Bates Company has a $300,000 balance in Accounts Receivable and a $1,000 debit
balance in Allowance for Doubtful Accounts. Credit sales for the period totaled
$1,800,000. What is the amount of the bad debt adjusting entry if Bates uses a
percentage of receivables basis at 5%?
a. $15,000
b. $14,000
c. $16,000
d. $15,050
Answer:
The operating cycle of a merchandiser is
a. always one year in length.
b. generally longer than it is for a service company.
c. about the same as for a service company.
d. generally shorter than it is for a service company.
Answer:
The Shins, a minor league baseball team, prepare financial statements on a monthly
basis. Their season begins in April, but in March the team engaged in the following
transactions:
(a) Paid $210,000 to Kansas City as advance rent for use of Kansas City Stadium for
the six month period April 1 through September 30.
(b) Collected $450,000 cash from sales of season tickets for the team’s 20 home games.
This amount was credited to Unearned Ticket Revenue.
During the month of April, the Shins played four home games and five road games.
Instructions
Prepare the adjusting entries required at April 30 for the transactions above.
Answer:
Company A sells $2,500 of merchandise on account to Company B with credit terms of
2/10, n/30. If Company B remits a check taking advantage of the discount offered, what
is the amount of Company B’s check?
a. $1,750
b. $2,000
c. $2,250
d. $2,450
Answer:
Peter Johnson invests $35,516.80 now for a series of $5,000 annual returns beginning
one year from now. Peter will earn 10% on the initial investment. How many annual
payments will Peter receive?
a. 10
b. 12
c. 13
d. 15
Answer:
A small neighborhood barber shop that is operated by its owner would likely be
organized as a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.
Answer:
A note payable is in the form of
a. a contingency that is reasonably likely to occur.
b. a written promissory note.
c. an oral agreement.
d. a standing agreement.
Answer:
A major difference between IFRS and GAAP relates to the
a. Retained Earnings account.
b. Revaluation Surplus account.
c. Share Capital account.
d. Share Premium account.
Answer:
In 2015, Chandler Company had net credit sales of $1,125,000. On January 1, 2015,
Allowance for Doubtful Accounts had a credit balance of $27,000. During 2015,
$42,000 of uncollectible accounts receivable were written off. Past experience indicates
that the allowance should be 10% of the balance in receivables (percentage of
receivables basis). If the accounts receivable balance at December 31 was $380,000,
what is the required adjustment to the Allowance for Doubtful Accounts at December
31, 2015?
a. $23,000
b. $38,000
c. $53,000
d. $97,500
Answer:
Vaughn Company, which uses a periodic inventory system, had a beginning inventory
on May 1, of 400 units of Product A at a cost of $7 per unit. During May, the following
purchases and sales were made.
Instructions: Compute the May 31 ending inventory and May cost of goods sold under
(a) Average Cost, (b) FIFO, and (c) LIFO. Provide appropriate supporting calculations.
Answer:
When stock dividends are distributed,
a. Common Stock Dividends Distributable is decreased.
b. Retained Earnings is decreased.
c. Paid-in Capital in Excess of Par is debited if it is a small stock dividend.
d. no entry is necessary if it is a large stock dividend.
Answer:
Larson Company has twenty employees who each earn $120 per day. If they
accumulate vacation time at the rate of 1.5 vacation days for each month worked, the
amount of vacation benefits that should be accrued at the end of the month is
a. $240.
b. $2,400.
c. $3,600.
d. $360.
Answer:
Mehring’s 2015 financial statements contained the following data (in millions).
Instructions
Compute these values:
(a) Working capital.
(b) Current ratio.
Answer:
On January 2, Angle Corporation acquired 40% of the outstanding common stock of
Bobbe Company for $550,000. For the year ended December 31, Bobbe reported net
income of $90,000 and paid cash dividends of $30,000 on its common stock. At
December 31, the carrying value of Angle’s investment in Bobbe under the equity
method is
a. $538,000.
b. $550,000.
c. $586,000.
d. $574,000.
Answer:
Bonds issued against the general credit of the borrower are called
a. callable bonds.
b. debenture bonds.
c. mortgage bonds.
d. a sinking fund bond.
Answer:
Costs incurred to increase the operating efficiency or useful life of a plant asset are
referred to as
a. capital expenditures.
b. expense expenditures.
c. ordinary repairs.
d. revenue expenditures.
Answer:
Entries in the cash payments journal are made from
a. sales invoices.
b. purchase invoices.
c. prenumbered checks.
d. canceled checks.
Answer:
Prepare the necessary correcting entry for each of the following.
a. A payment of $5,000 for salaries was recorded as a debit to Supplies Expense and a
credit to Cash.
b. A purchase of supplies on account for $1,000 was recorded as a debit to Equipment
and a credit to Accounts Payable.
Answer:
Under the equity method, the Stock Investments account is increased when the
a. investee company reports net income.
b. investee company pays a dividend.
c. investee company reports a loss.
d. stock investment is sold at a gain.
Answer:
The specific identification method of inventory costing
a. always maximizes a company’s net income.
b. always minimizes a company’s net income.
c. has no effect on a company’s net income.
d. may enable management to manipulate net income.
Answer:
The fiscal year of a business is usually determined by
a. the IRS.
b. a lottery.
c. the business.
d. the SEC.
Answer:
Which statement is false regarding the lower-of-cost-or-market (LCM) method of
inventory?
a. Market is defined as current replacement cost, not selling price.
b. LCM is an example of the accounting concept of conservatism.
c. LCM is applied to individual items listed on the inventory summary sheets.
d. All of these answer choices are correct.
Answer:
Chik Chik Company showed the following balances at the end of its first year:
What did Chik Chik Company show as total credits on its trial balance?
a. $51,400
b. $60,800
c. $62,200
d. $70,200
Answer:
DMV leases a building for 20 years. The lease requires 20 annual payments of $12,000
each, with the first payment due immediately. The interest rate in the lease is 10%.
What is the present value of the cost of leasing the building?
Answer:
Management may choose any inventory costing method it desires as long as the cost
flow assumption chosen is consistent with the physical movement of goods in the
company.
Answer:
Which of the following show the proper effect of a stock split and a stock dividend?
Answer:
Roberts Company is preparing monthly adjusting entries at December 3 An analysis
reveals the following:
1> During December, Roberts Company sold 3,000 units of a product that carries a
60-day warranty. The sales for this product totaled $100,000. The company expects 4%
of the units to need repair under the warranty and it estimates that the average repair
cost per unit will be $20.
2> The company has been sued by a disgruntled employee. Legal counsel believes that
it is reasonably possible that the company will have to pay $200,000 in damages.
3> The company has been named as one of several defendants in a $400,000 damage
suit. Legal counsel believes it is unlikely that the company will have to pay any
damages.
4> Employees earn vacation pay at a rate of 1 day per month. During December, ten
employees qualify for vacation pay. Their average daily wage is $80 per employee.
Instructions
Prepare adjusting entries, if required, for each of the four items.
Answer:
Trade receivables occur when two companies trade or exchange notes receivables.
Answer: