Expenses, such as utilities, whose benefit is consumed by the passage of time rather
than by the level of sales, are known as period costs.
The purchaser bears the transportation cost when the terms are FOB destination.
When a company is acquired and becomes a subsidiary of another company, the books
of the subsidiary are completely changed on the date of the acquisition.
When an organization sells on credit, it is essentially reducing the risk that a portion of
the accounts receivable balance will never be collected.
If 100,000 shares are authorized, 95,000 are outstanding and 1,500 are held as treasury
stock, the number of shares issued is 93,500.
The internal accounting control that provides reasonable assurance that all authorized
transactions are recorded in the correct amounts, periods, and accounts is
A) authorization.
B) recording.
C) safeguarding.
D) reconciliation.
E) valuation.
The auditor’s opinion includes all except which of the following statements?
A) The financial statements are in conformity with generally accepted accounting
principles.
B) The financial statements are the responsibility of the company’s management.
C) The audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.
D) The auditor’s responsibility is to express an opinion on the financial statements.
E) The financial statements are free of any and all misstatements.
On January 1, 2009, Amanda Mackenzie purchased a $24,000 car, making a $4,000
down payment, and borrowing the rest on a 4-year note at 8% interest. She agrees to
make annual payments of $6,038.47, starting January 1, 2010. What is the journal entry
that Amanda would make on January 1, 2010, for the first payment on the note?
According to U.S. GAAP, revenue is recognized when it is
A) realized or realizable only.
B) earned only.
C) received in a timely fashion.
D) earned and realized or realizable.
E) received in cash.
Gambet Labs entered into a lease agreement on January 1, 20X3, to use an x-ray
machine. The machine has a useful life of 6 years. Gambet Labs will make annual lease
payments of $13,000 for 6 years, beginning on December 31, 20X3. Assume a 14%
interest rate. Using the present value tables, what is the journal entry to be made by
Gambet Labs on December 31, 20X4, to amortize the leased asset, assuming
straight-line amortization is used?
A) No journal entry is necessary.
B) Leasehold Amortization Expense 4,575
Machine Leasehold 4,575
C) Leasehold Amortization Expense 8,426
Machine Leasehold 8,426
D) Leasehold Amortization Expense 13,000
Machine Leasehold 13,000
E) Leasehold Amortization Expense 13,000
Capital Lease Liability 13,000
Halo Corporation repaid an $8,000 note payable by issuing 500 shares of its $4.00 par
value capital stock. The effect of this transaction on Halo Corporation would be to
A) increase the capital stock at par by $8,000 and decrease the notes payable account by
$8,000.
B) increase the capital stock at par by $2,000 and decrease the notes payable account by
$2,000.
C) increase the capital stock at par by $2,000, increase the paid-in capital in excess of
par account by $6,000, and decrease the notes payable account by $8,000.
D) increase the capital stock at par by $2,000, decrease the paid-in capital in excess of
par account by $6,000, and decrease the notes payable account by $8,000.
E) increase the capital stock at par by $2,000, decrease the cash account by $6,000, and
decrease the notes payable account by $8,000.
Expenses are
A) increases in net assets as a result of consuming resources in the process of providing
services to a customer.
B) decreases in net assets as a result of consuming resources in the process of providing
services to a customer.
C) increases in liabilities resulting from purchasing assets.
D) increases in retained earnings resulting from operations.
E) increases in equity resulting from operations.
The Goaling Company declared a $3,500 cash dividend on March 1, 2012 payable on
April 2, 2012. The effect of the March 1st transaction on the Goaling Company would
be to
A) decrease the balance in the cash account and decrease the balance in the retained
earnings account by $3,500.
B) increase the balance in the dividend expense account and increase the balance in the
dividend payable account by $3,500.
C) increase the balance in the dividend expense account and increase the balance in the
retained earnings account by $3,500.
D) increase the balance in the dividend payable account and increase the balance in the
prepaid dividend account by $3,500.
E) increase the balance in the dividend payable account and decrease the balance in the
retained earnings account by $3,500.
Caston Company had net income of $5,000,000 for the year ended December 31, 2X10.
The stockholders’ equity section of the Caston Company at December 31, 2X10 and
20X9, is as follows:
Determine
a. the book value per share of common stock at the end of 2X10.
b. the rate of return on common equity for 2X10.
c. the amount of cash dividends on common stock declared during 2X10.
Full Scale Cleaning and More paid 8 months insurance in advance amounting to
$3,200. A prepaid asset was established. At the end of the first month, the entry would
include a
A) debit to Prepaid Insurance for $3,200.
B) credit to Insurance Expense for $3,200.
C) debit to Insurance Expense for $2,800.
D) debit to Insurance Expense for $400.
E) debit to Prepaid Insurance for $400.
All of the following are included in the acquisition cost of land except
A) costs of clearing land to construct a building.
B) transfer taxes.
C) attorney’s fees to prepare closing documents.
D) cost of land survey.
E) architect fee for new building.
Auto Detailing, Inc. had the following transactions on August 1:
a. The company sold $2,100 of inventory costing $1,400. The customer will not be
billed until September. As of August 31, no entries have been made with respect to the
inventory that has been sold or the sale.
b. The company received a $2,000 payment from a customer for services to be
performed during August and September. On August 1, the entire $2,000 was placed in
the Unearned Revenue account. As of August 31, 40% of the work had been completed.
c. The company paid $7,200 for 4 months’ rent in advance. The entire amount was
placed into Prepaid Rent.
d. The company sold equipment costing $2,400 for $5,400 to a customer in return for a
3-month note. The sale was properly recorded on August 1. Auto Detailing, Inc. is
charging 12% interest on the note. The customer will pay the note and all interest after 3
months.
Prepare the appropriate journal entries for Auto Detailing, Inc. as of August 31, for each
of the above transactions.
Our House is a manufacturer of furniture. On June 16, 20X9, Our House received an
order from Old Fashioned, Inc., for 15 living room sets at $1,500 per set. The furniture
was delivered by Our House to Old Fashioned, Inc., on June 30, 20X9, at which time
Our House billed Old Fashioned under the terms 2/30, n/60. Old Fashioned, Inc., paid
Our House on July 25. Assume Our House uses a periodic inventory system.
Prepare the appropriate journal entries for Our House as of the following dates:
a. June 16
b. June 30
c. July 25
A preemptive right is
A) the right of stockholders to acquire a proportional amount of any new issues of
common stock.
B) the right of stockholders to fire and replace the board of directors.
C) the right of the corporation to enter into legally binding contracts without the direct
approval of the shareholders.
D) the right of stockholders to supersede the actions of top management.
E) the right of top management to act on behalf of the stockholders.
An example of an explicit transaction is
A) accruing interest payable at the end of the fiscal year.
B) recognizing depreciation expense.
C) cash disbursement for the payment of 3 months’ rent in advance.
D) accruing wages payable at month end.
E) recognizing rent expense by reducing prepaid rent.
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. Compatibility Services uses units-of-production depreciation, and the company
produces 40,000 units in 20X3, what will be the depreciation expense for 20X3?
A) $5,760
B) $6,400
C) $15,200
D) $8,000
E) $7,600
Which of the following is an example of an accrual of unrecorded revenues?
A) Interest accrues each month, but is paid quarterly.
B) Office supplies are purchased each month, but the account is not adjusted until the
end of the month.
C) Wages have been earned, but have not been paid at the end of the month.
D) An attorney has performed work for a client, but has not billed the client yet.
E) Equipment purchased will be beneficial for several years.
Milton Manufacturing manufactures and sells ornamental statues. Because of good
styling and marketing, sales have grown briskly. Milton has no pre-existing deferred tax
liability. During 20X3, the following transactions occurred:
1. On January 1, 20,000 new shares of common stock were sold at $100 per share.
2. Half of the proceeds from the stock sale were immediately invested in tax-free bonds
yielding 8% per annum. The bonds were held throughout the year, resulting in interest
revenue of $1,000,000 x .08 = $80,000.
3. Sales for the year were $9,000,000, with expenses of $4,300,000 reported under
GAAP (not including income tax expense).
4. Tax depreciation exceeded depreciation included in item 3 above by $500,000.
What would Milton report as income tax payable to the tax authorities assuming a 40%
tax rate?
A) $1,880,000
B) $1,680,000
C) $1,714,000
D) $2,680,000
E) $2,480,000
Panel Install has 200 units of inventory that have a replacement cost of $4.90 per unit.
The net realizable value of the inventory also declined. Originally this inventory cost
$5.50 per unit from an order of 400. What entry is required?
E) Make no entry.
Nolan Company had total credit sales for the past year of $800,000. As of year-end, but
before estimating bad debts, the company had a $70,000 debit balance in accounts
receivable and a $600 debit balance in the Allowance for Uncollectible Accounts. Upon
examination of the accounts receivable, it was found that 55% of the balance was 1-30
days old, 30% was 31-60 days old, 9% were 61-90 days old, and 6% were over 90 days
old. Nolan Company estimates the following bad debts percentages:
1-30 days 10%
31-60 days 25%
61-90 days 40%
Over 90 days 80%
Which of the following is the journal entry necessary to estimate bad debts using the
aging method?
Define a contingent liability and give an example. How are they reported on the balance
sheet?
The accountant for Tibbo Industries is required to prepare monthly financial statements.
Upon opening the file with the previous month’s balance sheets, the accountant notices
that they have been prepared incorrectly. Prepare a corrected November balance sheet
based on the information below.
Silver Line Transportation purchased inventory on account for $20,000 on April 2,
20X3. They use a periodic inventory system. The terms of the purchase were 3/10, n/45.
Shipping was $800, FOB destination. On April 4, the inventory was inspected, and it
was discovered that some was damaged. The seller granted Silver Line Transportation a
$600 allowance. On April 11, Silver Line Transportation paid the appropriate amount.
Prepare the journal entries for each of the events noted above.
Internal controls are often implemented to guard against theft of cash. To conceal the
theft of $1,500 cash, which journal entry might an accountant perform to best conceal
the theft?