When the periodic inventory system is used, a physical inventory should be taken at the
end of the fiscal year.
A capital lease is a lease of property, plant, or equipment that is in effect an installment
purchase.
The normal balance of an account is the side (debit or credit) used to decrease the
account.
A stock dividend will cause a decrease in the total number of shares issued and
outstanding.
If it takes 30 days to sell inventory, 60 days to collect for the sale, and creditors’ terms
are 10 days, the financing period is 80 days.
A check authorization would be prepared after a receiving report.
Purchasing office supplies on account is an example of one way a company can take
advantage of deferring a cash payment.
The cost to defend a patent successfully should be expensed in the period incurred.
The theoretical value of an asset is the future value of its expected benefits.
The expenses incurred by an accounting firm would appear on its balance sheet.
Under a defined benefit pension plan, retirement benefits are based entirely on the
annual contribution to the fund plus earnings thereon.
Cash equivalents are defined as investments that carry terms of 90 days or less.
Proper journal form is a way of recording a transaction with the date, debit account, and
debit amount shown on one line, and the credit account (indented) and credit amount
shown on the next line.
Periodic and perpetual are examples of inventory costing systems.
Management has considerable latitude in making judgments and estimates regarding
portions of an asset’s cost to expense and to retain on the balance sheet.
A trial balance may be prepared at any point in time.
The call price of bonds is usually above face value.
In accounting, to recognize means to record a transaction or event.
Leases of short-term assets are operating leases, and leases of long-term assets are
capital leases.
Buying and selling goods and services are examples of operating activities.
When using the direct charge-off method, year-end adjustments for uncollectible
accounts expense are not made.
The adjusting entries involving Depreciation Expense–Buildings and Supplies Expense
could be reversed.
Revenues have the effect of increasing owner’s capital.
Under the perpetual inventory system, the return of goods to the supplier is recorded
with a credit to Merchandise Inventory.
The entry to record the issuance of bonds at a premium includes a credit to the
Unamortized Bond Premium account.
All factors in a present value of a single sum table are less than 1.000.
The account ‘Supplies’ will appear as an expense on the income statement.
The allowance for uncollectible accounts is similar to accumulated depreciation in that
it represents the total of all accounts written off over the years.
The cost of equipment would include the cost of test runs to see that the equipment is
operating properly.
The allowance method of handling bad debts violates the matching principle.
A company with a low asset turnover uses its assets more productively than one with a
high asset turnover.
Dividends in arrears must be paid when a corporation calls in its preferred stock.
Interest on a six-month, 7 percent, $2,000 note is calculated by multiplying $2,000
7/100 6/12.
When an individual uses a debit card to make a purchase, the amount of the purchase is
deducted directly from the individual’s bank account.
Transactions involving payments of cash for merchandise are recorded in the cash
payments journal.
Specific identification is a very popular inventory method because it is very easy to
apply.
Valuation of inventory on the balance sheet impacts cost of goods sold on the income
statement.
Information from the Income Statement columns of the work sheet of Landry Laundry
Service is provided below:
The entry to close Income Summary is
A. Income Summary 3,500
Landry, Capital 3,500
B. Landry, Withdrawal 1,800
Income Summary 1,800
C. Landry, Capital 1,700
Income Summary 1,700
D. Income Summary 1,700
Pacific Enterprises entered into a long-term lease for a piece of equipment. The lease
term calls for an annual payment of $8,000 for six years, which approximates the useful
life of the equipment. Assume a discount factor of 8 percent. (Note: Present value of a
single sum factor at six years and 8% is 0.63017; present value of an annuity factor at
six years and 8% is 4.623.) Round answers to the nearest dollar.
a. Prepare the entry without explanation to record the leased equipment.
b. Prepare the entry without explanation to record annual depreciation, assuming the
straight-line method and no residual value.
c. Prepare the entry without explanation to record the first annual payment of $8,000,
after the company has had the equipment for one year.
Days’ payable is a measure of
A. liquidity.
B. volatility.
C. long-term solvency.
D. profitability.
Start-up and organization costs include all of the following except
A. goodwill.
B. cost of printing stock certificates.
C. attorney’s fees.
D. state incorporation fees.
Which of the following is necessary for computing cost of goods sold but not necessary
for computing the cost of goods available for sale?
A. Freight-in
B. Purchases
C. Ending merchandise inventory
D. Beginning merchandise inventory
Under a defined benefit pension plan,
A. the pension expense account must be determined by actuarial calculations.
B. the employer guarantees the employee certain benefits upon retirement.
C. the annual contribution is based on estimated future benefits.
D. All of these choices.
Which of the following activities is not a component of the operating cycle?
A. Payment of employees’ wages
B. Sale of merchandise
C. Purchase of merchandise
D. Collection of cash from merchandise sales
Omitting key letters in the work sheet would make which of the following difficult?
A. The preparation of the closing entries
B. The preparation of the financial statements
C. Crossfooting to the next set of columns
D. The preparation of the adjusting entries
All of the following would appear on the statement of stockholders’ equity except
A. declaration of cash dividends.
B. an issuance of common stock.
C. net income.
D. declaration of a stock split.
If only common stock is outstanding, total stockholders’ equity divided by the number
of shares of common stock outstanding is called the
A. par or stated value per share.
B. call value per share.
C. book value per share.
D. market value per share.
On a statement of cash flows prepared using the direct method, the amount representing
cash paid for interest would
A. be shown in the net cash flows from financing activities section.
B. not be shown.
C. be shown in the net cash flows from investing activities section.
D. be shown in the net cash flows from operating activities section.
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 current ratio for Cane Construction is
A. 1.75.
B. 0.57.
C. 1.4.
D. 2.0.
After each of the following transactions is a ratio. Mark an X in the appropriate space to
indicate the effect of the transaction on the ratio.
Use this information to answer the following question.
The general ledger account for Accounts Receivable shows a debit balance of $50,000.
Allowance for Uncollectible Accounts has a credit balance of $1,000. Net sales for the
year were $500,000. In the past, 2 percent of sales have proved uncollectible, and an
aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible
accounts.
Using the percentage of net sales method, Uncollectible Accounts Expense would be
debited for
A. $9,000.
B. $11,000.
C. $1,000.
D. $10,000.
Preston Corporation purchased a truck for $40,000. The company expected the truck to
last four years or 100,000 miles, with an estimated residual value of $4,000 at the end
of that time. During the second year, the truck was driven 27,500 miles. Compute the
depreciation for the second year under each of the following methods: (a) straight-line,
(b) production, and (c) double-declining-balance. (Show your work.)
a. $9,000 [($40,000 – $4,000) 4]
b. $9,900 ($36,000 100,000 = $0.36; $0.36 27,500)
c. $10,000 (100% 4 = 25%; 25% 2 = 50%; 50% $40,000 = $20,000; $40,000 – $20,000
= $20,000; $20,000 50% = $10,000)
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 total amount of working capital for Cane Construction is
A. $4,000.
B. $14,000.
C. $6,000.
D. $2,000.
Which of the following physically prepare and audit financial reports?
A. accountants
B. managers
C. chief executives
D. board of directors
Bonds that contain a provision that allows the issuing corporation to buy back the bonds
prior to the maturity date are called
A. secured bonds.
B. callable bonds.
C. convertible bonds.
D. debenture bonds.
Use the following information to answer the question below.
On January 1, 20×5, Falcon Corporation had 40,000 shares of $10 par value common
stock issued and outstanding. All 40,000 shares had been issued in a prior period at $17
per share. On February 1, 20×5, Falcon purchased 3,100 shares of treasury stock for
$19 per share and later sold the treasury shares for $26 per share on March 2, 20×5.
What amount of gain due to these treasury stock transactions should be reported on the
income statement for the year ended December 31, 20×5 ?
A. $0
B. $21,700
C. $3,100
D. $2,170
Stock categorized as trading securities is purchased for $72,000. At year end, when the
market value of the stock is $63,000, the adjusting entry that would be recorded is:
A. Allowance to Adjust Short-Term Investments to Market 9,000
Unrealized Loss on Investments 9,000
B. Unrealized Loss on Short-Term Investments 9,000
Allowance to Adjust Short-Term Investments to Market 9,000
C. Allowance to Adjust Short-Term Investments to Market 9,000
Short-Term Investments 9,000
D. Realized Loss on Investments 9,000
Short-Term Investments 9,000
Which of the following items is associated with the purpose of the closing entries?
