1) simple interest means that interest is calculated on the principal and on all previously
earned interest.
2) if an investor wants to know how much cash a company can free up for new
opportunities, such as expanding into a new sales region, they would most likely wish
to calculate the company’s free cash flow figure.
3) the guidelines for accounting information are called generally accepted accounting
principles (gaap).
4) the accumulated depreciation account is a permanent account.
5) an asset is said to be obsolete when a newer asset can perform the job more
efficiently.
6) companies that follow gaap are required to use the direct write-off method for
uncollectible accounts receivable.
7) the current ratio is calculated as the total current assets divided by the total current
liabilities.
8) the days’ sales in receivables ratio indicates the number of days it takes to collect the
average level of accounts receivable.
9) impairment of an intangible asset occurs when the book value of an asset is less than
the fair value.
10) the income from continuing operations helps investors make predictions about the
company’s past performance.
11) when a firm collects the face value of a bond investment at maturity, the total assets
increase.
12) lush lawns corporation earned $1,000 for lawn mowing services rendered. the
customer promised to pay at a later time. which of the following accounts increased as a
result of this transaction?
a) accounts payable
b) supplies
c) cash
d) accounts receivable
13) financial statements are prepared after an entity’s transactions are analyzed and
recorded. which of the following reports is one of the required financial statements?
a) statement of cash flows
b) statement of return on assets
c) statement of dividends
d) expense statement
14) prepare a comparative common-size income statement for nobell inc. using the
2015 and 2014 data. (round off the percentages to one decimal place.)
nobell inc.
comparative income statement
years ended december 31, 2015 and 2014
20152014
net sales$ 6,355$ 4,920
cost of goods sold3,3702,200
gross profit2,9852,720
operating expenses:
selling expenses675580
administrative expenses410425
total expenses1,0851,005
operating income1,9001,715
other revenues and (expenses):
interest revenue00
interest expense(400)(695)
total other revenues and (expenses)(400)(695)
income before taxes1,5001,020
income tax expense230210
net income$ 1,270$ 810
15) on june 30, 2015, rangers inc. showed the following data on the equity section of
their balance sheet:
on july 1, 2015, the company declared and distributed a 5% stock dividend. the market
value of the stock at that time was $13 per share. following this transaction, what would
be the new balance in paid-in capital in excess of parcommon?
a) $286,000
b) $284,000
c) $260,000
d) $344,000
16) all available-for-sale (afs) investments are reported on the balance sheet at
________.
a) historical cost
b) replacement cost
c) current market value
d) net realizable value
17) which of the following occurs when a 2-for-1 stock split is declared?
a) the balance in common stock remains the same
b) the balance in common stock is reduced to half the original amount
c) the balance in common stock doubles
d) the balance in paid-in capital doubles
18) an entry to write off an account receivable under the allowance method will
________.
a) reduce net income
b) have no effect on net income
c) increase total assets
d) increase net income
19) the accumulated depreciation account is ________.
a) a record of the sum of all the depreciation expense recorded
b) the price quoted to the buyer of a used asset
c) an expense account
d) the expense account used to expense the cost of an asset
20) the sales revenue of a merchandiser amounted to $20,000, sales returns and
allowances amounted to $2,500, and sales discounts amounted to $700. the
merchandiser uses a perpetual inventory system. the first entry in the closing process
would include ________.
a) a credit to income summary for $20,000
b) a credit to income summary for $17,500
c) a debit to income summary for $2,500
d) a debit to income summary for $19,300
21) steve, an employee of panache inc., has gross salary for may of $6,000. the entire
amount is under the oasdi limit of $110,100, and thus subject to fica. he is also subject
to federal income tax at a rate of 20%. which of the following is a part of the journal
entry to record the disbursement of his net pay? (assume a ficaoasdi tax of 4.2% and
ficamedicare tax of 1.45%.)
a) debit to cash for $4,461
b) credit to cash for $4,461
c) debit to employee income tax payable of $4,461
d) debit to fica tax payable of $4,461
22) the fair value of an investment is the price ________.
a) that exists at the time of acquisition of the investments
b) that would be used if the company were to sell the investments on the market
c) that is always equal to the weighted average cost of the investment
d) that is equal to the average cost of the investment during the holding period
23) which of the following would be considered a long-term asset?
a) accounts payable
b) land
c) cash
d) common stock
24) accrued revenue is revenue that ________.
a) has been collected and earned
b) the business has collected in cash, but not yet earned
c) the business has earned, but not yet collected in cash
d) will be collected and earned in the future
25) a corporation originally issued $5 par value common stock for $6 per share. which
of the following would be included in the entry to record the purchase of 300 shares of
treasury stock for $10 per share?
a) treasury stockcommon would be debited for $3,000
b) treasury stockcommon would be credited for $1,800
c) retained earnings would be debited for $1,500
d) treasury stockcommon would be debited for $1,500
26) the cost of goods available for sale is equal to the ________.
a) cost of goods sold minus the ending inventory
b) sales revenue minus the cost of goods sold
c) cost of goods sold plus the ending inventory
d) ending inventory plus the sales revenues
27) which of the following entries would be made as the result of the revenue
recognition principle?
a)
b)
c)
d)
28) at the beginning of 2015, elixir inc. has the following ledger balances:
during the year, credit sales amounted to $800,000. cash collected on credit sales
amounted to $760,000 and $18,000 has been written off. at the end of the year,
company adjusted for bad debts expense using the aging method. the amount estimated
as uncollectible was $25,000. the ending balance in bad debts expense would be
________.
a) $38,000
b) $25,000
c) $13,000
d) $7,000
29) a merchandiser sold merchandise inventory on account. the journal entry to record
sales allowances in the books of a merchandiser using the perpetual inventory system
would be ________.
a)
b)
c)
d)
30) which of the following are not included in a post-closing trial balance?
a) assets and liabilities
b) retained earnings and assets
c) common stock and liabilities
d) revenues and expenses
31) which of the following occurs when a previously declared dividend is paid?
a) assets increase
b) stockholders’ equity increases
c) liabilities decrease
d) assets remain unchanged
32) barkin corporation’s accounting records include the following items, listed in no
particular order, for the year ending december 31, 2015:
other revenues and (expenses)gain on discontinued operations$75,000
gain on sale of equipment$12,000extraordinary loss15,000
loss on disposal of equipment5,000cost of goods sold285,000
net sales650,000operating expenses120,000
the income tax rate for the company is 45%. prepare barkin’s income statement for the
year ended december 31, 2015. omit earnings per share.
33) on december 15, duncan services inc. collected revenue of $3,000 in advance from
a new client, and agreed to provide services to the client for the period of december 15
through january 15 of the following year. assume that the company records unearned
revenues using the alternative treatment, and journalize the adjusting entry recorded on
december 31.
34) on january 16, 2015, whole circle inc. had sold goods worth $5,000 to smith on
account. it could not collect cash from the customer, and finally decided to write off the
account on december 31, 2015.
however, in november 4, 2016, smith approached the company to make payment, and
made payment. journalize the transactions on december 31, 2015 and november 4,
2016. (whole circle uses the allowance method.)
35) prepare a vertical analysis report of the income statement shown below. (round off
the percentages to two decimal places.)
2015
net sales$7,000
cost of goods sold3,800
gross profit$3,200
operating expenses:
selling expenses$950
administrative expenses670
total expenses$1,620
operating income$1,580
other revenues and (expenses):
interest revenue0
interest expense(750)
total revenues and (expenses)($750)
income before taxes$830
income tax expense150
net income$680
36) in order to expand business, the management of vereos inc. decided to issue
long-term notes payable for $50,000. the instrument carries interest at the rate of 12%
with 10 equal yearly installments, beginning in one year. what will be the journal entry
at the inception?