A decrease in accounts receivable is added to the financing activities when preparing a
statement of cash flows using the indirect method.
Recorded goodwill is considered to exist unless impaired.
Journalizing is the analysis of the effects of a transaction on the accounts, usually
accompanied by an explanation.
A debenture is a debt security with a general claim against the company’s total assets,
rather than against a particular asset.
If depreciation expense is not recorded for the current accounting period, total assets
will be understated.
A loss will result on the sale of a plant asset when the book value of the asset exceeds
the cash received.
An investor purchasing bonds between interest dates must pay accrued interest on the
bonds.
Depreciation expense is not a source of cash; however, it is subtracted from net income
when determining net cash flow from operations under the direct method.
The party who has the right to use leased property and makes lease payments to the
lessor is called a lessee.
Failure to adjust for depreciation results in the overstatement of assets and the
understatement of net income.
The adjusting entry to record accrued salaries earned includes a debit to accrued salaries
payable.
Zero coupon notes do not provide interest payments.
Under the accrual basis of accounting, prepaid assets become expenses when they
expire.
Some errors are counterbalanced by off-setting errors in the ordinary bookkeeping
process in the next period. Such errors misstate net income in both periods.
Treasury stock is a contra account with a debit balance in the stockholders’ equity
section of a company’s balance sheet.
The two attributes that make financial information relevant are ________ and
________.
A) reliability; faithful representation
B) reliability; verifiability
C) comparability; consistency
D) understandability; timeliness
E) predictive value; confirmatory value
Fulton Company has the following data available:
If a common size income statement were prepared, what percentage would be
attributable to the 2X12 wage expense of Fulton Company?
A) 10.5%
B) 81.8%
C) 46.2%
D) 58.1%
E) 11.3%
Referring to Exhibit 5-1, how much inventory did Cartell Paper Products purchase in
2012?
A) $81,300
B) $63,800
C) $64,900
D) $46,300
E) $62,700
An example of a contingent liability is
A) a bond that can be converted into common stock.
B) any interest-bearing liability.
C) a bond that was sold at a discount.
D) the unrealized loss from the reduction in the fair value of a long-term liability.
E) a lawsuit being filed against a company.
Smith’s Medical Supplies sold unused land at cost, which was $15,000. The buyer paid
$6,000 in cash, with the balance to be paid on a note due in 6 months. The effect on
Smith’s Medical Supplies is to
A) decrease the land account by $15,000, increase the cash account by $6,000, and
increase the balance in the notes payable account by $9,000.
B) decrease the land account by $15,000, increase the cash account by $6,000, and
increase the balance in the notes receivable account by $9,000.
C) decrease the land account by $15,000, increase the cash account by $6,000, and
decrease the balance in the notes receivable by $9,000.
D) decrease the land account by $6,000 and increase the cash account by $6,000.
E) decrease the land account by $15,000, increase the cash account by $6,000, and
decrease the balance in the notes payable account by $9,000.
If an accountant establishes the sales for the month and adds the beginning balance of
accounts receivable and subtracts the accounts receivable balance at the end of the
month, this would determine
A) cash collections from customers for the month.
B) net income for the month
C) total assets less liabilities for the month.
D) cash payments to vendors for the month.
E) total sales in cash for the month.
Which of the following costs are linked to the revenues earned during a period?
A) Product costs
B) Period costs
C) Both product and period costs
D) Neither product nor period costs
E) Product costs as long as the goods remain in inventory
Sequential, Inc. has the following information available as of December 31, 20X3:
Total credit sales for the year ended December 31, 20X3, were $825,000.
The balance in the Allowance for Uncollectible Accounts at December 31, 20X3, is a
$500 debit.
The estimated bad debts percentages are as follows:
as a percentage of credit sales 1%
as a percentage of ending accounts receivable 10%
as a percentage of aging accounts receivable:
Given the previous information, prepare the journal entry on December 31, 20X3, to
estimate bad debts under the allowance method using the
a. percentage of credit sales method.
b. percentage of ending accounts receivable method.
c. aging of accounts receivable method.
Which of the following describes a liability?
A) Future economic benefit
B) Economic obligations to creditors
C) Paid-in capital
D) Investment by owners
E) Present value of customer future payments
Fairfield Company determines the following information at year end about a piece of
equipment that has a net book value of $75,000. Assume the equipment will not be for
sale.
The impairment loss is
A) $22,500
B) $63,500
C) $15,500
D) $11,500
E) $52,500
The Management Discussion and Analysis (MDA) section of the annual report
concentrates on
A) analyzing the possible acquisition of other companies, and how those new
acquisitions would mesh within the current corporate structure.
B) describing the background of management personnel, how long they have held their
current position, and how long and in what capacities each manager has worked for the
company.
C) examining how the company is performing relative to other companies in the
industry.
D) explaining the major changes in the operating results, liquidity and capital resources.
E) explaining the auditor report.
Goetz Construction Company constructed a shed for Paramount Industries. Instead of
giving cash, Paramount Industries, gave Goetz Construction Company a used delivery
truck originally costing Paramount Industries, $52,000. The book value for the delivery
truck on the financial statements of Paramount Industries showed the delivery truck
with a value of $40,000. A new delivery truck is currently selling for $44,000, and an
independent appraiser said the fair value of the used delivery truck is $48,000. What
value should Paramount Industries assign to the shed on its financial statements?
A) $39,000
B) $52,000
C) $40,000
D) $44,000
E) $48,000
The journal entry to acquire equipment costing $30,000 with a $12,000 down payment
and a note issued for the difference would include a
A) debit to Cash for $18,000 and a credit to Equipment for $30,000.
B) debit to Equipment for $30,000 and a credit to Notes Payable for $12,000.
C) debit to Equipment for $30,000, credit to Notes Payable for $18,000, and a credit to
Cash for $12,000.
D) debit to Equipment for $30,000, credit to Notes Payable for $12,000, and a credit to
Cash for $18,000.
E) debit to Equipment for $30,000 and a credit to Cash for $30,000.
Which of the following statements is FALSE?
A) The lessee will always record the liability associated with future cash payments but
never an asset associated with the property being leased.
B) Leases can take the form of a capital lease or an operating lease.
C) Some leases are substantially equivalent to purchases.
D) A lease contract creates property rights and financial obligations.
E) Almost any asset could be leased.
Floral Deliveries, Inc. paid $6,000 for January, February, March and April’s rent in
advance on January 1, 20X9. The company recorded this transaction by increasing the
balance in the Prepaid Rent account. The balance in the Rent Expense account for the
period, January 1, 20X9 through March 31, 20X9, as of March 31, 20X9, will be
A) $-0-.
B) $4,500.
C) $2,000.
D) $3,000.
E) $6,000.
Annual Operations Company operates in a state where there is a 6% sales tax. If a
customer pays cash for merchandise with a sales price of $500, Annual Operations
would record the transaction using which of the following journal entries?
A) Cash 500
Sales 500
B) Cash 500
Sales Tax Payable 30
Sales 470
C) Cash 500
Sales Tax Expense 30
Sales Tax Payable 30
Sales 500
D) Cash 530
Sales Tax Payable 30
Sales 500
E) Cash 530
Sales Tax Expense 30
Sales Tax Payable 30
Sales 530
The key to classifying a marketable security as short-term is
A) whether or not it is a government issued security.
B) whether or not management has a written contract to sell the asset within the next 3
months.
C) the type of security held (i.e., Is it a note, bond, or stock?).
D) whether or not management expects to convert it into cash within a year after the
date on the balance sheet (or operating cycle if longer).
E) the small dollar amount.
Home Theater Advantage sells audio equipment. Home Theater Advantage acquired 50
speakers from a manufacturer at a cost of $200 per speaker and purchased the speakers
on account. The effect of this transaction on Home Theater Advantage would be to
A) increase inventory by $10,000 and increase capital by $10,000.
B) increase inventory by $10,000 and decrease capital by $10,000.
C) increase inventory by $10,000 and decrease cash by $10,000.
D) increase inventory by $10,000 and increase accounts payable by $10,000.
E) increase inventory by $10,000 and decrease accounts payable by $10,000.
Income taxes owed to the federal government would be classified as a(n)
A) liability on the balance sheet.
B) asset on the balance sheet.
C) liability on the statement of cash flows.
D) equity on the balance sheet.
E) They would not appear on a financial statement.
Referring to Exhibit 5-1, what was the cash paid to employees by Cartell Paper
Products in 2012?
A) $40,500
B) $39,700
C) $40,100
D) $38,000
E) $42,300
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 elimination journal entry would be necessary in order to prepare a consolidated
balance sheet immediately after the acquisition?
Retall Company refinanced its long-term debt in 2012. It bought and retired common
shares of stock for cash of $20,000. The company spent $72,500 to retire long-term
debt due in 3 years and issued $185,000 of 10-year bonds at par. Interest expense for
2012 was $21,000, of which $17,000 was paid in cash; the other $4,000 was still
payable at the end of the year. Dividends declared and paid during the year were
$12,500. Determine net cash flows from financing activities.
Emerz Corporation had sales of $850,000, of which 20% were cash sales. As of
year-end, the balance in the Allowance for Uncollectible Accounts before adjusting for
bad debts was a $400 debit. The company estimates bad debts as 10% of ending
accounts receivable or 1.5% of credit sales. What is the journal entry that Emerz
Corporation will make if it estimates bad debts by using a percentage of credit sales?
Cola, Inc., issued a 12-year, 10%, $1,500,000 bond on January 1, 20X9 dated as of January
1, 20X9. The bond pays interest every June 30 and December 31, with the principal to be
paid at the end of 12 years. The effective interest rate on the bond is 12%. The company
uses effective-interest amortization.
Given this information and using the present value tables
a. Prepare journal entries for Cola, Inc., on each of the following dates:
1) January 1, 20X9
2) June 30, 20X9
3) December 31, 20X9
b. What is the total interest expense for the year ended December 31, 20X9?
c. What is the balance sheet presentation of this bond for Cola, Inc., at December 31,
20X9?
