Which of the following items will increase inventoriable costs for the buyer of goods?
a. Purchase returns and allowances granted by the seller
b. Purchase discounts taken by the purchaser
c. Freight charges paid by the seller
d. Freight charges paid by the purchaser
Answer:
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:
Debt investments are recorded at the
a. face value of the bonds purchased.
b. face value of the bonds purchased plus interest.
c. price paid for the bonds plus interest.
d. price paid for the bonds plus brokerage fees.
Answer:
Vance Company reported the following summarized annual data at the end of 2015:
The income tax rate is 40%. The controller of the company is considering a switch from
FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would
have been $180,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Vance’s income tax expense,
net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed
change?
Answer:
Indrisano’s Used Cars uses the specific identification method of costing inventory.
During March, Indrisano purchased three cars for $12,000, $14,400, and $19,200,
respectively. During March, two cars are sold for a total of $34,600. Indrisano
determines that at March 31, the $14,400 car is still on hand. What is Indrisano’s gross
profit for March?
a. $1,000.
b. $3,400.
c. $4,200.
d. $8,200.
Answer:
Retained earnings are occasionally restricted
a. to set aside cash for dividends.
b. to keep the legal capital associated with paid-in capital intact.
c. due to contractual loan restrictions.
d. if preferred dividends are in arrears.
Answer:
If the equity method is being used, cash dividends received
a. are credited to Dividend Revenue.
b. require no entry because investee net income has already been recorded at the proper
proportion on the investor’s books.
c. are credited to the Stock Investments account.
d. are credited to the Revenue from Stock Investments account.
Answer:
Logan Company debited Prepaid Insurance for $1,080 on July 1, 2015, for a one-year
fire insurance policy. If the company prepares monthly financial statements, failure to
make an adjusting entry on July 31 for the amount of insurance that has expired would
cause
a. assets to be overstated by $1,080 and expenses to be understated by $1,080.
b. expenses to be overstated by $90 and assets to be understated by $90.
c. assets to be overstated by $90 and expenses to be understated by $90.
d. expenses to be overstated by $1,080 and assets to be understated by $1,080.
Answer:
Which one of the following statements concerning the accounting cycle is incorrect?
a. The accounting cycle includes journalizing transactions and posting to ledger
accounts.
b. The accounting cycle includes only one optional step.
c. The steps in the accounting cycle are performed in sequence.
d. The steps in the accounting cycle are repeated in each accounting period.
Answer:
Two classifications appearing in the paid-in capital section of the balance sheet are
a. preferred stock and common stock.
b. paid-in capital and retained earnings.
c. capital stock and additional paid-in capital.
d. capital stock and treasury stock.
Answer:
The following information is available for Hopkins Company:
Instructions
Compute each of the following:
(a) Net purchases
(b) Cost of goods purchased
(c) Cost of goods sold
Answer:
Entries in a sales journal are
a. posted only to accounts in an accounts receivable subsidiary ledger.
b. posted only to accounts in the general ledger.
c. posted to accounts in an accounts receivable subsidiary ledger and to accounts in the
general ledger.
d. never posted.
Answer:
Naughty Dog Disc Golf Show uses the lower-of-cost-or market basis for its inventory.
The following data are available at December 31
Instructions
(a) Determine the amount of the ending inventory by applying the lower- of- cost-
or-market basis.
(b) When determining “lower of cost or market”, what is “market? Why is defined in
this way?
Answer:
With respect to the income statement,
a. contra-revenue accounts do not appear on the income statement.
b. sales discounts increase the amount of sales.
c. contra-revenue accounts increase the amount of operating expenses.
d. sales discounts are included in the calculation of gross profit.
Answer:
When estimating the useful life of an asset, accountants do not consider
a. the cost to replace the asset at the end of its useful life.
b. obsolescence factors.
c. expected repairs and maintenance.
d. the intended use of the asset.
Answer:
The chart of accounts is a
a. list of accounts and their balances at a given time.
b. device used to prove the mathematical accuracy of the ledger.
c. listing of the accounts and the account numbers which identify their location in the
ledger.
d. required step in the recording process.
Answer:
Stine Company has the following potential transaction involving current assets and
current liabilities.
1> Accounts receivable of $20,000 are collected.
2> Equipment is purchased for $35,000 cash.
3> Equipment is purchased by signing a 1-year, 35,000 note.
4> Paid $6,000 for a 3-year insurance policy.
5> Paid $16,000 of accounts payable.
6> Cash dividends of $10,000 are declared.
7> Borrowed $40,000 by signing a short-term note payable.
8> Paid a $50,000 short-term note payable.
As of the beginning of the month, current assets were $210,000, and current liabilities
were $120,000. Current assets included $45,000 of inventory and $5,000 of prepaid
expenses.
Instructions
(a) Compute the current ratio and acid-test ratio as of the beginning of the month.
(b) Compute the current ratio and acid-test ratio after each transaction. Treat each
transaction independently (assume each occurs on the first day of the month, and no
other transaction have affected the beginning-of -month balances.
Answer:
Yanik Company’s delivery truck, which originally cost $84,000, was destroyed by fire.
At the time of the fire, the balance of the Accumulated Depreciation account amounted
to $57,000. The company received $48,000 reimbursement from its insurance company.
The gain or loss as a result of the fire was
a. $36,000 loss.
b. $21,000 loss.
c. $36,000 gain.
d. $21,000 gain.
Answer:
An analysis of the transactions made by Cookie Mountain Legal, a law firm, for the
month of July is shown below. Each increase and decrease in stockholders’ equity is
explained.
Instructions
(a) Prepare an income statement for the month ending July 31, 2015.
(b) Prepare a retained earnings statement for the month ending July 31, 2015.
Answer:
Which of the following may either increase or decrease retained earnings?
a. Stock dividends
b. Disposals of treasury stock
c. Net income
d. Prior period adjustments
Answer:
Interest may be included in the acquisition cost of a plant asset
a. during the construction period of a self-constructed asset.
b. if the asset is purchased on credit.
c. if the asset acquisition is financed by a long-term note payable.
d. if it is a part of a lump-sum purchase.
Answer:
The classified balance sheet is
a. required under GAAP but not under IFRS.
b. required under IFRS in the same format as under GAAP.
c. required under IFRS but not under GAAP.
d. required under IFRS with certain variations in format as compared to GAAP.
Answer:
Rosco Company purchased 35,000 shares of common stock of Paxton Corporation as a
long-term investment for $900,000. During the year, Paxton Corporation reported net
income of $300,000 and paid dividends of $100,000.
Instructions
(a) Assuming that the 35,000 shares represent a 10% interest in Paxton Corporation:
1> Prepare the journal entry to record the investment in Paxton stock.
2> Prepare any entries that Rosco Company should make in accounting for its
investment in Paxton stock during the year.
3> What is the balance of the Stock Investments account on Rosco Company’s books at
the end of the year?
(b) Repeat requirement (a) above except assume that the 35,000 shares represent a 20%
interest in Paxton Corporation.
Answer:
An analysis of the transactions made by Cookie Mountain Legal, a law firm, for the
month of July is shown below. Each increase and decrease in retained earnings is
explained.
Instructions
Prepare a balance sheet at July 31, 2015.
Answer:
Income from operations is determined by subtracting total operating expenses from
________________.
Answer:
The income statement of Frank Company is shown below:
Additional information:
1> Accounts receivable increased $400,000 during the year.
2> Inventory increased $250,000 during the year.
3> Prepaid expenses increased $200,000 during the year.
4> Accounts payable to merchandise suppliers increased $100,000 during the year.
5> Accrued expenses payable increased $160,000 during the year.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended
December 31, 2015, for Frank Company, using the direct method.
Answer:
A change in inventory methods during the year would be classified as a change in
__________________.
Answer:
Bell Food Store developed the following information in recording its bank statement for
the month of March.
‘”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”’”
(1) Checks written in March but still outstanding $7,000.
(2) Checks written in February but still outstanding $3,100.
(3) Deposits of March 30 and 31 not yet recorded by bank $5,200.
(4) NSF check of customer returned by bank $1,200.
(5) Check No. 210 for $593 was correctly issued and paid by bank but incorrectly
entered in the cash payments journal as payment on account for $539.
(6) Bank service charge for March was $50.
(7) A payment on account was incorrectly entered in the cash payments journal and
posted to the accounts payable subsidiary ledger for $824 when Check No. 318 was
correctly prepared for $284. The check cleared the bank in March.
(8) The bank collected a note receivable for the company for $3,000 plus $100 interest
revenue.
Instructions
Prepare a bank reconciliation at March 31.
Answer:
Plexis Company reported net income of $148,000. For 2014, depreciation was $45,000,
and the company reported a gain on sale of investments of $12,000. Accounts
receivable increased $25,000 and accounts payable decreased $23,000.
Instructions
Compute net cash provided by operating activities using the indirect method.
Answer:
A Wage and Tax Statement shows gross earnings, FICA taxes withheld, and income
taxes withheld for the year.
Answer:
A company that owns more than 50% of the common stock of another company is
known as the ______________ company and _____________ financial statements are
usually prepared.
Answer:
Robin Clark has a cell phone that she uses only for emergencies. The cost of the phone
is $40 a month. The cellular company is offering unlimited nights and weekends for an
additional $10 a month ($120 a year). Robin thinks it would be ‘cool’ to have this
benefit and after all $10 a month is not so much. Show Robin how much she will have
in 20 years if she invests this $120 a year at 9% instead of accepting the unlimited
nights and weekends offer.
Answer: