The receipt of cash is one of the operating activities of:
A) companies that sell goods but not companies that sell services.
B) companies that sell to consumers but do not sell to other companies.
C) merchandising, manufacturing, and service companies.
D) companies that sell goods they bought from others but not of companies that make
the goods they sell.
One difference between the double-declining-balance method and the straight-line
method is that the double-declining-balance method:
A) reduces book value below residual value.
B) does not consider the useful life of the asset in the calculation of depreciation.
C) cannot be used for tax purposes.
D) uses book value instead of depreciable cost in the calculation of depreciation.
To determine net cash provided by or used in financing activities, one must analyze the:
A) Notes Receivable and Bonds Payable accounts.
B) Cash account.
C) Common Stock and Retained Earnings accounts.
D) Interest Expense and Dividend Income accounts.
On June, 30, 2015, a company purchased a two-year insurance policy for $18,000,
paying cash and debiting Prepaid Insurance for the entire two-year premium amount.
The adjusting entry on December 31, 2015 includes a:
A) credit to Prepaid Insurance $4,500.
B) credit to Insurance Expense $4,500.
C) credit to Prepaid Insurance $9,000.
D) debit to Insurance expense $9,000.
Your store buys ice cream at a cost of $1.50 a half gallon and sells it for $4 a half
gallon. Selling, general, and administrative expenses are $0.75 per half gallon. Which
of the following statements is correct?
A) Your gross profit per half gallon is $2.50.
B) Your gross profit per half gallon is $1.75.
C) The difference between the selling price and the cost is recorded in the gross profit
account.
D) The difference between the selling price and the cost is recorded in the Net Profit
account.
Using the T-account approach:
A) Net income appears on the debit side of the Cash account under operating activities.
B) Payment of long-term debt appears on the debit side of the Cash account under
financing activities.
C) Purchase of equipment appears on the credit side of the Cash account under
operating activities.
D) An increase in Accounts Receivable appears on the debit side of the Cash account
under operating activities.
Wade Industries reported the following information in its accounting records on
December 31, 2015:
The employees were paid $5,680 on December 31, 2015, but the withholdings have not
yet been remitted nor have the matching employer FICA contributions.
Required:
Part a. Compute the total payroll costs relating to the period from December 29-31.
(Assume $560 in total unemployment taxes.)
Part b. Show the accounting equation effects and give the journal entries on December
31 to adjust for salaries and wages relating to December 29-31, 2015.
Part c. Show the accounting equation effects and give the journal entries on December
31 to adjust for payroll taxes relating to December 29-31, 2105.
Match the term and the definition. There are more definitions than terms.
TERM
1) _____ Unearned Revenue
2) _____ Revenue Recognition Principle
3) _____ Accrual Basis
4) _____ Time Period Assumption
5) _____ Expense
6) _____ Net Income
DEFINITION
A. To reduce the recorded value of an asset to better reflect its true market value.
B. Any outlay of money by a company for any purpose.
C. The practice of dividing the life of the business into months and years.
D. The concept that revenue and expenses should be recorded at the time received or
paid.
E. The concept that revenue should be recorded when earned, not necessarily when
payment is received.
F. Revenues should be recorded when they are earned and expenses when they are
incurred.
G. Total revenue minus total expenses.
H. Any use or sacrifice of a company’s resources to generate revenue.
I. The increase in value of financial assets held by a company.
J. Payments received for goods that have not yet been delivered or services that have
not yet been performed.
K. The concept that a company should record revenue during the same period as
expenses.
The following account balances were listed on the trial balance of Edgar Company at
the end of the period:
The company’s trial balance is not in balance and the company’s accountant has
determined that the error is in the cash account. What is the correct balance in the cash
account?
A) $57,900.
B) $31,500.
C) $2,100.
D) $62,100.
Adjusting entries are typically prepared:
A) at the beginning of the accounting period.
B) at the end of the accounting period.
C) on a daily basis.
D) on a weekly basis.
A company reported a decrease in sales revenue from $860,000 last year to $760,000
this year and a decrease in gross profit from $400,000 last year to $360,000 this year.
Required:
Part a. Calculate the gross profit percentages for both years.
Part b. Was the change in gross profit caused by the change in sales volume, the change
in the gross profit per sale, or a combination of the two? Explain.
Assume that a perpetual inventory system is in use. Which of the following statements
regarding the journal entries prepared is correct?
A) “Freight-out” or delivery costs associated with sales should be included in Cost of
Goods Sold.
B) When a company receives payment from a customer for a sale, Cash is debited and
Accounts Payable is credited.
C) When a company grants an allowance to a customer, Inventory is credited when
using a perpetual inventory system.
D) When a customer returns inventory, the seller debits Sales Returns & Allowances
under a perpetual inventory system.
Which of the following companies (all U.S. companies except for Lego, which is a
Danish company) would most likely capitalize the costs of developing a prototype?
A) Lego
B) Southwest Airlines
C) Walmart
D) Cedar Fair
A company reported that its bonds with a face value of $50,000 and a carrying value of
$53,000 are retired for $56,000 cash. The amount to be reported under cash flows from
financing activities is:
A) ($53,000).
B) ($3,000).
C) ($56,000)
D) $0; this is an operating activity.
When interest is calculated for periods shorter than a year, the formula to calculate
interest is:
A) I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate,
and T = number of months.
B) I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate,
and T = (number of months / 12).
C) I = P x R x T, where I = interest calculated, P = principal, R = monthly interest rate,
and T = (number of months / 12).
D) I = (MV – P)/T, where I = interest calculated, MV = maturity value, P = principal and
T = number of months.
Use the information above to answer the following question. What amount is
represented by letter J in the statement of cash flows?
A) ($42,000)
B) $42,000
C) ($22,000)
D) $22,000
On December 1, 2015, a company converted an existing account receivable in the
amount of $6,000 to a note receivable to allow an extended payment period. The note is
due in three months and includes an annual interest rate of 9%, The company prepares
year-end financial statements on December 31 and recorded adjusting entries at that
time. What entry should the company make on March 1, 2016, when the interest is paid
at maturity?
A) Debit Cash and credit Notes Receivable for $6,135
B) Debit Cash for $6,135, credit Notes Receivable for $6,000, and credit Interest
Revenue for $135
C) Debit Cash for $135, credit Interest Receivable for $45, and credit Interest revenue
for $90
D) Debit Cash for $135, credit Interest Receivable for $45, and credit Interest Revenue
for $90
A negative times interest earned ratio suggests that the company:
A) is using resources very efficiently.
B) has a serious financial problem.
C) has a very high interest expense.
D) has a high level of sales revenue.
Which of the following statements about the multistep income statement is not correct?
A) The multistep income statement provides a subtotal of Income before Income Tax
Expense.
B) Income from Operations is the amount of revenues minus expenses from the
company’s main business activities.
C) Any revenues and/expenses from activities other than the company’s main business
are peripheral results and are included in Income from Operations.
D) Income before Income Tax Expense and Income from Operations are different if
there are any peripheral revenues and expenses.