The economic entity assumption requires that the activities
a. of different entities can be combined if all the entities are corporations.
b. must be reported to the Securities and Exchange Commission.
c. of a sole proprietorship cannot be distinguished from the personal economic events of
its owners.
d. of an entity be kept separate from the activities of its owner.
Answer:
When there has been a change in accounting principle,
a. the old principle should be used in reporting the results of operations for the current
year.
b. the cumulative effect of the change should be reported in the current year’s retained
earnings statement.
c. the change should be reported retroactively.
d. the new principle should be used in reporting the results of operations of the current
year, but there is no change to prior years.
Answer:
Under IFRS, companies must classify income statement items by
a. function.
b. nature.
c. nature or function
d. date incurred.
Answer:
Postage stamps on hand are considered to be
a. cash.
b. petty cash.
c. cash equivalents.
d. a prepaid expense.
Answer:
The specific identification method of costing inventories is used when the
a. physical flow of units cannot be determined.
b. company sells large quantities of relatively low cost homogeneous items.
c. company sells large quantities of relatively low cost heterogeneous items.
d. company sells a limited quantity of high-unit cost items.
Answer:
Bonds that have specific assets of the issuer pledged as collateral are
a. secured bonds.
b. callable bonds.
c. convertible bonds.
d. debenture bonds.
Answer:
Which one of the following payroll taxes does not result in a payroll tax expense for the
employer?
a. FICA tax
b. Federal income tax
c. Federal unemployment tax
d. State unemployment tax
Answer:
Don’s Copy Shop bought equipment for $450,000 on January 1, 2014. Don estimated
the useful life to be 3 years with no salvage value, and the straight-line method of
depreciation will be used. On January 1, 2015, Don decides that the business will use
the equipment for a total of 5 years. What is the revised depreciation expense for 2015?
a. $150,000
b. $ 60,000
c. $ 75,000
d. $112,500
Answer:
Troy, Inc. decided on January 1 to discontinue its telescope manufacturing division. On
July 1, the division’s assets with a book value of $1,260,000 are sold for $840,000.
Operating income from January 1 to June 30 for the division amounted to $130,000.
Ignoring income taxes, what total amount should be reported on Troy’s income
statement for the current year under the caption, Discontinued Operations?
a. $130,000
b. $290,000 loss
c. $420,000 loss
d. $550,000
Answer:
The process of transferring transaction effects into the appropriate accounts is referred
to as
a. closing.
b. journalizing.
c. recording.
d. posting.
Answer:
The following information pertains to Ortiz Company. Assume that all balance sheet
amounts represent both average and ending balance figures. Assume that all sales were
on credit.
What is the profit margin for Ortiz?
a. 113%
b. 28.2%
c. 69%
d. 78%
Answer:
The face value of a note refers to the amount
a. that can be received if sold to a factor.
b. borrowed plus interest received at maturity from the maker.
c. that is identified on the formal instrument of credit.
d. remaining after a service charge has been deducted.
Answer:
The first part of the accounting process is
a. communicating.
b. identifying.
c. processing.
d. recording.
Answer:
A sales journal is used to record
a. only cash sales of merchandise.
b. sales of all assets on credit and for cash.
c. only credit sales of merchandise.
d. credit sales of merchandise, sales returns and allowances, and sales discounts.
Answer:
A corporation purchases 30,000 shares of its own $15 par common stock for $30 per
share, recording it at cost. What will be the effect on total stockholders’ equity?
a. Increase by $450,000
b. Decrease by $900,000
c. Increase by $900,000
d. Decrease by $450,000
Answer:
Barsuk Company began the year with stockholders’ equity of $108,000. During the
year, Barsuk issued stock for $147,000, recorded expenses of $420,000, and paid
dividends of $28,000. If Barsuk’s ending stockholders’ equity was $290,000, what was
the company’s revenue for the year?
a. $455,000.
b. $483,000.
c. $602,000.
d. $630,000.
Answer:
At March 1, 2015, Minutemen Corp. had supplies on hand of $500. During the month,
Minutemen purchased supplies of $1,200 and used supplies of $1,500. The March 31
adjusting journal entry should include a
a. debit to the supplies account for $1,500.
b. credit to the supplies account for $500.
c. debit to the supplies account for $1,200.
d. credit to the supplies account for $1,500.
Answer:
After a business transaction has been analyzed and entered in the book of original entry,
the next step in the recording process is to transfer the information to
a. the company’s bank.
b. stockholders’ equity.
c. ledger accounts.
d. financial statements.
Answer:
The amortization period for a patent cannot exceed
a. 50 years.
b. 40 years.
c. 20 years.
d. 10 years.
Answer:
On January 1, Dade Corporation issued $3,000,000, 7%, 5-year bonds with interest
payable on December 31. The bonds sold for $3,216,288. The market rate of interest for
these bonds was 6%. On the first interest date, using the effective-interest method, the
debit entry to Interest Expense is for
a. $180,000.
b. $225,140.
c. $192,977.
d. $210,000.
Answer:
Which of the following would not be classified as a contra account?
a. Sales Revenue
b. Sales Returns and Allowances
c. Accumulated Depreciation
d. Sales Discounts
Answer:
Cash is defined by IFRS as
a. cash on hand.
b. demand deposits.
c. cash on hand and demand deposits.
d. cash on hand, demand deposits, and highly liquid investments.
IFRS
Answer:
If beginning inventory is understated by $13,000, the effect of this error in the current
period is
Answer:
Compute the future value of $6,000 invested every year at an interest rate of 9%. You
invest the money for 20 years with the first payment made at the end of the year.
Answer:
A higher discount rate produces a higher present value.
Answer:
Financial information is presented below for two different companies.
Instructions
Determine the missing amounts.
Answer:
During October, 2015, Red’s Catering Company generated revenues of $14,000. Sales
discounts totaled $200 for the month. Expenses were as follows: Cost of goods sold of
$7,700 and operating expenses of $2,000.
Calculate (1) gross profit and (2) income from operations for the month.
Answer:
The cash basis of accounting is not in accordance with generally accepted accounting
principles.
Answer:
The current ratio permits analysts to compare the liquidity of different sized companies.
Answer:
Frostmore Company is considering investing in an annuity contract that will return
$40,000 annually at the end of each year for 10 years. What amount should Frostmore
pay for this investment if it earns an 6% return?
Answer:
Condensed financial data for Wynne Corporation are given below.
Additional information for 2015:
1> A cash dividend of $45,000 was declared and paid during the year.
2> Additional equipment was purchased for cash.
3> Land was acquired by issuing common stock.
Instructions: Prepare a statement of cash flows for 2015 using the indirect method.
Answer:
In a manufacturing company, goods that are ready to be sold to customers are referred
to as ________________, whereas in a merchandising company they are generally
referred to as _______________.
Answer: