When the maturity date of a held-to-maturity debt investment is within one year of the
balance sheet date, the investment is reported as a current asset.
As per the economic entity assumption, an organization and its owners should be seen
as the same entity.
A company changes its inventory costing method each period in order to maximize net
income. This is a violation of the consistency principle.
Dividends and expenses increase equity.
If a business knows that a liability exists but does not know the exact amount, the
business must estimate the amount of the liability and report it on the balance sheet.
Discontinued operations are reported without consideration of the income tax effects.
Aquatic Supplies, Inc. purchased $2,000 of supplies on account. Under the accrual basis
of accounting, no entry is made until the amount is paid.
The Securities and Exchange Commission allows U.S. businesses to choose whether
they follow U.S. GAAP or International Financial Reporting Standards.
In addition to the account number, a check shows the 9-digit routing number.
The trial balance is one of the basic financial statements that is issued to external users
of the business.
The entry to close Sales Revenue includes a debit to Income Summary.
The acid-test ratio measures a company’s ability to pay all its current liabilities if they
came due immediately.
The Depreciation Expense account is a temporary account.
All intangible assets must be amortized each year.
The balance sheet is prepared after the statement of retained earnings.
Janice Wilford contributed $50,000 cash to JW Corporation in exchange for stock. As a
result of this transaction, assets and revenues will increase.
A corporation’s chief executive officer appoints the members of the board of directors.
In the worksheet, the adjusted balance of the Service Revenue account appears in the
credit column of the income statement.
The Organizer Store uses the weighted-average inventory costing method in a perpetual
inventory system. The unit cost of the beginning inventory for inventory item X500 was
$10 per unit and the first purchase of the period has a unit cost of $12 per unit. The
weighted average cost per unit is $11. Assume multiple units were purchased.
Financing activities on the statement of cash flows affect the long-term liability and
equity accounts.
The rate of return on common stockholders’ equity shows how much income is earned
for each $1 of total stockholders’ equity.
The cash paid for the purchase of equipment will typically be shown in the investing
activities section of the statement of cash flows.
In general, to remain competitive in an industry, a low gross profit percentage is
desired.
No journal entry is made on the dividend declaration date.
Income tax is calculated using accounting information.
Significant influence equity investments must be accounted for using the equity
method.
A vertical analysis of a financial statement reveals the relationship of each statement
item to its base amount, which is the 100% figure.
The balances in the liability and revenue accounts are increased with a credit.
If an asset is discarded when it is fully depreciated and has no residual value, the
business does not need to make a journal entry because the book value is zero.
Banks must return physical copies of the maker’s canceled checks.
When preparing the statement of cash flows, the amount of net cash provided by
operating activities differs between the direct and indirect methods.
Revenue may be called Profit and Net Income may be called Turnover in an income
statement prepared under IFRS.
Purchase Discounts is a contra asset account.
A receivable is a liability because it represents a right to receive cash in the future.
Aspen Event Planning Services, Inc. records deferred expenses and deferred revenues
using alternative treatments. It makes adjusting entries as needed to bring its books to
the full accrual basis once a year at the end of the year. On December 15, it collected
$3,000 from a customer in advance for a series of events that will start late December
and end in March. At the end of the year, it had performed approximately 10% of the
services for its customer. The adjusting entry on December 31 will include a debit to
Service Revenue for $2,700.
________ represents a debt owed for renting a building.
A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense
Stock dividends are declared by the ________.
A) chief financial officer of the company
B) board of directors of the company
C) chief executive officer of the company
D) stockholders of the company
Specialty Auto Parts Company uses the indirect method to prepare its statement of cash
flows. Refer to the following information for 2018:
Net cash provided by operating activities: $108,000
Net cash used for investing activities: $(118,500)
Net cash provided by financing activities: $16,000
If the cash balance at the beginning of the year was $13,200, what is the ending cash
balance?
A) $18,700
B) $5500
C) $13,200
D) $10,500
Colorful, Inc. was incorporated on January 1, 2016. Colorful issued 15,000 shares of
common stock and 800 shares of preferred stock on that date. The preferred stock is
cumulative, $100 par, with a 12% dividend rate. Colorful has not paid any dividends
yet. In 2019, Colorful had its first profitable year, and on November 1, 2019, Colorful
declared a total dividend of $44,000. What is the total amount that will be paid to
common stockholders?
A) $9600
B) $38,400
C) $5600
D) $44,000
For each of the following transactions, state which special journal should be used to
record the transaction. In addition, state which columns will be used.
Transaction 1: Freeworld Co. paid $1,500 for monthly utilities, on the date the bill was
received.
Which special journal?
Which columns are used to record the transaction?
Transaction 2: Wideworld Co. purchased office supplies on account.
Which special journal?
Which columns are used to record the transaction?
Transaction 3: Wonderworld Co. sold $5,000 of merchandise inventory to A. Allen, on
account. The cost of the merchandise inventory was $3,200. The company uses a
perpetual inventory system.
Which special journal?
Which columns are used to record the transaction?
Transaction 4: Oneworld Co. borrowed $10,000 from World National Bank.
Which special journal?
Which columns are used to record the transaction?
Which of the following transactions is recorded in the purchases journal?
A) purchase of furniture on account
B) cash purchase of merchandise inventory
C) sale of merchandise inventory on account
D) cash sales of merchandise inventory
An automobile parts retailer purchases merchandise inventory for cash. When using a
manual accounting information system, this transaction is recorded in the ________.
A) purchases journal
B) general journal
C) cash payments journal
D) sales journal
When a 5% stock dividend is declared, which account is debited?
A) Common Stock—Par Value
B) Common Stock Dividend Distributable
C) Stock Dividends
D) Paid-In Capital in Excess of Par—Common
When a trading debt investment is disposed of, ________.
A) an unrealized holding loss is reported on the income statement
B) the Trading Debt Investments account is debited
C) the amount of gain or loss is calculated as the difference between the cash received
and the cost of the debt investment disposed of
D) the fair value adjustment is used in determining the calculation of the gain or loss
Which of the following statements is true if a bond is issued for an amount higher than
face value?
A) The bond’s stated interest rate is less than the prevailing market interest rate at time
of sale.
B) The bond’s stated interest rate is the same as the prevailing market interest rate at
time of sale.
C) The bond’s stated interest rate is more than the prevailing market interest rate at time
of sale.
D) The bond is not secured by specific assets of the issuer.
On June 30, 2018, Ginger, Inc. showed the following data on the equity section of their
balance sheet:
On July 1, 2018, the company declared and distributed a 9% stock dividend. The market
value of the stock at that time was $20 per share. Following this transaction, what is the
balance of Common Stock?
A) $163,500
B) $57,180
C) $285,540
D) $357,180
The petty cash fund had an initial imprest balance of $230. It currently has $15 in cash,
$3 in miscellaneous petty cash tickets, and an additional $207 in specific petty cash
tickets. The debit to Cash Short & Over would be ________.
A) $5
B) $15
C) $207
D) $210
Louisiana Company uses the indirect method to prepare its statement of cash flows.
Refer to the following portion of the comparative balance sheet:
Louisiana Company
Comparative Balance Sheet
December 31, 2019 and 2018
Note:
1. There were no stock retirements during the year.
2. There were no sales of treasury stock during the year.
Compute the cash flow from transactions involving treasury stock.
A) zero net cash flow
B) $6800 of positive cash flow
C) $6800 negative cash flow
D) $15,000 negative cash flow
Cash received from the issuance of notes payable is a(n) ________ activity on the
statement of cash flows.
A) non-cash investing and financing
B) financing
C) operating
D) investing
Which of the following states that the business should use the same accounting methods
from period to period?
A) materiality concept
B) consistency principle
C) conservatism
D) disclosure principle
Consider the following accounts and identify each as an asset (A), liability (L), or
equity (E).
No journal entries are required for the reconciling items on the bank side because
________.
A) those transactions have already been recorded in the company’s journal
B) the adjusted balances on both sides are the same amounts
C) the amounts are immaterial
D) those transactions are already included in the bank balance
Which of the following is a decision made by an internal user?
A) Should we lend money to the business?
B) How much money should the business budget for production?
C) Should I invest in the business?
D) All of the above are correct.
On November 1, 2018, A-1 Products borrowed $64,000 on a 5%, 5-year note with
annual installment payments of $12,800 plus interest due on November 1 of each
succeeding year. On November 1, 2020, what is the balance of the Long-Term Notes
Payable account? (Round your answer to nearest whole number.)
A) $38,400
B) $64,000
C) $51,200
D) $12,800
A merchandiser reports sales revenue of $25,000 and sales discounts forfeited of
$1,500. The merchandiser uses a perpetual inventory system. The first entry in the
closing process would include ________.
A) a credit to Income Summary for $26,500
B) a credit to Income Summary for $25,000
C) a debit to Income Summary for $26,500
D) a debit to Income Summary for $25,000
Which of the following sequences is the normal sequence of flow of accounting data?
A) Ledger → Journal → Source document
B) Journal → Source document → Ledger
C) Source document → Journal → Ledger
D) Source document → Ledger → Journal
If goods are sold on terms FOB shipping point, the ________.
A) seller normally pays the transportation costs
B) buyer normally pays the transportation costs
C) buyer and the seller split the transportation costs
D) shipping company bears the transportation cost
Which of the following accounts would appear in the balance sheet debit column of the
worksheet?
A) Unearned Revenue
B) Accumulated Depreciation
C) Service Revenue
D) Prepaid Insurance
The expense for warranty costs is recorded in the period ________.
A) when the product is sold
B) when the product is repaired or replaced
C) when cash is paid to repair or replace the product
D) when cash is collected from the sale of the product
On January 1, 2018, Brazos Company purchased equipment and signed a six-year
mortgage note for $97,000 at 15%. The note will be paid in equal annual installments of
$25,631, beginning January 1, 2019. On January 1, 2019, the journal entry to record the
first installment payment will include a ________. (Round your answer to the nearest
whole number.)
A) debit to Mortgage Payable for $25,631
B) debit to Interest Expense for $14,550
C) credit to Cash for $11,081
D) credit to Mortgage Payable for $97,000
If a company is using accrual basis accounting, when should it record revenue?
A) when cash is received, even though services may be performed at a later date
B) when services are performed, even though cash may be received at a later date
C) before services are performed
D) when cash is received, 30 days after the completion of the services
Which of the following is the proper treatment for a contingency that is probable but the
exact amount of which is not known? The amount can be estimated.
A) The liability should be doubled following conservatism.
B) The liability should be estimated and recorded.
C) The liability should be ignored.
D) The liability should be reported in the notes to the financial statements.
Which of the following statements, regarding no-par stock, is incorrect?
A) Regardless of the stock’s issue price, Cash is debited and Common Stock is credited
for the cash received.
B) There can be no Paid-In Capital in Excess of Par.
C) There is no par to be in excess of.
D) All of the statements are correct.
Which of the following is true of debt securities?
A) Debt securities entitle the holder to receipt of a share of profit in the form of
dividends.
B) Debt securities typically pay interest for a fixed period.
C) Debt securities include preferred stocks.
D) Debt securities represent ownership interests of the investors.
Jack, an employee of Desert Sky, Inc., has gross salary for May of $9000. The entire
amount is under the OASDI limit of $118,500 and thus subject to FICA. He is also
subject to federal income tax at a rate of 21%. Which of the following is a part of the
journal entry for accrual of the employer payroll taxes? (Assume a FICA—OASDI Tax
of 6.2% and FICA—Medicare Tax of 1.45%.) Jack’s income to date exceeds the FUTA
and SUTA tax income limits.
A) credit to Salaries Payable for $9000
B) debit to Cash for $6601.50
C) debit to Employee Income Taxes payable of $1890.00
D) credit to FICA—Medicare Taxes Payable of $130.50
The following contains information from the records of the Becker Architecture Firm.
Becker Architecture Firm
Selected Financial Information
December 31, 2019
Which of the following statements is an accurate interpretation of the current ratio of the
Becker Architecture Firm? (Round your answer to two decimal places.)
A) The company has $2.53 of current assets for every $1.00 of liabilities.
B) The company has $3.00 of current assets for every $1.00 of current liabilities.
C) The company has $1.65 of current assets for every $1.00 of liabilities.
D) The company has $0.62 of current assets for every $1.00 of current liabilities.
Alltech Company maintains a separate accounts receivable account for each customer.
On June 18, Alltech provides $6,300 of services on account to customer Anthony and
$1,200 of services on account to customer Walker. How will these two transactions
affect the control and subsidiary accounts?
A) The control account, Accounts Receivable, will be increased with a debit of $7,500.
B) The individual customer accounts in the subsidiary ledger will be increased with
credits.
C) After posting these transactions, the sum of the balances in subsidiary accounts
receivable will not equal the control account balance.
D) The control account will have a debit balance and the subsidiary accounts will have
a credit balance. This keeps the accounting equation in balance.
Which of the following best describes trend analysis?
A) calculating key ratios to evaluate performance
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company’s financial statements with that of other companies
D) expressing each year’s financial statement line item as a percentage of the base year
amount
The financial statements of Trenton Office Supply include the following items:
What is the 2019 current ratio? (Round your answer to two decimal places.)
A) 0.84
B) 0.57
C) 1.19
D) 1.70
Treasury stock ________.
A) decreases the number of shares issued
B) increases the number of shares issued
C) increases the number of shares outstanding
D) decreases the number of shares outstanding
Smithson Electrical Fixtures reported the following income statement for the year
ended December 31, 2019.
Smithson Electrical Fixtures
Income Statement
Year Ended December 31, 2019
Compute inventory turnover rate for the year. (Round to two decimal places.)
Compute days’ sales in inventory for the year. (Round to two decimal places.)
On January 2, 2017, Barnes Enterprises purchased equipment for $42,000 cash,
expecting the equipment to remain in service for five years, with a $4,000 residual
value. Barnes uses straight-line depreciation. On April 30, 2019, Barnes sold the
equipment for $20,000 cash.
Requirement:
Prepare the journal entries to record the purchase of the equipment; depreciation for
2017, 2018, and 2019; and the sale of the equipment. Omit explanations and round to
the nearest dollar.
On June 30, 2019, Development, Inc. purchased merchandise inventory for $500,000
by signing a six-month, 8% note payable. Prepare the journal entry for the payment of
the note on December 30, 2019. Omit explanation.
Annie, Inc. purchased a computer for $5,000. During 2018 and 2019, the company
recorded total depreciation of $4,000 on the computer. On January 1, 2020, the
company exchanges the computer for a new one, paying $4,000 cash. The market value
of the new computer is $6,000. Prepare the journal entry to record this transaction.
Assume the exchange has commercial substance. Omit explanation.
Prepare the journal entries for the following petty cash transactions of City Coffee
Shop. Omit explanation.
Modern Age, Inc. made total cash sales in February of $666,000, which are subject to
7.5% sales tax. Prepare the summary entry to record the transaction. Omit explanation.
The Pediatric Dental Corporation prepays the rent on its dental office. On July 1, the
corporation paid $18,000 for 6 months of rent. The rent period begins on July 1. How
much Rent Expense should the corporation record for the three months ended
September 30 under the cash basis? Why?
On January 1, 2018, Denver Services issued $20,000 of 8% bonds that mature in five
years. The bonds were issued for $19,000. Prepare the journal entry to issue bonds.
Omit explanation.
On January 1, 2018, Sullivan Company purchases $300,000 of property by paying
$50,000 in cash and signing a 10-year mortgage note at 13% for the balance. Sullivan
will make yearly payments of $46,072. Prepare the amortization schedule for the first
five payments. (Round your answers to the nearest dollar.)
The cost of an asset is $10,000,000, and its residual value is $100,000. Estimated useful
life of the asset is four years. Prepare the schedule of depreciation using the
double-declining-balance method of accounting.
During July 2019, Midtown Catering recorded the following:
Catering services of $86,400 were provided ($64,500 on account, $21,900 for cash)
Collections on account, $58,950
Write-offs of uncollectible receivables, $2,560
Recovery of receivable previously written off, $1,000
Journalize Midtown’s transactions during July, assuming Midtown uses the allowance
method. Omit explanations.
On December 31, 2019, $2,500 of salaries have been earned but not yet paid to
employees. If the business failed to make an adjusting entry on December 31, 2019,
indicate the effect on assets, liabilities, equity, and net income.
Identify how each of the following items is shown on the statement of cash flows.
Identify each as operating (O), investing (I), financing (F), or non-cash investing and
financing (N).
The ten steps of the accounting cycle are presented below. Identify the correct order of
the steps by placing the numbers 1 (first step) to 10 (last step) by each description.
______ Start with beginning account balances.
______ Prepare the post-closing trial balance.
______ Prepare the financial statements.
______ Compute the unadjusted balance in each account and prepare the unadjusted
trial balance.
______ Post journal entries to the accounts.
______ Analyze and journalize transactions as they occur.
______ Prepare the adjusted trial balance.
______ Journalize and post adjusting entries.
______ Journalize and post the closing entries.
______ Enter the unadjusted trial balance on the worksheet and complete the worksheet
(optional).
List (in the correct order) and briefly discuss the five steps that are followed when
preparing the statement of cash flows by the indirect method.
