A company employs 10 workers in its manufacturing facility. Each employee is paid
$10 per hour and works 8 hours per day, Monday through Friday. Employees are paid
every Wednesday for the previous Monday through Friday workweek. The last payday
was Wednesday, October 28.
A) Compute the dollar amount of the company’s weekly payroll.
B) Prepare the adjusting entry on Friday, October 30, the last day of the fiscal period.
C) What special precautions are necessary upon recording the payment of wages to
employees on the next payday, November 4?
An entry made to the right side of an account is always a(n)
a. debit.
b. credit.
c. increase.
d. decrease.
Benchmark Surveyors
The following balances are provided:
Refer to Benchmark Surveyors. Calculate Current Assets.
a. $498,000
b. $401,000
c. $854,000
d. $709,000
A photo processing store purchased office supplies on January 15 by paying cash of
$5,000. On January 1, the Supplies account had a beginning balance of $500. On
December 31, an inventory revealed that supplies on hand amounted to $500.
A) What adjusting journal entry is necessary at December 31st?
B) How much will be reported on the balance sheet at December 31 for Supplies?
C) How much supplies expense will be reported on the income statement?
D) If the adjustment in part A is not recorded, what will be the impact on the income
statement, retained earnings statement, and balance sheet?
Refer to Gainesville Truck Center. Which of the following statements is true regarding
the entry to record wages and the related liabilities?
a. Social security tax payable will be debited in the amount of $765.
b. Social security tax payable will be credited in the amount of $620.
c. Medicare tax payable will be debited in the amount of $145.
d. Federal income taxes payable will be credited in the amount of $2,100.
Which of the following sets of factors is needed to calculate depreciation on plant and
equipment?
a. the asset’s acquisition cost, replacement cost, and its estimated residual value
b. the estimated residual value of the asset, its replacement cost, and its market value
c. the asset’s replacement cost, its estimated life, and its estimated residual value
d. the estimated life of the asset, its acquisition cost, and its estimated residual value
Which one of the following statements regarding internal control is false?
a. It is not possible to design a system of internal controls that is foolproof.
b. A well-designed system of internal controls should be the goal of every organization
whether for profit or not-for-profit.
c. Separation of duties is the easiest control activity to implement in small companies.
d. It is easiest to implement effective internal controls in large companies which are
able to devote substantial resources to those systems.
A company reported the following information:
Prepaid insurance, December 31, 2014 $14,000
Prepaid insurance, December 31, 2013 11,500
Insurance expense for 2014 25,200
How much cash was paid for insurance during 2014?
a. $22,700
b. $27,700
c. $39,200
d. $36,700
If a corporation declares a 2-for-1 stock split, which of the following is true?
a. The amount of stockholders’ equity is double as a result of the split.
b. The amount of capital stock is doubled as a result of the split.
c. The price of each will be doubled as a result of the split.
d. A stockholder who previously held 100 shares will have 200 shares after the split.
A corporation has 5,000 shares of $5 par, 6% cumulative preferred stock outstanding
and 25,000 shares of $2 par common stock outstanding. No dividends have been paid
for the past 2 years. If the company wishes to distribute $2 per share to the common
stockholders this year, what is the total amount of dividends that must be paid?
a. $4,500
b. $50,000
c. $51,500
d. $54,500
Hesson Properties, Inc.
The following transactions occurred during June:
June 1 Purchased two new maintenance carts on account at $750 each. Payment is due
in 30 days
June 8 Accepted $500 of advance payments from customers for services to be provided
next month
June 15 Received the utility bill for $300. Payment is due in 30 days
June 20 Billed customers $1,500 services provided. Payment is due in 30 days.
June 30 Received $500 from customers who were billed earlier
Refer to Hesson Properties. What journal entry is required to record the purchase of the
carts?
a. Equipment 1,500
Accounts Payable 1,500
b. Equipment 1,500
Cash 1,500
c. Cash 1,500
Equipment 1,500
d. Accounts Payable 1,500
Equipment 1,500
A Discount on Bonds Payable account would appear on the balance sheet as
a. current liability.
b. long-term liability.
c. current asset.
d. contra-liability.
All Star Auto has an accounts receivable balance after posting net collections from
customers for 2013 of $180,000. The customers took advantage of sales discounts of
$15,000. Management aged the accounts receivable and estimate for uncollected
account percentages as follows:
$90,000 Current at 2%
$50,000 1-30 days past due at 5%
$30,000 31-60 days past due at 10%
$10,000 60+ days past due at 25%
The net realizable value of the accounts receivable is
a. $173,200
b. $170,200
c. $172,700
d. $180,000
When using the indirect method to determine operating cash flows, how would the
retirement of bonds payable at their maturity date be shown on the Statement of Cash
Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
The Premium on Bonds Payable account is shown on the balance sheet as
a. a contra asset.
b. a reduction of an expense.
c. a separate valuation account that increases the bond liability to market value at the
issue date
d. a subtraction from a long-term liability.
The following information was taken from the records of Alphabet Soup at the end of
2013:
Cash sales $1,000,000
Credit sales 500,000
Sales discounts 5,000
Accounts Receivable 250,000
Allowance for Doubtful Accounts (before adjustment) (25,000)
Estimated uncollected accounts 2,475
Cost of goods sold $975,000
Determine the following:
A) Gross sales
B) Net sales
C) Gross profit
Assuming the company uses the income statement approach to estimating
uncollectibles:
D) Bad debt estimate percentage
E) Year-end adjusting entry to record bad debt expense
F) Ending balance in Allowance for Doubtful Accounts after adjustment
G) Net realizable value of receivables after adjustment for bad debts
Assuming the company uses the balance sheet approach to estimating uncollectibles:
H) Gross receivables
I) Ending balance in Allowance for Doubtful Accounts after adjustment
J) Net realizable value of receivables after adjustment for bad debts
Refer to Hesson Properties. What journal entry is required to record the services
provided to customers?
a. Cash 1,500
Accounts Receivable 1,500
b. Accounts Receivable 1,500
Service Revenue 1,500
c. Service Revenue 1,500
Cash 1,500
d. Service Revenue 1,500
Accounts Payable 1,500
Net Income appears on which financial statement(s)?
a. Balance Sheet only
b. Income Statement only
c. Both the Balance Sheet and the Income Statement
d. The Income Statement, Statement of Cash Flows using the indirect method and the
Statement of Retained Earnings
Farley Mills purchased new machinery at the beginning of 2012 for $200,000. The
machines had an estimated life of 5 years, an estimated residual value of $25,000, and
were depreciated using the straight-line method. At the beginning of 2013, the machines
were sold for $150,000 because management was unhappy with their performance.
Determine the following amounts:
A) Book value of the machinery at the end of 2012.
B) Gain (loss) on the disposal of the machinery at the beginning of 2013 (Indicate the
amount and whether a gain or loss).
On April 1, 2013, Guyton Sails accepted a $12,000 advance payment for maintaining a
customer’s fleet of sail boats. The contract is for a twelve month period. In May 2013,
the company performed $1,200 worth of repairs. What is the remaining liability that
would appear on the company’s balance sheet at the end of May?
a. $12,000
b. $10,000
c. $10,800
d. $1,200
Common Stock, $1 par, 20,000 shares authorized, 4,000 shares issued and
outstanding $4,000
Paid-in Capital in Excess of Par–Common Stock 20,000
Retained Earnings 50,000
The market price of the stock was $8 per share at December 31, 2015.
A) What journal entry will be required to record the distribution of a 20% stock
dividend on December 31, 2015?
B) What balance will be in the retained earnings account immediately following the
stock dividend?
C) Prepare the stockholders’ equity section of the balance sheet.
A corporation reported the following information at December 31, 2015:
Common Stock, $3 par, 10,000 shares authorized, issued and outstanding $ 30,000
Paid-in Capital in Excess of Par–Common Stock 80,000
Total Capital Stock $110,000
Retained Earnings 40,000
Total Stockholders’ Equity $150,000
A) On December 31, 2015, the board of directors issues a 3-for-1 stock split. What
impact will the split have on the stock’s par value?
B) What journal entry is required to record the split?
C) Record the declaration of a cash dividend of $1 per share on January 10, 2016.
The dividend will be paid on January 31, 2016 to shareholders of record on January 24,
2016.
If a corporation issues cumulative, participating preferred stock, which of the following
is true regarding the rights of the preferred stockholders?
a. They must forego dividends for any periods when no dividends are declared.
b. They will share in the dividends that exceed a specified amount.
c. They will received a fixed dividend regardless of the amount of dividends declared.
d. They will have an option to convert their shares to common stock at a specified date.
Lakeshore Industries
This company reported the following information on its recent balance sheet:
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and
outstanding
Refer to Lakeshore Industries. What is the effect on the company’s accounting equation
of issuing 1,000 additional shares of common stock at $15 per share?
a. Assets increase $10,000.
b. Stockholders’ equity increases $15,000.
c. Stockholders’ equity increases $10,000.
d. Assets decrease $15,000.
Which one of the following groups is considered an internal user of financial
statements?
a. A supplier considering selling to the company on credit.
b. The labor union representing employees of a company that is involved in labor
negotiations
c. The financial analysts for a brokerage firm who are preparing recommendations for
the firm’s brokers on companies in a certain industry,
d. Managers of the company that supervise production workers.
The following unadjusted amounts were taken from the accounting records of an
insurance company at December 31, 2013:
Which of the following statements regarding leases is false?
a. Lease agreements are a popular form of financing the purchase of assets because
leases do not require a large initial outlay of cash.
b. Accounting recognizes two types of leases–operating and capital leases.
c. If a lessor classifies a lease as a capital lease, then the lessor records a lease liability
on its balance sheet.
d. If a lease is classified as an operating lease, the lessee records an asset on its balance
sheet.
A corporation began operations on October 1, 2014, with 3,000 shares of $2 par
common stock authorized. The company issued common stock on several occasions
during 2014 and 2015. On December 31, 2015, the company repurchased 1,000 shares
of its outstanding shares and then reissued 500 of these shares on March 1, 2016. On
June 1, 2016, the company’s board of directors declared a 2-for-1 stock split. As a result
of this stock split, which of the following is true?
a. Assets decreased.
b. The number of shares issued decreased.
c. Total liabilities decreased.
d. Total stockholders’ equity remained the same.
Flying High Air acquires a new aircraft. It has an estimated life of 10 years and should
last for at least 20,000 hours of flight. What is the most appropriate method of
depreciation to properly match revenues and expenses?
a. double-declining-balance
b. revenue expenditure method
c. straight-line
d. units-of-production
A corporation is authorized by its corporate charter to issue 50,000 shares of preferred
stock with a 7% dividend rate and a par value of $10 per share, and 750,000 shares of
common stock with a par value of $2 per share. On January 15, 2014, 2,000 shares of
preferred stock was issued for $14 per share along with 10,000 shares of common stock
for $2.50 per share.
A) Record the stock issues described above.
B) How much total cash was raised through stock issuances?
It is important that the petty cash custodian
a. sign the check that reimburses the petty cash fund.
b. record all petty cash expenditures in the company’s accounting records.
c. prepare the bank reconciliation for the petty cash account.
d. maintain supporting documentation for all payments made from the petty cash fund.
What is the significance of the timing in which cash is paid or received as it relates to
the adjusting process?
The amortization of a bond premium increases the effective interest expense incurred
each period for the issuer.
The interest period is the time interval between interest calculations.
For a company’s reported financial information to be useful, what four qualities must be
present? Explain these four qualities.
When treasury stock is reissued at a price that is less than their cost, the difference
should be credited to retained earnings.
The elapsed time between the purchase of goods for resale and the collection of cash
from customers is referred to as the ____________________ cycle.
The Future Value is the amount to which an account may grow when interest is
compounded.
Refer to Mary Kay Cosmetics. What is the amount paid for operating expenses during
2014?
The following inventory transactions occurred at Zapata, Inc. which uses a perpetual
inventory system:
October 2 Purchased 50 units of inventory from a supplier on credit. The goods cost
$30 each and the credit terms were 2/10, n/15. The shipping costs were $100 under the
terms FOB destination.
October 4 Returned 5 units of inventory to the supplier for credit on account.
October 6 Sold 15 units for $50 each to customers for cash.
October 7 Accepted a return of one unit of inventory from the customer for a cash
refund.
October 11 Paid the supplier for one-half of the inventory purchased on October 2nd.
October 17 Paid the remaining balance owed to the supplier.
Record the appropriate journal entry for each of these transactions.
The going concern assumption infers that a company will continue to operate into the
future.
Even though a trial balance reveals that the debits equal the credits, there still may be
errors in the company’s books.
When a bank pays interest on a company’s checking account balance, the bank will
likely issue a credit memo.
Operating cash flows generally involve income statement items (which are reflected in
Retained Earnings) and balance sheet items (such as changes in current assets and
current liabilities).
The conservatism principle is concerned with the possibility of understating assets or
income.
Large corporations are profitable enough to maintain their own stockholder lists and
arrange for the issuance of their stock certificates to stockholders rather than having to
retain an independent stock transfer agent to do those things.
Airport Support Company reported its accounts receivable turnover ratio at 10 times. Its
credit terms are 2/10, n/20. What does this ratio tell you about this company?
Beginning equipment minus equipment sold and minus ending equipment equals
____________________.
Refer to King Cotton Company. Describe briefly how each of the following long-term
liabilities arises; i.e., what kind of transaction produces the resulting long-term liability?
You may want to include the appropriate journal entry (ignore amounts) in your
description.
Long-Term Debt
If a company has an internal audit function, it does notneed to have external auditors.