A privilege granted by a manufacturer or distributor to sell a product or service in
accordance with specified conditions is termed a franchise.
The accountant uses adjusting entries to record implicit transactions at the end of each
reporting period.
“Due diligence” is the phrase for carefully investigating a target company for a merger.
When the seller bears the cost of shipping, the sales invoice is stated as FOB
destination. When the buyer bears the cost of shipping, the sales invoice is stated as
FOB shipping point.
Available-for-sale securities are debt securities that the company purchases with the
intent to hold them until they mature.
The investor will increase Interest Revenue when the discount on a held-to-maturity
security is amortized.
If the debit side of a journal entry is posted but the credit side is not, the trial balance
will not balance.
A market value well above book value may be appropriate for a company if it has many
unrecorded assets.
A company selling merchandise in a state charging 6% sales tax would debit sales tax
expense for 6% of gross revenue each time a sale is recorded.
Trend analysis prompts investors to ask themselves what could cause the trends to end.
The current ratio can help users of financial statements assess a business entity’s
liquidity.
The process of allocating the cost of natural resources to the periods in which the
resources are used is termed amortization.
If beginning inventory is overstated by $2,000 in 20X3, net income in 20X4 will be
overstated.
Working capital is defined as
A) the difference between paid-in capital and retained earnings.
B) the difference between current assets and current liabilities.
C) the difference between cash and retained earnings.
D) the difference between sales and cost of goods sold.
E) the difference between total assets and total liabilities.
On October 1, 2012, Water Works paid $3,600 for 6 months’ rent in advance. The
appropriate journal entry was made at the time using Prepaid Rent. No other journal
entry has been made. As of December 31, 2012, Water Works should
A) debit Rent Expense and credit Prepaid Rent for $1,200.
B) debit Rent Expense and credit Prepaid Rent for $1,800.
C) debit Prepaid Rent and credit Rent Expense for $1,800.
D) debit Prepaid Rent and credit Rent Expense for $1,200.
E) No journal entry is necessary as of December 31, 20X9.
Indirect Personnel, Inc. obtained a $20,000 note payable on August 1, 2012, that is due
in 5 years. Interest, at an annual rate of 12%, will be paid once a year on July 31. The
accountant made the appropriate journal entry on August 1, 2012. No other journal
entry has been made. What journal entry is necessary as of December 31, 2012?
A) Debit Interest Expense and credit Notes Payable for $1,000
B) Debit Interest Expense and credit Notes Payable for $2,400
C) Debit Interest Expense and credit Interest Payable for $1,000
D) Debit Interest Expense and credit Interest Payable for $2,400
E) Debit Interest Expense and credit Interest Receivable for $2,400
Biscuit Bakery had the following activity in its inventory account during August 20X3.
Cost per
What is the cost of goods sold for the month ended August 31, 20X3, for Biscuit
Bakery if the company uses perpetual LIFO as its inventory valuation method?
A) $344
B) $482
C) $494
D) $502
E) $542
An example of an adjusting entry is
A) cash collections from credit customers.
B) payment of the principal and interest on a note.
C) recognizing rent expense by reducing Prepaid Rent.
D) declaring a cash dividend.
E) buying inventory on open account.
Compatibility Services acquired a $100,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $10,000. Assume
Compatibility Services was considering the use of double-declining-balance
depreciation. What is the depreciation expense in 20X3 and 20X4?
20X3 20X4
A) $12,500 $12,500
B) $20,000 $20,000
C) $22,500 $16,875
D) $25,000 $18,750
E) $25,000 $15,000
Manchester Technology has the following data available:
What is the percentage increase or (decrease) in wages payable from 2012 to 2013 for
Manchester Technology?
A) (33.3)%
B) (25.0)%
C) (12.5)%
D) 25.0%
E) 33.3%
The balance sheet equation provides the conceptual basis for all financial statements
and can be rearranged to incorporate the statement of cash flows as follows:
A) Cash + Noncash assets = Liabilities + Stockholders’ equity
B) Cash – Noncash assets = Liabilities + Stockholders’ equity
C) Assets = Liabilities – Noncash assets + Stockholders’ equity
D) Assets = Liabilities + Noncash assets + Stockholders’ equity
E) Liabilities – Noncash assets = Cash + Stockholders’ equity
Stone, Inc. had 2012 earnings of $1,500,000. Cash dividends per share were $0.50. The
company had an average of 1,225,000 shares of common stock outstanding. The market
price of the stock at the end of the year was $6.00 per share. What was the
dividend-yield for Stone, Inc.?
A) 12.00%
B) 10.00%
C) 20.33%
D) 8.33%
E) Cannot be determined from the information provided
The indirect method and the direct method of preparing the statement of cash flows
A) always produce the same totals for net cash from operating activities.
B) sometimes produce the same totals for net cash from operating activities.
C) have different totals for net cash from financing activities.
D) have different totals for net cash from investing activities.
E) have different answers for the change in cash.
Bond discounts are amortized by taking the difference between the
A) interest based on the effective interest rate and the interest based on the coupon
interest rate.
B) interest based on the nominal interest rate and the interest based on the coupon
interest rate.
C) interest based on the stated rate of interest and the interest based on the coupon
interest rate.
D) interest based on the effective interest rate and the interest based on the market rate
of interest.
E) interest based on the nominal interest rate and the interest based on the stated rate of
interest.
The statement of cash flows has classifications of
A) operating, investing, and debt activities.
B) investing, operating, and expense activities.
C) operating, investing, and equity activities.
D) operating, financing, and equity activities.
E) operating, investing, and financing activities.
How is working capital calculated?
A) (total current assets) minus (total current liabilities)
B) (total current assets) minus (inventories and prepaid assets)
C) (total current assets) divided by (total current liabilities)
D) (total current assets)
E) (total current liabilities)
Given the following complete list of balances, what will be the total credits in the trial
balance, assuming no errors exist in the accounts? Note: The accounts payable records
were damaged by a flood, and the company is not certain what the correct balance
should be.
A) $72,000
B) $69,000
C) $58,000
D) $87,000
E) Due to the damage of the accounts payable records, it is impossible to determine the
amount of the total credits on the trial balance.
In 20X3, Little Yard Oil, Inc., purchased drilling rights for $1,000,000. At the time, the
engineer estimated 20,000 barrels of oil in the field. In 20X4, 4,000 barrels were
pumped and in 20X5, 5,000 barrels were pumped. Which entry below is correct?
A) Credit inventory of $200,000 in 20X3
B) Debit depreciation expense of $250,000 in 20X4
C) Debit cost of goods sold of $200,000 in 20X4
D) Debit depletion expense of $250,000 in 20X5
E) Debit amortization expense of $200,000 in 20X3
Manziel Inc. is a sole proprietorship owned by Chris Herold. Chris acquired $9,000
worth of equipment for use in his store. He will pay for the equipment in 30 days. The
effect of this transaction on Manziel would be to
A) increase the equipment account by $9,000 and increase the accounts payable account
by $9,000.
B) increase the equipment account by $9,000 and decrease the accounts payable
account by $9,000.
C) increase the equipment account by $9,000 and increase the capital account by
$9,000.
D) This would not change any account because the equipment has not been paid for.
E) This would not change any account because this transaction does not affect Manziel
Inc.
Machiel Manufacturing acquired a $60,000 machine on January 1, 20X9. The machine
is estimated to have a useful life of 4 years, and a residual value of $10,000. For
units-of-production depreciation purposes, the machine is expected to produce 500,000
units. If Machiel Manufacturing used straight-line depreciation, what will be the
depreciation expense in 20X9?
A) $ 7,200
B) $ 8,000
C) $ 8,800
D) $12,500
E) $13,888
Formula Results signed a 10-year lease for a store in the best mall in the area. At the
beginning of the seventh year of the lease, the company decided to refurbish the store.
The following expenditures were made:
All items were paid in cash. There is no residual value for any of the items noted above.
a. Prepare the journal entry to record the expenditures of the above items.
b. Prepare the year-end adjustment to record the expense associated with the above
items.
Wall Outlets, Inc. has $600,000 of goodwill on the balance sheet from The Plug
Company which was purchased 5 years ago. The goodwill amortization this year should
be
A) $150,000.
B) $120,000.
C) $140,000.
D) $80,000.
E) $0.
Which of the following is an example of an accrual?
A) Wages incurred but not yet paid.
B) Payment of insurance 8 months in advance.
C) Purchase of equipment for use in the business.
D) Revenue collected in advance from customer.
E) All of the above.