At the end of each day, the accountant proves the cash by comparing the cash in the
drawer against the point-of-sale terminal record of cash sales.
Estimated residual value can be zero if the company does not expect to receive anything
when disposing of the asset.
All transactions are recorded in either one of the special journals or in the general
journal, but not both.
If a contingency is remote, the company does not need to record a liability and does not
need to disclose it in the notes to the financial statements.
Generally accepted accounting principles require that interest expense be measured
using the straight-line amortization method.
The statement of stockholders’ equity does not show the changes to the Retained
Earnings account because that information is provided in the statement of retained
earnings.
When using a four-column account, the posting reference column allows the user of the
financial data to trace the amounts in the journal back to the ledger.
The maturity value of a note is the sum of the principal minus interest due at maturity.
Unearned revenue arises because the business receives goods or services before
payment has been made.
The Accounts Payable account is a temporary account.
In the formula for computing the interest on a note, the time period represents the
portion of a year that interest has accrued on the note.
If net income is overstated, equity will be understated.
A retailer purchases goods from a manufacturer and sells them to wholesalers.
A performance obligation is a contractual promise with a customer to transfer a distinct
good or service.
An accounts receivable is often described as a sale “on account.”
Members of a limited-liability company (LLC) are not personally liable for the debts of
the business.
A debit always means a decrease, and a credit always means an increase.
A merchandiser using the gross method sold goods on account to Customer A for
$8,000 with terms of 2/10, n/30. If the payment is received within the discount period,
Accounts Receivable is decreased by $7,800.
Assets and liabilities are presented in a different order on a balance sheet prepared
following IFRS than on a balance sheet prepared following U.S. GAAP.
The loss of inventory that occurs because of theft, damage, and errors is referred to as
inventory shrinkage.
Callable bonds are bonds that the issuer may call and pay off at a specified price
whenever the issuer wants.
Adjusting entries may involve any account, including Cash.
A method of accounting for uncollectible receivables in which the company estimates
bad debts expense instead of waiting to see from which customers the company will not
be able to collect is known as the allowance method.
Preferred Stock is included in the stockholders’ equity section of the balance sheet and
is often listed after Common Stock.
The Public Company Accounting Oversight Board oversees the work of auditors of
public companies.
To be IFRS compliant, foreign companies are not required to have their internal
controls audited by outside auditors.
Atlas Service Company decides to increase the amount of the petty cash fund from
$300 to $850. A journal entry must be made to debit the Cash account and credit the
Petty Cash account for $550.
The current ratio shows the profitability of a firm.
A high interest-coverage ratio indicates a company has difficulty in paying interest
expense.
The payment terms for a note receivable are generally longer than that of an account
receivable.
The Service Revenue account is a permanent account.
The Cash account is a temporary account.
Trading debt investments are categorized as current assets.
The left side of the T-account for Accounts Receivable is the debit side and the left side
of the T-account for Accounts Payable is the credit side.
On March 1, 2018, Mandy Services issued a 3% long-term notes payable for $15,000. It
is payable over a 3-year term in $5000 principal installments on March 1 of each year,
beginning March 1, 2019. Each yearly installment will include both principal
repayment of $5000 and interest payment for the preceding one-year period. What is the
amount of total cash payment that Mandy will make on March 1, 2019?
A) $5000
B) $5450
C) $15,000
D) $5225
The earnings of a sole proprietorship are ________.
A) combined with the personal income of the proprietor
B) not combined with the proprietor’s personal income
C) subject to double taxation
D) handled similarly to that of a corporation
The account title used for recording a written promise that a customer will pay the
business a fixed amount of money and interest by a certain date in the future is
________.
A) Prepaid Note
B) Notes Payable
C) Notes Receivable
D) Accounts Receivable
On May 31, a retail firm pays rent of $2700 for the month of May. When this
transaction is recorded in the cash payments journal, ________.
A) assets and equity will increase by $2700
B) assets and liabilities will decrease by $2700
C) assets and equity will decrease by $2700
D) liabilities and equity will increase by $2700
Cash borrowed on a mortgage note is a(n) ________ activity on the statement of cash
flows.
A) operating
B) investing
C) financing
D) non-cash investing and financing
Which of the following is included in the numerator of the acid-test ratio?
A) cash including cash equivalents, inventory, short-term investments, net current
receivables
B) accounts receivable and inventory
C) cash including cash equivalents, short-term investments, net current receivables
D) total current assets
Regent Plumbing Corporation provides plumbing services. Selected transactions of
Regent Plumbing Corporation are described as follows:
a) Received $8,000 cash and issued common stock to Sharon Regent.
b) Paid $5,000 cash for equipment to be used for plumbing repairs.
c) Borrowed $11,000 from a local bank and deposited the money in the checking
account.
d) Paid $900 rent for the year.
e) Paid $200 cash for plumbing supplies to be used next year.
f) Completed a plumbing repair project for a local lawyer and received $3,000 cash.
Calculate the net income. Assume plumbing supplies of $200 are left at the end of the
accounting period.
A) $700
B) $2,800
C) $3,000
D) $2,100
When inventory costs are declining, which of the following inventory costing methods
will result in the highest cost of goods sold?
A) first-in, first-out
B) last-in, first-out
C) weighted-average
D) specific identification
A corporation originally issued $7 par value common stock for $13 per share. It
purchased the stock for $17 per share. Which of the following is included in the entry to
record the sale of 20 shares of treasury stock for $18 per share?
A) Paid-In Capital from Treasury Stock Transactions is credited for $360.
B) Treasury Stock—Common is credited for $340.
C) Treasury Stock—Common is credited for $360.
D) Paid-In Capital from Treasury Stock Transactions is debited for $20.
Which of the following amounts would be reported as Merchandise Inventory on the
balance sheet of a company if the cost of an item is $110 and the current replacement
cost is $70?
A) $180
B) the average of $70 and $110
C) $110
D) $70
An adjusting entry is completed ________.
A) at the beginning of the accounting period
B) at the end of the accounting period
C) after all performance obligations are satisfied
D) when accounts need to be balanced in the ledger
Which of the following is NOT a profitability measure that is used to compare
companies of different sizes?
A) earnings per share
B) rate of return on common stockholders’ equity
C) price/earnings ratio
D) outstanding common stock ratio
Bargain Merchandisers has the following transactions for the month of July.
Calculate Gross Profit.
A) $29,000
B) $109,000
C) $35,000
D) $23,000
The employees of Vintage Clothes achieved all of the sales goals for 2017. Vintage
decides to reward the employees with a bonus of 20% on annual net income, after
deducting the bonus. The net income before the calculation of the bonus is $312,000.
What is the amount of the bonus? (Round your final answer to the nearest dollar.)
A) $62,400
B) $52,000
C) $55,059
D) $12,480
A company check for payment must be signed by ________.
A) the company president
B) a bank employee
C) an employee specifically authorized by the company
D) the external auditor
Which of the following are temporary accounts that are closed at the end of the year?
A) assets, liabilities, and dividends
B) revenues, expenses, and dividends
C) assets, liabilities, and stockholders’ equity
D) revenues, expenses, and stockholders’ equity
On September 1, Advantage Maintenance Company contracted to provide monthly
maintenance services for the next five months at a rate of $3,000 per month. The client
paid Advantage $15,000 on September 1. The maintenance services began on that date.
Assuming Advantage records deferred revenues using the alternative treatment, what
would be the adjusting entry recorded on December 31?
A) No entry is needed since revenue was recorded on September 1.
B) Debit Service Revenue and credit Unearned Revenue for $3,000.
C) Debit Service Revenue and credit Unearned Revenue for $15,000.
D) Debit Unearned Revenue and credit Service Revenue for $12,000.
Which of the following is true of a contingent liability?
A) It is a potential liability that depends on a future event.
B) It is an actual liability that is difficult to estimate.
C) It is an actual liability that depends on a past event.
D) It is a liability resulting from a lawsuit settled in court.
Which of the following statements is true of a trial balance?
A) A trial balance is the first step in the accounting cycle.
B) A trial balance is also known as a balance sheet.
C) A trial balance is a list of all accounts with their balances.
D) A trial balance is also known as the chart of accounts.
The term “freight out” refers to ________.
A) transportation costs on purchases
B) cost of inventory purchased
C) costs that are not actually paid in cash
D) transportation costs on sales
Night Owl, Inc. reported the following data:
Increase (Decrease)
The horizontal analysis shows that the amount of total liabilities has __________.
A) increased by $23,000
B) increased by $2800
C) decreased by $2800
D) increased by $24,600
Which of the following is the record holding all the accounts, the changes in those
accounts, and their balances?
A) Source document
B) Journal
C) Ledger
D) Trial balance
Federal unemployment compensation tax (FUTA) is not withheld from employees’
gross earnings.
Which of the following journal entries would be recorded if a business performs
services and receives cash of $900 from the customer?
A)
B)
C)
D)
Watson Foods, Inc. reported the following transactions for September 2019.
a) The business received $22,000 cash and issued common stock. It was credited to
Common Stock.
b) The business purchased office equipment for $9,000 for which $3,500 cash was paid
and the balance was put on a note payable.
c) Paid insurance expense of $1,800 cash.
d) Paid the September utility bill for $900 cash.
e) Paid $2,000 cash for September rent.
f) The business had sales of $10,000 in September. Of these sales, 60% were cash sales,
and the balance was credit sales.
g) The business paid $7,000 cash for office furniture.
What are the total liabilities at the end of September, 2019?
A) $10,000
B) $1,800
C) $5,500
D) $9,000
Which of the following is a source document that provides the evidence and data for
accounting transactions?
A) Journal
B) Sales invoice
C) Ledger
D) Trial balance
The fair value of an investment is the price that ________.
A) existed at the time of acquisition
B) would be received if the company were to sell the investment on the market
C) is always equal to the weighted average cost of the investment
D) is not relevant for trading debt investments
Kentucky Company uses the indirect method to prepare the statement of cash flows.
Refer to the following income statement:
Kentucky Company
Income Statement
Year Ended December 31, 2019
Additional information provided by the company includes the following:
1. Current assets, other than cash, increased by $21,000.
2. Current liabilities decreased by $1200.
Compute the net cash provided by (used for) operating activities.
A) $26,700
B) $40,700
C) $35,400
D) $11,800
Calculate the cost of goods sold for a merchandiser using the periodic inventory system
from the following details.
A) $540,000
B) $529,000
C) $547,000
D) $829,000
Match the accounting position to the job description.
A) Performs reviews of companies to ensure compliance to rules and regulations
B) Compiles financial statements, interacts with auditors, oversees regulatory reporting
C) Specializes in accounting and financial management knowledge
D) Serves the general public
Which of the following best describes the appropriation of retained earnings?
A) restricting part of retained earnings for expansion or contingencies
B) setting cash aside for expansion
C) designating certain amounts of retained earnings for cash dividends that are required
to be paid to shareholders
D) limiting company transactions in order to boost earnings
A company purchased a computer on July 1, 2019 for $50,000. The estimated useful
life of the computer was five years, and it has no residual value. Which of the following
methods should be used to best match its expense against the revenue it produces?
A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method
On January 1, 2019, Parker Advertising Company issued $50,000 of six-year, 3% bonds
when the market interest rate was 4%. The bonds were issued for $47,356. Parker uses
the effective-interest method of amortization for bond discount. Semiannual interest
payments are made on June 30 and December 31 of each year. Prepare the amortization
table for the first four interest payments. (Round your answers to the nearest dollar
number.)
The following is the adjusted trial balance as of December 31, 2019 of Brooks Design
Studio:
Prepare the closing entry for expenses. Omit explanation.
Metro Sales, Inc. offers warranties on all its electronic goods. Warranty expense is
estimated at 3.5% of sales revenue. In 2019, Metro had sales of $333,000. In the same
year, Metro replaced defective goods with merchandise inventory costing $8,750.
Prepare the journal entry to record the replacement of defective goods. Omit
explanation.
Neighborhood Lawn Equipment uses a perpetual inventory system. Journalize the
following sales transactions for this company. Explanations are not required.
May 18: Sold $26,000 of merchandise on account, credit terms are 1/10, n/30, FOB
destination.
Cost of goods is $15,600.
May 22: Neighborhood negotiated a $600 allowance on the goods sold on May 18.
May 24: Neighborhood paid freight of $450 on the goods sold on May 18.
Foodmart, Inc. completed the following treasury stock transactions in 2018:
Mar. 3 Purchased 1,800 shares of the company’s $3 par value common stock as treasury
stock, paying cash of $10 per share.
Mar. 17 Sold 400 shares of the treasury stock for cash of $12 per share.
Mar. 25 Sold 600 shares of the treasury stock for cash of $7 per share.
(Assume the balance in Paid-In Capital from Treasury Stock Transactions on March 24
is $ 1,200.)
Journalize these transactions. Explanations are not required.
How will Foodmart, Inc. report treasury stock on its balance sheet as of December 31,
2018?
Wentfield Services, Inc. records deferred expenses as expenses when payment is made
in advance and deferred revenues as revenues when the payment is received in advance.
At the end of the year, Wentfield Services, Inc. makes the necessary adjustments based
on accrual basis accounting. On July 1, it paid rent for an office in the amount of
$24,000 for the period July 1 through June 30 of the following year. Prepare the
year-end adjusting entry on December 31. Omit explanation.
On July 1, Lamba, Inc. paid rent of $15,000 for an equipment storage building from
July 1 until December 31. Prepare the adjusting journal entry on July 31. (Ignore
explanation). Assume the deferred expense is initially recorded as an asset.
Jameson Company earned net income of $75,000 during the year ended December 31,
2018. On December 20, Jameson declared the annual cash dividend on its 8%
noncumulative preferred stock (par value, $150,000) and a $0.50 per share cash
dividend on its common stock (45,000 shares). Jameson then paid the dividends on
January 10, 2019.
Prepare the journal entries to record the declaration and the distribution of the
dividends. Explanations are not required.
Moonlight, Inc. wrote off the account of one of its customers, X, in 2018 for $500. On
January 21, 2019, X unexpectedly repaid his account in full. The company uses the
direct write-off method to account for uncollectible receivables. Journalize the entries
required for Moonlight, Inc. on January 21, 2019. Omit explanations.
The following selected transactions occurred during 2019 for Northwest Movers. The
company ends it accounting year on December 31.
Prepare the journal entries to record these transactions. Omit explanations.
List and briefly discuss four features that distinguish a corporation from other types of
business organizations.
Hardwood Flooring Company buys a building for $115,000, paying $30,000 cash and
signing a 30-year mortgage note for $85,000 at 11% annual interest. The payments will
be made in equal monthly installments of $809. Prepare the journal entry for the first
monthly payment. (Round your answers to the nearest whole dollar number.) Omit
explanation.
Prepare a vertical analysis of the income statement shown below. (Round to two
decimal places.)
Buckner, Inc.
Income Statement
For the Year Ended December 31, 2019
