The most important element of internal control is reliable personnel with clear
responsibilities.
A disadvantage of debt for long-term financing is that the interest expense incurred on
debt reduces net income.
Closing entries deal primarily with balance sheet accounts.
If a company acquires a new machine, the cost of rewiring the building to accommodate
the machine, and the cost to reinforce the floor to support the weight of the machine,
are all considered a part of the total cost of the machine.
GAAP allow investments under the equity method to be carried at adjusted cost or
current market value on the balance sheet.
If an entry involving only two assets is not posted, the trial balance will be out of
balance.
List the assets in the order from most liquid to least liquid.
A) Inventory, accounts receivable, cash
B) Inventory, cash, accounts receivable
C) Accounts receivable, inventory, cash
D) Cash, inventory, accounts receivable
E) Cash, accounts receivable, inventory
Presented below are the balances, listed in alphabetical order, of Ferb Products, at
December 1,
20X9:
Accounts Payable $ 8,100
Accounts Receivable 4,000
Cash 7,300
Land 15,300
Machinery 31,600
Merchandise Inventory 12,200
Long-term Debt Payable 20,700
Note Payable 2,200
Paid-in Capital 39,400
Following are the transactions for Ferb Products for the month of December 20X9:
a. Borrowed an additional $1,300 in notes payable.
b. Collected $1,900 from credit customers.
c. Paid $2,600 of the amount owed on account.
d.The owners contributed $12,000 cash in exchange for capital.
Required:
1. Prepare an analysis of the transactions on the balance sheet equation.
2. Prepare a balance sheet as of December 31, 20X9, considering the beginning
balances and incorporating the effects of the December, 20X9 transactions.
Since both the income statement and the statement of cash flows report on company
changes,
A) an income statement is not necessary if a statement of cash flows is prepared.
B) a statement of cash flows is not necessary if an income statement is prepared.
C) a statement of cash flows and an income statement are prepared regardless.
D) a balance sheet is not necessary if an income statement and a statement of cash
flows is prepared.
E) a balance sheet is not necessary if either an income statement or a statement of cash
flows is prepared.
The account numbers from the chart of accounts are
A) not allowed to be used to prepare journal entries; account names must be used.
B) allowed to be used to prepare journal entries.
C) allowed to be used to prepare journal entries if an organization has 100 or more
account numbers.
D) allowed to be used to prepare journal entries if an organization has $1 million or
more in total revenues.
E) allowed to be used to prepare journal entries if an organization also uses the account
numbers in financial statements prepared for investors and creditors.
Tell Tale Books acquired all the stock of Ringlet Publishing by purchasing the shares
from their current owners for $50 million paid in cash. Ringlet Publishing has assets
with a fair value of $50 million. How would Ringlet Publishing account for the
acquisition?
A) No journal entry is necessary.
B) Ringlet Publishing would increase Cash by $50 million and decrease Property, Plant,
and Equipment by $50 million.
C) Ringlet Publishing would increase Cash by $50 million and increase Paid-in Capital
by $50 million.
D) Ringlet Publishing would increase Cash by $20 million and decrease Property, Plant,
and Equipment by $20 million.
E) Ringlet Publishing would increase Cash by $50 million; decrease Property, Plant,
and Equipment by $20 million; and increase Paid-in Capital by $30 million.
Bonds are often called ________ financial instruments or securities because they can be
transferred from one lender to another.
A) private placement
B) negotiable
C) current liability
D) long term liability
E) sinking fund
In a defined contribution pension plan,
A) the government pays employees a fixed pension amount upon retirement.
B) the government pays employees a variable pension amount upon retirement.
C) the employer makes annual contributions into a fund belonging to employees and the
retirement benefit depends on the amount in the fund at retirement.
D) the employer guarantees the employee a specific amount of retirement pay based on
the pay earned during the final years of employment and the numbers of years of
service.
E) the SEC pays employees a fixed pension amount upon retirement.
Office Supply Space has several assets on its balance sheet. The accountant is trying to
decipher which assets belong in the Cash account. From the list of assets below, which
asset should NOT be included in the Cash account?
A) Checks made payable to Office Supply Space
B) Money orders made payable to Office Supply Space
C) The company’s savings account
D) U.S. Treasury bond with a 5 year maturity
E) The company’s checking account
Rondo Auto acquired 3,500 of its own shares at $32 per share. The shares are to be held
in Treasury. The par value of Rondo Auto’s common stock is $2.50 per share. If Rondo
Auto were to resell all its treasury stock at $35 per share, what journal entry would
Rondo Auto make?
Passport Global sold 250 shares of $4.00 par value capital stock in exchange for
equipment worth $3,000. The effect of this transaction on Passport Global would be to
A) increase the equipment account by $1,000 and increase the capital at par by $1,000.
B) increase the equipment account by $3,000 and increase the capital at par by $3,000.
C) increase the equipment account by $3,000, increase the capital stock at par by
$1,000, and increase the paid-in capital in excess of par account by $2,000.
D) increase the equipment account by $3,000 and decrease the capital stock at par by
$3,000.
E) increase the equipment account by $3,000, decrease the capital stock at par by
$1,000, and decrease the paid-in capital in excess of par account by $2,000.
Given below are the balance sheet at December 31, 20X3 and income statement of Zeus
Company for the year ended, December 31, 20X3. Determine the following:
(a) The debt-to-equity ratio
(b) Long-term-debt-to-total-capital ratio
(c) Debt-to-total-assets ratio
(d) The interest-coverage ratio.
To record the prepaid rent that has expired during the period, the entry would include a
debit to
A) Prepaid Rent.
B) Rent Expense.
C) Retained Earnings.
D) Accrued Rent.
E) Unearned Rent.
The total number of shares that may be issued by a corporation is known as
A) issued shares.
B) authorized shares.
C) outstanding shares.
D) treasury shares.
E) preferred shares.
Manchester Technology has the following data available:
If a common size balance sheet were prepared, what percentage would be attributable to
the 2012 long-term note payable of Manchester Technology?
A) 30.8%
B) 60.0%
C) 63.2%
D) 69.2%
E) 100.0%
Following is the balance sheet for the Pratley Corporation as of March 31, 20X9:
Assets Liabilities
Cash $ 7,100 Accounts Payable $ 6,200
Accounts Receivable 4,000 Notes Payable 8,300
Merchandise Inventory 13,500 Total Liab. 14,500
Prepaid Rent 3,300 Paid-in Capital $17,600
Store Equipment 15,600 Retained Earnings 11,400
Total Stockholders’ equity 29,000
Total Assets $43,500 Total Liab. and Stockholders’ Equity $43,500
The following transactions occurred during April:
1. The company paid $2,100 of the accounts payable.
2. The company acquired $3,500 of merchandise inventory, paying 40% in cash and the
remainder on open account.
3. The utility bill of $600 for the month of April was paid.
4. The company received $2,200 from its credit customers.
5. Sales of merchandise inventory for the month of April totaled $12,900, of which
$5,400 was paid in cash and the remaining amount was on open account. The cost of
the merchandise sold was $8,100.
6. The company paid $1,600 of the note payable.
7. Depreciation on the store equipment was $600 for the month.
8. Additional store equipment of $1,700 was acquired. Of this amount, $700 was paid in
cash and the remainder was added to the note payable balance.
9. The balance in the prepaid rent account represented 3 months’ worth of rent paid in
advance as of March 31, 20X9.
10. Net income for the month ended April, 20X9, was $2,500.
Required:
Prepare an analysis of the above transactions using the balance sheet equation. Prepare
a balance sheet dated April 30, 20X9.
Morrill Law Offices had the following transactions in November, 2012. Prepare closing
entries followed by an income statement for Morrill Law Offices for the month ending
November 30, 2012.
1. Morrill Law Offices sold $210,000 worth of services. Two-thirds was collected in
November with the remainder collected in December.
2. The company paid wages of $53,000 to its employees.
3. The company paid utilities of $750 to Brenton Electric Company.
4. The company’s prepaid rent account expired in the month of November. Morrill Law
Offices purchased an additional 3 months of rent on October 1, 2012 for $3,600. The
landlord did not increase rent for Morrill Law Offices.
5. A declaration of dividends for $3,200 occurred on November 1, 2012.
Chorpa, Inc., has 700,000 shares authorized and 150,000 shares issued and outstanding
of $3 par value common stock. The current market price of the stock is $50 per share.
On December 1, 2X13, the company declared and issued a 40% stock dividend. After
the stock dividend, determine the new value for each of the following items:
Journalizing amounts for unearned revenue can cause ethical dilemmas for many
accountants since estimates are often used when exact completion amounts are
uncertain. Discuss potential problems that this may cause for financial statement users.
How does the concept of conservatism affect an accountant’s recognition of revenue of
a particular project? How would underestimating revenue of a project affect net
income?
Alexander Pools has 700,000 shares authorized and 250,000 shares issued and
outstanding of its $4 par value common stock. The stock is currently selling for $60 per
share. If Alexander Pools declared and issued a three-for-one stock split by issuing
500,000 new shares and accounts for it as a stock dividend, what journal entry would be
made?
E) No journal entry is necessary.
T.J. West, publishes the Bunstelle Times. In June, he collected $96 in advance for
1-year subscriptions. He delivered the first issue in July. Assume one issue is published
per month. The journal entry to record the delivery of the magazines in July would be
Hoffert Enterprises has 500,000 shares of common stock authorized and 100,000 shares
of common stock issued and outstanding. The common stock has a par value of $6 per
share. On February 1, 2X13, the company declared and issued a two-for-one stock split.
Assuming that the company exchanges 200,000 new $3 par value shares for the old
shares, what journal entry would be made by Hoffert Enterprises on February 1, 2X13?
A credit customer paid $200 to Iron Works Company to reduce the customer’s
outstanding balance. However, Iron Works Company erroneously increased sales.
Which of the following is the correcting entry to be made?
After analyzing the following statement of cash flows
1. State the method Pet Halt Services uses to prepare its operating section of the
statement of cash flows and explain how you arrived at your answer.
2. Explain why depreciation expense is added back to net income in the operating
section of the statement of cash flows.
The Lone Maple Corporation had net income during 2012 of $46,000. During the year,
dividends of $14,000 were declared, of which $10,000 had been paid as of year end. As
of the beginning of 2012, the Paid-in Capital account had a balance of $38,000 and the
Retained Earnings account had a balance of $54,000. Prepare the Retained Earnings
column for the Statement of Stockholders’ Equity for the Lone Maple Corporation for
the year ended December 31, 2012.