Simple interest is calculated by multiplying an interest rate by an unchanging principal
amount.
Earnings quality is a well-defined and well-understood concept.
The purchase of office equipment on account would increase assets and decrease
stockholders’ equity.
When comparing two companies with regard to profitability, it is not important to
distinguish differences arising from accounting practices from differences caused by
real economic conditions.
A operating lease is a lease that should be accounted for by the lessee as ordinary rent
expenses.
Businesses do not capitalize improvements.
An increase in the replacement cost of the inventory held during the current period is
referred to as a holding gain.
The purchase of treasury stock would be considered a financing activity.
The revenue recognition principle relies only on the principle of receiving cash or an
asset virtually assured of being converted into cash.
A bond issued at a price above its face value is sold at a discount.
Morland Company has determined that 2% of $50,000 credit sales are uncollectible.
The Allowance for Uncollectible Accounts currently has a debit balance of $250. The
adjusting entry for bad debts should be prepared for $1,250.
The accounting for investments differs depending upon the purpose of the investment.
Goodwill can only be recognized when a company is acquired by another company.
Current assets are cash plus those assets that are expected to be converted to cash or
sold or consumed during the next 12 months or within the normal operating cycle if
longer than a year.
Permanent differences between income under the tax law and income under GAAP
arise because some items are recognized at different times for tax purposes than for
financial reporting purposes.
In contrast to the gross method, the net method of accounting for cash discounts uses an
________ account.
A) Interest Revenue
B) Interest Expense
C) Cash Discounts on Sales
D) Cash Discounts for Bank Card
E) None of the above
Under the effective-interest method of amortizing bond discount, the cash payment on
each interest payment date is calculated by multiplying the
A) ending net liability times the effective interest rate for the appropriate time period.
B) ending net liability times the coupon interest rate for the appropriate time period.
C) face value of the bonds times the effective interest rate for the appropriate time
period.
D) face value of the bonds times the coupon interest rate for the appropriate time
period.
E) difference between the market value and the liquidation value by the market rate of
interest.
Use the following balance sheet equation format to show the effect of the following
transactions. Write the signs (+, -) for increases and decreases in components of the
equation for each transaction.
A. The owner invests cash in the company.
B. The company borrows money from a bank, issuing a promissory note payable.
C. The company acquires equipment by paying cash for the total amount.
D. The company acquires inventory from the manufacturer on credit.
E. The company returns part of the inventory purchased in part D.
F. The company sells equipment acquired in part C to a competitor on open account at
cost.
G. The company pays the amount due on the inventory purchase in part D.
Gambet Labs entered into a lease agreement on January 1, 20X3, to use an x-ray
machine. The machine has a useful life of 6 years. Gambet Labs will make annual lease
payments of $13,000 for 6 years, beginning on December 31, 20X3. Assume a 14%
interest rate. Using the present value tables, what journal entry will Gambet Labs make
on January 1, 20X3?
A) Machine Leasehold 50,553
Capital Lease Liability 50,553
B) Machine Leasehold 78,000
Capital Lease Liability 78,000
C) Machine Leasehold 50,553
Deferred Interest Expense 27,447
Capital Lease Obligation 78,000
D) Machine Leasehold 78,000
Interest Payable 27,447
Capital Lease Liability 50,553
E) No journal entry is necessary.
A supplementary schedule reconciling net income to net cash flow from operating
activities is
A) not needed when using the direct method.
B) part of the income statement.
C) needed when using the direct method.
D) part of the balance sheet.
E) used by investors to determine earnings per share.
Florenza Establishment had 2,500,000 shares of common stock authorized. Shares
issued were 1,050,000. There were 50,000 shares in treasury.
a. How many shares have been sold to shareholders?
b. How many shares are outstanding?
c. How many shares are unissued?
d. If the company declared a $2.00 per share cash dividend on January 1, 20X4, for
those of record on January 15, 20X4, payable on January 31, 20X4, prepare the journal
entry for each of those dates assuming there were no changes over that period in the
number of shares authorized, issued, or outstanding.
Pandey Company’s capital stock is currently selling for $25 per share. Pandey Company
has the following accounts included within the owners’ equity section of the balance
sheet:
Assuming that the only transaction affecting these accounts was the sale of the
company’s capital stock, Pandey Company originally sold its capital stock for
A) $ 1.00 per share.
B) $ 7.00 per share.
C) $6.00 per share.
D) $10.00 per share.
E) The selling price of the capital stock cannot be determined from the information
given.
Marc’s Cleaning Services purchased merchandise inventory on account for $500. This
transaction was properly recorded. A week later, Marc’s Cleaning Services discovered a
defect in the merchandise inventory and returned the merchandise inventory to the
supplier for credit. As the accountant, you would tell the bookkeeper to record the
return of the merchandise inventory by
A) debiting Merchandise Inventory and crediting Accounts Payable for $500.
B) debiting Accounts Payable and crediting Merchandise Inventory for $500.
C) debiting Merchandise Inventory and crediting Cash for $500.
D) debiting Cash and crediting Merchandise Inventory for $500.
E) debiting Cash and crediting Accounts Payable for $500.
Carpenter and Sons’ balance sheet on January 1, 2012, had total assets of $73,000, total
liabilities of $20,000, paid-in capital of $30,000, and retained earnings of $23,000.
During the month of January, Carpenter and Sons’ recognized revenues of $73,000, cost
of goods sold of $47,000, depreciation expense of $12,000, the payment of February
and March’s rent totaling $2,500, and salary expense of $8,000. The retained earnings
balance at January 31, 2012, will be
A) $29,000.
B) $27,750.
C) $31,000.
D) $41,000.
E) $26,500.
________ represent the rights of nonmajority shareholders in the assets and earnings of
a company that is consolidated into the accounts of its majority shareholder.
A) Parent interests
B) Noncontrolling interests
C) Subsidiary interests
D) Consolidated interests
E) Intercompany interests
________ is a quality of information that helps users form their expectations about the
future.
A) Timeliness
B) Faithful representation
C) Verifiability
D) Predictive value
E) Confirmatory value
Stile Paving Company had the following journal entries for each of the transactions
described. Prepare the correcting entry needed for each transaction.
a. A credit customer paid $200 to Stile Paving Company for the customer’s outstanding
balance. The journal entry made by the company was
b. A repair was made on some equipment. The cost was supposed to be charged to
Repair Expense. The journal entry made by the company was
c. Depreciation for the current year was supposed to be $2,800, however the company
made the following journal entry:
d. Supplies were acquired on account for $1,300. The company made the following
journal entry:
e. The company paid $100 on account. The journal entry was:
Referring to Exhibit 5-1, what was the cash paid for income taxes by Cartell Paper
Products in 2012?
A) $7,100
B) $11,700
C) $10,100
D) $10,900
E) $8,600