The following information was available for Pete Company at December 31, 2015:
beginning inventory $90,000; ending inventory $70,000; cost of goods sold $984,000;
and sales $1,350,000. Pete’s inventory turnover in 2015 was
a. 10.9 times.
b. 12.3 times.
c. 14.1 times.
d. 16.9 times.
Answer:
Identify whether each of the following items would be (a) added to the book balance,
(b) deducted from the book balance in a bank reconciliation, (c) added to the bank
balance, or (d) deducted from the bank balance.
1> Deposits in transit
2> Bank service charge
3> Collection of note and interest by bank on company’s behalf
4> NSF check
5> Outstanding checks
Answer:
Compensating balances are a restriction on the use of a company’s cash and should be
a. reported as a current asset.
b. reported as a noncurrent asset.
c. disclosed in the financial statements.
d. reported as a reduction of cash.
Answer:
An asset was purchased for $250,000. It had an estimated salvage value of $50,000 and
an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is
revised to $40,000 but the estimated useful life is unchanged. Assuming straight-line
depreciation, depreciation expense in year 6 would be
a. $30,000.
b. $22,000.
c. $15,000.
d. $21,000.
Answer:
Liabilities of a company would not include
a. notes payable.
b. accounts payable.
c. salaries and wages payable.
d. cash.
Answer:
Corporations generally issue stock dividends in order to
a. increase the market price per share.
b. exceed stockholders’ dividend expectations.
c. increase the marketability of the stock.
d. decrease the amount of capital in the corporation.
Answer:
Research and development costs
a. are classified as intangible assets.
b. must be expensed when incurred under generally accepted accounting principles.
c. should be included in the cost of the patent they relate to.
d. are capitalized and then amortized over a period not to exceed 40 years.
Answer:
(a) What is meant by trading on the equity?
(b) How would you determine the profitability of trading on the equity?
Answer:
Inventory accounting under IFRS differs from GAAP in regard to
a. neither the use of LIFO nor lower-of-cost-or-market.
b. the use of LIFO but not lower-of-cost-or-market.
c. the use of lower-of-cost-or-market but not LIFO.
d. the use of LIFO and lower-of-cost-or-market.
Answer:
Grimwood Trucking purchased a tractor trailer for $171,500. Interline uses the
units-of-activity method for depreciating its trucks and expects to drive the truck
1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $24,500. If
the truck is driven 90,000 miles in its first year, how much depreciation expense should
Grimwood record?
a. $12,250
b. $15,435
c. $13,230
d. $14,292
Answer:
In the Papyrus Corporation, cash receipts from customers were $136,000, cash
payments for operating expenses were $102,000, and one-third of the company’s $9,300
income taxes were paid during the year. Net cash provided by operating activities is:
a. $34,000.
b. $24,700.
c. $30,900.
d. $27,800.
Answer:
Dillon Corporation splits its common stock 2 for 1, when the market value is $40 per
share. Prior to the split, Dillon had 50,000 shares of $10 par value common stock issued
and outstanding. After the split, the par value of the stock
a. remains the same.
b. is reduced to $2 per share.
c. is reduced to $5 per share.
d. is reduced to $20 per share.
Answer:
Reconciling the bank statement monthly is an example of
a. segregation of duties.
b. independent internal verification.
c. establishment of responsibility.
d. documentation procedures.
Answer:
When a company owns more than 50% of the common stock of another company,
a. affiliated financial statements are prepared.
b. consolidated financial statements are prepared.
c. controlling financial statements are prepared.
d. significant financial statements are prepared.
Answer:
On January 1, a machine with a useful life of five years and a residual value of $30,000
was purchased for $90,000. What is the depreciation expense for year 2 under the
double-declining-balance method of depreciation?
a. $21,600
b. $36,000
c. $28,800
d. $17,280
Answer:
The income statement approach to estimating uncollectible accounts expense is used by
Kerley Company. On February 28, the firm had accounts receivable in the amount of
$437,000 and Allowance for Doubtful Accounts had a credit balance of $2,140 before
adjustment. Net credit sales for February amounted to $3,000,000. The credit manager
estimated that uncollectible accounts expense would amount to 1% of net credit sales
made during February. On March 10, an accounts receivable from Kathy Black for
$6,100 was determined to be uncollectible and written off. However, on March 31,
Black received an inheritance and immediately paid her past due account in full.
Instructions
(a) Prepare the journal entries made by Kerley Company on the following dates:
1> February 28
2> March 10
3> March 31
(b) Assume no other transactions occurred that affected the allowance account during
March. Determine the balance of Allowance for Doubtful Accounts at March 31.
Answer:
A voucher system is a series of prescribed control procedures
a. to check the credit worthiness of customers.
b. designed to assure that disbursements by check are proper.
c. which eliminates the need for a sales journal.
d. specifically designed for small firms who may not have checking accounts.
Answer:
A company usually determines the amount of supplies used during a period by
a. adding the supplies on hand to the balance of the Supplies account.
b. summing the amount of supplies purchased during the period.
c. taking the difference between the supplies purchased and the supplies paid for during
the period.
d. taking the difference between the balance of the Supplies account and the cost of
supplies on hand.
Answer:
The final step in the accounting cycle is to prepare
a. closing entries.
b. financial statements.
c. a post-closing trial balance.
d. adjusting entries.
Answer:
Adama Company reported a net loss of $6,000 for the year ended December 31, 2014.
During the year, accounts receivable increased $15,000, merchandise inventory
decreased $12,000, accounts payable decreased by $20,000, and depreciation expense
of $12,000 was recorded. During 2014, operating activities
a. used net cash of $17,000.
b. used net cash of $29,000.
c. provided net cash of $24,000.
d. provided net cash of $21,000.
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:
Which one of the following would not be classified as a short-term
investment?
a. Marketable stock securities
b. Equity method investments
c. Marketable debt securities
d. Short-term paper
Answer:
Glaser Company paid $48,000 to buy 3,000 shares of its $5 par value common stock for
the treasury. The stock was originally sold for $36,000. The entry to record the purchase
includes a
a. debit to Treasury Stock for $36,000.
b. credit to Treasury Stock for $20,000.
c. debit to Treasury Stock for $48,000.
d. credit to Common Stock for $36,000.
Answer:
The collection of a $1,500 account after the 2 percent discount period will result in a
a. debit to Cash for $1,470.
b. debit to Accounts Receivable for $1,500.
c. debit to Cash for $1,500.
d. debit to Sales Discounts for $30.
Answer:
A flower shop makes a large sale for $1,200 on November 30. The customer is sent a
statement on December 5 and a check is received on December 10. The flower shop
follows GAAP and applies the revenue recognition principle. When is the $1,200
considered to be recognized?
a. December 5.
b. December 10.
c. November 30.
d. December 1.
Answer:
For 2015, the income statement of Hylard Corporation had revenues of $152,000 and
operating expenses of $78,000. Accounts receivable and accounts payable at year-end
were $60,000 and $23,000, respectively. At the beginning of the year, the balances were
$39,000 for accounts receivable and $15,000 for accounts payable. Assume that
accounts payable related to operating expenses. Ignore income taxes.
Instructions
Compute net cash provided by operating activities using the direct method.
Answer:
When making a payment from the petty cash fund for postage stamps, the following
journal entry is made.
Answer:
The following information for Wilson Company is available on June 30, 2015, the end
of a monthly accounting period. You are to prepare the necessary adjusting journal
entries for Wilson Company for the month of June for each situation given. Appropriate
adjusting entries had been recorded in previous months. You may omit journal entry
explanations.
1> Wilson Company purchased a 2-year insurance policy on February 1, 2015 and
debited Prepaid Insurance for $4,800.
2> On January 1, 2015, a tenant in an apartment building owned by Wilson Company
paid $4,200 which represents six months’ rent in advance. The amount received was
credited to the Unearned Rent account.
3> On June 1, 2015, the balance in the Supplies account was $200. During June, office
supplies costing $580 were purchased. A physical count of office supplies at June 30
revealed that there was $140 still on hand.
4> On March 31, 2015, Wilson Company purchased a truck for $54,000. It is estimated
that the annual depreciation will be $9,000.
5> Wilson Company has two employees who earn $100 and $120 per day, respectively.
They are paid each Friday for a five-day workweek that begins each Monday. Assume
June 30 is a Wednesday in 2015.
Answer:
Library, Inc. has 2,500 shares of 4%, $50 par value, cumulative preferred stock and
50,000 shares of $1 par value common stock outstanding at December 31, 2014, and
December 31, 2015. The board of directors declared and paid a $3,000 dividend in
2014. In 2015, $18,000 of dividends are declared and paid. What are the dividends
received by the preferred and common shareholders in 2015?
Answer:
Answer:
The account balances appearing on the trial balance [below) were taken from the
general ledger of Irick’s Copy Shop at September 30.
Additional information for the month of September which has not yet been recorded in
the accounts is as follows:
[a] A physical count of supplies indicates $300 on hand at September 30.
[b] The amount of insurance that expired in the month of September was $200.
[c] Depreciation on equipment for September was $400.
[d] Rent owed on the copy shop for the month of September was $600 but will not be
paid until October.
Instructions
Using the above information, complete the worksheet on the following page for Irick’s
Copy Shop for the month of September.
Answer:
