When using the effective-interest amortization method, the discount amortization is the
excess of the calculated interest expense based on the stated interest rate over the
interest payment.
A law firm provides legal services for clients who do not pay immediately. As a result
of this transaction, assets and revenues increase.
An equity security represents a credit relationship with another company or
governmental entity.
Creditors invest in a company and hope to receive a return on their investment.
A five-month note dated October 15, 2019 would mature on February 15, 2020.
Debits in the journal are always posted as debits in the ledger.
An accounting firm collected cash on account. As a result of this transaction, total
assets, liabilities, and equity are all unchanged.
For tax purposes, an asset is fully depreciated to a book value of zero.
An overstatement of ending merchandise inventory in the current period results in an
understatement of net income in the current period.
Companies can choose between reporting ending Merchandise Inventory using specific
identification, FIFO, LIFO, weighted-average, or lower-of-cost-or-market.
Treasury stock is a corporation’s own stock that it has previously issued and later
reacquired.
The lower the debt to equity ratio, the greater the company’s financial risk.
A company should not change the inventory costing method each period in order to
maximize net income. This is an example of the disclosure principle.
Electronic funds transfers are a system that transfers cash by using paper documents.
The cost principle requires a business to record the assets acquired, or services received,
at their actual cost.
A quarterly report filed with the Securities and Exchange Commission is called a Form
10-K.
Under the perpetual inventory system, when a purchaser makes payment within the
discount period, the amount of discount will be credited to the Merchandise Inventory
account.
In a balance sheet, assets are classified as either current or long term, depending on
their liquidity.
The interest period extends from the original date of the note to the maturity date.
A higher days’ sales in inventory is preferable.
When a company invests in equity securities with 20% to 50% ownership in the
investee’s voting stock, the investor can significantly influence the investee’s decisions.
A small increase in the gross profit percentage may indicate an important rise in
income.
A receiving report should be matched with the supplier invoice before a payment to the
supplier is approved.
A deficit occurs when a company has reoccurring losses and/or declares dividends in
excess of retained earnings.
Most well-known companies are corporations and tend to be large multinational
businesses.
A payroll register is a schedule that summarizes the earnings, withholdings, and net pay
for each employee.
In a vertical analysis of the income statement, each line item is shown as a percentage
of net income.
Income tax expense is added to arrive at income from continuing operations.
Accounting for stated value common stock is identical to accounting for par value
stock.
Using the effective-interest amortization method, the amount of premium amortization
remains the same over the life of the bond.
The goal of the time period concept is to compute an accurate net income or net loss.
Only temporary accounts appear on the post-closing trial balance.
Controlling interest equity investments are debt securities in which the investor owns
more than 50% of the investee’s voting stock.
Treasury bills are ________.
A) investments that pay cash dividends
B) equity securities
C) U. S. government debt securities
D) a credit relationship with another company
Wildflower, Inc. provided the following for 2019:
Calculate the average merchandise inventory held by Wildflower, Inc. during the year.
A) $955,000
B) $477,500
C) $325,000
D) $630,000
The ending Merchandise Inventory for the current accounting period is understated by
$2,700. What effect will this error have on Cost of Goods Sold and Net Income for the
current accounting period?
A)
B)
C)
D)
Refer to the following list of liability balances at December 31, 2019.
What is the total amount of long-term liabilities?
A) $55,000
B) $109,000
C) $94,000
D) $40,000
Which of the following is the correct order of subtotals that appear on a multi-step
income statement?
A) Operating income, Gross profit, Net income
B) Gross profit, Net sales revenue, Net income
C) Net income, Operating income, Net income
D) Gross profit, Operating income, Net income
Willson Glassware Company issues $1,014,000 of 10%, 10-year bonds at 97 on
February 28, 2019. The bond pays interest on February 28 and August 31. On August
31, 2019, how much cash did Willson pay to the bondholders?
A) $51,968
B) $50,700
C) $101,400
D) $49,432
On September 1, 2018, Real Estate Professionals, Inc. paid $7,000 in advance for an
eight-month rental space covering the period of September 1, 2018 through April 30,
2019. The deferred expense was initially recorded as an asset. The company makes
adjusting entries once a year at year-end. The adjusting entry on December 31, 2018
would include a ________.
A) debit of $7,000 to Cash
B) credit of $7,000 to Prepaid Rent
C) debit of $3,500 to Rent Expense
D) credit of $3,500 to Rent Expense
A shortened form of the ledger is called a ________.
A) working account
B) summary account
C) chart of accounts
D) T-account
In a limited-liability company, the ________.
A) members are personally liable to pay the company’s debts
B) business terminates at the death of a member
C) members are liable for each other’s actions
D) members pay income tax on their share of earnings
Which of the following asset categories would include the cost of clearing land and
removing unwanted buildings?
A) land
B) buildings
C) land improvements
D) machinery and equipment
Prepaid Rent in the worksheet’s unadjusted trial balance column is $7,000. Prepaid Rent
in the balance sheet column is $6,000. Which of the following entries would have
caused this difference?
A) a $1,000 debit entry to Prepaid Rent in the worksheet’s adjustments column
B) a $1,000 credit entry to Rent Expense in the worksheet’s adjustments column
C) a $1,000 credit entry to Prepaid Rent in the worksheet’s adjustments column
D) a $1,000 credit entry to Rental Revenue in the worksheet’s adjustments column
Which of the following is a characteristic of a limited-liability company (LLC)?
A) An LLC’s life is terminated at any member’s choice or death.
B) Each member of an LLC is liable only for his or her own actions.
C) An LLC must have more than five members.
D) The earnings of an LLC are subject to double taxation.
Which of the following inventory costing methods uses the cost of the oldest purchases
to compute the cost of goods sold?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Precision Musical Instruments, merchandisers of musical instruments, has provided the
following details:
Credit terms are: 4/20, n/45, FOB shipping point. Calculate the net cost of inventory
purchased assuming that there are no other inventory-related transactions during the
month. Assume that the perpetual inventory system is used.
A) $790,000
B) $729,600
C) $730,000
D) $730,800
A business repays the amount borrowed on a note with cash. Which of the following
accounts is debited?
A) Cash
B) Accounts Payable
C) Notes Payable
D) Notes Receivable
Under the periodic inventory system, which of the following amounts will always stay
the same regardless of the inventory valuation method used?
A) ending merchandise inventory
B) cost of goods sold
C) gross profit
D) net purchases
Which of the following would be included in the entry by the payee to record a
dishonored note receivable?
A) a debit to Accounts Receivable
B) a debit to Interest Revenue
C) a debit to Notes Receivable
D) a credit to Interest Expense
Which of the following is an example of a source document in a computerized
accounting information system?
A) purchase invoices
B) balance sheet
C) cash payments journal
D) income statement
Peter earns $14.50 per hour for straight time (40 hours), and the company pays him
time-and-a-half for overtime. He worked 46 hours at his job during the first week of
March 2018. What was Peter’s gross pay for the week?
A) $667.00
B) $671.50
C) $710.50
D) $1000.50
The entry to record depreciation includes a debit to the ________ account.
A) Equipment
B) Cash
C) Accumulated Depreciation
D) Depreciation Expense
Oregon Company is preparing its statement of cash flows using the indirect method.
During the year, the company purchased equipment for $15,000 cash. Which of the
following statements is true?
A) $15,000 would be shown as a negative cash flow in the operating activities section.
B) $15,000 would be shown as a negative cash flow in the investing activities section.
C) $15,000 would be shown as a positive cash flow in the investing activities section.
D) $15,000 would be shown as a positive cash flow in the financing activities section.
The accountant for Eagle Financial Services, Inc. failed to make an adjusting entry to
record $3,000 of telephone expenses for the last two months of the year. Which of the
following statements is true?
A) The total liabilities will be overstated.
B) The total liabilities will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
A newly created design business, Teri’s Art, is finishing its first year of operations.
During the year, credit sales were $43,000 and collections of credit sales were $34,000.
One account for $675 was written off. Teri’s Art uses the aging-of-receivables method
to account for bad debts expense. It has estimated $200 as uncollectible at year-end.
What is the amount of the Bad Debts Expense for the first year of operations?
A) $8,125
B) $675
C) $200
D) $875
Which of the following is NOT included in a perpetual inventory record?
A) identification of the inventory item
B) cost per unit
C) unit selling price
D) quantity on hand
Montgomery Equipment Rental Company received $1,000 cash from a customer; the
amount was owed to the business from the previous month. What is the effect of this
transaction on the accounting equation?
A) Accounts Receivable increases and Service Revenue increases.
B) Cash increases and Accounts Receivable decreases.
C) Cash increases and Service Revenue increases.
D) Cash increases and Accounts Payable decreases.
After closing entries have been posted ________.
A) the ending balance of Retained Earnings has been properly updated
B) only permanent accounts carry balances
C) dividends have been closed into Retained Earnings
D) All of the statements are correct.
Franklin Corporation invested $100,000 to acquire 20,000 shares of Hope
Technologies, Inc. on March 1, 2018. Hope pays a cash dividend of $0.25 per share on
July 2, 2019. The investment is classified as equity securities with no significant
influence. Based on these two transactions, which of the following is true of the
accounting equation as of July 2, 2019?
A) Total assets in the balance sheet will remain unchanged.
B) Current assets in the balance sheet will remain unchanged.
C) Equity in the balance sheet will increase.
D) Total liabilities in the balance sheet will increase.
Which of the following line items will appear on the income statement of a
merchandiser but not of a service company?
A) Salaries Expense
B) Depreciation Expense
C) Cost of Goods Sold
D) Supplies Inventory
On October 1, 2018, Equipment Suppliers, Inc. made a loan to one of its customers. The
customer signed a 4-month note for $110,000 at 12%. How much interest revenue did
the company record in the year 2018? (Round any intermediate calculations to two
decimal places, and your final answer to the nearest dollar.)
A) $1,320
B) $1,100
C) $4,400
D) $3,300
In a perpetual inventory system, which of the following are debit columns in a typical
cash payments journal?
A) Merchandise Inventory column and Cash column
B) Other Accounts column and Accounts Payable column
C) Merchandise Inventory column and Accounts Payable column
D) Other Accounts column and Cash column
The retained earnings of a corporation is ________.
A) internally generated equity that is earned by profitable operations that is not
distributed to stockholders
B) externally generated equity that is contributed by shareholders
C) externally generated equity that is acquired from banks and other creditors
D) internally generated equity that is received from employee stock purchases
Which of the following statements, regarding International Financial Reporting
Standards (IFRS), is correct?
A) International Financial Reporting Standards are issued by the Financial Accounting
Standards Board.
B) The Securities and Exchange Commission is the private organization that oversees
the creation and governance of International Financial Reporting Standards.
C) International Financial Reporting Standards represent a set of global accounting
standards that are generally more specific and based less on principle than U.S.
Generally Accepted Accounting Principles.
D) Companies who are incorporated in or do significant business in another country
might be required to publish financial statements using International Financial
Reporting Standards.
Which of the following actions determines when a corporation comes into existence?
A) The charter is obtained from the federal government.
B) The incorporators pay fees, sign the charter, and file required documents with the
state.
C) The first share of stock is issued.
D) The corporate bylaws are written.
Use the following to calculate the inventory turnover ratio for the year 2019.
Restaurant Foods Corp. had cash sales of $598,000 during the month of August. Sales
taxes of 6.5% were collected on the sales. Prepare the journal entry to record the sales
revenue and sales tax for the month. Omit explanation.
If the likelihood of a future event is probable and the amount of the expense can be
estimated, how should the company report the contingency?
On March 1, 2018, Rawlins Company invests $25,000 in Ashton Company stock.
Ashton pays Rawlins a $800 dividend on September 30, 2018. Rawlins sells the Ashton
stock on November 30, 2018 for $23,500. Assume the investment is categorized as a
short-term equity investment and that Rawlins does not have significant influence over
Ashton.
Requirements:
1. Journalize the transactions for Rawlins’ investment in Ashton’s stock.
2. What was the net effect of the investment on Rawlins’ net income for the year ended
December 31, 2018.
For each of the following statements, state whether it applies to a periodic inventory
system (periodic) or a perpetual inventory system (perpetual).
Journalize the following transaction for a merchandiser that uses the perpetual
inventory system.
Received returned goods from a customer, $1,000 (cost, $740). The goods were sold on
account. Omit explanation.
For each of the following events:
(1) State whether the event increases (INC) or decreases (DEC) retained earnings. If the
event does not affect retained earnings, state NE for no effect.
(2) State which equity account is affected.
Rogers Motorsports selected accounts as of December 31, 2018, follow:
Prepare the multi-step income statement for the year ended December 31, 2018.
On January 1, 2018, Belden, Inc. issued long-term notes payable for $50,000. The note
will be paid over 10 years with payments of $5,000 plus 12% interest due each January
1, beginning January 1, 2019. Prepare the amortization schedule for the first three
payments.
List the five steps of the journalizing and posting process.
Merian Company has just completed operations for the year ended December 31, 2018.
This is the second year of operations for the company. The following data have been
assembled for the business at December 31, 2018.
Prepare the statement of retained earnings for the year. Use a proper heading.
Southwood Motors is considering which inventory costing method it should use. The
business wants to maximize gross profit during a period of rising costs. Which
inventory method should Southwood select? Discuss your selection.
On September 1, 2018, Tri-Cities, Inc. borrowed $125,000 by signing a nine-month,
7.2% note payable. Prepare the journal entry to accrue interest expense on December
31, 2018. Omit explanation.
An adjusted trial balance of Anders Retailers as of December 31, 2019 is given below.
Prepare a single-step income statement for the year for the company.
On January 1, 2019, a corporation acquired a truck for $600,000. The residual value
was estimated to be $20,000. The truck can be driven for 50,000 miles over the next
three years. The actual usage of the truck was 8,640 miles for the first year. Calculate
the rate of depreciation to be applied and depreciation for the first year using the
units-of-production method. (Do not round your intermediate calculations.)
State the accounting term that applies to each of the following definitions.
