On January 1, 2016, Kincaid Company’s Accounts Receivable and the Allowance for
Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year
Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as
uncollectible in 2016. Cash collections of receivables amounted to $74,550. Kincaid
estimates that it will be unable to collect one percent (1%) of credit sales.
Kincaid’s entry to recognize the write-off of the uncollectible accounts will
A.increase total assets and total equity.
B.increase total assets and decrease total equity.
C.decrease total assets and total equity.
D.not affect total assets or total equity.
The information in the following T-accounts of Gibbs Company indicates that:
A.Cash has been paid out to a company that will provide future services to Gibbs
Company.
B.Gibbs has completed services for which they had earlier received cash in advance.
C.Gibbs has provided services to a customer on account.
D.Gibbs has received cash for service to be provided in the future.
The 2016 income statement of Phillips Co. reported total sales revenue of $460,000; the
2015 balance sheet showed a balance in accounts receivable of $70,000 while the 2016
balance sheet showed a balance in accounts receivable of $100,000. The amount of cash
collected from customers was:
A.$530,000.
B.$460,000.
C.$490,000.
D.$430,000.
The Yankee Corporation has recently begun to accept credit cards. On July 7, 2016,
Yankee made a credit card sale of $600. The credit card company charges a fee of 3%.
Which of the following answers correctly describes the effect of the collection of cash
from the credit card company on the financial statements of Yankee Corporation?
A.
B.
C.
D.
The information in the following T-accounts indicates that
A.the company borrowed $850.
B.the company loaned $850 to another company.
C.the company repaid a $850 debt.
D.stockholders invested $850 cash in the corporation.
On January 1, 2012 Eller Company purchased an asset that had cost $24,000. The asset
had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its
assets on the straight-line basis. On January 1, 2016 the company spent $6,000 to
improve the quality of the asset. Based on this information, the recognition of
depreciation expense in 2016 would
A.increase total assets by $4,375.
B.reduce total equity by $4,375.
C.reduce total assets by $4,625.
D.increase total equity by $4,625.
In the first year of operations, 2016, Ralph’s Repair Service recognized $480,000 of
service revenue on account. The ending accounts receivable balance was $88,000.
Ralph estimates that 2% of sales on account will not be collected. During the year,
Ralph wrote off a $200 receivable that was determined to be uncollectible. Assume
there were no other transactions affecting accounts receivable.
Required: a) What amount of cash was collected in 2016?
b) What amount of uncollectible accounts expense was recognized in 2016?
c) What will be Ralph’s net realizable value of receivables on the December 31, 2016
balance sheet?
The following balance sheet information is provided for Weaver Company:
Assuming 2015 cost of goods sold is $140,000, what is the company’s inventory
turnover?
A.3.4 times
B.4.4 times
C.4.0 times
D.None of these answer choices are correct.
The Miller Company earned $190,000 of revenue on account during 2016. There was
no beginning balance in the accounts receivable and allowance accounts. During 2016
Miller collected $136,000 of cash from its receivables accounts. The company estimates
that it will be unable to collect 3% of its sales on account.
The net realizable value of Miller’s receivables at the end of 2016 was
A.$54,000.
B.$49,920.
C.$59,700.
D.$48,300.
What statement is true regarding the trial balance?
A.Incorrectly recording a cash sale as a sale on account would not cause the trial
balance to be out of balance.
B.The income statement is prepared using the post-closing trial balance.
C.A balance of debits and credits ensures that all transactions have been recorded
correctly.
D.Trial balances are only prepared at the end of an accounting period.
On January 1, 2016, O”Keefe Co. issued bonds with a face value of $400,000 and a
stated interest rate of 10%. The bonds have a life of ten years and were sold at 108.
O”Keefe uses the straight-line method to amortize bond discounts and premiums. On
December 31, 2019, O”Keefe called the bonds at 106. Indicate whether each of the
following statements is true or false.
_____ a) The interest expense for 2016 was $40,000.
_____ b) The balance in the bonds payable account on December 31, 2016 was
$400,000.
_____ c) The carrying value of bonds payable on December 31, 2019 was $419,200.
_____ d) When O”Keefe repurchased the bonds, total assets decreased by $419,200.
_____ e) When O”Keefe repurchased the bonds, it had to recognize a loss in the amount
of $4,800.
Allegheny Company ended 2015 with balances in Accounts Receivable and Allowance
for Doubtful Accounts of $23,000 and $900, respectively. During 2016, Allegheny
wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny
estimates that the ending Allowance for Doubtful Accounts balance should be $1,600.
What will Allegheny report as Uncollectible Accounts Expense on its 2016 income
statement?
A.$2,200
B.$1,500
C.$700
D.$1,600
a) What is the effect on the accounting equation of the seller for granting an
“allowance” for merchandise that the customer is not satisfied with?
b) What is the effect of the above situation on the accounting equation of the purchaser?
For both questions, assume that the merchandise had been sold on account, and the
invoice had not yet been paid.
Northern Corporation invested $800 cash in South Company stock.
Which of the following describes the effects of this transaction on Northern
Corporation’s books?
A.
B.
C.
D.
Indicate whether each of the following statements about bonds is true or false.
_____ a) The carrying value of a bond increases over time if the bond was issued at a
premium.
_____ b) At the end of the term of the bonds, the carrying value of a bond issue is equal
to the issue price.
_____ c) If bonds are sold below face value, the difference between the issue price and
the face value is called the bond discount.
_____ d) The payment of interest is an operating activity on the statement of cash
flows.
_____ e) The issuance of bonds does not appear on the statement of cash flows.
Which ratio measures how effectively a company is using assets to generate revenue?
A. Net margin
B. Plant assets to long-term liabilities
C. Asset turnover
D. Inventory turnover
Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, 2016.
The note carried a one-year term and a 12% rate of interest. The adjusting entry on
Franklin’s books to record accrued interest expense on December 31, 2016 will
A.Decrease assets and decrease retained earnings by $2,000.
B.Increase liabilities and decrease equity by $2,000.
C.Increase liabilities and decrease equity by $1,600.
D.Decrease equity and increase liabilities by $4,800.
Yowell Company began operations on January 1, 2016. During 2016, the company
engaged in the following cash transactions:
1) issued stock for $40,000
2) borrowed $25,000 from its bank
3) provided consulting services for $39,000
4) paid back $15,000 of the bank loan
5) paid rent expense for $9,000
6) purchased equipment costing $12,000
7) paid $3,000 dividends to stockholders
8) paid employees’ salaries, $21,000
What is Yowell’s ending notes payable balance?
A.$0
B.$25,000
C.($15,000)
D.$10,000
Rocco Corporation decides to issue a 7.5% stock dividend on 20,000 outstanding shares
of $10 stated value common stock. The distribution is made at the time the market value
of the stock is $50 a share. How will the entry to record this transaction affect the
company’s equity accounts?
A.
B.
C.
D.
The inventory records for Radford Co. reflected the following
Determine the amount of gross margin assuming the FIFO cost flow method.
A.$2,920
B.$3,420
C.$3,000
D.$4,020
The following accounts and balances were drawn from the records of Carolina
Company on December 31, 2016:
The amount of net income shown on Carolina’s 2016 income statement would amount
to:
A.$2,200.
B.$3,200.
C.$1,000.
D.$200.
Which of the following would be classified as a long-term operational asset?
A.Notes receivable.
B.Trademark.
C.Inventory.
D.Accounts receivable.
Which accounting concept can be used by some companies to justify the use of the
direct write-off method of accounting for uncollectible accounts?
A.The entity concept.
B.The materiality concept.
C.The going concern concept.
D.The monetary principle.
While performing its monthly bank reconciliation, the bookkeeper for the Grace
Corporation noted that a deposit of $990 (received from a customer on account) was
recorded in the company books as $900. Which of the following shows the effect of the
correcting entry on the financial statements?
A.
B.
C.
D.
The following balance sheet information was provided by Owen Company:
Assuming that net credit sales totaled $300,000 and cost of goods sold totaled
$175,000, what is the company’s most recent accounts receivable turnover?
A.15 times
B.21 times
C.24 times
D.25 times
Which of the following intangible assets does not convey a specific legal right or
privilege?
A.Copyrights
B.Franchises
C.Goodwill
D.Trademarks
Indicate whether each of the following statements about financial statement analysis is
true or false.
_____ a) The value of a corporation’s price-earnings ratio indicates how optimistic
investors are about a company’s growth potential.
_____ b) The dividend yield ratio indicates the percentage of a company’s net income
that it paid out in dividends.
_____ c) Comparing financial statement ratios of companies in different industries may
provide misleading results.
_____ d) Changes in general economic conditions (such as rate of inflation) can cause
the values for a company’s financial statement ratios to change from one year to the
next.
_____ e) Conservatism produces a positive bias in a company’s financial statements and
thus in the ratios calculated from the financial statements.
In December 2016, Lucas Corporation sold merchandise for $10,000 cash. Lucas
estimated that $700 of warranty claims might be filed in regard to these sales. On
February 12, 2017, warranty work amounting to $550 was performed for one of the
customers ($430 labor paid in cash and $120 from the materials inventory).
Which of the following answers indicates the effect of the February 12, 2017 entry on
the financial statements of Lucas Corporation?
A.
B.
C.
D.
The balance sheet of the Algonquin Company reported assets of $50,000, liabilities of
$22,000 and common stock of $15,000. Based on this information only, the amount or
balance for retained earnings must be
A.$7,000
B.$57,000
C.$13,000
D.$87,000
Effective internal controls for cash include
A.disbursements made by prenumbered check.
B.cash deposited in the bank on a timely basis.
C.written cash receipts given to customers as evidence of payment.
D.all of these answer choices are correct.
The Baird Company reported depreciation expense of $10,000 and net income of
$16,000 on its 2016 income statement. During 2016 the company’s accounts receivable
balance decreased by $4,000. Based on this information alone, what was the amount of
cash flow from operating activities?
A.$12,000.
B.$16,000.
C.$32,000.
D.$30,000.
King Company experienced an accounting event that affected its financial statements as
indicated below:
Which of the following accounting events could have caused these effects on King’s
statements?
A.Repaid a bond issued at a discount.
B.Borrowed funds through a line-of-credit.
C.Made a payment on an installment loan.
D.Issued a bond at a discount.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Enter only one
letter for each element. You do not need to enter amounts.
Gable Company collected a receivable due from a credit card transaction company; the
credit card fee had previously been recognized when the sale was recorded. Show the
effect of collection of the receivable on Gables financial statements.
What is the purpose of a trial balance?
How is depreciation expense classified on the statement of cash flows?
What accounting steps would a firm normally take when it discovers a material
difference between a physical inventory count and the book inventory figure? Assume
that the company uses a perpetual inventory system.
Creditors are primary users of financial statements. What ratio based on a classified
balance sheet can be used by creditors to evaluate a company’s liquidity? How is this
ratio calculated?
Give an example of a product cost. At what time are product costs recognized as
expenses? What is the name of the expense account?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Use only one letter
for each element. You do not need to enter amounts.
On December 31, 2016, Kirkland Co. paid cash for interest on bonds it had issued on
January 1, 2016 at 101 , and amortized part of the premium on bonds. Indicate the
effects of the payment of interest and amortization of the premium.
What is treasury stock?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Assume that Frank Company uses a perpetual inventory system.
Whetzel Co. paid a supplier, Jacobs Company, the amount owed on account related to a
purchase of inventory on account with terms of net 30.
What is the meaning of the terms “debit” and “credit” and what is the effect on specific
account types?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Use only one letter
for each element. You do not need to enter amounts.
Cooper Co. purchased 500 shares of its own stock as treasury stock for $35 per share.
The no-par stock had originally been issued at $26 per share. Show the effects of the
purchase.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
Landau Company established a petty cash fund by issuing a check in the amount of
$500 to the petty cash custodian.
If some inventory items have declined in value from damage or obsolescence, what
effect will the lower-of-cost-or-market rule have on the amount of inventory shown on
the balance sheet?
The Byrne Company had its entire inventory destroyed when a fire swept through the
company’s warehouse on April 30, 2016. Fortunately, the accounting records were
locked in a fireproof safe and were not damaged. The following information for the
period up to the date of the fire was taken from the accounting records:
Required: Assuming that the gross margin has averaged 35 percent of selling price,
what is the estimated value of the inventory destroyed in the fire? Show all calculations
in good form.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. Enter only one
letter for each element. You do not need to enter amounts.
Garrison Co. uses the allowance method to account for uncollectible accounts. Show
how the adjusting entry to recognize uncollectible accounts expense would affect the
elements of Garrison’s financial statements.
When are expenses recognized under accrual accounting in relation to the payment of
cash?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Assume that Frank Company uses a perpetual inventory system.
Whetzel Company granted a $70 allowance to a customer who was not totally satisfied
with the quality of goods received. The customer did not return the goods and had not
yet paid for them.