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On July 1, Darin Company sold inventory costing $4,500 to Dee Company for $6,000,
terms 2/10, n/30. Both companies use a perpetual inventory system. What journal entry
will be recorded by Dee Company on July 1?
A) Debit Purchases and credit Accounts Payable for $6,000
B) Debit Inventory and credit Accounts Receivable for $6,000
C) Debit Inventory and credit Accounts Payable for $6,000
D) Debit Cost of Goods Sold and credit Inventory for $4,500
Investing activities on the statement of cash flows arise from transactions:
A) with lenders, borrowing and repaying cash.
B) with stockholders, selling company stock and paying dividends.
C) directly related to running the business to earn profit.
D) related to buying or selling productive resources with long lives.
Once the depreciation expense for a long-lived asset is calculated:
A) it cannot be changed because of the cost principle.
B) it may be revised based on new information.
C) any changes are not recognized until the date the asset is sold.
D) it cannot be changed due to the consistency principle.
Unearned Revenue, which represents the company's obligation to honor gift cards
previously issued to customers, totaled $5,500 at the beginning of the year and $7,500
at the end of the year. Customers purchased gift cards amounting to $42,000 during the
year. What was the amount of gift cards redeemed by customers during the year?
A) $40,000
B) $44,000
C) $55,000
D) $29,000
Spangle Corporation uses the unit-of-production method to estimate depreciation. The
company purchased a new machine for $18,000 that will produce an estimated 100,000
units over its useful life. The estimated residual value of the machine is $2,000. What is
the depreciation rate per unit?
A) $1.60
B) $1.80
C) $0.16
D) $0.18
A retailer using a periodic inventory system returned $3,000 of defective inventory
which was purchased on account from one of its wholesale suppliers. The entry to
record this transaction on the retailer's books would include a debit to:
A) Accounts Receivable.
B) Cost of Goods Sold.
C) Accounts Payable.
D) Inventory.
A company receives $100,000 cash from investors in exchange for stock. Several weeks
later, the company buys a $250,000 machine using all of the cash from the stock issue
and signing a promissory note for the remainder. The accounts involved in these two
transactions are:
A) Cash; Equipment; Noncurrent Investments; and Accounts Payable.
B) Cash; Noncurrent Investments; Common Stock; and Notes Payable.
C) Cash; Equipment; Common Stock; and Notes Payable.
D) Equipment; Notes Payable; and Retained Earnings.
How will a company's current ratio be affected by the purchase of equipment for cash?
A) The current ratio will increase because current assets increase.
B) The current ratio will decrease because current liabilities increase.
C) The current ratio will decrease because current assets decrease.
D) The current ratio will remain unchanged.
Which of the following statements about straight-line depreciation is correct?
A) Straight-line depreciation is the most common method of depreciation used in the
U.S. for financial reporting, but is not commonly used for taxes.
B) When the straight-line method is used to compute depreciation, an asset's carrying
value remains constant over the life of the asset.
C) Straight-line depreciation is an approved method to allocate the cost of an asset to
expense and it serves as a measure of the physical decline in the asset.
D) The straight line method of depreciation results in a straight-line increase of
depreciation expense over the life of an asset.
When evaluating its net profit margin for the current year, Coca Cola would most likely
use all of the following benchmarks except:
A) Anheuser Busch's net profit margin.
B) the Fortune 500's net profit margin.
C) Pepsico's net profit margin.
D) the average net profit margin for the soft drink manufacturing industry.
The purpose of a statement of retained earnings is to:
A) estimate the current value of a company's assets.
B) report the way that net income and dividends affected the financial position of the
company during the period.
C) show where the cash is flowing into and out of a company.
D) report the specific revenues and expenses arising during the period.
