A company issued $10,000,000 of bonds. Assuming the most common denomination of
bonds, the number of bonds sold was
a. 10,000.
b. 100,000.
c. 1,000,000.
d. 10,000,000.
Carolina Truck Lines purchased a truck at a cost of $22,000 in 2008. As of January 1,
2013, depreciation of $18,000 had been recorded on this asset. Depreciation expense for
2013 is $2,000. Before the adjustments are recorded and posted at December 31, 2013,
what is the truck’s book value?
a. $22,000
b. $18,000
c. $4,000
d. $2,000
Refer to the information provided for Klump Co. If the company uses the (moving)
Average Cost inventory costing method, ending inventory at June 30th is:
a. $1,815.00
b. $1,817.40
c. $1,818.00
d. $1,819.86
On December 15, 2013, the accounts receivable balance was $50,000 and the balance in
the allowance for doubtful accounts was $5,000. That morning, a $1,000 uncollected
account was written-off. The net realizable value of accounts receivable immediately
after the write-off is:
a. $49,000
b. $46,000
c. $45,000
d. $44,000
Roesel Fashions completed a physical inventory at the end of 2013. A review of the
physical inventory procedures and records uncovered several errors that are described
below. In the columns provided, indicate the effect, if any, on the four financial
statement items listed. Use the following codes for your answers:
O = Overstatement; U = Understatement; NE = No Effect
Ending Retained Cost of Net
Error Inventory Earnings Goods Sold Income
A) One batch of goods was counted
twice
B) One page of items was misplaced when the inventory was
calculated
C) Goods sold FOB shipping point were included in Roesel’s
inventory
D) Goods in transit from a supplier, shipped FOB shipping point, were not included
in Roesel’s inventory
Refer to Abundant Returns. Assume that the company estimates bad debts using the
aging method. The aging schedule indicates that $11,500 of the end of the year
Accounts Receivable will be uncollected.
A) What amount will the company recognize as bad debt expense for the year?
B) If the ending balance of Accounts Receivables is $65,200, what is the net realizable
value of Accounts Receivable reported on December 31, 2013?
Businesses engage in which of the following three main activity categories?
a. Financing, Investing, Operating
b. Cash, Credit, Noncash
c. Financing, Credit, Operating
d. Financing, Management, Operating
In transactions involving the borrowing or lending of money, as interest is paid, the
balance in the liability account of the borrower
a. decreases.
b. increases.
c. remains unchanged.
d. is transferred to interest income
Refer to Delco Construction. What is net amount of the adjustments to the company’s
cash balance as a result of the bank reconciliation?
a. $400 increase
b. $400 decrease
c. $900 increase
d. No adjustments are needed.
On December 1, 2013, Anson’s Drug Store concluded that a customer’s $325 account
receivable was uncollected and that the account should be written off. What effect will
this write-off have on the company’s 2013 net income and balance sheet totals assuming
the direct write-off method is used to account for bad debts?
a. decrease in net income; decrease in total assets
b. increase in net income; no effect on total assets
c. no effect on net income; decrease in total assets
d. no effect on net income; no effect on total assets
The operating cycle of a retail company is the length of time between the
a. purchase of inventory and the sale of the inventory to customers.
b. sale of inventory and the collection of any outstanding receivables from those sales.
c. purchase of inventory and the collection of any outstanding receivables from the
sales of those items.
d. purchase of inventory and the time of sending sales invoices to customers.
Refer to Bass Tours. Calculate the current ratio.
a. 3.00 to 1
b. 2.75 to 1
c. 2.52 to 1
d. 2.10 to 1
Dow Electronics established a petty cash fund in the amount of $250 to pay for small,
incidental expenditures incurred at the office. The fund is handled by a trustworthy
custodian. At the end of the month, the fund is replenished. On September 30, the petty
cash fund contained $13 in cash and the following receipt
Office supplies $87
Delivery fees 35
Repairs 67
Postage 48
Record journal entries to: a) establish the petty cash fund of $250; b) replenish the fund
and recognize expenses at the end of September; and c) increase the fund balance to
$300.
What is the name of the branch of accounting concerned with providing outside
decision makers with information to assess the amounts, timing and uncertainties of the
company’s future cash flows?
a. financial accounting
b. auditing
c. managerial accounting
d. bookkeeping
The College Store accepts MasterCard for payments of purchases made by students.
The credit card drafts are deposited directly in a bank account. MasterCard charges a
1.55% collection fee. Credit card drafts totaling $10,000 are deposited during August.
Recording the sales and deposits will result in an increase in
a. Cash for $10,000
b. Sales for $ 9,854
c. Accounts Receivable for $9,854
d. Service Charge Expense for $155
Kaleidoscope Paint
On January 1, 2013, this company issued $500,000, 10-year, 9% bonds for $480,745.
The bonds pay interest on June 30 and December 31. The market rate is 10%. The
company plans to use the effective interest method of amortizing bond discounts and
premiums.
Refer to Kaleidoscope Paint. The interest expense on the bonds at June 30, 2013, is
a. $22,500.
b. $24,037.
c. $21,634.
d. $43,267.
Which of the following are Noncurrent assets?
a. machinery and equipment
b. accounts receivable
c. inventories
d. unearned revenues
Below is some information taken from the income statements of RPG and RPM Co.
RPG Co. 2015 2014 2013
Net Sales $152,000 146,000 $140,000
Cost of Goods Sold 115,000 110,000 107,000
Gross Profit $37,000 $36,000 $33,000
RPM Co.
Net Sales $84,000 $83,000 $80,000
Cost of Goods Sold 70,000 69,000 68,000
Gross Profit $14,000 $14,000 $12,000
A) Using time series (or trend) analysis, comment on the trend of RPG’s cost of
goods sold and gross profit.
B) Using cross sectional analysis, compare RPG’s gross profit to that of RPM.
Madlock Company, which started business at the beginning of 2013, selected the FIFO
method for its inventory costing. In order to maximize profits for 2013 under this
method, purchase prices must be
a. increasing.
b. decreasing.
c. stable.
d. fluctuating up and down at the same amount consistently throughout the year.
The primary purpose of the statement of cash flows is to provide information about
a. the financial position of the company.
b. the profitability of the company.
c. the investing and financing activities of the company.
d. the cash inflows and outflows of the company.
The lower of cost or market rule applies to the write-down of inventory values when
market value exceeds cost. Why does this rule not allow for write-ups in inventory
value?
a. Write-ups in inventory value are more uncertain than write-downs.
b. The most prudent approach to preparing financial statements involves avoidance of
pessimistic projections regarding the company’s future prospects.
c. Writing up inventory to market value would be inconsistent with the conservatism
principle.
d. Write-ups in inventory value are inconsistent with the matching principle.
When using the indirect method to determine operating cash flows, how is the receipt of
cash from the sale of long-term investments treated on the statement of cash flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing or financing activity
e. not reported on the statement of cash flows
Lanier Tech
This company was incorporated as a new business on January 1, 2015. The company is
authorized to issue 50,000 shares of $5 par common stock and 10,000 shares of 6%,
$10 par, cumulative, participating preferred stock. On January 1, 2015, the company
issued 8,000 shares of the common stock for $15 per share and 2,000 share of the
preferred stock for $30 per share. Net income for the year ended December 31, 2015
was $375,000.
Refer to Lanier Tech. What is the amount of the company’s total capital stock at
December 31, 2015?
a. $ 60,000
b. $120,000
c. $180,000
d. $350,000
Which statement summarizes the results of the company’s operations?
a. Statement of Cash Flows
b. Statement of Retained Earnings
c. Balance Sheet
d. Income Statement
In July of 2015, the accountant discovered an error affecting the 2014 computation of
amortization expense related to the company’s patent. As a result of this error, 2014
amortization expense was understated by $21,000 and 2014 net income after taxes
(which are paid at a rate of 30%) was overstated by $14,700.
A) What journal entry is needed to record this prior period adjustment?
B) How is this prior period adjustment reported in the financial statements?
Kay Animal Hospital leased a building to expand its services downtown. The 10-year
lease is recorded as a capital lease. The annual payments are $10,000 and the recorded
cost of the asset is $67,100. The straight-line method is used to calculate depreciation.
Which of the following statements is true?
a. The company will record depreciation expense of $6,710 each year.
b. The company will record depreciation expense of $10,000 each year.
c. No depreciation expense will be recorded.
d. No interest expense will be recorded.
If technology changes rapidly, a firm should
a. expense plant assets immediately because of the uncertainty of future benefits.
b. depreciate plant assets over long periods of time.
c. consider an accelerated rate of depreciation.
d. use the straight-line method of depreciation as it is the easiest.
Maytag Corporation’s balance sheets for the last 2 years are provided below:
Balance Sheets 2013 2012
Cash $ 82 $ 40
Accounts Receivable 180 150
Inventory 170 200
Equipment 200 140
Accum. Depreciation (72) (60)
Total Assets $560 $470
Accounts Payable $100 $ 80
L/T Notes Payable 100 50
Common Stock 250 250
Retained Earnings 110 90
Total Liabilities &
Stockholder Equity $560 $470
The company’s income statement for 2013 is provided below:
Income Statement 2013
Sales $345
Expenses:
Cost of Goods Sold $120
Operating Expenses 58
Depreciation Expense 20
Interest Expense 2 200
Operating Income 145
Gain on Sale–Equipment* 5
Income before Taxes 150
Tax Expense 30
Net Income $120
*The company sold equipment for $57 which had a cost of $60.
A) Prepare the company’s Statement of Cash flows for 2013. Use the direct method of
computing cash flows from operating activities.
B) Prepare the Cash Flows from Operating Activities section of the cash flow statement
using the indirect method.
The term for the process of recording business events in a book of original entry is
a. analyzing.
b. journalizing.
c. posting.
d. classifying.
What is the impact on the accounting equation of recording the issuance of a short-term
note payable?
a. Both assets and liabilities increase.
b. Both assets and stockholders’ equity decrease.
c. Both assets and stockholders’ equity increase.
d. Liabilities increase and stockholders’ equity decreases.
Which of the following best describes one effect of recognizing expenses incurred by a
business entity?
a. Assets will increase.
b. Liabilities will decrease.
c. Contributed capital will increase.
d. Retained earnings will decrease.
Most companies
a. agree that a current ratio of 0.75 is sufficient for business operations.
b. try to maintain protection from creditors by keeping only a small amount of cash
available.
c. are not concerned with the debt management ratios when cash flows are good.
d. strive for an appropriate balance between debt and equity financing.
If a company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings
of $1,200,000, how much is total stockholders’ equity?
a. $ 800,000
b. $2,000,000
c. $3,800,000
d. $1,800,000
A corporation has 10,000 shares of $5 par common stock authorized but only 8,000
shares issued and outstanding. In the space provided, indicate the effect of the following
dividend transactions (shown in chronological order) on each account listed by writing
the amount and whether the account would be debited or credited. For any instances
where there is no effect on the account, place N/A in the space.
Paid-in
Common Capital in
Retained Dividends
Transactions: Stock Excess of Par
Earnings Payable
Declared a cash dividend totaling $4,000
Paid the cash dividend declared previously
Declared and paid a 10% stock dividend when the market price of the stock was
$8
Declared a 3-for-1 stock split
Borrowing from the bank in order to acquire computer equipment for $1,500 has the
effect of increasing both assets and ____________________.
For a merchandising company, the cost of goods sold is subtracted from net sales to
arrive at gross profit.
You are the owner of small chain of sporting goods. Currently, you pay a media
company to maintain the company’s website and Internet sales processing software
system. You are considering bringing that operation in-house by hiring an Information
Technology (IT) employee.
What factors should you consider in making this decision?
Explain what costs are included in the acquisition cost of operating assets.
What is the purpose of the current ratio? How does it differ from the quick ratio?
Net Income from the Income Statement increases ____________________.
The three forms of business organizations are ____________________,
____________________, and ____________________.
A company determined that it had incorrectly estimated the useful life of equipment that
it had purchased two years ago. It must now depreciate the asset’s remaining book value
over the current and future accounting periods.
A LIFO reserve represents the amount by which cost of goods sold on a FIFO basis
exceeds the cost of goods sold on a LIFO basis for the current year.
Refer to Mary Kay Cosmetics. How would the transaction to acquire a building by
signing a 20-year mortgage note payable be reported on the statement of cash flows for
2014?
The term used to refer to an asset’s original cost is book value.
____________________ are those investments and deposits with financial institutions
that are readily convertible into known amounts of cash and that have original
maturities of three months or less.
If new equipment purchased in 2013 is reported on the balance sheet at December 31,
2013 as a long-term asset, there will be no related item on the 2013 income statement.
Under a periodic inventory system, shipping costs are not charged to the inventory asset
account. Instead, such costs are charged to the ____________________ account.
The times interest earned ratio divides __________________________ by interest
expense.