Stockholders’ equity is:
A) a liability of the business.
B) an economic resource controlled by the business.
C) the owners’ claims on the business.
D) the profit generated by the business.
On December 31, 2016, Ditka Inc. had Retained Earnings of $267,800 before its
closing entries were prepared and posted. During 2016, the company had service
revenue of $168,100 and interest revenue of $81,300. The company used supplies in the
amount of $87,900, advertising expenses were $16,400, salaries and wages totaled
$18,300, and income tax expense was calculated as $13,700. During the year, the
company declared and paid dividends of $6,000.
Required:
Part a. Prepare the closing entries dated December 31, 2016.
Part b. Draw a T-account for the Retained Earnings account. Enter the beginning
balance into the T-account, post the closing entries, and then determine the ending
balance.
Consider the following information from a company’s unadjusted trial balance at
December 31, 2015. All accounts have normal balances.
What is the total of the debit side of the unadjusted trial balance?
A) $22,000.
B) $17,350.
C) $16,500.
D) $13,500.
Company X has a P/E ratio of 16 in year 2013 and 16.5 in 2014. In 2015, its P/E ratio is
24. The best way to interpret these data is to conclude that:
A) the stock is overpriced and should be sold.
B) the stock has great growth capacity and should be bought.
C) other financial results and news should be examined to determine the cause of the
P/E ratio change.
D) the stock is underpriced and should be bought.
On January 1, 2016, a company issues 3-year bonds with a face value of $200,000 and a
stated interest rate of 8%. Because the market interest rate is lower than the stated
interest rate, the company receives $209,000 for the bond. The company uses
straight-line bond amortization.
Required:
Part a. Determine the amount of the premium that will be amortized during the year
ending December 31, 2016.
Part b. Prepare the journal entry to record the first interest payment on December 31,
2016.
Use the information above to answer the following question. What amount is
represented by letter L in the statement of cash flows?
A) $159,000
B) $85,000
C) ($85,000)
D) ($159,000)
Your company buys a computer system for $3 million and pays the vendor $200,000 to
install the computer system. Your company should record:
A) $3 million as equipment and $200,000 as expenses.
B) $3.2 million as expenses.
C) $2.8 million as equipment and the rest as expenses.
D) $3.2 million as equipment.
Selected accounts for Moonbills Corporation appear below.
Required:
For each account, indicate the following:
Part a. In the first column at the right, indicate the nature of each account, using the
following abbreviations: Asset – A, Liability – L, Stockholders’ Equity – SE.
Part b. In the second column, indicate the normal balance by inserting dr (for debit) or
cr (for credit).
On April 30, 2016, Rudolph Inc. purchased a three-year insurance policy with a cash
payment of $18,000. Coverage began immediately.
Required:
Part a. What is the amount of Insurance Expense relating to this insurance policy that
will be reported for the year ended December 31, 2016?
Part b. What is the balance of the Prepaid Insurance account at December 31, 2016?
Unearned revenues are liabilities because:
A) no cash has changed hands.
B) goods or services have been paid for, but not yet provided to the customer.
C) the company is transferring them to another period for tax reasons.
D) the customer may someday return items purchased for a refund.
A company has a debt-to-assets ratio of 0.45 and a return on equity ratio of 10%. If the
company then issues additional shares of common stock for cash, which of the
following is a correct statement?
A) The debt-to-assets ratio will decrease and the return on equity ratio will decrease.
B) The debt-to-assets ratio will increase and the return on equity ratio will increase.
C) The debt-to-assets ratio will not change and the return on equity ratio will not
change.
D) The debt-to-assets ratio will decrease and the return on equity ratio will increase.
Assume a company only entered into financing and investing activities and has
prepared its journal entries and posted them to T-accounts. How would the related
account balances be listed on its trial balance?
A) Credits first, followed by debits
B) Debits first, followed by credits
C) Alphabetically
D) In descending order by dollar amount