When preparing the statement of cash flows using the indirect method, a loss on the
sale of plant assets must be shown as a subtraction from the investing activities section.
Any portion of a long-term liability that is due with the next year is reported as a
current liability.
In a period of rising costs, the first-in, first-out (FIFO) method results in a higher cost of
goods sold and a lower gross profit than the last-in, first-out (LIFO) method.
Under U.S. GAAP, plant assets are reported at book value on the balance sheet.
The income tax column in a payroll register includes the corporate tax owed by the
corporation.
A profitable corporation may make distributions to stockholders in the form of bonuses.
If the bank reconciliation includes a deposit in transit, a journal entry is required that
includes a debit to Cash.
Since a company usually does not know the amount of the year-end bonus at year-end,
the company estimates the amount of the bonus based on a percentage.
On the statement of cash flows, investing activities include purchases of land and
equipment with the issuance of a note payable.
The time period concept assumes that the activities of a business can be sliced into
small time segments and that financial statements can be prepared for specific periods
of time.
The asset turnover ratio is calculated by dividing cost of goods sold by average total
assets.
Under cash basis accounting, revenue is recorded when it is earned, regardless of when
cash is received.
Cost of Goods Sold is based on the company’s cost, not the retail price.
In the case of a deferred expense, the adjusting entry required at the end of a period will
consist of a credit to the Prepaid Expense account. Assume the deferred expense was
initially recorded as an asset.
Assets are something of value that the business owns or has control of.
Regardless of the type of plant asset disposal, the first step is to bring the depreciation
up to date.
The statement of cash flows is the link between the accrual-based income statement and
the cash reported on the balance sheet.
Because customers make payments on account throughout the period, the sum of all
balances in subsidiary accounts receivable will not equal the control account balance.
An accounting information system collects, records, stores, and processes accounting
data to produce information that is useful for decision makers.
The issue price of a bond—whether it is issued at par, premium, or discount—has an
effect on the principal repayment at maturity.
FASB requires that earnings per share be reported on the income statement.
International Financial Reporting Standards are comparatively more specific and more
rule-based than U.S. GAAP.
City Market, a small-scale grocer, wants to introduce an inventory system to track its
inventory. The cash registers are not computer terminals. The perpetual inventory
system is most suitable for its operations.
A very low cash ratio does not send a strong message to investors and creditors that the
company has the ability to repay its short-term debt.
Inventory turnover measures the number of times a company sells its average level of
merchandise inventory during a period.
A corporation purchased office supplies on account. As a result of this transaction,
expenses and liabilities will increase.
FICA tax is paid by the employee only and is deducted from gross earnings.
The Merchandise Inventory account is an expense account that is used for goods
purchased that the business owns and intends to resell to customers, as well as for
purchases of office supplies and equipment.
An invoice is a request for payment from the purchaser.
The cash receipts journal is a special journal used to record business transactions
involving cash receipts and credit sales.
The percent-of-sales method calculates bad debts expense as a percentage of net credit
sales.
On January 1, 2018, Statewide Sales issued $29,000 in bonds for $20,700. These are
six-year bonds with a stated rate of 12% and pay semiannual interest. Statewide Sales
uses the straight-line method to amortize the Bond Discount. Immediately after the
issue of the bonds, the ledger balances appeared as follows:
Bonds Payable
Discount on Bonds Payable
After the second interest payment on December 31, 2018, what is the balance of Discount
on Bonds Payable? (Round any intermediate calculations to two decimal places, and your
final answer to the nearest dollar.)
A) debit of $7608
B) debit of $8992
C) debit of $6917
D) credit of $8300
Which of the following statements about internal control is true?
A) Internal auditors ensure that the employees follow company policies.
B) The treasurer and controller have the same responsibilities.
C) External auditors are employees of the company they audit.
D) The internal control procedures are known as the “tone at the top.”
Which of the following is true of the comparison between equity securities and debt
securities?
A) Debt securities represent stock ownership in a company whereas equity securities
represent a credit relationship with the company.
B) Equity securities may earn dividend revenue whereas debt securities earn interest
revenue.
C) Neither debt securities nor equity securities mature at a stated date.
D) Both debt securities and equity securities pay interest.
Regarding the direct and indirect methods of preparing the statement of cash flows,
which of the following statements is true?
A) The indirect method and the direct method will produce a different amount of net
cash provided by investing activities.
B) The indirect method starts with net income and adjusts it to net cash provided by
(used for) operating activities.
C) The direct and indirect methods include different types of cash flows in the investing
activities section.
D) The indirect method includes all non-cash activities, whereas the direct method
includes only the cash activities.
The Gain on Disposal of Equity Investment is a(n) ________.
A) unrealized gain
B) contra revenue
C) element of other comprehensive income
D) temporary equity account
The maturity value of a note is the ________.
A) principal amount minus interest due at maturity
B) principal amount plus interest due at maturity
C) face amount of the note
D) principal amount times the interest rate
Which of the following is an issue that must be addressed in the internal controls for
e-commerce?
A) burglar alarms
B) tone at the top
C) phishing expeditions
D) need for outside auditors
The date on which the principal amount is repaid to the bondholder is known as the
________.
A) issuing date
B) interest date
C) maturity date
D) installment date
Which of the following accounting principles does NOT help to explain the timing and
recognition of revenues and expenses?
A) time period concept
B) revenue recognition principle
C) economic entity concept
D) matching principle
In reconciling a bank statement, the bank balance is $1,500, and the checkbook balance
is $2,105. Which of the following is the most probable reason for the checkbook
balance being larger than the bank balance?
A) The bank has not cleared certain outstanding checks.
B) The bank has added interest revenue to the account balance.
C) A deposit in transit was made at the end of the month.
D) The bank received an EFT from a customer.
Superstar Corporation reported the following equity section on its current balance sheet.
The common stock is currently selling for $12.00 per share.
What would be the total stockholders’ equity after a 15% common stock dividend?
A) $1,073,700
B) $705,000
C) $1,007,000
D) $604,200
Megastar Corporation reported the following equity section on its current balance sheet.
The common stock is currently selling for $18.25 per share.
What would be the balance in the Common Stock account after the issuance of a 10%
stock dividend?
A) $334,000
B) $604,800
C) $739,200
D) $672,000
The following information is from the 2019 records of Albert Book Shop:
Bad debts expense is estimated by the aging-of-receivables method. Management
estimates that $5,100 of accounts receivable will be uncollectible. Calculate the amount of
bad debts expense for 2019.
A) $6,900
B) $7,100
C) $3,100
D) $5,350
Rearranging plain-text messages by a mathematical process is known as ________.
A) password
B) phishing
C) encryption
D) virus
The accountant of Newton Legal Services failed to make an adjusting entry for supplies
that had been used for the year. Assume the supplies were initially recorded as an asset.
Which of the following statements is true?
A) The total liabilities will be overstated.
B) The equity will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry
to record this cash receipt would include a ________. The company uses a liability
account for revenue received in advance.
A) credit to Accounts Payable for $5,000
B) debit to Prepaid Expenses for $5,000
C) credit to Unearned Revenue for $5,000
D) debit to Note Payable for $5,000
Interest revenue earned on held-to-maturity debt investments is reported on the income
statement in the ________ section.
A) other income and expenses
B) current assets
C) operating income
D) noncontrolling interest
Which of the following is used to see how a company’s operating expenses, as a
percentage of net sales, have changed from one year to the next?
A) vertical analysis
B) horizontal analysis
C) ratio analysis
D) analysis of internal control system
Which of the following statements is true of the worksheet?
A) The worksheet is a tool that takes the place of financial statement preparation.
B) The worksheet is a document used to summarize data to prepare financial
statements.
C) The worksheet is a financial statement issued to the public to communicate the
financial results of a company.
D) The worksheet is a type of journal.
The price/earnings ratio shows the ________.
A) dividend yield of the company
B) market price of $1 of earnings
C) proportion of total assets financed by debt
D) value that the stock market places on the dividends paid by the company
The bank recorded a $3,000 deposit as $300. How would this information be included
on the bank reconciliation?
A) a deduction on the bank side
B) a deduction on the book side
C) an addition on the book side
D) an addition on the bank side
On January 1, 2018, Sanderson, Inc. acquired a machine for $1,110,000. The estimated
useful life of the asset is five years. Residual value at the end of five years is estimated
to be $91,000. What is the book value of the machine at the end of 2019 if the company
uses the straight-line method of depreciation?
A) $666,000
B) $702,400
C) $611,400
D) $665,996
Regarding T-accounts, which of the following statements is correct?
A) A T-account is a more detailed form of an account in the journal.
B) The right side of a T-account is a debit for asset accounts and a credit for equity
accounts.
C) Debits are posted on the right side of the vertical line.
D) A T-account is a summary device with credits posted on the right side of the vertical
line.
Which of the following is required to be deducted from employees’ paychecks?
A) federal income tax
B) SUTA
C) FUTA
D) charitable contributions
Which of the following statements is true of revenues?
A) Revenues decrease equity, so a revenue account’s normal balance is a credit balance.
B) Revenues decrease equity, so a revenue account’s normal balance is a debit balance.
C) Revenues increase equity, so a revenue account’s normal balance is a debit balance.
D) Revenues increase equity, so a revenue account’s normal balance is a credit balance.
Venus Corp. sold goods, with a selling price of $17,221, for cash. The state sales tax
rate is 8%. What amount is credited to the Sales Revenue account? (Round calculations
to the nearest dollar.)
A) $17,221
B) $18,599
C) $1378
D) $15,843
A company purchased 300 units for $20 each on January 31. It purchased 200 units for
$40 each on February 28. It sold a total of 250 units for $110 each from March 1
through December 31. If the company uses the last-in, first-out inventory costing
method, calculate the cost of ending inventory on December 31. (Assume that the
company uses a perpetual inventory system.)
A) $10,000
B) $22,500
C) $5,000
D) $250
The contribution of equipment by a stockholder in exchange for common stock is an
example of ________.
A) investing activity
B) financing activity
C) operating activity
D) non-cash investing and financing activity
Which of the following financial statements reports an increase or decrease in net cash
during a specific period of time?
A) Income statement
B) Statement of retained earnings
C) Statement of cash flows
D) Cash budget
Which of the following is pay over and above base salary, usually paid for exceptional
performance?
A) FICA
B) benefits
C) wages
D) bonuses
Match the accounting position to the job description.
A) Performs reviews of companies to ensure compliance to rules and regulations
B) Compiles financial statements, interacts with auditors, oversees regulatory reporting
C) Specializes in accounting and financial management knowledge
D) Serves the general public
Certified Management Accountant