The matching rule is most closely related to the cash basis of accounting.
The entry to record the retirement of treasury stock will include a debit to Common
Stock for the par value of the retired shares.
A decrease in a liability is recorded by a credit.
The only accounts that are closed are income statement accounts.
Gains and losses on the sale of assets in a liquidation are divided among partners
according to the stated ratios.
A reversing entry will include either a debit to a revenue account or a credit to an
expense account.
An overstatement of ending inventory in a period will result in an understatement of
gross margin in that period.
Inventory is an example of a long-term asset.
The lower the interest rate, the lower the future value factor.
With the periodic inventory system, cost of goods available for sale must be calculated
after cost of goods sold.
Generally accepted accounting principles encompass the conventions, rules, and
procedures necessary to define accepted accounting practice at a particular time.
A revenue for which the service has been performed but that has not been recorded is a
deferred revenue.
When a company discounts a note receivable at the bank, it has a contingent liability.
Exchange gains and losses are reported on the income statement.
A liability for dividends exists only when the board of stockholders requests them.
At the end of each day, the cashier should be the one responsible for comparing the
amount on the cash register tape with the day’s cash additions to the cash register.
Contributed capital by owners is one source of long-term funds and is considered a type
of long-term liability.
When using an index number, one sets the most recent number in a series equal to 100.
The statement of cash flows discloses significant events related to the operating,
investing, and financing activities of a business.
In a limited partnership, the general partner’s liability is unlimited.
Unrealized gains and losses on available-for-sale securities are reported on the balance
sheet.
The calculation of cost of goods available for sale during the year is not affected by the
previous year’s ending merchandise inventory.
The direct method converts each item on the income statement to its cash equivalent.
A contingent liability is a liability that may materialize in the future because of
something that happened in the past.
When a new partner is admitted, it will dissolve the old partnership.
If a company is expected to survive, it is considered a going concern.
When the allowance method is used, the write-off of an account receivable results in an
expense at the time of write-off.
When a business hires a new employee, a recordable transaction has occurred.
When Company A discounts without recourse a note to Company B, Company A has a
contingent liability until the note is paid.
The effects on individual contributed capital accounts of a conversion of preferred stock
to common stock during the period are disclosed on the statement of stockholders’
equity.
Paying taxes to the government is an example of an operating activity.
Underwriters typically charge 1 percent of the selling price to guarantee the sale of
initial public offerings of stock.
When a company has net income, the Income Summary account appears as a credit on
the post-closing trial balance.
The cash flow yield equals net cash flows from operating activities divided by net sales.
If a 20-year bond pays interest of 8 percent semiannually, the present value of the bond
is calculated based upon 4 percent and 20 periods.
One advantage of a corporation is the lack of mutual agency.
Cash received through the mail need be handled by only one employee to achieve
effective internal control.
Both public accountants and managerial accountants are required to adhere to a code of
professional conduct.
To assess the quality of a company’s reported earnings, it is necessary to know the
estimates and methods it uses to compute income.
The fee paid by a retailer to a credit card company is considered a contra-revenue
account by the retailer.
On its December 31, 20×4 , balance sheet, Bronco Corporation reported its
stockholders’ equity as follows:
During 20×5 , the following transactions occurred:
Reacquired 2,500 shares at $7 per share.
Sold 1,200 shares of treasury stock at $8 per share.
Sold 500 shares of treasury stock at $6 per share.
Net income for 20×5 amounted to $80,000.
a. Prepare the entries in journal form for the three transactions involving treasury stock.
(Omit explanations.)
b. Compute the amount of total contributed capital to be reported on the December 31,
20×5 , balance sheet.
Which of the following is an actual account on the books?
A. Cost of goods sold.
B. Gross margin.
C. Net income.
D. Income from operations.
A corporation should account for the declaration of a 10 percent stock dividend by
A. transferring from retained earnings to contributed capital an amount equal to the
legal capital represented by the dividend shares.
B. transferring from retained earnings to contributed capital an amount equal to the
market value of the dividend shares.
C. transferring from retained earnings to contributed capital whatever amount the board
of directors deems appropriate.
D. making only a memorandum entry in the general journal.
Which costing method assumes that the cost of the first few items acquired should be
assigned to the first items sold?
A. Specific identification
B. FIFO
C. Average-cost
D. LIFO
Which of the following errors will cause the trial balance to be out of balance?
A. Posting a debit to Land as a debit to Machinery.
B. Placing a debit balance amount into the credit balance column of the ledger.
C. Omitting an entire transaction.
D. Incorrectly recording the purchase of land for cash as a debit to Cash and a credit to
Land.
On June 3, Lakeland Company sold merchandise worth $1,600 on credit, terms 2/10,
n/30. The merchandise sold had cost $1,100. The customer paid the amount on June 15.
What is the required journal entry to record the payment received under the periodic
inventory system?
A. Accounts Receivable 1,568
Sales Discounts 32
Cash 1,600
B. Accounts Receivable 1,600
Cash 1,600
C. Cash 1,568
Sales Discounts 32
Accounts Receivable 1,600
D. Cash 1,600
Marta Company has the following bank items:
The adjusted book balance should be
A. $49,250
B. $50,000
C. $50,050
D. $50,850
Knollwood Corporation issued $286,000 of 30-year, 8 percent bonds at 106 on one of
its semiannual interest dates. The straight-line method of amortization is to be used.
The entry to record the bond interest expense on the next interest payment date is:
A. Bond Interest Expense 11,440
Cash 11,440
B. Bond Interest Expense 11,726
Cash 11,726
C. Bond Interest Expense 10,840
Cash 10,840
D. Bond Interest Expense 11,154
Boulder Company had net cash flows of $150,000 from operating activities. It extended
$60,000 for purchases of plant assets, sold plant assets for $5,000, and paid dividends
of $70,000. The company’s free cash flow is
A. $25,000.
B. $50,000.
C. $60,000.
D. $75,000.
A corporation issues bonds that pay interest each February 1 and August 1. The
corporation’s December 31 adjusting entry might include a
A. debit to Unamortized Bond Premium.
B. debit to Cash.
C. debit to Bond Interest Payable.
D. credit to Bond Interest Income.
Use this information to answer the following question.
A periodic inventory system is used; ending inventory is 140 units.
What is cost of goods sold under FIFO?
A. $1,760
B. $3,160
C. $2,160
D. $4,160
Saguaro Corporation has total contributed capital of $840,000 and retained earnings of
$427,000. It has 1,000 shares of $100 par value preferred stock with no dividends in
arrears and 5,000 shares of $100 par value common stock. The preferred stock is
callable at 105. The book value of each share of common stock is
A. $225.40.
B. $120.40.
C. $232.40
D. $253.40.
Use the following information to answer the question below.
The following transactions involving Cactus Wren Corporation occurred during the
year:
Apr. 1 Purchased 2,000 shares of its own preferred stock for $20, the current market
price. This is the first transaction involving its own stock engaged in by the company.
May 3 Sold 400 of the shares purchased on April 1 for $25 per share.
June 5 Retired 600 of the shares purchased on April 1. The original issue price was $10.
The par value of the stock is $5.
The entry to record the April 1 transaction is :
A. Cash 40,000
Treasury Stock, Preferred 40,000
B. Retained Earnings 40,000
Cash 40,000
C. Paid-in Capital, Preferred 40,000
Treasury Stock, Preferred 40,000
D. Treasury Stock, Preferred 40,000
The cash receipts journal
A. must have several columns, it cannot be a single-column journal.
B. requires that the “Other Accounts” column total be posted daily and at the end of the
month.
C. can result in both debits and credits to cash, depending on the transaction.
D. All of these choices.
Assuming that net cost of purchases was $39,000 during the year and that ending
merchandise inventory was $1,000 less than the beginning merchandise inventory of
$12,500, how much was cost of goods sold?
A. $50,500
B. $52,500
C. $40,000
D. $38,000
A contingent liability is recorded in the accounting records
A. if the contingency has not been described already in the notes to the financial
statements.
B. if it possibly will become an actual liability and the exact amount is known.
C. under no circumstances.
D. if it probably will become an actual liability and the amount can be reasonably
estimated.
The profit margin equals
A. net sales divided by net income.
B. gross margin divided by net income.
C. net income divided by gross margin.
D. net income divided by revenues.
Which of the following accounts is classified as a short-term financial asset?
A. Office Supplies
B. Accounts Receivable
C. Equipment
D. Prepaid Insurance
Liberty Industries purchased merchandise worth $1,800 on credit, terms n/30 and
returned merchandise worth $200 on the next day. What is the required journal entry to
record the merchandise returns under the perpetual inventory system?
A. Accounts Payable 200
Purchases Returns and Allowances 200
B. Accounts Payable 200
Merchandise Inventory 200
C. Merchandise Inventory 200
Purchases Returns and Allowances 200
D. Purchases Returns and Allowances 200
Which of the following is not classified as a selling expense on the income statement?
A. Sales salaries expense.
B. Interest expense.
C. Freight-out expense.
D. Advertising expense.
Useful information, including details about a company’s financial history, industry data,
and credit ratings is available from
A. the SEC.
B. Standard & Poor’s.
C. The Wall Street Journal.
D. a company’s website.
A retail store prices its goods to achieve a gross margin of 35 percent. Up to the date of
a fire that destroyed the store’s inventory, sales were $250,000 and cost of goods
available for sale was $175,000. The estimated cost of the inventory destroyed is
A. $12,500.
B. $43,750.
C. $62,500.
D. $75,000.
Recording estimated product warranty expense in the year of the sale best follows
which of the following accounting principles?
