Refer to Ladder Distributors. Suppose the company reissued 1,000 shares of its treasury
stock on June 1, 2015, for $39 each. Which of the following is true regarding the entry
required to record this transaction?
a. A debit to treasury stock is required for $50,000.
b. A credit to treasury stock is required for $39,000.
c. A debit to retained earnings is required for $11,000.
d. A debit to paid-in capital from treasury stock transactions is required for $3,000.
Refer to Bay Camera. What amount will be reported as Retained Earningson the
Balance Sheet at December 31, 2013, assuming this is the first year of operations?
a. $22,500
b. $27,500
c. $42,500
d. Not enough information is provided.
The stockholders’ equity section of the balance sheet at January 1, 2015, appeared as
follows:
Common Stock, $2 par, 50,000 shares authorized, 20,000 shares issued $ 40,000
Paid-in Capital in Excess of Par–Common Stock 120,000
Total Capital Stock 160,000
Retained Earnings 300,000
Less: Treasury Stock (10,000 shares at cost) 80,000
Total Stockholders’ Equity $380,000
On March 1, 2015, the company sold 800 shares of treasury stock at $25 per share.
A) Prepare the journal entry to record the March 1 transaction.
B) Is the excess sale price over the cost of the treasury stock reported on the income
statement? Why or why not?
During 2013, the accounts receivable balance increased.
a. This indicates that credit sales exceeded collections on account during the period.
b. This increase is added to net income in the operating activities section of a statement
of cash flows prepared under the indirect method.
c. This increase is added to credit sales to determine the collections on account during
the period.
d. This indicates that there were no cash sales during the period.
a. 2, 3, 4, 5, 1
b. 3, 2, 4, 5, 1
c. 3, 2, 4, 1, 5
d. 3, 2, 5, 4, 1
A capital lease liability would appear on the balance sheet as
a. stockholder’s equity.
b. long-term liability.
c. current asset.
d. long-term asset.
Which one of the following steps in the accounting cycle is completed only at the end
of an accounting period?
a. business transactions are recorded
b. adjustments are recorded
c. transactions are journalized
d. journal entries are posted to the ledger
Refer to Lanier Tech. Assume that no dividends were declared or paid during the first
year of operations. What is the dollar amount of total stockholders’ equity reported on
the balance sheet at December 31, 2015?
a. $ 60,000
b. $120,000
c. $555,000
d. $725,000
Which of the following best describes a company’s operating activities?
a. Operating activities are cash flows directly related to earning income.
b. Operating activities are necessary to provide the money to start a business.
c. Operating activities are needed to provide the valuable assets required to run a
business.
d. Operating activities represent the right to receive a benefit in the future.
A company acquired land by issuing its common stock. How should this transaction be
disclosed when a statement of cash flows is prepared?
a. In a supplemental schedule of noncash investing and financing activities or in a note.
b. The acquisition of land should be reported as an investing activity and the issuance of
the stock as a financing activity.
c. In a separate section of the statement of cash flows.
d. The transaction does not need to be disclosed.
Fresh n” Fit Cuisine purchased land and a building for $320,000 so that it could open a
new restaurant. The building’s fair market value at the time of purchase was $220,000.
In addition, the following costs were incurred prior to the restaurant’s opening:
Transfer taxes $10,000
Interest incurred on the mortgage loan taken out to make the purchase 4,000
Attorney and real estate agent’s fees 15,000
Repave the parking lot 6,000
How much will be recorded as land improvements?
a. $25,000
b. $6,000
c. $106,000
d. $125,000
Which of the following is the correct date format for the financial statement heading?
a. Balance Sheet for the Year Ended June 30, 2013
b. Income Statement at December 31, 2013
c. Income Statement for the Year Ended December 31, 2013
d. Statement of Retained Earnings at December 31, 2013
Which inventory costing method results in the lowest income tax expense during a
period of decreasing purchase prices?
a. FIFO
b. LIFO
c. specific identification
d. weighted average cost
Services are provided for customers who pay for their services immediately. 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 retained earnings decreases.
d. Assets and liabilities decrease.
Occasionally, companies engage in important investing and financing activities which
do notaffect cash. If the amount of the transaction is significant, how should it be
disclosed when financial statements are prepared?
a. In a separate section in the cash flow statement with a corresponding zero balance.
b. In investing activities.
c. In a note to the financial statements or in a supplemental schedule.
d. In both investing and financing activities.
A debit memo appeared on the May bank statement. How should this amount be treated
on the May bank reconciliation?
a. Add it to the company’s balance.
b. Add it to the bank balance.
c. Deduct it from the company’s balance.
d. Deduct it from the bank balance.
Refer to the information provided for Paschal Exports. If the FIFO method of inventory
costing is used, determine the following amounts:
A) Cost of goods sold for the units sold on July 10th?
B) Ending inventory on July 31st?
On the balance sheet, the cumulative amount of plant and equipment already expensed
is reported in an account called
a. accumulated amortization.
b. accumulated depreciation.
c. amortization expense.
d. depreciation expense.
In a periodic inventory system, the cost of purchases is recognized as
a. an integral part of the calculation of cost of goods sold.
b. the only part of the calculation of cost of goods sold.
c. an increase in the inventory account.
d. an increase in an asset account.
Which of the assets listed below is considered the most liquid?
a. Accounts receivable
b. Cash
c. Inventory
d. Prepaid insurance
A twenty-year lease obligation would appear on the balance sheet as
a. current asset.
b. long-term liability.
c. long-term asset.
d. stockholders’ equity.
Refer to Gainesville Truck Center. Which of the following expense accounts will be
recorded as a result of this payroll transaction?
1 Wages Expense
2 Federal Unemployment Tax Expense
3 State Unemployment Tax Expense
4 Social Security Tax Expense
5 Medicare Tax Expense
a. 1, 2, and 3
b. 1, 4, and 5
c. 2, 3, 4, and 5
d. All of the accounts are needed to record the company’s payroll.
Refer to Beaver Tree Service. The company’s expenses are:
a. $100,000
b. $150,000
c. $450,000
d. $275,000
Refer to Lanier Tech. What is the number of the company’s unissued shares of common
stock at December 31, 2015?
a. 6,000
b. 8,000
c. 40,000
d. 42,000
A physical count of inventory is required even though the company uses the perpetual
inventory system. This is an example of which of the following internal control
activities?
a. segregation of duties
b. safeguarding of assets and records
c. checks on recorded amounts
d. clearly defined authority and responsibility
Beginning accounts receivable were $200,000 and ending accounts receivable were
$300,000. Assuming cash collections totaled $1,100,000, what were credit sales?
a. $1,200,000
b. $1,100,000
c. $1,300,000
d. $1,500,000
Refer to Gainesville Truck Center. When the company journal entry is recorded for the
payment of these wages and related liabilities, which of the following statements is true
regarding the impact on the accounting equation?
a. Both assets and liabilities will decrease.
b. Assets, liabilities, and stockholders’ equity will all decrease.
c. Assets and stockholders’ equity will decrease, while liabilities will increase.
d. Both assets and liabilities will increase.
Use the selected financial information provided below to answer the following
questions.
2015 2014
2013
Accounts Receivable $ 63,750 $ 60,000 $ 55,500
Total Assets 487,500 615,750 600,000
Net Credit Sales 600,000 487,500 540,000
Net Income 11,250 65,000 9,000
A) Calculate the company’s accounts receivable turnover ratio for 2015 and 2014.
B) Determine the number of days it would take to turn over accounts receivable at
December 31, 2015 and 2014.
C) What could have caused the change?
Which of the following statements is false?
a. A balance sheet reports a company’s cash balance at a specific date.
b. An income statement reports the amounts of revenue and expense on an accrual
basis.
c. A statement of retained earnings reports the amount of cash received from operating
activities and the amount of cash paid for dividends.
d. A statement of cash flows explains the changes in cash from operating, investing, and
financing activities.
The following items were obtained from the financial records:
Accounts receivable, December 31, 2014 $100,000
Accounts receivable, December 31, 2013 144,000
Sales for 2014 945,000
How would the change in accounts receivable be reported in the operating activities
section of the statement of cash flows under the indirect method?
a. As an addition to sales.
b. As a deduction from sales.
c. As an addition to net income.
d. As a deduction from net income.
A company declared and paid $1 million in dividends to its common stockholders. The
effect of this transaction is that the
a. earnings per share decreased.
b. earnings per share increased.
c. current ratio increased.
d. debt-to-equity ratio increased.
A retail company issues numerous discount coupons throughout the year. A balance in
the estimated liability account indicates
a. that an error has been made in posting.
b. the amount of coupons that are expected to be redeemed in the future.
c. the amount of coupons already redeemed.
d. that more coupons were redeemed than estimated.
A trial balance is a(n)
a. optional financial statement used only by creditors.
b. tool used to prove the equality of debits and credits in the general ledger.
c. list of accounts and their balances taken from the chart of accounts.
d. financial statement which can be used in place of a balance sheet.
A company has total assets of $350,000 consisting of current assets of $115,000,
property, plant, and equipment of $200,000, and other assets of $35,000. The company
has total liabilities of $100,000 consisting of current liabilities of $65,000 and other
liabilities of $35,000. What is the current ratio?
a. 3.50
b. 1.15
c. 1.77
d. 5.38
Appropriations of retained earnings must be reported
a. in a separate account within the equity section of the balance sheet.
b. within “unrestricted retained earnings” on the balance sheet, with footnote disclosure
to describe the appropriation.
c. as a prior period adjustment on the statement of changes in retained earnings.
d. only within the footnotes accompanying the financial statements.
An internal control activity that separates responsibilities so that no one person handles
all the tasks for a particular activity is referred to as ____________________.
A corporation may become chartered by applying to the federal government.
The indirect method of preparing a statement of cash flows begins with net income and
then adjusts it for noncash items to produce net cash flow from
____________________.
Depreciation is a noncash expense that is subtracted from net income in determining
cash provided from operating activities under the indirect method.
____________________ is the allocation of the cost of a tangible, long-term asset over
its useful life to expense.
Capitalization of retained earnings occurs when a corporation’s stock is split.
The ___________________ is a list of each active account and its debit or credit
balance at a specific point in time.
Closing entries are necessary to assure that the company’s net income for an accounting
period is accurately determined.
The independent auditor’s report conveys whether or not the business is a good
investment.
Ratios that focus on cash are more useful than those that focus on income in the
evaluation of a company’s liquidity.
Acquisition cost includes all of the costs that are normal and necessary to acquire and
maintain a plant asset over its useful life.
If ending inventory is overstated, then net income is overstated as well.
An obligation that involves an existing condition for which the outcome is notknown
with certainty and depends upon some event that will occur in the future is called a(n)
____________________.
Would a banker be more interested in the liquidity or profitability of a company?
Explain.
The amount of money the borrower agrees to repay at maturity is usually referred to as
the ____________________.
____________________ refers to the likelihood that a company will be able to pay its
current obligations as they come due.
A(n) ____________________ arises when a business purchases goods or services on
credit.