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LIFO and weighted average results will be the same using either a perpetual or periodic
system.
Stockholders are creditors of a corporation.
The periodic inventory system uses the Purchases account to keep track of the amount
of inventory that is purchased.
General Motors (GM) signs a new labor agreement that its workers will receive a 5%
wage increase next year. This transaction affects GM's financial statements in the
current year.
When a company prepares a classified balance sheet, stockholders' equity accounts
must be shown in subcategories of current and noncurrent.
When a company sells goods, it removes their cost from the Inventory account and
reports the cost on the income statement as Selling Expense
Assuming nothing else changes, a decrease in average net fixed assets will cause the
fixed asset turnover ratio to increase.
A retailer is a company that buys products from manufacturers and sells them to
wholesalers.
There are no significant differences between GAAP and IFRS with regards to the
accounting for tangible and intangible assets.
Creditors are mainly interested in the profitability of a company.
The temporary accounts will have zero balances in a post-closing trial balance.
The primary goals of inventory managers are to maintain a sufficient quantity of
inventory to meet customers' needs, ensure inventory quality meets customers'
expectations and company standards, and minimize the cost of acquiring and carrying
inventory.
A net profit margin of 15.4% means that the company used 84.6 cents of each sales
dollar to cover costs and expenses.
Which of the following statements about the accounting standards used in other
countries is correct?
A) U.S. GAAP is used worldwide.
B) IFRS are used by all countries.
C) More and more countries are using IFRS.
D) There are no plans to converge U.S. GAAP with IFRS.
A company has a net cash inflow from operating activities of $789,000, a net cash
outflow of $50,000 from investing activities and a net cash inflow of $100,000 from
financing activities. The company paid $124,000 in interest, $186,500 in income taxes,
and $200,000 in cash dividends. Which of the following statements about the statement
of cash flows is not correct?
A) The cash dividends of $200,000 paid will be reported as a cash outflow in the cash
flow from investing activities section.
B) Supplemental disclosures required for a company using the indirect method include
the amount of interest and the amount of income taxes paid.
C) The statement of cash flows will show a net increase in cash and cash equivalents of
$839,000.
D) If the direct method is used, the $124,000 of interest paid and the $186,500 of
income taxes paid will be reported in the cash flows from operating activities.
Geo Inc. had the following account balances on January 1, Year 2:
During January, Year 2, Geo entered into the following transactions:
A. Paid $689 on account for utilities that were used during December Year 1.
B. Purchased $423 of supplies for cash.
C. Signed a rental agreement for office space and paid $3,500 in advance for six months
of rent beginning February 1, Year 2.
D. Purchased $15,000 of new equipment, signing a promissory note.
E. Provided $26,000 of services. $17,000 was received in cash and $9,000 was
provided on credit.
F. Paid workers $8,300 for work done in January.
Required:
Part a. Prepare journal entries to record the transactions identified among activities (A)
through (F).
Part b. Set up T-accounts for Cash, Accounts Receivable, Supplies, Prepaid Rent,
Equipment, Accounts Payable, Note Payable, Common Stock, Retained Earnings,
Service Revenue, and Salaries and Wages Expense. The beginning balance in each
T-account should be the amount shown in the list of account balances above or $0 if the
account does not appear above. Then, summarize the effects of each transaction in the
appropriate T-accounts.
Part c. After posting the journal entries to the T-accounts, compute ending balances for
each of the T-accounts.
Which of the following is an expense of this period?
A) Costs of items used up this period but paid for next period
B) Costs of items paid for in this period but used up next period
C) Cost of land purchased and paid for this period
D) Repayment of debt from a loan in a prior period
A credit would make which of the following accounts decrease?
A) Common Stock
B) Inventory
C) Notes Payable
D) Retained Earnings
Use the information above to answer the following question. The journal entry prepared
by Seconds Best Company to record customer payments on account during April would
include a debit to:
A) Cash and a credit to Unearned Sales Revenue for $50,000.
B) Cash and a credit to Sales Revenue for $50,000.
C) Cash and a credit to Accounts Receivable for $50,000.
D) Cash and a credit to Accounts Payable for $50,000.
A company reported a gross profit percentage of 25% with net sales of $347,800. What
is the amount of cost of goods sold?
A) $86,950
B) $260,850
C) $326,063
D) $108,688
Use the information above to answer the following question. Eaton Electronics uses the
weighted average method. What is the company's weighted average cost per unit?
(Round the per unit cost to the nearest dollar.)
A) $1,500
B) $1,517
C) $1,527
D) $1,600
A share of stock sells for $20. The company has $64 million in earnings and 200
million outstanding shares. The Price/Earnings ratio for the company is closest to:
A) 62.5.
B) 200.
C) 0.31.
D) 6.4.
Advantages of the corporate form include all of the following except:
A) easy to raise capital.
B) shares can be purchased in small amounts.
C) ownership interests are transferrable.
D) legal liability of its owners is unlimited.
At the end of the first year of an asset's life, the declining-balance depreciation:
A) causes an asset to be carried at a higher book value than that computed using the
straight-line method.
B) causes an asset to be carried at a lower book value than that computed using the
straight-line method.
C) causes an asset to be carried at the same book value as that computed using the
straight-line method.
D) cannot be used if the resulting book value will be significantly different from that
which would result from using the straight-line method.
On the maturity date of a $5,000, 3-month, 10% note, the borrower sends a check that
includes the principal and all of the interest due on the note. What is the amount of the
borrower's check?
A) $5,125
B) $5,500
C) $6,500
D) $5,000
The number of days to sell is calculated as:
A) 365 divided by ending inventory.
B) Cost of goods sold divided by ending inventory.
C) 365 divided by Inventory turnover ratio.
D) Cost of goods sold divided by Average inventory.
Consider the following information:
Required:
Use the direct method to compute the amount of net cash flows provided by (used in)
operating activities.
Sketches Inc. purchased a machine on January 1, 2016. The cost of the machine was
$17,000. Its estimated residual value was $5,000 at the end of an estimated 5-year life.
The company expects to produce a total of 20,000 units. The company produced 2,500
units in 2016 and 3,200 units in 2017.
Match each item with the correct letter below to indicate how each revenue or expense
account on the income statement is adjusted when using the direct method to determine
net cash flow provided by operating activities.
Account Balance Change
1) _____ Increase in Accrued Expenses
2) _____ Decrease in Accounts Receivable
3) _____ Decrease in Unearned Income
4) _____ Increase in Prepaid Expenses
5) _____ Decrease in Accounts Payable
6) _____ Increase in Long-Term Notes Payable
7) _____ Decrease in Prepaid Insurance
8) _____ Increase in Inventory
9) _____ Increase in Interest Payable
10) _____ Increase in Accumulated Depreciation
Type of Adjustment
A - Add item to related revenue or expense account balance
S - Subtract item from related revenue or expense account balance
N - No adjustment necessary
Garcia Company is trying to decide whether to purchase identical inventory from one of
the following suppliers.
Assume the company will pay within the discount period.
Required:
What is the actual cost of the inventory if purchased from each supplier?
Neutron uses a periodic inventory system. On June 10, the company purchased
inventory on credit from Proton for $9,000, terms 2/10, n/30.
Required:
Prepare the journal entry to record the June 10 transactions on the books of Neutron
A company had 10,000 shares of common stock outstanding throughout the year. The
following information is also available:
Required:
Calculate the Price/Earnings ratio at the end of the current year.
On January 1, Year 3, New Works, Inc.'s assets were $300,000 and its stockholders'
equity was $140,000. During the year, assets increased $15,000 and liabilities decreased
$10,000.
Required:
Determine the amount of stockholders' equity at December 31, Year 3.
Pinkney Company updates its inventory periodically. The company's beginning
inventory was $5,000 and purchases were $10,600 during the year. The company's
ending inventory count was $7,000.
Required:
Determine the amount of cost of goods sold for the year.
Assume that a company uses accrual basis accounting. For each of the following,
indicate the effect the situation would have on net income in the current period.
SITUATION
1)_____ Recording prepaid costs as current expenses
2)_____ Recording an expense at more than the actual cost
3) _____ Failing to record the receipt of a payment by a customer on account
4) _____ Failing to record some supplies received
5)_____ Recording unearned revenue as revenue
6)_____ Recording an expense as revenue
7)_____ Failing to record the company issuing additional shares of its own common
stock
IMPACT ON NET INCOME
O - Overstate net income
U - Understate net income
N/A - Not applicable; no effect on net income
