1) on a multi-step income statement, both merchandisers and service companies report
operating expenses in two categoriesselling expenses and administrative expenses.
2) the office supplies expense account is a temporary account.
3) an asset account is increased by a debit.
4) investment income may come from interest earned from debt investments, dividends
earned from stock investments, and/or increases in the market value of the security.
5) the estimated ending merchandise inventory can be computed by subtracting cost of
goods sold from the cost of goods available for sale.
6) under the perpetual inventory system, purchase returns or allowances are debited to
the merchandise inventory account by the purchaser.
7) working capital measures the ability to meet long-term obligations with current
assets.
8) inventory turnover measures the number of times a company sells its average level of
merchandise inventory during a period.
9) the old age, survivors, and disability insurance portion of fica taxes is imposed on all
of an individual employee’s earnings.
10) a dividend’s declaration date is the date the corporation records which stockholders
get dividend checks.
11) the rate of return on common stockholders’ equity shows the relationship between
net income available to common stockholders and their average common equity
invested in the company.
12) an analysis of a financial statement that reveals the relationship of each statement
item to its base amount, which is the 100% figure, is known as vertical analysis.
13) when a company invests in a long-term bond investment by paying cash, the total
assets remain unchanged
14) which of the following explains the term “lack of mutual agency” of a corporation?
a) the liabilities of the corporation cannot be extended to the personal assets of the
stockholder
b) shares of stock can be readily bought and sold by investors on the open market
c) stockholders are not authorized to sign contracts or make business commitments on
behalf of the corporation
d) corporations pay income tax on corporate earnings, and shareholders pay personal
income tax on corporate dividends and gains from sale of stock
15) on a balance sheet for a merchandiser, merchandise inventory is listed as a(n)
________.
a) current asset
b) current liability
c) expense
d) revenue
16) gladiator inc. uses the direct method to prepare its statement of cash flows. refer to
the following information reported for the year 2014 and determine the amount of cash
paid for merchandise inventory.
cost of goods sold, $130,000
inventory, beginning balance, $25,000
inventory, ending balance, $65,000
accounts payable, beginning balance, $7,500
accounts payable, ending balance, $4,900
a) $172,600
b) $140,000
c) $170,000
d) $167,400
17) the first step in the journalizing and posting process is to ________.
a) post the accounts to the ledger
b) identify each account involved and its type
c) determine whether each account has increased or decreased
d) record the transaction in the journal, including a brief explanation
18) which of the following items require an adjustment on the bank side of the bank
reconciliation?
a) interest earned
b) a bank service charge
c) a note collected by the bank
d) deposits in transit
19) bike world inc. offers warranties on all their bikes. they estimate warranty expense
at 3.5% of sales. at the beginning of 2013, the estimated warranty payable account had
a credit balance of $1,200. during the year, bike world had $295,000 of sales, and had to
pay out $5,300 in warranty payments. at the end of the year, what is the closing balance
in the estimated warranty payable accounts?
a) $6,225
b) $6,500
c) $9,125
d) $10,325
20) stock dividends are declared by the ________.
a) chief financial officer of the company
b) board of directors of the company
c) chief executive officer of the company
d) stockholders of the company
21) a business paid cash dividends to shareholders. which of the following accounts
will be debited?
a) cash
b) dividends
c) accounts payable
d) common stock
22) which of the following is an example of investment income from securities?
a) deferred tax assets
b) depreciation of long-term assets
c) sale of fixed assets
d) interest earned from debt investments
23) on january 1, 2012 hillop inc. had total assets of $360,000. during the year, the
company purchased new machinery worth $80,000 and promised to pay the amount due
after two years. throughout the year, it earned revenue of $50,000 every month.
calculate the asset turnover ratio.
a) 1.2 times
b) 1.8 times
c) 1.5 times
d) 1.4 times
24) a company originally issued 10,000 shares of $5 par value common stock at $9 per
share. the board of directors declares an 8% stock dividend when the market price of
the stock is $10 a share. which of the following is included in the entry to record the
declaration of a stock dividend?
a) retained earnings is debited for $4,000
b) common stock$5 par value is credited for $7,200
c) common stock is credited for $8,000
d) retained earnings is debited for $8,000
25) significant interest investments must be accounted for using the ________.
a) equity method
b) consolidation method
c) discounted cash flow method
d) acquisition method
26) the balances of select accounts of sandra inc. as of december 31, 2015 are given
below:
the unearned revenue is the amount of cash received for services to be rendered in
january, 2016. what are the total long-term liabilities shown on the balance sheet?
a) $1,200
b) $4,000
c) $5,200
d) $25,000
27) data for nobell inc. is as follows:
nobell inc.
comparative balance sheet
december 31, 2015 and 2014
20152014
assets
current assets:
cash$121,000$100,000
accounts receivables, net117,000125,000
merchandise inventory70,00085,000
total assets$308,000$310,000
liabilities
total current liabilities63,50050,000
long-term liabilities100,000100,000
total liabilities163,500150,000
stockholders’ equity
retained earnings94,500110,000
common stockholders’ equity50,00050,000
total liabilities and stockholders’ equity$308,000$310,000
prepare a horizontal analysis of the comparative balance sheet of nobell inc. round
percentage changes to one decimal place.
28) the trial balance of a merchandiser is as follows. a physical count of inventory at the
end of the accounting year reveals $28,000 of inventory on hand. (assume a perpetual
inventory system)
give journal entry to record the inventory shrinkage.
29) the following is the adjusted trial balance as of december 31, 2015 of current times
watch inc.:
provide the closing entry for dividends.
30) duncan services inc. records prepaid expenses as expenses when incurred, and
unearned revenues as revenues when the payment is received in advance. at the end of
the year, duncan services inc. makes the necessary adjustments based on accrual basis
accounting. on july 1, it paid rent for an office in the amount of $24,000 for the period
july 1 through june 30 of the following year. provide the year-end adjusting entry for
rent prepayment.
31) a company using the perpetual inventory system, purchased merchandise on
account for $5,000. give the journal entry to record this transaction.