The amount recorded for Payroll Taxes and Benefits Expense is borne entirely by the
employee.
If a bond has a face interest rate of 6 percent, a face value of $40,000, and pays interest
semiannually, each interest payment will amount to $1,200.
If a long-term investment suffers a permanent decline in value, a loss only has to be
recorded if the investment is sold.
Partners’ Withdrawals accounts have normal debit balances.
Days’ inventory on hand equals the inventory turnover divided by 365.
Classified balance sheets list accounts in alphabetical order.
Rule-of-thumb measures are the most precise and best standards of comparison in
financial performance evaluation.
A material item is one that is likely to affect a user’s decision.
Stockholders who own preferred stock usually do not have voting rights, whereas
stockholders who own common stock usually have voting rights.
Drilling equipment with a ten-year useful life is used solely in conjunction with an oil
well that has an eight-year life. The equipment should be depreciated over eight years
using the production method.
Under the accounts receivable aging method, the balance in Allowance for
Uncollectible Accounts must be considered prior to adjusting for estimated
uncollectible accounts.
Insider trading is considered unethical, but it is not illegal in the United States.
A a rule of thumb, a business starts to have trouble when its current liabilities to net
worth ratio exceeds 50%.
One argument in favor of accelerated depreciation is that repair expense is likely to be
greater in later years.
Companies in the same industry are not required to use the same methods to value
inventory and to depreciate similar assets.
The treasurer should prepare and sign a check only after a proper check authorization
has been provided.
A tractor held by a farm equipment company for sale to farmers is classified as a
long-term asset.
Income from operations is the difference between gross margin and operating expenses.
In order for revenue to be recognized, the seller’s price to the buyer must be fixed or
determinable.
The specific identification method and the FIFO method produce the same results under
both the perpetual and periodic inventory systems.
Accounting ratios are useful as management performance measures.
The personal resources of any partner can be called upon to pay the obligations of the
partnership.
Interim financial statements are not subject to a full audit by an independent auditor.
The board of directors appoints the audit committee, which in turn performs an
independent audit of the company’s records.
Income Summary is closed with a debit to Income Summary and a credit to the
Withdrawals account.
General and administrative expenses are a category of operating expense.
A contingent liability should be entered into the accounting records if it is both probable
and reasonably estimable.
Per the Sarbanes-Oxley Act of 2002, a compensation committee, comprised of a public
corporation’s top executives, must be established to determine the salaries and wages of
its employees.
The entities forming joint ventures usually involve companies, but can sometimes
involve governments.
Almost every revenue or expense account on the income statement has one or more
related accounts on the balance sheet.
Because bad debt losses are incurred to generate sales, they should be charged against
the sales that they helped generate.
Total interest cost for a bond issued at a premium equals the total of the periodic interest
payments plus the premium.
One application of accrual accounting is adjusting the accounts.
Unearned revenue is an example of a definitely determinable liability.
Sole proprietorships in the United States generate more business (in terms of receipts)
than partnerships and corporations put together.
The entry to close the Withdrawals account is
A. debit owner’s Capital and credit Withdrawals.
B. debit Withdrawals and credit owner’s Capital.
C. debit Income Summary and credit Withdrawals.
D. debit Withdrawals and credit Income Summary.
Use this information to answer the following question.
In addition, beginning merchandise inventory was $22,000 and ending merchandise
inventory was $14,000.
Net income for the period was
A. $173,000.
B. $93,000.
C. $63,000.
D. $203,000.
Which of the following accounts would appear on an adjusted trial balance but probably
would not appear on a trial balance?
A. Supplies Expense
B. Accounts Payable
C. Service Revenue
D. Cash
Which of the following describes a special-purpose entity?
A. Entities with limited lives that a company creates to achieve a specific objective.
B. An association of two or more entities for the purpose of achieving a specific goal.
C. Corporations that U.S. tax laws treat as partnerships, and they do not pay income
taxes.
D. A special type of partnership that confines the limited partner’s potential loss to the
amount of his or her investment.
April and Cammy are partners who have agreed to admit Elena, who will invest
$30,000 for a 20 percent interest. The previous capital balances were $30,000 and
$60,000 for April and Cammy, respectively. April and Cammy had shared profits and
losses equally. What amount will be recorded in Elena’s Capital account?
A. $12,000 credit
B. $24,000 credit
C. $30,000 credit
D. $18,000 credit
Which of the following is not an internal control activity for cash?
A. The amount of cash on hand should be kept to a minimum.
B. Banking facilities should be used as much as possible.
C. Employees who have access to cash should be bonded.
D. All payments should be made with currency, not checks.
Use this information to answer the following question. These facts concern the
long-term stock investments of DeBord Corporation:
The entry to record the receipt of the cash dividend from Shust Corporation is:
A. Investment in Shust Corporation 900
Cash 900
B. Cash 900
Dividend Income 900
C. Dividend Income 900
Cash 900
D. Cash 900
Investment in Shust Corporation 900
Mortgages payable
A. are usually paid in monthly installments.
B. have payments that include both interest on the debt and reduction in the debt.
C. are secured by real property.
D. All of these choices.
At year-end, a company’s trading portfolio appears as follows:
The adjusting entry will include
A. a debit to Allowance to Adjust Short-Term Investments to Market of $50.
B. a credit to Allowance to Adjust Short-Term Investments to Market of $50.
C. a debit to Unrealized Loss on Short-Term Investments of $100.
D. none of these, since no adjusting entry is necessary.
Use this inventory information for the month of July to answer the following question.
Assuming that a periodic inventory system is used, what is cost of goods sold on a FIFO
basis?
A. $7,696
B. $7,736
C. $3,664
D. $3,704
Use this information to answer the following question.
You have the opportunity to purchase a machine for $10,000. After careful study of
expected costs and revenues, you estimate that the machine will produce a net cash flow of
$3,200 annually and will last 5 years. Based on an interest rate of 7 percent, determine the
present value of the machine and if the machine should be purchased.
A. $13,120, the machine should not be purchased
B. $13,120, the machine should be purchased
C. $2,282, the machine should not be purchased
D. $7,130, the machine should not be purchased
A ratio of net income of $100,000 to sales of $1,000,000 can be stated as
A. Net income is 1/10, or 10 percent, of sales.
B. For every dollar of sales, the company has an average net income of 10 cents.
C. The ratio of sales to net income is 10 to 1 (10:1), or sales are 10 times net income.
D. All of these choices.
Partners A and B receive a salary of $30,000 and $60,000, respectively, and share
income and losses in a 2:1 ratio, respectively. If the partnership suffers a $30,000 net
loss in 20×5, the entry to close the income or loss into their capital accounts is:
An understatement of year 1’s beginning inventory will
A. cause year 2’s gross margin to be overstated.
B. cause year 1’s cost of goods sold to be understated.
C. cause year 2’s gross margin to be understated.
D. have no effect on year 1’s gross margin.
Which of the following is not true about a 35 percent stock dividend?
A. The market value of the stock is needed to record the stock dividend.
B. Retained earnings decreases.
C. Contributed capital increases.
D. Par value per share remains the same.
The management of public companies must establish systems that
A. safeguard the firm’s assets.
B. ensure reliability of its accounting records.
C. see that employees comply with legal requirements
D. do all of these.
The double-entry system
A. requires that each transaction be recorded with at least one debit and one credit.
B. requires that the total amount of the debits must always equal the total amount of the
credits.
C. is based on the principle of duality.
D. All of these choices.
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 profit margin for Cane Construction is
A. 30 percent.
B. 75 percent.
C. 60 percent.
D. 27 percent.
The Sarbanes-Oxley Act of 2002 requires all of the following to certify a public
company’s system of internal control, except for the
A. chief financial officer.
B. the independent auditors.
C. the board of directors.
D. chief executive officer.
Which of the following is not considered an intangible asset?
A. License
B. Gas field
C. Customer list
D. Trademark
A corporation has all of the following except
A. government regulations.
B. a limited existence.
C. separation of ownership and control.
D. its own tax liability.
The controller for Tires and More, Inc. has recorded the following transactions during
the month: the owner established the business with a $20,000 investment on the 1st of
the month; the company recorded $36,000 of revenue for tires and services provided
during the month; and expenses of $22,000 were recorded for the month. What is the
balance ofOwner’s Equity at the end of the month, and is the balance a debit or a credit?
A. $34,000 debit.
B. $34,000 credit.
C. $20,000 credit.
D. $6,000 debit.
Use this information to answer the following question.
What amount must be deposited today to grow to $900 in three years, assuming an APR of
7 percent?
A. $662.00
B. $734.40
C. $342.98
D. $841.50
Use this information to answer the following question.
The total amount of working capital is
A. ($30,000.)
B. $80,000.
C. $24,000.
D. $400,000.
The controller for Tires and More, Inc. has recorded the following transactions during
the month: the purchase of equipment for $8,500 cash; payment of $6,300 for 3 months
rent; and, collection of $2,400 from a customer for services performed. At the
beginning of the month the owner established the business by making an investment of
$15,000 cash. What is the balance in the Cash account at the end of the month, and is
the balance a debit or a credit?
A. $2,600 debit.
B. $2,600 credit.
C. $6,800 debit.
D. $15,200 debit.
Which of the following would be considered a capital expenditure?
A. Business vehicle tune-up
B. Equipment maintenance
C. Installation of an air-conditioning system
D. Professional deep cleaning of display room carpet
The total interest cost on forty-six (46), ten-year, 6 percent, $1,000 bonds that are issued
at 98 is
A. $28,520.
B. $26,680.
C. $28,060.
D. $27,600.
Which of the following is involved in assisting a corporation with its initial public
offering (IPO)?
A. Registrar.
B. Underwriter.
C. Transfer agent.
D. Incorporator.
A company purchases land and a building on the land. The land is appraised at $96,000
and the building at $384,000. If the Land account is debited for $124,800, then the total
purchase price for the land and building must have been
A. $480,000.
B. $500,000.
C. $508,800.
D. $624,000.
Which of the following transactions affects total retained earnings?
A. Purchase of treasury stock
B. Payment of previously declared cash dividend
C. Declaration of a stock dividend
D. Declaration of a stock split
Equipment costing $60,000 with a residual value of $6,000 and an estimated life of
eight years has been depreciated using the straight-line method for two years. Assuming
a revised estimated total life of five years, the depreciation expense for year 3 would be
A. $6,750.
B. $9,000.
C. $13,500.
D. $10,800.
Using the following data, prepare a classified balance sheet for Blanchard Company as
of December 31, 20×5.
On December 12, Roger Kent, a painter, received $2,400 in advance for performing a
service that would extend into the following calendar year.
Below are the adjusted accounts of Carlson Co.
The percentage of each sales dollar that results in net income.
A company purchases land, a building on the land, and equipment in the building all for
$200,000 cash.
Paula Giltz earns an hourly wage of $18 with time-and-a-half pay for hours worked
over 40 per week. During the most recent week, she worked 46 hours, her federal tax
withholding totaled $93, her state tax withholding totaled $27, and $5 was withheld for
union dues. Assuming a 6.2 percent social security tax rate and a 1.45 percent Medicare
tax rate, prepare the journal entry to record Giltz’s wages and related liabilities. Round
to the nearest penny.
The following machines were purchased during 2014:
Machine A for $6,000 on April 5
Machine B for $4,000 on August 24
Machine C for $5,000 on November 10
Assuming that each machine has an estimated useful life of six years and a 10 percent
residual value, calculate total depreciation expense for 2014 (assume straight-line
depreciation and round to the nearest month and the company reports on a
calendar-year basis).
Assume that part of accounts and other receivables on Trejada’s Toys’ balance sheet is
$8 million and that Thompson estimates its uncollectible accounts as 1 percent of
accounts receivable not yet due, 2 percent of accounts receivable between 1 and 60 days
past due, and 10 percent of accounts receivable over 60 days past due. Determine the
amount of Trejada’s adjusting entry to recognize uncollectible accounts using the
accounts receivable aging method, based on the following information:
Feldman Company had a balance of $360,000 in Saul Feldman, Capital on December
31, 2013.
During the performance of the steps in the accounting cycle, the trial balance and the
adjusted trial balance are prepared at two key points. Using specific names where
applicable, discuss the time of preparation and the purpose served by both of these trial
balances.
Julie Robertson, an accountant, has entered into a $12,000 contract to do a consulting
engagement that will begin in 20×5 and end in 20×6.
Use the following accounts and balances to prepare a balance sheet for England
Company at December 31, 2014:
Chaney Company has established a petty cash fund for small expenditures.
Chelsea, Harold, and Ryan are liquidating their business.
The following data pertain to McBride Corporation:
Calculate the amount of net sales reported for 20×5. Use 365 days per year.
Assume that on July 24, Adele Company had a sale on credit totaling $22,038 with a
related cost of goods sold of $15,208. Record this transaction in journal form assuming
the perpetual inventory system was in use.
Prepare journal entries for the following transactions involving notes payable for
Weston Company, whose fiscal year ends April 30. Omit explanations and round all
numbers to the nearest dollar.
