Urban Installations Company uses the direct method to prepare its statement of cash
flows. Urban has reported cost of goods sold of $95,000 on its income statement for
2018. If the balance in the Merchandise Inventory account decreased by $6,000 during
the year, then $6,000 needs to be added to $95,000 to calculate payments to suppliers
for inventory purchases.
External auditors evaluate company controls to ensure the financial statements are
presented fairly, in accordance with Generally Accepted Accounting Principles.
On July 1, 2018, Shannon Equipment Dealer issued $590,000 of 6% bonds payable that
mature in seven years. These bonds were issued at face value and pay interest each June
30 and December 31. Each semiannual interest payment will be higher than the interest
expense.
A company is uncertain whether a complex transaction should result in an asset being
recorded at $100,000 or at $150,000. Under the conservatism principle, it should
choose to show it at $100,000.
The current portion of notes payable is the amount of the principal that is payable more
than one year from the balance sheet date.
A good or service is considered transferred when the customer places an order or
requests a service.
When using the direct method to account for uncollectibles, an allowance account is
used.
Companies are required to report plant assets as a single amount, with a note to the
financial statements that provides detailed information.
An account that normally has a debit balance may occasionally have a credit balance.
Accounts receivable are usually collected within a short period of time and are therefore
reported as a current liability on the balance sheet.
The net cost of inventory purchased equals the purchase cost less purchase returns and
allowances less purchase discounts.
In a periodic inventory system, there is no need to record an entry to Merchandise
Inventory and Cost of Goods Sold when a sale occurs.
A single-step income statement shows subtotals for gross profit and operating income.
The employees who handle cash know how customers pay and thus are in the best
position to grant credit to customers.
In the case of a deferred expense, the adjusting entry required at the end of a period will
consist of a debit to the Prepaid Expense account. Assume the deferred expense was
initially recorded as an asset.
The statement of cash flows explains why net income as reported on the income
statement does not equal the change in the cash balance.
On the income statement, earnings per share is shown for income from continuing
operations.
Journal entries that arise from reconciling items on the book side of the bank
reconciliation include either a debit to Cash or a credit to Cash.
Debit cards offer the customer the convenience of buying something without having to
pay cash immediately.
When using the LIFO inventory costing method, ending merchandise inventory will be
the lowest, as compared to FIFO and weighted-average inventory costing methods,
when costs are increasing.
When using the FIFO inventory costing method, ending merchandise inventory will be
the highest, as compared to LIFO and weighted-average inventory costing methods,
when costs are decreasing.
Deferred expenses are advanced payments of future expenses.
Accounting is referred to as the language of business because it is the method of
communicating business information to decision makers.
The Unrealized Holding Gain—Available-for-Sale account and Unrealized Holding
Loss—Available-for-Sale account are included the Other Income and (Expenses)
section of the income statement.
Bonds affect the percentage of ownership of a corporation.
Gross profit percentage reflects a business’s ability to raise selling prices.
The cost of furniture and fixtures includes all costs to ready the asset for its intended
use.
The Merchandise Inventory account should stay current at all times in a perpetual
inventory system.
When stock is issued for assets other than cash, the transaction is always recorded at the
market value of the stock issued.
The balance sheet section of the worksheet includes the asset and liability accounts and
all equity accounts, including all revenues and expenses.
An account is a detailed record of all increases and decreases that have occurred in an
individual asset, liability, or equity during a specific period.
Source documents provide the evidence and data for accounting transactions.
An accelerated depreciation method expenses more of the asset’s cost at the end of its
useful life.
The total cost spent on inventory that was available to be sold during a period is called
the cost of goods sold.
If a business changes the estimated useful life, or estimated residual value, of a plant
asset, depreciation expense must be recalculated.
In a period of rising costs, the last-in, first-out (LIFO) method results in a lower cost of
goods sold and a higher net income than the first-in, first-out (FIFO) method.
________ investments are categorized as either current assets or long-term assets on the
balance sheet, depending on the maturity date.
A) Held-to-maturity debt
B) Serial bond debt
C) Trading debt
D) Available-for-sale debt
Which of the following statements describes a receiving report?
A) It is an order to purchase goods from a supplier.
B) It is a statement from the supplier showing the goods purchased and the amount due.
C) It is a report showing that the goods have been received in good condition, as
ordered.
D) It is a document authorizing a payment to a supplier.
The financing activities section of a statement prepared using the direct method
includes changes in ________.
A) Accounts Payable
B) Accounts Receivable
C) Merchandise Inventory
D) Long-term Notes Payable
Which of the following accounts’ balance is carried forward to the next accounting
period?
A) Accumulated Depreciation
B) Depreciation Expense
C) Dividends
D) Service Revenue
Randall’s Service Company began operations on January 1, 2019. The following Trial
Balance was prepared on December 31, 2019. Capital contributions during the year
were $54,000.
Randall’s Service Company
Trial Balance
December 31, 2019
What is the December 31, 2019 balance of Retained Earnings?
A) $33,100
B) $19,300
C) $20,500
D) $25,500
The interest rate that determines the amount of cash interest the borrower pays and the
investor receives each year is called the ________.
A) amortization rate
B) market interest rate
C) stated interest rate
D) discounting rate
Under the periodic inventory system, which of the following statements is correct?
A) During the period, the business records the cost of all inventory bought in the
Merchandise Inventory account.
B) Purchase Returns and Allowances and Purchase Discounts are contra expense
accounts.
C) Freight in is debited to the Purchases account.
D) Purchase discounts are recorded as credits to the Purchases account.
The controller at Business Services Consulting needs new computers for the accounting
department. However, there are no guidelines specifying whether the controller can
approve purchases of office equipment. Which internal control procedure needs
strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
Jack’s gross pay for the week is $1400. His year-to-date pay is under the limit for
OASDI. Assume that the rate for state and federal unemployment compensation taxes is
6% and that Jack’s year-to-date pay has previously exceeded the $7000 cap. What is the
total amount of payroll taxes that Jack’s employer must record as payroll tax expenses?
(Do not round your intermediate calculations. Assume a FICA—OASDI Tax of 6.2%
and FICA—Medicare Tax of 1.45%.)
A) $86.80
B) $58.80
C) $20.30
D) $107.10
When recording the sale of merchandise inventory, using a periodic inventory system,
________.
A) a running record of merchandise inventory is maintained during the accounting
period
B) the Sales Revenue account is credited only as an adjusting entry because sales
information is not needed during the accounting period
C) sales discounts are not recorded
D) there is no need to record an entry to the Merchandise Inventory and the Cost of
Goods Sold accounts
Which of the following is a true statement regarding the effect of a stock split and stock
dividend on total assets or liabilities?
A) Both a stock split and a stock dividend will decrease total assets.
B) Both a stock split and a stock dividend will increase total liabilities.
C) A stock split will increase total assets, but a stock dividend will not.
D) Neither a stock split nor a stock dividend will affect total assets or total liabilities.
A security is a ________.
A) regulation dealing with the transactions of investments
B) system aimed at protecting the interests of the market participants
C) share or interest representing financial value
D) process related to the valuation of a financial instrument
A company has $110,000 in current assets; $600,000 in total assets; $80,000 in current
liabilities, and $140,000 in total liabilities. Calculate the current ratio of the company.
(Round your answer to two decimal places.)
A) 1.38
B) 1.82
C) 1.73
D) 0.79
Brentwood Auto Repair purchased a new machine and placed it in service on June 14.
Which of the following is NOT included in the cost of equipment?
A) cost of testing the machine on June 12
B) purchase commission
C) sales tax
D) a six month insurance policy which was paid on June 5 and became effective on
June 15
The unadjusted trial balance of Burton Business Services at December 31, 2018, and
the data for the adjustments follow:
Burton Business Services
Unadjusted Trial Balance
December 31, 2018
Balance
Adjustment data at December 31 follows:
a. Depreciation for the equipment is $4,000.
b. As of December 31, 2018, Burton had performed services for Wilson Company for
$3,000. The invoice will be sent on January 5, 2019 and payment is due on January 15,
2019.
c. On August 31, 2018, Burton agreed to provide consulting services to Allen Company for
6 months, beginning on September 1, 2018, at $1,500 per month. Allen paid $9,000 on
August 31, 2018. Burton treats deferred revenues initially as liabilities.
Burton is preparing financial statements for the year ending December 31, 2018.
Requirements
1. Journalize the adjusting entries on December 31, 2018.
2. Prepare the December 31, 2018 adjusted trial balance. Use a proper heading.
Which of the following is true of the gross profit percentage?
A) Gross profit percentage is the same for companies in all industries.
B) Gross profit percentage is used to measure the solvency of a company.
C) The gross profit percentage is one of the most carefully watched measures of
profitability.
D) A service company must show its gross profit percentage in its income statement.
The tracking of inventory shrinkage due to theft, damage, or errors is done with the help
of a(n) ________ of inventory.
A) authorization
B) sale
C) physical count
D) delivery
At Carlson Services, the cashier collects checks and cash from customers, and the
junior accountant records the transactions in the journal. The controller approves the
journal entries and bank reconciliations. The treasurer signs checks and approves
contracts. Which internal control procedure is exemplified in the above situation?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
The time period concept states that ________.
