Match these terms with their definitions.
a. Bond i. Lessor
b. Contract, coupon, stated rate j. Leverage
c. Discount k. Long-term debt
d. Effective interest rate method l. Market rate, yield
e. Face value, par value, principal m. Maturity
In anticipation of preparing the July bank reconciliation, the accountant gathered the
following information:
Bank statement balance $4,300
Deposit in transit 500
Outstanding checks 300
Bank service charges 10
Customer’s NSF check returned by the bank 50
What is the company’s adjusted cash balance at July 31st?
a. $4,300
b. $4,050
c. $4,140
d. $4,500
C2IT Corporation
The C2IT Corporation was organized on July 1, 2013 after the two principal owners
each contributed $100,000 and received shares of stock in exchange. The company’s
year-end is December 31. The following events occurred during the first year of
operations:
July 1 Acquired a building by paying $100,000 cash and borrowing $375,000 from
the Big Bank. Depreciation expense per year is $12,500. The note payable will be due
in full in ten years. Interest is payable annually. The interest rate on the note is 10%.
Sept. 1 Paid cash in the amount of $12,000 for a one-year property insurance policy.
Oct. 1 Purchased computers for $10,000 cash. The computers will be depreciated
using the straight line method and will have $2,000 depreciation expense per year.
Nov. 1 Received $240,000 in cash for services to be provided evenly during the next
six months.
Refer to C2IT Corporation. Answer each of the following:
A) Prepare the necessary adjustment at December 31 for each of the following:
1. Depreciation on the building
2. Interest on the promissory note
3. Recognition of the expired portion of the insurance policy
4. Depreciation on the computers
5. Recognition of the revenue earned during the current period
B) For each of the adjusting entries, indicate which of the following type of entry
was recorded: accrued expense, accrued revenue, deferred expense or deferred revenue.
Which of the following is nota form of a business entity?
a. sole proprietorship
b. partnership
c. cooperative
d. corporation
Barr Attorneys reported the following information for the year ended December 31,
2013.
What was the retained earnings balance at December 31, 2012?
a. $ 250,000
b. $2,500,000
c. $1,500,000
d. $ 350,000
Select the incorrect statement about worksheets.
a. Worksheets facilitate the preparation of financial statements.
b. The income summary account is used to determine net income for the period.
c. Two trial balances appear on the worksheet.
d. The income statement section precedes the retained earnings statement section.
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
Refer to Aardvark Resale. Assume that the company estimates bad debts based on the
aging method, and the aging schedule indicates that $30,100 of the year-end accounts
receivable will be uncollected.
A) What amount will the company recognize as bad debts expense for the year?
B) How much is the net realizable value of the receivables to be reported on the
company’s balance sheet at year-end?
Which one of the following is notan external user of financial statements?
a. Internal Revenue Service
b. creditors
c. stockholders
d. the Company’s President
Allgood Pet Supplies reported net credit sales of $3,200,000 and cost of goods sold of
$2,600,000 for 2013. On January 1, 2013, accounts receivable was $450,000. Amounts
owed by customers increased by $50,000 during 2013. Rounding to two decimal places,
what is the company’s accounts receivable turnover rate for 2013?
a. 5.47
b. 6.40
c. 6.74
d. 7.11
Which of the following items is included as part of comprehensive income but notas
part of net income?
a. income tax expense
b. unrealized holding gains or losses
c. gains or losses on the sale of equipment
d. gains or losses on the sale of investments
Refer to Happy Heights Country Club
b. Assuming that there are no other transactions, how much was owed to the country
club by its members at the end of the month?
a. $3,600
b. $7,200
c. $1,800
d. $1,000
Kauffman Tire Repair leased a machine that will enable it to repair tires found on
monster vehicles. The annual payments are $9,000 and the life of the lease is 7 years. It
is estimated that the useful life of the machine is 8 years. How would the company
record the acquisition of the machine?
a. The machine would be recorded as an asset with a cost of $63,000.
b. The company would not record the machine as an asset but would record rent
expense of $6,000 per year.
c. The machine would be recorded as an asset, at the present value of the annual cash
payments, $9,000 for 7 years.
d. The machine would be recorded as an asset, at the present value of the annual cash
payments, $6,000 for 8 years.
Carithers Cleaning Service received advance payments from customers during 2013 of
$24,000. At December 31, 2013, $5,000 of the advance payments still had not been
earned. After the adjustments are recorded and posted at December 31, 2013, the
balances in the Unearned Service Revenue and Service Revenue accounts will be:
Unearned Service Revenue Service Revenue
a. $0 $24,000
b. $5,000 $19,000
c. $5,000 $24,000
d. $24,000 $5,000
A tool company purchased equipment at a cost of $100,000 in January, 2004. As of
January 1, 2013, depreciation of $45,000 had been recorded on this asset. Depreciation
expense for 2013 is $5,000. After the adjustments are recorded and posted at December
31, 2013, what are the balances for the Depreciation Expense and Accumulated
Depreciation?
Depreciation Expense Accumulated Depreciation
a. $ 5,000 $50,000
b. $45,000 $45,000
c. $ 5,000 $45,000
d. $45,000 $50,000
Which of the following statements regarding liabilities is true?
a. Liabilities must be legally enforceable to a known recipient.
b. Liabilities arise from past activities that require some future sacrifice of economic
benefits.
c. The accounting principles followed in the U.S. require that current liabilities be listed
in order of decreasing amounts on the balance sheet.
d. The accounting principles followed in the U.S. differ substantially from those of
other countries, especially with respect to current liabilities.
The following items were reported by Morris Plumbing Company:
Accounts receivable, December 31, 2014 $ 250,000
Accounts receivable, December 31, 2013 225,000
Sales for 2014 1,000,000
What amount would be reported in the operating activities section of the statement of
cash flows for Collections from Customers under the direct method, assuming that all
sales are on credit?
a. $975,000
b. $1,025,000
c. $1,225,000
d. $1,250,000
A check returned by a bank because the issuer’s cash account balance could notcover
the check is called a(n)
a. outstanding check.
b. canceled check
c. certified check
d. NSF check
Accumulated Depreciation
a. increases with a debit.
b. decreases with a credit.
c. increases with a credit.
d. is a adjunct account.
Refer to General Lighting. Sales taxes are required to be paid to the state taxing
authority at the end of the quarter. What is the amount of the current liability related to
this transaction?
a. $ 36,000
b. $600,000
c. $636,000
d. $150,000
What happens to the accounting equation when the adjustment for depreciation expense
for the accounting period is recorded?
a. assets decrease and stockholders’ equity decreases
b. assets increase and stockholders’ equity increases
c. assets decrease and liabilities decrease
d. liabilities increase and stockholders’ equity decreases
Which of the following is nota current reporting requirement for a statement that
reports changes in cash over a period of time?
a. This statement must classify cash flows into three categories: operating, investing,
and financing activities.
b. Cash equivalents must be combined with cash in preparing this statement.
c. Working capital may be used as a substitute for cash in preparing this statement.
d. The title for this statement is “Statement of Cash Flows.”
Equipment with an estimated residual value at acquisition of $15,000 was sold on
December 31, 2013, for $20,000 cash. The following data were available at the time of
sale:
Acquisition cost $100,000
Accumulated depreciation on December 31, 2013, after adjustment 85,000
When this transaction is recorded, it should include a
a. debit of $80,000 to the Loss on Disposal account.
b. credit of $20,000 to the Equipment account.
c. credit of $5,000 to the Gain on Disposal account.
d. debit of $20,000 to the Accumulated Depreciation account.
Rapid Sign Corporation
Selected data from the financial statements are presented below:
2015 2014
Net income $110,000 $123,000
Cash dividends paid on common stock 42,000 38,000
Average number of common shares outstanding 140,000 145,000
Treasury Stock 70,000 0
Market price per share of common stock at year-end 16.00 13.00
Refer to Rapid Sign Corporation. What is the dividend payout ratio for 2015?
a. 30.0%
b. 30.9%
c. 36.3%
d. 38.2%
Harris Corp. sold merchandise to Ichay Company on December 28, 2012, with shipping
terms of FOB destination. The buyer received the merchandise on January 3, 2013.
Which of the following is true?
a. The seller should record the sales revenue on December 28, 2012.
b. The buyer should pay the transportation costs.
c. The buyer should include the merchandise in its inventory at December 31, 2012.
d. The buyer should record a liability for the purchase on January 3, 2013.
Which of the following financing activities results in a cash inflow?
a. buying treasury stock
b. issuing bonds
c. repaying a bank loan
d. paying cash dividends
Refer to the information provided for Dollar Town. Calculate the net cost of goods
purchased.
a. $50,400
b. $54,000
c. $61,800
d. $70,200
Grayson Flowers borrowed $400,000 from the bank on a six-month, 7%
interest-bearing note on October 1, 2013. The company’s year-end is December 31st.
The note and all related interest was repaid to the bank on April 1, 2014.
A) Prepare the company’s entry for this note on October 1, 2013.
B) Record the adjusting entry for this note on December 31, 2013.
C) Indicate how the note and the accrued interest would be reported on the balance
sheet on December 31, 2013.
D) Prepare the entry to record the repayment of the note on April 1, 2014.
Given below are several accounts and balances:
2013 2012
Accumulated depreciation $278,125 $258,750
Gain on disposal of plant assets 28,125
Equipment (Equipment with book value of $36,875 was sold)
893,750 993,750
Land 250,000 250,000
Cash received from sale of plant asset 65,000
A) Prepare the property plant and equipment section of the balance sheet at December
31,
2013 in the space provided below.
Balance Sheet
B) By how much will net income increase or decrease during 2013 as a result of the
above
information?
Focal Point Engineering purchased a trademark at the beginning of 2013 for $200,000.
Although the trademark’s legal life is 20 years, economic benefits were expected for
only 10 years. Also, during 2013, the company incurred research and development costs
of $200,000. The book value of the trademarks at December 31, 2013, is
a. $200,000.
b. $180,000.
c. $175,000.
d. $280,000.
On March 31, 2013, Legends Entertainment, Inc. had common stock of $230,000,
paid-in capital in excess of par of $540,000, and retained earnings of $65,000. During
the following year, 500 shares of stock were sold for $60,000, of which $40,000
represented paid-in capital in excess of par. The company reported net income of
$140,000 for the year ended March 31, 2014. Also during the year, $80,000 of
dividends were declared and paid.
Prepare the Statement of Stockholders’ Equity at March 31, 2014.
The information in a statement of cash flows helps investors, creditors and others judge
a company’s ability to meet its obligations and pay ____________________.
An electric utility issued 3,000 shares of common stock, all of the same class; 2,800
shares are outstanding and 200 are held in the treasury. On August 15, 2015, the board
of directors declared a cash dividend of $2.10 per share, payable on September 15,
2015, to stockholders of record on August 31, 2015.
Prepare the required journal entries for August 15, August 31, and September 15.
Dividends in arrears are associated with the cumulative preferred stock only.
Along with its other financial statements, a public corporation must present its most
recent two years of income statements within Item I of its Form 10-K.
The four steps in preparing the Income Statement are:
1) Prepare heading, 2) List the revenues of the company, 3) List the expenses of the
company, 4) List the dividends of the company.
Current liabilities should include any amounts that have been accrued as expenses but
not yet paid.
Distinguish between current assets and operating assets.
For what purpose is horizontal analysis used by financial analysts?
Both stock dividends and stock splits increase the number of a corporation’s outstanding
shares without altering the proportionate ownership of the corporation.
When each payment reduces the outstanding loan balance, which, in turn, reduces the
interest expense in the subsequent period, it is call an ____________________ debt.
If the December 31, 2014, balance of accounts payable is lower than the January 1,
2014, balance, then the amount of cash payments will exceed the purchases on account
for the year.
The International Accounting Standards Board (IASB) was created in order to develop
worldwide accounting standards that are required for all financial statements, regardless
of the country where the financial statements were prepared.
Use the following selected financial information to compare these two companies at
December 31, 2015, and to answer the questions that follow.
Russell Co. Ryland Co.
Cash $340,800 $100,200
Short-term investments 12,000 7,600
Accounts receivable 413,300 60,000
Inventories 200,000 39,000
Other current assets 7,400 1,000
Total current assets 973,500 207,800
Total current liabilities 860,900 150,000
Long-term liabilities 5,000,400 300,500
Stockholders’ equity 2,400,300 800,700
Cash flows from operating activities 750,000 290,000
Calculate working capital and the short-term liquidity ratios for these two companies
for 2015 and comment on their relative liquidity.
Gross profit divided by net sales is called the ____________________ ratio.
When revenue is earned after the earlier receipt of cash, an adjustment that increases a
revenue account and decreases a liability account is recorded.
The difference between the FIFO, LIFO, and average cost methods is that each of these
methods of inventory costing makes a specific assumption about the flow of costs.
All treasury stock is outstanding.