A mailroom employee opens the mail, counts the money received, and updates the
accounting records for the amount received. The following set of items describes
activities completed by a company in purchasing and paying for merchandise and in
collecting cash for merchandise sales. For each activity, identify whether or not the
activity adheres to or violates sound internal control procedures. (Choices may be used
more than once.)
a. Adheres to sound internal controls
b. Violates sound internal controls
c. Neither strengthens nor violates internal control
Prices are rising; ending inventory is lower with this method.
Identify which inventory costing method achieves the effect listed in the following items.
(Choices may be used more than once.)
a. FIFO method c. Average cost method
b. LIFO method d. Specific identification method
A landlord records the collection of a tenant’s security deposit as a(n)
a. prepaid expense.
b. liability.
c. contingent liability.
d. contra liability.
What is the impact on the accounting equation of recording the accrual of wages
expense?
a. Both assets and liabilities decrease.
b. Both assets and stockholders’ equity decrease.
c. Liabilities decrease and stockholders’ equity increases.
d. Liabilities increase and stockholders’ equity decreases.
Convertible bonds are attractive to bondholders because
a. they usually carry a higher rate of interest than non-convertible bonds.
b. they carry a convertible interest rate that can be increased when the market rate of
interest increases.
c. they can be converted into stock at the bondholder’s option.
d. the issuing company cannot retire the bonds before maturity.
Refer to General Lighting. Sales taxes are required to be paid to the state taxing
authority at the end of the quarter. What is the amount of the current liability related to
this transaction?
General Lighting During the first quarter of 2013, the company sold 4,000 batteries on
credit for $150 each plus state sales tax of 6%. a. $ 36,000
b. $600,000
c. $636,000
d. $150,000
The following amounts were taken from a company’s unadjusted trial balance at
December 31, 2012:
Prepare any adjusting entries necessary at December 31, 2012, for each of the
transactions that follow.
Services are provided for customers who pay for their services immediately. What
effect does this transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and retained earnings increase.
c. Liabilities increase and retained earnings decreases.
d. Assets and liabilities decrease.
Method of accounting required for all passive investments in which the investment is
valued at the price for which the investor could sell the asset in an orderly transaction
between market participants
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
The system of accounting in which there are at least two accounts affected in every
transaction so that the accounting equation stays in balance is called
a. debit.
b. credit.
c. double-entry.
d. full disclosure.
Receiving cash from a customer in advance of providing any services
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
Management’s Discussion and Analysis is a key part of the 10-K because it provides
investors with information management believes necessary to understand the company
and forecast future performance.
What are the criteria the SEC uses to determine if revenue is realized or realizable and
earned?
The accounting records for Dutch Island Company shows a cash balance of $4,133 on
January 31, 2013. On the evening of January 31, company receipts of $1,250 were
placed in the bank’s night deposit drop box; this deposit was processed by the bank on
February 1. The January 31 bank statement shows balance of $8,876, including
collection of a $5,000 note receivable plus $55 of interest earned, a service charge of
$40, and a $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 #731 in the amount of $1,528. Prepare a bank reconciliation to
calculate the company’s adjusted cash balance at January 31, 2013.
Securities issued by a corporation as a form of ownership in the business, such as
common stock and preferred stock, are called equity securities.
An accounting transaction may impact only one financial statement or multiple
statements.
The interest rate is the percentage that is multiplied by the future value to yield the
amount of interest for that period.
Income Statement accounts are closed to the income summary.
The ____________________ basis of accounting requires that revenues be recorded in
the period they are earned rather than in the period they are received.
Information from the stockholders’ equity section of the balance sheet at December 31,
2014, is provided below:
This company has been in business for over ten years, but has paid no dividends for the
past two years, 2013 and 2014 due to a temporary decline in business. During the
current year, 2015, the company has net income of $30,000 and plans to pay a dividend.
Complete the table below indicating the amount of dividends that each class of
stockholder will receive under the following preferred stock dividend assumptions:
The purpose of financial reporting is to provide economic information to investors,
creditors, and other financial statement users.