A) financial statements can be prepared for specific periods
B) all expenses should be recorded when they are incurred during the period
C) companies should record revenue when it has been earned
D) expenses incurred during a period should be matched against the revenues of the
period
The following information is from the records of Mountainview Camera Shop:
The company uses the direct write-off method for bad debts. What is the amount of bad
debts expense?
A) $80,000
B) $42,000
C) $64,000
D) $16,000
The net cost of merchandise inventory purchased ________.
A) includes freight out
B) excludes freight in
C) excludes purchase allowances
D) represents the actual cost of merchandise purchased
The amount of cash interest the borrower pays each year is based on the ________.
A) market conditions on the day of payment
B) market interest rate
C) stated interest rate
D) effective interest rate
Customer G. Smith owed Stonehollow Electronics $425. On April 27, 2018,
Stonehollow determined this account receivable to be uncollectible and wrote off the
account. The company uses the direct write-off method. On July 15, 2018, Stonehollow
received a check for $425 from the customer. How should the July 15, 2018 transaction
be recorded?
A)
On December 1, 2018, Modern Dining Products borrowed $84,000 on a 12%, 5-year
note with annual installment payments of $16,800 plus interest due on December 1 of
each succeeding year. On December 1, the principal amount was recorded as a
long-term note payable. What amount of the note payable will be shown as current
portion of Long-Term Note Payable on the balance sheet as of December 31, 2018?
(Round your answer to nearest whole number.)
A) $16,800
B) $26,880
C) $10,080
D) $33,600
Intangible assets ______.
A) represent assets for which the market value cannot be determined
B) are not recorded in the books because they have no physical substance
C) convey special rights from patents, copyrights, trademarks, and other creative works
D) All of the statements are correct.
Which of the following describes working capital?
A) Current assets minus merchandise inventory
B) Current assets minus current liabilities
C) Total debt minus stockholders’ equity
D) Cost of goods sold divided by average merchandise inventory
For each of the following scenarios, state the type of investment:
1. Available-for-sale debt investment
2. No significant influence equity investment
3. Trading debt investment
4. Significant influence equity investment
5. Held-to-maturity debt investment
6. Controlling interest equity investment
Indicate your answer by placing the correct number next to the scenario.
a. _____ Golden Corp. owns a debt security in Yellow Corp. Golden plans on selling
the debt after one year.
b. _____ Horizon Inc. owns 18% of the voting stock of Sunset Corp. Horizon does not
have the ability to participate in the decisions of Sunset.
c. _____ Eastern Inc. owns 32% of Western’s voting stock. Eastern has the ability to
exert influence over Western.
The allocation of a plant asset’s cost to expense over its useful life is called ________.
A) residual value
B) book value
C) accrued revenue
D) depreciation
Regarding discontinued operations, which of the following statements is correct?
A) Gains and losses on the sale of plant assets are reported as discontinued operations.
B) A loss on discontinued operations is reported with an addition for the applicable
income tax.
C) A loss on discontinued operations is included with an addition for the income tax
savings on the loss.
D) The disposal of the financing segment of a large corporation would be reported as a
discontinued operation.
The first step in the journalizing and posting process is to ________.
A) post the journal entry to the ledger
B) identify the accounts involved and the account type
C) decide whether each account increases or decreases
D) record the transaction in the journal
Stuart Allen Corporation manufactures computer hardware. The president of the
corporation bought a new car as a gift for his daughter and paid for it using cash from
the business. Since the corporation paid for the car, it was recorded in its books as an
asset. Which of the following concepts or principles of accounting did the corporation
violate?
A) monetary unit assumption
B) economic entity assumption
C) cost principle
D) going concern assumption
For Retained Earnings, the category of account and its normal balance is ________.
A) equity and a credit balance
B) assets and a debit balance
C) equity and a debit balance
D) assets and a credit balance
Adkins Company is hired on December 15, 2018 to perform services, beginning on
December 16, 2018. Under this agreement, Adkins will earn $4,400 monthly and
receive payment on January 15, 2019. What amount of service revenue should be
recorded for the year ending December 31, 2018?
A) 0
B) $2,200
C) $4,400
D) There is not enough information to answer this.
Adventure Travel signed a 14%, 10-year note for $152,000. The company paid an
installment of $2200 for the first month. After the first payment, what is the principal
balance? (Do not round any intermediate calculations, and round your final answer to
the nearest dollar.)
A) $149,800
B) $150,227
C) $151,573
D) $154,200
