Which one of the following ratios would not likely be used by a short-term creditor in
evaluating whether to sell on credit to a company?
a. Current ratio
b. Acid-test ratio
c. Asset turnover
d. Accounts receivable turnover
Answer:
The following section is taken from Blue Corp’s balance sheet at December 31, 2014.
Interest is payable semiannually on January 1 and July 1. The bonds are callable on any
interest date.
Instructions
(a) Journalize the payment of the bond interest on January 1, 2015.
•Assume that on January 1, 2015, after paying interest, Blue calls bonds having a
face value of $600,000. The call price is 106. Record the redemption of the bonds.
•Prepare the entry to record the payment of interest on July 1, 2015, assuming no
previous accrual of interest on the remaining bonds.
•
Answer:
Detailed records of goods held for resale are not maintained under a
a. perpetual inventory system.
b. periodic inventory system.
c. double entry accounting system.
d. single entry accounting system.
Answer:
In a perpetual inventory system, the amount of the discount allowed for paying for
merchandise purchased within the discount period is credited to
a. Inventory.
b. Purchase Discounts.
c. Purchase Allowance.
d. Sales Discounts.
Answer:
A credit sale of $4,000 is made on April 25, terms 2/10, n/30, on which a return of $250
is granted on April 28. What amount is received as payment in full on May 4?
a. $3,675
b. $3,750
c. $3,920
d $4,000
Answer:
In the month of November, Kinsey Company Inc. wrote checks in the amount of
$27,750. In December, checks in the amount of $37,974 were written. In November,
$25,404 of these checks were presented to the bank for payment, and $32,649 were
presented in December. What is the amount of outstanding checks at the end of
December?
a. $2,346
b. $7,245
c. $7,671
d. $10,224
Answer:
Equipment was purchased for $300,000. Freight charges amounted to $14,000 and there
was a cost of $40,000 for building a foundation and installing the equipment. It is
estimated that the equipment will have a $60,000 salvage value at the end of its 5-year
useful life. Depreciation expense each year using the straight-line method will be
a. $70,800.
b. $58,800.
c. $49,200.
d. $48,000.
Answer:
A measure of the percentage of each dollar of sales that results in net income is
a. profit margin.
b. return on assets.
c. return on common stockholders’ equity.
d. earnings per share.
Answer:
Realistic Corporation’s December 31, 2015 balance sheet showed the following:
Realistic’s total paid-in capital was
a. $43,760,000.
b. $44,390,000.
c. $43,130,000.
d. $24,060,000.
Answer:
The final step in solving an ethical dilemma is to
a. identify and analyze the principal elements in the situation.
b. recognize an ethical situation.
c. identify the alternatives and weigh the impact of each alternative on stakeholders.
d. recognize the ethical issues involved.
Answer:
A debit is not the normal balance for which of the following?
a. Asset account
b. Dividends account
c. Expense account
d. Common stock account
Answer:
Dividends Payable is classified as a
a. long-term liability.
b. contra stockholders’ equity account to Retained Earnings.
c. current liability.
d. stockholders’ equity account.
Answer:
Diane Lane earns a salary of $9,500 per month during the year. FICA taxes are 7.65%
on the first $110,100 of gross earnings and 45% in excess of $110,100. Federal
unemployment insurance taxes are 6.2% of the first $7,000; however, a credit is
allowed equal to the state unemployment insurance taxes of 5.4% on the $7,000. During
the year, $32,300 was withheld for federal income taxes and $6,700 was withheld for
state income taxes.
Instructions
(a) Prepare a journal entry summarizing the payment of Lane’s total salary during the
year.
(b) Prepare a journal entry summarizing the employer payroll tax expense on Lane’s
salary for the year.
(c) Determine the cost of employing Lane for the year.
Answer:
Engler Company purchases a new delivery truck for $55,000. The sales taxes are
$4,000. The logo of the company is painted on the side of the truck for $1,600. The
truck license is $160. The truck undergoes safety testing for $290. What does Engler
record as the cost of the new truck?
a. $61,050
b. $60,890
c. $59,000
d. $60,600
Answer:
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the
option of the issuer are called
a. callable bonds.
b. early retirement bonds.
c. options.
d. debentures.
Answer:
The balances that appear on the post-closing trial balance will match the
a. income statement account balances after adjustments.
b. balance sheet account balances after closing entries.
c. income statement account balances after closing entries.
d. balance sheet account balances after adjustments.
Answer:
A credit sale of $3,600 is made on July 15, terms 2/10, n/30, on which a return of $200
is granted on July 18. What amount is received as payment in full on July 24?
a. $3,332
b. $3,440
c. $3,528
d $3,600
Answer:
Indicate where the event purchase of land and a building with a mortgage would appear,
if at all, on the indirect statement of cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow
Answer:
A $10,000, 6%, 5-year note payable that pays interest quarterly would be discounted
back to its present value by using tables that would indicate which one of the following
period-interest combinations?
a. 5 interest periods, 6% interest
b. 20 interest periods, 6% interest
c. 20 interest periods, 1.5% interest
d. 5 interest periods, 1.5% interest
Answer:
Kingery Sales Company has the following selected accounts after posting adjusting
entries:
Instructions
Prepare the current liability section of Kingery Sales Company’s balance sheet,
assuming $16,000 of the mortgage is payable next year.
Answer:
The following information is available for Redcands Company:
Instructions
Based on the preceding information, compute the net cash provided by operating
activities.
Answer:
Using the indirect method, an increase in accounts payable during a period is deducted
from net income in calculating cash provided by operations.
Answer:
Receivables are valued and reported in the balance sheet at their gross amount less any
sales returns and allowances and less any cash discounts.
Answer:
A company that owns more than 50% of the common stock of another company is
known as the ______________ company and _____________ financial statements are
usually prepared.
Answer:
An employee’s time card is used to record the number of exemptions claimed by the
employee for income tax withholding purposes.
Answer:
A bookkeeping student has come to you for tutoring on the recording process. She is
confused about the relationship between the chart of accounts and the ledger. Explain
the purpose of the chart of accounts and the general ledger. In your explanation indicate
the relationship between these two items as well.
Answer:
Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1.
Givens Brick Company signs a $600,000, 8%, 9-month note. What is the adjusting
entry required if Givens Brick Company prepares financial statements on June 30?
Answer:
Distinguish among the three types of activities reported in the statement of cash flows
The three activities are:
Answer:
The monetary unit assumption states that transactions that can be measured in terms of
money should be recorded in the accounting records.
Answer: