Archives: Quiz

Since a company usually does not know the amount of the year-end bonus at year-end, the company estimates the amount of the bonus based on a percentage. Sales through credit cards and debit cards are journalized in the same way […]

The aging-of-receivables method is a balance sheet approach of estimating uncollectible accounts. Credit terms of a merchandising company are 1/15, net 40. This means that the buyer can receive a discount of 1% if the invoice is paid within 40 […]

The rate of return on total assets measures a company’s success in using its assets to earn a profit. Investors who want to know the amount of cash a company has available for new opportunities, such as expanding into a […]

Generally, all transactions are recorded in a special journal as well as the general journal. A creditor is a person who owes money to the business. Answer: FALSE As a part of the closing process, revenues and expenses may be […]

Companies are required to report plant assets as a single amount, with a note to the financial statements that provides detailed information. Financial leverage occurs when a company earns less income on borrowed money than the related interest expense. Answer: […]

An accounts receivable requires the business to pay cash in the future. Benchmarking is the practice of comparing a company with other leading companies. Answer: TRUE When bonds are retired at maturity, assuming the last interest payment has already been […]

Accrued revenue represents the receipt of cash before the revenue has been earned. When a corporation sells 9,000 shares of $12 par value common stock for $159,000, Common Stock is credited for $108,000. Answer: TRUE When using a four-column account, […]

Net pay is the total amount of compensation that an employee takes home after the deductions are made. When a corporation retires its shares of treasury stock, the stock certificates are canceled. Answer: TRUE Debit refers to the right side […]

Under cash basis accounting, an expense is recorded only when cash is paid. The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity’s business. Answer: TRUE When a company uses […]

Critical thinking and judgment skills are not necessary for accountants because technology has made the activities routine. Securities are represented by a certificate and are commonly traded on an exchange. Answer: TRUE When a company invests in equity securities with […]

The cash balance in a company’s general ledger and the bank’s balance on the bank statement will always be the same. The balance in the Bonds Payable account is a credit of $92,000. The balance in the Premium on Bonds […]

The trial balance is an internal document used only by employees of the company. Prepaid Rent is always classified as a long-term asset. Answer: FALSE The market rate is the rate used to calculate the actual cash payments made to […]

A balance sheet prepared in the account form lists the assets at the top and the liabilities and stockholders’ equity below. A trial balance is a list of all of the accounts of a company with their balances at a […]

An equity security represents a credit relationship with another company or governmental entity. When a business makes a cash payment, the Cash account is debited. Answer: FALSE In a vertical analysis of the income statement, each line item is shown […]

Current liabilities must be paid either in cash or with goods and services within one year or within the entity’s operating cycle, if the cycle is longer than a year. The accounts payable subsidiary ledger lists each vendor along with […]

The operating cycle is the time span required for a business to repay its long-term liabilities. The stockholders’ claim to the assets of a business is called equity or stockholders’ equity. Answer: TRUE If a debt security is purchased at […]

The percent-of-sales method calculates bad debts expense based on a percentage of net cash sales. Financial accounting focuses on information for decision makers outside of the business, such as creditors and taxing authorities. Answer: TRUE An overstatement of ending merchandise […]

A high rate of inventory turnover indicates difficulty in selling inventory. The issue price of a bond-whether it is issued at par, premium, or discount-has an effect on the principal repayment at maturity. Answer: FALSE Unearned revenue is a liability […]

When using the effective-interest amortization method, the amount of the interest payment is calculated using the face value of the bonds and the stated interest rate. The Dividends account is increased by a debit. Answer: TRUE The current period earnings […]

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying interest payments. Electronic funds transfer is a system that transfers cash by using paper documents. Answer: FALSE A creditor is any person […]

An accounting information system collects, records, stores, and processes accounting data to produce information that is useful for decision makers. Benchmarking often compares a company against a key competitor or the industry average. Answer: TRUE The income statement also is […]

Steve is an employee of Panache, Inc. Panache pays a portion of his health insurance premium and also contributes to a retirement plan in his name. The company’s share of the health insurance premium is $600, and the company’s contribution […]

In a period of rising costs, the last-in, first-out (LIFO) method results in lower cost of goods sold and higher net income than the first-in, first-out (FIFO) method. If treasury shares are sold for less than their cost, the difference […]

A payment of an expense in advance is called a prepaid expense. When using a periodic inventory system, the Merchandise Inventory DR column, in the purchases journal, is replaced with a column titled Cost of Goods Sold DR. Answer: FALSE […]

When determining the date of maturity of a note, omit the date the note was issued. A reduction in the amount of cash received from a customer for early payment is known as a sales discount. Answer: TRUE Medicare is […]

John contributed $6,000 to the business by opening a bank account in the name of the business, United Internists. The corporation issued common stock to John. This transaction results in an increase in the assets of the business. Most corporations […]

Reversing entries are dated on the first day of the new accounting period. A transaction is any event that affects the financial position of the business and can be easily estimated. Answer: FALSE Explanation: A transaction is any event that […]

When preparing the statement of cash flows, the amount of net cash flow from operating activities differs between the direct and indirect methods. The collection of time records is an accounting information system activity that is classified as a business […]

Internal control is an organizational plan that ensures that the financial statements are prepared and submitted on time. The specific identification method of inventory costing is recommended when a business deals in unique and high-priced inventory items. Answer: TRUE A […]

The asset turnover ratio measures the amount of net sales generated for each average dollar of total assets invested. The operating cycle is the process by which companies produce their financial statements for a specific period. Answer: FALSE The stockholders’ […]

For good controls over cash payments, the company officer approving a payment voucher should be the same as the person who ordered the goods, to ensure that the correct amount of cash is paid. Tuesday Electric Company uses the direct […]

A fully depreciated asset that is still in service is not reported as an asset on the balance sheet. The total amount of assets a business possesses may or may not be equal to the total of liabilities and equity […]

Adjusting entries may involve any account, including Cash. In a corporation, the board of directors is elected by the chairperson of the company. Answer: FALSE Asset and liability accounts are closed to the Income Summary account. Answer: FALSE Brookside Market […]

The trial balance is an internal document used only by employees of the company. The direct method restates the income statements in terms of cash. Answer: TRUE The third section presented on the statement of cash flows is the non-cash […]

Dollar value bias is the bias one sees from comparing number in relative (dollars) rather than absolute (percentage) terms. The percent-of-sales method calculates bad debts expense as a percentage of net credit sales. Answer: TRUE The financing activities section of […]

The face value of a bond payable minus the current balance of the discount account or plus the current balance of the premium account is the bond’s carrying amount. The direct method starts with net income and adjusts it to […]

Corporations may not retire preferred stock in order to avoid paying the preferred dividends. The asset turnover ratio is calculated by dividing cost of goods sold by average total assets. Answer: FALSE The revenue recognition principle is the basis for […]

Normally, companies with low gross profit percentages will have low asset turnover. The relative proportion of economic resources and obligations would be shown by the balance sheet. Answer: TRUE The Salaries Expense account is a temporary account. Answer: TRUE No […]

Compound interest means that interest is calculated only on the principal amount. An accounting firm collected cash on account. As a result of this transaction, assets and revenues increase. Answer: FALSE Explanation: The asset Cash increases and the asset Accounts […]

If the merchandise inventory’s market value is greater than its cost, then it must be adjusted for the difference. If a bank reconciliation includes interest revenue, a journal entry is required which credits Cash and debits Interest Revenue. Answer: FALSE […]

Both common and preferred stock carry the same degree of investment risk for the stockholder. The only time the Petty Cash account is used in a journal entry is when the account is established, increased, or decreased. Answer: TRUE The […]

When preparing the statement of cash flows using the indirect method, a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities. Source documents provide the evidence and data for accounting […]

If a merchandiser uses the periodic inventory system, it is necessary to conduct a physical count of inventory to determine the quantity of inventory on hand. To complete the statement of cash flows, the net change in cash and cash […]

The cash payments journal is a special journal used to record cash payments by currency but not by check. The journal entry for the purchase of treasury stock includes a credit to Cash. Answer: TRUE If the total debits equal […]

Maintaining good controls over merchandise inventory ensures that inventory purchases are properly authorized and accounted for by the accounting system. Purchase discounts are calculated on the amount of the merchandise purchased including freight costs. Answer: FALSE Worksheet procedures for a […]

An expenditure that increases the capacity or efficiency of a plant asset that extends the asset’s life is known as a revenue expenditure. The main computer where data are stored, which can be accessed from many different computers, is known […]

Working capital measures a business’s ability to meet its long-term obligations with its current assets. The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period. Answer: FALSE The Common Stock account […]

The consistency principle states that a business should use the same accounting methods and procedures from period to period. Under both the allowance method and the direct-write off method of accounting for uncollectible accounts, the amount of bad debts expense […]

A merchandiser’s statement of retained earnings looks exactly like that of a service business. Johnson Company purchased land for $30,000. The president of Johnson Company believes that the land is actually worth $35,000. The land can be recorded at $35,000. […]

The collection period of accounts receivable is usually long: therefore, it is classified as a long-term asset on the balance sheet. If the bank reconciliation includes a bank service charge, a journal entry is required, which debits Bank Expense and […]