Dollar value bias is the bias one sees from comparing number in relative (dollars) rather
than absolute (percentage) terms.
The percent-of-sales method calculates bad debts expense as a percentage of net credit
sales.
The financing activities section of the statement of cash flows includes activities that
affect current assets and current liabilities.
If a company uses the contra account, Accumulated Amortization, this account is
typically shown on the balance sheet.
The Cost of Goods Sold account is credited to write down the inventory as per the
lower-of-cost-or-market rule.
G-mart, a small-scale grocer, wants to introduce an inventory system to track its
inventory. G-mart does not currently use optical scanning registers and computer
systems. The perpetual inventory system is most suitable for its operations.
Factoring is an option available to a business to reduce the risk of uncollectible
accounts receivable.
Debentures are bonds that mature in installments at regular intervals.
A key to strong control over petty cash is to ensure that several persons serve as
custodian at one time.
Extraordinary items are both unusual and infrequent in nature.
Regarding the use of a spreadsheet for the preparation of the statement pf cash flows,
which of the following statements is true?
A) The T-account approach works well for all companies.
B) The statement of cash flows cannot be prepared directly from the spreadsheet
because additional information is needed.
C) The spreadsheet is needed when companies face complex situations.
D) The spreadsheet can only be used if the indirect method for operating activities is
also used.
The price/earnings ratio shows the ________.
A) dividend yield of the company
B) market price of $1 of earnings
C) proportion of total assets financed by debt
D) value that the stock market places on the dividends paid by the company
A business purchases $500 of office supplies on account. Which of the following
accounts is credited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Service Revenue
Refer to the following trial balance.
How much is the gross profit?
A) $169,000
B) $180,000
C) $282,000
D) $89,000
The account title used for recording the payment of rent in advance for an office
building is ________.
A) Prepaid Rent
B) Rent Payable
C) Rent Revenue
D) Rent Expense
What is the calculation for return on assets (ROA)? What does ROA measure?
When a previously declared dividend is paid, which of the following occurs?
A) assets increase
B) stockholders’ equity increases
C) liabilities decrease
D) assets remain unchanged
Which of the following accounting methods is used to account for controlling interest
investments?
A) equity method
B) acquisition method
C) consolidation method
D) discounted cash flow method
The following information is from the 2017 records of Lane Bicycle Shop:
Bad debts expense is estimated by the aging-of-receivables method. Management
estimates that $5,000 of accounts receivable will be uncollectible. Calculate the ending
balance of Allowance for Bad Debts, after the adjustment for bad debts expense, at
December 31, 2017.
A) $5,310
B) $8,800
C) $9,000
D) $5,000
Which of the following entries will be necessary to close the Insurance Expense
account at the end of the year?
A) debit Insurance Expense and credit Income Summary
B) debit Insurance Expense and credit Common Stock
C) debit Retained Earnings and credit Insurance Expense
D) debit Income Summary and credit Insurance Expense
Which of the following accounting information system activities is completed when
merchandise inventory is sold?
A) preparation and payment of payroll
B) receipt of customer payment
C) receipt of goods or services
D) payment for goods or services
Which of the following statements is true for leverage?
A) asset turnover ratio measures financial leverage
B) leverage always increases profitability
C) leverage is shown in proportion of total assets relative to total equity
D) the higher the debt to equity ratio, the higher the leverage
Which of the following is used to see how a company’s operating expenses, as a
percentage of net sales, have changed from one year to the next?
A) vertical analysis
B) horizontal analysis
C) ratio analysis
D) analysis of internal control system
The accountant of Skyscrapers Architectural Services failed to make an adjusting entry
to record $7,000 of depreciation expense. Which of the following statements is true?
A) The total liabilities will be overstated.
B) The equity will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
Karl, an employee of Smith Electric, Inc., has gross salary for March of $4,000. The
entire amount is under the OASDI limit of $117,000 and thus subject to FICA. He is
also subject to federal income tax at a rate of 18%. Karl has a deduction of $320 for
health insurance and $80 for United Way. Provide the journal entry to record salaries
expense and payroll withholdings. (Assume a FICA-OASDI Tax of 6.2% and
FICA-Medicare Tax of 1.45%.)
An adjusting entry that credits Salaries Payable is an example of a(n) ________.
A) accrued expense
B) deferred revenue
C) accrued revenue
D) deferred expense
Use the following to calculate the acid-test ratio. (Round your answer to two decimal
places.)
A) 0.79
B) 5.88
C) 0.92
D) 0.48
Which of the following is a control procedure to prevent a dishonest employee from
cashing a paycheck that was written to a fictitious person?
A) having employees clock in and out of work
B) keeping computerized records of payroll data
C) serial numbering of paychecks
D) requiring photo IDs for employees picking up their paychecks
Which of the following securities typically pays interest?
A) equity securities
B) preferred stocks
C) corporate bonds
D) significant interest investment
Suminski Flooring Company buys a building for $115,000, paying $30,000 cash and
signing a 30-year mortgage note for $85,000 at 11% annual interest. The payment will
be made in equal monthly installments of $809. Prepare the journal entry for the first
monthly payment. (Round your answers to the nearest whole dollar number.)
Open Space Furniture began June with merchandise inventory of 45 sofas that cost a
total of $31,500. During the month, Open Space purchased and sold merchandise on
account as follows:
Prepare a perpetual inventory record, using the LIFO inventory costing method, and
determine the company’s cost of goods sold, ending merchandise inventory, and gross
profit.
Sagal Corporation has excess cash to invest and pays $200,000 to buy 7%, five-year
bonds of Richmond Corporation, at face value, on June 30, 2016. The bonds pay
interest on June 30 and December 31. Sagal intends to hold the bonds to maturity. The
bonds are disposed of, at face value, on June 30, 2021.Prepare the journal entry for
December 31, 2016 (omit the explanation).
Rightz Petroleum Products owns furniture that was purchased for $20,000.
Accumulated depreciation is $16,000. The furniture was sold for $3,800. Prepare the
journal entry to record this transaction.
William Smith is a sole proprietor of a successful business. He is interested in
incorporating to protect his personal assets. Which advantage of incorporation is most
applicable? What are other advantages of organizing as a corporate entity?
Journalize the following sales transactions for Outdoor Equipment using the periodic
inventory system. Explanations are not required.
