Match the following external users of financial accounting information with the type of
decision that user will make with the information.
a. Creditor
b. Investor
c. Regulatory Agency
d Internal Revenue Service
_______ (1) Is the company operating within prescribed guidelines?
_______ (2) Is the company complying with tax laws?
_______ (3) Is the company able to pay its debts?
_______ (4) Is the company a good investment?
Answer:
Blaine Company had these transactions pertaining to stock investments:
The entry to record the receipt of the dividends on June 1 would include a
a. debit to Stock Investments for $6,000.
b. credit to Dividend Revenue for $6,000.
c. debit to Dividend Revenue for $6,000.
d. credit to Stock Investments for $6,000.
Answer:
Closing entries are journalized and posted
a. before the financial statements are prepared.
b. after the financial statements are prepared.
c. at management’s discretion.
d. at the end of each interim accounting period.
Answer:
The interest on a $6,000, 6%, 60-day note receivable is
a. $60.
b. $120.
c. $180.
d. $360.
Answer:
The cost of a purchased building includes all of the following except
a. closing costs.
b. real estate broker’s commission.
c. remodeling costs.
d. All of these answers are correct.
Answer:
IFRS allows companies to revalue plant assets to fair value. Which of the following
statements is true regarding revaluation?
a. At the time a company purchases an asset it must decide whether to follow
revaluation procedures for the asset; once the election is made, it must be followed for
the remainder of the asset’s useful life.
b. Assets that are experiencing rapid price changes must be revalued quarterly, other
assets can be revalued on an annual basis.
c. The journal entry to record a revaluation when the asset’s price has increased includes
a credit to the account revaluation surplus.
d. All of the choices are correct regarding revaluation of plant assets.
IFRS:
Answer:
Sebastian Belle has performed $2,000 of CPA services for a client but has not billed the
client as of the end of the accounting period. What adjusting entry must Sebastian
make?
a. Debit Cash and credit Unearned Service Revenue
b. Debit Accounts Receivable and credit Unearned Service Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Service Revenue and credit Service Revenue
Answer:
Which of the statements below is not true?
a. An adjusted trial balance should show ledger account balances.
b. An adjusted trial balance can be used to prepare financial statements.
c. An adjusted trial balance proves the mathematical equality of debits and credits in the
ledger.
d. An adjusted trial balance is prepared before all transactions have been journalized.
Answer:
Which of the following is false with regard to a worksheet?
a. Before the adjusting entries are recorded in the general journal, they are recorded in
the adjustments columns of the worksheet.
b. A worksheet is a required step in the accounting cycle.
c. When a worksheet is used, the preparation of financial statements is still required.
d. If a credit is needed to balance the income statement columns on the worksheet, a
debit will be needed to balance the balance sheet columns
Answer:
A company stamps checks received in the mail with the words “For Deposit Only”. This
endorsement is called a(n)
a. blank endorsement.
b. rubber stamp.
c. restrictive endorsement.
d. operational endorsement.
Answer:
Waters Hardware reported cost of the goods sold as follows.
Waters made two errors: (1) 2014 ending inventory was overstated $5,000, and (2) 2015
ending inventory was understated $8,000
Instructions
(a) Compute the correct cost of goods sold for each year.
(b) What correcting entry would Waters make for error (2)?
Answer:
At October 1, Arcade Fire Enterprises reported stockholders’ equity of $70,000. During
October, common stock of $4,000 was issued and the company earned net income of
$14,000. If stockholders’ equity at October 31 totals $80,000, what amount of dividends
were paid during the month?
a. $0
b. $4,000
c. $8,000
d. $10,000
Answer:
Eneri Company’s inventory records show the following data:
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method. If the company uses FIFO, what is the gross profit for the period?
a. $95,000
b. $99,266
c. $99,960
d. $103,800
Answer:
A company regularly sells its receivables to a factor who assesses a 2% service charge
on the amount of receivables purchased. Which of the following statements is true for
the seller of the receivables?
a. The loss section of the income statement will increase each time receivables are sold.
b. The credit to Accounts Receivable is less than the debit to Cash when the accounts
are sold.
c. Selling expenses will increase each time accounts are sold.
d. The other expense section of the income statement will increase each time accounts
are sold.
Answer:
Presented below are three independent situations:
(a) Strike Corporation purchased $380,000 of its bonds on June 30, 2015, at 102 and
immediately retired them. The carrying value of the bonds on the retirement date was
$371,500. The bonds pay semiannual interest and the interest payment due on June 30,
2015, has been made and recorded.
(b) Worton, Inc. purchased $400,000 of its bonds at 96 on June 30, 2015, and
immediately retired them. The carrying value of the bonds on the retirement date was
$395,000. The bonds pay semiannual interest and the interest payment due on June 30,
2015, has been made and recorded.
(c) Mountain Company has $80,000, 10%, 12-year convertible bonds outstanding.
These bonds were sold at face value and pay semiannual interest on June 30 and
December 31 of each year. The bonds are convertible into 40 shares of Mountain $4 par
value common stock for each $1,000 par value bond. On December 31, 2015, after the
bond interest has been paid, $30,000 par value of bonds were converted. The market
value of Mountain’s common stock was $38 per share on December 31, 2013.
Instructions
For each of the independent situations, prepare the journal entry to record the retirement
or conversion of the bonds.
Answer:
When a customer returns merchandise purchased on credit, the
a. customer should credit Accounts Payable.
b. seller should credit Sales Returns and Allowances.
c. customer should credit Accounts Receivable.
d. none of these answer choices are correct.
Answer:
Closing entries may be prepared from all of the following except
a. Adjusted balances in the ledger
b. Income statement and balance sheet columns of the worksheet
c. Balance sheet
d. Income and retained earnings statements
Answer:
A company had net income of $210,000. Depreciation expense is $27,000. During the
year, Accounts Receivable and Inventory increased $17,000 and $42,000, respectively.
Prepaid Expenses and Accounts Payable decreased $5,000 and $6,000, respectively.
There was also a loss on the sale of equipment of $2,000. How much cash was provided
by operating activities?
a. $175,000
b. $179,000
c. $241,000
d. $271,000
Answer:
A company has the following assets:
The total amount reported under Property, Plant, and Equipment would be
a. $19,360,000.
b. $14,400,000.
c. $18,400,000.
d. $15,360,000.
Answer:
Wilson Company reported net income of $105,000 for the year ended December 31,
2014. During the year, inventories decreased by $15,000, accounts payable decreased
by $20,000, depreciation expense was $18,000 and a gain on disposal of equipment of
$9,000 was recorded. Net cash provided by operating activities in 2014 using the
indirect method was
a. $101,000.
b. $109,000.
c. $120,000.
d. $118,000.
Answer:
GAAP defines market for lower-of-cost-or market essentially as
a. net realizable value.
b. estimated selling price in the ordinary course of business.
c. replacement cost.
d. replacement cost less costs of disposal.
Answer:
Bad Debt Expense is reported on the income statement as
a. part of cost of goods sold.
b. reducing gross profit.
c. an operating expense.
d. a contra-revenue account.
Answer:
Effie Company uses a periodic inventory system. Details for the inventory account for
the month of January, 2015 are as follows:
An end of the month (1/31/15) inventory showed that 160 units were on hand. If the
company uses FIFO and sells the units for $10 each, what is the gross profit for the
month?
a. $1,120
b. $1,188
c. $1,532
d. $1,600
Answer:
The following information pertains to Rural Company. Assume that all balance sheet
amounts represent both average and ending balance figures. Assume that all sales were
on credit.
What is the return on common stockholders’ equity for Rural?
a. 4.8%
b. 8%
c. 37.5%
d. 16%
Answer:
If a company deposits all its receipts in the bank and pays all its bills by check, then the
monthly bank statement balance will always agree with the company’s record of its
checking account balance.
Answer:
On January 1, Sanchez Corporation purchased a 35% equity in Lawton Company for $380,000.
At December 31, Lawton declared and paid a $40,000 cash dividend and reported net income
of $98,000. Prepare the necessary journal entries for Sanchez Corporation.
Answer:
The depreciable cost of a plant asset is its original cost minus obsolescence.
Answer:
1> Wells Construction gave up a used crane and $224,000 cash for a new crane. The old
crane cost $336,000, had $126,000 of accumulated depreciation, and a fair value of
$228,000. The exchange had commercial substance. In recording this exchange, the
new crane should be recorded at
$_.
2> Brown Builders gave up a used diesel-powered electric generator and $25,000 cash
for a new truck. The generator cost $85,000, had $50,000 of accumulated depreciation,
and a fair value of $30,000. The exchange had commercial substance. In recording this
exchange, the new truck should be recorded at
$_.
3> Midwest Mining purchased an iron mine for $4,000,000. The mine was expected to
produce 10,000,000 tons of ore over twenty years with no salvage value. During the
first year, 600,000 tons of ore were mined and sold. Depletion expense for the first year
is
$_.
4> Morris Industries purchased equipment costing $80,000 on January 1, 2013. The
equipment has a four-year useful life, $16,000 salvage value, and is being depreciated
using the straight-line method. It was sold at a $24,000 loss on June 30, 2015. The
selling price of the equipment was
$_.
5> Hi-Tech Corporation incurred $630,000 of research and development costs to
produce a high technology solar computer, paid filing fees of $60,000 to register a
patent on this product, and paid $420,000 to defend the patent against infringement by a
competitor. All of these costs were incurred in 2014. Production of solar computers
began on January 1, 2015. Assuming the patent has a useful life of 12 years, patent
expense for 2015 is
$_.
Answer:
For its fiscal year ending December 31, 2015, Conner Corporation reported the
following partial data
The flood loss is considered an extraordinary item. The income tax rate is 30% on all
items.
Instructions
Prepare a correct income statement, beginning with income before income taxes.
Answer:
Sebadoah is a barber who does his own accounting for his shop. When he buys supplies
he routinely debits Supplies Expense. Sebadoah purchased $1,500 of supplies in
January and his inventory at the end of January shows $300 of supplies remaining.
What adjusting entry should Sebadoah make on January 31?
Answer:
Cash dividends are not a liability of the corporation until they are declared by the board
of directors.
Answer:
The payment of interest on bonds payable is classified as a cash outflow from operating
activities.
Answer:
The accounts payable subsidiary ledger provides detailed information about amounts
owed to creditors.
Answer:
On January 5, 2014, Grouse Company purchased the following stock securities as a
long-term investment:
300 shares Bonter Corporation common stock for $4,500.
500 shares Wane Corporation common stock for $10,000.
800 shares Strauss Corporation common stock for $22,800.
Assume that Grouse Company cannot exercise significant influence over the activities
of the investee companies and that the cost method is used to account for the
investments.
On June 30, 2014, Grouse Company received the following cash dividends:
On November 15, 2014, Grouse Company sold 160 shares of Strauss Corporation
common stock for $7,200.
On December 31, 2014, the fair value of the securities held by Grouse Company is as
follows:
Instructions
Prepare the appropriate journal entries that Grouse Company should make on the
following dates:
January 5, 2014
June 30, 2014
November 15, 2014
December 31, 2014
Answer:
