Costs that are linked with revenues and are charged as expenses when the related
revenue is recognized are known as product costs.
The MACRS of depreciation is used for income tax purposes and financial reporting
purposes.
The normal balance for any account is the side of the account where increases are
recorded.
By repurchasing shares of its own stock, a corporation liquidates some shareholders’
claims, and total shareholders’ equity decreases by the amount of the repurchase.
Liabilities are economic obligations of the organization to outsiders, or claims against
its assets by outsiders.
Although it does not occur often, the Cash account can be used to record adjusting
entries.
Under the direct method, a gain from the sale of a fixed asset is added to net income
when calculating cash flows from operations.
What is one possible reason why the account Sales Returns and Allowances needs to be
established as a contra account?
A) So that managers can keep a running balance of returned goods in order to be able to
sell the damaged goods to the employees of the organization as an incentive
B) So that managers can produce more goods when goods get returned in order to hit
monthly bonus levels
C) So that managers can make adjustments to the manufacturing process when goods
are returned for defective reasons
D) So that factory foremen can manage when invoices are paid
E) So that factory foremen can control the amount of credit they grant customers
Which of the following items from the checklist of internal control is most important?
A) Proper authorization
B) Separation of duties
C) Honest, reliable personnel
D) Adequate documents
E) Physical safeguards
What issue would be of most concern on behalf of banks or other creditors of
Manchester Technology?
A) Prepaid insurance decreased 62.5%.
B) The current portion of long-term notes payable increased by 300%.
C) Accounts receivable increased 20%.
D) Fixed assets decreased 9%.
E) Total liabilities increased 7%.
Prepare the necessary journal entries for each of the following transactions for Klokel,
Inc.
a. Klokel, Inc. sold 1,200 shares of common stock at $30 per share in cash.
b. The company purchased equipment for $14,000, paying $4,000 in cash and the
remainder in a note.
c. The company paid the current month’s rent, which amounted to $900, and the current
month’s utilities, which amounted to $400.
d. Merchandise inventory costing $1,900 was sold on account for $4,100.
e. Depreciation on the equipment amounted to $600.
Which of the following accounts would not be found on the credit side of a trial
balance?
A) Equipment
B) Accounts Payable
C) Retained Earnings
D) Sales Revenue
E) Paid-in Capital
Natin Filling Corporation purchased 20, $1,000 6% U.S. Treasury bonds for $18,600, as
a short-term investment on December 16, 2X13. Natin classified these bonds as
available-for-sale securities on their balance sheet. On December 31, 2X14, the U.S.
Treasury bonds were trading at 94 (94% of face value). The rise in market price is
believed to be a temporary fluctuation. Which of the following statements is correct?
A) Since it is a temporary fluctuation, no gain is recognized.
B) Since the bonds are still owned by Natin Filling Corporation, no gain is recognized.
C) Because Natin Filling Corpoation bought US Treasury bonds, which are risk-free, no
gain is recognized.
D) A gain of $200 is recognized as a stockholders’ equity account, therefore there is no
income statement effect.
E) A gain of $200 is recognized on the income statement.
What accounts are affected by an initial investment of cash by an owner into his
business?
A) Cash and Owner payable
B) Cash and Long-term debt payable
C) Owner payable and Accounts payable
D) Cash and Capital
E) Cash and Retained earnings
When a fixed asset is sold for other than its book value, which one of the following
incorrectly states the effect of this transaction on a company’s statement of cash flows?
A) Under the direct method, no gain or loss from the sale of fixed assets is included in
the operating activities section.
B) Under the indirect method, gains from the sale of fixed assets are subtracted from
net income in the operating activities section.
C) Under the indirect method, losses from the sale of fixed assets are added back to net
income to arrive at net cash from operations.
D) Losses and gains from the sale of fixed assets are operating items to be listed in the
operating activities section under both the direct and indirect methods.
E) Under both the direct and indirect methods, the sale of a fixed asset would affect the
investing activities section.
LIFO tends to decrease taxes when
A) costs are declining.
B) costs are constant.
C) costs are increasing.
D) LIFO will always yield the lowest possible taxes.
E) Impossible to determine without specific cost data
Unearned revenues
A) are considered to be a type of revenue.
B) are revenues that are collected before services or goods are delivered.
C) normally have a debit balance.
D) are credited when the sales revenue is finally earned.
E) include cash donations made to universities from wealthy alumni.
Fulton Company has the following data available:
What is the percentage increase or (decrease) in interest expense from 2012 to 2013 for
Fulton Company?
A) 33.3%
B) (50.0)%
C) (33.3)%
D) (100.0)%
E) 50.0%
Book value is defined as
A) cost less salvage value.
B) current market value less accumulated depreciation.
C) cost less accumulated depreciation.
D) cost plus accumulated depreciation.
E) cost plus salvage value.
Performing a service and receiving a promise to pay from the customer would
A) increase revenue.
B) decrease assets.
C) increase liabilities.
D) decrease expenses.
E) decrease revenue.
Scrumptious Donuts sold $2,000 worth of gift certificates in December. As of
December 31, $500 worth of the $2,000 gift certificates had been redeemed. All gift
certificates sold use the Deferred Revenue account. The balance in the Deferred
Revenue account as of December 31 is
A) $2,000
B) $2,500
C) $500
D) $1,500
E) not enough information to answer
On January 1, 2009, First Bank acquired 10 cars for company use. The cost of each car
was $15,000 and the bank estimated that each car would have a 4-year useful life and a
residual value of $2,000.
Required:
a. Provide the journal entry needed on December 31, 2010, if four cars were sold for a
total of $17,500 and First Bank uses double-declining-balance depreciation.
b. Provide the journal entry needed on December 31, 2010, if four cars were sold for a
total of $17,500 and First Bank uses straight-line depreciation.
c. Assume instead of the above information that on December 31, 2010, one of the cars
was wrecked. Provide the journal entry needed on December 31, 2010, if First Bank’s
insurance company paid $2,900 for the wrecked car and the company uses straight-line
depreciation.
AC Heating & Cooling uses the indirect method to prepare the statement of cash flows.
During 2X03, AC Heating & Cooling had $100,000 in net income, which included a
gain of $10,000 from the sale of a plant asset. To calculate operating cash flows, AC
Heating & Cooling must
A) deduct $10,000 from net income in the operating activities section of the statement
of cash flows.
B) add $10,000 to net income in the operating activities section of the statement of cash
flows.
C) deduct $10,000 from net income in the investing section of the statement of the
statement of cash flows.
D) add $10,000 to net income in the investing section of the statement of cash flows.
E) deduct $10,000 from net income in the financing section of the statement of cash
flows.
Which of the following is true regarding accounting errors?
A) Only the income statement of the second period is affected.
B) Only the balance sheet of the first period is affected.
C) Errors in the current period may be offset by errors in the next accounting period.
D) Only auditors can change them.
E) Because they reverse, it is not necessary to do anything after the fact.
Briefly explain the difference between operating income and net income. Why do
companies calculate both?
Milton Company, a valued customer, placed an order for $1,500 on January 1. Because
Milton is experiencing financial difficulties, it has been allowed to pay with a 3-month
note receivable. The interest rate on the note is 8%. What adjusting entry is necessary
for Oleke Manufacturing on January 31?
Arko, Inc., manufactures tables. During the month of March, 20X9, Arko purchased
100 table tops of wood costing $3 per piece, 400 table legs of wood costing $1 per leg,
100 bottles of glue costing $2.50 per bottle, and 800 nails costing $.20 per nail. All raw
materials were put into production during March, 20X9, and production wages related
to the production of tables amounted to $300. At the end of March, 20X9, ending work
in process inventory had 20 table tops of wood, 80 table legs of wood, 20 bottles of
glue, and 160 nails.
Required:
What will be the inventory balances for Arko, Inc., on March, 31, 20X9? Assume that
the beginning balances on March 1, 20X9, in the Raw Materials Inventory account was
$400, the Work in Process Inventory account was $200, and the Finished Goods
Inventory was $0.
Presented below are the balance sheets of Dental Works and Forgash Company at
January 1, 2X13:
On January 1, 2X13, Forgash Company paid $80 for 100% of the outstanding shares of
Dental Works. The fair market values of the assets and liabilities of Dental Works are
the same as the book values.
What journal entry will Forgash Company make on January 1, 2X13?
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 Ronald were to resell all its
treasury stock at $28 per share, what journal entry would he make?
What is a “noncontrolling interest”? How is it accounted for on the subsidiary’s, the
parent’s, and the consolidated financial statements?