A worksheet is an external document that forms a part of the financial statements.
Separation of cash-handling and cash-accounting duties is a critical element of internal
control over receivables.
All plant assets are depreciated.
Operating income equals gross profit minus operating expenses.
The accounts receivable turnover ratio is computed by dividing net credit sales by
ending net accounts receivable.
Compound interest means that interest is calculated only on the principal amount.
After posting from the cash payments journal, the posting reference is printed in the
general journal.
Brooklyn Market recently traded in store fixtures. The exchange had commercial
substance. The old fixtures had a cost of $70,000 and accumulated depreciation of
$58,000. Brooklyn paid $99,000 for the new store fixtures. These new fixtures had a
market value of $133,000. There is a loss of $22,000 on this exchange.
The last-in, first-out (LIFO) costing system is permitted under International Financial
Reporting Standards (IFRS).
Companies try to manage their inventory levels such that they will have just enough
inventory to meet customer demand without investing large amounts of money in
inventory or having it sit on the shelves gathering dust.
The aging-of-receivables method is a balance sheet approach of estimating
uncollectible accounts.
Stock issued at amounts in excess of par value results in a gain that is reported on the
income statement.
Gain on Disposal of Equity Investments is a temporary equity account and is reported
in the Other Income and (Expenses) section of the income statement.
Merchandise inventory and prepaid expenses are excluded from the acid-test ratio.
Liabilities represent creditors’ claims on the business’s assets.
Two popular entry-level software packages for accounting information systems are
QuickBooks and Excel.
Double taxation occurs when corporations make dividend payments to stockholders.
To help prevent theft by the sales clerk, at the end of each day, the manager proves the
cash by comparing the cash in the drawer against the cash register’s record of cash
sales.
Horizontal analysis is the study of percentage changes in line items in comparative
financial statements.
When preparing the statement of cash flows using the indirect method, a decrease in
current liabilities is added to the net income to arrive at net cash provided by operating
activities.
A contingency was evaluated at year-end. Management felt it was probable that this
would become an actual liability and the amount could be reasonably estimated. If this
is reported on the balance sheet, it could be considered a violation of generally accepted
accounting principles.
The Human Resources Department employees should pass out paychecks, hire
employees, and fire employees.
Checking accounts and money market accounts are examples of cash equivalents.
The acid-test ratio is also known as the quick ratio.
In computing the lower-of-cost-or-market, current replacement cost is the cost to
replace the inventory on hand.
A company cannot report a gain or loss when buying or selling its own stock.
The income statement is also called the statement of financial position.
For the vertical analysis of the balance sheet, the base amount is also the total of
liabilities and stockholders’ equity.
If the bank reconciliation includes a bank service charge, a journal entry is required,
which debits Bank Expense and credits Cash.
At the end of each accounting period, trading debt securities must be adjusted and
reported at fair value.
The balance sheet of a merchandiser looks the same as the balance sheet of a retailer,
except merchandisers have the following additional current liability accounts:
Estimated Returns Inventory and Refunds Payable.
When computing earnings per share, preferred dividends are subtracted from net
income because the preferred stockholders have the first claim to dividends.
If an asset is disposed of during the year, there is no need to calculate depreciation from
the beginning of the year of disposal to the date of disposal.
Paid-in capital and retained earnings are internally generated equity.
The most that the owner of a sole proprietorship can lose, as a result of business debts
or lawsuits, is the amount he/she has invested in the business.
The net cash provided by operating activities is calculated in the same way, whether the
company uses the direct or the indirect method of preparing the statement of cash flows.
Which of the following is an example of exercising internal control over receivables?
A) separating cash collection and credit approval duties
B) extending credit to all customers who apply for credit
C) combining the duties of the credit and accounting departments
D) allowing credit department employees to collect cash from customers
Notes receivable ________.
A) represent an oral promise to pay a fixed amount of principal plus interest on the
maturity date
B) are included in a miscellaneous category called other receivables
C) are due within 12 months or within the normal operating cycle if the cycle is longer
than a year are considered long-term assets
D) are supported by a promissory note
Which of the following is a benefit provided by internal control?
A) ensuring timely collection of accounts receivables
B) ensuring that collusion will never happen
C) ensuring that a business is profitable
D) promoting operational efficiency
A business purchased equipment for $150,000 on January 1, 2019. The equipment will
be depreciated over the five years of its estimated useful life using the straight-line
depreciation method. The business records depreciation once a year on December 31.
Which of the following is the adjusting entry required to record depreciation on the
equipment for the year 2019? (Assume the residual value of the acquired equipment to
be zero.)
A) Debit $150,000 to Equipment, and credit $150,000 to Cash.
B) Debit $150,000 to Depreciation Expense—Equipment, and credit $150,000 to
Accumulated Depreciation—Equipment.
C) Debit $30,000 to Depreciation Expense—Equipment, and credit $30,000 to
Accumulated Depreciation—Equipment.
D) Debit $30,000 to Depreciation Expense, and credit $30,000 to Equipment.
Posting a transaction means ________.
A) calculating the balance in an account
B) transferring data from the journal to the ledger
C) preparing a summary of account balances
D) finding the account number in the chart of accounts
Merchandise Inventory and Cost of Goods Sold appear ________.
A) on the balance sheet and statement of retained earnings, respectively
B) on the statement of retained earnings and income statement, respectively
C) on the balance sheet and income statement, respectively
D) on the income statement and statement of cash flows, respectively
On November 1, 2019, Juno, Inc. declared a dividend of $3.00 per share on common
stock. Juno, Inc. has 10,000 shares of common stock outstanding and 20,000 shares of
preferred stock. The date of record is November 15, and the payment date is November
30, 2019. Regarding the date of record, which of the following statements is true?
A) No journal entry is made on the date of record.
B) The liability must be recorded on the date of record.
C) Cash is disbursed to shareholders on the date of record.
D) The company transfers cash to a brokerage firm on the date of record.
Under the gross method, when the credit card processor deposits the cash proceeds
from credit and debit card sales, ________.
A) there will be no fee charged for the transaction
B) the deposit is made on the last day of the month
C) the total sales plus the processing fee assessed equals the net amount of cash
deposited
D) the processing fees are deducted from the company’s bank account by the processor
Woods, Inc. earned revenues of $11,000 and incurred expenses of $4,000. The company
declared and paid cash dividends of $3,000. What is the balance in the Income
Summary account after closing net income or loss to the Retained Earnings account?
A) debit balance of $11,000
B) credit balance of $4,000
C) credit balance of $7,000
D) balance of $0
After the December 31, 2019 adjusting journal entries have been posted, Sinclair
Enterprises has the following account balances (all accounts have normal balances) are:
What is the net realizable value as of December 21, 2019?
A) $163,600
B) $150,800
C) $146,200
D) $154,400
An accounting entry that is characterized by having multiple debits and/or multiple
credits is called a ________ entry.
A) balanced
B) posted
C) chart of accounts
D) compound journal
Accounts Receivable has a balance of $32,000, and the Allowance for Bad Debts has a
credit balance of $3,000. The allowance method is used. What is the net realizable value
of Accounts Receivable before and after a $2,100 account receivable is written off?
A) $29,000; $29,000
B) $26,900; $26,900
C) $29,000; $26,900
D) $26,900; $31,100
On August 31, 2018, Allright Services received $3,500 in advance of performing the
service. Which journal entry is needed to record the receipt of cash?
A) Debit Unearned Revenue $3,500, and credit Cash $3,500.
B) Debit Cash $3,500, and credit Service Revenue $3,500.
C) Debit Unearned Revenue $3,500, and credit Service Revenue $3,500.
D) Debit Cash $3,500, and credit Unearned Revenue $3,500.
The interest rate on which cash payments to bondholders are based is the ________.
A) market rate
B) discount rate
C) stated rate
D) amortization rate
Prepare a comparative common-size income statement for Clarion, Inc. for 2019 and
2018 data. (Round percentages to one decimal place.)
Clarion, Inc.
Comparative Income Statement
Years Ended December 31, 2019 and 2018
The adjusted trial balance shows ________.
A) account balances after adjustments
B) revenue and expense accounts only
C) account balances before adjustments
D) balance sheet accounts only
Which of the following is the amount the borrower must pay back to the bondholders at
maturity?
A) market value
B) present value
C) stated interest value
D) principal amount
Which of the following is true of dividends?
A) Dividends are a distribution of cash, stock, or other property to stockholders.
B) Dividends increase assets and decrease total stockholders’ equity of a corporation.
C) Dividend payments decrease paid-in capital.
D) Dividend payments increase stockholders’ equity.
Which of the following accounts will be closed by crediting the Income Summary
account?
A) Service Revenue
B) Depreciation Expense
C) Accounts Payable
D) Accumulated Depreciation
When a notes receivable is outstanding at the end of an accounting period, ________.
