The balance sheet equation is assets = liabilities – owner’s equity.
Revenue is recorded when accounts receivable are collected under the cash basis of
accounting.
Corporations are the most important form of business ownership because they conduct
the vast majority of business.
A measure of the preference to receive assets in the event of corporate liquidation is
referred to as liquidating value.
After all the revenue and expense accounts are closed, the Income Summary account
will have a credit balance if the entity has net income.
A statement of cash flows reports cash inflows and cash outflows on a particular day.
Current assets on the balance sheet are listed in descending order of monetary amount.
In a trial balance, the number of accounts that are debited do not have to equal the
number of accounts that are credited, but the total dollar amount of the debits must
equal the total dollar amount of the credits.
What is the market-to-book ratio?
A) market value of total company divided by book value per share
B) total stockholders’ equity divided by the number of common shares outstanding
C) total stockholders’ equity divided by the book value of common stock
D) market price per share divided by book value of assets
E) market price per share divided by book value per share
The market interest rate that equates the proceeds from a loan with the present value of
the loan payments is called
A) implicit interest rate.
B) nominal interest rate.
C) imputed interest rate.
D) coupon interest.
E) both A and C.
Annual reports include all, but which of the following?
A) A letter from corporate management
B) Footnotes that explain many elements of the financial statements in more detail
C) The report of the independent registered public accounting firm (auditors)
D) Statements by both management and auditors on the company’s internal controls
E) The company’s handbook for new employees
Machiel Manufacturing acquired a $60,000 machine on January 1, 20X9. The machine
is estimated to have a useful life of 4 years, and a residual value of $10,000. For
units-of-production depreciation purposes, the machine is expected to produce 500,000
units. If Machiel Manufacturing uses double-declining-balance depreciation, what is the
depreciation expense in 20X9?
A) $12,500
B) $16,000
C) $17,500
D) $25,000
E) $30,000
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. What is the balance in the accumulated depreciation account on December 31,
20X5, if Compatibility Services uses double-declining-balance depreciation?
A) $11,250
B) $15,000
C) $20,000
D) $46,250
E) $15,312
Bethany Industries purchased $3,000 of merchandise inventory, paying cash for 20% of
the purchase, with the remainder on account. The entry would include a
A) debit to Cash for $600, debit to Accounts Payable for $2,400, and credit to
Merchandise Inventory for $3,000.
B) debit to Cash for $800, debit to Notes Payable for $2,200, and credit to Merchandise
Inventory for $3,000.
C) debit to Merchandise Inventory for $3,000, credit to Cash for $600, and credit to
Notes Payable for $2,400.
D) debit to Merchandise Inventory for $3,000, credit to Cash for $600, and credit to
Accounts Payable for $2,400.
E) debit to Merchandise Inventory for $600, and credit to Cash for $600.
The adjusting entry to record accrued salaries has what effect on the basic accounting
equation?
A) Increases liabilities, decreases stockholders’ equity
B) Increases liabilities, increases stockholders’ equity
C) Decrease assets, decreases stockholders’ equity
D) Decrease assets, increases stockholders’ equity
E) Decrease liabilities, decrease assets
Slinger Company estimated at January 1, 20X9, that its income before taxes for the year
ended December 31, 20X9, would be $5,500,000. Slinger Company’s tax rate for the
year is 42%. The company made quarterly tax payments on April, June, September, and
December 15. The actual income before taxes for the year ended December 31, 20X9,
for the Slinger Company was $5,700,000. What was the balance in the income tax
payable account at December 31, 20X9?
A) $0
B) $84,000
C) $100,000
D) $144,000
E) $200,000
Machiel Manufacturing acquired a $60,000 machine on January 1, 2009. The machine
is estimated to have a useful life of 4 years, and a residual value of $10,000. For
units-of-production depreciation purposes, the machine is expected to produce 500,000
units. Machiel Manufacturing uses units-of-production depreciation and the company
produces 80,000 units in 2009; 130,000 units in 2010; and 160,000 units in 2011. What
is the depreciation expense in 2011?
A) $ 8,000
B) $13,000
C) $12,800
D) $16,000
E) $37,000
If an expense is understated in the current period, then
A) net income is understated in the current period.
B) net income is overstated in the current period.
C) revenues are overstated in the current period.
D) revenues are understated in the current period.
E) dividends are overstated in the current period.
Axle Motors Inc. has a December 31 year-end. On November 28, 20X2, the company
sold inventory for $600 on account with the terms 2/10, n/30. On February 28, 20X3,
the company recognized the account as uncollectible. If Axle Motors Inc. uses the
specific write-off method, what can be said with respect to the matching principle?
A) The matching principle is not violated using the specific write-off method.
B) 20X2 earnings are overstated by $600, and 20X3 earnings are understated by $600.
C) 20X2 earnings are understated by $600, and 20X3 earnings are overstated by $600.
D) 20X2 earnings are overstated by $600, and 20X3 earnings are overstated by $600.
E) 20X2 earnings are understated by $600, and 20X3 earnings are understated by $600.
White Enterprises sold $100,000 of sales in January, but customers returned $10,000 of
goods to White Enterprises during the month. In addition, White Enterprises gave cash
discounts of $1,000 to its customers. The beginning balance of the allowance for
uncollectible accounts was $2,000 and the company uses the aging of accounts
receivable to account for uncollectible accounts. What is the net sales figure for the
month of January for White Enterprises?
A) $89,000
B) $90,000
C) $92,000
D) $91,000
E) $100,000
The regulatory body overseeing disclosures for governmental organizations is
A) Government Accounting Standards Board
B) Government Accounting Standards Commission
C) Governmental Financial Reporting Board
D) Governmental Financial Reporting Commission
E) Governmental Taxation Standards Board
Which of the following statements associated with the allowance method for bad debts
is false?
A) The write-off of an uncollectible account does not affect the accounts receivable
subsidiary ledger.
B) The write-off of an uncollectible account does not affect the total amount of current
assets.
C) The write-off of an uncollectible account does not affect current liabilities.
D) The write-off of an uncollectible account does not affect the income statement.
E) The write-off of an uncollectible account does not affect stockholders’ equity.
Which account is usually a separate line item on the multiple-step income statement?
A) Cash
B) Dividends
C) Paid-in capital
D) Retained earnings
E) Income taxes
Presented below are the balance sheets of Tallton Company and Handel Company at
January 1, 2X13:
On January 1, 2X13, Tallton Company acquired 100% of the outstanding common
stock of Handel Company for $140 in cash. Assume the book value of Handel’s assets
and liabilities equals the market value.
What journal entry will Handel Company make on January 1, 2X13?
E) No journal entry is necessary.
Fletcher Products records adjusting entries monthly. The accountant at Fletcher
Products is having difficulty figuring out what amount to include as the adjustment.
Below are the accounts and amounts from Fletcher Products’ month-end balances on
February 28.
Additional Information:
Office supplies of $250 were purchased in the month of March. On March 31, office
supplies are $1,900.
Fletcher Products committed to a one-year rental agreement on February 28, 2009 and
paid $3,000 for the 12 month period starting March 1, 2009. This is the only rental
agreement for Fletcher Products.
A stamping machine is the only piece of equipment owned by Fletcher Products. It was
purchased on April 1, 2008 for $10,000 and the company estimates a zero salvage value
on it. Fletcher Products uses the straight line method of depreciation. The machine has a
useful life of 10 years.
Fletcher Products signed a 1-year, 24% note on January 1, 2009. The company
recognizes interest on a monthly basis and is required to pay the entire amount of
interest and principal upon the maturity date of December 31, 2009.
Required:
Prepare any necessary adjusting entries on March 31 based on the above information.
Assume that no adjusting entries have been made for the month ending March 31.
