Assume the periodic inventory method is used. When LIFO is used, costs are assigned
to cost of goods sold using the most recent purchase at the time of the sale.
In general, the cash flow from operating activities is considered by many to be the most
important component of the statement of cash flows.
All other things being equal, the higher the return on equity ratio, the better the
financial performance of the company.
Long-lived assets found on a company’s balance sheet may include some assets that
have no physical substance.
Employee fraud is often grouped into three categories, including corruption, asset
misappropriation, and embezzlement.
The trial balance is a financial statement that reports the assets, liabilities, and equity of
a business at a point in time.
The going-concern assumption is also known as the continuity assumption.
Manufacturers have three types of inventory, which include raw materials, work in
process, and finished goods, whereas merchandisers have only raw materials inventory.
In each accounting period, a manager can select the inventory costing method that
yields the highest net income.
The accounts receivable account for each customer is called a subsidiary account.
If inventory is sold with terms of FOB destination, the goods belong to the seller while
in transit.
Treasury stock purchases made with cash are classified as cash outflows from financing
activities on the statement of cash flows.
When the effective-interest method of amortization is used, what happens to interest
expense as a bond moves toward maturity?
A) Interest expense falls for bonds sold at either a discount or a premium.
B) Interest expense rises for bonds sold at a discount and falls for bonds sold at a
premium.
C) Interest expense rises for bonds sold at either a discount or a premium.
D) Interest expense falls for bonds sold at a discount and rises for bonds sold at a
premium.
Net revenue divided by average net fixed assets is the calculation for which of the
following ratios?
A) Net profit margin
B) Fixed asset turnover
C) Current ratio
D) Return on assets
The following data are taken from the stockholders’ equity section of the balance sheet
of a company:
What was the average issue price per share of the common stock?
A) $13.00
B) $10.00
C) $15.00
D) $18.00
Welles Company uses the direct write-off method of accounting for uncollectible
accounts receivable. On December 6, 2015, Welles sold $6,300 of merchandise to the
Fleming Company. On August 8, 2016, after numerous attempts to collect the account,
Welles determined that the $6,300 account of the Fleming Company was uncollectible.
Required:
Part a. Prepare the general journal entries required to record the transactions on August
8, 2016.
Part b. Assuming that the $6,300 is material, explain how the direct write-off method
violates the matching principle in this case.
Use the information above to answer the following question. What is the amount of
total assets at the end of the year?
A) $16,000.
B) $5,600.
C) $15,000.
D) $15,600.
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. The
fixed asset turnover ratio is closest to:
A) 0.53.
B) 2.50.
C) 3.33.
D) 0.80.
The Sales Revenue account has a credit balance of $367,200 at year end. After the
closing entries have been posted, the account will:
A) have a debit balance of $367,200.
B) have a zero balance.
C) still have a credit balance of $367,200.
D) be removed entirely from the general ledger.
Which of the following statements about the declaration and payment of cash dividends
is correct?
A) Declaration and payment of cash dividends will reduce the amount of net income.
B) Declaration and payment of cash dividends will not reduce the Retained Earnings
balance.
C) Declaration and payment of cash dividends will reduce the amount of cash available
to invest in assets.
D) Declaration and payment of cash dividends is calculated on the amount of shares of
stock issued, not the amount of shares outstanding.
Your company has net sales revenue of $36 million during the year. At the beginning of
the year, fixed assets are $8 million. At the end of the year, fixed assets are $10 million.
What is the fixed asset turnover ratio?
A) 4.5
B) 4.0
C) 2.0
D) 3.6
In a period of rising prices, the inventory costing method that will cause the company to
have the lowest cost of goods sold is:
A) LIFO.
B) FIFO.
C) Weighted average.
D) Specific identification.
A company’s cash flows from investing activities include cash transactions relating to
the purchase and disposal of which types of assets?
A) All of a company’s assets
B) All of a company’s assets except inventory
C) All of a company’s non-current assets
D) Property, plant and equipment
All of the transactions of Starfish Tattoo Parlor Inc. for the year have been journalized
and posted. The following information has been gathered for the adjustment process as
of December 31, 2016:
A) The Supplies account shows a balance of $900. A count of supplies revealed $400 on
hand.
B) The $1,200 premium relating to a one-year insurance policy was paid on December
1, 2016.
C) The company’s equipment, which was purchased last year, depreciates at a rate of
$1,000 per year.
D) On September 30, 2016, a customer paid $10,000 in advance for services; as of
December 31, 2016, services in the amount of $3,000 had been performed for this
customer.
E) Employees are paid $5,000 on Fridays for the 5-day work week, which ends on that
Friday. However, December 31, 2016 falls on a Thursday.
F) The company has completed $500 of work for customers; the customers have not yet
been billed and the related revenue has not been recorded.
Required:
Part a. Prepare the required adjusting entries required at December 31, 2016.
Part b. For each of the adjusting items, indicate the amount and the direction of effects
of the adjusting journal entry on the elements of the balance sheet and income
statement. Complete the following table by entering the amount and the direction (+ or
-) or “NE” if the adjustment has no effect on the related financial statement item.
Starseekers, Inc. began the year with a $4,800 normal balance in Accounts Receivable
and a credit balance in its Allowance for Doubtful Accounts of $546. Starseekers’ sales
were all on account and amounted to $41,800 during the year. Collections from
customers amounted to $40,600 and the company wrote-off customer account balances
totaling $500 during the year.
Required:
Part a. Using T-accounts, determine how much Starseekers’ customers owe the company
at year-end and the unadjusted balance in its Allowance for Doubtful Accounts account.
Part b. The company currently uses the percentage of credit sales method for
determining its Bad Debt Expense. Historically, bad debts have approximated 3% of
credit sales. Prepare the related adjusting entry and, using a T-account, determine the
ending balance in the Allowance for Doubtful Accounts account.
Part c. Assume instead that the company uses the aging of accounts receivable method.
This method resulted in an estimate of uncollectible accounts of $1,105. Prepare the
related adjusting entry and, using a T-account, determine the ending balance in the
Allowance for Doubtful Accounts account.
On a bank reconciliation, the amount of an unrecorded bank service charge is
A) added to the bank balance of cash.
B) added to the company’s balance of cash.
C) deducted from the bank balance of cash.
D) deducted from the company’s balance of cash.
A company reported a receivables turnover ratio of 8.0. Cost of goods sold was
$350,000 and net sales revenue was $480,000. The average net receivables must have
been
A) $45,000
B) $120,000
C) $60,000
D) $90,000
Beginning inventory plus purchases equals:
A) ending inventory.
B) cost of goods sold.
C) goods available for sale.
D) net purchases.
The fixed asset turnover is the:
A) number of sales dollars generated by each dollar of total assets.
B) rate at which inventories are being rotated.
C) number of dollars in notes payable generated by each dollar in fixed assets.
D) number of sales dollars generated by each dollar of fixed assets.
Supplemental disclosures required by companies using the indirect method include all
of the following except:
A) cash paid for interest.
B) cash paid for income tax.
C) cash paid for dividends.
D) noncash investing and financing activities.