Both stock dividends and stock splits involve a reduction in the par value of the stock.
A trial balance is similar to a balance sheet in that it only includes balance sheet
accounts.
Assuming inflation, FIFO will result in a higher net income than LIFO.
Trading on the equity refers to using money borrowed at fixed interest rates to try to
enhance the rate of return on common shareholders’ equity.
Palto Industries pays its employees monthly. Payroll information follows:
1. The monthly gross salary for all its employees is $85,000. Palto Industries withholds
20% of the employees’ gross salary for federal taxes, 6.5% for state taxes, and 7.5% for
Social Security (FICA) taxes.
2. Palto Industries incurs other employee-related costs. Specifically, the company must
(1) match the Social Security taxes withheld from the employees, (2) contribute 3% of
the employees’ gross pay to the employees’ pension fund, and (3) pay 5% of the
employees’ gross pay for health insurance premiums on behalf of the employees.
What is the journal entry to be made by Palto Industries for the gross pay and
withholdings for their monthly payroll? Assume salaries will be paid two days after the
journal entry.
A) Compensation Expense 85,000
Salaries and Wages Payable 85,000
B) Compensation Expense 85,000
Federal Income Tax Withholding Payable 17,000
State Income Tax Withholding Payable 5,525
Social Security Withholding Payable 6,375
Salaries and Wages Payable 56,100
C) Compensation Expense 85,000
Tax Expense 28,900
Federal Tax Withholding Payable 17,000
State and FICA Tax Withholding Payable 11,900
Salaries and Wages Payable 85,000
D) Compensation Expense 85,000
Federal Tax Expense 17,000
State Tax Expense 5,525
Social Security Tax Expense 6,375
Salaries and Wages Payable 113,900
E) Compensation Expense 113,900
Federal Tax Withholding Payable 17,000
State Tax Withholding Payable 5,525
Social Security Tax Withholding Payable 6,375
Salaries and Wages Payable 85,000
An example of an implicit transaction is
A) a cash sale.
B) a credit purchase of inventory.
C) the receipt of cash in advance of providing services.
D) the expiration of prepaid rent.
E) a credit sale.
An increase in stockholders’ equity can be calculated as
A) new issuance of stock plus net income plus cash dividends declared.
B) new issuance of stock plus net income less cash dividends declared.
C) new issuance of stock less net income less cash dividends declared.
D) new issuance of stock less net income plus cash dividends declared.
E) Cannot be determined from the information provided
Which of the following costs are identified directly as expenses of the time period in
which they are incurred?
A) Product costs
B) Period costs
C) Both product and period costs
D) Neither product nor period costs
E) Period costs as long as the goods have not been sold
If sales amount to $150,000, rent expense is $2,000, utilities expense is $3,000, and net
income is $55,000, how much is Cost of Goods Sold?
A) $95,000
B) $145,000
C) $90,000
D) $50,000
E) $148,000
Debt is often a more attractive vehicle for financing long-term investments for which of
the following reasons?
1. Debt is less risky than common stock.
2. Debt may be converted into common stock in a tax-free exchange.
3. Interest payments are tax deductible, and dividend payments are not.
4. Ownership rights are kept by the present stockholders.
A) 3 and 4
B) 1 and 3
C) 2 and 4
D) 1 and 2
E) 1, 2, 3, and 4
Useful Organizing began operations on January 1, 20X3, when the owners invested
$80,000 cash in the company. Also on January 1, the company paid for a $30,000
machine. The machine has a useful life of 4 years and a $2,000 residual value. During
its first year of operations, the company had sales of $96,000 and operating expenses
except depreciation of $67,000. All sales were cash sales and all non-depreciation
operating expenses were paid in cash. Useful Organizing has a 30% tax rate and pays
all taxes on December 31. What is the net cash provided by operating activities before
taxes for 20X3, if Useful Organizing uses double-declining-balance depreciation?
A) $(81,000)
B) $(67,000)
C) $ 14,000
D) $ 25,000
E) $ 29,000
Which of the following statements incorrectly describes the relationship between a
company’s book value per share and its market price per share?
A) If the book value per share is below the market value per share, then shareholders
are paying for the future earnings power of the company.
B) If a company has unrecorded assets or appreciated assets, the market value per share
is likely to be greater than the book value per share.
C) Since the book value per share is based on historical costs, the book value per share
can never be greater than the market price per share.
D) Use of the book value per share can be highly questionable for many companies,
since it is based on balance sheet amounts that in turn are based upon historical costs.
E) If the market value of a company’s assets is much greater than the assets’ historical
costs, then the market price per share will likely be greater than the book value per
share.
Which of the following individuals are most interested in management accounting
information for Dotty Industries?
A) Bankers who loan money to Dotty Industries
B) The IRS, who Dotty Industries pays taxes to
C) Stockholders who buy stock in Dotty Industries
D) Management who work for Dotty Industries
E) Suppliers who sell goods to Dotty Industries
Trade discounts are journalized by
A) decreasing returns and allowances.
B) increasing returns and allowances.
C) decreasing gross sales.
D) increasing gross sales.
E) decreasing net sales.
Not recognizing depreciation expense in a given month will
A) understate total assets.
B) understate total revenues.
C) overstate total liabilities.
D) overstate net income.
E) have no effect since this is a temporary error.
Clean Out Clutter is located in a state where the sales tax is 7 1/4%. Total sales for the
month of February were $104,000, all of which were subject to sales tax.
a. Prepare a journal entry that summarizes sales (all in cash) for the month.
b. Prepare a journal entry regarding the disbursement for the sales tax.
Xemen Company has the following data:
What is the return on common stockholders’ equity for Xemen Company in 2X13? Has
the return on common stockholders’ equity improved or not improved since 2X12?
A) 32.2%, improved
B) 32.2%, not improved
C) 29.6%, not improved
D) 31.6%, not improved
E) 29.6%, improved
Which of the following is NOT an attribute of the Allowance for Uncollectible
Accounts?
A) The balance in the account increases when an uncollectible account is written off.
B) It is on the asset side of the balance sheet.
C) It is a contra account.
D) It reduces Accounts Receivable.
E) It normally has a credit balance.
How are discontinued operations and extraordinary items reported on the income
statement?
A) Discontinued operations and extraordinary items are added together as one line item.
B) Both items are reported net of taxes and as separate line items.
C) Discontinued operations are reported net of taxes as a separate line item.
Extraordinary items are not reported net of taxes, but they are reported as a separate line
item.
D) Discontinued operations are not reported net of taxes, but they are reported as a
separate line item. Extraordinary items are reported net of taxes as a separate line item.
E) Both items are not reported on the income statement.
Mac’s Computer Skills Training, purchased equipment for $30,000 on January 1, 20X8,
and believes the equipment has a useful life of 36 months. What will be the effect of the
equipment’s depreciation on the balance sheet equation?
A) Decreases Equipment account and decreases Stockholders’ Equity
B) Decreases Equipment account and increases Stockholders’ Equity
C) Increases Equipment account and decreases Stockholders’ Equity
D) Increases Equipment account and increases Stockholders’ Equity
E) There is no effect on the balance sheet equation.
Which of the following statements describes the Sarbanes-Oxley required attributes of a
management report?
A) A management report usually includes a statement on the adequacy of internal
controls.
B) A management report includes information with respect to management’s
compensation, including the salaries and bonuses received by the top executives of the
company.
C) A management report lists the executives of the company and states what changes
have been made in management personnel since the prior period and why those changes
were made.
D) A management report states how well or poorly the company performed during the
most recent period.
E) A management report states the acquisitions and divestitures that a company has
made during the current period.