The purpose of adjusting entries is to transfer net income and dividends to Retained
Earnings.
If a merchandiser offers a sales discount of 2/10, net/30 on a sale of $1,000, the amount
due in 30 days is the net amount of $980.
Horizontal analysis is the comparison of each financial statement amount to another
amount on the same financial statement.
The periodic inventory system uses the Inventory account to keep track of the amount
of inventory that is purchased.
On a bank statement, deposits are listed as debits and cleared checks are listed as
credits.
When the amount of annual depreciation is revised because of a change in the estimated
useful life of an asset, prior years’ financial statements should be restated.
The general ledger is an internal report that lists all the accounts and their balances and
is used to check that total debits equals total credits.
The payment of interest on bonds is classified as a cash outflow from operating
activities on the statement of cash flows.
Costs that benefit future periods are reported as assets.
Depreciation Expense is not reported on the statement of cash flows when prepared
using the direct method.
A debit may increase or decrease an account, depending on the type of account.
The fixed asset turnover ratio is a profitability ratio.
When preparing the operating activities section of the statement of cash flows using the
indirect method, a decrease in accounts receivable is subtracted from net income.
Most companies report sales revenue, sales returns and allowances, and sales discounts,
as well as net sales on their externally reported income statements.
Intangible assets with limited lives are usually amortized using the straight-line method
with no residual value.
Liabilities reported on the balance sheet include:
A) Accounts Payable, Notes Payable, and Common Stock.
B) Accounts Receivable, Supplies Expense, and Retained Earnings.
C) Accounts Payable, Notes Payable, and Salaries and Wages Payable.
D) Common Stock, Retained Earnings, and Notes Payable.
A corporate bond with a face value of $1,000 is issued at 107. This means that the bond
actually sold for:
A) $107 and the stated interest rate was higher than the market interest rate.
B) $1,070 and the stated interest rate was higher than the market interest rate.
C) $107 and the stated interest rate was lower than the market interest rate.
D) $1,070 and the stated interest rate was lower than the market interest rate.
The three key pieces of information that are stated on a bond certificate are the:
A) interest payment, the face value of the bond, and the credit rating of the company.
B) market interest rate, the price of the bond, and the maturity date.
C) stated interest rate, the face value of the bond, and the maturity date.
D) interest payment, the issue price of the bond, and the credit rating of the company.
Which of the following is not an asset?
A) Cash
B) Notes Receivable
C) Common Stock
D) Land
Which of the following requires that its members adhere to a Code of Professional
Conduct?
A) SEC
B) FASB
C) PCAOB
D) AICPA
Ordinary repairs and maintenance:
A) are part of the asset cost of equipment and facilities.
B) are recorded as expenses.
C) are always recorded as liabilities.
D) improve the asset beyond the current accounting period.
Which type of analysis could reveal that a company is relying heavily on debt
financing?
A) Common size statements
B) Horizontal analysis
C) The fixed asset turnover ratio
D) Trend analysis
An increasing inventory turnover ratio indicates:
A) a longer time span between the ordering and receiving of inventory.
B) a shorter time span between the ordering and receiving of inventory.
C) a shorter time span between the purchase and sale of inventory.
D) a longer time span between the purchase and sale of inventory.
Expenses are reported on the:
A) income statement in the time period in which they are paid.
B) income statement in the time period in which they are incurred.
C) balance sheet in the time period in which they are paid.
D) balance sheet in the time period in which they are incurred.
A company pays its workforce on Fridays for a five-day workweek ending on that day.
The payroll for a week is $100,000. If the accounting year-end falls on a Tuesday, the
adjusting journal entry to record this will include a
A) debit to Salaries and Wages Expense $100,000.
B) debit to Salaries and Wages Expense $40,000.
C) credit to Salaries and Wages Payable $60,000.
D) credit to Salaries and Wages Payable $100,000.
The direct exchange of debt for equipment would be shown:
A) on the statement of cash flows as an operating activity.
B) on the statement of cash flows as an investing activity.
C) on the statement of cash flows as a financing activity.
D) as a supplementary disclosure to the statement of cash flows.
If a company uses the indirect method to determine cash flows from operating
activities, gains:
A) must be added to net income and losses subtracted from net income.
B) and losses must be added to net income.
C) must be subtracted from net income and losses added to net income.
D) and losses must be subtracted from net income.
Depreciation Expense is $20,000 and the beginning and ending Accumulated
Depreciation balances are $150,000 and $155,000, respectively. What is the cash paid
for depreciation?
A) $20,000
B) $5,000
C) $0
D) $25,000
Core Corporation had 400,000 shares of $2 par value common stock authorized. On
December 31, 2015, there were 200,000 shares issued and outstanding. The market
value of its common stock on that date was $100 per share. On January 5, 2016, the
board of directors declared a five-to-four stock split (i.e., a 25% increase in the number
of shares).
Required:
Part a. Briefly explain the how a stock spilt affects the stockholders’ equity accounts
and the total resources of the company.
Part b. Assume that you have 100 shares of Core Corporation common stock.
Determine how many shares will you have after the stock split.
Part c. Determine how the stock split will impact the number of authorized shares, the
number of issued and outstanding shares, and the par value per share.
Part d. Determine the total par value of the company’s issued and outstanding shares
(that is, the balance of the Common Stock account) before the stock split and after the
stock split.
A company has outstanding 10 million shares of $2 par common stock and 1 million
shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The
company declares $300,000 in total dividends for the year. Which of the following is
correct if the preferred stockholders only have a current dividend preference?
