The consistency principle states that a business should use the same accounting
methods and procedures from period to period.
Under both the allowance method and the direct-write off method of accounting for
uncollectible accounts, the amount of bad debts expense is to be estimated at the end of
each accounting period.
An equity security does not represent an ownership interest in a corporation, although it
pays dividends.
A T-account is a summary device with credits posted on the left side of the vertical line.
In an audit report in the annual report, a qualified opinion states that the financial
statements are presented fairly in all material respects.
A company that reports a discontinued operation or an extraordinary item must also
report earnings per share for each of these line items.
The balances in the liability and revenue accounts are increased with a credit.
A trial balance summarizes the ledger by listing all the accounts with their balances at a
point in time.
Unlike the sales journal, entries in the cash receipts journal are posted monthly to the
accounts receivable subsidiary ledger and daily to the general ledger.
A company has net credit sales of $1,400,000, beginning net accounts receivable of
$260,000, and ending net accounts receivable of $203,000. What is the days’ sales in
accounts receivable? (Round any intermediate calculations to two decimal places, and
your final answer to the nearest whole day.)
A) 60 days
B) 121 days
C) 53 days
D) 68 days
A deposit receipt is ________.
A) retained by the customer as proof of a deposit transaction
B) the same as a signature card
C) used by the bank as an alternative to a remittance advice
D) given by the customer to the bank as a proof of deposit
Analysts look for red flags in financial statements that may signal financial trouble.
Which of the following is a red flag that suggests that a company may be in trouble?
A) a decline in days’ sales in inventory
B) a decrease in dividend payout ratio from year to year
C) a reduction in the debt ratio
D) net cash flow from operating activities is consistently lower than net income
Ratio analysis ________.
A) provides a year-to year comparison of a company’s performance in different periods
B) is used most effectively to measure a company against other companies in the same
industry and to denote trends within the company
C) cannot be used to measure a company against other companies in the same industry
because the necessary information is not available
D) provides a way to compare different companies
If there is cash involved in a business transaction, the transaction should be recorded in
either the ________.
A) cash payments journal or cash receipts journal
B) cash payments journal or general journal
C) cash payments journal or cash receipts journal and in general journal
D) sales journal or purchases journal
A journal entry for a $290 payment to purchase office supplies was erroneously
recorded as a debit to Office Supplies for $600 and a credit to Cash for $290. Which of
the following statements correctly states the effect of the error on the trial balance?
A) The sum of the credits will exceed the sum of the debits by $310.
B) The sum of the debits will exceed the sum of the credits by $290.
C) The sum of the debits will exceed the sum of the credits by $310.
D) The sum of the debits will exceed the sum of the credits by $600.
If a company is using accrual basis accounting, when should it record revenue?
A) when cash is received, even though services may be performed at a later date
B) when services are performed, even though cash may be received at a later date
C) when services are performed and cash is received
D) when cash is received, 30 days after the completion of the services
On May 31, a retail firm pays rent of $2,700 for the month of May. When this
transaction is recorded in the cash payments journal, ________.
A) assets and equity will increase by $2,700
B) assets and liabilities will decrease by $2,700
C) assets and equity will decrease by $2,700
D) liabilities and equity will increase by $2,700
Which of the following will be shown under the investing activities section of the
statement of cash flows?
A) purchased treasury stock for cash
B) issued notes payable to purchase equipment
C) paid cash dividends to stockholders
D) loaned money to a third party
Liquidity is a measure of how ________.
A) quickly an asset may be converted into cash
B) long an asset can be used
C) easily an asset can be exchanged for another asset
D) short an operating cycle is
Briyanne, Inc. purchased a computer for $5,000. During 2016 and 2017, the company
recorded total depreciation of $4,000 on the computer. On January 1, 2018, the
company exchanges the computer for a new one, paying $4,000 cash. The market value
of the new computer is $6,000. Prepare the journal entry to record this transaction.
Assume the exchange has commercial substance.
Paramount, Inc. decided to reward its employees with a bonus of 7% on annual net
income, after deducting the bonus. The company reported net income of $513,600
before the calculation of the bonus. Prepare the journal entry to accrue employee bonus
expense.
Smart Calendars is a new business. During its first year of operations, credit sales were
$40,000, and collections of credit sales were $36,000. One account, $650, was written
off. Using the aging-of-receivables method, management calculates $200 as its estimate
of uncollectible amounts at year end. Prepare the journal entry to record bad debts
expense.
List the two distinctly different gains and losses that are included on the income
statement after continuing operations.
What is the only difference between present value and future value?
Define treasury stock and provide two reasons why a corporation would purchase
treasury stock.
Journalize the above transactions that should be recorded in the general journal. If a
transaction should not be recorded in the general journal, identify the special journal
that should be used. Assume the company uses the perpetual inventory system.