Regarding the double-entry system, which of the following statements is incorrect?
A) A transaction would be incomplete if only one side were recorded.
B) Because of technology, the use of the double-entry system of accounting is optional.
C) The double-entry system is a system of accounting in which every transaction affects
at least two accounts.
D) If office supplies are purchased on account, the account Office Supplies increases
and the account Accounts Payable increases.
The materiality concept states that a company must ________.
A) report only such information that enhances the financial position of the company
B) perform strictly proper accounting only for significant items
C) report enough information for outsiders to make knowledgeable decisions about the
company
D) use the same accounting methods and procedures from period to period
Johnson Waterworks Corporation provides plumbing services. Transactions during the
first year of operations are provided below.
a) Received $11,000 cash and issued common stock to Mitchell Johnson.
b) Paid $1,200 for equipment to be used for plumbing repairs.
c) Borrowed $15,000 from a local bank and deposited the money in the checking
account.
d) Paid $400 in rent for the year.
e) Paid $400 for plumbing supplies to be used on various jobs next year.
f) Completed a plumbing repair for a law firm and received $3,500.
Calculate the amount of total assets at the end of the first year. Assume the plumbing
supplies of $400 are left at the end of the year.
A) $1,600
B) $1,200
C) $26,000
D) $29,100
Freeman, Inc. owns a delivery truck. Which of the following costs, associated with the
truck, will be capitalized and depreciated?
A) modification for new use
B) oil change and lubrication
C) replacement of tires
D) normal engine repair
Equity securities in which the investor owns less than 20% ownership in the voting
stock of the investee generally can be classified as ________ equity investments.
A) significant influence
B) controlling interest
C) held-to-maturity
D) no significant influence
Element Corporation reported the following equity section on its current balance sheet.
The common stock is currently selling for $20.25 per share.
After a 2-for-1 stock split, what is the number of issued shares?
A) 280,000
B) 314,000
C) 297,000
D) 140,000
Gena’s Cleaning Services performs services for its customers during March. Payments
for the March services are received in June. How does the transaction for the collection
of cash from customers affect the accounting equation of Gena’s Cleaning Services?
A) Liabilities increase and assets increase.
B) Total assets remain the same.
C) Assets increase and revenues increase.
D) Assets increase and equity decreases.
Which of the following is a requirement of the Sarbanes-Oxley Act?
A) An outside auditor must evaluate the client’s internal controls and report on the
internal controls as part of the audit report.
B) The Public Company Accounting Oversight Board must conduct audits of public
companies.
C) The accounting firm that audits a public client must also provide consulting services
for the same client.
D) The Public Company Accounting Oversight Board must create new accounting
standards.
Walton, Inc. provides the following data:
Additional information for the year ending December 31, 2019:
Calculate the rate of return on total assets for 2019. (Round your answer to two decimal
places.)
A) 45.43%
B) 62.84%
C) 71.60%
D) 51.36%
One of the purposes of the statement of cash flows is to ________.
A) determine the operating income of a business
B) calculate inventory turnover
C) evaluate the level of debt and leverage of a company
D) predict the ability of a company to pay debts and dividends
Vegan Specialty Foods, a grocery merchandiser, purchased goods and paid
transportation to bring them to the company warehouse. The transportation cost is
known as ________.
A) freight out
B) selling expense
C) freight in
D) cost of goods sold
On July 10, a hardware retailer purchased merchandise inventory on account for $1300.
The company plans to pay $1000 the following week and the remaining amount the
week after. Which of the following is the correct entry to record the July 10 transaction
in a purchases journal? Assume a perpetual inventory system is used.
A) $1000 will be recorded in the Accounts Payable CR and Merchandise Inventory CR
columns.
B) $2300 will be recorded in the Accounts Payable DR and Merchandise Inventory DR
columns.
C) $1300 will be recorded in the Merchandise Inventory CR and Accounts Payable DR
columns.
D) $1300 will be recorded in the Accounts Payable CR and Merchandise Inventory DR
columns.
When a loss is recorded on the sale of a significant influence equity investment,
________.
A) total assets will increase
B) equity will increase
C) total assets will decrease
D) equity will remain unchanged
The type of intangible asset related to the exclusive right to reproduce and sell a book
or intellectual property is a ________.
A) franchise
B) trademark
C) copyright
D) patent
Delivery expense is a(n) ________.
A) administrative expense
B) part of Cost of Goods Sold
C) operating expense
D) overhead expense
Rally Wheels, Inc. had the following balances and transactions during 2018:
What would the company’s ending merchandise inventory cost be on December 31, 2018 if
the perpetual inventory system and the last-in, first-out inventory costing method are used?
A) $16,850
B) $75,000
C) $58,150
D) $60,800
High Quality Jewelers uses the perpetual inventory system. On March 3, High Quality
sold merchandise for $55,000 to a customer on account with terms 4/15, n/30. The cost
of goods sold was $22,000. On March 18, High Quality received payment from the
customer. Calculate the amount of gross profit.
A) $52,800
B) $33,000
C) $30,800
D) $22,000
On September 1, Patterson Maintenance Company contracted to provide monthly
maintenance services for the next three months at a rate of $2,400 per month. The client
paid Patterson $7,200 on September 1. Assuming Patterson records deferred revenues
using the alternative treatment, what would be the entry on September 1?
A) Debit Cash and credit Unearned Revenue for $7,200.
B) No entry is needed until the services are performed.
C) Debit Cash and credit Service Revenue for $7,200.
D) Debit Prepaid Maintenance and credit Cash for $7,200.
The ultimate control of the corporation rests with the ________.
A) board of directors
B) stockholders
C) chairperson of Board of Directors
D) chief operating officer
Salaries Payable, Accounts Payable, and Unearned Revenue are examples of ________.
A) short-term investments
B) fixed assets
C) current liabilities
D) long-term liabilities
On June 30, 2018, Dakota, Inc. showed the following data on the equity section of their
balance sheet:
On July 1, 2018, the company declared and distributed a 11% stock dividend. The market
value of the stock at that time was $20 per share. As a result of this stock dividend, what is
the balance of Retained Earnings?
A) $770,580
B) $951,000
C) $981,780
D) $621,200
When a company pays cash for a long-term investment in bonds, ________.
A) equity remains unchanged
B) current assets increase
C) liabilities increase
D) total assets increase
Which of the following is considered a fiscal year?
A) six months
B) three months
C) twelve months
D) four months
Which of the following methods requires two entries to record the recovery of accounts
receivable previously written off?
A) direct write-off
B) allowance
C) Two entries are never required.
D) Both direct write-off and allowance.
Adams, Inc. recorded the following journal entry on March 2, 2018.
From the journal entry above, identify the transaction on March 2, 2018.
A) Adams purchased goods worth $9,000 and signed a one-year note for the same amount.
B) Adams sold goods for $9,000 cash.
C) Adams received $9,000 for services to be performed in a later period.
D) Adams paid $9,000 for services to be received at a later date.
Regarding the profit margin ratio, which of the following statements is incorrect?
A) The higher the profit margin ratio, the more sales dollars end up as profit.
B) The profit margin ratio is computed by dividing net sales by net income.
C) The profit margin ratio shows how much net income a business earns on every $1.00
of sales.
D) The profit margin ratio focuses on the profitability of a company and is often
reported in the business press.
Regarding the use of a spreadsheet for the preparation of the statement of cash flows,
which of the following statements is incorrect?
A) The spreadsheet starts with the beginning balance sheet and concludes with the
ending balance sheet.
B) When companies face complex situations, a spreadsheet can help in preparing the
statement of cash flows.
C) The spreadsheet cannot be used for the direct method.
D) Accountants can prepare the statement of cash flows directly from the lower part of
the spreadsheet.
Which of the following appears on both the income statement and statement of retained
earnings?
A) Ending stockholders’ equity
B) Total revenues
C) Net income
D) Dividends
Anderson Farms, Inc. provided the following for 2018:
Calculate the company’s inventory turnover ratio for the year. (Round your answer to two
decimal places.)
A) 3.82 times per year
B) 2.68 times per year
C) 2.06 times per year
D) 1.34 times per year
Which statement regarding investments in equity securities is incorrect?
A) Significant influence equity investments are always reported as long-term assets on
the balance sheet.
B) Significant influence equity investments are consolidated into the investor’s financial
statements.
C) Investments in equity securities are classified into three specific types based on the
investor’s level of influence over the investee company.
D) Generally, no significant influence exists if there is an ownership interest of less than
20% of the investee’s voting stock.