Which balance sheet accounts are most affected by financing activities?
a. Current assets.
b. Current liabilities.
c. Long-term assets.
d. Long-term liabilities and stockholders’ equity.
When bonds are sold for less than the par amount, this means that the
a. maturity value will be less than the par amount.
b. maturity value will be greater than the par amount.
c. bonds are sold at a premium.
d. stated rate of interest is less than the yield rate of interest.
Barnes Restaurant reports the following amounts:
Calculate Current Assets.
a. $457,000
b. $615,000
c. $125,000
d. $340,000
The amount of cash in the cash register from sales totals $534. The amount for sales
recorded on the cash register tape was $530. Which journal entry is required?
a. Cash in Bank 530
Sales 530
b. Cash in Bank 534
Sales 534
c. Cash in Bank 534
Sales 530
Cash Over and Short 4
d. Cash in Bank 530
Cash Over and Short 4
Sales 534
Assume that a company has a current ratio of 3. Failure to record estimated warranty
costs will cause the current ratio to be
a. overstated.
b. understated.
c. unchanged since the effects offset one another.
d. unchanged since it has no impact on any current asset or liability accounts.
When is a liability for dividends created?
a. at the end of each fiscal year
b. at the date of declaration
c. at the date of record
d. at the date of payment
Which of the following statements is falseregarding how the cash flow effects of the
changes in the equipment and accumulated depreciation accounts would be reported on
a statement of cash flows if the indirect method is used to prepare the operating
activities section?
a. Cash proceeds from the sale of the equipment would be reported as a cash inflow in
the investing activities section.
b. The cash paid to purchase equipment would be reported as a cash outflow in the
investing activities section.
c. Depreciation expense would be added to net income in the operating activities
section.
d. A loss on the sale of the equipment would be subtracted from net income in the
operating activities section.
Which of the following lease conditions would result in a capital lease to the lessee?
a. The lessee will return the property to the lessor at the end of the lease term.
b. The lessee can purchase the property for $1 at the end of the lease term.
c. The fair market value of the property at the inception of the lease is $20,000; the
present value of the lease payments is $17,600.
d. The lease term is 70% of the property’s economic life.
If a company uses the allowance method to account for doubtful accounts, when will
the company’s Stockholders’ equity decrease?
a. At the date a customer’s account is written off
b. At the end of the accounting period when an adjusting entry for bad debts is recorded
c. At the date a customer’s account is determined to be uncollected
d. When the accounts receivable amount becomes past due
Refer to the information provided for Gbane Company. Using the cost of goods sold
model, how much will the company report as its cost of goods sold in its 2013 income
statement?
a. $215,880
b. $218,760
c. $224,280
d. $228,840
Management’s Discussion and Analysis
a. is a report of the independent accountants.
b. can be a substituted for the notes to the financial statements.
c. provides a discussion and explanation of various items reported in the financial
statements.
d. provides assurances that the auditors are responsible for the financial statements.
Which of the following statements about current liabilities is true?
a. Current liabilities are listed in order of decreasing amounts in the current liability
section of a classified balance sheet.
b. The amount of current liabilities has little implication for a company’s liquidity.
c. Current liabilities are the denominator in the formula for the current ratio.
d. The current liabilities section of a classified balance sheet will never contain any
portion of long-term liabilities.
Deal Corp. prepares monthly bank reconciliations of its checking account balance. The
bank statement for December 2013 indicated the following:
Balance, December 31, 2013 $7,920
Bank service charges for December 20
Interest earned during December 30
NSF Check from a customer which had been previously deposited by Deal 32
Collection of note ($1,000) and the related interest ($40) from Deal’s customer
1040
An analysis of canceled checks and deposits and the records of Deal revealed the
following items:
Checking account balance per Deal’s accounting records $7,170
Outstanding checks as of December 31 952
Deposits in transit on December 31 1,310
Error in recording check # 267 issued by Deal 90
The correct amount of check # 267 is $340, but it was recorded as a cash disbursement
of $430. The check was issued to pay for merchandise purchased. The check was
written correctly and appeared on the bank statement correctly.
A) Prepare a bank reconciliation in proper form for December 31, 2013.
B) What amount would Deal report its cash balance on its December 31, 2013,
balance sheet?
C) What adjusting entries will Deal record as a result of this bank reconciliation
process?
On January 1, 2013, a company issued $5,000,000 of 8 percent bonds at par. These
bonds are due in five years with interest payable annually on December 31.
Required:
A) Record the issuance of the bonds.
B) Record the journal entry needed on December 31, 2013.
C) Record the journal entry needed on January 1, 2018.
The inventory account a manufacturer uses to record the cost of products completed and
available for sale is called
a. raw materials inventory
b. work in process inventory
c. finished goods inventory
d. merchandise inventory
Refer to Fabian Woodworks. If the company uses the straight-line method of
depreciation, what is the book value at December 31, 2014?
a. $ 8,000
b. $ 6,000
c. $10,000
d. $ 4,000
On January 1, 2013, a company reported assets of $1,000,000 and liabilities of
$600,000. During 2013, assets decreased by $100,000 and Stockholders’ Equity
decreased $200,000. What is the amount of liabilities at December 31, 2013?
a. $200,000
b. $500,000
c. $600,000
d. $700,000
Which of the following statements is true regarding the relationship of the current ratio
and the acid test ratio?
a. The current ratio is based on a more conservative measure of liquidity.
b. Both ratios focus on the relationship between all or part of a company’s current assets
and all of its current liabilities.
c. Both ratios focus on the relationship between all of a company’s current assets and all
or part of its current liabilities.
d. For a company which carries no inventories, the current ratio and acid test ratio will
be significantly different.
Refer to Hesson Properties. What journal entry is required to record the utility bill?
a. Utilities Expense 300
Cash 300
b. Accounts Receivable 300
Utilities Expense 300
c. Utilities Expense 300
Accounts Payable 300
d. Cash 300
Utilities Expense 300
A non-classified balance sheet typically does nothave a distinction between which of
the following items?
a. assets and liabilities
b. current and noncurrent items
c. liabilities and stockholders’ equity
d. Resources invested by the owners and amounts borrowed from creditors.
All of the following are reasons that a corporation may purchase treasury stock except
a. it needs the stock for its employee stock bonus program.
b. it desires to make an investment in its own stock.
c. to buy out the ownership of stockholders.
d. to increase the reported amount of earnings per share.
Which of the following is notan operating activity?
a. Cash collections from credit customers.
b. Cash payments for operating expenses.
c. Cash receipts for interest earned.
d. Cash payments for dividends to stockholders.
Each of the following documents is used in the control of cash disbursements except
a. canceled checks.
b. outstanding checks.
c. bank credit memos.
d. bank debit memos.
Cherokee Hills began operations on December 1, 2013, and immediately paid $60,000
for 6 months rent in advance for the period beginning December 1, 2013. The
company’s accounting period ends on December 31, 2013. Indicate how much will be
reported for each of the following accounts on the company’s financial statements for
the period ending December 31, 2013. If the amount reported is zero, indicate so by
writing $0, and explain why zero is the appropriate amount.
A) Rent Expense
B) Rent Payable
C) Rent Revenue
D) Prepaid Rent
Which of the following is one of the elements of stockholders’ equity?
a. net income
b. dividends payable
c. retained earnings
d. loss on the sale of equipment
Which of the following statements is true regarding the two allowance procedures used
to estimate bad debts?
a. The percentage of net credit sales method takes into account the existing balance in
the Allowance for Doubtful Accounts account.
b. The direct write-off method takes into account the existing balance in the Allowance
for Doubtful Accounts account.
c. The aging of accounts receivable method takes into account the existing balance in
the Allowance for Doubtful Accounts account.
d. The direct write-off method does a better job of matching revenues and expenses.
GTO Division has $14,000 in current assets, $2,000 in accounts payable, and $2,000 in
unearned sales revenue. What is the division’s current ratio?
a. 1.75
b. 2.25
c. 3.00
d. 3.50
Aaron Corporation
Aaron Corporation is a merchandising company. Selected account balances are listed
below:
Sales $250,000
Purchases 112,500
Beginning Inventory 8,000
Ending Inventory 15,000
Operating Expenses 74,000
Income Tax Expense 5,000
Beginning Retained Earnings 26,500
Dividends 7,500
Refer to the information provided for Aaron Corporation. Calculate gross margin.
a. $120,500
b. $137,500
c. $144,500
d. $212,500
The going concern assumption is concerned with
a. the company’s ability to continue operations long enough to carry out its existing
obligations.
b. any information that is capable of influencing the decisions of anyone using the
financial statements.
c. measuring ongoing business activities at their exchange price at the time of the initial
external transaction.
d. offsetting management’s natural optimism by providing a prudent approach to
uncertainty in financial statement items.
Equipment purchased at the beginning of 2013 for $200,000 with residual value of
$20,000 is being depreciated over a 5-year period using the double-declining-balance
method. Which of the following statements is correct concerning the financial
statements at December 31, 2013?
a. The equipment account now has a balance of $120,000.
b. The book value of the equipment is now $80,000.
c. The accumulated depreciation account balance is now $80,000.
d. Depreciation expense for 2013 is $72,000.
Consider the following information from the financial statements of a retail company:
2015 2014
Preferred Stock $6,500 $6,040
Total Stockholders’ Equity $69,500 $65,200
Net Income $20,402
Stock Price per Common Share $93
Common Dividends $621
Preferred Dividends $190
Purchases of Treasury Stock $5,060
Dividends per Common Share $0.78
Average Common Shares Outstanding 800
Calculate the following financial ratios:
A) Return on common equity
B) Earnings per share
C) Dividend yield
D) Dividend payout
E) Total payout
F) Stock repurchase payout
The use of a ______________ provides a means of systematically analyzing changes in
the balance sheet amounts, along with the information from the income statement and
any additional information, to produce the statement of cash flows.
____________________ is the amortization method of transferring the same amount
from the bond discount or premium each time period to adjust interest expense.
Refer to Maritime Marine Services. What was the amount of accumulated depreciation
on the property, plant and equipment disposed of during 2014?
The bookkeeper for City Rentals closed the books before the accountant had had a
chance to prepare the financial statements. Use the bookkeeper’s closing entries to
prepare, in good form, a statement of retained earnings for the year ended December 31,
2012, the first year of operations for this company.
Closing Entries:
Consider the following financial statement information:
2015 2014
Preferred Stock $4,500 $4,000
Total Stockholders’ Equity $49,050 $45,900
Net Income $10,002
Stock Price per Common Share $113
Common Dividends $521
Preferred Dividends $140
Purchases of Treasury Stock $8,061
Dividends per Common Share $1.30
Average Common Shares Outstanding 400
Calculate the return on common equity and earnings per share ratios.
Return on assets is computed by adding the after-tax interest expense to net income,
then dividing by the average total assets.
Great Dane Trailers has the following data available for its March 31, 2013, payroll:
Gross pay* $180,000
Federal income taxes withheld 43,200
State income taxes withheld 7,200
*All subject to FICA matching and withholding at 7.65%
Federal unemployment tax and state unemployment tax are also applicable at rates of
0.8% and 3.5%, respectively. All wages are subject to these taxes.
Prepare the journal entries to record the wages earned and payroll taxes.
You are an entrepreneur about to open a coffee and internet cafe near your college
campus. You have decided to accept cash and credit and will use college student
employees. While you plan to be at the shop during most hours that the business will be
open, you have made one of the student employees your assistant manager to manage in
your absence.
Describe at least five procedures that you might use to provide adequate internal control
over cash and credit sales and bank deposits.
____________________ have claims to an entity’s economic resources.
Depreciation has an effect on the company’s income taxes.
The four basic financial statements are the Income Statement, Statement of Retained
Earnings, Balance Sheet, and Statement of Cash Flows.
A(n) ____________________ categorizes the various accounts receivable amounts by
the length of time outstanding.
The preparation of _______________ is necessary to get the account balances properly
stated and up to date.
The inventory turnover ratio is a measure of how many times during a period a
company sells off its inventory.