The sale of a plant asset may result in a gain but not a loss.
A compensating balance is the required minimum cash balance on deposit when money
is borrowed from the bank.
A lease is a contract whereby an owner grants the use of property to a second party in
exchange for rental payments.
Research and development costs are expensed on the income statement as opposed to
being capitalized on the balance sheet.
A ledger contains only balance sheet accounts kept up-to-date in a systematic way.
Mailers Manufacturing, acquired equipment for $19,000. Mailers Manufacturing, paid
$6,000 in cash, with the balance due on a note. The effect of this transaction on Mailers
Manufacturing, would be to
A) increase the equipment account by $19,000, decrease the cash account by $6,000
and increase the notes payable account by $13,000.
B) increase the equipment account by $19,000, decrease the cash account by $6,000,
and decrease the notes receivable by $13,000.
C) increase the equipment account by $6,000, and decrease the cash account by $6,000.
D) increase the equipment account by $6,000, decrease the cash account by $6,000, and
increase the notes payable account by $13,000.
E) increase the equipment account by $19,000, and increase the notes payable account
by $6,000.
Gross profit is defined as
A) net income before the effect of income taxes.
B) the income generated by the company after subtracting all operating expenses.
C) the difference between total assets and total liabilities.
D) net income less the dividends declared during the period.
E) sales minus cost of goods sold.
A perpetual inventory system offers all of the following characteristics except:
A) it is less expensive than a periodic system.
B) inventory balances are always current.
C) it helps salespeople determine whether there is a sufficient supply on hand to fill the
customer orders.
D) it enhances internal control.
E) All of the above are characteristics of a perpetual inventory system.
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. What is the balance in the accumulated depreciation account on December 31,
20X4, if Compatibility Services uses double-declining-balance depreciation?
A) $40,000
B) $35,000
C) $18,750
D) $37,500
E) $32,000
When preparing the statement of cash flows under the indirect method, an appropriate
procedure would be to
A) add a loss from the sale of a fixed asset.
B) add an increase in accounts receivable.
C) subtract depreciation expense.
D) subtract an increase in accounts payable.
E) determine cash received from customers.
Reliability is defined as
A) the quality of information that allows it to help users form their expectations about
the future.
B) the capability of information to make a difference to the decision maker.
C) the quality of information that allows decision makers to depend on it to represent
the conditions or events that it purports to represent.
D) choosing accounting policies without attempting to achieve purposes other than
measuring economic impact.
E) a quality of information such that there would be a high extent of consensus among
independent measurers of an item.
A deferred income tax liability
A) arises because of differences between U.S. income tax rules and foreign income tax
rules.
B) can arise because of “permanent” and “temporary” differences.
C) arise because managers wish to maximize taxable income.
D) can arise when a firm uses special accelerated depreciation for tax purposes while
using straight-line depreciation for financial reporting.
E) occurs when the company has a NOL (net operating loss).
When inventory prices are rising, the ending inventory balance reported on a LIFO
basis is generally
A) lower than on a FIFO basis.
B) equal to a FIFO basis.
C) greater than on a FIFO basis.
D) equal to a weighted-average basis.
E) greater than a weighted-average basis.
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. What is the depreciable value of the machine acquired by Compatibility Services?
A) $4,000
B) $76,000
C) $80,000
D) $8,000
E) Cannot be determined without additional data
Holand, Inc., determines that depreciation amounts to $900 for the period. The entry
includes a
A) debit Depreciation Expense and credit Accumulated Depreciation for $900.
B) debit Accumulated Depreciation and credit Equipment for $900.
C) debit Depreciation Expense and credit Equipment for $900.
D) debit Equipment and credit Accumulated Depreciation for $900.
E) debit Accumulated Depreciation and credit Depreciation Expense for $900.
A written promise to repay a loan principal plus interest at a specific future date is
A) a promissory note.
B) a line of credit.
C) commercial paper.
D) a product warranty.
E) a returnable deposit.
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. If Compatibility Services uses straight-line depreciation, what is the depreciation
expense in 20X4?
A) $6,686
B) $ 9,500
C) $ 10,000
D) $ 8,000
E) $12,500
Which of the following items will NOT appear in the operating activities section of the
statement of cash flows when using the direct method?
A) Collections from customers
B) Depreciation expense
C) Cash paid for income taxes
D) Payments to employees
E) Payments to suppliers
Eleston Printing acquired the following short-term equity securities on January 1,
2X12:
The quarter-end prices per share were as follows:
Eleston Printing considers Color, Inc. stock to be a trading security and Black, Inc. and
White, Inc. to be available-for-sale securities.
What will be the net gain or loss reported on the income statement of Eleston Printing
for the three month period ending June 30, 2X12?
A) $250
B) $(400)
C) $(200)
D) $(1,300)
E) ($500)
Dell Catering accrues its income taxes quarterly for the sole manufacturing facility
located in Brunswick, Florida. Although Dell Catering is not subject to local tax, it is
required to pay both state and federal income taxes, which are 12% and 28% of net
income, respectively. Second quarter income for Dell Catering amounted to $550,000.
Required:
1. Prepare the appropriate journal entry for Dell Catering as of June 30.
2. Explain how income taxes are shown on a multi-step income statement.
Which of the following statements is false?
A) If you increase an asset account, you may increase a liability account.
B) If you increase an asset account, you may decrease an asset account.
C) If you decrease an asset account, you may increase an owners’ equity account.
D) If you decrease an asset account, you may decrease an owners’ equity account.
E) If you increase an asset account, you may increase an owners’ equity account.
Quizno Contracting would like to utilize the percentage of completion method to
recognize a building under construction for Balto Veterinary. However, the accountant
is not sure whether Quizno Contracting is meeting GAAP expectations. It is appropriate
for Quizno Contracting to apply the percentage of completion method EXCEPT when
A) progress measures are dependable.
B) contract obligations are precise and clear.
C) the buyer has agreed to use the completed contract method of revenue recognition.
D) both buyer and seller are expected to meet their obligations.
E) little or no uncertainty exists regarding payment by the buyer.
If Company A has an accrual of interest to be received on a note receivable, then the
company should debit
A) Interest expense.
B) Accrued interest payable.
C) Accrued interest receivable.
D) Interest revenue.
E) Cash.
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
If Queen Mattresses, Inc. were using a periodic inventory system, what is the journal
entry to close sales on May 31?
E) No entry is necessary on a monthly basis.
Howard Products has a daily payroll of $2,200, 5 days a week. The employees are paid
every Friday for that week’s wages. July 31 was on a Wednesday and the employees
were paid $11,000 on August 2. What is the journal entry on August 2, assuming the
appropriate month ending adjusting entry was made on July 31?
Comparative income statements are available for Floatlin Company:
Prepare common-size income statements for Floatlin Company for 2X13 and 2X12.
Westerfelt Shops issued 3,000 debentures on January 1, 20X9. The debentures were
12-year, 7% debt, which paid interest semi-annually, every June 30 and December 31.
The face value of each debenture is $1,000. If the market rate of interest is 7% on
January 1, 20X9, what is the journal entry to record the payment of interest on June 30,
20X9?
Analyze the following transactions in the balance sheet equation using the following
worksheet.
1. Initial investment of $300,000 by the owner
2. Acquire equipment for $25,000 cash
3. Acquire inventory for $6,000 on credit
4. Obtain loan of $15,000 from the bank
5. Returned $600 of inventory to supplier
6. Payment to creditor for amount of inventory purchase less amount returned
Note Accounts
Transaction Cash Inventory Equipment Payable Payable Capital