Which of the following statements about the income statement of a company that was
formed 10 years ago is correct?
A) Reports a Net Loss for the year if expenses are more than revenues.
B) Reports the financial effects of activities that have occurred since the company’s
inception.
C) Reports the amount of the increase in stockholders’ equity this year as a result of the
company’s operations.
D) Reports Net Income which is not an account in the ledger.
A company that uses the allowance method to account for its bad debts had credit sales
of $740,000 in 2015, including a $720 sale to Arbor Corporation. On December 31,
2015, the company estimated its bad debts at 1.5% of its credit sales. On June 1, 2016,
the company wrote off as uncollectible the $720 account of Arbor Corporation; and on
December 21, 2016, Arbor Corporation unexpectedly paid her account in full.
Required:
Prepare the necessary journal entries dated: (a) on December 31, 2015, to reflect the
estimate of Bad Debt Expense; (b) on June 1, 2016, to write off the bad debt; and (c) on
December 21, 2016, to record the unexpected collection.
Use the information above to answer the following question. What was the amount of
net income for the year?
A) $2,000.
B) $1,000.
C) $3,000.
D) $5,000.
Company X has net sales revenue of $780,000, cost of goods sold of $343,200, and all
other expenses of $327,600. The gross profit percentage is closest to:
A) 32%.
B) 56%.
C) 86%.
D) 14%.
When cash is received from a remote source, the accounting department then compares
the total on the cash receipts list with the stamped deposit slip received from the bank.
Which internal control principle is being met with this procedure?
A) Document procedures
B) Independently verify
C) Restrict access
D) Segregate duties
A machine is purchased on January 1, 2016, for $90,000. It is expected to have a useful
life of five years and a residual value of $5,000. The company closes its books on
December 31. Under the double-declining balance method, what is the total amount of
depreciation to be expensed during the 2017?
A) $21,600
B) $22,000
C) $22,400
D) $34,000
A company lent $10,000 to an employee who signed a 9%, 6-month promissory note.
The entry made by the company to record this loan to the employee will include a:
A) debit to Accounts Receivable for $10,000.
B) credit to Sales for $10,000.
C) debit to Notes Receivable for $10,000.
D) credit to Notes Payable for $10,000.
Your company has 100 units in inventory, purchased at $16 per unit. These units have a
current market value of $14. The entry to write-down the inventory will include a:
A) credit to Cost of Goods Sold for $200.
B) debit to Cost of Goods Sold for $1,400.
C) credit to Inventory for $200.
D) debit to Inventory for $1,400.
A company lends $10,000 to an employee who signs a 9%, 6-month promissory note.
What is the total amount of interest on this note?
A) $900
B) $450
C) $10,450
D) $2,700
Use the information above to answer the following question. The amount of assets at
the end of the year is
A) $105,000.
B) 108,000.
C) $104,000.
D) $107,000.
Which of the following accounts does not have a normal credit balance?
A) Common Stock
B) Accounts Payable
C) Service Revenue
D) Rent Expense
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term
1) _____ Cash Inflow
2) _____ Property, Plant, and Equipment
3) _____ Comparative Balance Sheet
4) _____ Free Cash Flow
5) _____ Noncash Investing and Financing Activities
6) _____ Net Income
7) _____ Statement of Cash Flows
8) _____ Cash Outflow
Definition
A. A financial statement that tracks the flow of cash into and out of a company
according to the three types of activities that generate the flows.
B. Cash flows in excess of net income.
C. Reported as supplement disclosures or in the notes section to the financial statements
rather than within the body of the statement of cash flows.
D. Results from activities such as sales of goods and assets, receipt of cash dividends,
and receipts of interest.
E. Cash a company receives that is not subject to income tax.
F. Purchases and sales of this are classified as investing activities.
G. The starting point for calculating operating cash flows with the direct method.
H. Cash flows from operations in excess of amount paid to replace property, plant and
equipment and to pay cash dividends to stockholders.
I. The percent of a company’s net cash flow that comes from investing and financing
activities.
J. An adjustment made when using the indirect method of calculating cash flows from
operating activities.
K. The starting point for calculating operating cash flows with the indirect method.
L. Purchases and sales of this are classified as operating activities.
M. A balance sheet that shows the starting and ending balance of the different accounts;
it is used to calculate the net cash flow provided by operating activities.
N. Results from activities such as purchases of goods and assets, payment of debt,
payment of cash dividends, and payment of taxes.
A new Chief Executive Officer (CEO) was hired by a company on December 10, 2015.
The CEO has been promised a significant bonus if 2016 net income is 10% more than
2015 net income. The CEO is considering taking the following actions:
A) Overstating the cost of machinery purchased in 2016
B) Prepaying 2016 expenses in 2015
C) Deferring 2016 expenses to 2017 and accruing revenues in 2016 that do not exist
D) Recording revenues earned in 2016 as unearned revenues
Required:
Explain how each of these actions would impact the 2016 net income amount and
decide if the action is ethical.