Use this information to answer the following question. These facts concern the
long-term stock investments of DeBord Corporation:
The entry to record the sale of 1,000 shares of Vanhook Corporation common stock is:
A. Long-Term Investments 38,000
Cash 38,000
B. Long-Term Investments 38,000
Allowance to Adjust Long- Term Investments to Market 38,000
C. Allowance to Adjust Long -Term Investments to Market 38,000
Cash 38,000
D. Cash 38,000
Loss on Sale of Investments 2,000
Long-Term Investments 40,000
A company purchases for $48,000 an asset that has a useful life of six years and no
salvage value. After two years, the company spends $8,000 for a major overhaul that
will extend the machine’s useful life four years beyond the original six. Assuming
straight-line depreciation, how much depreciation should be taken in year 3?
A. $4,000
B. $5,000
C. $5,600
D. $8,000
A common measure of profitability is the
A. asset turnover.
B. debt to equity ratio.
C. current ratio.
D. receivable turnover.
Which of the following is not subject to depletion?
A. Timber tract
B. Noncompete covenant
C. Mine
D. Oil field
Which of the following items is not used in preparing the statement of owner’s equity?
A. Withdrawals.
B. Net income.
C. Additional investments.
D. Adjusting entries.
A company with income before income taxes of $194,000, and $20,000 in interest
expense, has an interest coverage ratio of
A. 10.7 times.
B. 8.7 times.
C. 9.7 times.
D. 1.1 times.
Which of the following accounts would likely not need to be adjusted at year end?
A. Equipment
B. Prepaid Insurance
C. Supplies
D. Owner’s Withdrawals
Which of the following business events is not a transaction
A. Signing a contract.
B. Paying wages.
C. Receiving goods.
D. Purchasing a service.
A disadvantage of the corporate form of business is
A. centralized authority and responsibility.
B. its status as a separate legal entity.
C. government regulation.
D. continuous existence.
Which of the following is one of the conditions for recognition of an expense?
A. There is a reasonable expectation that cash will be received.
B. The expense can be recognized only when cash is paid.
C. The goods will be delivered or the services will be provided within the accounting
cycle.
D. The goods or services are used to produce revenue.
Under the direct charge-off method of dealing with uncollectible accounts,
A. revenues and expenses are properly matched.
B. Accounts Receivable is shown on the balance sheet at net realizable value.
C. Uncollectible Accounts Expense is recorded in the period of the sale.
D. no Allowance for Uncollectible Accounts exists.
Which account that does not appear on the balance sheet has an amount in the Balance
Sheet columns of a work sheet?
A. Depreciation Expense–Trucks
B. Withdrawals
C. Accumulated Depreciation–Trucks
D. Owner’s Capital
A check for $236 is incorrectly recorded by the company as $263. On the bank
reconciliation, the error would
A. appear as a deduction of $27 from the balance per books.
B. appear as an addition of $27 to the balance per bank.
C. appear as a deduction of $263 from the balance per books and an addition of $236 to
the balance per bank.
D. appear as an addition of $27 to the balance per books.
Special-purpose journals
A. can be an important part of establishing good internal control.
B. require posting each debit and each credit for each transaction.
C. can be used to record over 99% of most business transactions.
D. include the sales journal and the adjusting entries journal.
Which of the following accounts is not found in closing entries?
A. Accumulated Depreciation–Equipment
B. Owner’s Capital
C. Income Summary
D. Withdrawals
Assume the direct method is used to compute net cash flows from operating activities.
For this item extracted from the financial statements—Increase in Prepaid Expenses—
indicate the effect on cash payments for operating expenses by choosing one of the
following:
A. Add to operating expenses to arrive at cash payments for operating expenses.
B. Subtract from operating expenses to arrive at cash payments for operating expenses.
C. Not used to adjust operating expenses to arrive ay cash payments for operating
expenses.
