The total amount of assets a business possesses may or may not be equal to the total of
liabilities and equity of the business.
The environment is the culture of a business, and it starts with the CEO or CFO and the
top managers.
When a seller grants a sales allowance, the customer does not return any goods to the
seller.
Separating the custody of assets from accounting implies that the accountants must not
handle cash and the cashier must not have access to the accounting records.
Online financial databases provide data on companies which allows investors to
compare the companies’ future earnings.
Intangibles with an indefinite life are tested for impairment annually.
Errors are corrected by adjusting the beginning balance in the Retained Earnings
account in the period the error is discovered.
A natural resource is an asset that comes from the earth and is consumed.
Held-to-maturity debt investments are normally reported at current market value.
U. S. Generally Accepted Accounting Principles permits the presentation of plant assets
at their fair market value.
In a period of rising costs, the first-in, first-out (FIFO) method results in a lower cost of
goods sold and a higher gross profit than the last-in, first-out (LIFO) method.
Managerial accounting focuses on information needed by lenders, customers, and the
federal government.
Selling property, plant, and equipment for $10,000 cash is considered a cash inflow
from investing activities on the statement of cash flows.
Horizontal analysis compares each item in the income statement to the net sales
amount.
The purpose of the adjusted trial balance is to ensure that no errors were made during
the adjusting process.
Repair work that generates a capital expenditure because it extends a plant asset’s useful
life past the normal expected life is known as an extraordinary repair.
When using the effective-interest amortization method, the discount amortization is the
excess of the calculated interest expense based on the effective interest rate over the
interest payment.
Accounting is simpler in a periodic inventory system because the company keeps a
daily running record of inventory on hand.
Accrual basis accounting requires the business to review the unadjusted trial balance
and determine whether any additional revenues and expenses need to be recorded.
Medicare taxes are a required column in a payroll register.
On October 1, 2018, Mandy’s Electronics sold merchandise in exchange for a 4-month,
$20,000 note receivable, with 9% interest. Interest revenue of $600 is earned in 2018.
In a large company, the person in charge of signing checks is the controller.
Retired shares of treasury stock may later be reissued.
The Accumulated Depreciation account is a permanent account.
For exchanges of plant assets with commercial substance, the new asset received will
be recorded at its market value.
If a held-to-maturity debt security is purchased at a discount, the discount must be
amortized when the interest revenue is earned.
Deferred revenues are assets because the business has collected the cash before earning
the revenue.
Under the terms FOB destination, title to the merchandise will pass to the purchaser
when the goods are received by the purchaser.
Accountants can prepare the statement of cash flows directly from the lower part of the
spreadsheet.
Marcy’s Event Planning Services, Inc. records deferred expenses and deferred revenues
using the alternative treatments. The business makes adjusting entries as needed to
bring its books to the full accrual basis once a year at the end of the year. On October 1,
Marcy’s paid $3,600 for insurance for a one-year period. At the end of the year, it will
make an adjusting entry that debits Insurance Expense for $1,500.
The smaller the current ratio, the higher the firm’s ability to repay its current debts.
Free cash flow is the amount of cash available from operating activities before paying
for planned investments in long-term assets.
A 9% rate of return on total assets means that the company earned $0.09 for each $1.00
invested in the company’s average long-term assets.
Under accrual basis accounting, an expense is recorded only when cash is paid.
The periodic inventory system ________.
A) is more difficult to maintain than a perpetual inventory system
B) works well for businesses in which the inventory is large in size or dollar amount
C) involves the use of inventory costing methods
D) cannot be used with a specific identification costing method
Regarding the separation of corporate ownership and management, which of the
following is a true statement?
A) The corporate officers elect the board of directors.
B) The corporation runs better with day-to-day input from stockholders.
C) Stockholders are required to manage the business.
D) Stockholders own the business, but a board of directors appoints corporate officers
to manage the business.
Which of the following statements regarding FIFO is incorrect?
A) Ending inventory is based on the costs of the most recent purchases.
B) FIFO is consistent with the physical movement of inventory for most companies.
C) The first units to come in are assumed to be the first units sold.
D) FIFO is a specific identification costing method because companies sell their oldest
inventory first.
Which of the following is true of an accounts receivable subsidiary ledger?
A) It does not include a receivable account for each customer, but includes a cumulative
account for all customers.
B) It contains information about the amount each customer purchased on credit, but
excludes the customer name.
C) The total of the accounts in the accounts receivable subsidiary ledger must equal the
accounts receivable balance in the general ledger.
D) Companies keep an accounts payable subsidiary ledger that is entirely different from
the accounts receivable subsidiary ledger.
Which of the following is true of the balance sheet presentation of the Allowance for
Bad Debts?
A) It is reported as a current liability.
B) It is reported as an operating expense.
C) It is reported as a separate, independent line item under current assets.
D) It is shown as a contra account related to accounts receivable.
For the year ending December 31, 2018, Sparks Electric expects net cash provided by
operations of $328,000, net cash used by investing activities of $135,000, and net cash
provided by financing activities of $51,000. Sparks plans to spend $257,000 to add a
warehouse for its operations and pays $31,000 in cash dividends. What is the amount of
free cash flow?
A) $244,000
B) $40,000
C) $71,000
D) $(64,000)
On July 1, 2019, Michigan Company has bonds with balances as shown below.
Bonds Payable
Premium on Bonds Payable
If the company retires the bonds for $74,150, what will be the effect on the income
statement?
A) gain on retirement of $6950
B) loss on retirement of $6950
C) gain on retirement of $650
D) loss on retirement of $650
Which is the most liquid form of asset?
A) cash
B) accounts receivable
C) inventory
D) supplies
Jones Enterprises purchased a bond on August 31 of the current year for $250,000 and
classified the investment as an available-for-sale debt. The market value of the
available-for-sale debt investment at year-end is $255,000. The adjustment is ______.
A) subtracted from the Available-for-Sale Debt Investments account to arrive at the
amount reported on the balance sheet
B) recorded as a debit to Fair Value Adjustment – Available-for-Sale
C) recorded as a debit to Unrealized Holding Gain – Available-for-Sale
D) reported as a $5,000 unrealized holding gain in the income statement
The issuance of common stock for cash is shown as a ________.
A) negative cash flow in the investing activities section of the statement of cash flows
B) positive cash flow in the investing activities section of the statement of cash flows
C) negative cash flow in the financing activities section of the statement of cash flows
D) positive cash flow in the financing activities section of the statement of cash flows
Which of the following items is a measure of a company’s ability to collect receivables?
A) inventory turnover ratio
B) current ratio
C) days’ sales in receivables
D) account receivable balance
On January 1, 2018, Tyson Manufacturing Corporation purchased a machine for
$41,100,000. Tyson’s management expects to use the machine for 32,000 hours over the
next six years. The estimated residual value of the machine at the end of the sixth year
is $47,000. The machine was used for 4000 hours in 2018 and 6000 hours in 2019.
What is the depreciation expense for 2018 if the corporation uses the
units-of-production method of depreciation? (Round any intermediate calculations to
two decimal places, and your final answer to the nearest dollar.)
A) $5,131,640
B) $13,700,000
C) $7,697,460
D) $5,137,520
Briefly discuss each of the following corporate characteristics.
A. No mutual agency
B. Separate legal entity
C. Separation of ownership and management
A corporation originally issued $13 par value common stock for $15 per share. Which
of the following is included in the entry to record the purchase of 300 shares of treasury
stock for $11 per share?
A) Treasury Stock—Common is debited for $3300.
B) Treasury Stock—Common is credited for $45.
C) Retained Earnings is debited for $1650.
D) Treasury Stock—Common is debited for $1650.
All of the accounts and the account balances of a company appear on the ________.
A) statement of retained earnings
B) balance sheet
C) adjusted trial balance
D) income statement
In a networked system, the server stores the program and the data.
Which of the following accounts has an ending balance equal to net income
immediately before it is closed?
A) Income Summary
B) Dividends
C) Net Income
D) Retained Earnings
Tulip Corporation purchased equipment for $58,000 on January 1, 2017. On December
31, 2019, the equipment was sold for $24,000. Accumulated Depreciation as of
December 31, 2019 was $33,000.
Calculate gain or loss on the sale.
