A list of all active accounts and their balances at a particular date, which is used to
prove the equality of debits and credits, is a
a. Chart of Accounts.
b. General Ledger.
c. Journal.
d. Trial Balance.
Refer to Rainsoft Company. Assume that competitors in the industry have an average
accounts receivable turnover ratio of 7.8 times in 2015. What is the company’s accounts
receivable turnover ratio for 2015?
a. 5.26
b. 7.62
c. 7.80
d. 8.91
Which stockholder ratio requires the use of dividends per share and the current market
price?
a. return on common equity
b. dividend payout ratio
c. earnings per share
d. dividend yield ratio
Refer to the information provided for Tedder Co. If the company uses the weighted
average method of inventory costing, how much is cost of goods sold for January?
a. $230
b. $232
c. $240
d. $250
A company that sells merchandise to customers should normally recognize
a. revenue only after the cash is collected.
b. revenue and the related expenses in the period the revenue earned, whether payment
is received or not.
c. both Revenue and expenses in the period following sale.
d. expenses in the period the merchandise is sold and revenue in the following period.
Which of the following does notoccur during the closing process?
a. Journal entries are made to return the balance in all nominal accounts to zero.
b. Journal entries are made to transfer the net income or loss to retained earnings.
c. Journal entries are made to return the balance in all real accounts to zero.
d. Journal entries are made to transfer the dividends to retained earnings.
A company borrowed $100,000 on a one-year, 10% note on September 1, 2013, with
interest and principal to be paid at maturity. How much interest payable will be reported
on the balance sheet at November 30, 2013?
a. $ 2,500
b. $ 7,500
c. $10,000
d. $ 3,333
Refer to Dance Town Academy. Determine the amount of the company’s adjusted cash
balance.
a. $16,800
b. $20,200
c. $ 1,700
d. Cannot be determined.
Which of the following will decreasethe quick ratio?
a. collection of accounts receivable
b. sale of inventory on credit
c. sale of inventory for cash
d. purchase of a computer with cash
Fireworks City
Information for 2013 and 2012 is presented below for this company which uses the
straight-line depreciation method.
2013 2012
Property, plant and equipment $ 250,000 $190,000
Accumulated depreciation 100,000 85,000
Depreciation expense 62,500 47,500
Net sales 1,000,000 900,000
Total assets 625,000 475,000
Refer to Fireworks City. Using the data for 2013, determine the average life of the
company’s property, plant, and equipment rounded to one decimal place.
a. 1.6 years
b. 2.5 years
c. 4.0 years
d. 10.0 years
In 2013, Karaoke Tunes issued $200,000 of bonds for $190,200. If the stated rate of
interest was 6.5% and the market rate of interest was 7.1%, how would the company
calculate the discount at the time the bonds were issued using the effective interest
method?
a. $190,200 7.1%
b. $190,200 6.5%
c. $200,000 7.1%
d. $200,000 6.5%
Holiday Marina
The bookkeeper prepared the following journal entries during May. Assume that the
descriptions of the entries are correct.
Journal (partial):
Date Accounts and Descriptions Debit Credit
May 5 Accounts Receivable 1,600
Service Revenue 1,600
Billed customers for services completed
May 11 Cash 500
Service Revenue 500
Collected from a customer billed on May 5 for services rendered
May 15 Office Supplies 700
Accounts Payable 700
Purchased furniture on credit; payment due in 30 days
May 25 Office Furniture 700
Cash 500
Paid the $700 furniture bill received on May 15
Refer to Holiday Marina. Identify the transactions that the bookkeeper recorded
incorrectly in the journal. Prepare the journal entry that the bookkeeper should have
made for each transaction that you identify as being made incorrectly.
Refer to the information provided for Klump Co. If the company uses the (moving)
Average Cost inventory costing method, cost of goods sold for the month of June is:
a. $2,539.52
b. $2,541.89
c. $2,544.35
d. $2,555.00
Which statement presents financial information not based on accrual accounting?
a. Balance Sheet
b. Income Statement
c. Statement of Cash Flows
d. Statement of Retained Earnings
Each of the following documents is used in the control of cash receipts except
a. NSF checks.
b. outstanding checks.
c. bank deposit slips.
d. bank credit memos.
Refer to Bellweather Times. What is the company’s Net Income?
a. $280,000
b. $220,000
c. $100,000
d. $40,000
Art Shoes
This company received a promissory note from a customer on July 1, 2013. The face
amount of the note is $45,000; the terms are 12 months and 10% annual interest.
Refer to Art Shoes. How much interest revenue will the company recognize for the year
ended December 31, 2013?
a. $ 0
b. $9,000
c. $2,250
d. $4,500
If assets are expected to be realized in cash, sold, or consumed within the normal
operating cycle of a business or within one year (if the operating cycle is shorter than
one year), how are they reported on a classified balance sheet?
a. property, plant, and equipment
b. current assets
c. intangible assets
d. current liabilities
All of the following are true for a company that uses the allowance method of
accounting for bad debts, EXCEPT:
a. It uses a contra-asset account called the allowance for doubtful accounts.
b. It records bad debt expense each time an account is determined to be uncollectible.
c. It reduces its accounts receivable balance when the account is written off.
d. It reports accounts receivable in the balance sheet at their net realizable value.
Falling Leaves Lawn Care
This company purchased new excavating equipment at the beginning of 2013. The
equipment has a cost of $37,000, an estimated life of 5 years, and an estimated residual
value of $7,000. A full year’s depreciation expense is to be recorded in 2013. The
equipment was used 20,000 hours during 2012 and 24,000 hours during 2013. The
number of expected hours over 5 years is 100,000.
Refer to Falling Leaves Lawn Care. The company is comparing the straight-line and
double-declining-balance depreciation methods. Of these two methods, which method
creates the larger expense and larger tax savings in 2013?
a. Straight-line depreciation creates the larger expense, while double-declining-balance
depreciation creates the larger tax savings.
b. Straight-line depreciation creates both the larger expense and the larger tax savings.
c. Double-declining-balance depreciation creates both the larger expense and the larger
tax savings.
d. Double-declining-balance depreciation creates the larger expense, while straight-line
depreciation creates the larger tax savings.
Refer to Dreammaker Kitchens. As a result of the bank reconciliation process, what is
the net increase or decrease in cash which must be recorded on the company’s books?
a. $100 decrease
b. $300 decrease
c. $400 decrease
d. $600 decrease
Rent owed to the lessor under an operating lease would appear on the balance sheet as
a. current liability.
b. long-term liability.
c. current asset.
d. owners’ equity.
Current accounting standards indicate that the costs of intangible assets with an
indefinite life, such as goodwill, should
a. not be amortized, but should be reviewed annually for impairment.
b. be reported on the statement of retained earnings in the year in which acquired.
c. be amortized over a reasonable period of time not to exceed 40 years.
d. be debited to an expense account entirely in the year in which acquired.
Match the terms to the definitions.
a. cumulative dividend preference g. retained earnings
b. participating dividend preference h. outstanding shares
c. conversion privilege i. issued shares
d. call provision j. retired shares
e. stock split k. treasury stock
f. stock dividend l. paid-in capital in excess of par
1/ Shares of stock that are repurchased with the intention of no longer being traded.
2/ The portion of the stock’s issue price that exceeds par.
3/ The preferred stock feature which provides the right to dividend in arrears.
4/ The preferred stock feature which provides for preferred stock to be exchanged for
common stock.
5/ The preferred stock feature which provides for the sharing of dividends above the
stated amount.
6/ Shares of stock that are distributed in a process known as capitalization of retained
earnings.
Which of the following terms best describes a distribution of the net income of a
corporation to its owners?
a. retained earnings
b. dividends
c. liquidation of assets
d. monetary unit
A company has current assets of $4,400, current liabilities of $2,750, and long-term
liabilities of $5,500. If the operating cash flow ratio is 1.5, then cash flows from
operating activities must be
a. $4,125.
b. $6,600.
c. $8,250.
d. $12,375.
Which of the following statements is true?
a. An entry in a general ledger account can be traced to the trial balance by referring to
the page listed in the posting reference column of that ledger account.
b. The posting of an amount recorded in the general ledger can be verified by referring
to the account number listed in the posting reference column on that line in the general
journal.
c. Business transactions are recorded first in the general ledger, then that information is
transferred to the general journal.
d. No explanation is needed for each entry in the general ledger.
Refer to Fireworks City. During the year, the company sold some equipment that had an
original cost of $60,000. Which statement is true concerning transactions that must have
occurred during the period?
a. The company purchased additional equipment during the year.
b. The selling price of the equipment sold was reported with net sales.
c. The company did not purchase additional equipment during the year.
d. The equipment sold had not been reported with the company’s property, plant and
equipment.
Refer to the information provided for Jocque Fabrics. If the LIFO method is used,
determine the following amounts:
A) Ending inventory on February 28th?
B) Cost of Goods sold for the month of February?
C) Gross Margin for February?
The amount of a current liability reported on the balance sheet for interest payable
includes
a. all interest to be paid within one year into the future related to amounts borrowed in
past transactions.
b. all interest to be paid in the future related to amounts borrowed in past transactions.
c. all interest currently owed related to amounts borrowed in past transactions.
d. all interest paid-to-date related to amounts borrowed in past transactions.
Explain how the costs associated with operating assets are reported on the balance
sheet.
Under the ____________________ method of preparing a statement of cash flows, the
net cash flow from operating activities is computed by adjusting net income to remove
the effect of all deferrals of past operating cash receipts and payments, and all accruals
of future operating cash receipts or payments.
____________________ represents the owners’ claims against the assets of a
corporation after deducting all liabilities.
What is a LIFO liquidation? Why is it important to disclose the effects of a LIFO
inventory liquidation?
The time-period assumption assumes that a company prepares its financial statements
every month.
Below are several accounts and balances from the 2013 financial statements for Fripp,
Inc. Prepare the intangible asset section of the company’s balance sheet, as well as a
partial income statement in the space provided below using the accounts provided.
Amortization expense $ 22,000
Amortization since inception 88,000
Loss on sale of Trademark 31,000
Patents 270,200
Land 180,000
Goodwill 250,000
Research and development costs 320,000
Balance Sheet Income Statement
Cash flows from purchases, sales, and maturities of investments are classified as
financing activities.
Cash ________________ are items readily convertible into a known amount of cash
which have an original maturity to the investor of 3 months or less.
To compute the return on common equity ratio, the numerator includes
____________________ minus preferred dividends, and the denominator is the average
common stockholders’ equity.
The ________________ method of depreciation method is referred to as an
“accelerated” method.
The only financial statement that reports the retained earnings balance at the end of the
period is the Statement of Retained Earnings.
When trying to predict future profits, analysts often take a top-down approach which
starts with gathering economic and industry data to supplement what they are able to
find out about the specific corporations they follow.
In ____________________ analysis, each financial statement line item is expressed as
a percent of a base year, which is typically the earliest year shown.
The ____________________ side, or left-side, of a liability account is used to record
decreases in the account balance.
Internal control over financial reporting is concerned with ensuring the reliability of the
financial statements.