English Company billed its customers a total of $1,785,000 for the month of November.
The total includes a 5% state sales tax.
Instructions
(a) Determine the proper amount of revenue to report for the month.
(b) Prepare the general journal entry to record the revenue and related liabilities for the
month.
Answer:
Intangible assets
a. should be reported under the heading Property, Plant, and Equipment.
b. are not reported on the balance sheet because they lack physical substance.
c. should be reported as Current Assets on the balance sheet.
d. should be reported as a separate classification on the balance sheet.
Answer:
A candy factory’s employees work overtime to finish an order that is sold on February
28. The office sends a statement to the customer in early March and payment is
received by mid-March. The overtime wages should be expensed in
a. February.
b. March.
c. the period when the workers receive their checks.
d. either in February or March depending on when the pay period ends.
Answer:
Adjusting entries are
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.
Answer:
Each of the following is correct regarding bonds except they are
a. a form of interest-bearing notes payable.
b. attractive to many investors.
c. issued by corporations and governmental agencies.
d. sold in large denominations.
Answer:
Using the percentage-of-receivables method for recording bad debt expense, estimated
uncollectible accounts are $32,000. If the balance of the Allowance for Doubtful
Accounts is $8,000 debit before adjustment, what is the amount of bad debt expense for
that period?
a. $8,000
b. $24,000
c. $32,000
d. $40,000
Answer:
When an account becomes uncollectible and must be written off,
a. Allowance for Doubtful Accounts should be credited.
b. Accounts Receivable should be credited.
c. Bad Debt Expense should be credited.
d. Sales Revenue should be debited.
Answer:
Internal controls are concerned with
a. only manual systems of accounting.
b. the extent of government regulations.
c. safeguarding assets.
d. preparing income tax returns.
Answer:
Gonzo Company reports a $25,000 increase in inventory and a $12,000 decrease in
accounts payable during the year. Cost of Goods Sold for the year was $185,000. Using
the direct method of reporting cash flows from operating activities, cash payments
made to suppliers were
a. $185,000.
b. $197,000.
c. $222,000.
d. $148,000.
Answer:
Two companies report the same cost of goods available for sale but each employs a
different inventory costing method. If the price of goods has increased during the
period, then the company using
a. LIFO will have the highest ending inventory.
b. FIFO will have the highest cost of good sold.
c. FIFO will have the highest ending inventory.
d. LIFO will have the lowest cost of goods sold.
Answer:
A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the
a. salvage value of the asset sold.
b. market value of the asset sold.
c. book value of the asset sold.
d. accumulated depreciation on the asset sold.
Answer:
An awareness of the normal balances of accounts would help you spot which of the
following as an error in recording?
a. A debit balance in the dividends account
b. A credit balance in an expense account
c. A credit balance in a liabilities account
d. A credit balance in a revenue account
Answer:
Sophia Company is considering two alternatives to finance its purchase of a new $4,000,000
office building.
(a) Issue 400,000 shares of common stock at $10 per share.
(b) Issue 7%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,500,000. The company
has a 30% tax rate and has 600,000 shares of common stock outstanding prior
to the new financing.
Instructions
Calculate each of the following for each alternative:
(1) Net income.
(2) Earnings per share.
Answer:
In the financial statements, organization costs appears
a. immediately below Retained Earnings in the stockholders’ equity section.
b. in the income statement.
c. as part of paid-in capital in the stockholders’ equity section.
d. as an intangible asset.
Answer:
Golf Pro Publications publishes a golf magazine for women. The magazine sells for $3
a copy on the newsstand. Yearly subscriptions to the magazine cost $24 per year (12
issues). During December 2014, Golf Pro Publications sells 12,000 copies of the golf
magazine at newsstands and receives payment for 25,000 subscriptions for 2015.
Financial statements are prepared monthly.
Instructions
(a) Prepare the December 2014 journal entries to record the newsstand sales and
subscriptions received.
(b) Prepare the necessary adjusting entry on January 31, 2015. The January 2015 issue
has been mailed to subscribers.
Answer:
Cruz Inc. earns $450,000 and pays cash dividends of $150,000 during 2014. Cruz
Corporation owns 73,500 of the 210,000 outstanding shares of Viejo.
How much revenue from investment should Viejo report in 2014?
a. $52,500
b. $105,000
c. $157,500
d. $210,000
Answer:
Seven thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per
share, are sold at $20 per share. The entry to record this transaction will include a
a. credit to Treasury Stock for $140,000.
b. debit to Paid-In Capital from Treasury Stock for $42,000.
c. debit to Treasury Stock for $98,000.
d. credit to Paid-In Capital from Treasury Stock for $42,000.
Answer:
If Keene Company issues 9,000 shares of $5 par value common stock for $160,000, the
account
a. Common Stock will be credited for $45,000.
b. Paid-in Capital in Excess of Par will be credited for $45,000.
c. Paid-in Capital in Excess of Par will be credited for $160,000.
d. Cash will be debited for $115,000.
Answer:
A company using the same accounting principles from year to year is an application of
a. timeliness.
b. consistency.
c. full disclosure.
d. materiality.
Answer:
A service company shows five transactions summarized below. The effect of each
transaction on the accounting equation is shown, and also the new balance of each item
in the equation. For each transaction (a) to (e) write an explanation of the nature of the
transaction.
Answer:
Bond interest paid by a corporation is an expense, whereas dividends paid are not an
expense of the corporation.
Answer:
Posting is the process of proving the equality of debits and credits in the trial balance.
Answer:
On January 1, 2014, Dumas Industries acquired a 18% interest in Arlongton
Corporation through the purchase of 12,000 shares of Arlongton Corporation common
stock for $250,000. During 2014, Arlongton Corp. paid $60,000 in dividends and
reported a net loss of $90,000. Dumas is able to exert significant influence on
Arlongton. However, Dumas mistakenly records these transactions using the cost
method rather than the equity method of accounting. Which of the following would
show the correct presentation for Dumas’s investment using the equity method?
Answer:
Transaction and adjustment data for Doty Company for the calendar year end is as
follows:
1> December 24 [initial salary entry): $12,000 of salaries earned between December 1
and December 24 are paid.
2> December 31 [adjusting entry): Salaries earned between December 25 and
December 31 are $3,000. These will be paid in the January 8 payroll.
3> January 8 [subsequent salary entry): Total salary payroll amounting to $8,000 was
paid.
Instructions
Prepare two sets of journal entries as specified below. The first set of journal entries
should assume that the company does not use reversing entries, and the second set
should assume that reversing entries are utilized by the company.
Assume no reversing entries Assume reversing entries
[a] Initial Salary Entry
Dec. 24
[b] Adjusting Entry
Dec. 31
[c] Closing Entry
Dec. 31
[d] Reversing Entry
Jan. 1
[e) Subsequent Salary Entry
Jan. 8
Answer:
Adjusting entries are often made because some business events are not recorded as they
occur.
Answer:
Consistent use of the same accounting principles and methods is necessary for
meaningful analysis of trends within a company.
Answer: