The sale of treasury stock cannot result in
A. an increase in Retained Earnings.
B. the crediting of Paid-in Capital, Treasury Stock.
C. the debiting of Paid-in Capital, Treasury Stock.
D. an increase in total stockholders’ equity.
An important purpose of the work sheet is to
A. accompany the financial statements in the company’s annual report.
B. aid the accountant in the daily preparation of journal entries.
C. replace the journal when making adjusting and closing entries.
D. check the accuracy of adjusting entries before they are entered formally into the
accounting records.
The asset turnover ratio equals
A. revenues divided by average total assets.
B. average total assets divided by net income.
C. average total assets divided by total liabilities.
D. net income divided by average total assets.
When a partner invests assets other than cash into a partnership, those assets should be
listed on the balance sheet at
A. their original cost
B. their carrying (book) value
C. their fair market value
D. the value the investing partner assigns to them
Use this balance sheet and income statement to answer the following question. Use
ending balances whenever average balances are required for computing ratios.
The current ratio for National Textile is
A. 1.20.
B. 1.75.
C. .67.
D. 1.50.
A company’s merchandise inventory includes all of the following, except
A. goods in possession, but which cannot be sold.
B. goods on shelves.
C. damaged goods that can be sold at a reduced price.
D. goods in storerooms.
Which of the following statements is descriptive of common stock?
A. Stockholders are considered creditors of a corporation.
B. The payment of dividends is required.
C. Dividends paid are an expense for the issuing corporation.
D. Issuing stock is less financially risky than issuing bonds.
A company has cost of goods available for sale of $250,000, sales of $305,000, and a
gross profit percentage of 30 percent. Using the gross profit method, what is the ending
inventory?
A. $95,000
B. $50,000
C. $36,500
D. $158,500
An advantage of the single-step income statement over the multistep form is
A. the amount of information it provides.
B. its simplicity.
C. its comprehensiveness.
D. its use in computing ratios.
Equipment was purchased for $117,000. It had an estimated residual value of $18,000
and has a current carrying value of $75,000. Its depreciable cost must have been
A. $42,000.
B. $99,000.
C. $124,000
D. impossible to determine from the facts given.
When applying the retail method, which of the following would not be a component of
the cost-to-retail percentage?
A. Purchases
B. Beginning inventory
C. Sales
D. Freight-in
Bank of the Pacific is a local bank operating primarily in Portland, Oregon. The bank
accepts deposits from and makes loans to local businesses and individuals. Which of the
following accounting estimates would be most important for Bank of the Pacific?
A. Uncollectible accounts receivable.
B. Warranty claims.
C. Total units of production.
D. Sales returns.
A reversing entry would never involve which of the following accounts?
A. Interest Expense
B. Wages Payable
C. Cash
D. Interest Income
The best definition of assets is the:
A. cash owned by the company.
B. resources belonging to a company having future benefit to the company.
C. collection of resources belonging to the company and the claims on these resources.
D. owner’s investment in the business.
On the completed work sheet, which set of columns usually should be out of balance
after the initial footing?
A. Both Income Statement and Balance Sheet columns
B. Balance Sheet columns only
C. Income Statement columns only
D. Adjusted Trial Balance columns only
Which of the following most appropriately describes depreciation?
A. Decline in value of a plant asset
B. Gradual allocation of the cost of a plant asset over periods of usefulness
C. Physical deterioration of a plant asset
D. Gradual obsolescence of a plant asset
Parson Company issues $500,000 of 30-year, 8 percent bonds at 106. Interest is paid
semiannually, and the effective interest method is used for amortization. Assume that
the market interest rate for similar investments is 7 percent and that the bonds are issued
on an interest date.
a. What amount was received for the bonds?
b. How much interest is paid each interest period?
c. How much bond interest expense is recorded on the first interest date (after the issue
date)?
d. What is the carrying value of the bonds after the first interest date (after the issue
date)?
The receivables turnover is expressed in terms of
A. times.
B. days.
C. a percentage.
D. dollars.
The owner’s Capital, Withdrawals, and Income Summary accounts for Laurel Repair
Company for the accounting period are presented below in T account form after the
recording and posting of closing entries:
The amount of net income (or net loss) for the period is
A. $400 net loss.
B. $500 net income.
C. $900 net income.
D. $400 net income.
Alex, Clinton, and Evan are in a partnership. Evan decides to withdraw from the
partnership by selling his interest to Linsey. Alex and Clinton agree to this. Alex’s
Capital account and Clinton’s Capital account
A. will not be affected when Linsey is admitted
B. will decrease when Linsey is admitted
C. will increase when Linsey is admitted
D. cannot be determined from the information given
Which of the following accounts could not be credited in an adjusting entry?
A. Service Revenue
B. Prepaid Rent
C. Office Supplies
D. Interest Receivable
On which of the following dates involving stock dividends does a liability arise?
A. Date of distribution
B. Date of declaration
C. Date of record
D. On no date
In the journal provided, prepare adjusting entries for the following items. Omit
explanations.
a. Unrecorded interest on savings bonds is $680.
b. Property taxes incurred but not paid or recorded amount to $540.
c. Legal fees of $5,000 were collected in advance. By year end, 60 percent were still
unearned.
d. Prepaid Insurance had a $1,600 debit balance prior to adjustment. By year end, 40
percent was still unexpired.
e. Salaries incurred by year end but not yet paid or recorded amounted to $1,375.
Preparing the work sheet
A. is done rather than preparing financial statements.
B. provides a mechanism for applying the going concern concept.
C. provides a mechanism for applying the periodicity concept.
D. All of these choices.
Following are the financial statements for Flynn Corporation for the year ended
December 31, 20×5. Assume that all balance sheet amounts represent both average and
ending figures.
What is the return on assets for this corporation? Round your answer to one decimal place.
A. 37.5 percent
B. 26.7 percent
C. 20.0 percent
D. 15.0 percent
Any unamortized bond discount should be reported on the balance sheet of the issuing
corporation as a(n)
A. asset.
B. direct deduction from retained earnings in the stockholders’ equity section.
C. addition to the face amount of the bonds in the liability section.
D. direct deduction from the face amount of the bonds in the liability section.
The owner of an amusement park is considering installing a new ride. The ride would
cost $10,000, produce an estimated net cash flow of $1,575 annually, and last for nine
years.
a. Assuming an interest rate of 10 percent, what is the present value of the net cash
flows expected from the ride? Use future value and/or present value tables in
calculating your answer.
b. Should the ride be purchased?
On April 12, Vancouver Company accepted a return of $200 of merchandise purchased
on account. This transaction will result in
A. a $200 credit to the controlling account, Accounts Receivable, and a $200 credit to
the individual account in the subsidiary ledger.
B. the subsidiary ledger total being $200 less than the controlling account total.
C. a $200 debit to the subsidiary ledger and a $200 credit to the controlling account,
Accounts Receivable.
D. the subsidiary ledger total being $200 more than the controlling account total.
The owner’s Capital, Withdrawals, and Income Summary accounts for Laurel Repair
Company for the accounting period are presented below in T account form after the
recording and posting of closing entries:
The Fran Laurel, Capital balance on 1/1 was
A. $2,000.
B. $1,800.
C. $2,400.
D. $2,200.
Which of the following methods generally is used to determine the loss when inventory
is destroyed or stolen?
A. Retail method
B. FIFO
C. LIFO
D. Gross profit method
All of the following are used in estimating a depreciable asset’s useful life except
A. the asset’s present condition.
B. the useful life required by the government for tax purposes.
C. experience with similar assets.
D. current technology and industry trends.
Indicate in the spaces below whether or not each of the following adjustments may be
reversed.