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Which one of the following accounts is not closed at the end of an accounting period?
a. Retained Earnings account
b. Dividends account
c. Service Revenue account
d. Insurance Expense account
Answer:
Sandra Sikes sells exercise machines for home use. The machines carry a 2-year
warranty. Past experience indicates that 5% of the units sold will be returned during the
warranty period for repairs. The average cost of repairs under warranty is $40 for labor
and $50 for parts per unit. During 2015, 3,000 exercise machines were sold at an
average price of $800. During the year, 95 of the machines that were sold were repaired
at the average price per unit.
Instructions
(a) Prepare the journal entry to record the repairs made under warranty.
(b) Prepare the journal entry to record the estimated warranty expense for the year.
Answer:
The order of presentation of nontypical items that may appear on the income statement
is
a. Extraordinary items, Discontinued operations, Other revenues and expenses.
b. Discontinued operations, Extraordinary items, Other revenues and expenses.
c. Other revenues and expenses, Discontinued operations, Extraordinary items.
d. Other revenues and expenses, Extraordinary items, Discontinued operations.
Answer:
At May 1, 2015, Kibbee Company had beginning inventory consisting of 200 units with
a unit cost of $7. During May, the company purchased inventory as follows:
800 units at $7
600 units at $8
The company sold 1,000 units during the month for $12 per unit. Kibbee uses the
average cost method. Kibbee's gross profit for the month of May is
a. $4,625.
b. $4,571.
c. $4,000.
d. $4,500.
Answer:
The condensed financial statements of Howard Corporation for 2015 are presented
below.
Additional data as of December 31, 2014: Inventory = $100,000; Total assets =
$800,000; Common stockholders' equity = $450,000.
Instructions: Compute the following listed ratios for 2015 showing supporting
calculations.
(a) Current ratio = .
(b) Debt to assets ratio = .
(c) Times interest earned = .
(d) Inventory turnover = .
(e) Profit margin = .
(f) Return on common stockholders' equity = .
(g) Return on assets = .
Answer:
The cost of intangible assets should be
a. amortized over the assets' estimated useful life, or legal life, whichever is shorter.
b. amortized over a period not exceeding 5 years.
c. amortized over the assets' estimated useful life.
d. charged to an expense account at acquisition.
Answer:
The entry to record the dishonor of a note receivable assuming the payee expects
eventual collection includes a debit to
a. Notes Receivable.
b. Cash.
c. Allowance for Doubtful Accounts.
d. Accounts Receivable.
Answer:
Fess Hardware Store had net credit sales of $8,500,000 and cost of goods sold of
$5,000,000 for the year. The Accounts Receivable balances at the beginning and end of
the year were $600,000 and $760,000, respectively. The accounts receivable turnover
was
a. 7.4 times.
b. 5.9 times.
c. 11.2 times.
d. 12.5 times.
Answer:
Each of the following would be reported under operating activities except cash receipts
a. from sales of goods.
b. from sales of investments.
c. of interest on loans.
d. of dividends from investments.
Answer:
Which of the following is not an accounting assumption?
a. Integrity.
b. Going concern.
c. Periodicity.
d. Economic entity.
Answer:
The market rate of interest for a bond issue which sells for more than its face value is
a. independent of the interest rate stated on the bond.
b. higher than the interest rate stated on the bond.
c. equal to the interest rate stated on the bond.
d. less than the interest rate stated on the bond.
Answer:
The statement that "Bond prices vary inversely with changes in the market interest rate"
means that if the
a. market interest rate increases, the contractual interest rate will decrease.
b. contractual interest rate increases, then bond prices will go down.
c. market interest rate decreases, then bond prices will go up.
d. contractual interest rate increases, the market interest rate will decrease.
Answer:
When calculating interest on a promissory note with the maturity date stated in terms of
days, the
a. maker pays more interest if 365 days are used instead of 360.
b. maker pays the same interest regardless if 365 or 360 days are used.
c. payee receives more interest if 360 days are used instead of 365.
d. payee receives less interest if 360 days are used instead of 365.
Answer:
Asset turnover measures
a. how often a company replaces its assets.
b. how efficiently a company uses its assets to generate sales.
c. the portion of the assets that have been financed by creditors.
d. the overall rate of return on assets.
Answer:
On Friday of each week, Spoon Company pays its factory personnel weekly wages
amounting to $45,000 for a five-day work week.
Instructions
(a) Prepare the necessary adjusting entry at year end, assuming December 31 falls on
Wednesday.
(b) Prepare the journal entry for payment of the week's wages on the payday which is
Friday, January 2 of the next year.
Answer:
Dixon Company purchases 1,000 shares of its common stock for $20,000. The $20,000
amount should be debited to
a. an asset account.
b. Treasury Stock.
c. Common Stock.
d. Retained Earnings.
Answer:
Which of the following statements is true regarding inventory cost flow assumptions?
a. A company may use more than one costing method concurrently.
b. A company must comply with the method specified by industry standards.
c. A company must use the same method for domestic and foreign operations.
d. A company may never change its inventory costing method once it has chosen a
method.
Answer:
Over the term of the bonds, the balance in the Discount on Bonds Payable account will
a. fluctuate up and down if the market is volatile.
b. decrease.
c. increase.
d. be unaffected until the bonds mature.
Answer:
Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus brokerage
fees of $500. Interest is payable semiannually on July 1 and January 1. The entry to
record the July 1 semiannual interest payment would include a
a. debit to Interest Receivable for $1,250.
b. credit to Interest Revenue for $1,250.
c. credit to Interest Revenue for $1,262.50.
d. credit to Debt Investments for $1,262.50.
Answer:
If a company determines cost of goods sold each time a sale occurs, it
a. must have a computer accounting system.
b. uses a combination of the perpetual and periodic inventory systems.
c. uses a periodic inventory system.
d. uses a perpetual inventory system.
Answer:
In preparing its August 31, 2015 bank reconciliation, Annie Corp. has available the
following information:
At August 31, 2015, Annie's adjusted cash balance is
a. $56,700.
b. $56,400.
c. $68,400.
d. $61,500.
Answer:
Thirty $1,000 bonds with a carrying value of $39,600 are converted into 4,000 shares of
$5 par value common stock. The common stock had a market value of $9 per share on
the date of conversion. The entry to record the conversion is
Answer:
Recognition of depreciation permits the accumulation of cash for the replacement of the
asset.
Answer:
Long-term liabilities are reported in a separate section of the balance sheet immediately
following current liabilities.
Answer:
The Securities and Exchange Commission oversees U.S. financial markets and
accounting standard-setting bodies.
Answer:
For each of the following items, indicate by using the appropriate code letter, how the
item should be reported in the statement of cash flows, using the indirect method.
A> Added to net income
B> Deducted from net income
C> Cash outflow'”investing activity
D> Cash inflow'”investing activity
E> Cash outflow'”financing activity
F> Cash inflow'”financing activity
G> Significant noncash investing and financing activity
____ 1> Decrease in accounts payable during a period
____ 2> Declaration and payment of a cash dividend.
____ 3> Loss on sale of land.
____ 4> Decrease in accounts receivable during a period.
____ 5> Redemption of bonds for cash.
____ 6> Proceeds from sale of equipment at book value.
____ 7> Issuance of common stock for cash.
____ 8> Purchase of a building for cash.
____ 9> Acquisition of land in exchange for common stock.
____ 10> Increase in merchandise inventory during a period.
Answer:
Gates Company maintains four special journals and a general journal to record its
transactions. Using the code below, indicate in the space provided the appropriate
journal for recording the transactions listed.
1> Stockholders invested cash in the business.
2> Purchased store supplies on account.
3> Sold merchandise to customer on account.
4> Purchased a 2-year fire insurance policy for cash.
5> Received a check from a customer as payment on account.
6> Paid for store supplies purchased in transaction 2.
7> Purchased merchandise on account.
8> Issued a credit memorandum to a customer who returned defective merchandise
previously sold on account.
9> Purchased office equipment for cash.
10> Made an adjusting entry for store supplies used during the period.
Answer:
The Vogelson Company accumulates the following cost and market
data at December 31.
What is the lower-of-cost-or-market value of the inventory?
Answer:
Expenses paid and recorded in an asset account before they are used or consumed are
called ______________. Revenue received and recorded as a liability before it is
recognized is referred to as ______________.
Answer:
Fresh Corporation reports the following selected financial statement information at
December 31, 2015:
Instructions
Calculate the debt to assets and times interest earned ratios.
Answer:
