In trend analysis, each item is expressed as a percentage of the
A. net income amount.
B. total assets amount.
C. base year amount.
D. retained earnings amount.
An unrealistic picture of the inventory’s current value on the balance sheet is an
argument against using
A. Specific identification.
B. FIFO.
C. Average-cost.
D. LIFO.
Equipment might be depreciated over 15 years because
A. it will lose most of its market value in 15 years.
B. it will be paid for in 15 years.
C. it will help to generate revenue for the company over 15 years.
D. income tax provisions require depreciation over 15 years.
Net income results in a(n)
A. increase in owner’s equity.
B. increase in revenues.
C. decrease in expenses.
D. increase in assets.
Unearned Revenue was $600 at the end of February and $750 at the end of March.
Service Revenue was $3,600 for the month of March. How much cash was received
from revenue during March?
A. $4,950
B. $3,450
C. $2,250
D. $3,750
The normal operating cycle helps define which of the following balance sheet sections?
A. Owner’s equity
B. Current liabilities
C. Intangible assets
D. Property, plant, and equipment
If cost of goods sold is understated by $6,000 for this year, what effect will this have on
income before income taxes in the following year?
A. understated by $3,000
B. overstated by $6,000
C. understated by $6,000
D. no effect
An advantage of the perpetual inventory system is that
A. clerical work is reduced.
B. the need to take a physical inventory is eliminated.
C. the balance of the Merchandise Inventory account is only accurate on the balance
sheet date.
D. detailed data is available to respond to customers’ inquiries about product
availability.
Use this information to answer the following question.
The following totals for the month of September were taken from the payroll register of
Meadors Company:
The amount of liabilities relating to payroll, other than Salaries Payable, is
A. $8,356.
B. $7,496.
C. $7,256.
D. $8,596.
Use this information to answer the following question.
The total dollar amount of assets to be classified as investments is
A. $168,000.
B. $0.
C. $112,000.
D. $56,000.
Willow Corporation has retained earnings of $320,000. It has 5,000 shares of 6 percent,
$100 par value preferred stock outstanding that is callable at 102. The preferred stock is
cumulative, and one year of dividends is in arrears. It also has 10,000 shares of $50 par
value common stock outstanding. Assume all stock is issued at par. The book value of
each share of common stock is
A. $78.00.
B. $110.40.
C. $81.60.
D. $80.00.
Which of the following documents would be prepared (by a buyer of goods) after the
others?
A. Purchase order
B. Check
C. Purchase requisition
D. Receiving report
Which of the following items is not classified as a natural resource?
A. Timberland
B. A gas reserve
C. An oil well
D. Goodwill
One reason that a common-size statement is a useful tool in financial performance
evaluation is that it enables the user to
A. make better comparisons of two companies of different sizes in the same industry.
B. determine which companies in a single industry are of the same size.
C. judge the relative potential of two companies of similar size in different industries.
D. determine which companies in a single industry are of the same value.
For each of the following economic events determine whether the event is a business
transaction on the date it occurs and whether it’s recognized in the accounts on that
date. Support your answer.
a On July 15, the controller of Kona Corporation orders a custom display case for the
company’s store.
b. On July 31, a new administrative assistant is hired at a monthly salary of $3,500.
c. On July 31, the controller of Kona Corporation receives a bill for electricity for the
month of July. The bill is due on August 18 and will be paid on that date.
Return on assets is most closely related to
A. interest coverage and the debt to equity ratios.
B. profit margin and the debt to equity ratio.
C. profit margin and asset turnover.
D. inventory turnover and profit margin.
The depreciable cost of an asset is
A. the unexpired cost of the asset.
B. original cost minus residual value.
C. the expired cost of the asset.
D. original cost minus accumulated depreciation.
On January 2, 20×5, Clair Inc. signed a 9% mortgage payable for $200,000 with equal
monthly payments of $2,400. When Clair makes the second payment, how much
interest expense will be recorded?
A. $0
B. $1,494.
C. $1,500.
D. $1,482.
The exclusive right to sell a product within a certain geographic area is called a
A. leasehold.
B. franchise.
C. patent.
D. copyright.
On a bank reconciliation, $75 interest earned on a checking account would
A. appear as a deduction of $75 from the balance per books.
B. appear as an addition of $75 to the balance per bank.
C. appear as an addition of $75 to the balance per books.
D. not appear as an adjustment on the bank reconciliation
In a common-size financial statement, a designation of 25 percent could not be given to
A. total stockholders’ equity.
B. cost of goods sold.
C. net earnings.
D. total assets.
Which of the following accounts is a contra account?
A. Accumulated Depreciation–Office Furniture
B. Interest Payable
C. Depreciation Expense–Office Furniture
D. Unearned Revenue
Prepare year-end adjusting entries for each of the following situations:
a. The Supplies account showed a beginning debit balance of $400 and purchases of
$2,800. The ending debit balance was $800.
b. Depreciation on buildings is estimated to be $7,300.
c. A one-year insurance policy was purchased for $2,400. Nine months have passed
since the purchase.
d. Accrued interest on notes payable amounted to $200.
e. The company received a $9,600 advance payment during the year on services to be
performed. By the end of the year, one-third of the services had been performed.
Held-to-maturity securities are valued on the balance sheet at
A. original cost.
B. fair value.
C. maturity value.
D. cost adjusted for the effects of interest.
The entry to close the Dividends account at the end of an accounting period which has a
balance of $10,000 is:
A. Dividends 10,000
Cash 10,000
B. Retained Earnings 10,000
Cash 10,000
C. Dividends 10,000
Retained Earnings 10,000
D. Retained Earnings 10,000
If the market interest rate is lower than the face interest rate at the date of issuance,
bonds will
A. not sell until the face interest rate is adjusted.
B. sell at face value.
C. sell at a discount.
D. sell at a premium.
Peng Corporation has been authorized to issue bonds with interest payment dates of
March 1 and September 1. If the bonds are sold at face amount on April 1, the amount
of cash to be received by the issuer is equal to the face amount of the bonds
A. minus the interest accrued from March 1 to April 1.
B. plus the interest accrued from April 1 to September 1.
C. minus the interest accrued from April 1 to September 1.
D. plus the interest accrued from March 1 to April 1.
Which of the following is an example of an operating activity?
A. Obtaining capital from owners
B. Selling goods and services to customers
C. Purchasing equipment
D. Selling land
Which accounting term does not mean the same as the others?
A. Retained earnings
B. Net worth
C. Capital
D. Owner’s equity
The entry to record a $1,500 sale with terms of 2/10, n/30 would include a(n)
A. decrease to Accounts Receivable for $1,500.
B. increase to Sales for $1,500.
C. increase to Sales Discounts for $30.
D. decrease to Sales for $1,470.
For 2010, Black & White Corporation had average total assets of $300,000, net sales of
$250,000, net income of $20,000, net cash flows from operating activities of $30,000,
dividend payments of $15,000, purchases of plant assets of $70,000, and sales of plant
assets of $30,000. Using this information, compute (a) cash flow yield, (b) cash flows
to sales, (c) cash flows to assets, and (d) free cash flow. Round amounts to one decimal
place.
On December 31, 20×5, the balance sheet of Dennis, Inc. reported bonds outstanding
with a face value of $500,000 and a related unamortized premium of $25,000. Interest
is payable semiannually on January 1 and July 1.
a. Prepare an entry in journal form without explanations to record the retirement of
bonds with a face value of $300,000 on January 1, 20×6, assuming the bonds were
redeemed at a call price of 103.
b. Prepare an entry in journal form without explanation on January 1, 20×6, to record
the conversion of bonds with a face value of $200,000 into common stock. Each $1,000
bond is convertible into 25 shares of $10 par value common stock.
Which of the following transactions results in the recognition of an expense?
A. Expiration of the usefulness of equipment during the accounting period.
B. Payment on an account payable.
C. Withdrawal of cash by the owner.
D. Payment on the principal portion of a loan.