1) for an accounting equation to balance, a transaction must affect both sides of the
equation.
2) a company, reporting a discontinued operation or an extraordinary item, must report
earnings per share also for each of these line items.
3) the long-term investments account is debited for the receipt of a dividend on an
equity-method investment because the dividend increases the investee’s equity.
4) a company is uncertain whether a complex transaction should be recorded as an asset
or an expense. under the conservatism principle, they should choose to treat it as an
asset.
5) an intangible asset is an asset with no physical form that is valuable because of the
special rights it carries.
6) a company changes its inventory costing method each period in order to maximize
net income. this is a violation of the consistency principle.
7) the trial balance is also known as the balance sheet.
8) investors and management use the statement of cash flows to evaluate a firm’s
profitability.
9) the accounts receivable turnover is an indicator of the ability of a company to collect
cash from its credit customers.
10) maywood inc. purchased manufacturing equipment for $12,600. it has an estimated
useful life of 7 years. the company should record depreciation expense of $100 per
month. (assume that the company uses the straight-line method.)
11) investors use the times-interest-earned ratio to evaluate a company’s ability to pay
interest expense.
12) the net income of vista camera services is $29,000. the beginning and ending
stockholders’ equity balances were $34,000 and $55,000, respectively. the company
issued no common stock. calculate the amount of dividends.
a) $18,000
b) $8,000
c) $5,000
d) $60,000
13) which of the following line items would appear on the income statement of a
company that uses the periodic inventory system, but not on that of a company that uses
the perpetual inventory system?
a) net sales revenue
b) cost of goods sold
c) cost of goods available for sale
d) operating expenses
14) which of the following statements is true of the worksheet?
a) the net income is recorded in the income statement credit column
b) the net income is recorded in the adjusted trial balance debit column
c) the net income is recorded in the income statement debit column
d) the net income is recorded in the balance sheet debit column
15) michelin jewelers uses the perpetual inventory system. on april 2, michelin sold
merchandise with a cost of $5,500 for $9,000 to a customer on account with terms of
3/15, n/30. which of the following journal entries correctly records the sales revenue?
a)
b)
c)
d)
16) the accountant for noble jewelry repair services inc. forgot to make an adjusting
entry for depreciation expense for the current year. which of the following is an effect
of this error?
a) revenues are understated
b) total assets are understated
c) net income is overstated
d) total liabilities are understated
17) paid-in capital consists of ________.
a) amounts paid by customers
b) capital raised by issuing bonds or preferred stocks
c) earnings generated by the corporation
d) amounts received from stockholders in exchange for stock
18) the cost of an asset is $1,000,000 and its residual value is $100,000. estimated
useful life of the asset is four years. calculate depreciation for the second year using the
double-declining-balance method of depreciation.
a) $250,000
b) $225,000
c) $450,000
d) $240,000
19) which of the following columns is included in a typical payroll register?
a) direct labor hours worked
b) warranties payable
c) current period earnings
d) sales tax
20) zebra inc. cost of goods sold for the year is $1,900,000 and the average
merchandise inventory for the year is $129,000. calculate the inventory turnover ratio
of the company.
a) 16.78 times
b) 14.73 times
c) 33.8 times
d) 65.5 times
21) which of the following can be an effect of a transaction that increased an asset of a
corporation for the accounting equation to balance?
a) there is an equal decrease in another asset
b) there is an equal decrease in equity
c) there is an equal decrease in a liability account
d) both liabilities and equity decrease
22) which of the following journal entries would be recorded if christy jones inc. issued
stock to the public and received $3000?
a)
b)
c)
d)
23) refer to the following information for tangent corporation:
common stock, $1.00 par, 100,000 issued, 95,000 outstanding
paid-in capital in excess of parcommon: $2,150,000
retained earnings: $910,000
treasury stock: 5,000 shares purchased at $20 per share
if tangent resold 1,200 shares of treasury stock for $14.5 per share, which of the
following statements would be true?
a) the treasury stock account would go down by $12,000
b) the paid-in capital in excess of parcommon account would go up by $1,200
c) the treasury stock account would go down by $24.000
d) the retained earnings account would go up by $17,400
24) at the beginning of 2015, elixir inc. has the following ledger balances:
during the year, credit sales amounted to $800,000. cash collected on credit sales
amounted to $760,000 and $18,000 has been written off. at the end of the year,
company adjusted for bad debts expense using the percent-of-sales method and applied
a rate, based on past history, of 2.5%. the ending balance in the allowance for bad debts
would be ________.
a) $5,000
b) $6,500
c) $6,400
d) $7,000
25) the reason investors buy bonds is to ________.
a) earn interest
b) own controlling interest in the company
c) exercise voting rights in a company
d) receive dividend payments
26) metro computer inc. had the following balances and transactions during 2014:
what would the company’s ending merchandise inventory amount be on december 31,
2014 if the perpetual last-in, first-out costing method is used?
a) $7,500
b) $23,500
c) $7,750
d) $16,000
27) the long-term investments account is credited for the receipt of a cash dividend on
an equity-method investment because ________.
a) the dividend decreases the investee’s equity
b) it increases the investor’s investment
c) there is an increase in dividend liability
d) the dividend increases the total assets
28) refer to the following list of liability balances at december 31, 2015.
what is the total amount of long-term liabilities?
a) $39,000
b) $92,000
c) $86,000
d) $33,000
29) on march 21, 2013, the bond accounts of urban sales showed the following
balances.
urban sales retires the bonds for $66,150. what will be the journal entry to retire the
bonds?
30) deborah consultants had the following accounts and account balances after
adjusting entries. assume all accounts have normal balances. calculate the amount of
service revenue and prepare the adjusted trial balance for deborah consultants as of
december 31, 2015.
cash$6,000dividends$3,000
accounts receivable2,000service revenue?
office supplies1,800salaries expense4,000
equipment15,000rent expense800
accumulated depreciationdepreciation expense
equipment9,000equipment1,500
common stock15,000supplies expense500
31) the ending inventory of a company was $450,000 as per the perpetual inventory
records. the current replacement cost for the ending inventory is $410,000. prepare the
journal entry to adjust inventory.
32) on july 1, 2013, ferrero inc. purchased merchandise inventory for $350,000 by
signing a note payable. the note is for 6 months and bears interest at a rate of 8%.
provide the journal entry for this transaction, using a perpetual inventory system.
33) refer to the following bank reconciliation:
bankbook
balance, june 30, 2014$11,240.00balance, june 30, 2014$10,200.00
add:add:
deposit in transit3,110.00note collected by bank2,100.00
interest revenue55.00
less:less:
outstanding checks #5061,200.00nsf check85.00
outstanding checks #510900.00bank service charge20.00
__________________
adjusted balance, adjusted balance,
june 30, 2014$12,250.00june 30, 2014$12,250.00
journalize the adjusting entry for the second reconciling item: interest revenue.
34) healthy living, a diet magazine, collected $500,000 in subscription revenue in may.
each subscriber will receive an issue of the magazine for each of the next 12 months,
beginning with the june issue. the company uses the accrual method of accounting.
provide the journal entry for collection of cash in may. (ignore explanation).
assume the magazine initially records a liability for the subscription revenue.
35) genius inc. uses the indirect method to prepare its statement of cash flows. using the
worksheet shown below, enter the adjustments needed to record net income for the year
ended december 31, 2014 of $49,000.
genius inc.
spreadsheet for statement of cash flows
year ended december 31, 2014