A) no adjusting entry is needed
B) the revenue recognition principle requires that earnings from the note be recorded in
the year the cash is received
C) the total interest on the note should be recorded in an adjusting entry
D) the interest revenue earned on the note up to year-end is part of that year’s earnings
A reversing entry ________.
A) is required by GAAP
B) is used in conjunction with deferral type adjustments
C) exactly resembles the prior adjusting entry
D) switches the debit and the credit of a previous entry
On November 1, 2019, Alpha Omega, Inc. sold merchandise for $18,000, FOB
destination, with payment terms, n/30. The cost of goods sold was $5,580. On
November 3, the customer returns on this sale amounted to $7,200. The company
received the balance on November 9, 2019. Calculate the gross profit from these
transactions.
A) $2,232
B) $7,452
C) $5,580
D) $3,348
Which of the following is an asset that represents distinctive identifications of a product
or service?
A) license
B) copyright
C) franchise
D) trademark
Where does net income appear on a worksheet?
A) Net income appears only in the income statement debit column.
B) Net income appears in the balance sheet credit column and in the income statement
debit column.
C) Net income appears in the income statement credit column and in the balance sheet
debit column.
D) Net income appears only in the balance sheet credit column.
Wellington, Inc. uses the direct method to prepare its statement of cash flows. Refer to
the following financial statement information for the year ended December 31, 2019:
Wellington, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
Wellington, Inc.
Income Statement
December 31, 2019
Use the direct method to compute the total cash receipts from operating activities.
A) $288,700
B) $293,800
C) $259,100
D) $296,800
Optics Company uses the direct method for preparing its statement of cash flow. Optics
reports the following information regarding 2019:
From the income statement:
Sales Revenues, $266,000
Cost of Goods Sold, $210,000
Operating Expenses, $32,000
Net Income $24,000
From the balance sheet:
Assume that there were no sales of long-term assets, no interest revenue, and no expenses
other than the expenses shown above. Also, assume that Accounts Payable are for
purchases of merchandise inventory only. Accrued liabilities relate to operating expenses.
What amount will be shown for the net cash provided by operating activities?
A) $65,100
B) $30,800
C) $24,000
D) $17,100
A petty cash fund was established with a $525 balance. It currently has cash of $45 and
petty cash tickets as shown below:
Which of the following would be included in the journal entry to replenish the Petty Cash
fund?
A) debit to Cash Short & Over for $15
B) credit to Cash Short & Over for $15
C) debit to Petty Cash for $15
D) credit to Petty Cash for $15
Compute the present value of an ordinary annuity that pays $13,000 per year for 15
years at 10%.
Present value of ordinary annuity of $1:
A) $98,878
B) $99,745
C) $97,578
D) $100,178
On October 1, 2019, ABC Company loaned A. Jenkins $9,000 at an annual interest rate
of 5% with a maturity date of April 1, 2020. On October 1, 2019, ABC Company will
record ________.
A) no entry since the note is due on April 1, 2020
B) a debit to Notes Receivable – A. Jenkins of $9,450
C) a credit to Notes Payable – A. Jenkins of $9,000
D) a debit to Notes Receivable – A. Jenkins of $9,000
A common-size statement reports the same percentages that appear in a ________.
A) horizontal analysis
B) financial statement
C) vertical analysis
D) cost statement
Which of the following is an accounting information system activity that can be
classified as a payroll business transaction?
A) approval of new employees
B) receipt of customer payment
C) processing of vendor invoices
D) payment for goods or services
Which of the following statements is true of the direct write-off method?
A) GAAP requires public companies to follow the direct write-off method.
B) It provides better matching of revenues with expenses.
C) It results in more accurate net income than any other method.
D) It is only suitable for small companies that have very few uncollectible receivables.
Amber, Inc. provides the following information for 2019:
The company has no preferred stock outstanding. Calculate the earnings per share for
2019. (Round your answer to two decimal places.)
A) $0.46 per share
B) $1.64 per share
C) $1.37 per share
D) $1.17 per share
On December 31, 2018 the balance in Energy Exploration Company’s Unearned
Revenue account was a credit of $10,000. In January, 2019, the company received an
advance payment of $11,000 from a new customer for services to be performed. By
January 31, adjustments were made to recognize $6,000 of the revenue that had been
earned during January. What was the balance in Unearned Revenue on January 31,
2019?
A) $6,000 credit
B) $11,000 debit
C) $10,000 credit
D) $15,000 credit
Which of the following statements describes an invoice from a supplier?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as
ordered.
