The closing process includes a transfer of the Dividends account balance to the
Retained Earnings account.
One reason why a company may choose a stock split over a stock dividend is that the
stock split does not reduce Retained Earnings.
Trend data can be measured in dollar amounts or percentages.
The approach to preparing the cash flow statement relies on the following
rearrangement of the balance sheet equation: Change in cash = Change in (Liabilities +
Stockholders’ Equity + Noncash Assets).
The analyze-record-summarize process is applied to daily transactions, to month-end
adjustments, and as part of the year-end closing process.
Sales discounts are discounts that consumers get from buying clearance items at a
reduced price.
The allowance method for uncollectible accounts is used for accounts receivable, but
not for notes receivable.
Extraordinary repairs, replacements, and additions are added to the appropriate asset
accounts rather than being recorded as expenses.
The net amount of a bond liability that appears on the balance sheet is equal to the face
value of the bond plus any related discount or minus any related premium.
The acquisition of equipment in an exchange for a company’s stock would increase the
current ratio of the company.
Issuing stock to obtain financing is called equity financing.
At the maturity date, the carrying value of a bond should always be equal to the face
value.
A stock that does not pay a dividend is an undesirable investment.
Investing activities include receiving cash from the sale of land and also the resulting
gain or loss on the sale.
A corporation’s charter establishes the number of shares of stock that will be issued in
an initial public offering (IPO).
Companies that must comply with the requirements of the Sarbanes-Oxley Act (SOX)
include all:
A) U.S. companies.
B) companies that trade on U.S. stock exchanges.
C) U.S. companies that trade on U.S. stock exchanges.
D) foreign companies that trade on U.S. stock exchanges.
Holders of common stock receive certain benefits, such as a residual claim, which is
the:
A) right of stockholders to be paid back for their investment before anyone else if the
company ceases operation.
B) right to oversee management of the company.
C) right to share in any remaining assets after creditors have been paid off, should the
company cease operations.
D) continuing right to receive a share of the company’s profits in the form of dividends.
B. Darin Company purchased a truck and trailer for $54,000. The appraised values of
the truck and trailer are $38,000 and $19,000, respectively. What is the amount of the
cost that should be assigned to the trailer?
A) $19,000
B) $18,000
C) $16,000
D) $22,000
Sparkling Pools performed $1,600 of pool maintenance services during July; the
customers had paid in advance for these services in June. The company performed
$1,000 of pool maintenance services during July and collected payment from those
customers in August. Also, during July, the company accepted an order to perform $500
of pool maintenance services in August; the customers will pay for these services in
August. The company uses accrual basis accounting. The Service Revenue account
should be credited for:
A) $1,600 in June, $1,000 in July, and $500 in August.
B) $1,600 in June, $0 in July, and $1,500 in August.
C) $0 in June, $1,600 in July, and $1,500 in August.
D) $0 in June, $2,600 in July, and $500 in August.
A company sells goods at a selling price of $20,000. The cost of the goods is $15,000.
Under a perpetual inventory system, the journal entries prepared to record the sale will
include one with a debit to:
A) Inventory and a credit to Sales Revenue for $15,000.
B) Cost of Goods Sold and a credit to Inventory for $15,000.
C) Inventory and credit to Sales Revenue for $20,000.
D) Cost of Goods Sold and a credit to Sales Revenue for $15,000.
A company buys footwear and clothing from manufacturers, which it resells to discount
stores in a large urban area. This company is an example of a:
A) wholesale merchandising company.
B) service company.
C) retail merchandising company.
D) secondary service company.
The Acme Corporation starts the year with a beginning inventory of 300 units at $5 per
unit. The company purchases 500 units at $4 each in February and 200 units at $6 each
in October. Acme sells 150 units during the year. Acme has a periodic inventory system
and uses the FIFO inventory costing method. What is the amount of cost of goods sold?
A) $600
B) $934
C) $750
D) $900
Match the term with its definition. (There are more definitions than terms.)
TERM
_____ (1) dr
_____ (2) cr
_____ (3) Classified Balance Sheet
_____ (4) Common Stock
_____ (5) Accounting Equation
_____ (6) Transaction
_____ (7) Accounts Payable
_____ (8) Journal Entry
DEFINTION
A. The account credited when cash is received in exchange for stock issued.
B. Another name for stockholders’ equity or shareholders’ equity.
C. An exchange or event that has a direct impact on a company’s financial statements.
D. A balance sheet that has not yet been publicly released.
E. When a company becomes included in the Fortune 500.
F. A method of recording a transaction in debit/credit format.
G. A transaction that is triggered automatically merely by the passage of time.
H. The abbreviation for an item posted on the left side of a T-account.
I. The expression that assets must equal liabilities plus stockholders’ equity.
J. The value of a company’s public relations campaign.
K. Amounts owed to suppliers for goods or services bought on credit.
L. An event that has no effect on the balance sheet and is not recorded in the financial
statements.
M. Liabilities divided by assets.
N. A balance sheet that has assets and liabilities categorized as current vs. noncurrent.
O. The abbreviation for an item posted on the right side of a T-account.
Using the aging method of accounts receivable method, $5,000 of the company’s
Accounts Receivable are estimated to be uncollectible. At the end of the year, the
balance of Accounts Receivable is $100,000 and the unadjusted credit balance of the
Allowance for Doubtful Accounts is $500. Credit sales during the year totaled
$150,000. What is the current year’s Bad Debt Expense?
A) $4,500
B) $5,000
C) $7,000
D) $7,500
Your company issues $50,000 of one-year, 10% bonds at face value. The journal entry
to record this transaction will include a debit to:
A) Cash and a credit to Bonds Payable for $50,000.
B) Cash and a credit to Bonds Payable for $55,000.
C) Cash for $55,000, a credit to Bonds Payable for $50,000, and a credit to Interest
Payable for $5,000.
D) Cash for $50,000, a debit to Interest Expense for $5,000, and a credit to Bonds
Payable for $55,000.
Which of the following statements about bonds and notes is not correct?
A) A company can borrow the funds necessary to finance its activities using bonds or
promissory notes.
B) Borrowings using bonds or notes are initially recorded with a journal entry that
debits Cash and credits the relevant liability account.
C) The journal entry that records interest owed on bonds and notes includes a debit to
Interest Expense and a credit to Interest Payable.
D) Bonds Payable and Notes Payable are always classified as noncurrent liability
accounts.
Which of the following statements about normal account balances is correct?
A) Assets have debit balances and liabilities have credit balances.
B) Assets and liabilities have credit balances.
C) Assets have credit balances and liabilities have debit balances.
D) Assets and liabilities have debit balances.
Dunedin Inc. began the month with inventory of $10,000 and then purchased inventory
at a cost of $105,000. The perpetual inventory system indicates that inventory costing
$94,000 was sold during the month for $141,000. An inventory count shows that
inventory costing $20,100 is actually on hand at month-end.
Required:
What amount of shrinkage occurred during the month?
Listed below are the account balances that appear on the company’s adjusted trial
balance as of December 31, 2015. All accounts have normal balances.
Required:
Determine the ending balance in the Retained Earnings account.
A company made the following expenditures in connection with the construction of its
new building:
Required:
Prepare a schedule showing the amounts to be recorded as land, buildings, and
machinery.
Choose the letter to of the appropriate definition to match each term. Not all definitions
will be used.
What are the differences between the periodic and the perpetual inventory systems?(Do
not address or list the actual journal entries made in each system.)
On January 1, 2016, a company issues 3-year bonds with a face value of $50,000 and a
stated interest rate of 7%. Because the market interest rate is 5%, the company receives
$52,723 for the bonds.
Required:
Fill in the table assuming the company uses effective-interest bond amortization.
Bonds with a stated interest rate of 9% and a face value totaling $600,000 were issued
for $624,000 on January 1, 2016, when the market interest rate was 8%. The company
uses effective-interest bond amortization.
Required:
Determine the carrying value of the bonds at December 31, 2017.
Indicate whether each of the following would be added to or subtracted from net
income when using the indirect method to reconcile net income to cash flows from
operating activities.