A leasehold is the right to use a fixed asset for a specified period of time beyond one
year.
The accrual basis of accounting provides a better measure of economic performance
than the cash basis.
Goodwill occurs when the purchase price of a company exceeds the fair value of all
identifiable individual assets less total liabilities.
The ultimate power to manage a corporation is usually delegated to a corporation’s top
management by the common stockholders.
The gross profit percentage is calculated as sales divided by gross profit.
An owner’s investment into a business will increase assets and decrease liabilities.
Residual value is computed as cost less depreciation expense.
Gross profit equals sales minus operating expenses.
Inventory Shrinkage Expense decreases cost of goods sold.
Long-term solvency refers to an organization’s ability to meet current payments as they
become due.
Dividend arrearages occur only for noncumulative preferred stock.
Debt-to-equity ratios can vary greatly from industry to industry.
Commercial paper is a debt contract issued by prominent companies that borrow
directly from investors.
One of the components of relevance is neutrality.
The price-earnings ratio is earnings per share of common stock divided by the market
price per share of common stock.
Which of the following activities can be classified as a betterment?
A) waxing a car
B) oil change on a car
C) rotating tires on a car
D) overhauling engine of a car
E) changing windshield wipers on a car
The following represent common reconciling items within a bank reconciliation:
1. Bank service charges
2. Deposits in transit
3. Outstanding checks
Which of the above items will be an adjustment to the balance per books?
A) 1 only
B) 2 only
C) 3 only
D) 1 and 2
E) 2 and 3
Heal of Approval Spa reports the following information for the years ended December
31, 20X2 and 20X3:
Sales consisted of 80% credit sales and 20% cash sales during 20X2 and 20X3.
From the information given previously for Heal of Approval Spa, determine the
a. accounts receivable turnover for 20X3.
b. days to collect accounts receivable for 20X3.
Short-term liquidity is
A) a company’s ability to turn plant assets into cash.
B) a company’s ability to meet current payments as they become due.
C) current assets divided by current liabilities.
D) a company’s ability to sell intangible assets.
E) a company’s ability to shift current liabilities into long-term liabilities.
Which item would most likely be expensed even though it is an asset?
A) desk
B) computer
C) filing cabinets
D) printer
E) trash can
The posting reference number in the general journal is obtained from:
A) source documents.
B) the account number for each account posted to the ledger.
C) the transaction amount.
D) the Income Summary account.
E) the normal balance in each account.
The cost-effectiveness constraint requires that standard setting bodies choose rules that
A) have decision-making benefits that exceed the costs of providing the information.
B) have revenue generating ability.
C) have revenue generating ability that exceeds the cost of providing the information.
D) have costs known to the SEC.
E) are not costly to implement.
Why is the timing of revenue recognition important?
A) Revenues increase net income.
B) Revenues reduce net income by triggering the recognition of certain expenses.
C) Revenues increase the declaration of dividends.
D) Increases in revenues result in higher retained earnings.
E) both A and B
Which of the following is false? The discount on bonds payable is
A) amortized over the life of the bond.
B) deducted from bonds payable.
C) a contra account to bonds payable.
D) reported in liabilities section of the balance sheet.
E) an adjunct account to bonds payable.
Accountants analyze and record
A) economic events.
B) costs.
C) revenues.
D) financial statements.
E) creditor statements.
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.
What journal entry will Tallton Company make on January 1, 2X13?
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
If Queen Mattresses, Inc. were using the perpetual inventory system, what is the journal
entry for May 3?
Kolonial Township acquired a building and the 3 acres of land on which it is located.
The total purchase price was $2,500,000. For valuation purposes, the company
contacted three local commercial real estate agents, who gave the following valuation
estimates:
If Kolonial Township used the valuation made by T. Grasso, and assuming it paid cash
for the land and building, what journal entry would Kolonial Township make to record
the purchase?
Milton Manufacturing manufactures and sells ornamental statues. Because of good
styling and marketing, sales have grown briskly. Milton has no pre-existing deferred tax
liability. During 20X3, the following transactions occurred:
1. On January 1, 20,000 new shares of common stock were sold at $100 per share.
2. Half of the proceeds from the stock sale were immediately invested in tax-free bonds
yielding 8% per annum. The bonds were held throughout the year, resulting in interest
revenue of $1,000,000 x .08 = $80,000.
3. Sales for the year were $9,000,000, with expenses of $4,300,000 reported under
GAAP (not including income tax expense).
4. Tax depreciation exceeded depreciation included in item 3 above by $500,000.
What journal entry would Milton make to record income tax expense and income tax
payable at December 31?
Name the five steps for revenue recognition proposed by the joint discussions between
the FASB and IASB.
Westerfelt Shops issued 3,000 debentures on January 1, 20X9. The debentures were
12-year, 7% debt, which paid interest semi-annually, every June 30 and December 31.
The face value of each debenture is $1,000. If the market rate of interest is 7% on
January 1, 20X9, what is the journal entry to record the issuance of the bonds?
E) Cannot be determined from the information given
Randolph Company issued $1,000,000 of 6.5%, 8-year bonds dated June 1, 20X3, with
semiannual interest payments on June 1 and December 1. The bonds were issued on June
1, 20X3, at 103 3/8.
a. Were the bonds issued at a premium, a discount, or at face value?
b. Was the market rate of interest higher, lower, or the same as the coupon rate of interest?
c. How much cash was received by Randolph Company upon issuance of the bonds?