On January 2, 2012, Porter Corporation issued 30,000 shares of 5% cumulative
preferred stock at $100 par value. On December 31, 2015, Porter Corporation declared
and paid its first dividend. What dividends are the preferred stockholders entitled to
receive in the current year before any distribution is made to common stockholders?
a. $0
b. $150,000
c. $450,000
d. $600,000
Answer:
If a resource has been consumed but a bill has not been received at the end of the
accounting period, then
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
d. it is optional whether to record the expense before the bill is received.
Answer:
Fat Possum’s Service Shop started the year with total assets of $330,000 and total
liabilities of $240,000. During the year, the business recorded $630,000 in revenues,
$420,000 in expenses, and paid dividends of $60,000.
Stockholders’ equity at the end of the year was
a. $90,000.
b. $240,000.
c. $300,000.
d. $360,000.
Answer:
A problem with the specific identification method is that
a. inventories can be reported at actual costs.
b. management can manipulate income.
c. matching is not achieved.
d. the lower-of-cost-or-market basis cannot be applied.
Answer:
Dexter Company is considering purchasing equipment. The equipment will produce the
following cash flows:
Dexter requires a minimum rate of return of 10%. What is the maximum price Dexter
should pay for this equipment?
a. $274,381
b. $165,290
c. $320,000
d. $160,000
Answer:
The entire group of accounts maintained by a company is called the
a. chart of accounts.
b. general journal.
c. general ledger.
d. trial balance.
Answer:
In calculating cash flows from operating activities using the indirect method, a gain on
the sale of equipment is
a. added to net income.
b. deducted from net income.
c. ignored because it does not affect cash.
d. not reported on a statement of cash flows.
Answer:
Riley Company received a notice with its bank statement that the bank had collected a
note receivable for $5,000 plus $150 of interest. The bank had credited these amounts to
Riley ‘s account less a collection fee of $10. Riley Company had already accrued the
interest for this note on its books.
(a) How will these items affect Riley Company’s bank reconciliation?
(b) Prepare the journal entry that Riley Company will make to record this information
on its books.
Answer:
The entries recorded in the Other Accounts column of a cash payments journal
a. are posted to the accounts payable subsidiary ledger daily.
b. are posted individually to accounts in the general ledger.
c. are not posted individually but are posted as a column total to the general ledger.
d. do not require posting.
Answer:
Instructions: Each of the events below may have an effect on the statement of cash
flows. Designate how the event should be reported within the statement of cash flows
using the codes provided below. Codes may be used more than once, or not at all.
Codes
A. Investing activity; cash inflow
B. Investing activity; cash outflow
C. Financing activity; cash inflow
D. Financing activity; cash outflow
E. Operating activity; cash inflow
F. Operating activity; cash outflow
G. Noncash investing and financing activity
Events
_ 1> Issued checks for the weekly payroll
_ 2> Paid an account payable
_ 3> Issued bonds payable for cash
_ 4> Declared and paid a cash dividend
_ 5> Paid cash for a new car for a traveling salesperson
_ 6> Purchased treasury stock for cash
_ 7> Paid cash for 40% interest in another company
_ 8> Received interest on a long-term bond investment
_ 9> Converted bonds payable into common stock
_ 10> Sold a long-term stock investment for cash at book value
Answer:
Preferred stockholders have a priority over common stockholders as to
a. dividends only.
b. assets in the event of liquidation only.
c. voting rights.
d. both dividends and assets in the event of liquidation.
Answer:
Nord Company had $375,000 of current assets and $150,000 of current liabilities before
borrowing $70,000 from the bank with a 3-month note payable. What effect did the
borrowing transaction have on Nord Company’s current ratio?
a. The ratio remained unchanged.
b. The change in the current ratio cannot be determined.
c. The ratio decreased.
d. The ratio increased.
Answer:
The net income reported on the income statement for the current year was $220,000.
Depreciation recorded on plant assets was $35,000. Accounts receivable and inventories
increased by $2,000 and $8,000, respectively. Prepaid expenses and accounts payable
decreased by $2,000 and $12,000 respectively. How much cash was provided by
operating activities?
a. $200,000
b. $235,000
c. $220,000
d. $255,000
Answer:
The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
What is total liabilities and stockholders’ equity at December 31, 2015?
a. $176,000
b. $218,000
c. $190,000
d. $232,000
Answer:
The cumulative effect of the declaration and payment of a cash dividend on a
company’s balance sheet is to
a. decrease current liabilities and stockholders’ equity.
b. increase total assets and stockholders’ equity.
c. increase current liabilities and stockholders’ equity.
d. decrease stockholders’ equity and total assets.
Answer:
As of December 31, 2015, Calexico Company has assets of $42,000 and stockholders’
equity of $20,000. What are the liabilities for Calexico Company as of December 31,
2015?
a. $22,000.
b. $20,000.
c. $42,000.
d. $62,000.
Answer:
Proper control for over-the-counter cash receipts includes
a. a cash register with totals visible to the customer.
b. using electronic cash registers with no tapes.
c. cash count sheets requiring only the supervisor’s signature.
d. cash count sheets requiring only the cashier’s signature.
Answer:
A promissory note
a. is not a formal credit instrument.
b. may be used to settle an accounts receivable.
c. has the party to whom the money is due as the maker.
d. cannot be factored to another party.
Answer:
Horton Company purchased a building on January 2 by signing a long-term $480,000
mortgage with monthly payments of $4,500. The mortgage carries an interest rate of 10
percent. The amount owed on the mortgage after the first payment will be
a. $480,000.
b. $479,500.
c. $476,000.
d. $475,500.
Answer:
Journal entries are required by the depositor for all of the following except
a. collection of a note receivable.
b. bank errors.
c. bank service charges.
d. an NSF check.
Answer:
Craig Ferguson Company had the following account balances at year-end: cost of goods
sold $70,000; inventory $17,300: operating expenses $33,000; sales revenue $121,000;
sales discounts $1,400; and sales returns and allowances $1,950. A physical count of
inventory determines that merchandise inventory on hand is $16,450.
Instructions
(a) Prepare the adjusting entry necessary as a result of the physical count.
(b) Prepare closing entries
(c) Assume that the physical count of inventory indicated that inventory on hand is
$17,800 (the account still shows a balance of $17,300 due to errors made during the
year. Prepare the adjusting entry necessary as a result of the physical count.
(d) What is Craig Ferguson Company’s net income for the year?
Answer:
Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $80
per share. The entry to record the transaction will consist of a debit to Cash for
$800,000 and a credit or credits to
a. Preferred Stock for $800,000.
b. Preferred Stock for $500,000 and Paid-in Capital in Excess of Par’”Preferred Stock
for $300,000.
c. Preferred Stock for $300,000 and Paid-in Capital from Preferred Stock for $500,000.
d. Paid-in Capital from Preferred Stock for $800,000.
Answer:
When the effective-interest method of bond discount amortization is used,
a. the applicable interest rate used to compute interest expense is the prevailing market
interest rate on the date of each interest payment date.
b. the carrying value of the bonds will decrease each period.
c. interest expense will not be a constant dollar amount over the life of the bond.
d. interest paid to bondholders will be a function of the effective-interest rate on the
date the bonds are issued.
Answer:
Suzy Douglas has been offered the opportunity of investing $73,540 now. The
investment will earn 8% per year and at the end of its life will return $200,000 to Suzy.
How many years must Suzy wait to receive the $200,000?
a. 10
b. 11
c. 12
d. 13
Answer:
The following information is available for Matlin Inc.:
Instructions
Based on the preceding information, prepare a retained earnings statement for 2015.
Answer:
Capital expenditures are expenditures that increase the company’s investment in
productive facilities.
Answer:
Accountants record both internal and external transactions.
Answer:
The cost of a patent should be amortized over its ____________ life or its
____________ life, whichever is shorter.
Answer:
Using special journals can save time in posting because column totals are often posted
rather than individual entries.
Answer:
When a parent company acquires a wholly owned subsidiary for an amount in excess of
the book value of the net assets acquired, the excess is always allocated to goodwill.
Answer:
The par value of stock issued for noncash assets is never a factor in determining the
cost of the assets received.
Answer:
Stockton Corporation has 160,000 shares of $5 par value common stock outstanding. It
declared a 15% stock dividend on June 1 when the market price per share was $13. The
shares were issued on June 30.
Instructions
Prepare the necessary entries for the declaration and payment of the stock dividend.
Answer: