The party that issues a promissory note is known as the
A.lender.
B.maker.
C.borrower.
D.lender and maker.
Total debt is accounts payable ($4,310) salaries payable ($10,030) and bonds payable
($9,000); total assets are equal to total liabilities and stockholders’ equity: $66,250.
$23,340/66,250 = .352 43.The Grant Company reported the following income for 2015:
What is the company’s number of times interest is earned ratio?
A.5 times
B.6 times
C.7 times
D.None of these answer choices are correct.
A careless accountant spilled his morning latte on Simpson Company’s balance sheet.
The balance sheet with its missing amounts is provided below:
Simpson Company’s working capital is $276,000.
Required:
Compute the missing amounts. Record your answers in the following table:
The quick ratio, although similar to the current ratio, is more conservative.
The T-account format is also called the chart of accounts.
Equity is a source of a business’s assets, but liabilities are not.
An increase to a liability account is recorded with a debit entry.
Asset use transactions always involve the payment of cash.
At the time petty cash funds are disbursed, a journal entry should be made, debiting the
appropriate asset or expense account.
Companies report significant noncash investing and financing activities on a schedule
that accompanies the statement of cash flows.
A common size income statement is prepared by dividing all amounts on the statement
by net income.
Liquidity ratios are used to analyze the long-term debt-paying ability and the
composition of the financing structure of the firm.
Articles of incorporation, prepared by a business that wishes to incorporate, normally
include the corporation’s name and purpose, its location, and provisions for capital
stock.
The purchase of a new delivery truck for cash is an asset use transaction.
The Securities and Exchange Commission regulates financial reporting of all publicly
traded U.S. companies.
An adjusting entry can never be an asset exchange transaction.
Establishment of a petty cash fund is an asset exchange transaction.
If the replacement cost of inventory is greater than its historical cost, the increase in
value does not affect the company’s financial statements.
The balance sheet of a sole proprietorship will report two equity accounts: one for
amounts contributed by the owner, and one for the earnings of the business.
With a periodic inventory system, the cost of goods sold is recorded at the time of a sale
of merchandise.
The direct write-off method does a better job of matching revenues and expenses than
does the allowance method.
A separate capital account would be maintained for each partner in a partnership.
The PCAOB was established in response to the accounting scandals that occurred in
2001 and 2002.
The last-in, first-out cost flow method assigns the cost of the items purchased first to
ending inventory.
Proprietorships are not separate legal entities; their earnings are taxable to the owners
and not to the business itself.
A business and the person who owns the business are separate reporting entities.
Jones Company’s current ratio is higher than the average for its industry, while its quick
ratio is below the industry average. One possible interpretation for these results is that
Jones carries more inventory than most companies in its industry.
Monthly remittance of sales tax due has no impact on the income statement, but reduces
cash flow from operating activities.
Preferred stockholders’ claims to a corporation’s assets take precedence over the claims
of some creditors.
In a market, creditors are resource providers.
Payment of interest is classified as a financing activity on the statement of cash flows.
Recognizing depreciation expense on equipment or a building is an asset use
transaction.
The direct write-off method of accounting for uncollectible accounts overstates assets
on the balance sheet.
Source documents provide information that serves as the basis for entries into the
accounting system. Examples of source documents include invoices and deposit tickets.
Accepting credit cards is usually more costly to a business than offering credit directly
to customers.
A corporation is a legal entity created by the authority of a state government, separate
and distinct from its owners.
The par value of a company’s stock
A.dictates the initial price of the stock.
B.may be revised each time a company issues more shares of stock.
C.is generally greater than market value.
D.has little connection to the market value of the stock.
Robertson Company paid $1,850 cash for rent expense. As a result of this business
event,
A.Total equity decreased.
B.Liabilities decreased.
C.The net cash flow from operating activities decreased.
D.Both total equity and net cash flow for operating activities decreased.
Which one of the following would not be included in a closing entry at the end of the
accounting year?
A.A credit to rent expense
B.A debit to unearned revenue
C.A debit to service revenue
D.A credit to dividends
Jing Company was started on January 1, 2016 when it issued common stock for
$50,000 cash. Also, on January 1, 2016 the company purchased office equipment that
cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and
transportation cost was $2,000. The equipment had a five-year useful life and a $12,000
expected salvage value.
At the end of 2020, assuming the equipment had not been sold, the book value of the
office equipment using straight-line depreciation and double-declining balance
depreciation, respectively, would be:
A.$12,000/$1,680.
B.$12,000/$12,000.
C.$0/$0.
D.None of these answer choices are correct.
Sullivan Company uses the periodic inventory method. The following balances were
drawn from the accounts of Sullivan Company prior to the closing process:
The amount of gross margin appearing on the income statement should be:
A.$8,400.
B.$7,200.
C.$15,600.
D.$18,400.
Indicate whether each of the following statements is true or false. If a company made
the following journal entry,
this entry would cause:
_____ a) Cash to decrease.
_____ b) Total assets to decrease.
_____ c) Liabilities to decrease.
_____ d) Cash flows from operating activities to increase.
_____ e) Net income to decrease.
Why are the inventory and cost of goods sold accounts attractive targets for managerial
fraud?
A.There are few if any procedures that can check for fraud in these accounts.
B.There are no adequate methods of record keeping for inventory.
C.These accounts are more significant than most other accounts.
D.Cost of goods sold and Inventory accounts are not attractive targets of fraud.
Vancouver Company began 2016 with balances in accounts receivable and allowance
for doubtful accounts of $92,800 and $9,280, respectively. The company reported credit
sales of $875,550 during the year, collected $870,200, and wrote off $6,800 of
uncollectible accounts. Vancouver estimates that 10% of its accounts receivable balance
will be uncollectible.
Required:
a) What will Vancouver report as its allowance for doubtful accounts on December 31,
2016?
b) Prepare the adjusting journal entry for December 31, 2016 to recognize uncollectible
accounts expense.
c) Calculate Vancouver’s net realizable value of accounts receivable on December 31,
2016.
Helena Corporation declared a 2-for-1 stock split on 8,000 shares of $6 par value
common stock. If the market price of the stock had been $25 a share before the split, the
par value, number of shares, and approximate market value after the split would be:
A.
B.
C.
D.
Indicate whether each of the following statements regarding the statement of cash flows
(SCF) is true or false.
_____ a) Purchase of merchandise inventory on account would appear in the operating
activities section of the SCF.
_____ b) Sale of treasury stock would appear in the investing section of the SCF.
_____ c) Cash proceeds from the sale of a used truck would appear in the operating
section of the SCF.
_____ d) Purchase of investment securities would appear in the investing activities
section of the SCF.
_____ e) Payment of salaries would appear in the operating section of the SCF.
Jacobs Company issued bonds with $300,000 face value on January 1, 2016. The bonds
were issued at 102 and carried a 5-year term to maturity. They had a 9% stated rate of
interest that was payable in cash on December 31st of each year. Jacobs uses the
straight-line method of amortization. Based on this information alone, the recognition
of interest expense on December 31, 2016 would act to:
A.Decrease equity by $25,800, decrease liabilities by $1,200, and decrease assets by
$27,000.
B.Decrease both assets and equity by $2,700.
C.Decrease both assets and equity by $25,800.
D.Increase liabilities by $1,200, decrease assets by $25,800, and decrease equity by
$27,000.
You are considering an investment in Techno Company stock and wish to assess the
company’s position in the stock market. All of the following ratios can be used except:
A.Price-earnings ratio.
B.Earnings per share.
C.Dividend yield.
D.Working capital.
As of December 31, 2014, Gatewood Corporation had a current ratio of 1.49, quick
ratio of 1.15, and working capital of $48,000. The company uses a perpetual inventory
system and sells merchandise for more than its cost.
On January 1, 2015 Gatewood issued common stock for $20,000 cash. Which of the
following statement is true?
A. Gatewood’s current ratio will increase.
B.Gatewood’s current ratio will decrease and Gatewood’s quick ratio will increase.
C.Gatewood’s quick ratio will decrease.
D. Gatewood’s working capital will decrease.
Li Company paid cash to purchase land. As a result of this accounting event
A.total assets decreased.
B.total assets were unaffected.
C.total equity decreased.
D.both assets and total equity decreased.
Select the true statement (note: an answer may be true even if it does not identify all
accounts that have debit balances on that particular financial statement).
A.Account numbers 1, 3, and 5 normally have debit balances.
B.Account numbers 2, 4, and 5 normally have debit balances.
C.Account numbers 2, 5, and 8 normally have debit balances.
D.Account numbers 4, 5, and 6 normally have debit balances.
Glavine Company repaid a bank loan with cash. The cash flow from this event should
be shown on the horizontal statements model as
A.an operating activity that decreases cash, decreases equity, and decreases net income.
B.a financing activity that decreases cash and decreases liabilities.
C.a financing activity that decreases cash, decreases equity, and decreases net income.
D.an investing activity that decreases cash and decreases liabilities.
Indicate whether each of the following statements is true or false.
_____ a) Interest expense on long-term installment notes increases each year.
_____ b) Cash for machinery or buildings is often obtained by issuing long-term debt.
_____ c) Short-term notes payable normally mature within a year.
_____ d) Long-term installment notes are repaid all at once two to five years after the
issue date.
_____ e) Most long-term loans are obtained from the corporation’s stockholders.
Net income percentage is equal to:
A.Net Sales divided by Net Income
B.Net Income divided by Net Sales
C.Total Equity divided by Net Sales
D.Net Income divided by Gross Margin
Patty’s Pet Shop had the following transactions for 2016, the first year of operations:
1) Borrowed $50,000 from the bank.
2) Purchased merchandise on account, $44,000, terms 1/10, n/30.
3) Sold merchandise on account for $51,000. The inventory sold had a cost of $28,000.
4) Paid for the merchandise purchased within the discount period.
5) Collected $41,500 on the merchandise sold on account.
6) Paid operating expense of $17,000.
7) Recognized accrued interest expense of $2,000.
Required:
a) What are total assets at the end of 2016?
b) What is the balance of the cash account at the end of 2016?
c) What is gross margin for 2016?
d) What is operating income for 2016?
e) What is net income for 2016?
f) What are total liabilities at the end of 2016?
g) What is total retained earnings at the end of 2016?
Which is one effect of the following journal entry?
A.Increases equity
B.Increases liabilities
C.Decreases assets
D.Increases assets
Current financial reporting standards assume that users of accounting information:
A.have an expert’s understanding of economic and financial events and conditions.
B.have a reasonably informed knowledge of business.
C.have widely differing levels of knowledge about business, and that financial reporting
must meet these differing needs.
D.have only minimal knowledge of business.
Blair Scott started a sole proprietorship by depositing $75,000 cash in a business
checking account. During the accounting period the business borrowed $30,000 from a
bank, earned $18,000 of net income, and Scott withdrew $12,000 cash from the
business. Based on this information, at the end of the accounting period Scott’s capital
account contained a balance of:
A.$93,000.
B.$111,000.
C.$72,000.
D.$81,000.
Liabilities are shown on the
A.income statement.
B.balance sheet.
C.statement of cash flows.
D.statement of changes in stockholders’ equity.
Taylor Co. had beginning inventory of $400 and ending inventory of $600. Taylor Co.
had cost of goods sold amounting to $1,800. Based on this information, Taylor Co. must
have purchased inventory amounting to:
A.$1,600
B.$2,800
C.$2,000
D.$2,400
Which of the following methods of applying the lower-of-cost-or-market rule will result
in the fewest write-downs of inventory?
A.Each individual inventory item.
B.Average of cost of goods sold for the past three years.
C.Major classes or categories of inventory.
D.The entire stock of inventory in aggregate.
Which of the following statements regarding the Securities and Exchange Commission
(SEC) is not true?
A.The SEC has no jurisdiction over closely held companies.
B.The SEC regulates both audit standards and financial reporting.
C.The SEC is a private professional organization.
D.The SEC’s influence has increased following passage of the Sarbanes-Oxley Act.
Earnings before interest and taxes divided by interest expense is the formula for which
of these analytical measures?
A. Number of times interest is earned
B. Earnings per share
C. Return on investment
D. Debt to assets ratio
In a company’s bank reconciliation, an outstanding check is a check that:
A.has been issued by the company but has not been presented to the bank for payment.
B.is guaranteed for payment by the bank.
C.has been presented to the bank for payment but has not been reported on the bank
statement.
D.has been written for an amount that is greater than the balance in the account holder’s
bank account.
The Heritage Company is a manufacturer of office furniture. Which term best describes
Heritage’s role in society?
A.Conversion agent
B.Regulatory agency
C.Consumer
D.Resource owner
The following events pertain to the Bloom Garden Supply Company for April 2016.
The company uses the periodic inventory system.
1) April 4 Purchased $10,000 of merchandise on account, terms 1/10, n/30, FOB
shipping point.
2) April 5 Paid shipping cost of $1,100 on the Jan. 4 purchase.
3) April 6 Returned $1,200 of the merchandise purchased on Jan. 4.
4) April 7 Sold merchandise for $5,800 on account, terms 2/10, n/30, FOB Destination.
5) April 7 Paid the shipping cost of $350 on the previous sale.
6) April 10 Recorded the discount and paid the amount due from the purchase of
merchandise on April 4.
7) April 28 Sold merchandise for $7,200 cash.
Required: a) Record the above transactions in general journal form.
b) Bloom’s beginning inventory balance for April was $35,000. A physical count of
inventory on April 30 revealed $33,600 of merchandise on hand. Calculate Bloom’s cost
of goods available for sale and cost of goods sold for April.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
An adjusting entry recorded as a debit to Salaries Expense and a credit to Salaries
Payable.
Describe the varying degrees to which closely held corporations and publicly traded
corporations are regulated.
Explain the difference between “transportation in” and “transportation out”. Also
indicate whether each is a product cost or period cost, and in which account the costs
are recorded.
Indicate for each of the following items if the item would be reported on the income
statement (IS), statement of changes in stockholders’ equity (SE), balance sheet (BS), or
statement of cash flows (CF). Some items may appear on more than one statement; if
so, identify all applicable statements.
1) Salaries payable
2) Prepaid insurance
3) Dividends paid to stockholders
4) Interest revenue
5) Accounts payable
6) Salaries expense
7) Retained earnings
8) Unearned subscription revenue
9) Cash flows from operating activities
10) Beginning common stock
11) Issued stock to investors for cash
12) Accounts receivable
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Stan’s Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more
surfboards for $250 each. Stan’s uses the perpetual inventory system. Assume that 6
surfboards were sold during the period for $350 cash each.
How would the sale affect the financial statements if Stan’s Surf Shack uses the FIFO
inventory cost flow method?
In an inflationary period, which cost flow method of accounting for inventory will
produce the smallest amount of net income?
One of your friends is preparing to open a store that will sell outdoor gear. When you
heard that the business would have three or four employees, you told your friend that
she would need to pay careful attention to separation of duties. She has asked you to
explain what duties should be separated and why separation of duties is important in a
business. Write a note to your friend explaining these issues.
The unadjusted cash account balance for Carson Company at December 31, 2016 is
$12,615. The bank statement showed an ending balance of $18,250 at December 31,
2016. The following information is available from an examination of the bank
statement and the company’s accounting records:
Check #433 for the purchase of inventory was written correctly and paid by the bank
correctly for $432, but was recorded on the books at $234. Carson uses the perpetual
inventory system.
Required:
1) Prepare a bank reconciliation for December, 2016.
2) Prepare the necessary journal entries at December 31, 2016.
Discuss the tax advantage of long-term debt financing.
For what types of assets is the recognition of expense called “amortization?”
Indicate how each event affects the income statement and the statement of cash flows.
Record the amount of the effect in the box shown below each element. Use the letter “I”
to indicate increase, the letter “D” to indicate decrease, and the letter “N” to indicate no
effect. Use only one letter for each element.
On July 6, 2016, Howard Corporation received an interest check on a note receivable.
No principal was received at this time. Show the effects of this transaction on Howard’s
income statement and statement of cash flows.
Oregon Co. began operations on January 1, 2016, by issuing $10,000 in common stock
to the stockholders. On March 1, 2016, Oregon accepted an advance of $36,000 to
provide services for a one-year period beginning April 1. During 2016, services in the
amount of $32,000 were provided to customers on account, and 80% of this amount
was collected by year-end. During 2016, operating expenses incurred on account were
$24,000, and 60% of this amount was paid by year-end. During the year, Oregon paid
$1,200 to purchase supplies. By year-end, $1,080 of the supplies had been used.
Dividends to stockholders were $2,000 during the year. During 2016, Oregon paid
salaries of $28,000, and on December 31, 2016, the company accrued salaries of
$2,800.
Oregon recorded all appropriate adjusting entries at year end.
1) What would Oregon report for service revenue for 2016?
2) What would Oregon report for salaries expense for 2016?
3) What would Oregon report for supplies expense for 2016?
4) What would the amount be for net cash flows from operating activities for 2016?
5) What is the net income for 2016?
6) What would the balance in the retained earnings account be at December 31, 2016?
What does the balance in accounts receivable represent?
Describe the purpose of the closing process.
Explain the significance of the return on equity ratio. Who (what category or type of
financial statement users) would normally be most interested in this ratio, and why?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts. Enter only one letter for each element.
Charles Company paid Jason Hewitt for work he performed as an independent
contractor. The work had not been previously accrued.