Wilco Legal Eagles Company entered into the following transactions during
March 2015.
1> Purchased office equipment for $23,000 from Business Equipment, Inc. on account.
2> Paid $3,000 cash for March rent on office furniture.
3> Received $15,000 cash from customers for legal work billed in February.
4> Provided legal services to Amy Construction Company for $3,500 cash.
5> Paid Northern States Power Co. $2,700 cash for electric usage in March.
6> Stockholders’ invested an additional $32,000 in the business.
7> Paid Business Equipment, Inc. for the office equipment purchased in (1) above.
8>Incurred advertising expense for March of $1,900 on account.
Instructions
Indicate with the appropriate letter whether each of the transactions above results in:
(a) an increase in assets and a decrease in assets.
(b) an increase in assets and an increase in stockholders’ equity.
(c) an increase in assets and an increase in liabilities.
(d) a decrease in assets and a decrease in stockholders’ equity.
(e) a decrease in assets and a decrease in liabilities.
(f) an increase in liabilities and a decrease in stockholders’ equity.
(g) an increase in stockholders’ equity and a decrease in liabilities.
Answer:
Which of the following accounts should appear in the nonoperating section of a
multiple-step income statement?
a. Freight-out
b. Sales Discounts
c. Sales Returns and Allowances
d. Interest Expense
Answer:
Bad Debt Expense is reported on the income statement as
a. part of cost of goods sold.
b. reducing gross profit.
c. an operating expense.
d. a contra-revenue account.
Answer:
Selected transactions of Alton Company are listed below.
1> Common stock is sold for cash above par value.
2> Bonds payable are issued for cash at a discount.
3> Interest receivable on a short-term note receivable is collected.
4> Land is sold for cash at book value.
5> Accounts payable are paid in cash.
6> Equipment is purchased by signing a 3-year, 10% note payable.
7> Cash dividends on common stock are declared and paid.
8> 100 shares of XYZ common stock are purchased for cash.
9> Merchandise is sold to customers for cash.
10> Bonds payable are converted into common stock.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c)
a financing activity, or (d) a noncash investing and financing activity.
Answer:
Bargain Company has $1,500,000 of bonds outstanding. The unamortized premium is
$19,600. If the company redeemed the bonds at 101, what would be the gain or loss on
the redemption?
a. $4,600 gain
b. $4,600 loss
c. $15,000 gain
d. $15,000 loss
Answer:
Wrapp Company has income before taxes of $350,000 and an extraordinary loss of
$70,000. If the income tax rate is 30% on all items, the income statement should show
income before irregular items and an extraordinary loss, respectively, of:
a. $350,000 and ($70,000)
b. $245,000 and ($24,000)
c. $245,000 and ($49,000)
d. $105,000 and ($21,000)
Answer:
A journal is not useful for
a. disclosing in one place the complete effect of a transaction.
b. preparing financial statements.
c. providing a record of transactions.
d. locating and preventing errors.
Answer:
Which of the following statements concerning receivables is incorrect?
a. Notes receivable are often listed last under receivables.
b. The contingent liability from selling notes receivable should be disclosed.
c. Both the gross amount of receivables and the allowance for doubtful accounts should
be reported.
d. Interest revenue and gain on sale of notes receivable are shown under other revenues
and gains.
Answer:
In a perpetual inventory system, cost of goods sold is recorded
a. on a daily basis.
b. on a monthly basis.
c. on an annual basis.
d. with each sale.
Answer:
Beonce Company received proceeds of $188,000 on 10-year, 6% bonds issued on
January 1, 2013. The bonds had a face value of $200,000, pay interest semi-annually on
June 30 and December 31, and have a call price of 101. Beonce uses the straight-line
method of amortization.
Beonce Company decided to redeem the bonds on January 1, 2015. What amount of
gain or loss would Beonce report on its 2015 income statement?
a. $9,600 gain
b. $11,600 gain
c. $11,600 loss
d. $9,600 loss
Answer:
Having different individuals receive cash, record cash receipts, and hold the cash is an
example of
a. establishment of responsibility.
b. segregation of duties.
c. documentation procedures.
d. independent internal verification.
Answer:
A company that receives an interest bearing note receivable will
a. debit Notes Receivable for the maturity value of the note.
b. credit Notes Receivable for the maturity value of the note.
c. debit Notes Receivable for the face value of the note.
d. credit Notes Receivable for the face value of the note.
Answer:
The recording process occurs
a. once a year.
b. once a month.
c. repeatedly during the accounting period.
d. infrequently in a manual accounting system.
Answer:
A numbering system for a chart of accounts
a. is prescribed by GAAP.
b. is uniform for all businesses.
c. usually starts with income statement accounts.
d. usually starts with balance sheet accounts.
Answer:
In accordance with the revenue recognition principle, sales revenues are recorded when
a. the goods are transferred from the seller to the buyer.
b. cash is received from the customer for items already delivered.
c. an order is received from a customer with delivery of the product expected to take
place within the next 30 days.
d. the accountant determines which period’s income statement “needs” more revenue.
Answer:
For each item listed below, enter a code letter in the blank space to indicate the
allocation terminology for the item. Use the following codes for your
Answer:
Transactions are entered in the ledger first and then they are analyzed in terms of their
effect on the accounts.
Answer:
Sasser Company uses a sales journal, a cash receipts journal, and a general journal to
record transactions with its customers. Record the following transactions in the
appropriate journals. The cost of all merchandise sold was 70% of the sales price.
Answer:
An unrealized loss on trading securities is reported under Other
____________________ on the income statement.
Answer:
All plant assets (fixed assets) must be depreciated for accounting purposes.
Answer: