The following information is available for Lighten Company:
Lighten’s cost of goods sold is
a. $125,000.
b. $120,000.
c. $108,000.
d. $105,000.
Answer:
The purpose of the post-closing trial balance is to
a. prove that no mistakes were made.
b. prove the equality of the balance sheet account balances that are carried forward into
the next accounting period.
c. prove the equality of the income statement account balances that are carried forward
into the next accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.
Answer:
Overstating ending inventory will overstate all of the following except
a. assets.
b. cost of goods sold.
c. net income.
d. stockholder’s equity.
Answer:
When bonds are converted into common stock,
a. the market price of the stock on the date of conversion is credited to the Common
Stock account.
b. the market price of the bonds on the date of conversion is credited to the Common
Stock account.
c. the market price of the stock and the bonds is ignored when recording the conversion.
d. gains or losses on the conversion are recognized.
Answer:
The market rate of interest for a bond issue which sells for more than its face value is
a. independent of the interest rate stated on the bond.
b. higher than the interest rate stated on the bond.
c. equal to the interest rate stated on the bond.
d. less than the interest rate stated on the bond.
Answer:
Selected transactions for the Ecker Company are listed below.
1> Collected accounts receivable.
2> Declared and paid dividends on common stock.
3> Sold long-term investments for cash.
4> Issued stock for equipment.
5> Repaid five year note payable.
6> Paid employee wages.
7> Converted bonds payable to common stock.
8> Acquired long-term investment with cash.
9> Sold buildings and equipment for cash.
10> Sold merchandise to customers.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c)
a financing activity, or (d) a noncash investing and financing activity.
Answer:
The term “FOB” denotes
a. free on board.
b. freight on board.
c. free only (to) buyer.
d. freight charge on buyer.
Answer:
The accounting equation for Ally Elton, Inc. is:
Assets $120,000 = Liabilities $50,000 + Stockholders’ Equity $70,000.
If the company purchases supplies on account for $5,000, the new accounting equation
will be:
a. Assets $115,000 = Liabilities $50,000 + Stockholders’ Equity $70,000.
b. Assets $125,000 = Liabilities $55,000 + Stockholders’ Equity $70,000.
c. Assets $125,000 = Liabilities $50,000 + Stockholders’ Equity $75,000.
d. Assets $120,000 = Liabilities $55,000 + Stockholders’ Equity $65,000.
Answer:
Short-term stock investments should be valued on the balance sheet at
a. the lower of cost or fair value.
b. the higher of cost or fair value.
c. cost.
d. fair value.
Answer:
Using the indirect method, if equipment is sold at a gain, the
a. sale proceeds received are deducted in the operating activities section.
b. sale proceeds received are added in the operating activities section.
c. amount of the gain is added in the operating activities section.
d. amount of the gain is deducted in the operating activities section.
Answer:
The accountant at Almira Company is figuring out the difference in income taxes the
company will pay depending on the choice of either FIFO or LIFO as an inventory
costing method. The tax rate is 30% and the FIFO method will result in income before
taxes of $8,190. The LIFO method will result in income before taxes of $7,290. What is
the difference in tax that would be paid between the two methods?
a. $270.
b. $630.
c. $900.
d. Cannot be determined from the information provided.
Answer:
If a plant asset is retired before it is fully depreciated, and the salvage value received is
less than the asset’s book value,
a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. there is no gain or loss on disposal.
d. additional depreciation expense must be recorded.
Answer:
O’Brien Industries collected $190,000 from customers in 2015. Of the amount
collected, $40,000 was from revenue accrued from services performed in 2014, and
$20,000 was received in advance for 2016 revenue. In addition, O’Brien earned $70,000
of revenue in 2015, which will not be collected until 2016. O’Brien also earned $25,000
of revenue in 2015 which had been collected in 2014.
O’Brien Industries paid $150,000 for expenses in 2015. Of the amount paid, $50,000
was for expenses incurred on account in 2014, $22,000 was paid in advance for 2016
expenses. In addition, O’Brien incurred $78,000 of expenses in 2015, which will not be
paid until 2016. O’Brien also incurred $29,000 of expenses in 2015 which had been
paid in 2014.
Instructions
(a) Compute 2015 cash-basis net income.
(b) Compute 2015 accrual-basis net income.
Answer:
During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The
company’s expenses were as follows: cost of goods sold of $36,000 and operating
expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the
sale of a delivery truck of $2,000.
Baxter’s net income for August, 2015 is
a. $20,000.
b. $21,000.
c. $23,000.
d. $24,000.
Answer:
At January 1, 2015, Orion Enterprises reported accounts receivable totaling $14,000.
During the month, the company had credit sales of $28,000 and collected cash on
accounts of $24,000. At the end of January, the balance in accounts receivable is
a. $14,000 credit.
b. $38,000 debit.
c. $10,000 credit.
d. $18,000 debit.
Answer:
Under IFRS, companies must classify income statement items by
a. function.
b. nature.
c. nature or function
d. date incurred.
Answer:
All of the financial statements are for a period of time except the
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.
Answer:
The objectives of internal control are to
a. prevent unintentional errors and irregularities.
b. safeguard assets and enhance the accuracy and reliability of the accounting records.
c. enhance the accuracy and reliability of financial statements.
d. safeguard assets and prevent thefts.
Answer:
King Corporation had net income of $260,000 and paid dividends of $40,000 to
common stockholders and $10,000 to preferred stockholders in 2015. King
Corporation’s common stockholders’ equity at the beginning and end of 2015 was
$870,000 and $1,130,000, respectively. There are 100,000 weighted-average shares of
common stock outstanding.
King Corporation’s return on common stockholders’ equity was
a. 18.6%.
b. 25%.
c. 21%.
d. 22.1%.
Answer:
The periodicity assumption states that the business will remain in operation for the
foreseeable future.
Answer:
Gray Company uses the periodic inventory system to account for inventories.
Information related to Gray Company’s inventory at October 31 is given below:
Instructions
1> Show computations to value the ending inventory using the FIFO cost assumption if
550 units remain on hand at October 31.
2> Show computations to value the ending inventory using the weighted-average cost
method if 550 units remain on hand at October 31.
3> Show computations to value the ending inventory using the LIFO cost assumption if
550 units remain on hand at October 31.
Answer:
Land improvements are generally charged to the Land account.
Answer:
During July, the following purchases and sales were made by Big Dan Company. There
was no beginning inventory. Big Dan Company uses a perpetual inventory system.
Under the FIFO method, the cost of goods sold for each sale is:
Answer:
At January 1, 2014, Grand Corporation held one available-for-sale security: 1,500
shares of Nettle common stock purchased for $40 per share. At December 31, 2014, the
fair value per share for Nettle was $42. Prepare the adjusting entry to report the
portfolio at fair value at December 31, 2014.
Answer:
The inventory methods that result in the most current costs in the income statement and
balance sheet are
Answer:
Jawbreaker Company paid $940 on account to a creditor. The transaction was
erroneously recorded as a debit to Cash of $490 and a credit to Accounts Receivable,
$490. The correcting entry is
Answer: