The assignment of costs to cost of goods sold and to inventory using the weighted
average method usually yields different results depending on whether a perpetual or a
periodic system is used.
A company can use different methods for inventories that differ in nature or use.
Impairment occurs when the estimated future cash flows from a long-lived asset are less
than its book value.
Contingent liabilities arise from past transactions, but depend on future events.
Dividends are subtracted from revenues on the income statement.
Major investing and financing activities that do not involve cash do not have to be
reported as part of the statement of cash flows.
Stockholders’ equity is the difference between a company’s assets and its liabilities.
The receivables turnover ratio is calculated using the total net receivables.
A stock split increases total stockholders’ equity.
Use the information above to answer the following question. What is the up-to-date
ending Cash balance?
Flynn Company’s monthly bank statement showed the ending balance of cash of
$18,500. The bank reconciliation for the period showed an adjustment for a deposit in
transit of $1,500, outstanding checks of $2,000, a NSF check of $700, bank service
charges of $30 and the EFT from a customer in payment of the customer’s account of
$1,500.
A) $18,000
B) $17,230
C) $19,000
D) $19,270
In January, a company pays for advertising space in the local paper for ads to be run
during the months of January, February, and March at $1,500 a month. The journal
entry to record the payment would debit to:
A) Cash for $4,500, credit Advertising Expense for $1,500, and credit Prepaid
Advertising for $3,000.
B) Accounts Payable and a credit to Cash for $4,500.
C) Accounts Payable and a credit to Stockholders’ Equity for $4,500.
D) Advertising Expense for $1,500, debit Prepaid Advertising for $3,000, and credit
Cash for $4,500.
Which of the following would not be reported on the balance sheet?
A) Accounts Receivable
B) Accounts Payable
C) Advertising Expense
D) Cash
During June, the Grass is Greener Company mows 100 lawns a week and is paid in July
by those customers. The company uses the accrual basis of accounting. Which financial
statement is impacted by these transactions?
A) The income statement shows the effects of the transactions in June.
B) The income statement shows the effects of the transactions in July.
C) The balance sheet shows no effect from the transactions in June.
D) The transactions have no effect on the balance sheet.
Your company is planning to issue $1,000 bonds with a stated interest rate of 7% and a
maturity date of July 15, 2022. If interest rates fall in the economy so that similar
financial investments pay 5%, your company will:
A) not be able to issue the bonds because no one will buy them.
B) receive a higher issue price as buyers compete for the bonds.
C) have to accept a lower issue price to attract buyers.
D) have to reprint the bond certificates to change stated interest rate to 5%.
In order to calculate shrinkage:
A) both periodic and perpetual inventory systems are needed.
B) a periodic inventory system is more effective.
C) a perpetual inventory system requires an occasional count of actual inventory.
D) it does not matter which system one uses.
Which of the following trial balances is used as a source for preparing the income
statement?
A) Unadjusted trial balance
B) Pre-adjusted trial balance
C) Adjusted trial balance
D) Post-closing trial balance
The Don’t Tread on Me Tire Company had Retained Earnings at December 31, 2015 of
$200,000. During 2016, the company had revenues of $400,000 and expenses of
$350,000, and the company declared and paid dividends of $11,000. Retained earnings
on the balance sheet as of December 31, 2016 will be:
A) $39,000.
B) $239,000.
C) $250,000.
D) $289,000.
Accounting systems:
A) are summarized in publicly published reports.
B) analyze, record, summarize, and the activities affecting its financial condition and
performance.
C) monitor business activities only in financial terms.
D) capture only the information that is needed by the owners of the company.
Use the information above to answer the following question. The gross profit
percentage for the current year rounded to the nearest whole percent is closest to:
The following information is taken from the financial statements of a company for the
current year:
A) 24%.
B) 76%.
C) 60%.
D) 31%.
McEwan Company has outstanding 10 million shares of $2 par value common stock
and 1 million shares of $4 par value preferred stock. The preferred stock is
noncumulative and has a 7% current dividend preference. The company declares total
dividends amounting to $50,000, $250,000, and $600,000 during 2015, 2016, and 2017,
respectively.
Required:
Part a. Compute the amount of dividends to be distributed to preferred and common
shareholders during 2015.
Part b. Compute the amount of dividends to be distributed to preferred and common
shareholders during 2016.
Part c. Compute the amount of dividends to be distributed to preferred and common
shareholders during 2017.
Assume a periodic inventory system is used. The LIFO inventory costing method
assumes that the cost of the units most recently purchased is the:
A) last to be assigned to cost of goods sold.
B) first to be assigned to ending inventory.
C) first to be assigned to cost of goods sold.
D) last to be assigned to units available for sale.
Toque Inc. uses the allowance method for bad debts. If management is overly optimistic
about its ability to collect customer accounts, the company will understate Bad Debt
Expense and:
A) overstate net income and days to collect will decline.
B) overstate net income but days to collect will increase.
C) understate net income and days to collect will increase.
D) understate net income and days to collect will decline.
Which of the following would not be affected by the choice of an inventory costing
method (that is, choosing between FIFO, LIFO, weighted average, and specific
identification)?
A) Sales revenue
B) Cost of goods sold
C) Gross profit
D) Net income
The direct write-off method for uncollectible accounts:
A) violates the expense recognition principle.
B) is an acceptable alternative method of recognizing Bad Debt Expense under GAAP.
C) results in higher Bad Debt Expense for most companies.
D) may only be used by companies that do not extend credit to their customers.
Total doubtful accounts at the end of the year are estimated to be $25,000 based on an
aging of accounts receivable. If the balance in the Allowance for Doubtful Accounts is a
$7,000 debit before adjustment, what is current year’s Bad Debt Expense?
A) $7,000
B) $18,000
C) $25,000
D) $32,000
Oats, Inc. has $14,000 in Cash, $37,000 in Accounts Receivable, $2,500 in Supplies,
$52,000 in Accounts Payable and $12,400 in Wages Payable. If Oats uses Cash to pay
off $8,000 of the Wages Payable, which of the following statements is correct?
A) The company’s current ratio will not change since current assets decreased by the
same amount that current liabilities increased.
B) The company will look more favorable to creditors.
C) The company has a greater ability to pay current liabilities.
D) The company’s current ratio will decrease.
A company has bonds outstanding with a face value of $100,000. The unamortized
premium on these bonds is $2,700. If the company retired these bonds at a call price of
99, the journal entry to record this retirement includes a debit to:
A) Bonds Payable for $100,000, a debit to Premium on Bonds Payable for $2,700, a
credit to Cash for $99,000, and a credit to Gain on Bond Retirement for $3,700.
B) Bonds Payable for $100,000, a debit to Loss on Bond Retirement for $1,700, a credit
to Cash for $99,000, and a credit to Premium on Bonds Payable for $2,700.
C) Bonds Payable for $100,000, credit to Cash for $99,000, and a credit to Gain on
Bond Retirement for $1,000.
D) Bonds Payable for $100,000, a debit to Loss on Bond Retirement for $1,673, and a
credit to Cash for $101,673.
An Additional Paid-in Capital account could be used with all of the following
transactions except:
A) The issuance of par value stock at a price greater than the par value.
B) The reissuance of treasury stock at a price less than the price paid when the stock
was reacquired.
C) The reissuance of treasury stock at a price greater than the price paid when the stock
was reacquired.
D) The issuance of no-par stock.
Which of the following statements about accrual basis accounting is not correct?
A) It uses the revenue recognition principle.
B) It uses the expense recognition principle.
C) It is required for external accounting reports.
D) It requires the timing of cash receipts be in the same period as revenues are
recognized.
Tesoro Corp. uses a perpetual inventory system. The following activities occurred
during May:
May 2 – Tesoro purchased $45,000 worth of inventory, on credit terms 3/10 n/30.
May 2 – Because the terms of the purchase were FOB shipping point, Tesoro pays
$1,200 to the trucker.
May 5 – Tesoro returned $5,000 worth of that inventory to the supplier.
May 10 – Tesoro paid for the inventory, taking advantage of all available discounts.
Required:
Prepare the journal entries to record these transactions on the books of Tesoro Corp.
Selected balance sheet information and the income statement for Fountainhead
Corporation for the current year are presented below.
Required:
Prepare the cash flows from operating activities section of the statement of cash flows
using the indirect method.