A contra account is added to the account it offsets.
The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report
certifying that the financial statements are free of error.
A company performs a service, sells inventory that it purchases from others, or
manufacturers a product; it cannot serve more than one of these functions.
Dividing up the continuing life of a company into shorter periods is called the time
period assumption.
Treasury stock is a corporation’s own stock that has been issued and subsequently
repurchased by the corporation.
Special items, such as gains or losses relating to changes in the value of certain balance
sheet accounts, are reported below the net income line on the income statement.
The gross profit percentage is computed by dividing operating income by net sales.
State laws often restrict dividends to the amount of Retained Earnings.
In a perpetual inventory system, only one journal entry is required to record the sale of
inventory.
The balance of which of the following accounts appear in the credit column of an
adjusted trial balance?
A) Income Tax Payable
B) Depreciation Expense
C) Prepaid Insurance
D) Interest Receivable
Assume that, prior to preparing adjusting entries at the end of the year, Caterpillar
Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of
$500,000,000. Which of the following year-end adjustments would cause Caterpillar’s
fixed asset turnover ratio to increase?
A) Caterpillar accrues and capitalizes $50,000 for self-constructed assets.
B) Caterpillar accrues a liability for ordinary repair costs in the amount of $50,000.
C) Caterpillar writes down an impaired piece of equipment by $50,000.
D) Caterpillar increases the sales returns & allowances by $50,000.
Inventory shipped FOB destination and in transit on the last day of the year should be
included in:
A) the inventory balance of the seller.
B) the inventory balance of the buyer.
C) neither the inventory balance of the buyer or the seller.
D) both the inventory balance of the buyer and the seller.
E. Choudhury Company’s price/earnings ratio is 15.3. Its closest competitor, Bhatt, Inc.
has a Price/Earnings ratio of 9.4. Which of the following would not be a valid
conclusion to draw from a comparison of the two companies’ Price/Earnings ratios?
A) E. Choudhury Company’s stock is overpriced.
B) Investors believe E. Choudhury Co. has a brighter future than Bhatt, Inc.
C) E. Choudhury Company has been more profitable than Bhatt, Inc.
D) The stock price of E. Choudhury Company has been bid up due to rumors of a
merger.
Which of the following statements is correct?
A) Specific identification is the most practical, but least accurate, measure of cost and
net income.
B) When unit costs are increasing, the weighted average cost method yields a cost of
goods sold between that of FIFO and LIFO.
C) FIFO will lead to the highest net income if unit costs are falling.
D) LIFO will always yield a smaller net income than FIFO.
If net sales revenue and the average book value of fixed assets both rise 5%:
A) the fixed asset turnover ratio will rise.
B) the fixed asset turnover ratio will fall.
C) the fixed asset turnover ratio will stay the same.
D) the impact on the fixed asset turnover ratio cannot be determined since the
beginning values are unknown.
The annual interest payment on bonds:
A) increases over the life of the bonds when bonds are issued at a discount.
B) decreases over the life of the bonds when bonds are issued at a discount.
C) stays constant over the life of the bonds, regardless of whether bonds are issued at
par, a discount, or a premium.
D) increases over the life of the bonds under the effective-interest method, but stays
constant under the straight-line method of amortization.
Which of the following is not needed to prepare a statement of cash flows?
A) Statement of Retained Earnings
B) Comparative balance sheets
C) Additional data concerning selected accounts that increase and decrease as a result of
investing and/or financing activities
D) A complete income statement
PayPal and national credit card companies charge a fee for their services. How do
sellers report these transaction fees on their financial statements?
A) In current assets on the balance sheet
B) As a deduction from net sales revenue on the income statement
C) As selling expenses on the income statement
D) As cost of goods sold on the income statement
Bearskin Inc. has recorded all the year-end adjustments. Its revenue accounts total
$190,000 and its expense accounts total $130,000. The closing entry to close the
income statement accounts for the year will debit the various:
A) expense accounts for a total of $130,000, debit Retained Earnings for $60,000, and
credit the various revenue accounts for a total of $190,000. .
B) revenue accounts for a total of $190,000, credit the various expense accounts for a
total of $130,000, and credit Retained Earnings for $60,000.
C) expense accounts for a total of $130,000, credit the various revenue accounts for a
total of $190,000, and credit Retained Earnings for $60,000.
D) revenue accounts for a total of $190,000, debit Retained Earnings for $60,000, and
credit the various expense accounts for a total of $130,000.
Research has found that three factors exist when fraud occurs. Identify and describe
each of the three factors of the fraud triangle.
Identify whether each of the following list of items is an operating activity cash flow
(O), an investing activity cash flow (I), a financing activity cash flow (F), or none of
these (None).
1) _____ Proceeds from sale of equipment
2) _____ Cash collected from customers
3) _____ Payments to suppliers
4) _____ Stock repurchases
5) _____ Repayment of bond principal
6) _____ Payment of income tax
7) _____ Purchases of bonds from other companies
8) _____ Purchases of equipment financed with a note
9) _____ Interest and cash dividends received
10) _____ Payment of cash dividends
Choose the appropriate letter match each financial performance ratios with the
appropriate category.
Ratio
1) ___ Debt-to-assets ratio
2) ___ Receivables turnover ratio
3) ___ Fixed asset turnover ratio
4) ___ Current ratio
5) ___ Return on equity
6) ___ Price earnings ratio
7) ___ Times interest earned ratio
8) ___ Quick ratio
9) ___ Inventory turnover ratio
10)___ Earnings per share
Category
P – Profitability
L – Liquidity
S – Solvency
Fill in the blanks below with the words “higher” and “lower” to indicate which
inventory costing method causes the value to be higher and which causes it to be lower.
Assume that the cost of inventory is decreasing.
Haltom Company updates its inventory perpetually. The company reported a beginning
inventory of $7,500. During the year, the company recorded inventory purchases of
$38,500 and cost of goods sold of $25,000.
Required:
Determine the amount of ending inventory.
Maple Industries Inc. deposits all cash receipts on the day when they are received and it
makes all cash payments by check. At the close of business on December 31, its Cash
account shows a debit balance of $18,303. The company’s bank statement as of June 30
shows an ending cash balance of $15,921. The following information was also
available.
-Outstanding checks as of December 31 total $2,261.
Included with the bank statement was a debit memo in the amount of $35 for service
charges.
-Check No. 2519, listed with the canceled checks, was correctly drawn for $805 in
payment of a utility bill on December 16. The company mistakenly recorded it with a
debit to Utilities -Expense and a credit to Cash in the amount of $850.
-The December 31 cash receipts of $3,425 were placed in the bank’s night depository
after banking hours and were not recorded on the December 31 bank statement.
The bank deducted $1,228 for an NSF check from a customer deposited on December
10.
Required:
Prepare the journal entries for the items that would appear on the company’s bank
reconciliation as of December 31. (Do not prepare the bank reconciliation.)