Jack’s, a popular pizza hang-out, has a thriving delivery business. Jack’s has a fleet of
three delivery automobiles. Prior to making the entry for this year’s depreciation
expense, the subsidiary ledger for the fleet is as follows:
Instructions
(a) Determine the depreciation rates per mile for each car.
(b) Determine the depreciation expense for each car for the current year.
(c) Make one compound journal entry to record the annual depreciation expense for the
fleet.
Answer:
Book value per share is
a. the equity a common stockholder has in the net assets of the corporation from owning
one share of stock.
b. the equity a common stockholder has in the total assets of the corporation from
owning one share of stock.
c. always equal to the market value of the stock.
d. computed only for preferred stockholders.
Answer:
The Dividends account
a. appears on the income statement along with the expenses of the business.
b. must show transactions every accounting period.
c. is increased with debits and decreased with credits.
d. is not a proper subdivision of retained earnings.
Answer:
A service company shows five transactions summarized below. The effect of each
transaction on the accounting equation is shown, and also the new balance of each item
in the equation. For each transaction (a) to (e) write an explanation of the nature of the
transaction.
Answer:
If a contingent liability is reasonably estimable and it is reasonably possible that the
contingency will occur, the contingent liability
a. should be recorded in the accounts.
b. should be disclosed in the notes accompanying the financial statements.
c. should not be recorded or disclosed in the notes until the contingency actually
happens.
d. must be paid for the amount estimated.
Answer:
Which of the following statements concerning IFRS and U.S. GAAP is
true?
a. IFRS permits revaluation of all intangible assets, whereas U.S. GAAP
prohibits revaluation of intangible assets.
b. Gains on exchange of assets when the exchange has commercial
substance are recognized under both IFRS and U.S. GAAP.
c. Changes in depreciation method under IFRS are reported in current and
future periods, under U.S. GAAP such changes are treated as prior period
adjustments.
d. All of the choices are true regarding IFRS and U.S. GAAP.
IFRS:
Answer:
Vega Corporation’s December 31, 2015 balance sheet showed the following:
Vega’s total paid-in capital was
a. $21,480,000.
b. $21,795,000.
c. $21,165,000.
d. $11,530,000.
Answer:
Accumulated Depletion
a. is used by all companies with natural resources.
b. has a normal debit balance.
c. is a contra-asset account.
d. is never shown on the balance sheet.
Answer:
Farmer Company reports the following amounts for 2015:
The 2015 rate of return on common stockholders’ equity is
a. 30.0%.
b. 24.0%.
c. 27.0%.
d. 33.8%.
Answer:
IFRS defines market for lower-of-cost-or market as
a. net realizable value.
b. estimated selling price in the ordinary course of business.
c. replacement cost.
d. replacement cost less costs of disposal.
Answer:
The market price of a bond is the
a. present value of its principal amount at maturity plus the present value of all future
interest payments.
b. principal amount plus the present value of all future interest payments.
c. principal amount plus all future interest payments.
d. present value of its principal amount only.
Answer:
Allowance for Doubtful Accounts is reported in the
a. balance sheet as a contra asset.
b. balance sheet as a contra liability account.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.
Answer:
Financial information that is capable of making a difference in a decision is
a. faithfully representative.
b. relevant.
c. convergent.
d. generally accepted.
Answer:
Washington Bottom Company reports the following for the month of June.
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO
and (2) LIFO.
(b) Compute the cost of the ending inventory and the cost of goods sold using the
average-cost method.
Answer:
For prepaid expense adjusting entries
a. an expense’”liability account relationship exists.
b. prior to adjustment, expenses are overstated and assets are understated.
c. the adjusting entry results in a debit to an expense account and a credit to an asset
account.
d. none of these answer choices are correct.
Answer:
Paid-In Capital in Excess of Stated Value
a. is credited when no-par stock does not have a stated value.
b. is reported as part of paid-in capital on the balance sheet.
c. represents the amount of legal capital.
d. normally has a debit balance.
Answer:
Goods in transit should be included in the inventory of the buyer when the
a. public carrier accepts the goods from the seller.
b. goods reach the buyer.
c. terms of sale are FOB destination.
d. terms of sale are FOB shipping point.
Answer:
Kennedy Company issued stock to Ed Kennedy in exchange for his investment of
$75,000 cash in the business. The company recorded revenues of $555,000, expenses of
$420,000, and had paid dividends of $30,000. What was Kennedy’s net income for the
year?
a. $105,000.
b. $135,000.
c. $165,000.
d. $180,000.
Answer:
A business pays weekly salaries of $30,000 on Friday for a five-day week ending on
that day. The adjusting entry necessary at the end of the fiscal period ending on a
Thursday is
a. debit Salaries and Wages Payable, $24,000; credit Cash, $24,000.
b. debit Salaries and Wages Expense, $24,000; credit Cash, $24,000.
c. debit Salaries and Wages Expense, $24,000; credit Salaries and Wages Payable,
$24,000.
d. debit Salaries and Wages Expense, $6,000; credit Salaries and Wages Payable,
$6,000.
Answer:
Using the percentage of receivables method for recording bad debt expense, estimated
uncollectible accounts are $14,000. If the balance of the Allowance for Doubtful
Accounts is $2,000 debit before adjustment, what is the balance after adjustment?
a. $2,000
b. $12,000
c. $14,000
d. $16,000
Answer:
Accounting for inventories is important because inventories affect the ______________
section of the balance sheet and the ______________ section on the income statement.
Answer:
Sebadoah is a barber who does his own accounting for his shop. When he buys supplies
he routinely debits Supplies Expense. Sebadoah purchased $1,500 of supplies in
January and his inventory at the end of January shows $300 of supplies remaining.
What adjusting entry should Sebadoah make on January 31?
Answer:
Inventory turnover is calculated as cost of goods sold divided by ending inventory.
Answer:
If sixty $1,000 convertible bonds with a carrying value of $70,000 are converted into
9,000 shares of $5 par value common stock, the journal entry to record the conversion
is
Answer:
Bakesale Enterprises purchased equipment on May 1, 2015 for $6,300. The company
expects to use the equipment for 5 years. It has no salvage value.
1> What adjusting journal entry should the company make at the end of each month if
monthly financials are prepared (annual depreciation is $1,260)?
2> What is the book value of the equipment at May 31, 2015?
Answer:
It is not necessary to prepare formal financial statements if a worksheet has been
prepared because financial position and net income are shown on the worksheet.
Answer:
During a study session, a classmate states that it is not necessary to make journal entries
and then post them to the ledger. She states that it is sufficient to analyze the transaction
and simply record the information in T-accounts.
What is your response to this statement? Be brief, yet concise.
Answer:
Comparative information taken from the Foren Company financial statements is shown
below:
Instructions
Using horizontal analysis, show the percentage change from 2015 to 2016 with 2015 as
the base year.
Answer: