Archives: Quiz

1) molina corporation issues 3,000, 10-year, 8%, $1,000 bonds dated january 1, 2012, at 103. the journal entry to record the issuance will show a a.debit to cash of $3,000,000 b.debit to premium on bonds payable for $90,000 c.credit to […]

1) the retained earnings statement is more comprehensive than the statement of shareholders equity. 2) cash equivalents are highly liquid investments that can be converted into a specific amount of cash. Answer: t 3) in computing the maturity date of […]

1) net sales minus cost of goods sold is called gross profit. 2) advertising expense appears as a selling expense in the income statement. Answer: t 3) the cost of an intangible asset must be amortized over a 20-year period. […]

1) when the cost method is used to account for an investment in stock, dividends received are accounted for as a reduction in the investment account. 2) sound internal control activities dictate that the amount of cash on hand should […]

1) when the periodic payments are not equal in each period, the future value can be computed by using a future value of an annuity of 1 table. 2) treasury stock is reported as an asset on the balance sheet […]

1) generally, convertible bonds do not pay interest. 2) the sale of land for cash would be classified as a cash inflow from an investing activity. Answer: t 3) the inventory turnover ratio measures the number of times on the […]

1) the chart of accounts is a special ledger used in accounting systems. 2) when preparing financial statements, the accountant assumes that the business will stay in business for the foreseeable future. Answer: t 3) the monetary unit assumption states […]

1) goods held on consignment should be included in the consignors ending inventory. 2) stockholders equity is divided into two parts: common stock and retained earnings. Answer: t 3) a plant asset must be fully depreciated before it can be […]

1) gross profit represents the merchandising profit of a company. 2) when an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired. Answer: f 3) if a company changes its […]

1) revenues are a subdivision of stockholders equity. 2) the stock investments account is debited at acquisition under both the equity method and cost method of accounting for investments in common stock. Answer: t 3) unearned service revenue is classified […]

1) general and administrative expenses are a category of operating expense. 2) a business can shorten its operating cycle by increasing its percentage of cash sales and reducing its percentage of credit sales. Answer: t 3) the carrying value of […]

1) under an effective system of internal control, errors occur only as a result of fraud or dishonesty. 2) noncash investing and financing activities must be reported in the body of a statement of cash flows. Answer: f 3) the […]

1) the acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash. 2) land improvements are generally charged to the land account. Answer: f 3) under the equity method, the […]

1) the effective-interest method produces a constant dollar amount of interest expense to be reported each interest period. 2) under the periodic inventory system, both the sales amount and the cost of goods sold amount are recorded when each item […]

1) when a note is written to settle an open account no entry is necessary. 2) the asset turnover ratio is calculated as net sales divided by ending total assets. Answer: f 3) the information needs and questions of external […]

1) when the average cost method is applied in a perpetual inventory system, the sale of goods will change the unit cost that remains in inventory. 2) transactions are recorded in alphabetical order in a journal. Answer: f 3) under […]

1) sales discounts and sales returns and allowances both have normal debit balances. 2) the sales returns and allowances account and the sales discount account are both classified as expense accounts. Answer: f 3) the holder of a note adjusts […]

1) the main difference between intangible assets and property, plant and equipment is the length of the assets life. 2) the statement of cash flows explains the difference between net income, as shown on the income statement, and the net […]

1) when using the allowance method year-end adjustments for bad debt expense must be made. 2) when the market value of inventory is lower than its cost, the inventory is written down to its market value. Answer: t 3) in […]

1) in the vertical analysis of a balance sheet, the base for current liabilities is total liabilities. 2) the excess of current assets over current liabilities is called working capital. Answer: t 3) allowance for doubtful accounts is debited under […]

1) there is only one way to calculate interest correctly. 2) the periodic inventory system provides an up to date amount of inventory on hand. Answer: f 3) under a periodic inventory system, the merchandise on hand at the end […]

1) the average cost inventory method relies on a simple average calculation. 2) horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year. Answer: f 3) payments to […]

1) preferred stock has contractual preference over common stock in certain areas. 2) the payment of a liability decreases both cash and accounts payable. Answer: t 3) a $20,000, 8%, 9-month note payable requires an interest payment of $1,200 at […]

1) total interest cost for a bond issued at a premium equals the total of the periodic interest payments minus the premium. 2) it is unlikely that a company would want to bond its employees who handle cash or inventory. […]

1) when the allowance method is used, the write-off of an account receivable results in an expense at the time of write-off. 2) a journal is an accounting record in which transactions are initially recorded. Answer: t 3) an effective […]

1) from a creditor’s point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations. 2) in accounting for stock investments of less than 20%, […]

1) if total assets are increased, there must be a corresponding increase in liabilities or a decrease in stockholders equity. 2) the return on assets ratio indicates how efficiently a company uses its assets. Answer: f 3) notes payable are […]

1) an event or transaction should be classified as an extraordinary item if it is unusual in nature or if it occurs infrequently. 2) bad debt losses are a cost of selling on credit. Answer: t 3) a stock dividend […]

1) an increase in inventory would be added to cost of goods sold to determine net purchases for the period. 2) the liability of a stockholder is usually limited to the stockholders investment in the corporation. Answer: t 3) if […]

1) interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 0.10 6/12. 2) as an adjustment to operating expenses per the income statement, an increase in accrued liabilities would be deducted from operating expenses to determine […]

1) receivable turnover is useful in assessing the profitability of receivables. 2) alternative accounting methods affect the quality of earnings. Answer: t 3) the primary accounting standard-setting body in the united states is the securities and exchange commission. Answer: f […]

1) when the discount rate is equal to the contractual rate, the present value of the bonds will equal the bonds’ face value. 2) a corporation must be incorporated in each state in which it does business. Answer: f 3) […]

1) if net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%. 2) earnings per share measures the net income earned on each share of common stock. Answer: t 3) the complete effect […]

1) the going concern assumption is that the business will continue in operation long enough to carry out its existing objectives and commitments. 2) the extent of internal control features adopted by a company must be evaluated in terms of […]

1) if a promissory note is dishonored, the payee should not record interest income. 2) when using the direct write-off method year-end adjustments for bad debt expense must be made. Answer: f 3) if a company uses the allowance method […]

1) the cost of treasury stock is deducted from total paid-in capital and retained earnings in determining total stockholders equity. 2) a change in the estimated useful life of a plant asset may cause a change in the amount of […]

1) the periodicity assumption states that every economic entity can be separately identified and accounted for. 2) creditors rights to assets supersede owners rights to the assets. Answer: t 3) an example of segregation of duties is having a check […]

1) corporations purchase investments in debt or equity securities generally for one of two reasons. 2) debit and credit can be interpreted to mean bad and good, respectively. Answer: f 3) unearned revenues should be classified as other revenues and […]

1) a new account is opened for each transaction entered into by a business firm. 2) the most generally accepted value used in accounting is market value. Answer: f 3) a major function of management is to provide the accountant […]

1) if a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under lifo and average cost flow assumptions. 2) […]

1) a factor buys receivables from businesses for a fee and collects the payment directly from customers. 2) the times interest earned ratio is computed by dividing net income by interest expense. Answer: f 3) under an operating lease, both […]

1) in computing net cash flow from operating activities using the direct method, each item in the income statement is adjusted from the accrual basis to the cash basis. 2) if a company has a significant concentration of credit risk, […]

1) investing activities involve collecting the necessary funds to support the business. 2) an investment in short-term equity securities should be charged to a nominal account since the investment is temporary. Answer: f 3) employees sometimes commit fraud because of […]

1) the recording process becomes more efficient and informative if all transactions are recorded in one account. 2) an investment is readily marketable if it is management’s intent to sell the investment. Answer: f 3) if a building is offered […]

1) each bondholder may vote for the board of directors in proportion to the number of bonds held. 2) in general, the fasb indicates that most assets must follow the fair value principle. Answer: f 3) the calculation of interest […]

1) the payout ratio is computed by dividing total cash dividends paid on common stock by retained earnings. 2) an inventory turnover ratio that is too high may indicate that the company is losing sales opportunities because of inventory shortages. […]

1) economic events that require recording in the financial statements are called accounting transactions. 2) the sale of shares in a corporation by one stockholder to another affects the total capital of the corporation. Answer: f 3) most notes are […]

1) the account market adjustment-trading appears as a contra account in the income statement. 2) the lifo method is rarely used because most companies do not sell the last goods they purchase first. Answer: f 3) full disclosure of all […]

1) during the year, income tax expense amounted to $25,000 and income taxes payable increased by $3,000; therefore, the cash paid for income taxes was $22,000. 2) declining profitability and liquidity ratios are indications that a company may not survive. […]

1) freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller. 2) notes payable usually require the borrower to pay interest. Answer: t 3) the computer has increased greatly the use of the periodic […]