A company purchased a delivery truck on January 1, 2014, for $18,000. It is estimated
that the delivery truck will have a $4,000 salvage value at the end of its 5-year useful
life. If the company recorded depreciation expense of $2,800 for the year 2015 on the
delivery truck, the depreciation method used by the company is
a. not determinable.
b. the straight-line method.
c. the units-of-activity method.
d. the double-declining-balance method.
Answer:
The normal balance of any account is the
a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.
Answer:
Eneri Company’s inventory records show the following data:
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method. If the company uses FIFO, what is the gross profit for the period?
a. $95,000
b. $99,266
c. $99,960
d. $103,800
Answer:
Another name for journal is
a. listing.
b. book of original entry.
c. book of accounts.
d. book of source documents.
Answer:
The cost of goods available for sale is allocated to the cost of goods sold and the
a. beginning inventory.
b. ending inventory.
c. cost of goods purchased.
d. gross profit.
Answer:
Using the percentage-of-receivables basis, the uncollectible accounts for the year is
estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a
$7,000 credit before adjustment, what is the amount of bad debt expense for the period?
a. $7,000
b. $31,000
c. $38,000
d. $45,000
Answer:
All of the financial statements are for a period of time except the
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.
Answer:
At September 1, 2015, Promise Ring Co. reported stockholders’ equity of $156,000.
During the month, Promise Ring generated revenues of $38,000, incurred expenses of
$21,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the
amount of stockholders’ equity at September 30, 2015?
a. $166,000
b. $171,000
c. $173,000
d. $176,000
Answer:
If a common stock investment is sold at a gain, the gain
a. is reported as operating revenue.
b. is reported under a special section, ‘Discontinued investments,’ on the income
statement.
c. is reported in the Other revenues and gains section of the income statement.
d. contributes to gross profit on the income statement.
Answer:
The Inventory account is used in each of the following except the entry to record
a. goods purchased on account.
b. the return of goods purchased.
c. payment of freight on goods sold.
d. payment within the discount period.
Answer:
Swiss Clothing Store had a balance in the Accounts Receivable account of $820,000 at
the beginning of the year and a balance of $780,000 at the end of the year. Net credit
sales during the year amounted to $7,200,000. The accounts receivable turnover ratio
was
a. 9.0 times.
b. 8.4 times.
c. 9.2 times.
d. 8.8 times.
Answer:
During the current year, Marin Company incurred several expenditures. Briefly explain
whether the expenditures listed below should be recorded as an operating expense or as
an intangible asset. If you view the expenditure as an intangible asset, indicate the
number of years over which the asset should be amortized. Explain your answer.
(a) Spent $30,000 in legal costs in a patent defense suit. The patent was unsuccessfully
defended.
(b) Purchased a trademark from another company. The trademark can be renewed
indefinitely. Marin Company expects the trademark to contribute to revenue
indefinitely.
(c) Marin Company acquires a patent for $2,000,000. The company selling the patent
has spent $1,000,000 on the research and development of it. The patent has a remaining
life of 15 years.
(d) Marin Company is spending considerable time and money in developing a different
patent for another product. So far $3,000,000 has been spent this year on research and
development. Marin Company is very confident they will obtain this patent in the next
few years.
Answer:
In a period of rising prices, FIFO will have
a. lower net income than LIFO.
b. lower cost of goods sold than LIFO.
c. lower income tax expense than LIFO.
d. lower net purchases than LIFO.
Answer:
On March 1, Jordan Company borrows $240,000 from Ottawa State Bank by signing a
6-month, 8%, interest-bearing note.
Instructions
Prepare the necessary entries below associated with the note payable on the books of
Jordan Company.
(a) Prepare the entry on March 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the
semi-annual financial statements. Assume no other interest accrual entries have been
made.
(c) Prepare the adjusting entry at August 31 to accrue interest.
(d) Prepare the entry to record payment of the note at maturity.
Answer:
If total liabilities decreased by $30,000 and stockholders’ equity decreased by $20,000
during a period of time, then total assets must change by what amount and direction
during that same period?
a. $50,000 decrease
b. $10,000 decrease
c. $10,000 increase
d. $50,000 increase
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:
Darling Corporation issued 200,000 shares of $20 par value, cumulative, 5% preferred
stock on January 1, 2013, for $4,500,000. In December 2015, Darling declared its first
dividend of $800,000.
Instructions
(a) Prepare Darling’s journal entry to record the issuance of the preferred stock.
(b) If the preferred stock is not cumulative, how much of the $800,000 would be paid to
common stockholders?
(c) If the preferred stock is cumulative, how much of the $800,000 would be paid to
common stockholders?
Answer:
The journal entry to record a return of merchandise purchased on account under a
perpetual inventory system would credit
a. Accounts Payable.
b. Purchase Returns and Allowances.
c. Sales Revenue.
d. Inventory.
Answer:
In order to prevent a transaction from being recorded more than once, a company
should maintain only one book of original entry.
Answer:
The primary purpose of a trial balance is to prove the mathematical equality of the
debits and credits after posting.
Answer:
Using the following selected items from the comparative balance sheet of Ames
Company, illustrate horizontal and vertical analysis.
Answer:
The lower-of-cost-or-market basis is an example of the accounting concept of
conservatism.
Answer:
Selected transactions for Parton Company are listed below. List the number of the
transaction and then describe the effect of each transaction on assets, liabilities, and
stockholders’ equity.
Sample: Issued common stock in exchange for cash investment.
The answer would be’”Increase in assets and increase in stockholders’ equity.
1> Paid monthly utility bill.
2> Purchased new display case for cash.
3> Paid cash for repair work on security system.
4> Billed customers for services performed.
5> Received cash from customers billed in 4.
6> Paid dividends.
7> Incurred advertising expenses on account.
8> Paid monthly rent.
9> Received cash from customers when service was rendered.
Answer:
On January 2, Penny Company purchased 45, 10%, $1,000 Mikel Company bonds for
$45,000 cash. Interest is payable semiannually on July 1 and January On July 1, the
company received a semiannual interest payment on the Mikel Company bonds.
Journalize the entries to record the purchase of the bonds and the receipt of the interest
payment.
Answer:
Listed below are various column headings that may appear in special journals. Using
the following code letters, identify for each column heading (1) the special journal
where the column heading would appear, and (2) whether the amounts entered under
the column heading would be posted in total, individually, or both in total and
individually. (Note: column headings may appear in more than one special journal)
Answer:
Presented below are balance sheet items for Black Angel Company at December 31,
2015.
Compute each of the following:
1> Total assets.
2> Total liabilities.
Answer: