A technique for evaluating financial statements that expresses the relationship among
selected items of financial statement data is
a. common size analysis.
b. horizontal analysis.
c. ratio analysis.
d. vertical analysis.
Answer:
Which of the following events cannot be quantified into dollars and cents and recorded
as an accounting transaction?
a. The appointment of a new CPA firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.
Answer:
Trade accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at net realizable value.
d. only if they are not past due.
Answer:
The independent internal verification principle involves each of the following except
the ______________ of data prepared by other employees.
a. comparison
b. reconciliation
c. review
d. segregation
Answer:
At the end of its first year, the trading securities portfolio consisted of the following
common stocks.
The unrealized loss to be recognized under the fair value method is
a. $2,000.
b. $5,600.
c. $2,100.
d. $3,600.
Answer:
Equipment that cost $420,000 and on which $200,000 of accumulated depreciation has
been recorded was disposed of for $180,000 cash. The entry to record this event would
include a
a. gain of $40,000.
b. loss of $40,000.
c. credit to the Equipment account for $220,000.
d. credit to Accumulated Depreciation for $200,000.
Answer:
Watson Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise
sold on July 1. Citibank charges 4% for its credit card use. The entry to record this
transaction by Watson Retailers will include a credit to Sales of $75,000 and a debit(s)
to
a. Cash $72,000 and Service Charge Expense $3,000.
b. Accounts Receivable $72,000 and Service Charge Expense $3,000.
c. Cash $72,000 and Interest Expense $3,000.
d. Accounts Receivable $75,000.
Answer:
Inventory is reported in the financial statements at
a. cost.
b. market.
c. the higher-of-cost-or-market.
d. the lower-of-cost-or-market.
Answer:
The usual order of accounts in the general ledger is
a. assets, liabilities, common stock, retained earnings, dividends, revenues, and
expenses.
b. assets, liabilities, dividends, common stock, retained earnings, expenses, and
revenues.
c. liabilities, assets, common stock, retained earnings, revenues, expenses, and
dividends.
d. common stock, retained earnings, assets, liabilities, dividends, expenses, and
revenues.
Answer:
The usual sequence of steps in the recording process is to analyze each transaction,
enter the transaction in the
a. journal, and transfer the information to the ledger accounts.
b. ledger, and transfer the information to the journal.
c. book of accounts, and transfer the information to the journal.
d. book of original entry, and transfer the information to the journal.
Answer:
The following amounts were taken from the financial statements of Leaf Company:
The price-earnings ratio for 2015 is
a. 21.5 times.
b. 36 times.
c. 4.5 times.
d. 3.0 times.
Answer:
A number in the reference column in a general journal indicates
a. that the entry has been posted to a particular account.
b. the page number of the journal.
c. the dollar amount of the transaction.
d. the date of the transaction.
Answer:
Bonds payable of $1,000,000 sold at 98 would yield proceeds of
a. $900,000.
b. $980,000.
c. $1,000,000.
d. $1,080,000.
Answer:
A private organization which establishes broad accounting principles as well as specific
accounting rules is the
a. Securities and Exchange Commission.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Corporate Board of Directors.
Answer:
The reference column of the accounts in the accounts payable subsidiary ledger after
posting may show
a. only P references.
b. CP, P, or G references.
c. G, P, or S references.
d. only CP references.
Answer:
The specific identification method
a. cannot be used under GAAP.
b. cannot be used under IFRS.
c. must be used under IFRS if the inventory items can be specifically identified.
d. must be used under IFRS if it would result in the lowest net income.
Answer:
At the time of acquisition of a debt investment,
a. no journal entry is required.
b. the historical cost principle applies.
c. the Stock Investments account is debited when bonds are purchased.
d. the Investment account is credited for its cost plus brokerage fees.
Answer:
The collection of a $6,000 account within the 2 percent discount period will result in a
a. debit to Sales Discounts for $120.
b. debit to Accounts Receivable for $5,880.
c. credit to Cash for $5,880.
d. credit to Accounts Receivable for $5,880.
Answer:
Kern Company sells merchandise on account for $8,000 to Block Company with credit
terms of 2/10, n/30. Block Company returns $1,600 of merchandise that was damaged,
along with a check to settle the account within the discount period. What is the amount
of the check?
a. $6,272
b. $6,400
c. $7,840
d. $7,872
Answer:
Which one of the following is not necessarily a party to a check?
a. Maker
b. Buyer
c. Payee
d. Payer
Answer:
A major disadvantage resulting from the use of bonds is that
a. earnings per share may be lowered.
b. interest must be paid on a periodic basis.
c. bondholders have voting rights.
d. taxes may increase.
Answer:
GAAP stands for
a. Generally Accepted Auditing Procedures.
b. Generally Accepted Accounting Principles.
c. Generally Accepted Auditing Principles.
d. Generally Accepted Accounting Procedures.
Answer:
Jukebox Company had checks outstanding totaling $10,800 on its June bank
reconciliation. In July, Jukebox Company issued checks totaling $77,800. The July
bank statement shows that $76,600 in checks cleared the bank in July. A check from one
of Jukebox Company’s customers in the amount of $1,000 was also returned marked
“NSF.” The amount of outstanding checks on Jukebox Company’s July bank
reconciliation should be
a. $1,200.
b. $11,000.
c. $12,000.
d. $13,000.
Answer:
Drago Company purchased equipment on January 1, 2015, at a total invoice cost of
$1,200,000. The equipment has an estimated salvage value of $30,000 and an estimated
useful life of 5 years. What is the amount of accumulated depreciation at December 31,
2016, if the straight-line method of depreciation is used?
a. $240,000
b. $480,000
c. $234,000
d. $468,000
Answer:
Financial accounting ethics violations are
a. not a problem in the U.S. or internationally.
b. much more common in the U.S. than internationally.
c. much more common internationally than in the U.S.
d. a major problem both in the U.S. and internationally.
Answer:
A bookkeeping student has come to you for tutoring on the recording process. She is
confused about the relationship between the chart of accounts and the ledger. Explain
the purpose of the chart of accounts and the general ledger. In your explanation indicate
the relationship between these two items as well.
Answer:
On January 15, 2015, Craig Company received a two-month, 9%, $9,000 note from
William Pentel for the settlement of his open account. The entry by Craig Company on
March 15, 2015 if Pentel dishonors the note and collection is expected is:
Answer:
The balances of the major classes of plant assets and accumulated depreciation by
major classes should be disclosed in the balance sheet or notes.
Answer:
A $30,000, 8%, 9-month note payable requires an interest payment of $1,800 at
maturity.
Answer:
Comment on the validity of the following statements: ‘As an asset loses its ability to
provide services, cash needs to be set aside to replace it. Depreciation accomplishes this
goal.’
Answer:
Financial statement readers can determine future investing and financing transactions
by examining a company’s statement of cash flows.
Answer:
You are the accountant for a small manufacturing firm. Your company is
privately held, so there is no current requirement to issue financial
statements using GAAP. You were hired four years ago, and at that time
you instituted a cash budgeting system. Presently, you present a schedule
of predicted cash sources and cash needs at the end of each week for the
following week.
Jim Bangon, the company’s president, has asked whether a statement of
cash flows would also be useful.
Prepare a short memorandum to the president indicating whether you
believe such an addition to the financial statements to be useful. Include in
your memo the benefits that might be expected from a statement of cash
flows and whether those are different from the benefits of a cash sources
and cash needs listing.
Answer:
The statement of cash flows classifies cash receipts and cash payments into two
categories: operating activities and nonoperating activities.
Answer: