Which of the following is a financing activity?
A) The business receives land and gives a check for $1,000.
B) The business receives $1,000 cash and in exchange gives a promissory note.
C) The business promises to hire an employee on the 15th of the month.
D) The business orders supplies and promises to pay for them at the end of the month.
At the end of the year, accrual adjustments could include a:
A) debit to an expense and a credit to an asset.
B) credit to a revenue and a debit to an expense.
C) debit to cash and a credit to Common Stock.
D) debit to an expense and a credit to a liability.
The Allowance for Doubtful Accounts:
A) is a contra-revenue account.
B) has a normal debit balance.
C) is not listed on the chart of accounts of a company that uses the direct write-off
method.
D) is reported on the Income Statement.
Indicate whether each of the following items is a characteristic of the allowance method
and/or the direct write-off method by placing an “X” in the appropriate column. If an
item is a characteristic of both methods, place an “X” in both columns.
Allowance Method Direct Write-off Method
a. Conforms to the expense recognition (matching) principle.
b. Not used very often for external financial reporting.
c. Required for tax purposes.
d. Required by IFRS.
e. Reports receivables at their net realizable value.
f. May overstate assets.
g. Distorts net income in the period of the sale as well as in later periods when bad
debts are discovered.
h. Estimates amount of uncollectibles using percentage of net sales or an aging of
receivables.
i. Bad Debt Expense is debited when the company estimates its uncollectible accounts.
j. Requires an adjusting entry that uses a contra account.
k. Accounts Receivable is credited when a customer account is written off.
l. Bad Debt Expense is debited when a customer account is written off.
m. The write off of a customer’s account affects only balance sheet accounts.
n. Decreases net income when an uncollectible account is written off.
n. Not considered a generally accepted accounting method.
The Treasure Chest Corporation had Retained Earnings at the end of December 31,
2015 of $450,000. During 2016, the company had net income of $170,000 and declared
dividends of $20,000. The amount of Retained Earnings reported on the balance sheet
as of December 31, 2016 will be:
A) $430,000.
B) $600,000.
C) $620,000.
D) $640,000.
Use the information above to answer the following question. If Alphabet Company uses
the LIFO method, what is the cost of its ending inventory?
A) $24
B) $42
C) $58
D) $76
Use the information above to answer the following question. What is the amount of the
change in stockholders’ equity during the year?
A) $5,750 increase
B) $700 decrease
C) $6,300 decrease
D) $550 increase
At the start of the first year of operations, Retained Earnings would be:
A) equal to zero.
B) equal to Common Stock.
C) equal to stockholders’ equity.
D) equal to the Net Income.
Which of the following measures would assist in assessing the profitability of a
company?
A) Debt-to-assets ratio
B) Fixed asset turnover ratio
C) Receivables turnover ratio
D) Current ratio
Which of the following statements about the accounting cycle is correct?
A) A trial balance is included in the full set of external financial statements.
B) If debits equal credits in the unadjusted trial balance, you have made no errors in
preparing and posting journal entries.
C) The balances for each account reported on an unadjusted trial balance are
determined by adding the amounts on the “+” side and subtracting the amounts on the
“-” side of each ledger or T-account.
D) GAAP allows companies to choose between cash basis and accrual basis of
accounting.
_________________ are of special importance because they are the only activities that
enter the financial accounting system.
A) External exchanges
B) Internal events
C) Documents
D) Transactions
Which ratio is used to evaluate how well a company is managing its property, plant, and
equipment?
A) Receivables turnover
B) Inventory turnover
C) Fixed asset turnover
D) Asset turnover
This month, Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to
be used two months from now. What journal entry will Grass is Greener record this
month?
A) Debit Cash and credit Supplies Expense for $4,000.
B) Debit Supplies Expense and credit Accounts Payable for $4,000.
C) Debit Supplies and credit Cash for $4,000.
D) Debit Retained Earnings and credit Accounts Payable for $4,000.
Which of the following statements about the issuance of bonds at a premium is not
correct?
A) The Premium on Bonds Payable account is amortized each year and reduces the
company’s annual Interest Expense.
B) On the date of issuance, the stated interest rate was greater than the market interest
rate.
C) As the current date approaches the maturity date, the carrying value of the bond
approaches the face value of the bond.
D) The account used to record the premium has a normal debit balance.
The adjusting entry to record the estimated bad debts in the period credit sales occur
would normally include a debit to:
A) Accounts Receivable and a credit to Allowance for Doubtful Accounts.
B) Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
C) Allowance for Doubtful Accounts and a credit to Accounts Receivable.
D) Bad Debt Expense and a credit to Accounts Receivable.
Carrying insufficient quantities of inventory on hand:
A) would not affect the company’s profitability.
B) may result in lost sales.
C) has little effect on customer satisfaction.
D) will increase the costs of carrying inventory.