Under the cash method, revenue is recorded when cash is collected.
The adjusting entry to record $675 of earned revenue received in advance would
include a debit to Unearned Revenue.
An affiliated company is one that has 20% to 50% of its voting shares owned by
another company.
A transaction affects the financial position of an entity and can be reliably recorded in
terms of money.
The quick ratio is calculated as current assets divided by current liabilities.
Diluted earnings per share assume the conversion or exercise of all potentially dilutive
securities at the beginning of the period.
To be considered an extraordinary item, it must be both unusual in nature and
infrequent in occurrence.
U.S. GAAP requires the immediate write-off of goodwill at purchase.
If expired insurance is not recorded at the end of the current accounting period, net
income will be overstated.
A book of original entry is a chronological record of an entity’s transactions.
The Financial Accounting Standards Board (FASB) prefers the indirect method of
determining cash flows from operations.
For a given account, both the amount of the change from one year to the next and the
percentage change are needed to recognize trends and understand their true meaning.
The acquisition costs for intangible assets are capitalized as assets and are then
gradually amortized over the estimated useful lives of the assets.
Good accounting controls
A) include all methods and procedures that facilitate management’s planning and
control of operations.
B) help maximize efficiency and minimize waste, unintentional errors, and fraud.
C) are not concerned with the accuracy of the financial records.
D) are not concerned with safeguarding assets.
E) All of the above statements are true concerning accounting controls.
Cleft Company had the following account balances on its balance sheet at
Assume no bonds were retired during 2012. What was the negative cash flow associated
with long-term debt for Cleft Company in 2012?
A) $10,000
B) $4,000
C) $7,000
D) $0
E) $3,000
Which of the following situations involves a deferral?
A) Recording accrued interest
B) Recording accrued wages
C) Recording revenue earned but not yet received
D) Recording revenue earned that was collected in advance
E) None of the above are deferrals.
Machiel Manufacturing acquired a $60,000 machine on January 1, 2009. The machine
is estimated to have a useful life of 4 years, and a residual value of $10,000. For
units-of-production depreciation purposes, the machine is expected to produce 500,000
units. If Machiel Manufacturing uses straight-line depreciation, what is the depreciation
expense in 2011?
A) $ 3,686
B) $ 7,200
C) $ 8,000
D) $ 8,800
E) $12,500
The expenditure for an improvement to equipment that would increase output is
journalized by
A) crediting accumulated depreciation.
B) crediting depreciation expense.
C) debiting depreciation expense.
D) debiting equipment.
E) debiting repair expense.
Zeman Company has the following data:
What is the return on sales for Zeman Company in 2X13? Has the return on sales
improved or not improved since 2X12?
A) 8.0%, improved
B) 8.0%, not improved
C) 14.4%, improved
D) 34.4%, improved
E) 34.4%, not improved
Net income is defined as
A) revenues minus expenses.
B) expenses minus revenues.
C) assets minus revenues.
D) assets plus revenues.
E) owners’ equity assets minus expenses.
Convertible bonds are attractive to investors because
A) the issuing company cannot retire the bonds before maturity.
B) they can be converted into stock by the issuing company.
C) they usually carry a higher rate of interest than non-convertible bonds.
D) they usually carry a lower rate of interest than non-convertible bonds.
E) they can be converted into stock at the holder’s option.
Which of the following statements is true regarding attributes of the general ledger and
the general journal?
A) Both the general ledger and the general journal focus on general accounting
concepts and not specific events or occurrences.
B) The general journal displays the balance in a particular account.
C) The general ledger and the general journal are separate and distinct accounting
records that are not related or cross-referenced to each other.
D) The general ledger is account driven and the general journal is transaction driven.
E) General ledger accounts are only used in ERP systems.
Public accountants follow the code of ethics for professional conduct established by the
A) Sarbanes-Oxley Act.
B) Securities and Exchange Commission.
C) Financial Accounting Standards Board.
D) Congress of the United States.
E) American Institute of Certified Public Accountants.
Component depreciation is
A) required by IFRS
B) required by GAAP
C) permissible if a small portion of an asset has separate, depreciable components
D) utilized heavily by publicly traded corporations in the U.S.
E) utilized heavily by privately held corporations in the U.S.
From the following information, determine the ending balance in Retained Earnings.
A) $ 6,200
B) $ 8,900
C) $12,700
D) $18,900
E) $20,000
Xavier Enterprises has $500,000 of goodwill on the balance sheet. The company
determines that an impairment has occurred for $100,000. Xavier Enterprises should
A) recompute the original purchase and restate all subsequent statements.
B) debit goodwill for $100,000.
C) credit goodwill for $100,000.
D) debit goodwill for $400,000.
E) credit goodwill for $400,000.
Brandon Corporation generated $98,000 in credit sales during 20X2. In February 20X3,
Brandon realized that $13,500 of the accounts receivable generated from the 20X2
credit sales were uncollectible. Brandon seldom experiences bad debts losses; therefore,
it used the specific write-off method. Using the matching principle, what is the effect on
20X3 and 20X2 net income as a result of the write-off?
A) 20X3 net income is understated by $13,500, while 20X2 net income is overstated by
$13,500.
B) 20X3 net income is overstated by $13,500, while 20X2 net income is understated by
$13,500.
C) 20X3 net income is neither overstated nor understated, but 20X2 net income is
understated by $13,500.
D) 20X3 net income is overstated by $13,500, but 20X2 net income is neither
overstated nor understated.
E) There is no effect on either year’s net income as revenues and expenses are properly
matched.
The premium on bonds payable
A) serves to reduce interest expense on the income statement.
B) serves to increase interest expense on the income statement.
C) is an adjunct account to notes payable.
D) increases the cash interest payment.
E) is a contra account to bonds payable
On April 30, Hilte Corporation performed a month-end inventory and counted office
supplies valued at $1,425. On April 1, the balance in the Supplies account was $750.
Assuming that $2,900 of purchases for the month was posted to the Supplies account,
what adjusting entry would Hilte Corporation make on April 30?
E) None of the above
The following errors occurred in the accounting records of Lorenzo Catering for the
year ended December 31, 2012:
1. Lorenzo Catering received $3,000 in 2012 from a customer in advance of work to be
performed. At the time of the cash receipt, revenue was recognized for the full amount.
As of year end, 30% of the work had been completed, with the remainder completed in
2013.
2. Lorenzo Catering provided services of $2,300 for one of its customers in 2012, but
did not bill the customer until 2013.
3. Lorenzo Catering paid $5,400 on September 1, 2012, for one year’s rent in advance.
At the time of the payment, the company used the prepaid rent account for the full
amount. No other journal entry was made with respect to this transaction.
4. Lorenzo Catering failed to record wages earned but unpaid as of December 31, 2012,
of $2,600. The wages were paid and recognized as an expense in 2013.
State whether each item has understated (U), overstated (O), or had no effect (N) on the
2012 revenue, expense, and net income, as well as the year-end total assets, total
liabilities, and total stockholder’s equity balances.
Reporting Standards, Inc. recovered a bad debt from Plodding, Inc. in October 20X3 in
the amount of $350 that was previously written off by Reporting Standards, Inc. in
November 20X2. Reporting Standards, Inc. utilizes the percentage of sales method to
estimate bad debts. What journal entry is required in October 20X3?
Assume Credit Categories uses the allowance method for bad debts. Credit Categories
wrote off the $400 account of P. Miller on February 19, 20X3. On October 8, 20X3
Credit Categories received a check for $400 from P. Miller. Which of the following
is(are) the journal entry(ies) that Credit Categories will make on October 8, 20X3?
Following is the balance sheet for Value Creation, Inc. as of January 31, 20X9:
Value Creation, Inc.
Balance Sheet
January 31, 20X9
Assets: Liabilities:
Cash $ 7,100 Accounts Payable $ 6,200
Accounts Receivable 4,000 Notes Payable 8,300
Merchandise Inventory 13,500 Total Liabilities 14,500
Prepaid Rent 3,300 Stockholders’ Equity:
Store Equipment 15,600 Paid-in Capital $17,600
Retained Earnings 11,400
Total Stockholders’ equity 29,000
Total Assets $43,500 Total Liab. and Stockholders’ Equity $43,500
The following transactions occurred during January:
1. The company paid $2,100 of the accounts payable.
2. The company acquired $3,500 of merchandise inventory, paying 40% in cash and the
remainder on open account.
3. The utility bill of $1,400 for the month of January was paid.
4. The company received $2,200 from its credit customers.
5. Sales of merchandise inventory for the month of January totaled $22,500, of which
$10,000 was paid in cash and the remaining amount was on open account. The cost of
the merchandise sold was $15,000.
6. The company paid $1,600 of the note payable. Ignore interest expense.
7. Depreciation on the store equipment was $900 for the month.
8. Additional store equipment of $1,700 was acquired. Of this amount, $700 was paid in
cash and the remainder was added to the note payable balance.
9. The balance in the prepaid rent account represented 3 months’ worth of rent paid in
advance as of January 31, 20X9.
Required:
Prepare an income statement for the month ended January 31, 20X9.
Below are owners’ equity accounts for three different forms of business entities.
Identify which form of business entity each set of owners’ equity accounts represents
and explain how you arrived at your decision.