For each of the following accounts indicate (a) the type of account (Asset, Liability,
Stockholders’ Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the
normal account balance.
Example
0 Cash a. Asset account
b. Debit increases, credit decreases
c. Normal balance – debit
Answer:
Presented below is an adjusted trial balance for Shawn Company, at December 31,
2015.
Instructions
[a) Prepare closing entries for December 31, 2015.
[b) Determine the balance in the Retained Earnings account after the entries have been
posted.
Answer:
For accounting purposes, postdated checks (checks payable in the future) are
considered to be
a. money orders.
b. cash.
c. petty cash.
d. accounts receivable.
Answer:
The journal entry to record the payroll for a period will include a credit to Salaries and
Wages Payable for the gross
a. amount less all payroll deductions.
b. amount of all paychecks issued.
c. pay less taxes payable.
d. pay less voluntary deductions.
Answer:
Sawyer Company uses the perpetual inventory system and the moving-average method
to value inventories. On August 1, there were 10,000 units valued at $30,000 in the
beginning inventory. On August 10, 20,000 units were purchased for $6 per unit. On
August 15, 24,000 units were sold for $12 per unit. The amount charged to cost of
goods sold on August 15 was
a. $30,000.
b. $108,000.
c. $120,000.
d. $144,000.
Answer:
Presented below are the basic assumptions and principles underlying financial
statements.
a. Historical cost principle d. Going concern assumption
b. Economic entity assumption e. Monetary unit assumption
c. Full disclosure principle f. Periodicity assumption
Identify the basic assumption or principle that is described below.
_____ 1> The economic life of a business can be divided into artificial time periods.
_____ 2> The business will continue in operation long enough to carry out its existing
objectives.
_____ 3> Assets should be recorded at their cost.
_____ 4> Economic events can be identified with a particular unit of accountability.
_____ 5> Circumstances and events that make a difference to financial statement users
should be disclosed.
_____ 6> Only transaction data that can be expressed in terms of money should be
included in the accounting records.
Answer:
Peter Johnson invests $35,516.80 now for a series of $5,000 annual returns beginning
one year from now. Peter will earn 10% on the initial investment. How many annual
payments will Peter receive?
a. 10
b. 12
c. 13
d. 15
Answer:
Yocum Company purchased equipment on January 1 at a list price of $120,000, with
credit terms 2/10, n/30. Payment was made within the discount period and Yocum was
given a $2,400 cash discount. Yocum paid $6,000 sales tax on the equipment, and paid
installation charges of $1,760. Prior to installation, Yocum paid $4,000 to pour a
concrete slab on which to place the equipment. What is the total cost of the new
equipment?
a. $125,360
b. $129,360
c. $131,760
d. $123,600
Answer:
Mehring’s 2015 financial statements contained the following data (in millions).
Instructions
Compute these values:
(a) Working capital.
(b) Current ratio.
Answer:
Under a consignment arrangement, the
a. consignor has ownership until goods are sold to a customer.
b. consignor has ownership until goods are shipped to the consignee.
c. consignee has ownership when the goods are in the consignee’s possession.
d. consigned goods are included in the inventory of the consignee.
Answer:
A loss on disposal of a plant asset is reported in the financial statements
a. in the Other Revenues and Gains section of the income statement.
b. in the Other Expenses and Losses section of the income statement.
c. as a direct increase to the capital account on the balance sheet.
d. as a direct decrease to the capital account on the balance sheet.
Answer:
Inventory turnover is computed by dividing the average inventories into
a. net sales.
b. total assets.
c. stockholders’ equity.
d. cost of goods sold.
Answer:
A company would not acquire treasury stock
a. in order to reissue shares to officers.
b. as an asset investment.
c. in order to increase trading of the company’s stock.
d. to have additional shares available to use in acquisitions of other companies.
Answer:
Glenn Company purchased merchandise inventory with an invoice price of $9,000 and
credit terms of 2/10, n/30. What is the net cost of the goods if Glenn Company pays
within the discount period?
a. $8,100
b. $8,280
c. $8,820
d. $9,000
Answer:
A ratio calculated in the analysis of financial statements
a. expresses a mathematical relationship between two numbers.
b. shows the percentage increase from one year to another.
c. restates all items on a financial statement in terms of dollars of the same purchasing
power.
d. is meaningful only if the numerator is greater than the denominator.
Answer:
Which one of the following items is not generally used in preparing a statement of cash
flows?
a. Adjusted trial balance
b. Comparative balance sheets
c. Current income statement
d. Additional information
Answer:
Company X sells $900 of merchandise on account to Company Y with credit terms of
2/10, n/30. If Company Y remits a check taking advantage of the discount offered, what
is the amount of Company Y’s check?
a. $630
b. $720
c. $810
d. $882
Answer:
Devendra Company pays cash dividends of $600. The entry for this transaction will
include a debit of $600 to
a. Dividends
b. Retained Earnings.
c. Owner’s Salaries Expense.
d. Salaries and Wages Expense.
Answer:
For the income statement, IFRS requires
a. single-step approach.
b. multiple-step approach.
c. single-step approach or multiple-step approach.
d. no specific income statement approach.
Answer:
Eight transactions are recorded in the following T-accounts:
Indicate for each debit and each credit: (a) whether an asset, liability, stockholders’
equity, revenue, or expense account was affected and (b) whether the account was
increased (+) or (‘“) decreased. Answers should be presented in the following chart
form:
Answer:
Internal controls are not designed to safeguard assets from
a. natural disasters.
b. employee theft.
c. robbery.
d. unauthorized use.
Answer:
Unicycle Company developed the following reconciling information in preparing its
September bank reconciliation:
Determine the cash balance per books (before adjustments) for Unicycle Company.
a. $2,450.
b. $7,550.
c. $9,550.
d. $17,000.
Answer:
Farr Company purchased a new van for floral deliveries on January 1, 2015. The van
cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of
its useful life. The double-declining-balance method of depreciation will be used. What
is the balance of the Accumulated Depreciation account at the end of 2016?
a. $8,960
b. $26,880
c. $35,840
d. $13,440
Answer:
The three primary accounting problems with accounts receivable are: (1) recognizing,
(2) depreciating, and (3) disposing.
Answer:
Blue Guitar Music School borrowed $30,000 from the bank signing an 8%, 6-month
note on November 1. Principal and interest are payable to the bank on May 1. If the
company prepares monthly financial statements, what adjusting entry should the
company make at November 30 with regard to the note (round answer to the nearest
dollar)?
Answer:
The ______________ method tracks the actual physical flow of each unit of inventory
available for sale; however, management may be able to manipulate ______________
by using this method.
Answer:
Before month-end adjustments are made, the February 28 trial balance of Neutral Milk
Hotel contains revenue of $7,000 and expenses of $4,400. Adjustments are necessary
for the following items:
ï€ Depreciation for February is $1,800.
ï€ Revenue recognized but not yet billed is $2,700.
ï€ Accrued interest expense is $700.
ï€ Revenue collected in advance that is now recognized is $2,500.
ï€ Portion of prepaid insurance expired during February is $400.
Instructions
Calculate the correct net income for Neutral Milk Hotel’s Income Statement for
February.
Answer:
If a company changes its inventory valuation method, the effect of the change on net
income should be disclosed in the financial statements.
Answer:
Bonds are a form of interest-bearing notes payable.
Answer:
The first step in preparing a worksheet is to prepare a ______________ from the
general ledger accounts.
Answer:
Identify which principle of internal control is being followed in each of the following
cases.
1> Warehouse employees do not have access to the accounting records.
2> Prenumbered shipping documents are prepared for each shipment of goods.
3> The locked warehouse is accessible only by warehouse employees with keys.
Answer:
Common Stock Dividends Distributable is reported as additional paid-in capital in the
stockholders’ equity section.
Answer: