When the amount of a contingent liability can be reasonably estimated and its
likelihood is possible but not probable, the company should:
A) include a description in the notes to the financial statements.
B) record the amount of the liability times the probability of its occurrence.
C) accrue the amount of the liability as a long-term liability.
D) exclude any information about the contingent liability from its financial statements
and notes.
A company used the aging of accounts receivable method. At December 31,
management determined that the net realizable value of accounts receivable was
$304,000. The balance in Accounts Receivable was $384,000 and the unadjusted credit
balance in Allowance for Doubtful Accounts was $16,000. What was the amount of Bad
Debt Expense for the year?
A) $96,000
B) $64,000
C) $80,000
D) $16,000
The asset account Office Supplies has a balance of $800 at the beginning of the year.
The amount on hand at the end of the year is $500. The company has calculated the
Supplies Expense for the year to be $3,500. Based on this information, what amount of
office supplies was purchased during the year?
A) $0
B) $4,000
C) $3,200
D) $3,000
Use the information above to answer the following question. Based on this information,
what was the amount of retained earnings at the beginning of the year?
A company started the current year with assets of $700,000, liabilities of $350,000 and
common stock of $200,000. During the current year, assets increased by $400,000,
liabilities decreased by $50,000 and common stock increased by $275,000. There was
no payment of dividends to owners during the year.
A) $150,000.
B) $850,000.
C) $550,000.
D) $350,000.
When a company collects from a customer who pays within the discount period, the
company:
A) debits a contra-revenue account.
B) debits a liability account.
C) credits a liability account.
D) debits a revenue account.
Customers made payments totaling $8,000 on their accounts. Which accounts are
affected by this transaction?
A) Service Revenue and Retained Earnings increase by $8,000.
B) Cash and Service Revenue increase by $8,000. Liabilities and Customer Expense
increase by $8,000.
C) Cash increases by $8,000 and Accounts Receivable decreases by $8,000. Revenue
and Retained Earnings are unchanged.
D) Cash and liabilities decrease by $8,000.
If inventory is updated perpetually, which of the equations is correct?
A) Cost of goods sold = Beginning inventory – Purchases – Ending inventory
B) Cost of goods sold = Beginning inventory + Purchases + Ending inventory
C) Ending inventory = Beginning inventory + Purchases – Cost of goods sold
D) Ending inventory = Beginning inventory + Purchases + Cost of goods sold
Garvey Company’s unadjusted trial balance includes the following account balances as
of December 31, 2015:
The following data are available to determine adjusting entries:
A) Insurance purchased at the beginning of July for $8,700 provided coverage for
twelve months (July 2015 through June 2016). The insurance coverage for July through
December totaling $4,250 has now been used.
B) The company estimates $8,150 in depreciation each year.
C) A count showed $85,700 of supplies on hand at the end of the year.
D) An additional $260 of interest has been earned but has not yet been uncollected on
the outstanding notes receivable.
E) Services in the amount of $5,600 were performed for customers who had previously
paid in advance.
F) Services in the amount of $2,000 were performed; these services have not yet been
billed or recorded.
Required:
Part a. Prepare the adjusting entries that are required at the end of the period.
Part b. Prepare an adjusted trial balance by completing the related columns in the table
below.
A legal document called a stock certificate is used to indicate ownership in a:
A) Corporation.
B) Sole proprietorship.
C) Partnership.
D) Both sole proprietorship and partnership.
Purrfect Pets uses the perpetual inventory system. At the beginning of the quarter,
Purrfect Pets has $30,000 in inventory. During the quarter the company purchases
$7,900 of new inventory from a vendor, returned $700 of inventory to the vendor, and
took advantage of discounts from the vendor of $200. At the end of the quarter the
balance in inventory is $26,500. What is the cost of goods sold?
A) $10,500
B) $11,400
C) $3,500
D) $11,900
Which of the following statements about accrual basis accounting is correct?
A) If a company uses accrual basis accounting, the company should not record revenue
until payments is actually received.
B) If a company uses accrual basis accounting, the company should, the company
should record expenses in the same period as the revenues they generate.
C) IFRS does not allow accrual basis accounting for external reporting of income.
D) The items reported on the income statement continue to have an impact beyond the
current period, whereas the items reported on the balance sheet impact just the current
period.
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term:
1) _____ Date of Declaration
2) _____ Issued Shares
3) _____ Seasoned New Issues
4) _____ Pro Rata Basis
5) _____ Date of Record
6) _____ Additional Paid-in Capital
7) _____ Outstanding Shares
8) _____ Stock Options
9) _____ Payment Date
Definition:
A. The date on which a company authorizes a dividend payment.
B. The total number of shares currently owned by stockholders.
C. When cash or stock dividends are issued according to the proportion of stock owned.
D. Dividends that have not had income tax withheld from them.
E. The date on which a company determines who receives a dividend.
F. When employees of a company have the opportunity to buy a company’s stock in the
future at a fixed price.
G. The accumulation of all the past dividends the company has not paid.
H. When a company sells issues of stock after its IPO.
I. The date on which a company debits dividends payable and credits cash.
J. When cash or stock dividends are issued in an equal dollar or share amount per
stockholder.
K. The date on which a liability is recorded for a dividend.
L. The total number of shares the company has sold, whether held by stockholders or by
the company.
M. When owners of the company contribute additional capital beyond what they paid
for their stock.
N. The amount above the par value of the stock that owners paid the issuer for the
stock.
Choose the letter of the appropriate definition to match the term. Not all definitions will
be used.
Term
1) _____ Amortization
2) _____ Useful life
3) _____ Licensing right
4) _____ Least and latest rule
5) _____ Component allocation
6) _____ Fixed asset turnover ratio
7) _____ Depreciable cost
8) _____ Copyright
9) _____ Depreciation schedule
10) _____ Revenue expenditures
Definition
A. Allocating the cost of tangible assets over their limited useful life.
B. Costs that are recorded as revenues.
C. Asset cost minus residual value.
D. Net income divided by average total assets.
E. Allocating the cost of intangible assets over their limited useful life.
F. Asset cost minus accumulated depreciation.
G. Costs that are expensed in the period incurred.
H. Grants the exclusive right to sell or use a creative work.
I. A cumulative record of depreciation expense, accumulated depreciation and book
value.
J. An estimate of how long a company will use a particular asset.
K. Net sales revenue divided by average net fixed assets.
L. The principle that companies wish to pay the lowest possible tax at the last possible
time.
M. A contractual agreement that allows limited permission for use of a property.
N. An estimate of how long a tangible asset will last before it physically wears out.
O. The method whereby different parts of an asset may be depreciated over different
useful lives under IFRS.
Your company is planning to issue $1,000 bonds with a stated interest rate of 7% and a
maturity date of July 15, 2022. If interest rates rise in the economy so that similar
financial investments pay 9%, your company will:
A) not be able to issue the bonds because no one will buy them.
B) receive a higher issue price to compensate buyers for the lower stated interest rate.
C) have to accept a lower issue price to attract buyers.
D) have to reprint the bond certificates to change the stated interest rate to 9%.
The petty cash fund was used to reimburse employees for office expenses during the
month. The cash and receipts in the locked box equaled the Petty Cash account balance.
When the petty cash fund is replenished, the related journal entry will include a debit
to:
A) Office Expenses.
B) Petty Cash.
C) Cash.
D) Cash Shortage.
Over a two-year period, Beneful Product’s gross profit percentage went from 70.4% to
69.7%. Which of the following could not have been the cause of this change?
A) Reduced selling prices
B) Rising product cost as a percentage of sales
C) Increased competition from a competitor
D) An increase in selling price
The potential advantages of extending credit to customers include all of the following
except higher:
A) wage expenses.
B) profits.
C) customer satisfaction.
D) revenues.
Kata Company uses the allowance method. On May 1, Kata wrote off a $22,000
customer account balance when it becomes clear that the particular customer will never
pay. The journal entry to record the write-off on May 1 would include which of the
following?
A) Debit to Bad Debt Expense and credit to Allowance for Doubtful Accounts
B) Debit to Accounts Receivable and credit to Allowance for Doubtful Accounts
C) Debit to Allowance for Doubtful Accounts and credit to Bad Debt Expense
D) Debit to Allowance for Doubtful Accounts and credit to Accounts Receivable
Use the information above to answer the following question. If the units-of-production
method is used, the depreciation rate is:
A) $0.95 per unit.
B) $0.19 per unit.
C) $0.05 per unit.
D) $1.00 per unit.
Wasco Company has experienced bad debt losses of 5% of credit sales in prior periods.
At the end of the year, the balance of Accounts Receivable is $100,000 and the
Allowance for Doubtful Accounts has an unadjusted credit balance of $500. Net credit
sales during the year were $150,000. Using the percentage of credit sales method, what
is the estimated Bad Debt Expense for the year?
A) $5,000
B) $7,000
C) $7,500
D) $8,000