Depreciation is not intended to track the decreasing current market value of a tangible
asset.
Top management does not need to own a significant number of shares in order to have
the authority to exert great influence on the actions of a corporation.
Cash flows from operating activities include the receipt of interest income.
Unearned sales revenue is debited when a business receives cash in advance of
performing services.
Both straight-line depreciation and units-of-production depreciation will generate the
same depreciation expense during every year of an asset’s life.
Current assets must be greater than current liabilities.
If an investor acquires a 10% long-term bond at a price that yields the investor 12%,
interest revenue will decrease over the life of the bond.
A company’s portion of long-term debt that includes payments due within a year should
be reclassified as a current liability.
Every adjusting entry affects one income statement account and one balance sheet
account.
The ________ is calculated by dividing interest expense into the sum of pretax income
and interest expense.
A) debt-to-equity ratio
B) long-term-debt-to-total capital ratio
C) debt-to-total-assets ratio
D) interest-coverage ratio
E) current ratio
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. If Compatibility Services uses units-of-production depreciation and the company
produces 40,000 units in 20X3; 60,000 units in 20X4; and 50,000 units in 20X5; what
is the depreciation expense in 20X5?
A) $ 28,500
B) $12,000
C) $10,000
D) $9,500
E) $11,400
Amortization of an intangible asset is similar to which depreciation method?
A) Units-of-production depreciation
B) Straight-line
C) Double-declining balance
D) MACRS
E) None of the above
Which of the following statements is false?
A) The statement of cash flows reports the cash receipts and cash payments of an entity
over a period of time.
B) The statement of cash flows is similar to the income statement, as they both
determine the net income for a company.
C) The operating activities in a cash flow statement include transactions that affect the
sale and the purchase or production of goods and services.
D) Investing activities in a cash flow statement include acquiring and selling long-term
assets.
E) Financing activities in a cash flow statement include obtaining resources from
owners and creditors and repaying amounts borrowed.
The adjusting entry to recognize periodic depreciation expense has what effect on the
basic accounting equation?
A) Decrease in assets, decrease in liabilities
B) Decrease in assets, increase in liabilities
C) Decrease in assets, increase in stockholders’ equity
D) Decrease in assets, decrease in stockholders’ equity
E) None of these
All of the following would qualify as a capital lease except:
A) The lease term is 80% of the asset’s estimated useful life.
B) The lease agreement contains a bargain purchase option.
C) The present value of the lease payments equals 70% of the fair value of the leased
asset.
D) Title to the leased asset transfers to the lessee at the end of the lease term.
E) The lease term equals 90% of the asset’s estimated useful life.
Income before income tax is
A) a subtotal before net income on the income statement
B) a subtotal after net income on the income statement
C) included in net income on the income statement
D) included in stockholders’ equity on the income statement
E) included in stockholders’ equity on the balance sheet
Kolonial Township acquired a building and the 3 acres of land on which it is located.
The total purchase price was $2,500,000. For valuation purposes, the company
contacted three local commercial real estate agents, who gave the following valuation
estimates:
If Kolonial Township used the valuation made by H. Ivan, and assuming it paid cash for
the land and building, what journal entry would Kolonial Township make to record the
purchase?
A) Land 600,000
Building 2,400,000
Cash 3,000,000
A) Land 750,000
Building 1,750,000
Cash 2,500,000
B) Land 500,000
Building 2,000,000
Cash 2,500,000
C) Land 300,000
Building 2,700,000
Cash 3,000,000
D) Land 250,000
Building 2,250,000
Cash 2,500,000
E) Land 300,000
Building 2,750,000
Cash 2,500,000
Gain on Purchase of Assets 500,000
Which of the following is an example of revenue that may be realized but not yet
earned?
A) A customer paying in advance for services to be performed in the future.
B) A credit sale made to a customer who has a strong credit history. The goods have
been delivered.
C) A credit sale made to a customer with a weak credit history such that the collection
of the outstanding receivable is questionable. The goods have been delivered.
D) The cash sale of a fixed asset, as opposed to the sale of inventory. The fixed asset
has been delivered.
E) It is impossible to have revenue that is realized but not earned.
Which of the following would be classified as an operating activity on a statement of
cash flows?
A) Issuing bonds
B) Receipt of loan repayments
C) Collections from customers
D) Issuing stock
E) Repayment of amounts borrowed
Which of the following is a distinguishing feature of a contra account?
A) If a contra account has a credit balance, then its companion account will usually
have a debit balance.
B) If a contra account has a credit balance, then its companion account will usually
have a credit balance.
C) A contra account usually has a dollar balance larger than its companion account.
D) Contra accounts are found only in the liability section of the balance sheet.
E) Contra accounts do not follow generally accepted accounting principles, while their
companion accounts do follow generally accepted accounting principles.
The stockholders’ equity section of the balance sheet for Alaska Outfitters’ at December
31, 2X03 follows:
1. ________ How many shares of common stock are issued?
2. ________ How many shares of common stock are outstanding?
3. ________ How many shares of common stock will receive dividends if dividends are
declared?
4. ________ What is the cost of the treasury stock per share?
5. ________ What is the value of total stockholders equity?
6. ________ Suppose Alaska Outfitters issues 10,000 additional shares of common
stock and receives $50,000. What is the journal entry to record the additional issuance
of stock?
Given the following account balances for Felay’s Second Hand Shop on December 31,
2012, prepare a trial balance.
Explain the concept of depreciation. Include in your discussion one common
misconception regarding what depreciation represents.
Polltok Pools & Spas had cost of goods sold for July, 20X3 totaling $670,000. Purchase
Discounts used by Polltok Pools & Spas totaled $4,500 and discounts used by
customers totaled $3,000. Sales returns were $2,000 while purchase returns were $
3,800. Total purchases amounted to $700,000. The inventory balance on July 1, 20X3
was $ 70,000. The company uses the periodic inventory system. Determine Polltok
Pools & Spas’ ending inventory.
Hartman Manufacturing acquired a vehicle on January 1, 20X2, for $78,000. The
machine is estimated to have a 6-year life, with a residual value of $6,000. Hartman
Manufacturing is not certain whether to use the straight-line or
double-declining-balance method of depreciation.
Prepare the following depreciation schedule:
Use the following balance sheet equation format to show the effect of the following
transactions. Write the account names that will be used for each transaction.
1. The owners invest $42,000 in the company.
2. The company purchases equipment costing $6,000, paying $2,000 with the remainder
as a note payable.
3. The company acquires inventory costing $2,500, paying $1,500 with the remainder
on account.
4. Depreciation on the equipment was $200.
Abigail and Amanda started the ACL Partnership on September 1, 20X9. Given the
following transactions, prepare a balance sheet for the partnership as of September 10,
20X9.
Required:
1. Prepare an analysis of the transactions on the balance sheet equation.
2. Prepare a balance sheet as of September 10, 20X9 for ACL Partnership.
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
If Queen Mattresses, Inc. were using the periodic inventory system, what is the journal
entry on May 3?
Catskill Company uses a periodic inventory system. On January 1, 20X3, the company
had beginning inventory of $979,000. From January 1 to April 27, the company
purchased $285,000 of inventory and had sales revenue of $840,000. On the morning of
April 28, an earthquake occurred which resulted in the total loss of all inventory. The
company’s gross profit percentage has averaged 40%. What is the estimated inventory
loss due to the earthquake?
For each of the following items, identify whether they are a tangible or intangible asset.
In addition, if the asset is long-lived, identify whether it is depreciated, amortized, or
depleted. If the asset is not a long-lived asset, identify it as a current asset.
