The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report
certifying that the financial statements are free of error.
As a company uses supplies, an adjustment should be made to decrease an asset account
and increase an expense account.
On a bank statement, deposits are listed as debits and cleared checks are listed as
credits.
The analyze-record-summarize process is applied to daily transactions, to month-end
adjustments, and as part of the year-end closing process.
The list of account names and reference numbers that the company will use when
accounting for transactions is called the chart of accounts.
Which of the following situations would cause the balance per bank to be more than the
balance per books?
A) Deposits in transit
B) Service charges
C) Outstanding checks
D) Checks from customers returned as NSF
Accounts Payable had a balance of $18,200 at the beginning of the month. During the
month, three debits in the amounts of $4,700, $11,300, and $14,800 were posted to
Accounts Payable, and three credits in the amounts of $3,600, $9,500, and $12,700
were posted to Accounts Payable. What is the ending balance of the Accounts Payable
account?
A) $13,200.
B) $5,000.
C) $23,200.
D) $49,000.
Net revenue divided by average net fixed assets is the calculation for which of the
following ratios?
A) Net profit margin
B) Fixed asset turnover
C) Current ratio
D) Return on assets
A $15,000 overstatement of the current year ‘s ending inventory was discovered after
the financial statements for the year were prepared. How would that inventory error
impact the current year ‘s financial statements?
A) Current assets were overstated and net income was understated.
B) Current assets were understated and net income was understated.
C) Current assets were overstated and net income was overstated.
D) Current assets were understated and net income was overstated.
On January 5, Arlington Inc. purchases $23,000 of supplies; payment is not required
until February 4. What action should be taken by Arlington Inc. on January 5?
A) No journal entry is required; this transaction should not be recorded until the
payment is made.
B) A journal entry that includes a credit to Accounts Payable should be prepared.
C) A journal entry that includes a debit to Accounts Payable should be prepared.
D) A journal entry that includes a debit to Prepaid Expenses should be prepared.
Your company has net sales of $468,300 and average net receivables of $111,500 for
the year. Which of the following statements is correct? (Round all calculations to one
decimal place.)
A) The receivables turnover ratio is 4.2 and the days-to-collect is 0.01.
B) The receivables turnover ratio is 0.2 and the days-to-collect is 1,520.
C) The receivables turnover ratio is 4.2 and the days-to-collect is 86.9.
D) The receivables turnover ratio is 0.2 and the days-to-collect is 87.6.
During Year 3, a company’s assets increase by $56,000 and its liabilities increase by
$38,000. If no dividends were paid and there were no changes in the amount of
common stock issued during the year, net income for Year 3 was:
A) $56,000.
B) $18,000.
C) $94,000.
D) $38,000.
An account used in the periodic inventory system that is not used in the perpetual
inventory system is:
A) Inventory
B) Sales
C) Sales Returns & Allowances
D) Purchases
Which of the following statements about revenues and expenses is correct?
A) Credits increase both revenues and expenses.
B) Credits increase expenses and decrease revenues.
C) Credits increase revenues and decrease expenses.
D) Credits decrease both revenues and expenses.
A company reported the following:
Use the above information to answer the following question. What is the amount of
income before income taxes?
A) $9,500
B) $32,700
C) $13,000
D) $17,500
When a deferral adjustment is made to an asset account, that asset becomes a(n):
A) liability.
B) other asset.
C) revenue.
D) expense.
Which of the following statements about the issuance of bonds at a premium is not
correct?
A) The Premium on Bonds Payable account is amortized each year and reduces the
company’s annual Interest Expense.
B) On the date of issuance, the stated interest rate was greater than the market interest
rate.
C) As the current date approaches the maturity date, the carrying value of the bond
approaches the face value of the bond.
D) The account used to record the premium has a normal debit balance.
If inventory is updated periodically, which of the equations is correct?
A) Cost of goods sold = Beginning inventory + Purchases – Ending inventory
B) Cost of goods sold = Beginning inventory + Purchases + Ending inventory
C) Beginning inventory + Purchases = Ending inventory
D) Ending inventory = Beginning inventory + Purchases + Cost of goods sold.
On October 1, Robertson Company sold inventory in the amount of $5,800 to Alberta,
Inc. with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses
a periodic inventory system. The journal entry (or entries) prepared by Robertson on
October 1 is (are):
A) Debit Sales Revenue and credit Accounts Receivable for $5,800.
B) Debit Sales Revenue and credit Accounts Receivable for $5,800; debit Cost of
Goods Sold and credit Inventory for $4,000.
C) Debit Accounts Receivable and credit Sales Revenue for $5,800.
D) Debit Accounts Receivable and credit Sales Revenue for $5,800; Debit Cost of
Goods Sold and credit Inventory for $4,000.
Which of the following statements accurately explains why the board of directors of a
company whose financial future contains some uncertainties might issue a 2-for-1 stock
split rather than declare a 100% stock dividend?
A) A stock split would not reduce the market price per share, whereas a stock dividend
would.
B) A stock split would reduce the market price per share, whereas a stock dividend
would not.
C) A stock split would increase total stockholders’ equity, whereas a stock dividend
would not.
D) A stock split would not reduce Retained Earnings, whereas a stock dividend would.
Angle Inc. announces that its gross profit rose 5% but its income before income taxes
fell. Which of the following statements is correct?
A) This is not possible given that net income is determined by gross profit.
B) This must mean that selling, general, and administrative expenses increased by more
than 5%.
C) This must mean that sales revenue rose more than expenses.
D) This must mean that cost of goods sold fell.
A corporation had 10,000 shares of $10 par value common stock outstanding. The
board of directors declared and issued a 10% stock dividend. The market value of the
stock was $20 per share. What is the journal entry to record this stock dividend?
A) Debit Retained Earnings and credit Common Stock for $20,000
B) Debit Retained Earnings and credit Common Stock for $10,000
C) Debit Retained Earnings for $20,000, credit Common Stock for $10,000, and credit
Additional Paid-in Capital for $10,000
D) No entry is made to record the stock dividend.