The accounts used in the journal entry for the estimation of bad debts is the same
whether a firm uses the percentage of sales, percentage of accounts receivable, or the
aging method to estimate bad debts expense.
The allowance method has two basic elements: (1) an estimate of the amount of
accounts receivable that will ultimately be uncollectible and (2) a contra account that
contains the estimate and is deducted from the accounts receivable.
Inventory valuation is linked to gross profit because the inventory valuation involves
allocating the cost of goods available for sale between cost of goods sold and ending
inventory as of the balance sheet date.
One of the purposes of a statement of cash flows is to determine a company’s ability to
pay its debts when they become due.
Financial reports for the Internal Revenue Service must abide by generally accepted
accounting principles.
A protective covenant is a contract whereby the issuing corporation of a bond promises
that it will abide by stated provisions.
Depreciation expense is not a source of cash; however, it is added to net income when
determining net cash flow from operations under the indirect method.
Closing entries are generally performed at the beginning of the accounting period.
To compute the PEG ratio, divide the P-E ratio by the earnings growth rate.
Earnings per share will tend to increase with the purchase of treasury stock.
The unfunded portion of the obligation to provide pension benefits are reported as
liabilities on the balance sheet.
Restructuring includes the closing of one or more plants, firing of a significant number
of employees, and the termination or relocation of various activities.
The aggregate number of shares of stock sold to the public is referred to as authorized
shares of stock.
Stock splits generally cause stock prices to fall.
The accounts receivable subsidiary ledger
A) is not effected by the write-off of individual accounts.
B) provides the supporting detail (i.e., individual customer names and amounts owed)
for the general ledger account “Accounts Receivable.”
C) is kept for both the “Accounts Receivable” and the “Allowance for Uncollectible
Accounts” accounts.
D) is only kept by companies that use the allowance method of estimating bad debts.
E) All of the above are true statements.
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. If Compatibility Services uses units-of-production depreciation, and the company
produces 40,000 units in 20X3; 60,000 units in 20X4; 50,000 units in 20X5; and 30,000
units in 20X6; what is the net book value of the machine at December 31, 20X6?
A) $40,000
B) $48,000
C) $42,000
D) $45,800
E) $49,600
Beck Company has the following data available:
What are the earnings per share for Beck Company in 2X13? Have the earnings per
share improved or not improved since 2X12?
A) $1.28, improved
B) $1.28, not improved
C) $6.40, improved
D) $6.40, not improved
E) $12.80, not improved
Over the Top, Inc. sells one of its four swing sets. The company regularly sells seasonal
outdoor furniture. How shall the gain on the sale be classified on the income statement?
A) Extraordinary item
B) Ordinary income
C) Accounting Change
D) Discontinued Operation
E) Recapture
Important non-cash investing and financing activities
A) belong in the investing and financing section of the Statement of Cash Flows.
B) belong in the operating section of the Statement of Cash Flows.
C) belong in a separate schedule of non-cash investing and financing activities.
D) belong on the Income Statement.
E) belong on the Balance Sheet.
A compound journal entry
A) is a general ledger transfer that affects more than two accounts.
B) is a general journal transfer that affects more than two accounts.
C) is a journal entry for more than two transactions that affects one or more accounts.
D) is a journal entry for a transaction that affects more than two accounts.
E) is not allowed in accordance with U.S. GAAP, but is allowed in accordance with
IFRS.
Harris Enterprises owns 100% of the outstanding stock of Staton Company. The
following transactions occurred during 2X13:
a) Harris Enterprises sold inventory costing $2,750 on account to Staton Company for
$3,800. As of year-end, the amount due had not been paid. Harris Enterprises and
Staton Company use a perpetual inventory system.
b) Staton Company borrowed $8,000 from Harris Enterprises on December 31, 2X13,
and signed a 2-year note.
For each item, prepare the necessary intercompany elimination entry that is needed, if at
all, in order to prepare a year-end consolidated balance sheet. Be certain to specifically
identify whether an account is on the books of Harris Enterprises or Staton Company.
After the accrual of unrecorded expenses, ________ are decreased by later cash
payments.
A) assets
B) equity
C) expenses
D) revenues
E) liabilities
Match each of the following terms with the appropriate definition. Use each term only
once.
A. Sole proprietorship
B. Partnership
C. Corporation
D. For-profit company
E. Not-for-profit company
________ 1. A company with the goal of maximizing the owners’ wealth
________ 2. An organization that exists to provide goods and services to a target group
at a reduced cost or no cost
________ 3. A company owned by two or more individuals
________ 4. This type of organization is taxed twice; first as a business and second
when shareholders receive dividends
________ 5. A company with one owner
Given the following two T-accounts, what can definitely be said about this company’s
transactions?
A) Transaction 1 indicates the company sold merchandise for $17,700.
B) Transaction 2 indicates the company bought merchandise for $700.
C) Transaction 3 indicates the company returned merchandise for $1,000.
D) Transaction 4 indicates the company received $1,900 from its credit customers.
E) Transaction 5 indicates the company paid $700 in salaries.
a. Describe earnings quality.
b. How is knowledge of earnings quality helpful in the analysis of financial statements?
Exam Laboratories gathered the following data for the year ended December 31, 20X3,
related to its equipment.
Based on the above data, prepare the journal entry to record the sale of equipment
during the year
for $11,500 cash.
Gambet Labs entered into a lease agreement on January 1, 20X3, to use an x-ray
machine. The machine has a useful life of 6 years. Gambet Labs will make annual lease
payments of $13,000 for 6 years, beginning on December 31, 20X3. Assume a 14%
interest rate. Using the present value tables, what is the journal entry to be made by
Gambet Labs on December 31, 20X3, to record the annual lease payment?
A company acquired a small building by signing a mortgage payable. How would this
transaction be shown in the statement of cash flows? Explain how this treatment fulfills
the investors’ need for information regarding the financial management of the company.
Explain the concept of asset impairment. Include in your discussion the process of
computing the impairment.
The entry to accrue $2,000 of income tax monthly is
E) no entry is needed; taxes are recognized when paid
What type of account is the Treasury stock and Additional paid-in capital?
The following selected information is available for Lindale Corp., as of December 31,
2X13:
Given the above information, prepare the stockholders’ equity section of the Lindale
Corp.’s balance sheet dated December 31, 2X13.