A. Recording adjusting entries.
B. Preparing financial statements.
C. Preparing budgets.
D. Recording closing entries.
All of the following are considered nonexchange transactions except
A. the day-by-day accumulation of interest.
B. the wear and tear on machinery.
C. the sale of goods and services.
D. losses from fire, flood, and theft.
Meggie’s Fitness Center received $800 from a customer in advance for a one-year
membership in the fitness center. The entry that would be made to record the fee receipt
is
A. Unearned Revenue 800
Cash 800
B. Cash 800
Unearned Revenue 800
C. Unearned Revenue 800
Revenue 800
D. Revenue 800
Cielo Corporation had net income of $740,000 in 20×4 and $830,000 in 20×5. Total
stockholders’ equity at the end of 20×4 was $1,250,000 and total stockholders’ equity at
the end of 20×5 was $1,500,000. Cielo’s total assets at the end of 20×4 were $2,210,000
and its total assets at the end of 20×5 were $2,860,000. Based on this information, what
is Cielo’s return on equity for 20×5?
A. 32.74%
B. 55.33%
C. 57.09%
D. 60.36%
Which of the following accounts would be placed after the debit(s) in a journal entry?
A. Interest Payable, when it has been decreased.
B. Accounts Receivable, when it has been decreased.
C. Unearned Revenue, when it has been decreased.
D. Withdrawals, when it has been increased.
Under the perpetual inventory system
A. the cost of each item is recorded in the Merchandise Inventory account when it is
purchased.
B. when an inventory item is sold, its cost is transferred to the Sales Revenue account.
C. the balance of the Merchandise Inventory account is only accurate on the balance
sheet date.
D. All of these choices.
Current assets divided by current liabilities is known as the
A. profit margin.
B. current ratio.
C. working capital.
D. capital structure.
The accounting convention that is most responsible for the increase in the number of
notes to financial statements is
A. materiality.
B. full disclosure.
C. consistency.
D. conservatism.
The most appropriate place to look for relationships among partners is in the
A. partnership agreement
B. accounting records
C. relevant state law
D. voluntary association
Use this information to answer the following question.
The transactions below pertain to Dunhill Company, whose fiscal year ends April 30.
The April 30 adjusting entry, rounded to the nearest dollar, to accrue the interest expense
on the note payable is:
A. Interest Expense 328
Cash 328
B. Cash 328
Interest Expense 328
C. Interest Expense 328
Interest Payable 328
D. Interest Expense 328
The primary objective of reversing entries is to
A. place the expenses for the current period in the proper accounts.
B. simplify the bookkeeping associated with accruals from the prior period.
C. transfer the balance of the expense accounts to the owner’s Capital account and set
the accounts equal to zero.
D. correct errors.
If the maturity date of Treasury bills is less than 90 days, they are classified as
A. cash equivalents
B. short-term investments
C. long-term investments
D. current liabilities
On January 2, 20×5, Preston Corporation issued 20-year bonds payable with a face
value of $300,000 and a face interest rate of 8 percent. The bonds were issued to yield a
market interest rate of 9 percent. Interest is payable semi-annually on January 1 and
July 1. In calculating the present value of the bond issue of January 2, 20×5, the
periodic interest payments to be used are
A. $24,000
B. $12,000
C. $27,000
D. $13,500
According to generally accepted accounting principles, the proper accounting treatment
of the cost of developing intangible assets is to
A. carry the cost as an asset indefinitely.
B. amortize the cost over five years.
C. amortize the cost over a reasonable life.
D. write off the cost immediately.
Disadvantages of a partnership include
A. Facilitates pooling of resources.
B. No corporate tax burden.
C. Mutual agency.
D. Freedom and flexibility for partners.
Distinguish between a deferral and an accrual.
On December 31, 20×5, the R & J Partnership had the following assets, liabilities, and
partners’ equity:
When the partners agreed to liquidate the business, the assets were sold for $180,000 and
the liabilities were paid. R and J share profits and losses in a ratio of 2:1, respectively.
What is the final cash distribution to each partner after liquidation?
Lois Kent has owned and managed the operations of a small chain of sporting goods
stores for the past two years. She has asked her administrative assistant to provide her
with some annual reports of other companies that sell sporting goods as well as some
published reports showing norms for the sporting goods industry so that Lois can
compare the financial ratios of her company with those of other companies that sell
sporting goods. Discuss the limitations of using comparisons with other companies and
industry norms, which Lois needs to remember.
In the journal provided, prepare the entries for the transactions described below.
In the journal provided, prepare the entries for the transactions described below.
Condensed income statements for Marlin Company are shown below for two years.
Discuss the difference between business events that are transactions and those that are
not.Why is the distinction important?
Define outstanding stock.
Warren and Spencer are partners in a drilling operation. Warren purchased a drilling rig
to be used in the partnership’s operations. Is this purchase binding on Spencer even
though he was not involved in it? Explain your answer.