A. Matching
B. Consistency
C. Historical cost
D. Full disclosure
Under a defined benefit pension plan,
A. actuarial computations are unnecessary.
B. accounting for annual pension expense is simple.
C. retirement payments are based on the amount accumulated in the pension fund.
D. the employer guarantees the employees certain benefits upon retirement.
Which of the following is a profitability ratio?
A. Return on equity
B. Days’ inventory on hand
C. Price/Earnings ratio
D. Quick ratio
A liability is recognized when
A. the exact due date is known.
B. it is paid for.
C. an obligation has arisen.
D. the exact amount of the liability is known.
Working capital measures
A. the excess of current assets over current liabilities—what is on hand to fund business
operations.
B. the ability to earn a satisfactory income.
C. the amount of debt in the company.
D. the profitability of the business.
The general journal does not have a column titled
A. Description.
B. Account Balance.
C. Date.
D. Post. Ref.
Use this information to answer the following question.
Panadora Company has the following information for the pay period of January 1-15,
2014. Payment occurs on January 20.
The entry to record the payroll would include a
A. debit to Salaries Payable for the net amount.
B. credit to State Unemployment Tax Payable.
C. debit to Salaries Expense for the amount paid to the employees.
D. debit to Salaries Expense for the gross payroll.
Which of the following is the correct accounting equation?
A. Assets = Liabilities + Owner’s Equity
B. Assets + Owner’s Equity = Liabilities
C. Assets = Liabilities – Owner’s Equity
D. Assets + Liabilities = Owner’s Equity
Use this information to answer the following question.
If the income statement were prepared in a multistep form, gross margin from sales would
be
A. $75,750.
B. $72,000.
C. $67,000.
D. $82,000.
On December 31, Ferndale Enterprises has an $800 debit balance in Allowance for
Uncollectible Accounts. If an accounts receivable aging method analysis indicated that
an estimated $6,400 of December 31 receivables are uncollectible, for what amount
would the adjusting entry for uncollectible accounts be recorded? (Show your work.)
Given the following ledger account and postings, complete the Balance column.
Mercado Photography purchased photographic equipment for $75,000.
Another name for retained earnings.
Indicate the letter of the term that matches the description below.
A company establishes a $200 petty cash fund. The fund is replenished in the amount of
$180, after petty cash vouchers of $80 for postage, $68 for donations, and $54 for meals
had accumulated. Was there a cash shortage, overage, or neither?
Under rising prices, why will the FIFO method produce a higher ending inventory than
LIFO?
Assume that during the physical count of the inventory of a large corporation last year,
$650,000 of merchandise was not counted.
Prepare entries in journal form without explanations for the merchandising transactions
listed below for Kona Company. Assume use of the periodic inventory system.
At the beginning of the year, Shannon Company’s assets were $150,000 and its owner’s
equity was $100,000. During the year, assets decreased $30,000 and liabilities increased
$15,000. What was the owner’s equity at the end of the year?
Why will an understated beginning inventory produce an overstated income before
income taxes for the same period? Will the understatement have a favorable or
unfavorable effect on current year income taxes?
Assume that part of accounts and other receivables on Trejada’s Toys’ February 2, 2014,
balance sheet is comprised of $43,225,000 of notes receivable. Two notes make up the
amount. The first note has a face value of $30,000,000 and bears interest at 7 percent
for 90 days. The second note has a face value of $13,225,000 and bears interest at 9
percent for 120 days. Record the journal entry for the collection of the 7 percent note on
May 3 and the dishonor of the 9 percent note on June 2. (Omit explanations; assume no
interest had been accrued; amounts rounded to nearest dollar.)
On the right side of the accounting equation are two types of claims against resources.
Explain what they are and give an example of an item that would increase each. Which
type of claim has priority?
Match each of the following terms with its correct definition.
At year end, MWE Graphics has a $700 debit balance in Allowance for Uncollectible
Accounts. It estimates that 5 percent of the $40,000 in sales are uncollectible. Give the
amount that should be used in the adjusting entry to record uncollectible accounts using
the percentage of net sales method. (Show your calculations.)
Explain why the cost of employing someone is more than just the wage or salary paid to
the employee.
Grannis Corporation purchased land adjacent to its plant to improve access for trucks
making deliveries.
Why are the amounts determined for ending inventory and cost of goods sold the same
under both the periodic and perpetual inventory systems when FIFO is used but not
when LIFO is used?