Refer to Gainesville Truck Center. Which of the following statements is true regarding
the FICA taxes that must be recorded?
Gainesville Truck Center This company has a weekly payroll of $10,000 for its
employees who work Monday through Friday. Federal and state income taxes are
withheld in the amounts of $1,700 and $400, respectively, and FICA taxes are withheld
at a mandatory rate of 7.65% (6.2% for Social Security and 1.45% for Medicare). In
addition, the federal and state unemployment taxes are applied at rates of 2% and 5%,
respectively. The company’s year-end is December 31. a. Social Security tax expense
will be debited in the amount of 1,240.
b. Medicare tax expense will be debited in the amount of $290.
c. Social Security tax expense will be debited in the amount of $620.
d. Medicare taxes payable will be credited in the amount of $1,530
The amount of a current liability reported on the balance sheet for interest payable
includes
a. all interest to be paid within one year into the future related to amounts borrowed in
past transactions.
b. all interest to be paid in the future related to amounts borrowed in past transactions.
c. all interest currently owed related to amounts borrowed in past transactions.
d. all interest paid-to-date related to amounts borrowed in past transactions.
On October 1, 2013, a company paid $9,000 rent in advance. The rent per month is
$1,000. Assuming the company’s accounting period ends on December 31, 2013, what
will be reported on the financial statements?
a. Prepaid Rent of $6,000 on its balance sheet at December 31, 2013
b. Prepaid Rent of $9,000 on its balance sheet at December 31, 2013
c. Rent Expense of $9,000 on its 2013 income statement
d. Rent Revenue of $6,000 on its 2013 income statement
A tool company purchased equipment at a cost of $100,000 in January, 2004. As of
January 1, 2013, depreciation of $45,000 had been recorded on this asset. Depreciation
expense for 2013 is $5,000. After the adjustments are recorded and posted at December
31, 2013, what are the balances for the Depreciation Expense and Accumulated
Depreciation? Depreciation ExpenseAccumulated Depreciation
a. $ 5,000 $50,000
b. $45,000 $45,000
c. $ 5,000 $45,000
d. $45,000 $50,000
Segregation of duties
Choose the proper category of internal control activities that best matches the
following actions. Each action should be matched with a different numbered item
within the internal controls list.
a. One employee or department should verify the work of another.
b. Specific approval is given by management for the performance of activities.
c. Accounting and cash collections should be properly separated.
d. Blank checks should be stored in a locked location.
e. Initial entry into the accounting system should be from a consistent source with
complete information.
Four journal entries are presented below. Write an explanation for each entry.
Which of the following statements is true concerning assets?
a. Assets are measured using a time-period approach.
b. Assets are initially recorded at market value and then adjusted for inflation.
c. Assets are initially recorded using the historical cost principle.
d. Assets are initially recorded at market value, since historical cost tends to be too
arbitrary.
Issuing common stock
For each transaction provided, choose the appropriate account from the list that would
receive a debit entry as a result of the transaction. (Choices may be used more than
once.)
a. Cash
b. Accounts receivable
c. Supplies
d. Prepaid insurance
e. Land
f. Equipment
g. Accounts payable
h. Unearned revenues
i. Notes payable
j. Common stock
k. Retained earnings
l. Service revenue
m. Salary expense
n. Insurance expense
o. Utilities expense
p. Dividends
Refer to C2IT Corporation. Answer each of the following:
C2IT Corporation The C2IT Corporation was organized on July 1, 2013 after the two
principal owners each contributed $100,000 and received shares of stock in exchange.
The company’s year-end is December 31. The following events occurred during the first
year of operations:
Building
Identify where each of the following accounts would be reported on the financial
statements. (Choices may be used more than once.)
a. Balance Sheet-Property, Plant, and Equipment
b. Balance Sheet-Intangible Assets
c. Balance Sheet-Current Assets
d. Balance Sheet-Other Assets
e. Income Statement-Operating Section
f. Income Statement-Other Revenue and Expense Section
Refer to Ready Mix USA. Complete a common size horizontal analysis of the
company’s income statements. Your answers should be expressed as percentages and
rounded to one decimal place. Provide a short explanation of this analysis.
Ready Mix USA
Three recent income statements are presented below:
The following information is available for All Care Nursing Supply for fiscal year
ending December 31, 2013. Calculate the Accounts Receivable Turnover Ratio:
a. 3
b. 0.8
c. 3.6
d. 2.57
Giff Services Company experienced some difficulties with cash flow so it approached
one of its vendors about a payment extension. The vendor agreed to the extension on
the condition that the company sign a note that includes 9% interest. What is the impact
on the accounting equation of recording a note payable in exchange for the account
payable?
a. Both assets and liabilities increase.
b. Both assets and liabilities decrease.
c. Liabilities increase and stockholders’ equity decreases.
d. There is no net impact, as there are corresponding increases and decreases in liability
accounts.
Cash flows from borrowing and paying off a 90-day bank loan are classified as
a. operating activities.
b. investing activities.
c. financing activities.
d. purchasing activities.
Retained earnings
Several items from the financial statements of Fireside Tires are listed. Use the
following choices to identify the type of account for each item listed. (Choices may be
used more than once.)
a. Assets
b. Liabilities
c. Revenues
d. Expenses
e. Stockholders’ Equity
DuPont analysis recognizes that the return on equity can be broken down into three
aspects, which include all of the following except
a. net profit percentage.
b. total leverage.
c. total liquidity.
d. asset turnover ratio.
Flying High Air acquires a new aircraft. It has an estimated life of 10 years and should
last for at least 20,000 hours of flight. What is the most appropriate method of
depreciation to properly match revenues and expenses?
a. double-declining-balance
b. revenue expenditure method
c. straight-line
d. units-of-production
A company should choose a depreciation method that
a. best allocates the original cost of the asset to the periods benefited by the use of the
asset.
b. saves the most taxes.
c. minimizes net income
d. shows the highest amount of net income.
Which one of the following groups is considered an internal user of financial
statements?
a. A supplier considering selling to the company on credit.
b. The labor union representing employees of a company that is involved in labor
negotiations
c. The financial analysts for a brokerage firm who are preparing recommendations for
the firm’s brokers on companies in a certain industry,
d. Managers of the company that supervise production workers.
Revenue is earned for previously received advance cash collections
For each transaction select the type of adjustment that would be required. (Choices
may be used more than once.)
a. Deferred (prepaid) expense
b. Deferred (unearned) revenue
c. Accrued expense
d. Accrued revenue
InterestSelect the correct revenue recognition principle for each of the following.
(Choices may be used more than once.)
a. Recognize revenue over the passage of time.
b. Recognize revenue when the customer takes possession of the product.
c. Recognize revenue when cash is collected.
d. Recognize revenue when service is performed.
If the investor holds 50% or more of the common stock of the investee, then the two
corporations are no longer separate accounting entities and therefore must prepare
____________________ financial statements, which combine information about the
two corporations as if they were a single company.
A fast food restaurant sells gift cards which may be redeemed at any time; however,
they expire in one year. At the time these gift cards are sold, the account to be credited
is called ____________________.
Three measures of liquidity include working capital, the acid test ratio, and the current
ratio.
The interest period is the time interval between interest calculations.
A company’s bank statement balance shows that there is $4,190 in the checking account
at the end of the month. Comparing the company’s records with the bank statement
reveals several additional items, such as outstanding checks of $1,860, deposits in
transit of $2,080, an NSF check of $209, interest earned of $21.52, a bank service
charge of $40, and a check for $120 recorded twice by the company. Calculate the
adjusted cash balance for this checking account.