The cost of merchandise acquired is the invoice price of the goods plus directly
identifiable inbound transportation costs less any cash or quantity discounts and less
any returns or allowances.
The denominator in the basic earnings per share ratio is the number of common shares
outstanding at the end of the period.
Dividends become a liability of the corporation on the date of payment.
Deposits to a bank by customers are considered to be current liabilities by the bank.
Interest expense will increase each period if a company uses the effective-interest
method of amortization and the bonds are issued at a discount.
The adjusting entry to record revenue earned during the current period when cash was
received in the last accounting period includes a credit to Unearned Revenue.
A credit decreases the balance of assets and expenses.
The account format of the balance sheet reports assets at the top of the statement.
An operating expense is the cost that is added to an asset account.
The goal of the internal control that calls for adequate documentation is the immediate,
complete, and tamper-proof recording of all transactions.
Owners’ equity is the residual interest in the organization’s assets after deducting
liabilities.
The matching concept is closely related to the cash basis of accounting.
Component percentages are line items of income statements that express each line item
as a percentage of the total sales revenue.
Short-term liquidity refers to an organization’s ability to generate enough cash to repay
long-term debts as they mature.
The difference between a company’s inventory valued at LIFO and what it would be
under FIFO is known as a FIFO reserve.
A bad debts recovery has what effect on the balance sheet under the allowance method
for bad debts?
A) It has no effect on total assets or stockholders’ equity.
B) It decreases assets and decreases stockholders’ equity.
C) It increases assets and decreases stockholders’ equity.
D) It decreases assets and has no effect on stockholders’ equity.
E) It has no effect on assets and decreases owner’s equity.
Adjusting entries affect
A) neither an income statement account nor a balance sheet account
B) an income statement account and a balance sheet account
C) income statement accounts only
D) balance sheet accounts only
E) a cash account
The MACRS allows depreciable assets to have
A) longer lives than economic lives resulting in higher income taxes in the early years
of an asset’s life than the straight-line method.
B) longer lives than economic lives resulting in lower income taxes in the early years of
an asset’s life than the straight-line method.
C) shorter lives than economic lives resulting in higher income taxes in the early years
of an asset’s life than the straight-line method.
D) shorter lives than economic lives resulting in lower income taxes in the early years
of an asset’s life than the straight-line method.
E) useful lives equivalent to economic lives.
Which of the following transactions increase cash?
1. Sales of goods and services for cash
2. Receiving cash dividends
3. Collection of accounts receivable
4. Reclassifying long-term debt to short-term debt
5. Accruing interest revenue
A) 1 and 2
B) 1 and 3
C) 1, 2, and 3
D) 1, 2, 3, and 4
E) 1, 2, 3, and 5
Whispering Woods Retreat has net income of $400,000. The company’s tax rate is 40%.
The company had 100,000 shares of common stock outstanding throughout the year.
The company also has two other securities:
a. Preferred stock; 6%; $100 par; 5,000 shares issued and outstanding. Each share of
preferred stock is convertible into 4 shares of common stock.
b. 12% long-term bonds payable; $300,000 face value. Each $1,000 bond is convertible
into 25 shares of common stock.
Prepare the earnings per share information required for Whispering Woods Retreat.
Which of the following statements is true?
A) Owners’ equities are economic sacrifices after deducting liabilities.
B) Assets are expected to benefit no one.
C) Liabilities are future cash inflows.
D) Assets are always the sum of liabilities and owners’ equities.
E) Owners’ equities have priority over liabilities for assets upon liquidation.
The spreading of bond discount over the life of the bonds as interest expense is called
A) discount amortization.
B) effective-interest amortization.
C) compound interest amortization.
D) premium amortization.
E) LIBOR.
The following data pertains to Joss Decorating for the year of 2012:
a. Salaries and wages: accrued, $175,000; paid in cash $200,000.
b. Depreciation, $50,000.
c. Interest expense, all paid in cash, $12,500.
d. Other expenses, all paid in cash, $112,000.
e. Income taxes accrued, $35,000; income taxes paid in cash, $33,000.
f. Bought plant and facilities for $365,000 cash.
g. Sales of $1,500,000, all on credit. Cash collections from customers, $1,250,000.
h. The cost of items sold was $750,000. Purchases of inventory totaled $825,000;
inventory and accounts payable were affected accordingly.
i. Cash payments on trade accounts payable were $700,000.
j. Issued long-term debt for $110,000 cash.
k. Paid cash dividends of $45,000.
Prepare a statement of cash flows using the direct method for reporting cash flows from
operating activities. Omit supporting schedules.
When a portion of prepaid rent expires, what will be the effect on the balance sheet
equation?
A) This transaction affects only the income statement, so there will be no effect on the
balance sheet.
B) There will be no overall effect on total assets, because two different asset accounts
will change by the exact dollar amount, with one increasing and the other decreasing.
C) Total assets and total liabilities will go down by the exact same dollar amount.
D) Total assets and total stockholders’ equity will go down by the exact same dollar
amount.
E) Without knowing the dollar amount of the transaction, the effect on the balance sheet
equation cannot be determined.
Supporting Therapy has a negative free cash flow. What is Supporting Therapy most
likely going to do assuming they are not able to obtain financing?
A) Sell its assets
B) Hire new employees
C) Buy a new patent
D) Buy additional inventory
E) Pay dividends
If Lauren deposits $9,000 in an account that pays 10% yearly interest, compounded
annually, how much will she have in the account at the end of 3 years?
A) $8,990
B) $9,750
C) $10,909
D) $11,979
E) $12,500
Kristine Parsons owns 2,000 shares of $1.00 par value capital stock of Garments 4 You.
Kristine sold 100 of these shares to Beverly Plito for $200. The effect of this transaction
on the accounts of Garments 4 You would be to
A) increase the capital stock account by $1,800 and increase the cash account by
$1,800.
B) increase the capital stock account by $200, increase the paid-in capital in excess of
par account by $2,000, and increase the cash account by $1,800.
C) decrease the capital stock account by $1,800 and increase the paid-in capital in
excess of par account by $1,800.
D) increase the capital stock account by $1,800 and decrease the paid-in capital in
excess of par account by $1,800.
E) There is no effect from this transaction on the accounts of Garments 4 You.
Which of the following activities does not affect cash on the investing section of the
Statement of Cash Flows?
A) purchased store equipment on credit
B) purchased stock in another company for investment purposes using cash
C) collected partial payment on a loan made to an employee
D) purchased building using cash
E) sold investment securities and received cash
Fangled Company reports the following balance sheet:
What is the debt-to-equity ratio for Fangled Company at December 31, 20X3?
A) 43.28%.
B) 63.16%.
C) 76.32%.
D) 92.31%.
E) 111.54%.
In an analysis of transactions using the balance sheet equation, revenues and expenses
are adjustments to the ________ account.
A) Accounts Receivable
B) Accounts Payable
C) Cash
D) Capital Stock
E) Retained Earnings
On January 1, 2009, Elicir Technologies purchased lawn mowers for $60,000. The lawn
mowers have an estimated life of 8 years or 40,000 hours and an estimated residual value
of $4,000. Elicir Technologies must choose the depreciation method that appropriately
allocates depreciation over the lawn mowers’ useful life and would like the following items
calculated.
1) Depreciation expense for 2009 and 2010 using the units-of-production depreciation
method. The lawn mowers were operated for 4,000 hours in 2009 and 6,000 hours in 2010.
2) Straight-line depreciation for 2009 and 2010.
3) Accumulated depreciation at December 31, 2010 using the straight-line method
4) Accumulated depreciation at December 31, 2010 using the units-of-production method.
5) Book value of the lawn mowers using the straight-line depreciation method and the
book value using the units-of-production method of depreciation as of December 31, 2010.
Joino Manufacturing issued 2,000 shares of $100 par 9% convertible preferred stock for
$112 per share. Each share of preferred stock can be converted into 8 shares of $2 par
value common stock. On June 20, 2X13, 300 shares of preferred stock were converted
when the market price per share of preferred stock was $115, and the market price per
share for common stock $15. What is the journal entry for Joino Manufacturing on June
20, 2X13?
Jacklie Syndicate began operations on January 1, 20X3. The company has the following
items included in the stockholders’ equity section of its balance sheet on December 31,
20X3 and December 31, 20X4.
Total dividends declared and paid were
If Jacklie Syndicate’s preferred stock were noncumulative, how much of the 20X4
dividends would have been distributed to
Sandstone Company has the following stockholders’ equity section:
What is the journal entry to be made by Sandstone Company if the company purchases
and retires 15,000 shares of its own common stock when the market price of the stock is
$20 per share?
Wells, Inc., manufactures lawn mowers. Materials are purchased by the purchasing
agent from information sent to him by the line manager. The line manager details how
much to purchase as well as whom to purchase the materials from. When materials
arrive at the factory, they are sent immediately to the stockroom without warehouse
personnel checking on quantity or quality of the goods. Invoices are received by the
accounts payable department, which compares the invoice to the purchase order. If the
documents agree, payment is generated in the accounts payable department and sent to
the vendor.
Propose improvements in the internal control procedures for Wells, Inc.
How do generally accepted accounting principles present an ethical issue in financial
accounting?
Platek Enterprises is 100% owned by Cory Industries. On December 30, 2X13, Platek
sold inventory, costing $3,500 on account to Cory for $5,000. Platek uses a perpetual
inventory system. What consolidation journal entry, if any, is needed on December 31,
2X13, as a result of this transaction?
Queen Mattresses, Inc. had the following transactions occur during May 20X3. Assume
there is no beginning inventory.
If Queen Mattresses, Inc. were using the perpetual inventory system, what is the journal
entry for May 9?
Delta Company acquired land and a building on March 1, 20X3, paying a total of
$1,400,000. Separately, the land had an estimated fair market value of $750,000 and the
building had an estimated fair market value of $1,125,000. In order to use the property,
land improvements of $20,000 were incurred. Additionally, the building needed to be
rewired, at a cost of $65,000. Also, certain walls had to be knocked down, while others
were constructed. The cost to remove and replace walls was $80,000. The company
took occupancy of the building on August 1, 20X3.
For all of items noted above, determine how much will be incorporated into the land
account, the building account, or expensed as of Delta Company’s year end of
December 31, 20X3.
Key Company purchased land for $350,000 with intentions to construct an office
building on the site. At the time of the closing, Key Company paid closing costs of
$5,000, title fees of $800, and attorney’s fees of $3,200. When Key Company purchased
the land, removal of an old building was completed in preparation for the new building
at a cost of $8,000. However, Key Company was able to sell a portion of the building
materials retrieved from the old, demolished building to a local contractor for $2,000.
After $21,000 was paid to grade the property, a building was constructed at a total cost
of $600,000.
Required:
Based on the previous information, identify the total acquisition costs for the land and
the building.
