Revenue is recognized when a customer’s promise to pay exists, even if the company is
not relatively certain that they will receive payment.
An aging schedule reveals $6,500 of uncollectible accounts. The Allowance for
Uncollectible Accounts currently has a credit balance of $250. The adjusting entry
amount should be $6,250.
Spin-offs often separate similar business segments.
Accounting does not provide information that is useful in making decisions that have
economic consequences.
Operating activities on a statement of cash flows relate to acquiring assets such as
buildings and equipment.
Assuming inflation, the weighted-average method will result in a net income that is
higher than LIFO.
The purchase of a building with a down payment of cash and the signing of a note
payable for the remainder would include a debit to both the Building account and the
Notes Payable account, and a credit to the Cash account.
For revenue to be earned under the cash basis of accounting, the cash from the customer
must be received.
The number of shares authorized are always greater than or equal to the number of
shares outstanding, which are always greater than or equal to the number of shares
issued.
The excess of the proceeds over the face amount of a bond is called premium on bonds.
If assets increase $80,000 during a period and liabilities decrease $40,000, then owners’
equity must have decreased $40,000.
Depletion expense is computed in the same manner as straight-line depreciation.
Which of the following statements is false?
A) Well-known examples of returnable deposits are those for returnable containers such
as soft-drink bottles and beer kegs.
B) Companies that receive deposits record them as a form of receivable.
C) The account, Deposits Payable, is a current liability of the company receiving the
deposit.
D) Ordinarily, the recipient of the cash deposit may use the cash for investment
purposes from the date of deposit to the date of its return to the depositor.
E) None of the above
Failure to record depreciation at year-end will
A) overstate total liabilities.
B) understate assets.
C) overstate assets.
D) understate owners’ equity.
E) overstate revenue.
The following data is available for Xandua Company:
Calculate the following ratios:
1. a) Basic earnings per share-common
b) Dividend yield
2. Why are earnings per share important to investors?
An account that may cause ethical conflict because of its need for judgment is
A) utilities expense.
B) accounts payable.
C) accounts receivable.
D) notes payable.
E) depreciation expense.
On January 1, 2X13, Veggie Company paid $80 in cash for 100% of the outstanding
shares of Fruit Company. The fair market value of all Fruit Company’s accounts was
equivalent to their book value. During 2X13, Fruit Company had net income of $10,
and Veggie Company had net income of $40. None of the net income for either
company was the result of intercompany sales. All net income for both companies is in
the form of additional cash.
Prepare the following:
a) The journal entry necessary for Veggie Company on January 1, 2X13
b) The journal entry necessary for Fruit Company on January 1, 2X13
c) The consolidated balance sheet immediately after the acquisition
In a transaction where the merchandise invoice indicates F.O.B. shipping point, who
pays the cost of shipping?
A) The buyer
B) The seller
C) The common carrier
D) The freight forwarder
E) None of the above
Increases in cash stem from
1. increases in liabilities.
2. increases in stockholders’ equity.
3. increases in noncash assets.
4. decreases in liabilities.
5. decreases in stockholders’ equity.
6. decreases in noncash assets.
A) 1, 2, and 3
B) 2, 3, and 4
C) 1, 2, and 6
D) 2, 3, and 5
E) 3, 4, and 5
Ontario Appliances has the following data:
What is the interest coverage for Ontario Appliances in 2X13? Has the interest coverage
improved or not improved since 2X12?
A) 12.7, unknown
B) 7.7, not improved
C) 7.7, improved
D) 8.7, improved
E) 8.7, not improved
Under the effective-interest method of amortization, interest expense each period can be
calculated by multiplying the
A) beginning net liability times the effective interest rate for the appropriate time
period.
B) beginning net liability times the coupon interest rate for the appropriate time period.
C) face value of the bonds times the effective interest rate for the appropriate time
period.
D) face value of the bonds times the coupon interest rate for the appropriate time
period.
E) liquidation value times the effective interest rate for the appropriate time period.
Ace Office Equipment is an office equipment company specializing in sales of printers,
scanners, and copiers. When should Ace Office Equipment recognize revenue from its
sales?
A) When the customer calls to accept delivery of a new copier
B) When the customer signs a contract to buy a copier
C) When the copier is delivered to the customer
D) When the payment is received from the customer
E) When the financial statements are prepared that includes this sale
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 3 month period ending March 31, 2X12?
A) $250
B) $(250)
C) $900
D) $1,100
E) $2,000
What is the effect on a company’s balance sheet equation when depreciation expense is
recognized?
A) This transaction affects only the income statement, so no change on the balance
sheet will occur.
B) Total assets and total stockholders’ equity will decrease by the same amount.
C) There will be no change in the total assets, liabilities, and stockholders’ equity
account.
D) Total liabilities will increase and total stockholders’ equity will decrease by the same
amount.
E) Without knowing the exact dollar amount of depreciation, the effect on the balance
sheet cannot be determined.
Decide whether each of the following lease agreements should be recorded as a capital
lease or an operating lease:
a) The present value of the lease payments is 75% of the fair value of the leased asset at
the start of the lease. The lease term is for 6 years; the estimated useful life of the leased
asset is 10 years. There is a bargain purchase agreement for the lessee to purchase the
leased asset at well below fair value at the end of the lease term.
b) The present value of the lease payments is 90% of the fair value of the leased asset at
the start of the lease. The lease term is for 2 years; the estimated useful life of the leased
asset is 10 years. The leased asset reverts back to the lessor at the end of the lease.
c) The lease transfers ownership of the leased asset to the lessee at the end of the lease.
The present value of the lease payments is 75% of the fair value of the leased asset at
the start of the lease. The lease term is for 3 years; the estimated useful life of the leased
asset is 10 years.
d) The lease agreement doesn’t contain a bargain purchase agreement. The leased asset
reverts back to the lessor at the end of the lease agreement. The present value of the
lease payments is 85% of the fair value of the leased asset at the start of the lease. The
lease term is for 10 years; the estimated useful life of the leased asset is 15 years.
Fulton Company has the following data available:
If a common size income statement were prepared, what percentage would be
attributable to the 2X13 wage expense of Fulton Company?
A) 10.6%
B) 11.2%
C) 46.2%
D) 58.1%
E) 81.8%
Machiel Manufacturing acquired a $60,000 machine on January 1, 2009. The machine
is estimated to have a useful life of 4 years, and a residual value of $10,000. For
units-of-production depreciation purposes, the machine is expected to produce 500,000
units. If Machiel Manufacturing uses straight-line depreciation, what is the balance in
the accumulated depreciation account on January 1, 2011?
A) $14,400
B) $16,000
C) $17,600
D) $21,600
E) $25,000
Which of the following internal accounting control objectives relate to establishing the
system of accountability and are aimed at the prevention of errors and irregularities?
1. Authorization
2. Promoting operating efficiency
3. Reconciliation
4. Recording
5. Safeguarding
6. Valuation
A) 3 and 4
B) 4 and 5
C) 1, 3, and 4
D) 1, 4, and 5
E) 2, 3, and 5
Dental Solutions leased a building for 2 years, effective May 1, 20X3. The lease was
considered an operating lease. The lease required that Dental Solutions make payments
of $6,000 every 3 months, beginning on May 1, 20X3. The first payment covers the
period of May 1, 20X3 through July 31, 20X3. Assume an interest rate of 12%. What is
the journal entry to be made by Dental Solutions on May 31, 20X3?
A) Rent Expense 2,000
Prepaid Rent 2,000
B) Rent Expense 2,000
Cash 2,000
C) Rent Expense 4,000
Prepaid Rent 4,000
D) Prepaid Rent 2,000
Rent Expense 2,000
E) Prepaid Rent 4,000
Rent Expense 4,000
Revenues are
A) increases in liabilities resulting from delivering goods or services to customers.
B) decreases in net assets resulting from delivering goods or services to customers.
C) increases in net assets resulting from delivering goods or services to customers.
D) decreases in retained earnings resulting from delivering goods or services to
customers.
E) another term for assets.
Presented below are the balance sheets of Tallton Company and Handel Company at
January 1, 2X13:
On January 1, 2X13, Tallton Company acquired 100% of the outstanding common
stock of Handel Company for $140 in cash. Assume the book value of Handel’s assets
and liabilities equals the market value.
What elimination journal entry will be necessary in order to prepare a consolidated
balance sheet immediately after the acquisition?
Dexter Warehouse had inventory of $200 on June 1. The company had the following
transactions during June.
Prepare the appropriate journal entry for each of the above transactions assuming
Dexter Warehouse uses a perpetual inventory system.
Ronald Cummings purchased 800 shares of Barnum Corp.’s common stock for $15 per
share. Barnum Corp.’s shares have a par value of $2. Assume Barnum Corp. declared
and issued a 100% stock dividend. Subsequently, Ronald Cummings sold all of his
holdings in Barnum Corp. for $9 per share. What journal entry would Ronald
Cummings make to record the sale of his shares of the Barnum Corp.?
Gabby Company operates under a perpetual inventory system. It began operations on
March 1, 20X9, and had the following transactions affecting inventory during March,
20X9.
Assume the company is trying to decide between the periodic method and the perpetual
method. Gabby has decided to use the last-in-first-out cost flow assumption. Determine
the cost of goods sold for the month of March, 20X9 and the ending inventory balance
at March 31, 20X9, using both the perpetual method and the periodic method.
Tablet Trade & Commerce has 100,000 shares of common stock authorized, 10,000
shares issued and outstanding. On June 1, 20X3, the company declared a $5.00 per
share dividend for those of record on July 1, 20X3, to be paid on August 1, 20X3.
Which of the following journal entries would Tablet Trade & Commerce make on July
1, 20X3?
Hi-tower Machining offers pensions and postretirement benefits to its employees. For
the fiscal year ended March 31, 2X03, Hi-tower Machining’s employees accumulated
$16 million in additional pension benefits, but Hi-tower Machining did not contribute
additional cash into the fund. In addition, Hi-tower Machining paid retirees a total of $2
million in health benefits with an actuarial gain of $1.2 million.
Prepare the journal entries to
1. account for the pension fund.
2. account for the health insurance payment and gain.
On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment,
20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10%
coupon rate, and pay interest semi-annually every June 30 and December 31. If the
bonds were purchased by Soothing Massage Company to yield 12% and were acquired
for $17,705.90, what is the journal entry to be made by Soothing Massage Company
with respect to interest on June 30, 2X13?
