Normally, companies with low gross profit percentages will have low asset turnover.
Equity securities, in which the investor lacks the ability to participate in the decisions of
the investee company, are initially accounted for at the lower-of-cost-or-market value.
Entries from the purchases journal are posted monthly to the accounts payable
subsidiary ledger and daily to the general ledger.
An amount that a business earns from selling merchandise inventory is known as sales
revenue or sales.
Purchases on account are recorded in the purchases journal.
The trial balance is an internal document used only by employees of the company.
An accounts receivable requires the business to pay cash in the future.
The federal government is the only entity that requires corporations to pay income tax
on their net income.
Because of the revenue recognition principle, interest on a note receivable is recorded
in the year in which it is earned.
Internal control is an organizational plan that ensures that the financial statements are
prepared and submitted on time.
Accrued revenue represents the receipt of cash before the revenue has been earned.
Revenues and stockholders’ contributions in the business increase equity.
Generally Accepted Accounting Principles (GAAP) require every organization to
prepare reversing entries.
When a business records the earning of service revenue, the Service Revenue account is
credited.
A receivable occurs when a business sells goods or services to another party on account.
Sales are recorded at the amount of the sale less any sales discounts.
Examples of source documents in an accounting information system include the
statement of cash flows and sales journal.
In the case of deferred revenue, the adjusting entry at the end of the period includes a
credit to Service Revenue. Assume the deferred revenue is initially recorded as a
liability.
When a business collects cash, the Cash account is debited.
The two common methods of processing credit and debit card transactions are gross and
net.
Factoring is an option available to a business to reduce the risk of uncollectible
accounts receivable.
Regarding controls over cash receipts by mail, the accounting department should
prepare the deposit ticket from the remittance advices.
Realized gains or losses occur when a company adjusts an asset to fair value but has not
yet disposed of the asset.
A sale of treasury stock at its cost increases assets and increases equity.
When preparing the statement of cash flows using the indirect method, depreciation
expense is subtracted from net income under operating activities.
Companies make a year-end adjustment of the trading debt investment to bring the
account to historical value.
A liability account is increased by a debit.
If a company expenses an extraordinary repair, net income would be understated and
the asset would be understated.
A source document provides the evidence and data for accounting transactions.
The revenue recognition principle requires companies to record revenue when (or as)
the entity satisfies each performance obligation.
The difference that arises between the balance on the bank statement and the balance on
the company’s books because of a time lag in recording transactions is known as a
timing difference.
For the accounting equation to balance, a transaction must affect both sides of the
equation.
Amounts owed for products or services purchased on account are accounts receivable.
Net sales revenue is sales revenue less sales discounts and estimated sales returns and
allowances.
The balance sheet reports on the assets, liabilities, and stockholders’ equity of the
business as of a specific date.
Debt securities do not include U.S. government securities.
Some companies promote and issue their own private label credit cards.
When using a computerized accounting information system, transactions do not need to
be recorded in a debit and credit format.
Even in a perpetual inventory system, the business must count its inventory at least
once in a year.
A note receivable represents an oral promise that a customer will pay a fixed amount of
money and interest by a certain date in the future.
Which of the following occurs when a cash dividend is declared?
A) Liabilities remain unchanged.
B) Stockholders’ equity decreases.
C) Liabilities decrease.
D) Assets increase.
Under the direct write-off method, which of the following is included in the entry to
write off an uncollectible account?
A) a credit to the Allowance for Bad Debts
B) a credit to the customer’s Account Receivable
C) a debit to Allowance for Uncollectible Accounts
D) No entry is made to write off uncollectible accounts.
Dynamic Production Services started the year with total assets of $120,000 and total
liabilities of $55,000. The revenues and the expenses for the year amounted to $100,000
and $80,000, respectively. During the year, the company did not issue any common
stock, but it distributed dividends of $50,000. Calculate Dynamic’s net income for the
year.
A) $20,000
B) $100,000
C) $80,000
D) $120,000
At the end of the current year, the accountant for Computer Graphics, Inc. forgot to
make an adjusting entry to accrue Wages Payable for the company’s employees for the
last week in December. The wages will be paid to the employees in January. Which of
the following is an effect of this error?
A) Net income is overstated.
B) Liabilities are overstated.
C) Net income is understated.
D) Expenses are overstated.
Which of the following is included in the internal control procedure—documents?
A) Mandatory vacations will improve internal control.
B) Separate the custody of assets from accounting.
C) The invoices and orders must be pre-numbered.
D) A company should purchase a fireproof vault to protect legal documents.
Canada Company needs to purchase a property to build their headquarters. An investor
is willing to exchange land with a market value of $700,000 for shares of common
stock. On the statement of cash flows, this transaction would be shown as ________.
A) investing activities
B) non-cash investing and financing activities
C) operating activities
D) financing activities
Scotland Corporation had net income for 2018 of $80,000. Scotland had 13,000 shares
of common stock outstanding at the beginning of the year and 24,000 shares of
common stock outstanding at the end of the year. There were 12,000 shares of preferred
stock outstanding all year. During 2018, Scotland declared and paid preferred dividends
of $21,000. What is Scotland’s earnings per share? (Round the answer to two decimal
places.)
A) $3.33
B) $3.19
C) $4.32
D) $2.46
World-wide Financial Services, Inc. invested $27,000 to acquire 4000 shares of Dawn
Investments, Inc. on March 15, 2016. This investment represents less than 20% of the
investee’s voting stock. On May 7, 2019, World-wide Financial Services, Inc. sells 2500
shares for $14,250. In the accounting equation on May 7, 2019, ________.
A) total assets will remain unchanged
B) total assets will increase
C) total liabilities will decrease
D) total equity will decrease
Which of the following appears on both the statement of retained earnings and the
balance sheet?
A) Ending retained earnings
B) Total assets
C) Total revenues
D) Net income
Healthy Farmer, Inc. has 46,000 shares of common stock outstanding and 3000 shares
of preferred stock outstanding. The common stock is $0.03 par value; the preferred
stock is 7% noncumulative with a $100.00 par value. On October 15, 2019, the
company declares a total dividend payment of $43,000. What is the total amount of
dividends that will be paid to the common stockholders?
A) $43,000
B) $22,000
C) $1380
D) $9000
Second Street, Inc. has 7 units in ending merchandise inventory on December 31. The
units were purchased in November for $180 each. The price lists from suppliers indicate
the current replacement cost of the item to be $178 each. Which of the following
statements is true of the effects of the adjustments to ending merchandise inventory and
the cost of goods sold?
A) The cost of goods sold would increase by $2.
B) The cost of goods sold would not be affected.
C) The cost of goods sold would decrease by $14.
D) The cost of goods sold would increase by $14.
Which of the following is NOT an appropriate internal control for cash receipts over the
counter?
A) A receipt is issued for each transaction to ensure that each sale is recorded.
B) The store clerk deposits the cash in the bank.
C) At the end of the day, the manager proves the cash by comparing the cash in the
drawer against the machine’s record of cash sales.
D) The cash draw opens after the store clerk enters a transaction.
Calculate the interest on a 90-day, 9% note for $50,000. (Use a 360-day year to
compute interest. Round your answer to the nearest dollar.)
A) $2,250
B) $1,125
C) $4,500
D) $375
The Salaries Payable account is a(n) ________.
A) liability account with a normal debit balance
B) asset account with a normal debit balance
C) liability account with a normal credit balance
D) asset account with a normal credit balance
Reunion Corporation provides the following information.
Based on the information provided above, compute the earnings per share of Reunion
Corporation as of March 31, 2019. (Round any intermediate calculations and your final
answer to the nearest cent.)
A) $1.22
B) $2.18
C) $1.74
D) $1.46
Forever Jewelers uses the perpetual inventory system. On April 2, Forever sold
merchandise with a cost of $4,500 for $7,000 to a customer on account with terms of
2/15, n/30. Which of the following journal entries correctly records the sales revenue?
A)
B)
C)
D)
Which of the following is included in the category of other receivables?
A) interest receivable
B) accounts receivable
C) notes receivable
D) investments
A list of the accounts and their balances at the end of the period, after journalizing and
posting the closing entries, is called ________.
A) chart of accounts
B) adjusted trial balance
C) post-closing trial balance
D) pre-closing balance sheet
Boulevard Home Furnishings had the following balances and transactions during 2018.
The company maintains its records of inventory on a perpetual basis using the FIFO
inventory costing method. Calculate the amount of ending Merchandise Inventory at
December 31, 2018 using the lower-of-cost-or-market rule.
A) $2,975
B) $3,045
C) $3,480
D) $5,220
Which of the following journal entries would be recorded if a corporation issued
common stock and received $3,000?
A)
B)
C)
D)
Refer to the following trial balance.
How much is the gross profit?
A) $103,000
B) $95,000
C) $97,000
D) $99,000
Which of the following is the result of the maker of a promissory note failing to pay the
note on the due date?
A) a discounted note
B) a depreciated note
C) an amortized note
D) a dishonored note
When comparing the direct write-off and allowance methods, the major difference is
________.
A) when to record bad debts expense
B) when to recognize revenue
C) determining the balance of the Allowance for Bad Debts account
D) developing adequate procedures for granting credit
Reece Consultants had the following balances before preparing adjusting entries in the
books on December 31, 2019.
Prepare the adjusted trial balance after considering these adjustments:
a. Office Supplies used, $800. Assume the office supplies were initially recorded as an
asset.
b. Accrued salaries on December 31, $600.
c. Revenue earned but not recorded, $200.
On January 1, 2019, Castle Services issued $169,000 of six-year, 12% bonds when the
market interest rate was 11%. The bonds were issued for $172,000. Castle uses the
effective-interest method to amortize the bond premium. Semiannual interest payments
are made on June 30 and December 31 of each year. Which of the following is the
correct journal entry to record the first interest payment? (Round your answers to the
nearest dollar number.)
A)
B)
C)
D)
Wilson Furniture Company received cash of $40,000 and issued common stock. Which
of the following accounts will be debited?
A) Accounts Receivable
B) Cash
C) Common Stock
D) Accounts Payable
Which of the following represents the correct flow of accounting data?
A) transactions occur; transactions are analyzed; transactions are journalized and
posted; source documents are prepared
B) transactions occur; source documents are prepared; transactions are journalized and
posted;
C) transactions occur; source documents are prepared; transactions are analyzed;
transactions are journalized and posted
D) source documents are prepared; transactions occur; transactions are analyzed;
transactions are journalized and posted
Which of the follow statements regarding the primary objective of financial reporting is
correct?
A) The primary objective of financial reporting is to provide information useful for the
acquisition of long-term assets.
B) Information that is faithfully represented is complete, neutral, and free from error.
C) Relevant information ensures that users of the information will make the correct
decisions.
D) To be useful, information must follow the Generally Accepted Accounting Principles
which are created and governed by the Securities and Exchange Commission.
On November 1, 2018, Nada, Inc. declared a dividend of $5.00 per share on common
stock. Nada, Inc. has 20,000 shares of common stock outstanding and no preferred
stock. The date of record is November 15, and the payment date is November 30, 2018.
Which of the following is the journal entry needed on November 30, 2018?
A) Debit Cash Dividends $100,000, and credit Dividends Payable—Common
$100,000.
B) Debit Dividends Payable—Common $100,000, and credit Cash $100,000.
C) Debit Cash $100,000, and credit Dividends Payable—Common $100,000.
D) Debit Cash Dividends $100,000, and credit Cash $100,000.
Which of the following is the major difference between the accounting for equity
securities and debt securities?
A) Debt securities are classified as liabilities, while equity securities are classified as
assets.
B) Debt securities are classified as trading debt investments, while equity securities are
classified as held-to-maturity equity investments.
C) Debt securities earn interest revenue, while equity securities may earn dividend
revenue.
D) Debt securities of all types have a maturity date, while only a few equity securities
have a maturity date.
Which of the following is a financial statement that presents a business’s accounting
equation?
A) Chart of Accounts
B) Trial Balance
C) Income Statement
D) Balance Sheet
On January 1, 2018, Wonderland Sales issued $30,000 in bonds for $22,300. These are
eight-year bonds with a stated interest rate of 12% and pay semiannual interest.
Wonderland Sales uses the straight-line method to amortize the bond discount. What is
the bond carrying amount after the first interest payment on June 30, 2018? (Round
your intermediate answers to the nearest dollar.)
A) $30,000
B) $18,931
C) $22,781
D) $26,631
The process by which companies produce their financial statements for a specific
period is called the ________.
A) operating cycle
B) closing process
C) opening process
D) accounting cycle
________ is a pay amount stated at an hourly rate.
A) Salary
B) Wage
C) Commission
D) Bonus
On January 1, 2018, West Coast Boats paid $ 1,850,000 for its 30% investment in East
Coast Autos. After the purchase, West Coast Boats has significant influence over East
Coast Autos. East Coast Autos earned net income of $30,000,000 and paid cash
dividends of $15,000,000 to all outstanding stockholders during 2018. Assume all
outstanding stock is voting stock.
Requirement:
1. Journalize all required 2018 transactions related to West Coast Boats’ investment in
East Coast Autos. Omit explanations.
2. What is the December 31, 2018 balance of the investment account? Label your work.
For each of the following expenditures, indicate whether the amount is debited to an
asset account or to an expense account.
Nathan Corporation’s accounting records include the following items for the year
ending December 31, 2018:
The income tax rate for the company is 45%. The company had 15,000 shares of common
stock outstanding during 2018 and no preferred stock. Prepare Nathan’s income statement
for the year ending December 31, 2018. Show how Nathan reports EPS data on its 2018
income statement.
A company purchased inventory for $100,000 on account and recorded it as follows:
What does the gross profit percentage measure? How is it computed?
On January 1, 2018, Dalton Manufacturing Corporation purchased a machine for
$40,000,000. The corporation expects to use the machine for 24,000 hours over the next
six years. The estimated residual value of the machine at the end of the sixth year is
$40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in
2019. Calculate depreciation expense for 2019 if the company uses the
units-of-production method of depreciation.
Using the following information, provide the complete accounting equation.
Southwest, Inc. records indicate that January sales on account were $109,000. The
company’s management estimates warranty expense to be 3.6% of sales. Prepare the
journal entry to record warranty expense. Omit explanation.
On January 1, 2019, Mullens Sales issues $10,000 in bonds for $9,400. The bonds are
five-year bonds with a stated rate of 4% and pay semiannual interest on June 30 and
December 31. Mullens Sales uses the straight-line method to amortize bond discount.
Prepare the journal entry for the first interest payment on June 30, 2019. Omit
explanation.
Define the following terms:
Martin, Inc. decided to reward its employees with a bonus of 7% on annual net income,
after deducting the bonus. The company reported net income of $513,600 before the
calculation of the bonus. Prepare the journal entry to accrue employee bonus expense.
Omit explanation.
Sail Away, a cruise industry magazine, collected $480,000 in subscription revenue in
May. Each subscriber will receive an issue of the magazine for each of the next 12
months, beginning with the June issue. The company uses the accrual basis of
accounting. Prepare the adjusting entry needed on June 30. (Ignore explanation).
Assume the magazine initially records a liability for the subscription revenue.
List the three steps, in order of occurrence, of the operating cycle of a merchandising
business.
On December 31, 2018, Anderson Hardware Company purchases $300,000 of property
by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.
The amortization schedule shows that the company will pay $46,072 per year.
Journalize the first yearly payment on December 31, 2019. Omit explanation.
For the following situation, state whether it represents a strength or weakness in internal
control and give the reason for your answer.
Fifth National Bank requires mandatory vacations and job rotation.