A dance studio accepts $1,500 to provide a series of dance lessons to a youth group
during the month of July. The studio decides to record the revenue in July. The studio
incurs rent, utilities, and salaries expenses in July. The studio decides to record those
expenses in August, when it pays for them. One or both of these decisions:
A) violate the expense recognition principle.
B) are an example of accrual accounting.
C) violate the revenue recognition principle.
D) violate the accounting equation.
Extraordinary repairs:
A) are revenue expenditures.
B) extend an asset’s life beyond the original estimate.
C) are expensed as incurred.
D) are credited to Accumulated Depreciation.
Which of the following statements about organizational forms of a business is not
correct?
A) In a sole proprietorship form of business or in a partnership form, the owner(s) are
personally responsible for the debts of the business.
B) The partnership agreement states how profits are to be shared between partners and
what happens when a new partner is to be admitted or an existing partner is retiring.
C) A corporation is a separate entity from both a legal and accounting perspective.
D) The owners of a corporation are legally responsible for the corporation’s debts and
taxes.
A condensed balance sheet for Liu Company is presented below:
Required:
Part a. Prepare a vertical analysis of the balance sheet above. Round to the nearest
whole percent.
Part b. Interpret your analysis. Identify significant items. Comment on key
relationships.
Depreciation is added back to net income in a statement of cash flows prepared using
the indirect method because it:
A) reduces net income but not cash.
B) is a cash inflow.
C) is a revenue.
D) is a valuation concept.
A company borrows $2 million from its bank. It then uses this money to buy equipment.
How do these two transactions affect the company’s accounting equation?
A) Assets and liabilities both increase by $2 million.
B) Assets increase by $2 million and liabilities decrease by $2 million.
C) Assets increase by $4 million, liabilities increase by $2 million, and stockholders’
equity increases by $2 million.
D) Assets remain unchanged and liabilities increase by $2 million.
Generally, which inventory costing method approximates most closely the current cost
for each of the following?
Ending Inventory Cost of Goods Sold
A) FIFO LIFO
B) LIFO LIFO
C) FIFO FIFO
D) LIFO FIFO
The Accounts Payable account:
A) has a normal credit balance.
B) is increased by a debit.
C) is an asset.
D) is increased when a company receives cash from customers.
Assume that no dividends were declared during the current year. Which of the
following statements about the effect of a net loss on the closing process is correct?
A) If a company has a net loss during the current accounting period, then the ending
Retained Earnings will be smaller than the beginning Retained Earnings.
B) When closing entries are prepared, Common Stock is debited if a company has a net
loss.
C) If a company has a net loss, the closing entry will include debits to the revenue
accounts, credits to the expense accounts, and a credit to Retained Earnings.
D) If a company has a net loss, the amount of revenues to be closed will be greater than
the amount of expenses to be closed in the closing process.
When the market value of inventory drops below the cost recorded in the financial
records, applying the lower of cost or market (LCM) rule causes:
A) a decrease in cost of goods sold.
B) no change in net income, other things being equal.
C) a decrease in total assets.
D) an increase in net income.
Assume a voucher system is in use. When the bill for goods or services is obtained,
which control principle(s) must be met when the related control procedures are
designed?
A)Establish responsibility
B)Segregate duties
C)Segregate duties and restrict access
D)Document procedures and independently verify
Using straight-line amortization, when a bond is sold at a discount:
A) Bonds Payable declines by a constant amount each year.
B) Interest Expense declines by a constant amount each year.
C) the carrying value of the bonds declines by a constant amount each year.
D) Interest Expense is a constant amount each year.
On the date of record for a dividend, the company:
A) debits Dividends and credits Dividends Payable for the amount of the dividend.
B) debits Dividend Expense and credits Cash for the dividend amount.
C) debits Dividends Payable and credits Cash for the dividend amount.
D) establishes who will receive the dividend payment.