Which accounting assumption assumes that an enterprise will continue in operation
long enough to carry out its existing objectives and commitments?
a. Monetary unit assumption.
b. Economic entity assumption.
c. Periodicity assumption.
d. Going concern assumption.
Answer:
The standard form of a journal entry has the
a. debit account entered first and indented.
b. credit account entered first and indented.
c. debit account entered first at the extreme left margin.
d. credit account entered first at the extreme left margin.
Answer:
Henson Company incurred $600,000 of research and development costs in its
laboratory to develop a new product. It spent $90,000 in legal fees for a patent granted
on January 2, 2015. On July 31, 2015, Henson paid $60,000 for legal fees in a
successful defense of the patent. What is the total amount that should be debited to
Patents through July 31, 2015?
a. $600,000
b. $150,000
c. $750,000
d. Some other amount
Answer:
The primary accounting standard-setting body in the United States is the
a. Securities and Exchange Commission.
b. Accounting Principles Board.
c. Financial Accounting Standards Board.
d. Internal Revenue Service.
Answer:
In addition to the three basic financial statements, which of the following is also a
required financial statement?
a. the “Cash Budget”
b. the Statement of Cash Flows
c. the Statement of Cash Inflows and Outflows
d. the “Cash Reconciliation”
Answer:
Controls that enhance the accuracy and reliability of the accounting records are
a. automated controls.
b. external controls.
c. mechanical and electronic controls.
d. physical controls.
Answer:
The purchase of treasury stock
a. decreases common stock authorized.
b. decreases common stock issued.
c. decreases common stock outstanding.
d. has no effect on common stock outstanding.
Answer:
On a classified balance sheet, inventory is classified as
a. an intangible asset.
b. property, plant, and equipment.
c. a current asset.
d. a long-term investment.
Answer:
Which one of the following would not cause a bank to debit a depositor’s account?
a. Bank service charge
b. Collection of a note receivable
c. Wiring of funds to other locations
d. Checks marked NSF
Answer:
Which account below is not a subdivision of retained earnings?
a. Dividends
b. Revenues
c. Expenses
d. Common stock
Answer:
As of December 31, 2015, Calexico Company has assets of $42,000 and stockholders’
equity of $20,000. What are the liabilities for Calexico Company as of December 31,
2015?
a. $22,000.
b. $20,000.
c. $42,000.
d. $62,000.
Answer:
If an individual asset is increased, then
a. there must be an equal decrease in a specific liability.
b. there must be an equal decrease in stockholders’ equity.
c. there must be an equal decrease in another asset.
d. All of these answers are possible.
Answer:
At December 31, the stockholders’ equity of Smith Company was as follow:
The book value per share of common stock is
a. $7.00
b. $7.20
c. $8.40
d. $7.70
Answer:
When an account is written off using the allowance method, accounts receivable
a. is unchanged and the allowance account increases.
b. increases and the allowance account increases.
c. decreases and the allowance account decreases.
d. decreases and the allowance account increases.
Answer:
The accounting principle that requires that the cost flow assumption be consistent with
the physical movement of goods is
a. called the expense recognition principle.
b. called the consistency principle.
c. nonexistent; that is, there is no accounting requirement.
d. called the physical flow assumption.
Answer:
Mary Chain Investments purchased an 18-month insurance policy on May 31, 2015 for
$3,600. The December 31, 2015 balance sheet would report Prepaid Insurance of
a. $0 because Prepaid Insurance is reported on the Income Statement.
b. $1,400.
c. $2,200.
d. $3,600.
Answer:
When a company pays dividends
a. it doesn’t have to be cash, it could be another asset.
b. the dividends account will be increased with a credit.
c. the retained earnings account will be directly increased with a debit.
d. the dividends account will be decreased with a debit.
Answer:
Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014
for $60,000.
The journal entry to record this investment includes a debit to
a. Debt Investments for $64,800.
b. Debt Investments for $60,000.
c. Cash for $60,000.
d. Stock Investments for $60,000.
Answer:
On January 2, 2015, Pine Company purchased 100% of the outstanding common shares
of Seely Company for $520,000. Any excess of cost over the book value of the net
assets of Seely Company should first be allocated to Land $55,000, and Buildings
$40,000 and any remainder to goodwill.
Instructions
(a) Complete the following worksheet below for preparing a consolidated balance sheet
on the date of acquisition. You may add accounts to the worksheet that may be
necessary.
(b) Prepare a consolidated balance sheet for Pine Company and Subsidiary on January
2, 2015.
Answer:
On January 2, 2015, Olathe Company purchased a patent for $240,000. The patent has
an 8-year estimated useful life and a legal life of 20 years.
Instructions
Prepare the journal entry to record patent amortization.
Answer:
In a multiple-step income statement, income from operations excludes other revenues
and gains and other expenses and losses.
Answer:
A decline in the fair value of a trading security is recorded by debiting an unrealized
loss account and crediting the Fair Value Adjustment account.
Answer:
On January 1, 2015, Ralph Corporation had $2,000,000 of $10 par value common stock
outstanding that was issued at par and retained earnings of $1,000,000. The company
issued 200,000 shares of common stock at $12 per share on July On December 15, the
board of directors declared a 15% stock dividend to stockholders of record on
December 31, 2015, payable on January 15, 2016. The market value of Ralph
Corporation stock was $14 per share on December 15 and $16 per share on December 3
Net income for 2015 was $500,000.
Instructions
(1) Journalize the issuance of stock on July 1 and the declaration of the stock dividend
on December 15.
(2) Prepare the stockholders’ equity section of the balance sheet for Ralph Corporation
at December 31, 2015.
Answer:
A voucher system is used by many large companies as a means of controlling cash
receipts.
Answer:
Compute the missing amount in each category of the accounting equation.
Answer:
Roxy Inc. issues a $1,500,000, 10%, 10-year mortgage note on December 31, 2015, to
obtain financing for a new building. The terms provide for semiannual installment
payments of $122,643.
Instructions
Prepare the entry to record the mortgage loan on December 31, 2015, and the first
installment payment.
Answer:
The separate balance sheets of Platt Company and its wholly owned subsidiary, Speer
Company, as of the date of acquisition are shown below.
Instructions
(Provide the amount that should appear in the Consolidated Data column for each of the
selected accounts. If the accounts should not appear in the Consolidated Data column,
indicate ‘None’. Assume that all accounts have normal balances and that Speer
Company stock was acquired for cash at a price equal to its book value.
Answer:
