1) the account market adjustment-trading appears as a contra account in the income
statement.
2) the lifo method is rarely used because most companies do not sell the last goods they
purchase first.
3) full disclosure of all important facts aids in overcoming the limitations of accounting
information.
4) the lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a
cost that is in excess of its market value.
5) consistent use of the same accounting principles and methods is necessary for
meaningful analysis of trends within a company.
6) adjusting entries are:
a.the same as correcting entries
b.needed to ensure that the expense recognition principle is followed
c.optional
d.rarely needed
7) assume grammar company uses the periodic inventory system and has a beginning
merchandise inventory balance of $5,000, purchases of $75,000, and sales of $125,000.
grammar closes its records once a year on december 31. in the accounting records, the
merchandise inventory account would be expected to have a balance on december 31
prior to adjusting and closing entries that was
a.equal to $5,000
b.more than $5,000
c.less than $5,000
d.indeterminate
8) a factory machine was purchased for $60,000 on january 1, 2012. it was estimated
that it would have a $12,000 salvage value at the end of its 5-year useful life. it was also
estimated that the machine would be run 40,000 hours in the 5 years. if the actual
number of machine hours ran in 2012 was 4,000 hours and the company uses the
units-of-activity method of depreciation, the amount of depreciation expense for 2012
would be
a.$6,000
b.$9,600
c.$12,000
d.$4,800
9) accounting information should be verifiable in order to enhance
a.comparability
b.faithful representation
c.consistency
d.relevance
10) this information relates to tandi co.
1>on april 5 purchased merchandise from buehler company for $30,000, terms 2/10,
net/30.
2>on april 6 paid freight costs of $900 on merchandise purchased from buehler
company.
3>on april 7 purchased equipment on account for $26,000.
4>on april 8 returned some of the april 5 merchandise to buehler company which cost
$3,000.
5>on april 15 paid the amount due to buehler company in full.
instructions
(a)prepare the journal entries to record these transactions on the books of tandi co. using
a periodic inventory system.
(b)assume that tandi co. paid the balance due to buehler company on may 4 instead of
april 15. prepare the journal entry to record this payment.
11) the accounting for each of the following is the same under ifrs and gaap except for
a. extraordinary items
b. discontinued operations
c. changes in accounting principles
d. changes in accounting estimates
12) here are the comparative income statements of ericson corporation.
instructions
(a)prepare a horizontal analysis of the income statement data for ericson corporation
using 2011 as a base. (show the amounts of increase of decrease.)
(b)prepare a vertical analysis of the income statement data for ericson corporation for
both years.
13) accountants do not attempt to measure the change in a plant asset’s market value
during ownership because
a.the assets are not held for resale
b.plant assets cannot be sold
c.losses would have to be recognized
d.it is management’s responsibility to determine fair values
14) in a recent year ley corporation had net income of $150,000, interest expense of
$40,000, and a times interest earned ratio of 6. what was ley corporations income before
taxes for the year?
a.$280,000
b.$240,000
c.$200,000
d.none of the above
15) which of the following groups uses accounting information to determine whether
the companys net income will result in a stock price increase?
a.investors in common stock
b.marketing managers
c.creditors
d.chief financial officer
16) fornelli corporation borrowed $360,000 from central bank on may 31, 2011. the
three-year, 7% note required annual payments of $137,178 beginning may 31, 2012. the
total amount of interest to be paid over the life of the loan is
a.$25,200
b.$51,534
c.$100,562
d.$75,600
17) selling accounts receivables to factors and allowing credit terms such as 2/10, n/30
a.represent common business practices
b.represent ways to accelerate receivables collections
c.result in collections that are less than the gross accounts receivable
d.all of the above statements are correct
18) which of the following assets does not decline in service potential over the course
of its useful life?
a.equipment
b.furnishings
c.land
d.fixtures
19) the use of alternative accounting methods
a.is not a problem in ratio analysis because the footnotes disclose the method used
b.may be a problem in ratio analysis even if disclosed
c.is not a problem in ratio analysis since eventually all methods will lead to the same
end
d.is only a problem in ratio analysis with respect to inventory
20) if a company fails to make an adjusting entry to record supplies expense, then:
a.stockholders equity will be understated
b.expense will be understated
c.assets will be understated
d.net income will be understated
21) trademarks would appear in which balance sheet section?
a.intangible assets
b.investments
c.property, plant, and equipment
d.current assets
22) if jill gray invests $7,750.64 now and she will receive $20,000 at the end of 11
years, what annual rate of interest will she be earning on her investment?
a.8%
b.8.5%
c.9%
d.10%
23) an aircraft company would most likely have a
a.high inventory turnover
b.low profit margin
c.high volume
d.low inventory turnover
24) what issues must be considered when determining whether or not a loss from
earthquake destruction should be treated as an extraordinary item?
25) piper company sells merchandise on account for $1,800 to morton company with
credit terms of 2/10, n/30. morton company returns $600 of merchandise that was
damaged, along with a check to settle the account within the discount period. what
entry does piper company make upon receipt of the check?
26) the rules and practices that are recognized as general guides for financial reporting
are called ______________ _____________ _______________.
27) benson and jencks is a manufacturing company that specializes in writing
instruments. the past year was a difficult one for the company, as it sought to retain its
share in a market in which the largest competitors were also rapid innovators. benson
and jencks introduced a new product late in the year, even though testing was not
complete. it was a pen designed with two cartridges: one supplying ink and the other
correction fluid. a person could then switch easily between writing and correcting
errors. it was priced fairly high, and was never heavily advertised. even so, the
correct-o-pen, as the product was named, was an overwhelming success.
the success of the product has fern donald, the manager of the new products division,
worried, however. she was concerned that quality problems would begin occurring,
since the longevity of the pen and stability of the correction fluid formulation had not
been tested. she did not want sales personnel to get the bonuses that appeared to be
indicated, since they might aggressively promote a product that would fail in use. she
preferred to complete testing of the pen first
so that more confidence could be placed in the results.
top management, however, declined the tests. ms. donald then instructed you, the
accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to
show them as current expenses in total. in this way, the new product would appear to be
only slightly profitable.
28) certain agricultural and mineral products can be reported at net realizable value
under
29) an adjusted trial balance proves the ______________ of the total debit and credit
balances after all ______________ entries have been made.