Recording an account with a debit balance as a credit, or vice versa, will cause the trial
balance to be out of balance by an amount that is evenly divisible by two.
Dividend yield is the most important ratio associated with stockholders’ equity and is a
common measure of management’s performance.
The existence of uncollectible accounts is evidence of poor credit policies.
The primary external users of accounting information are investors and management.
Adjusting entries affect cash flows in the current period.
In a diversified company, segments may be represented by different industries,
geographical markets, and major customers.
Both the allowance method and the direct charge-off method are acceptable for tax
purposes.
A partnership need not obtain permission from the state before it legally conducts
business.
Taxing authorities are considered accounting information users with a direct financial
interest.
The entry required to record start-up and organization costs will cause a increase in
assets.
An adjusted trial balance provides all the data needed to record the closing entries.
Commercial paper consists of secured loans that are sold to the public.
The faster goods are sold and collection is made, the shorter the financing period.
A $750 gain on the sale of an asset means that $750 in cash was received.
A corporation’s board of directors may influence dividend policies, but the company’s
senior management has sole authority to declare dividends.
Ratio analysis is useful only if the ratio states a meaningful relationship between two
numbers.
The carrying value of a bond issued at a premium is calculated at any given point in
time by adding the balance of the unamortized premium to the bond’s face value.
When M purchases N’s $10,000 capital interest for $10,000, the ensuing entry on the
books of the partnership would contain a debit to Cash for $10,000.
Vacation pay is charged properly as an expense in the month in which the employee
takes a vacation.
Goods in transit shipped FOB destination should not be included in the buyer’s ending
inventory.
In a journal entry, debits are always indented.
A statement of stockholders’ equity can take the place of a statement of retained
earnings.
Potential vacation pay should be accounted for as a commitment.
The valuation issue deals with how the components of a transaction should be
categorized.
Damaged goods that can be sold at a reduced price should be included in a company’s
merchandise inventory.
A limitation of using industry norms in financial performance evaluation is that some
companies in the same industry may not be strictly comparable.
Notes receivable due within 90 days and cash are examples of short-term financial
assets.
Federal tax law does not allow the rapid write-off of plant assets.
Illegal acts of a small dollar amount can be ignored because they are immaterial.
The main differences among the balance sheets of the sole proprietorship, the
partnership, and the corporation are found in the current assets and current liabilities
sections.
Use this information to answer the following question.
A periodic inventory system is used; ending inventory is 147 units.
What is ending inventory under FIFO?
A. $1,382
B. $1,582
C. $1,282
D. $1,482
A liability would not include an obligation to
A. transfer assets.
B. hire an employee.
C. pay cash.
D. provide services.
The trial balance for Parker Company is as follows:
If the trial balance showed a balance of $8,000 in the Wages Expense account and a
balance of $85,000 in the Advertising Fees Earned account, what would be the amount of
the Mike Parker, Withdrawals account?
A. $75,000
B. $53,000
C. $35,000
D. $63,000
Use this balance sheet and income statement for the first year of operations for Cane
Construction to answer the following question. Use ending balances whenever average
balances are required for computing ratios.
The debt to equity ratio for Cane Construction is
A. 16-2/3 percent.
B. 20 percent.
C. 80 percent.
D. 83-1/3 percent.
Treasury shares plus outstanding shares equal
A. unissued shares.
B. subscribed shares.
C. authorized shares.
D. issued shares.
The communication stage of accounting is accomplished by
A. storing data.
B. reporting to decision makers.
C. processing data.
D. recording data.
The following is a quote found in a company’s annual report:
In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting. . .
This statement would have been made by
A. the company’s independent auditors.
B. the chief financial officer.
C. the chief executive officer.
D. the board of directors.
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 receivable turnover for this corporation? Round your answer to one decimal
place.
A. 4.0 times
B. 3.0 times
C. 2.4 times
D. 0.9 times
Use this information to answer the following question.
The general ledger account for Accounts Receivable shows a debit balance of $50,000.
Allowance for Uncollectible Accounts has a debit balance of $1,000. Net sales for the
year were $500,000. In the past, 2 percent of sales have proved uncollectible, and an
aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible
accounts.
Using the accounts receivable aging method, the Allowance for Uncollectible Accounts
balance (after adjustment) would be
A. $14,500.
B. $14,000.
C. $13,500.
D. $12,500.
When a corporation owns more than 50 percent of the voting stock in another
corporation, it usually should report its investment by using (the)
A. equity method.
B. cost adjusted to market method.
C. book value method.
D. consolidated financial statements.
Use this information to answer the following question.
The total dollar amount of assets to be classified as property, plant, and equipment is
A. $135,000.
B. $125,000.
C. $95,000.
D. $85,000.
The following information pertains to Patterson Corporation. Assume that all balance
sheet amounts represent both average and ending figures.
Patterson Corporation had 6,000 shares of common stock issued and outstanding. The
market price of Patterson common stock on December 31, 20×5, was $20. Patterson paid
dividends of $0.90 per share during 20×5.
What is the debt to equity ratio for this corporation? Round your answer to 1 decimal
place.
A. 0.4 times
B. 0.6 times
C. 1.0 times
D. 2.5 times
Which of the following could not possibly be a closing entry?
A. Debit Income Summary and credit owner’s Capital
B. Debit Income Summary and credit Withdrawals
C. Debit owner’s Capital and credit Withdrawals
D. Debit owner’s Capital and credit Income Summary
To find a description of a transaction, one should look at the
A. ledger.
B. trial balance.
C. journal.
D. chart of accounts.
The amount of cash received on issuance of a 9 percent, $10,000 bond dated February 1
and issued June 1 at 96 is
A. $9,300.
B. $9,975.
C. $9,600.
D. $9,900.
The periodic inventory system has traditionally been used most commonly by
companies that sell
A. low-priced, high-volume merchandise.
B. low-priced, low-volume merchandise.
C. high-priced, low-volume merchandise.
D. high-priced, high-volume merchandise.
Financial statements are audited by outside accountants
A. because it is a requirement stated in the Internal Revenue Code.
B. only when fraudulent financial reporting is suspected.
C. who then report on whether or not the company is a good investment.
D. to increase the users’ confidence in the statements’ reliability.
A corporation records a dividend-related liability
A. on the payment date.
B. on the record date.
C. on the declaration date.
D. when the stock sells ex-dividend.
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 capital?
A. $3,000
B. $21,000
C. 1.43
D. 0.55
The unexpired cost of a plant asset is referred to as its
A. depreciable cost.
B. carrying value.
C. accumulated depreciation.
D. original cost.
Which of the following sets of documents are in the correct sequence?
A. Purchase order, check, receiving report
B. Purchase requisition, purchase order, invoice
C. Purchase requisition, receiving report, purchase order
D. Purchase order, purchase requisition, invoice
Interest costs are included in the cost of an asset in conjunction with
A. long-term assets being purchased.
B. long-term assets acquired for speculative purposes.
C. long-term assets being constructed.
D. natural resources and intangible assets.
A jeweler probably would use which of the following inventory methods?
A. Specific identification
B. FIFO
C. Average-cost
D. LIFO
Which of the following accounting conventions would an accountant most likely apply
when facing major uncertainties?
A. Understandability
B. Conservatism
C. Materiality
D. Verifiability
Which of the following is a business event that is not considered a recordable
transaction?
A. A company receives a product previously ordered.
B. A company pays an employee for work performed.
C. A customer inquires about the availability of a service.
D. A customer purchases a service.
___________ is related to both the nature of an item and its size.
A. Neutrality
B. Materiality
C. Verifiability
D. Timeliness
In general, a cost incurred in conjunction with a long-term asset is included in the
long-term asset account when the cost
A. is incurred subsequent to asset use.
B. exceeds a certain dollar amount.
C. is incurred prior to asset use.
D. will expire in less than one year.
On March 1, 20×5, Darby Corporation sold 102 of its 9 percent, $1,000 bonds for a
price of 96 plus accrued interest. The accrued interest amounted to $1,000. If a balance
sheet were to be prepared at the end of the day, March 1, 20×5, the carrying value
reported for the bonds payable would be
A. $102,000.
B. $97,920.
C. $98,940.
D. $96,900.
When a business erroneously records expenses as assets, it has violated the
measurement issue of
A. communication.
B. classification.
C. valuation.
D. realization.
When freight-in is a relatively small amount, most companies include the cost in
A. operating expenses.
B. cost of goods sold.
C. administrative expenses.
D. merchandise inventory.
From the following alphabetical list of account balances, all of which are normal, for
Ivy Maxx Company on July 31, 2014, prepare a trial balance in proper form (the
amount of Ivy Maxx, Withdrawals must be computed) .
Why will the Income Summary account never appear on any financial statement?
Under a perpetual inventory system, is it necessary to take a physical inventory at the
end of the period? Why or why not?
Why is the quick ratio probably better than the current ratio as a measure of short-term
liquidity?
Suppose an accounting intern mistakenly calculated depreciation expense on the Land
account.
Match each of the following terms with its appropriate description.
On December 31, 20×5, the balance sheet of the Nowicki Company reported 2,000
bonds outstanding with a face value of $1,000,000 and a related unamortized discount
of $70,000. The bonds are convertible at the rate of 25 shares of common stock for each
$1,000 bond. On January 1, 20×6 , the bondholders presented $800,000 of the bonds for
conversion. The entry to record this conversion contained a credit to Additional Paid-in
Capital for $344,000. Calculate the par value per share of the common stock.
On December 31, Jameson Products has a $300 credit balance in Allowance for
Uncollectible Accounts. It estimates that 4 percent of the $60,000 in sales are
uncollectible. After the appropriate adjusting entry for uncollectible accounts has been
made, what will be the balance in Allowance for Uncollectible Accounts using the
percentage of net sales method? Indicate if the balance is a debit or credit. (Show your
work.)
Copperhead Corporation has 30,000 shares of $100 stated value no-par common stock
authorized, and 20,000 shares were outstanding during 20×5. The following
transactions relate to cash dividends of Copperhead Corporation for the year ended
December 31, 20×5. Prepare entries in journal form without explanations to record the
following transactions:
What type of information does the general journal include for each transaction?
On January 1, 20×5, Ed Bradley Co.issued five-year term bonds with a face value of
$700,000. Interest is payable annually on December 31. The bonds were issued for
$727,300. The effective interest method of amortization is used. Ed Bradley reported
Bond Interest Expense of $65,457 on its income statement for the year ended December
31, 20×5. Calculate the effective interest rate for these bonds.
Newberry Company’s owner’s equity equals one-fourth of the company’s total assets.
The company’s liabilities are $309,000. What is the amount of the company’s owner’s
equity?
Wolf Equipment uses a perpetual inventory method. Discuss how Wolf Equipment
accounts for freight-in and freight-out.
Jamie Enterprises purchased a warehouse by signing a long-term $400,000 mortgage
with monthly payments of $3,100. The mortgage carries an interest rate of 9 percent.
Prepare entries in journal form without explanations to record the purchase and the
second and third monthly payments. Round answers to the nearest dollar.
Present two arguments in favor of the use of accelerated depreciation.
