Arizona Company plans to purchase a property to build its corporate headquarters. An
investor is willing to exchange land with a market value of $500,000 for common stock.
This transaction would be shown in the financing activities section of the statement of
cash flows.
Goodwill is the excess cost of an acquired company over the market value of its net
assets.
Small and large stock dividends have no effect on the Common Stock account.
Adjusting entries are completed to ensure that all income statement accounts for the
accounting period examined have been recorded and to update the balance sheet
accounts.
Cash purchases are recorded in the purchases journal.
The guidelines for accounting information are called Generally Accepted Accounting
Principles (GAAP).
Permanent accounts are not closed at the end of the accounting period.
Prepaid Insurance is an asset account that appears on the balance sheet.
The income statement provides information about profitability for a particular period
for the company.
Using the FIFO method of inventory valuation will always produce the same results for
cost of goods sold and ending inventory whether a company uses perpetual or periodic
inventory costing methods.
For all four inventory costing methods, cost of goods sold is always equal to the sum of
beginning inventory plus net purchases.
When a company collects the face value of a bond investment at maturity, total assets
increase.
Hardware is electronic equipment that includes computers, monitors, printers, and the
network that connects them.
The revenue recognition principle tells accountants when to record revenue and requires
companies to follow a three step process.
An investor owns a controlling interest when the investor has legal control over the
investee company and generally owns more than 50% of the investee’s voting stock.
A contingency was evaluated at year-end and considered to have a remote possibility of
becoming an actual liability. If this is not reported on the balance sheet or in the notes to
the financial statements, it could be considered a violation of generally accepted
accounting principles.
When bonds are retired at maturity, assuming the last interest payment has already been
recorded, the journal entry includes a debit to the Bonds Payable account and a credit to
the Cash account.
If a customer does not pay within the discount period, the seller records the discount
lost as in increase in Sales Revenue.
Reversing entries are dated on the first day of the new accounting period.
A reduction in the amount of revenue earned on sales for early payment is known as a
sales discount.
The system of accounting in which every transaction affects at least two accounts is
called the double-entry system.
When a lock-box system is used, customers send their checks to a post office box that
belongs to a bank.
Discount on Bonds Payable is additional Interest Expense of the company that issues
the bond.
The unrealized holding gains and losses on available-for-sale debt investments are
recorded as an adjustment to the Unrealized Holding Gain—Available-for-Sale account
or Unrealized Holding Loss—Available-for-Sale account.
The owner of a bond or stock of a corporation is referred to as the investor.
A receivable is a monetary claim against a business or an individual.
Equity investments with no significant influence must be adjusted at the end of the year
and reported at fair value.
Earnings per share is a liquidity measure that is used to compare companies of different
sizes.
Under the allowance method, the entry to write off a receivable increases the amount of
the Allowance for Bad Debts account.
Wesley, Inc. uses the indirect method to prepare the statement of cash flows. Refer to
the following section of the comparative balance sheet:
Wesley, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
The change in Merchandise Inventory is shown as a negative cash flow in the adjustments
to net income.
The stock of public corporations cannot be purchased on a stock exchange.
The adjusting process zeroes out all revenue accounts and all expense accounts.
Installation costs are recorded as part of the cost of equipment.
Ending inventory equals the cost of goods available for sale less beginning inventory.
A current ratio that has increased from the prior period indicates an improvement in the
company’s ability to pay its current debts.
Horizontal analysis provides a year-to-year comparison of a company’s performance in
different periods.
The balance in the Bonds Payable account is a credit of $67,000. The balance in the
Discount on Bonds Payable account is a debit of $2,650. The bond’s carrying amount is
$64,350.
The balance in the Bonds Payable account is a credit of $16,500. The balance in the
Premium on Bonds Payable account is a credit of $1,000. The balance sheet will report
the bond balance as $15,500.
Which of the following requires businesses to record depreciation?
A) revenue recognition principle
B) matching principle
C) cost principle
D) going concern principle
The financial statements for Barrington Service Company include the following items:
Compute the current ratio for 2018. (Round answer to two decimal places.)
A) 1.16
B) 0.86
C) 3.73
D) 6.55
In applying the revenue recognition principle, which of the following statements
regarding multiple performance obligations is incorrect?
A) If the transaction has multiple performance obligations, the transaction price is
allocated among the different performance obligations.
B) The business can recognize revenue when (or as) it satisfies each performance
obligation by transferring a good or service to a customer.
C) A contract might have multiple performance obligations.
D) Revenue is recognized after all performance obligations are satisfied.
Regarding the gross method of handling credit and debit card transactions, which of the
following statements is correct?
A) The total sale amount is deposited on the date of the actual sale.
B) The processing fees for all transactions processed for the month are deducted from
the company’s bank account, often on the last day of the month.
C) On the date of sale, the Sales Revenue account is credited for the amount of sale less
the processing fee.
D) The journal entry on the date of sale is identical to a journal entry made for a sale on
account.
The following Office Supplies account information is available for Nabors, Inc.
From the above information, calculate the amount of office supplies purchased.
A) $7,900
B) $7,000
C) $1,100
D) $2,000
Which of the following entries would be made to record the purchase of inventory on
account, if a company uses the perpetual inventory system?
A) a debit to Purchases and a credit to Accounts Payable
B) a debit to Accounts Payable and a credit to Purchases
C) a debit to Merchandise Inventory and a credit to Accounts Payable
D) a debit to Accounts Payable and a credit to Merchandise Inventory
Which of the following transactions is recorded by selecting the “Receive payment”
action of QuickBooks?
A) making electricity bill payments
B) selling merchandise inventory on account
C) collecting an account receivable from a customer
D) paying interest to bondholders
Liquidity is a measure of how ________.
A) quickly an asset may be converted into cash
B) long an asset can be used
C) easily an asset can be exchanged for another asset
D) quickly an asset appreciates in value
At Radiant, Inc., the sales department is also responsible for recording cash transactions
as it does not have a separate accounting department. Which internal control procedure
needs strengthening?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
A corporation has 2000 shares, 10% preferred stock of $65.00 par preferred stock, and
6000 shares of common stock outstanding. The net income for the year is $290,000.
Calculate earnings per share. (Round your answer to the nearest cent.)
A) $65.00
B) $46.17
C) $48.33
D) $145.00
On January 1, 2019, Commercial Equipment Sales issued $28,000 in bonds for
$15,700. These are six-year bonds with a stated interest rate of 10%, and pay
semiannual interest on June 30 and December 31. Commercial Equipment Sales uses
the straight-line method to amortize the Bond Discount. What amount is debited to
Interest Expense on June 30, 2019?
A) $1400
B) $2425
C) $1025
D) $25,067
Which one of the following account groups will decrease with a debit?
A) assets and expenses
B) revenues and expenses
C) liabilities and revenues
D) assets and liabilities
An oil well cost $1,842,500 and is calculated to hold 170,000 barrels of oil. There is no
residual value. Which journal entry is needed to record the expense for the extraction of
35,000 barrels of oil during the year? All 35,000 barrels were sold during the year.
(Round any intermediate calculations to the nearest cent, and your final answer to the
nearest dollar.)
A)
B)
C)
D)
Which of the following is true of a completed worksheet?
A) The total debits in the unadjusted trial balance column equal the total debits in the
adjusted trial balance column.
B) The total debits in the income statement column equal the total credits in the balance
sheet column.
C) The total debits in the income statement column equal the total debits in the balance
sheet column.
D) The total of all the debit columns is equal to the total of all the credit columns.
The entry to record the payment of a previously declared dividend of $0.25 per share on
18,500 shares of common stock includes a ________.
A) debit to Cash Dividends for $4625
B) debit to Cash $4625
C) credit to Cash Dividends for $4625
D) debit to Dividends Payable for $4625
A subsidiary ledger is ________.
A) an accounting journal designed to record a specific type of transaction
B) a created list of accounts used by a business entity to define each class of items for
which cash is spent or received
C) a complete record of business transactions recorded in a ledger over the life of a
company
D) a record of accounts that provide supporting details on individual balances, the total
of which appears in a general ledger account
Masonry Construction Group paid $10,000 for a plant asset that had a market value of
$14,500. At which of the following amounts should the plant asset be recorded?
A) $14,500
B) $5000
C) $10,000
D) $20,000
Risingstar Corporation currently has 129,000 shares outstanding of $3 par value
common stock. The stock was originally issued for $14 per share. On March 15, the
board of directors declares a 13% stock dividend when the stock is selling for $22 per
share. Which of the following is the correct journal entry to record this transaction? (Do
not round intermediate calculations.)
A) debit Common Stock Dividend Distributable $50,310, debit Paid-In Capital in
Excess of Par—Common for $318,630 and credit Retained Earnings $368,940
B) debit Stock Dividends $368,940 and credit Common Stock Dividend Distributable
$368,940
C) debit Stock Dividends $368,940, credit Common Stock Dividend Distributable
$50,310 and credit Paid-In Capital in Excess of Par—Common $318,630
D) debit Paid-In Capital in Excess of Par—Common $368,940 and credit Retained
Earnings $368,940
When preparing a worksheet, net income is recorded in the ________.
A) income statement credit column
B) adjusted trial balance debit column
C) income statement debit column
D) balance sheet debit column
Under the equity method, the investor ________.
A) must debit the Equity Investments account when a dividend is received
B) must record its share of the investee’s net income
C) must use the LIFO method for tax purposes
D) debits the Revenue from Investments when the investee reports income
A company has four vendors and the accounts payable subsidiary ledger shows the
following balances.
Calculate the accounts payable balance in the general ledger.
A) $436,295
B) $564,425
C) $278,821
D) $285,604
Which of the following describes the operating activities section of the statement of
cash flows?
A) It reports cash receipts and cash payments that increase or decrease long-term assets.
B) It includes cash inflows and outflows related to long-term liabilities and equity.
C) It reports on activities that create revenue or expenses for the entity’s business.
D) It reports on how cash flows affect the total assets and total liabilities.
Which of the following actions could increase the balance in the Paid-In Capital in
Excess of Par—Common account?
A) cash dividend declared
B) stock split
C) 10% stock dividend declared
D) purchase of treasury stock
A business purchases $3,500 of office supplies for cash. Which of the following sets of
ledger accounts reflects the posting of this transaction?
A)
B)
C)
D)
A company reports total assets of $910,000 and stockholders’ equity of $530,000.
Calculate the debt ratio. (Round your answer to two decimal places.)
A) 36.81%
B) 41.76%
C) 58.24%
D) 71.7%
The purchase of treasury stock ________.
A) decreases assets and stockholders’ equity
B) increases assets and stockholders’ equity
C) increases assets and decreases stockholders’ equity
D) decreases assets and increases stockholders’ equity
Which of the following is true of goodwill?
A) Goodwill must be capitalized when acquired and amortized over seven years or less.
B) Both created and acquired goodwill must be recorded in the books.
C) Goodwill must be expensed when acquired.
D) Goodwill is not amortized.
On January 1, 2018, Allgood Company purchased equipment and signed a six-year
mortgage note for $186,000 at 15%. The note will be paid in equal annual installments
of $49,148, beginning January 1, 2019. Calculate the portion of interest expense paid on
the third installment. (Round your answer to the nearest whole number.)
A) $49,148
B) $21,048
C) $27,900
D) $164,752
In a perpetual inventory system, the credit columns of a typical cash payments journal
are ________.
A) Merchandise Inventory column and Cash column
B) Other Accounts column and Accounts Payable column
C) Merchandise Inventory column and Accounts Payable column
D) Other Accounts column and Cash column
Which of the following is a reason why many companies require a photo ID when
employees pick up their paychecks?
A) to make sure an employee’s work hours have been accurately reported
B) to avoid writing a paycheck to a fictitious person
C) to improve efficiency of the payroll disbursement process
D) to make sure all employees are legal adults
When using the periodic inventory system and weighted-average inventory costing
method, when is the weighted average cost per unit computed?
List four items from an invoice that are needed to record a purchase of merchandise
inventory.
Complete the following table, which compares the effects of LIFO, FIFO, and
weighted-average inventory costing methods on the financial statements in periods of
rising inventory costs. The answer should be lowest, highest, or middle.
December, Inc. issued 4,000 shares of preferred stock for $240,000. The stock has a par
value of $60 per share. Prepare the journal entry for this transaction. Omit explanation.
Superior Sales, Inc. offers warranties on all its electronic goods. Warranty expense is
estimated at 3.5% of sales revenue. In 2018, Superior had sales of $333,000. In the
same year, Superior replaced defective goods with merchandise inventory costing
$8,750. Prepare the journal entry to record the warranty expense. Omit explanation.
A business hired a repair service to overhaul its plumbing system. The repair service
began work on September 15 and completed it on October 15. The business agreed to
pay the service $4,000 when the work was completed. As of September 30, the work
was 50% complete, and the business made an adjusting entry to accrue repair expense
as of the end of September. On October 15, the work was completed, and the repair
service was paid in full. Provide the journal entry for the cash payment on October 15.
(Ignore explanation).
On January 1, 2019, Ennis, Inc. purchased a patent for $200,000 cash. Although the
patent gives legal protection for 20 years, the patent is expected to be used for only 10
years. The patent has no residual value. Journalize the amortization expense for 2019.
Assume straight-line amortization. Omit explanation.
List the four financial statements and briefly explain how each is prepared.
For the following situation, state whether it represents a strength or weakness in internal
control and give the reason for your answer.
The movie theater has the following policy. Tickets are sold by the cashier. The ticket
stubs are collected by the ticket taker. The ticket stubs are stored in a locked box, and
the accounting personnel match the number of ticket stubs to the number of tickets sold.
Why are temporary accounts not included in the post-closing trial balance?
Use the balance sheet of Michigan, Inc. to calculate working capital for 2019 and 2018.
Michigan, Inc.
Comparative Balance Sheet
December 31, 2019 and 2018
Prepare an income statement and a statement of retained earnings for the month of May.
Also, prepare a balance sheet as of May 31, 2019, for McGuire Corporation. The
financial transactions of McGuire Corporation for the month of May, their first month
of operations, are as follows:
• On May 1, 2019, McGuire Corporation issued common stock in exchange for $20,000
cash from a stockholder, Deborah Merchant.
• On May 3, the corporation borrowed $5,000 from a creditor and executed a note
payable with the principal and interest to be due in one year.
• On May 7, the corporation purchased $15,000 of equipment for cash.
• On May 8, McGuire Corporation rendered service to a client and received $3,000 in
cash.
• On May 12, the corporation incurred a repair expense of $1,800 and promised to pay
the repair contractor the following month.
• On May 18, the corporation rendered service to a new client in the amount of $8,000
on account, as the client promised to pay the following month.
• At the end of May, McGuire Corporation distributed cash dividends of $1,500.
Define financial leverage and discuss how it is used to increase earnings per share.
Define treasury stock and provide two reasons why a corporation would purchase
treasury stock.
The information related to Jazz Music, Inc. is given below:
Calculate the times-interest-earned ratio for each year . Round all calculations to two
decimal places.
The revenue recognition principle requires companies to follow a five-step process. List
these five steps.
The following transactions apply to a company that uses a periodic inventory system.
For each transaction, state which accounts are used and whether the account is debited
or credited. All transactions involve the purchase of inventory.
On January 1, 2019, Booth Sales issues $10,000 in bonds for $10,900. These are 5-year
bonds with a stated rate of 4%, and pay semiannual interest. Booth Sales uses the
straight-line method to amortize bond premium. Prepare the journal entry for the first
interest payment on June 30, 2019. Omit explanation.
ABC Electrical Supply Company purchased $560,000 of inventory. Goods of $35,000
were returned. ABC received an early discount of $55,000 and paid freight in of
$15,000 and freight out of $20,000. Compute the net cost of inventory purchased. Label
your work and show all computations.
Jarrell, Inc. purchases 8,500 shares of the company’s own $6 par common stock for $8
per share. Journalize the transaction. Omit explanation.