The specific identification method would probably be most appropriate for which of the
following goods?
A) Boxes of brass 4-inch drywall screws at Home Depot
B) Bottles of suntan lotion in Wal-Mart’s central warehouse
C) Sets of tires at the Goodyear plant
D) Diamond necklaces at a Tiffany & Co. jewelry store
Creditors are:
A) people or organizations who owe money to a business.
B) people or organizations to whom a business owes money.
C) stockholders of a business.
D) customers of a business.
Your company converted an existing account receivable in the amount of $5,000 to a
note receivable to allow an extended payment period. The note is due in one year and
includes an annual interest rate of 5%, The customer repays the principal at the maturity
date. The entry to record the receipt of the principal includes a debit to:
A) Cash and credit to Notes Receivable.
B) Notes Receivable and credit to Accounts Receivable.
C) Cash and credit to Interest Receivable.
D) Notes Receivable and credit to Cash.
Which of the following statements about the Dividends account is not correct?
A) It has a debit balance.
B) It reduces Retained Earnings.
C) It is an expense.
D) It is an account that is reported only on the statement of retained earnings.
The following is a listing of some of the balance sheet accounts and all of the income
statement accounts for Aldine Inc. as they appear on the company’s adjusted trial
balance.
Use the information above to answer the following question. Gross profit would be:
A) $35,000.
B) $37,000.
C) $41,000.
D) $71,000.
Total doubtful accounts at the end of the year are estimated to be $25,000 based on an
aging of accounts receivable. If the balance in the Allowance for Doubtful Accounts is a
$7,000 debit before adjustment, what is current year’s Bad Debt Expense?
A) $7,000
B) $18,000
C) $25,000
D) $32,000
Darin Company uses a perpetual inventory system. On October 1, Darin Company sold
inventory in the amount of $6,500 to Dee Company, terms 2/10, n/30. The items cost
Darin $4,200. On October 4, Dee returns some of the inventory. This inventory had a
selling price of $500 and a cost of $200. On October 8, Dee Company paid Darin
Company the amount due on that date.
Use the information above to answer the following question. What journal entry
(entries) will Darin prepare on October 1 to record this sale?
A) Debit Accounts receivable and credit Sales Revenue for $6,500
B) Debit Sales Revenue for $6,500 and credit Accounts Receivable and credit for
$6,500; debit Cost of Goods Sold and credit Inventory for $4,200
C Debit Cost of Goods Sold for $4,200, debit Gross Profit for $2,300, and credit Sales
Revenue for $6,500
D) Debit Accounts Receivable and credit Sales Revenue for $6,500; debit Cost of
Goods Sold and credit Inventory for $4,200
Which of the following statements about the use of financial statements is not correct?
A) When choosing between a company that pays steady dividends and one that retains
its earnings to support future growth, investors will always choose the company that
pays steady dividends.
B) Companies can develop reputations for honest financial reporting even when
conveying bad news.
C) Trends in a company’s net income from year to year can provide clues about its
future earnings, which can help investors to decide whether to buy stock in the
company.
D) Information in the notes to the financial statements can influence a user’s
interpretation of balance sheet and income statement information.
Goodwill:
A) should be treated like most other intangible assets and amortized over a useful life of
not more than 40 years.
B) is an accounting measurement of how well a company’s employees behave towards
the company’s customers.
C) should be recorded as a negative value if a company is purchased for less than the
net carrying value of its assets.
D) is recorded when the purchasers of a business pay more than the fair value of the
assets purchased.
When the indirect method is used, if a prepaid expense account decreases during the
accounting period, the change in the prepaid expense account is:
A) added to the change in the cash account.
B) subtracted from net income.
C) added to net income.
D) subtracted from the change in the cash account.
Assets:
A) represent the amounts earned by a company.
B) must equal the liabilities of a company.
C) must equal the stockholders’ equity of the company.
D) represent the resources presently controlled by a company.
All other things being equal, when companies repurchases its common stock:
A) EPS decreases and ROE increases.
B) EPS increases and ROE stays the same.
C) EPS increases and ROE decreases.
D) EPS and ROE both increase.
Which of the following statements about calculation of cash flows from operating
activities under the indirect method is correct?
A) When the indirect method is used, changes in current liabilities are subtracted while
changes in current assets are added to convert net income to net cash flow from
operating activities.
B) When the indirect method is used, depreciation expense is added to net income as a
step in the process of calculating net cash flow provided by operating activities.
C) When the indirect method is used, changes in long-term assets are added to convert
net income to net cash flow provided by operating activities.
D) When the indirect method is used, changes in long-term liabilities are subtracted to
convert net income to net cash flow provided by operating activities.
A company typically records the amount owed to suppliers for goods or services when:
A) they are ordered.
B) a verbal commitment to purchase the goods or services has first been made.
C) payment is made.
D) the goods or services are received.
Carrying insufficient quantities of inventory on hand:
A) would not affect the company ‘s profitability.
B) may result in lost sales.
C) has little effect on customer satisfaction.
D) will increase the costs of carrying inventory.
If a company’s Sales Revenue was $171,356 and cash collected from customers was
$167,803, which of the following would be consistent with this difference?
A) Accounts Receivable could have decreased.
B) Cash payments could have been larger than the related expense accounts.
C) Accounts Receivable could have increased.
D) Cash payments could have been smaller than the related expense accounts.
Zorn Inc. makes a sale for $300. The company is required to collect sales taxes
amounting to 9%. What is the amount that will be credited to the Sales Tax Payable
account?
A) $27
B) $273
C) $300
D) $327