Implicit transactions are events such as cash receipts and disbursements that trigger
nearly all day-to-day routine entries.
A cross-sectional evaluation of financial ratios involves comparing a company’s
financial ratios with the ratios of other companies.
The dividend-yield ratio must appear on the face of the balance sheet.
If ending inventory is understated by $3,000 in 20X3, net income in 20X4 will be
overstated.
Wages and salaries expense plus the increase in wages and salaries payable equals cash
paid for wages and salaries.
Deposits in the bank are assets to the depositor but they are liabilities to the bank.
A debit increases the balance of assets and liabilities.
A transaction does not require counterbalancing entries so that the total assets are equal
to the total liabilities plus owner’s equity.
If unit costs and prices did not fluctuate, specific identification, LIFO, FIFO, and
weighted-average would show the same ending inventory and cost of goods sold
balances.
Bonds are typically sold through
A) board of directors.
B) underwriters.
C) corporations.
D) commercial insurance companies.
E) None of the above
A deferred tax liability that is due in 5 years is classified as a
A) long-term liability.
B) current liability.
C) stockholders’ equity account.
D) long-term asset.
E) current asset.
A series of equal cash flows to take place at the end of successive periods of equal
length is called
A) rate of return.
B) an ordinary annuity.
C) a serial note.
D) a deferred annuity.
E) a perpetuity or consul.
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 are earnings before tax for shareholder reporting?
A) $4,780,000
B) $4,700,000
C) $4,500,000
D) $6,780,000
E) $6,200,000
All of the following would be included in a company’s financing activities except
A) receipt of dividends.
B) payment of dividends.
C) issuing stock.
D) purchase of treasury stock.
E) issuing bonds.
Firelog Company began business on July 1, 20X8, by selling 1,000 shares of $1 par
value capital stock at $20 per share. The effect of this transaction on Firelog Company
would be to
A) increase the capital stock at par account by $20,000 and increase the cash account by
$20,000.
B) increase the capital stock at par by $20,000 and decrease the cash account by
$20,000.
C) decrease the capital stock at par by $20,000 and increase the cash account by
$20,000.
D) increase the capital stock at par by $1,000, increase the paid-in capital in excess of
par account by $19,000, and increase the cash account by $20,000.
E) decrease the capital stock at par by $1,000, decrease the paid-in capital in excess of
par account by $19,000, and increase the cash account by $20,000.
All of the following are included in the acquisition cost of equipment except
A) maintenance costs one year after purchase.
B) installation costs.
C) transportation costs.
D) sales tax.
E) cost to unbox and repair prior to use.
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. If Compatibility Services uses double-declining-balance depreciation, what is the
depreciation expense in 20X3?
A) $14,400
B) $20,000
C) $17,600
D) $25,000
E) $27,776
The entry to close net income at the end of the accounting period involves a
A) debit to Retained Earnings and a credit to Income Summary.
B) debit to Income Summary and a credit to Retained Earnings.
C) debit to Accounts Receivable and a credit to Retained Earnings.
D) debit to Retained Earnings and a credit to Accounts Receivable.
E) debit to Income Summary and a credit to Accounts Receivable.
The characteristics that enhance relevance and faithful representation are
A) predictive value; confirmatory value.
B) validity; verifiability.
C) understandability; timeliness; predictive value.
D) comparability; verifiability; timeliness; understandability.
E) consistency; understandability; confirmatory value.
Manituc Beading, which resides in a 5% sales tax county, sold $13,000 worth of beads
to customers in January, 2X03 for cash. The company uses the periodic inventory
system. Since beads were difficult to carry home, Manituc Beading offered a
convenient carrying case for customers to use with the stipulation that it should be
returned by the end of the month of the original sale. If customers did not return the
case by January 31, 2X03, Manituc Beading’s agreement was to keep the deposit
money. Customers paid $200 cash in carrying case deposits during January, 2X03 and
Manituc Beading returned $170 of the money to customers by January 31, 2X03. In
addition, although Manituc Beading rarely encounters batches of defective beads, it
does occur on occasion. Manituc Beading estimates .5% of sales to be returned as
defective, and offers a cash refund warranty for one year after purchase.
Required:
1. Prepare the journal entry to record sales and sales tax for January, 2X03.
2. Prepare the journal entry to record returnable deposit money received in January,
2X03.
3. Prepare the journal entry to record deposit money returned to customers and the
portion of the deposit money kept by Manituc Beading.
4. Prepare the journal entry to record estimated product warranties.
Bettle Company has 500,000 shares authorized and 100,000 shares issued and
outstanding of $4 par value common stock. The current market price of the stock is $25
per share. On May 1, 2X13, the company declared and issued a 5% stock dividend.
What journal entry would the company make on May 1, 2X13?
The stockholders’ equity section of the balance sheet for Pental, Inc., follows before the
stock dividend.
Pental, Inc., declared a 5% stock dividend when the market price per share was $10. In
the space next to each account, determine the amounts of each account after the stock
dividend was distributed.
________ Common stock
________ Additional paid-in capital
________ Retained earnings
Describe the three forms of business entities and state how they differ.
In 2012, Jaycox Custom Bikes had net income of $575,000. Jaycox also recorded
$215,000 in depreciation. The company also had the following changes in its balance
sheet accounts.
Compute the net cash provided by operating activities using the indirect method.
Specify whether each of the following terms belong on the Balance Sheet, Income
Statement, or Statement of Stockholders’ Equity and whether each is an asset, liability,
revenue, expense, or neither.
1. accrual
2. sales
3. accounts receivable
4. account payable
5. cost of sales
6. prepaid rent
7. equipment
8. net earnings
9. dividends
10. predictive value