A) $1000 gain
B) $1000 loss
C) $33,000 loss
D) no gain, no loss
Cash received in advance of providing goods or performing services is recorded as
________.
A) Unearned Revenue
B) Accrued Revenue
C) Service Revenue
D) Uncollected Revenue
On January 1, 2018, Global Sales issued $25,000 in bonds for $29,800. These are
eight-year bonds with a stated rate of 15% and pay semiannual interest. Global Sales
uses the straight-line method to amortize the bond premium. On June 30, 2018, when
Global makes the first payment to bondholders, what is the amount that will be reported
as Interest Expense? (Round your intermediate answers to the nearest dollar.)
A) $1575
B) $1875
C) $3225
D) $1225
Which of the following is shown on a multi-step income statement but not on a
single-step income statement?
A) gross profit
B) net sales revenue
C) cost of goods sold
D) net income
A streamlined process that bypasses paper documents altogether and in which
computers of retailers communicate directly with the computers of suppliers to
automate routine business transactions is known as ________.
A) Real Time Gross Settlement
B) Electronic Data Interchange
C) Electronic Fund Transfer
D) Evaluated Receipts Settlement
The accounts receivable turnover ratio measures ________.
A) a company’s ability to pay its current liabilities with its current assets
B) how many days it takes, on average, to collect receivables
C) how many days it takes, on average, to sell the inventory
D) the number of times a company collects the average accounts receivable balance in a
year
Which of the following statements about franchises is correct?
A) Franchises are privileges granted by a government to use public property in
performing services.
B) The acquisition cost of a franchise is always amortized over its legal life.
C) Franchises are privileges granted by a business to sell goods or services under
specified conditions.
D) The acquisition cost of a franchise cannot be amortized because its useful life cannot
be determined.
On January 1, 2018, Jordan, Inc. acquired a machine for $1,100,000. The estimated
useful life of the asset is five years. Residual value at the end of five years is estimated
to be $61,000. Calculate the depreciation expense per year using the straight-line
method.
A) $220,000
B) $207,800
C) $268,800
D) $275,000
The following are selected current month’s balances for Allbright Enterprises.
Based on this information, calculate is the total amount of debits for the trial balance?
A) $24,000
B) $25,300
C) $30,000
D) $31,300
Assets are listed in the order of their ________ on the balance sheet.
A) magnitude
B) dates of purchase
C) liquidity
D) durability
Which of the following is the correct formula for calculating depreciation under the
straight-line method?
A) Straight-line depreciation = (Cost + Residual value) / Useful life
B) Straight-line depreciation = (Cost – Residual value) / Useful life
C) Straight-line depreciation = (Cost + Residual value) × Useful life
D) Straight-line depreciation = (Cost – Residual value) × Useful life
A business collects cash from a customer for services that were performed one month
earlier. Which of the following accounts is debited?
A) Cash
B) Accounts Receivable
C) Service Revenue
D) Accounts Payable
Which of the following will be classified as an available-for-sale debt investment?
A) debt securities which the investor intends to sell in the very near future
B) debt securities the investor intends to hold and has the ability to hold until they
mature
C) all investments in Treasury bills
D) all debt securities that are not trading debt investments or held-to-maturity debt
investments
Which of the following is a current asset that is expected to be converted to cash, sold,
or consumed during the next year (or the normal operating cycle, if longer)?
A) Land
B) Equipment
C) Building
D) Accounts Receivable
Which of the following sections of the statement of cash flows include activities that
affect net income on the income statement?
A) the financing activities section
B) the operating activities section
C) the investing activities section
D) the non-cash investing and financing section
When a check is issued, the party being paid the cash is referred to as the ________.
A) payee
B) maker
C) bank signatory
D) depositor
Watson Tax Planning Service has the following plant assets: Communications
Equipment: Cost, $6,880 with useful life of eight years; Furniture: Cost, $22,800 with
useful life of 12 years; and Computer: Cost, $13,600 with useful life of four years.
(Assume residual value of all the assets is zero.) Watson’s monthly depreciation expense
calculated using the straight-line method is ________. (Round any intermediate
calculations to two decimal places, and your final answer to the nearest cent.)
A) $283.33
B) $158.33
C) $71.67
D) $513.33
