Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
The use of internal controls guarantees protection against losses due to fraud, errors,
and inefficiencies.
The daily activities involved in running a business, such as buying supplies and paying
salaries and wages, are classified as operating activities on the statement of cash flows.
Amounts reported on financial statements are sometimes rounded to the nearest million.
The payment of salaries and wages would be reported as an operating activity on the
statement of cash flows.
It is possible for a company to be profitable, yet not have enough cash to pay its bills.
When preparing the operating activities section of the statement of cash flows using the
indirect method, accumulated depreciation is added to net income in the operating
section.
Preferred stock is generally classified as stockholders' equity under both GAAP and
IFRS.
When preparing the operating activities section of the statement of cash flows using the
indirect method, an increase in Income Taxes Payable is added to net income.
A company can use LIFO to prepare its U.S. tax return and FIFO to prepare its financial
statements.
Operating cycles are generally longer than a year.
Callable bonds can be converted to stock.
The percentage of credit sales method focuses on estimating the ending balance to be
reported in the Allowance for Doubtful Account, whereas the aging of accounts
receivable method focuses on estimating Bad Debt Expense for the period.
When an asset is sold and its book value exceeds its selling price, net income will
increase.
Goods placed in inventory are initially recorded at market value.
The entry to record a bond retirement at maturity usually involves:
A) no gain or loss.
B) a credit to Gain on Bond Retirement.
C) a debit to Loss on Bond Retirement.
D) a credit to Bonds Payable.
A stock dividend:
A) is accounted for like a stock split.
B) will reduce stockholders' equity like a cash dividend does.
C) will not change any of the accounts within stockholders' equity.
D) will reduce Retained Earnings like a cash dividend does.
Use the information above to answer the following question. The gross profit
percentage would be closest to:
A) 25.6%.
B) 31.5%.
C) 55.6%.
D) 68.5%.
Company A lends $100,000 to Company B. The interest on the loan is reported as:
A) an expense to Company A and a revenue to Company B.
B) an asset to Company A and a revenue to Company B.
C) a liability to Company A and an asset to Company B.
D) a revenue to Company A and an expense to Company B.
A debit balance in Retained Earnings is:
A) an indication of a contra-equity account.
B) called an Accumulated Deficit.
C) called a net loss.
D) impossible.
An investor who is looking at a company's financial statements cannot determine
whether the:
A) company's earnings are rising or falling.
B) company pays a dividend.
C) company has positive cash flow.
D) company's owners are financially sound.
Which of the following is a set of regulations passed by Congress in 2002 in an attempt
to improve financial reporting and restore investor confidence?
A) Enron Act
B) Federal Accounting Standards Board Act
C) Sarbanes-Oxley Act
D) Securities and Exchange Act
One of the most common sources of misstatement in financial statements is the:
A) use of alternating inventory costing methods.
B) failure to write down inventory when the market value is below cost.
C) failure to report stock issues appropriately.
D) incorrectly calculating the inventory turnover ratio.
A company sells equipment for $450,000 when the book value of the equipment is
$400,000. The company would record the extra $50,000 as:
A) a gain, increasing net income and stockholders' equity.
B) revenue, increasing net income and stockholders' equity.
C) expenses, decreasing net income and stockholders' equity.
D) a loss, decreasing net income and stockholders' equity.
Specialty Inc. converts an existing account receivable to a note receivable to allow an
extended payment period. Specialty receives a $2,000, 3-month, 12% promissory note
from its customer. What entry will Specialty make upon receipt of the note?
A) Debit Notes Receivable and credit Accounts Receivable for $2,060
B) Debit Accounts Receivable and credit Notes Receivable for $2,000
C) Debit Notes Receivable for $2,000, debit Interest Receivable for $60, credit
Accounts Receivable for $2,000, and credit Interest Revenue for $60
D) Debit Notes Receivable and credit Accounts Receivable for $2,000
Which of the following statements about the current ratio is not correct?
A) When making comparisons across companies, it's far easier to express the
relationship as a ratio.
B) The current ratio is used to evaluate a company's ability to pay current obligations.
C) Having more current assets than current liabilities will yield a current ratio less than
1.0.
D) A high current ratio suggests good liquidity.
Use the information above to answer the following question. What was the cash balance
on the company's books (before the adjustments for items on the bank reconciliation)?
Flynn Company's monthly bank statement showed the ending balance of cash of
$18,500. The bank reconciliation for the period showed an adjustment for a deposit in
transit of $1,500, outstanding checks of $2,000, a NSF check of $700, bank service
charges of $30 and the EFT from a customer in payment of the customer's account of
$1,500.
A) $18,000
B) $17,230
C) $19,000
D) $20,270
Which of the following companies would be least concerned about a low inventory
turnover ratio?
A) A fish market selling fresh fish
B) A hardware company selling drywall screws
C) A dairy company selling butter and milk
D) A semiconductor company selling microchips
An increase in operating expenses would have which of the following effects on a
company's profit margin?
A) Net profit margin would increase.
B) Net profit margin would decrease.
C) Net profit margin would remain unchanged.
D) There is not enough information given to determine the effect.
A company entered into the following transactions during April.
Required:
Complete the following table by indicating the amount and effect of each transaction on
the accounting equation.
Transaction
Assets
Liabilities Stockholders' Equity
A. Signed a lease and made a payment of $4,500 to the landlord comprised of the
current month's rent of $1,500 and the required $3,000 security deposit.
B. Purchased equipment on account for $35,000.
C. Purchased supplies for $6,500 on account and used them immediately.
D. Performed services and received cash of $57,000.
E. Performed services on account for $28,000.
F. Received a payment of $24,000 for services to be performed in the future.
G. Collected $14,000 from customers on account.
H. Paid employees $11,000 for work done during the month.
I. Made a $35,000 payment on account for equipment that was purchased above.
J. Made a payment of $6,500 on account for the supplies purchased above.
K. Received bills for the current month from telephone and electricity companies
totaling $3,800; payments will be made next month.
Accounts receivable:
A) arise from the purchase of goods or services on credit
B) are amounts owed to a business by its customers.
C) will be collected within the discount period or when due.
D) are reported on the income statement.
The table below includes some of the accounts that are included on a company's chart
of accounts.
Required:
For each of the accounts listed, identify whether the account is a temporary (T) or a
permanent (P) account. Then, indicate whether the account will be closed with a debit
(Dr) or credit (Cr) or whether it will not be closed (NC).
Assume that the accountant neglected to analyze the company's accounts and did not
prepare any adjusting entries at the end of the year. The adjusting entries that should
have been made are described in the table below.
Required:
For each overlooked adjusting entry, indicate how each error impacted the amounts of
total assets, total liabilities, and total stockholders' equity that were reported on the
balance sheet and the amount of net income reported on the income statement.
A journal entry to record the purchase of supplies for $400 cash was properly prepared.
The debit in the entry was properly posted to the related account. However, the credit in
the entry was mistakenly recorded as a credit to the Supplies account.
Required:
Determine the impact of this error on the accounting equation.
Lisa and Charlie operate a yacht maintenance service that they incorporated as Reliable
Yacht Repair, Inc. They recently talked to their banker about obtaining a loan. The
banker has requested their most recent financial statements prepared in accordance with
GAAP. Lisa and Charlie are unsure of how to proceed and ask you for advice. You
asked for their most recent unadjusted trial balance, which follows:
Required:
Review the unadjusted trial balance and identify the accounts that might require
adjustment at June 30, 2015. Then, describe what information you would need in order
to determine the nature and amount of the adjusting entry for each of the accounts
identified.
Match each transaction with the type of entry that will be required at April 30, the
company's year-end.
Transaction
____ 1) The company has $8,300 in Prepaid Rent at the beginning of April and uses
$3,600 of that for its April rent.
____ 2) The company provides lawn care in April for customers who will be billed and
make payment in May.
____ 3)The company owes interest on loans for the month of April and will not pay this
interest until May.
____ 4) The company uses $1,600 worth of fertilizer from its stock of supplies.
____ 5) The company provides lawn care in April for customers who paid in March.
____ 6) The company transfers revenues of $50,000 and expenses of $32,000 to
Retained Earnings.
____ 7) The company makes an entry to allocate the use of equipment during the
current account period.
____ 8)The company transfers the balance in the Dividends account of $1,200 to
Retained Earnings.
____ 9) The company records income taxes.
____ 10) The weekly payroll of $5,000 to be paid next week is recorded.
Type of Entry
A - Accrual adjusting entry
D - Deferral adjusting entry
C - Closing entry
You have received the bank statement for your company's account and need to reconcile
it with your general ledger cash account. Your records show an ending balance for the
month of $12,722.40 while the bank's records show an ending balance of $12,367.16.
The bank charged $8 in service fees and paid $26.05 in interest.
All but three checks written during the month were processed by the bank without
incident during the month. The three exceptions were:
Check #841 was correctly processed by the bank as $981.27 but was mistakenly
recorded by you as $781.27.
Check #853 for $64.57 had not yet been processed by the bank.
Check #855 for $683.46 had not yet been processed by the bank.
All but two of the deposits made during the month were processed by the bank without
incident. The two exceptions were:
A customer check for $307.95, which had been deposited during the month, was
returned NSF.
A deposit totaling $613.37 had not yet been processed by the bank.
Required:
Using the information provided above, prepare a bank reconciliation.
Assume that the cost of inventory is decreasing.
Required:
Fill in the blanks below with the words "higher" and "lower" to indicate which
inventory costing method causes the value to be higher and which causes it to be lower.
At the end of the day, the cash register's record shows $957, but the count of cash in the
register is $965. Prepare the journal entry to record the day's cash sales.
Consider the following single-step income statement.
Required:
Prepare a multistep income statement for Creative Tax Service for the year ended
December 31, 2016.
Torrington Inc. updates its inventory records perpetually. The company's records
showed a beginning inventory of $6,200, cost of goods sold of $81,600, and ending
inventory of $12,000.
Required:
Determine the amount of inventory that was purchased during the year.