A) Preferred stockholders will receive the entire $300,000, and they must also be paid
$20,000 before the end of the current accounting period. Common stockholders will
receive nothing.
B) Preferred stockholders will receive $24,000 or 8% of the total dividends. Common
stockholders will receive the remaining $276,000.
C) Preferred stockholders will receive the entire $300,000, and they must also be paid
$20,000 sometime in the future before common stockholders will receive anything.
D) Preferred stockholders will receive the entire $300,000, but will receive nothing
more relating to this dividend declaration. Common stockholders will receive nothing.
Match the term and its definition. There are more definitions than terms.
Terms
____ 1) Contra-Account
____ 2) Carrying Value
____ 3) Deferral Adjustment
____ 4) Closing Journal Entry
____ 5) Net Loss
____ 6) Adjusted Trial Balance
____ 7) Temporary Account
____ 8) Accrual Adjustment
____ 9)Income Before Income Taxes
Definitions
A. When revenue minus expenses is a negative number.
B. Adds new values into the balance sheet and income statement accounts.
C. Also known as balance sheet accounts.
D. Entries made to update existing accounts and record new events.
E. The level of profit prior to considering income tax.
F. Lists the balances of all accounts to check that revenues equal expenses.
G. The amount at which an asset or liability is reported in the financial statements.
H. An account that is paired with another account and acts to reduce its book value.
I. Lists the balances of all temporary and permanent accounts to provide a check on the
equality of the debits and credits.
J. A journal entry that transfers net income or loss to the Retained Earnings account.
K. Converts some of an asset’s or a liability’s book value into an expense or a revenue.
L. An account that must have a zero balance after Closing entries have been made.
M. Lists the balances of all permanent accounts to check that debits equal credits.
Which of the following statements about the reporting of operating cash flows using the
direct method is correct?
A) Although most U.S. companies use the indirect method, the Financial Accounting
Standards Board (FASB) prefers the direct method of accounting for cash flows from
operating activities.
B) The FASB prefers the indirect method of calculating cash flows from operating
activities because it gives a more accurate calculation of cash provided by operating
activities.
C) The direct method results in a larger amount of cash flow from operating activities
than does the indirect method.
D) The direct and indirect methods use different presentations for cash flows from
investing and financing activities.
The company’s total assets are $36,000. The following is a listing of the company’s
accounts and account balances as of December 31, Year 3. This company doesn’t have
any other accounts.
Required:
Part a. Determine the balance of the Cash account.
Part b. Determine the balance of the Retained Earnings account.
On January 1, 2016, a company issues 3-year bonds with a face value of $200,000 and a
stated interest rate of 8%. Because the market interest rate is higher than the stated
interest rate, the company receives $194,000 for the bond.
Required:
Fill in the table assuming the company uses the straight-line bond amortization.
A company established a $400 petty cash. On October 15, there was $16 remaining in
the petty cash fund on that date and there were petty cash receipts for travel expense,
$39, delivery expense, $138, and office expenses, $214. The petty cash fund was
replenished and increased to $1,000 in total.
Required:
Prepare the journal entry, if any, required, to record the replenishment of the petty cash
fund and the increase in its amount on October 15.
The management team of Wickersham Brothers Inc. is preparing its annual financial
statements. The statements are complete except for the statement of cash flows. The
completed comparative balance sheets and income statements are summarized.
Other information from the company’s records includes the following:
Bought equipment for cash, $50,000.
Paid $10,000 on long-term note payable.
Issued new shares of common stock for $20,000 cash.
Cash dividends of $16,000 were declared and paid to stockholders.
Accounts Payable arose from inventory purchases on credit.
Income Tax Expense ($4,000) and Interest Expense ($3,000) were paid in full at the end
of both years and are included in Other Expenses.
Required:
Prepare a schedule summarizing operating, investing, and financing cash flows using
the T-account approach
The following activities took place during the month of November at a corporation that
operates a shoe repair shop.
1) Salaries and wages in the amount of $33,000 are paid to employees.
2) On the last day of November, the company acquires equipment on account of
$55,000.
3) Payment of $375 made on account to a consulting firm for services received from
that firm during October.
4) Payment of $12,000 made at the beginning of November for six months of rent; the
period covered by the payment begins in November.
5) Utility bills in the amount of $125 arrive in the mail; the bills will not be paid until
December.
Required:
Indicate what accounts would be used to record the initial transaction arising from each
activity.
The table below describes the five adjustments that will be required and the accounts
that will appear in each adjusting entry.
Required:
Complete the table by indicating whether the related adjusting entry will include a debit
(Debit) or credit (Credit) to the accounts listed. Then, indicate whether the related
adjusting entry will increase
Samberg Inc. had the following transactions.
Oct. 1 – Sold $10,000 of merchandise on account, 1/10, n/30 to McCormick Industries.
Nov. 1 – Received a $10,000, 90-day, 10% note from McCormick Industries to settle its
$10,000 unpaid balance.
Dec. 31 – Accrued interest on the note. (Round to the nearest whole dollar amount.)
Jan. 31 – Received the interest on the note’s maturity date.
Jan. 31 – Received the principal on the note’s maturity date. (Round to the nearest whole
dollar amount.)
Required:
Prepare the required journal entries.
Consider the following account balances of Purrfect Pets, Inc., as of June 30, Year 3:
Required:
Prepare a classified balance sheet at June 30, Year 3.
