The acid-test (quick) ratio
a. is used to quickly determine a company’s solvency and long-term debt paying ability.
b. relates cash, short-term investments, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from the
balance sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.
Answer:
After closing entries are posted, the balance in the retained earnings account in the
ledger will be equal to
a. the beginning retained earnings reported on the retained earnings statement.
b. the amount of the retained earnings reported on the balance sheet.
c. zero.
d. the net income for the period.
Answer:
The expense recognition principle matches
a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.
Answer:
An account is a part of the financial information system and is described by all except
which one of the following?
a. An account has a debit and credit side.
b. An account is a source document.
c. An account may be part of a manual or a computerized accounting system.
d. An account has a title.
Answer:
The usual sequence of steps in the transaction recording process is:
a. journal –> analyze –> ledger.
b. analyze –> journal –> ledger.
c. journal –> ledger –> analyze.
d. ledger –> journal –> analyze.
Answer:
Pare Company reported a net loss of $30,000 for the year ended December 31, 2014.
During the year, accounts receivable decreased $15,000, merchandise inventory
increased $25,000, accounts payable increased by $30,000, and depreciation expense of
$20,000 was recorded. During 2014, operating activities
a. used net cash of $10,000.
b. used net cash of $25,000.
c. provided net cash of $10,000.
d. provided net cash of $25,000.
Answer:
Nadine Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5
par value common stock outstanding. The market price per common share was $12 per
share when the dividend was declared. The entry to record this dividend declaration
includes a credit to
a. Stock Dividends of $100,000.
b. Paid-in Capital in Excess of Par ‘“ Common Stock for $140,000.
c. Common Stock for $100,000.
d. Stock Dividends for $240,000.
Answer:
Which of the following statements regarding the effective-interest method of
accounting for bonds characteristics is false?
a. GAAP always requires use of the effective interest method.
b. The amount of periodic interest expense decreases over the life of a discounted bond
issue when the effective-interest method is used.
c. Over the life of the bonds, the carrying value increases for discounted bonds when
using the effective-interest method.
d. The effective-interest method applies a constant percentage to the bond carrying
value to compute interest expense.
Answer:
Adjusting entries can be classified as
a. postponements and advances.
b. accruals and deferrals.
c. deferrals and postponements.
d. accruals and advances.
Answer:
If Vickers Company issues 5,000 shares of $5 par value common stock for $175,000,
a. Common Stock will be credited for $175,000.
b. Paid-In Capital in Excess of Par will be credited for $25,000.
c. Paid-In Capital in Excess of Par will be credited for $150,000.
d. Cash will be debited for $150,000.
Answer:
Lynn Company owns equipment that cost $120,000 when purchased on January 1,
2012. It has been depreciated using the straight-line method based on estimated salvage
value of $15,000 and an estimated useful life of 5 years.
Instructions
Prepare Lynn Company’s journal entries to record the sale of the equipment in these
four independent situations.
(a) Sold for $58,000 on January 1, 2015.
(b) Sold for $58,000 on May 1, 2015.
(c) Sold for $32,000 on January 1, 2015.
(d) Sold for $32,000 on October 1, 2015.
Answer:
The accounts receivable turnover is computed by dividing
a. total sales by average net accounts receivable.
b. net credit sales by average net accounts receivable.
c. total sales by ending net accounts receivable.
d. net credit sales by ending net accounts receivable.
Answer:
Santayana Company purchased a machine on January 1, 2013, for $60,000 with an
estimated salvage value of $15,000 and an estimated useful life of 8 years. On January
1, 2015, Santayana decides the machine will last 12 years from the date of purchase.
The salvage value is still estimated at $15,000. Using the straight-line method, the new
annual depreciation will be
a. $3,375.
b. $3,750.
c. $4,500.
d. $5,000.
Answer:
Selected transactions for Garver Company during its first month in business are
presented below.
The Chart of accounts shows: No. 101 Cash, No. 112 Accounts Receivable, No. 157
Equipment, No. 201 Accounts Payable, No. 311 Common Stock, No. 332 Dividends,
and No. 400 Service Revenue.
Instructions
(a) Journalize the transactions on page 1 of the journal (Omit explanations).
(b) Post the transactions using the standard account form.
(c) Based only on these transactions, what amount would Garver Company report as
total assets in the October 31 balance sheet?
(d) Based only on these transactions, what amount would Garver Company report as
total liabilities in the October 31 balance sheet.
Answer:
Transactions in a journal are recorded in
a. account number order.
b. dollar amount order.
c. alphabetical order.
d. chronological order.
Answer:
In deciding whether the U.S. should adopt IFRS, the issue the SEC said should be
considered is
a. whether IFRS is sufficiently developed and consistent in application.
b. whether the IFRS is established for the benefit of investors.
c. the impact of a switch to IFRS on U.S. laws and regulations.
d. all of these answers are correct.
Answer:
An application of good internal control over cash disbursements is
a. following payment, the approved invoice should be stamped PAID.
b. blank checks should be stored in the treasurer’s desk.
c. each check should be compared with the approved invoice after the check is issued.
d. check signers should record the cash disbursements.
Answer:
The financial statements of Danielle Manufacturing Company report net sales of
$750,000 and accounts receivable of $60,000 and $90,000 at the beginning and end of
the year, respectively. What is the accounts receivable turnover for Danielle?
a. 5 times
b. 8.3 times
c. 10 times
d. 12.5 times
Answer:
If a retailer regularly sells its receivables to a factor, the service charge of the factor
should be classified as a(n)
a. selling expense.
b. interest expense.
c. other expense.
d. contra asset.
Answer:
Farris Company borrowed $800,000 from BankTwo on January 1, 2014 in order to
expand its mining capabilities. The five-year note required annual payments of
$208,349 and carried an annual interest rate of 8.5%. What is the balance in the notes
payable account at January 1, 2016?
a. $800,000
b. $507,372
c. $659,651
d. $664,000
Answer:
A truck was purchased for $180,000 and it was estimated to have a $36,000 salvage
value at the end of its useful life. Monthly depreciation expense of $3,000 was recorded
using the straight-line method. The annual depreciation rate is
a. 20%.
b. 2%.
c. 8%.
d. 25%.
Answer:
Under IFRS, the trial balance
a. follows the same format as under GAAP.
b. shows credits on the left and debits on the right.
c. includes less accounts than under GAAP.
d. includes more accounts than under GAAP.
Answer:
(a) Karns Company purchased merchandise on account from Bailey Office Suppliers
for $174,000, with terms of 2/10, n/30. During the discount period, Karns returned
some merchandise and paid $156,800 as payment in full. Karns uses a perpetual
inventory system. Prepare the journal entries that Karns Company made to record:
(1) the purchase of merchandise.
(2) the return of merchandise.
(3) the payment on account.
(b) Hinds Company sold merchandise to Peter Company on account for $146,000 with
credit terms of ?/10, n/30. The cost of the merchandise sold was $86,140. During the
discount period, Peter Company returned $6,000 of merchandise and paid its account in
full (minus the discount) by remitting $137,200 in cash. Both companies use a perpetual
inventory system. Prepare the journal entries that Hinds Company made to record:
(1) the sale of merchandise.
(2) the return of merchandise.
(3) the collection on account.
Answer:
A prior period adjustment is occasionally reported in company financial statements.
What is a prior period adjustment, and how is it reported in the financial statements?
Answer:
Rachel Bells Havens is a friend of yours from high school. She decided to become a
beautician after leaving high school, rather than to attend college. She recently opened
her own shop, and has contracted her services to a local hospital. She is paid a monthly
fee for her services, and receives a small gratuity from each of the patients.
She has just received her first set of financial statements from her accountant. She is
quite upset. The statements show a cash balance of $3,600 at the end of the month, but a
net income of only $500. She has written you a letter, asking you whether such a
situation is possible, or whether she should find another accountant.
Required:
Write a short letter to your friend. Use proper form. Answer her question completely,
but briefly.
Answer:
The cash payments journal only has one column because all entries recorded in this
journal require a credit to the Cash account.
Answer:
Restricted retained earnings are available for preferred stock dividends but unavailable
for common stock dividends.
Answer:
The state unemployment tax rate is usually 4% on the first $7,000 of wages paid to an
employee during the year.
Answer:
The Accumulated Depreciation account is a contra asset account that is reported on the
balance sheet.
Answer:
The following items were taken from the financial statements Wyatt Company. [All
dollars re in thousands.)
2015 net income was 1,000 and dividends paid were $700.
Instructions
Prepare a classified balance sheet in good form as of December 31, 2015.
Answer:
Shellhammer Company’s inventory records show the following data for the month of
September:
A physical inventory on September 30 shows 200 units on hand. Calculate the value of
the ending inventory and cost of goods sold if the company uses weighted average
inventory costing and a periodic inventory system. Round cost per unit to 2 decimal
places and ending inventory and cost of goods sold to the nearest dollar.
Answer:
Failure to adjust a prepaid expense account for the amount expired will cause
______________ to be understated and ________________ to be overstated.
Answer:
Interest expense is reported under Other Expenses and Losses in the income statement.
Answer: