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Assume that accrual basis accounting is used. Which of the following errors would
most likely lead to an overstatement of net income in the current year?
A) Recording revenue when the cash is collected next year although it is earned in the
current year.
B) Recording an expense when paid next year although it is incurred this year.
C) Failing to adjust the Unearned Revenue account for the portion of rent earned this
year.
D) Recording revenue earned in the current year when cash is collected this year.
The Discount on Bonds Payable account is reported in the financial statements as:
A) a reduction from the Bond Payable account on the balance sheet.
B) an expense on the income statement.
C) an asset on the balance sheet.
D) revenue on the income statement.
Use the information above to answer the following question. Assuming the company
uses accrual basis accounting, what is net income for May?
Melody's Piano School operations for the month of May were limited to the following
transactions:
- Provided $400 of piano lessons to students who paid in cash.
- Provided $100 of piano lessons on account.
- Collected $300 from students who took piano lessons during April.
- Paid April's piano rental bill of $100.
- Received May's piano rental bill of $150 and set it aside for payment in June.
A) $400.
B) $300.
C) $350.
D) $600.
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term:
1) _____ Current liabilities
2) _____ Effective interest method of amortization
3) _____ Straight-line method of amortization
4) _____ Times interest earned ratio
5) _____ Long-term liabilities
6) _____ Present value
Definition:
A. A bond feature that puts a creditor ahead of other creditors in order of payment.
B. Current liabilities divided by current assets.
C. These are liabilities that have to be paid in one year or less.
D. Net income before taxes and interest expense divided by interest expense.
E. Spreads a bond discount or premium evenly over the lifetime of the bond.
F. The amount of all the liabilities currently on the balance sheet at the close of the
period.
G. Where interest expense is the market interest rate times the bond's carrying value.
H. Net income after taxes and interest expense divided by interest expense.
I. These are liabilities that do not have to be paid within the upcoming year.
J. The ability to pay current obligations.
K. Liquid assets divided by current liabilities.
L. A calculation that determines what some future payments are worth today.
Which of the following situations would cause the balance per bank to be more than the
balance per books?
A) Deposits in transit
B) Service charges
C) Outstanding checks
D) Checks from customers returned as NSF
Which of the following statements about the receivables turnover analysis is correct?
A) Accounts receivable decline as companies sell on credit.
B) Accounts receivable increase as companies receive payment.
C) Receivables turnover refers to how fast receivables are collected.
D) The days to collect will increase as the receivables turnover increases.
The following partially completed balance sheet is missing numerical data.
Required:
Fill in the missing amounts in the balance sheet.
Under the periodic inventory system:
A) inventory records are updated immediately after each purchase.
B) inventory must be counted at the end of each accounting period.
C) inventory does not have to be counted. (It can be taken from the accounting records.)
D) inventory levels must be counted every day.
Owners of a company:
A) hold promissory notes as evidence of their ownership claim.
B) are entitled to repayment of their investment.
C) have a claim that is secondary to creditor's claims.
D) have a claim equal to the amount of liabilities a company owes.
Ms. Jessica Duffy purchased 1 share of $10 par value common stock from Ohio
Corporation for $50 per share. Ms. Duffy sold that share to Mike Truesdale for $60 per
share. As a result of the sale by Duffy to Truesdale sale, Ohio Corporation would:
A) debit Cash and credit Additional Paid-in Capital for $10.
B) debit Cash and credit Common Stock for $10.
C) debit Common Stock and credit Additional Paid-in Capital for $10.
D) not debit or credit any of its accounts.
Use the information above to answer the following question. Which of the following
statements about the activities for Maverick Law Firm for 2015 is correct?
A) If Accounts Receivable at December 31, 2014 totaled $25,000, the amount of
Accounts Receivable to be reported on the Balance Sheet at December 31, 2015 will be
$24,000.
B) The $2,000 received from clients for law services to be performed next year will be
reported as revenue on the 2015 income statement.
C) The $4,000 owed by clients for services performed this year will be reported as
Accounts Payable on the balance sheet at December 31, 2015.
D) The $5,000 received this year from clients in payment of their accounts will be
reported as Services Revenue on the 2015 income statement.
Which of the following statements about the Retained Earnings account is correct?
A) Retained Earnings is a permanent account; income statement accounts are
temporary.
B) Retained Earnings and income statement accounts are all temporary accounts.
C) Retained Earnings and income statement accounts are all permanent accounts.
D) Retained Earnings is a temporary account, while income statement accounts are
permanent accounts.
