In the reconciliation of a bank statement, deposits in transit should be
a. added to the unadjusted balance per the company’s records.
b. subtracted from the unadjusted balance per the company’s records.
c. added to the unadjusted bank statement balance.
d. subtracted from the unadjusted bank statement balance.
Affinity Services Group received a 12%, 6-month promissory note with a principal
amount of $10,000 from a customer for the sale of merchandise on December 1, 2013.
A) How much interest revenue will the company recognize as of December 31, 2013?
B) How much interest revenue will the company recognize in 2014?
C) Determine the total amount of cash the company will collect on the date of the note’s
maturity.
Inventory turned over seven times during the year at Rockdale Electronics. Similar
electronics retailers have an inventory turnover equal to twelve times per year. Which of
the following best explains the state of Rockdale’s inventory management?
a. The company sold too much inventory during the year.
b. The company needs to increase sales and decrease the amount of inventory on hand.
c. The company is performing much better than its competitors.
d. The company should increase the amount of goods on hand to accommodate the
growth in inventory demand.
Refer to the information provided for Klinc Company. What is the cost of goods sold
for June under the specific identification method?
a. $2,230
b. $1,575
c. $1,500
d. $1,450
Which of the following is nota reason to revise the amount of depreciation expense?
a. change in estimated useful life
b. permanent decline of an asset’s fair market value below book value
c. change in estimated residual value
d. incurrence of a capital expenditure associated with a plant asset
Eric is considering buying a car. He can either purchase the car outright or make 5
annual payments of $10,000 at the end of each year. If the interest rate is 7%, how
much is the outright purchase price?
a. $14,025.50
b. $7,129.90
c. $41,002.00
d. $57,863.70
A company issued $500,000 of bonds for $498,351. Interest is paid semiannually. The
bond markets and the financial press are likely to report the bond issue price as
a. 498.35.
b. 100.00.
c. 99.67.
d. 49.84.
Academy Grill Supply
On October 1, 2013, the company received a $50,000 promissory note from a customer.
The annual interest rate is 6%. Principal and interest will be collected in cash at the
maturity date of September 30, 2013.
Refer to Academy Grill Supply. If the company’s year ends December 31, 2013, an
adjusting entry is needed to
a. increase interest revenue by $2,250.
b. increase notes receivable by $750.
c. increase interest receivable by $750.
d. increase notes receivable by $2,250.
The asset account, Supplies, has a balance of $10,000 on January 1. During January,
$22,000 of supplies were purchased on account and the liability was appropriately
recorded. A count of supplies at the end of January indicates a balance of $2,000. What
adjusting entry is necessary at January 31?
a. Supplies Expense 22,000 Supplies 20,000 Accounts Payable 2,000
b. Supplies Expense 24,000 Supplies 24,000
c. Supplies Expense 30,000 Supplies 30,000
d. Supplies 22,000 Accounts Payable 22,000
What is the impact on the accounting equation of recording the accrual of wages
expense?
a. Both assets and liabilities decrease.
b. Both assets and stockholders’ equity decrease.
c. Liabilities decrease and stockholders’ equity increases.
d. Liabilities increase and stockholders’ equity decreases.
Harlan Fuller needs $2,000 in 7 years. What amount must he invest in a 6% savings
bond?
a. $1,425.98
b. $1,330.12
c. $9,533.08
d. $8,200.40
Which of the following represents one of the purposes of the Auditor’s Report?
a. To provide a place for management to justify questionable items in the statements.
b. To provide comparative ratios for the company’s financial data
c. To provide the CPA’s opinion of the fairness of the financial statements.
d. To satisfy the need for full disclosure of all the facts relevant to a company’s results
and financial position.
DuPont analysis recognizes that the return on equity can be broken down into three
aspects, which include all of the following except
a. net profit percentage.
b. total leverage.
c. total liquidity.
d. asset turnover ratio.
Depreciation is
a. an effort to achieve proper matching of the cost of operating assets with related
revenues.
b. an accumulation of funds to replace the related plant asset.
c. the difference between the original cost and salvage value of an asset.
d. the cash allocated each period to maintain a plant asset.
What effect does “recognizing revenue at the end of the accounting period for rent
previously received in advance” have on the accounting equation for the insurance
company?
a. Assets increase and liabilities decrease.
b. Assets increase and Stockholders’ equity increases.
c. Assets decrease and liabilities decrease.
d. Liabilities decrease and Stockholders’ equity increases.
The qualitative characteristics of accounting information include
a. reliability.
b. cash flow information.
c. all accounting information.
d. assets reported on the Balance Sheet.
A sporting goods chain purchased supplies at a cost of $11,000 during the year. At
January 1, the beginning balance in the supplies account was $3,000. At December 31,
supplies on hand are $800. Determine supplies expense for the year.
a. $ 3,000
b. $13,200
c. $11,000
d. $11,800
A company reported the following information in its annual report for 2014.
Cash flows from operating activities $1,000,000
Additions to property, plant and equipment 450,000
Total payments expected to retire long-term debt over the next 5 years 500,000
Compute the cash flow adequacy ratio for 2014.
a. 1.10
b. 2.00
c. 5.50
d. 7.50
If the end-of-year supplies on hand totaled $200, and purchases totaled $300, and
supplies on hand at the beginning of the year amounted to $100, how much will be
reported as supplies expense for the current year?
a. $200
b. $400
c. $300
d. $600
During January, Gaston Wholesalers experienced some difficulties with cash flow so it
approached one of its vendors about a payment extension. The vendor agreed to the
extension on the condition that the company sign a 30-day note that includes 9%
interest. What journal entry is needed to record the retirement of the note on the
maturity date?
a. Debit notes payable and credit cash
b. Debit notes payable, credit interest expense, and credit cash.
c. Debit notes payable, debit interest expense, and credit cash.
d. Debit accounts payable, debit interest expense, and credit notes payable.
Which of the following is a constraint to the qualitative characteristics of useful
accounting information?
a. conservatism
b. materiality
c. relevance
d. comparability
Assets = $75,000 + $350,000 + $250,000 + $175,000 = $850,000
Liabilities = $200,000 + $100,000 = $300,000
Stockholders’ Equity = $850,000 -$300,000 = $550,000
Retained Earnings = $550,000 -$500,000 = $50,000
Bay Camera
The company reported the following items on its financial statements for the year ended
December 31, 2013:
Refer to Bay Camera. What is the company’s Net Incomefor the current year?
a. $22,500
b. $32,500
c. $42,500
d. $80,000
On August 1, 2013, Genuine Services accepted a $6,000 advance payment from a
customer for services to be provided in the future. The contract requires the company to
review operations at each of the customer’s six locations over the next 6 months. What
is the impact on the accounting equation of recording this transaction on August 1st?
a. assets and liabilities increase
b. assets and liabilities decrease
c. liabilities decrease and stockholders’ equity increases
d. liabilities increase and stockholders’ equity decreases
Refer to Fabian Woodworks. If the company uses the units-of-production method, what
is the depreciation rate per hour for the equipment?
a. $1.00
b. $1.10
c. $0.10
d. $0.12
Refer to Red Oak Manufacturing. The total leverage per the DuPont analysis
computation is
a. 2.30.
b. 2.64.
c. 12.40.
d. 15.20.
When a contract establishes a relationship between an amount borrowed and one or
more future cash flows, the initial amount is known as
a. future value.
b. present value.
c. an annuity.
d. interest rate.
Refer to the information provided for Klump Co. If the company uses the LIFO
inventory costing method, ending inventory at June 30th is:
a. $1,823.25
b. $1,811.75
c. $1,810.00
d. $1,806.25
Which of the following statements regarding contingent liabilities is true?
a. If they are probable and estimable, then they must be recorded even before the
outcome of the future event.
b. If they are probable and estimable, then they should be disclosed in the notes to the
financial statements.
c. The accounting principle that determines whether a contingent liability is to be
recorded is that of Historical Cost.
d. Contingencies that are not estimable should not be recorded or disclosed in the
financial statements even if they are probable.
Which method of preparing the operating activities section of a statement of cash flows
adjusts net income to remove the effects of deferrals and accruals for revenues and
expenses?
a. the direct method
b. the indirect method
c. Both the direct and indirect methods.
d. Neither the direct method nor the indirect method.
On June 1, 2014, the board of directors declared a $100,000 cash dividend to be
distributed to common stockholders of record on June 15, 2014. The dividend will be
paid on July 1, 2014. The required journal entry on June 1 includes a
a. $100,000 debit to retained earnings.
b. $100,000 debit to dividends payable.
c. $100,000 credit to cash.
d. $100,000 credit to common stock.
Leather Creations has been in business for two years. On December 31, 2015 (the end
of the second year), the company had the following capital stock account balances
immediately prior to a meeting of its board of directors.:
10% Cumulative, Nonparticipating Preferred Stock, $10 par, 2,000
shares authorized, 1,000 shares issued and outstanding $10,000
Common Stock, $1 par, 10,000 share authorized, 6,000 shares issued 6,000
No dividends were paid during 2014. Net income for 2015 is $110,000. At its December
31, 2015 meeting the board declares a cash dividend. Complete the table below to
indicate the amount of dividends that would be distributed to each class of stockholder
if the following amounts of dividends are available:
Total amount Preferred Common
available for dividend dividend dividend
A) $ 2,000
B) $ 4,000
C) $10,000
Convertible bonds are attractive to bondholders because
a. they usually carry a higher rate of interest than non-convertible bonds.
b. they carry a convertible interest rate that can be increased when the market rate of
interest increases.
c. they can be converted into stock at the bondholder’s option.
d. the issuing company cannot retire the bonds before maturity.
Which organization has the power to set accounting rules for companies whose stock is
publicly-traded in the U.S. stock markets, but has delegated its power to another
organization?
a. International Accounting Standards Board (IASB)
b. Financial Accounting Standards Board (FASB)
c. General Association of Accounting Practitioners (GAAP)
d. Securities Exchange Commission (SEC)
A company’s balance sheet showed the following amounts for liabilities and
stockholders’ equity accounts: Current Liabilities, $50,000; Bonds Payable, $600,000;
Capital Lease Obligations, $120,000; and Deferred Income Tax Liability, $20,000. Total
stockholders’ equity was $520,000. What is the debt-to-equity ratio?
a. 0.66
b. 0.70
c. 1.42
d. 1.52
Liquidity relates to a company’s ability to sell its assets for amounts that exceed the
assets’ book values.
Under the effective interest method of amortization, the interest expense for each period
is the carrying value times the ____________________.
The company’s annual report includes an audit report, notes to the financial statements,
but notmanagement’s discussion and analysis.
The ____________________ principle attempts to associate the revenue of the period
with all costs necessary to generate that revenue.
The account used to record the discrepancies that will occasionally occur between the
amounts deposited and amounts shown on cash register tapes is called
____________________.
The financial statement in which you list revenues, starting with sales revenue (service
revenue), is called the ____________________.
Refer to Aardvark Resale. Since the company has a choice of acceptable methods to
estimate bad debts, what factors should be considered in the selection?
When a bond is issued at a discount, the amortization of the bond interest increases
each year using the straight line method.
The ____________________ is the U.S. federal government agency with the ultimate
authority to determine the accounting rules for companies whose stock is sold to the
public.
Refer to Hatcher Tool Service. Set up T-accounts and post each transaction to the
T-accounts.
Refer to Maritime Marine Services. What was the amount paid to retire long-term debt
during 2014?