Stake, Inc., records the payment of $200 cash for a previously accrued expense and the
accrual of $625 for another expense. The impact of these two entries is to decrease net
income by $825.
Purchases of inventory minus the increase in accounts payable equals cash paid for
inventory.
Nonprofit organizations do not need to analyze financial statement information since
their purpose is not to increase net income like profit-seeking organizations.
The dividend-payout ratio is computed as common dividends per share divided by
earnings per share.
LIFO matches cost of goods sold to sales on the income statement more accurately than
does FIFO.
The difference between the effective-interest amount and the cash interest payment is
the amount of discount amortized for the period.
In consolidation, elimination of intercompany balances are necessary when the parent
and subsidiary do business together (e.g., when the subsidiary sells goods or products to
the parent).
An aging schedule reveals $6,500 of uncollectible accounts. The Allowance for
Uncollectible Accounts account currently has a debit balance of $250. The adjusting
entry amount should be $6,750.
Financial accounting serves external decision makers, such as suppliers, banks,
government agencies, and stockholders.
An income statement is a report of all revenues and expenses pertaining to a specific
date.
The indirect method of determining cash from operations is most often used as this
method produces larger positive cash flows than the direct method.
Accountants use the terms notes payable or notes receivable to describe the existence of
promissory notes.
When using a perpetual inventory system, a business will debit inventory and credit
cost of goods sold each time a sale is recorded.
Postal Manufacturing began business on July 1, 20X5, by selling 1,000 shares of $10
par value capital stock at $30 per share. The effect of this transaction on Postal
Manufacturing would be to
A) increase the capital stock at par by $10,000, increase the paid-in capital in excess of
par account by $20,000, and increase the cash account by $30,000.
B) decrease the capital stock at par by $30,000 and increase the cash account by
$30,000.
C) increase the capital stock at par by $30,000 and increase the cash account by
$30,000.
D) decrease the capital stock at par by $10,000, decrease the paid-in capital in excess of
par account by $20,000, and increase the cash account by $30,000.
E) increase paid-in capital in excess of par account by $30,000 and increase the cash
account by $30,000.
Features of preferred stock could include all of the following except:
A) callable.
B) convertible.
C) cumulative.
D) interest-bearing.
E) participating.
Altoon Manufacturing’s records were partially destroyed in a flood. The company does
not know what sales have been for the year, but it does know all sales were on account.
Also, the beginning accounts receivable balance was $19,000, and its accounts
receivable balance at the time of the flood was $25,000. From the beginning of the year
until the flood, cash collections from credit customers were $158,000. Given this
information, what are Altoon Manufacturing’s sales for the year until the flood?
A) $164,000
B) $114,000
C) $202,000
D) $209,000
E) $189,000
Using the FIFO method, the earliest purchases of inventory are assumed to be contained
A) on the balance sheet as part of ending inventory.
B) on the income statement as part of cost of goods sold.
C) equally split between the income statement and the balance sheet.
D) Impossible to determine from the given data
E) The earliest purchases of inventory under FIFO are not shown on any financial
statement.
The order of the steps in the recording process has
A) the adjusted trial balance after preparing the financial statements.
B) the journalization and posting of adjustments before the ledger.
C) the adjusted trial balance before the ledger.
D) journalization after the adjusted trial balance.
E) the unadjusted trial balance after the ledger.
Net income is
A) the difference between revenues and dividends
B) the difference between revenues and retained earnings.
C) the difference between cash and dividends.
D) the difference between revenues and total assets.
E) the difference between revenues and expenses.
Referring to Exhibit 5-1, what was the net cash flow from operations for Cartell Paper
Products in 2012?
A) $18,300
B) $19,500
C) $8,200
D) $14,500
E) $13,000
Faithful representation requires information to be ________, ________ and free from
material errors.
A) timely; comparable
B) relevant; reliable
C) consistent; verifiable
D) confirmatory; predictive
E) complete, neutral
Palto Industries pays its employees monthly. Payroll information follows:
1. The monthly gross salary for all its employees is $85,000. Palto Industries withholds
20% of the employees’ gross salary for federal taxes, 6.5% for state taxes, and 7.5% for
Social Security (FICA) taxes.
2. Palto Industries incurs other employee-related costs. Specifically, the company must
(1) match the Social Security taxes withheld from the employees, (2) contribute 3% of
the employees’ gross pay to the employees’ pension fund, and (3) pay 5% of the
employees’ gross pay for health insurance premiums on behalf of the employees.
What is the journal entry to be made by Palto Industries for the accrual of payroll taxes
for their monthly payroll?
A) Employee Benefit Expense 13,175
Employer Social Security Payable 6,375
Pension Liability Payable 2,550
Health Insurance Payable 4,250
B) Compensation Expense 13,175
Employer Social Security Payable 6,375
Pension Liability Payable 2,550
Health Insurance Payable 4,250
C) Prepaid Employee Benefits 13,175
Employer Social Security Payable 6,375
Pension Liability Payable 2,550
Health Insurance Payable 4,250
D) Unearned Employee Benefits 13,175
Employer Social Security Payable 6,375
Pension Liability Payable 2,550
Health Insurance Payable 4,250
E) Compensation Expense 13,175
Employer Social Security Payable 6,375
Pension Withholding Payable 2,550
Health Insurance Withholding Payable 4,250
Which of the following is not a procedure used to safeguard cash?
A) The serial numbers on the money are recorded and maintained.
B) The individuals who receive cash do not also disburse cash.
C) The individuals who handle cash do not have access to the accounting records.
D) Cash receipts are immediately recorded and deposited and are not used directly to
make payments.
E) Disbursements are made by serially numbered checks and only upon proper
authorization by someone other than the person writing the check.
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
If Queen Mattresses, Inc. were using a periodic inventory system, what is the journal
entry on May 15?
Tall Trees Gear uses the periodic inventory method and recorded the following
inventory and purchase transactions for the month of August, 20X3.
Determine the ending inventory balance at August 31 and the cost of goods sold for the
month of August, 20X3 for Tall Trees Gear. Tall Trees Gear sold 3,200 units during
August, 20X3. On August 31, a physical inventory count was conducted, and 1,500
units were on hand. Assume the company uses the first-in-first-out (FIFO) cost flow
assumption.
Chordley Manufacturing borrowed $12,000 from the Second National Bank of Tahoma
on October 1, 2012. The note carries an annual interest rate of 10%, which will be paid
once a year on September 30. The company has not recognized any interest expense
during 2012. What is the journal entry necessary to recognize interest expense as of
December 31, 2012?
Selia Sewage Systems has sales of $900,000, of which 25% are cash sales and the
remainder is on credit. As of year-end, but before the bad debts adjustment, the
Allowance for Uncollectible Accounts has a credit balance of $300, and Accounts
Receivable has a debit balance of $60,000. If it is determined that the company will not
collect from Colltor and from Mortana for the amounts of $330 and $680, respectively,
what journal entry would Selia prepare?
Galvanized Piping purchased 80 pumps during the month of March, 20X9. When the
company purchased the pumps, they had 10 pumps in inventory. At the end of March,
20X9, Galvanized Piping had 50 pumps left in inventory. Pumps have been purchased
from Costfo Warehouse for $2.50 per pump since Galvanized Piping began operations
in January, 20X9.
Required:
1) Calculate the cost valuation for ending inventory.
2) Calculate cost of goods sold.
Nolan Jewelry has 200,000 shares of common stock authorized and 50,000 shares of
common stock issued and outstanding. The common stock has a par value of $5 per
share. On March 1, 2X13, the company declared and issued a two-for-one stock split.
Assuming that the company issues 50,000 new shares and accounts for it as a 100%
stock dividend, what journal entry would be made by Nolan Jewelry on March 1,
2X13?
E) No journal entry is necessary.
Which of the following concepts applies to situations 1-6 below.
Entity Periodicity
Reliability Stable monetary unit
Going Concern Cost-effectiveness constraint
Materiality
1. Rhodes, Inc. acquired equipment with a fair market value of $22,000 and only paid
$1,000 for the equipment at an auction. Following company policy which expenses
assets with a cost of $1,000 or less, Rhodes, Inc. recorded an expense of $1,000.
2. McElwain, Inc. has divisions in several countries. Before publishing financial
statements, McElwain, Inc. translates its divisional financial information to U.S.
dollars.
3. Smith Enterprises, is experiencing financial difficulties due to poor economic
conditions. The organization has been in existence for 50 years and has experienced
these conditions in the past with little financial impact to the organization. Although
Smith Enterprises may be impacted, there is no reason to believe that it will go
bankrupt.
4. Komar Cable Company, owned by Katherine Hoots and Kate Coleman, each
deposited $50,000 into the business’s bank account. Both Katherine and Kate have
access to the bank account and periodically transfer money from their personal accounts
to the business account, but they never access the business account for personal use.
5. Mower Technology prepares monthly financial statements even though it is costly to
do so.
6. Water Waste Systems only records accounting transactions when there is convincing
evidence that can be verified by independent auditors.