When the lower of cost or market rule requires an inventory adjustment, the:
A) adjustment usually, but not always, reduces the book value of inventory.
B) write-down is usually reported as a part of cost of goods sold.
C) inventory adjustment is recorded in a contra-account called Inventory Allowances.
D) write-down does not affect any of the financial statements.
During June, the Grass is Greener Company mows 100 lawns a week; the company was
paid in advance during May by those customers. The company uses the accrual basis of
accounting. How will these events affect the company’s financial statements?
A) The income statement shows the effects of the transactions in May.
B) The income statement shows the effects of the transactions in June.
C) The balance sheet shows no effect from the transactions in May.
D) The balance sheet shows no effect from these transactions in May or June.
Use the information above to answer the following question. The journal entry
necessary at the end of the period to adjust cost of goods sold for the ending inventory
still on hand will include which of the following?
A) Debit Inventory for $6,250
B) Credit Cost of Goods Sold for $11,250
C) Credit Purchases for $10,200
D) Credit Inventory for $5,000
Which of the following statements about asset impairment is correct?
A) Asset impairment losses appear on a company’s income statement every year.
B) When a company records an asset impairment loss, it will increase net income for
that period.
C) Impairment occurs when an asset’s book value is less than its current value.
D) Asset impairment losses are reported on the income statement as an operating
expense.
Which of the following statements about calculation of cash flows from operating
activities under the indirect method is correct?
A) When the indirect method is used, changes in current liabilities are subtracted while
changes in current assets are added to convert net income to net cash flow from
operating activities.
B) When the indirect method is used, depreciation expense is added to net income as a
step in the process of calculating net cash flow provided by operating activities.
C) When the indirect method is used, changes in long-term assets are added to convert
net income to net cash flow provided by operating activities.
D) When the indirect method is used, changes in long-term liabilities are subtracted to
convert net income to net cash flow provided by operating activities.
The Corning Company uses the percent of sales method of accounting for uncollectible
accounts receivable. At the beginning of the current year, the Allowance for Doubtful
Accounts had normal balance of $8,000. The following transactions took place during
the current year:
Required:
Part a. Prepare journal entries to record these transactions.
Part b. Determine the balance of the Allowance for Doubtful Accounts at the end of the
current year. Assume that the transactions above are the only transactions affecting this
account during the year.
Financing that individuals or institutions have provided to a corporation is:
A) always classified as a liability.
B) classified as a liability when provided by creditors and as stockholders’ equity when
provided by owners.
C) always classified as equity.
D) classified as a stockholders’ equity when provided by creditors and a liability when
provided by owners.
The Treadwell Tire Company had net accounts receivable of $67,900 at the beginning
of the year and $72,400 at the end of the year. If the company’s net sales revenue during
the year was $876,875, what is the receivables turnover ratio?
A) 12.5
B) 29.2
C) 0.08
D) 0.034
Net income is the amount:
A) the company earned after subtracting expenses and dividends from revenue.
B) by which assets exceed expenses.
C) by which assets exceed liabilities.
D) by which revenues exceed expenses.
Which of the following is an operating activity?
A) Repaying a bank loan
B) Paying a dividend to owners
C) Purchasing a new building
D) Purchasing goods to be offered for sale
In September, a customer signed a contract to have his house painted and paid for the
job in October. The painting company bought the paint in August on account and paid
for it in September. The painting company painted the house in November. Assuming
accrual basis accounting is used, the painting company should record the:
A) revenues in November and the expenses in September.
B) revenues and the expenses in September.
C) revenues and the expenses in November.
D) revenues in September and the expenses in August.
On January 1, 2016, Horton Inc. sells a machine for $23,000. The machine was
originally purchased on January 1, 2014 for $40,000. The machine was estimated to
have a useful life of 5 years and a residual value of $0. Horton uses straight-line
depreciation. In recording this transaction:
A) a loss of $1,000 would be recorded.
B) a gain of $1,000 would be recorded.
C) a loss of $17,000 would be recorded.
D) a gain of $23,000 would be recorded.
Free cash flow is a positive cash flow from operating activities:
A) beyond what is needed to replace current property, plant, and equipment and pay
cash dividends.
B) across all three activity components of the statement of cash flows.
C) beyond what has been allotted for future property, plant, and equipment replacement
and expansion.
D) across both financing and investing activities.