Using the following information:
During 2015, sales on account were $145,000 and collections on account were
$100,000. Also during 2015, the company wrote off $4,000 in uncollectible accounts.
An analysis of outstanding receivable accounts at year end indicated that uncollectible
accounts should be estimated at $40,000.
The change in the cash realizable value from the balance at 12/31/14 to 12/31/15 was a
a. $36,000 increase.
b. $41,000 increase.
c. $44,000 increase.
d. $45,000 increase.
Answer:
When estimating the useful life of an asset, accountants do not consider
a. the cost to replace the asset at the end of its useful life.
b. obsolescence factors.
c. expected repairs and maintenance.
d. the intended use of the asset.
Answer:
Parker Paint reported sales of $500,000, total assets of $300,000, total stockholders’
equity of $160,000, current assets of $100,000, current liabilities of $40,000, and cash
of $30,000. In a common size balance sheet, cash would be shown as
a. 6%.
b. 10%.
c. 30%.
d. 50%.
Answer:
Jackson Cement Corporation reported $35 million for sales when it only had $20
million of actual sales. Which of the following qualities of useful information has
Jackson most likely violated?
a. Comparability
b. Relevance
c. Faithful representation
d. Consistency
Answer:
Jeff Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise
sold on July 1. Citibank charges 2% for its credit card use. The entry to record this
transaction by Jeff Retailers will include a credit to Sales Revenue of $75,000 and a
debit(s) to
a. Cash $73,500 and Service Charge Expense $1,500.
b. Accounts Receivable $73,500 and Service Charge Expense $1,500.
c. Cash $73,500 and Interest Expense $1,500.
d. Accounts Receivable $75,000.
Answer:
In recording the sale of accounts receivable, the commission charged by a factor is
recorded as
a. Bad Debt Expense.
b. Commission Expense.
c. Loss on Sale of Receivables.
d. Service Charge Expense.
Answer:
Era Company has 3,000 shares of 6%, $100 par non-cumulative preferred stock
outstanding at December 31, 2015. No dividends have been paid on this stock for 2014
or 2015. Dividends in arrears at December 31, 2015 total
a. $0.
b. $1,800.
c. $18,000.
d. $36,000.
Answer:
Which one of the following statements concerning the accounting cycle is incorrect?
a. The accounting cycle includes journalizing transactions and posting to ledger
accounts.
b. The accounting cycle includes only one optional step.
c. The steps in the accounting cycle are performed in sequence.
d. The steps in the accounting cycle are repeated in each accounting period.
Answer:
In the bottom portion of the statement of cash flows worksheet,
a. inflows of cash are debits in the reconciling columns.
b. outflows of cash are debits in the reconciling columns.
c. information pertaining to investing and financing activities only is entered.
d. only significant noncash transactions are entered.
Answer:
The term “FOB” denotes
a. free on board.
b. freight on board.
c. free only (to) buyer.
d. freight charge on buyer.
Answer:
McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The
fund pays interest of 4% compounded annually. The balance in the fund at the end of 5
years is computed by multiplying
a. $20,000 by the future value of 1 factor.
b. $100,000 by 1.04.
c. $100,000 by 1.20.
d. $20,000 by the future value of an annuity factor.
Answer:
A retail store credited the Sales Revenue account for the sales price and the amount of
sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue
account amounted to $294,000, what is the amount of the sales taxes owed to the taxing
agency?
a. $280,000
b. $294,000
c. $14,700
d. $14,000
Answer:
The per share amount normally assigned by the board of directors to a small stock
dividend is
a. the market value of the stock on the date of declaration.
b. the average price paid by stockholders on outstanding shares.
c. the par or stated value of the stock.
d. zero.
Answer:
New Corp. issues 2,000 shares of $10 par value common stock at $16 per share. When
the transaction is recorded, credits are made to
a. Common Stock $20,000 and Paid-in Capital in Excess of Stated Value $12,000.
b. Common Stock $32,000.
c. Common Stock $20,000 and Paid-in Capital in Excess of Par $12,000.
d. Common Stock $20,000 and Retained Earnings $12,000.
Answer:
Which depreciation method is most frequently used in businesses today?
a. Straight-line
b. Declining-balance
c. Units-of-activity
d. Double-declining-balance
Answer:
Ale Corporation had net income of $240,000 and paid dividends to common
stockholders of $40,000 in 2014. The weighted average number of shares outstanding in
2014 was 60,000 shares. Ale Corporation’s common stock is selling for $60 per share
on the New York Stock Exchange. Ale Corporation’s payout ratio for 2014 is
a. $0.71 per share.
b 25%.
c. 16.7%.
d. 8%.
Answer:
Physician Reference Service (PRS) provides services to physicians including research
assistance, diagnosis coding and medical practice software including an advanced
medical record cross-referencing system. PRS is aggressive in monitoring other firms’
offerings and ensuring that its services are comparable to all others.
Because of its need to stay abreast of new product offerings, PRS spends a lot of money
sending professionals to trade shows. In addition, PRS has agreements with several
clients whereby the client requests a presentation of a competitor’s services. A PRS
employee poses as an employee of the client’s office and attends the presentation,
obtaining as much data and sample information as possible. The cost of the travel and
attending presentations is charged to Product Development and expensed during the
current year.
In April of this year, PRS began selling a software product substitute before the
competitor’s software was released. The competitor, Compu-Med, sued for copyright
infringement and won. PRS had to withdraw its product from the market and pay $1.5
million in damages. PRS immediately negotiated an agreement with Compu-Med to sell
Compu-Med’s product (since it was prohibited from offering its own version for five
years.) This agreement cost an additional $1.3 million, but it allowed PRS to continue
to offer a full line of services.
PRS’s accountant, Jill Linsey, initially recorded the cash payments as “Loss from
Lawsuit” and “Product Development,” respectively. However, Jack Meyer, the
controller, instructed Jill to create an intangible asset, named “Goodwill” and charge
both costs to this account. “We’re protected from another lawsuit as long as this
agreement is in effect,” he says. “It’s about as close to goodwill as we’ll ever get from
our competitors. We might as well amortize the cost rather than take the full hit to
income, anyway.”
Answer:
Journalize the following business transactions in general journal form. Identify each
transaction by number. You may omit explanations of the transactions.
1> The company issues stock in exchange for $40,000 cash
2> Purchased $400 of supplies on credit.
3> Purchased equipment for $8,000, paying $2,000 in cash and signed a 30-day, $6,000,
note payable.
4> Real estate commissions billed to clients amount to $4,000.
5> Paid $700 in cash for the current month’s rent.
6> Paid $200 cash on account for supplies purchased in transaction 2.
7> Received a bill for $600 for advertising for the current month.
8> Paid $2,200 cash for office salaries and wages.
9> The company paid dividends of $1,500.
10> Received a check for $3,000 from a client in payment on account for commissions
billed in transaction 4.
Answer:
The book value of a depreciable asset is always equal to its market value because
depreciation is a valuation technique.
Answer:
In order to accelerate the receipt of cash from receivables, owners may sell the
receivables to another company for cash.
Answer:
Return on common stockholders’ equity is computed by dividing net income by ending
stockholders’ equity.
Answer:
The depreciable cost of a plant asset is its original cost minus obsolescence.
Answer:
Below are some typical transactions incurred by Harley Company.
1> Purchase of merchandise on account.
2> Collection on account from customers.
3> Payment of employee’s wages.
4> Sales of merchandise for cash.
5> Close Income Summary to Retained Earnings.
6> Adjusting entry for depreciation on machinery.
7> Payment of creditors on account.
8> Purchase of office equipment on credit.
9> Sales discount taken on goods sold on credit.
10> Sales of merchandise on account.
11> Purchase of a delivery truck for cash.
12> Return of merchandise purchased on credit.
13> Payment of rent in advance.
14> Adjusting entry for accrued interest expense.
15> Purchase of office supplies for cash.
For each transaction, indicate by the code letter the appropriate journal where the
transaction would be journalized.
Answer: