Sargent Corporation bought equipment on January 1, 2015. The equipment cost
$360,000 and had an expected salvage value of $60,000. The life of the equipment was
estimated to be 6 years. Assuming straight-line deprecation, the book value of the
equipment at the beginning of the third year would be
a. $360,000.
b. $150,000.
c. $260,000.
d. $100,000.
Answer:
Liabilities
a. are future economic benefits.
b. are existing debts and obligations.
c. possess service potential.
d. are things of value used by the business in its operation.
Answer:
Each of the following is an example of a significant noncash activity except
a. conversion of bonds into common stock.
b. exchanges of plant assets.
c. issuance of debt to purchase assets.
d. stock dividends.
Answer:
Presented below are selected transactions of Palmer Company. Palmer sells in large
quantities to other companies and also sells its product in a small retail outlet.
Instructions
(a) Prepare journal entries for the transactions above.
(b) What is the balance from credit card transactions in Accounts Receivable after the
April 10 transaction?
Answer:
If a check correctly written and paid by the bank for $427 is incorrectly recorded on the
company’s books for $472, the appropriate treatment on the bank reconciliation would
be to
a. add $45 to the bank’s balance.
b. add $45 to the book’s balance.
c. deduct $45 from the bank’s balance.
d. deduct $427 from the book’s balance.
Answer:
IFRS allows companies to revalue plant assets to fair value. When an asset has
increased in value, where is the account ‘Revaluation Surplus’ reported?
a. On the income statement as part of income from continuing operations (other
revenues and gains).
b. On the income statement as part of discontinued operations (discontinuing historical
cost).
c. On the statement of financial position as part of accumulated comprehensive income
(equity).
d. All of the choices are acceptable methods for the reporting of ‘Revaluation Surplus’.
IFRS:
Answer:
The first step in posting involves
a. entering in the appropriate ledger account the date, journal page, and debit amount
shown in the journal.
b. writing in the journal the account number to which the debit amount was posted.
c. writing in the journal the account number to which the credit amount was posted.
d. entering in the appropriate ledger account the date, journal page, and credit amount
shown in the journal.
Answer:
In 2015 Rome Corporation reported net income $190,000, interest expense $60,000,
and income tax expense $40,000. Rome’s times interest earned ratio was:
a. 4.2 times.
b. 3.8 times.
c. 3.2 times.
d. 4.8 times.
Answer:
A sales journal is used to record
a. only cash sales of merchandise.
b. sales of all assets on credit and for cash.
c. only credit sales of merchandise.
d. credit sales of merchandise, sales returns and allowances, and sales discounts.
Answer:
When three or more accounts are required in one journal entry, the entry is referred to
as a
a. compound entry.
b. triple entry.
c. multiple entry.
d. simple entry.
Answer:
The cost of land does not include
a. real estate brokers’ commission.
b. annual property taxes.
c. accrued property taxes assumed by the purchaser.
d. title fees.
Answer:
Sleep Corporation was organized on January 1, 2014. During its first year, the
corporation issued 40,000 shares of $5 par value preferred stock and 400,000 shares of
$1 par value common stock. At December 31, the company declared the following cash
dividends:
Instructions
(a) Show the allocation of dividends to each class of stock, assuming the preferred stock
dividend is 4% and not cumulative.
(b) Show the allocation of dividends to each class of stock, assuming the preferred
stock dividend is 6% and cumulative.
(c) Journalize the declaration of the cash dividend at December 31, 2016 using the
assumption of part (b).
Answer:
Stengel company sells a snowboard, WhiteOut, that is popular with snowboard
enthusiasts. Presented below is information relating to Stengel Company’s purchases of
WhiteOut snowboards during September. During the same month, 124 WhiteOut
snowboards were sold at $160 each. Stengel company uses a periodic inventory system.
Instructions
(a) Compute the ending inventory at September 30 and cost of goods sold using the
FIFO and LIFO method. Prove the amount allocated to cost of goods sold under each
method.
(b) For both FIFO and LIFO, calculate the sum of inventory and cost of goods sold.
What do you notice about the answer you found for each method?
(c) What is gross profit under each method?
(d) Which method results in a larger amount reported for assets on the balance sheet?
Which results in a larger amount reported for stockholders’ equity on the balance sheet?
Answer:
Farmer Company reports the following amounts for 2015:
The 2015 rate of return on common stockholders’ equity is
a. 30.0%.
b. 24.0%.
c. 27.0%.
d. 33.8%.
Answer:
On a balance sheet, natural resources may be described more specifically as all of the
following except
a. land improvements.
b. mineral deposits.
c. oil reserves.
d. timberlands.
Answer:
Use the accounting equation to answer the following questions.
1> Picaresque Sails Co. has total assets of $140,000 and total liabilities of $45,000.
What is stockholders’ equity?
2> The Natenal Fun Center has total assets of $225,000 and stockholders’ equity of
$100,000. What are total liabilities?
3> Okkervil River Restaurant has total liabilities of $50,000 and stockholders’ equity of
$100,000. What are total assets?
Answer:
The specific identification method of costing inventories tracks the actual physical flow
of the goods available for sale.
Answer:
The operating activities section of the statement of cash flows may be prepared using
the ______________ method or the ______________ method.
Answer:
Current maturities of long-term debt are often identified as long-term debt due within
one year on the balance sheet.
Answer:
An _______________ is a record of increases and decreases in specific assets,
liabilities, and stockholders’ items.
Answer:
For each of the following items, indicate by using the appropriate code letter, how the
item should be reported in the statement of cash flows, using the indirect method.
A> Added to net income
B> Deducted from net income
C> Cash outflow’”investing activity
D> Cash inflow’”investing activity
E> Cash outflow’”financing activity
F> Cash inflow’”financing activity
G> Significant noncash investing and financing activity
____ 1> Decrease in accounts payable during a period
____ 2> Declaration and payment of a cash dividend.
____ 3> Loss on sale of land.
____ 4> Decrease in accounts receivable during a period.
____ 5> Redemption of bonds for cash.
____ 6> Proceeds from sale of equipment at book value.
____ 7> Issuance of common stock for cash.
____ 8> Purchase of a building for cash.
____ 9> Acquisition of land in exchange for common stock.
____ 10> Increase in merchandise inventory during a period.
Answer:
Six internal control principles related to cash transactions are discussed in the textbook.
These inciples, with code letters, are:
Instructions: Match the above principles to the following applications related to cash
receipts and cash disbursements by placing the code in the space provided. Each code
letter can be used once, more than once, or not at all.
1> The duties of receiving and recording cash should be assigned to different
individuals.
2> Daily cash counts should be made by cashier department supervisors.
3> Employees should be required to take vacations.
4> Cash register tapes should be used for over-the-counter receipts.
5> Each check should be compared with approved invoices before being issued.
6> The duties of approving an item for payment and paying the item should be
performed by different individuals.
7> All checks should be prenumbered.
8> Only the treasurer should be authorized to sign checks.
9> All personnel who handle cash should be bonded.
10> Blank checks should be stored in a safe, and access should be restricted.
Answer: