When preparing the statement of cash flows using the indirect method, a decrease in
current liabilities is added to the net income to arrive at net cash flow from operating
activities.
Source documents provide the evidence and data for accounting transactions.
When a bond is issued at a premium, the interest expense calculation using the
effective-interest amortization method uses the carrying amount of the bonds and the
market rate of interest.
Vacation, health, and pension benefits must be estimated and recorded as a liability.
For exchanges of plant assets with commercial substance, the new asset received will
be recorded at its market value.
If a bond is issued at a premium, the issue price is greater than face value.
Present value is the amount a person would invest now to receive a greater amount in
the future.
Debt securities do not include U.S. government securities.
The beginning balance in the Common Stock account of Cedar Technologies, Inc. was
$76,000. The revenues and expenses amounted to $55,000 and $37,000, respectively.
During the year, the company did not declare any dividends or issue common stock.
The Common Stock account will have $131,000 at the end of the year.
Grace Paper Company has a debt ratio of 25%, which means that 75% of the assets are
financed by creditors.
Impairment of an intangible asset occurs when the book value of an asset is less than
the fair value.
When using the effective-interest amortization method, the discount amortization is the
excess of the calculated interest expense over the interest payment.
When a business records the earning of service revenue, the Service Revenue account is
credited.
The balance sheet helps analyze the business performance in terms of profitability.
The fair value of a trading security is the price that would be used if the company were
to sell the investment on the market.
On November 1, 2017, President, Inc. declared a dividend of $3.00 per share. President,
Inc. has 10,000 shares of common stock outstanding and 20,000 of preferred stock. The
date of record is November 15, and the payment date is November 30, 2017. Regarding
the date of record, which of the following statements is true?
A) No journal entry is made on the date of record.
B) The liability must be recorded on the date of record.
C) Cash is disbursed to shareholders on the date of record.
D) The company transfers cash to a brokerage firm on the date of record.
The advance cash payments of future expenses are called ________.
A) accrued revenues
B) deferred expenses
C) deferred revenues
D) accrued expenses
A balance sheet that lists the assets above the liabilities and stockholders’ equity
sections is a(n) ________ balance sheet.
A) report form
B) unclassified form
C) account form
D) audited form
A business prepays four months’ office rent. Which of the following accounts is
debited?
A) Rent Expense
B) Cash
C) Prepaid Rent
D) Unearned Rent
Which of the following is true of posting from a sales journal to the general ledger?
A) Entries in the sales journal are posted to either the accounts receivable subsidiary
ledger or the general ledger.
B) Individual accounts receivable are posted daily from the sales journal to the accounts
receivable subsidiary ledger.
C) Even though the sales journal is posted monthly to the subsidiary ledger, it is a
reliable record of the amount received from each customer.
D) Under a perpetual inventory system, the sales journal will not have the Cost of
Goods Sold DR and Merchandise Inventory CR column.
Eric’s gross pay for the week is $2,150. His deduction for federal income tax is based
on a rate of 25%. He has no voluntary deductions. His yearly pay is under the limit for
OASDI. What is the amount of FICA tax that will be withheld from Eric’s pay?
(Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.)
A) $537.50
B) $164.48
C) $701.98
D) $136.50
During the accounting period, office supplies were purchased on account for $3,200. A
physical count, on the last day of the accounting period, shows $1,100 of office supplies
on hand. Supplies Expense for the accounting period is $3,600. What was the beginning
balance of Office Supplies?
A) $4,700
B) $2,100
C) $1,500
D) There is not enough information to answer this question.
Which of the following is included in the category of other receivables?
A) interest receivable
B) accounts receivable
C) notes receivable
D) investments
Which of the following accounts would appear in the income statement credit column?
A) Service Revenue
B) Prepaid Insurance
C) Unearned Revenue
D) Depreciation Expense
A business purchases $500 of office supplies on account. Which of the following
accounts is debited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Utilities Expense
For the following situation, state whether it represents a strength or weakness in internal
control and give the reason for your answer.The movie theater has the following policy.
Tickets are sold by the cashier. The ticket stubs are collected by the ticket taker. The
ticket stubs are stored in a locked box, and the accounting personnel match the number
of ticket stubs to the number of tickets sold.
A company purchased inventory for $100,000 on account and recorded it as follows:
The vendor’s invoice showed terms of 3/10, net 30. Give the journal entry for the
payment of the invoice seven days after the invoice date, assuming that the vendor uses
the perpetual inventory system.
Caleb Auto Parts Company uses the indirect method to prepare its statement of cash
flows. Refer to the following portion of the comparative balance sheet:Caleb Company
Comparative Balance Sheet
December 31, 2017 and 20162017 2016 Increase (Decrease)
Cash $42,000 $36,000 $6,000
Accounts Receivable 62,000 70,000 (8,000)
Merchandise Inventory 106,000 50,000 56,000
PP&E, net 240,000 180,000 60,000
Total Assets $450,000 $336,000 $114,000Additional information provided by the
company includes the following:
Equipment costing $104,000 was purchased for cash.
Equipment with a net book value of $20,000 was sold for $28,000.
Depreciation expense of $24,000 was recorded during the year.Prepare the investing
activities section of the statement of cash flows.
In order to expand its business, the management of Carroll, Inc. issued a long-term
notes payable for $50,000 on January 1, 2016. The note will be paid over a 10-year
period with equal annual principal payments, December 31 of each year. The annual
interest rate is 12%. Prepare the journal entry for the first installment payment.
Felix Company has just completed operations for the year ended December 31, 2016.
This is the second year of operations for the company. The following data have been
assembled for the business.
Prepare the balance sheet. Use a proper heading.
On January 1, 2017, Real Planes Manufacturing Corporation purchased a machine for
$40,000,000. The corporation expects to use the machine for 24,000 hours over the next
six years. The estimated residual value of the machine at the end of the sixth year is
$40,000. The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in
2018. What is the book value of the machine at the end of year 2018 if the corporation
uses double-declining-balance method of depreciation? (Round your intermediate
calculations.)
Melville Services has a weekly payroll of $50,000. December 31, 2016 falls on
Thursday and Melville will pay its employees the following Monday (January 4, 2017)
for the previous full week. Assume that Melville has a five-day workweek and has an
unadjusted balance in Salaries Expense of $845,000. Prepare the January 4, 2017
journal entry. Reversing entries are not made.
For each of the following business transactions, list two examples of related accounting
information system (AIS) activities:
