If a corporation distributes cash to its stockholders, then
a. there has been a violation of accounting principles.
b. stockholders’ equity will increase.
c. stockholders’ equity will decrease.
d. there will be a new liability showing the stockholders owes money to the business.
Answer:
Cross-footing a cash receipts journal means
a. the equality of debits and credits in the journal has been proved.
b. each line of the journal has a horizontal total.
c. the columns of the journal have been cross-referenced.
d. all necessary postings have been completed.
Answer:
The ratio that uses weighted average common shares outstanding in the denominator is
the
a. price-earnings ratio.
b. return on common stockholders’ equity.
c. earnings per share.
d. payout ratio.
Answer:
A $100 petty cash fund has cash of $16 and receipts of $82. The journal entry to
replenish the account would include a
a. debit to Cash for $82.
b. credit to Petty Cash for $84.
c. debit to Cash Over and Short for $2.
d. credit to Cash for $82.
Answer:
If a company determines cost of goods sold each time a sale occurs, it
a. must have a computer accounting system.
b. uses a combination of the perpetual and periodic inventory systems.
c. uses a periodic inventory system.
d. uses a perpetual inventory system.
Answer:
A company with total stockholders’ equity of $85,000 paid a $10,000 business debt. As
a result of this transaction, total stockholders’ equity
a. did not change.
b. increased by $10,000.
c. decreased by $10,000.
d. increased to $95,000.
Answer:
If total liabilities increased by $25,000 during a period of time and stockholders’ equity
decreased by $9,000 during the same period, then the amount and direction (increase or
decrease) of the period’s change in total assets is a(n)
a. $34,000 decrease.
b. $16,000 decrease.
c. $16,000 increase.
d. $34,000 increase.
Answer:
Kreig Corporation has income before taxes of $900,000 and an extraordinary gain of
$300,000. If the income tax rate is 35% on all items, the income statement should show
income before irregular items and extraordinary items, respectively, of
a. $600,000 and $300,000.
b. $600,000 and $195,000.
c. $585,000 and $300,000.
d. $585,000 and $195,000.
Answer:
The final step in the recording process is to
a. analyze each transaction.
b. enter the transaction in a journal.
c. prepare a trial balance.
d. transfer journal information to ledger accounts.
Answer:
In the stockholders’ equity section of the balance sheet,
a. Common Stock Dividends Distributable will be classified as part of additional
paid-in capital.
b. Common Stock Dividends Distributable will appear in its own subsection of the
stock- holders’ equity.
c. Additional Paid-in Capital appears under the subsection Paid-in Capital.
d. Dividends in arrears will appear as a restriction of Retained Earnings.
Answer:
In common size analysis,
a. a base amount is required.
b. a base amount is optional.
c. the same base is used across all financial statements analyzed.
d. the results of the horizontal analysis are necessary inputs for performing the analysis.
Answer:
Which of the following accounts is not included in the computation of net sales?
a. Sales Discounts
b. Sales
c. Sales Returns and Allowances
d. Freight Out
Answer:
If a company has net sales of $700,000 and cost of goods sold of $455,000, the gross
profit percentage is
a. 25%.
b. 35%.
c. 65%.
d. 100%.
Answer:
In preparing a bank reconciliation, outstanding checks are
a. added to the balance per bank.
b. deducted from the balance per books.
c. added to the balance per books.
d. deducted from the balance per bank.
Answer:
The second set of debit and credit columns on a worksheet is generally used for
a. closing entries.
b. the trial balance.
c. the balance sheet figures.
d. the adjustments.
Answer:
If services are rendered for credit, then
a. assets will decrease.
b. liabilities will increase.
c. stockholders’ equity will increase.
d. liabilities will decrease.
Answer:
The income statement for the month of June, 2015 of Camera Obscura Enterprises
contains the following information:
The entry to close the revenue account includes a
a. debit to Income Summary for $1,300.
b. credit to Income Summary for $1,300.
c. debit to Income Summary for $7,000.
d. credit to Income Summary for $7,000.
Answer:
Angie’s Blooms purchased a delivery van for $40,000. The company was given a
$4,000 cash discount by the dealer, and paid $2,000 sales tax. Annual insurance on the
van is $1,000. As a result of the purchase, by how much will Angie’s Blooms increase
its van account?
a. $40,000
b. $36,000
c. $39,000
d. $38,000
Answer:
Compensating balances are a restriction on the use of a company’s cash and should be
a. reported as a current asset.
b. reported as a noncurrent asset.
c. disclosed in the financial statements.
d. reported as a reduction of cash.
Answer:
The cost of a new asset acquired in an exchange that has commercial substance is the
cash paid plus the
a. book value of the old asset.
b. fair value of the old asset.
c. book value of the asset acquired.
d. fair value of the new asset.
Answer:
Cork Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 6%, $100
par value cumulative preferred stock outstanding. It is one year in arrears on its
preferred stock. How much cash will Cork distribute to the common stockholders?
a. $88,000.
b. $72,000.
c. $124,000.
d. None of these answers are correct.
Answer:
Sarbanes Oxley applies to
a. U.S companies but not international companies.
b. international companies but not U.S. companies.
c. U.S. and Canadian companies but not other international companies.
d. U.S and international companies.
Answer:
Indicate where the payment of income taxes would appear, if at all, on the statement of
cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow
Answer:
Match the statements below with the appropriate terms by entering the appropriate
letter code in the spaces provided.
TERMS:
A. Prepaid Expenses
B. Unearned Revenues
C. Accrued Revenues
D. Accrued Expenses
STATEMENTS:
1> A revenue not yet recognized; collected in advance.
2> Office supplies on hand that will be used in the next period.
3> Interest revenue collected; not yet recognized.
4> Rent not yet collected; already recognized.
5> An expense incurred; not yet paid or recorded.
6> A revenue recognized; not yet collected or recorded.
7> An expense not yet incurred; paid in advance.
8> Interest expense incurred; not yet paid.
Answer:
The book value of an asset is equal to the
a. asset’s fair value less its historical cost.
b. blue book value relied on by secondary markets.
c. replacement cost of the asset.
d. asset’s cost less accumulated depreciation.
Answer:
During December 2014, Markowitz Publishing sold 4,500 12-month annual magazine
subscriptions at a rate of $20 each. The first issues were mailed in February 2015.
Prepare the entries on Markowitz’s books to record the sale of the subscriptions and the
mailing of the first issues.
Answer:
The extent of internal control features adopted by a company must be evaluated in
terms of cost-benefit.
Answer:
An inexperienced accountant for Tilly Company made the following errors in recording
merchandising transactions.
1> A $270 refund to a customer for faulty merchandise was debited to Sales Revenue
$270 and credited to Cash $270.
2> A $310 credit purchase of supplies was debited to Inventory $310 and credited to
Cash $310.
3> A $190 sales return was debited to Sales Revenue.
4> A cash payment of $40 for freight on merchandise purchases was debited to
Freight-Out $400 and credited to Cash $400.
Instructions
Prepare separate correcting entries for each error, assuming that the incorrect entry is
not reversed. (Omit explanations.)
Answer:
For each of the ratios listed below, indicate by the appropriate code letter, whether it is a
liquidity ratio (L), a profitability ratio (P), or a solvency ratio (S).
____ 1> Times interest earned ratio
____ 2> Asset turnover
____ 3> Accounts receivable turnover
____ 4> Debt to assets ratio
____ 5> Current ratio
____ 6> Payout ratio
Answer:
Carey Enterprises sold equipment on January 1, 2015 for $10,000. The equipment had
cost $48,000. The balance in Accumulated Depreciation at January 1 is $40,000. What
entry would Carey make to record the sale of the equipment?
Answer:
Free cash flow equals cash provided by operations less capital expenditures and cash
dividends.
Answer:
Jean’s Vegetable Market had the following transactions during 2014:
1> Issued $50,000 of par value common stock for cash.
2> Repaid a 6 year note payable in the amount of $22,000.
3> Acquired land by issuing common stock of par value $100,000.
4> Declared and paid a cash dividend of $2,000.
5> Sold a long-term investment (cost $3,000) for cash of $8,000.
6> Acquired an investment in IBM stock for cash of $15,000.
What is the net cash provided (used) by investing activities?
a. $21,000
b. $67,000
c. $28,000
d. $0
Answer:
The ___________________ is calculated by dividing net sales by average total assets.
Answer:
The income statement is sometimes referred to as the statement of operations.
Answer:
Inventory turnover is calculated as cost of goods sold divided by ending inventory.
Answer: