Which one of the following would not be considered an advantage of the corporate
form of organization?
a. Limited liability of owners
b. Separate legal existence
c. Continuous life
d. Government regulation
Answer:
On January 1, Soft Corporation had 80,000 shares of $10 par value common stock
outstanding. On June 17, the company declared a 10% stock dividend to stockholders of
record on June 20. Market value of the stock was $15 on June 17. The stock was
distributed on June 30. The entry to record the transaction of June 30 would include a
a. credit to Common Stock for $80,000.
b. debit to Common Stock Dividends Distributable for $120,000.
c. credit to Paid-in Capital in Excess of Par for $40,000.
d. debit to Stock Dividends for $40,000.
Answer:
If total liabilities decreased by $50,000 and stockholders’ equity increased by $30,000
during a period of time, then total assets must change by what amount and direction
during that same period?
a. $80,000 decrease
b. $20,000 decrease
c. $20,000 increase
d. $80,000 increase
Answer:
McKendrick Shoe Store has a beginning inventory of $45,000. During the period,
purchases were $195,000; purchase returns, $6,000; and freight-in $15,000. A physical
count of inventory at the end of the period revealed that $30,000 was still on hand. The
cost of goods available for sale was
a. $189,000.
b. $204,000.
c. $219,000.
d. $249,000.
Answer:
A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. an asset that a company expects to convert to cash or use up within one year.
Answer:
Beacon, Inc. disposes of an unprofitable segment of its business. The operation of the
segment suffered a $350,000 loss in the year of disposal. The loss on disposal of the
segment was $150,000. If the tax rate is 30%, and income before income taxes was
$2,300,000,
a. the income tax expense on the income before discontinued operations is $540,000.
b. the income from continuing operations is $1,610,000.
c. net income is $1,800,000.
d. the losses from discontinued operations are reported net of income taxes at $150,000.
Answer:
On February 1, Ville Company received a $6,000, 5%, four-month note receivable. The
cash to be received by Ville Company when the note becomes due is
a. $100.
b. $6,000.
c. $6,100.
d. $6,300.
Answer:
Secured bonds are bonds that
a. are in the possession of a bank.
b. are registered in the name of the owner.
c. have specific assets of the issuer pledged as collateral.
d. have detachable interest coupons.
Answer:
Which one of the following events would not require a formal journal entry on a
corporation’s books?
a. 2 for 1 stock split
b. 100% stock dividend
c. 2% stock dividend
d. $1 per share cash dividend
Answer:
Each of the following accounts is closed to Income Summary except
a. Expenses.
b. Dividends.
c. Revenues.
d. All of these are closed to Income Summary.
Answer:
An expense is recorded under the cash basis only when
a. services are performed.
b. it is earned.
c. cash is paid.
d. it is incurred.
Answer:
The interest charged on a $70,000, 2-month note payable, at the rate of 6%, would be
a. $4,200.
b. $2,100.
c. $1,050.
d. $700.
Answer:
Net income is gross profit less
a. financing expenses.
b. operating expenses.
c. other expenses and losses.
d. other expenses.
Answer:
Corporations are granted the power to issue bonds through
a. tax laws.
b. state laws.
c. federal security laws.
d. bond debentures.
Answer:
If the total debit column exceeds the total credit column of the income statement
columns on a worksheet, then the company has
a. earned net income for the period.
b. an error because debits do not equal credits.
c. suffered a net loss for the period.
d. to make an adjusting entry.
Answer:
The direct write-off method
a. is acceptable for financial reporting purposes.
b. debits Allowance for Doubtful Accounts to record write-offs of accounts.
c. shows only actual losses from uncollectible accounts receivable.
d. estimates bad debt losses.
Answer:
An accounts payable clerk also has access to the approved supplier master file for
purchases. The control principle of
a. establishment of responsibility is violated.
b. independent internal verification is violated.
c. documentation procedures is violated.
d. segregation of duties is violated.
Answer:
The direct write-off method of accounting for bad debts
a. uses an allowance account.
b. uses a contra-asset account.
c. does not require estimates of bad debt losses.
d. is the preferred method under generally accepted accounting principles.
Answer:
What type of ratios best measure the short-term ability of the enterprise to pay its
maturing obligations and to meet unexpected needs for cash?
a. Leverage
b. Solvency
c. Profitability
d. Liquidity
Answer:
For its fiscal year ending October 31, 2015, Dickerson Corporation reports the
following partial data.
The flood loss is considered an extraordinary item. The income tax rate is 40% on all
items.
Instructions
(a) Prepare a correct income statement, beginning with income before income taxes.
(b) Explain in memo form why the income statement data are misleading.
Answer:
The following information pertains to Rural Company. Assume that all balance sheet
amounts represent both average and ending balance figures. Assume that all sales were
on credit.
What is the profit margin for Rural?
a. 27.8%
b. 70.6%
c. 65.4%
d. 46.2%
Answer:
If a company has no beginning inventory and the unit price of inventory is increasing
during a period, the cost of goods available for sale during the period will be the same
under the LIFO and FIFO inventory methods.
Answer:
Presented below are selected transactions for Werley Company for 2015.
Instructions
Journalize all entries required as a result of the above transactions. Werley Company
uses the straight-line method of depreciation and has recorded depreciation through
December 31, 2014.
Answer:
The correction of an error in previously issued financial statements is known as a
_________________.
Answer:
The primary accounting standard-setting body in the United States is the International
Accounting Standards Board.
Answer:
Selected transactions for Parton Company are listed below. List the number of the
transaction and then describe the effect of each transaction on assets, liabilities, and
stockholders’ equity.
Sample: Issued common stock in exchange for cash investment.
The answer would be’”Increase in assets and increase in stockholders’ equity.
1> Paid monthly utility bill.
2> Purchased new display case for cash.
3> Paid cash for repair work on security system.
4> Billed customers for services performed.
5> Received cash from customers billed in 4.
6> Paid dividends.
7> Incurred advertising expenses on account.
8> Paid monthly rent.
9> Received cash from customers when service was rendered.
Answer:
A company exchanged an old machine, which originally cost $22,000 and has
accumulated depreciation to date of $12,000, for a new machine. The old machine had a
fair value of $14,000. The cost of the new machine should be recorded at
$_____________.
Answer:
Closing entries are journalized after adjusting entries have been journalized.
Answer:
Journalize the following business transactions in general journal form. Identify each
transaction by number. You may omit explanations of the transaction.
1> Andrew Bird invested $35,000 cash in exchange for stock.
2> Hired an employee to be paid $400 per week, starting tomorrow.
3> Paid two years’ rent in advance, $7,440.
4> Paid the worker’s weekly wage.
5> Recorded revenue earned and received for the week, $1,900.
Answer: