Which method of preparing the operating activities section of a statement of cash flows
reports major classes of gross cash receipts and cash payments for revenues and
expenses?
a. the direct method
b. the indirect method
c. Both the direct method and the indirect method.
d. Neither the direct method nor the indirect method.
A bond issuing at 101.25 means that the bond
a. sold for $101.25.
b. sold at a discount.
c. sold for $1,012.50.
d. stated rate is lower than the market rate of interest.
Ace Computing Company
On January 1, 2013, the Accounts Receivable and the Allowance for Doubtful Accounts
carried balances of $40,000 and $1,500 respectively. During the year, the company
reported $80,000 of credit sales. There were $500 of receivables written off as
uncollected in 2013. Cash collections of receivables amounted to $78,200. The
company estimates that it will be unable to collect 4% of the year-end accounts
receivable balance.
Refer to the Ace Computing Company. The entry to recognize the write-off of the
specific uncollected accounts will act to
a. increase total assets and stockholders’ equity.
b. increase total assets and decrease stockholders’ equity.
c. decrease total assets and stockholders’ equity.
d. not affect total assets or stockholders’ equity.
Internal control for sales involve which of the following documentation?
a. A sale and its associated receivable are recorded only when the order, shipping, and
billing documents are all presented.
b. A sale and its associated receivable are recorded only when the billing documents are
prepared.
c. A sale and its associated receivable are recorded only when the goods are ordered.
d. A sale and its associated receivable are recorded only when the good are produced.
A company receiving payment of a $20,000 accounts receivable within 10 days with
terms of 2/10, n/30, would record a sales discount of:
a. 10% of $20,000
b. 2% of $20,000
c. (100% – 10%) x $20,000
d. (100% – 2%) x $20,000
Refer to the information provided for Lowery Company. If the company uses the LIFO
inventory costing method, how much is cost of goods sold for the month of March?
a. $560
b. $212
c. $208
d. $204
Which of the following statements regarding accounts payable is false?
a. Accounting for accounts payable is really just the flip side of accounts receivable.
b. Accounts payable arise when a business purchases goods or services on credit.
c. Accounts payable arise when a business promises to purchase goods or services in the
future.
d. Accounts payable seldom require the payment of interest.
Which of the following will notcause a trial balance to be out of balance?
a. The balance for the account is incorrectly computed.
b. A debit entry is posted as a credit.
c. A credit entry is posted to the wrong account, but still as a credit.
d. An account is accidentally omitted from the trial balance.
Refer to Lake Lanier Grill, Inc. If all of the 1,000 shares that Lake Lanier Grill
repurchased on March 1 were later reissued for $4.00 per share, the journal entry to
record this transaction includes a debit to what account and for what amount?
a. $4,000 to paid-in capital from treasury stock transactions
b. $2,000 to treasury stock
c. $500 to retained earnings
d. $4,500 to cash
Refer to Happy Heights Country Club
b. Which of the following describes the transactions which occurred on July 7th?
a. sold club membership on credit
b. collected revenue in advance
c. collected accounts receivable
d. sold club membership for cash
When a corporation declares a cash dividend, which of the following is true?
a. cash decreases
b. liabilities decrease
c. stockholders’ equity decreases
d. no entry is necessary
Lanthier’s Heating & Air
This company began business on June 1, 2014. The articles of incorporation authorize
issuance of 10,000 shares of $2 par common stock and 5,000 shares of $8 par 6%
cumulative preferred stock.
Refer to Lanthier’s Heating & Air. On June 5, 2014, the company issued 2,400 shares of
common stock for $20 per share. What effect does the entry to record the stock issuance
have on total stockholders’ equity?
a. increase of $4,800
b. decrease of $4,800
c. increase of $48,000
d. decrease of $48,000
Refer to Dance Town Academy. How will the outstanding checks be handled on a bank
reconciliation?
a. add to the balance from the company records
b. subtract from the balance from the company records
c. add to the bank statement balance
d. subtract from the bank statement balance
Upon reviewing Mack’s Truck Stop’s Statement of Cash Flows, the following was
noted:
Cash flows from operating activities $ 15,000
Cash flows from investing activities 70,000
Cash flows from financing activities (50,000)
From this information, the most likely explanation is that this company is
a. using cash from operations and selling long-term assets to pay back debt.
b. using cash from operations and borrowing to purchase long-term assets.
c. using its profits to expand growth.
d. using cash from investors to provide for operations
Refer to Gainesville Truck Center. Which of the following statements is true regarding
the unemployment taxes to be recorded?
a. $700 of unemployment taxes will be withheld from employee paychecks.
b. $700 of unemployment tax expenses will be included on the income statement.
c. $1,400 of unemployment taxes payable will be included on the balance sheet.
d. $1,400 of unemployment tax expenses will be included on the income statement.
Carlock Systems received a 6-month, 12% note for $50,000 from a customer on
November 1, 2013. The note is due on April 30, 2014. Assuming the company’s
accounting period ends on December 31, how much interest revenue should be
recognized during 2013 and 2014?
2013 2014
a. $2,000 $1,000
b. $1,000 $2,000
c. $0 $6,000
d. $1,000 $5,000
Echols Company sells merchandise on credit. If a customer pays its balance due after
the discount period has passed, what is the effect of the payment on seller’s accounting
equation?
a. Assets and stockholders’ equity decrease.
b. Assets and stockholders’ equity increase.
c. Assets decrease and liabilities increase.
d. No net effect.
Allatoona Landing reported net credit sales of $1,250,000 and cost of goods sold of
$900,000 for 2013. Its beginning balance of Accounts Receivable was $175,000. The
accounts receivable balance decreased by $25,000 during 2013. Rounded to two
decimal places, what is the company’s accounts receivable turnover rate for 2013?
a. 7.14
b. 7.69
c. 8.33
d. 11.03
A company uses plant assets that are subject to rapid decreases in value due to
obsolescence and physical deterioration. Which of the following depreciation methods
is most appropriate to measure the decline in the usefulness of this company’s assets?
a. double-declining-balance
b. revenue expenditure method
c. straight-line
d. units-of-production
A company had the following balance sheet amounts at the beginning of the year:
During the year, total assets increased by $350,000, total liabilities increased by
$100,000, and dividends were paid in the amount of $300,000. No other transactions
occurred except revenues and expenses. How much is net income for the year?
a. $750,000
b. $650,000
c. $500,000
d. $550,000
Expenses should be matched against revenue
a. before the earnings process is complete.
b. only after cash is collected from the customer.
c. in the same period as the revenue that they helped generate.
d. after payment has been made for any costs related to the revenue.
If a corporation declares a 2-for-1 stock split, which of the following is true?
a. A new class of stock must be authorized with twice the number of issued shares.
b. The number of outstanding shares is half the number that were previously
outstanding before the split.
c. The number of outstanding shares is twice the number that were previously
outstanding before the split.
d. The number of outstanding shares is doubled, while the number of issued shares is
reduced to half of the amount before the split.
Kid Karate issued $100,000 of 6%, 10 year bonds when the market rate of interest was
5%. The proceeds from this bond issue were $107,000. Using the effective interest
method of amortization, which of the following statements is true? Assume interest is
paid annually.
a. Interest payments to bondholders each period will be $5,000.
b. Interest payments to bondholders each period will be $5,350.
c. Amortization of the premium for the first interest period will be $5,000.
d. Amortization of the premium for the first interest period will be $650.
Refer to A2Z Events. What are the effects on the accounting equation when the
company makes the adjustment to record bad debt expense using the allowance
method?
a. Assets increase and liabilities decrease
b. Assets and stockholders’ equity decrease
c. Assets increase and stockholders’ equity decreases
d. Assets decrease and stockholders’ equity increases
When a corporation issues a small stock dividend, which of the following is false?
a. Cash decreases.
b. Total stockholders’ equity remains the same.
c. The capital stock accounts increase.
d. Retained earnings is decreased.
A company whose fiscal year ends December 31, has a weekly payroll of $100,000.
Employees work 5 days per week, Monday through Friday and payday is every Friday.
How much wages expense will be recorded on the Friday, January 3 payday?
a. $0
b. $40,000
c. $60,000
d. $100,000
On the issuance date, the Bonds Payable account has a balance of $55,000,000 and
Premium on Bonds Payable has a balance of $5,000,000. These bonds issued at
a. $50,000,000.
b. $55,000,000.
c. $60,000,000.
d. a price that cannot be determined without knowing the stated and market interest
rates.
Alpha Company’s accounts receivable and allowance for doubtful accounts balances
were $100,000 and $14,000 (credit) respectively, at the beginning of 2014. During
2013, a customer defaults on a $12,000 balance related to goods purchased during 2011.
By the end of the year, the company had made credit sales of $2,400,000 and collected
$2,200,000 on account. It now estimates that 1 percent of its credit sales will default.
A) Prepare the journal entry to record the write off the bad debt.
B) Prepare the adjusting entry to record bad debt expense for 2013.
C) What is the net accounts receivable balance at the end of the year?
On December 31, 2013, a company signed a one-year contract to provide services to a
particular customer for $12,000. The customer will pay for the services during January
2014. Using the accrual basis of accounting, when should the company recognize
revenue?
a. In January 2014, when the cash is received.
b. On December 31, 2014, after all services have been provided.
c. Equally throughout 2014, as the revenue is earned.
d. On December 31, 2013, when the contract is signed.
German Auto Parts is a defendant in a multi-million dollar lawsuit that was filed in a
prior year. The lawsuit was not previously disclosed in the financial statements or
accompanying footnotes, as the company has vigorously defended its position and its
attorneys initially indicated that the claim was not valid. During the current year,
however, the facts and circumstances have changed such that the likelihood of a loss
approximating $5 million is now considered reasonably possible. How should the
company recognize this lawsuit in its current year financial statements?
a. Do nothing, since it was not recognized in previous periods.
b. Do nothing until the matter is settled or a judgment or verdict is obtained.
c. Disclose the matter in the footnotes accompanying the financial statements.
d. Record a contingent liability in the amount of $5 million.
Refer to the information provided for Robey Company. If the LIFO method is used,
determine the following amounts:
A) Ending inventory on February 28th?
B) Cost of Goods sold for the month of February?
A company reported the following information:
Accounts receivable, December 31, 2014 $122,000
Accounts receivable, December 31, 2013 113,000
Sales (all on credit) for 2014 850,000
How much cash was collected from customers during 2014?
a. $972,000
b. $841,000
c. $859,000
d. $963,000
The resources used to earn revenues during a period are called
a. net income.
b. expenses.
c. revenues.
d. dividends.
Presented below is the operating activities section of a statement of cash flows for
2014:
Operating activities:
Net income $120,000
Add: Depreciation 10,000
Decrease in accounts receivable 5,000
$135,000
Deduct: Decrease in accounts payable 15,000
Net cash inflow from operating activities $120,000
Which method of preparing the operating activities section was used?
a. The direct method.
b. The indirect method.
c. Either method.
d. Cannot be determined without further information.
The following information is available for Porter Company for its fiscal year ending
January 31, 2013:
Net Sales $745,400
Cost of Goods Sold 614,320
Inventory, 1/31/2012 80,690
Inventory, 1/31/2013 81,440
Compute the following financial ratios for Porter Company:
A) Gross Profit Ratio
B) Inventory Turnover Ratio
C) Average Days to Sell Inventory
Callable bonds may be retired by the issuer before their specified due date.
The balance in the account, Rent Collected in Advance, is reported as a liability on the
balance sheet of the landlord.
Compare and contrast stock dividends and stock splits.
In the space provided, indicate whether the journal entry for the transaction described
includes an entry to a stockholders’ equity account and if so, whether the account(s)
should be debited or credited as a result of the entry.
Included in a Stockholders’
Items: Equity account? (yes or no) Account
Debited or Credited?
Issued preferred stock
Paid a dividend that was declared last year
Purchased treasury stock
Received an amount in excess of cost for the reissuance of treasury stock
Acknowledged dividends in arrears on preferred
stock
Declared a cash dividend that will be paid next year
Issued additional shares in a 2-for-1 stock split
You are the chairman of the board of directors of NuWave Technology. You are in
Vegas attending the company’s annual meeting and it is now time for the question and
answer session with shareholders. The very first question you take is this: “I own stock
in a dozen companies. Everyone of them pays me dividends except NuWave. Why is
that?” How do you respond?
For the statement of cash flows, companies are required to classify their cash activities
into three categories: operating, investing, and financing.
When cash is paid before an expense is incurred, an accrual is necessary.
A company’s relative mix of debt and equity financing is referred to as its __________
structure.
Beach Catering sold its business for $75,000 under an asset purchase agreement. Under
the agreement, the buyer made an initial payment of $35,000 which Beach Catering
invested at 6% compounded semiannually. At the beginning of the fourth year, the
balance of the purchase price was paid by the buyer. Beach Catering places this $40,000
in the same investment with interest compounded semiannually at 6%. At the end of 6
years, how much does Beach Catering have in its investment account?
A stock option is the same as a stock warrant.
When a company uses past experience to estimate the amount of likely warranty claims
in the future, a current liability account must be created.
The higher the accounts receivable turnover the better because it indicates that the
company is more quickly collecting cash (through sales).
____________________ is the quality of accounting information that makes it
dependable in representing the events that it purports to represent.
Employers withhold taxes from their employees’ gross pay and later pay these amounts
withheld to the taxing authority.