At the year-end inventory count, if goods in transit are shipped FOB shipping point,
they should be included in the inventory count of:
a. the seller.
b. the buyer.
c. the shipping company.
d. both the seller and the buyer.
Mark would like to retire in 25 years. If he deposits $10,000 at the end of each of the
next 25 years into an account earning 7% interest, how much will he have in this
account at the end of 25 years?
a. $250,000
b. $758,292.17
c. $632,490.40
d. $291,339.50
Four journal entries are presented below. Write an explanation for each entry.
A) Cash 12,200
Service Revenue 12,200
B) Accounts Receivable 17,500
Service Revenue 17,500
C) Cash 16,900
Accounts Receivable 16,900
D) Cash 1,830
Unearned Revenue 1,830
Fabian Woodworks
This company purchased a truck at a cost of $12,000. The truck has an estimated
residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation.
The truck was purchased on January 1, 2012, and was used 27,000 hours in 2012 and
26,000 hours in 2013.
Refer to Fabian Woodworks. Based on the information presented above, what method
of depreciation will maximize depreciation expense in 2012?
a. straight-line
b. double-declining-balance
c. units-of-production
d. All methods produce the same expense in 2012.
Which of the following situations violates the matching principle during 2013 for a real
estate company that pays its agents on commission?
a. Sales commissions are charged to expense in 2013 on all sales made in 2013 even
though some of the commissions have not been paid.
b. Insurance expense is recognized for the total cost of a 1-year policy purchased in July
2013.
c. Wages expense is recognized in 2013 even though payday is not until sometime in
2014.
d. Sales commissions paid in 2013 for 2014 commissions are recorded as prepaid
expenses for 2013.
Which one of the following is nota reason why a corporation’s ability to pay dividends
may be restricted?
a. An agreement with bondholders may require that the balance of retained earnings be
maintained at a minimum level.
b. The board of directors may set aside designated amounts for future expansion or
other business purposes.
c. State laws may require that the retained earnings balance cannot fall below the cost
of treasury stock.
d. The corporate charter may require that transactions with nonowners be excluded
from retained earnings.
If a corporation declares a 2-for-1 stock split, which of the following is true?
a. A journal entry is required to show the effect on the stockholders’ equity accounts.
b. The stockholders will have a higher proportionate ownership share after the split.
c. The par value will be reduced to half of the pre-split par value.
d. The market price of the stock is expected to increase after the split.
A novelties company makes cash sales to customers. What effect does this transaction
have on the accounting equation?
a. Liabilities and retained earnings increase.
b. Assets and liabilities increase.
c. Assets and retained earnings increase.
d. There is no effect on the accounting equation, as one asset account increases while
another asset account decreases.
While preparing a bank reconciliation, which of the following items would be
subtracted from the balance per the company records?
a. outstanding checks
b. deposits in transit
c. bank service charges
d. interest earned on the bank account
The following journal entry was included in the accounting records of Jentzen Corp.:
Oct. 15 Accounts Payable 4,000
Merchandise Inventory 40
Cash 3,960
Based on this information, it is likely that the company:
a. Purchased inventory for cash.
b. Paid for inventory purchased on credit, and took advantage of a 1% purchase
discount.
c. Sold inventory for cash.
d. Collected cash for inventory sold on credit, and recognized a 1% sales discount.
On January 1, 2013, a company’s balance in retained earnings was $275,000. During
2013, the company earned net income of $23,500 and paid $11,200 in dividends.
Calculate the retained earnings balance at December 31, 2013.
a. $263,800
b. $298,500
c. $262,700
d. $287,300
The accounting records for Delta Driving School shows a cash balance of $14,134 on
February 28, 2013. On the evening of February 28, company receipts of $1,250 were
placed in the bank’s night deposit drop box; this deposit was processed by the bank on
March 1. The February 28 bank statement shows balance of $18,877, including
collection of a $6,000 note receivable plus $55 of interest earned, a service charge of
$40, and a $1,550 debit memo for the payment of the company’s utility bill. All of the
checks that the company had written during January were listed on the bank statement
except for check #1908 in the amount of $1,528.
A) Prepare a bank reconciliation to calculate the company’s adjusted cash balance at
February 28, 2013.
B) Prepare the journal entries needed to adjust the cash records as a result of the bank
reconciliation procedures.
A capital leased asset would appear on the balance sheet as
a. current liability.
b. capital Lease liability.
c. current asset.
d. prepaid lease expense.
Which one of the following financial statements reports an entity’s financial position at
a specific date?
a. Balance Sheet
b. Statement of Retained Earnings
c. Income Statement
d. Both the Income Statement and the Balance Sheet
Select the ratio that each definition most properly satisfies.
a. Dividend yield ratio
b. Operating cash flow ratio
c. Debt-to-total assets ratio
d. Return on common equity ratio
e. Times interest earned ratio
f. Asset turnover ratio
g. Debt-to-equity ratio
h. Dividend payout ratio
32/ A measure of a company’s success in earning a return for the common stockholders.
