Assume the perpetual inventory method is used.
1) Green Company purchased merchandise inventory that cost $64,000 under terms of
2/10, n/30 and FOB shipping point.
2) The company paid freight cost of $2,400 to have the merchandise delivered.
3) Payment was made to the supplier within 10 days.
4) All of the merchandise was sold to customers for $94,000 cash and delivered under
terms FOB shipping point with freight cost amounting to $1,600.
The gross margin from these transactions of Green Company is
A.$31,280
B.$27,280
C.$28,880
D.$29,680
Which of the following reflects the financial statement effects on the May 1, 2016 date
of payment?
A.
B.
C.
D.
Which of the following statements concerning internal controls is true?
A.Internal administrative controls are designed to limit the amount of funds spent on
investments.
B.Strong internal controls provide reasonable assurance that the objectives of a
company will be accomplished.
C.Internal accounting controls are limited to the policies and procedures used to protect
the company from embezzlement.
D.The control procedure, separation of duties, prohibits the employment of a husband
and wife or other closely related parties within the same company.
Indicate whether each of the following statements about the types of transactions is true
or false.
_______ a) An asset source transaction increases total assets and increases claims to
assets.
_______ b) The issuance of stock to owners for cash would be an example of an asset
exchange transaction.
_______ c) Purchasing equipment for cash is an example of an asset use transaction.
_______ d) Paying a dividend to stockholders is an example of an asset use transaction.
_______ e) Making a payment on a bank loan is an example of an asset exchange
transaction.
Which of the following correctly states the proper order of the accounting cycle?
A.Record transactions, adjust accounts, close temporary accounts, prepare statements.
B.Adjust accounts, record transactions, close temporary accounts, prepare statements.
C.Record transactions, adjust accounts, prepare statements, close temporary accounts.
D.Adjust accounts, prepare statements, record transactions, close temporary accounts.
Stubbs Company uses the perpetual inventory method. On January 1, 2016, Stubbs
purchased 400 units of inventory that cost $8.00 each. On January 10, 2016, the
company purchased an additional 600 units of inventory that cost $9.00 each. If Stubbs
uses a weighted average cost flow method and sells 700 units of inventory for $16.00
each, the amount of gross margin reported on the income statement will be:
A.$5,180.
B.$5,250.
C.$5,000.
D.$6,020.
The following data is from the income statement of Ralston Company:
The company’s gross margin percentage is:
A.66.67%.
B.25.93%.
C.60.00%.
D.15.60%.
Indicate whether each of the following statements is true or false. (Assume a perpetual
inventory system.)
_____ a) Transportation-out cost is a part of selling and administrative costs.
_____ b) When transportation-out cost is incurred, the balance in the inventory account
increases.
_____ c) When transportation-in cost is incurred, the balance in the inventory account
increases.
_____ d) When the transportation-out cost is incurred, the balance in the cost of goods
sold account increases.
_____ e. Transportation-in cost is a part of selling and administrative costs.
On June 14, 2016, Sure-Fit Shoe Store sold $12,000 of merchandise that cost $8,000
and accepted credit cards as payment. Sure-Fit electronically transmitted the credit card
forms to the credit card company which charges a 3% fee to handle such transactions.
On June 18, 2016, Sure-Fit received the proceeds from the credit card company.
a) Prepare the journal entry to record the sale of the merchandise on 6/14/16.
b) Prepare the journal entry to record the credit card proceeds on 6/18/16.
Which of the following choices accurately reflects how the recording of accrued salary
expense affects the financial statements of a business?
A.
B.
C.
D.
Steger Corporation has current assets of $450,000, total current liabilities of $350,000,
net credit sales of $1,350,000, beginning accounts receivable of $165,000 and ending
accounts receivable of $135,000. What is Steger’s accounts receivable turnover?
A. 8.2
B. 10.0
C. 9.0
D. 2.7
Old Dominion Antiques Shop reported the following income statement and balance
sheet for 2016:
a) Determine the inventory turnover and the average number of days to sell its
inventory.
b) Determine the accounts receivable turnover and the average number of days it takes
to collect accounts receivable.
c) Determine the estimated number of days in the operating cycle.Round the number of
days answers to one decimal place.
The Jackson Company issued a one-year $80,000 face value interest-bearing note with
a stated interest rate of 9%. The note was issued to the Galaxy Bank on August 1, 2016.
The amount of interest expense and cash outflow shown on the December 31, 2016
financial statements would be:
A.
B.
C.
D.
On the statement of cash flows, the sum of the three major components (operating
activities, investing activities, financing activities) adds up to
A.net income for the period.
B.the change in the cash account balance between the beginning and ending of the
period.
C.the ending cash balance.
D.the amount of cash inflow for the period.
In which section of a statement of cash flows would the payment of cash dividends be
reported?
A.Investing activities.
B.Operating activities.
C.Financing activities.
D.Dividends are not reported on the statement of cash flows.
On January 1, 2016, Kincaid Company’s Accounts Receivable and the Allowance for
Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year
Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as
uncollectible in 2016. Cash collections of receivables amounted to $74,550. Kincaid
estimates that it will be unable to collect one percent (1%) of credit sales.
The net realizable value of receivables appearing on Kincaid’s 2016 balance sheet will
amount to:
A.$29,075.
B.$27,725.
C.$28,950.
D.$28,400.
When prices are rising, which method of inventory, if any, will result in the lowest
relative net cash outflow (including the effects of taxes, if any)?
A.LIFO.
B.FIFO.
C.Weighted average
D.None of these; inventory methods cannot affect cash flows.
Pierce Company was founded in 2016 and engaged in the following transactions:
1) Issued common stock for cash
2) Paid rent in advance for 3 months at a time
3) Purchased supplies on account
4) Collected cash from a customer for services to be provided over a period of 1 year
5) Paid a cash dividend to stockholders
6) Purchased a 2-year fire insurance policy
7) Provided services to customers on account
8) Collected cash from accounts receivable
9) Paid cash for various operating expenses
Required:
a) Which of the above transactions would require adjusting entries at year end?
b) Why are adjusting entries required before financial statements can be prepared?
Which of the following measurements would not be affected by the choice of
depreciation methods?
A.Debt to assets ratio
B.Total assets
C.Total cash flow from investing activities
D.Return on equity ratio
Which of the following describes the characteristics of a convertible bond?
A.Bonds mature at specified intervals throughout the life of the total issuance.
B.Bonds may be exchanged for stock at the discretion of the bondholder.
C.Bonds mature on a specified date in the future.
D.Bonds may be exchanged for stock at the discretion of the issuer.
Inventory turnover is calculated by dividing:
A.cost of goods sold by inventory.
B.sales by inventory.
C.beginning inventory by the ending inventory.
D.inventory by cost of goods sold.
Which of the following statements is true concerning the modified accelerated cost
recovery system (MACRS) for the recognition of depreciation expense, for tax
purposes?
A.7-year property will be depreciated more rapidly than 10-year property under the
MACRS depreciation method.
B.Under MACRS more depreciation will be recorded in the second accounting period
than in the first accounting period because of the half-year convention.
C.MACRS is used for the determination of depreciation expense that is reported on an
income tax return.
D.All of these answer choices are true.
Which of the following is increased with a credit?
A.Salaries payable
B.Prepaid rent
C.Common stock
D.Both salaries payable and common stock
Jackson Company paid $500 cash for salary expenses. Which of the following choices
accurately reflects how this event affects the company’s financial statements?
A.
B.
C.
D.
The Rowe Company has six different categories of inventory. Quantity, cost, market
value for each inventory category is shown below
Required:
a) Determine the value of ending inventory after applying the lower-of-cost-or-market
rule to each individual category of inventory.
b) Determine the value of ending inventory after applying the lower-of-cost-or-market
rule to inventory in aggregate.
c) Prepare the journal entry, if required, to adjust inventory for part a above.
d) Prepare the journal entry, if required, to adjust inventory for part b above.
Vargas Company uses the perpetual inventory method. Vargas purchased 400 units of
inventory that cost $15.00 each. At a later date the company purchased an additional
800 units of inventory that cost $18.00 each. Vargas sold 500 units of inventory for
$27.00. If Vargas uses a FIFO cost flow method, the amount of cost of goods sold
appearing on the income statement will be:
A.$7,800.
B.$6,000.
C.$4,500.
D.$5,700.
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 amount of total assets on Lexington’s 2015 balance sheet was
A.$11,000.
B.$12,000.
C.$1,600.
D.$7,600.
Indicate whether each of the following statements is true or false.
_____ a) The perpetual inventory method recognizes inventory transactions as they
occur.
_____ b) The periodic inventory method recognizes sales revenue at the end of the
accounting period.
_____ c) A physical count of inventory at the end of each accounting period is
necessary for the periodic inventory system, as well as for the perpetual inventory
system.
_____ d) A periodic inventory system requires more detailed record keeping than a
perpetual inventory system.
_____ e) With a periodic inventory system, cost of goods sold is not determined until
the end of the accounting period.
Indicate whether each of the following statements regarding internal controls is true or
false.
_____ a) Cash receipts should be deposited in a bank when they reach a predetermined
level of materiality.
_____ b) To improve operating efficiency, a company should make most of its
disbursements in currency instead of checks.
_____ c) Supporting documents are required when checks are presented to the check
signer.
_____ d) Supporting documents should not be marked “paid” until the check clears the
bank.
_____ e) All spoiled and voided checks should be shredded.
What is the purpose of the Federal W-4 form?
A.To notify the federal government when a new employee is hired.
B.To allow an employee to choose the number of withholding allowances for
calculating federal withholding tax.
C.To remit monthly payments for FICA to the federal government.
D.To notify the employee at year-end of the amount of federal tax withheld.
Gallahan Corporation recorded an adjusting entry using T-accounts as follows:
Which of the following reflects how this adjustment affects the company’s financial
statements?
A.
B.
C.
D.
The Bradford Company was recently required to record an inventory write-down of
$5,200 because the market value of its inventory was less than cost. Assuming the
amount of the write-down is not material (the total inventory was over $9,750,000),
which of the following is the appropriate journal entry?
A.
B.
C.
D.
Addison Company experienced an accounting event that affected its financial
statements as indicated below:
Which of the following accounting events could have caused these effects on Addison’s
statements?
A.Issued common stock.
B.Earned revenue on account.
C.Earned cash revenue.
D.Collected cash from accounts receivable.
In uncertain circumstances, the conservatism principle guides accountants to
A.accelerate revenue recognition and delay expense recognition.
B.accelerate expense recognition and delay revenue recognition.
C.recognize expense of prepaid items when payment is made.
D.delay both expense recognition and revenue recognition.
Kona Espresso Machine Company makes many of its sales on account. For 2016, its
beginning balance in Accounts Receivable was $190,000. Sales on account for the year
were $904,000, and the amount of cash collected from its accounts receivable was
$829,900. During the year, uncollectible accounts of $10,100 were written off. What
was the ending balance in Accounts Receivable?
Vailes Services Company loaned $6,000 on August 1, 2016 to an individual who issued
Vailes a promissory note with 6% interest. The issuer of the note repaid the principal
and interest on July 30, 2017. How did the August 2016 event affect Vailes’s statement
of cash flows? How did the July 2017 event affect it?
What type of transaction is the write-off of an uncollectible account using the allowance
method? (asset source, asset use, asset exchange, or claims exchange)
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.
Charles Company recognized payroll tax expense for employer portion of FICA tax and
federal and state unemployment taxes.
Discuss the major differences between a perpetual inventory system and a periodic
inventory system.
Discuss the importance of ethics in the accounting profession.
What does the debt to assets ratio indicate with regard to the degree of a company’s debt
risk? Who would normally be most interested in this ratio?
What accounting concept requires a company to accrue interest expense on a note
payable?
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.
Stan’s Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more
surfboards for $250 each. Stan’s uses the perpetual inventory system. Assume that 6
surfboards were sold during the period for $350 cash each.
Stan’s Surf Shack uses the FIFO inventory cost flow method. When its income tax is
paid, what is the effect of the entry on the financial statements? Note that no tax
liability had been accrued.
Discuss some of the information items normally included in a corporation’s articles of
incorporation.
If Kettler Company loans $24,000 to Beam Company on March 1, 2016, and the
one-year note carries an interest rate of 7%, how much interest revenue will Kettler
recognize in 2016? How much in 2017?
Below are the income statements of two competitive companies, Green Company and
Black Company, for 2016.
Required: Based on the above statements, determine:
1) The gross margin percentage for each company
2) The net income percentage for each company
3) Which company is selling their products for lower prices (at a lower markup)?
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.
On January 1, 2016, the Hawks Company borrowed $100,000 from the Community
Bank, issuing a three-year, 8% note payable. Payments of $38,803.35 are to be made
each year on December 31. The payment will include both the interest and a portion of
the principal. Using the table below, prepare an amortization schedule for the note.
Explain how a business using the straight-line method would re-compute depreciation
after revising the useful life estimate.
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. Use only one letter
for each element. You do not need to enter amounts.
On December 31, 2016, Briand Co. paid cash for interest on bonds it had issued on
January 1, 2016 at 98, and amortized part of the discount on bonds. Indicate the effects
of the payment of interest and amortization of the discount.
What are the two methods used to prepare the operating activities section of the
statement of cash flows?
After the accounts are adjusted at the end of the year, Accounts Receivable has a
balance of $225,000, Uncollectible Accounts Expense for the year was $17,500, and
Allowance for Doubtful Accounts has a balance of $12,500. What is the net realizable
value of the accounts receivable?
Explain the major difference between a merchandising business and a service business.
If the total equity claimed by owners of Vargas Construction is $150,000 and liabilities
are $75,000, what are total assets?