A company purchased equipment by issuing a $200,000, one-year, 8% note payable.
The transaction would be recorded in the accounting records with a credit to Notes
Payable for:
A) $200,000.
B) $216,000.
C) $184,000.
D) $208,000.
Which of the following statements is correct?
A) FIFO results in a lower net income than LIFO when costs are rising.
B) LIFO results in a higher net income than FIFO when costs are rising.
C) LIFO results in a higher net income than FIFO when costs are falling.
D) LIFO results in the same net income as FIFO when costs are rising.
Match the term and its definition. There are more definitions than terms.
Terms
____ 1) Net Sales Revenue
____ 2) Allowance Method
____ 3) Notes Receivable
____ 4) Accounts Receivable
____ 5) Average Net Receivables
____ 6) Subsidiary Account
____ 7) Historical Percentage of Bad Debt Losses
____ 8) Annual Interest Rate
Definitions
A. The amount of interest a lender receives during a year.
B. A system used by companies to allocate their budgets over the different operating
expenses.
C. The numerator of the receivables turnover ratio.
D. A separate record for each accounts receivable customer.
E. Used by the percentage of credit sales method to estimate bad debts.
F. Another name for a company’s total revenue, which is calculated by multiplying the
quantity sold by the average price.
G. The costs of maintaining accounts with customers who have not made recent
purchases.
H. The interest that a company receives during the year divided by the principal of the
loan.
I. The rate at which a company pays off its liabilities or debts.
J. The total amount of money loaned through notes that the lender has not yet collected.
K. The denominator of the receivables turnover ratio.
L. The average level of net sales revenue the firm earns each month.
M. An accounting method which involves estimating bad debts.
N. The portion of past credit sales that have not yet been collected.
Using straight-line amortization, when a bond is sold at a premium:
A) the amortized premium is added to the interest payable to calculate interest expense.
B) Bonds Payable rises by a constant amount each year.
C) interest expense is calculated by subtracting the amortized premium from the interest
payment that is to be made.
D) interest expense rises each year.
The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank to
be paid back in five years and used all of the money to purchase land for a new store.
Sweet Smell’s balance sheet would show this as:
A) $60,000 under Land and $60,000 under Notes Payable (long-term).
B) $60,000 under Depreciation Expense and $60,000 under Notes Payable (long-term).
C) $60,000 under Land and $60,000 under Notes Receivable (long-term).
D) $60,000 under Other Assets and $60,000 under Other Liabilities.
The separate entity assumption requires that:
A) financial information depicts the economic substance of the business activities.
B) financial reports of a business are assumed to include the results of only that
business’s activities.
C) the results of business activities are reported in an appropriate monetary unit.
D) financial information can be compared across businesses because similar accounting
methods have been applied.
Which of the following statements about the need for adjustments is not correct?
A) Without adjustments, the financial statements present an incomplete and misleading
picture of the company.
B) Adjusting entries are intended to change the operating results to reflect
management’s objectives for operating performance.
C) Adjustments help the financial statements present the best picture of whether the
company’s activities were profitable for the period.
D) Adjustments help the financial statements present the economic resources that the
company owns and owes at the end of the period.
The main purposes of internal controls include all of the following except:
A) prevention of error, theft, and fraud.
B) promotion of operational efficiency.
C) ensuring compliance with laws and regulations.
D) providing more favorable financial information.
The process of buying and selling inventory is known as inventory:
A) circulation.
B) management.
C) turnover.
D) allocation.
Your company purchases equipment for $2 million paying $300,000 in cash and issuing
$1.7 million in promissory notes. When the journal entry is posted to the related
accounts:
A) $2 million will be credited and $300,000 will be debited to asset accounts; $1.7
million will be debited to liability accounts.
B) $2 million will be debited to asset accounts; $2 million will be credited to liability
accounts.
C) $2 million will be debited and $300,000 will be credited to asset accounts; $1.7
million will be credited to liability accounts.
D) $2 million will be credited to asset accounts; $2 million will be debited to liability
accounts.
Cash flows from financing activities:
A) includes all cash inflows and outflows associated with a company’s lending
activities.
B) includes all cash inflows and outflows between a company and its stockholders.
C) are always negative because of the payments of cash dividends as well as interest
and principal on debt.
D) are always positive unless the company is experiencing serious financial trouble.
Considering current laws that deal with misstatements of financial results, which of the
following statements is correct?
A) Managers found guilty can escape paying fines if they declare bankruptcy.
B) Managers can be sentenced to maximum jail terms of up to 20 years for each
violation.
C) Managers found guilty may keep any bonuses or profits from the misrepresentation
if their fines are less than such bonuses or profits.
D) Whistleblowers who secretly submit concerns about questionable accounting
practices will be fired.
Use the information above to answer the following question. What was the amount of
net income for the year?
A company started the current year with assets of $700,000, liabilities of $350,000 and
common stock of $200,000. During the current year, assets increased by $400,000,
liabilities decreased by $50,000 and common stock increased by $275,000. There was
no payment of dividends to owners during the year.
A) $225,000.
B) $275,000.
C) $175,000.
D) $450,000.