Which of the following is not a true statement about a multiple-step income statement?
a. Operating expenses are similar for merchandising and service enterprises.
b. There may be a section for nonoperating activities.
c. There may be a section for operating assets.
d. There is a section for cost of goods sold.
Answer:
Craig Ferguson Company had the following account balances at year-end: cost of goods
sold $70,000; inventory $17,300: operating expenses $33,000; sales revenue $121,000;
sales discounts $1,400; and sales returns and allowances $1,950. A physical count of
inventory determines that merchandise inventory on hand is $16,450.
Instructions
(a) Prepare the adjusting entry necessary as a result of the physical count.
(b) Prepare closing entries
(c) Assume that the physical count of inventory indicated that inventory on hand is
$17,800 (the account still shows a balance of $17,300 due to errors made during the
year. Prepare the adjusting entry necessary as a result of the physical count.
(d) What is Craig Ferguson Company’s net income for the year?
Answer:
The carrying value of bonds will equal the market price
a. at the close of every trading day.
b. at the end of the fiscal period.
c. on the date of issuance.
d. every six months on the date interest is paid.
Answer:
Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued
revenue, or accrued expense), and (b) the accounts before adjustment (overstated or
understated) for each of the following:
1> Supplies of $200 have been used.
2> Salaries of $600 are unpaid.
3> Rent received in advance totaling $300 has been earned.
4> Services provided but not recorded total $500.
Answer:
Selected financial statement data for Freeman Company are presented below.
Instructions
Compute the following ratios at December 31, 2015:
(a) Current.
(b) Acid-test.
Answer:
Aire Corporation retires its bonds at 106 on January 1, following the payment of
semi-annual interest. The face value of the bonds is $800,000. The carrying value of the
bonds at the redemption date is $842,000. The entry to record the redemption will
include a
a. credit of $42,000 to Loss on Bond Redemption.
b. debit of $48,000 to Premium on Bonds Payable.
c. credit of $7,000 to Gain on Bond Redemption.
d. debit of $42,000 to Premium on Bonds Payable.
Answer:
The steps in the preparation of a worksheet do not include
a. analyzing documentary evidence.
b. preparing a trial balance on the worksheet.
c. entering the adjustments in the adjustment columns.
d. entering adjusted balances in the adjusted trial balance columns.
Answer:
Retailers generally consider sales from the use of national credit card sales as a
a. credit sale.
b. collection of an accounts receivable.
c. cash sale.
d. collection of a note receivable.
Answer:
The statement of cash flows
a. is prepared instead of an income statement under generally accepted accounting
principles.
b. is used to assess an entity’s ability to pay dividends and meet obligations.
c. is prepared from comparative income statements.
d. reflects earnings per share figures on a cash basis and on an accrual basis in the body
of the statement.
Answer:
Tomko Company purchased machinery with a list price of $96,000. They were given a
10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500.
Tomko estimates that the machinery will have a useful life of 10 years and a residual
value of $30,000. If Tomko uses straight-line depreciation, annual depreciation will be
a. $6,150.
b. $6,108.
c. $9,150.
d. $5,640.
Answer:
International standards are developed by the
a. IFRS.
b. GAAP.
c. IASB.
d. FASB.
Answer:
A company exchanges its old office equipment and $80,000 for new office equipment.
The old office equipment has a book value of $56,000 and a fair value of $40,000 on
the date of the exchange. The cost of the new office equipment would be recorded at
a. $136,000.
b. $120,000.
c. $96,000.
d. cannot be determined.
Answer:
All of the following are intangible assets except
a. copyrights.
b. goodwill.
c. patents.
d. research and development costs.
Answer:
If the month-end bank statement shows a balance of $54,000, outstanding checks are
$15,000, a deposit of $6,000 was in transit at month end, and a check for $900 was
erroneously charged by the bank against the account, the correct balance in the bank
account at month end is
a. $44,100.
b. $45,000.
c. $45,900.
d. $62,100.
Answer:
For each of the following unrelated transactions, (a) determine the amount of the
amortization or depletion expense for the current year, and (b) present the adjusting
entries required to record each expense at year end.
(1) Timber rights were purchased on a tract of land for $480,000. The timber is
estimated at 1,200,000 board feet. During the current year, 75,000 board feet of timber
were cut and sold.
(2) Costs of $8,000 were incurred on January 1 to obtain a patent. Shortly thereafter,
$22,000 was spent in legal costs to successfully defend the patent against competitors.
The patent has an estimated legal life of 12 years.
Answer:
In 2015, Boyle Company had credit sales of $1,080,000 and granted sales discounts of
$24,000. On January 1, 2015, Allowance for Doubtful Accounts had a credit balance of
$26,400. During 2015, $45,000 of uncollectible accounts receivable were written off.
Past experience indicates that 3% of net credit sales become uncollectible. What should
be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2015?
a. $13,080
b. $13,800
c. $31,680
d. $39,720
Answer:
In preparing its bank reconciliation for the month of April 2015, Haskins, Inc. has
available the following information.
What should be the adjusted cash balance at April 30, 2015?
a. $34,410.
b. $34,470.
c. $35,760.
d. $35,820.
Answer:
On October 1, 2015, Milago Company sells (factors) $700,000 of receivables to
Beanfield Factors, Inc. Beanfield assesses a service charge of 3% of the amount of
receivables sold. The journal entry to record the sale by Milago will include
a. a debit of $700,000 to Accounts Receivable.
b. a credit of $721,000 to Cash.
c. a debit of $721,000 to Cash.
d. a debit of $21,000 to Service Charge Expense.
Answer:
(a) What is the present value of $90,000 due 7 years from now, discounted at 9%?
(b) What is the present value of $150,000 due 5 years from now, discounted at 12%?
Answer:
On December 31, 2015, Stock, Inc. has 4,000 shares of 6% $100 par value cumulative
preferred stock and 60,000 shares of $10 par value common stock outstanding. On
December 31, 2015, the directors declare a $20,000 cash dividend. The entry to record
the declaration of the dividend would include:
a. a credit of $4,000 to Cash Dividends.
b. a note in the financial statements that dividends of $4 per share are in arrears on
preferred stock for 2015.
c. a debit of $20,000 to Common Stock.
d. a credit of $20,000 to Dividends Payable.
Answer:
Marin Company sells 9,000 units of its product in 2015 for $500 each. The selling price
includes a one-year warranty on parts. It is expected that 3% of the units will be
defective and that repair costs will average $50 per unit. In the year of sale, warranty
contracts are honored on 180 units for a total cost of $9,000.
What amount should Marin Company report as Warranty Expense in its 2015 income
statement?
a. $13,500.
b. $9,000.
c. $4,500.
d. $67,500.
Answer:
If a transaction cannot be recorded in a special journal
a. the company must refuse to enter into the transaction.
b. it is recorded in the general journal.
c. it is recorded directly in the accounts in the general ledger.
d. it is recorded as an adjustment on the worksheet.
Answer:
Internal control over cash disbursements is more effective when payments are made by
______________, rather than by ______________.
Answer:
On January 1, 2013, Santo Company purchased a computer system for $30,500. The
system had an estimated useful life of 5 years and no salvage value. At January 1, 2015,
the company revised the remaining useful life to two years. What amount of
depreciation will be recorded for 2015 and 2016?
Answer:
Bonds are a form of interest-bearing notes payable.
Answer:
In computing the present value of an annuity, it is not necessary to know the number of
discount periods.
Answer:
Match the items below by entering the appropriate code letter in the space provided.
1> Process of allocating the cost of an intangible asset to expense over its useful life.
2> Is only recorded when an exchange has commercial substance.
3> Examples are franchises and licenses.
4> The allocation of the cost of a natural resource to expense over its useful life.
5> Can be identified only with a business as a whole.
6> A symbol that identifies a particular enterprise or product.
7> When book value of asset is greater than the proceeds received from its sale.
8> Must be expensed when incurred.
9> Indicates how efficiently a company is able to generate sales with its assets.
10> An estimate of the expected productive life of an asset.
Answer:
If inventory turnover is 8 times, and the average inventory was $400,000, the cost of
goods sold during the year was $______________ and the days in inventory was
______________ days.
Answer:
The monetary unit assumption states that transactions that can be measured in terms of
money should be recorded in the accounting records.
Answer: