Posting is the process of determining the balance in an account by subtracting debits
and credits.
A benefit of corporations is that they are free from double taxation.
For many companies, cash flow from operating activities exceeds income from
operations, due to the effect of depreciation, which decreases income from operations
but does not decrease cash.
The Financial Accounting Standards Board is a privately funded organization with
authority for establishing accounting standards for businesses in the US.
The book value of a share of stock is equal to the market or selling price of the stock.
The collection of an account receivable is an asset source transaction.
Establishing a sole proprietorship generally requires the owner to get a charter from the
state government.
A payment to an employee in settlement of salaries payable decreases an asset and
decreases equity.
On January 1, 2016, Daniels Company issued bonds with a face value of $500,000,
receiving $496,000 cash. These bonds were issued at a discount.
Liabilities represent the future obligations of a business entity.
Joseph Company is preparing to repay a one-year note on May 1, 2016. The first step in
this process is to accrue eight months of interest expense.
The three main sections of the statement of cash flows are, in order, operating activities,
investing activities, and financing activities.
Middleton Corporation reported utilities expense of $18,200 on its income statement for
2016. For the year, the beginning balance in Utilities Payable was $2,500 and the
ending balance was $1,500. The amount of cash that Mayes paid for utilities in 2016
was $19,200.
A corporation might buy some of its own stock to help keep the market price from
falling.
In preparing the operating activities section of the statement of cash flows by the
indirect method, noncash revenues and gains are added to net income.
A line of credit is an agreement that allows a company to borrow a set amount of money
for a period of one year or more.
The drawback of studying absolute amounts reported in financial statements is the
problem of differing materiality levels.
Gains and losses are reported as non-operating items on the income statement.
Bonds sold as separate components of a single issue may have different maturity dates.
Generally accepted accounting principles restrict or limit a company’s freedom to
change accounting methods from one year to the next.
Serial bonds are issued based on the overall strength of the borrower’s credit.
A partner is responsible for his/her own actions, but not for actions taken by another
partner on behalf of the partnership.
All lawsuits in which a company has been named a defendant should be either disclosed
in the company’s notes to the financial statements, or recognized as a liability on its
balance sheet.
Weller Corporation issued 10,000 shares of no-par common stock for $25 per share. For
this transaction, Common Stock should be credited (increased) for $250,000.
Common size financial statements are prepared by converting dollar amounts to
percentages.
On October 1, 2015, Harrison Company borrowed money by issuing a $24,000 face
value discount note to its bank. The note had an 8% discount rate and had a term of 1
year. On December 31, 2015, Harrison should accrue interest expense in the amount of
$1,920.
On January 1, 2016, Daniels Company issued bonds with a face value of $500,000,
receiving $496,000 cash. When the bonds mature, Daniels will have to pay the face
value of the bonds to the bondholders.
A corporation must record a liability for cash dividends on the date of record.
Gains and losses are recorded for increases and decreases in the market value of assets
such as land.
The general journal is a list of a business’s accounts and their account numbers.
An appropriation of retained earnings places a limit on the amount of dividends a
corporation can declare.
The beginning Merchandise Inventory plus Cost of Goods Sold equals the Cost of
Goods Available for Sale during the period.
Land differs from other property because it is not subject to depreciation.
Which of the following represents the correct journal entry to record a taxable cash sale
of $400 if the sales tax rate is 5%?
A.A debit to cash for $420, a debit to sales tax expense for $20, and a credit to sales
revenue for $400.
B.A debit to cash for $400, a credit to sales tax payable for $20, and a credit to sales
revenue for $380.
C.A debit to cash for $420, a credit to sales tax payable for $20, and a credit to sales
revenue for $400.
D.None of these answer choices are correct.
On June 1, Delaware Co. had one unit in beginning inventory that cost $10.00. During
June, Delaware paid cash to purchase two additional inventory items. Delaware
purchased the first item for cash at a cost of $10.00, and the second at a cost of $12.00.
Delaware Co. sold two inventory items for $24.00 each, receiving cash. Based on this
information alone, indicate whether each of the following items is true or false.
_____ a) The amount of ending inventory will be $10 assuming the LIFO cost flow was
used.
_____ b) Cost of goods sold would be $24 assuming the weighted average cost flow
was used.
_____ c) Cash flow from operating activities in June would be $28 assuming a FIFO
cost flow was used.
_____ d) Cash flow from operating activities in June would be $26 independent of what
cost flow assumption was used.
_____ e) The amount of gross margin would be $26 assuming the FIFO cost flow was
used.
The following information is available for O”Hara Company for 2016. O”Hara uses the
direct method to prepare its statement of cash flows.
a) What amount of cash was paid for the purchase of merchandise?
b) How will the amount computed in a) be shown on the Statement of Cash Flows?
On January 1, 2016, the Accounts Receivable balance was $37,000 and the balance in
the Allowance for Doubtful Accounts was $2,800. On January 15, 2016 an $800
uncollectible account was written-off. The net realizable value of accounts receivable
immediately after the write-off is:
A.$36,200.
B.$33,400.
C.$35,000.
D.$34,200.
The year-end financial statements of Calloway Company contained the following
elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock
= $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings =
$3,500; Ending Retained Earnings = $7,500.
Based on this information, the amount of expenses on Calloway’s income statement was
A.$18,500.
B.$13,000.
C.$16,500.
D.$10,000.
Wichita, Inc. had the following amounts on its 12/31/16 financial statements.
The debt-to-assets ratio for Wichita is:
A.5%.
B.10%.
C.45%.
D.50%.
Which of the following statement is correct regarding the quick ratio?
A. The numerator for the quick ratio is current assets.
B. The quick ratio is a less conservative variation of the current ratio.
C. The quick ratio is also called the working capital ratio.
D. The numerator for the quick ratio is current assets minus inventory minus prepaid
expenses.
The Pittsburgh Company paid total cash dividends of $100,000 on 25,000 outstanding
common shares. On the most recent trading day, the common shares sold at $80. What
is this company’s dividend yield?
A.25%
B.3.2%
C.5%
D.16.9%
On January 1, 2016 Grande Company had a $16,000 balance in the Accounts
Receivable account and a zero balance in the Allowance for Doubtful Accounts
account. During 2016, Grande provided $104,000 of service on account. The company
collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated
to be 2% of sales on account.
The amount of uncollectible accounts expense recognized on the 2016 income
statement is:
A.$320.
B.$1,000.
C.$2,080.
D.$1,940.
Bruce Company experienced an accounting event that was recorded in the company’s
general journal as indicated below:
Which of the following choices accurately reflects how this event would affect Bruce’s
financial statements?
A.
B.
C.
D.
The following information is available from Avalon, Inc. for the year 2016.
Required: Calculate the following, rounding your answers to one decimal place:
a) Avalon’s inventory turnover for 2016.
b) The average number of days to sell inventory for the year.
c) The accounts receivable turnover.
d) The average number of days to collect accounts receivable.
e) Avalon’s operating cycle.
f) Avalon’s cash flow from sales.
In establishing a strong internal control system at Banks Company, management is
concerned with administrative controls. Administrative controls include:
A.performance evaluation
B.accuracy of the recording procedures.
C.keeping cash in a safe.
D.maintenance of accurate inventory records.
A business firm that primarily sells merchandise to other businesses is known as a:
A.Wholesale firm
B.Service firm
C.Retail firm
D.Consulting firm
Horizontal analysis is also known as:
A. Liquidity analysis.
B.Absolute analysis.
C.Trend analysis.
D. Revenue analysis.
What effect will the following entry have on Retained Earnings?
A.Retained Earnings will remain unchanged.
B.Retained Earnings will decrease by $2,550.
C.Retained Earnings will increase by $2,550.
D.Retained Earnings will be transferred to the income statement.
Indicate whether each of the following statements about financial statement analysis is
true or false.
_____ a) The asset turnover ratio is calculated by dividing net income by average total
assets.
_____ b) The asset turnover ratio is likely to be high in an industry in which operations
require only a minimal investment in assets.
_____ c) Return on equity measures the wealth generated by the amount of assets
invested in a business.
_____ d) A higher value for the return on investment ratio would generally indicate
more effective company management.
_____ e) The use of financial leverage often causes a business’s return on equity to be
higher than its return on investment.
Rosemont Company began operations on January 1, 2015, and on that date issued stock
for $60,000 cash. In addition, Rosemont borrowed $50,000 cash from the local bank.
The company provided services to its customers during 2013 and received $35,000. It
purchased land for $70,000. During the year, it paid $10,000 cash for salaries and
$9,000 cash for supplies that were used up in its operations. Stockholders were paid
cash dividends of $8,000 during the year.
Required:
a) List the transactions from the information above (for example, issued common stock
for $60,000) and indicate in which section of the statement of cash flows each
transaction would be reported.
b) What would the amount be for net cash flows from operating activities?
c) What would be the end-of-year balance for the cash account?
d) What would be the amount of the total assets for the Rosemont Company at the end
of 2015?
e) What would be the end-of-year balance for the retained earnings account?
Jones Company sells exercise bikes. Its beginning inventory was 100 units at $200 per
unit. During the year, Jones made two purchases of the bikes: first, a 300-unit purchase
at $220 per unit, and then 200 units at $250 per unit. The ending inventory for the year
was 250 units.
Required: Determine the amount of product costs that would be allocated to cost of
goods sold and ending inventory, assuming that Jones uses
a) FIFO
b) LIFO
c) Weighted average
Round intermediate calculations to 2 decimal places. Round final answers to whole
dollars.
Ballard Company uses the perpetual inventory system. The company purchased
$16,000 of merchandise from Andes Company under the terms 2/10, net/30. Ballard
paid for the merchandise within 10 days and also paid $500 freight to obtain the goods
under terms FOB shipping point. All of the merchandise purchased was sold for
$30,000 cash. The amount of gross margin for this merchandise is:
A.$14,000
B.$13,820
C.$16,000
D.$13,500
Indicate whether each of the following statements is true or false.
_____ a) Operating cycles for most businesses are less than one year.
_____ b) If a business does not plan to use any of its current assets to repay a debt, then
that debt is listed as long term even if it is due within a year.
_____ c) The current ratio is computed by dividing current assets by net income.
_____ d) The current ratio is a useful measure of a company’s liquidity.
_____ e) Liquidity is the ability of a business to repay liabilities in the long run.
What is the name used for the type of secured bond that requires a pledge of a
designated piece of property in case of default?
A.Debenture Bond.
B.Indenture Bond.
C.Mortgage Bond.
D.Registered Bond.
Jenna Fisk started her business by issuing $8,000 of common stock on January 1, 2016.
Jenna performed $18,500 of service on account in 2016, and she collected $16,200 of
this amount by year end. She paid operating expenses of $14,900 and paid a $600
dividend to the stockholders.
Required:
a) What is the amount of total assets at the end of 2016?
b) What is the amount of cash on hand at the end of 2016?
c) What is net income for 2016?
d) Prepare a balance sheet for December 31, 2016.
Hough Company recorded a business event in these T-accounts:
Which of the following choices accurately reflects how this event would affect the
company’s financial statements?
A.
B.
C.
D.
Which of the following statements about financial statement analysis is incorrect?
A. In horizontal percentage analysis, an item from the financial statements is expressed
as a percentage of the same item from a previous year’s financial statements.
B. Vertical analysis compares two or more financial statement items within the same
time period.
C. Horizontal analysis for several years can be done by choosing one year as a base
year and calculating increases or decreases in relation to that year.
D. The reason behind a financial statement ratio or percentage analysis result is usually
self-evident and does not require further study or analysis.
On January 1, 2016 the Mahoney Company borrowed $324,000 cash from Sun Bank by
issuing a five-year 8% term note. The principal and interest are repaid by making
annual payments beginning on December 31, 2016. The annual payment on the loan
based on the present value of annuity factor would be $81,150.
Which choice reflects the financial statement effects of the cash payment on December
31, 2016?
A.
B.
C.
D.
On January 1, 2016, Grimes Corporation issued $400,000 in 6%, 10-year bonds payable
at 104. Interest payments are due each year on December 31. Grimes uses the
straight-line method of amortization on bond premium.
Required:
a) Prepare the journal entry to record issuing the bonds at a premium and the journal
entry to record the first interest payment and amortization of the bond premium.
b) Assuming Grimes Corporation called the bonds at a price of $411,000 on January 1,
2020, prepare the journal entry to record this transaction.
At the end of 2016, retained earnings for the Baker Company was $3,500. Revenue
earned by the company in 2016 was $1,500, expenses paid during the period were $800,
and dividends paid during the period were $500. Based on this information alone,
retained earnings at the beginning of 2016 was
A.$3,300.
B.$3,700.
C.$2,800.
D.$3,800.
Indicate whether each of the following statements about treasury stock is true or false.
_____ a) One reason for a corporation to buy its own stock is to boost its net income
when treasury stock is reissued for a higher price.
_____ b) Corporations may buy back their own stock (treasury stock) to avoid hostile
takeovers.
_____ c) Purchasing treasury stock reduces the number of issued shares.
_____ d) The treasury stock account is classified as a negative equity account.
_____ e) If treasury stock is reissued for an amount lower than its purchase price,
retained earnings is increased.
Aaron Company uses the periodic inventory cost flow method. If Aaron’s ending
inventory is understated due to an accounting error, what is the effect on net income and
the ending balance of retained earnings?
A.
B.
C.
D.
When the cost of purchasing inventory is declining, which inventory cost flow method
will produce the highest amount of cost of goods sold?
A.Weighted average
B. LIFO
C. FIFO
D.LIFO, FIFO, and weighted average will all produce the same amount of cost of goods
sold.
Anton Co. uses the perpetual inventory method. Anton purchased 400 units of inventory
that cost $12.00 each. At a later date the company purchased an additional 600 units of
inventory that cost $16.00 each. If Anton uses the FIFO cost flow method and sells 700
units of inventory, the amount of cost of goods sold will be:
A.$11,200.
B.$10,400.
C.$8,400.
D.$9,600.
Yowell Company began operations on January 1, 2016. During 2016, the company
engaged in the following cash transactions:
1) issued stock for $40,000
2) borrowed $25,000 from its bank
3) provided consulting services for $39,000
4) paid back $15,000 of the bank loan
5) paid rent expense for $9,000
6) purchased equipment costing $12,000
7) paid $3,000 dividends to stockholders
8) paid employees’ salaries, $21,000
What is Yowell’s net cash flow from operating activities?
A.Inflow of $6,000
B.Inflow of $9,000
C.Inflow of $18,000
D.Inflow of $30,000
On January 1, 2016, Sheffield Co. issued bonds with a face value of $200,000, a term of
ten years, and a stated interest rate of 6%. The bonds were issued at 105, and interest is
payable each December 31. Sheffield uses the straight-line method to amortize the bond
discount. The carrying value of the bonds that would be reported on the December 31,
2019 balance sheet is:
A.$204,000.
B.$200,000.
C.$205,000.
D.$206,000.
On January 1, 2016, Whitecastle Company established a petty cash fund for $250. On
January 31, 2016, when the petty cash fund was replenished, it contained $70.40 in cash
and petty cash receipts for: postage expense, $49.60; office supplies, $62; entertainment
expense, $64.21
Required: a) Prepare the journal entry to establish the petty cash fund.
b) Assuming that Warren treats all disbursements from petty cash as miscellaneous
expenses, prepare the journal entry to replenish the fund on January 31.
When is uncollectible accounts expense recognized if the direct write-off method is
used?
For each of the following transactions, indicate the type by entering “AS” for asset
source transaction, “AU” for asset use transaction, “AE” for asset exchange transaction,
and “CE” for claims exchange transaction.
1) ____Paid $10,000 for a plot of land.
2) ____Recorded the accrual of $1,000 in salaries to be paid the following week.
3) ____Issued common stock for $20,000 in cash.
4) ____Incurred operating expense on account.
5) ____Paid off its accounts payable.
6) ____Earned revenue to be collected at a future date.
7) ____Paid $2,000 in dividends to its stockholders.
8) ____Received cash from customers in #6 above.
9) ____Paid the salaries accrued in #2 above.
10) ___Borrowed money from a local bank.
How do gains and losses differ from revenues and expenses? How are they similar?
Which method do most companies use in preparing the operating activities section of
the cash flow statement?
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 January 1, 2016, Kirkland Co. issued $200,000 of bonds payable at 101 . Indicate
the effects of issuing these bonds.
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. Enter only one
letter for each element. You do not need to enter amounts.
Powell Co. uses the allowance method to account for uncollectible accounts expense.
On June 20, 2016, Powell wrote-off an uncollectible account in the amount of $5,000.
Show the effect of this entry.
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.
Gilliam Co. repaid a note payable on September 30, 2016. The 8-month note had been
issued on February 1, 2016. The $20,800 cash payment included a $20,000 repayment
of principal and an $800 payment for interest.
What is meant by the term “materiality?”
What type of financial statement matches sales revenue items with related expense
items and distinguishes between recurring operating activities and nonoperating items
such as gains and losses?
What type of account is Allowance for Doubtful Accounts, and what is its normal
balance?
If $200,000 of 12% bonds are issued at 101 , what amount of cash will be received by
the corporation?
Whetzel Co. paid $100 cash to a freight company for delivering inventory that Whetzel
had purchased from Jacobs Company with freight terms FOB shipping point.
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.
On December 31, 2016, Warren Co. accrued $625 of interest on a $25,000 note it had
issued from the National Bank on July 1, 2016. The principal and interest on the note
are to be repaid on June 30, 2017. How would Warrens’s year-end adjustment to accrue
the interest on the loan affect its financial statements for 2016?
What term is used for a customer’s check that is returned by the bank on which it was
drawn because the customer did not have enough funds to pay the check?
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.
Joseph Company issued a one-year, 6% note to Community Bank.
What is a common reason for a corporation to “split” its stock?
Give an example of a noncash financing and investing activity.
What is the effect of the recognition of warranty expense on the statement of cash
flows?