33/ The relationship between net sales and total assets.
34/ The relationship between dividends and the market price of a company’s stock.
35/ An income statement measure of the ability of a company to make its interest
payments.
36/ A measure of the ability of a company to finance current obligations from cash from
operations.
Future Foundations purchased equipment on January 1, 2013, for $50,000, with an
estimated useful life of 5 years and an estimated residual value of $5,000. The company
uses the straight-line method of depreciation. On July 1, 2015, the equipment was sold
for $17,500 cash.
Prepare journal entries for the following:
A) Depreciation expense for 2013;
B) Depreciation expense for 2014; and
C) Sale of the equipment in 2014.
An example of a current liability that must be accrued is
a. accounts payable.
b. current maturity of long-term debt.
c. revenue received in advance.
d. wages payable.
Match Incorporated recorded salary expense of $120,000 in 2013. However, additional
salaries of $9,000 had been earned, but not paid or recorded at December 31, 2013.
After the adjustments are recorded and posted at December 31, 2013, the balances in
the Salaries Expense and Salaries Payable accounts will be
Salaries Expense Salaries Payable
a. $129,000 $9,000
b. $120,000 $0
c. $120,000 $9,000
d. $109,000 $0
Refer to the information provided for Lowery Company. If the company uses the FIFO
inventory costing method, how much is ending inventory at March 31st?
a. $40
b. $16
c. $12
d. $ 8
A company reported the following information:
2014 2013
Accounts receivable $50,000 $ 65,000
Inventories 43,000 40,000
Accounts payable 29,000 39,000
Net income 100,000
Depreciation expense 11,000
If the indirect method is used to prepare the operating activities section of the statement
of cash flows, what amount will be reported as net cash inflow from operating activities
for 2014?
a. $92,000
b. $109,000
c. $111,000
d. $113,000
Refer to the information provided for Eli Company. If the customer pays the invoice on
March 31, 2013, how much sales discount will Eli Company recognize?
a. $ -0-
b. $ 20
c. $200
d. $600
When using the direct method to determine operating cash flows, how is the sale of
long-term investments for cash reported on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
Refer to the information provided for Satoor, Inc. What effect does recording the
purchase of merchandise on July 7, 2013 have on the buyer’s accounting equation?
a. assets and liabilities increase
b. liabilities increase and stockholders’ equity decreases
c. assets and stockholders’ equity increase
d. liabilities and stockholders’ equity decrease
Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
1/ An accrued liability for amounts owed to employees for work performed.
2/ A contractual agreement to borrow and repay money.
3/ Amounts owed for purchases on credit.
4/ Amounts collected from customers in advance.
5/ Social security and medicare taxes owed.
6/ Amounts collected from customers that must be passed along to the state.
7/ Amounts expected to be paid to repair or replace defective products.
8/ Amounts funded by companies to provide benefits to fired workers.
9/ An accrued liability that represents the cost of borrowing.
2015 2014
7% Preferred Stock $ 2,000 $ 2,000
Common Stock 5,700 5,500
Paid-in Capital in Excess of Par–Common Stock 560,000 450,000
Retained Earnings 1,404,000 1,003,000
Accumulated Other Comprehensive Income/(Loss) 27,200 (400)
Treasury Stock (900,000) (750,000)
Total Stockholders’ Equity $1,098,900 $ 710,100
Additional Information:
2015
Net Income $525,000
Stock Price per Common Share $62.50
Common Dividends $101,000
Preferred Dividends $60,000
Dividends per Common Share $0.64
Average Common Shares Outstanding 164,000
Calculate the following financial ratios:
A) Return on common equity
B) Earnings per share
C) Dividend yield
D) Dividend payout
E) Total payout
F) Stock repurchase payout
During March, Honeybaked Spam purchased supplies for cash. The supplies will be
used in April. What effect does this transaction have on the accounting equation at the
time the supplies are purchased?
a. Assets increase and stockholders’ equity decreases
b. Assets and liabilities increase
c. There is no effect on the accounting equation, as one asset account increases while
another asset account decreases.
d. There is no effect on the accounting equation, as the transaction should not be
recognized until April.
What should a company do to improve its accounts receivable turnover rate?
a. Lower its selling prices.
b. Increase its sales force.
c. Give customers credit terms of 2/10, n/30 rather than 1/10, n/30.
d. Reduce the number of employees working in the credit department.
Which of the following statements is true?
a. The flow of inventory costs should match the physical flow of the merchandise.
b. Accounting standards require that merchandise costs be specifically traced to units
left in inventory and to units that have been sold.
c. Accountants have developed methods which make assumptions concerning how costs
should be assigned to inventory and cost of goods sold.
d. Alternative inventory cost flow assumptions have the same effect on the amount of
net income reported.
Measurement of the economic effects on an entity involves each of the following
except
a. quantification of effects.
b. identification of the attribute to be measured.
c. selection of an appropriate unit of measure.
d. recording the economic effects in the financial statements.
Which of the following entries properly closes a temporary account?
a. Income Summary 20,000 Service Revenue 20,000
b. Dividends 200 Retained Earnings 200
c. Accumulated Depreciation 1,600 Income Summary 1,600
d. Income Summary 400 Salaries Expense 400
On October 1, 2013, a company borrowed $200,000 on a two-year, 12% note, with
interest and principal to be paid at maturity. How much interest expense will be
reported on the income statement for the year ending December 31, 2013?
a. $ 6,000
b. $18,000
c. $24,000
d. $12,000
Use the Statement of Stockholders’ Equity for Lee’s T.V. Company to answer the
questions that follow:
Lee’s T.V. Company
Statement of Stockholders’ Equity
For the Year Ended December 31, 2014
Accumulated
Paid-in
Other Comp-
Common Capital in Retained
prehensive
Stock Excess of Par Earnings
Income Total
Balance, January 1, 2014 $57,937 $ 31,924 $19,027
$1,010 $109,898
Exercise of stock options 946
6,965 7,911
Issuance of common stock 12,050
151,823 163,873
Conversion of
convertible
bonds 7
93 100
Net income
26,102 26,102
Unrealized holding gains
141 141
Currency translation
adjustment _______ _______ _______
272 272
Balance, December 31, 2014 $70,940 $190,805 $45,129
$1,423 $308,297
A) What is the primary reason for the increase in total stockholders’ equity during
2014?
B) Did the board of directors declare any dividends during 2014? How can you tell?
C) Did the company repurchase any of its own shares during 2014? How can you tell?
Serrano Company
On September 1, 2013, Serrano Company purchased 70 units of Product A for $35,000
cash and also paid $1,500 transportation costs related to this purchase. On the same
date, Serrano Company purchased 100 units of Product B for $10,000 on credit;
however, the seller paid the $1,200 freight. The credit terms for Product B were 2/10,
n/30. On September 3rd, Serrano Company determined that 5 units of Product A were
defective, so they were returned to the seller. Serrano Company paid for its purchase of
Product B on September 9th. On September 10th, Serrano Company purchased 90 units
of Product C for $8,000 on credit with terms 1/10, n/30. The seller paid the freight.
Serrano Company paid for its purchase of Product C on September 21st.
Refer to the information presented for Serrano Company. Prepare all of Serrano
Company’s journal entries for September assuming the company uses a periodic
inventory system.
Compound interest is a method of calculating the time value of money in which interest
is earned on the previous periods’ interest.
In an operating lease, the lessor retains the risks and obligations of ownership.
The return on equity ratio measures the profit earned by a company through the use of
capital supplied by its bondholders.
Refer to Recovery Solutions, Inc. Evaluate the company’s asset efficiency ratios,
including accounts receivable turnover, inventory turnover, and asset turnover.
Accutemp Heating & Air
On May 1, 2013, the company sold merchandise to a customer and received a 8%,
6-month note with a principal amount of $100,000. The company’s year end is
December 31.
Refer to Accutemp Heating & Air. Identify the maturity date of the note.
The worksheet facilitates preparation of the income statement, retained earnings
statement and balance sheet but not the cash flow statement.
Adjusting entries are prepared using the accrual basis of accounting for preparing
financial statements.
The buyer must include goods purchased FOB shipping point in its inventory account if
the goods are still in transit.
Under the LIFO method of inventory costing, the units in the ending inventory
represent the most recent purchase(s).
If a bondholder has the right to retire the bonds, they are referred to as callable.
Provided is a list of important users of accounting information. Also provided are
descriptions of a major need for accounting information that may be experienced by the
various users. Identify the one user group that is most likely to have the need described.
(Choices may be used more than once.)
a. Investors
b. Management
c. Supplier
d. Banker
e. Government
f. Employees
g. Labor Union
h. Investors and Banker
i. Supplier and Banker
1/ The prospects for future dividend payments.
2/ Will I get a raise this year?
3/ The profitability of the company based upon the Internal Revenue Code.
4/ The effectiveness of the last advertising campaign.
5/ The exact amount of profit on each product of the company.
6/ The ability of the company to pay its debts as they become due.
7/ The company’s labor rate agree to the last contract.
Refer to H&R Clock Company. Record each transaction in proper journal entry format
in the journal provided. A written explanation for each journal entry is not required.
JOURNAL
Date Accounts Debit Credit
The stated value is the price at which employees can exercise stock options.
Abundant Returns
This company sells its merchandise only on credit. The following data are available at
December 31, 2013.
Sales $411,000
Sales returns and allowances 12,000
Accounts receivable at January 1, 2013 89,000
Allowance for doubtful accounts at January 1, 2013 4,100
Cash collections during 2013 385,100
Accounts written off as uncollected during 2013 3,600
Refer to Abundant Returns. Determine the balance of Accounts Receivable at
December 31, 2013.