The objectives of a company’s system of internal control include all of the following
except:
A) completing work efficiently and effectively and protecting assets by reducing the
risk of fraud.
B) producing reliable and timely accounting information for use by people internal and
external to the organization.
C) ensuring the company ‘s stock price provides a reasonable return to investors.
D) adhering to laws and regulations.
Which of the following statements concerning financial reporting is correct?
A) The FASB requires all financial decision makers to adhere to a code of professional
conduct.
B) The Sarbanes-Oxley Act does not require businesses to maintain an audited system
of internal control.
C) A fundamental characteristic of useful financial information is that it fully depicts
the economic substance of business activities.
D) There is no attempt to eliminate the difference in accounting rules in the U.S. and
elsewhere as this would prevent investors from comparing financial statements of
companies from different countries.
A company issued $300,000, 10-year, 10% bonds at 105. Use the information above to
answer the following question. What is the issue price of these bonds?
A) $300,000
B) $285,000
C) $315,000
D) $330,000
Deposits in transit have:
A) been recorded by the company but not yet by the bank.
B) been recorded by the bank but not yet by the company.
C) not been recorded by the bank or the company.
D) been recorded by both the bank and the company.
Time Warner is a publishing and communications company, specializing in magazines,
cable television operation, television program development, and other
telecommunication services. Its financial statements show $37,666 in an account called
Unearned Revenue, which represents amounts that customers have paid in advance of
receiving magazines, cable television, and internet services. What type of account is
this and on what statement is it reported?
A) Asset; Balance Sheet
B) Liability; Balance Sheet
C) Revenue; Balance Sheet
D) Revenue; Income Statement
On October 31, your company prepays rent of $7,000 for November and December.
Which of the following describes the effects of this transaction on your company’s
accounting equation?
A) Assets decrease $7,000 and liabilities decrease $7,000.
B) Assets increase $7,000 and stockholders’ equity increases $7,000.
C) There is no change to total assets, liabilities or stockholders’ equity.
D) Liabilities decrease $7,000 and stockholders’ equity increases $7,000.
In part, a transaction affects the accounting equation by decreasing an asset. There is no
effect on liabilities. Which of the following statements is correct with regards to this
transaction?
A) If other assets are unchanged, stockholders’ equity must be increasing.
B) If other assets are unchanged, stockholders’ equity must be decreasing.
C) If stockholders’ equity is unchanged, another asset must be decreasing.
D) If stockholders’ equity is unchanged, other assets must be unchanged.
The income statement reports:
A) the assets, liabilities, and stockholders’ equity of a company.
B) cumulative earnings that have not been distributed to stockholders.
C) the amount of profit distributed to owners during the period.
D) the amount of revenues earned and expenses incurred during the period.
The direct write-off method:
A) results in better matching of costs with revenues than the allowance method.
B) is an acceptable method under generally accepted accounting principles (GAAP).
C) requires that losses from bad debts be recorded in the period in which sales are
made.
D) does not report accounts receivable on the balance sheet at their net realizable value.
A company purchased property for $100,000. The property included a building,
equipment and land. The building was appraised at $62,000, the land at $45,000, and
the equipment at $18,000 for a total appraised value of $125,000. What is the amount of
cost to be allocated to the building in the accounting records?
A) $0
B) $49,600
C) $62,000
D) $100,000
On December 31, 2015, the balance in Retained Earnings is $20,000. On December 31,
2016, the balance in Retained Earnings is $19,100. During 2016, dividends of $4,000
were declared and paid. What is the amount of net income for 2016?
A) $4,900
B) $3,100
C) $900
D) $(900)
Which of the following statements about financial statement information is correct?
A) If a company has total revenues of $80,000, total expenses of $50,000 and dividends
of $10,000, they will have net income of $20,000.
B) A company with total stockholders’ equity of $45,000 and total assets of $75,000
must have total liabilities of $120,000.
C) A company with liabilities of $80,000 and stockholders’ equity of $50,000 will have
Assets of $30,000.
D) A company with total stockholders’ equity of $120,000 and common stock of
$75,000 must have total retained earnings of $45,000.
Ms. Jessica Duffy purchased 1 share of $10 par value common stock from Ohio
Corporation for $50 per share. Ms. Duffy sold that share to Mike Truesdale for $60 per
share. As a result of the sale by Duffy to Truesdale sale, Ohio Corporation would:
A) debit Cash and credit Additional Paid-in Capital for $10.
B) debit Cash and credit Common Stock for $10.
C) debit Common Stock and credit Additional Paid-in Capital for $10.
D) not debit or credit any of its accounts.
Which one of the statements appearing below is correct regarding bank reconciliations?
A) A bank reconciliation is an external report prepared to report the cash balance to
investors and creditors.
B) After preparing a bank reconciliation, no journal entries need to be made for
outstanding checks or deposits in transit.
C) If a company’s records show a different cash balance from that shown on the
company’s bank statement, either the company or the bank has made an error.
D) The up-to-date ending cash balance on the bank statement side should not equal the
up-to-date ending cash balance on the book side.
On the balance sheet, the Allowance for Doubtful Accounts:
A) is included in current liabilities.
B) increases the reported Accounts Receivable, Net.
C) is reported under the heading “Other Assets.”
D) is subtracted from Accounts Receivable.
A company’s cash flows from investing activities include cash transactions relating to
the purchase and disposal of which types of assets?
A) All of a company’s assets
B) All of a company’s assets except inventory
C) All of a company’s non-current assets
D) Property, plant and equipment
Which of the following statements regarding gross profit percentage is not correct?
A) It is possible for a company to increase both its gross profit percentage and net
income without increasing the dollar amount of sales.
B) A decreasing gross profit percentage means that the company is selling products for
a greater markup over its cost.
C) The gross profit percentage measures the percentage of profit earned on each dollar
of sales.
D) Gross profit percentages vary across industries.
On January 1, 2016, a company issues 3-year bonds with a face value of $200,000 and a
stated interest rate of 8%. Because the market interest rate is higher than the stated
interest rate, the company receives $194,000 for the bond.
Required:
Part a. Determine the amount of the discount that will be amortized during the year
ending December 31, 2016.
Part b. Prepare the journal entry to record the first interest payment on December 31,
2016.