The gross earnings for all employees is credited to Salaries and Salaries and Wages
Payable.
A liability for dividends is recorded on the date of record.
The higher the times interest earned ratio, the greater the risk of nonpayment of interest.
Goods on consignment are goods shipped by the owner to another company that holds
the goods and sells them on behalf of the owner.
If inventory is sold with terms of FOB shipping point, the goods belong to the customer
while in transit.
GAAP does not allow cash basis accounting to be used in external financial reports.
If revenues are not growing faster than expenses, then net income will decrease.
A stock dividend decreases the market price of the company’s stock.
An understatement of beginning inventory causes net income to be understated.
Lower of cost or market can be applied on an item or product category basis.
An adjusted trial balance is completed to check that debits still equal credits after the
income statement is prepared.
Expenses are the costs of operating the business that are paid for in the period covered
by the income statement.
Gains or losses from discontinued operations are reported on a separate line on the
income statement net of income tax effects.
Time Warner is a publishing and communications company, specializing in magazines,
cable television operation, television program development, and other
telecommunication services. Its financial statements show $37,666 in an account called
Unearned Revenue, which represents amounts that customers have paid in advance of
receiving magazines, cable television, and internet services. What type of account is
this and on what statement is it reported?
A) Asset; Balance Sheet
B) Liability; Balance Sheet
C) Revenue; Balance Sheet
D) Revenue; Income Statement
Faithful representation is a characteristic of external financial reporting that means:
A) the financial reports of a business are assumed to include the results of only that
business’s activities.
B) financial information can be compared across businesses because similar accounting
methods are applied.
C) the results of business activities are reported using an appropriate monetary unit.
D) financial information depicts the economic substance of business activities.
Which of the following measures would assist in assessing the profitability of a
company?
A) Fixed asset turnover
B) Times interest earned ratio
C) Inventory turnover ratio
D) Debt-to-assets ratio
On December 31, 2014, you count 300 tie clips in inventory. During the next quarter,
you carefully record the effect of each purchase and sale transaction on inventory. You
buy 128 tie clips during the next quarter. On March 31, 2015, you count 288 tie clips in
inventory. Which of the following is not correct?
A) Ending inventory on March 31, 2015 should be 288 tie clips.
B) Your company uses the perpetual inventory method.
C) Your company’s records would show that 140 tie clips were sold during the quarter.
D) The amount of shrinkage cannot be determined with this type of inventory system.
Choose the appropriate letter to match the term and the definition. There are more
definitions than terms.
TERM
1) ____ Consignment Inventory
2) ____ Cost of Goods Sold
3)____ Cost of Goods Sold Equation
4)____ Ending Inventory Equation
5) ____ Finished Goods Inventory
6) ____ Goods in Transit
7) ____ Gross Profit
8)____ Inventory
9)____ Merchandise Inventory
10) ____ Raw Materials Inventory
11)____ Work in Process Inventory
DEFINITION
A. A valuation rule that requires Inventory to be written down when its market value
falls below its cost.
B. Inventory costing method that assumes that the costs of the first goods purchased are
the costs of the first goods sold.
C. Beginning Inventory + Purchases – Ending Inventory
D. Consists of products acquired in a finished condition, ready for sale without further
processing.
E. The expense that follows directly after Net Sales on a multiple step income
statement.
F. Goods a company is holding on behalf of the goods’ owner.
G. Goods that are held for sale in the normal course of business or are used to produce
other goods for sale.
H. Goods that are in the process of being manufactured.
I. Inventory costing method that identifies the cost of the specific item that was sold.
J. The inventory that starts the manufacturing process.
K. Inventory that was in process and now is completed and ready for sale.
L. Inventory items being transported.
M. A measure of the average number of days from the time inventory is bought to the
time it is sold.
N. How many times (on average) that inventory has been bought or sold.
O. Requires that if LIFO is used on the income tax return, it also must be used in
financial statement reporting.
P. Beginning Inventory + Purchases – Cost of Goods Sold
Q. The difference between net sales and cost of goods sold.
R. Inventory costing method that assumes that the costs of the last goods purchased are
the costs of the first goods sold.
S. Inventory costing method that uses the weighted average unit cost of the goods
available for sale for both cost of goods sold and ending inventory.
After adjusting entries are prepared and posted, but before closing entries are prepared
and posted, the balance in Retained Earnings is equal to:
A) zero.
B) the difference between total assets and total liabilities.
C) the amount that is to be reported in the current year’s balance sheet.
D) the amount that was reported on the previous year’s balance sheet.
Sales revenue equals $367,810, sales returns & allowances are $10,000, and sales
discounts total $14,180. The cost of goods sold is $216,490, operating expenses are
$28,500, and the company incurs $31,640 of income tax expense. Which of the
following statements is correct?
A) Net sales equal $343,630 and gross profit is $98,640.
B) Net sales equal $67,000 and gross profit is $98,640.
C) Net sales equal $343,630 and gross profit is $127,140.
D) Net sales equal $367,810 and gross profit is $67,000.
Which of the following items is not a specific account in a company’s chart of
accounts?
A) Income Tax Expense
B) Sales Revenue
C) Unearned Revenue
D) Net Income
Use the information above to answer the following question. If Charter Company uses
the LIFO method, what is the cost of its ending inventory?
A) $38
B) $34
C) $44
D) $72
A company has $26,000 in its Land account, $10,000 in its Inventory account, and
$6,000 in its Notes Payable (short-term) account. If its only other account is Common
Stock, what is the balance of that account?
A) $10,000.
B) $42,000.
C) $30,000.
D) $22,000.
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term:
1) _____ Treasury Stock
2) _____ Cash Dividend
3) _____ IPO
4) _____ Preferred Stock
5) _____ Outstanding Shares
6) _____ EPS
7) _____ Stock Dividend
8) _____ Residual Claim
9) _____ ROE
Definition:
A. When a company first starts selling stock to the public.
B. The additional shares of stock a company can issue beyond what are already issued.
C. Earnings per share that reflects treasury and preferred stock.
D. This payment raises stockholders’ equity.
E. (Net income less preferred dividends) divided by average stockholders’ equity.
F. The shares of stock held by stockholders.
G. Stock shares that pay a fixed dividend rate but have no voting rights.
H. (Net income less preferred dividends) divided by the average number of outstanding
common shares.
I. Stock that allows owners to be listed among creditors.
J. This dividend does not reduce stockholders’ equity.
K. The shares of stock held by the issuing company.
L. Stockholders’ entitlement to remaining assets after creditors are repaid.
M. This payment decreases stockholders’ equity.
The Dubious Company operates in an industry where all sales are made on account.
The company has experienced bad debt losses of 1% of credit sales in prior periods.
Presented below is the company’s forecast of sales and expenses over the next three
years.
Required:
Part a. Calculate Bad Debt Expense and net income for each of the three years,
assuming uncollectible accounts are estimated as 1.0% of sales.
Part b. Briefly describe the trend in net income changes from Year 1 to Year 2 and from
Year 2 to Year 3.
Part c. Assume that the company changes its estimate of uncollectible credit sales to
1.0% in Year 1, 2.0% in Year 2 and 1.5% in Year 3. Calculate the Bad Debt Expense
and net income for each of the three years under this alternative scenario.
Part d. Briefly describe the trend in net income changes determined in requirement c
from Year 1 to Year 2 and Year 2 to Year 3.
Part e. Explain some of the factors that might cause the estimate of uncollectible
accounts to vary from year to year (as in the assumption set forth in part c above).
A company typically records the amount owed to suppliers for goods or services when:
A) they are ordered.
B) a verbal commitment to purchase the goods or services has first been made.
C) payment is made.
D) the goods or services are received.
Which of the following business organizations has only one owner?
A) Corporation
B) Sole proprietorship
C) Public company
D) Partnership
Company X has net sales revenue of $1,250,000, cost of goods sold of $760,000, and
all other expenses of $290,000. The beginning balance of stockholders’ equity is
$400,000 and the beginning balance of fixed assets is $361,000. The ending balance of
stockholders’ equity is $600,000 and the ending balance of fixed assets is $389,000.
Required:
Compute the return on equity (ROE) ratio.
Condensed financial data of Monopoly Corporation appear below:
A cash dividend was declared and paid in full to stockholders during the year.
Required:
Solve for the missing numbers and summarize your answers in the table below. Be sure
to indicate in parentheses ( ) if the missing number is negative (that is, a cash outflow).
The following activities took place during the month of July at a corporation that earns
service revenue as a law firm.
1) The law firm completes legal work relating to a real estate transaction and is paid
$5,500 when the papers are signed.
2) Legal work in the amount of $26,000 is performed on account for customers.
3) A customer makes a payment of $2,500 on account for legal services that were
performed last month.
4) A new client calls to request assistance in filing the documents for a patent; a fee of
$3,000 is paid and the parties agree that the work will commence next month.
5) A client pays a retainer (deposit) of $15,000 for legal work; one-third of the work is
performed in the current month and the remainder will be provided over the next two
months.
6) The law firm borrows $10,000 from a local bank.
Required:
Indicate what accounts would be used to record the initial transaction arising from each
activity.
Describe each of the five components of an internal control system.
Identify whether a company should debit (Dr) or credit (Cr) its Cash account to record
each of the following transactions:
1) _____ The company writes a $197.06 check.
2) _____ The company deposits a $5,000 check into its account.
3) _____ In a bank reconciliation, the company discovers that it recorded a $127.35
payment to a supplier as $27.35.
4) _____ The bank pays $16.00 interest on the company’s account.
5) _____ The company electronically transfers $867 to a supplier.
6) _____ A customer check in the amount of $31 is returned by the bank as NSF.
7) _____ The bank charges $12 in fees to the company’s bank account.
8) _____ When preparing the bank reconciliation, the company’s accountant discovers a
check in the amount of $1,000 that had been written but had not been recorded.
9) _____ A customer electronically transfers $189.43 to the company’s bank account.
For each of the following events, match the event with the section of the bank
reconciliation in which it is listed, if at all, and indicate the operation performed.
On September 1, a company established a petty cash fund of $100. On September 10,
the petty cash fund was replenished when there was $16 remaining and there were petty
cash receipts for supplies, $27, and postage, $54. On September 15, the petty cash fund
was increased to $125.
Required:
Prepare the journal entries, if any, required on September 1, September 10, and
September 15.
On January 1, 2016, Effron Inc. sells $2 million of 8% bonds at face value with interest
to be paid at the end of each year. Effron accrues interest at the end of each quarter
during the year.
