A company forgot to 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
Shares of stock that are distributed in a process known as capitalization of retained
earnings.
The supplies account has a balance of $1,000 on January 1. During January, the
company purchased $25,000 of supplies on account and the liability was appropriately
recorded. A count of supplies at the end of January indicates a balance of $3,000. Which
one of the following is a correct amount to be reported on the company’s financial
statements for the month ending January 31?
a. Supplies Expense – $23,000
b. Supplies on Hand – $1,000
c. Accounts Payable – $28,000
d. Supplies Expense – $26,000
Which of the following situations violates the matching principle during 2013 for a real
estate company that pays its agents on commission?
a. Sales commissions are charged to expense in 2013 on all sales made in 2013 even
though some of the commissions have not been paid.
b. Insurance expense is recognized for the total cost of a 1-year policy purchased in July
2013.
c. Wages expense is recognized in 2013 even though payday is not until sometime in
2014.
d. Sales commissions paid in 2013 for 2014 commissions are recorded as prepaid
expenses for 2013.
The working capital of a company is equal to
a. current assets less current liabilities.
b. total assets less current assets.
c. long-term assets less current assets.
d. stockholders’ equity.
Any transaction or set of transactions that brings together two or more previously
separate entities to form a single accounting entity is called a
a. business plan.
b. business combination.
c. corporation.
d. joint venture.
Purchasing supplies on credit
Several transactions are listed. Use the choices to identify the effect on the accounting
equation for each transaction listed. (Choices may be used more than once.)
a. Assets and liabilities increase
b. Assets and contributed capital increase
c. Assets and retained earnings increase
d. Two asset accounts are impacted, but there is no net effect on total assets
e. Assets and liabilities decrease
f. Assets and retained earnings decrease
g. Liabilities increase and retained earnings decrease
h. Liabilities decrease and retained earnings increase
Under the perpetual inventory system, a reduction in the inventory account balance not
caused by a sale or return. Match the terms with the descriptions provided.
a. Consignment f. Purchase allowance
b. Discount period g. Purchase discounts
c. Inventory h. Purchase returns
d. LIFO Reserve i. Purchases
e. Lower of cost or market rule
A company pays wages of $12,500 at the end of each 5-day work week.
If bonds were initially issued at a discount, the carrying value of the bonds on the
issuer’s books will
a. decrease as the bonds approach their maturity date
b. increase as the bonds approach their maturity date
c. remain constant throughout the bonds’ life
d. fluctuate throughout the bonds’ life
Refer to Fabian Woodworks. If the company uses the units-of-production method, what
is the depreciation rate per hour for the equipment?
Fabian Woodworks This company purchased a truck at a cost of $12,000. The truck
has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000
hours of operation. The truck was purchased on January 1, 2012, and was used 27,000
hours in 2012 and 26,000 hours in 2013. a. $1.00
b. $1.10
c. $0.10
d. $0.12
Use the following selected financial information to compare these two companies at
December 31, 2015, and to answer the questions that follow.
A) Compute the current ratios for the two companies.
B) Compute the quick ratios for the two companies.
C) Which company appears to be more liquid?
D) What other ratios would help to more fully assess the liquidity of these two
companies?
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.
Each of the following transactions would be classified as an investing activity except:
a. Acquiring an investment in the stock of another company.
b. Lending money to a supplier.
c. Receiving dividends on an investment in the stock of another company.
d. Disposing of land
Assume a company has a current ratio of 2. Payment of accrued wages payable would
cause the current ratio to
a. decrease.
b. increase.
c. be unchanged since the effects offset one another.
d. be unchanged since it has no impact on any current asset or liability accounts.
Heart & Hands Clinic began business as a corporation in 201 Several transactions
which occurred early in 2013 are described below. Record each transaction in proper
journal form, excluding written explanations.
Will I get a raise this year?
Provided is a list of important users of accounting information. Also provided are
descriptions of a major need for accounting information that may be experienced by the
various users. Identify the one user group that is most likely to have the need described.
(Choices may be used more than once.)
a. Investors
b. Management
c. Supplier
d. Banker
e. Government
f. Employees
g. Labor Union
h. Investors and Banker
i. Supplier and Banker
On January 1, 2012, Teddy Bear Company purchased 25% of the common stock of one
of its major suppliers-Fluff n’ Stuff, for $1,000,000 cash. On November 1, 2012, Fluff n’
Stuff declared and paid a cash dividend of $50,000. Further, for the year ended
December 31, 2012, Fluff n’ Stuff reported net income of $200,000. A) Which method
of accounting for investments should be used for the Fluff n’ Stuff stock?
B) Record all of the necessary journal entries for this investment during 2012.
C) What will be the balance in the investment account at December 31, 2012?
Interest is the time value of money.
Special forms of factoring are called ____________________.
Liquidity refers to a company’s ability to pay its current obligations when they come
due.
In a sound system of internal control, cash receipts should be deposited daily.
Refer to Aardvark Resale. Can the company use the direct write-off method rather than
the allowance method to account for bad debts expense? Explain why or why not.
Aardvark Resale
This company sells merchandise only on credit. For the year ended December 31, 2013,
the following data are available:
Explain some internal control procedures that a fast food restaurant like McDonald’s
may use to control cash receipts.
The current ratio is computed by dividing current assets by ____________________.
Natural resources can be replaced or restored only by an act of nature.
The only financial statement that reports the retained earnings balance at the end of the
period is the Statement of Retained Earnings.
The ____________________ principle says that assets of a company are initially
recorded at their original cost.