A method of accounting for uncollectible receivables in which the company estimates
bad debts expense instead of waiting to see from which customers the company will not
be able to collect is known as the allowance method.
Estimated Warranty Payable is included in the liability section of the balance sheet.
Net income (loss) is the difference between the total debits and the total credits in the
income statement columns of the worksheet.
On July 1, 2106, Jordan Equipment Dealer issued $600,000 of 9% bonds payable that
mature in seven years. These bonds were issued at face value and pay interest each June
30 and December 31. Each semiannual interest payment is $27,000.
Secured bonds give bondholders the right to take specified assets of the issuer if the
issuer fails to pay principal or interest.
Arturo Sales purchased some equipment for $12,000 by issuing a six-month note
payable. This will appear in the non-cash investing and financing activities section of
the statement of cash flows.
Trading investments are categorized as noncurrent assets.
Businesses must maintain a single Accounts Receivable account regardless of the
number of customers.
The Accounts Receivable account is a permanent account.
The Sarbanes-Oxley Act (SOX) requires companies to review internal control and take
responsibility for the accuracy and completeness of their financial reports.
Because of the risk of fraud, electronic invoices and electronic receiving reports are
seldom used in accounting information systems.
The fair value method is used to account for available-for-sale investments because they
are normally sold in the near future at their current market value.
The terms of payment for a note receivable are generally longer than that of an account
receivable.
Which of the following asset categories would include the cost of clearing land and
removing unwanted buildings?
A) land
B) buildings
C) land improvements
D) machinery and equipment
Which of the following would be included in the journal entry to record the payment of
sales tax payable?
A) a debit to Sales Tax Payable
B) a credit to Sales Tax Expense
C) a debit to Sales Tax Expense
D) a credit to Sales Tax Payable
The ending merchandise inventory for the current accounting period is overstated by
$3,500. What will be the effect of this error?
A) The net income for the current accounting period will be overstated by $3,500.
B) The cost of goods sold for the current accounting period will be overstated by
$3,500.
C) The ending merchandise inventory for the next accounting period will be overstated
by $3,500.
D) The cost of goods sold for the next accounting period will be understated by $3,500.
The following transactions for the month of March have been journalized and posted to
the proper accounts.
What is the balance in Cash?
A) $13,170
B) $12,270
C) $15,270
D) $13,900
When a company pays cash for a long-term investment in bonds, ________.
A) equity remains unchanged
B) current assets increase
C) liabilities increase
D) total assets increase
Which of the following principles states that a business’s financial statements must
report enough information for outsiders to make knowledgeable decisions about the
company?
A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle
Which of the following is a column in a purchases journal?
A) Cost of Goods Sold CR
B) Accounts Payable CR
C) Sales Revenue DR
D) Interest Revenue CR
Williams Enterprises prepaid six months of office rent totaling $8,000 on October 1,
2017. Assuming Williams records deferred expenses using the alternative treatment,
what would be the entry on October 1, 2017?
A) Debit Prepaid Rent and credit Cash for $8,000
B) No entry is needed until the expense is incurred
C) Debit Cash and credit Unearned Rent for $8,000
D) Debit Rent Expense and credit Cash for $8,000
When a company uses the perpetual inventory method, which of the following would
be the entry to adjust inventory to lower-of-cost-or-market?
A) debit Loss on Inventory and credit Merchandise Inventory
B) debit Merchandise Inventory and credit Inventory Adjustment
C) debit Cost of Goods Sold and credit Merchandise Inventory
D) debit Merchandise Inventory and credit Cost of Goods Sold
A company using the perpetual inventory system purchased inventory worth $550,000
on account with credit terms of 2/15, n/45. Defective inventory of $70,000 was returned
3 days later, and the accounts were appropriately adjusted. If the company paid the
invoice 25 days later, the journal entry to record the payment would be ________.
A) $550,000 debit to Accounts Payable and $550,000 credit to Cash
B) $480,000 debit to Accounts Payable and $480,000 credit to Cash
C) $550,000 debit to Accounts Payable, $540,400 credit to Cash, and $9,600 credit to
Merchandise Inventory
D) $540,400 debit to Accounts Payable, $9,600 credit to Merchandise Inventory, and
$480,000 credit to Cash
________ is the equity earned by profitable operations that is not distributed to
stockholders.
A) Assets
B) Dividend
C) Retained earnings
D) Common stock
Which of the following statements is true if a bond’s stated interest rate is higher than
the market rate?
A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount lower than the maturity value.
The Allowance for Bad Debts account has a credit balance of $8,700 before the
adjusting entry for bad debts expense. After analyzing the accounts in the accounts
receivable subsidiary ledger using the aging-of-receivables method, the company’s
management estimates that uncollectible accounts will be $15,000. What will be the
balance of the Allowance for Bad Debts reported on the balance sheet?
A) $15,000
B) $6,300
C) $23,700
D) $13,500
A company that uses the periodic inventory system provided the following
information:1. Beginning inventory $6,000
2. Purchases $130,000
3. Purchase discounts $2,400
4. Purchase returns and allowances $600At the end of the period, the company does an
inventory count and finds $16,000 worth of inventory on hand. What is the amount of
cost of goods sold?
A) $117,000
B) $104,200
C) $149,000
D) $128,800
Changing from the LIFO (Last-In, First-Out) to the specific identification method of
valuing inventory ignores the principle of ________.
A) conservatism
B) consistency
C) disclosure
D) materiality
Calculate the cost of goods sold for a merchandiser using the periodic inventory system
from the following details.
A) $510,000
B) $481,000
C) $499,000
D) $801,000
A streamlined process that bypasses paper documents altogether and in which
computers of retailers communicate directly with the computers of suppliers to
automate routine business transactions is known as ________.
A) Real Time Gross Settlement
B) Electronic Data Interchange
C) Electronic Fund Transfer
D) Evaluated Receipts Settlement
Which of the following line items would appear on the income statement of a company
that uses the periodic inventory system, but not on that of a company that uses the
perpetual inventory system?
A) Net Sales Revenue
B) Cost of Goods Sold
C) Cost of Goods Available for Sale
D) Operating expenses
The profit margin ratio ________.
A) focuses on the liquidity of the business
B) is computed by dividing net sales by net income
C) shows how much gross profit a business earns on every $1.00 of sales
D) is often compared to the industry average
Equipment was purchased for $24,000 on January 1, 2016. The equipment’s estimated
useful life was five years, and its residual value was $4,000. The straight-line method of
depreciation was used. Calculate the gain or loss on sale if the equipment is sold for
$18,000 on December 31, 2016, the end of the accounting period. Prepare the journal
entry to record the sale of equipment.
Data for Kalil, Inc. follows:
Kalil, Inc.
Comparative Income Statement
Years Ended Dec. 31, 2017 and 20162017 2016
Net Sales Revenue $550,000 $500,000
Expenses:
Cost of Goods Sold 245,000 220,000
Selling and Administrative Expenses 100,000 96,000
Other Expenses (Interest Expense) 12,000 9,000
Income Tax Expense 58,000 47,000
Total Expenses $415,000 $372,000
Net Income $135,000 $128,000Prepare a horizontal analysis of the comparative income
statement of Kalil, Inc. (Round to one decimal place.) Use a multi-step format for the
income statement.
On March 21, 2017, the bond accounts of Urban Sales showed the following balances.
Urban Sales retires the bonds for
$66,150. Prepare the journal entry to record the retirement of the bonds.
On January 1, 2017, Sullivan Cabinetry Company purchases $300,000 of property by
paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.
Sullivan will make yearly payments of $46,072. Prepare the amortization schedule for
the first five payments. (Round your answers to the nearest dollar.)
The periodic inventory records of Witte Veterinary Supply indicate the following for the
month of
April:
As of April 30, Witte counts 8 units of merchandise inventory on hand.
Compute ending merchandise inventory and cost of goods sold for Witte using the
weighted-average inventory method. (Round the per unit cost to two decimal places.)
Corrections Services sells service plans for commercial computer maintenance. The
price for each plan is $1,350 per year, paid in advance. On October 1, 2016, a service
plan was sold to a new customer for cash, and the plan covers the period October 1,
2016 to September 30, 2017. Adjusting entries are made on December 31 of each year.
Prepare the journal entry for September 30, 2017.
The trial balance for a merchandiser is as follows. A physical count of inventory at the
end of the accounting year reveals $28,000 of inventory on hand. (Assume a perpetual
inventory system.)
Give journal entry to record the inventory shrinkage, and the entries to close the Sales
Revenue account, the expense accounts and contra revenue accounts with a debit
balance, and the the Income Summary account and the Dividends account.
