Which of the following would be the best investment?
A) A company that pays no dividends, but has substantial net income.
B) A company that pays substantial dividends, but whose earnings per share has been
declining over the past several years.
C) A company whose stock price has increased steadily, but pays no dividends.
D) It depends on one’s investment objectives.
Which of the following is nota similarity of GAAP and IFRS?
A) They both generally require that an exchange take place before a transaction is
recorded.
B) They both promote information that is relevant and that faithfully represents the
underlying transactions.
C) They both include rules about recognition, classification, and measurement of
transactions.
D) They both allow fixed assets to be reported at fair values.
The difference between net income and cash flow may be due to all of the following
except:
A) use of the direct method of presenting cash flows from operating activities.
B) the company being brand new.
C) fraudulent financial reporting.
D) seasonal variations in a company’s operating activities.
All of the transactions of Starfish Tattoo Parlor Inc. for the year have been journalized
and posted. The following information has been gathered for the adjustment process as
of December 31, 2016:
A) The Supplies account shows a balance of $900. A count of supplies revealed $400 on
hand.
B) The $1,200 premium relating to a one -year insurance policy was paid on December
1, 2016.
C) The company’s equipment, which was purchased last year, depreciates at a rate of
$1,000 per year.
D) On September 30, 2016, a customer paid $10,000 in advance for services; as of
December 31, 2016, services in the amount of $3,000 had been performed for this
customer.
E) Employees are paid $5,000 on Fridays for the 5-day work week, which ends on that
Friday. However, December 31, 2016 falls on a Thursday.
F) The company has completed $500 of work for customers; the customers have not yet
been billed and the related revenue has not been recorded.
Required:
Part a. Prepare the required adjusting entries required at December 31, 2016.
Part b. For each of the adjusting items, indicate the amount and the direction of effects
of the adjusting journal entry on the elements of the balance sheet and income
statement. Complete the following table by entering the amount and the direction (+ or
-) or €NE€ if the adjustment has no effect on the related financial statement item.
Company X paid Company Y $1.35 million for a new plant. During the same
accounting period, Company X experienced the following changes in its balance sheet:
Cash decreased by $350,000, Accounts Receivable increased by $321,300, Inventory
increased by $275,800, Property, Plant, and Equipment increased by $752,900, and
Bonds Payable increased by $1 million. The net cash flow provided by financing
activities is:
A) An inflow of $1.35 million.
B) An outflow of $350,000.
C) An inflow of $1 million.
D) An inflow of $752,900.
A company declared and paid a dividend of $8,000 this year. The entry to close the
Dividend at the end of the year will include a debit to:
A) Dividends and a credit to Cash for $8,000.
B) Retained Earnings and a credit to Dividends for $8,000.
C) Dividends and a credit to Retained Earnings for $8,000.
D) Dividends and a credit to Dividends Payable for $8,000.
A current ratio of 2.5 means that for every dollar of:
A) accounts payable, there is $2.50 of cash.
B) current liabilities, there is $2.50 of current assets.
C) current assets, there is $2.50 of current liabilities.
D) total liabilities, there is $2.50 of cash.
The following additional information is available from the financial statements of
Hitchens Company:
What is the net cash provided by operating activities?
A) $263,000
B) $285,000
C) $396,000
D) $368,000
In a retail business that uses a perpetual inventory system, scanning a bar code does not:
A) calculate the amount owed by the customer.
B) identify the item sold to be removed from the Inventory account.
C) identify the item sold to be recorded in the Cost of Goods Sold account.
D) calculate the gross profit.
Interest Receivable:
A) is an asset reported on the balance sheet.
B) is a temporary account reported on the income statement.
C) is a permanent account reported on the income statement.
D) represents the amount of interest the company has received on promissory notes.
Which of the following accounts would be classified as a current liability on a classified
balance sheet?
A) Service Revenue
B) Salaries and Wages Expense
C) Accumulated Depreciation
D) Interest Payable
Specialty Inc. converts an existing account receivable to a note receivable to allow an
extended payment period. Specialty receives a $2,000, 3-month, 12% promissory note
from its customer. What entry will Specialty make upon receipt of the note?
