Noncumulative preferred stock is in arrears if the dividend has not been paid for the
year.
The book value of a plant asset is reported on the balance sheet as the cost of the asset
minus accumulated depreciation.
Depending on its size, a stock dividend may cause the company’s market price to rise
because of the increased supply of stock.
Trading debt investments are categorized as noncurrent assets.
Establishing controls for efficiency of the payroll process is one of the main key
controls for payroll.
An entity refers to one business which includes its owners.
The statement of stockholders’ equity reports the number of shares and any changes
during the year in preferred, common, and treasury stock.
A contract can only have one performance obligation.
An investor is the corporation that issued the bond or stock to the investee.
Companies use a ledger to show all of the increases and decreases in each account
along with their balances.
Horizontal analysis compares the change in each statement item from one year to the
next.
Capitalizing a cost involves crediting the asset account.
The statement of cash flows is dated the same as the balance sheet.
In reviewing the T-account for Accounts Payable, you find that the beginning balance is
zero, the total increases are $7,900 and the total decreases are $4,200. This means that
the ending balance of the account is a credit balance of $3,700.
The statement of stockholders’ equity has more information than the statement of
retained earnings because it reports the changes in all stockholders’ equity accounts.
Under the equity method, the investee must annually record its share of the investor’s
net income.
Smaller businesses invest in a periodic inventory system because of the ability to
determine quantities of inventory on hand after each purchase and sale of merchandise
inventory.
In a vertical analysis of the balance sheet, the base amount is total liabilities.
Both common and preferred stock carry the same degree of investment risk for the
stockholder.
Accounts Receivable are generally reported at the gross amount on the balance sheet.
Mutual agency of the owners is not present in a corporation as it is in a partnership.
When an employee takes a paid vacation, the Vacation Benefits Payable account will be
decreased with a credit.
When a company uses the last-in, first-out (LIFO) method, the cost of goods sold
represents the costs of most recently purchased goods, and the ending inventory
represents the oldest costs.
The operating activities section of the statement of cash flows includes activities that
create revenue or expenses for the entity’s business.
When a company makes an accounting change in estimate, Generally Accepted
Accounting Principles require that the company make changes to financial statements
of prior years.
The declaration of a cash dividend does not create an obligation for the corporation.
If treasury shares are sold for less than their cost, the difference is recorded as a loss.
A vertical analysis percent is computed by dividing the base amount by the specific
item and then multiplying by 100.
A point-of-sale terminal provides control for over the counter cash receipts.
A balance sheet prepared in the account form lists the assets at the top and the liabilities
and stockholders’ equity below.
When a company uses excess cash to invest in equity securities with less than 20%
ownership, its total equity will increase.
When using the allowance method to account for uncollectibles, the balance sheet
approaches require two steps in determining bad debts expense.
Goodwill is only recorded by an acquiring company when it purchases another
company and pays more for that company than the market value of its net assets.
The statement of retained earnings shows how retained earnings changed during the
period due to acquiring assets and paying liabilities.
Under the perpetual inventory system, two journal entries are used to record the sale of
merchandise. One entry records the Sales Revenue and another entry records the Cost
of Goods Sold.
The future value is the bond’s market price.
Which of the following statements regarding vacation benefits is correct?
A) No entry is needed until the employee takes a paid vacation.
B) The account, Vacation Expense is debited when the employee takes a paid vacation.
C) Health and pension benefits are recorded in the same manner as vacation benefits.
D) When an employee takes a paid vacation, the account, Vacation Benefits Payable is
credited.
The balances of select accounts of Elliott, Inc. as of December 31, 2018 are given
below:
The Unearned Revenue is the amount of cash received for services to be rendered in
January, 2019. The Interest Payable is due on February 15, 2019. What are the total current
liabilities shown on the balance sheet at December 31, 2018?
A) $5,500
B) $11,200
C) $13,700
D) $12,500
Investors and creditors cannot evaluate a company by examining only one year of data.
Property, plant, and equipment are ________.
A) presented in order of the category name, with Land being presented last
B) also called fixed or plant assets
C) either tangible or intangible assets
D) easily converted to cash
A business performs services for $26,000 and collects cash from the customer. Which
of the following accounts will be debited?
A) Cash
B) Accounts Receivable
C) Service Revenue
D) Accounts Payable
The accounts receivable turnover ratio for a merchandiser is 9.6 times. Calculate the
days’ sales in receivables for the merchandiser. (Round your answer to the nearest day.)
A) 34 days
B) 38 days
C) 29 days
D) 41 days
Trading debt investments include ________.
A) debt securities that the investor expects to hold longer than one year or debt
securities that are not readily marketable
B) investments in debt securities that are not readily marketable and that the investor
intends to hold until they mature
C) investments in debt securities that the investor intends to hold until they mature
D) debt securities that the investor plans to sell in the very near future
Which of the following describes a debenture?
A) a bond that matures in installments at regular intervals
B) a bond that gives the bondholder a claim for specific assets
C) a bond that matures at one specified time
D) a bond that is not backed by specific assets
Lawrence, an employee of Light, Inc., has gross salary for March of $4,000. The entire
amount is under the OASDI limit of $118,500, and thus subject to FICA. His
year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Which of
the following is a part of the journal entry to record the employer’s payroll taxes?
A) debit to Payroll Tax Expense
B) debit to FICA Taxes Payable
C) credit to Payroll Tax Expense
D) debit to Cash
Leonard Technologies invests $68,000 to acquire $68,000 face value, 10%, five-year
corporate bonds on December 31, 2014. The bonds will mature on December 31, 2019.
The bonds pay interest semiannually on December 31 and June 30 every year until
maturity. Assume Leonard Technologies uses a calendar year. Based on the information
provided, which of the following will be included in the journal entry for the transaction
on December 31, 2018?
A) a credit to Interest Revenue for $6800
B) a debit to Interest Revenue for $6800
C) a credit to Interest Revenue for $3400
D) a debit to Interest Revenue for $3400
Entry-level accounting software ________.
A) can handle advanced processes and transactions
B) is an affordable system that is difficult to use
C) allows businesses to enter sales of services and merchandise inventory, record
expenses, and produce financial statements
D) integrates all of a company’s functions, departments, and data into a single system
On January 1, 2019, French Company issued $74,000 of five-year, 8% bonds when the
market interest rate was 12%. The issue price of the bonds was $62,000. French uses
the effective-interest method of amortization for bond discount. Semiannual interest
payments are made on June 30 and December 31 of each year. How much interest
expense will be recorded when the first interest payment is made? (Round your answer
to the nearest dollar number.)
A) $2480
B) $3720
C) $2960
D) $4440
Martha, Inc. had 21,000 units of ending inventory that were recorded at the cost of
$8.00 per unit using the FIFO method. The current replacement cost is $4.25 per unit.
Which of the following amounts would be reported as ending Merchandise Inventory
on the balance sheet using the lower-of-cost-or-market rule?
A) $168,000
B) $257,250
C) $189,000
D) $89,250
Which of the following statements concerning the worksheet is correct?
A) When a worksheet is used, there is no need to make journal entries.
B) A worksheet consists of seven sections.
C) Section 5 (Income Statement) and Section 6 (Balance Sheet) are optional.
D) A completed worksheet is a substitute for the financial statements.
On December 31, 2018, Country Living Sales has 10-year Bonds Payable of $89,000
and Discount on Bonds Payable of $2350. How will this be shown on the December 31,
2018 Balance Sheet?
A) Bonds Payable $89,000 less Discount on Bonds Payable $2350 for a carrying
amount of $86,650
B) Bonds Payable $89,000 plus Discount on Bonds Payable for a carrying amount of
$91,350
C) Bonds Payable $89,000
D) Bonds Payable $89,000 less one-tenth of $2350 for a carrying amount of $88,765
Which of the following statements is an accurate interpretation of the current ratio?
A) A current ratio of 1.5 or higher is considered a high-risk ratio.
B) A current ratio below 1.00 is considered a good and safe ratio.
C) A current ratio of 2.0 indicates a strong ability to pay current liabilities.
D) A current ratio of 0.60 or lower is a good and safe ratio.
Which of the following remains the same regardless of the inventory costing method
used by a company? Assume the cost of inventory is rising.
A) purchases
B) cost of goods sold
C) ending merchandise inventory
D) net income
The auditor’s report ________.
A) attests that the financial statements are error-free
B) is prepared by the internal auditors
C) states whether the financial statements are presented in accordance with GAAP
D) does not include an assessment of the effectiveness of the company’s internal
controls
________ are equity securities in which the investor owns between 20% and 50% of the
investee’s voting stock.
A) Held-to-maturity investments
B) Significant influence investments
C) Controlling interest investments
D) Available-for-sale investments
An accounting information system is said to have good control characteristics, if it
________.
A) works smoothly with the business’s employees and organizational structure
B) safeguards a business’s assets and reduces the likelihood of fraud and errors
C) provides information that will improve decision making and reduce uncertainty
D) accommodates changes in the business over time
Which of the following accounting methods is generally used to compute amortization
expense?
A) declining-balance
B) units-of-production
C) straight-line
D) first-in, first-out
Which of the following is the correct journal entry for a return of goods that were
purchased on account under the periodic inventory system?
A)
B)
C)
D)
Which of the following is an attribute of the internal control procedure—competent,
reliable, and ethical personnel?
A) providing cross training to allow sales personnel to record revenue transactions
B) the need to train and supervise employees
C) monitoring of internal controls by external auditors
D) purchase of burglar alarms
Indicate the effects on the accounting equation of the following business transactions of
Pilgrim Service Corporation for b) to d) below. Use proper account titles. Transaction a)
is answered as a guide.
a) Received cash from Maxwell Jones; issued common stock to him.
Which of the following inventory costing methods yields the highest cost of goods sold
during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
________ refers to purchasing software and data storage from a third party.
A) Cloud computing
B) Resource planning
C) Networking
D) Entry-level software
Which of the following is an output device in an accounting information system?
A) keyboard
B) Internet protocol
C) printer
D) mouse
Wheat Corporation pays $532,000 for 100,000 shares to acquire 45% common stock of
Grain Investments, Inc. on January 5, 2018. Wheat Corporation sells 20,000 shares for
$40,000 on January 6, 2018. Which of the following is the correct journal entry for the
transaction on January 6, 2018? (Round any intermediate calculations to two decimal
places, and your final answer to the nearest dollar.)
A)
B)
C)
D)
In a periodic inventory system, ________.
A) quantities of merchandise inventory on hand are updated after each sale and each
purchase
B) the cost to invest in the system is greater than the cost to invest in a perpetual
inventory system
C) the business is in violation of U.S. GAAP
D) businesses must obtain a physical count of inventory to determine quantities on hand
Sparklers Services, Inc. pays $1,350,000 to acquire 35% of voting stock of Global
Investments, Inc. on March 5, 2018. When this transaction is recorded, the ________.
A) total equity will increase
B) total assets will increase
C) total assets will decrease
D) total cash will decrease
Williamsburg Company uses the direct method to prepare its statement of cash flows.
Refer to the following financial statement information for the year ending December
31, 2018:
Williamsburg Company
Comparative Balance Sheet
December 31, 2018 and 2017
Williamsburg Company
Income Statement
Year Ended December 31, 2018
Additional information provided by the company includes the following:
Equipment costing $60,000 was purchased for cash.
Equipment with a net asset value of $10,000 was sold for $16,000.
During 2018, the company repaid $43,000 of long-term notes payable.
During 2018, the company borrowed $34,000 on a new note payable.
There were no stock retirements during the year.
There were no sales of Treasury Stock during the year.
Prepare a complete statement of cash flows using the direct method.
Accrued Liabilities relate to other operating expenses.
In order to expand its business, the management of Hampton, Inc. issued a long-term
notes payable for $50,000 on January 1, 2018. The note will be paid over a 10-year
period with equal annual principal payments, December 31 of each year. The annual
interest rate is 12%. Prepare the journal entry for the first installment payment. Omit
explanation.
On July 1, 2019, Landscape Equipment Sellers accepted a 3-month, 15% note for
$6,000 in settlement of an overdue account receivable. Prepare the journal entry to
record the acceptance of the note. Omit explanation.
A business purchases a building for $250,000. The current market value is $375,000.
The tax assessment value is $325,000. At what value should the building be recorded,
and which accounting principle supports your answer?
For available-for-sale debt investments, state:
• Reporting method used
• How unrealized holding gain or loss is reported
• Balance sheet effects
• Income statement effects
National Corporation has excess cash to invest and pays $200,000 to buy 7%, five-year
bonds of International Corporation, at face value, on June 30, 2018. The bonds pay
interest on June 30 and December 31. At the date of purchase, National intended to hold
the bonds to maturity and has the ability to hold the bonds to maturity. The bonds are
disposed of on June 30, 2023, the maturity date.
Prepare the journal entry for (omit the explanation) June 30, 2023 (assume that the last
interest payment has already been recorded).
Define enterprise resource planning (ERP) systems and state one advantage and one
disadvantage of ERP systems.
Dakota Telescopes Company uses the indirect method to prepare the statement of cash
flows. Refer to the following income statement:
Dakota Telescopes Company
Income Statement
Year Ended December 31, 2019
Additional information provided by the company includes the following:
Current assets other than cash decreased by $25,000.
Current liabilities increased by $3,000.
Prepare the operating activities section of the statement of cash flows.
What is a common-size statement? Why are these statements useful?
The partial worksheet of Browning Furniture is as follows:
Browning Furniture
Worksheet
December 31, 2019
Calculate and enter the amounts for the Adjusted Trial Balance columns.
Juniper Tree Service has a weekly payroll of $50,000. December 31, 2018 falls on
Thursday and Juniper will pay its employees the following Monday (January 4, 2019)
for the previous full week. Assume that the company has a five-day workweek and has
an unadjusted balance in Salaries Expense of $845,000 at December 31. Prepare the
December 31, 2018 adjusting entry.
Discuss the roles of the internal auditors and the external auditors.
List the four parts of a journal entry.
Rock Music, Inc. signed a 200-day, 5%, $5,000 note on April 1, 2018, and this was the
only note payable for the company. Calculate the times-interest-earned ratio of Rock
Music, Inc. if its earnings before interest and taxes for the year ending December 31,
2018, is $4,300. Round all calculations to two decimal places. (Use a 360-day year.)
Describe the transactions recorded in the purchases journal.
Trent Williams is a sole proprietor of a successful business. He is interested in
incorporating to protect his personal assets. Which advantage of incorporation is most
applicable? What are other advantages of organizing as a corporate entity?
On June 30, 2019, Coney Island Furniture discarded fully depreciated equipment with a
cost $35,000 and no residual value. Prepare the journal entry for the disposal of the
equipment. Omit explanation.
A business maintains subsidiary accounts for each of its customers. On April 7, the
business provides $2,500 in services to Anne Hill on account. The business sells $4,000
(sales price) of merchandise inventory to Ron Wilson on account.
The full amount was collected from each customer on April 26.
Prepare the journal entries for April 7 and April 26. Ignore Cost of Goods Sold and omit
explanations.
Complete the following table:
Journalize the following transactions for a merchandiser that uses the gross method for
recording sales and a perpetual inventory system.
On January 8, inventory was sold for $7,000 on account. Credit terms were 2/15, n/30
(cost $5,500). On January 31, cash was received in full settlement of the January 8 sale.
Omit explanations.
