A customer returned damaged goods for credit. Under a perpetual system, which of the
seller’s accounts decreases?
a. purchase returns
b. accounts receivable
c. sales returns
d. sales revenue
The following stockholders’ equity appeared on a balance sheet at December 31, 2014:
Common Stock $1 par, 1,000,000 shares authorized $ 200,000
Paid-in Capital in Excess of Par–Common Stock 800,000
Retained Earnings (450,000)
Total Stockholders’ Equity $550,000
A) Has the company been profitable since its inception? How do you know?
B) What is the meaning of the balance in a retained earnings account? What causes this
balance to change from period to period?
C) Can you tell from the balance sheet whether a company paid a dividend during the
current period?
D) How many shares of common stock are issued and outstanding and how can these
amounts be determined?
Refer to Kaleidoscope Paint. What is the carrying value of the bonds after the first
interest payment is made on June 30, 2013?
a. $480,745
b. $482,282
c. $503,245
d. $500,000
Error corrections which involve restatement of prior period income must be reported
a. in a separate account within the equity section of the balance sheet.
b. within “unrestricted retained earnings” on the balance sheet, with footnote disclosure
to describe the appropriation.
c. as a prior period adjustment on the statement of changes in retained earnings.
d. only within the footnotes accompanying the financial statements.
Gottlieb Pool n” Pub, Inc. sold $25,000 in gift cards during December 2013. The
expiration date on these gift cards is December 31, 2014. During 2014, $23,940 of the
gift cards were redeemed by customers.
A) Record the sale of the gift cards.
B) Record the redemption of the gift cards.
C) Record the expiration of the remaining gift cards.
Discount Muffler Company is preparing its bank reconciliation for June 30, 2013. Its
bank statement and general ledger T-account for its checking account are presented
below:
Best Bank
41 N. Main Street Account Statement
Best, GA 32664 June 30, 2013
Member FDIC
Discount Muffler Co. Acct. 00709561
161 N. Hill Street
Best, GA 32664
Previous Checks Deposits Current
Balance and Debits and Credits Balance
$9,675.20 $10,685.26 $7,175.10 $6,165.04
Checks and Debits Deposits and Credits Daily Balance
Date No. Amount Date Amount Date Amount
6/03/13 1983 182.00 6/03/13 9493.20
6/04/13 1984 217.26 6/04/13 2673.10 6/04/13
11949.04
6/06/13 1985 1075.00 6/06/13 10874.04
6/07/13 1986 37.50 6/07/13 4500.00 6/07/13
15336.54
6/10/13 1987 826.00 6/10/13 14510.54
6/11/13 1988 50.00 6/11/13 14460.54
6/12/13 1989 2670.00
6/12/13 1990 67.90 6/12/13 11722.64
6/13/13 1991 890.00 6/13/13 10832.64
6/14/13 1992 27.50 6/14/13 10805.14
6/17/13 1993 111.00 6/17/13 10694.14
6/18/13 DM 380.00 6/18/13 10314.14
6/19/13 1994 60.00
6/19/13 1995 510.00 6/19/13 9744.14
6/20/13 1996 30.00 6/20/13 9714.14
6/21/13 1997 1600.00 6/21/13 8114.14
6/24/13 1998 78.00 6/24/13 8036.14
6/25/13 NSF 200.00 6/25/13 7836.14
6/26/13 1999 208.80 6/26/13 7627.34
6/27/13 2000 1250.00 6/27/13 6377.34
6/28/13 2002 175.00 6/28/13 6202.34
6/30/13 2003 25.30 6/30/13 INT 2.00
6/30/13 SC 14.00 6/30/13 6165.04
Symbols: DM CM INT NSF SC
Debit Credit Interest Non- Service
Memo- Memo Earned sufficient Charge
utility bill funds
Discount Muffler Company
Cash
Amount Amount
Date Deposited Check # Disbursed
Beg. Bal. 8200.94
5/31/13 1986 37.50
6/01/13 2673.10 1987 826.00
6/05/13 4500.00 1988 50.00
6/30/13 300.00 1989 2670.00
1990 67.90
1991 890.00
1992 27.50
1993 111.00
1994 60.00
1995 510.00
1996 30.00
1997 1600.00
1998 87.00
1999 208.80
2000 1250.00
2001 93.00
2002 175.00
2003 25.30
2004 72.50
2005 891.00
6/30/13 5991.54
A) Prepare a bank reconciliation in proper form for June. Note that the beginning
balance was correctly reconciled at the end of the previous month, and that all
outstanding checks (numbered 1983, 1984, and 1985) and deposits in transit from the
previous month cleared the bank during May.
B) How much cash will the company report on its June 30 balance sheet?
C) What adjusting entries will the company record as a result of this bank
reconciliation process? Assume that the bank correctly recorded all transactions, and
that any errors noted in the reconciliation process involve transactions on credit.
Which of the following statements is true regarding economic events?
a. The signing of a service contract is an example of an external event that is recorded
in the accounting records.
b. Every event which affects an entity can be identified from a source document.
c. All internal and external events must be measured with sufficient reliability.
d. External events involve exchanges between an entity and another entity outside the
company.
“Economic resources” are known as
a. assets.
b. liabilities and stockholders’ equity.
c. owners’ equity and stockholders’ equity.
d. retained earnings and revenues.
Potential stockholders and lenders are interested in a company’s financial statements.
Several financial statement items appear below. Answer the questions that follow.
The following data is available for one of the products sold by Chancet Company,
which uses a perpetual inventory system:
April 1 On hand, 10 units at $8 each $ 80
5 Purchased 30 units at $7.80 each 234
18 Purchased 40 units at $8.25 each 330
20 Sold 75 units for $13 each
24 Purchased 20 units for $8.25 each 165
Chancet Company’s ending inventory for April was 25 units.
Complete the table by determining the amounts of April 30th inventory, cost of goods
sold, and gross margin under each of the inventory costing methods listed below.
Ending Inventory Cost of Goods Sold Gross Margin
A) FIFO
B) LIFO
C) Moving Average Cost
Assume that a company’s current ratio is 2.0. If the company purchases inventory on
credit, which of the following is true?
a. The current ratio will increase.
b. The current ratio will decrease.
c. There will be no net impact on the current ratio.
d. The current ratio will change, but there will be no effect on the quick ratio.
On January 1, 2013, a company issued $5,000,000 of a 10-year, zero-coupon bonds at
55.
Required:
A) Record the issuance of the bonds on January 1, 2013.
B) Record interest expense for 2013 assuming the use of the straight line amortization
method.
C) Record the retirement of the bonds on January 1, 2023.
On June 3, 2013, Alpine Corporation sold merchandise with a gross price of $45,000
with terms of 2/10, n/30.
Prepare the journal entries to:
A) Record the sale using the gross method.
B) Assume the payment is received on June 10, 2013.
C) Assume payment is not received until June 21, 2013.
A company forgotto record four adjustments during 2013. Which one of the following
omissions of adjustments will understate assets?
a. Unearned revenue is not reduced for the portion that has been earned
b. Interest on monies loaned out has not yet been recorded
c. Prepaid insurance is not reduced for the portion of the policy that has expired during
the period
d. Income taxes owed but not yet paid are ignored
Compound interest is computed on which of the following?
a. Only the original amount.
b. The original amount and any undistributed interest earned in prior periods.
c. The original amount and any distributed or undistributed interest earned in prior
periods.
d. Only the distributed and undistributed interest earned in prior periods.
What is the distinguishing characteristic between accounts receivable and notes
receivable?
a. Accounts receivable are usually current assets while notes receivable are usually
long-term assets.
b. Accounts receivable require payment of interest while notes receivable does not have
payment of interest.
c. Notes receivable result from credit sale transactions for merchandising companies,
while accounts receivable result from credit sale transactions for service companies.
d. Notes receivable generally specify an interest rate and a maturity date at which any
interest and principle must be repaid.
Which of the following ratios is used to analyze a company’s asset efficiency?
a. return on assets
b. inventory turnover ratio
c. earnings per share
d. debt-to-total assets ratio
A particular balance sheet includes the following information within the stockholders’
equity section:
Common stock, $5 par value $ 300,000
Paid-in capital in excess of par 1,740,000
Assume that common stock is the only class of stock that has been issued and that there
have been two issues of stock since the corporation began business. What is the average
issue price per share of stock?
a. $ 5.00
b. $ 6.80
c. $29.00
d. $34.00
On January 2, 2013, Kangaroo Convenience Stores issued 10-year, $5,000,000,
zero-coupon bonds at 75. What is the amount of interest expense recorded in 2013
using the straight line amortization method?
a. $5,000,000
b. $3,750,000
c. $1,250,000
d. $125,000
On December 31, 2014, a restaurant purchased a $19,000 truck to be used for catering.
It made a down payment of one-fourth of the purchase price. What combination of
amounts would affect the 2014 income statement and statement of cash flows for the
purchase of the truck?
Statement of Cash Flow Income Statement
a. $ -0- $19,000
b. $19,000 $ -0-
c. $ 4,750 $19,000
d. $ 4,750 $ -0-
Gainesville Truck Center
This company has a weekly payroll of $10,000 for its employees who work Monday
through Friday. Federal and state income taxes are withheld in the amounts of $1,700
and $400, respectively, and FICA taxes are withheld at a mandatory rate of 7.65%
(6.2% for Social Security and 1.45% for Medicare). In addition, the federal and state
unemployment taxes are applied at rates of 2% and 5%, respectively. The company’s
year-end is December 31.
Refer to Gainesville Truck Center. Assuming December 31st falls on a Thursday, the
year-end adjusting entry would
a. increase wages expense by $8,000.
b. decrease wages payable by $2,000.
c. decrease cash by $8,000.
d. increase wages payable by $2,000.
A company reported the following income statement amounts:
Which of the following best describes the company’s performance?
a. The company’s operating profit as a percentage of operating revenues decreased.
b. The company has become more profitable.
c. The increase in operating revenues increased the company’s net income.
d. The operating expenses as a percentage of operating revenues remained the same.
Which one of the following items is reported as a current stockholders’ equity on a
classified balance sheet?
a. Net Income
b. Accounts Payable
c. Land
d. Common Stock
Equipment with a residual value of $50,000 at the end of 10 years was acquired at the
beginning of 2011 for $500,000. Assuming the use of the straight-line depreciation
method, the journal entry to record depreciation expense for 2013 will have a debit to
a. depreciation Expense and a credit to Accumulated Depreciation for $50,000.
b. accumulated Depreciation and a credit to Equipment for $50,000.
c. depreciation Expense and a credit to Equipment for $45,000.
d. depreciation Expense and a credit to Accumulated Depreciation for $45,000.
If a company’s bonds are callable,
a. the bondholder has the right to sell an option on the bond.
b. the issuing company is likely to retire the bonds before maturity if the bonds are
paying 8% interest while the market rate of interest is 4%.
c. the bonds are never allowed to remain outstanding until the maturity date.
d. the investor never knows what the redemption price will be until the bonds are
actually called.
In which form of organization are the owners’ legal responsibility for the debt of the
business limited to the amount they invested in the business?
a. cooperative
b. corporation
c. partnership
d. proprietorship
Refer to Labor Finders, Inc. The company’s 2015 stock repurchase payout ratio is
reported as
a. 6.67%.
b. 77.19%.
c. 28.00%.
d. 66.67%.
Par value represents the
a. arbitrary amount that establishes a minimum price for the stock when it is first issued.
b. current market price of the stock.
c. amount for which any treasury shares have been acquired by the corporation.
d. amount for which treasury shares may be reissued.
Refer to Been There Used Furniture. If the company’s revenues were $500,000 for the
year ended December 31, 2013, how much were total expenses?
a. $300,000
b. $250,000
c. $350,000
d. $800,000
Land is notdepreciated because it
a. appreciates in value.
b. does not have an established depreciable life.
c. has a useful life that is limited to the period of time a company is in business
d. will provide future benefits for a company for an unlimited period of time.
Under accrual accounting when is revenue recognized?
a. When cash is received, and expenses when cash is paid
b. When cash is received, and expenses when the costs are incurred.
c. When earned, and expenses when incurred.
d. When earned, and expenses when cash is paid.
Current assets include all of the following: cash, inventory, equipment, supplies, and
accounts receivable.
The owners of a sole proprietorship, partnership and corporations have limited liability.
Refer to Baker’s Pride Bakery. How much of the company is financed by owners at the
end of December 2013?
Cash flows are described as either single cash flows or _______________.
Graphic Designs, Inc. engaged in the following transactions during 2013:
Date Transaction
Feb. 10 Purchased $10,000 of merchandise on credit.
Feb. 27 Paid for the merchandise purchased on Feb. 10th.
May 1 Borrowed $100,000 on a 9-month, 9% interest-bearing note.
May 15 Received a $5,000 deposit from a customer for custom-made products to
be manufactured and delivered next month.
June 30 Remitted quarterly installments of FICA and income tax withholdings of
$106,000 and $417,000, respectively. The payroll entries, including the employer’s
payroll taxes, have already been recorded.
Dec. 31 Recorded accrued interest on the note payable.
Prepare journal entries for each of these transactions.
The concept that assumes that assets are recorded at the amount to acquire them is
called the ____________________ principle.
When computing the total payout ratio, common stock dividends plus common stock
repurchases are included in the numerator.
The account, “Allowance for Doubtful Accounts” is an expense account (the cost of
making bad credit sales) that is reported on the income statement.
For each of the following items, indicate whether each would be treated as capital
expenditure or revenue expenditure. (Choices may be used more than once.)
a. capital expenditure
b. revenue expenditure
1, Costs related to acquiring an asset, such as sales or excise taxes, transportation,
insurance during shipment.
2, Costs incurred prior to using the asset, such as installation and other costs to prepare
the asset for use.
3, Costs incurred after putting the asset into service which keep the asset in normal
operating condition.
4, Costs incurred after putting the asset into service which would extend the asset’s
useful life.
When a retail company sells products to customers on credit for the amount of the sales
price plus the applicable sales tax, the related journal entry includes a debit to accounts
receivable, a credit to sales revenue, and a credit to ____________________.
____________________ are cash and other assets that are reasonably expected to be
realized in cash during the normal operating cycle, whichever is longer.
Both net income and dividends can be found on this financial statement:
____________________.
Refer to Baker’s Pride Bakery. Based on the information provided, is the company
legally organized as a sole proprietorship, partnership, or corporation? How can you
tell?
Under the _______________ inventory system, the inventory account is updated after
each purchase or sale.
For any given contingent liability, a company must choose between recording it on the
accounting records or disclosing it in the footnotes to the financial statements
A calendar year company paid $24,000 on October 1, 2012 to purchase two years of
insurance coverage for its retail shop. The prepayment was initially recorded as an
asset.
A) What adjusting journal entry is necessary at December 31, 2012?
B) How much will be reported on the balance sheet at December 31, 2012, for
prepaid insurance?
C) How much will be reported on the income statement for the year ended
December 31, 2012, for insurance expense?
D) If the adjustment in part A is not recorded, by what amount will net income be
over or understated at December 31, 2012?
E) What adjusting journal entry is necessary at December 31, 2013?
F) How much will be reported on the balance sheet at December 31, 2013, for
prepaid insurance?
G) How much will be reported on the income statement for the year ended
December 31, 2013, for insurance expense?
In the worksheet, the first set of columns immediately following the account titles is for
the Adjusted Trial Balance
Refer to Cabana Club. Prepare all closing entries necessary based on the income
statement for the year ended December 31, 2014.
