Assume that you are considering purchasing some of a company’s long-term bonds as
an investment. Which of the company’s financial statement ratios would you probably
be most interested in?
A. Debt to assets ratio
B. Debt to equity
C. Plant assets to long-term liabilities
D. All of these answer choices are correct.
The entry to record the dividend on March 1 will have which of the following financial
statement effects?
A.
B.
C.
D.
How will a certified check be treated in a company’s bank reconciliation?
A.As a deduction to the company’s unadjusted book balance.
B.As an increase to the bank’s unadjusted bank balance.
C.As a deduction to the bank’s unadjusted bank balance.
D.There is no adjustment when preparing the bank reconciliation.
Lexington Company engaged in the following transactions during 2015, its first year in
operation: (Assume all transactions are cash transactions)
1. Acquired $6,000 cash from issuing common stock.
2. Borrowed $4,400 from a bank.
3. Earned $6,200 of revenues.
4. Incurred $4,800 in expenses.
5. Paid dividends of $800.
Lexington Company engaged in the following transactions during 2016:
1. Acquired an additional $1,000 cash from the issue of common stock.
2. Repaid $2,600 of its debt to the bank.
3. Earned revenues, $9,000.
4. Incurred expenses of $5,500.
5. Paid dividends of $1,280.
The net cash flow from financing activities on Lexington’s 2016 statement of cash flows
was
A.$2,880 outflow
B.$2,880 inflow
C.$1,000 outflow
D.$1,000 inflow
Which of the following internal control procedures does not ordinarily apply to the
management of the petty cash fund?
A.Use of prenumbered documents.
B.Separation of duties.
C.Use of physical controls.
D.All of these answer choices apply to the management of a petty cash fund.
If a company’s total assets increased while liabilities and common stock were
unchanged, then
A.revenues were greater than expenses.
B.retained earnings were less than net income during the period.
C.no dividends were paid during the period.
D.the company must have purchased assets with cash.
The following are the income statements for Ace and Diamond Companies.
What are the net income percentages for the above companies?
A.6.09% 4.25%
B.1.83% 1.70%
C.16.4% 23.6%
D.30% 40%
On January 1, 2016, Milwaukee Company purchased Minneapolis Company, paying
$1,200,000 cash. The fair value of Minneapolis’s assets was $1,080,000, and it had
liabilities of $100,000. The book value of the company’s assets was $980,000.
Required: a) Prepare Milwaukee’s journal entry to record the acquisition of Minneapolis
Company.
b) At the end of 2018, Milwaukee concluded that the value of its goodwill (associated
with the acquisition of Minneapolis) had declined by $30,000. Prepare the journal entry
to record this decrease in value.
When is it acceptable to use the direct write-off method of accounting for uncollectible
accounts?
A.If the dollar amount of uncollectible accounts is not material.
B.If most uncollectible accounts do not occur in the period of sale.
C.If most sales are made to other businesses.
D.All of these answer choices are correct.
Bristol Corporation reported a $6,200 balance in accounts receivable on January 1,
2016. During the year $49,600 of sales on account were made. If the ending balance of
accounts receivable amounts to $25,000, what is the amount of cash received from
customers?
A.$24,600
B.$25,000
C.$30,800
D.$68,400
Indicate whether each of the following statements related to inventory is true or false.
_____ a) The higher a company’s inventory turnover ratio, the higher its cost of
financing inventory.
_____ b) The selling price a company charges for its goods probably will not be
affected by the inventory cost flow method it uses.
_____ c) Other things being equal, if prices are rising, a company that uses the LIFO
inventory method will have a higher amount of total assets than if it had used FIFO.
_____ d) A company that plans to offer a higher level of customer service than its
competitors probably will have a higher gross margin percentage than its competitors.
_____ e) The lower of cost or market rule may reduce a company’s net income, but it
will never increase net income.
A review of the bank statement and accounting records of the Blake Company revealed
the following items:
Which of the item(s) would be added to the unadjusted bank balance to determine the
true cash balance?
A.Item numbers 3 and 3.
B.Item number 2.
C.Item numbers 3, 4, and 6.
D.Item number 3.
During Year 1, Bradley Corporation borrowed $20,000 from Fidelity Bank by signing a
one-year, 6% discount note. On December 31, Year 2 Bradley failed to make the
adjusting entry to accrue the related interest. This error will cause:
A.Net income for Year 1 to be overstated and liabilities for Year 1 to be overstated.
B.Net income for Year 1 to be understated and net income for Year 2 to be overstated.
C.Net income for Year 1 to be understated and liabilities for Year 1 to be overstated.
D.Net income for Year 2 to be understated and liabilities for Year 1 to be understated.
When preparing a statement of cash flows, in which section is it permitted to use either
the direct method or the indirect method?
A.Operating activities
B.Investing activities
C.Financing activities
D.All of these answer choices are correct
An overstatement of ending inventory results in which of the following in the present
period?
A.Overstatement of cost of goods sold.
B.Overstatement of total assets.
C.Understatement of net income.
D.Understatement of retained earnings.
Which internal control procedure addresses the idea that the likelihood of employee
fraud or theft is reduced if collusion is required to accomplish it?
A.Separation of duties.
B.Physical controls.
C.Fidelity bonding.
D.Use of prenumbered documents.
Which of the following is not an element of the financial statements?
A.Net income
B.Revenue
C.Assets
D.Cash
Indicate whether each of the following statements about the closing process and the
accounting cycle is true or false.
_____ a) The closing process transfers certain account balances to retained earnings at
the end of the accounting cycle.
_____ b) Only accounts that appear on the income statement are closed at the end of
each accounting cycle.
_____ c) Another name for temporary accounts is “nominal accounts.”
_____ d) The permanent accounts contain information that is cumulative in nature.
_____ e) The retained earnings balance at the end of any given year is equal to that
year’s net income.
At the end of 2016, Valley Packaging Company’s adjusted trial balance showed a zero
balance in retained earnings. What is the most likely explanation for this?
A.Valley reported zero net income in 2016.
B.Valley’s trial balance will be out of balance until closing entries are made.
C.2016 was Valley’s first year in business.
D.An error must have been made in preparing Valley’s trial balance.
Accrual accounting requires the use of many estimates, including:
A.Uncollectible accounts expense.
B.Warranty costs.
C.Assets’ useful lives.
D.All of these answer choices are correct.
The primary reason for a business to allow customers to purchase goods or services on
account is to:
A.increase sales.
B.increase cash flow from financing.
C.decrease cost of goods sold.
D.decrease the marketability of the company’s inventory.
Hazeltine Company issued common stock for $200,000 cash. As a result of this event,
A.assets increased.
B.equity increased.
C.claims increased.
D.assets, claims, and equity all increased.
Which of the following is considered an accelerated depreciation method?
A.Double declining balance
B.Units of production
C.MACRS
D.Both double-declining-balance and MACRS
The following is a list of selected events for Outdoor World for 2016. Outdoor World
uses a perpetual inventory system and had a zero inventory balance prior to these
transactions.
1) Purchased merchandise on account for $170,000.
2) Sold inventory costing $124,000 for $208,000 on account.
3) Paid transportation-out cost of $7,000 on goods sold.
4) Paid operating expense of $55,200.
5) Sold land for $45,400 that had cost $50,000.
6) A count of the inventory revealed that there was $45,800 of inventory on hand at the
end of 2016.
Required: Answer the following questions based on the above information.
a) What was Outdoor World’s net income for 2016?
b) Compute gross margin and the gross margin percent for 2016.
c) What amount of inventory will appear on the balance sheet for December 31, 2016?
d) Based on the above information, prepare a multistep income statement for 2016.
Indicate whether each of the following items regarding petty cash is true or false.
_____ a) The establishment of a petty cash fund is an asset use transaction.
_____ b) The replenishment of a petty cash fund is an asset source transaction.
_____ c) At any time, the total of the petty cash vouchers plus the remaining coins and
currency should equal the balance of the Petty Cash ledger account.
_____ d) If a shortage occurs, a credit is entered to the Cash Short and Over account.
_____ e) There is no journal entry made in the accounting records at the time when
petty cash funds are disbursed.
The issuance of a stock dividend will
A.decrease total assets.
B.increase retained earnings.
C.decrease paid-in capital.
D.not affect total equity.
Indicate whether each of the following statements about retained earnings is true or
false.
_______ a) A dividend paid to stockholders decreases retained earnings.
_______ b) Issuing common stock for cash increases retained earnings.
_______ c) The amount of net income for a period must equal retained earnings.
_______ d) The purchase of a truck decreases retained earnings.
_______ e) The amount of net income for a period increases retained earnings.
The inventory records for Radford Co. reflected the following
Determine the amount of ending inventory assuming the FIFO cost flow method.
A.$480
B.$440
C.$400
D.$940
Which of the following accounts would not appear on a balance sheet?
A.Service Revenue.
B.Salaries Payable.
C.Unearned Revenue.
D.Neither Service Revenue nor Unearned Revenue would appear on a balance sheet.
On January 1, 2016, the Dartmouth Corporation paid $18,000 for major improvements
on a two-year-old manufacturing machine. Although the expenditure did not change the
expected useful life, it greatly increased the productivity of the machine. Prior to this
transaction, the machine account in the general ledger was listed at $84,000, and the
accumulated depreciation account was $20,000. Dartmouth uses the straight-line
depreciation method. The estimated useful life was six years, and the estimated salvage
value was $4,000.
Required: a) Prepare the entry in general journal form for the January 1, 2016
transaction.
b) Immediately after the January 1, 2016 transaction, what is the book value of the asset
on Dartmouth books?
c) Compute the depreciation for the machine for December 31, 2016.
What is meant by the term double-entry bookkeeping?
Why are cash discounts given, who benefits by these discounts, and what are the
benefits of those discounts?
What are the circumstances that might cause a company to need an estimate of the
amount of its inventory?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
At Landau Company, the petty cash custodian used petty cash to pay for postage
charges.
What is meant by a “basket purchase,” and what method is normally used to determine
the cost of individual assets?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
A transaction recorded as a debit to Cash and a credit to Common Stock.
Explain how the gain or loss is computed on the sale of a piece of equipment.
What is the purpose of establishing a petty cash fund?
The following information pertains to the bank reconciliation of January 31, 2016 for
the Greis Company:
In addition, the reconciliation revealed one error: Check #2146 for $152, written to pay
utilities expense, was incorrectly recorded in the books for $125.
Required: Using the above information, compute the unadjusted book balance for cash.
What items are included in the cost of a newly purchased building?
Name three examples of property, plant and equipment.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Walker Co. issued common stock for $150,000 cash.
List the specific steps used in computing the estimated inventory balance using the
gross margin method.
If the company purchased a $50,000 piece of equipment by paying $20,000 and having
the rest financed with a short-term note from the bank, then immediately after this
transaction what is the expected impact on the current ratio?
A. Current assets decrease therefore, the current ratio increases.
B. Current liabilities decrease therefore, the current ratio decreases.
C. Current assets and current liabilities decrease by the same amount therefore, the
current ratio increases.
D. Current assets decrease and current liabilities increase by the same amount therefore,
the current ratio decreases.
Merrifield Lawn Care’s bank statement at August 31, 2016 showed an ending balance of
$23,716.87. The unadjusted cash account balance for Merrifield is $20,237.98. The
following data were gathered by Merrifield’s accountant:
Check number 2143 was correctly written for $427. It was recorded in the company’s
books as $472 for utilities.
Outstanding checks as of August 31: $7,128.71
NSF check from customer: $71.82
Debit memo related to the returned deposit: $8.00
Credit memo related to interest earned: $10.00
Deposits in transit: $3,625.00
Required: 1) Prepare a bank reconciliation for Merrifield Lawn Care at August 31,
2016.
2) Prepare the required journal entries for Cash at August 31, 2016.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Amity Co. signed contracts for $25,000 of services to be performed in the future.