Statler Corporation has beginning and ending accounts payable balances of $400 and
$800, respectively. Inventory had beginning and ending balances of $700 and $600,
respectively. If cost of goods sold was $2,800, how much cash was spent to purchase
inventory?
A.$2,100.
B.$2,500.
C.$2,700.
D.None of these answer choices is correct.
Which of the following is a negative or contra stockholders’ equity account?
A.Retained Earnings
B.Paid-in Capital in Excess of Par
C.Treasury Stock
D.Appropriated Retained Earnings
Which of the following would most likely not be expensed using the straight-line
method?
A.A copyright.
B.A building.
C.A timber reserve.
D.A patent.
On December 31, 2016, the West Corporation estimated that $6,000 of its receivables
might not be collected. Before adjusting entries, the balance of Accounts Receivable
and the Allowance for Doubtful Accounts respectively was $150,000 and zero on
12/31/16. On February 1, 2017, West wrote-off of a delinquent account from one of its
customers. West Corp. uses the allowance method of accounting for uncollectible
accounts. Indicate whether each of the following statements is true or false.
_____a) The net realizable value of accounts receivable (after the appropriate adjusting
entry on 12/31/16) was $144,000.
_____b) The write-off of the account on 2/1/2017 did not affect the net realizable value
of West’s accounts receivable.
_____c) The adjusting entry on 12/31/16 had no effect on West’s total assets.
_____d) The write-off entry on 2/1/16 had no effect on West’s total assets.
_____e) The write-off entry on 2/1/16 decreased net income for 2017.
Woods Company made the following journal entries related to its bank reconciliation
for October 31, 2016:
Required: a) Assuming that the unadjusted cash balance on Woods’s books was
$8,354.28, what was the true cash balance at the end of the month?
b) Prepare the portion of the bank reconciliation that begins with the unadjusted book
balance and ends with the true cash balance.
Ramirez Company returns merchandise previously purchased on account. It had not yet
been paid for. Ramirez uses the perpetual inventory system. Which of the following
answers reflects the effects on the financial statements of only the purchase return?
A.
B.
C.
D.
Bluestone Company issued bonds with a face value of $500,000 on January 1, 2016 at
90. Which of the following journal entries would be required to record the bond issue?
A.
B.
C.
D.
Regarding the effects of end-of-period adjustments, state whether each of the following
statements is true or false.
_____ a) Recording the usage of supplies involves an increase in liabilities and a
decrease in equity.
_____ b) The accrual of salaries is considered a claims exchange transaction.
_____ c) Recording services performed on a prepaid contract involves a decrease in
liabilities and an increase in assets.
_____ d) End-of-period adjustments often affect cash flows.
_____ e) Failure to record accrued salaries at the end of the year will cause reported net
income to be higher than it should have been.
The following accounts and balances were drawn from the records of Carolina
Company on December 31, 2016:
The amount of Carolina’s retained earnings after closing on December 31, 2016 was:
A.$5,900.
B.$7,200.
C.$3,900.
D.$4,900.
Which of the following is one of the main advantages of using long-term debt financing
instead of equity financing?
A.Not having to pay back the principal.
B.Ability to raise large amounts of capital.
C.Tax-deductibility of interest.
D.Tax-deductibility of dividends.
A company using the perpetual inventory method paid $250 cash to have goods
delivered from one of its suppliers. The payment of $250 for transportation-in is
considered:
A.an asset source transaction
B.an asset use transaction
C.an asset exchange transaction
D.a claims exchange transaction
Seattle Company issued a $90,000 face value discount note payable to the First Federal
Bank on September 1, 2016. The note carried a one-year term and a 4% discount rate.
The amount of interest expense appearing on the 2016 income statement would be:
A.$1,200.
B.$3,600.
C.$2,400.
D.$7,200.
On January 1, 2016, Carlyle Corporation issued a five-year term note. The note requires
an annual cash payment on December 31 of each year. The payment includes a
principal reduction and interest. Indicate whether each of the following statements is
true or false.
_____ a) The entry to record issuance of the note will increase assets and liabilities.
_____ b) The first payment on the note will reduce liabilities and assets, but will not
affect equity.
_____ c) The second payment on the note will include higher interest expense than did
the first payment.
_____ d) Each payment on the note includes a cash flow from operating activities and a
cash flow from financing activities.
_____ e) The amount of reduction in liabilities will increase with each succeeding
payment.
Lexington Company engaged in the following transactions during 2015, its first year in
operation: (Assume all transactions are cash transactions)
1. Acquired $6,000 cash from issuing common stock.
2. Borrowed $4,400 from a bank.
3. Earned $6,200 of revenues.
4. Incurred $4,800 in expenses.
5. Paid dividends of $800.
Lexington Company engaged in the following transactions during 2016:
1. Acquired an additional $1,000 cash from the issue of common stock.
2. Repaid $2,600 of its debt to the bank.
3. Earned revenues, $9,000.
4. Incurred expenses of $5,500.
5. Paid dividends of $1,280.
The amount of liabilities on Lexington’s 2016 balance sheet was
A.$1,000.
B.$1,800.
C.($2,600).
D.$480.
Which of the following is not normally a preference given to the holders of preferred
stock?
A.The right to receive a specified amount of dividends prior any being paid to common
stockholders.
B.The right to vote before the common stockholders at the corporation’s annual
meeting.
C.The right to receive preference over common stockholders as to the distribution of
assets during a liquidation process.
D.All of these are preferences given to preferred stock.
Indicate whether each of the following statements regarding the four types of
accounting events is true or false.
_____ a) Asset exchange transactions involve an increase in one asset and a decrease in
another asset.
_____ b) An asset source transaction involves an increase in assets and an increase in a
corresponding claims account.
_____ c) An asset use transaction cannot result in an increase in equity.
_____ d) Asset exchange transactions cannot affect cash flows.
_____ e) Some claims exchange transactions involve an increase in a liability account
and a decrease in an equity account.
Which of the following is an asset use transaction?
A.Purchased machine for cash.
B.Recorded insurance expense at the end of the period.
C.Invested cash in an interest earning account.
D.Accrued salary expense at the end of the period.
Indicate whether each of the following statements is true or false.
_____ a) Most companies expect to receive the full face value of their receivables.
_____ b) The estimated amount of uncollectible accounts is called the net realizable
value.
_____ c) The direct write-off method of accounting for uncollectible accounts does not
require the computation of the net realizable value of accounts receivable.
_____ d) The practice of reporting the net realizable value of receivables is the result of
using the allowance method of accounting for uncollectible accounts.
_____ e) The materiality principle requires the computation of net realizable value for a
company’s liabilities.
Select the correct statement regarding vertical analysis.
A.Vertical analysis of the income statement involves showing each item as a percentage
of sales.
B.Vertical analysis of the balance sheet involves showing each asset as a percentage of
total assets.
C.Vertical analysis examines two or more items from the financial statements of one
accounting period.
D.All of these answer choices are correct.
Regarding the relationships of revenues and expenses to assets and liabilities, state
whether each of the following statements is true or false.
_____ a) Recording an increase in a revenue account may be associated with a decrease
in assets.
_____ b) Recording an increase in a revenue account may be associated with a decrease
in liabilities.
_____ c) An increase in Salaries Expense may be accompanied by a decrease in
Salaries Payable.
_____ d) Recording a decrease in assets may be associated with an increase in an
expense account.
_____ e) A decrease in Supplies will be accompanied by an increase in Supplies
Expense.
The payment of a previously declared cash dividend will
A.decrease assets and equity.
B.increase liabilities and decrease equity.
C.decrease liabilities and increase equity.
D.None of these answer choices are correct.
Bonds payable are usually classified on the balance sheet as:
A.current liabilities.
B.long-term liabilities.
C.investments and funds.
D.other assets.
As of December 31, 2014, Gatewood Corporation had a current ratio of 1.49, quick
ratio of 1.15, and working capital of $48,000. The company uses a perpetual inventory
system and sells merchandise for more than its cost.
On January 1, 2015, Gatewood purchased merchandise on account for $6,000. Which of
the following statements is true?
A. Gatewood’s current ratio will increase and its quick ratio will decrease.
B.Gatewood’s quick ratio will increase.
C.Gatewood’s current ratio will decrease.
D. Gatewood’s current ratio will increase and its quick ratio will increase.
Which of the following is the correct sequence for the major components of the
Statement of Cash Flows?
A.Operating, Investing, Financing.
B.Investing, Operating, Financing.
C.Operating, Financing, Investing.
D.Financing, Investing, Operating.
The following events are for Holiday Travel Services for the year 2016, the first year of
operations. Assume that all transactions involve the receipt or payment of cash.
1) The business acquired $50,000 from stock issued to owners.
2) Creditors loaned the company $27,500.
3) The company provided services to its customers and received $75,400.
4) The company paid expenses amounting to $63,250.
5) The company purchased land for $25,000.
6) The company paid a dividend of $5,500 to its owners.
Required:
a) Show the effects of the above transactions on the accounting equation (use
appropriate element and account headings). For those events that affect retained
earnings, indicate in a separate column the appropriate temporary account. Precede the
amount with a minus sign if the transaction reduces that section of the equation. Enter 0
for items not affected.
b) Prepare an income statement and balance sheet for the year 2016.Precede the amount
with a minus sign if the transaction reduces that section of the income statement.
Indicate whether each of the following statements is true or false.
_____ a) The FIFO cost flow method assumes that the company physically rotates
inventory so that the oldest inventory is sold first.
_____ b) In a period of rising prices, FIFO gives higher cost of goods sold than LIFO.
_____ c) Under the weighted average cost flow method, the cost per unit of ending
inventory is equal to the cost per unit of inventory sold.
_____ d) In a period of declining prices, LIFO will result in higher income tax expense
than FIFO.
_____ e) In a period of rising prices, FIFO gives higher ending inventory than LIFO
does.
Marvin Company issues $125,000 of bonds at face value on January 1. The bonds carry
a 6% annual stated rate of interest. Interest is payable in cash on December 31 of each
year. Which of the following reflects the financial statement effects of the first interest
payment?
A.
B.
C.
D.
Which of the following events would not require an end-of-year adjusting entry?
A.Purchasing supplies for cash
B.Paying for one year’s rent on July 1
C.Providing services on account
D.Each of these answer choices would require an end-of-year adjustment
You are considering an investment in Microsoft stock and wish to assess the firm’s
short-term debt-paying ability. All of the following ratios are used to assess liquidity
except:
A.Debt to equity ratio.
B.Inventory turnover.
C.Quick ratio.
D.Accounts receivable turnover.
Jackson Company had a net increase in cash from operating activities of $10,000 and a
net decrease in cash from financing activities of $2,000. If the beginning and ending
cash balances for the company were $4,000 and $11,000, then net cash change from
investing activities was:
A.an outflow or decrease of $1,000.
B.an inflow or increase of $2,000.
C.an inflow or increase of $1,000.
D.zero.
Which of the following is considered a period cost?
A.Transportation cost on goods received from suppliers.
B.Advertising expense for the current month.
C.Cost of merchandise purchased.
D.None of these answer choices are considered a period cost.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
An adjusting entry recorded as a debit to Depreciation Expense and a credit to
Accumulated Depreciation.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Stan’s Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more
surfboards for $250 each. Stan’s uses the perpetual inventory system. Assume that 6
surfboards were sold during the period for $350 cash each.
How would the sale affect the financial statements if Stan’s Surf Shack uses the LIFO
inventory cost flow method?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
During the process of preparing the bank reconciliation, an employee for Heath
Company discovered that the bank deducted a check from the Hearst Company (a
different company).
What is the major advantage of using the indirect method of preparing the operating
activities section of the statement of cash flows?
What effect do credits have on asset accounts? On equity accounts?
The Manhattan Corporation provided the following partial list of accounts, balances
and activities for 2016:
Manhattan’s income statement reported an $8,000 gain on sale of land that occurred
when land that had cost $16,000 was sold for $24,000. The company also recorded a
$10,000 loss on the sale of marketable securities. No additional marketable securities
were purchased during the year. The company also sold equipment originally costing
$6,000 with accumulated depreciation of $4,000 for $3,600. Purchases of additional
land and equipment were cash transactions.
Required: Prepare the investing activities section of the statement of cash flows.
Give three examples of a period cost. At what time are period costs recognized as
expenses?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Banks Co. performed $5,000 of services for customers on account.
How do accounting controls differ from administrative controls?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Enter only one
letter for each element. You do not need to enter amounts.
On March 31, 2017 Sparkes Co. wrote-off a $400 account receivable of one of its
customers, Amy Gates. The $400 sale had been made to Gates last year. Sparkes uses
the “allowance method” to account for uncollectible accounts expense. Show how the
write-off of the account would affect the elements of Sparkes’s financial statements.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Use only one letter
for each element. You do not need to enter amounts.
Jack Grimes, who had held 12% of Preston Company’s outstanding common stock,
agreed to purchase another 8% of Preston Company’s outstanding common stock from
Todd Barbour, another major stockholder of Preston’s. Indicate the effect of this event
on Preston’s financial statements.
Cornelius Company purchased supplies on account. What account is credited?
Indicate how each event affects the income statement and the statement of cash flows.
Record the amount of the effect in the box shown below each element. Use the letter “I”
to indicate increase, the letter “D” to indicate decrease, and the letter “N” to indicate no
effect. Use only one letter for each element.
Howard Co. purchased land by issuing a note payable in the amount of $150,000.
Describe cumulative preferred stock.
Explain the meaning of “cost” and “market” as used in the application of the
lower-of-cost-or-market rule.
The following adjusted trial balance is for Wayne Company as of December 31, 2016.
Using this information, prepare Wayne’s 2016 closing entries, income statement, and
balance sheet.
