Corporations invest in other companies for all of the following reasons except to
a. house excess cash until needed.
b. generate earnings.
c. meet strategic goals.
d. increase trading of the other companies’ stock.
Answer:
Use the following information to calculate for the year ended December 31, 2015 (a)
net income, (b) ending retained earnings, and (c) total assets.
Answer:
Blank checks
a. should be safeguarded.
b. should be pre-signed.
c. do not need to be safeguarded since they must be signed to be valid.
d. should not be prenumbered.
Answer:
Collection of a $1,000 Accounts Receivable
a. increases an asset $1,000; decreases an asset $1,000.
b. increases an asset $1,000; decreases a liability $1,000.
c. decreases a liability $1,000; increases stockholders’ equity $1,000.
d. decreases an asset $1,000; decreases a liability $1,000.
Answer:
If stock is issued for less than par value, the account
a. Paid-In Capital in Excess of Par is credited.
b. Paid-In Capital in Excess of Par is debited if a debit balance exists in the account.
c. Paid-In Capital in Excess of Par is debited if a credit balance exists in the account.
d. Retained Earnings is credited.
Answer:
Gable’s Wholesale uses a sales journal. An entry in this journal represents a
a. debit to Cash; credit to Sales Revenue.
b. debit to Accounts Receivable; credit to Sales Revenue.
c. debit to Sales Discounts; credit to Cash.
d. debit to Accounts Payable; credit to Sales Returns and Allowances.
Answer:
The ledger should be arranged in
a. alphabetical order.
b. chronological order.
c. dollar amount order.
d. financial statement order.
Answer:
The order of presentation of nontypical items that may appear on the income statement
is
a. Extraordinary items, Discontinued operations, Other revenues and expenses.
b. Discontinued operations, Extraordinary items, Other revenues and expenses.
c. Other revenues and expenses, Discontinued operations, Extraordinary items.
d. Other revenues and expenses, Extraordinary items, Discontinued operations.
Answer:
Accumulated Depletion
a. is used by all companies with natural resources.
b. has a normal debit balance.
c. is a contra-asset account.
d. is never shown on the balance sheet.
Answer:
An aging of a company’s accounts receivable indicates that $14,000 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the
adjustment to record bad debts for the period will require a
a. debit to Bad Debt Expense for $14,000.
b. debit to Allowance for Doubtful Accounts for $12,900.
c. debit to Bad Debt Expense for $12,900.
d. credit to Allowance for Doubtful Accounts for $14,000.
Answer:
Internal auditors
a. are hired by CPA firms to audit business firms.
b. are employees of the IRS who evaluate the internal controls of companies filing tax
returns.
c. evaluate the system of internal controls for the companies that employ them.
d. cannot evaluate the system of internal controls of the company that employs them
because they are not independent.
Answer:
Two categories of expenses for merchandising companies are
a. cost of goods sold and financing expenses.
b. operating expenses and financing expenses.
c. cost of goods sold and operating expenses.
d. sales and cost of goods sold.
Answer:
The return on common stockholders’ equity is computed by dividing
a. net income by ending common stockholders’ equity.
b. net income by average common stockholders’ equity.
c. net income less preferred dividends by ending common stockholders’ equity.
d. net income less preferred dividends by average common stockholders’ equity.
Answer:
Consolidated financial statements are prepared when a company owns _________ of
the common stock of another company.
a. less than 20%
b. between 20% and 50%
c. less than 50%
d. more than 50%
Answer:
Shallot Company has the following data at December 31, 2014 for its securities.
Instructions
(a) Prepare the adjusting entries to report the securities at fair value.
(b) Indicate the statement presentation of the related unrealized gain (loss) accounts for
each class of securities.
Answer:
At January 1, 2015, Alligator Industries reported retained earnings of $150,000. During
2015, Alligator had a net loss of $30,000 and paid dividends of $15,000. At December
31, 2015, the amount of retained earnings is
a. $105,000.
b. $120,000.
c. $135,000.
d. $165,000.
Answer:
Which of the following statements regarding the date of a cash dividend declaration is
not accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.
Answer:
An analysis of the transactions made by White Stripes & Co., a law firm, for the month
of July is shown below. Each increase and decrease in stockholders’ equity is explained.
Instructions
(a) Determine how much stockholders’ equity increased for the month.
(b) Compute the amount of net income for the month.
Answer:
The long-term liability section of Escovedo Company’s Balance Sheet includes the
following accounts:
Escovedo Company is an established company and does not experience any financial
difficulties or have any cash flow problems. Discuss at least two items that are
questionable as long-term liabilities.
Answer:
Morgan Company reported the following balances at December 31, 2014: common
stock $500,000; paid-in capital in excess of par value $100,000; retained earnings
$350,000. During 2015, the following transactions affected stockholders’ equity.
1> Issued preferred stock with a par value of $150,000 for $200,000.
2> Purchased treasury stock (common) for $50,000.
3> Earned net income of $140,000.
4> Declared and paid cash dividends of $75,000.
Instructions
Prepare the stockholders’ equity section of Morgan Company’s December 31, 2015,
balance sheet.
Answer:
A major advantage of national credit cards to retailers is that there is no charge to the
retailer by the credit card companies for their services.
Answer:
Ordinary repairs should be recognized when incurred as revenue expenditures.
Answer:
Presented below is a balance sheet for Jim Henson Yard Service at December 31, 2015.
The following additional data are available for the year which began on January 1: All
expenses (excluding supplies expense) total $6,000. Supplies on January 1, were
$11,000 and $7,000 of supplies were purchased during the year. Net income for the year
was $8,000 and dividends paid were $9,000.
Instructions
Determine the following: (Show all computations.)
1> Supplies used during the year.
2> Total expenses for the year.
3> Service revenues for the year.
4> Stockholders’ equity on January 1
Answer:
On April 30, the bank reconciliation of Baxter Company shows three outstanding
checks: no. 354, $650, no. 355, $820, and no. 357, $615. The May bank statement and
the May cash payments journal show the following.
Instructions
Using step 2 in the reconciliation procedure, list the outstanding checks at May 31.
Answer:
Many business transactions affect more than one time period.
Answer: