If cost of goods sold does not equal the cost of merchandise purchased during the
period, an adjustment must be made to correct the error.
a. True
b. False
Identify which of the following would be recorded as external events, recorded as
internal events, or not recorded.
a. Internal event
b. External event
c. Not recordedThe company transfers work in process to finished goods inventory.
The statement of cash flows
a. along with the balance sheet and income statement is prepared on the accrual basis.
b. along with the balance sheet and statement of retained earnings is dated as of a
specific year end date.
c. along with the balance sheet is used to analyze liquidity.
d. ties the balance sheet to the statement of retained earnings.
Blenham, Inc. sells merchandise on credit. If a customer pays its balance due within the
discount period, what is the effect of the payment on Blenham’s accounting equation?
a. Assets and stockholders’ equity decrease.
b. Assets and stockholders’ equity increase.
c. Assets decrease and liabilities increase.
d. Stockholders’ equity decreases and liabilities increase.
The income number used in the rate of return on assets is income after interest expense
is added back.
a. True
b. False
Krenshaw Rentals
Use the five transactions for Krenshaw Rentals described below to answer the
question(s) that follow(s).
Refer to the transactions for Krenshaw Rentals.Based on the October 31 transaction,
Krenshaw will record which of the following in its accounting records?
a. a credit in Accounts Payable for $500.
b. a credit in Accounts Receivable for $500.
c. a debit in Accounts Payable for $500.
d. a debit in Accounts Receivable for $500.
Which one of the following ratios is a common analytical tool used by merchandise
corporations, but not by service corporations?
a. Gross profit ratio
b. Earnings per share
c. Current ratio
d. Profit margin
A company is referred to as a parent if it owns
a. 33% of the debt securities of a second company
b. 100% of the debt securities of a second company
c. 15% of the equity securities of a second company
d. More than 50% of the equity securities of a second company
The return on assets ratio
a. considers the investment made by all creditors and stockholders.
b. is a measure of the liquidity of a company.
c. is based on average stockholders’ equity as compared to net income for the period.
d. reflects investments made only by the creditors of a company.
Farley River Inc. Use the information presented below for Farley River, Inc. for 2015
and 2014 to answer the questions that follow. Farley River uses the straight-line
depreciation method.
Refer to the information for Farley River, Inc. Between 2014 and 2015, Farley River
sold some equipment that had an original cost of $57,500. Which statement is most
likely true concerning transactions that must have occurred during the period?
a. Farley River also purchased additional equipment during the year.
b. The selling price of the equipment sold was reported with net sales.
c. The equipment that was sold had a book value of $12,500.
d. The equipment sold had not been reported with Farley River’s property, plant and
equipment.
Which of the following formulas gives the inventory turnover ratio?
a. Net credit sales/Average inventory
b. Average inventory/Net credit sales
c. Cost of goods sold/Average inventory
d. Average inventory/Cost of goods sold
The following set of items describes activities completed by a company in collecting
cash for merchandise sales. For each activity, identify whether or not the activity
adheres to or violates sound internal control procedures. An employee from the
accounting department compares the control list and the cash register tapes with the
bank deposit slip.
a. Adheres to sound internal control procedures
b. Violates sound internal control procedures
c. Neither strengthens nor violates internal control
Payment for the acquisition of inventories is shown on the statement of cash flows as
a. An operating activity
b. An investing activity
c. A financing activity
d. Either an operating activity or a financing activity
Depreciation is a noncash expense that is added back to net income in determining cash
provided from operating activities under the indirect method.
a. True
b. False
How will the payee of the promissory note record the note on its books?
a. The promissory note will be recorded as an asset.
b. The promissory note will be recorded as a liability.
c. The promissory note will be recorded as revenue.
d. The promissory note will be recorded as an expense.
All of the following are reasons for a company to repurchase its previously issued
stock, except:
a. to support the market price of the stock
b. to resell to employees
c. to increase the shares outstanding
d. for bonuses to employees
When cash is paid before an expense is incurred, an accrual is necessary.
a. True
b. False
A company in the process of liquidation meets the requirements under the going
concern assumption.
a. True
b. False
Use the information below for Alpha Inc. for 2015 and 2016 to answer the following
question.
During 2016, Alpha Inc. sold equipment with a cost of $30,000 and accumulated
depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment
This was the only equipment sale during the year. What amount would be reported as
the cash proceeds from the sale of equipment?
a. $2,000
b. $3,000
c. $5,000
d. $8,000
Effective cash management and control includes all of the following except
a. The use of a petty cash fund
b. Bank reconciliations
c. Short-term investments of excess cash
d. Purchase of stocks and bonds
Would errors made by a bookkeeper in recording journal entries and in posting journal
entries to the general ledger be discovered by preparing a trial balance? Explain why or
why not for both the journal entry errors and the posting errors.
Agle Company purchased a dump truck at a cost of $48,000 on January 1, 2014. The
truck has an estimated useful life of 6 years and a $6,000 estimated residual value.
Show how the truck and any related amounts would appear on the December 31, 2015,
balance sheet immediately after the adjustments are recorded and posted.
is the type of accounting used by nonbusiness entities.
Property, plant and equipment is classified asassets on the balance sheet.
Under the effective interest method of amortization, the interest expense for each period
is the carrying value times the ______________________.
If a company discounts a note at a bank, but still is contingently liable for the maturity
value, then the note was discounted with ____________________.
Can a company use the direct write-off method rather than the allowance method to
account for bad debts expense? Explain why or why not.
Sarcon Corp. prepares monthly bank reconciliations of its checking account balance.
REQUIRED:
(1) Explain how checking accounts, bank statements, and bank reconciliations are used
by Sarcon to control its cash. (2) Explain how Sarcon can control small payments that
must be made in cash rather than by check.
What are some of the limitations on a company’s effective system of internal control?
Carrington Inc. manufactures digital cameras and has experienced noticeable declines
in the purchase price of many of the components it uses, including memory
components. Which inventory costing method should Carrington use if it wants to
maximize net income? Explain your answer.