A company makes a deferral adjustment that decreased a liability. This must mean that
a(n):
A) expense account was decreased by the same amount.
B) expense account was increased by the same amount.
C) revenue account was increased by the same amount.
D) revenue account was decreased by the same amount.
Which of the following will occur when inventory costs are decreasing?
A) FIFO will result in a lower net income but a higher ending inventory than will LIFO.
B) FIFO will result in a higher net income but a lower ending inventory than will LIFO.
C) FIFO will result in a lower net income and a lower ending inventory than will LIFO.
D) FIFO will result in a higher net income and a higher ending inventory than will
LIFO.
Current liabilities are due:
A) but not receivable for more than one year or the current operating cycle, whichever
is longer.
B) but not payable for more than one year or the current operating cycle, whichever is
longer.
C) and receivable within the current operating cycle or one year, whichever is longer.
D) and payable within the current operating cycle or one year, whichever is longer.
Every transaction:
A) increases one account and decreases another account.
B) has at least two effects on the basic accounting equation.
C) affects only balance sheet accounts or only income statement accounts.
D) is analyzed from the standpoint of the business owners.
The advantages of the direct method include all of the following except:
A) it allows for more detailed analysis of operating cash flows.
B) it provides more information than the indirect method to relate cash inflows and
outflows.
C) it allows for more reliable prediction of future cash flows.
D) comparisons between companies are facilitated since most U.S. companies use the
direct method.
As of December 31, Frappe Company has a balance of $5,000 in accounts receivable.
Of this amount, $500 is past due and the remainder is not yet due. Frappe has a credit
balance of $45 in the Allowance for Doubtful Accounts. Frappe Company estimates its
bad debt losses using the aging of receivables method, with estimated bad debt loss
rates equal to 1% of accounts not yet due and 10% of past due accounts. How will the
Bad Debt Expense account be included in the required adjusting journal entry at
year-end?
A) Debit of $95
B) Credit of $95
C) Debit of $50
D) Credit of $50
Which of the following is not an amount that is needed to calculate straight-line
depreciation?
A) The cost of the asset
B) An estimate of the asset’s useful economic life to the company
C) The estimated amount that the company will receive when it disposes of the asset
D) The cost the company will be required to incur to replace the asset
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term:
1> _____ Convertible
2> _____ Carrying value
3> _____ Discount
4> _____ Callable
5> _____ Maturity
6> _____ Market interest rate
7> _____ Stated interest rate
8> _____ Premium
Definition:
A. A bond feature that changes the interest rate on the bond with market conditions.
B. When a bond is issued for a price less than its face value.
C. Also known as the face value or par value of a bond.
D. A bond with the feature that allows creditors to exchange the bond for company
stock.
E. The interest rate printed on the bond certificate.
F. A bond with the feature that lets creditors examine financial data and demand new
loan conditions.
G. The amount a company receives when it sells a bond; also known as issue price.
H. When a bond is issued for a price greater than its face value.
I. A bond with the feature that allows the borrowing company to pay off a bond
whenever it wishes.
J. Rate of interest that investors demand from a bond.
K. The time at which the face value of a bond must be paid to the lender.
L. Is multiplied by the market interest rate to calculate the (effective) interest expense
on a bond.
At the start of the first year of operations, Retained Earnings would be:
A) equal to zero.
B) equal to Common Stock.
C) equal to stockholders’ equity.
D) equal to the Net Income.
Which of the following statements about a stock split is correct?
A) A stock split decreases Retained Earnings.
B) Stock splits do not require a journal entry.
C) Stock splits are the same as stock dividends.
D) Stock splits increase the par value per share.
A company has positive cash flow from investing and financing activities, but negative
cash flow from operating activities. The likely result is:
A) investors may not buy the company’s stock because the receipt of dividends is
unlikely.
B) investors will continue to buy stock since the company’s growth prospects are good.
C) Creditors will continue to lend money to the company.
D) Creditors will demand immediate repayment of all outstanding debt.
A company lends $10,000 to an employee who signs a 9%, 6-month promissory note.
What is the total amount of interest on this note?
A) $900
B) $450
C) $10,450
D) $2,700
A company issues a 5-year bond with a $7,500 discount. Using straight-line
amortization, the company should:
A) debit Discount on Bonds Payable for $1,500 per year.
B) credit Discount on Bonds Payable for $1,500 per year.
C) debit Interest Payable for $1,500 per year.
D) credit Interest Expense for $1,500 per year.
The following transactions occurred during July:
1> Received $800 cash for services performed during July.
2> Received $5,000 cash from the issuance of common stock to owners.
3> Received $400 from a customer as payment for services performed during June.
4> Billed $3,500 to customers for services performed on account in July.
5> Borrowed $2,500 from the bank and signed a promissory note.
6> Received $1,000 from a customer for services to be performed during August.
Use the information above to answer the following question. As a result of these
transactions, what is the amount of the increase to the Cash account?
A) $9,700.
B) $13,200.
C) $2,200.
D) $7,200.
Assume a company uses the direct method to prepare its statement of cash flows. If the
company’s inventory and accounts payable both increase during the accounting period,
how would these changes affect cash flow calculations?
A) The changes in each account are both added to net income.
B) The change in inventory is subtracted from cost of goods sold and the change in
accounts payable is added to cost of goods sold to find the cash paid to suppliers.
C) The changes in each account are both subtracted from net income.
D) The change in inventory is added to cost of goods sold and the change in accounts
payable is subtracted from cost of goods sold to find the cash paid to suppliers.
Which of the following would be treated as an accounting transaction for a gardening
supply store?
A) The company signed an agreement to rent store space at $200 month.
B) The vice president of the company spoke at a luncheon that contributed to enhancing
the company ‘s reputation as a responsible company.
C) The company ordered supplies for $500.
D) The company loaned $500 to an employee.