Trading securities are always short-term investments.
The lower-of-cost-or-market rule implies that it is a violation of the conservatism
concept to carry inventory at a cost that is in excess of its market value.
Intangible assets are also called wasting assets.
The entry to record the issuance of bonds between interest payment dates will include a
debit to Bond Interest Expense.
Estimated useful life and legal life are synonymous terms when dealing with intangible
assets.
Determining net cash flows from operating activities using the direct method reveals
cash collected from customers.
If a promissory note is dishonored, the payee should record interest income.
The practice of off-balance-sheet financing is illegal.
The work sheet should be prepared after the formal financial statements have been
prepared.
In general, the greater the investment risk taken, the higher the return required as
compensation.
When treasury stock is sold at a price below its cost, the entry to record the sale has the
effect of reducing total stockholders’ equity.
Cash Short or Over would be debited for a shortage.
The continuity assumption states that the business will continue to operate indefinitely.
When the average-cost method is applied to a perpetual inventory system, a moving
average cost per unit is computed with each purchase.
A promissory note may be issued for an amount to be determined at a future date.
Purchase discounts are discounts that a buyer takes for the early payment of
merchandise.
The conservatism convention should not be used when the accountant is certain of a
particular measure.
A major function of financial accounting is to provide the investor with relevant and
useful information.
The receivable turnover is useful in assessing the effectiveness of credit policies.
Prior to the sale of an asset, depreciation should be updated and recorded.
When the terms of a lease require that the lessee record an asset and a liability, the two
accounts are recorded at the present value of the total lease payments required.
Because failure to record a liability generally leads to failure to record an expense, it
usually results in an overstatement of income.
An influential but noncontrolling investment is defined as ownership of between 20 to
50 percent of the stock of another company.
Not-for-profit organizations have no obligation to report their financial performance to
outside parties.
The sales journal is used to handle all cash and credit sales.
The term cost flow refers to the association of costs with their assumed flow in the
operation of a business.
The price/earnings (P/E) ratio is a measure of investors’ confidence in a company’s
future.
The stockholders’ equity in a corporation consists of capital contributed by stockholders
and retained earnings.
General-purpose external financial statements that are divided into subcategories are
called classified financial statements.
Property Taxes Expense is recorded only in the month it is paid.
A formal request for a purchase from a requesting department of a business is known as
a purchase order.
The sale of shares in a corporation by one stockholder to another does not affect the
total capital of the corporation.
Dividend income and interest income are examples of nonoperating revenues.
A 2-for-1 stock split will have the same effect on the number of shares outstanding as a
200 percent stock dividend.
The heading of an adjusted trial balance might contain the line “For the Month Ended
May 31, 20xx.”
Less than 20 percent of the U.S. economy is generated by governmental and
not-for-profit organizations.
The user can depend on the accuracy of financial information when which of the
following qualitative characteristics has been followed?
A. Relevance
B. Faithful representation
C. Understandability
D. Timeliness
Use this information to answer the following question. These facts concern the
long-term stock investments of DeBord Corporation:
The entry to set up the Allowance to Adjust Long-Term Investments to Market in 2014 is:
A. Long-Term Investments 16,000
Realized Loss 16,000
B. Realized Loss 16,000
Long-Term Investments 16,000
C. Allowance to Adjust Long-Term Investments to Market 16,000
Long-Term Investments 16,000
D. Unrealized Loss on Long-Term Investments 16,000
Allowance to Adjust Long-Term Investments to Market 16,000
Under a capital lease, the lessee does all of the following except:
A. debits Capital Lease Equipment.
B. debits Rent Expense.
C. records depreciation on the leased asset.
D. credits Capital Lease Obligations.
A reversing entry
A. is made on the last day of the fiscal year after closing entries have been posted.
B. is made on the last day of the fiscal year before closing entries have been posted.
C. is made on the first day of an accounting period.
D. replicates the adjusting entry that was made in the previous period because the
adjusting entry was closed to retained earnings during the closing process.
The trial balance for Parker Company is as follows:
If the balance of the Mike Parker, Withdrawals account were $100,000 and the balance of
the Wages Expense account were $10,000, what would be the amount of B?
A. $124,000
B. $150,000
C. $192,000
D. $152,000
Which of the following accounts would be credited in the cash payments journal?
A. Purchases Discounts.
B. Accounts Payable.
C. Salary Expense.
D. Rent Expense.
The expensing of a long-lived asset such as a wastebasket is justified by which of the
following accounting rules or principles?
A. Matching
B. Materiality
C. Full disclosure
D. Consistency
Use this inventory information for the month of March to answer the following
question.
Assuming that a periodic inventory system is used, what is ending inventory (rounded)
under the average-cost method?
A. $2,079
B. $2,685
C. $3,861
D. $5,940
Revenues
A. are decreases in equity resulting from rendering services.
B. are a cost of doing business.
C. are called expired costs.
D. are earned through the sale of goods, even though the cash may not be collected until
later.
Use this information to answer the following question.
In addition, beginning merchandise inventory was $22,000 and ending merchandise
inventory was $14,000.
Net sales for the period were
A. $305,000.
B. $275,000.
C. $295,000.
D. $215,000.
The effective interest method of amortization of bond premiums and discounts is
superior to the straight-line method because it results in a(n)
A. more variable interest rate.
B. uniform rate of interest.
C. interest rate that increases or decreases slightly over time.
D. interest rate that is close to the market interest rate.
In the journal provided, prepare journal entries without explanations for the following
transactions. Write “no entry” if none is needed.
a. Received a $1,000 invoice for this month’s electricity. Payment will be made in 2
weeks.
b. Paid $1,200 for insurance premiums to cover the next six months.
c. The owner, Heidi Shop, withdrew $700.
d. The utility bill from part “a” is paid.
e. Purchased land for $50,000. The company paid half in cash and issued a promissory
note for the other half.
The amortization of a bond discount will result in reporting an amount of interest
expense for an interest period that
A. exceeds the amount of cash to be paid for interest for the period.
B. is less than the amount of cash to be paid for interest for the period.
C. has no predictable relationship with the amount of cash to be paid for interest for the
period.
D. equals the amount of cash to be paid for interest for the period.
The direct method of preparing a statement of cash flows
A. is the overwhelming choice of most companies.
B. begins with net income in the operating activities section.
C. will produce the same net figure as the indirect method.
D. All of these choices.
Provide explanations for the following related journal entries:
Calculate answers to the following scenarios.
a. Jackson Company purchased machinery by executing a $50,000 non-interest-bearing
note due in four years. Assuming the going rate for similar notes is 6 percent and using
the appropriate present value table, for how much should the machinery be recorded?
b. Wendy Kwon is making bank deposits of $3,000 at the beginning of each year for
three years for purposes of buying a car. Assuming an interest rate of 7 percent
compounded annually, how much will she have saved for the purchase at the end of
year 3? (Calculate manually and round to the nearest dollar.)
c. Ashton Jones would like to make a lump-sum deposit today so that he can withdraw
$15,000 at the end of each year for the next three years. Assuming a 9 percent interest
rate and using the appropriate present value table, what should she invest today?
Mesquite, Inc. is ordering a new machine to be used in its manufacturing facility.
Which of the following events would trigger the recognition of the machine and related
liability on Mesquite’s books?
A. The company generates a purchase order.
B. A technician installs the machine on the floor of the manufacturing facility.
C. The company receives the machine.
D. The company pays the bill from the supplier.
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 return on assets for Cane Construction is
A. 80 percent.
B. 70 percent.
C. 36 percent.
D. 133 percent.
The par value of the common stock represents the
A. amount entered into the corporation’s Common Stock account when a share is
issued.
B. liquidation value of the stock.
C. market value of a share of stock.
D. amount the corporation received when the stock was issued.
Use this inventory information for the month of July to answer the following question.
What is cost of goods sold under the specific identification method?
A. More information is needed.
B. $3,704
C. $7,696
D. $7,736
Stephanie Cape purchased a franchise for dry cleaning services. Stephanie is running
the dry cleaning business as her primary occupation. Where on the balance sheet is the
franchise reported?
A. Property, plant, and equipment
B. Investments
C. Current assets
D. Intangible assets
Which of the following is not a component of free cash flow?
A. Purchases of plant assets
B. Net income
C. Dividends
D. Net cash flows from operating activities
Following are the total assets and liabilities at the beginning and end of the year for
Hagedorn Company:
Determine the net income or loss for the year in each of the following situations:
a.
Mesquite, Inc. engaged in the following transactions during October:
What is the amount of cash still to be received?
A. $2,300
B. $1,500
C. $1,900
D. $400
Interest on a 180-day, 10 percent, $10,000 note receivable is
A. $5,001.54.
B. $576.76.
C. $493.15.
D. $2001.26.
Conan Company has the following bank items:
The adjusted bank balance should be
A. $25,000
B. $25,025
C. $25,400
D. $25,425
Preparing the work sheet and closing entries
A. saves money.
B. prevents mistakes.
C. provides a mechanism for applying the periodicity concept.
D. All of these choices.
Whitman Enterprises has $2,000,000 of 20-year, 9 percent bonds dated October 1, with
interest payment dates of September 30 and March 31. The company’s fiscal year ends
July 31, and it uses the effective interest method to amortize premium or discount.
a. Prepare entries in journal form for November 1, March 31, and July 31, assuming
that the bonds were issued at face value plus accrued interest on November 1. Round
answers to the nearest dollar and omit explanations.
b. Prepare entries in journal form for October 1, March 31, and July 31, assuming that
the bonds were issued at 98 on October 1 to yield an effective interest rate of 9.2
percent. Round answers to the nearest dollar and omit explanations.
Which of the following accounts is most likely to appear on the balance sheet as a
current liability?
A. Accumulated Depreciation
B. Bonds Payable
C. Mortgage Payable
D. Wages Payable
Use the following information to calculate the liquidity and profitability ratios listed
below. Round to two decimal places.
a. Current ratio
b. Working capital
c. Return on equity
d. Profit margin
e. Debt to equity ratio
Use this information to answer the following question.
Here is the balance sheet for Costello Container Company:
If the balance in the Cash account were used to pay part of Accounts Payable, then total
liabilities and owner’s equity would
A. decrease by $8,000.
B. increase by $8,000.
C. increase by $16,000.
D. decrease by $16,000.
The ability of an investing company to affect the operating and financial policies of
another company, even though the investor holds less than 50 percent of the voting
stock, is known as
A. significant influence.
B. control.
C. minority interest.
D. noninfluential control.
Justin, Inc. purchased equipment for $100,000. The equipment had an estimated useful
life of eight years and an estimated residual value of $12,000. After five years of use,
the estimated residual value is changed to $18,000. Assuming straight-line depreciation,
depreciation expense in year 6 would be
A. $9,000.
B. $10,250
C. $11,000.
D. $15,000.
Although a corporation may have sufficient cash and retained earnings to pay a
dividend, its board of directors may not declare dividends. Name at least two reasons
why a board of directors might not declare dividends.
Using the following information reported in an annual report, prepare a horizontal
analysis of the consolidated balance sheets. (Round percentage answers to one decimal
place.)
Wolf Equipment uses a perpetual inventory method. Discuss how Wolf Equipment
accounts for purchase returns and allowances.
Briefly distinguish between adjusting and closing entries.
Joe Quizenberry owns Quizenberry Gravel Company.
Using the direct method, calculate the amount of cash payments for purchases. Show
your work
The following amounts were reported by Paloma Corporation on December 31, 20×4 :
On January 3, 20×5 , 5,000 shares of treasury stock were sold. After the sale of the treasury
shares, total stockholders’ equity amounted to $277,500. No stockholders’ equity
transactions other than the sale of the treasury stock occurred between December 31,
20×4 , and January 3, 20×5. From the information given, compute the selling price per
share of the treasury stock.
Use the information from the following single-step income statement to prepare a
multistep income statement in proper form.
An examination of the Prepaid Insurance account shows a debit balance of $3,960 at the
end of the accounting period before adjustment.
Jordan, Kyle, and Noah have equities in a partnership of $100,000, $160,000, and
$140,000, respectively, and share income and losses in a ratio of 5:3:2, respectively.
How is book value per share interpreted for an investor who owns one share of a
company’s stock? Is book value equal to the amount this stockholder would receive if
the company were sold or liquidated? Why or why not?
McCoy, Inc. has a 7 percent, $1,200,000 bond issue that originally was issued five years
ago. There are now ten years remaining on the bond issue, and the market interest rate
is 12 percent. Interest is paid semiannually. Calculate the current market value of the
bond issue, using present value tables.
On August 26, 20×5, Via Linda Corporation’s board of directors declared a 2 percent
stock dividend applicable to the outstanding shares of its $5 par value common stock, of
which 150,000 shares are authorized, 130,000 are issued, and 10,000 are held in the
treasury. The stock dividend was distributable on September 25 to stockholders of
record on September 10. On August 26, the market value of the common stock was $12
per share. On November 26, the board of directors declared a $0.20 per share cash
dividend. No other stock transactions have occurred. Record the transactions on August
26, September 10, September 25, and November 26. Make the December 31 entry to
close Dividends and Stock Dividends to Retained Earnings.
Marta Company had cash sales of $120,000 for the month of November. Sales are
subject to a 4.5 percent sales tax and a 6 percent excise tax. In the journal provided,
prepare a compound entry to record Marta’s sales and related sales and excise taxes for
the month.
Prepare in proper form the stockholders’ equity section of the balance sheet from the
following selected accounts and balances taken from the adjusted trial balance of
Thomas Corporation on June 30, 20×5.
From the following items in the Income Statement columns of the work sheet of Sailors
Co.
The Trial Balance and Adjusted Trial Balance columns of Kathy’s Cleaning Company’s
work sheet are shown below (the adjustments column has been omitted). In the journal
provided, prepare the six adjusting entries and the four closing entries for the month
ended June 30, 20×5. No explanations are needed.
