Which of the following is an assumption made in the preparation of the financial
statements?
a. Financial statements are prepared for a specific entity that is distinct from the entity’s
owners.
b. The current market value is assumed to be more relevant than the original cost paid.
c. The preparation of financial statements for a specific time period assumes that the
balance sheet covers a designated period of time.
d. Financial statements are prepared assuming that inflation has a distinct effect on the
monetary unit.
On January 1, 2012, a company issued 10,000 shares of 10%, $10 par value cumulative
preferred stock. No dividends were declared in 2012 or 2013. In 2014, the company
declared a dividend of $200,000. How much of the 2014 dividend should be paid to
common stockholders?
a. $170,000
b. $190,000
c. $197,000
d. $200,000
Effective cash management and control for a company’s operating cycle includes all of
the following except
a. the use of a petty cash fund.
b. the preparation of monthly bank reconciliations.
c. the practice of using surplus cash for the purchase of bonds or other long-term
investments.
d. the practice of keeping inventory levels low.
Payment is made for machinery purchases previously on credit. What effect does this
transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and contributed capital increase.
c. Liabilities decrease and retained earnings increase.
d. Assets and liabilities decrease.
The journal entries required for purchase and sales transactions using the perpetual
system are more complex than under the periodic system but offer the advantage of
a. requiring the additional control of a physical inventory count whenever accurate
inventory amounts are needed.
b. delaying the majority of the accounting effort until year-end.
c. requiring the use of the average cost method.
d. providing management with more complete information from which to control
inventories.
If a company has $10,500,000 of revenues, declares and pays $550,000 in dividends,
and has net income of $1,600,000, how much were expenses for the year?
a. $9,950,000
b. $1,050,000
c. $2,150,000
d. $8,900,000
A company follows the qualitative characteristic of consistency. This means that
a. For expenses, the company uses the same account names as used by its competitors.
b. The company has elected certain accounting principles that can never be changed.
c. The company applies the same accounting principles each period.
d. The company applies the same accounting principles as its competitors.
Which of the following statements is true with regard to 7% cumulative, participating
preferred stock?
a. Stockholders who hold this type of stock are guaranteed a dividend each year.
b. The issue price of this stock is reported in the preferred stock account on the balance
sheet.
c. If the corporation pays a per share dividend in excess of 7% of the preferred stock’s
par value and there are no dividends in arrears, the preferred shares will receive a share
of the amounts available for distribution as dividends to other classes of stock.
d. If dividends are not declared, they accumulate and a liability must be reported on the
balance sheet for any amount in arrears that is owed to the preferred stockholders.
A used car dealer reported the following information:
Accounts payable, December 31, 2014 $ 95,000
Accounts payable, December 31, 2013 50,000
Cost of goods sold for 2014 560,000
Assuming there was no change in inventory during the period, how much cash was paid
for merchandise purchases during 2014?
a. $655,000
b. $610,000
c. $515,000
d. $605,000
At the year-end inventory count, if goods in transit are shipped FOB destination, they
should be included in the inventory count of
a. the seller.
b. the buyer.
c. the shipping company.
d. neither the buyer nor the seller.
Klinc Company
Klinc Company uses a perpetual inventory system and had the following inventory
transactions for the month of June:
June 1 On hand, 50 units at $14.00 each $ 700
4 Purchased 115 units at $15 each 1,725
5 Sold 100 units
10 Purchased 75 units at $16 each 1,200
24 Sold 50 units
Total cost of goods available for sale $3,625
30 On hand, 90 units
The June 30th inventory included 45 units from the June 4th purchase and 45 units from
the June 10th purchase.
Refer to the information provided for Klinc Company. What is the cost of ending
inventory at June 30th under the specific identification method?
a. $1,350
b. $1,359
c. $1,375
d. $1,395
Homevestors purchased land for $400,000 in 2001. In 2013, an independent appraiser
assessed the value of the land at 900,000. At what amount should the land be recorded
on the company’s 2013 financial statements?
a. at its cost of $400,000
b. at its $900,000 appraised value
c. at $500,000, the difference between the land’s cost and assessed value
d. whichever amount the company considers to be the best indicator of the land’s true
value
If the current ratio is 2 to 1 and current assets equal $200,000, how much is working
capital?
a. $0
b. $100,000
c. $200,000
d. $300,000
In order for accounting information to be useful in making informed decisions, it must
be
a. internal.
b. relevant.
c. reliable.
d. both relevant and reliable.
A particular company had $2,400 of supplies on hand at January 1. During the year,
supplies with a cost of $4,000 were purchased. At December 31, the actual supplies on
hand amounted to $2,000. After the adjustments are recorded and posted at December
31, what are the ending balances in the Supplies and Supplies Expense accounts?
Supplies Supplies Expense
a. $4,400 $2,000
b. $2,000 $4,400
c. $2,400 $4,000
d. $4,000 $2,400
Refer to AT&U Company. If the company uses the aging of accounts receivable
approach to estimate its bad debts, what amount will be reported as bad debt expense
for 2013?
a. $25,000
b. $45,000
c. $20,000
d. $49,000
In order to determine inventory for its balance sheet, a company must count the
inventory at the end of its accounting period according to
a. the periodic inventory system.
b. the perpetual inventory system.
c. both the periodic and perpetual inventory systems.
d. neither the periodic nor perpetual inventory systems.
Two friends decide to launch a new business by investing $25,000 each in Hot Spot
Tanning. They are given shares of stock as evidence of their ownership interest. What
effect does this transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and contributed capital increase.
c. Liabilities increase and retained earnings decrease.
d. Assets and liabilities decrease.
An insurance company received advance payments from clients during 2013 of
$12,000. At December 31, 2013, $10,000 of the advance payments still had not been
earned. After the adjustments are recorded and posted at December 31, 2013, what will
the balances be in the Unearned Insurance Revenue and Insurance Revenue accounts?
Unearned Insurance Revenue Insurance Revenue
a. $10,000 $10,000
b. $0 $12,000
c. $2,000 $10,000
d. $10,000 $2,000
Information that is material means that an error in recording the dollar amount of a
transaction would
a. likely affect the judgment of someone relying on the financial statements.
b. not affect the decisions of financial statement users.
c. not impact a business decision of a creditor.
d. result in the overstatement of assets or income.
On August 3, 2012, Grace Electric Supply agreed to manufacture and supply 650
electrical control units for a particular customer who deposited $136,500 toward the
purchase price upon signing the one-year purchase agreement, which set the selling
price of each control unit at $1,050. In December 2012, 125 units were delivered to the
customer and the remaining units were delivered in January 2013. The customer pays in
cash upon delivery for any units not covered by the deposit.
A) Record the journal entry to record the receipt of the customer deposit during 2012.
B) Record the journal entry for the delivery of 125 units to the customer in 2012. How
would the customer’s deposit be reported in the financial statements at the end of 2012?
C) Record the entry for the delivery of the remaining units to the customer in 2013.
Refer to Rent-a-Center. What is the company’s asset turnover ratio for 2015?
a. 0.73
b. 0.95
c. 1.3
d. 2.4
The payment of Accounts Payable results in a(n)
a. decrease in both liabilities and assets.
b. decrease in liabilities and increase in assets.
c. decrease in liabilities and increase in stockholders’ equity.
d. increase in liabilities and decrease in stockholders’ equity.
A customer’s check for $25 that had been deposited into the company’s checking
account the previous month was returned stamped “NSF” by the bank. Which of the
following journal entries is required?
a. Cash 25
Accounts Receivable 25
b. Cash 25
Accounts Payable 25
c. Account Receivable 25
Petty Cash 25
d. Accounts Receivable 25
Cash 25
Refer to the information provided for Dollar Town. Calculate the company’s gross
margin.
a. $40,800
b. $43,200
c. $46,800
d. $51,000
Jay has made a deal with his daughter to start a car fund for when she graduates college
in 6 years. He has found an investment that will yield an interest rate of 8% per year. If
he wants to have $25,000 to spend on the car for his daughter, how much must he
initially invest?
a. $15,754.28
b. $16,113.45
c. $13,772.55
d. $14,038.95
Long-term debt generally includes
a. obligations that will be satisfied within one year.
b. accounts payable, because they are interest-bearing.
c. obligations that extend beyond one year.
d. accrued expenses.
Which one of the following is the last step in the accounting cycle?
a. analyze transactions
b. recording and posting adjustments
c. closing the accounts
d. preparing financial statements
Refer to Fantasy Cruise Lines. What is the depreciation expense for the year ended
December 31, 2013?
a. $ -0-
b. $180,000
c. $160,000
d. $200,000
A company’s current ratio is 1.5, what is the effect of obtaining land by issuing shares
of stock?
a. increase
b. decrease
c. no change
d. Unable to determine with this limited information.
Which of the following statements is true regarding just-in-time inventory
management?
a. It requires a perpetual inventory system.
b. It requires an average cost inventory costing method.
c. It requires detailed information about profitability and the users of the company’s
financial statements.
d. It requires detailed information about order-to-delivery times, receiving-to-sales
times, and inventory quantities.
Refer to Fantasy Cruise Lines. What will be the book value of the ship at the end of its
useful life?
a. $ -0-
b. $100,000
c. $200,000
d. Need more information to determine this answer.
Cash flows from selling machinery would be classified as investing activities.
There are more corporations than sole proprietorships and partnerships in the United
States.
“You Decide” Essay
You are the accounting manager for a small machine shop. Your bookkeeper has asked
you to review a journal entry that she made:
Date Account and Explanation Debit Credit
May 5 Cash 2,500
Service Revenue
(For services to be rendered) 2,500
Is this journal entry correct? Why or why not?
Refer to Hatcher Tool Service. Record each transaction in proper journal entry format in
the journal provided. A written explanation for each journal entry is not required.
JOURNAL
Date Accounts Debit Credit
Cash flows that are equal and occur multiple times, one period apart are called
Annuities.
What is the purpose of an aging schedule for accounts receivable?
The corporation’s accumulated net income that has notbeen paid out as dividends is
____________________.
Matching requires expenses be recorded and reported in the same period as the revenue
that it helped to generate.
Current assets minus current liabilities is called ____________________.
An increase in retained earnings indicates that a cash dividend has been paid.
Explain how checking accounts, bank statements, and a bank reconciliation are used to
help a company control its cash.
The following information pertains to Leapfrog Academy at December 31, 2015:
Retained Earnings $52,000
Treasury Stock, at cost (500 shares) 1,500
Paid-in Capital from Treasury Stock Transactions 900
Common Stock, $1 par, 10,000 shares authorized, 4,500 shares issued 4,500
Paid-in Capital in Excess of Par–Common Stock 9,000
Cash Dividends Payable–Common Stock 6,000
Prepare the stockholders’ equity section of the balance sheet at December 31, 2015.
Creditors use accounting information to evaluate whether to loan money to a company.
Because the allowance method results in better matching, accounting standards require
its use rather than the direct write-off method, unless bad debts are immaterial.