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The relevance of accounting information means that the information has a direct
bearing on a decision.
Vertical analysis will reveal the percentage of net sales consumed by salaries expense.
The day-by-day accumulation of interest is considered a transaction involving an
exchange of value.
A company's fiscal year need not correspond to the calendar year.
When the terms of sale include a sales discount, it usually is advisable for the buyer to
pay within the discount period.
Cash equivalents are usually listed as short-term investments on the balance sheet.
Using bar codes to take a physical inventory is considered poor accounting practice.
A transaction should be recorded when title to merchandise passes from the supplier to
the purchaser and creates an obligation to pay.
When the present value of a bond issue is calculated, both the present value of a single
sum and the present value of an annuity must be calculated.
Bond certificates are issued to creditors of the issuing corporation.
For an index number, the base year is set at 100 percent.
When the effective interest method of amortization is used, the amount of bond interest
expense for a given period is calculated by multiplying the face interest rate by the
bond's carrying value at the beginning of the given period.
For tax purposes, small businesses may expense the first $250,000 of equipment
expenditures, rather than having to allocate their costs over a number of years.
Leasehold improvements become the property of the lessor at the end of the lease.
The use of prenumbered documents is important to a good system of internal control.
In accounting, depreciation means the decline in value of an asset.
Preparing the worksheet and closing entries provide a mechanism for applying the
concept of periodicity.
When the market value of available-for-sale securities exceeds cost, an unrealized loss
appears in stockholders' equity as an addition.
The callable feature of a bond can be exercised by the bondholder.
A decrease in the Owner's Capital account is recorded with a debit.
Goods in transit shipped FOB shipping point should be included in the seller's ending
inventory.
In addition to keeping the records of a purchase transaction, the accounting department
should prepare and mail checks in payment of invoices.
Once in a while, a transaction leaves an account with a balance that isn’t “normal.”
When this occurs, the “abnormal” balance should be corrected to the “normal” balance
before copying the balance into the trial balance.
All expenses incurred by a business are paid immediately in cash.
Interim financial statements report data for a period of less than one year.
When the Balance Sheet columns of the work sheet are initially footed, they should be
in balance.
When the cost-adjusted-to-market method is used to account for an investment in stock,
dividends received are accounted for as an increase to dividend income.
Goodwill represents the excess paid for a business over the fair value of its net assets.
In verifying a claim for a loss of inventory, an insurance company might use the gross
profit method.
Return on assets is a combination of the profit margin and the asset turnover.
Which of the following categories of investments can be debt but not equity securities?
A. Trading securities
B. Held-to-maturity securities
C. Available-for-sale securities
D. Both trading and available-for-sale securities
Which of the following would not be considered a capital expenditure?
A. The addition of a building wing
B. A tune-up of a company vehicle
C. A complete overhaul of an air-conditioning system
D. The cost of installing a piece of equipment
Which of the following is a nominal account?
A. Interest Payable
B. Property Taxes Expense
C. Owner's Capital
D. Cash
Use this balance sheet and income statement to answer the following question. Use
ending balances whenever average balances are required for computing ratios.
The asset turnover for National Textile is
A. 1.00 times.
B. 1.33 times.
C. 0.83 times.
D. 1.20 times.
Use this information to answer the following question.
A deposit of $5,800 made at the end of each year for three years would grow to how much,
assuming an APR of 12 percent?
A. $8,149.00
B. $19,569.20
C. $17,400.00
D. $19,488.00
The detailed records of purchases and sales maintained under the perpetual inventory
system make which costing method more practical than when a periodic system is
used?
A. Specific identification
B. Average-cost
C. LIFO
D. FIFO
All of the following are needed for the computation of depreciation except
A. residual value.
B. estimated useful life.
C. cost.
D. current market value.
On May 1, 20x5, Ironwood Corporation had 200,000 shares of $10 par value common
stock outstanding with a market value of $16 per share. On May 2, 20x5, Ironwood
announced a 4-for-1 stock split. After the split, the par value of the stock
A. remained the same as before the split.
B. was reduced to $2.50 per share.
C. was reduced by $4 per share.
D. was reduced by $2.50 per share.
One might infer from a debit balance in Allowance for Uncollectible Accounts that
A. a posting error has been made.
B. Uncollectible Accounts Expense has been overestimated.
C. the accounts receivable aging method apparently is being used.
D. more has been written off than had been estimated.
The following information pertains to Patterson Corporation. Assume that all balance
sheet amounts represent both average and ending figures.
Patterson Corporation had 6,000 shares of common stock issued and outstanding. The
market price of Patterson common stock on December 31, 20x5, was $23. Patterson paid
dividends of $0.90 per share during 20x5.
What is the price/earnings (P/E) ratio for this corporation? Round your answer to two
decimal places.
A. 5.47 times
B. 7.13 times
C. 4.80 times
D. 6.13 times
The Land account would include all of the following costs except
A. grading the land.
B. lawyers’ fees
C. the cost of adding a parking lot.
D. the cost of tearing down a building.
What is the adjusting entry for that portion of revenue received in advance which has
now been earned?
A. Unearned Revenue – Debit; Cash – Credit
B. Unearned Revenue – Debit; Service Revenue – Credit
C. Service Revenue – Debit; Unearned Revenue – Credit
D. Cash – Debit; Unearned Revenue – Credit
Which of the following is the appropriate entry to record the declaration of cash
dividends?
A. Dividends Payable - Debit
Cash - Credit
B. Additional Paid-in Capital - Debit
Dividends Payable - Credit
C. Dividends - Debit
Dividends Payable - Credit
D. Retained Earnings - Debit
According to the FASB, the usefulness of accounting is judged by which of the
following two qualitative characteristics of accounting information?
A. Comparability and neutrality
B. Understandability and comparability
C. Verifiability and timeliness
D. Relevance and faithful representation
Which accounting convention could cause an overload of information for the financial
statement user?
A. Consistency
B. Conservatism
C. Full disclosure
D. Materiality
An adjusting entry was made on the last day of the previous fiscal year debiting Wages
Expense and crediting Wages Payable. If a reversing entry has been made, then at the
time of payment
A. the accountant needs to find out how much of the payment applies to the current
period and how much applies to the previous period.
B. the accountant will debit Wages Payable and Wages Expense, and credit Cash.
C. the accountant will debit Wages Expense and credit Cash.
D. the accountant will debit Cash and credit Wages Expense.
Examples of one-time items include
A. nonoperating items.
B. uncollectible accounts receivable.
C. warranty claims.
D. environmental cleanup costs.
Each of the following statements violates a concept or convention of accounting. Write
the letter in the blank next to each statement corresponding to the concept or convention
violated.
The preparation of adjusting entries
A. is easy because they are simply copied from the work sheet.
B. is difficult, and therefore they must first be entered into the journal in pencil.
C. typically precedes preparation of the work sheet.
D. typically succeeds the preparation of the financial statements.
Which of the following is not a goal of a system of internal control over merchandising
transactions?
A. Keep credit losses as low as possible.
B. Prevent the theft of cash and inventory.
C. Keep the maximum amount of inventory on hand at all times.
D. Keep enough cash on hand to take advantage of purchase discounts.
Probably the last account to be listed on a post-closing trial balance would be
A. Income Summary.
B. Wages Payable.
C. Owner's Capital.
D. Wages Expense.
Using the percentage of net sales method, uncollectible accounts expense for the year is
estimated to be $44,000. If the balance of the Allowance for Uncollectible Accounts is a
$9,000 credit before adjustment, what is the balance after adjustment?
A. $9,000
B. $35,000
C. $44,000
D. $53,000
Use this information to answer the following question.
A periodic inventory system is used.
Using FIFO, the cost assigned to ending inventory is
A. $8,112.
B. $2,664.
C. $3,480.
D. $8,928.
The year-end adjusting entry to reflect an increase in the value of trading securities
includes a
A. credit to Unrealized Gain on Short-Term Investments.
B. credit to Short-Term Investments.
C. credit to Allowance to Adjust Short-Term Investments to Market.
D. credit to Realized Gain on Investments.
Use this information to answer the following question.
The trial balance for Nowwick Company appears as follows:
If as of December 31, 2014, the rent of $100 for December had not been recorded or paid,
the adjusting entry would include a
A. debit to Rent Expense for $100.
B. debit to Rent Payable for $100.
C. credit to Cash for $100.
D. credit to Accumulated Rent for $100.
Which of the following accounts probably would contain a smaller dollar amount on
the adjusted trial balance than on the trial balance?
A. Office Supplies
B. Accumulated Depreciation–Equipment
C. Cash
D. Wages Expense
A partner invests into a partnership a building with a $50,000 carrying value and
$80,000 fair market value. The related mortgage payable of $25,000 is assumed by the
partnership. The entry to record the investment in partnership is:
Susan Kane won the mayoral election in the City of Ashley partly on the basis of her
charge that Allen Ross, the former mayor, was responsible for the budget deficit. After
taking office, she hired a major international accounting firm to straighten things out.
This excerpt appeared in an article from a leading business publication, West End
Business Review:
[A riddle] Q: When is a budget deficit not a deficit?
A: When it is a surplus, of course.
Ashley Mayor Susan Kane was once again caught with egg on her face last week as she
and her financial advisers tried to defend that riddle. On one hand, Comptroller Jim
Guan, a Kane appointee, testified in hearings that the city had actually ended 20x5 with
a $6 million surplus, not the much-reported deficit. He said further that the modest
surplus grew to $54 million as a result of tax-enrichment supplements to the 20x5
balance sheet.
On the other hand, the mayor stuck by the same guns she used last year on her
predecessor. The city had ended 20x5, under the Allen Ross administration, not merely
without a surplus, but with a deficit. The apparent discrepancy can be explained.
Like most U.S. cities, Ashley operates under a modified accrual accounting basis. This
is a combination of the cash basis and the accrual basis. The modified accrual basis
differs from the accrual basis in that revenue is recorded when it is collected. The
collection of Ashley's parking tax, which is assessed on all city parking lots and
garages, is an example.
The tax is assessed and collected on a quarterly basis, but the city doesn't collect the
amount due for the last quarter of 20x6 until the first quarter of 20x7. Under ideal
accrual methods, the parking revenues should be recorded in the 20x6 financial
statements. Under a cash approach, the revenues would be recorded in the 20x7 budget.
What the city did before was to record the money whenever it was advantageous
politically. That, combined with the infamous revolving funds, allowed the city to hide
the fact it was running large deficits under former Mayor Ross. That also means that no
one really knew where the city stood.
The auditors are now reallocating the parking revenues to the 20x7 budget but are
accruing other revenues by shifting the period of collection from a year in the past.
Overall, more revenues were moved into earlier fiscal years than into later years,
inflating those budgets. Thus, the 20x7 deficit is a surplus.
The article concluded:
The upshot is that both Mayor Kane and Mr. Guan (the comptroller) were correct. There
was a deficit in the 20x5 corporate or checkbook fund, but because of corrections taking
place now, a surplus exists.
a) Do you agree with the way the auditors handled parking revenues?
Following are the financial statements for Flynn Corporation for the year ended
December 31, 20x5. Assume that all balance sheet amounts represent both average and
ending figures.
What is the current ratio for this corporation? Round your answer to two decimal places.
A. 0.66 times
B. 1.50 times
C. 1.70 times
D. 2.00 times
Which of the following best describes the payables turnover?
A. Cost of goods sold/Average accounts payable
B. Cost of goods sold +/-Change in inventory/Average accounts payable
C. Average accounts payable/Cost of goods sold
D. Average accounts payable/Cost of goods sold +/- Change in inventory
