Which of the following transactions does not affect the total assets of Horizon Sailing
Corp.?
a. A bill is received for the telephone service used by Horizon Sailing during the past
month.
b. Dividends are paid by Horizon Sailing.
c. Customers are billed for sales made on credit by Horizon Sailing.
d. A new computer is purchased on credit by Horizon Sailing.
Match the following choices to the listed situation.
a. a deferred expense
b. a deferred revenue
c. an accrued liability
d. an accrued asset
Cash was collected from customers for rental of tents for next year
Which one of the following steps in the accounting cycle is optional rather than
required?
a. Business transactions are recorded
b. Adjustments are recorded
c. The accounts are closed
d. Work sheets are prepared
The general journal is often used to record repetitive transactions.
a. True
b. False
Wave Corporation is determining its income tax liability. It has one machine that cost
$30,000 with a 4-year life and no salvage value. Wave is using an accelerated
depreciation method for tax purposes. For accounting purposes, Wave has decided to
use the straight-line method. Which of the following statements is true?
a. There will be a temporary difference between accounting income and income for tax
purposes.
b. There will be a permanent difference between accounting income and income for tax
purposes.
c. Wave’s accounting income and income for tax purposes will be equal.
d. Accounting income will be lower than income for tax purposes, especially in the
early years of the asset’s life.
Maryland Vacations has a $2,200 account receivable from the Miami Kiwanis. On
March 11, the Kiwanis makes a partial payment of $1,050 to Maryland. The journal
entry made on March 11 by Maryland to record this transaction includes:
a. A debit to the Cash account of $1,150.
b. A debit to the Accounts Receivable account of $1,150.
c. A credit to the Service Revenue account of $1,050.
d. A credit to the Accounts Receivable account of $1,050.
Assume that you want to determine the profit margin for a company. Which one of the
following financial statements is the best source of this information?
a. Statement of retained earnings
b. Statement of cash flows
c. Statement of stockholders’ equity
d. Income statement
The following analysis is based on information obtained from 2016 financial statements
of Lake Company, River Corporation, and Ocean Company.
A) Compute the cash to cash operating cycle for each company for 2016. B) What does
this ratio measure? Which company has the better cash to cash operating cycle?
The amount of a transaction may be immaterial by company standards but still be
considered significant by financial statement users.
a. True
b. False
Purchase discounts decrease the total cost of merchandise acquired.
a. True
b. False
Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The
goods were shipped the same day. The merchandise’s selling price was $15,000. The
credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park
received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015.
Park uses the periodic inventory system. What effect does recording the purchase of
merchandise on June 5, 2015 have on Park’s accounting equation?
a. Assets and liabilities increase.
b. Liabilities increase and stockholders’ equity decreases.
c. Assets and stockholders’ equity increase.
d. Liabilities and stockholders’ equity decrease.
Which one of the following items does not accurately describe stockholders’ equity?
a. Stockholders’ equity is created when a company issues stock to an investor.
b. Total stockholders’ equity should be equal to Assets in an publicly held entity.
c. Stockholders’ equity represents amounts contributed by the owners to the company.
d. As owners of shares in a corporation, stockholders have claims on the assets of a
business when it is profitable.
Meredith Corporation is in the business of providing dog and cat grooming services to
customers within the city of New York. The following information concerning financial
activities during 2014 is available at December 31, 2014:
A. Calculate net income for 2014
B. Prepare a statement of retained earnings for the year ended December 31, 2014.
C. What information can you derive from the statement of retained earning concerning
this company? Explain.
Payment of a dividend increases both cash and stockholders’ equity of the distributing
business.
a. True
b. False
If Mussel Company has working capital of $540,000 and a current ratio of 3 to 1, the
amount of current assets is:
a. $540,000
b. $810,000
c. $270,000
d. $405,000
The comparative balance sheets of Midnite Corp. for 2015 and 2014 indicate that
short-term trade notes receivable increased from $5,000 in 2014 to $75,000 in 2015.
How will this change be reported on Midnite’s statement of cash flows, if Midnite uses
the indirect method?
a. It will be included in the amount of cash and cash equivalents at the end of 2015.
b. It will be reported as a deduction from net income in the operating activities section.
c. It will be reported as a cash outflow in the investing activities section.
d. It will be added to net income in the operating activities section.
On December 1, 2015, Twilight Corporation paid $8,000 rent in advance. The rent per
month is $1,000. If Twilight’s accounting period ends on December 31, 2015, what will
be reported on the financial statements?
a. Prepaid Rent of $7,000 on its balance sheet at December 31, 2015
b. Prepaid Rent of $8,000 on its balance sheet at December 31, 2015
c. Rent Expense of $8,000 on its 2015 income statement
d. Rent Revenue of $7,000 on its 2015 income statement
In a periodic inventory system, the cost of purchases is recognized as
a. an integral part of the calculation of cost of goods sold.
b. the only part of the calculation of cost of goods sold.
c. an increase in the inventory account.
d. an increase in an asset account.
The statement of stockholders’ equity
a. is one of the required financial statements for the annual report, when changes have
occurred in the stockholders’ equity accounts.
b. shows the changes in retained earnings for the period, which includes the increase or
decrease as a result of net income or loss for the period, and dividends for the period.
c. includes accounts, such as the retained earnings and common stock accounts, but not
changes to the retained earnings account, since those items are reported on the
statement of retained earnings.
d. is used only if a corporation frequently issues common stock.