Restrictions of retained earnings are also called appropriated retained earnings or
reserves.
Companies should always take advantage of cash discounts even if they have to borrow
money from the bank to do so.
If warranty obligations are material, they must be accrued when products are sold
because the obligation arises then, not when the actual repair services are performed.
Using the effective-interest method of amortization, interest expense is based on the net
liability at the beginning of the current period times the effective interest rate for the
interest period.
The assumption that in all ordinary situations an entity persists indefinitely is known as
the reliability assumption.
The trial balance serves two purposes. It verifies the clerical accuracy of the posting
process and assists in preparing the financial statements.
A company’s market value per share and book value per share are not expected to be
equal.
Annual reports and 10K filings for the Securities and Exchange Commission are timely,
since they usually precede the events being reported.
Accounting controls include the methods and procedures for authorizing transactions,
safeguarding assets, and ensuring the accuracy of the financial records.
Under a periodic inventory system, a business maintains a continual record of inventory
on hand.
The two main types of inventory systems are the periodic system and the gross margin
method.
Prepare the appropriate journal entry for Chowder Soups for each of the events below.
Each event relies on some or all of the events preceding it.
a. On January 1, 20X3, Chowder Soups began operations. The company issued 20,000
shares of its $1.00 par value common stock. The shares were sold for $11 per share.
b. On November 1, 20X3, Chowder Soups declared a $1.20 per share common stock
dividend.
c. The record date for the common stock cash dividend was November 15, 20X3.
d. On November 20, 20X3, Chowder Soups paid the $1.20 per share common stock
dividend.
Publishing for Personnel, Inc., received and paid its utility bill of $800. As the
accountant, you would tell the bookkeeper to
A) debit Utility Expense and credit Cash for $800.
B) debit Cash and credit Utility Payable for $800.
C) debit Cash and credit Utility Expense for $800.
D) debit Cash and credit Retained Earnings for $800.
E) debit Utility Receivable and credit Cash for $800.
Standards issued by the Financial Accounting Standards Board are
A) products of logic and philosophical discussions with Congress.
B) issued by the FASB without the input of interested parties such as corporate
accountants, financial analysts and lobbyists.
C) often the result of compromises among the interested parties.
D) never influenced by the SEC.
E) None of the above statements is true.
When analyzing the financial statements of a potential debtor, the primary concerns of
creditors include
A) interest revenue.
B) dividend revenue.
C) short-term liquidity only.
D) long-term solvency only.
E) short-term liquidity and long-term solvency.
Which of the following statements is false?
A) If a sole proprietorship fails, the creditors can obtain repayment from the personal
assets of the single owner.
B) If a partnership fails, the creditors can obtain repayment from the personal assets of
the partners.
C) If a corporation fails, the creditors can obtain repayment from the personal assets of
the stockholders.
D) A change in ownership among the partners results in the termination of the
partnership.
E) Income taxes are not levied against sole proprietorships and partnerships.
Two separate errors affected Source Documenting in 20X3. The beginning inventory
was overstated by $17,000 and the ending inventory was overstated by $23,000.
Ignoring taxes, net income in 20X3 will be:
A) overstated by $40,000.
B) understated by $23,000.
C) overstated by $23,000.
D) overstated by $6,000.
E) understated by $40,000.
Presented below are the balance sheets of Blanco, Inc. and Stalle Company at January
1, 2X13:
On January 1, 2X13, Stalle Company acquired 70% of the outstanding common stock
of Blanco, Inc., for $119 in cash. Assume the book value of Blanco’s assets and
liabilities equals the market value.
Which of the following statements regarding the consolidated balance sheet
immediately after the acquisition is not correct?
A) Total assets will be $881.
B) Total cash will be $166.
C) Total liabilities will be $420.
D) Total net fixed assets will be $715.
E) Total stockholders’ equity will be $580.
Which financial ratio measures the return on an investment in common stock by
dividing the cash dividends per share by the market price per share?
A) Earnings per share
B) Price-earnings ratio
C) Dividend-yield ratio
D) Dividend payout ratio
E) Accounts receivable turnover ratio
Which of the following statements is false?
A) New corporations often start with a few investors and then seek additional funding
as their original ideas are shown to be profitable.
B) Groups of investors called venture capitalists provide financial support for new
corporations.
C) If the early life of the company is successful, the company may have an initial public
offering (IPO).
D) The IPO may be managed by an underwriting firm and shares will be sold to
individual and institutional investors.
E) The accounting procedures used by a company will vary significantly based upon the
stage of the company’s growth cycle.
In contrast to long-lived tangible assets, U.S. GAAP does not require ________ for
indefinite-life intangible assets.
A) a fair value test
B) a recoverability test
C) a historical cost test
D) a present value test
E) a future value test
All of the following activities would be included in a company’s operating activities on
a statement of cash flows except
A) payments to employees.
B) payment to a local government for property taxes.
C) payment to suppliers.
D) payment to the bank to reduce loan balance.
E) payment to landlord for rent.
If a company extinguishes debt, which of the following explains the effect of this
transaction on a statement of cash flows?
A) If the debt is extinguished with a loss, the loss is subtracted from the operating
section if the company uses the direct method.
B) If the debt is extinguished with a loss, the loss will not appear in the operating or the
investing section if the company uses the direct method.
C) If the debt is extinguished with a gain, the gain is added to the cash flow from
financing section if the company uses the indirect method.
D) If the debt is extinguished with a gain, the gain is added to the operating section if
the company uses the indirect method.
E) If the debt is extinguished with a loss, the loss is added to the financing section if the
company uses the indirect method.
Which of the following statements is NOT true?
A) Companies where product costs represent a high percentage of total costs would be
expected to have a low gross profit percentage.
B) It is appropriate to compare a company’s current financial ratio with the same
financial ratio for (1) that company in prior years and/or (2) the ratio for the industry in
which the company operates.
C) Return on sales ratios are useful in choosing a pricing strategy for a company’s
products.
D) Profitability evaluation ratios have a higher power than liquidity ratios for predicting
a company’s liquidity.
E) Return on assets equals net income divided by average total assets.
Accumulated other comprehensive income in stockholders’ equity shows the difference
between historical cost and market for which account(s)?
A) Trading securities
B) Held-to-maturity securities
C) Available-for-sale securities
D) Trading securities and available-for-sale securities
E) Trading securities and held-to-maturity securities
An example of an adjusting entry is
A) the payment of wages that have been accrued.
B) the accruing of interest expense.
C) the return of defective inventory.
D) the payment of rent in advance.
E) collection of an accounts receivable.
Floatlin Group has the following balance sheets available:
Determine the increase or decrease in dollars and percentage for each line on the
balance sheet.
Arko, Inc., manufactures tables. During the month of March, 20X9, Arko purchased
100 table tops of wood costing $3 per piece, 400 table legs of wood costing $1 per leg,
100 bottles of glue costing $2.50 per bottle, and 800 nails costing $.20 per nail. All raw
materials were put into production during March, 20X9, and production wages related
to the production of tables amounted to $300. At the end of March, 20X9, ending work
in process inventory had 20 table tops of wood, 80 table legs of wood, 20 bottles of
glue, and 160 nails.
Required:
Prepare journal entries for the purchase of raw materials on account, production
activity, and completion of production.
During March, Getze Family Automotive installed a new engine with a billed price of
$3,500. The company did not bill for the engine until April 1. Ignore the cost of the
engine installed. What adjusting entry would Getze Family Automotive make on March
31?
The Dyer Corporation began business operations on April 1, 20X9. The following
transactions occurred during April 20X9:
1. The owner invested $32,000 in the company.
2. Inventory costing $13,000 was purchased. $900 in cash was paid; the remainder was
put on account.
3. Equipment costing $23,000 was purchased, of which one-half was paid in cash. The
remainder was paid with a note payable. Ignore interest expense. Depreciation for the
month relating to the equipment was $1,500.
4. The rent for April, May, and June 20X9 was paid. The rent payment was $1,200.
5. Cash sales during the month totaled $8,900. The cost of the inventory sold was
$5,100.
6. Credit sales during the month totaled $11,000. The cost of the inventory sold was
$7,500.
7. The wages earned by the employees for the month were $4,000, although only
$3,500 had been paid as of the end of the month.
Given the previous transactions, determine the net income or loss using the accrual
basis for the Dyer Corporation for the month of April, 20X9.