Which pair of accounts has the same set of rules for debit and credit entries?
a. common stock and accounts payable
b. salary expense and retained earnings
c. cash and notes payable
d. sales revenue and accounts receivable
Cost of two-year lease
Match the most probable matching method to the costs listed. (Choices may be used
more than once.)
a. Directly match a specific revenue
b. Indirectly match with the period during which it will provide revenue
c. Not recognized in this period
Which of the following statements regarding liabilities is true?
a. Liabilities must be legally enforceable to a known recipient.
b. Liabilities arise from past activities that require some future sacrifice of economic
benefits.
c. The accounting principles followed in the U.S. require that current liabilities be listed
in order of decreasing amounts on the balance sheet.
d. The accounting principles followed in the U.S. differ substantially from those of
other countries, especially with respect to current liabilities.
The qualitative characteristics of accounting information include
a. reliability.
b. cash flow information.
c. all accounting information.
d. assets reported on the Balance Sheet.
Which of the following statements is false regarding the issuance of stock versus bonds
to raise capital for a corporation?
a. The declaration of dividends reduces the amount of the corporation’s taxable income.
b. Interest accrues; whereas, dividends do not accrue.
c. The payment of bond interest is a contractual requirement.
d. The payment of dividends is at the discretion of the board of directors.
The system used by companies to record the effects of transactions on the accounting
equation.
Match the following principles with their correct definition.
Match the following principles with their correct definition.
a. Comparability g. Historical cost
b. Conservatism h. Matching
c. Double-entry accounting i. Monetary unit
d. Economic entity j. Revenue recognition
e. Going concern k. Time period
f. Full disclosure
Purchasing supplies on credit
For each transaction provided, choose the appropriate account from the list that would
receive a debit entry as a result of the transaction. (Choices may be used more than
once.)
a. Cash
b. Accounts receivable
c. Supplies
d. Prepaid insurance
e. Land
f. Equipment
g. Accounts payable
h. Unearned revenues
i. Notes payable
j. Common stock
k. Retained earnings
l. Service revenue
m. Salary expense
n. Insurance expense
o. Utilities expense
p. Dividends
When are revenues and expenses recognized in the same accounting period that cash
receipts and payments occur?
a. under the cash basis of accounting
b. under the accrual basis of accounting
c. under the adjusting method of accounting
d. under the finance method
Which of the following accounts is increased by a credit entry?
a. cash
b. dividends
c. capital stock
d. salary expense
A company that sells merchandise to customers should normally recognize
a. revenue only after the cash is collected.
b. revenue and the related expenses in the period the revenue earned, whether payment
is received or not.
c. both Revenue and expenses in the period following sale.
d. expenses in the period the merchandise is sold and revenue in the following period.
Lakeside Properties, Inc. had 50,000 shares of 5%, $20 par preferred stock and 400,000
shares of $8 par common stock issued and outstanding at the beginning of 2015.
Indicate the effect each of the following items has directly on retained earnings by
writing the amount in the space provided. Use a plus sign (+) in front of the amount to
indicate increases in retained earnings, and use parentheses ( ) around the amount to
indicate decreases in retained earnings. If the transaction results in no direct change in
retained earnings, place N/A in the space. A) Issued a 2-for-1 preferred stock split when
the market price of
the preferred stock was $44 per share. B) Earned net income in the amount of $650,000
for 2015. C) Declared and paid the annual stated cash dividend to its preferred
stockholders. D) Declared and paid a 10% common stock dividend when the market
price of the common stock was $11 per share.
A company sold inventory on credit. Its gross profit percentage is 23%. The effect of
this transaction is that the
a. current ratio was unchanged.
b. earnings per share increased.
c. working capital decreased.
d. debt-to-equity ratio increased.
Prepaid Insurance
Several accounts from the financial records of Wynn Linders, Inc. are listed. Indicate its
normal balance and the debit/credit rules for increasing the account. (Choices may be
used more than once.)
Although department supervisors can request a preferred supplier or vendor, the
purchasing department has the responsibility for making the final decisions on a vendor.
The following set of items describes activities completed by a company in purchasing
and paying for merchandise and in collecting cash for merchandise sales. For each
activity, identify whether or not the activity adheres to or violates sound internal
control procedures. (Choices may be used more than once.)
a. Adheres to sound internal controls
b. Violates sound internal controls
c. Neither strengthens nor violates internal control
Advanced Packaging accepted a credit card account receivable in exchange for $25,000
of services provided to a customer. The credit card company charges a 4% service
charge. Recording the transaction in the company’s accounting records will have what
effect on the accounting equation?
a. Increase assets and stockholders’ equity by $24,000
b. Decrease assets and stockholders’ equity by $1,000
c. Increase assets by $25,000
d. Increase stockholders’ equity by $25,000
During 2013, the accounts receivable turnover rate for Adaptive Equipment increased
from 10 to 15 times per year. Which one of the following statements is the most likely
explanation for the change?
a. The company’s credit department has followed up with customers whose account
balances are past due in order to generate quicker collections.
b. The company has decreased sales to its most credit worthy customers.
c. The company has increased the amount of time customers have to pay their accounts
before they are past due.
d. The company has extended credit to more risky customers in order to increase sales.
Any voting stock not held by the parent in situations where consolidation is required
because the investor acquires between 50% and 100% of the investee’s stock
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
Ownership in a corporation is represented by shares of common or preferred stock
called ____________________ securities.
An electric utility issued 3,000 shares of common stock, all of the same class; 2,800
shares are outstanding and 200 are held in the treasury. On August 15, 2015, the board
of directors declared a cash dividend of $2.10 per share, payable on September 15,
2015, to stockholders of record on August 31, 2015. Prepare the required journal entries
for August 15, August 31, and September 15.
The worksheet facilitates preparation of the income statement, retained earnings
statement and balance sheet but not the cash flow statement.
Identify two methods of accelerating cash from sales.
Current assets minus current liabilities is called ____________________.
An amount recorded as an increase in the company’s cash account at the end of the
period, but which has not yet been reflected on the bank statement is called a(n)
____________________.
As a general rule, all users of financial statements seek answers to the same questions.
The Statement of Cash Flows shows cash inflows and cash outflows for a period of
time.
If a company is concerned about minimizing its income tax burden, it would use the
straight-line depreciation method to accomplish this objective.
If a company performed services for credit, then the debit side of the journal entry
would be to Accounts Payable and the credit would be to Service Revenue.