The matching rule
A. results in the recording of a known amount for bad-debt losses.
B. necessitates the recording of an estimated amount for bad debts.
C. requires that all bad-debt losses be recorded when an individual customer defaults.
D. is violated when the allowance method is employed.
On March 1, 20×5, Sherwin, Inc. issued bonds with a face value of $800,000. The
bonds carry a face interest rate of 12 percent that is payable each June 30 and December
31. The bonds were sold at 100. Sherwin’s accounting year ends on December 31.
a. Prepare an entry in journal form without explanation to record the issuance of the
bonds on March 1, 20×5.
b. Prepare an entry in journal form without explanation to record the interest payment
on June 30, 20×5.
c. Prepare an entry in journal form without explanation to record the interest payment
on December 31, 20×5.
d. Calculate the amount that should appear for Bond Interest Expense on Sherwin’s income
statement for the year ended December 31, 20×5. Show your calculations.
e. Calculate the amount that should appear for Bond Interest Expense on Sherwin’s income
statement for the year ended December 31, 20×6 . Show your calculations.
The bonding of employees is an example of which feature of a good system of internal
control?
A. Authorization of transactions
B. Sound personnel policies
C. Separation of duties
D. Limited access to assets
Use this information to answer the following question.
Here is the balance sheet for Costello Container Company:
If the balance in the Cash account were used to buy more equipment, then the total assets
would
A. remain unchanged.
B. increase by $8,000.
C. decrease by $8,000.
D. increase by $21,000.
The balance of Accounts Receivable, net of the allowance account, is $25,000 before
the write-off of a $2,000 account. What is the Accounts Receivable balance, net of the
allowance account, after the write-off?
A. $2,000
B. $23,000
C. $25,000
D. $27,000
Use this inventory information for the month of March to answer the following
question.
Assuming that a periodic inventory system is used, what is cost of goods sold on a FIFO
basis?
A. $2,160
B. $3,780
C. $3,861
D. $5,940
During May, Phone Mart sold 150 iphones for $200 each. Each camera had cost Phone
Mart $108 to purchase and carried a one-year warranty. If 4 percent typically need to be
replaced over the warranty period and two actually are replaced during May, the entry
to record the Product Warranty Expense is
A. Product Warranty Expense 216
Estimated Product Warranty Liability 216
B. Product Warranty Expense 3,000
Cash 3,000
C. Product Warranty Expense 648
Cash 648
D. Product Warranty Expense 648
Usually, failure to record a liability means failure to record a(n)
A. revenue.
B. note.
C. expense.
D. asset.
The adjustment for estimated property taxes would include a
A. credit to Property Taxes Payable.
B. debit to Unearned Property Taxes.
C. credit to Property Taxes Expense.
D. credit to Cash.
Which of the following is a characteristic of partnerships?
A. Unlimited life
B. Limited liability
C. Involuntary association
D. Mutual agency
The owner’s Capital, Withdrawals, and Income Summary accounts for Rick’s Repair
Shop for the accounting period are presented below in T account form after the
recording and posting of closing entries.
From the T accounts, determine the following:
a. Total revenue for the period
b. Net income (or net loss)
c. Total withdrawals for the period
d. Ending balance of Rick Barton, Capital
A $300,000 bond issue with a carrying value of $311,000 is called at 103 and retired.
The entry to record the retirement of bonds is:
A. Bonds Payable 309,000
Cash 309,000
B. Bonds Payable 311,000
Cash 311,000
C. Cash 300,000
Bonds Payable 300,000
D. Bonds Payable 300,000
Which of the following would not be debited to the Machinery account?
A. Installation costs
B. Electricity used by the machine
C. Freight charges
D. Cost of trial runs
Singletary Corporation owns a 40 percent interest in the stock of Fleming Corporation.
During 2014, Fleming pays $50,000 in dividends to Singletary and reports $214,000 in
net income. Singletary Corporation’s investment in Fleming will increase Singletary’s
income before income taxes by
A. $35,600.
B. $65,600.
C. $85,600.
D. $105,600.