Separate customer accounts receivable are called subsidiary accounts.
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
permanent difference.
The Accounts Receivable balance in the general ledger may or may not equal the sum
of the accounts in the accounts receivable subsidiary ledger.
A statement of cash flows always represents a period of time.
The consistency principle states that a business should use the same accounting
methods and procedures from period to period.
Ratios can be used to analyze a company’s ability to pay long-term debt.
When a business factors its receivables, it uses the receivables as security for a loan.
Cost of Goods Sold is based on the company’s cost, not the retail price.
The Salaries Expense account is a temporary account.
The adjusted trial balance is prepared after the adjustments have been journalized and
posted.
An asset is considered to be obsolete when a newer asset can perform the job more
efficiently.
The issue price is the price the stock initially sells for the first time it is sold.
Maintaining good controls over merchandise inventory ensures that inventory purchases
and sales are properly authorized and accounted for by the accounting system.
If a credit customer fails to pay an accounts receivable, the company may ask the
customer to sign a promissory note.
A high times-interest-earned ratio indicates difficulty in paying interest expense.
When using QuickBooks, the software automatically transfers the amounts from the
general ledger to Excel. The accountant can then prepare the financial statements.
Benchmarking often compares a company against a key competitor or the industry
average.
Interest revenue and interest expense are not included in the calculation of income from
continuing operations.
If a note receivable is outstanding at the end of an accounting period, the interest earned
up to year-end is recorded as interest revenue when the cash is received.
The cash balance in a company’s general ledger and the company’s bank balance on the
bank statement will always be the same.
Dividends affect the business’s net income or net loss and are recorded as an expense.
When using the allowance method to account for uncollectible accounts receivable,
companies estimate bad debt expense at the end of the period and then record an
adjusting entry.
An overstatement of ending merchandise inventory in the current period results in an
understatement of cost of goods sold in the current period.
The accounts receivable turnover ratio indicates whether a company could pay all its
current liabilities if they were to become due immediately.
Maywood, Inc. withholds $720 from Steve’s paycheck for federal income tax. This
amount is part of the company’s payroll tax expense.
Financial accounting focuses on information for decision makers outside of the
business, such as creditors and taxing authorities.
A creditor is a person who owes money to the business.
A business must invest only in an accounting information system in which the benefits
received outweigh the cost of the system.
Two ratios that help businesses monitor their inventory levels are days’ sales in
inventory and the inventory level ratio.
A horizontal analysis would be used if an analyst wants to see how the assets of a
company have changed from one year to the next.
The operating and financing activities of the statement of cash flows are presented
differently between the indirect and direct methods.
Deferred Revenue is a liability created when a business collects cash from customers in
advance of completing a service or delivering a product.
Debit cards reduce the customer’s bank account immediately but allow the customer to
pay electronically instead of with currency or writing a check.
Precision Camera Services started the year with total assets of $90,000 and total
liabilities of $65,000. The revenues and the expenses for the year amounted to $100,000
and $70,000, respectively. During the year, the company did not issue any common
stock, but it distributed dividends of $40,000. What is the amount of stockholders’
equity at the end of the year?
A) $70,000
B) $100,000
C) $15,000
D) $40,000
Big Rig Delivery Service has the following plant assets: Communications Equipment:
Cost, $3,840 with useful life of 8 years; Delivery Equipment: Cost, $17,568 with useful
life of 12 years; and Computer: Cost, $13,440 with useful life of 4 years. Assume the
residual value of all the assets is zero and the straight-line method is used.
Big Rig’s monthly depreciation journal entry will include a ________.
A) debit to Depreciation Expense – Equipment of $5,304
B) credit to Depreciation Expense – Equipment of $5,304
C) debit to Accumulated Depreciation – Equipment of $442
D) credit to Accumulated Depreciation – Equipment of $442
On November 1, 2018, Uno, Inc. declared a dividend of $4.50 per share. Uno, Inc. has
23,000 shares of common stock outstanding and no preferred stock. Which of the
following is the journal entry needed to record the declaration of the dividend?
A) Debit Dividends Payable—Common $103,500, and credit Retained Earnings
$103,500.
B) Debit Cash Dividends $103,500, and credit Cash $103,500.
C) Debit Cash Dividends $103,500, and credit Dividends Payable—Common $103,500.
D) Debit Cash $103,500, and credit Dividends Payable—Common $103,500.
Springer Corporation had the following transactions in August:
Earned $2,000 of revenues on account; collected $4,000 from a customer for services
provided last month; incurred $600 of repair expense and paid cash; paid $200 for rent
that it owed from the previous month.
What is the net income in August?
A) $600
B) $4,000
C) $5,400
D) $1,400
A company has net credit sales of $91,000, beginning net accounts receivable of
$22,000 and ending net accounts receivable of $19,000. Calculate the days’ sales in
receivables. (Round any intermediate calculations to two decimal places, and your final
answer to the nearest whole day.)
A) 73 days
B) 52 days
C) 91 days
D) 82 days
Brad’s gross pay for the month is $15,400. His deduction for federal income tax is based
on a rate of 18%. He has no voluntary deductions. His year-to-date pay is under the
limit for OASDI. What is Brad’s net pay? (Assume a FICA—OASDI Tax of 6.2% and
FICA—Medicare Tax of 1.45%. Do not round any intermediate calculations, and round
your final answer to the nearest dollar.)
A) $11,450
B) $15,400
C) $14,222
D) $12,628
Mulberry Corporation collected $16,000 from one of its customers, the amount owed
from the previous month. How does this affect the accounting equation for Mulberry?
A) Assets increase by $16,000; liabilities decrease by $16,000.
B) Assets increase by $16,000; assets decrease by $16,000.
C) Assets increase by $16,000; liabilities increase by $16,000.
D) Assets increase by $16,000; equity increases by $16,000.
Under the equity method, dividend revenue is treated as ________.
A) a debit to revenue from investments
B) dividend revenue
C) a return of capital
D) a credit to current assets
Which of the following steps must be completed before preparing the adjusted trial
balance?
A) Prepare the post-closing trial balance.
B) Post journal entries to the accounts.
C) Journalize and post the closing entries.
D) Prepare the financial statements.
If a company is financing more assets with debt than with equity, the ________.
A) debt to equity ratio will be more than 1
B) debt to equity ratio will be between 0 to 1
C) debt to equity ratio will be equal to 1
D) debt to equity ratio will be negative
Which of the following best describes horizontal analysis?
A) comparing financial statement line items from year to year for the same company
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company’s financial statements with other companies
D) calculating key ratios to evaluate performance
The times-interest-earned ratios of four companies are given below:
Which of the above companies has the highest debt-paying ability?
A) Forge Corp.
B) Fellow, Inc.
C) Stacy Corp.
D) Bennett, Inc.
Which of the following is included in the denominator of the acid-test ratio?
A) total current liabilities less accounts payable
B) total liabilities
C) total current liabilities
D) total current assets
The Financial Accounting Standards Board (FASB) works with the following groups.
Which of these groups was congressionally created?
A) Institute of Management Accountants
B) Public Company Accounting Oversight Board
C) International Accounting Standards Board
D) American Institute of CPAs
Regarding the accounting equation, which of the following is a correct statement?
A) The accounting equation is made up of three parts.
B) The accounting equation is the basic tool of accounting.
C) Assets – Liabilities = Equity.
D) All of the statements are correct.
The following information relates to Blake Auto Supply.
Calculate the net income of Blake Auto Supply.
A) $22,500
B) $33,500
C) $76,500
D) $240,000
Land Services, Inc. owns 32% of voting stock of World Investments, Inc. During the
year 2018, World Investments, Inc. earned profits of $320,000. Under the equity
method, which of the following journal entries will Land Services record?
A)
B)
C)
D)
The statement of cash flows helps users ________.
A) predict future net income
B) evaluate management decisions
C) evaluate the company’s earnings per share
D) predict the growth of a company’s assets
Which of the following activities is handled by selecting the “Make payment” action of
QuickBooks?
A) entering sales receipts
B) selecting bills to be paid
C) recording a bill that has been received
D) recording customer payments
Reducing expenses to increase operating profit is representative of ________.
A) safeguarding assets
B) following company policies
C) promoting operational efficiency
D) ensuring accurate, reliable accounting records
When using the allowance method, after a company has previously written off an
account, ________.
A) the company continues to send monthly statements to the customers whose accounts
have been written off
B) the company cannot collect from these customers because their accounts have been
written off
C) when a customer pays on an account that has been written off, the company needs to
reverse the write-off to the Allowance for Bad Debts account and then record the receipt
of cash
D) the company does not need to re-establish the receivable account
Which of the following is NOT a reason why paying by check is an important internal
control?
A) The check provides a record of the payment.
B) The check must be signed by an authorized official.
C) Before signing the check, the purchasing agent reviews the invoice or other evidence
supporting the payment.
D) All of the above statements are correct.
On June 30, 2018, Samuel, Inc. showed the following data on the equity section of their
balance sheet:
On July 1, 2018, the company declared and distributed a 6% stock dividend. The market
value of the stock at that time was $14 per share. Following this transaction, what is total
stockholders’ equity?
A) $1,376,000
B) $1,558,140
C) $1,302,860
D) $1,208,840
The following are the current month’s balances for selected accounts of Sandlin
Marketing Company.
What is the net income for Sandlin Marketing for the current month?
A) $8,000
B) $6,900
C) $9,100
D) $15,650
Carpenter, Inc. generated sales revenues of $1,400,000 in 2019. Its cost of goods sold
amounted to Calculate Carpenter’s gross profit percentage.
A) 40%
B) 60%
C) 167%
D) 250%
Which of the following types of stock has less investment risk?
A) common stock
B) par value stock
C) no-par stock
D) preferred stock
Which of the following is NOT a balance sheet account?
A) Unearned Revenue
B) Prepaid Rent
C) Accumulated Depreciation – Building
D) Dividends
Match the benefit of an effective accounting information system with the
definition.
A) Provides information that will improve decision making and reduce uncertainty.
B) Benefits received outweigh the cost of the system.
C) Works smoothly with the business’s employees and organization structure.
D) Can accommodate changes in the business over time.
E) Provides safeguards for a business’s assets and reduces the likelihood of fraud and
errors.
Compatibility
A customer’s check for $1,210 was returned for nonsufficient funds. Which of the
following journal entries is needed to adjust for the NSF check?
A)
B)
C)
D)
Worldwide Enterprises purchased a bond on June 30 of the current year for $100,000
and classified the investment as trading debt. The market value of the trading debt
investment at year-end is $102,500. The adjustment is ________.
A) reported as a separate component of stockholders’ equity
B) reported as a $2,500 unrealized holding gain in the Other Income and (Expenses)
section of the income statement
C) not reported on the income statement because the market value is greater than the
cost
D) subtracted from the Trading Debt Investment account