All corporations acquire financing by issuing stock for sale on public stock exchanges.
Every transaction increases at least one account and decreases at least one account.
Bonds that are not backed by collateral are referred to as “debentures.”
A company with a high inventory turnover requires a larger investment in inventory
than another company of similar sales with a lower inventory turnover.
Corporations are governed by federal law.
The cost assigned to cost of goods sold and to inventory under the FIFO method will be
the same whether the perpetual or the periodic inventory system is used.
Internal control consists of the actions taken by people at every level of an organization
to achieve its objectives relating to operations, reporting, and compliance.
Which of the following statements about transaction analysis is not correct?
A) A transaction is an exchange or event that has a direct and measurable financial
effect.
B) Every transaction has at least two effects.
C) Cash is the account credited when a bank loan is repaid.
D) Notes Payable is the account debited when money is borrowed from a bank using a
promissory note.
Which one of the following events would not require a journal entry on a corporation’s
books?
A) 2-for-1 stock split
B) 100% stock dividend
C) 2% stock dividend
D) $1 per share cash dividend
Which of the following statements about the balance sheet is correct?
A) An item on a balance sheet that is labeled as “payable” is a liability of that company.
B) Assets are listed on the balance sheet in alphabetical order.
C) The balance sheet balances when assets plus liabilities equal stockholders’ equity.
D) The balance sheet proves that asset debits = liability credits.
During its first month of operations, Purrfect Pets purchased 6,000 bags of dog food at a
cost of $5 a bag and sold all 6,000 bags of dog food on account with payment terms of
3/10, net 30 for $10 each. A total of 2,600 of these bags were sold to customers who
paid within the discount period; the other customers paid after the discount period had
ended. Sales allowances totaling $200 were granted to customers whose dogs did not
like the dog food.
Required:
Part a. Calculate the gross profit for the month.
Part b. Calculate the gross profit percentage for the month.
The Allowance for Doubtful Accounts will have a debit balance before adjustments
when:
A) the company increased its collection efforts.
B) the company recovered some accounts previously written off.
C) bad debts were underestimated at the end of the prior period.
D) bad debts were overestimated at the end of the prior period.
Use the information above to answer the following question. What was the amount of
cash flows from (used in) investing activities?
A) ($1,000)
B) ($40,000)
C) ($10,000)
D) $10,000
Cash sales rung up by cashiers totaled $117,000. Cash in the drawer was counted and
found to be $119,000. The journal entry to record the day’s sales would include a:
A) debit to Cash for $117,000.
B) credit to Cash Overage for $2,000.
C) credit to Sales Revenue for $119,000.
D) debit to Sales Revenue for $117,000.
A declining fixed asset turnover ratio suggests that a:
A) company is not as efficient in using its fixed assets as it was in previous periods.
B) company’s net sales must be increasing.
C) company must have purchased some intangible assets.
D) company’s beginning fixed asset balance must be greater than its ending fixed asset
balance.
Closing entries:
A) are prepared before financial statements are prepared.
B) reduce the number of permanent accounts.
C) cause the revenue and expense accounts to have zero balances.
D) summarize the activity in every account.
A $15,000 overstatement of the current year’s ending inventory was discovered after the
financial statements for the year were prepared. How would that inventory error impact
the current year’s financial statements?
A) Current assets were overstated and net income was understated.
B) Current assets were understated and net income was understated.
C) Current assets were overstated and net income was overstated.
D) Current assets were understated and net income was overstated.
Many lending agreements require the borrowing company to maintain certain financial
standards as demonstrated by its financial statements. This feature is known as a:
A) bond certificate.
B) loan covenant.
C) renegotiation.
D) contingent liability.
Which of the following statements about the lower of cost or market rule is not correct?
A) The lower of cost or market rule sometimes causes the book value of inventory to be
written down below cost, but will never cause the book value of inventory to be
increased above cost.
B) The amount of inventory write-down is an expense which most companies report as
cost of goods sold.
C) Lower of cost or market is an inventory cost method used to determine cost of goods
sold and ending inventory.
D) The lower of cost or market (LCM) rule results in reporting inventory
conservatively, at an amount that does not exceed its actual value.
How competitors calculate inventory cost is least likely to affect comparisons between
competitors if inventory makes up a:
A) large percentage of assets and inventory costs are stable.
B) large percentage of assets and inventory costs are not stable.
C) small percentage of assets and inventory costs are not stable.
D) small percentage of assets and inventory costs are stable.
McDermott Company’s bank statement for September 30 showed an ending cash
balance of $1,350. The company’s Cash account in its general ledger showed a $995
debit balance. The following information was also available as of September 30.
The bank deducted $125 for an NSF check from a customer deposited on September 15.
The September 30 cash receipts, $1,250, were placed in the bank’s night depository
after banking hours on that date and this amount did not appear on the September 30
bank statement.
A $15 debit memorandum for checks printed by the bank was included with the
canceled checks.
Outstanding checks amounted to $1,145.
Included with the bank statement was a credit memo in the amount of $875 for an EFT
in payment of a customer’s account.
Included with the canceled checks was a check for $275, drawn on the account of
another company.
Required:
Part a. Prepare a bank reconciliation as of September 30.
Part b. Prepare the journal entries for the items on the company’s bank reconciliation as
of September 30.
Which of McGraw-Hill’s intangible assets gives it the legal right to prevent you from
borrowing a textbook from a friend and photocopying several chapters from the book?
A) Patent
B) Trademark
C) Franchise agreement
D) Copyright
Which of the following statements about methods of accounting for bad debts is
correct?
A) When the allowance method is used, the journal entry to write-off an uncollectible
account does not change the amount reported as Accounts Receivable, Net on the
balance sheet.
B) The two methods of accounting for bad debts that are acceptable under GAAP are
the allowance method and the direct write-off method.
C) When the allowance method is used, Bad Debt Expense is equal to the write-offs
that occurred during the period.
D) When the allowance method is used, if actual results differ from the estimates, the
prior year financial statements must be corrected.
Which of the following bank reconciliation items would notresult in a journal entry?
A) Service charge
B) Outstanding checks
C) A customer’s check returned NSF
D) Interest earned on deposits
The effect of a stock dividend is to:
A) decrease total assets and stockholders’ equity.
B) change the composition of stockholders’ equity.
C) decrease total assets and total liabilities.
D) increase the market value per share of common shares.
Which of the following statements about inventory costing methods is correct?
A) A change in inventory method is allowed only if it improves the accuracy of the
company’s financial results.
B) During a period of rising prices, LIFO results in a higher income tax expense than
does FIFO.
C) International Financial Reporting Standards (IFRS) allow the use of LIFO but not
FIFO.
D) In the U.S., if a company uses LIFO on the income tax return, it may use a different
method for financial reporting.
Pandey Inc. had the following activities during the month:
A. Borrowed $7,000,000 cash, signing a promissory note.
B. Bought a building for $800,000, paying $200,000 in cash and signing a promissory
note for $600,000.
C. Rented equipment at a cost of $10,000 per month and issued a check covering six
months’ rent.
D. Provided $104,000 of services and billed customers.
E. Purchased $30,000 of supplies on account.
F. Received a utility bill for the current period in the amount of $1,200.
G. Raised sales prices on 200 units from $400 per unit to $440 per unit.
H. Received a 50% deposit from a customer on a $20,000 order to be filled next month.
Required:
Analyze each of the activities (A) through (H) above with the goal of indicating their
effects on the basic accounting equation by completing the table below. Indicate the
accounts and amounts involved. Include a plus (+) or minus (-) sign before each number
to show its effect on the accounting equation. If the activity should not to be recorded as
a transaction, enter the word “None“ in the first column for that activity.
