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On May 1, 2015, Pinkley Company sells office furniture for $300,000 cash. The office
furniture originally cost $750,000 when purchased on January 1, 2008. Depreciation is
recorded by the straight-line method over 10 years with a salvage value of $75,000.
What gain should be recognized on the sale?
a. $22,500.
b. $45,000.
c. $47,500.
d. $90,000.
Answer:
In published annual reports
a. subdivisions within the stockholders' equity section are routinely reported in detail.
b. capital surplus is used in place of retained earnings.
c. the individual sources of additional paid-in capital are often combined.
d. retained earnings is often not shown separately.
Answer:
The assumption that the unit of measure remains sufficiently constant over time is part
of the
a. economic entity assumption.
b. cost principle.
c. historical cost principle.
d. monetary unit assumption.
Answer:
Kahn Mining Company purchased a mine for $60 million which is estimated to have
250,000 tons of ore and a salvage value of $10 million.
(a) In the first year, 50,000 tons of ore are extracted and sold. Prepare the journal entry
to record depletion expense for the first year.
(b) In the second year, 150,000 tons of ore are extracted but only 125,000 tons are sold.
Prepare the journal entry to record depletion expense for the second year.
(c) What amount and in what account are the tons of ore not sold reported?
Answer:
Each of the following is a liquidity ratio except the
a. acid-test ratio.
b. current ratio.
c. debt to assets ratio.
d. inventory turnover.
Answer:
At the end of its first year, the trading securities portfolio consisted of the following
common stocks.
In the following year, the Barnes common stock is sold for cash proceeds of $57,000.
The gain or loss to be recognized on the sale is a
a. gain of $1,200.
b. loss of $3,000.
c. Loss of $1,000.
d. loss of $2,000.
Answer:
Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued
revenue, or accrued expense), and (b) the accounts before adjustment (overstated or
understated) for each of the following:
1> Supplies of $200 have been used.
2> Salaries of $600 are unpaid.
3> Rent received in advance totaling $300 has been earned.
4> Services provided but not recorded total $500.
Answer:
Restrictions of retained earnings
a. are reported on the balance sheet as liabilities.
b. do not change total stockholders' equity.
c. provide insurance coverage for contingencies.
d. are reported as expenses on the income statement.
Answer:
Which of the following are the same under both GAAP and IFRS?
a. The account.
b. Debit and credit rules.
c. Steps in the recording process.
d. All of these answers are correct.
Answer:
Under the gross profit method, each of the following items are estimated except for the
a. cost of ending inventory.
b. cost of goods sold.
c. cost of goods purchased.
d. gross profit.
Answer:
Retained earnings is increased by each of the following except
a. net income.
b. some prior period adjustments.
c. some disposals of treasury stock.
d. All of these increase retained earnings.
Answer:
Replenishing the petty cash fund requires
a. a debit to Cash.
b. a credit to Petty Cash.
c. a debit to various expense accounts.
d. no accounting entry.
Answer:
An application of good internal control over cash disbursements is
a. following payment, the approved invoice should be stamped PAID.
b. blank checks should be stored in the treasurer's desk.
c. each check should be compared with the approved invoice after the check is issued.
d. check signers should record the cash disbursements.
Answer:
Which one of the following items is not considered a part of the cost of a truck
purchased for business use?
a. Sales tax
b. Truck license
c. Freight charges
d. Cost of lettering on side of truck
Answer:
Rubble Company reported net income of $70,000 for the year. During the year,
accounts receivable increased by $6,000, accounts payable decreased by $5,000 and
depreciation expense of $8,000 was recorded. Net cash provided by operating activities
for the year is
a. $67,000.
b. $89,000.
c. $63,000.
d. $70,000.
Answer:
Can financial statements be prepared directly from the adjusted trial balance?
a. They cannot. The general ledger must be used.
b. Yes, adjusting entries have been recorded in the general journal and posted to the
ledger accounts.
c. No, the adjusted trial balance merely proves the equality of the total debit and total
credit balances in the ledger after adjustments are posted. It has no other purpose.
d. They can because that is the only reason that an adjusted trial balance is prepared.
Answer:
The cost flow method that often parallels the actual physical flow of merchandise is the
a. FIFO method.
b. LIFO method.
c. average-cost method.
d. gross profit method.
Answer:
Assume that all balance sheet amounts for Marley Company represent average balance
figures.
What is the return on common stockholders' equity ratio for Marley?
a. 19.3%
b. 16.7%
c. 12.5%
d. 10.0%
Answer:
The maturity value of a $50,000, 9%, 60-day note receivable dated July 3 is
a. $50,000.
b. $50,750.
c. $54,500.
d. $59,000.
Answer:
The following information is available for Hopkins Company:
Instructions
Compute each of the following:
(a) Net purchases
(b) Cost of goods purchased
(c) Cost of goods sold
Answer:
Listed below are seven errors or problems which might occur in the processing of cash
transactions. Also shown is a list of internal control principles. Evaluate each possible
error and cite a principle that is listed that would reduce the probability of the error
occurring. If none of the principles given will correct the problem, write "None." If you
think more than one principle is appropriate, list all principles that apply.
Possible Errors or Problems
1> An employee steals the cash collected from a customer for an account receivable and
conceals this theft by issuing a credit memorandum indicating that the customer
returned the merchandise.
2> A small fire destroys 3 days of cash receipts.
3> The official designated to sign checks is able to steal blank checks and issue them
without fear of detection.
4> A salesclerk in serving customers often rings up a sale for less than the actual
amount and then keeps the additional cash collected from the customer.
5> Three cashiers use one cash register drawer and the cash in the drawer is often short
of the balance kept on hand.
6> Each cashier counts his own register drawer each day and verbally reports the results
to the supervisor.
7> Cashiers with over 5 years' experience are not bonded.
Internal Control Principles
a. Establishment of responsibility
b. Segregation of duties
c. Physical controls
d. Documentation procedures
e. Independent internal verification
f. Human resource controls
Answer:
The entry to record the receipt of payment within the discount period on a sale of
$2,000 with terms of 2/10, n/30 will include a credit to
a. Sales Discounts for $40.
b. Cash for $1,960.
c. Accounts Receivable for $2,000.
d. Sales Revenue for $2,000.
Answer:
Harnish Company needs to make adjusting entries for each of the following reconciling
items. Identify the account to be debited and the account to be credited in each case.
1> A check for $127 written to the company by J. Chandler was returned NSF.
2> The monthly service charge by the bank was $20.
3> The bank collected a $1,000 note plus interest of $100 on the company's behalf. The
company had not accrued the interest.
Answer:
If a certain type of transaction occurs with great frequency, it is more efficient to create
a ______________ to record that type of transaction.
Answer:
To obtain maximum benefit from a bank reconciliation, the reconciliation should be
prepared by an employee who has no other responsibilities pertaining to cash.
Answer:
A voucher system is used by many large companies as a means of controlling cash
receipts.
Answer:
The preparation of a bank reconciliation is an important cash control procedure. If a
company deposits cash receipts daily and makes all cash disbursements by check,
explain why the cash balance per books might not agree with the cash balance shown
on the bank statement. Identify specific examples that may cause differences between
the cash balance per books and the cash balance per bank.
Answer:
To be classified as a short-term investment, the investment must be readily
marketable and intended to be converted into cash within the next year or
operating cycle.
Answer:
Prepare adjusting entries for the following transactions. Omit explanations.
1> Depreciation on equipment is $900 for the accounting period.
2> There was no beginning balance of supplies and purchased $500 of supplies during
the period. At the end of the period $150 of supplies were on hand.
3> Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $400 was
unexpired.
Answer:
Interest expense on a note payable is only recorded at maturity.
Answer:
Weller Company purchased a truck for $66,000. The company expected the truck to last
four years or 100,000 miles, with an estimated residual value of $6,000 at the end of
that time. During the second year the truck was driven 27,000 miles. Compute the
depreciation for the second year under each of the methods below and place your
answers in the blanks provided.
Units-of-activity $
Double-declining-balance $
Answer:
Listed below in alphabetical order are the balance sheet items of Madjack Company at
December 31, 2015. Prepare a balance sheet and include a complete heading.
Answer:
