If a perpetual inventory system is in use, which of the following statements about
transactions with customers is correct?
A) When a customer pays within the discount period, Accounts Receivable is credited
for the full amount.
B) If a customer pays within the discount period, Sales Discounts is credited.
C) A sales return is recorded with entries that include a credit to Sales Returns &
Allowances.
D) Sales of inventory are recorded by entries that include a credit to Cost of Goods
Sold.
A company has $72,500 in inventory at the beginning of the accounting period and
$65,500 at the end of the accounting period. Sales revenue is $986,400, cost of goods
sold is $572,700, and net income is $124,200 for the accounting period. On average, the
number of days to sell inventory is approximately:
A) 203
B) 44
C) 61
D) 26
A company issued 600 shares of $50 par value stock for $45,000. What is the total
amount of contributed capital?
A) $30,000
B) $15,000
C) $45,000
D) $50
The MegaHit Film Studio owns a production lot and related equipment. How would
MegaHit Company categorize these assets?
A) Tangible assets
B) Natural resources
C) Intangible assets
D) Goodwill
All else being equal, if net income decreases:
A) EPS decreases and ROE increases.
B) EPS and ROE both decrease.
C) EPS increases and ROE decreases.
D) EPS and ROE both increase.
Which of the following descriptions about a note payable is correct?
A) Written promise to repay a loan
B) A type of long-term asset
C) Generally informal in nature
D) Reported as part of stockholders’ equity on the balance sheet
The services provided by banks help businesses to control cash by meeting all of the
following control objectives except:
A) document procedures.
B) independently verify.
C) segregate duties.
D) restrict access.
Which of the following statements about the cash basis of accounting is correct?
A) It can lead to a distorted view of the company’s financial performance.
B) It is the only acceptable method for external reporting.
C) It reports revenues when earned and expenses when incurred.
D) It is used when cash is paid at the same time as the cost is incurred, but is not used
when cash is paid before the expense is incurred.
The primary objective of external financial reporting is to:
A) enhance the ability of the company to acquire financial capital from external
sources.
B) accurately provide financial results for tax purposes.
C) comply with external regulations and requirements of government and professional
associations.
D) provide useful information to decision makers, especially investors and creditors.
A company had total assets of $400,000 and a debt-to-assets ratio was 0.35. Which of
the following statements is not true?
A) Total liabilities are $140,000.
B) The debt-to-assets ratio of 0.35 indicates that the company relies less on equity
financing than on debt financing.
C) If other companies in the same industry are used as benchmarks and report a lower
debt-to-assets ratio, this indicates that this company has a more risky financing strategy.
D) If the ratio this year is lower than it was last year for this company, it indicates that
the company is relying less on debt financing this year.
A company started the year with $1,500 of supplies on hand. During the year the
company purchased additional supplies of $800 and recorded them as increase to the
supplies asset. At the end of the year the company determined that only $300 of
supplies are still on hand. What is the adjusting journal entry to be made at the end of
the period?
A) Debit Supplies Expense and credit Supplies for $2,000
B) Debit Supplies and credit Supplies Expense for $300
C) Debit Supplies Expense and credit Supplies for $1,200
D) Debit Supplies and credit Supplies Expense for $1,000
In September, a customer signed a contract to have his house painted and paid for the
job in October. The painting company bought the paint in August on account and paid
for it in September. The painting company painted the house in November. Assuming
accrual basis accounting is used, the painting company should record the:
A) revenues in November and the expenses in September.
B) revenues and the expenses in September.
C) revenues and the expenses in November.
D) revenues in September and the expenses in August.
A company retires its bonds with a face value of $100,000 at 105. The carrying value of
the bonds at the retirement date is $103,745. The journal entry to record this retirement
will include a:
A) debit to Premium on Bonds Payable.
B) credit to Gain on Bond Retirement.
C) credit to Bonds Payable.
D) debit to Discount on Bonds Payable.