If the market interest rate at the date of issuance of a bond exceeds the face interest rate,
the present value of the face value plus the present value of all the future interest
payments will equal an amount less than the face value of the bond.
Exchange rates for currency change daily according to the supply and demand for each
currency.
Present value refers to an amount that must be invested today at a given rate of interest
to produce a given future value.
Partnership income or loss can be divided solely on the basis of salaries or interest.
A revenue account is closed with a debit to the revenue account and a credit to Income
Summary.
Consistency requires that a company use the same accounting procedures as other
companies in the same industry.
By meeting certain conditions, a company that sets up an Special-purpose entity (SPE)
can legitimately avoid including the debt of the SPE on its balance sheet
If a company is facing negative free cash flow, it may issue stock in order to continue
operating at its planned level.
Working papers provide a written record of the work performed by the accountant or
auditor.
Market is the amount that a merchandising company would pay at the present time for
the same goods as are in the inventory and from the usual suppliers in the usual
quantities
In practice, accounting information is quite simple and precise.
The work sheet is a type of accountant’s working paper.
If a U.S. company sells goods for a fixed number of British pounds, and the exchange
rate has risen from $1.60 per pound to $1.65 per pound by the time collection is made,
the U.S. company would record an exchange loss.
A partner’s inability to meet his or her obligations at the time of liquidation does not
relieve that individual of his or her liabilities to the other partners.
Another term for short-term investments is marketable securities.
Financial statement analysis is used to show how items in a company’s financial
statements relate to the company’s financial performance objectives.
When no-par common stock has a stated value, the stated value of the shares issued
normally is considered the legal capital of the corporation.
If a state unemployment tax is imposed, then the federal unemployment tax is not
imposed.
Preparing the work sheet and recording closing entries are important steps that save
money and prevent mistakes.
The annual interest earned on an amount deposited into a bank account will increase
each year when simple interest is used.
Retained earnings are a component of contributed capital.
Depreciation for tax purposes is identical to depreciation for financial reporting
purposes.
The most complete financial newspaper in the United States is The Wall Street Journal.
When a net loss occurs, the Owner’s Capital account will contain a negative balance.
The FIFO inventory method does not produce the most up-to-date figure for ending
inventory.
Financing a business means obtaining funds so the business can begin and continue
operating.
The use of electronic funds transfers makes check writing unnecessary.
A revenue expenditure results in the immediate recognition of an expense.
When a company pays an employee for work performed, it is considered an economic
event that is not recorded as a transaction.
A partnership agreement should include the method of distributing income and loss.
Dividends received on investments are accounted for in the same way under the
cost-adjusted-to-market and the equity methods.
The amount for the Withdrawals account will appear in the Income Statement columns
of a work sheet.
Unamortized Bond Discount is a contra-liability account.
Under the periodic inventory system, the Purchases account is used to accumulate all
purchases of merchandise for resale.
When a newly admitted partner pays a bonus to the existing partners, the new partner’s
capital account is credited.
Bad debts are considered as an expense of selling on credit.
For accounting information to be useful, it must be both relevant and conservative.
Under the periodic inventory system, the return of goods to the supplier is recorded
with a debit to Purchases Returns and Allowances.
Which of the following terms best describes the assumption made in applying the four
inventory methods?
A. Cost flow
B. Goods flow
C. Asset flow
D. Physical flow
What would be the adjusting entry for a note payable whose interest is not included in
the face amount of the note?
A. Debit Interest Receivable and credit Interest Income.
B. Debit Interest Expense and credit Cash.
C. Debit Interest Expense and credit Interest Payable.
D. Debit Cash and credit Notes Payable.
Which of the following is a condition required by the SEC for the recognition of
revenue?
A. Completion of goods manufactured.
B. Execution of a promissory note.
C. Price in excess of $100.
D. Reasonable assurance of collection.
Which of the following phrases is not descriptive of the corporate form of business?
A. Professional management
B. Continuous existence
C. Double taxation
D. Unlimited liability
A company has $450,000 in bonds payable with an unamortized discount of $10,500. If
two-thirds of the bonds are converted to common stock, the carrying value of the bonds
payable will decrease by
A. $146,500.
B. $293,000.
C. $307,000.
D. $314,000.
The amount of cash received on issuance of a 9 percent, $10,000 bond dated February 1
and issued June 1 at 102 1/2 is
A. $10,300.
B. $11,100.
C. $10,200.
D. $10,550.
Posting is performed by transferring information from the
A. source documents to the journal.
B. source documents to the ledger.
C. journal to the ledger.
D. ledger to the journal.
A practical decision to expense a $120 printer rather than record it as property, plant,
and equipment and depreciate it probably is made on the basis of the convention of
A. conservatism.
B. consistency.
C. materiality.
D. full disclosure.
Use this information to answer the following question.
A periodic inventory system is used.
Using LIFO, cost of goods sold is
A. $3,480.
B. $8,928.
C. $2,664.
D. $8,112.
Which of the following transactions does not involve an exchange of value?
A. Payment of a debt
B. Purchase of a building on credit
C. Borrowing money
D. Loss from theft
A partner invests into a partnership a building with a $50,000 carrying value and
$80,000 fair market value. The related mortgage payable of $25,000 is not assumed by
the partnership. The entry to record the investment in partnership is:
If the receivables turnover is 3.1 times, what is the days’ sales uncollected?
A. 10 days
B. 85 days
C. 118 days
D. cannot be determined with information given
An audit is an examination of a company’s
A. financial statements.
B. accounting systems.
C. accounting controls.
D. all of these.
A reversing entry could include a
A. debit to a revenue account.
B. debit to an expense account.
C. credit to a revenue account.
D. debit or a credit to Cash.
When an extraordinary repair has been made to equipment, which of the following
accounts is debited?
A. Extraordinary Repairs
B. Equipment
C. Accumulated Deprecation
D. Cash
Which of the following statements is false regarding promissory notes?
A. They are sometimes used to extend past-due accounts.
B. They can be resold to banks.
C. They must be held by the maker until maturity.
D. They are often received upon the sale of machinery and automobiles.
Use this information to answer the following question.
If the income statement were prepared in a multistep form, income from operations would
be
A. $48,750.
B. $41,250.
C. $51,250.
D. $42,500.
Which of the following methods of distributing income and losses cannot be
accomplished (cannot stand alone)?
A. Capital balance ratio alone
B. Interest and stated ratio alone
C. Stated ratio alone
D. Salary alone
Quality of earnings is affected by all of the following except
A. executive compensation.
B. accounting methods.
C. accounting estimates.
D. one-time items.
The net income figure appears in all the following financial statements except the
A. statement of cash flows.
B. income statement.
C. statement of owner’s equity.
D. balance sheet.
McCaffy Company uses a periodic inventory system. It sold 1,000 units of Product H.
Its beginning inventory and purchases during the month were as follows:
Compute the cost of the ending inventory under each of three methods: (a) average-cost,
(b) LIFO, and (c) FIFO. (Show your work.)
a. Average-cost: (200 $1) + (200 $2) + (200 $3) + (200 $4) + (200 $5) + (200 $6) =
$4,200; $4,200 1,200 = $3.50; $3.50 200 = $700
b. LIFO: 200 $1 = $200
c. FIFO: 200 $6 = $1,200
The following lettered items represent a classification scheme for a multistep income
statement. In the blank next to each account, write the letter indicating to which
category it belongs.
A purchase on account with an invoice price of $1,500 has been made. The entry to
record the payment after the 2 percent discount period would include a(n)
A. decrease to Accounts Payable for $1,500.
B. decrease to Purchases Discounts for $30.
C. increase to Accounts Payable for $1,470.
D. decrease to Cash for $1,470.
A truck that cost $12,000 and on which $9,000 of accumulated depreciation has been
recorded was disposed of on January 1. Assume that the truck was traded for a similar
truck having a price of $13,000, that an $1,800 trade-in was allowed, and that the
balance was paid in cash. The amount of the gain or loss recognized on this transaction
would be
A. a $1,200 loss.
B. a $1,200 gain.
C. a $2,400 loss.
D. no gain or loss recognized.
Which of the following is an appropriate internal control activity for cash?
A. Recordkeeping and custodianship over cash should be performed by the same
person.
B. The amount of cash on hand should be kept to a minimum.
C. Banking facilities should be used as little as possible.
D. All payments should be made with currency, not checks.
__________ is the quality that different knowledgeable and independent observers
could reach concensus that a particular depiction is a faithful representation.
A. Verifiability.
B. Consistency.
C. Comparability.
D. Neutrality.
A machine that cost $13,000 and on which $9,300 of accumulated depreciation had
been recorded was disposed of for $3,700. The entry to record the disposal of the
machine is:
A. Cash 9,300
Machinery 9,300
B. Machinery 13,000
Depreciation Expense—Machinery 13,000
C. Cash 3,700
Accumulated Depreciation—Machinery 9,300
Machinery 13,000
D. Accumulated Depreciation—Machinery 9,300
An important purpose of closing entries is to
A. help achieve the goals of the matching principle.
B. set permanent account balances to zero to begin the next period.
C. update the nominal accounts at year end.
D. transfer net income or net loss to the owner’s Capital account.
Bond issue costs have the effect of
A. decreasing a bond discount.
B. increasing a bond premium.
C. decreasing the effective interest rate.
D. decreasing a bond premium.
Use this information to answer the following question.
A periodic inventory system is used.
Using LIFO, the cost assigned to ending inventory is
A. $3,480.
B. $8,112.
C. $2,664.
D. $8,928.
A company purchases an oil well for $400,000. It estimates that the well contains
500,000 barrels, has a ten-year life, and has no salvage value. If the company extracts
and sells 40,000 barrels during the first year, how much depletion expense should be
recorded?
A. $32,000
B. $40,000
C. $80,000
D. $200,000
Measures how much income did each dollar of assets generate.
Prepare a trend analysis of the following data using 20×4 as the base year. Place your
answers in the chart provided. Comment on the trend.
What is vertical analysis, and why is it useful in performing financial performance
measurement?
The following data exist for Weaver Company:
Prepare closing entries for December (omit explanations) from the following Income
Statement columns of the work sheet of Kemp Corporation, assuming that a $1,000
withdrawal was made during the period.
An adjustment for changes in prepaid expenses, such as prepaid insurance or prepaid
rent.
Jack’s Department Store had net retail sales of $620,000 during the current year.
Record the following transactions, using proper form, in the journal provided.
Prepare in proper form the stockholders’ equity section of the balance sheet from the
following selected accounts and balances taken from the adjusted trial balance of
Cooper Corporation as of December 31, 20×5.
Why would it be less risky for a wealthy individual to incorporate his or her business
rather than to operate it as a sole proprietorship or partnership?
Presented below are the owner’s Capital, Withdrawals, and Income Summary accounts
for Brookman Medical Supplies for the year ended December 31, 20×5.
On November 28, 2013, Elliott Company purchased 10,000 shares of Ferno
Corporation stock for $360,000. Elliott’s management intends to hold the shares for a
short period of time. On December 31, 2013, the price of Ferno stock was $30 per
share. Finally, on January 19, 2014, Elliott sells all 10,000 shares for $375,000. In the
journal provided below, prepare Elliott’s entries for November 28, December 31, and
January 19. (Omit explanations).
Wheels and More Company purchased equipment for $108,000.
What is goodwill and when may it be recorded?
Indicate on the blanks below the net effect (I = increase, D = decrease, NE = no effect)
of each of the following entries on total stockholders’ equity.
_____ 1) To record the declaration of a cash dividend
_____ 2) To record the payment of a previously declared and recorded cash dividend
_____ 3) To close the Dividends account at the end of the accounting period
Demmler Company entered into the transactions listed below. In the journal provided,
prepare Demmler’s journal entries, assuming use of the periodic inventory system. Omit
explanations.
Why is the separation of duties an important control activity in a good system of
internal control?
McAfee Corporation borrowed $20 million to finance the construction of a new
building. In addition to the annual interest that is not included in the face, one-tenth of
the principal amount borrowed is to be repaid each year. If the borrowing occurred one
month prior to year end, how should the loan be presented on the upcoming balance
sheet?