A) Debit Notes Receivable and credit Accounts Receivable for $2,060
B) Debit Accounts Receivable and credit Notes Receivable for $2,000
C) Debit Notes Receivable for $2,000, debit Interest Receivable for $60, credit
Accounts Receivable for $2,000, and credit Interest Revenue for $60
D) Debit Notes Receivable and credit Accounts Receivable for $2,000
The comparative financial statements of B. Darin include the following data:
Use the information above to answer the following question. The gross profit
percentage for the current year is closest to:
A) 42%.
B) 13.5%.
C) 57.7%.
D) 21.15%.
During 2015, Maverick Law Firm had the following transactions with it clients
(customers):
On February 1, 2015, the company received cash of $5,000 from clients in payment of
their account balances as of December 31, 2014.
On November 1, 2015, the company received $2,000 cash as payments in advance for
law services to be performed in 2016.
The company received a total of $13,000 in cash for law services that were performed
during 2015.
The company sent bills totaling $4,000 to clients for services performed during 2015;
this amount was unpaid as December 31, 2015.
Use the information above to answer the following question. Based on the activities
above, as a result of these transactions during 2015, the law firm’s stockholders’ equity
will:
A) increase by $20,000.
B) decrease by $5,000.
C) increase by $17,000.
D) decrease by $2,000.
The Retained Earnings account has a beginning balance of $321,975 and an ending
balance of $356,413. Net income is $40,251. Which of the following statements is
correct?
A) $5,813 would be subtracted when determining cash flows from financing activities.
B) $40,251 would be added when determining cash flows from financing activities.
C) $34,438 would be added when determining cash flows from financing activities.
D) $321,975 would be added when determining cash flows from operating activities.
Match the term with its definition. (There are more definitions than terms.)
TERM
_____ (1) dr
_____ (2) cr
_____ (3) Classified Balance Sheet
_____ (4) Common Stock
_____ (5) Accounting Equation
_____ (6) Transaction
_____ (7) Accounts Payable
_____ (8) Journal Entry
DEFINTION
A. The account credited when cash is received in exchange for stock issued.
B. Another name for stockholders’ equity or shareholders’ equity.
C. An exchange or event that has a direct impact on a company’s financial statements.
D. A balance sheet that has not yet been publicly released.
E. When a company becomes included in the Fortune 500.
F. A method of recording a transaction in debit/credit format.
G. A transaction that is triggered automatically merely by the passage of time.
H. The abbreviation for an item posted on the left side of a T-account.
I. The expression that assets must equal liabilities plus stockholders’ equity.
J. The value of a company’s public relations campaign.
K. Amounts owed to suppliers for goods or services bought on credit.
L. An event that has no effect on the balance sheet and is not recorded in the financial
statements.
M. Liabilities divided by assets.
N. A balance sheet that has assets and liabilities categorized as current vs. noncurrent.
O. The abbreviation for an item posted on the right side of a T-account.
Assume a periodic inventory system is used. Which inventory costing method generally
results in the most recent costs being assigned to ending inventory?
A) LIFO
B) FIFO
C) Weighted average cost
D) Simple average cost
On April 30, 2016, Rudolph Inc. purchased a three-year insurance policy with a cash
payment of $18,000. Coverage began immediately.
Required:
Part a. What is the amount of Insurance Expense relating to this insurance policy that
will be reported for the year ended December 31, 2016?
Part b. What is the balance of the Prepaid Insurance account at December 31, 2016?
Which of the following statements about straight-line depreciation is correct?
A) Straight-line depreciation is the most common method of depreciation used in the
U.S. for financial reporting, but is not commonly used for taxes.
B) When the straight-line method is used to compute depreciation, an asset’s carrying
value remains constant over the life of the asset.
C) Straight-line depreciation is an approved method to allocate the cost of an asset to
expense and it serves as a measure of the physical decline in the asset.
D) The straight line method of depreciation results in a straight-line increase of
depreciation expense over the life of an asset.