D) It is a document authorizing a payment to a supplier.
First Street Restaurant incurred salaries expense of $60,000 for 2018. The payroll tax
expense includes employer FICA tax, state unemployment tax and federal
unemployment tax. Year-to-date earnings do not exceed $118,500. Of the total salaries,
$17,000 is subject to unemployment tax. Currently, state unemployment tax is 5.4% and
federal unemployment tax is 0.6%. Also, the company provides the following benefits
for employees: health insurance (cost to the company, $2,500), life insurance (cost to
the company, $700), and retirement benefits (cost to the company, 10% of salaries
expense). Journalize First Street’s expenses for employee benefits and for payroll taxes.
Explanations are not required.
The gross profit percentage for Fran’s Clothing Retailer was 37.7% for the year ended
December 31, 2018 and 42.5% for the year ended December 31, 2019. The industry
average gross profit percentage, for both years, is 45.7%. Briefly discuss these findings.
Third Avenue Furniture began June with merchandise inventory of 45 sofas that cost a
total of $31,500. During the month, the company purchased and sold merchandise on
account as follows:
Prepare a perpetual inventory record, using the weighted-average inventory costing
method, and determine the company’s cost of goods sold, ending merchandise inventory,
and gross profit. (Round weighted-average cost per unit to the nearest cent and all other
amounts to the nearest dollar.)
| Purchases | Cost of Goods Sold | Inventory on Hand |
You have started working for a company that manufactures lawn mowers. These
mowers carry a warranty that will replace defective parts for one year. The corporate
president feels that an expense should be recorded when the defective parts are
replaced. Explain the proper accounting treatment to the corporate president.
Michigan Motors is considering which inventory costing method it should use. The
business wants to show the highest Merchandise Inventory balance during a period of
declining costs. Which inventory method should Michigan Motors select? Discuss your
selection.
On January 1, 2018, Forrest Manufacturing Corporation purchased a machine for
$40,000,000. The corporation expects to use the machine for 24,000 hours over the next
six years. The estimated residual value of the machine at the end of the sixth year is
$40,000. The corporation used the machine for 3,600 hours in 2018 and 5,000 hours in
2019. What is the depreciation expense for 2018 and 2019 if the corporation uses the
double-declining-balance method of depreciation?
Charger Corporation currently has 120,000 shares outstanding of $1 par value common
stock. The stock was originally issued for $12 per share. On March 15, the board of
directors declares and distributes a 10% stock dividend when the stock is selling for $16
per share. Prepare the journal entry to record the stock dividend. Omit explanation.
What does free cash flow represent? How is it used to evaluate business performance?
List, and briefly discuss, two differences between the income statement of a service
company and the income statement of a merchandise company.
On July 31, 2018, Baldwin, Inc. reported the following information in the equity section
of their balance sheet:
Assume that Baldwin splits its common stock 3-for-1. Prepare an equity section of the
balance sheet that shows the effects of the stock split. (Please round all numbers to the
nearest cent.)
Refer to the following bank reconciliation.
Journalize the adjusting entry for the fourth reconciling item: Bank service charge.
Omit explanation
On October 1, 2019, Island Jewelry Company accepted a 4-month, 10% note for $2,400
in settlement of an overdue account receivable. Interest revenue was accrued through
December 31, 2019. Island receives the maturity value of the note at maturity. Prepare
the journal entry to record the collection. Omit explanation.
Designer Furniture began June with merchandise inventory of 45 sofas that cost a total
of $31,500. During the month, Designer Furniture purchased and sold merchandise on
account as follows:
Prepare a perpetual inventory record, using the LIFO inventory costing method, and
determine the company’s cost of goods sold, ending merchandise inventory, and gross
profit.
| Purchases | Cost of Goods Sold | Inventory on Hand |
For each of the following business transactions, list two examples of related accounting
information system (AIS) activities:
Complete the following statement:
When a company invests in equity securities with 20% to 50% ownership in the
investee’s _______ stock, the investor can ________ ________ the investee’s decisions.
These types of investments must be accounted for using the ________ method.
Using the following information, provide the complete accounting equation.
Journalize the following sales transactions for Bryson Printing Equipment using the
periodic inventory system. Explanations are not required.
March 2: Bryson sold $45,800 of printing equipment on account, credit terms n/30.
March 5: Bryson received a $2,500 sales return of damaged goods from the customer.
March 11: Bryson received payment from the customer of the amount due.
Comment on how an investor would use each of the following ratios to evaluate
business performance.