Product warranties are an expense of the period in which the product is sold.
A company that factors its receivables will have a less favorable receivable turnover
than a company that does not factor.
Revenue is equal to the cash received by a company during an accounting period.
If the asset accounts did not reflect their current values, the asset accounts would need
to be adjusted before admitting the new partner.
Under the periodic inventory system, the amount for inventory on hand is accurate only
on the balance sheet date.
Since the balance of the Accumulated Depreciation account will appear on the asset
side of the balance sheet, it is placed on the debit side of the work sheet’s Balance Sheet
columns.
The investments category on the balance sheet normally includes investments that are
intended to be held for a long period of time.
Liquidity is the ability to earn a satisfactory net income.
The terms “2/10, n/30” mean that a 2 percent discount is allowed on payments made
over 10 but before 30 days after the invoice date.
Most long-term bond investments are classified as held-to-maturity securities.
Adjusting entries are useful in apportioning costs among two or more accounting
periods.
Gross earnings minus deductions equal take-home pay.
Although a garbage can that costs $25 is a long-term asset, it can be expensed because
the amount is immaterial and will not affect anyone’s decision making.
The entry to record the issuance of bonds at a discount includes a credit to the
Unamortized Bond Discount account.
A debt to equity ratio of 0.5 means that one-third of a company’s total assets are
financed by creditors.
The journal is a chronological record of all transactions.
Management is responsible for establishing a satisfactory system of internal control.
The receivables turnover is expressed as a percentage.
Long-term bond investments that are classified as available-for-sale must be valued on
the balance sheet at fair value.
There is sufficient information on a post-closing trial balance to prepare an income
statement.
When depreciation rates are revised, an adjustment for previous years’ depreciation
must be recorded.
When an account receivable that was previously written off is collected, it is necessary
to reverse the entry for the write-off before recording the collection.
The cost-adjusted-to-market method of accounting for investments allows for a
departure from cost when the market value of the investment falls below or rises above
cost.
Freight charges associated with the purchase of inventory normally are not included in
inventory cost.
Purchasing receivables with recourse is riskier than purchasing them without recourse.
The current portion of long-term debt is classified as a current liability only if it is due
within the next year and is to be paid from current assets.
Entering transactions into the journal is called posting.
A 60-day note dated December 10 is due on February 10.
An expense account is closed with a credit to the expense account and a debit to Income
Summary.
Objectivity is the avoidance of all relationships that impair or appear to impair the
objectivity of the accountant.
For a T account, an account balance is the difference in total dollars between total debit
footings and total credit footings.
A noninfluential and noncontrolling investment is defined as ownership of less than 25
percent of the stock of another company.
If insured goods are shipped FOB destination, the seller should file a claim for goods
damaged in transit.
Nominal account balances are reduced to zero by closing entries.
When a partner withdraws from a partnership taking assets that represent less than his
or her capital balance,
A. the remaining partners receive a bonus
B. no bonus results
C. the remaining partners owe the withdrawing partner the difference
D. the withdrawing partner receives a bonus
Which of the following is correct regarding accrual accounting?
A. Adjusting the accounts is a technique used to accomplish accural accounting.
B. Revenues are recorded when received.
C. Expenses are recorded when earned.
D. Net income is the difference between cash receipts from customers and cash
payments for expenses.
An adjusting entry made to record salaries earned but not yet paid or recorded is made
with which of the following entries?
A. Salaries Expense – Debit; Cash – Credit
B. Salaries Payable – Debit; Salaries Expense – Credit
C. Salaries Expense – Debit; Salaries Payable – Credit
D. Cash – Debit; Salaries Expense – Credit
Which of the following accounts probably would be greater in amount on an adjusted
trial balance than on a trial balance?
A. Wages Payable
B. Unearned Revenue
C. Prepaid Advertising
D. Painting Supplies
Firehawk Corporation had net income of $560,000 in 20×5 and paid dividends of
$440,000 on 200,000 shares of outstanding common stock. Total stockholders’ equity at
the end of 20×5 was $2,060,000 and the market price for each share of Firehawk’s stock
was $58 throughout 20×5. Based on this information, what is the price/earnings ratio for
Firehawk’s stock?
A. 96.67 times.
B. 20.71 times.
C. 4.83 times.
D. 26.36 times.
Caudill Sales Company made most of its sales on credit during its first year of
operation, 2014. At the end of the year, accounts receivable amounted to $100,000. On
December 31, 2014, management reviewed the collectible status of the accounts
receivable. Approximately $6,000 of the $100,000 of accounts receivable were
estimated to be uncollectible. As per the accounts receivable aging method the adjusting
entry that would be made on December 31 of that year is:
A. Uncollectible Accounts Expense 6,000
Accounts Receivable 6,000
B. Allowance for Uncollectible Accounts 10,000
Uncollectible Accounts Expense 10,000
C. Uncollectible Accounts Expense 6,000
Allowance for Uncollectible Accounts 6,000
D. Allowance for Uncollectible Accounts 10,000
Which of the following is an inventory valuation method?
A. First-in, first-out
B. Average-cost
C. Lower-of-cost-or-market
D. Perpetual
Serial bonds are bonds that
A. mature on several different dates.
B. all have the same maturity date.
C. must be secured.
D. are also called term bonds.
Assume that on December 1, a $6,000, 90-day, 10 percent note receivable was received
from a customer as an extension of his past-due account. The entry that would be made
to record the note is:
A. Notes Receivable 6,000
Cash 6,000
B. Notes Receivable 6,000
Interest Income 6,000
C. Notes Receivable 6,000
Accounts Receivable 6,000
D. Cash 6,000
Prepaid Rent was $800 at the end of May and $1,300 at the end of June. Rent Expense
for June was $720. How much cash was paid for rent during June?
A. $820
B. $1,020
C. $1,220
D. $1,420
Use this information to answer the following question. These facts concern the
long-term stock investments of DeBord Corporation:
The entry to record the purchase of the Vanhook Corporation common stock is:
A. Long-Term Investments 272,000
Cash 272,000
B. Long-Term Investments 120,000
Cash 120,000
C. Long-Term Investments 72,000
Cash 72,000
D. Long-Term Investments 200,000
Cash 200,000
The petty cash fund of Writer Company was established on May 1 and appeared as
follows on May 31:
(a) Prepare the journal entry on May 1 to establish the fund (omit explanation).
The purchased right to reproduce and sell a computer program is covered by which
intangible?
A. copyright.
B. franchise.
C. patent.
D. trademark.
Kirk Corporation owns 25 percent of the voting stock of Allen Corporation and
accounts for the investment using the equity method. Allen reports a net loss of
$40,000. Kirk Corporation’s entry to record its share of loss is:
A. Cash 10,000
Investment in Allen Corporation 10,000
B. Loss on Investments 40,000
Investment in Allen Corporation 40,000
C. Loss, Allen Corporation Investment 10,000
Investment in Allen Corporation 10,000
D. Cash 10,000
Loss, Allen Corporation Investment 10,000
Which of the following statements about controlling accounts and subsidiary ledgers is
incorrect?
A. A subsidiary ledger is a ledger separate from the general ledger.
B. A controlling account is an account in the subsidiary ledger.
C. A controlling account maintains the total of the individual account balances in a
subsidiary ledger.
D. A subsidiary ledger contains a group of related accounts, such as a list of customers.
The purpose of an audit is to
A. determine whether or not a company is a good investment.
B. comply with income tax regulations.
C. determine whether or not a company is a good credit risk.
D. ascertain that the financial statements follow GAAP.
Use this information to answer the following question.
The total dollar amount of assets to be classified as property, plant, and equipment is
A. $374,000.
B. $262,000.
C. $354,000.
D. $122,000.
The ability to pay bills when due and to meet unexpected needs for cash most closely
describes
A. cash flow adequacy.
B. long-term solvency.
C. liquidity.
D. profitability.
The controller for Tires and More, Inc. has recorded the following transactions during
the month: the owner established the business with a $20,000 investment on the 1st of
the month; the company recorded $36,000 of revenue for tires and services provided
during the month; and expenses of $22,000 were recorded for the month. Additionally,
on the last day of the month the owner withdrew $2,000 for personal expenses. What is
the balance of Owner’s Equity at the end of the month, and is the balance a debit or a
credit?
A. $32,000 debit.
B. $32,000 credit.
C. $18,000 credit.
D. $36,000 debit.
A company’s five-day weekly payroll of $890 is paid on Fridays. Assume that the last
day of the month falls on Tuesday. Which of the following is the required adjusting
entry for the month end?
A. Debit Salaries Payable $534 and credit Salaries Expense $534.
B. Debit Salaries Expense $534 and credit Salaries Payable $534.
C. Debit Unpaid Salaries $356 and credit Salaries Payable $356.
D. Debit Salaries Expense $356 and credit Salaries Payable $356.
Significant influence is defined as owning what percent of the stock of another
company?
A. 15 to 60 percent
B. More than 50 percent
C. 20 to 50 percent
D. 75 percent
Inventory turnover is expressed in terms of
A. days.
B. a percentage.
C. dollars.
D. times.
Use this information to answer the following question.
Assuming that the specific identification method is used and that ending inventory consists
of 15 units from each of the three purchases and five units from the January 1 inventory,
cost of goods sold is
A. $221.
B. $418.
C. $338.
D. $445.
The board of directors of Lark Corporation declared a cash dividend of $3.50 per share
on 57,000 shares of common stock on June 14, 20×5. The dividend is to be paid on July
15, 20×5, to shareholders of record on July 1, 20×5. The effects of the entry to record
the payment of the dividend on July 15, 20×5, are to
A. increase assets and decrease stockholders’ equity.
B. decrease stockholders’ equity and decrease liabilities.
C. decrease liabilities and decrease assets.
D. increase stockholders’ equity and decrease liabilities.
The entry to record a purchase of $12,000 in merchandise assuming terms of 2/10, n/30
and a periodic inventory system would include a(n)
A. increase to Accounts Payable for $12,000.
B. increase to Purchases Discounts for $240.
C. decrease to Purchases for $12,000.
D. decrease to Accounts Payable for $11,760.
Failure to adjust for expired prepaid insurance at year end will result in an
A. overstatement of liabilities.
B. understatement of assets.
C. understatement of owner’s equity.
D. overstatement of net income.
The preparation of a statement of stockholders’ equity makes which other financial
statement unnecessary?
A. Income statement
B. Statement of cash flows
C. Statement of retained earnings
D. Balance sheet
A. From the simplified balance sheet and income statement of the business below,
compute the following ratios. Assume that the June 30 amounts for total assets and
owner’s equity also represent their average amounts for the period. Round percentages
to the nearest whole percent.
a. Working capital
b. Current ratio
c. Profit margin
d. Return on assets
e. Debt to equity ratio
Use this balance sheet and income statement for the first year of operations for Cane
Construction to answer the following question. Use ending balances whenever average
balances are required for computing ratios.
The return on equity for Cane Construction is
A. 62.5 percent.
B. 43.2 percent.
C. 84 percent.
D. 60 percent.
An American company makes a credit purchase of goods from a company in London
for $1,000. On the date of purchase, the exchange rate was $1.50 per pound. However,
on the date of payment, the rate had risen to $1.55 per pound. As a result, the American
company would record
A. an exchange gain of $50.
B. an exchange loss of $1,550.
C. an exchange loss of $50.
D. no exchange gain or loss.
Consistency requires
A. that the company use the same accounting procedures from period to period.
B. that the company use the same accounting procedures as other companies in the
same industry.
C. that the company explain, in a note to the financial statements, the significant
accounting policies used.
D. All of these choices.
All of the following items would appear on the balance sheet except
A. withdrawals.
B. the owner’s capital account.
C. Accounts Receivable.
D. Patents.
Use the following unadjusted trial balance to prepare adjusting entries, given the
additional information below it. Assume that financial statements are prepared
quarterly. Omit explanations.
a. Of the revenue received in advance, 30 percent remained unearned on September 30.
b. The office furniture has an estimated 12-year useful life and zero value at the end of that
time. Record depreciation for the quarter.
c. Salaries earned, but unpaid, totaled $2,600.
d. The Prepaid Rent applies to the six months beginning September 1, 20×5.
e. Office supplies on hand totaled $120 at the end of the quarter.
The matching rule relates to credit losses by stating that Uncollectible Accounts
Expense should be recorded
A. in the period of the loss.
B. for an exact amount.
C. in the same period as allowed for tax purposes.
D. in the period of the sale.