expense recorded on December 31, 2015, should be
a. $6,000.
b. $6,600.
c. $9,600.
d. $13,200.
Answer:
The Sales Returns and Allowances account is classified as a(n)
a. asset account.
b. contra asset account.
c. expense account.
d. contra revenue account.
Answer:
In addition to the three basic financial statements, which of the following is also a
required financial statement?
a. the “Cash Budget”
b. the Statement of Cash Flows
c. the Statement of Cash Inflows and Outflows
d. the “Cash Reconciliation”
Answer:
Which of the following is not generally understood to be a major service of a public
accounting firm?
a. Auditing
b. Taxation
c. Budgeting
d. Management consulting
Answer:
The times interest earned is computed by dividing
a. net income by interest expense.
b. income before income taxes by interest expense.
c. income before interest expense by interest expense.
d. income before income taxes and interest expense by interest expense.
Answer:
If supplies that have been purchased are used in the course of business, then
a. a liability will increase.
b. an asset will increase.
c. stockholders’ equity will decrease.
d. stockholders’ equity will increase.
Answer:
If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry
to recognize the loss
a. is not required since the share prices will likely rebound in the long run.
b. will show a debit to an expense account.
c. will show a credit to a contra-asset account that appears in the stockholders’ equity
section of the balance sheet.
d. will show a debit to an unrealized loss account that is deducted in the stockholders’
equity section of the balance sheet.
Answer:
The amortization of premium on bonds payable
a. will increase bond interest expense.
b. should take place over a period not to exceed 40 years.
c. will decrease bond interest expense.
d. will increase bond interest revenue.
Answer:
Each of the following may be shown on a supporting schedule instead of on the balance
sheet except the
a. current maturities of long-term debt.
b. conversion privileges.
c. interest rates.
d. maturity dates.
Answer:
A technique for evaluating financial statements that expresses the relationship among
selected items of financial statement data is
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. vertical analysis.
Answer:
Disclosure of a contingent liability is usually made
a. parenthetically, in the body of the balance sheet.
b. parenthetically, in the body of the income statement.
c. in a note to the financial statements.
d. in the management discussion section of the financial statements.
Answer:
Dean Corporation reported net income $58,000, net sales $500,000, and average assets
$800,000 for 2015. The 2015 profit margin was:
a. 5.8%.
b. 11.6%.
c. 62.5%.
d. 160%.
Answer:
The following accounts are included in the ledger of Wainwright Company:
Advertising expense
Freight-in
Inventory
Purchases
Purchase returns and allowances
Sales revenue
Sales returns and allowances
Which of the accounts would be included in calculating cost of goods sold?
Answer:
The major advantages of the corporate form of organization include (1) limited
_________________ of owners, (2) continuous ____________________ and (3) ease
of transferring ___________________.
Answer:
The bookkeeper for Antony Johnson Auto Repair made a number of errors in
journalizing
and posting, as described below.
1> A credit posting of $500 to Accounts Receivable was omitted.
2> A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
3> A collection from a customer of $100 in payment of its account owed was
journalized and
posted as a debit to Cash $100 and a credit to Service Revenue $100.
4> A credit posting of $350 to Interest Payable was made twice.
5> A cash purchase of supplies for $250 was journalized and posted as a debit to
Supplies $25
and a credit to Cash $25.
6> A debit of $685 to Advertising Expense was posted as $658.
Instructions
For each error:
(a) Indicate whether the trial balance will balance.
(b) If the trial balance will not balance, indicate the amount of the difference.
(c) Indicate the trial balance column that will have the larger total.
Consider each error separately. Use the following form, in which error (1) is given as an
example.
Answer:
Analysis of the changes in all of the noncash balance sheet accounts will explain the
change in the Cash account.
Answer:
Accountants who are employees of business enterprises are referred to as
________________ accountants.
Answer:
Sold a long-term investment (cost $3,000) for cash of $6,000.
Answer: