The payment of salaries and wages would be reported as an operating activity on the
statement of cash flows.
When the amount of annual depreciation is revised because of a change in the estimated
useful life of an asset, prior years’ financial statements should be restated.
The general goal of horizontal analyses is to identify significant trends.
The aging of accounts receivable method is based upon the principle that the longer an
account is overdue, the higher the risk of nonpayment.
If a company produces the same number of units per period over an asset’s useful life,
each period’s depreciation expense using the straight-line method will be the same as
that recorded using the units-of-production method.
If a company factors its receivables, its receivables turnover ratio will be lower than it
would have been if the receivables had not been factored.
If a company forgot to record depreciation on equipment for a period, Total Assets
would be overstated and Total Stockholders’ Equity would be understated on the
balance sheet.
When a periodic inventory system is in use, the Inventory account is updated only at the
end of the period.
The approach to preparing the cash flow statement relies on the following
rearrangement of the balance sheet equation: Change in cash = Change in (Liabilities +
Stockholders’ Equity + Noncash Assets).
Internal control consists of the actions taken by people at every level of an organization
to achieve its objectives relating to operations, reporting, and compliance.
A debit may increase or decrease an account, depending on the type of account.
The cost assigned to cost of goods sold and to inventory under the FIFO method will be
the same whether the perpetual or the periodic inventory system is used.
Central Company sold goods for $5,000 to Western Company on March 12 on credit.
Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the
transaction by debiting Accounts Receivable for $5,000 and crediting Sales Revenue for
$5,000. Western paid the balance due, less the discount, on March 21. Central’s journal
entry on March 21 would include a debit to:
A) Cash for $4,900.
B) Accounts Receivable for $4,900.
C) Cash for $5,000.
D) Accounts Receivable for $5,000.
During 2015, Maverick Law Firm had the following transactions with it clients
(customers):
On February 1, 2015, the company received cash of $5,000 from clients in payment of
their account balances as of December 31, 2014.
On November 1, 2015, the company received $2,000 cash as payments in advance for
law services to be performed in 2016.
The company received a total of $13,000 in cash for law services that were performed
during 2015.
The company sent bills totaling $4,000 to clients for services performed during 2015;
this amount was unpaid as December 31, 2015.
Use the information above to answer the following question. The journal entry prepared
by Seconds Best Company to record customer payments on account during April would
include a debit to:
A) Cash and a credit to Unearned Sales Revenue for $50,000.
B) Cash and a credit to Sales Revenue for $50,000.
C) Cash and a credit to Accounts Receivable for $50,000.
D) Cash and a credit to Accounts Payable for $50,000.
When cash is received from a remote source, the accounting department then compares
the total on the cash receipts list with the stamped deposit slip received from the bank.
Which internal control principle is being met with this procedure?
A) Document procedures
B) Independently verify
C) Restrict access
D) Segregate duties
A dance studio accepts $1,500 to provide a series of dance lessons to a youth group
during the month of July. The studio decides to record the revenue in July. The studio
incurs rent, utilities, and salaries expenses in July. The studio decides to record those
expenses in August, when it pays for them. One or both of these decisions:
A) violate the expense recognition principle.
B) are an example of accrual accounting.
C) violate the revenue recognition principle.
D) violate the accounting equation.
An increasing inventory turnover ratio indicates:
A) a longer time span between the ordering and receiving of inventory.
B) a shorter time span between the ordering and receiving of inventory.
C) a shorter time span between the purchase and sale of inventory.
D) a longer time span between the purchase and sale of inventory.
When existing assets are used up in the ordinary course of business:
A) an expense is recorded.
B) unearned revenue is recorded.
C) an accrual is recorded.
D) a prepaid expense is recorded.
Your company buys a computer system for $3 million and pays the vendor $200,000 to
install the computer system. Your company should record:
A) $3 million as equipment and $200,000 as expenses.
B) $3.2 million as expenses.
C) $2.8 million as equipment and the rest as expenses.
D) $3.2 million as equipment.
In the U.S., public companies have to be audited by independent auditors using rules
approved by the:
A) International Accounting Standards Board (IASB).
B) Public Company Accounting Oversight Board (PCAOB).
C) Financial Accounting Standards Board (FASB).
D) American Institute of Certified Public Accountants (AICPA)..
The balance of the Allowance for Doubtful Accounts was $12,656 at the beginning of
the year and $14,348 at the end of the year. Bad Debt Expense was $3,879 for the year.
Recoveries in the amount of $100 were recorded during the year. Which of the
following statements is correct?
A) The Allowance for Doubtful Accounts account was retroactively debited for $2,187
to record additional bad debts that became apparent in a future time period.
B) The Allowance for Doubtful Accounts account was debited for $2,287 to record
write-offs during the year.
C) The Allowance for Doubtful Accounts account was credited $2,287 for payments
from customer whose account balances were previously written off.
D) The Allowance for Doubtful Accounts account was credited $2,187 for the
difference between the percent of credit sales method and the aging of accounts
receivable method.
Which of the following statements about an auto manufacturer’s inventory is not
correct?
A) Tires, batteries, glass, paint, headlamp bulbs, and electric wiring would be included
in raw materials inventory.
B) Incomplete cars that are still being processed would be included in work in process
inventory.
C) Finished cars ready to be shipped to dealers would be included in finished goods
inventory.
D) Cars that have been sold to dealers would be included in finished goods inventory.
Melody’s Piano School operations for the month of May were limited to the following
transactions:
Provided $400 of piano lessons to students who paid in cash.
Provided $100 of piano lessons on account.
Collected $300 from students who took piano lessons during April.
Paid April’s piano rental bill of $100.
Received May’s piano rental bill of $150 and set it aside for payment in June.
Use the information above to answer the following question. Assuming that the
company uses cash basis accounting, what is net income for May?
A) $800.
B) $300.
C) $350.
D) $600.
During its first month of operations, Purrfect Pets purchased 6,000 bags of dog food at a
cost of $5 a bag and sold all 6,000 bags of dog food on account with payment terms of
3/10, net 30 for $10 each. A total of 2,600 of these bags were sold to customers who
paid within the discount period; the other customers paid after the discount period had
ended. Sales allowances totaling $200 were granted to customers whose dogs did not
like the dog food.
Required:
Part a. Calculate the gross profit for the month.
Part b. Calculate the gross profit percentage for the month.
Identify whether a company should debit (Dr) or credit (Cr) its Cash account to record
each of the following transactions:
1> _____ The company writes a $197.06 check.
2> _____ The company deposits a $5,000 check into its account.
3> _____ In a bank reconciliation, the company discovers that it recorded a $127.35
payment to a supplier as $27.35.
4> _____ The bank pays $16.00 interest on the company’s account.
5> _____ The company electronically transfers $867 to a supplier.
6> _____ A customer check in the amount of $31 is returned by the bank as NSF.
7> _____ The bank charges $12 in fees to the company’s bank account.
8> _____ When preparing the bank reconciliation, the company’s accountant discovers
a check in the amount of $1,000 that had been written but had not been recorded.
9> _____ A customer electronically transfers $189.43 to the company’s bank account.