If the market interest rate at the date of issuance of a bond exceeds the face interest rate,
the bond will probably be sold at a discount.
Social Security and Medicare taxes are borne entirely by the employee.
On a statement of cash flows prepared using the direct method, if accounts receivable
decrease from one accounting period to the next, cash receipts from sales will not be as
great as sales.
When bonds are sold between interest dates, the interest collected when the bonds are
sold is returned to investors on the next interest payment date.
Profitability is the ability to pay bills when due and to meet unexpected needs for cash.
Goodwill reflects all the factors that allow a company to earn a higher-than-market rate
of return on its assets.
Computerization has led to a large increase in the use of the perpetual inventory system.
On a multistep income statement, other revenues and expenses are a component of
income from operations.
If prices were to never change, there would be no need for alternative inventory
methods.
An adjusting entry includes at least one balance sheet account and at least one income
statement account.
The gross profit method requires that records be kept at both cost and retail.
Despite the many uses of laptop computers, they cannot be used to prepare work sheets.
Uncollectible accounts should not be estimated because it is impossible to know which
accounts will not be collected.
Additions and betterments are examples of capital expenditures.
The difference between gross sales and net sales is equal to the sum of sales discounts
and sales returns and allowances.
Taking a physical inventory is not necessary under a perpetual inventory system.
The portion of cost of goods available for sale that is not assigned to ending inventory
is assigned to work in process.
Direct cause-and-effect relationships between revenues and costs can usually be
demonstrated.
When the average-cost method is applied to a perpetual inventory system, the sale of
goods will not change the unit cost of the goods that remain in inventory.
All factors in a future value table must be less than or equal to 1.000.
Accounting information contains numerous estimates, classifications, summarizations,
judgments, and allocations.
Only the unused portion of a line of credit is recognized as a liability.
On a statement of cash flows prepared using the direct method, if accounts payable
have decreased, cash payments for purchases will be greater than net purchases.
All increases to owner’s equity are from revenues.
When the effective interest method of amortization is used for a bond premium, the
amount of premium to be amortized for a period is calculated by subtracting the amount
of bond interest expense for the period from the amount of cash to be paid for interest
for the same period.
A company’s acceptance of credit cards, like MasterCard, is an example of factoring
with recourse.
All transactions involving receipts of cash are recorded in the cash receipts journal.
A contingent liability eventually becomes either a true liability or no liability at all.
The lower the inventory turnover, the lower the days’ inventory on hand.
The general rule for determining the cash flow received from any revenue or paid for
any expense (except depreciation, which is a special case) is to determine the potential
cash payments or cash receipts and add the amount not paid or not received.
It is the issuer rather than the bond holder who may exercise the call feature of a
callable bond.
A partner who withdraws from a partnership may not be entitled to the balance in his or
her Capital account.
Net income is a measure of profitability.
An adjustment must be made at the end of an accounting period to accrue the interest
expense on bonds payable and to amortize any related premium or discount from the
last interest payment date to the end of the fiscal year.
Recording incurred but unpaid expenses is an example of an accrual.
When the trade-in allowance exceeds the carrying value of an asset exchanged, a gain is
realized.
Sales Discounts and Sales Returns and Allowances have normal credit balances.
Which of the following is an inventory costing method?
A. Perpetual
B. Lower-of-cost-or-market
C. Specific identification
D. Periodic
The owner’s Capital, Withdrawals, and Income Summary accounts for Harmon Repair
Company for the accounting period are presented below in T account form after the
recording and posting of closing entries:
The Bill Harmon, Capital balance on 1/1 was
A. $300.
B. $800.
C. $700.
D. $1,500.
Kolber Corporation is authorized to issue 200,000 shares of no-par stock. The company
recently sold 80,000 shares for $13 per share.
a. Prepare the entry in journal form to record the sale of the stock assuming there is no
stated value.
b. Prepare the entry in journal form if a $10 stated value is authorized by the company’s
board of directors.
A ten-year bond has a face value of $10,000, a face interest rate of 11 percent, an
unamortized bond premium of $400, and an effective interest rate of 10 percent. The
bonds were issued on one of its semi-annual interest payment dates. The entry to record
the bond interest expense on the first semi-annual interest payment date is : (assuming
the effective interest method of amortization),
A. Bond Interest Expense 520
Unamortized Bond Premium 30
Cash 550
B. Bond Interest Expense 520
Cash 520
C. Bond Interest Expense 550
Cash 550
D. Unamortized Bond Premium 520
The Report of Management in Brighton Company’s annual report states, “Management
has established a system of internal controls to provide reasonable assurance that assets
are maintained and accounted for in accordance with its policies and that transactions
are recorded accurately on the company’s books and records.” Name five control
activities Townsgate could and probably does implement.
Any of the following control activities would be used by Brighton’s management:
a. Authorization of transactions and activities
b. Recording of all transactions
c. Design and use of adequate documents
d. Permit access to assets only with management’s authorization
e. Record must be checked against the assets by some other responsible person
Which of the following describes the profit margin ratio?
A. Average total assets divided by net income
B. Net income plus income tax expense divided by average total assets
C. Average total assets divided by net revenue
D. Net income divided by net revenue
Which of the following is not a measurement issue in accounting?
A. Valuation.
B. Recognition.
C. Evaluation.
D. Classification.
Calculate answers to the following scenarios:
a. To what amount will an $800 deposit grow, assuming an APR of 9 percent paid
annually, 5 years, and simple interest?
b. To what amount will a $500 deposit grow, assuming an APR of 10 percent paid
semiannually, three years, and simple interest?
Which of the following entries could not be a legitimate reversing entry?
A. Debit Wages Payable and credit Wages Expense
B. Debit Fees Earned and credit Accounts Receivable
C. Debit Interest Payable and credit Interest Expense
D. Debit Interest Receivable and credit Interest Income
Which of the following statements is correct regarding partnerships?
A. Accounting for a partnership is similar to accounting for a sole proprietorship.
B. If the partnership assumes a liability related to an asset invested in the partnership,
the asset is debited, the partner’s capital account is credited and a liability account is
credited.
C. It is necessary to maintain separate Capital and Withdrawals accounts for each
partner.
D. All of these choices.
Under the allowance method, Uncollectible Accounts Expense is recorded
A. for an estimated amount.
B. several times during the accounting period.
C. when an individual account is written off.
D. for a known amount.
When bonds have been issued at a discount the periodic amortization of the discount
will
A. increase the carrying value of the bonds.
B. have no effect on the carrying value of the bonds.
C. decrease the carrying value of the bonds.
D. cause the carrying value always to equal the face value of the bonds.
Company A’s current assets = $10,000, total assets = $26,000, current liabilities =
$7,000 and total liabilities = $47,000. What is Company A’s working ratio?
A. $3,000
B. $21,000
C. 1.43
D. 0.55
Joan pays Eva $60,000 for her $40,000 interest in a partnership. The entry to record the
sale on the partnership books is:
Frankel Company often invests in the stock of other companies for long-term purposes.
None of the stocks currently held by Frankel qualify for use of the equity method. The
following amounts relate to Frankel’s long-term portfolio of marketable equity
securities.
Based on the above information, the adjusting entry on December 31, 2014 is:
A. Allowance to Adjust Long Term Investment to Market 76,000
Unrealized Loss on Long-Term Investments 76,000
B. Allowance to Adjust Long Term Investment to Market 24,000
Unrealized Loss on Long-Term Investments 24,000
C. Unrealized Loss on Long-Term Investments 76,000
Allowance to Adjust Long Term Investment to Market 76,000
D. Unrealized Loss on Long-Term Investments 24,000
Allowance to Adjust Long Term Investment to Market 24,000
a. Indicate the effect of a purchase of merchandise on account (on credit) on each of the
following items. Use “Increase,” “Decrease,” or “No effect” to express your answer for
each, and place your answers in the spaces provided. Assume that the first two ratios
exceeded 1.0 before the transaction.
b. Indicate the effect of a payment of an account payable on each of the following items.
Assume that the first two ratios exceeded 1.0 before the transaction. Use “Increase,”
“Decrease,” or “No effect” to express your answer for each, and place your answers in the
spaces provided.
If the amount of uncollectible accounts expense is understated at year end,
A. net Accounts Receivable will be understated.
B. total liabilities will be overstated.
C. net income will be understated.
D. Allowance for Uncollectible Accounts will be understated.
Lassen Corporation issued ten-year term bonds on January 1, 20×5, with a face value of
$800,000. The face interest rate is 8 percent and interest is payable semi-annually on
June 30 and December 31. The bonds were issued for $690,960 to yield an effective
annual rate of 10 percent. The effective interest method of amortization is to be used.
The entry on June 30, 20×5, to record the payment of interest and amortization of
discount is:
A. Bond Interest Expense 32,000
Cash 32,000
B. Bond Interest Expense 34,548
Unamortized Bond
Discount 2,548
Cash 32,000
C. Bond Interest Expense 34,548
Cash 34,548
D. Bond Interest Expense 32,000
Liberty Industries purchased merchandise worth $1,800 on credit, terms n/30. What is
the required journal entry to record the transaction under the perpetual inventory
system?
A. Accounts Receivable 1,800
Purchases 1,800
B. Purchases 1,800
Merchandise Inventory 1,800
C. Merchandise Inventory 1,800
Accounts Payable 1,800
D. Accounts Payable 1,800
How should dividends in arrears be shown on a corporation’s balance sheet?
A. As an increase in liabilities.
B. In a note or in the body of the financial statements.
C. As a decrease in assets.
D. As an increase in stockholders’ equity.
In a purchase system, the most appropriate department to control goods upon arrival at
the company is the
A. accounting department.
B. receiving department.
C. treasury department.
D. requesting department.
In a period of declining prices, which of the following inventory methods generally
results in the lowest balance sheet figure for inventory?
A. LIFO
B. Cannot tell without more information
C. FIFO
D. Average-cost
Each of the following is a feature of internal control except
A. management planning.
B. periodic independent verification.
C. limited access to assets.
D. authorization of transactions.
The following users of accounting information have an indirect financial interest in the
business except
A. regulatory agency.
B. creditor.
C. taxing authority.
D. labor union.
Knollwood Corporation issued $278,000 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.
After 11 years, what is the carrying value of the bonds?
A. $286,340
B. $286,896
C. $284,950
D. $288,564
A purchase is recognized in the accounting records when
A. payment is made for the item purchased.
B. the purchase requisition is sent to the purchasing department.
C. title transfers from the seller to the buyer.
D. the buyer receives the seller’s bill.
Use this information to answer the following question.
The trial balance for Nowwick Company appears as follows:
If on December 31, 2014, supplies on hand were $120, the adjusting entry would contain a
A. credit to Supplies for $120.
B. credit to Supplies Expense for $180.
C. debit to Supplies Expense for $180.
D. debit to Supplies for $120.
Copper Company engaged in the following transactions during April
If the balance in cash after these transactions is $115,000, how much cash was collected on
account?
A. $67,000
B. $62,000
C. $15,000
D. $29,000
Weller Co. issued $600,000 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. What is the total
interest cost of the bonds?
A. $1,439,000
B. $1,404,000
C. $1,440,000
D. $1,476,000
Those who lend money or deliver goods and services before being paid are called
A. investors.
B. debtors.
C. underwriters.
D. creditors.
Chao Corporation uses the accounts receivable aging method to account for
Uncollectible Accounts Expense. As of December 31, Chao’s accountant prepared the
following data about ending receivables: $40,000 was not yet due (1 percent expected
not to be collected), $20,000 was 1-60 days past due (4 percent expected not to be
collected), and $4,000 was over 60 days past due (8 percent expected not to be
collected). At December 31, Allowance for Uncollectible Accounts had a credit balance
prior to adjustment of $400. In the journal provided, prepare Chao’s end-of-period
adjustment for estimated uncollectible accounts. Also prepare the entry that would have
been made had the credit balance instead been a debit balance. Omit explanations
Assuming a perpetual inventory system is used, use the following information to
calculate cost of goods sold on an average-cost basis.
Distinguish between the cost of goods available for sale and the cost of goods sold.
Using the following information from an annual report, prepare a vertical analysis of
the consolidated statement of earnings for the fiscal year ended June 30, 20×5. (Round
percentage answers to one decimal place.)
An accountant is responsible for the following activities: (1) receiving all cash; (2)
maintaining the general ledger; (3) maintaining the accounts receivable subsidiary
ledger that includes the individual records of each customer; (4) maintaining the
journals for recording sales, purchases, and cash receipts; and (5) preparing monthly
statements to be sent to customers. As a service to customers and employees, the
company allows the accountant to cash checks of up to $75 with money from the cash
receipts. When deposits are made, the checks are included in place of the cash receipts.
What weaknesses in internal control exist in this system?
In 2014, Mansfield Mining purchased a mineral deposit for $12,000,000.
On January 1, Tenkotte Corporation purchased, as long-term investments, 10 percent of
the voting stock of Gibbs Corporation for $75,000 and 25 percent of the voting stock of
Rieger Corporation for $150,000.
On December 1, Stefania’s Pizza borrowed $80,000 from the bank, issuing a 90-day, 15
percent promissory note. Interest is in addition to the face value. In the journal
provided, prepare Stefania’s December 1 entry, December 31 adjusting entry without
explanations for accrued interest, and March 1 entry at maturity. Round to the nearest
whole dollar.
What is the responsibility of the independent auditor? Who is responsible for the
content of the published financial statements?
Joan Miller owns an advertising agency. One of the adjustments her accountant made at
the end of July was $360 for unpaid wages of the secretary. Joan Miller might ask,
“Why go to the trouble of making this adjustment? Why worry about it? Doesn’t
everything come out in the end, when the secretary is paid in August? Because wages
expense in total is the same for the two months, isn’t the net income in total
unchanged?” Give three reasons why adjusting entries can help Joan Miller assess the
performance of her business. (Net income was $1,600.)
Match each of the following terms with its appropriate description.
Given the following ledger account and postings, complete the Balance column.
