In a period of increasing prices, which inventory flow assumption will result in the
lowest amount of income tax expense?
a. FIFO
b. LIFO
c. Average Cost
d. Income tax expense for the period will be the same under all assumptions.
Answer:
The accounting for each of the following is the same under IFRS and GAAP except for
a. extraordinary items.
b. discontinued operations.
c. changes in accounting principles.
d. changes in accounting estimates.
IFRS:
Answer:
Effie Company uses a periodic inventory system. Details for the inventory account for
the month of January, 2015 are as follows:
An end of the month (1/31/15) inventory showed that 160 units were on hand. How
many units did the company sell during January, 2015?
a. 60
b. 160
c. 200
d. 240
Answer:
A corporation issued $900,000 of 6%, 5-year bonds on January 1, at 10 Interest is paid
semiannually on January 1 and July 1. If the corporation uses the straight-line method
of amortization, the amount of bond interest expense to be recognized on July 1 is
a. $54,000.
b. $27,000.
c. $28,800.
d. $25,200.
Answer:
Comparisons of financial data made within a company are called
a. intracompany comparisons.
b. interior comparisons.
c. intercompany comparisons.
d. intramural comparisons.
Answer:
Adjusting entries are required
a. yearly.
b. quarterly.
c. monthly.
d. every time financial statements are prepared.
Answer:
Douglas Company issued a $4,500,000, 10%, 10-year mortgage note payable to finance the
construction of a building at December 31, 2015. The terms provide for semiannual installment
payments of $257,924.
Instructions
Prepare the entry to record:
(a) the mortgage loan on December 31, 2015.
(b) the first installment payment.
Answer:
Which of the following companies would be least likely to use a worksheet to facilitate
the adjustment process?
a. Large company with numerous accounts
b. Small company with numerous accounts
c. All companies, since worksheets are required under generally accepted accounting
principles
d. Small company with few accounts
Answer:
After journal entries are posted, the reference column
a. of the general journal will be blank.
b. of the general ledger will show journal page numbers.
c. of the general journal will show “Dr” or “Cr”.
d. of the general ledger will show account numbers.
Answer:
Inventories are defined by IFRS as
a. held-for-sale in the ordinary course of business.
b. in the process of production for sale in the ordinary course of business.
c. in the form of materials or supplies to be consumed in the production process or in
the providing of services.
d. All of these answers are correct.
Answer:
Vega Corporation’s December 31, 2015 balance sheet showed the following:
Vega declared and paid a $58,000 cash dividend on December 15, 2015. If the
company’s dividends in arrears prior to that date were $10,000, Vega’s common
stockholders received
a. $48,000.
b. $22,000.
c. $36,000.
d. no dividend.
Answer:
When the allowance method is used to account for uncollectible accounts, Bad Debt
Expense is debited when
a. a sale is made.
b. an account becomes bad and is written off.
c. management estimates the amount of uncollectibles.
d. a customer’s account becomes past-due.
Answer:
The purchase of treasury stock
a. decreases common stock authorized.
b. decreases common stock issued.
c. decreases common stock outstanding.
d. has no effect on common stock outstanding.
Answer:
From the standpoint of the issuing company, a disadvantage of using bonds as a means
of long-term financing is that
a. bond interest is deductible for tax purposes.
b. interest must be paid on a periodic basis regardless of earnings.
c. income to stockholders may increase as a result of trading on the equity.
d. the bondholders do not have voting rights.
Answer:
Notson Textile purchased machinery for $60,000 eight years ago. It was expected to
have a useful life of ten years, no salvage value, and was depreciated using the
straight-line method. At the end of its eighth year of use, it was retired from service and
given to a junk dealer. The entry to record the retirement includes a
a. debit to Loss on Disposal of Plant Assets for $12,000.
b. credit to Depreciation Expense for $6,000.
c. debit to Equipment for $60,000.
d. credit to Accumulated Depreciation’”Equipment for $48,000.
Answer:
A bond discount must
a. always be amortized using straight-line amortization.
b. always be amortized using the effective-interest method.
c. be amortized using the effective-interest method if it yields annual amounts that are
materially different than the straight-line method.
d. be amortized using the straight-line method if it yields annual amounts that are
materially different than the effective-interest method.
s
Answer:
A weakness of the current ratio is
a. the difficulty of the calculation.
b. that it doesn’t take into account the composition of the current assets.
c. that it is rarely used by sophisticated analysts.
d. that it can be expressed as a percentage, as a rate, or as a proportion.
Answer:
Which one of the following items is not a consideration when recording periodic
depreciation expense on plant assets?
a. Salvage value
b. Estimated useful life
c. Cash needed to replace the plant asset
d. Cost
Answer:
When the allowance method is used for bad debts, the entry to write off an individual
account known to be uncollectible involves a
a. debit to an expense account.
b. credit to an expense account.
c. credit to the allowance account.
d. debit to the allowance account.
Answer:
Which of the following statements regarding the date of a cash dividend declaration is
not accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.
Answer:
Rex Company reported retained earnings at December 31, 2014, of $410,000. Reese
had 180,000 shares of common stock outstanding throughout 2015.
The following transactions occurred during 2015.
1> An error was discovered in 2013, depreciation expense was recorded at $60,000, but
the correct amount was $50,000.
2> A cash dividend of $0.50 per share was declared and paid.
3> A 5% stock dividend was declared and distributed when the market price per share
was $15 per share.
4> Net income was $295,000.
Instructions
Prepare a retained earnings statement for 2015.
Answer:
From the following list of selected accounts taken from the records of Ward
Homeopathic Center, identify those that would appear on the balance sheet.
Answer:
Prepare the required end-of-period adjusting entries for each independent case listed
below.
Case 1
Sleater-Kinney Company began the year with a $3,000 balance in the Supplies account.
During the year, $8,500 worth of additional supplies were purchased. A physical count
of supplies on hand at the end of the year revealed that $7,400 worth of supplies had
been used during the year. No adjusting entry has been made until year end.
Case 2
Western Company has a calendar year-end accounting period. On July 1, the company
purchased equipment for $30,000. It is estimated that the equipment will depreciate
$300 each month. No adjusting entry has been made until year end.
Case 3
Ranch Realty is in the business of renting several apartment buildings and prepares
monthly financial statements. It has been determined that 3 tenants in $900 per month
apartments and one tenant in the $1,200 per month apartment had not paid their August
rent as of August 31st.
Answer:
Garrison Company was organized on January 1. During the first year of operations, the
following expenditures and receipts were recorded in random order in the account,
Land.
Instructions
Analyze the foregoing transactions using the following tabular arrangement. Insert the
number of each transaction in the Item space and insert the amounts in the appropriate
columns.
Answer:
You are at a company picnic and the company president starts a conversation with you.
The president says ‘Since we use the perpetual inventory system, there is no reason to
take a physical count of our inventory.’ What is your response to the president’s
remarks?
Answer:
If a merchandising company sells land at more than its cost, the gain should be reported
in the sales revenue section of the income statement.
Answer:
The following accounts appear in the ledger of Fall Inc. after the books are closed at
December 31, 2015.
Instructions
Prepare the stockholders’ equity section at December 31, 2015, assuming that retained
earnings is restricted for plant expansion in the amount of $200,000.
Answer:
A merchandising company has different types of adjusting entries than a service
company.
Answer:
The ledger account balances for Galaxie 500 Company are listed below.
Instructions
Prepare a trial balance in proper form for Galaxie at December 31, 2015.
Answer: