When the amount received for the bond is less than the face value, the difference is
written off over time in an account called Premium on Bonds Payable.
Nominal accounts are called temporary accounts because their balances are carried
forward to the next accounting period.
Sales tax collected by the seller is not included in the seller’s total revenue.
A company should use the specific invoice method to value items such as automobiles
for retail sale.
A corporation shares its profits with stockholders in the form of dividends.
The Accounts Receivable and Accounts Payable are both controlling accounts.
Mutual agency means that the act of a single partner is binding on all the other partners.
The four parts of owner’s equity include capital, withdrawals, revenue, and expenses.
Cost of goods available for sale is equal to beginning inventory + Operating Expense.
To calculate departmental gross profit, separate accounts should be set up for Sales,
Purchases, etc., for each department.
On the formal income statement, the left column is the debit column, and the right
column is the credit column.
The balance in the Wages and Salaries Expense account is equal to net pay.
The controlling account is found in the subsidiary ledger for all accounts payable.
After posting adjusting entries, the temporary accounts will be set back to zero.
Work in Process inventory includes the total costs of manufacturing a product.
Generally, employers can take a credit against the FUTA tax for contributions paid into
the state unemployment funds.
A building’s depreciation would be considered an indirect expense.
A shop foreman’s salary is not considered indirect labor.
Accounts receivable decrease on the debit side of the account.
Accounts receivable turnover is calculated by dividing gross sales by the average gross
amount of accounts receivable.
Partial payments of an original voucher require new vouchers for each approved
payment.
If a company had a beginning balance of $8,000 in Finished Goods Inventory, an
ending balance of $5,000 in Finished Goods Inventory and cost of goods manufactured
was $47,000 during the month, then the cost of goods sold for the month was $44,000.
When the adjustment is made for depreciation, both the Depreciation Expense account
and Accumulated Depreciation account are increased.
The bill of lading is a formal document issued to the carrier for shipping the finished
product to a customer.
The reasons for changes in key ratios must be analyzed before drawing conclusions.
The adjusting entry to record rental income that is earned would involve a debit to
Rental Income and a credit to Unearned Rent Revenue.
When bonds are retired, the Bonds Payable account is credited for face value even if the
bonds were originally sold at a premium.
An employer must always use a calendar year for payroll purposes.
A company would rarely sell its stock for below par value.
The use of a payroll register to record a company’s payroll is not optional.
Finished Goods Inventory is credited when products are sold and debited when the
products are transferred from Work-in-Process Inventory.
FICA-Medicare provides for medical benefits after age 65.
For notes payable issued in one period and due in the next period, accrued interest
payable must be recorded at the end of the first period.
The specific identification method is a compromise between LIFO and FIFO.
Indirect expenses are not the same across departments and industries.
The amount of supplies used during the period would be shown in the adjustment
columns of the worksheet.
When a partnership is worth more than the amounts recorded, an incoming partner may:
A) be required to pay a bonus to the other partners.
B) pay a smaller amount as an initial investment.
C) have to pay the same as other partners.
D) None of these answers is correct.
Big Toy Corporation’s records show net income of $20,000; depreciation expense of
$10,000; and cash dividends declared and paid of $4,000. The amount of cash provided
by operating activities using the indirect method is:
A) $40,000.
B) $30,000.
C) $20,000.
D) $10,000.
Carolina Company sold a machine for $13,000 cash, which had an original cost of
$19,000 and accumulated depreciation of $6,000. The amount of cash provided by this
sale is:
A) $12,000.
B) $13,000.
C) $18,000.
D) $19,000.
When an asset is exchanged for a similar asset and a gain results, under accounting
rules the gain is:
A) credited to Gain on Exchange of an Asset.
B) recorded in the other income section of the income statement.
C) absorbed into the cost of the new asset.
D) subtracted from the cost of the new asset.
Which of the following items should be included in merchandise inventory?
A) Supplies on hand
B) Goods that have been consigned to another company
C) Goods in transit shipped to another company FOB destination
D) Both B and C
The business failed to close any of the revenue accounts. The result of this error is that:
A) revenues will be understated.
B) capital will be understated.
C) the assets will be overstated.
D) the liabilities will be overstated.
The adjusting entry to record the expired rent would be to:
A) debit Prepaid Rent; credit Rent Expense.
B) debit Cash; credit Prepaid Rent.
C) debit Prepaid Rent; credit Cash.
D) debit Rent Expense; credit Prepaid Rent.
Smith Company has the following account balances:
Calculate Smith Company’s current ratio.
A) 8.0
B) 7.6
C) 2.0
D) 16.0
Ryan withdrew cash from the business to pay his personal cell phone bill. The expanded
accounting equation changes include:
A) increase in both Cash and Withdrawals.
B) decrease in both Cash and Withdrawals.
C) decrease in Cash and increase in Withdrawals.
D) increase in Cash and decrease in Withdrawals.
An error, on the company’s books, in recording a $72 deposit as $27 would be included
on the bank reconciliation as a(n):
A) addition to the balance per bank.
B) subtraction from the balance per bank.
C) addition to the balance per books.
D) subtraction from the balance per books.
Kate and Joe formed a partnership in 2013. Joe invested $80,000 and Kate invested
$50,000. The partnership had $100,000 in income during 2015. There is no agreement
as to how income is divided. Kate and Joe’s share is:
A) Kate gets $100,000 and Joe gets $50,000.
B) Kate gets $50,000 and Joe gets $100,000.
C) Kate gets $50,000 and Joe gets $50,000.
D) some other division.
The adjustment for factory depreciation expense was ignored. This error will cause:
A) the cost of goods manufactured to be overstated.
B) the cost of goods sold to be understated.
C) the net income to be understated.
D) Answers A and C are correct.
Which analysis deals with comparing items in a financial report by expressing each
item as a percentage of a certain base total?
A) Vertical analysis
B) Ratio analysis
C) Trend analysis
D) Common-size statement
The amount shown in the adjustments credit column for Merchandise Inventory on the
worksheet is:
A) beginning inventory.
B) ending inventory.
C) total purchases.
D) Cost of Goods Sold.
Crystal Clear Imagery received and paid a utility bill for $300 for the month of
November. This transaction will:
A) increase Cash and increase Utility Expense.
B) decrease Cash and increase Utility Expense.
C) increase Cash and decrease Utility Expense.
D) increase Utility Expense and decrease revenue.
Endorsing a check:
A) guarantees payment.
B) transfers the right to deposit or transfer cash.
C) allows a check to be deposited only.
D) All of these answers are correct.
The debit recorded in the journal to establish the petty cash fund is to:
A) Cash.
B) Petty Cash.
C) Capital.
D) Accounts Payable.
If the owner of Pague Legal Services forgot to deduct a withdrawal from the balance
per books, what entry would be necessary?
A) Debit Cash; credit Withdrawals
B) Debit Withdrawals; credit Cash
C) Customer collection taken by the bank
D) Debit cash; credit Revenue
Which depreciation method does NOT use the current book value in calculating
depreciation expense?
A) Straight-line
B) Double declining-balance
C) Units-of-production
D) Both A and C
The work-in-process beginning inventory was understated. This error will cause:
A) the cost of goods manufactured to be overstated.
B) the cost of goods sold to be overstated.
C) the net income to be overstated.
D) Answers B and C are correct.
The first entry to adjust Merchandise Inventory includes:
A) a debit to Merchandise Inventory.
B) a credit to Merchandise Inventory.
C) a credit to Income Summary.
D) a credit to purchases.
All permanent accounts can be found:
A) on the Income Statement.
B) on the Statement of Owner’s Equity.
C) on the Balance Sheet.
D) Permanent accounts do not appear on the financial statements.
Robert purchased a truck for $50,000 with a residual value of $20,000 and a life
expectancy of 5 years; using straight-line depreciation, the amount of the depreciation
adjustment for the first year would be:
A) $5,000.
B) $6,000.
C) $6,400.
D) $4,000.
On the balance sheet, the liability for vouchers will be:
A) Vouchers Payable.
B) Accounts Payable.
C) Invoices Payable.
D) None of these answers is correct.
Raw material inventory appears on the:
A) balance sheet.
B) income statement.
C) cost of goods manufactured statement.
D) Both A and C are correct.
Tangible assets include:
A) building.
B) equipment.
C) land.
D) All of the above are correct.
A debit memorandum increases which account on the seller’s books?
A) Accounts Payable
B) Purchases Returns and Allowances
C) Sales Discount
D) Accounts Receivable
The process of writing off a natural resource is:
A) depreciation.
B) depletion.
C) amortization.
D) None of these answers is correct.
Conner Sales’ total assets and total liabilities increased $600. The transaction could
have been:
A) purchase of supplies for cash, $400.
B) purchase of supplies for $800 with a down payment of $200 and the remainder on
account.
C) paid the rent for the month, $700.
D) None of these answers is correct.
Direct expenses are those expenses that:
A) can be identified with a specific department.
B) cannot be identified with a specific department.
C) can be identified with more than one department.
D) None of these answers is correct.
A debit may signify a(n):
A) increase in asset accounts.
B) increase in liability accounts.
C) increase in the revenue account.
D) decrease in expense accounts.
Unearned Rent is what type of account?
A) Asset
B) Revenue
C) Liability
D) Expense
Madison Corporation is authorized to issue 3,000 shares of common stock. Record the
journal entry for each of the following independent situations. Assume Madison issues
1,000 shares at $15 on August 31.
a) Common stock has a $10 per share par value.
b) Common stock has no par value and no stated amount.
c) Common stock is no-par stock with a stated value of $8 per share.
Which of the below allowances would have the most amount of taxes withheld for
federal income tax purposes?
A) S-1
B) S-0
C) S-3
D) S-2
The accrual for the direct labor at the end of the year was not prepared. This error will
cause:
A) the cost of goods manufactured to be overstated.
B) the cost of goods sold to be overstated.
C) the net income to be understated.
D) None of these answers is correct.
Prepare a statement of retained earnings in proper form for White Corporation for the
year ended December 31, 20XX, from the following:
Retained Earnings, January 1, 20XX $5,000
Dividends declared during the year 1,800
Net income for the year 4,000
Correction of prior year error. Purchase
of land recorded as rent expense 500
What is the purpose of the Fair Labor Standards Act?
Calculate the missing figures (a-k) in each of the following independent scenarios.
When completing a bank reconciliation, explain why all adjustments to the checkbook
balance require journal entries?
Prepare an income statement showing departmental contribution margin based on the
following:
Dept. X Dept.
Y Rent Expense
Space (square feet) 17,500 35,000
Net Sales $60,000 $40,000
Cost of Goods Sold 18,000 16,000
Rent Expense (allocated based on square
feet) $2,700
Determine the beginning owner’s equity of a business having beginning assets of $9,000
and ending liabilities of $3,000. During the year the liabilities decreased by $1,000.
$ ________
For each of the following, identify in Column 1 the balance the account will have in the
adjusted trial balance columns (debit or credit), in Column 2 the financial statement
column(s) in which the account balance will be found (income statement or balance
sheet), and in Column 3 the effect the account will have on the determination of net
income (increase, decrease, or none).
What is the difference between Bookkeeping and Accounting?
Kristi’s Mentoring had the following information for the pay period ending September
30:
Assume:
FICA-OASDI applied to the first $117,000 at a rate of 6.2%.
FICA-Medicare applied at a rate of 1.45%.
FUTA applied to the first $7,000 at a rate of 0.8%.
SUTA applied to the first $7,000 at a rate of 5.6%.
State income tax is 3.8%.
Employees contribute to their retirement fund at a rate of 5.5% of their gross earnings
Compute the total federal income tax.
Using the following accounts:
[1] Cash
[2] Bond Sinking fund
[3] Equipment
[4] Building
[5] Land
[6] Accounts payable
[7] Notes payable
[8] Bond payable
[9] Bond interest payable
[10] Premium on bonds payable
[11] Discount on bonds payable
[12] Common stock
[13] Retained earnings
[14] Sinking fund earned
[15] Bond interest expense
[16] Gain on retirement
[17] Loss on retirement
Indicate the account(s) to be debited and credited to record the following transactions.
Deposited cash in a bond sinking fund.
Debit ________ Credit ________
For each of the following, identify in Column 1 the category to which the account
belongs, in Column 2 the normal balance for the account, in Column 3 the financial
statement on which the account balance is reported, and in Column 4 the account’s
nature (permanent/temporary).
Using the following accounts:
[1] Cash
[2] Subscription receivable-common stock
[3] Machinery
[4] Building
[5] Land
[6] Organization costs
[7] Preferred stock
[8] Common stock
[9] Paid in capital in excess of par value – preferred
[10] Paid in capital in excess of par value – common
[11] Common stock subscribed
[12] Discount on common stock
[13] Organization Expense
Indicate the account(s) to be debited and credited to record the following transaction.
Exchanged common stock for a building and land when the stock was selling at a
discount.
Debit ________ & ________ & ________ Credit ________
Determine the estimated net realizable (collectable) value:
Bad debts are estimated to be 1% of receivables
Accounts receivable balance $880,920
Allowance for bad debts balance (debit) $1,809
Sales net value $6,500,000
$ ________
For each of the following items, indicate by placing an X in the appropriate column
whether it is a measure of: (column 1) liquidity, (column 2) asset management, (column
3) debt, or (column 4) profitability.
To determine the bond interest expense using interest method, the computation is the
________ value times the ________ of interest.
List the various steps and procedures included in the bank reconciliation process.
What are the advantages in preparing a monthly bank reconciliation?
Kristi’s Mentoring had the following information for the pay period ending September
30:
Assume:
FICA-OASDI applied to the first $117,000 at a rate of 6.2%.
FICA-Medicare applied at a rate of 1.45%.
FUTA applied to the first $7,000 at a rate of 0.8%.
SUTA applied to the first $7,000 at a rate of 5.6%.
State income tax is 3.8%.
Employees contribute to their retirement fund at a rate of 5.5% of their gross earnings
Compute the total regular earnings.
Scott Moore is considering accepting a $10,000, 60-day, 12% promissory note from
Cory Gregor to extend additional time to settle a past-due account. Discuss some of the
reasons why Moore would accept a promissory note from Cory Gregor.
Alpha-Omega Industries has 30,000 shares of $12 par common stock and 15,000 shares
of $50 par, 5% preferred stock outstanding. Total dividends available are $162,000.
Compute the dividends to be distributed to preferred and common stockholders under
the following condition.
The preferred stock is participating and cumulative with no dividends distributed last
year.