Refer to Delco Construction. What is the company’s unadjusted cash balance in its
accounting records at March 31st before the reconciliation was completed?
a. $28,700
b. $29,100
c. $28,300
d. $29,600
When the market value of inventory items has declined below their cost, which method
would be the most appropriate in complying with GAAP?
a. retail
b. LIFO
c. lower of cost or market
d. FIFO
If a business has current assets of $62,000, total assets of $350,000, current liabilities of
$31,000, and total liabilities of $125,000, then its current ratio will be
a. 0.5.
b. 2.0.
c. 2.8.
d. 3.0.
An investor expects to receive payments of $3,000 every 6 months for the next 7 years.
If the market rate of interest is 4% per year compounded semi-annually, what is the
future value of these payments?
a. $22,302.84
b. $23,694.87
c. $47,921.82
d. $54,875.73
Randstad, Inc.
Information from the financial statements is provided below:
2015 2014
Net income $150,000 $120,000
Cash dividends paid on preferred stock 15,000 15,000
Cash dividends paid on common stock 42,000 38,000
Average number of preferred shares outstanding 20,000 20,000
Average number of common shares outstanding 105,000 95,000
Market price per share of common stock at year-end 25.10 22.70
Refer to Randstad, Inc. Earnings per share for 2015 would be reported as
a. $1.08.
b. $1.20.
c. $1.29.
d. $1.43.
Which of the following would appear on the balance sheet as a current liability?
a. A probable loss in the amount of $4 million from a pending lawsuit.
b. A possible loss in the amount of $4 million from a pending lawsuit.
c. A probable loss from a pending lawsuit, the amount of which is not yet determinable.
d. A lawsuit for $4 million for which the likelihood of loss is remote.
Which of the following statements is false regarding the choice between alternative
inventory costing methods?
a. Each alternative method provides for the same amount of cost of goods available for
sale to be allocated between ending inventory and cost of goods sold.
b. In terms of current costs, FIFO presents a more realistic balance sheet; whereas LIFO
presents a more realistic income statement.
c. Companies sometimes choose FIFO because it is easier and less expensive to
implement; whereas LIFO is often chosen for the tax benefits.
d. Companies sometimes choose FIFO because it presents a more realistic income
statement in terms of current market values.
While preparing the April 30th bank reconciliation, the accountant identified the
following items:
Company’s balance according to the general ledger $15,000
Outstanding checks 2,500
Bank service charge 15
A customer’s NSF check returned by the bank 100
What is the company’s adjusted cash balance at April 30th?
a. $12,385
b. $12,500
c. $14,885
d. $17,385
What is unearned revenue?
a. stockholders’ equity
b. liability
c. asset
d. revenue
The statement of stockholders’ equity shows an $8,000 increase in the common stock
account, a $22,000 increase in the paid-in capital in excess of par–common stock
account, and a $100,000 increase in retained earnings. If the common stock has a par
value of $3 and dividends of $10,000 were declared and paid during the year, what is
the amount of net income for the year?
a. $90,000
b. $100,000
c. $110,000
d. $140,000
Which internal control activity is followed when management authorizes the purchasing
department to order goods and services for the company?
a. segregation of duties
b. safeguarding of assets and records
c. checks on recorded amounts
d. clearly defined authority and responsibility
Described below are several transactions which might be recorded by a music supply
company. Several accounts from the company’s chart of accounts are also listed below.
Using these account titles, record each transaction in proper journal entry format. A
written explanation for each journal entry is not required.
Accounts:
Cash Common Stock
Accounts Receivable Retained Earnings
Inventory Sales Revenue
Accounts Payable Selling Expenses
Unearned Revenue Administrative Expenses
A) Bills are mailed for musical instruments sold to customers, $225,000
B) Customers pay for musical instruments in advance, $130,000
C) Administrative employees are paid their monthly salaries, $14,000
D) An invoice is received for $15,200 of new musical instruments purchased for
sale to customers; payment is due in 30 days
E) Payments are received from customers for amounts billed in a previous
transaction, $135,000
F) Full payment is made for the musical instruments invoice received in a previous
transaction
Earnings per share is an indication of how much
a. cash the company has for each share of outstanding common stock.
b. the company earned for each share of outstanding common stock.
c. the company paid as dividends for each share of common stock held by stockholders.
d. the company earned for each share of outstanding common and preferred stock.
Payment is made for the telephone bill which was recorded previously. What effect
does this transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and retained earnings increase.
c. Liabilities increase and contributed decreases.
d. Assets and liabilities decrease.
Failure to record the supplies used during the year would result in which of the
following?
a. Net income being understated.
b. An overstatement of liabilities.
c. Assets and Stockholders’ equity being overstated.
d. Total assets being understated.
A company purchased a patent for $100,000 at the beginning of 2013 which it believes
has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years.
How much amortization expense should be recorded in 2013?
a. $0
b. $5,000
c. $20,000
d. $100,000
Which of the following statements is false regarding the reason that inventory costs are
recorded as expenses when sold rather than when incurred?
a. It gives the user’s of the company’s financial statements a clearer picture of
profitability.
b. It helps the company achieve a better matching of expenses with related revenues.
c. It gives the company’s accounting personnel more time to record inventory
transactions.
d. Inventory is an asset at the time it is acquired.
The chronological record in which transactions are initially recorded in the order in
which they occur is called a(n)
a. T-account.
b. Chart of Accounts.
c. Trial Balance.
d. Journal.
Which of the following transactions does not affect total assets?
a. A bill is received for last month’s utilities.
b. Dividends are paid to stockholders.
c. Customers are billed for services provided on credit.
d. New equipment is purchased on credit.
Determine the following amounts for Ben & Terry’s Ice Cream:
A) Total Revenues for 2013.
B) Total Expenses for 2013.
C) Net Income for 2013.
Selected financial data for Rescue Rooter are presented below:
2015 2014
Total liabilities $1,205,000 $952,000
Common stock 250,000 225,000
Paid-in capital in excess of par–common stock 150,000 135,000
Retained earnings 155,000 145,000
The company’s debt-to-equity ratio for 2015 is
a. increasing, which may be a cause of concern for the company.
b. increasing, which is always a good sign from the viewpoint of investors.
c. decreasing, which may be a cause of concern for the company.
d. decreasing, which is always a good sign from the viewpoint of investors.
Refer to Landmark Company. What is the number of shares of common stock issued
and outstanding?
a. 50,000
b. 100,000
c. 6,000
d. 5,000
Which of the following is not a sound internal control procedure for cash
disbursements?
a. paying with a check to provide a record of the payment
b. designating an authorized check-signer who has no cash record keeping
responsibilities
c. marking supporting documents when paid in order to prevent duplicate payment
d. paying with petty cash to expedite the payment process
A company purchased equipment at the beginning of 2013 for $21,000 and decided to
depreciate it over a 5-year period using the straight-line method. The equipment’s
residual value was estimated at $1,000. The estimated fair market value at the end of
2013 was $20,000. Which of the following statements is correct at December 31, 2013?
a. The balance in the Equipment account is $17,000.
b. The book value of the equipment is $17,000.
c. The total accumulated depreciation is $4,200.
d. The equipment will be reported on the balance sheet at it fair market value of
$20,000.
On October 1st, a company borrowed $60,000 from Eighth National Bank on a 1-year,
7% note. If the company’s fiscal year ends on December 31st, a year-end adjusting
entry is required to increase
a. interest expense by $4,200.
b. notes payable by $1,050.
c. interest payable by $1,050.
d. prepaid interest by $3,150.
Refer to Aardvark Resale. Assume that the company estimates bad debts at 2% of net
credit sales.
A) What amount will the company record as bad debts expense for 2013?
B) How much is the net realizable value of accounts receivable reported on the
company’s balance sheet at December 31, 2013?
For each ratio listed, select whether an increase or decrease in the ratio is generally
considered to be better. (Choices may be used more than once.)
a. increase
b. decrease
27/ Current ratio
28/ Dividend yield ratio
29/ Asset turnover ratio
30/ Debt-to-equity ratio
31/ Times interest earned ratio
Gools, Inc. buys designer clothing to sell in its retail stores. Since much of the
merchandise comes from Europe, Gools, Inc. must pay freight charges. Which of the
following statements must be true?
a. Transportation-in is added to the inventory account under the periodic system.
b. Transportation-in is subtracted from purchases under the periodic system.
c. Freight charges are only paid by a buyer in a periodic system.
d. Transportation-in is included in the total cost of purchases used to determine cost of
goods sold in a periodic system.
Which one of the following is nota proper method of recognizing assets as expenses in
a particular accounting period?
a. Customers’ account balances in accounts receivable are assigned to expense in the
period in which each customer pays.
b. Prepaid insurance is assigned to expense as the insurance expires.
c. A building is depreciated and its cost is assigned to the current and future accounting
periods in which the building is expected to be used.
d. Merchandise inventory is assigned to cost of goods sold in the period the goods are
sold.
Which one of the following items is leastlikely to be found in a corporate annual
report?
a. Notes to the Financial Statements
b. Internal Budget Reports
c. Report of the Independent Accountants
d. Management’s Discussion and Analysis
Refer to Cabana Club. What impact will an adjustment to the Income Tax Expense
account on December 31, 2013 have on the accounting equation?
An example of a current liability is a note payable that is due in 8 months.
Why is cash management necessary?
Refer to Baker’s Pride Bakery. Based on the information provided, is the company
considered a business or non-business entity? How do you know by examining the
financial statements?
A friend of yours is seeking advice on which stocks to buy. Right now, she is looking
for a stock that pays cash dividends on a regular basis. She has obtained 6 years worth
of financial statements for the two stocks under consideration. Describe at least one
item on each financial statement that she should study to determine which stock is more
likely to pay future cash dividends.
The names of the four basic financial statements are ____________________,
____________________, ____________________, and ____________________
The initial amount of money borrowed or loaned is also known as the future value of
cash flows.
Refer to the information provided for Yu Company. Explain the advantages to Yu
Company for using the perpetual inventory system. Assume that Yu Company uses a
computer system which is linked to its cash registers and that all products have bar
codes that are read by bar code readers attached to the cash registers.
What financial statement items are investors and creditors most interested in and why?
The amount of working capital is more meaningful to users than the current ratio
because working capital provides information on the composition of the current
accounts.
Interest on a note payable can be calculated by multiplying the amount owed by the
interest rate by the fraction of year that represents the time elapsed since borrowing.
Vaden Company uses the periodic inventory system. The data presented below is from
the company’s accounting records for the year ended December 31, 2013:
Sales $600,000
Sales discounts 10,000
Purchases 350,000
Purchase returns 5,000
Beginning inventory 30,000
Ending inventory 40,000
Operating expenses 150,000
Transportation-in 10,000
Beginning retained earnings 71,000
Calculate the company’s cost of goods sold for 2013.
The accountant prepared the firm’s bank reconciliation and noted the following
adjustments to the company records for its checking account. In the table below,
indicate the impact on the accounting equation of recording the various adjusting
journal entries for these items by inserting an “I” for increase or “D” for decrease. It is
possible that an adjustment both increases and decreases an element of the accounting
equation, as in the case of the first adjustment which has been completed as an example.
Stockholders’
Adjustments to company records Assets
Liabilities Equity
1. NSF checks I, D
2. Check for utilities recorded twice by the company
3. Interest earned
4. Bank service charges
5. Bank debit memos for payment of rent
6. Bank credit memos for collection of a note receivable
The purchase of inventory is an important ____________________ activity for a
retailer.