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The receiving department must compare goods received with goods purchased, as
indicated on the purchase order.
A partnership agreement need not be in writing.
Unearned revenue arises from the acceptance of payment in advance for a service to be
performed.
For accounting purposes, a business and its owner are considered the same entity.
The par value of treasury stock is deducted from total Contributed Capital and Retained
Earnings in determining total stockholders' equity.
The amount of a depreciable asset's annual depreciation expense can typically be
obtained by referring to the balance sheet.
The net cost of purchases is found by adding freight-in to net purchases.
For notes payable whose interest is stated separately, the adjusting entry would consist
of a debit to Interest Expense and a credit to Interest Payable.
During periods of consistently falling prices, the FIFO inventory method will produce
the highest possible amount of net income.
Wages are compensation of employees at a yearly or monthly rate.
A 20 percent change in net sales will result in a 20 percent change in net income.
Both the retail method and the gross profit method are useful in estimating the
inventory cost.
One of the best ways to control a petty cash fund is through an imprest system.
Liquidation of a partnership is the process of ending the business.
On the income statement, freight-out is included as part of cost of goods sold.
Receiving dividends is the only way in which stockholders can earn a return on their
investment in a corporation.
Payables turnover is measured in number of days.
Annual financial statements are subjected to a full audit by an independent auditor.
A journal entry is a notation that consists of either a single debit or a single credit that is
recorded in the general ledger.
Depreciation Expense–Buildings is a nominal account.
A deferral is the recognition of an expense that has arisen but has not yet been recorded.
Partner X purchases Partner Y's $25,000 interest from Partner Y for $30,000. The entry
to record the transaction is for $30,000.
On a statement of cash flows prepared using the direct method, a schedule must be
provided that reconciles net income to net cash flows from operating activities.
When a company holds U.S. Treasury bills, it debits Interest Income and credits
Short-Term Investments at the end of the accounting period (assuming it is prior to the
T-bills' maturity).
Preferred stock is considered the residual equity of a corporation.
Net income is another term for revenues.
After all closing entries have been entered and posted, the balance of the Income
Summary account will be zero.
In a journal entry, the Post. Ref. column is left blank until the entry has been posted.
The entry that includes a debit to Payroll Taxes and Benefits Expense would also
include credits to Social Security Tax Payable and Medicare Tax Payable.
Return on assets is a better measure of profitability than profit margin because it takes
into account the assets invested in the business.
Under the effective interest method of amortizing a bond discount, the bond interest
expense recorded for each period decreases over the life of the bond.
When no-par common stock without a stated value is issued for cash, the Common
Stock account is credited for an amount equal to the cash proceeds.
If sales for 20x4 (the base year), 20x5, and 20x6 are $40,000, $31,200, and $49,200,
respectively, the index numbers assigned to 20x5 and 20x6, respectively, are
A. 62.4 and 128.
B. 156 and 118.
C. 128.2 and 133.
D. 78 and 123.
A corporation's residual equity is its
A. preferred stock.
B. retained earnings.
C. common stock.
D. cash.
Which of the following is irrelevant in computing a machine's depreciation expense
using the production method?
A. Actual units produced in a given period
B. Residual value
C. Estimated useful life in years
D. Estimated units produced over its life
Indicate in the spaces below whether each of the following entries appears to be an
adjusting entry (AE), a closing entry (CE), or a reversing entry (RE).
A truck is purchased for $70,000. It has a five-year life and a $10,000 residual value.
Under the straight-line method, what is the asset's carrying value after three years?
A. $24,000
B. $34,000
C. $36,000
D. $46,000
Which of the following is an example of a deferral?
A. Utility expense incurred but not yet paid.
B. Prepaid Insurance.
C. Service income earned but not yet collected.
D. All of these choices.
When a service has been performed, but no cash has been received, which of the
following statements is true?
A. The entry would include a debit to Accounts Receivable.
B. The entry would include a debit to Accounts Payable.
C. The entry would include a credit to Unearned Revenue.
D. No entry is required until the cash is received.
Which of the following accounts probably would not appear in a trial balance but
probably would appear in an adjusted trial balance?
A. Accumulated Depreciation–Equipment
B. Cash
C. Office Supplies Expense
D. Owner’s Withdrawals
The following totals for the month of May were taken from the payroll register of the
Hillview Company:
Prepare journal entries to record the following, omitting explanations and rounding
amounts to the nearest dollar:
a. Monthly payroll (assuming a Medicare tax rate of 1.45 percent and Social Security tax
rate of 6.2 percent)
b. Accrual of employer's payroll taxes (assuming the Social Security and Medicare taxes to
be equal to the amount for employees, a FUTA tax of 0.8 percent, and a state
unemployment tax of 5.4 percent)
Which of the following statements is not true about depreciation for tax purposes?
A. The straight-line method is used for most assets.
B. The same methods are not acceptable for financial reporting.
C. Plant assets are written off rapidly.
D. There is a bonus first-year deduction.
Use the following information to calculate the liquidity and profitability ratios listed
below. Round to two decimal places.
a. Current ratio
b. Working capital
c. Return on equity
d. Profit margin
e. Debt to equity ratio
f. Return on assets
g. Asset turnover
Financial statements have faithful representation when the information has all of the
following except
A. Complete information.
B. Information that is free from error.
C. Neutral information.
D. Material information.
Use this information to answer the following question.
The total dollar amount of assets to be classified as current assets is
A. $252,000.
B. $238,000.
C. $294,000.
D. $406,000.
The number of shares of issued stock equals
A. unissued shares minus authorized shares.
B. outstanding shares plus treasury shares.
C. subscribed shares plus outstanding shares.
D. authorized shares minus treasury shares.
Which of the following is not needed in calculating the value of a bond?
A. Face interest rate
B. Market interest rate
C. Dollar amount periodic interest payments
D. Future value of face (maturity) amount
Which of the following costs usually would not be included in the inventory cost?
A. Storage costs
B. Related tariffs
C. Invoice price less purchases discounts
D. Insurance on goods in transit
A company has net sales of $50,000 during the year. At year end (before an adjustment
is made), Allowance for Uncollectible Accounts has a credit balance of $2,500. If the
company estimates that 3 percent of net sales are uncollectible, what is the balance in
the allowance account after the year-end adjustment has been made using the
percentage of net sales method?
A. $1,500 debit balance
B. $1,500 credit balance
C. $4,000 credit balance
D. $1,000 debit balance
On January 2, 20x5, McGowan Corporation issued 20-year bonds payable with a face
value of $300,000 and a face interest rate of 8 percent. The bonds were issued to yield a
market interest rate of 9 percent. Interest is payable annually on January 2. In
calculating the present value of the bond issue of January 2, 20x5, the
A. 9 percent rate will be used to calculate the present value of the face amount and the 8
percent rate will be used to calculate the present value of the periodic interest payments.
B. 9 percent rate will be used to calculate the present value of the face amount and the
present value of the periodic interest payments.
C. 8 percent rate will be used to calculate the present value of the face amount and the
present value of the periodic interest payments.
D. 8 percent rate will be used to calculate the present value of the face amount and the 9
percent rate will be used to calculate the present value of the periodic interest payments.
In the space below, state whether each situation is a deferral or an accrual.
______a. Unrecorded interest on savings bonds is $765.
______b. Property taxes that have been incurred but that have not yet been paid or
recorded amount to $1,034.
______c. Legal fees of $2,890 were collected in advance. By year end, 70 percent were
still unearned.
______d. Prepaid Insurance had a $900 balance prior to adjustment. By year end, 25
percent was still unexpired.
______e. Salaries earned by employees by year end but not yet paid or recorded
amounted to $1,655.
Which of the following is an example of an accrual?
A. Purchase of equipment.
B. Prepaid insurance.
C. Salaries earned but not yet paid.
D. All of these choices.
The petty cash fund should be replenished
A. only for the total amount of expense receipts on hand.
B. for the total amount that was originally set up in the imprest fund.
C. for the total amount of expense receipts on hand plus cash remaining before
replenishment.
D. for the amount needed to bring the petty cash fund back to its imprest amount.
The Securities and Exchange Commission instituted rules requiring the chief executive
officers and chief financial officers of all publicly traded companies to certify that, to
their knowledge, the quarterly and annual statements that their companies file with the
SEC are
A. 100 percent accurate and contain no misstatements, errors, or mistakes.
B. accurate and complete.
C. subject to interpretation due to the many accounting rules and regulations.
D. not to be used except by individuals working for the company.
Days' inventory on hand equals 365 divided by
A. inventory turnover.
B. cost of goods sold.
C. goods available for sale.
D. average inventory.
When the accounting period ends before U.S. Treasury bills are scheduled to mature,
the investor's adjusting entry would include a
A. debit to Short-Term Investments.
B. credit to Cash.
C. debit to Interest Income.
D. credit to Short-Term Investments.
Chow Company sold a car for $18,100. The cost of the car was $37,500 and an
accumulated depreciation of $20,400 had been recorded on the same. The entry to
record the disposal of the car is:
A. Accumulated Depreciation—Automobile 20,400
Cash 18,100
Automobile 37,500
Gain on Sale of Automobile 1,000
B. Accumulated Depreciation—Automobile 37,500
Automobile 37,500
C. Accumulated Depreciation—Automobile 20,400
Automobile 20,400
D. Automobile 37,500
Which of the following accounts does not appear in the Balance Sheet columns of a
work sheet?
A. Withdrawals
B. Unearned Revenue
C. Wages Payable
D. Depreciation Expense–Equipment
Which of the following would be added to the balance per books on a bank
reconciliation?
A. Notes collected by the bank
B. Deposits in transit
C. Service charges
D. Outstanding checks
A company that uses the allowance method writes off a specific account as
uncollectible, but then the customer pays. The entries made upon receiving payment
will
A. decrease Cash.
B. decrease Allowance for Uncollectible Accounts.
C. increase Allowance for Uncollectible Accounts.
D. decrease Uncollectible Accounts Expense.
The matching rule is applied
A. because it is required by the Internal Revenue Code.
B. by expensing certain items immediately and in their entirety.
C. to help make the bookkeeper's job easier.
D. to help produce an accurate measurement of a company's performance.
Use this information to answer the following question.
Pinnacle Corporation has 90,000 shares of $10 par value common stock outstanding.
The following transactions occurred during the year:
Mar. 17 Declared a 10 percent stock dividend to stockholders of record on March 20.
Market value of the stock was $22 on March 17.
Mar. 30 Distributed the stock dividend.
The entry to record the transaction of March 30 is:
A. Common Stock Distributable 90,000
Common Stock 90,000
B. Common Stock Distributable 90,000
Retained Earnings 108,000
Common Stock 198,000
C. Common Stock Distributable 198,000
Common Stock 90,000
Additional Paid-in Capital 108,000
D. Common Stock Distributable 90,000
A company has $1,606,000 in bonds payable with an unamortized premium of $40,000.
If one-fourth of the bonds are converted to common stock, the carrying value of the
bonds will decrease by
A. $401,500.
B. $441,500.
C. $391,500.
D. $411,500.
