The American Institute of Certified Public Accountants is responsible for establishing
GAAP in the United States
A compound entry is when two or more journal entries are made.
The operating cycle is the time it takes for a company to buy goods.
A contingent liability is a liability that may or may not have an estimated amount.
The purchase of office supplies on account would include a debit to accounts payable
and a credit to office supplies.
Failure to adjust for an unrecorded expense such as wages expense will overstate net
income and stockholders’ equity for the period.
GAAP requires companies using the equity method to report equity investments on the
balance sheet at market.
An improvement or betterment is an expenditure that is intended to add to the future
benefits from an existing fixed asset.
Because of the difficulty of measuring income, there is no reason to compare income
levels between different companies.
Typically, a company sells its stock at par value.
Expenses that have been incurred and recognized on the income statement but not yet
paid are accrued liabilities.
Stock dividends and stock splits involve additional shares of stock distributed to
shareholders without any cash payment to the firm.
Preferred stocks and bonds have some similar characteristics.
Income tax expense minus the decrease in income taxes payable equals cash paid for
income taxes.
A company has a debt-to-equity ratio of 150%. The more debt a company has, and the
less stockholders’ equity, the
A) greater the probability that the company will report a contingency.
B) lower the probability that the company will report a contingency.
C) riskier it is to lend money to the firm.
D) riskier it is to purchase fixed assets.
E) none of the above
An example of a current liability is
A) unearned revenue.
B) accumulated depreciation.
C) long-term note payable.
D) interest expense.
E) retained earnings.
Following U.S. GAAP, land is carried at historical cost
A) at all times.
B) never.
C) unless the fair value of the land has decreased below the original cost and the land
meets the recoverability test.
D) unless the fair value of the land has increased above the original cost and the land
meets the recoverability test.
E) none of the above
The governmental agency that regulates the stock market and the financial reporting of
firms that trade in the market is the
A) Financial Accounting Standards Board.
B) Internal Revenue Service.
C) Public Company Accounting Oversight Board.
D) Securities and Exchange Commission.
E) Generally Accepted Accounting Board.
Which of the following accounts are expected to have a credit normal balance?
1. Cash
2. Salary Expense
3. Retained Earnings
4. Accumulated Depreciation
5. Sales
6. Prepaid Rent
7. Accounts Payable
A) Cash, Retained Earnings, Sales
B) Salary Expense, Accounts Payable, Accumulated Depreciation
C) Cash, Retained Earnings, Accumulated Depreciation, Prepaid Rent, Accounts
Payable
D) Cash, Salary Expense, Prepaid Rent
E) Retained Earnings, Accumulated Depreciation, Sales, Accounts Payable
Cash flows
A) always follow the adjusting entries.
B) always precede the adjusting entries.
C) may precede or follow the adjusting entries.
D) always follow the unadjusted trial balance.
E) always precede the closing entries.
Presented below are the balance sheets of Tallton Company and Handel Company at
January 1, 2X13:
On January 1, 2X13, Tallton Company acquired 100% of the outstanding common
stock of Handel Company for $140 in cash. Assume the book value of Handel’s assets
and liabilities equals the market value.
If Handel Company generated net income during 2X13 of $22, and none of the income
resulted from intercompany sales, what would be the amount of the elimination entry at
the end of 2X13?
A) $22
B) $-0-
C) $118
D) $140
E) $162
Vivian Company has the following data available:
What is the total asset turnover for Vivian Company in 2X13? Has the total asset
turnover improved or not improved since 2X12?
A) 1.2, improved
B) 1.2, not improved
C) 1.5, improved
D) 1.6, improved
E) 1.6, not improved
Activities that involve obtaining resources as a borrower or issuer of securities and
repaying creditors and owners are included in which section of the statement of cash
flows?
A) Operating
B) Investing
C) Financing
D) Managing
E) Net income
The direct method of preparing the statement of cash flows
A) is preferred by IASB and FASB.
B) is the same as the indirect method with the exception of the cash account.
C) is an accumulation of net income accounts so that accountants can locate
discrepancies in balances.
D) omits the financing section of the statement.
E) focuses on cash outflows over cash inflows.
Which of the following securities are accounted for at market value?
1. Trading securities
2. Held-to-maturity securities
3. Available for sale securities
A) 1 only
B) 2 only
C) 3 only
D) 1 and 3
E) 1 and 2
Twinkle Toes Dance Company
December 31, 20X9
What is the name of the financial statement above?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Changes in Shareholders Equity
E) Statement of Retained Earnings
Morrill Manufacturing had inventory of $350 on March 1. The company had the
following transactions during March.
Prepare the appropriate journal entry for each of the above transactions assuming
Morrill Manufacturing uses the perpetual inventory method.
Selia Sewage Systems has sales of $900,000, of which 25% are cash sales and the
remainder is on credit. As of year-end, but before the bad debts adjustment, the
Allowance for Uncollectible Accounts has a credit balance of $300, and Accounts
Receivable has a debit balance of $60,000. If bad debts are estimated to be 1.5% of
credit sales, what journal entry will Selia Sewage Systems need to prepare in order to
estimate bad debts?
Ronald Cummings purchased 800 shares of Barnum Corp.’s common stock for $15 per
share. Barnum Corp.’s shares have a par value of $2. If Barnum Corp. declared and
issued a 3% stock dividend when the market price per share was $16, what journal
entry would Ronald Cummings make?
E) No journal entry is necessary.
Contributor Enterprise borrowed $2,400 on February 1, 2012. All interest has been paid
and properly recorded for separately. On March 31, 2012, the company repaid the loan.
Which of the following is the journal entry to be made at the time of the loan
repayment?
Florings Company purchased merchandise costing $900, one-fourth of which was
acquired on open account, and the rest was paid in cash. Which set of T-accounts best
describes this transaction?
Ronald Cummings purchased 800 shares of Barnum Corp.’s common stock for $15 per
share. Barnum Corp.’s shares have a par value of $2. If Barnum Corp. declared and
issued a two-for-one stock split, what journal entry would Ronald Cummings make?
E) No journal entry is necessary.
Assume the periodic inventory system is used. Madison Manufacturing gave a 4% trade
discount to Tristan Company when it sold inventory for cash that normally sells for
$12,000. Which of the following is the journal entry to be made by Madison
Manufacturing?
Whitestone Remodeling, Inc. journalized a $600 repair to the Supplies account in error.
Which of the following is the correcting entry to be made?