Which of the following presents key aspects of the process of accounting in the correct
chronological order?
a. Totaling, auditing, and budgeting
b. Budgeting, recording, and communicating
c. Recording, totaling, and auditing
d. Identifying, recording, and communicating
Answer:
Instructions: Present the solutions, with appropriate supporting calculations, for each
of the following independent problems.
A. Given the following information, compute 2015 net income for Orson Company.
B. Indicate the impact on the accounting equation of each of the following transactions.
Item 0 is given as an example.
Answer:
The payroll is paid by the
a. personnel department.
b. payroll department.
c. cashier.
d. treasurer’s department.
Answer:
At December 31, 2015, before any year-end adjustments, Murmur Company’s Insurance
Expense account had a balance of $2,450 and its Prepaid Insurance account had a
balance of $3,800. It was determined that $2,800 of the Prepaid Insurance had expired.
The adjusted balance for Insurance Expense for the year would be
a. $2,450.
b. $3,450.
c. $2,800.
d. $5,250.
Answer:
Book value is also referred to as
a. accumulated depreciation.
b. carrying value.
c. fair value.
d. original cost.
Answer:
The indirect and direct methods of preparing the statement of cash flows are identical
except for the
a. significant noncash activity section.
b. operating activities section.
c. investing activities section.
d. financing activities section.
Answer:
Cost of goods available for sale includes each of the following except
a. beginning inventory.
b. freight-in.
c. ending inventory.
d. net purchases.
Answer:
Which of the following are accounted for at amortized cost under IFRS?
a. Available-for-sale investments
b. Trading investments
c. Non-trading equity investments
d. Held-for-collection investments
IFRS:
Answer:
Crain Company issued 2,000 shares of its $5 par value common stock in payment of its
attorney’s bill of $30,000. The bill was for services performed in helping the company
incorporate. Crain should record this transaction by debiting
a. Legal Expense for $10,000.
b. Legal Expense for $30,000.
c. Organization Expense for $10,000.
d. Organization Expense for $30,000.
Answer:
The cost of intangible assets should be
a. amortized over the assets’ estimated useful life, or legal life, whichever is shorter.
b. amortized over a period not exceeding 5 years.
c. amortized over the assets’ estimated useful life.
d. charged to an expense account at acquisition.
Answer:
The purchase of treasury stock
a. increases total assets and decreases total stockholders’ equity.
b. decreases total assets and decreases total stockholders’ equity.
c. increases total assets and increases total stockholders’ equity.
d. decreases total assets and increases total stockholders’ equity.
Answer:
Hungh Company had the following transactions pertaining to short-term investments in
equity securities.
Instructions
(a) Journalize the transactions.
(b) Indicate the income statement effects of the transactions.
Answer:
The total cost of borrowing is increased only if the
a. bonds were issued at a premium.
b. bonds were issued at a discount.
c. bonds were sold at face value.
d. market interest rate is less than the contractual interest rate on that date.
Answer:
If there is a loss on bonds redeemed early, it is
a. debited directly to Retained Earnings.
b. reported as an “Other Expense” on the income statement.
c. reported as an “Extraordinary Item” on the income statement.
d. debited to Interest Expense, as a cost of financing.
Answer:
A subsidiary ledger is
a. used in place of the general ledger if the general ledger is destroyed or stolen.
b. a group of accounts used by branches and subsidiaries of a corporate business.
c. a group of accounts with a common characteristic that provides detailed information
about a control account in the general ledger.
d. used to post excess transactions if a general ledger account becomes full during an
accounting period.
Answer:
The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
What is total liabilities and stockholders’ equity at December 31, 2015?
a. $176,000
b. $218,000
c. $190,000
d. $232,000
Answer:
Ale Corporation had net income of $240,000 and paid dividends to common
stockholders of $40,000 in 2014. The weighted average number of shares outstanding in
2014 was 60,000 shares. Ale Corporation’s common stock is selling for $76 per share
on the New York Stock Exchange. Ale Corporation’s price-earnings ratio is
a. 3.2 times.
b. 22.8 times.
c. 19 times.
d. 12.7 times.
Answer:
Restrictions of retained earnings may result from each of the following except
a. contractual restrictions.
b. legal restrictions.
c. prior period adjustment restrictions.
d. voluntary restrictions.
Answer:
The adjusted trial balance for Perry Corporation at the end of 2015 contained the
following accounts:
Instructions
(a) Prepare the long-term liabilities section of the balance sheet.
(b) Indicate the proper balance sheet classification for the accounts listed above that do
not belong in the long-term liabilities section.
Answer:
Which of the following is not an advantage of the corporate form of business
organization?
a. Limited liability of stockholders
b. Transferability of ownership
c. Unlimited personal liability for stockholders
d. Unlimited life
Answer:
Under GAAP, companies generally classify income statement items by
a. function.
b. nature.
c. nature or function
d. date incurred.
Answer:
Financial information is presented below:
Gross profit would be
a. $30,000.
b. $90,000.
c. $165,000.
d. $225,000.
Answer:
Revenue recognition fraud is
a. a major issue in the U.S. but not worldwide.
b. a major issue internationally, but not in the U.S.
c. a major issue in the U.S. and worldwide.
d. not a major issue anywhere.
Answer:
In a manufacturing business, inventory that is ready for sale is called
a. raw materials inventory.
b. work in process inventory.
c. finished goods inventory.
d. store supplies inventory.
Answer:
Charlie Company uses a perpetual inventory system. During May, the following
transactions and events occurred.
Instructions
Journalize the May transactions for Charlie Company (seller) assuming that Charlie
uses a perpetual inventory system. You may omit explanations. Round amounts to
nearest dollar.
Answer:
The declining-balance method of computing depreciation expense involves multiplying
a _______________ book value by a _______________ percentage.
Answer:
Using these data from the comparative balance sheet of Banner Company, perform
vertical analysis.
Answer:
The financial statement columns of the worksheet for Miracle Max at December 31,
2015, are as follows:
Instructions
[a] Calculate the retained earnings balance that would appear on a balance sheet at
December 31, 2015.
[b] Prepare a classified balance sheet for Miracle Max at December 31, 2015 assuming
the note payable is a long-term liability.
Answer:
A debit column for Sales Returns and Allowances may be found in the cash receipts
journal.
Answer:
State whether each situation is a prepaid expense (PE), unearned revenue (UR), accrued
revenue (AR) or an accrued expense (AE).
1> Unrecorded interest on savings bonds is $245.
2> Property taxes that have been incurred but that have not yet been paid or recorded
amount to $300.
3> Legal fees of $1,000 were collected in advance. By year end 60 percent were still
unearned.
4> was still unexpired.
Answer: