ACC 204 Test #2 Study Guide (CH3), ACC 204 Test #2 Study Guide (CH5), ACC 204 Final Review

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What is the cash flow adequacy ratio for 2016 for Vencenzia Company?

.38

Carson City Saloon purchased a $25,000 truck for catering from its restaurant. It made a down payment of one- fourth of the price. What combination of amounts would affect the income statement and statement of cash flows for the purchase of the truck?

0 (6250)

Scuba Gear declared a 10% stock dividend when the market price per share was $8. After the stock dividend was distributed, the components of the stockholders' equity section were:

550,000 $130,000, $645,000

A company should choose a depreciation method that a. best allocates the original cost of the asset to the periods benefited by the use of the asset. b. saves the most taxes. c. minimizes net income d. shows the highest amount of net income.

An employee from the accounting department compares the control list and the cash register tapes with the bank deposit slip. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

Between 2014 and 2015, Farley River sold some equipment that had an original cost of $57,500. Which statement is most likely true concerning transactions that must have occurred during the period? a Farley River also purchased additional equipment during the year. b. The selling price of the equipment sold was reported with net sales. c. The equipment that was sold had a book value of $12,500. d. The equipment sold had not been reported with Farley River's property, plant and equipment.

Carson Enterprises' comparative balance sheets included accounts receivable of $220,300 at December 31, 2014, and $200,900 at December 31, 2015. Sales reported on Carson's 2015 income statement amounted to $2,350,000. What is the amount of cash collections that Carson will report in the Operating Activities category of its 2015 statement of cash flows assuming that the direct method is used? a. $2,369,400 b. $2,350,000 c. $2,771,200 d. $2,330,600

On February 1, 2015, Vermont Corp. pays $50,000 for shares of Stream, Inc. common stock and another $1,000 in commissions. Assume that Vermont sells the Stream stock on May 20, 2015, for $53,000. In this case, Vermont recognizes a. An increase in assets and stockholders' equity for $2,000. b. An decrease in assets and an increase in stockholders' equity for $2,000. c. An increase and decrease in assets by the same amount. d. An increase in assets and stockholders' equity for $3,000.

Wagner's Bookstore acquires a 6% $12,000 certificate of deposit on September 1. The term of the CD is six months. At that time, all principal and accrued interest will be paid in cash. Indicate the effect on the financial statements at December 31. a. Interest Receivable increases $240, Interest Revenue increases $240 b. Interest Receivable increases $360, Interest Revenue increases $360 c. Interest Receivable increases $480, Interest Revenue increases $480 d. Interest Receivable increases $720, Interest Revenue increases $720

Which one of the following is not a generally recognized internal control procedure? a. Internal review by the audit committee of the board of directors b. Independent verification of the work of one employee by another employee c. Independent review and appraisal by internal auditors d. Segregation of duties

Which one of the following best describes the external auditor's report? The external auditor's report is an opinion. The external auditor's report is a statement of fact. The external auditor's report must comply with both FASB and IASB standards. The firms that provide external audit reports are restricted to 20 partners, based on authoritative standards issued by the PCAOB.

ANSWER: a

For which of the following is the current ratio most useful? In evaluating a company's liquidity. In evaluating a company's solvency. In evaluating a company's profitability. In evaluating a company's leverage.

ANSWER: a

Hopper, Inc. Use the information from Hopper Inc. to answer the following question(s). Read the information about Hopper. Inc. Which statement best represents Hopper's performance? Hopper's profit margin ratio decreased. Hopper has become more profitable. Hopper's increase in operating revenues increased the company's net income. Hopper's operating expenses as a percentage of operating revenues remained the same.

ANSWER: a

Which one of the following is an assumption made in the preparation of financial statements? Financial statements are prepared for a specific entity that is distinct from the entity owners. Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit. Preparation of financial statements for a specific time period assumes that the balance sheet covers a period of time. Market values are always assumed to be irrelevant when preparing financial statements.

ANSWER: a

Which one of the following items appears on a balance sheet? Accounts payable Sales revenue Utilities expense Cost of goods sold

ANSWER: a

Read the information for Moss Company. What are Moss' current liabilities? a. $ 50,000 b. $ 125,000 c. $ 200,000 d. $ 230,000

ANSWER: a RATIONALE: ($50,000 Accounts Payable)

If a company has $152,000 of revenues, declares and pays $55,000 in dividends, and has net income of $89,000, how much were expenses for the year? a. $ 8,000 b. $ 63,000 c. $144,000 d. Unable to determine the amount due to incomplete information.

ANSWER: b

Use Rizwi Corporation's list of accounts at December 31, 2015 to answer the following question. Rizwi Corporation List of Accounts at December 31, 2015 What is Rizwi Corp.'s current ratio? 0.48 to 1 2.00 to 1 2.55 to 1 2.86 to 1

ANSWER: b RATIONALE: ($30,000 Cash + $21,000 Merchandise Inventory + $25,000 Accounts Receivable) / ($14,000 Accounts Payable + $24,000 Notes Payable--Due 07/01/2015) = 2.00 to 1

A question asked by stockholders is, "How much profit did the company make?" What should the stockholder examine to get the most information that will help evaluate the answer to this question? The balance sheet, because retained earnings represents current profits. The statement of cash flows, as cash inflows and outflows represents current profits. The income statement, since it shows the revenues and expenses for the period. The economic resources of the company.

ANSWER: c

Madden Company applies the consistency convention. What does this mean? Madden Co. uses the same names for all its expenses as its competitors. Madden Co. has selected certain accounting principles that can never be changed. Madden Co. applies the same accounting principles each accounting period. Madden Co. applies the same accounting principles as it competitors.

ANSWER: c

Which of the following would not appear on an income statement? Sales revenue Cost of goods sold Accounts receivable Insurance expense

ANSWER: c

Which one of the following is not a major category for long-term assets? Intangibles Property, plant, and equipment Receivables Goodwill

ANSWER: c

The three forms of business entities are: Government, cooperatives, and philanthropic organizations. Financing, investing, and operating. Sole proprietorships, partnerships, and corporations. Wholesaler, manufacturer, and retailer.

ANSWER: c

Read the information about Marvel Shoes. What was the cash balance for Marvel Shoes at the end of the current year? a. $ 10,000 b. $ 30,000 c. $ 40,000 d. $ 70,000

ANSWER: c RATIONALE: ($30,000 Beginning Balance + $10,000 Increase in Cash = $40,000)

To which of the following entities must a company report if it sells its stock on the organized stock market? American Institute of Certified Public Accountants (AICPA) American Accounting Association (AAA) International Accounting Standards Board (IASB) Securities and Exchange Commission (SEC)

ANSWER: d

United Airlines is an example of a: producer. supplier. retailer. service provider.

ANSWER: d

What is the primary objective of financial reporting? To help investors make credit decisions. To help management assess cash flows. To protect users from fraudulent financial information. To provide useful information for decision making

ANSWER: d

When selecting between the best alternatives regarding an ethical dilemma in accounting all of the following should be considered except: which alternative provides the most relevant information. which alternative provides the most accurate information. which alternative provides the most neutral information. which alternative provides the most profitable information.

ANSWER: d

Which of the following best describes the term "expenses"? The amount of total profits earned by a business since it began operations. The amount of interest or claim that the owners have in the business. The future economic resources of a business entity. The outflow of assets resulting from the sale of goods and services.

ANSWER: d

Which of the following events will cause a company's current ratio to decrease? The sale of inventory for cash. The sale of inventory for credit (accounts receivable). Issuing stock for cash. Paying off long-term debt with cash.

ANSWER: d

Which one of the following is an investing activity of a business? Paying for purchases of inventory Issuing stock for cash Borrowing money from a bank. Purchasing a manufacturing plant for cash

ANSWER: d

Which one of the following is considered a financing activity? The payment of interest on a note payable to the bank. Selling products to customers Paying wages to employees The payment of a cash dividend.

ANSWER: d

Which set of items below are current assets? Accounts receivable, net income, inventory, and dividends Cash, accounts receivable, capital stock, and sales Net income, cash, office supplies, and inventory Cash, accounts receivable, inventory, and office supplies

ANSWER: d

Marcos Inc. had net income for 2014 of $40,000. It declared and paid a $3,500 cash dividend in 2014. If the company's retained earnings for the end of the year was $38,200, what was the company's retained earnings balance at the beginning of 2014? a. $81,700 b. $74,700 c. $5,300 d. $1,700

ANSWER: d RATIONALE: (Beg. Retained Earnings + $40,000)-$3,500 = $38,200

Native Mike's Consultants had the following balance sheet amounts at the beginning of the year: Total assets $400,000 Total owner's equity 150,000 During the year, total assets increased by $100,000 and total liabilities increased by $40,000. The company also paid $30,000 in dividends. No other transactions occurred except revenues and expenses. How much is net income for the year? a. $30,000 b. $60,000 c. $70,000 d. $90,000

ANSWER: d RATIONALE: Assets: $400,000+$100,000 $500,000 Liabilities: ($400,000-$150,000)+$40,000 = $290,000 Owners' Equity at Year End: $500,000$290,000 = $210,000 Net Income: $210,000-$150,000+30,000 = $90,000

Deal Mart The 2014 income statement of Deal Mart shows operating revenues of $130,800, selling expenses of $37,100, general and administrative expenses of $34,900, interest expense of $900, and income tax expense of $11,430. Deal Mart's stockholders' equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The company has 20,000 shares of stock outstanding at December 31, 2014. Read the information about Deal Mart. What is Deal Mart's net income? a. $80,000 b. $92,190 c. $130,800 d. $46,470

ANSWER: d RATIONALE: Net Income = $130,800 - $37,100 - $34,900 - $900 - $11,430 = $46,470

A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the current ratio would be A. 1.75 to 1 B. 3.50 to 1 C. 2.25 to 1 D. 3.00 to 1

Deposits made by a company but not yet reflected in a bank statement are called a. Debit memoranda b. Deposits in transit c. Credit memoranda d. None of the above

Eagle's Nest sold equipment for $4,000 cash. This resulted in a $1,500 loss. What is the impact of this sale on the working capital? a. Reduces working capital b. Increases working capital c. Has no effect on working capital d. The increases offsets the decrease.

If a company's asset turnover ratio decreased from 2014 to 2015, which of the following conclusions can be made? a. The company was more efficient during 2015 in using its assets to produce profits b. The company produced less sales in 2015 for each dollar invested in assets. c. The company was less profitable in 2014. d.The company's average total assets decreased for relatively stable sales in 2014 and 2015.

In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000. The correct amount was recorded by the bank as $1,200. What is the adjusted cash balance at the end of April? a. $44,300 b. $45,500 c. $45,000 d. $45,700

Why do businesses invest in short-term investments? a. They are trying to gain control over the activities of other companies. b. They are investing excess cash to meet future business operation or investment needs. c. They are lending money to companies that cannot obtain bank loans. d. More than one of the above is correct.

A building with an appraisal value of $167,000 is made available at an offer price of $162,000. The purchaser acquires the property for $25,000 in cash, a 90-day note payable for $75,000, and a mortgage amounting to $65,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is a. $167,000 b. $162,000 c. $165,000 d. $140,000

Darrin Brown bought a pub. The purchase price was $695,000. An appraiser provided the following appraisal values: land $320,000: building $370,000 and equipment $60,000. What cost should be allocated to the building? a. $370,000 b. $695,000 c. $342,867 d. $399,281

On January 1, 2013, Petersen Corp. sold a piece of equipment for $3,000 which it had used for several years. The equipment had cost $13,000, and its accumulated depreciation amounted to $9,000 at the time of the sale. What are the net effects on the accounting equation of selling the equipment? a. Assets and Stockholders' Equity increase $1,000. b. Assets decrease and Stockholders' Equity increases $3,000. c. Assets and Stockholders' Equity decrease $1,000. d. Assets and Stockholders' Equity decrease $3,000.

On July 1, 2015, Frank Corp. purchased $100,000 of 8% bonds at face value. Interest is paid annually on June 30. If the accounting year for Frank ends at December 31, 2015, what will be reported with respect to the bonds on that date? a. The carrying value of the bonds will be $108,000. b. The cash received in interest will be $8,000. c. Interest income in the amount of $4,000 will be accrued. d. A loss on the bonds will be reported in the Other Income and Expense section of the 2015 income statement until the entire amount of interest is paid on June 30, 2016.

On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note. If the company keeps its records on a calendar year, an adjustment is needed on December 31 to increase a. Interest Payable, $900. b. Interest Expense, $600. c. Interest Payable, $1,200. d. Interest Expense, $1,800.

To calculate the future value of an amount that is invested at 12%, compounded quarterly, at the end of three years, the interest factor used would be a. 1% for 12 periods b. 12% for three periods c. 3% for 12 periods d. 3% for four periods

Using the 2015 data, what is the average life of Farley River's property, plant, and equipment (rounded to one decimal place)? a. 1.6 years b. 2.5 years c. 4.0 years d. 10.0 years

What amount will Norwood, Inc. report as depreciation expense over the 8-year life of the equipment? a. $60,000 b. $72,000 c. $75,000 d. $80,000

What was the depreciation expense for Paulson Transport for the year ended December 31, 2016? a. $ -0- b. $160,000 c. $320,000 d. $400,000

Which one of the following documents is used in the control of cash disbursements? a. Income Statement b. Bank deposit slips c. Receiving reports d. Cash register tapes

A company is referred to as a parent if it owns a. 33% of the debt securities of a second company b. 100% of the debt securities of a second company c. 15% of the equity securities of a second company d. More than 50% of the equity securities of a second company

A debit memorandum appeared on Cinco Inc.'s May bank statement. How will Cinco treat this amount on its May bank reconciliation? a. Add it to the bank balance b. Add it the book balance c. Deduct from the bank balance d. Deduct from the book balance

A voucher is usually supported by a. a supplier's invoice b. a purchase order c. a receiving report d. all of the above

Significant influence of one company over another has been defined by the accounting profession as the ownership of what minimum percent of the second company's stock? a. 30% b. 50% c. 100% d. 20%

What is the net amount of the increase or decrease in Raines' cash balance which must be recorded as a result of the adjustments identified by the bank reconciliation? a. $100 decrease b. $300 decrease c. $400 decrease d. $600 decrease

What was the depreciation expense for Paulson Transport for the year ended December 31, 2015? a. $ -0- b. $195,000 c. $390,000 d. $400,000

Where can the amounts needed to compute the accounts receivable turnover ratio be found? a. The income statement b. The balance sheet c. The statement of cash flows d. Both (a) and (b).

When using the direct method, how are salaries paid to employees reported on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

80. If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much tax savings resulted from using LIFO? a. There would be no tax savings. b. $800 c. $1,200 d. $2,000 ANSWER:

84. Zebra Company overstated its December 31, 2014 inventory by $5,200. Which statement is true concerning Zebra's financial statement amounts for 2014? a. Working capital is understated. b. The current ratio is overstated. c. Cost of goods sold is overstated. d. Net income is understated. ANSWER:

Weather Corp. issued 10-year, 8%, $100,000 bonds paying interest on an annual basis, at a $5,200 premium. Which one of the following statements is true? a. Weather's annual interest expense on the bonds will be greater than the amount of interest payments to bondholders each year. b. Weather's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year. c. Weather will receive $94,800 as the issue price. d. The cash paid to bondholders will be $520 each interest period.

When determining the amount of interest to be paid on a bond, which of the following information is not necessary? a. The face amount of the bonds b. The selling price of the bonds c. The face rate of interest on the bonds d. The length of the interest period, annually or semiannually

When using the direct method, how is the purchase of equipment for cash shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

104. Readers.com uses a perpetual inventory system. Feb. 1 On hand, 30 units at $5.00 each $150 8 Purchased 40 units at $5.35 each 214 15 Sold 50 units 22 Purchased 40 units at $5.20 each 208 28 On hand, 60 units If Readers.com uses the moving average method, how much is cost of goods sold for the units sold on February 15? a. $245 b. $255 c. $260 d. $270 ANSWER:

14. Refer to the information for Givens Corp. Calculate the gross profit. a. $241,000 b. $275,000 c. $289,000 d. $425,000 ANSWER:

30. Louisiana Enterprises received payment from its customers for previous sales on credit. What was the impact on its working capital? a. Increase in working capital b. Decrease in working capital c. No effect on working capital d. Unable to determine ANSWER:

61. For which type of inventory would a company most likely use the specific identification method? a. Barbie dolls b. Cartons of milk c. Custom designed diamond rings d. Gasoline in storage tanks at a gasoline station ANSWER:

Approximately how many years will it take for a sum invested at 8% with annual compounding to quadruple? a. 81 years b. 9 years c. 18 years d. 17 years

On January 1, 2015, Clarkson, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2015? a. $352,960 b. $354,200 c. $355,452 d. $400,000

Prarie Charters reported the following information at December 31, 2015: The average recorded value per share of common stock at December 31, 2015 is a. $1.00 b. $1.75 c. $1.25 d. $2.50

When using the indirect method, how would the retirement of bonds payable at their maturity date be shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

The future value of $6,000 at 12% compounded quarterly for 5 years is a. $ 9,600 b. $ 6,954 c. $10,572 d. $10,836

When a company has a credit balance in its Deferred Tax account, this amount would appear as a(n) a. contra asset on the balance sheet. b. stockholders' equity account on the balance sheet. c. expense account on the income statement d. liability account on the balance sheet.

When an individual wishes to form a sole proprietorship, he or she does so by a. filing a petition with the IRS. b. purchasing stock in the proprietorship. c. filing corporate paperwork with the state. d. contributing cash or other assets.

When bonds are sold for less than the face amount, this means that the a. maturity value will be less than the face amount. b. maturity value will be greater than the face amount. c. bonds are sold at a premium. d. face rate of interest is less than the market rate of interest.

When using the direct method, how is depreciation expense recorded on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Not reported on the statement of cash flows

Which of the following statements is true with regard to contributed capital? a. Preferred stock is stock that has been retired. b. It is very unlikely corporations may have more than one class of stock outstanding. c. The outstanding number of shares is the maximum number of shares that can be issued by a corporation. d. The shares that are in the hands of the stockholders are said to be outstanding.

A check drawn by a company for $360 in payment of a liability was recorded in the journal as $630. This item would be included on the bank reconciliation as a(n): a. addition to the balance per the company's records. b. addition to the balance per the bank statement. c. deduction from the balance per the bank statement. d. deduction from the balance per the company's records.

Administrative controls a. Are concerned with efficient operations and adherence to managerial policies b. Are concerned with the reliability of the financial statements c. Are the responsibility of the company's auditors d. Are concerned primarily with safeguarding assets

Although the department supervisor can indicate a preferred supplier or vendor on purchase requisitions, the purchasing department has the responsibility for making the final decision on a vendor. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

Among the assets listed below, which one is considered the most liquid? a. Cash b. Accounts receivable c. Merchandise inventory d. Prepaid expenses

At the end of 2013, Mirror Productions determined that one of its copyrights was worthless. The copyright had a cost of $320,000. The copyright had been amortized for 8 years of its estimated 25-year legal life. Which of the following statements is the justification for removing the remaining cost of the copyright from the accounting records? a. The copyright no longer represents a future benefit to the company. b. The federal government does not allow copyrights to be recorded as assets once they are deemed worthless. c. The cost of the copyright represents an obligation to return capital contributions to the stockholders. d. The cost of the copyright has usefulness that will impact the net income of future accounting periods.

Borden Company incurred the following costs to acquire and prepare land for a new parking lot: purchase price for land, cost to clear the land, cost of paving, lighting for the parking lot, and landscaping for the parking lot. How should the company determine which costs should be recorded as Land Improvements and which cost should be recorded as Land? a. The costs with an unlimited life will increase Land, and the costs with a limited useful life will increase Land Improvements. b. The costs with a limited life will increase Land, and the costs with an unlimited useful life will increase Land Improvements. c. The costs to be depreciated will increase Land, and the costs that will not be depreciated will increase Land Improvements. d. Costs that are depreciable will increase Land Improvements, while other costs are expensed immediately because of a lack of definite life.

Calhoun, Inc. purchased equipment at the beginning of 2015 for $180,000. Calhoun decided to depreciate the equipment over a 5-year period using the double-declining-balance method. Calhoun estimated the equipment's residual value at $30,000. Which of the following statements is correct concerning Rose's financial statements at December 31, 2015? a. The book value of the equipment is $108,000 . b. The book value of the equipment is $72,000. c. The total accumulated depreciation is $90,000. d. Depreciation expense for 2015 is $60,000.

Capitalizing an expenditure rather than recording it as a revenue expenditure a. affects the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period. b. affects the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period. c. affects the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet. d. has no effect on the book value of plant assets on the balance sheet or the amount of income reported on the income statement.

Cash register tapes are picked up daily by an employee from the accounting department. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

Checks are signed by designated officers in the finance department. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

Checks presented for payment and paid by the bank are known as a. Canceled checks b. Certified checks c. NSF checks d. Outstanding checks

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should a. not be amortized. b. be reported on the statement of retained earnings in the year in which acquired. c. be amortized over a reasonable period of time not to exceed 40 years. d. increase an expense account entirely in the year in which acquired.

Cushion Sports accepted a credit card account receivable in exchange for $5,000 of services provided to a customer. The credit card company charges a 5% service charge. Recording the transaction in the company's accounting records will have what effect on the accounting equation? a. Increase assets and equity by $4,750 b. Decrease assets and equity by $250 c. Increase assets by $5,000 d. Increase equity by $5,000

Depreciation is a. an effort to achieve proper matching of the cost of operating assets. b. an accumulation of funds to replace the related plant asset. c. the difference between the original cost and salvage value of an asset. d. the cash allocated each period to maintain a plant asset.

During 2014, the accounts receivable turnover rate for Cordner Company increased from 10 to 14 times per year. Which one of the following statements is the most likely explanation for the change? A. The company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections. B. The company has decreased sales to its most credit worthy customers. C. The company has increased the amount of time customers have to pay their accounts before they are past due. D. The company has extended credit to more risky customers in order to increase sales.

Fall Corp. uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the company's assets? a. Double-declining-balance b. Revenue expenditure method c. Straight-line d. Units-of-production

For what reason would a company buy 10% of the common stock of a second company? a. The company has idle cash and wishes to have a higher return than that available from temporary money market investments. b. The company wishes to insure a steady source of goods from the second company. c. The company wishes to prepare consolidated financial statements. d. More than one of the above is correct.

Having only one person authorized to both prepare and sign checks is a violation of what internal control procedure? a. Segregation of duties b. Independent review and appraisal c. Independent verifications d. Proper authorizations

How much is Pierce's adjusted cash balance on October 31, 2014? a. $28,700 b. $29,100 c. $28,300 d. $29,600

How will the payee of the promissory note record the note on its books? a. The promissory note will be recorded as an asset b. The promissory note will be recorded as a liability c. The promissory note will be recorded as revenue d. The promissory note will be recorded as an expense

If Pharma Corp. uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2015? a. $12,700 b. $13,700 c. $14,000 d. $15,300

If a company constructs an asset over a period of time and borrows money, the amount of interest incurred during construction on the borrowed money is a. capitalized as part of the cost of the plant asset. b. amortized over the construction period. c. reported as interest expense on the income statement. d. reported as depletion on the income statement.

If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays March 12, then the amount paid to the seller would be a. $3,136 b. $3,168 c. $3,150 d. $3,200

Interest is capitalized when incurred in connection with the construction of plant assets because a. interest is considered a part of the acquisition cost of the related plant asset. b. The decision to purchase a plant asset is a business decision separate from the financing decision. c. many plant assets last longer than 20 years. d. interest is considered an expense of the period.

Lightning Delivery, Inc. purchased a truck on January 1, 2013, for $30,000. The truck had an estimated life of 5 years and an estimated residual value of $5,000. Lightning Delivery used the straight-line method to depreciate the asset. On July 1, 2015, the truck was sold for $17,000 cash. The journal entry to record the sale of the truck in 2015 a. decreases stockholder's equity b. increases total assets c. decreases total expenses d. increases net income

Monthly statements, indicating the current balance due, are mailed to customers. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

Most annual reports now include a report of management to the stockholders. In this report, which group has the primary responsibility for the preparation and integrity of the financial statements? a. Management b. The company's CPAs c. The company's internal audit staff d. The audit committee of the company's board of directors

On January 15, 2015, the accounts receivable balance was $7,000 and the balance in the allowance for doubtful accounts was $700. On January 16, 2015, a $200 uncollectible account was written-off. The net realizable value of accounts receivable on January 16 immediately after the write-off is: a. $6,300 b. $6,800 c. $6,500 d. $7,900

On July 1, 2014, Falcon Company received a $20,000 promissory note for services from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2013. The effect on Falcon's financial statements on July 1, 2014 is as follows A. Assets increase; owners' equity increases B. Assets decrease and owners' equity decreases C. Assets decrease D. No net change in assets

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase A. interest payable, $1,050. B. prepaid interest, $3,150. C. notes payable, $1,050. D. interest expense, $4,200.

Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college 4 years from now. If he opens a savings account and earns 3% on his money, compounded annually, how much will he have to invest now? a. $2,664 b. $3,000 c. $2,520 d. $2,910

Plant assets are depreciated because a. the accrual basis of accounting requires matching of costs to revenues. b. some plant assets last longer than others. c. useful lives cannot be reasonably estimated. d. the replacement cost of plant assets may fluctuate over time.

Recently, companies have been ordered by governmental agencies to clean up environmental damages caused by business operations. How should costs incurred in these situations be treated? a. If a legal obligation exists, the cost of restoring the property must be added to the asset account. b. As an expense entirely in one accounting period. c. As an amortized expense in the period the cost is incurred. d. Added to the asset, and then depreciated over 15 years.

Refer to the data for Mellon Corporation. If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2015? a. $28,000 b. $31,000 c. $34,000 d. $50,000

Research and development costs are a. treated as an expense when incurred. b. capitalized but not amortized. c. capitalized and amortized over the periods that will probably benefit from the research and development. d. included with the cost of the patent resulting from the research and development.

Royal Company purchased a dump truck at the beginning of 2012 at a cost of $60,000. The truck had an estimated life of 6 years and an estimated residual value of $24,000. On January 1, 2014, the company made major repairs of $20,000 to the truck that extended the life 1 year. Thus, starting with 2014, the truck has a remaining life of 5 years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. When calculating depreciation for 2014, Royal should a. add the $20,000 to the book value at December 31, 2013 and then allocate the revised basis over the remaining adjusted useful life of 5 years. b. report the effect of the change in life as an expense on the income statement in 2013. c. ignore the change in life on the original cost of $60,000 and depreciate the additional $20,000 cost separately over its useful life. d. expense the $20,000 and depreciate the original cost of $60,000 over its revised estimated total live of 7 years.

The debit balance in Cash Short and Over at the end of an accounting period is reported as: a. an expense on the income statement. b. income on the income statement. c. an asset on the balance sheet. d. a liability on the balance sheet.

The documentation with the bank statement shows a debit memo for bank service charges. Identify the effects of the transaction on the company's accounts. a. Increase Miscellaneous Administrative Expense; Decrease Cash b. Increase Cash; increase Other Income c. Increase Cash; increase Accounts Payable d. Decrease Accounts Payable; Decrease Cash

The effect of recording depreciation for the year is a(n) a. decrease in assets and a decrease in net income. b. decrease in assets but no change in owners' equity. c. increase in assets and an increase in net income. d. decrease in net income and no change in assets.

The following set of items describes activities completed by a company in purchasing and paying for merchandise. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. All documents attached to an invoice approval form are canceled before a check is signed. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

The following set of items describes activities completed by a company in purchasing and paying for merchandise. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. Extensions and footings on purchase invoices are verified before the invoices are approved for payment a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

The income statement of Hope Market, Inc. reported a gain from the sale of land. How are the cash flow effects of this transaction reported on the statement of cash flows if the direct method is used to prepare the Operating Activities category? a. The entire proceeds from the sale of the land are reported as an investing activity. b. The gain on the sale of land is reported in the Investing Activities category as a cash flow from the sale of land. c. The entire proceeds from the sale of the land are reported as an operating activity. d. The cash received from the sale of land is reported in the financing activity category as a cash flow from the sale of land.

The notification accompanying a check that indicates the specific invoice being paid is called a a. remittance advice b. voucher c. debit memo d. credit memo

Using the 2015 data, what is the average age of Farley River's property, plant, and equipment? a. 1.60 years b. 2.50 years c. 4.00 years d. 10.00 years

Using the straight-line depreciation method will cause a company to incur tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation. a. more b. less c. equal d. This cannot be determined from the information given.

What is the adjusted cash balance on October 31, 2014? a. $29,600 b. $30,100 c. $30,200 d. $30,700

What is the amount by which double-declining-balance depreciation exceeds straight-line depreciation over the 5- year life of the truck? a. $-0- b. $7,000 c. $37,000 d. $6,000

What is the asset turnover ratio for Farley River for 2015? a. 1.60 times b. 1.82 times c. 4.00 times d. 4.55 times

What is the effect on liquidity when Craft records its estimate for bad debt expense using the allowance method? a. Liquidity decreases b. Liquidity increases c. Liquidity stays the same d. Liquidity both increases and decreases

What is the impact on the cash flow statement from an increase in short-term notes receivable, assuming the indirect method is used? a. A decrease in the cash flow from operating activities b. An increase in the cash flow from operating activities c. An increase in the cash flow from financing activities d. An increase in the cash flow from investing activities

When a company discards machinery that is fully depreciated, this transaction have which of the following effect on the company's accounts? a. decrease Accumulated Depreciation; decrease Machinery b. increase Machinery; increase Accumulated Depreciation c. increase Cash; increase Accumulated Depreciation d. increase Depreciation Expense; increase Accumulated Depreciation

Which internal control procedure is violated when the cashier at the checkout stand also records the daily receipts in the journal? a. Segregation of duties b. Independent review and appraisal c. Independent verifications d. Proper authorizations

Which of the following is an example of a debit memorandum? a. Service charge notice b. Interest earned on the account balance c. Outstanding check d. Company error in recording a $500 deposit as $600

Which of the following items would not be a reconciling item? a. Canceled checks b. NSF checks c. Outstanding checks d. Deposits in transit

Which of the following represents a group composed of key officers of a corporation and outside members responsible for the general oversight of the affairs of the company? a. Board of Directors b. Internal Audit Staff c. External Auditors d. Audit Committee

Which of the following represents the board of director's subset that acts as a direct contact between stockholders and the independent accounting firm? a. Audit committee b. Internal audit staff c. External auditors d. Stockholders' representative

Which of the following statements does not describe the responsibilities of a company's internal audit staff? a. Internal auditors ensure that the company's financial statements have been presented fairly. b. Internal auditors focus on the efficiency with which the organization is run. c. Internal auditors help ensure that the company's policies and procedures are followed. d. Internal auditors prepare the report of management to the company's stockholders

Which of the following statements is true of liabilities? A. Classification of current liabilities is important because of the liquidity concept. B. The accounting principles followed in the U.S. differ from those of other countries; this is especially true for current liabilities. C. Current liabilities are listed in order of decreasing amounts in the current liability section of the balance sheet. D. Accounts payable are listed in the current liabilities section in alphabetical order by vendor.

Which one of the approaches for the allowance method of accounting for bad debts emphasizes the net realizable value of accounts receivable on the balance sheet? A. The percentage of accounts receivable approach B. The percentage of net credit sales approach C. The direct write-off method D. The uncollectible approach

Which one of the following could never be considered to be cash equivalents? a. Common stock issued by a corporation b. Money market funds c. Corporate commercial paper d. U. S. Treasury bills

Which one of the following is an accurate description of Allowance for Doubtful Accounts? a. Contra account b. Liability account c. Revenue account d. Expense account

Which one of the following items is not included in cash? a. A bank certificate of deposit for one year b. A savings account at the bank c. A checking account at the bank d. All of the above are included in cash

Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation? a. Outstanding checks b. Deposit in transit c. Service charges d. Interest on customer note

Which one of the following statements is true if a company's collection period for accounts receivable is unacceptably long? a. The company may need to borrow to acquire operating cash b. The company may offer trade discounts to lengthen the collection period c. Cash flows from operations may be higher than expected for the company's sales d. The company should expand operations with its excess cash

Yellow Dog Transit sold an old truck on December 31, 2013, for $18,400 cash. The following data was available when the truck sold: Acquisition cost $75,000 Estimated residual value at time of acquisition 8,000 Accumulated depreciation on December 31, 2013 after adjustment 53,600 When this transaction is recorded, it should include a(n) a. Loss on Disposal account for $3,000 b. Decrease of $21,400 to the Truck account c. Gain on Disposal account for $3,000 d. Gain on Disposal account for $5,000

Excursion Corp. increased its dollar amount of working capital over the past several years. To further evaluate the company's short-run liquidity, which one of the following measures should be used? The current ratio An analysis of the company's longterm debt An analysis of the return on stockholders' equity An analysis of retained earnings

ANSWER: a

Read the information about Hopper, Inc. Which ratio are you able to calculate given only the information provided by Hopper? Profit margin Current ratio Working capital Gross profit percentage

ANSWER: a

Which one of the following is an operating activity of a business? Paying for purchases of inventory Issuing stock for cash Borrowing money from a bank Purchasing a manufacturing plant.

ANSWER: a

Business entities generally carry on: operating, investing, and financing activities. operating activities, but only corporations engage in financing and investing activities. investing and operating activities, but only corporations engage in financing activities. either investing or financing activities, but not both.

ANSWER: a

Cook, Inc., a manufacturer of tires, has given you its most recent annual report in an effort to obtain a sizable loan. The company is very profitable and appears to have a sound financial position. Based on a report presented on prime-time television last night, you are aware that Cook is a defendant in several lawsuits related to its defective tires that cause vehicles to overturn. The information presented on television is an example of financial information that is: Relevant. Consistent. Predictable. Comparable.

ANSWER: a

If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of: Comparability. Consistency. Neutrality. Understandability.

ANSWER: a

In preparing the financial statements for December 31, 2015, an accountant improperly classified the payment of prepaid rent as rent expense. Which of the following amounts would not be affected by this improper classification? Retained earnings, January 1, 2015 Retained earnings, December 31, 2015 Net income Total assets

ANSWER: a

Information that is material means that an error or alternative method of handling a transaction: would possibly affect the judgment of someone relying on the financial statements. would not affect the decisions of users. might cause a company to understate its earnings for the accounting period. could increase the profitability of a company.

ANSWER: a

Is the name of the branch of accounting concerned with providing managers and administrators with information to facilitate the planning and control of business operations? Management accounting Auditing Financial accounting Bookkeeping

ANSWER: a

Liquidity relates to a company's ability to do which of the following? The ability to pay its financial obligations as they become due. The ability to stay in business over the long run. The ability to pay dividends to its stockholders. The ability to collect the amount their customers owe the company.

ANSWER: a

Read the information about Hopper, Inc. Which ratio are you able to calculate given only the information provided by Hopper? Profit margin Current ratio Working capital Gross profit percentage

ANSWER: a

Read the information for Guinther & Sons, Inc. The average current ratio for stores such as Guinther & Sons is 2.4 to 1. What does this comparison tell you about its liquidity? It is more liquid than its competitors It has more long-term assets than its competitors Since a rule of thumb for current ratios is 2 to 1, neither Guinther & Sons, Inc. nor its competitors is liquid. Guinther & Sons, Inc. is more profitable than its competitors.

ANSWER: a

The statement of retained earnings accomplishes which of the following? It summarizes income earned and dividends paid over a single period of the business. It accumulates all revenues for the year. It summarizes the balance sheet accounts. It summarizes the capital stock accounts over the life of the business.

ANSWER: a

To determine the source of a company's assets, on which financial statement will you look? Balance sheet only Income statement only Both the balance sheet and the income statement Both the income statement and the statement of retained earnings

ANSWER: a

Which financial statement would you refer to in order to determine whether a company owed funds to creditors? Balance Sheet Statement of Retained Earnings Income Statement Statement of Public Accounting

ANSWER: a

Which of the following best describes a company's operating activities? Operating activities focus on the sale of products and services. Operating activities are necessary to provide the money to start a business. Operating activities are needed to provide the valuable assets required to run a business. Operating activities represent the right to receive a benefit in the future.

ANSWER: a

Which of the following include only current assets? Accounts receivable, cash, inventory, office supplies Cash, accounts payable, inventory, office supplies Cash, land, accounts receivable, inventory Accounts receivable, cash, furniture, office supplies

ANSWER: a

Which of the following invests funds into a business and is considered an owner? Stockholders Creditors Bankers Lenders

ANSWER: a

Which of the following terms characterizes the time period between the investment of cash in merchandise and the collection of cash from the sale of that merchandise? Operating cycle Natural business year Accounting period Fiscal period

ANSWER: a

Which one of the following events involves a liability for a business? Loans to be repaid to banks Inventories purchased for cash Amounts invested by the owners Stock sold to the general public

ANSWER: a

Which one of the following financial statements reports an entity's financial position at a specific date? Balance sheet Statement of retained earnings Income statement Both the income statement and the balance sheet

ANSWER: a

Which one of the following is not an external user of financial information? Company management Internal Revenue Service Creditors Stockholders

ANSWER: a

Which one of the following items is reported as a current asset on a classified balance sheet? Inventory Accounts payable Land Common stock

ANSWER: a

Which one of the following statements is true? The two primary sources of financing available to corporations are borrowed funds and funds invested by owners. Financing activities involve the acquisition of property, plant and equipment. Borrowed funds are a more permanent source of financing than funds invested by owners. Investing activities involve the selling of products or services and the incurring of expenses related to selling these products and services.

ANSWER: a

Which the following organizations are primarily responsible for establishing GAAP today? Financial Accounting Standards Board (FASB) Securities and Exchange Commission (SEC) Internal Revenue Service (IRS) Federal Government

ANSWER: a

You are a potential stockholder and are concerned that a particular company you are ready to invest in might have too much debt. Which financial statement would provide you information needed in order to evaluate your concern? Balance sheet Income statement Statement of retained earnings Statement of public accounting

ANSWER: a

Morton Corporation reported the following information for the year ended December 31, 2015: What was the balance of Morton's' retained earnings at January 1, 2015? a. $21,000 b. $29,000 c. $31,000 d. $35,000

ANSWER: a RATIONALE: $25,000+$6,000-$10,000 = $21,000 Lewis Corporation reported the following information for the year ended December 31, 2015:

The following information is provided by the Ferrara Corporation: Calculate Ferrara Corporation's expenses. a $20,000 b. $30,000 c. $40,000 d. Cannot tell from the information provided.

ANSWER: a RATIONALE: $50,000+X-$10,000 =$70,000 X = $30,000 or Net Income $50,000 (Revenue) - $30,000 (Net Income) = $20,000 Expenses

On January 1, 2015, A-Best Company's balance in retained earnings was $70,000. At the end of the year, December 31, 2015, the balance in retained earnings was $94,000. During 2015, the company earned net income of $40,000. How much were dividends? a. $16,000 b .$24000 c. $40,000 d. $64,000

ANSWER: a RATIONALE: $70,000+$40,000-$94,000 = $16,000

Bartlett Industries Bartlett Industries began operations on January 2, 2015, with an investment of $50,000 by each of its two stockholders. Net income for its first year of business was $240,000. Bartlett Industries paid a total of $100,000 in dividends to its stockholders during the year. Read the information about Bartlett Industries. What is the company's retained earnings balance at December 31, 2015? a. $140,000 b. $190,000 c. $240,000 d. $340,000

ANSWER: a RATIONALE: ($ -0- Beginning Balance + $240,000 Net Income - $100,000 Dividends = $140,000)

During its fifth year of operations, Bright Creations Company reports a beginning cash balance of $132,000, cash inflows from investing activities of $210,000, cash outflows for financing activities of $79,000, and cash outflows for operating activities of $13,000. What was Bright Creations' cash balance at the end of the fifth year? a. $ 250,000 b. $ 434,000 c. $ 276,000 d. $ 132,000

ANSWER: a RATIONALE: ($132,000 Beginning Balance - $13,000 Cash Flow from Operating Activities + $210,000 Cash Flows from Investing Activities - $79,000 Cash Flows from Financing Activities = $250,000)

Oreo Company has current assets of $20,000, current liabilities of $8,000, and long-term liabilities of $3,000. Oreo wants to buy new equipment. How much of its existing cash can Oreo use to acquire equipment without allowing its current ratio to decline below 2.0 to 1? a. $ 4,000 b. $ 8,000 c. $ 10,000 d. $ 12,000

ANSWER: a RATIONALE: ($16,000 / $8,000 = 2.0 to 1

Read the information about Hopper, Inc. Which of the following statements is the best answer regarding the company's profit margin? The profit margin was 15.8% in 2014. The profit margin was 15.8% in 2013. The profit margin was 31.5% in 2014. The profit margin was 31.5% in 2013.

ANSWER: a RATIONALE: ($300,000 (or $1,900,000 Operating revenues - $1,400,000 Operating expenses - $200,000 Income taxes) /$1,900,000 = 15.8%)

Read the information for Moss Company. What are Moss' current liabilities? a. $50,000 b. $125,000 c. $200,000 d. $230,000

ANSWER: a RATIONALE: ($50,000 Accounts Payable)

Marvel Shoes Marvel Shoes reported the following items on its statement of cash flows for the current year: Net cash inflows from operating activities $70,000 Net cash outflows from investing activities (20,000) Net cash outflows from financing activities (40,000) Cash balance at the beginning of the year 30,000 Read the information about Marvel Shoes. What was the amount of net increase or decrease in the cash balance for Marvel Shoes for the current year? $ 10,000 increase $ 30,000 increase $ 40,000 increase $ 70,000 increase

ANSWER: a RATIONALE: ($70,000 Operating Activities - $20,000 Investing Activities - $40,000 Financing Activities = $10,000)

Marvel Shoes Marvel Shoes reported the following items on its statement of cash flows for the current year: Net cash inflows from operating activities $70,000 Net cash outflows from investing activities (20,000) Net cash outflows from financing activities (40,000) Cash balance at the beginning of the year 30,000 Read the information about Marvel Shoes. What was the amount of net increase or decrease in the cash balance for Marvel Shoes for the current year? $10,000 increase $30,000 increase $40,000 increase $70,000 increase

ANSWER: a RATIONALE: ($70,000 Operating Activities - $20,000 Investing Activities - $40,000 Financing Activities = $10,000)

Global Inc. had net income for 2015 of $24,000. It declared and paid a $13,000 cash dividend in 2015. If the company's retained earnings for the end of the year was $39,600, what was the company's retained earnings balance at the beginning of 2015? a. $28,600 b. $50,600 c. $76,600 d. $2,600

ANSWER: a RATIONALE: (Beg. Retained Earnings + $24,000)-$13,000 = $39,600

Harbor City Corporation's endofyear balance sheet consisted of the following amounts: What is Harbor City's retained earnings balance at the end of the current year? a. $10,000 b. $110,000 c. $160,000 d. $170,000

ANSWER: a RATIONALE: Assets: $15,000+$70,000+$50,000+$35,000 = $170,000 Liabilities: $40,000+$20,000 = $60,000 Owners' equity: $170,000$60,000 = $110,000 Retained earnings: $110,000-$100,000 = $10,000

Lakeland Corporation's endofyear balance sheet consisted of the following amounts: What is Lakeland's retained earnings balance at the end of the current year? a. $13,000 b. $34,000 c. $76,000 d. $173,000

ANSWER: a RATIONALE: Assets: $25,000+$69,000+$46,000+$33,000 = $173,000 Liabilities: $41,000+$22,000 = $63,000 Owners' equity: $173,000$63,000 = $110,000 Retained earnings: $110,000-$97,000 = $13,000

At December 31, 2015, the accounting records of Wyndam Corporation contain the following: If capital stock is $260,000, what is the December 31, 2015 cash balance? a. $46,000 b. $506,000 c. $94,000 d. $86,000

ANSWER: a RATIONALE: Cash + $40,000 + $120,000 + $180,000 + $240,000 = $16,000 + $260,000 + $160,000 + $190,000

Marcos Company reported the following items on its financial statements for the year ending December 31, 2015: How much will be reported as retained earnings on Marcos' balance sheet at December 31, 2015, if this is the first year of operations? a. $ 45,000 b. $ 65,000 c. $ 85,000 d. Not enough information is provided.

ANSWER: a RATIONALE: Net income: $560,000-$400,000-$40,000-$30,000-$25,000 = $65,000 Retained earnings: $65,000-$20,000 = $45,000

Macon Enterprises purchased land for $2,000,000 in 2001. In 2015, an independent appraiser assessed the value at $3,400,000. What amount should appear on the financial statements in 2015 with respect to the land? a. $2,000,000 b. $1,400,000 c. $3,400,000 d. Whatever amount the company believes is the best indicator of the true value of the land.

ANSWER: a RATIONALE: The historical cost (purchase price of $2,000,000) should appear on the balance sheet.

Relevant information can be quantitative or qualitative. In deciding whether to go to college part-time or full-time, which of the following is a qualitative factor for a student? The cost of tuition The opportunity to make friends The price of football tickets "Good Student" discounts on auto insurance rates.

ANSWER: b

Grand Stores, Inc. is concerned about its profitability for the current year, since its profit margin has dropped 10% since last year. Which of the following is the least useful comparison in evaluating the drop in Grand Stores' profit margin? Comparison with the industry average for the current year. Comparison with its current ratio for the current year Comparison with the profit margins for its major competitors for the current year. Comparison with its profit margins for the past five years.

ANSWER: b

The preparation of financial statements requires that the information be understandable: only to CPAs. to those willing to spend the time to understand it. only to those who take an accounting course. only to financial analysts and brokers.

ANSWER: b

Which of the following items will be found in a corporate annual report? Company budgets Notes to the financial statements Selected financial data from competitor companies Management's statement that the auditors are responsible for the financial statements.

ANSWER: b

Why is the time period assumption required? Inflation exists External users of financial statements want statements that accurately reflect net income or earnings for a specific time period. The dollar is the monetary unit in the United States. The federal government requires it.

ANSWER: b

"Claims to economic resources" are known as: assets and liabilities. liabilities and stockholders' equity. owners' equity and stockholders' equity. retained earnings and revenues.

ANSWER: b

All of the following are examples of retailers except: Sports Authority. Boeing. Home Depot. Best Buy.

ANSWER: b

All of the following are important provisions of the Sarbanes-Oxley Act except: The establishment of a new Public Company Accounting Oversight Board. The requirement to prepare both FASB and IASB financial statements. A requirement that the external auditors report directly to the company's audit committee. A clause to prohibit public accounting firms that audit a company from providing any other services that could impair their ability to act independently in the course of their audit.

ANSWER: b

An accountant is uncertain about the best estimate of an amount for a business transaction. If two amounts are about equally likely, the amount least likely to overstate assets and income is selected. Which of the following qualities is characterized by this action? Comparability Conservatism Materiality Neutrality

ANSWER: b

Carnival Bakery borrowed $500,000 from Front Street Bank. Carnival then hired a contractor to build a new cookie distribution outlet. In which section of Carnival's statement of cash flows would you find information that indicated that Carnival acquired the new cookie distribution outlet? Operating Activities Investing Activities Financing Activities Profit Activities

ANSWER: b

For several years, Flame Corporation has had a current ratio that was consistent with other companies in its industry. For the most recent year, Flame's current ratio was significantly higher than that for the industry. What is the best possible explanation for this situation? The other companies in the industry were not as profitable. Flame's liquidity has improved or is not leveraging financial resources effectively. Flame has less property, plant and equipment than other companies. Flame has too much debt.

ANSWER: b

How are assets which are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year) reported on a classified balance sheet? Property, plant, and equipment Current assets Intangible assets Current liabilities

ANSWER: b

One significant difference between a classified and a non-classified balance sheet is the distinction between which of the following items? Assets and liabilities Current and noncurrent items Liabilities and owners' equity Resources invested by the owners and amounts borrowed from creditors

ANSWER: b

Sawyer Corporation purchased land in 2009 for $490,000. In 2015, it purchased a nearly identical parcel of land for $660,000. In its 2015 balance sheet, Sawyer valued these two parcels of land at a combined value of $1,320,000. By reporting the land in this manner, Sawyer Corporation has violated which of the following? Going concern assumption Cost principle Monetary unit measure Time Period assumption

ANSWER: b

Supplementary disclosures required by GAAP that help explain detail behind the accounting treatment of certain items in the financial statements is most likely found in which of the following sections of a corporate annual report? Report of the Independent Accountants Notes to the Financial Statements Management's Discussion and Analysis Balance Sheet

ANSWER: b

The Securities and Exchange Commission (SEC) is concerned with All companies in the United States regardless of size. Companies that issue securities to the general public. Accounting reports issued by government entities. All domestic and international companies that issue accounting reports.

ANSWER: b

The costs of doing business through the sale of goods and services are called: Net income. Expenses. Revenues. Dividends.

ANSWER: b

Under current accounting principles, how is net income on the income statement measured? Net change in owners' equity during the period. Excess of revenues over expenses during the period. Net change in the cash balance during the period. Excess of revenues over expenses less any dividends paid during the period.

ANSWER: b

Which financial statement reports information helpful in assessing working capital? Income statement Balance sheet Statement of retained earnings Statement of cash flows

ANSWER: b

Which financial statement would you analyze to determine if a company distributed any of its profits to its shareholders? Balance Sheet Statement of Retained Earnings Income Statement Statement of Public Accounting

ANSWER: b

Which of the following events will cause a company's current ratio to increase? The collection of an account receivable. Selling land for cash at a loss. The discharge of an account payable by signing a short-term note payable. Paying off a long-term loan.

ANSWER: b

Which of the following is the best description of the purpose of financial reporting? To allow users to access to the daily detailed records of a business. To help the users reach their decisions in an informed manner. To provide users with an assessment of how long the company will continue as a going concern. To allow users access to a list of all the individuals who owe the company money.

ANSWER: b

Which of the following statements best describes the term "revenues"? Revenues represent an outflow of assets resulting from the sale of goods or services. Revenues represent assets received from the sale of products or services. Revenues represent assets used or consumed in the sale of products or services. Revenues represent the dollar amount of bonds sold to the public.

ANSWER: b

Which of the following statements is true concerning intangible assets? Intangible assets have no economic substance. Intangible assets lack physical existence. Intangible assets are listed in the stockholders' equity section of the balance sheet. Intangible assets appear in the current assets section of the balance sheet.

ANSWER: b

Which of the following statements is true regarding a bond? A bond is a certificate that acts as evidence of ownership in a corporation. A bond is a certificate that represents a corporation's promise to repay a certain amount of money and interest in the future. If you buy a bond from a company, you are borrowing money from the company. Bondholders receive dividends semiannually.

ANSWER: b

Which of the following statements would be true if you own stock in a company? You are an owner of the retained earnings and capital stock of the company. You have a claim to the assets of the business. You have the right to receive interest on an annual basis. You have the right to a portion of the company's revenues each accounting period.

ANSWER: b

Which of the following terms best describes a distribution of the net income of a business to its owners? Revenue Dividends Earnings Monetary unit

ANSWER: b

Which of the following would be internal users of accounting information? Customers and vendors Employees and managers Government and banks Employees and customers

ANSWER: b

Which one of the following categories on a statement of cash flows is used to report the cash flow effects of buying and selling property, plant, and equipment? Operating Activities Investing Activities Financing Activities Profit Activities

ANSWER: b

Which one of the following is a financing activity of a business? Paying for purchases of inventory Issuing stock for cash Paying salaries Purchasing a manufacturing plant

ANSWER: b

Which one of the following is an economic obligation for a business entity? Salaries paid to employees for services rendered Amounts owed to creditors Materials used in manufacturing products Payment of rent for the next year

ANSWER: b

Which one of the following items does not accurately describe stockholders' equity? Stockholders' equity is created when a company issues stock to an investor. Total stockholders' equity should be equal to Assets in an publicly held entity. Stockholders' equity represents amounts contributed by the owners to the company. As owners of shares in a corporation, stockholders have claims on the assets of a business when it is profitable.

ANSWER: b

Which one of the following items is correct concerning the time element of financial statements? The balance sheet covers a period of time. The statement of retained earnings explains changes during a particular period. An income statement lists amounts at a specific point in time. Both the income statement and the balance sheet cover a period of time.

ANSWER: b

Which one of the following sections is least likely to be found in a corporate annual report? Notes to the Financial Statements Forecasts of Cash Flows and Earnings Report of the Independent Accountants Management's Discussion and Analysis

ANSWER: b

Which one of the following subtotals or totals would appear in a multiple-step, but not a single-step income statement? Income tax expense Income from operations Cost of goods sold Net income

ANSWER: b

Which statement is true concerning gains and losses? Gains and losses are reported on the balance sheet in the Assets and Liabilities sections, respectively. Gains and losses are special types of revenues and expenses that are reported on the income statement. The amounts of gains and losses are included in the calculation of the current ratio, in the numerator and denominator, respectively. Gains and losses are reported only on a multi-step income statement.

ANSWER: b

Which statement summarizes the income earned and the dividends paid? Statement of cash flows Statement of retained earnings Balance sheet Income statement

ANSWER: b

Volt Corp. reported the following information for the year ended December 31, 2015: How much was paid out in dividends by Volt in 2015? a. $ 20,000 b. $ 25,000 c. $ 30,000 d. $ 50,000

ANSWER: b RATIONALE: $100,000+$50,000-$20,000-X = $105,000 X = $25,000

Lamar Company has total current assets of $122,000 and total current liabilities of $57,000. What is the amount of working capital for Lamar Company? a. $ 57,000 b. $ 65,000 c. $ 122,000 d. $ 179,000

ANSWER: b RATIONALE: $122,000 - $57,000 = $65,000

Lamar Company has total current assets of $122,000 and total current liabilities of $57,000. What is the amount of working capital for Lamar Company? a. $57,000 b. $65,000 c. $122,000 d. $179,000

ANSWER: b RATIONALE: $122,000 - $57,000 = $65,000

At December 31, 2015, the accounting records of Farmer Corporation contain the following: If Cash is $26,000, what is the December 31, 2015 capital stock balance? a. $272,000 b. $240,000 c. $220,000 d. $400,000

ANSWER: b RATIONALE: $26,000 + $40,000 + $120,000 + $180,000 + $240,000 = $16,000 + $160,000 + $190,000 + Capital Stock

Wei Company reported the following items on its financial statements for the year ending December 31, 2015: The income statement for Wei will report net income for the current year in the amount of a. $ 45,000 b. $ 65,000 c. $ 85,000 d. $ 465,000

ANSWER: b RATIONALE: $560,000-$400,000-$40,000-$30,000-$25,000 = $65,000

Gyro's Shop reported a net loss of $15,000 and total expenses of $80,000. How much are total revenues? a. $ 15,000 b. $ 65,000 c. $ 95,000 d. The answer cannot be determined from the information given.

ANSWER: b RATIONALE: $80,000 Total Expenses + ($15,000) Net Loss = $65,000 Total Revenues

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee's total assets doubled to $900,000 and its owners' equity remained the same during the year, what was the amount of its total liabilities at the end of the year? a. $670,000 b. $680,000 c. $440,000 d. $900,000

ANSWER: b RATIONALE: $900,000 = L + $220,000

ANSWER: b RATIONALE: ($30,000 Cash + $21,000 Merchandise Inventory + $25,000 Accounts Receivable) / ($14,000 Accounts Payable + $24,000 Notes Payable--Due 07/01/2015) = 2.00 to 1

Read the information about Bartlett Industries. If the company's revenues were $500,000 for the year ended December 31, 2015, how much were total expenses? a. $160,000 b. $260,000 c. $640,000 d. $740,000

ANSWER: b RATIONALE: ($500,000 Revenues - $240,000 Net Income $260,000)

ANSWER: b RATIONALE: ($500,000 Revenues - $240,000 Net Income = $260,000)

Moss Company Moss Company has provided the following information from its accounting records for the current year: Read the information for Moss Corporation. What are Moss' current assets? a. $ 100,000 b. $ 165,000 c. $ 210,000 d. $ 240,000

ANSWER: b RATIONALE: ($55,000 Cash + $45,000 Accounts Receivable + $65,000 Inventory = $165,000)

Selected data from the accounting records of Webb Company are listed below: Read the information about Webb Company. What is Webb's income from operations? a. $1,600 b. $2,000 c. $2,200 d. $2,800

ANSWER: b RATIONALE: ($6,000 Operating Revenues - $2,200 General & Administrative Expenses - $1,800 Selling Expenses =$2,000)

Webb Company Selected data from the accounting records of Webb Company are listed below: Read the information about Webb Company. What is Webb's income from operations? a. $ 1,600 b. $ 2,000 c. $ 2,200 d. $ 2,800

ANSWER: b RATIONALE: ($6,000 Operating Revenues - $2,200 General & Administrative Expenses - $1,800 Selling Expenses =$2,000)

Front Corporation's endofyear balance sheet consisted of the following amounts: What is Front's owners' equity balance at the end of the current year? a. $3,000 b. $110,000 c. $63,000 d. $173,000

ANSWER: b RATIONALE: Assets: $25,000+$69,000+$46,000+$33,000 = $173,000 Liabilities: $41,000+$22,000 = $63,000 Owners' equity: $173,000$63,000 = $110,000 Retained earnings: $110,000-$107,000 = $3,000

Brock Corporation's endofyear balance sheet consisted of the following amounts: What is Brock's total liabilities balance at the end of the current year? a. $8,000 b. $65,000 c. $108,000 d. $173,000

ANSWER: b RATIONALE: Assets: $25,000+$69,000+$46,000+$33,000 = $173,000 Liabilities: $41,000+$24,000 = $65,000 Owners' equity: $173,000$65,000 = $108,000 Retained earnings: $108,000-$100,000 = $8,000

Read the information about Deal Mart. What is Deal Mart's profit margin (to the closest tenth of a percent)? 2.8 35.5 61.2 14.5

ANSWER: b RATIONALE: Profit margin: Net Income/Revenues = $46,470*/$130,800 = 35.5% *$130,800 - $37,100 - $34,900 - $900 - $11,430 = $46,470

Mobile Power Corp. reported the following information for the year ended December 31, 2015. What was the retained earnings balance for Mobile Power at December 31, 2014? a. $ 165,000 b. $ 168,000 c. $ 182,000 d. $ 192,000

ANSWER: b RATIONALE: X + $17,000 - $10,000 = $175,000 X = $168,000

Button Transportation purchases many pieces of office furniture with an individual cost below $200 each. Button chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company's accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows Button to expense the furniture? Conservatism Matching Materiality Verifiability

ANSWER: c

Which of the following is the correct date format for the financial statement heading? Balance sheet for the year ended June 30, 2015 Income statement at December 31, 2015 Balance sheet at December 31, 2015 Statement of retained earnings at December 31, 2015

ANSWER: c

Read the information about Bartlett Industries. The company's dividends for the year: reduce the amount of capital stock reported by the company. are part of Bartlett Industries' operating costs. are reported on the statement of retained earnings. are an expense of Bartlett Industries.

ANSWER: c

The following list contains several items that appear on an income statement. Select the choice that lists the items in the order they would appear on a multi-step income statement a. 6, 1, 7, 4, 2, 3, 5 b. 7, 6, 1, 4, 2, 3, 5 c. 6, 4, 7, 1, 2, 3, 5 d. 6, 7, 4, 1, 2, 3, 5

ANSWER: c

Which of the following categories on a statement of cash flows is used to report the cash flow effects of transactions involving a company's stock? Operating Activities Investing Activities Financing Activities Profit Activities

ANSWER: c

Which of the following organizations is responsible for setting auditing standards followed by public accounting firms in conducting independent audits of financial statements? Financial Accounting Standards Board (FASB) Securities and Exchange Commission (SEC) Public Company Accounting Oversight Board (PCAOB) International Accounting Standards Board (IASB)

ANSWER: c

A bank loaned $62 million to Apex Corporation to finance the construction of a new distribution warehouse. In which section of Apex's statement of cash flows would you be able to determine whether the company repaid any portion of the debt during the year? Operating Activities Investing Activities Financing Activities Profit Activities

ANSWER: c

A company is not required to prepare both a(n): income statement and statement of stockholders' equity. income statement and statement of retained earnings. statement of stockholders' equity and statement of retained earnings. statement of cash flows and statement of retained earnings.

ANSWER: c

All of the following are different expressions for net income except: Profits Excess of revenues over expenses Capital Earnings

ANSWER: c

Although businesses engage in a wide variety of activities, all of these activities can be categorized into three types. Which of the following choices best reflects these three types of business activities? Operating, financing, reporting Investing, reporting, financing Operating, financing, investing Investing, reporting, operating

ANSWER: c

As used in accounting, the "Notes to the Financial Statements" should be: listed with the liabilities on the balance sheet. omitted at the option of the company. included as an integral part of the financial statements. reported as expenses on the Income Statement.

ANSWER: c

Barton Building Company is ready to sell its bonds. Which one of the following financial questions is most relevant to the issue of the bonds and that investors will most likely want answered before they purchase the bonds? How many product lines did Barton Building Company have last year? What will be Barton Building Company's cost to start operations in another city? How much debt does Barton Building Company already have? Will Barton Building Company pay dividends?

ANSWER: c

Drew Mellow, owner of Mellow's Melodies, also owns a personal residence that costs $400,000. The market value of his residence is $600,000. During preparation of the financial statements for Mellow's Melodies, the accounting concept most relevant to the presentation of Drew's home is: monetary unit. a going concern entity. the economic entity concept. the time period assumption.

ANSWER: c

How is income from operations determined? By subtracting the cost of goods sold from sales. By subtracting the total operating expenses from sales By subtracting the total operating expenses from gross profit. By subtracting selling expenses from operating revenues.

ANSWER: c

How is the balance sheet linked to the other financial statements? The amount of retained earnings reported on the balance sheet is equal to net income. Retained earnings is added to total assets and reported on the balance sheet. Net income increases retained earnings on the statement of retained earnings, which ultimately increases retained earnings on the balance sheet. There is no link between the balance sheet and other statements, as each contains different accounts and provides different information.

ANSWER: c

In order for accounting information to be useful in making informed decisions, it must be: relevant. reliable. both relevant and reliable. neither relevant nor reliable.

ANSWER: c

RATIONALE: ($50,000 Cash + $45,000 Inventory = $95,000) Which of the following accounts are normally reported as current liabilities on a classified balance sheet? Accounts payable and bonds payable Interest payable and mortgage payable Income taxes payable and salaries payable Capital stock and accounts payable

ANSWER: c

The inflow of assets resulting from the sale of products and services is called a(n): asset. liability. revenue. expense.

ANSWER: c

The reliability of the information in a company's financial statements is the responsibility of which of the following? The Securities and Exchange Commission (SEC) The Certified Public Accountant in charge of the audit of the company's financial statements The company's management The stockholders of the company

ANSWER: c

What are the two subtotals that distinguish the multi-step income statement from the single-step income statement? Income before taxes and income taxes Total operating revenues and total operating expenses Income from operations and income before taxes Total revenues and total expenses

ANSWER: c

What is the correct method for calculating working capital? Total Assets minus Total Liabilities Current Assets minus Total Liabilities Current Assets minus Current Liabilities Current Assets plus Current Liabilities

ANSWER: c

What was the economic effect of the payment of Lewis' dividends? The dividend reduced net income for 2015. The dividend should be equal to net income if the company's accounting equation is in balance. The dividends reduce total retained earnings for the year. The dividends must be paid whenever Lewis Corp. reports net income.

ANSWER: c

Which concept is the reason the dollar is used in the preparation of financial statements? Going concern Legal entity Monetary unit Time Period

ANSWER: c

Which of the following accounts are normally reported as current liabilities on a classified balance sheet? Accounts payable and bonds payable Interest payable and mortgage payable Income taxes payable and salaries payable Capital stock and accounts payable

ANSWER: c

Which of the following best describes a company's financing activities? Financing activities focus on the sale of products and services. Financing activities include selling products. Financing activities enable a company to acquire assets needed to run a business. Financing activities are represented by the revenues and expenses on the income statement.

ANSWER: c

Which of the following best describes the term "assets"? The amount of total profits earned by a business since it began operations. The amount of interest or claim that the owners have in the business. The economic resources of a business entity. The cumulative profits earned by a business less any dividends distributed.

ANSWER: c

Which of the following is a five-member body that has the authority from Congress to set standards for conducting audits? FASB SEC PCAOB AICPA

ANSWER: c

Which of the following is a noncurrent asset? Inventories Office supplies Land Accounts receivable

ANSWER: c

Which of the following represents the correct sequence of the three business activities on the Statement of Cash Flows? Financing - Operating - Investing Investing - Operating - Financing Operating - Investing - Financing Financing - Investing - Operating

ANSWER: c

Which of the following represents the proper order of the financial decision framework? Analyze the information, formulate the question, gather information from financial statements, monitor your decision, make the decision. Formulate the question, Analyze the information, gather information from financial statements, monitor your decision, make the decision. Formulate the question, Gather information from financial statements, Analyze the information, Make the decision, Monitor your decision Analyze the information, monitor your decision, make the decision, formulate the question, gather information from financial statements.

ANSWER: c

Which of the following statements is true concerning external users of financial information? External users need detailed records of the business to make informed decisions. External users are primarily responsible for the preparation of financial statements. External users rely on the financial statements to help make informed decisions. External users rely on management to tell them whether the company is a good investment

ANSWER: c

Which of the following statements is true regarding the multiple-step income statement? The multiple-step income statement is used only by companies that sell products, not those that provide services. The multiple-step income statement is helpful in determining a company's working capital. The multiple-step income statement reports the same net income as the single-step income statement. The multiple-step income statement is required under generally accepted accounting principles.

ANSWER: c

Which of the following would not appear on an income statement? Sales revenue Cost of goods sold Accounts receivable Insurance expense

ANSWER: c

Which of the following would not be considered to be an intangible asset? Franchises Copyrights Investments Goodwill

ANSWER: c

Which one of the following is not a major category for long-term assets? Intangibles Property, plant, and equipment Receivables Goodwill

ANSWER: c

Which one of the following statements is true concerning assets? They are recorded at market value and then adjusted for inflation. They are recorded at market value for financial reporting purposes as historical cost may be arbitrary. Accountants use the term historical cost to refer to the original cost of an asset. Assets are measured using the time-period approach.

ANSWER: c

Which organization, in addition to the Financial Accounting Standards Board (FASB), occasionally issues authoritative rules for financial statements? The Accounting Profession International Accounting Standards Board (IASB) Securities and Exchange Commission (SEC) Internal Revenue Service (IRS)

ANSWER: c

Which statement is true concerning an income statement? The income statement shows how much profit the company has earned since it began operations. Net income on the income statement should be equal to the amount of cash on the balance sheet. The income statement summarizes the results of operations for a period of time. The income statement indicates the liquidity of the company on an annual basis.

ANSWER: c

Cerrato Company has assets of $350,000, liabilities of $130,000, and retained earnings of $180,000. How much is total owners' equity? a. $ 40,000 b. $ 170,000 c. $ 220,000 d. $ 350,000

ANSWER: c RATIONALE: $350,000 (Assets) $130,000 (Liabilities) = $220,000 Owners' Equity

On January 1, 2015, Flaggler Company's balance in retained earnings was $70,000. During 2015, the company earned net income of $43,000 and paid $15,000 in dividends. Calculate the retained earnings balance at December 31, 2015. a.$42,000 b.$90,000 c.$98,000 d.$113,00

ANSWER: c RATIONALE: $70,000+$43,000-$15,000 = $98,000

If the current ratio is 2.5 to 1, net income is $6,000, and current liabilities are $18,000, how much is working capital? a. $ 6,000 b. $ 24,000 c. $ 27,000 d. $ 45,000

ANSWER: c RATIONALE: ($18,000 Current Liabilities × 2.5 = $45,000 Current Assets

If the current ratio is 2.5 to 1, net income is $6,000, and current liabilities are $18,000, how much is working capital? a. $6,000 b. $24,000 c. $27,000 d. $45,000

ANSWER: c RATIONALE: ($18,000 Current Liabilities × 2.5 = $45,000 Current Assets

Guinther & Sons, Inc. Guinther & Sons, Inc. a retailer of men's clothing, earned a net profit of $77,000 for 2014. The balance sheet for Guinther & Sons includes the following items: Read the information for Guinther & Sons. Calculate the total amount of current assets for Guinther & Sons. a. $ 100,000 b. $ 147,000 c. $ 150,000 d. $ 249,000

ANSWER: c RATIONALE: ($29,000 Cash + $39,000 Accounts Receivable + $79,000 Inventory + $3,000 Prepaid Insurance = $150,000)

Guinther & Sons, Inc. Guinther & Sons, Inc. a retailer of men's clothing earned a net profit of $77,000 for 2014. The balance sheet for Guinther & Sons includes the following items: Read the information for Guinther & Sons. Calculate the total amount of current assets for Guinther & Sons. a. $100,000 b. $147,000 c. $150,000 d. $249,000

ANSWER: c RATIONALE: ($29,000 Cash + $39,000 Accounts Receivable + $79,000 Inventory + $3,000 Prepaid Insurance = $150,000)

Read the information for Guinther & Sons, Inc. Calculate the current ratio for Guinther & Sons. a. 2.58 to 1 2.75 to 1 3.00 to 1 2.00 to 1

ANSWER: c RATIONALE: ($29,000 Cash + $39,000 Accounts Receivable + $79,000 Inventory + $3,000 Prepaid Insurance) / ($21,000 Accounts Payable + $29,000 Taxes Payable) = 3.00 to 1

Read the information for Guinther & Sons, Inc. Calculate the current ratio for Guinther & Sons. a. 2.58 to 1 2.75 to 1 3.00 to 1 2.00 to 1

ANSWER: c RATIONALE: ($29,000 Cash + $39,000 Accounts Receivable + $79,000 Inventory + $3,000 Prepaid Insurance) / ($21,000 Accounts Payable + $29,000 Taxes Payable) = 3.00 to 1

Read the information about Marvel Shoes. What was the cash balance for Marvel Shoes at the end of the current year? a. $10,000 b. $30,000 c. $40,000 d. $70,000

ANSWER: c RATIONALE: ($30,000 Beginning Balance + $10,000 Increase in Cash = $40,000)

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee's total assets increased by $80,000 and its total liabilities increased by $57,000 during the year, what is the amount of Sawaddee's owners' equity at the end of the year? a. $197,000 b. $543,000 c. $243,000 d. $220,000

ANSWER: c RATIONALE: ($450,000 + $80,000) = ($230,000 + $57,000) + SE

Read the information about Webb Company. What is Webb's net income? a. $1,600 b. $2,000 c. $2,200 d. $2,800

ANSWER: c RATIONALE: ($6,000 Operating Revenues - $2,200 General & Administrative Expenses - $1,800 Selling Expenses =$2,000 + $800 Other Revenues (Expenses) - $600 Income Taxes = $2,200)

Skyline, Inc. The balance sheet of Skyline Inc. includes the following items: Read the information about Skyline, Inc. What is Skyline's current ratio? 0.8 to 1 1.6 to 1 1.2 to 1 2.5 to 1

ANSWER: c RATIONALE: Current Ratio = Current Assets/Current Liabilities = ($22,400 + $11,700 + $23,300 + $1,040)/ ($47,500 +$1,200) = $58,440/48,700 = 1.2 to 1

Skyline, Inc. The balance sheet of Skyline Inc. includes the following items: Read the information about Skyline, Inc. What is Skyline's current ratio? 0.8 to 1 1.6 to 1 1.2 to 1 2.5 to 1

ANSWER: c RATIONALE: Current Ratio = Current Assets/Current Liabilities = ($22,400 + $11,700 + $23,300 + $1,040)/($47,500 +$1,200) = $58,440/48,700 = 1.2 to 1

In preparing financial statements, accountants should consider all of the following except: the objectives of financial reporting. the characteristics that make accounting information useful. the most useful way to display the information found on the financial statements. the presentation of the value of a company.

ANSWER: d

Forman, Inc. earned $600,000 profit during 2015. On which financial statement(s) will you find the dollar amount of the profit earned by the company? Balance sheet and income statement Income statement only Statement of retained earnings only Income statement and statement of retained earnings

ANSWER: d

Read the information about Webb Company. By what amount will net income on a single-step income statement differ from net income on a multi-step income statement if Webb Company prepares both formats? $800 $600 $200 $-0-

ANSWER: d

The qualitative characteristics of accounting data include: assets reported on the balance sheet. all accounting information. cash flows. reliability.

ANSWER: d

Which of the following is a current asset? Land Buildings Store fixtures Prepaid insurance

ANSWER: d

All of the following are the types of activities that businesses engage in except: financing activities. investing activities. operating activities. organizational activities.

ANSWER: d

An investor found the following in an annual report: "The financial statements, in our opinion, present fairly the financial position, operating results, and cash flows, in conformity with accounting principles generally accepted in the United States." In which section of the annual report did the investor find this? Balance Sheet Notes to the Financial Statements Management's Discussion and Analysis Report of the Independent Accountants

ANSWER: d

Assume that you want to determine the profit margin for a company. Which one of the following financial statements is the best source of this information? Statement of retained earnings Statement of cash flows Statement of stockholders' equity Income statement

ANSWER: d

The following information is given for Sego Company: What are the company's current assets? a. $220,000 b. $155,000 c. $130,000 d. $ 95,000

ANSWER: d

The natural progression in items from one statement to another and preparation of financial statements is best represented by the following order: Balance sheet and statement of cash flows > statement of retained earnings > income statement Balance sheet and statement of cash flows > income statement > statement of retained earnings Statement of retained earnings > income statement > balance sheet and statement of cash flows Income statement > statement of retained earnings > balance sheet and statement of cash flows

ANSWER: d

The qualitative characteristics of accounting data include: assets reported on the balance sheet. all accounting information. cash flows. reliability.

ANSWER: d

The second step in the ethical decision-making model is to: list alternatives and evaluate the impact of each on those affected. select the best alternative. recognize an ethical dilemma. analyze the key elements in the situation.

ANSWER: d

Which financial statement reports the sources and uses of an entity's cash resources? Income statement Statement of retained earnings Balance sheet Statement of cash flows

ANSWER: d

Which of the following are generally supplementary information required by GAAP concerning the accounting treatments used by a company? A Year-End Worksheet Management's Discussion and Analysis The Report of Independent Accountants Notes to the Consolidated Financial Statements

ANSWER: d

Which of the following best describes the term "retained earnings"? The amount of total profits earned by a business since it began operations. The amount of interest or claim that the owners have on the assets of the business. The future economic resources of a business entity. The cumulative profits earned by the business less any dividends distributed.

ANSWER: d

Which of the following is a current asset? Land Buildings Store fixtures Prepaid insurance

ANSWER: d

Which of the following is an organization that lends funds to a business entity and expects repayment of the funds? A partner A stockholder An owner A creditor

ANSWER: d

Which of the following is not an objective of financial reporting? To reflect prospective cash receipts to investors and creditors. To reflect prospective cash flows to an enterprise. To reflect resources and claim to resources. To reflect current stock prices and information concerning stock markets.

ANSWER: d

Which of the following represents one of the purposes of the notes to financial statements? To provide a place for management to justify questionable items in the statements. To provide comparative ratios for the company's financial data. To provide the CPA's opinion of the fairness of the financial statements. To satisfy the need for full disclosure of all the facts relevant to a company's results and financial position.

ANSWER: d

Which of the following statements is true? Profits distributed to the creditors are called dividends. The balance sheet shows the assets, liabilities, and profits of a company. Dividends are an expense, and are reported on the income statement as a deduction from net income. The income statement reports the revenues and expenses of a company.

ANSWER: d

Which of the following would appear on a multiple-step income statement but not on a single-step income statement? Net income Total expenses Total revenues Income before income taxes

ANSWER: d

Which of the following would be classified as external users of financial statements? Stockholders and management of the company The controller of the company and a company's stockholders The company's marketing managers The creditors and stockholders of the company

ANSWER: d

Which one of the following business decisions will least likely require financial information? The Gulf Coast Bank is reviewing the loan application from Tuo's Restaurant. Tuo's Restaurant is attempting to sell its stock to the public. The labor union representing Flaggler's Fitness Spa employees is negotiating a pay raise as part of a new labor agreement. Tuo's Restaurant management is deciding whether to wash its catering vans today or tomorrow.

ANSWER: d

Which one of the following correctly represents one of the basic financial statement models? Assets - Liabilities = Net Income Assets + Liabilities = Owners' Equity Revenues + Expenses = Net Income Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

ANSWER: d

Which one of the following equations represents retained earnings activity? Beginning balance + net income + dividends = profits for the year Beginning balance + cash inflows - cash outflows = ending balance Beginning balance + dividends - net income = ending balance Beginning balance + net income - dividends = ending balance

ANSWER: d

Which one of the following groups is considered an internal user of financial statements? A bank reviewing a loan application from a corporation. The labor union representing employees of a company that is involved in labor negotiations. The financial analysts for a brokerage firm who are preparing recommendations for the firm's brokers on companies in a certain industry. Factory managers that supervise production line workers.

ANSWER: d

Which one of the following is a correct expression of the accounting equation? Assets + Liabilities = Owners' Equity Assets = Liabilities Owners' Equity Assets + Owners' Equity = Liabilities Assets = Liabilities + Owners' Equity

ANSWER: d

Which one of the following is least likely to be a user of financial information of a grocery store? The manager of the grocery store. The supplier of milk to the grocery store. A stockbroker looking for a possible investment. A customer at the grocery store.

ANSWER: d

Which one of the following is not an external user of financial statements? Suppliers Creditors Investors The company's controller

ANSWER: d

Which one of the following is not one of the three activities included in the definition of accounting? Communicating Identifying Measuring Operating

ANSWER: d

Surge Company reports the following information at December 31, 2015: What is Surge Company's net income? a. $ 15,000 b. $ 45,000 c. $ 55,000 d. $ 65,000

ANSWER: d RATIONALE: $150,000 (Revenue) - $85,000 (Expenses) = $65,000 (Net Income)

Lawton Corporation's endofyear balance sheet consisted of the following amounts: What amount should Lawton report on its balance sheet for total assets? a. $100,000 b. $161,000 c. $194,000 d. $195,000

ANSWER: d RATIONALE: $25,000+$69,000+$58,000+$43,000 = $195,000

Sun City Corporation's endofyear balance sheet consisted of the following amounts: What amount should Sun City report on its balance sheet for total assets? a. $100,000 b. $95,000 c. $165,000 d. $200,000

ANSWER: d RATIONALE: $25,000+$70,000+$70,000+$35,000 = $200,000

The following information is given for Sego Company: What are the company's current assets? a. $220,000 b. $155,000 c. $130,000 d. $ 95,000

ANSWER: d RATIONALE: ($50,000 Cash + $45,000 Inventory = $95,000)

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee total liabilities increased by $31,000 and its owners' equity decreased by $53,000 during the year, what was the amount of its total assets at the end of the year? a. $472,000 b. $242,000 c. $198,000 d. $428,000

ANSWER: d RATIONALE: A = ($230,000 + $31,000) + ($220,000* - $53,000) = $428,000 *Owners' equity = $450,000 $230,000

Read the information about Skyline, Inc. What is Skyline's working capital? a. $58,440 b. $89,740 c. $84,040 d. $9,740

ANSWER: d RATIONALE: Current Ratio = Current Assets/Current Liabilities = ($22,400 + $11,700 + $23,300 + $1,040)/($47,500 + $1,200) = $58,440/48,700 = 1.2 to 1 Working Capital = Current Assets - Current Liabilities = $58,440 -$48,700 = $9,740

Read the information about Skyline, Inc. What is Skyline's working capital? a. $58,440 b. $89,740 c. $84,040 d. $9,740

ANSWER: d RATIONALE: Current Ratio = Current Assets/Current Liabilities = ($22,400 + $11,700 + $23,300 + $1,040)/($47,500 +$1,200) = $58,440/48,700 = 1.2 to 1 Working Capital = Current Assets - Current Liabilities = $58,440 -$48,700 = $9,740

ANSWER: d RATIONALE: Net Income = $130,800 - $37,100 - $34,900 - $900 - $11,430 = $46,470

A company will have to pay a $50,000 liability in 4 years. How much must be deposited now into a bank account earning 8% compounded semiannually to fully fund the future payment? a. $35,500 b. $36,550 c. $36,523 d. $34,000

A credit memorandum appeared on Central Company's bank statement. How will Central treat this amount on its bank reconciliation? a. Add it to the bank balance b. Add it to the book balance c. Deduct from the bank balance d. Deduct from the book balance

A gain is recognized on the disposal of plant assets when: a. The sales price is greater than the book value and less than the residual value. b. The sales price is greater than the book value and greater than the residual value. c. The sales price is less than both the book value and the residual value. d. The sales price is greater than the residual value but less than the book value.

A single employee in the mailroom opens the mail, counts the money received, and prepares a control list of the amount received. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

An employee in the accounting department records cash receipts from customers and prepares a bank deposit slip. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

An internal control system consists of all the following policies and procedures except: a. Those necessary to ensure the safeguarding of an entity's assets. b. Those necessary to ensure that cash on hand and on deposit in checking accounts is beyond the minimal amount for ongoing operations. c. Those necessary to ensure the reliability of its accounting records. d. Those necessary to ensure the accomplishment of its overall objectives.

An outstanding check is a check that: a. Has been presented to the bank for payment but has not been reported on the bank statement b. Has been written by the account holder but has not been presented to the bank for payment c. Is guaranteed for payment by the bank d. Has been written for an amount that is greater than the balance in the account holder's bank account

Barnhill, Inc. uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much longer than 10 years, perhaps up to 20 years. What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than 10 years? a. Both earnings per share and net income will decrease. b. Both earnings per share and net income will increase. c. Earnings per share will decrease and net income will increase. d. Earnings per share will increase and net income will decrease.

Blanton Company bought equipment on January 1, 2010 with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined at the beginning of 2014 that the useful life should be shortened by 3 years and the residual value changed to zero. What is the accumulated depreciation at the end of 2013? a. $42,667 b. $32,000 c. $40,000 d. $8,000

Central National Bank recently acquired a new computer system. Which of the following costs associated with the computer should not increase the Equipment account? a. Installation of a backup power source required for the computer. b. Replacement of several circuit boards damaged during installation. c. System programmer wages for personnel hired to prepare the system for use. d. Insurance coverage covering the transport period from the manufacturer.

Creighton, Inc. determined that it had incorrectly estimated both the useful life and the estimated residual value of equipment which it purchased 2 years ago. When accounting for the change in its accounting estimates, Creighton must a. correct the financial statements of prior years' affected by the errors in the estimates. b. determine the book value at the point of change and depreciate that amount over the remaining useful life. c. add the amount of the error to the amount of the current year's depreciation expense. d. determine the effect of the error and report it as a loss on the income statement in Other Revenues and Expenses

Crimson Corp. constructed equipment to manufacture a new line of home products during 2015. The average balance of accumulated expenditures on the equipment during September through December 2015 was $500,000. Construction started on September 1, 2015 and was still in progress at the end of 2015. If Crimson borrowed $500,000 for one year on September 1, 2015, to finance the construction, and the interest rate on the construction loan was 6%, how much interest can Crimson capitalize as part of the equipment cost for 2015? a. $ -0- b. $10,000 c. $20,000 d. $30,000

Crouch Apartments purchased an apartment building to rent to university students on December 15, 2012. The tenants moved in on January 1, 2013. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded? a. It should be recorded as part of the asset account. b. It should be recorded as repair and maintenance expense. c. It should not be recorded as the tenants will be charged for the damage. d. It should not be recorded since this is an immaterial amount to the landlord.

Fenchurch Corp. uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's account balance? A. Assets and liabilities decrease B. Assets and owners' equity decrease C. Owners' equity decrease and liabilities increase D. No effect; assets increase and decrease by the same amount

GAAP require that research and development costs to develop a new product be a. capitalized in the patents account. b. expensed in the period incurred. c. capitalized in the research and development costs account. d. amortized over the expected economic life of the new product.

Genuine Parts received a promissory note from a customer on March 1, 2015. The face amount of the note is $8,000; the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized? a. Increase Cash, $8,000, and decrease Notes Receivable $8,000 b. Increase Cash, $8,180, increase Interest Revenue, $180, and decrease Notes Receivable, $8,000 c. Increase Cash $8,720, decrease Notes Receivable $8,000, and increase Interest Revenue, $720 d. No entry is required; the customer pays the amount due to the bank

Greer Company purchased land for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence and a legal fee of $8,500. What is the cost of the land? a. $256,000 b. $282,200 c. $284,600 d. $281,000

Harkin Company purchased a building on a tract of land and allocated the entire cost of the purchase to building. Normally it depreciates buildings over 20 years using the straight-line method with zero residual value and does not depreciate land. Because of its accounting treatment of the purchase, Harkin's income before taxes for the next 20 years will be a. overstated. b. understated. c. unaffected. d. in conformance with GAAP.

How are the cash flow effects from the purchase and sale of intangible assets reported on a statement of cash flows? a. As operating activities b. As investing activities c. As financing activities d. They are not reported on a statement of cash flows

How would bank service charges be dealt with in a bank reconciliation? a. Added to company's book balance b. Deducted from company's book balance c. Added to bank statement balance d. Deducted from bank statement balance

How would customer's NSF checks be dealt with in a bank reconciliation? a. Added to company's book balance b. Deducted from company's book balance c. Added to bank statement balance d. Deducted from bank statement balance

If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2016? a. $14,063 b. $15,000 c. $18,750 d. $20,000

If Norwood uses the straight-line method, what is the book value at December 31, 2017? a. $46,875 b. $51,875 c. $62,500 d. $67,500

If Pharma Corp. estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense for 2015? a. $12,400 b. $13,700 c. $14,000 d. $14,300

If Pharma Corp.uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense? a. $140,000 b. $156,000 c. $167,000 d. $184,000

If a company erroneously records a $500 deposit as $400 in its books, which of the following must occur when reconciling the bank statement? a. The company will have to increase the balance per the bank statement by $100. b. The company will have to increase the balance per the books by $100. c. The company will have to decrease the balance per bank statement by $100. d. None of the above

If a company uses the allowance method to account for bad debts, when will the company's owners' equity decrease? A. At the date a customer's account is written off B. At the end of the accounting period when an adjusting entry for bad debts is recorded C. At the date a customer's account is determined to be uncollectible D. When the accounts receivable amount becomes past due

In 2010, Blanton Company bought equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years. It was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined at the beginning of 2014 that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for 2014 is a. $11,636 b. $16,000 c. $11,000 d. $8,000

Long-term assets are $800, current liabilities are $500, and long-term liabilities are $600. If the current ratio is 2.5 to 1, then current assets are a. $625 b. $1,250 c. $2,000 d. $200

On January 1, 2014, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There was $400 of receivables written off as uncollectible in 2014. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. The amount of bad debts expense recognized in the 2014 income statement will be: a. $545 b. $595 c. $745 d. $795

On January 1, 2014, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There was $400 of receivables written off as uncollectible in 2014. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. The net realizable value of receivables appearing on the 2014 balance sheet will amount to: a. $14,105 b. $14,155 c $14,900 d $15,450

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called a. Accumulated Amortization b. Accumulated Depreciation c. Amortization Expense d. Depreciation Expense

Operating assets with no physical properties are called a. current assets b. intangible assets c. plant assets d. property, plant, and equipment

Ramirez Stores purchased a trademark at the beginning of 2013 for $340,000. Economic benefits were expected for 10 years, but the trademark's legal life was 20 years. Also, during 2013, Ramirez incurred research and development costs of $200,000. The book value of the trademarks at December 31, 2013, is a. $506,000 b. $306,000 c. $323,000 d. $486,000

Refer to information for Mellon Corporation. If Mellon uses 2% of net credit sales to estimate its bad debts, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts? a. $33,000 b. $31,800 c. $27,000 d. $25,800

Refer to the data for Benton Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2015? a. $2,900 b. $11,500 c. $23,500 d. $26,900

Refer to the information for Mellon Corporation. If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense? a. $216,000 b. $219,000 c. $222,000 d. $250,000

Refer to the information for Norwood, Inc. Based on this information, what method of depreciation will produce the maximum depreciation expense in 2015? a. Straight-line b. Double-declining-balance c. Units-of-production d. All methods produce the same expense in 2015.

Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at maturity is a. $6,300 b. $2,100 c. $525 d. $1,890

Sara's Designs purchased equipment at the beginning of 2015 for $11,000. Sara decided to depreciate the equipment over a 5-year period using the straight-line method. Sara estimated the equipment's residual value at $1,000. The estimated fair market value at the end of 2015 was $10,000. Which of the following statements is correct concerning Sara's financial statements at December 31, 2015? a. The book value of the equipment is $7,200. b. The book value of the equipment is $9,000. c. The total accumulated depreciation is $2,200. d. The equipment will be reported on the balance sheet at it fair market value of $10,000.

The clerk in the accounting department records both purchases and payments of invoices. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

The comparative balance sheets of Midnite Corp. for 2015 and 2014 indicate that short-term trade notes receivable increased from $5,000 in 2014 to $75,000 in 2015. How will this change be reported on Midnite's statement of cash flows, if Midnite uses the indirect method? a. It will be included in the amount of cash and cash equivalents at the end of 2015. b. It will be reported as a deduction from net income in the operating activities section. c. It will be reported as a cash outflow in the investing activities section. d. It will be added to net income in the operating activities section.

The entry required to recognize the bad debts expense will act to: a. Increase total assets and retained earnings b. Decrease total assets and retained earnings c. Decrease total assets and increase net income d. Increase total assets and decrease net income

The following set of items describes activities completed by a company in purchasing and paying for merchandise. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. The receiving department compares the quantity received with the quantity printed on the receiving report when the purchase order was prepared. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

The group within an organization that is responsible for monitoring and evaluating the internal control system is called: a. the audit committee. b. the internal audit staff. c. the board of directors. d. the accounting staff.

The party to a promissory note that agrees to repay money on the maturity date of the note is called the a. Lender b. Maker of the note c. Payee of the note d. Recipient of the note

There was an error in recording a customer's check as the check was recorded by Casa as $110, but the correct amount of $101 was recorded by the bank. Casa's adjusted cash balance at February 28, 2014 is a. $23,591 b. $35,641 c. $35,659 d. $47,691

Using different depreciation methods for book purposes versus tax purposes for the same asset is a. not allowed since the amount can only be calculated one way or the other, not both. b. the direct result of the differing goals of financial and tax accounting. c. contrary to GAAP. d. against the Internal Revenue Code, and as such, against the law.

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on December 31, 2014 (if a 360 day year is assumed)? a. $ -0- b. $ 60 c. $120 d. $180

Verilux Company sold merchandise to Flight Corp. on November 1, 2014, for $10,000. Verilux accepted a promissory note from Flight Corp. for $10,000. The note has a term of 5 months and a stated interest rate of 7%. Verilux's accounting period ends on December 31, 2014. What amount should Verilux recognize as interest revenue on December 31, 2014? a. $-0- b. $116.67 c. $291.67 d. $280.00

Verilux Company sold merchandise to Flight Corp. on November 1, 2014, for $10,000. Verilux accepted a promissory note from Flight Corp. for $10,000. The note has a term of 5 months and a stated interest rate of 7%. Verilux's accounting period ends on December 31, 2014. What amount should Verilux recognize as interest revenue on the maturity date of the note? a. $-0- b. $175.00 c. $291.67 d. $420.00

What amount will Craft show on its year-end balance sheet for the net realizable value of its accounts receivable? a. $295,000 b. $267,000 c. $250,000 d. $ 280,000

What are the effects on the accounting equation from the purchase of a short-term investment? a. Assets and stockholders' equity decrease b. No effects--assets increase and decrease by the same amount c. Assets and liabilities decrease d. Stockholders' equity decreases and liabilities increase

What are the effects on the accounting equation when a company makes the adjustment to record bad debt expense using the allowance method? a. Assets and owners' equity increase b. Assets and owners' equity decrease c. Assets increase and owners' equity decreases d. Assets decrease and owners' equity increases

What is the correct classification of the account: Discount on Notes Payable? A. a revenue B. a contra liability C. an asset D. an expense

What is the impact on the cash flow statement from a decrease in accounts receivable, assuming the indirect method is used? a. A decrease in the cash flow from operating activities b. An increase in the cash flow from operating activities c. An increase in the cash flow from financing activities d. None. A decrease in accounts receivable has an impact only if the direct method is used

What type of interest is calculated on the balance of the principal only? a. Equivalent interest b. Simple interest c. Future interest d. Compounded interest

What was the book value of the ship for Paulson Transport at the end of the useful life? a. $-0- b. $50,000 c. $214,400 d. Need more information to determine this answer.

Which internal control procedure is followed when storage areas are secured with limited access? a. Segregation duties b. Safeguarding assets and records c. Independent verifications d. Proper authorizations

Which of the following accounts is not classified as a current liability? a. Accounts payable b. Note payable, due in three (3) years c. Taxes payable d. Salaries payable

Which of the following is an example of a contingent liability? A. A corporate long-term employment contract with the chief executive officer. B. A lawsuit pending against a restaurant chain for improper preparation of food. C. A liability for notes payable with interest included in the face amount. D. The liability for future warranty repairs on computers sold during the current period.

Which of the following is an example of a credit memorandum? a. Service charge notice b. Collection of a note receivable by the bank c. Outstanding check d. Company error in recording a $600 deposit as $500

Which of the following statements is true regarding dividend income? a. Dividend income is accrued at year-end. b. Dividend income is reported on the income statement. c. Dividend income appears in the stockholders' equity section of the balance sheet. d. Dividend income is recognized by companies that own debt securities.

Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching bad debts expense with revenue on the income statement? A. The percentage of accounts receivable approach B. The percentage of net credit sales approach C. The direct write-off method D. The uncollectible approach

Which one of the following is an investing activity on the statement of cash flows? a. Collection of accounts receivable b. Purchase of long-term investments c. Receipt of interest d. Receipt of dividends

Which one of the following is not considered to be a cash equivalent? a. Corporate commercial paper due in 90 days after purchase b. U.S. Treasury bills with an original maturity of six months c. A money market account with a stock brokerage firm d. A certificate of deposit with a term of 75 days when acquired

Which one of the following items is a reconciling item on the bank side of a bank reconciliation? a. Canceled checks b. Outstanding checks c. NSF checks d. Service charge

Which one of the following items would be added to the balance per bank statement in a bank reconciliation? a. Outstanding checks b. Deposits in transit c. Service charge d. Interest on customer note

Which one of the following statements best describes the term "outstanding check?" a. A check written by the company and presented to the bank for payment. b. A check written by the company but not yet presented to the bank for payment. c. A check written by a customer that has been presented to the bank for payment. d. A check written by a customer that has not yet been presented to the bank for payment.

Which one of the following statements is true? a. Good cash management practices dictate that a company should maintain as large a balance as possible in its cash account. b. Sound internal control practice dictates that disbursements should be made by check. c. The person handling the cash should also prepare the bank reconciliation. d. Petty cash can be substituted for a checking account to expedite the payment of all disbursements.

While reconciling the checking account, an accountant with Sonic Corporation noticed that an error had been made in recording a check received by the company. Sonic recorded the receipt as $729 and the correct amount of the check was $279. What reconciling adjustment is required? a. Add $450 to the company's book balance b. Deduct $450 from the company's book balance c. Add $450 to the bank statement balance d. Deduct $450 from the bank statement balance

A check drawn by a company for $360 in payment of a liability was recorded in the journal as $630. Identify the effects of the transaction in the company's accounts. a. Decrease Accounts Payable; Decrease Cash b. Increase Cash; decrease Accounts Receivable c. Increase Cash; increase Accounts Payable d. Increase Accounts Receivable; Decrease Cash

All of the following statements are true except: A. Under U.S. GAAP, a contingent item should be recorded as a liability if the loss or outflow is probable and can be reasonably estimated. B. IFRS requires a liability to be recorded as a present value amount. C. The threshold for recording items as liabilities is a lower under U.S. GAAP than under IFRS. D. The threshold for recording items as liabilities is a lower under IFRS than under U.S. GAAP.

All of the following statements are true except: a. IFRS requires that estimates of residual value and the life of the asset be reviewed at least annually and revised if necessary. b. The FASB standards do not have a specific rule that requires residual value and asset life to be reviewed annually. c. IFRS does not have a specific rule that requires residual value and asset life to be reviewed annually. d. The FASB generally requires operating assets to be recorded at acquisition cost, less depreciation, and the assets' values are not changed to reflect their fair market values or selling prices.

All of the following statements are true except: a. International accounting standards are more flexible in allowing the use of fair market values for intangible assets. b. FASB standards require all research and development costs to be expensed. c. IFRS requires all research and development costs to be expensed. d. Under IFRS, fair market values for intangibles require an active market.

At the end of 2013, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of $300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements is correct? a. Clock Products must continue to amortize the patent over its remaining 10 years of life. b. The patent must be reduced to 5/15, or 33.3% of its original cost and amortized over the remaining 10 years. c. The remaining unamortized cost must be removed from the accounting records and treated as a loss on the income statement. d. Clock Products must correct its financial statements for the past five years, so that the entire cost is allocated to that five-year period.

Barton Resort incurred the following costs to acquire and prepare land during 2015 for a new parking lot: purchase price for land, $800,000; cost to clear the land, $30,000; cost of paving, $40,000; and lighting for the parking lot, $20,000. How much should Barton record in the Land Improvements account? a. $30,000 b. $40,000 c. $60,000 d. $90,000

Bing's Export Co. wants to use the depreciation method that will result in the highest depreciation expense for 2015. Which method should be used? a. Straight-line b. Units-of-production c. Double-declining-balance d. All methods create the same income in 2015

Bing's is comparing the straightline and doubledecliningbalance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2015? a. Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings. b. Straight-line depreciation creates both the larger expense and the larger tax savings. c. Double-declining-balance depreciation creates both the larger expense and the larger tax savings. d. Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

Border also had checks outstanding of $169. What is Border's adjusted cash balance at August 31? a. $920 b. $940 c. $1,007 d. $1,089

Checks returned by a bank because customers did not have sufficient funds in their account are called a. Canceled checks b. Certified checks c. NSF checks d. Outstanding checks

Clarion Corp. invested cash in a 6-month certificate of deposit (CD) on November 1, 2015. If Clarion Corp. has an accounting period that ends on December 31, 2015, when should Clarion recognize interest revenue from the CD? a. On December 31, 2015 only b. On May 1, 2016 only c. Both December 31, 2015 and May 31, 2016. d. On the date when its income tax return is filed.

Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2014? a. $40 b. $107 c. $120 d. $160

Davis Corp. invested cash in a 9-month certificate of deposit (CD) on October 1, 2015. If Davis has an accounting period which ends on December 31, 2015, when would it most likely recognize interest revenue from the CD? a. On December 31, 2015 only b. On July 1, 2016 only c. Both Dec. 31, 2015 and July 1, 2016 d. On October 1, 2015

Depreciation is a process by which a. replacement funds are accumulated for plant and equipment. b. the decline in market value of plant and equipment is determined and recorded. c. the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset. d. the difference between current market value and historical cost of plant and equipment.

Each of the following documents is used in the control of cash receipts except: a. Cash register tapes b. Check lists or prelists c. Canceled checks from customers d. Bank deposit slips

Gentech's adjusted cash balance at June 30, 2014 is a. $13,800 b. $14,100 c. $14,000 d. $14,300

Genuine Parts received a promissory note from a customer on March 1, 2015. The face amount of the note is $8,000; the terms are 90 days and 9% interest. What is the total amount of interest that Genuine Parts will receive when the note is paid? a. $60 b. $90 c. $180 d. $720

Heath Corp.'s balance per books before the reconciliation is a. $16,410 b. $16,900 c. $17,190 d. $17,310

How are cash equivalents reported or disclosed in the financial statements? a. They appear only on the statement of cash flows. b. They are included with short-term investments under current assets on the balance sheet. c. They are included with cash under current assets on the balance sheet. d. They are disclosed only in a footnote to the balance sheet.

How much will Shidan Apartments record as an asset? a. $320,000 b. $345,000 c. $351,000 d. $355,000

How would deposits in transit be dealt with in a bank reconciliation? a. Added to company's book balance b. Deducted from company's book balance c. Added to bank statement balance d. Deducted from bank statement balance

If Norwood uses the units-of-production method, what is the depreciation rate per hour for the equipment? a. $4.00 b. $5.00 c. $6.00 d. $7.50

If Shidan has $5,000 to invest and wants to have $10,000 at the end of 9 years, what compounded interest rate must she get on her money (assume annual compounding)? a. 5% b. 7% c. 8% d. 6%

If a company purchases $3,000 worth of inventory with terms of 1/15, n30 and pays within 15 days, then the amount paid to the seller would be a. $3,030 b. $2,550 c. $2,970 d. $3,000

If technology changes rapidly, a firm should a. expense plant asset immediately because of the uncertainty of future benefits. b. depreciate plant assets over long periods of time. c. consider an accelerated rate of depreciation. d. use the straight-line method of depreciation as it is the easiest.

In 2015, Boone, Inc. sold 1,000 carpets for $50 each. The carpets carry a 2-year warranty for repairs. Boone estimates that repair costs will average 2% of the total selling price. What is the amount that would be recorded in the warranty liability account as a result of selling the carpets during 2015? a. No liability should be recorded until the carpets are returned for repairs. b. $20 c $1,000 d $500

In 2015, Morton Co.sold 150 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $14,000. $20,000 in claims was actually incurred during the year to honor their warranty. What was the warranty expense for 2015? a. $20,000 b. $10,000 c. $24,000 d. $18,000

In the reconciliation of a bank statement, "deposits in transit" should be: a. added to the unadjusted book balance. b. subtracted from the unadjusted bank balance. c. added to the unadjusted bank balance. d. subtracted from the unadjusted bank balance.

Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years, how much money will he have assuming an annual interest rate of 8%, compounded semiannually (to the closest answer given)? a. $ 308,000 b. $ 509,880 c. $ 454,076 d. $7,851,900

Lasiter Corp. reported net credit sales of $2,000,000 and cost of goods sold of $1,400,000 for 2014. On January 1, 2014, accounts receivable was $250,000. Amounts owed by customers increased by $20,000 during 2014. Rounding to two decimal places, what is Lasiter's accounts receivable turnover rate for 2014? a. 8.33 b. 8.00 c. 7.69 d. 7.41

Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to: a. $90,450 b. $90,000 c. $90,900 d. $91,800

On December 1, 2014, Xeon Company bought land and an accompanying warehouse from Yen Company for $800,000. The fair market values of the land and the building at the time of purchase were $700,000 and $300,000, respectively. How much of the purchase price should Xeon Company allocate to the land and how much should be allocated to the building? a. $457,143 and $342,857, respectively b. $700,000 and $300,000, respectively c. $560,000 and $240,000, respectively d. $500,000 and $300,000, respectively

On January 2, 2013, Hannah Company sold a machine for $1,000 that it had used for several years. The machine cost $12,000, and had accumulated depreciation of $9,000 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine? a. Gain of $2,000 b. Loss of $11,000 c. Loss of $2,000 d. Gain of $3,000

On July 1, 2014, Falcon Company received a $20,000 promissory note from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2015. If Falcon's fiscal year ends September 30, 2014, an adjusting entry is needed to: a. Increase interest revenue by $1,000 b. Increase notes receivable by $250 c. Increase interest receivable by $250 d. Increase notes receivable by $1,000

Rahm Corp.'s adjusted cash balance at September 30, 2014 is: a. $34,600 b. $34,900 c. $32,500 d. $32,800

Realistic Sound's unadjusted bank balance amounted to $3,000. Outstanding checks amounted to $500 and deposits in transit totaled $300. Based on this information alone, Realistic's adjusted cash balance is: a. $3,200 b. $3,300 c. $2,800 d. $2,700

Refer to the data for Benton Corporation. If the aging approach is used to estimate bad debts, what should the balance in the Allowance for Doubtful Accounts be after the bad debts adjustment? a. $26,900 b. $14,900 c. $13,200 d. $11,500

Refer to the data for Benton Corporation. What is the balance of Accounts Receivable at December 31, 2015? a. $209,000 b. $225,000 c. $447,000 d. $459,000

Refer to the data for Mellon Corporation. If Mellon estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2015? a. $25,800 b. $27,000 c. $28,800 d. $30,000

Refer to the data for Music Corporation. What is the balance of Accounts Receivable at December 31, 2015? a. $336,000 b. $448,400 c. $458,000 d. $466,000

Refer to the information for Norwood, Inc, Based on this information, what method of depreciation will produce the maximum depreciation expense in 2016? a. Straight-line b. Double-declining-balance c. Units-of-production d. All methods produce the same expense in 2016.

Rogan's book balance $15,000 Outstanding checks 2,500 Service charge 15 Customer's NSF check returned by the bank 100 What amount will Rogan report as its adjusted cash balance at February 28, 2014? a. $12,385 b. $12,500 c. $14,885 d. $17,385

Segregation and rotation of duties is most effective in a. Increasing cost of goods sold b. Assisting management in overriding controls c. Preventing collusion d. Misappropriating company assets

The accountant for Darden Corp. was preparing a bank reconciliation as of April 30, 2014. The following items were identified: Allan's book balance $46,200 Outstanding checks 1,100 Interest earned on checking account 50 Customer's NSF check returned by the bank 500 In addition, Darden made an error in recording a customer's check; the amount was recorded in cash receipts as $150; the bank recorded the amount correctly as $510. What amount will Darden report as its adjusted cash balance at April 30, 2014? a. $44,650 b. $45,890 c. $46,110 d. $46,250

The accounting life of intangible assets is determined by a. their legal lives . b. their useful lives. c. their legal lives or useful lives, whichever is shorter . d. the tax life mandated by the IRS.

The comparative balance sheets for Flagler Co. for 2015 and 2014 indicate that accounts receivable decreased during 2015. Flagler uses the indirect method of preparing the operating activities section of its statement of cash flows. How will the decrease in accounts receivable be reported on the statement of cash flows? a. It will be included in the amount of cash and cash equivalents at the end of 2015 . b. It will be deducted from net income in the operating activities section. c. It will be added to net income in the operating activities section. d. It will be reported as a cash outflow in the investing activities section.

The following information was presented in the balance sheet of Gloria Company as of December 31, 2014: Trade accounts receivable, net of allowance for uncollectibles of $100,000 $1,600,000 Which one of the following statements is true? a. Gloria expects that $1,700,000 of accounts receivable will be collected after year end b. The balance in the Accounts Receivable account in Gloria's general ledger is $1,600,000 c. The net realizable value of Gloria's accounts receivable is $1,600,000 d. Gloria expects to collect only $1,500,000 from its customers

The total amount of interest calculated annually on a $7,000 promissory note payable for 3 years at 12% that is not Compounded is a. $280 b. $840 c. $2,520 d. $8,260

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on the maturity date of the note? a. $ -0- b. $ 60 c. $120 d. $180

What is the net amount of the adjustments to Pierce's cash balance as a result of the bank reconciliation? a. No amounts need to be recorded b. $400 increase c. $400 decrease d. $900 decrease

What should a company do to improve its accounts receivable turnover rate? a. Lower its selling prices. b. Increase its sales force. c. Give customers credit terms of 2/10, n/30 rather than 1/10, n/30. d. Reduce the number of employees working in the credit department.

When a company discounts an interest-bearing note at a bank with recourse: a. The company is assured payment at maturity b. The company will receive the full amount of the note plus interest c. The company has a contingent liability from the time the note is discounted until its maturity date d. The bank assumes the credit risk on non-payment at the maturity date

When are consolidated financial statements prepared? a. At the option of an investee company b. At the option of an investor company c. If one company owns more than 50% of another company d. Only if one company owns 100% of another company

Which internal control procedure is followed when a physical count of inventory is performed in a perpetual inventory system? a. Segregation of duties b. Safeguarding assets and records c. Independent verifications d. Proper authorizations

Which internal control procedure is followed when the work of one department acts as a check on the work of another? a. Segregation of duties b. Safeguarding assets and records c. Independent verifications d. Proper authorizations

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet? a. Accumulated Depreciation--Buildings b. Buildings c. Depreciation Expense--Buildings d. Land

Which of the following below is an example of a capital expenditure? a. cleaning the carpet in the front room b. tune-up for a company truck c. replacing an engine in a company car d. replacing all burned-out light bulbs in the factory

Which of the following costs related to the purchase of production equipment incurred by Newark Company during 2015 would be considered a revenue expenditure? a. Installation costs for equipment b. Purchase price of the equipment less the cash discount c. Repair and maintenance costs during the equipment's first year of service d. Transportation charges to deliver the equipment to Newark Company

Which of the following is another term for the invoice approval form? a. A receiving report b. An invoice c. A voucher d. A remittance advice

Which of the following is not a generally recognized internal control procedure? a. Establishing of clear lines of authority to carry out specific tasks b. Physically counting inventory in a perpetual inventory system c. Reducing the cost of hiring seasonal employees d. Limiting access to computerized accounting records

Which of the following is not a requirement of a company's external auditors under SarbanesOxley? a. They must give an opinion that management's assessment that the internal control system over financial reporting is fairly stated b. They must give an opinion that the company maintained an effective internal control system over financial reporting c. They must design and implement an effective information system design d. They cannot perform any brokerage services for the company

Which of the following statements is true regarding the two allowance methods used to account for bad debts? A. The percentage of net credit sales approach takes into account the existing balance in the Allowance for Doubtful Accounts account. B. The direct write-off method takes into account the existing balance in the Allowance for Doubtful Accounts account. C. The percentage of accounts receivable approach takes into account the existing balance in the Allowance for Doubtful Accounts account. D. The direct write-off method does a better job of matching revenues and expenses.

Which of the following statements regarding contingencies is true? a. Contingencies that are not estimable should not be disclosed even if probable. b. Contingent assets, if probable and estimable, are treated in much the same way as contingent liabilities. c. Contingencies that are probable and estimable must be recorded before the outcome of future events. d. The accounting principle that determines whether a contingent asset is recorded is that of materiality.

Which one of the following is a sound internal control procedure for cash disbursements? a. Making copies of purchase orders for the receiving department so they know how many items to be expected upon delivery b. Using presigned checks to facilitate payment within the cash discount period c. Comparing purchase requisitions, purchase orders, receiving reports, and invoices d. Requiring the signature of the purchasing department supervisor on checks

Which one of the following is considered one of the six most important categories of internal control procedures? a. Computerized accounting systems b. The board of directors c. Proper authorizations d. Verification by government agencies

Which one of the following is not an accurate description of Allowance for Doubtful Accounts? a. Contra account b. Balance sheet account c. Income statement account d.Current asset account

Which one of the following items would be subtracted from the balance per books in a bank reconciliation a. Outstanding checks b. Deposit in transit c. Service charges d. Interest on customer note

Which one of the following statements is true? a. The audit committee provides contact between the board of directors and the key officers of the company. b. The audit committee has become less involved in the financial accounting system as a result of the Foreign Corrupt Practices Act. c. The audit committee is a board of directors subset that acts as a direct contact between the stockholders and the independent accounting firm. d. The board of directors consists of the company's external auditors.

Which one of the following statements is true? a. When a company uses a subsidiary ledger, the balance in the control account, Accounts Receivable, shows only the amount the company expects to collect from the accounts receivable, net of any expected uncollectible accounts. b. An accounts receivable subsidiary ledger represents amounts due to vendors and suppliers. c. The balance in the control account, Accounts Receivable, should be equal to the sum of the balances in the subsidiary ledger for accounts receivable. d. A subsidiary ledger takes the place of the control account for some companies.

Which one of the following would not appear on a bank statement for a checking account? a. Service charges b. Interest earned c. Outstanding checks d. Deposits

Which statement is true concerning operating assets? a. Operating assets have no physical properties. b. A company's operating assets are important to its shortterm liquidity. c. Operating assets are used over two or more periods to generate revenues. d. All operating assets are reported on the balance sheet

Why is depreciation added to net income in the Operating Activities category of the statement of cash flows when the indirect method is used? a. Depreciation expense is a negative amount in the Investing Activities section and therefore is a positive amount in the Operating Activities section. b. Depreciation provides cash and therefore must be added to net income. c. Depreciation was deducted in arriving at net income on the accrual basis of accounting; however, it did not require the use of cash. d. Depreciation reduced the book value of plant assets and, therefore, must be reported as an investing activity.

Wyoming Real Estate purchased a building for $600,000 in 2002. At the end of 2014, when it had a book value of $450,000, it was appraised for $1,000,000. A potential buyer offered $900,000. Wyoming rejected the offer. What amount should is recorded on Wyoming's records at the end of 2014 in the account called Buildings? a. $1,000,000 b. $900,000 c. $600,000 d. $450,000

All of the following are characteristics of current liabilities except: A. they may involve estimated amounts B. they are due within one year or within the operating cycle, whichever is longer. C. they may be replaced with a new short-term liability rather than being paid in cash. D. all three of the above are characteristic of current liabilities.

All of the following are included in the acquisition cost of property, plant, and equipment except: a. transportation costs b. taxes on the purchase c. installation costs d. maintenance costs

All of the following are intangible assets except a. patents b. goodwill c. franchises d. accounts receivable

Allowance for Doubtful Accounts represents: a. Cash set aside to make up for bad debt losses b. The amount of uncollectible accounts written off to date c. The difference between total sales made on credit and the amount collected from those credit sales d. The difference between the gross amount of accounts receivable and the net realizable value of accounts receivable

Allowing only certain employees to order goods and services for the company is an example of what internal control procedure? a. Segregation of duties b. Safeguarding of assets and records c. Independent verifications d. Proper authorizations

Arena, Inc. uses straight-line depreciation for its equipment. Arena purchased equipment for $300,000 and estimated its useful life at 8 years. The bookkeeper failed to consider the residual value of $50,000. What is the impact on earnings per share and operating income of failing to consider the residual value? a. Earnings per share will be overstated and operating income will be understated. b. Earnings per share will be understated and operating income will be overstated. c. Both earnings per share and operating income will be overstated. d. Both earnings per share and operating income will be understated.

Assets classified as property, plant, and equipment are reported at a. each asset's estimated market value at the balance sheet date. b. each asset's estimated salvage value at the balance sheet date. c. the estimated depreciable cost at the balance sheet date. d. each asset's original cost less depreciation since acquisition.

Assuming a company uses the allowance method, the entry to recognize the write-off of the specific uncollectible accounts will act to: a. Increase total assets and total equity b. Increase total assets and decrease total equity c. Decrease total assets and total equity d. Not affect total assets or total equity

Blanket Airlines acquires a new aircraft. It has an estimated life of 15 years and should be used for 15,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses? a. Double-declining-balance b. Revenue expenditure method c. Straight-line d. Units-of-production

By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck? a. The salvage value of $7,000 b. Cost less total depreciation c. Cost plus total depreciation d. Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. At the maturity date, the customer pays for the note and interest. Comfort Shoes made the proper adjustment at the end of December for interest. The effect of recognizing the transaction on the maturity date is a. A decrease to Cash b. An increase to Notes Receivable c. An increase to Discount on Notes Receivable d. A decrease to Notes Receivable

Discounting a note receivable a. Requires using an account called discount on notes receivable b. Is the process of lending money c. Slows the collection process d. Is the process of selling a promissory note

Each of the following documents is used in the control of cash disbursements except: a. Purchase requisitions b. Purchase orders c. Receiving reports d. Cash register tapes

Effective cash management and control includes all of the following except a. The use of a petty cash fund b. Bank reconciliations c. Short-term investments of excess cash d. Purchase of stocks and bonds

Espat Corp. reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2015. Its beginning balance of Accounts Receivable was $150,000. The accounts receivable balance decreased by $10,000 during 2015. Rounded to two decimal places, what is Espat's accounts receivable turnover rate for 2015? a. 7.59 b. 10.32 c. 10.67 d. 11.03

Flake Company accepted a check from Ramos Company as payment for services rendered by Flake Company. Later Flake's bank statement revealed that Ramos' check was an NSF check. Recognizing the NSF check on Flake's books would act to: a. Decrease total assets b. Decrease total owners' equity c. Both a. and b. d. Have no effect on Total Assets

Goodwill can be recorded as an asset when a(n) a. business has above normal profitability compared to other businesses in its industry. b. business can determine that it has created customer goodwill and name recognition. c. offer is received to purchase the business at a price in excess of the value of the assets. d. business is purchased and payment is made in excess of the value of the net assets.

How should intangible assets be disclosed on the balance sheet? a. As a reduction of stockholders' equity b. At cost in the current assets section c. at the estimated market value at the balance sheet date d. Net of the costs already amortized

How would interest earned on a checking account be dealt with in a bank reconciliation? a. Added to company's book balance b. Deducted from company's book balance c. Added to bank statement balance d. Deducted from bank statement balance

How would outstanding checks be dealt with in a bank reconciliation? a. Added to company's book balance b. Deducted from company's book balance c. Added to bank statement balance d. Deducted from bank statement balance

If Paulson Transport continues to use the ship in its eleventh year, what is the correct accounting procedure? a. Take the asset off the books and record a gain on the disposal b. Continue to depreciate it c. The company may not use it any longer d. No longer depreciate it but leave it on the records at its book value at the end of its useful life

If Pharma Corp. estimates its bad debt to be 1% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts? a. $12,400 b. $13,700 c. $14,000 d. $15,000

If a company uses the allowance method of accounting for bad debts, which one of the following statements is true? a. It violates the matching principle b. It will record bad debts only when an account is determined to be uncollectible c. It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts d. It will report accounts receivable in the balance sheet at their net realizable value

If a credit memo appears on a bank reconciliation, this could be an indication that: a. there has been a decrease the company's bank account. b. there has been a bank service charge. c. there has been a deposit of a customer's NSF check. d. there has been a note receivable for the company that was collected by the bank.

If receipts from cash sales of $7,500 were recorded incorrectly as $5,700 in the company's books, then this item would be included on the bank reconciliation as a(n): a. deduction from the balance per company's records. b. addition to the balance per bank statement. c. deduction from the balance per bank statement. d. addition to the balance per company's records.

If the balance on the bank statement does not equal the balance in the cash account, then it can be assumed that: a. The company has no errors in its records concerning the cash account b. The bank has made errors in preparing the statement c. The company has made errors in is records concerning the cash account d. There will be items reconciling the difference

In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000. The correct amount was recorded by the bank as $1,200. What is the net amount of the adjustment to Dinho's cash balance as a result of the bank reconciliation? a. $1,675 increase b. $1,700 increase c. $1,675 decrease d. $1,475 decrease

Land is not depreciated because it a. appreciates in value. b. does not have an established depreciable life. c. has a useful life that is limited to the period of time a company is in business. d. will provide future benefits for a company for an unlimited period of time.

Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for a. financial reporting purposes and a different method for tax purposes. b. financial reporting purposes because depreciation is not allowed for tax purposes. c. tax purposes because it results in a larger net income in the early years of a plant asset's life. d. tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

Meta Inc. pays $18,000 to buy stock in another company and an additional $350 in commissions. Three months later, Meta sells the stock for $19,000. At the time of sale, Meta will recognize a: A $650 loss A $1,000 gain A $350 loss A $650 gain

Miguel Foods, Inc. purchased a patent at the beginning of 2013 for $350,000. Economic benefits were expected for 7 years, but the patent's legal life was 20 years. Also during 2013, the company incurred research and development costs of $270,000. Patent amortization expense for 2013 is a. $11,000 b. $17,500 c. $31,000 d. $50,000

Newco Publishing Company purchased equipment at the beginning of 2014 for $200,000. The company decided to depreciate the equipment over an 8-year period using the straight-line method. The company estimated the equipment's residual value at $20,000. The journal entry to record depreciation expense for 2014 will a. increase Depreciation Expense and increase Accumulated Depreciation for $25,000. b. increase Accumulated Depreciation and decrease Equipment for $25,000. c. increase Depreciation Expense and decrease Equipment for $22,500. d. increase Depreciation Expense and increase Accumulated Depreciation for $22,500.

Oakland Corp. purchased land and a building for a combined cost of $500,000. Oakland must record the $500,000 acquisition cost in an account called Land and Buildings. a. depreciate the $500,000 acquisition cost, less any residual value, over the expected useful life of the building. b. because part of the purchase involved land, record all of the cost in the Land account. c. allocate the $500,000 acquisition cost to separate d. Land and Buildings accounts based on their respective fair market values.

On November 2, 2014, Quaint General Store concluded that a customer's $400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on Quaint's 2014 net income and balance sheet totals assuming the allowance method is used to account for bad debts? a. Decrease in net income; decrease in total assets b. Increase in net income; no effect on total assets c. No effect on net income; decrease in total assets d. No effect on net income; no effect on total assets

Refer to the data for Music Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2015? a. $8,000 b. $8,100 c. $8,700 d. $8,900

Refer to the data for Music Corporation. If the aging approach is used to estimate bad debts, what is the balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment? a. $8,000 b. $8,100 c. $8,900 d. $9,600

Sarbanes-Oxley requires that the audit committee be composed of a. At least 50% of key officers who are on the board of directors b. A majority of all of the members of the board of directors c. The outside members of the board of directors and the external auditor d. Entirely outside members of the board of directors

Tarkington Beers, Inc. purchased the most popular and well-known pub in a college town. Its purchase price was 1,200,000. The appraisers determined that the land should be valued at $400,000, the building at $500,000 and the equipment at $200,000. Which of the following statements is correct? a. Tarkington Beers, Inc. should record only the appraised value of the assets. b. Tarkington Beers, Inc. needs to adjust the value of the assets in proportion to their appraised value so that the total of the assets equals the purchase price. c. Tarkington Beers, Inc. paid too much for the business and needs to record a loss. d. Tarkington Beers, Inc. needs to record goodwill of $100,000.

Textbooks.com accepts VISA for payments of purchases made by students. The credit card drafts are deposited directly in a bank account. VISA charges a 2% collection fee. Credit card drafts totaling $12,000 are deposited during September. The effect on the accounting equation to record the sales and deposits will include a. An increase in Cash for $12,000 b. An increase to Sales for $11,760 c. An increase to Accounts Receivable for $11,760 d. An increase in Collection Fee Expense for $240

The department in an organization that is responsible for preparing the invoice approval form to document all of the information about a particular purchase is: a. the human resources department. b. the purchasing department. c. the receiving department. d. the accounting department.

The equity method of accounting for an investment is used when a company purchases a. More than 20% of the debt securities of a second company. b. 100% of the debt securities of a second company. c. 15% of the equity securities of a second company. d. More than 20% of the equity securities of a second company.

The future value of equal semi-annual payments of $500 at 8% compounded semiannually for 4 years is a. $ 868 b. $9,320 c. $2,000 d. $4,607

The landlord records the security deposit she collects from the tenant as a(n) A. asset B. contra liability C. contingent liability D. liability

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What is the actual maturity date of the note? a. December 31, 2014 b. January 29, 2015 c. February 28, 2015 d. March 1, 2015

Waxman Company purchased a patent for $170,000 at the beginning of 2013, and estimated that its expected useful life was 10 years. The patent has a legal life of 17 years. What amount should be recorded as amortization expense for the patent in 2013? a. $-0- b. $7,000 c. $10,000 d. $17,000

What amount will Wang show on its year-end balance sheet for the net realizable value of its accounts receivable? a. $253,000 b. $235,000 c. $224,000 d. $217,000

What five-member body created by the Sarbanes-Oxley Act was given authority to set U.S. auditing standards? a. FASB b. SEC c. IAS d. PCAOB

What is the distinguishing characteristic between accounts receivable and notes receivable? a. Accounts receivable are usually current assets while notes receivable are usually long-term assets. b. Accounts receivable require payment of interest if not paid within the usual credit terms. c. Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable result from credit sale transactions for service companies. d. Notes receivable result from a written promise to pay within a specified amount of time.

What is the form sent by the seller to the buyer as evidence of a sale? a. An invoice approval form b. A purchase order c. A receiving report d. An invoice

When a note receivable has been discounted by a company a. An account called discount on notes receivable is used b. It will be shown as an asset of the company c. It slows the collection process d. It may be shown as a contingent liability in the footnotes

When constructing assets, capitalized interest is based on a. the amount allowed by the company's auditors. b. the expenditures at the end of the of the period. c. the expenditures at the beginning of the period. d. the average accumulated expenditures.

When one company purchases less than 50% of equity securities in a second company, which of the following statements is true? a. The purchaser is referred to as the parent. b. The purchaser is referred to as the subsidiary. c. The company whose securities are purchased is the subsidiary. d. The company whose securities are purchased is the investee.

When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt? a. Assets and stockholders' equity increase b. Assets and stockholders' equity decrease c. Assets increase and stockholders' equity decreases d. No effect on overall assets or equity

Which internal control procedure is followed when management authorizes the purchasing department to order goods and services for the company? a. Segregation of duties b. Safeguarding of assets and records c. Independent verifications d. Proper authorizations

Which of the following factors is not related to the decline in the usefulness of plant and equipment assets, and therefore does not need to be considered in selecting an appropriate depreciation method? a. Physical deterioration b. Obsolescence c. Repair and maintenance policies d. Current replacement cost

Which of the following is not a requirement of Sarbanes-Oxley? a. Annual report must include an internal control report b. External auditors can no longer provide human resource services c. External auditors can no longer provide brokerage services d. Must establish an internal control system that guarantees financial accuracy

Which of the following is not considered a business (source) document? a. Time card b. Purchase order c. Sales invoice d. Schedule listing all the insurance policies in force

Which of the following items is added to net income to determine cash flows from operating activities when the indirect method is used to prepare the Operating Activities category of the statement of cash flows? a. Accumulated depreciation b. Cash from note payable related to truck acquired. c. Cost of plant assets acquired during the year. d. Depreciation expense

Which of the following sets of factors is needed to calculate depreciation on plant and equipment? a. The asset's acquisition cost, replacement cost, and its estimated residual value b. The estimated residual value of the asset, its replacement cost, and its market value c. The asset's replacement cost, its estimated life, and its estimated residual value d. The estimated life of the asset, its acquisition cost, and its estimated residual value

Which of the following statements is false regarding a credit memorandum? a. A credit memorandum is added to the balance per the company's books b. A credit memorandum could be issued for interest earned on checking balances c. A credit memorandum is issued when the bank collects a note for the customer. d. A credit memorandum is subtracted from the balance per the company's books.

Which of the following statements is true regarding a credit memorandum? a. A credit memorandum is subtracted from the balance per the company's books. b. A credit memorandum could be issued for bank service charges. c. A credit memorandum is issued when a customer gives the company an NSF check. d. A credit memorandum is added to the balance per the company's books.

Which one of the following documents is used in the control of cash receipts? a. Purchase requisitions b. Receiving reports c. Canceled checks from customers d. Bank deposit slips

Which one of the following is not a cash equivalent? a. 30-day certificate of deposit b. 60-day commercial paper c. 90-day U. S. treasury bill d. 180-day note issued by a local or state government

Which one of the following is not a procedure in the approval of a specific invoice for payment? a. The purchase requisition, purchase order, receiving report, and invoice are compared. b. The extensions and footings on the invoice are verified. c. An employee verifies that all of the approval activities have been completed before a check is prepared. d. The purchasing department prepares a voucher to request payment.

Which one of the following items would be added to the balance per books in a bank reconciliation? a. Outstanding checks b. Deposit in transit c. Service charges d. Interest on customer note

Which one of the following procedures is incorrect for setting up and maintaining a petty cash fund? a. A check is prepared for a fixed amount; when the check is cashed, the money is entrusted to a petty cash custodian. b. An entry is recorded to establish the fund and obtain the cash. c. When appropriate documentation is presented, cash payments are made from the fund; the petty cash custodian retains the documentation. d. When the petty cash fund is replenished, an entry is recorded to recognize an increase in the petty cash account.

Which one of the following procedures is not part of preparing a bank reconciliation of a checking account a. Tracing deposits listed on the bank statement to the books to identify deposits in transit. b. Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks. c. Identifying items added on the bank statement which have not been recorded as cash receipts by the company. d. Preparing adjustments to reverse the transactions recorded for checks that are still outstanding.

Which one of the following situations reflects a weak internal control system? a. All employees are well supervised b. A single employee is responsible for comparing a receiving report to an invoice c. All employees must take their vacations d. A single employee is responsible for collecting and recording of cash

Which one of the following statements regarding internal control is true? a. Companies can design a system of internal control that is foolproof. b. A well-designed internal control system is a luxury that few companies can afford. c. It is easier to implement an effective internal control system in a small company because of the limited number of employees. d. Large companies are able to devote a substantial amount of resources to internal control systems because these companies have the assets to justify the cost.

Wind Chime and Fire Hut Companies purchased identical equipment having an estimated useful life of ten years. Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct? A. Wind Chime's depreciation expense will be greater in the second year than Fire Hut's depreciation expense. B. Fire Hut's book value will be greater than Wind Chime's book value at the end of year one . C. Wind Chime's net income will be greater than Fire Hut's net income in year nine. D. Fire Hut's book value will be less than Wind Chime's book value at the end of year two.

102. Payment for the acquisition of inventories is shown on the statement of cash flows as a. An operating activity b. An investing activity c. A financing activity d. Either an operating activity or a financing activity ANSWER:

106. Adam Inc. uses a perpetual inventory system. Jan. 1 On hand, 10 units at $2 each $20 4 Sold 8 units for $10 each 80 22 Purchased 50 units at $4 each 200 26 Sold 48 units for $10 each 480 If Adam uses the FIFO method, how much is cost of goods sold for the month of January? a. $204 b. $208 c. $212 d. $560 ANSWER:

17. Refer to the account information for Chen's Department Store Calculate Chen's cost of goods purchased a. $ 84,000 b. $ 90,000 c. $ 103,000 d. $ 117,000 ANSWER:

20. What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded? a. Assets and stockholders' equity decrease. b. Assets and stockholders' equity increase. c. Assets decrease and liabilities increase. d. Stockholders' equity decreases and liabilities increase. ANSWER:

23. Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price of $20 each on August 5, 2015, on account. Tile Magic Corp. paid the invoice on August 31, 2015. How much sales discount will Floors recognize? a. $-0- b. $40 c. $200 d. $236 ANSWER:

24. Blenham, Inc. sells merchandise on credit. If a customer pays its balance due within the discount period, what is the effect of the payment on Blenham's accounting equation? a. Assets and stockholders' equity decrease b. Assets and stockholders' equity increase c. Assets decrease and liabilities increase d. Stockholders' equity decreases and liabilities increase ANSWER:

29. The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the: a. matching principle. b. full disclosure principle. c. revenue realization principle. d. historical cost principle. ANSWER:

30. The following is from Goldman Inc.'s 2015 income statement. Purchases $182,000 Transportation-In 11,000 Inventory, January 1, 2015 26,500 Inventory, December 31, 2015 28,800 Purchase Returns and Allowances 8,400 How much will Goldman report as cost of goods purchased in its 2015 income statement? a. $184,600 b. $193,000 c. $201,400 d. $211,100 ANSWER:

32. In a periodic inventory system, the cost of purchases is recognized as a. An integral part of the calculation of cost of goods sold b. The only part of the calculation of cost of goods sold c. An increase in the inventory account d. An increase in an asset account ANSWER:

37. Which one of the following is correct? a. Inventory losses can be identified and controlled better under the perpetual system. b. Inventory can only be sold at the end of an accounting period under the periodic system. c. There is no difference in cost to implement a perpetual as compared to a periodic system. d. The perpetual system eliminates the need for an annual inventory count ANSWER:

42. The system of accounting in which there are at least two accounts affected in every transaction so that the accounting equation stays in balance is a(an): a. Double-entry system. b. Debit. c. Credit. d. Journalizing. ANSWER:

43. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. When did title to the merchandise transfer from Jay Zee Music Company to Park? a. June 5, 2015 b. June 10, 2015 c. June 13, 2015 d. Cannot be determined from the information provided ANSWER:

46. Debit entries are used to: a. increase asset accounts. b. decrease expense accounts. c. increase liability accounts. d. increase revenue accounts. ANSWER:

48. Which of the following accounts is increased by a credit entry? a. Sales Revenue b. Salary Expense c. Accounts Receivable d. Dividends ANSWER:

49. At the year-end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of a. The seller b. The buyer c. Neither the buyer nor the seller ANSWER:

53. All of the following statements regarding the gross profit ratio are true except: a. The gross profit ratio alone is sufficient to determine a company's profitability. b. Managers, investors, and creditors use the gross profit ratio to measure one aspect of profitability. c. The gross profit ratio explains how many cents on every dollar are available to cover expenses other than cost of goods sold and to earn a profit. d. If a company's net sales were $200,000 and cost of goods sold were $120,000, its gross profit ratio would be 40%. ANSWER:

55. Cost of goods sold represents a. Expired costs during a period and is reported on the income statement. b. Unexpired costs and is reported on the balance sheet as an asset. c. The cost of goods that will be purchased during the next operating cycle and is reported on the balance sheet as an asset. d. Expired costs and is reported on the balance sheet as an expense. ANSWER:

62. Eversoll Inc. uses the periodic inventory system. June 1 On hand, 50 units $15.00 each $ 750.00 5 Purchased 115 units $15.10 each 1,736.50 14 Purchased 75 units $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units If the June 30th inventory included 45 units from the June 5th purchase and 45 units from the June 14th purchase, Eversoll's cost of goods sold for June under the specific identification method would be a. $2,263.00 b. $2.373.00 c. $2,945.00 d. $3,626.50 ANSWER:

64. Eversoll Inc. uses the periodic inventory system. June 1 On hand, 50 units $15.00 each $ 750.00 5 Purchased 115 units $15.10 each 1,736.50 14 Purchased 75 units $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units If Eversoll uses the weighted average cost inventory method, the amount assigned to the June 30th inventory would be a. $1,359.90 b. $1,486.50 c. $1,549.00 d. $1,591.50 ANSWER:

67. Quan uses a periodic inventory system. At the end of April, Quan had 20 units on hand. April 1 On hand, 10 units $2 each $ 20 19 Purchased 90 units $3 each 270 Goods available for sale $290 If Quan, Inc. uses FIFO inventory costing, how much is cost of goods sold for April? a. $230 b. $232 c. $240 d. $250 ANSWER:

74. Which inventory costing method results in the lowest income tax expense during a period of decreasing prices? a. FIFO b. LIFO c. Specific Identification d. Weighted Average Cost ANSWER:

76. Xu Corp. started business at the beginning of 2015. Xu selected the FIFO method for its inventory. In order to maximize its profits for 2015 under this method, prices must be a. Increasing b. Decreasing c. Stable d. Fluctuating up and down at the same amount consistently over the year ANSWER:

81. Which one of the following statements is false? a. Differences in cash flows between LIFO and FIFO inventory methods are a direct result of the differences in the purchases. b. Differences in cash flows between LIFO and FIFO inventory methods are caused by differences in taxes. c. The amount of cash to acquire inventory is the same for companies that use LIFO as for those companies that use FIFO. d. The primary determinant in selecting an inventory costing method should be the ability of the method to accurately reflect the net income of the period. ANSWER:

82. When would LIFO liquidation occur? a. As a result of selling more units than are purchased during the period. b. As a result of selling less units than are purchased during the period. c. As a result of selling the same number of units that are purchased during the period. d. Not enough information. ANSWER:

88. If a company overstates its ending inventory for the current year, what are the effects on cost of goods sold and net income for the current year? Effect on Cost of Goods Sold Effect on Net Income a. Understated Overstated b. Overstated No effect c. Understated Understated d. Overstated Overstated ANSWER:

A company's weekly payroll amounts to $50,000 and payday for the week is every Friday. Employees work five days per week, Monday through Friday. The appropriate journal entry was recorded at the end of the accounting period, Monday, March 31, 2014. What amount is wages expense for April for the payday, Friday, April, 4, 2014? a. $40,000 b. $50,000 c. $ -0- d. $10,000

A decreasing long-term liability account is presented on the statement of cash flows as a. a decrease in cash in the Financing Activities category. b. a decrease in cash in the Investing Activities category. c. an increase in cash in the Operating Activities category. d. an increase in cash in the Financing Activities category.

All of the following statements are true about a 3-for-1 split, except: a. total contributed capital increases. b. the market price will probably decrease. c. par value per share is reduced to one-third of what it was before the split. d. a stockholder with twenty shares before the split owns sixty shares after the split.

Amortization of bond premium results in a(n) a. decrease of the carrying value of bonds. b. no change in stockholders' equity. c. increase in interest expense. d. decrease in the cash account.

Arco Corporation declared a cash dividend on June 2 of $6 per common share. The company has 2,000 shares of common stock authorized, 1,000 shares issued, and 200 in the treasury. This transaction to record the declaration of the cash dividend increases a. a liability. b. an asset. c. an expense. d. a stockholders' equity account.

Assume the current ratio is 3 to 4. Purchases of inventory on account would cause the current ratio to a. increase. b. be unchanged since the effects offset each other. c. be unchanged since it has no effects on any current accounts. d. decrease.

Authorized stock represents the a. maximum number of shares that can be issued. b. number of shares that have been sold. c. number of shares that are currently held by stockholders. d. number of shares that have been repurchased by the corporation.

Based on these transactions, what is the net cash flow from financing activities? a. $285,000 net cash provided by financing activities. b. $275,000 net cash used for financing activities. c. $0, because cash inflows equal cash outflows from financing activities. d. $440,000 net cash provided by financing activities.

Basic Solutions Company reported net earnings of $60,000, declared and paid cash dividends on its common stock in the amount of $40,000 during the year, and sold 3,000 shares of $2 par value common stock for $15 per share during the year. What effects would these transactions have on the stockholders' equity accounts shown below? Retained Earnings Common Stock a. increase increase b. increase decrease c. decrease increase d. decrease decrease

Because of changing market conditions, Friendly Corporation made the decision to redeem $300,000 of its bonds prior to maturity. The bonds had been issued at a discount and the balance in the discount account at the time of redemption was $15,000. The corporation's bond certificates indicated that the bonds could be retired early at 103. Friendly's retirement of the bonds would result in a(n) a. loss of $24,000. b. gain of $6,000. c. decrease in owners' equity of $9,000. d. increase in assets of $15,000.

Bonds are a popular source of financing because a. bond interest expense is deductible for tax purposes, while dividends paid on stock are not. b. financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. c. a company having cash flow problems can postpone payment of interest to bondholders. d. the bondholders can always convert their bonds into stock if they choose.

Bonds in the amount of $100,000 and a life of 10 years were issued by the Focus Company. If the face rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds? a. $60,000 b. $120,000 c. $ 30,000 d. $6,000

CarWorks Company has 100,000 authorized shares of $4 par common stock. The company issued 40,000 shares at $8. Subsequently, CarWorks declared a 2% stock dividend on a date when the market price was $11 a share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend? a. $8,800 b. $4,800 c. $3,200 d. $6,400

Carrington, Inc. recorded $97,000 in salary expense for January, 2015. Its beginning balance in salaries payable was $3,000 and its ending balance was $4,000. How much was paid in cash for salaries during January, 2015? a. $96,000 b. $97,000 c. $99,000 d. $98,000

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

Cash flows from acquiring and selling products are classified as a. operating activities. b. investing activities. c. financing activities. d. distribution activities.

Chen's Department Store Chen's Department Store is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales $175,000 Purchases 90,000 Inventory (beginning) 23,000 Inventory (ending) 17,000 Purchase returns and allowances 3,000 Purchase discounts 7,000 Transportation-in 4,000 Sales discounts 8,000 Sales returns and allowances 5,000 16. Refer to the account information for Chen's Department Store. Calculate Chen's net sales. a. $162,000 b. $167,000 c. $170,000 d. $175,000 ANSWER:

Common Stock Preferred Stock a. $500 $1,600 b. $5,000 $120 c. $500 $120 d. Not enough information provided.

Crystal, Inc. issued $41,000,000 of bonds. Assuming the most common denomination of bonds, the number of bonds sold was a. 41,000. b. 410,000. c. 4,100,000. d. 41,000,000.

David, a high school math teacher, wants to set up an IRA account into which he will deposit $2,000 per year. He plans to teach for 20 more years and then retire. If the interest on his account is 7% compounded annually, how much will be in his account when he retires? a. $81,990 b. $74,458 c. $4,800 d. $21,118

Denise wants to help pay for her niece's college tuition. Her niece will begin college in one year. How much would Denise need to put into a savings account today at 6% so that her niece can withdraw $10,000 per year for 4 years, and reduce the account balance to zero at the end of the 4 years? a. $34,650 b. $37,720 c. $37,600 d. $31,680

During 2015, the accounts receivable balance of Dickerson Corp. increased. Which of the following statements is true? a. This indicates that Dickerson sold more than it collected in cash during the period. b. This increase is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method. c. This increase is added to sales recognized on the income statement to determine the cash collections from customers during the period. d. This increase is considered only when the operating activities section of a statement of cash flows is prepared under the indirect method.

FASB's concept of comprehensive income a. excludes transactions that involve the payment of dividends. b. requires that all transactions must be shown on the income statement. c. has a primary drawback because it allows management to manipulate the income figure to a certain extent. d. allows items that are not necessarily under management's control, such as natural disasters, to be shown as an adjustment of retained earnings.

From this information, the most likely explanation is that Jan is a. using cash from operations and selling long-term assets to pay back debt b. using cash from operations and borrowing to purchase long-term assets. c. using its profits to expand growth. d. using cash from investors to provide for operations.

From this information, the most likely explanation is that Young's is a. using cash from operations and selling long-term assets to pay back debt. b. using cash from operations and borrowing to purchase long-term assets. c. using its profits to expand growth. d. using cash from investors to provide for operations

Happy Corporation leased a building from Sensor Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true? a. Depreciation expense of $6,710 will be recorded each year. b. Depreciation expense of $10,000 will be recorded each year. c. No depreciation expense will be recorded by Happy Corporation. d. No interest expense will be recorded by Happy Corporation.

How much cash did Barton Shipping pay for dividends during 2016? a. $ 95,000 b. $105,000 c. $115,000 d. $140,000

How much cash was paid for insurance during 2016? a. $13,300 b. $14,200 c. $15,100 d. $15,700

How much cash was paid for interest during 2016? a. $11,750 b. $12,250 c. $12,500 d. $12,750

How much cash was received for interest during 2016? a. $2,900 b. $3,200 c. $3,500 d. $3,800

If Llama Company has paid out more in dividends than it has had in net income, over the lifetime of the company, then the balances in the Stockholders' Equity should show: a. a negative balance in the Retained Earnings account. b. a positive balance in the Retained Earnings account. c. a negative balance in the Common Stock account. d. a positive balance in the Common Stock account.

If a company issues $5 par value common stock, a. $5 per share is presented in the common stock account on the balance sheet. b. the minimum selling price is $5. c. the shareholders will receive $5 in dividends. d. liabilities are increased as a result of the transaction.

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will a. decrease as the bonds approach their maturity date. b. increase as the bonds approach their maturity date. c. remain constant throughout the bonds' life. d. fluctuate throughout the bonds' life.

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

Klein Corp. acquired land by issuing its common stock. How should this transaction be disclosed when a statement of cash flows is prepared? a. In a supplemental schedule of noncash investing and financing activities or in a note. b. The acquisition of land should be reported as an investing activity and the issuance of the stock as a financing activity. c. Using the master T-account approach. d. The transaction does not need to be disclosed.

On January 1, 2012, the long-term liability section of Eden Company's balance sheet showed a balance of $35,000 in the bonds payable account. On December 31, 2012, the balance in that same account was $20,000. This change would appear on the statement of cash flows as a. an outflow of cash of $15,000 in the financing activities category. b. an inflow of cash of $15,000 in the financing activities category. c. an outflow of cash of $15,000 in the investing activities category. d. an inflow of cash of $15,000 in the investing activities category.

On January 1, 2015, Bogart Acres Company issued 10,000 shares of 10%, $20 par value cumulative preferred stock. In 2015 and 2016, no dividends were declared on preferred stock. In 2017, Bogart had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If they have $200,000 available for dividends in 2017, how much could it pay to the common stockholders? a. $140,000 b. $160,000 c. $180,000 d. $200,000

On January 1, 2015, Clark, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. What is the carrying value of the bonds at the end of the ten years? a. $400,000 b. $480,000 c. $380,000 d. $354,200

On January 1, 2015, Corner Store, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. The cash payment on June 30, 2015 is a. $20,000. b. $21,200. c. $24,000. d. $17,710.

On January 1, 2015, the long-term liability section of Quick Silver Co. balance sheet showed a balance of $800,000 in the bonds payable account. On December 31, 2015, the balance in that same account was $765,000. This change would appear on the statement of cash flows as a. an outflow of cash of $35,000 in the financing activities category. b. an inflow of cash of $35,000 in the financing activities category. c. an outflow of cash of $35,000 in the investing activities category. d. an inflow of cash of $35,000 in the investing activities category.

On January 2, 2015, Hi-Tech Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. The annual cash payment (paid in semiannual payments) on the bonds is a. $40,000. b. $30,000. c. $20,000. d. $15,000.

One way analysts measure the ability of a company to meet its obligations is to calculate the times interest earned ratio for any outstanding debt the company may have. For Tempo Solutions Corporation, $10,000 of bonds paying 6.5% annually are outstanding. Income before interest and taxes is $7,000. How would Tempo Solutions Corporation calculate the times interest earned ratio? a. Income before interest and taxes divided by the interest expense. b. Income before interest and taxes divided by carrying value of the bonds outstanding. c. Income before interest and taxes divided by the face rate on bonds. d. Face amount of bonds divided by income before interest and taxes.

Premium on Bonds Payable is a balance sheet item for Ohio Products Company. How would it most likely be classified on the balance sheet? a. An increase to a long-term liability b. Revenue c. Long-term asset d. Contra liability

Redfearn Company has current assets of $150,000 and current liabilities of $60,000. How much inventory could it purchase on account and achieve its minimum desired current ratio of 2 to 1? a. $30,000 b. $40,000 c. $10,000 d. $20,000

Rent owed to the landlord is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet? a. Current liability b. Long-term liability c. Current asset d. Owners' equity

The Retained Earnings account balance for a large corporation is $10,000,000. This amount represents a. earnings that have not been distributed to shareholders. b. cash in the bank. c. the amount of cash available for dividends. d. revenues for all past years of operations.

The attitude of the Financial Accounting Standards Board toward deferred tax liabilities is that they are a. an amount that results in a future obligation and meets the definition of a liability. b. a bookkeeping item that is used merely to maintain equality of the accounting equation. c. not true liabilities because the balance increases every year. d. not payable in the immediate future so it not necessary to record them.

The current portion of long-term debt is a balance sheet item for Flavorful Products Company. How would it most likely be classified on the balance sheet? a. Current liability b. Long-term liability c. Current asset d. Long-term liability

The payment of accounts payable results in a(n) a. decrease in liabilities and a decrease in assets. b. decrease in liabilities and an increase in owners' equity. c. decrease in liabilities and an increase in assets. d. increase in liabilities and a decrease in owners' equity.

The statement of stockholders' equity a. is one of the required financial statements for the annual report, when changes have occurred in the stockholders' equity accounts. b. shows the changes in retained earnings for the period, which includes the increase or decrease as a result of net income or loss for the period, and dividends for the period. c. includes accounts, such as the retained earnings and common stock accounts, but not changes to the retained earnings account, since those items are reported on the statement of retained earnings. d. is used only if a corporation frequently issues common stock.

Vegan Company reported the following: Common stock, $5 par, 200,000 shares authorized, 50,000 shares issued and outstanding What is the effect of issuing 2,000 shares of common stock in exchange for land with valued by a realtor at $36,000 if the common stock sells for $12 per share and is regularly traded? a. The Land account increases by $24,000. b. Retained Earnings decreases by $10,000. c. Common Stock increases by $36,000. d. Additional Paid-in Capital - Common increases by $24,000.

Venture Enterprises' accountant determined the following: Common stock, $0.01 par value $50,000 Where would this item be reported on Venture's financial statements? a. In the Stockholders' Equity section of the balance sheet b. In the Treasury Stock section of the balance sheet c. On the statement of retained earnings d. On both the balance sheet and statement of retained earnings

Wave Corporation is determining its income tax liability. It has one machine that cost $30,000 with a 4-year life and no salvage value. Wave is using an accelerated depreciation method for tax purposes. For accounting purposes, Wave has decided to use the straight-line method. Which of the following statements is true? a. There will be a temporary difference between accounting income and income for tax purposes. b. There will be a permanent difference between accounting income and income for tax purposes. c. Wave's accounting income and income for tax purposes will be equal. d. Accounting income will be lower than income for tax purposes, especially in the early years of the asset's life.

What amount would be reported in the operating activities section of the statement of cash flows for payments for operating expenses under the direct method? a. $186,000 b. $154,000 c. $180,000 d. $170,000

What is the amount of Vargas' retained earnings? a. $130,000 b. $98,000 c. $860,000 d. $114,000

What is the effect of a 10% stock dividend if the market price of the common stock is $30 per share when the dividend is declared? a. Retained earnings in the amount of $15,000 is transferred to the contributed capital accounts. b. Cash decreases $30,000. c. Additional Paid-in Capital decreases $30,000. d. A stock dividend has no effect on any stockholders' equity accounts.

When a company declares a 3-for-1 stock split, the number of outstanding shares a. is tripled compared to the number of shares that were outstanding prior to the split. b. stays the same, but, the number of issued shares triples. c. is tripled, while the number of issued shares is reduced to one-third of the original issued shares. d. is reduced, and the number of issued shares is tripled.

When a company wishes to purchase and retire its own stock, the company must a. decrease the stock account balances by the original issue price. b. record a gain or loss depending on the difference between original selling price and repurchase cost. c. get the approval of the state to do so. d. issue a different class of stock to the former stockholders.

When using the direct method, how is the collection of cash from customers shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the indirect method, how is an increase in accounts receivable during the year shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the indirect method, how is depreciation expense recorded on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the indirect method, how is the decrease in accounts payable shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the indirect method, the gain from selling a long-term investment is recognized in which of the following? a. In the operating activity section and the investing activity section of the statement of cash flows. b. In the financing activity section of the statement of cash flows. c. In the noncash investing or financing activity supplemental section of the statement of cash flows. d. Gains are not recognized in the statement of cash flows under the indirect method.

Which balance sheet accounts are most affected by operating activities? a. Current assets and current liabilities b. Long-term assets c. Long-term liabilities d. Stockholders' equity

Which method of preparing the operating activities section has Feline used? a. The direct method b. The indirect method c. Either method d. Cannot be determined without further information

Which method of preparing the operating activities section of a statement of cash flows reports major classes of gross cash receipts and cash payments for revenues and expenses? a. The direct method b. The indirect method c. Both the direct method and the indirect method d. Neither the direct method nor the indirect method

Which of the following combinations appropriately reflects the type of accounts represented by the Treasury Stock account and Additional Paid-in Capital --Treasury Stock account? Treasury Stock Additional Paid-Capital --Treasury Stock a. contra stockholders' equity stockholders' equity b. contra stockholders' equity contra stockholders' equity c. stockholders' equity stockholders' equity d. retained earnings retained earnings

Which of the following is reported as a financing activity? a. Payment of cash dividends b. Declaration of cash dividends c. Stock dividend d. Stock split

Which of the following items should not appear in the long-term liability section of the balance sheet? a. Accrued income taxes b. Deferred income taxes c. Bonds payable d. Pension obligations

Which of the following items would be considered a cash equivalent if it was held at the balance sheet date? a. U.S. Treasury bill purchased when there were 90 days until maturity. b. Commercial paper with a 6-month maturity which was purchased at the issue date. c. The common stock of a company traded on the New York Stock Exchange which was purchased 30 days before the balance sheet date. d. U.S. Treasury note which matures 2 years after it is issued and which was purchased 4 months before the balance sheet date.

Which of the following operating activities results in a cash outflow? a. Paying creditors for merchandise b. Collecting accounts receivable c. Making cash sales d. Receiving deposits recorded as unearned revenue

Which of the following statements about current liabilities is true? a. The current ratio is defined as current assets divided by current liabilities. b. The current liability section never contains any portion of long-term liabilities. c. Current liabilities are listed in order of decreasing amounts in the current liability section of the balance sheet. d. The amount of current liabilities has little implication for a company's liquidity.

Which of the following statements regarding the statement of cash flows is true? a. The statement of cash flows analyzes the changes in consecutive balance sheets in conjunction with the income statement. b. The statement of cash flows is organized as cash inflows less cash outflows. c. The statement of cash flows analyzes only the changes in current assets and current liabilities. d. The statement of cash flows is an optional financial statement.

Which of the following statements with regard to large stock dividends is true? a. As a result of the stock dividend, retained earnings is reduced by the par value of the stock issued. b. Retained earnings is reduced by the market value of the stock issued in the stock dividend. c. If the market price of the stock before a 50% stock dividend is $30, after the stock dividend it will be $45. d. As the result of a 50% stock dividend, a stockholder who had previously held 20 shares will then hold 40 shares.

Which of the following terms does not describe an interest rate used to calculate the interest expense on the income statement? a. Nominal rate b. Market rate c. Effective rate d. Yield rate

Which of the following transactions has an effect on the statement of cash flows? a. The sale of preferred stock b. The declaration of a cash dividend c. A small stock dividend d. A large stock dividend

Winston wins the lottery. He wins $20,000 per year to be paid to him for 10 years. The state offers him the choice of a cash settlement now instead of the annual payments for 10 years. If the interest rate is 6%, what is the amount the state will offer for a settlement today? a. $147,200 b. $200,000 c. $154,440 d. $175,000

With respect to the statement of cash flows, a. retirement and repurchase of stock is a financing activity. b. a stock split is a financing activity. c. a stock dividend is an investing activity. d. the declaration of a cash dividend account is an operating activity.

100. The following information is reported in the operating activities section of Gateway's statement of cash flows for 2014: Net income $1,200,000 Increase in inventories 600,000 Decrease in accounts payable 400,000 Which one of the following conclusions can be assumed from the information provided? a. Gateway used the direct method to determine cash flows from operating activities. b. Gateway purchased more merchandise than it sold in 2014. c. Cash payments for merchandise purchases were less than the amount of merchandise purchased on credit during 2014. d. Cash payments for merchandise exceeded cost of goods sold by $200,000. ANSWER:

101. The following information was taken from the operating activity section of the 2014 statement of cash flows for Limited Corp: Additions to net income: Change in accounts payable $2,000 Deductions from net income: Change in inventories 8,000 Based on the information provided, which one of the following conclusions is correct? a. Accounts payable decreased $2,000 in 2014. b. Inventories increased $8,000 in 2014. c. The direct method was used to prepare the operating section of the cash flow statement. d. Cash payments of merchandise exceeded cost of goods sold by $2,000. ANSWER:

103. Which of the following statements is true when using the indirect method of preparing the operating activities section of the statement of cash flows? a. Inventory decreases are subtracted from net income. b. Inventory increases are subtracted from net income c. Inventory increases are added to net income. d. None of the above. ANSWER:

107. Adam Inc. uses a perpetual inventory system. Jan. 1 On hand, 10 units at $2 each $20 4 Sold 8 units for $10 each 80 22 Purchased 50 units at $4 each 200 26 Sold 48 units for $10 each 480 If Adam uses the LIFO method, how much is cost of goods sold for the month of January? a. $204 b. $208 c. $212 d. $560 ANSWER:

18. Refer to the account information for Chen's Department Store. Determine Chen's gross profit. a. $68,000 b. $72,000 c. $78,000 d. $85,000 NSWER:

19. Klein's Shoe Company uses a perpetual inventory system. The beginning balance in its inventory account is $1,500 and the ending balance is $1,000. Cost of goods sold is $6,500. What was the amount of inventory purchased during the year? a. $500 b. $6,000 c. $7,000 d. $7,500 ANSWER:

21. Baker Corp. sold merchandise to a customer on credit. The invoice amount was $1,000; the invoice date was June 10; credit terms were 1/10, n/30. Which one of the following statements is true? a. The customer can take a $10 discount if the invoice is paid on June 30. b. The customer should pay $1,000 if the invoice is paid on July 9. c. The customer must pay a $10 penalty if payment is made after July 9. d. The customer must pay $1,010 if payment is made after June 20. ANSWER:

31. The following is from Goldman Inc.'s 2015 income statement. Purchases $182,000 Transportation-In 11,000 Inventory, January 1, 2015 26,500 Inventory, December 31, 2015 28,800 Purchase Returns and Allowances 8,400 How much will Goldman report as its cost of goods sold in its 2015 income statement? a. $179,900 b. $182,300 c. $186,900 d. $190,700 ANSWER:

39. How are purchase discounts and purchase returns recorded by a company using the periodic inventory system? a. As a direct reduction to the Purchases account. b. In contra accounts to the Purchases account. c. As operating expenses. d. As miscellaneous expenses. ANSWER:

40. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. Park uses a perpetual inventory system. When will the cost of merchandise sold be recorded as an expense? a. The date the merchandise was purchased. b. The date the merchandise is sold. c. The end of the accounting period. d. Cannot be determined without further information. ANSWER:

41. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. Park uses the periodic inventory system. What effect does recording the purchase of merchandise on June 5, 2015 have on Park's accounting equation? a. Assets and liabilities increase. b. Liabilities increase and stockholders' equity decreases. c. Assets and stockholders' equity increase. d. Liabilities and stockholders' equity decrease. ANSWER:

44. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. Who is responsible for payment of the transportation costs on the merchandise sold by Jay Zee Music to Park? a. Jay Zee Music Company b. Park, Inc. c. Split equally between the two companies. d. Cannot be determined from the information provided. ANSWER:

45. An entry made to the right side of an account is called a: a. Debit. b. Credit. c. Double-entry system. d. Journal entry. ANSWER:

48. Wendt, Inc. counted its ending inventory as $178,000 at year-end, January 31, 2014. Upon review of the records, it was noted that the following items were in transit during the count: A) $2,000 of goods shipped by a supplier to Wendt sent FOB destination on January 31 were received February 5, and were not counted by Wendt. B) $5,000 of goods shipped by a supplier to Wendt sent FOB shipping point on January 30 were received February 2, and were not counted by Wendt. C) $6,000 of goods shipped by Wendt to a customer FOB shipping point on January 31 were received by the customer February 3, and were counted by Wendt. Determine the correct inventory balance at January 31. a. $178,000 b. $177,000 c. $174,000 d. $172,000 ANSWER:

50. At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory count of a. The seller b. The buyer c. Both the seller and the buyer d. Neither the seller no the buyer ANSWER:

56. Read the information on Parachute Country Club. On which date did the country club collect an advance deposit? a. August 2 b. August 3 c. August 5 d. August 7 ANSWER:

60. Which method assigns the same cost to all units whether sold or left in ending inventory? a. Specific identification b. Weighted average cost c. FIFO d. LIFO ANSWER:

63. Eversoll Inc. uses the periodic inventory system. June 1 On hand, 50 units $15.00 each $ 750.00 5 Purchased 115 units $15.10 each 1,736.50 14 Purchased 75 units $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units If Eversoll uses the FIFO inventory method, the amount assigned to the June 30 inventory would be a. $1,354.00 b. $1,366.50 c. $1,590.42 d. $1,594.00 ANSWER:

68. Quan uses a periodic inventory system. At the end of April, Quan had 20 units on hand. April 1 On hand, 10 units $2 each $ 20 19 Purchased 90 units $3 each 270 Goods available for sale $290 If Quan, Inc. uses the weighted average cost inventory method, how much is cost of goods sold for April? a. $230 b. $232 c. $240 d. $250 ANSWER:

69. Quan uses a periodic inventory system. At the end of April, Quan had 20 units on hand. April 1 On hand, 10 units $2 each $ 20 19 Purchased 90 units $3 each 270 Goods available for sale $290 If Quan uses the LIFO inventory method, how much is inventory on the balance sheet as of April 30? a. $40 b. $50 c. $58 d. $60 ANSWER:

70. A major advantage of the weighted average method of inventory costing is that a. Cost flows correspond with the physical flow of merchandise b. It is relatively easy to apply c. It matches current costs with revenues d. Recent costs are assigned to the ending inventory balance ANSWER:

72. Which inventory costing method results in the highest inventory balance during a period of rising prices? a. Weighted average cost b. FIFO c. LIFO d. Both FIFO and LIFO result in the same inventory balance ANSWER:

73. Which method might allow a company to make significant inventory purchases at year end for the purpose of manipulating income? a. FIFO b. LIFO c. Specific Identification d. Weighted Average Cost ANSWER:

75. During a period of increasing cost prices, which inventory costing method will yield the lowest cost of goods sold? a. Any method in which the company uses a periodic inventory system b. FIFO c. LIFO d. Weighted Average Cost ANSWER:

77. Federal income tax rules allow businesses to use different inventory costing methods for tax reporting and financial reporting with one exception. Which of the following situations is not allowed by federal income tax rules? Inventory Method Inventory Method for Tax Reporting for Financial Reporting a. LIFO LIFO b. LIFO FIFO c. Weighted Average FIFO d. FIFO LIFO ANSWER:

79. Which one of the following statements regarding changing inventory methods is true? a. A change in inventory methods can be justified if the change is made to better match profits with revenue. b. Changing inventory methods affects consistency. c. One place that the reader of an annual report would be able to identify that a company changed inventory methods is the statement of stockholders' equity. d. Tax advantages are valid justification for changing inventory methods. ANSWER:

87. Hawk Store counted some of its inventory twice. As a result, its operating expenses will be a. Correct only if Hawk Store calculates it cost of goods sold correctly b. Correct since operating expenses are not affected by inventory costs c. Overstated d. Understated ANSWER:

96. Which of these is not an acceptable inventory costing method under IFRS? a. FIFO b. LIFO c. Specific Identification d. Average cost ANSWER:

99. A company began the year with $150,000 in inventory and ended the year with $170,000 in inventory. Cost of goods sold for the year amounted to $960,000. Assuming 360 days in a year, how long, on average, does it take the company to sell its inventory (to the nearest day)? a. 6 days b. 60 days c. 120 days d. 3 days ANSWER:

A cereal company includes one premium coupon in every cereal box. Upon returning 10 such coupons to the company, a customer will be sent a free cereal bowl. In a recent year, the company sold 200,000 boxes of cereal for $1 a box. It is estimated that 20% of the coupons will be returned. If the cereal bowls cost the company $3 each, what amount of liability for premium redemptions must be recorded by the company? a. $ 6,000 b. $ 12,000 c. $200,000 d. $ 24,000

A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the quick ratio would be a. 2.25 to 1 b. 1.75 to 1 c. 3.50 to 1 d. 3.00 to 1

A company purchased machinery by issuing 2,000 shares of $3 par value common stock. Since the company is new, there is no established market price for its stock. How would the company record the transaction? a. In terms of the par value of the stock issued. b. At the fair market value of the machine. c. At the cost recorded by the previous owner of the machine. d. Recording the transaction would be postponed until a market price for the stock could be determined.

A company would repurchase its own stock for all of the following reasons except a. it needs the stock for employee bonuses. b. it wishes to make an investment in its own stock . c. it wishes to prevent unwanted takeover attempts. d. it wishes to improve the company's financial ratios.

A company's balance sheet shows the account, Notes Payable. This resulted from a loan made by the company's bank. If the end-of-year balance in the notes payable account exceeds the beginning-of-year balance by $5,000, this is shown on the cash flow statement as an a. inflow of cash of $5,000 in the operating activities category. b. inflow of cash of $5,000 in the financing activities category. c. outflow of cash of $5,000 in the operating activities category. d. outflow of cash of $5,000 in the financing activities category.

A decrease in deferred taxes (liability) would appear on the statement of cash flows, prepared using the indirect method as a(n) a. addition to net income in the operating activities category. b. deduction to net income in the operating activities category. c. inflow of cash in the financing activities category. d. outflow of cash in the financing activities category.

A firm is required to estimate a liability for repairs for products sold with a warranty. If the firm's accountants later find that the estimated amount for repairs has been overstated, the correct accounting procedure is to a. show the amount of overstatement on the income statement as a loss. b. do nothing for the year in question and modify the next year's estimate. c. make a correcting entry because the overstatement is an error. d. make an adjusting entry to reduce the amount of estimate.

A gain on bond redemption a. is considered unusual and infrequent. b. should be treated as part of operating income. c. decreases a company's income. d. is always included when predicting a company's future income.

A ten-year lease obligation appears on the balance sheet of Generic Products Company. How would it most likely be classified on the balance sheet? a. Both as a current asset and a long-term asset b. Both as a long-term liability and a current liability c. A stockholders' equity d. Contra-liability

All of the following refer to the face rate of interest on a bond except: a. stated rate. b. effective rate. c. nominal rate. d. coupon rate.

All of the following statements are true except: a. The criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under U.S. GAAP than IFRS. b. The criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under IFRS than U.S. GAAP. c. The lease criteria under IFRS are to be used as guidelines rather than rules. d. IFRS requires more accounting judgment than U.S. GAAP in the determination of whether a lease is classified as an operating lease or a capital lease.

All of the following statements are true except: a. under IFRS, an unclassified balance sheet based on the order of liquidity is acceptable only when it provides more reliable information than a classified one. b. U.S. standards require a classified balance sheet with liabilities in order by size or by order of liquidity. c. IFRS require companies to present classified balance sheets. d. U.S. standards do not require a classified balance sheet.

Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is a. interest payable. b. notes payable. c. accounts payable. d. taxes payable.

Amortization of bond discount results in a(n) a. decrease of the bonds payable account. b. decrease of stockholders' equity. c. increase of stockholders' equity. d. decrease in the cash account

Amortized discount is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

Amortized premium is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

An analysis of Blecher's records indicated that there were no cash flow effects resulting from the changes in the two accounts presented above. How should Blecher report the changes in these accounts on a statement of cash flows? a. Blecher should report $65,000 for the acquisition of land as an investing activity and $65,000 for the issuance of stock as a financing activity. b. Blecher should report $65,000 as a noncash investing and financing activity for the acquisition of land by issuing common stock. c. Blecher should report the issuance of common stock to acquire land in the financing activity section with a net cash flow effect of zero. d. Blecher should report the acquisition of land by issuing common stock in the investing activity section with a net cash flow effect of zero

An invoice received from a supplier for $8,000 on January 1 with terms 1/15, n/30 means that the company should pay a. $6,800 before January 16. b. either $7,920 before January 16 or $8,000 before the end of the month. c. $8,000 between January 2 and January 16. d. $7,920 before the end of January.

Assume that there were no retained earnings transactions other than those dealing with dividends and net income. How much dividends did Focal Point declare during 2016? a. $ 95,000 b. $105,000 c. $140,000 d. $150,000

Bennington Corp. issued a $40,000, 10-year bond at the face rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period? a. $ 800 b. $1,600 c. $3,200 d. $4,000

Bonds are sold at a premium if the a. issuing company has a better reputation than other companies in the same business. b. market rate of interest was less than the face rate at the time of issue. c. market rate of interest was more than the face rate at the time of issue. d. company will have to pay a premium to retire the bonds.

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. It is probable that Boston Trombley will lose the suit. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of: a. an estimated liability that must appear in Boston Trombley Company's balance sheet. b. a loss contingency that should be disclosed in the notes to Boston's financial statements. c. an $3 billion expense to be recorded in the income statement during the year of the suit. d. none of these. No accrual or disclosure is required in Boston's financial statements.

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

Cash flows from acquiring and disposing of long-term assets are classified as a. operating activities. b. investing activities. c. financing activities. d. purchasing activities.

Churchill Company planned to raise $100,000 by issuing bonds. The bond certificates were printed bearing an interest rate of 8%, which was equal to the market rate of interest. However, before the bonds could be issued, economic conditions forced the market rate up to 9%. If the life of the bonds is 6 years and interest is paid annually on December 31, how much will Churchill receive from the sale of the bonds? a. Exactly $100,000 because Churchill Company would still pay interest at the face rate of 8%. b. Less than $100,000 because the market rate of interest at 9% was more than the face rate. c. Greater than $100,000 because the face rate of interest at 8% was less than the market rate. d. The bonds would not be sold at all; Churchill Company would have the certificates reprinted bearing the market rate of 9%.

Connor Martin Corporation's balance sheet showed the following amounts: Current Liabilities, $10,000; Bonds Payable, $3,000; Lease Obligations, $4,000; and Notes Payable, $600. Total stockholders' equity was $12,000. The debt-to-equity ratio is: a. 0.83. b. 1.47. c. 1.42. d. 0.63.

Debbie and Alex formed a new partnership. The partnership agreement specified that income should be allocated in a 2-to-1 ratio, with Debbie receiving the larger portion. If revenue for the first year was $90,000 and expenses were $60,000, how much would be allocated to each partner? a. Debbie - $45,000; Alex - $45,000 b. Debbie - $20,000; Alex - $10,000 c. Debbie - $60,000; Alex - $30,000 d. Debbie - $40,000; Alex - $20,000

Deferred income taxes arise because a. corporations often make errors in their tax estimations. b. companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders. c. the IRS owes a company a refund from last year. d. large corporations generally have operations in foreign countries whose tax law is quite different from U.S. tax law.

Deferred income taxes is a balance sheet item for Iowa Products Company. How would it most likely be classified on the balance sheet? a. Owners' equity b. Long-term liability c. Expense d. Contra liability

During 2016, Flora Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment This was the only equipment sale during the year. What was depreciation expense for 2016? a. $ 9,000 b. $16,000 c. $21,000 d. $30,000

Employees earn $5,000 per day, work five days per week, Monday through Friday, and get paid every Friday. If the previous payday was January 26 and the accounting period ends on January 31, what amount is the ending balance in the wages payable account? a. $25,000 b. $15,000 c. $10,000 d. $ 9,000

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued a. at a premium. b. at a discount. c. at the face value. d. with an additional 3 years of interest.

For 2015, Wasabi Company has accounting revenues of $6,000. However, because of temporary differences between tax and accounting, $1,000 of this is not subject to tax. If expenses are $3,000 for both tax and accounting, and the tax rate is 40%, what is the amount of tax payable to the IRS? a. $400 b. $800 c. $1,200 d. $1,600

From this information, the most likely explanation is that Jerry is a. using cash from operations and selling long-term assets to pay back debt. b. using cash from operations and borrowing to purchase long-term assets. c. using its profits to expand growth. d. using cash from investors to provide for operations.

Gaulle Company began the year with a balance of $6,000 in Accounts Receivable and ended the year with $9,000 in the account. Revenues for the period amounted to $38,000. Under the direct method, Gaulle will report cash collected from customers of: a. $44,000 b. $35,000 c. $41,000 d. $47,000

How many shares of common stock are outstanding? a. 100,000 b. 98,000 c. 78,000 d. 68,000

How many shares of stock are issued? a. 9,000 b. 10,000 c. 10,100 d. Not enough information to determine

If a company borrows money from its bank and the bank deducts the interest in advance, the company would record the amount of the interest deduction as a. prepaid interest. b. a discount. c. an expense. d. a loss.

If a company has both common and preferred shares outstanding and wishes to calculate book value per share, a. net assets must be divided by the total number of both classes of stock. b. net assets, less the redemption value of the preferred stock, must be divided by the number of shares of common stock outstanding. c. stockholders' equity must be divided by the total number of both classes of stock. d. stockholders' equity, less the cost of treasury shares held, must be divided by the number of common shares outstanding.

If a company uses the direct write-off method of accounting for bad debts, a. It is applying the matching principle b. It will record bad debt expense only when an account is determined to be uncollectible c. It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible accounts d. It will report accounts receivable in the balance sheet at their net realizable value

If a company wishes to accumulate $500,000 in 20 years at 5% by making equal yearly deposits into an account, calculation of the deposits is an application of the a. future value of a single amount. b. future value of an annuity. c. present value of a single amount. d. present value of an annuity.

If a company's bonds are callable, a. the investor or buyer of the bonds has the right to retire the bonds. b. the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%. c. the bonds are never allowed to remain outstanding until the maturity date. d. the investor never knows what the redemption price will be until the bonds are actually called.

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will a. decrease as the bonds approach their maturity date. b. increase as the bonds approach their maturity date. c. remain constant throughout the bonds' life. d. fluctuate throughout the bonds' life.

In 2015, Dickens Company had a beginning balance in its Cash Dividend Payable account of $5,000 and an ending balance of $4,000. During 2015, the only dividends Dickens declared were $46,000 in cash to the common stockholders. How much cash was paid to the common stockholders? a. $45,000 b. $47,000 c. $46,000 d. $ 1,000

In 2015, Suez Company issued $200,000 of bonds for $189,640. If the face rate of interest was 6.73% and the effective rate of interest was 8%, how would Suez calculate the interest expense for the first year on the bonds using the effective interest method? a. $189,640 × 6.73% b. $189,640 × 8% c. $10,000 × 6.73% d. $10,000 × 8%

In 2015, Valencia Company purchased equipment for $363,000 and also sold some special purpose machinery with a book value of $155,000 for $182,000. In its statement of cash flows for 2015, Valencia should report the following with respect to the above transactions: a. $363,000 cash used by operating activities; $182,000 cash provided by financing activities. b. $181,000 net cash used by investing activities. c. $181,000 net cash used by investing activities; $27,000 net cash provided by operating activities. d. $363,000 net cash used by investing activities.

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

Long-term assets are $5,000, current liabilities are $700, and long-term liabilities are $3,000. If the current ratio is 3 to 1, then current assets are a. $4,300 b. $2,100 c. $9,000 d. $6,900

Mackie's individual retirement account (IRA) currently has a balance of $100,000 and is earning 6%. Beginning one year from today, what equal annual amounts can be withdrawn from the IRA for 10 years so that the balance after the tenth withdrawal is zero? a. $14,237 b. $13,587 c. $12,950 d. $10,000

Marshland Company uses the straight-line depreciation for financial reporting purposes and an accelerated depreciation method for tax purposes. As a result, Marshland will record: a. a deferred tax asset. b. a deferred tax liability. c. a permanent difference. d. tax-exempt depreciation.

Micro Company wishes to issue $400,000 of 5-year, 6% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the selling price? a. The market rate of interest, the stated rate of interest, the bond rating, and the bond life. b. The face amount of the bonds, the stated rate of interest, the market rate of interest, and the bond life. c. The life of the bonds, the market rate of interest, the bond rating, and the face amount of the bonds. d. The face amount of the bonds, the market rate of interest, the purpose of the issue, and the bond life.

On January 2, 2015, Concrete Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2015? a. $574,540 b. $571,776 c. $568,920 d. $500,000

On January 2, 2015, Garage Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%.The interest expense on the bonds at June 30, 2015 is a. $ 2,764. b. $17,236. c. $20,000. d. $22,764.

On November 1, 2014, Chancellor Co. borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. At December 31, 2014, the adjustment for this note includes: a. an increase to Notes Payable for $1,600. b. an increase to Interest Payable for $1,600. c. an increase to Interest Expense for $3,200. d. a decrease to Cash for $4,800.

On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. If you assume 360 days in year, the November 30 adjustment will include: a. an increase in Discount on Notes Payable, $1,100 and an increase in Interest Payable, $1,100. b. an increase in Interest Expense, $550 and an increase in Interest Payable, $550. c. an increase in Interest Expense, $550 and an increase in Notes Payable, $550. d. an increase in Interest Expense, $550 and a decrease in Cash, $550.

Operating, investing, and financing activities affect certain balance sheet accounts. Which of the following statements is true? a. Operating activities primarily involve transactions which affect noncurrent assets. b. Investing activities primarily involve U.S. government securities and long-term productive assets. c. Financing activities primarily involve transactions which affect current liabilities. d. Different balance sheet accounts are affected depending on whether the direct or indirect method is used.

Planet & Co. reported net income for the current year. Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income? a. Cash dividends were paid to stockholders during the year. b. Depreciation expense was recorded for the year. c. A bank loan was repaid during the year. d. Equipment was purchased for cash during the year.

Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. This transaction to pay the dividend will a. increase Cash and increase Cash Dividend Payable. b. decrease Cash Dividend Payable and decrease Cash. c. decrease Retained Earnings and increase Cash Dividend Payable. d. decrease Cash Dividend Payable and increase Retained Earnings.

Rent expense in Volusia Company's 2016 income statement is $420,000. If Prepaid Rent was $70,000 at December 31, 2015, and is $95,000 at December 31, 2016, the cash paid for rent during 2016 is: a. $480,000 b. $445,000 c. $395,000 d. $420,000

Roehr Corporation issues 20,000 shares of $0.50 par common stock for $6 per share; the Additional Paid-in Capital--Common account will increase by a. $10,000. b. $110,000. c. $120,000. d. $130,000.

The current balance sheet of Handyman Inc. reports total assets of $20 million, total liabilities of $2 million, and owners' equity of $18 million. Handyman Inc. is considering several financing possibilities in order to expand operations. What is the additional amount that Handyman Inc. can borrow and not exceed a debt to equity ratio of 0.3? a. $5.4 million b. $3.4 million c. $5.5 million d. $4.0 million

The current balance sheet of Sanders Inc. reports total assets of $20 million, total liabilities of $2 million, and owners' equity of $18 million. Sanders Inc. is considering several financing possibilities in order to expand operations. If Sanders Inc.'s owner invests an additional $2 million to finance the expansion, the debt to equity ratio will a. stay the same. b. decrease. c. increase. d. cannot be determined from this information.

The number of shares of common stock issued is a. 10,000. b. 100,000. c. 500,000. d. 550,000.

The primary reason for a stock split is to a. distribute cash to the investor. b. decrease the market value of the stock. c. decrease the number of shares outstanding. d. increase the contributed capital of the corporation.

The result of using the effective interest method of amortization of discount on bonds is that the a. interest expense for each amortization period is constant. b. effective interest rate for each amortization period is constant. c. amount of interest expense decreases each period. d. cash interest payment is greater than the interest expense.

The total amount of simple interest calculated annually on a $4,000 note payable in 5 years at 9% is: a. $2,154.60 b. $1,800.00 c. $1,411.20 d. $554.04

The total amount of simple interest calculated annually on a $6,000 note payable for 3 years at 11% is a. $7,980 b. $1,980 c. $2,205 d. $6,600

Using the future value table, a student found that the future value amount of $1 for 5 years at an annual interest rate of 10% is 1.611. The student also observed that the future value of $1 for 5 years at 10% compounded semiannually is 1.629. This means that a. the student was looking in the wrong column; the second amount should be 1.611/2. b. the more often the compounding, the higher the future value. c. there was an error in the table. d. when interest is compounded semiannually, more money must be deposited to have a desired ending balance.

Valor Company issued 5,000 shares of $1 par common stock for $30 per share, providing the company with $150,000 in cash. What effect, in addition to the increase in cash, does this transaction have on the accounting equation for Valor? a. Common Stock increases $150,000. b. Common Stock increases $5,000; Additional Paid-in Capital - Common increases $145,000. c. Common Stock increases $5,000; Retained Earnings increases $145,000. d. Common Stock increases $5,000; Gain on Sale of Common Stock increases $145,000.

What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit? a. $850,000 b. $857,000 c. $843,000 d. Cannot be determined without further information.

What was the amount of cash flows from investing activities for 2016? a. Cash inflow of $378,000 b. Cash outflow of $378,000 c. Cash outflow of $7,000 d. Cash outflow of $391,000

When a company declares a 2-for-1 stock split, a. stockholders' equity is doubled. b. there is no effect on total stockholders' equity. c. a shareholder who previously held 100 shares will have 300 shares after the split. d. the price of each share will be one third of what it was before the stock split.

When a company declares a cash dividend, which of the following is true? a. Stockholders' equity is increased. b. Liabilities are increased. c. Assets are increased. d. Assets are decreased.

When a company declares a stock dividend, which of the following occurs? a. A liability is created. b. Retained earnings is reduced. c. Stockholders' equity is decreased. d. The financing section of the statement of cash flows is decreased.

When a company purchases treasury stock, which of the following statements is true? a. Treasury stock is considered to be an asset because cash is paid for the stock. b. The cost of the treasury stock reduces stockholders' equity. c. Dividends continue to be paid on the treasury stock because it is still issued. d. Since treasury stock is held by the original issuer, it is no longer considered to be issued.

When using the direct method, how is the sale of long-term investments for cash reported on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the indirect method, how is the purchase of equipment for cash shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the indirect method, how is the receipt of cash from the sale of long-term investments treated on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing or financing activity

When will bonds sell at a discount? a. The credit standing of the issuing company is not as good as other companies in a similar line of business. b. The face rate of interest is less than the market rate of interest at the time of issue. c. The face rate of interest is more than the market rate of interest at the time of issue. d. The issuing company will be able to retire the bonds at less than face at maturity.

Where would you tell someone to find the information needed to compute the cash flow adequacy ratio? a. The balance sheet only b. The statement of cash flows and the notes to the statements c. The statement of cash flows only d. The income statement only

Which balance sheet accounts are most affected by investing activities? a. Current assets and current liabilities b. Long-term assets c. Long-term liabilities d. Stockholders' equity

Which method of preparing the operating activities section has Golden Consulting used? a. The direct method b. The indirect method c. Either method d. Cannot be determined without further information

Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses? a. The direct method b. The indirect method c. Both the direct and indirect methods d. Neither the direct method nor the indirect method

Which of the following financing activities results in a cash inflow? a. Buying treasury stock b. Issuing bonds c. Repaying a bank loan d. Paying cash dividends

Which of the following is an addition to net income when the indirect method is used? a. An increase in inventory b. A loss on sale of equipment c. A decrease in accounts payable d. An increase in accounts receivable

Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital? a. The issuance of stock decreases several important financial ratios. b. Issuing bonds dilutes the voting power of the stockholders. c. Corporations are not required to return the investment to the stockholders. d. Investors expect to earn a higher rate of return on stocks than bonds.

Which of the following is not a financing activity? a. Issuing bonds for cash. b. Selling an investment in IBM stock for cash. c. Purchasing a company's own stock (treasury stock) for cash. d. Making a cash payment to repay a bank loan.

Which of the following is not classified as a noncurrent liability? a. Mortgage payable b. Current portion of long-term debt c. Bonds payable d. Capital lease obligations

Which of the following is reported as a financing activity? a. Declaration of dividends b. Sale of preferred stock c. Conversion of preferred stock to common stock d. Stock split

Which of the following lease conditions would result in a capital lease to the lessee? a. The lessee will return the property to the lessor at the end of the lease term. b. The lessee can purchase the property for $1 at the end of the lease term. c. The fair market value of the property at the inception of the lease is $18,000; the present value of the minimum lease payments is $15,977. d. hyThe lease term is 70% of the property's economic life.

Which of the following statements about bond accounting under the effective interest method is correct? a. The cash interest paid is calculated as the bond face value × the effective rate. b. The interest expense is calculated as the carrying value × the effective rate. c. The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium. d. The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.

Which of the following statements is true? a. Investments in commercial paper or U.S. Treasury bills must be treated as cash equivalents. b. Investments in stock cannot be treated as cash equivalents because they are not convertible into a known amount of cash. c. Investments which are convertible into a known amount of cash and mature within three months after the balance sheet date are treated as cash equivalents. d. Investments in money market accounts cannot be treated as cash equivalents because they do not have a specific maturity date.

Which of the following statements regarding partnerships is true? a. Partnerships have two owners. b. The partnership ends when a new partner is added. c. The partnership is responsible for its own taxes. d. The partnership is a separate legal entity from its owners.

Which of the following terms does not describe the interest rate printed on the bond certificate? a. Coupon rate b. Effective rate c. Face rate d. Stated rate

Which of the following would appear on the balance sheet as a current liability? a. A loss from an anticipated strike by employees. b. Premium offers in cereal boxes. c. Potential damages from possible explosions in a fireworks factory. d. The possible loss from a lawsuit.

With regard to a corporation's stock, par value is a. the current market price of the stock. b. an arbitrary amount that exists to fulfill legal requirements. c. the amount at which the stock has been repurchased. d. The amount at which treasury stock can be sold.

105. Readers.com uses a perpetual inventory system. Feb. 1 On hand, 30 units at $5.00 each $150 8 Purchased 40 units at $5.35 each 214 15 Sold 50 units 22 Purchased 40 units at $5.20 each 208 28 On hand, 60 units If Readers.com uses the moving average method, how much is ending inventory on February 28? a. $300 b. $306 c. $312 d. $318 ANSWER:

108. Adam Inc. uses a perpetual inventory system. Jan. 1 On hand, 10 units at $2 each $20 4 Sold 8 units for $10 each 80 22 Purchased 50 units at $4 each 200 26 Sold 48 units for $10 each 480 If Adam uses the FIFO method, how much is ending inventory on January 31? a. $8 b. $12 c. $16 d. $40 ANSWER:

22. Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price of $20 each on August 5, 2015, on account. If Tile Magic Corp. pays the amount of the invoice for its purchase on August 14, 2015, how much cash will Floors receive from Tile Magic Corp.? a. $1,764 b. $1,800 c. $1,960 d. $2,000 ANSWER:

27. When an inventory system updates the Inventory account at the time of each sale, this is known as: a. a periodic system. b. a contra-purchase system. c. a perpetual system. d. an accrual system. ANSWER:

28. Cost of goods sold is equal to: a. the total amount of merchandise purchased during the year. b. the cost of merchandise purchased plus transportation-in costs less ending inventory. c. the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts minus ending inventory. d. the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts ANSWER:

33. The cost of goods sold is a. Purchases less beginning inventory plus ending inventory b. Reported on the balance sheet in the inventory account c. Goods available for sale less ending inventory d. Equal to the amount of inventory on hand at the end of the accounting period ANSWER:

34. Which one of the following statements is false? a. The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system. b. The inventory account is updated only at the end of the accounting period under the periodic inventory system. c. A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system. d. A purchases account is used only under the periodic inventory system. ANSWER:

36. In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for a. The periodic inventory system b. The perpetual inventory system c. Both the periodic and perpetual inventory systems d. Neither the periodic nor perpetual inventory systems ANSWER:

45. Herndon Corp. purchased merchandise on account from Likert Corp. on November 18, 2014. On November 21, 2014, Herndon returned damaged merchandise to Likert and was granted an adjustment on its account. Herndon uses the periodic inventory system. What effect does the merchandise return have on Herndon's accounting equation? a. Assets and stockholders' equity decrease. b. Assets and liabilities decrease. c. Liabilities decrease and stockholders' equity increases. d. Liabilities and stockholders' equity decrease. ANSWER:

47. Which one of the following is not a contra account? a. Purchase Returns and Allowances b. Accumulated Depreciation c. Transportation-in d. Sales Discounts ANSWER:

51. Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold. All other costs, including transportation and other costs of bringing merchandise to the place of business, are charged to expense of the period in which they are incurred. Which accounting principle or concept is applied in this example? a. Historical cost b. Matching c. Cost/Benefit d. Conservatism ANSWER:

53. Which pair of accounts has the same set of rules for debit and credit entries? a. Service Revenue and Rent Expense b. Dividends and Retained Earnings c. Equipment and Salaries Expense d. Accounts Receivable and Accounts Payable ANSWER:

55. Read the information on Parachute Country Club. On which date did the company make cash sales for daily golf and swimming fees? a. August 2 b. August 3 c. August 5 d. August 7 ANSWER:

56. The Ramien Store held inventory items at the end of 2014. Which items should Ramien include as part of its total inventory cost? a. Freight incurred in shipping goods to customers. b. Annual income taxes paid for operations. c. Cost of storing inventory before it is sold. d. Cost of salaries of clerks that sell the inventory items. ANSWER:

57. Which one of the following statements is true? a. The flow of inventory costs should match the physical flow of the merchandise. b. Accounting standards require that merchandise costs be specifically traced to units left in inventory and to units that have been sold c. Accountants have developed methods which make assumptions concerning how costs should be assigned to inventory and cost of goods sold. d. Alternative inventory cost flow assumptions have the same effect on the amount of net income reported. ANSWER:

58. Which method assigns the cost of the most recent items purchased to ending inventory? a. Specific identification b. Weighted average cost c. FIFO d. LIFO ANSWER:

6. Which of the following statements is true? a. Only the effects of internal transactions must be recognized and recorded in the entity's accounting system. b. An internal event is a transaction between an entity and its environment. c. Not all recognizable events are supported by a standard source document. d. Only the effects of external events must be recognized, measured, and recorded in an entity's accounting system. ANSWER:

65. Eversoll Inc. uses the periodic inventory system. June 1 On hand, 50 units $15.00 each $ 750.00 5 Purchased 115 units $15.10 each 1,736.50 14 Purchased 75 units $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units If Eversoll uses the LIFO inventory method, the cost of goods sold for June would be a. $1,354.00 b. $2,200.00 c. $2,272.50 d. $2,296.08 ANSWER:

7. Which of the following would be a case where an event as a transaction is not supported by a source document? a. a purchase of inventory on credit b. a cash sale c. the financial consequences of a fire loss d. recording payroll ANSWER:

81. Which of the following will not cause a trial balance to be out of balance? a. The balance for an account is incorrectly computed. b. A debit entry is posted as a credit. c. A credit entry is posted to the wrong account as a credit. d. An account is accidentally omitted from the trial balance. ANSWER:

89. If a company understates its ending inventory balance for 2015 by $15,500, what are the effects on its net income for 2015 and 2014? Effect on 2015 Net Income Effect on 2014 Net Income a. Overstated by $15,500 Understated by $15,500 b. Understated by $15,500 Overstated by $15,500 c. Understated by $15,500 No effect d. Overstated by $15,500 No effect ANSWER:

90. If a company overstates its ending inventory balance for 2015 by $10,000, and understates its ending inventory balance for 2014 by $5,000 what are the effects on its net income for 2015 and 2014? Effect on 2015 Net Income Effect on 2014 Net Income a. Overstated by $15,000 Understated by $10,000 b. Understated by $5,000 Overstated by $10,000 c. Overstated by $15,000 Understated by $5,000 d. Overstated by $10,000 Understated by$5,000 ANSWER:

91. If a company overstates its ending inventory balance for 2015 by $10,000, and overstates its ending inventory balance for 2014 by $5,000 what are the effects on its net income for 2015 and 2014? Effect on 2015 Net Income Effect on 2014 Net Income a. Overstated by $15,000 Overstated by $10,000 b. Understated by $5,000 Overstated by $10,000 c. Overstated by $5,000 Overstated by $5,000 d. Overstated by $10,000 Overstated by $5,000 ANSWER:

92. When the market value of inventory items has declined below its cost, which method would be the most appropriate in complying with GAAP? a. Gross Profit b. LIFO c. Lower of Cost or market d. Retail ANSWER:

93. When inventories are written down due to the application of the lower of cost or market (LCM) rule, the account that is usually increased is a. Cost of Goods Sold b. Inventories c. Loss on Decline in Inventory Value d. Accumulated Depreciation - Inventory ANSWER:

97. Selected data for Sorenta, Inc. and New World Corp., two companies in the same industry, are presented below: Sorenta, Inc. New World Corp. Sales $50,000 $80,000 Cost of goods sold 30,000 50,000 Average inventory balance 5,000 5,000 Based on this data, which statement below is true? a. Sorenta, Inc. has a lower gross profit ratio than New World Corp. b. New World Corp has a higher net income than Sorenta, Inc. c. New World Corp sells its inventory faster than Sorenta, Inc. d. Sorenta, Inc. has lower storage costs and a lower investment in inventory than New World Corp. ANSWER:

98. Caruso, Inc. has an inventory turnover rate of 8 times. If its cost of goods sold is $150,000, then a. The company will report sales of $1,200,000. b. The gross margin will be $1,200,000. c. The company's average inventory is $18,750. d. It sells its inventory 1,200 times per year. ANSWER:

A bank loaned York Construction Company $35,000 on a 1-year, 6% note, but deducted the interest in advance. The transaction recorded on York's books for the receipt of the cash would include an a. decrease in Notes Payable for $32,900. b. increase in Interest Revenue for $2,100. c. increase in Discount on Notes Payable for $2,100. d. increase in Cash for $35,000.

A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in inventory. If current liabilities are $14,350, then the quick ratio would be a. 2.6 to 1 b. 2.0 to 1 c. 1.2 to 1 d. 5.0 to 1

A company issued 4,000 shares of $5 par common stock for $30 per share. The company purchased 1,200 shares as treasury stock at $32 per share. Later, the company reissued 400 shares of the treasury stock at $34 per share. Which of the following is true? a. The Treasury Stock account should have a balance of $24,800. b. The company has a gain of $800 that should appear on the income statement. c. The Treasury Stock account should have a balance of $25,600. d. The company has a gain of $1,600 that should appear on the income statement.

A mortgage incurred in exchange for an office building would be reported in the statement of cash flows in a. the cash flows from financing activities section. b. the cash flows from investing activities section. c. a separate schedule. d. the cash flows from operating activities section.

Abilene Western Shop began business on January 1, 2015. The corporate charter authorized issuance of 10,000 shares of $2 par value common stock and 4,000 shares of $8 par value, 6% cumulative preferred stock. Abilene issued 2,400 shares of common stock for cash at $20 per share on January 2, 2015. What effect does the entry to record the issuance of stock have on total stockholders' equity? a. Increase of $4,800 b. Decrease of $4,800 c. Increase of $48,000 d. Decrease of $48,000

All of the following are reasons for a company to repurchase its previously issued stock, except: a. to support the market price of the stock. b. to resell to employees. c. to increase the shares outstanding. d. for bonuses to employees.

An example of a cash flow related to a liability that would not appear in the financing activities category of the statement of cash flows is a. mortgage payable. b. bonds payable. c. deferred income taxes. d. a lease obligation.

An example of a current liability that must be accrued is a. current maturity of long-term debt. b. accounts payable. c. income taxes payable. d. revenue received in advance.

Ari's Cafe began operations on March 1, 2015. The corporate charter authorized the issuance of 3,000 shares of $2 par value common stock and 1,000 shares of $3 par value, 8% cumulative preferred stock. The company's fiscal year ends on February 28. Ari's sold 500 shares of common stock at $6 per share on April 1. What impact does the entry to record the April 1 transaction have on total stockholders' equity? a. No effect b. Increase by $1,000 c. Increase by $3,000 d. Increase by $6,000

As a result of a stock split, a. an entry must be made showing the effect on stockholders' equity b. the market price of the outstanding stock will increase because a split is evidence of a profitable company. c. the par value of the stock is changed in the reverse proportion as the stock split. d. the stockholders have a higher proportionate ownership of the company.

Assume that all purchases of equipment were paid with cash. How much cash was paid by Shorter for the purchase of equipment during 2016? a. $7,000 b. $30,000 c. $37,000 d. $72,000

Assume the current ratio is 2 to 1. Payment on accrued salaries payable would cause the current ratio to a. decrease. b. be unchanged since the effects offset one another. c. increase. d. be unchanged since it has no impact on any current accounts.

Assume the current ratio is 3 to 1. Estimating the warranties expense on the period's sales would cause the current ratio to a. be unchanged since it has no effect on any current accounts. b. be unchanged since the effects offset one another. c. decrease. d. increase.

At the end of 2016, Fargo issued bonds at par value for $800,000 cash. The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2015 (before their maturity date). All interest expense was paid in cash during 2016. How much did Fargo pay to retire the $500,000 bond issue during 2016? a. $485,000 b. $500,000 c. $515,000 d. $560,000

At the end of 2016, Toronto issued bonds at par value for $800,000 cash. The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2015 (before their maturity date). All interest expense was paid in cash during 2016. The following statements describe how Toronto reported the cash flow effects of the items described above on its 2016 statement of cash flows. The indirect method is used to prepare the operating activities section. Which of the following has been reported incorrectly by Toronto? a. Proceeds of $800,000 from the issuance of bonds were reported as a cash inflow in the financing activities section. b. The loss on bond retirement of $15,000 was added to net income in the operating activities section. c. Payments of $560,000 were reported as a cash outflow in the investing activities section. d. Interest expense of $45,000 was not reported separately because it is included in net income in the operating activities section.

At the end of the first year of operations, the balance sheet of West Palm Beach Industries had the following balances: Accounts Receivable, $5,000; Accounts Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000. The corporation reported net income of $79,000 for the year, including depreciation expense of $5,000, and uses the indirect method of computing net cash flow from operating activities. Based on this information, net cash flow from operating activities is: a. $82,000 b. $78,000 c. $80,000 d. $77,000

Cash flows from borrowing and paying off a 90-day bank loan are classified as a. operating activities. b. investing activities. c. financing activities. d. purchasing activities.

Cash flows from issuing and repurchasing stock or issuing and repaying (retiring) debt are classified as a. operating activities. b. investing activities. c. financing activities. d. borrowing activities.

Cash interest is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

Cash interest payment is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity? a. Decrease b. Increase c. Remain constant d. Not enough information given to decide.

Clarion Inc. issues numerous discount coupons throughout the year. A balance in the Estimated Liability for Coupon Redemption a. indicates an error had been made in posting. b. should equal the same amount of coupons redeemed. c. is the amount of outstanding coupons it expects to be redeemed. d. indicates that more coupons were redeemed than estimated.

Convertible bonds are attractive to investors because a. they usually carry a higher rate of interest than non-convertible bonds. b. they carry a convertible interest rate that can be increased when the prime rate of interest increases. c. they can be converted into stock at the issuer's option. d. the issuing company cannot retire the bonds before maturity.

Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They must pay 10% down, and can get the balance financed with a 10 year loan at 7% interest and annual payments. What is their annual payment? a. $26,826 b. $24,457 c. $25,626 d. $19,260

During 2016, the accounts payable balance of Andreas Corp. decreased. Which of the following statements is true? a. This decrease indicates that Andreas paid less during the period than it recognized as expenses on the income statement. b. This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method. c. This decrease is deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method. d. This decrease is considered only when the operating activities section of a statement of cash flows is prepared under the direct method.

Each of the following transactions would be classified as either an investing or a financing activity except a. Investments in stock are purchased. b. a bank loan is obtained. c. stock is issued to acquire land. d. dividends are paid.

Executive, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjustment that would a. decrease Wages Payable $2,000. b. increase Wages Payable $2,000. c. increase Wages Expense $8,000. d. decrease Cash $8,000.

Fairchild Company acquired a building valued at $210,000 for property tax purposes in exchange for 6,000 shares of its $10 par common stock. The stock is widely traded and selling for $31 per share. At what amount should the building be recorded by Fairchild Company? a. $210,000 b. $60,000 c. $186,000 d. $150,000

Flagg Company issued $500,000 of bonds for $498,351, Interest is paid semiannually. The bond markets and the financial press are likely to state the bond issue price as a. 498.35. b. 100.00. c. 99.67. d. 49.84.

Gordon Vending, a sole proprietorship, had the following balances and transactions during 2015: beginning capital, $40,000; contribution of cash to the business by the owner, $15,000; revenue, $60,000; expenses, $35,000; withdrawal by the owner, $5,000. What is the amount of the ending capital balance? a. $40,000 b. $60,000 c. $75,000 d. $85,000

How is treasury stock shown on the balance sheet? a. Treasury stock is not shown on the balance sheet b. An increase in stockholders' equity c. A decrease in stockholders' equity d. An asset

How much cash was collected from customers during 2016? a. $741,000 b. $745,000 c. $749,000 d. $753,000

How much would have to be deposited in a savings account earning 6%, so that equal annual withdrawals of $200 can be made at the end of each of 10 years? The balance at the end of the last year would be zero. a. $528 b. $2,000 c. $1,472 d. $2,636

How would the change in accounts payable be reported in the operating activities section of the statement of cash flows under the indirect method? a. As an addition to operating expenses b. As a deduction from operating expenses c. As an addition to net income d. As a deduction from net income

If Cable Inc. receives $23,825 from credit card collections and has an average rate of 4.7% charged by the credit card company, its credit card sales during the period were: a. $111,978 b. $50,691 c. $25,000 d. $22,705

If Garrett has $5,000 per year to invest for 10 years and wants to accumulate $87,745 at the end of that time, he must find an investment that is earning at a rate of a. 6% b. 15% c. 12% d. 11%

If Washington uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2016? a. $ 73,000 b. $ 83,000 c. $ 95,000 d. $105,000

If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays April 2, then the amount paid to the seller would be a. $3,150 b. $3,136 c. $3,200 d. $3,168

If bonds are issued at 101.25, this means that a. a $1,000 bond sold for $101.25. b. the bonds sold at a discount. c. a $1,000 bond sold for $1,012.50. d. the bond rate of interest is 10.13% of the market rate of interest.

If current assets amount to $150, total assets $350, current liabilities $65, and total liabilities $100, then the current ratio is a. 3.03 to 1 b. 2.12 to 1 c. 2.31 to 1 d. 3.50 to 1

If current assets amount to $62,000, total assets $350,000, current liabilities $31,000, and total liabilities $125,000, then the current ratio is a. 3.0 to 1 b. 0.5 to 1 c. 2.0 to 1 d. 2.8 to 1

If your bank gives you a $2,000 loan at 8% per year, but deducts the interest in advance, is 8% the "real" rate of interest that you will pay? a. There is not enough information to answer this question accurately. b. Yes. c. No. The interest rate is actually higher than 8 percent. d. No. The interest rate is actually lower than 8 percent.

In 2015, Baloga Heating Company sold 400 water heaters for $350 each. The water heaters carry a 2-year warranty for repairs. Baloga estimates that repair costs will average 2% of the total selling price. How much is recorded in the warranty liability account as a result of selling the water heaters during 2015? a. $4,200 b. $1,400 c. $2,800 d. no liability should be recorded until the water heaters are brought back for repairs.

In 2015, Morton Co. sold 100 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $42,000. $11,000 in claims was actually incurred during the year to honor their warranty. What was the balance in the ending estimated warranty liability at the end of the year? a. $42,000 b. $37,000 c. $47,000 d. $ 5,000

Interest payable on a loan becomes a liability: a. at the maturity date. b. when the borrowed money is received. c. as it accrues. d. when the note payable is issued.

Occasionally, companies engage in important investing and financing activities which do not affect cash. If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared? a. In the investing section if the amount of investing activities are greater than the financing activities amount. b. In the financing section if the amount of financing activities are greater than the investing activities amount. c. In a note to the financial statements or in a supplemental schedule. d. The transaction does not need to be disclosed.

On January 1, 2015, Chain, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. The interest expense on the bonds at June 30, 2015 is a. $20,000 b. $24,000 c. $21,252 d. $17,710

On January 2, 2015, Lawn Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds at the end of ten years before the final maturity payment is made? a. $574,540 b. $525,000 c. $500,000 d. $425,460

On January 2, 2015, Roof Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders a. $574,540. b. $520,000. c. $500,000. d. only the last interest payment.

On January 2, 2015, Wynn Corporation sold $750,000 of bonds for $745,000. The bonds will mature in 10 years and pay interest annually on December 31. Wynn properly recorded the payment of interest and amortization of the discount using the effective interest method. Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2015? a. The carrying value will be less than $745,000. b. The carrying value will be $745,000. c. The carrying value will be greater than $745,000. d. The unamortized premium will be less than $5,000.

On March 1, 2015, Taco Reef reacquired 4,000 shares of common stock at $50 per share. All common shares were originally sold for $42 each. How much should be reported in the treasury stock account on the March 31, 2015 balance sheet? a. $128,000 b. $168,000 c. $200,000 d. $32,000

On the issuance date, the Bonds Payable account had a balance of $50,000,000 and Premium on Bonds Payable had a balance of $1,000,000. What was the issue price of the bonds? a. $50,000,000 b. $49,000,000 c. $51,000,000 d. Unable to determine from the information given.

Parks Company reported an increase of $370,000 in its accounts receivable during the year 2015. The company's statement of cash flows for 2015 reported $1 million of cash received from customers. What amount of net sales must Parks have recorded in 2015? a. $370,000 b. $1,000,000 c. $1,370,000 d. $630,000

Poole Company began business on January 1, 2015. The corporate charter authorized issuance of 5,000 shares of $1 par value common stock, and 4,000 shares of $8 par value, 6% cumulative preferred stock. None of the preferred shares were issued. On July 1, Poole issued 1,000 shares of common stock in exchange for two years rent on a retail location. The cash rental price is $2,400 per month and the rental period begins on July 1. The correct entry to record the July 1 transaction will a. Increase Cash, $57,600; Decrease Prepaid Rent, $57,600 b. Increase Prepaid Rent, $57,600; Increase Common Stock, $57,600 c. Increase Prepaid Rent, $57,600; Increase Common Stock, $1,000; Increase Additional Paid-in Capital-- Common, $56,600 d. Increase Prepaid Rent, $57,600; Increase Common Stock, $5,000; Increase Additional Paid-in Capital-- Common, $52,600

Proctor Inc. has a weekly payroll of $8,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Wednesday, Proctor would make an adjustment that would a. decrease cash $4,800. b. decrease wages payable $4,800. c. increase wages expense $4,800. d. increase wages payable $8,000.

Readers of the financial pages of the daily newspaper noticed the following information with regard to the Connor Company stock: Daily high, 45.50; Daily low, 42.25; Last, 43.50; Change, +0.75. This tells readers that the a. stock was selling at 43.50% of par at the close of the day. b. stock gained $3.00 in value over the previous day. c. stock gained $.75 in value over the previous day. d. company's stock is a popular investment.

Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company. The annual payments are $1,000,000 and the life of the lease is 18 years. It is estimated that the useful life of the aircraft is 20 years. How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%. a. The company would not record the aircraft as an asset but would record rent expense of $1,000,000 per year for 18 years. b. The company would not record the aircraft as an asset but would record rent expense of $900,000 per year for 20 years. c. The aircraft would be recorded as an asset with a cost of $8,756,000. d. The aircraft would be recorded as an asset with a cost of $9,129,000.

Stockton Corporation has made an accounting entry to record deferred taxes as a liability resulting from temporary differences between accounting income and taxable income. Which of the following statements is true? a. Deferred tax will be decreased. b. Stockholders' equity will be increased. c. Stockholders' equity will be decreased. d. Assets will be decreased.

Surplus Mining Company has leased a machine from Craft Machinery Company. The annual payments are $6,000 and the life of the lease is 8 years. It is estimated that the useful life of the machine is 9 years. How would Surplus Mining record the acquisition of the machine? a. The machine would be recorded as an asset with a cost of $48,000. b. The company would not record the machine as an asset but would record rent expense of $6,000 per year. c. The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 8 years. d. The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 9 years.

The Premium on Bonds Payable account is shown on the balance sheet as a. a contra asset. b. a reduction of an expense. c. an addition to a long-term liability. d. a subtraction from a long-term liability.

The amount of Anole's total contributed capital at December 31, 2015, is a. $ 60,000. b. $120,000. c. $180,000. d. $555,000.

The book value per share for a corporation is a. the market price of the stock. b. the cost of investments in stock of other corporations. c. based on the excess of total assets over total liabilities. d. the amount stockholders would receive if they sold their shares back to the corporation.

The present value of $7,000 to be received in 7 years at 7% compounded annually is a. $7,000 b. $3,430 c. $4,361 d. $6,657

The statement of cash flows a. along with the balance sheet and income statement is prepared on the accrual basis. b. along with the balance sheet and statement of retained earnings is dated as of a specific year end date. c. along with the balance sheet is used to analyze liquidity. d. ties the balance sheet to the statement of retained earnings.

The statement of stockholders' equity for Jutras Corporation shows an increase in the Common Stock account of $8,000, an increase in Additional Paid-in Capital--Common in the amount of $22,000, and an increase in Retained Earnings of $50,000. If the stock has a par value of $3 and dividends of $10,000 were declared and paid during the year, what is the amount of net income for the year? a. $40,000 b. $50,000 c. $60,000 d. $90,000

There have been two issues of stock since the corporation began business. The average issue price per share of stock was a. $3.00. b. $17.00. c. $20.00. d. Not enough information to determine.

Tropical Co. declared a cash dividend of $30,000. This transaction includes a(n) a. decrease to Cash of $30,000. b. increase to Retained Earnings of $30,000. c. decrease to Retained Earnings of $30,000. d. decrease to Cash Dividend Payable of $30,000.

Two methods are available to prepare the operating activities section of a statement of cash flows. Which of the following statements regarding these two methods is false? a. If a company uses the indirect method, it must separately disclose the cash payments made for interest and income taxes. b. If a company uses the direct method, it must present a separate schedule which reconciles net income to net cash from operating activities. c. Advocates of the direct method believe that the indirect method reveals too much by telling readers gross amounts of cash receipts and cash payments from operations. d. The FASB prefers the direct method, while most companies use the indirect method in practice.

Under the effective interest method, the cash paid on each interest payment date will a. decrease if bonds are issued at a premium. b. increase if bonds are issued at a premium. c. remain constant regardless of the issuance price. d. increase if bonds are issued at a discount.

Using the concept of comprehensive income and assuming that the entity has available-for-sale securities, which of the following items is included as part of comprehensive income but not as part of net income? a. Extraordinary items b. Accounting changes c. Unrealized holding gains or losses d. Loss on sale of investments

Vegas Finance Company reported the following: Common stock, $10 par, 100,000 shares authorized, 80,000 shares issued and outstanding What is the effect of issuing 1,000 shares of common stock at $15 per share? a. Cash increases $10,000. b. Common Stock increases $15,000. c. Additional Paid-in Capital increases $5,000. d. Retained Earnings increases $5,000.

When bonds are issued by a company, the accounting entry shows an a. increase in liabilities and a decrease in stockholders' equity. b. increase in liabilities and an increase in stockholders' equity. c. increase in assets and an increase in liabilities. d. increase in assets and an increase in stockholders' equity.

When using the direct method, how is the issuance of stock for cash shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the direct method, how is the payment of a cash dividend shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the direct method, how is the retirement of bonds payable at their maturity date shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing and financing activity

When using the indirect method, how is the issuing of stock for cash shown on the statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Non cash investing and financing activity

When using the indirect method, how would the declaration and payment of cash dividends be shown on the statement of cash flows? a. Operating activities b. Investing activities c. Financing activities d. Noncash investing and financing activity

Which of the following activities is most likely to have a cash flow effect? a. Investing in money market funds b. Declaring cash dividends c. Reissuing treasury stock d. Issuing stock to acquire a patent

Which of the following activities results in a cash inflow? a. Increases in noncash current assets (NCCA) b. Decreases in current liabilities (CL) c. Increases in common stock (CS) d. Decreases in retained earnings (RE)

Which of the following is an account in stockholders' equity? a. Dividends Payable b. Loss on Sale of Equipment c. Retained Earnings d. Net income

Which of the following is not a current reporting requirement for a statement that reports changes in cash over a period of time? a. This statement must classify cash flows into three categories: operating, investing, and financing activities. b. Cash equivalents must be combined with cash in preparing this statement. c. Working capital may be used as a substitute for cash in preparing this statement. d. The title for this statement is "Statement of Cash Flows."

Which of the following is not an investing activity? a. Purchase of investments for cash. b. Purchase of equipment for cash. c. Sale of merchandise for cash. d. Sale of land for cash.

Which of the following items is treated as a cash equivalent? a. Commercial paper with a 6-month maturity when purchased and 4 months until maturity at the balance sheet date. b. Investment in corporate stocks which management intends to sell within 3 months after the balance sheet date. c. Money market funds which can be obtained overnight from a bank or brokerage firm. d. Investments in corporate bonds which have 5 years until maturity when they are purchased.

Which of the following measures can be used to evaluate a company's ability to meet future debt obligations after paying income taxes and interest and making capital expenditures? a. Earnings per share b. Net income c. Cash flow adequacy ratio d. Net increase or decrease in cash and cash equivalents

Which of the following statements is correct? a. Bonds are issued at a price that reflects the stated rate of interest on the day the bond is purchased. b. If the face rate of interest on a bond is not equal to the market rate of interest, then the company desiring to issue the bonds must reprint its bond certificates. c. The actual issue price of a bond represents the present value of all future cash flows related to the bond. d. The market rate of interest has no bearing on the selling price of the bonds.

Which of the following statements is false? a. A balance sheet reports a company's cash balance at a specific date. b. An income statement reports the amounts of revenue and expense on an accrual basis, not the amount of cash received from revenues or paid for expenses. c. A statement of retained earnings reports the amount of cash received from operating activities and the amount of cash paid for dividends. d. A statement of cash flows explains the changes in cash from operating, investing, and financing activities.

Which of the following statements is true with respect to long-term liabilities? a. They are obligations that will be satisfied within one year. b. An account payable is a good example of a long-term liability because it is interest-bearing. c. Long-term liabilities include bonds, other long-term liabilities and deferred income taxes. d. Accrued expenses are considered to be long-term liabilities.

Which of the following statements regarding contingencies is true? a. Contingencies that are probable and not estimable appear on the balance sheet. b. Contingent assets are recorded on the balance sheet, but not in the notes to the financial statements. c. Contingencies that are probable and not estimable are disclosed in the notes to the financial statements. d. Contingencies that are remote but estimable are disclosed in the notes to the financial statements

Which of the following trends can be unfavorable from the viewpoint of a bondholder? a. The issuing company's debt ratio is steadily declining. b. The issuing company's interest coverage ratio is steadily rising. c. Market interest rates are steadily rising. d. The issuing company's net cash flow from operating activities is steadily increasing.

With regard to preferred stock, a. its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments. b. no dividends are expected by the stockholders. c. its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared. d. there is a legal requirement for a corporation to declare a dividend on preferred stock.

With the effective interest method of amortization, the amortization of bond discount results in a(n) a. increase in stockholders' equity. b. decrease of stockholders' equity. c. increase in interest expense. d. decrease in interest expense.

You are interested in accumulating $10,000 so that you can take a cruise in 3 years. If you trying to solve for the amount that you need to invest each year, earning 6% interest compounded annually, the $10,000 represents: a. the amount to invest. b. an annuity. c. a future value. d. a present value.

25. Blenham, Inc. sells merchandise on credit. If a customer pays its balance due after the discount period has passed, what is the effect of the payment on Blenham's accounting equation? a. Assets and stockholders' equity decrease b. Assets and stockholders' equity increase c. Assets decrease and liabilities increase d. No net effect ANSWER:

26. Sales Discounts is classified as what type of account? a. An expense b. A revenue c. A contra-asset d. A contra-revenue ANSWER:

35. Slotkin Company buys designer clothing to sell in its retail stores. Since much of the merchandise comes from Dallas and Europe, Slotkin Company must pay freight charges to get the merchandise shipped in. Which statement is true? a. Transportation-in, paid by Slotkin Company, is added to the inventory account under the periodic system. b. Transportation-in, paid by Slotkin Company, is subtracted from purchases under the periodic system. c. Freight charges are only paid by a buyer in a periodic system. d. Transportation-in is added to net purchases to determine cost of goods purchased in a periodic system. ANSWER:

38. Texas Inc. sold merchandise to Fagin Corp. on December 28, 2014, with shipping terms of FOB destination. Fagin Corp. received the merchandise on January 3, 2015. Which one of the following statements is true? a. Texas should record sales revenue on December 28, 2014. b. Fagin Corp. should pay the transportation costs. c. Fagin Corp. should include the merchandise in its inventory at December 31, 2014. d. Fagin Corp. should record a liability for the purchase on January 3, 2015. ANSWER:

42. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. If Park uses the periodic inventory system, the effect of recording the payment on June 13, 2015, will include a. A decrease to Purchases for $15,000. b. An increase to Inventory for $14,850. c. A decrease to Cash for $15,000. d. A decrease to Accounts Payable for $15,000. ANSWER:

46. Transportation-in is a. an operating expense b. a stockholders' equity account c. added to transportation-out as part of the calculation of cost of goods sold d. part of cost of goods purchased ANSWER:

52. In order to evaluate a company's gross profit ratio, a. the ratio should be compared with forecasted financial statements. b. the ratio should be compared with those of prior years. c. the ratio should be compared with other companies in the same industry. d. the ratio should be compared with those of both prior years and competitors. ANSWER:

54. The ending inventory balance represents a. Expired costs and is reported on the balance sheet as an asset. b. The cost of goods sold during the current period and is reported on the balance sheet as an asset. c. Expired costs and is reported on the income statement as an expense d. Unexpired costs and is reported on the balance sheet as an asset. ANSWER:

59. Which method assigns the cost of the most recent items purchased to cost of goods sold? a. Specific identification b. Weighted average cost c. FIFO d. LIFO ANSWER:

66. Eversoll Inc. uses the periodic inventory system. June 1 On hand, 50 units $15.00 each $ 750.00 5 Purchased 115 units $15.10 each 1,736.50 14 Purchased 75 units $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units How many units did Eversoll, Inc. sell during June? a. 50 b. 90 c. 100 d. 150 ANSWER:

71. Which method of inventory costing is not acceptable for financial accounting purposes? a. Specific Identification b. FIFO c. LIFO d. Replacement Cost ANSWER:

78. Summer, Inc. has been in business for 20 years. During that time the company has consistently used the LIFO inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The company has maintained the same inventory quantities over the 20-year period. Which one of the following statements is true? a. Summer, Inc.'s total net income for the past 20 years is greater than it would have reported using another inventory method. b. Summer, Inc. will have paid more income taxes over the past 20 years than it would have if it had used the FIFO method. c. Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting principles and federal income tax rules. d. The ending inventory figure reported on the balance sheet may be significantly lower than its current value. ANSWER:

83. Accountants should be aware that LIFO liquidations can potentially result in which of the following? a. If older less costly layers are liquidated, a correspondingly lower cost of goods sold will result. b. If older less costly layers are liquidated, a correspondingly higher gross profit will result. c. If older less costly layers are liquidated, the company may be faced with higher taxes for those deferred in previous periods. d. All of these could result. ANSWER:

85. If the amount assigned to ending inventory is incorrect, a. The balance sheet is affected, but the income statement is not b. The income statement is affected, but the balance sheet is not c. The balance sheet is affected, but cost of goods sold is not d. Both the balance sheet and the income statement are affected ANSWER:

86. A company fails to record one storeroom full of inventory in its year-end inventory records. As a result, this will cause: a. an overstatement of inventory on the year-end balance sheet. b. an understatement of gross profit in the following year. c. an overstatement of retained earnings at the end of the year. d. an overstatement of cost of goods sold for the current year. ANSWER:

94. Which one of the following statements regarding the application of the lower of cost or market method is true? a. Generally, market value is greater than replacement cost. b. When the lower of cost or market method is used, inventories are valued at selling price. c. The lower of cost or market method is most commonly applied on a total inventory basis because it is a more conservative approach. d. The lower of cost or market method is an exception to the historical cost principle. ANSWER:

95. All of the following statements are true except: a. Both U.S. GAAP and international financial reporting standards (IFRS) require the use of the lower-of-cost- or-market rule to value inventories. b. U.S. GAAP defines market value as replacement cost. c. IFRS uses net realizable value with no upper or lower limits imposed. d. Write-downs of inventory can be reversed in later periods under U.S. GAAP. ANSWER:

A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include a a. a decrease in Notes Payable for $9,400. b. a decrease in Notes Payable for $10,600. c. an increase in Cash for $600. d. an increase in Cash for $9,400.

A convertible bond is one where a. the issuer can convert from a fixed interest rate to a floating one. b. the issuer can convert it from long-term to short-term. c. the issuer can retire the bond before its specified due date. d. the holder can convert the bond into common stock at a future time.

A liability for dividends is created a. at the end of each fiscal year. b. at the date of payment. c. at the date of record. d. at the date of declaration.

A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during its first month of business. The lawyer's normal fee is $15,000 for similar work. Which of the following accounting equation effects would be recorded if the stock is not currently trading? a. A decrease in Common Stock for $10,000 b. An increase in Common Stock for $15,000 c. A decrease in Additional Paid-In Capital--Common Stock for $5,000 d. An increase in Additional Paid-In Capital--Common Stock for $5,000

All of the following statements about current liabilities are true except: a. current liabilities are normally recorded at face value. b. current liabilities are obligations which will be satisfied within one year. c. current liabilities finance the working capital of the company. d. the current liability section never contains any portion of long-term liabilities.

Anole's total stockholders' equity reported on the balance sheet at December 31, 2015, is a. $ 60,000. b. $120,000. c. $180,000. d. $555,000.

Barton Company has just purchased a machine with a cost of $100,000, and signed a note agreeing to pay the manufacturer equal annual amounts of $17,400. If the current rate of interest is 8%, how many equal annual payments will be made? a. 6 b. 12 c. 10 d. 8

Comprehensive income is a. considered an appropriation of retained earnings when reported in the stockholders' equity section of the balance sheet. b. the result of all events and transactions that affect income during the accounting period that are reported on the income statement. c. reporting all items that are not under management's control on the statement of retained earnings. d. an all-inclusive approach to income that includes transactions that affect stockholders' equity with the exception of those transactions that affect owners.

Cuero Co. reported a net loss of $30,000 for 2015, yet its cash balance increased during the year. Which financial statement should Cuero's management refer to for an explanation of this situation? a. Balance sheet b. Income statement c. Statement of Retained Earnings d. Statement of Cash Flows

Current liabilities are defined as those liabilities which will be satisfied a. within one year or within the operating cycle, whichever is shorter. b. by the end of the operating cycle. c. within one year. d. within one year or within the operating cycle, whichever is longer.

Dali Company has 15,000 shares of stock authorized at January 1. Dali issues 4,500 shares to the stockholders during the year and then the company repurchases 1,500 shares as treasury stock. Based on this information, how many shares are outstanding at December 31? a. 15,000 b. 18,000 c. 4,500 d. 3,000

Discount on Bonds Payable is a balance sheet item for Covington Products Company. How would it most likely be classified on the balance sheet? a. Current liability b. Long-term liability c. Current asset d. Contra-liability

Dividends in Arrears a. is a liability account. b. is a contra stockholders' equity account. c. is a stockholders' equity account. d. appear in the notes to the financial statements.

During 2016, Alpha Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment This was the only equipment sale during the year. What amount would be reported as the cash proceeds from the sale of equipment? a. $2,000 b. $3,000 c. $5,000 d. $8,000

For a given single sum invested at 8% for 4 years, how will the future value be affected if the compounding period is changed from annual to quarterly? a. The future value will decrease. b. The future value will stay the same. c. There is not enough information to determine the impact. d. The future value will increase.

Frank Crawford Corporation's balance sheet showed the following amounts: Current Liabilities, $15,000; Bonds Payable, $8,000; Lease Obligations, $9,000; and Notes Payable, $5,600. Total stockholders' equity was $17,000. The debt-to-equity ratio is: a. 0.88. b. 1.18. c. 0.71. d. 2.21.

Global Company issued $1,000,000, 8%, 7 year bonds, interest payable semiannually. The market rate of interest was 6%. The issuance price of the bonds is a. $1,111,560 b. $1,000,000 c. $1,151,480 d. $1,112,840

How much cash was paid for merchandise purchases during 2016? a. $421,000 b. $462,000 c. $467,000 d. $472,000

How much cash was paid for salaries during 2016? a. $55,100 b. $55,200 c. $57,000 d. $58,900

How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows under the indirect method? a. As an addition to sales b. As a deduction from sales c. As an addition to net income d. As a deduction from net income

If Carpet World uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2016? a. $64,000 b. $66,000 c. $68,000 d. $70,000

If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is a. treated as a gain on the sale. b. treated as a loss on the sale. c. an increase in stockholders' equity. d. a decrease in stockholders' equity.

If interest is compounded annually, the total amount of interest on an $18,000 note payable for 4 years at 10% is a. $8,500 b. $7,200 c. $5,706 d. $8,352

If the interest factor used to calculate the future value of $1 at 6% for 5 periods is 1.338, then the present value of $1 at 6% for 5 periods is a. 1/(1.338 x 1.338). b. 0.338. c. 1.338 × 1.338. d. 1/1.338.

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300. Total stockholders' equity was $6,000. The debt-to-equity ratio is a. 0.63 b. 0.83 c. 1.42 d. 1.47

MacArthur Company began operations on March 1, 2015. The corporate charter authorized issuance of 3,000 shares of $2 par value common stock. MacArthur sold all of the stock on March 1. On May 1, MacArthur repurchased 2,000 of the outstanding shares. On May 14, MacArthur sold 1,200 of the treasury shares. On June 1, MacArthur declared a 2-for-1 stock split. As a result of the split, what occurred? a. Assets declined. b. Stockholders' equity increased. c. Stockholders' equity decreased. d. Total stockholders' equity stayed the same.

Museum Corporation acquired a new manufacturing building by issuing 10,000 shares of its $50 par value preferred stock with a $75 per share market price. Similar buildings have recently cost $780,000. What are the effects of this transaction on the accounting equation for Museum? a. Building and Preferred Stock increase $780,000 b. Building and Preferred Stock increase $500,000 c. Building increases $780,000; Preferred Stock increases $500,000; Additional Paid-in Capital--Preferred increases $280,000 d. Building increases $750,000; Preferred Stock increases $500,000; Additional Paid-in Capital--Preferred increases $250,000

Neville Company issued $100,000 of 6%, 10 year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually. a. Interest payments to bondholders each period will be $6,464. b. Interest payments to bondholders each period will be $5,000. c. Amortization of the premium for the first interest period will be $1,226. d. Amortization of the premium for the first interest period will be $613.

Nordic Exports Inc. reported net income of $150,000 for 2015, but its cash balance decreased $40,000. Which financial statement should Nordic Exports' management refer to for an explanation of this situation? a. Balance Sheet b. Income Statement c. Statement of Retained Earnings d. Statement of Cash Flows

O'Bryan Company began the year with a balance of $18,000 in Salaries and Wages Payable and ended the year with $11,000 in the account. Salaries and Wages Expense for the period amounted to $91,000. Under the direct method, O'Bryan will report cash payments for salaries and wages of: a. $84,000 b. $102,000 c. $109,000 d. $98,000

On March 1, 2015, Twilight reacquired 800 shares of common stock at $10 per share. Twilight sold 400 of the treasury shares on November 15 for $12 per share. The transaction for the November 15 sale would include: a. an increase in Gain on Sale of Treasury Stock, $800. b. an increase in Common Stock, $4,800. c. a decrease in Cash, $4,800. d. a decrease in Treasury Stock, $4,000.

On November 1, 2014, Chancellor Co. borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. At December 31, 2014, Chancellor Co.'s overall liability for this loan amounts to: a. $83,200 b. $84,800 c. $80,000 d. $81,600

One example of a temporary difference between financial and tax reporting results from a. rent expense. b. tax-exempt interest from municipal bonds. c. life insurance proceeds resulting from the death of an executive. d. depreciation of long-term assets.

Portland Sound Cafe began business on January 1, 2015. The corporate charter authorized issuance of 1,000 shares of no-par value common stock, of which 200 shares were issued, and 4,000 shares of $8 par value, 6% cumulative preferred stock, of which none were issued. Portland Sound sold 400 shares of common stock at $8 per share on May 1. The entry to record the issuance of the shares on May 1 will: a. Increase Cash, $1,000; Increase Additional Paid-in Capital--Common, $320; Increase Common Stock, $680 b. Increase Cash, $3,200; Increase Additional Paid-in Capital--Common, $2,800; Increase Common Stock, $400 c. Increase Cash, $4,800; Increase Common Stock, $4,800 d. Increase Cash, $3,200; Increase Common Stock, $3,200

Stockholders prefer to invest in preferred stock because a. preferred stock confers preferred voting rights. b. preferred stock can always be converted to common stock if they desire. c. the dividends are generally increased each year. the dividends are paid on preferred stock before d. they are paid on common stock.

Tampa Corporation's balance sheet showed the following amounts for their liabilities and stockholders' equity accounts: Current Liabilities, $20,000; Bonds Payable, $60,000; Lease Obligations, $12,000; and Deferred Income Taxes, $2,000. Total stockholders' equity was $42,000. The debt-to-equity ratio is a. 0.45 b. 0.58 c. 1.76 d. 2.24

The Discount on Bonds Payable account is shown on the balance sheet as a. an asset. b. an expense. c. a long-term liability. d. a contra long-term liability.

The balance of the $0.50 par value Common Stock account for Murdock Company was $60,000 before its recent 3-for-1 stock split. The market price of the stock was $30 per share before the stock split. What occurred as a result of the stock split? a. The balance in the Retained Earnings account decreased. b. The balance in the Common Stock account declined to $20,000. c. The market price of the stock was not affected. d. The market price of the stock dropped to approximately $10 per share.

The bond issue price is determined by calculating the a. present value of the stream of interest payments and the future value of the maturity amount. b. future value of the stream of interest payments and the future value of the maturity amount. c. future value of the stream of interest payments and the present value of the maturity amount. d. present value of the stream of interest payments and the present value of the maturity amount.

The deferred income taxes for a corporation represent a. the dollar amount of deductions that a corporation may claim for the year. b. an additional assessment made by the IRS for underpaid taxes. c. the estimated amount of next year's taxes. d. the dollar amount that arises due to the difference between accounting for financial statements and accounting for tax purposes.

The number of Anole's unissued shares of common stock at December 31, 2015, is a. 6,000. b. 8,000. c. 10,000. d. 12,000.

The primary purpose of the statement of cash flows is to provide information about a. the financial position of the company. b. the profitability of the company. c. the investing and financing activities of the company. d. the cash inflows and outflows of the company.

The table factor for the future value of an annuity for 4 annual deposits at 8% is a. the cumulative total of the future value of $1 factors for 4 deposits at 8%. b. the reciprocal of the future value of $1 factor for n = 4 and 8%. c. the same as for the future value of $1 multiplied by 4 . d. the same as using the future value of $1 factors at 8% for 3, 2, 1 and 0 periods.

The total amount of interest compounded quarterly on a $1,500 note payable for 1 year at 12% is a. $180.00 b. $187.50 c. $ 45.00 d. $189.00

There are some liabilities, such as income tax payable, for which the amounts must be estimated. Failure to estimate these amounts and record them would be a violation of the a. convention of conservation. b. concept of historical cost. c. practice of consistency. d. matching principle.

Turtle Island Music Store reported net income of $200,000. Cash from operations a. will be more than $200,000. b. will be less than $200,000. c. will be equal to $200,000. d. cannot be determined without more information.

Walton Corporation shows the following in the stockholders' equity section of its balance sheet: The stated value of its common stock is $0.50 and the total balance in the common stock account is $37,500. Also noted is that 5,000 shares are currently designated as treasury stock. The number of shares outstanding is a. 80,000. b. 75,000. c. 72,500. d. 70,000.

Watson Company has 5,000 shares of $5 par, 3% preferred stock outstanding, and 25,000 shares of $2 par common stock outstanding. The preferred stock is cumulative and no dividends have been paid for the past two years. If the company wishes to distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in the current year? a. $ 2,250 b. $50,000 c. $50,750 d. $52,250

What is the effect of a 2-for-1 stock split if the market value of the common stock is $20 per share when the stock split is declared? a. Retained earnings in the amount of $400,000 is transferred to the contributed capital accounts. b. Cash decreases $400,000. c. Additional Paid-in Capital increases $400,000. d. A stock split has no effect on total stockholders' equity.

What is the effect of a stock dividend on stockholders' equity? a. Stockholders' equity is decreased. b. Retained earnings is increased. c. Additional paid-in capital is decreased. d. Total stockholders' equity stays the same.

When the owner of a sole proprietorship withdraws assets from the business for personal use a. it is treated like a noncash dividend. b. it is illegal because the assets belong to the separate entity, the proprietorship. c. it would be recorded as a loss by the proprietorship. d. it is recorded as a reduction of owner's equity.

When using the indirect method for preparing the statement of cash flows, all of the following will appear in the operating activities section except: a. Increase in deferred tax b. Depreciation expense on leased assets. c. Interest expense. d. An increase in long-term liabilities.

When using the indirect method, how is the issuance of stock to retire a long-term debt shown on a statement of cash flows? a. Operating activity b. Investing activity c. Financing activity d. Noncash investing or financing activity

Which balance sheet accounts are most affected by financing activities? a.Current assets b. Current liabilities c. Long-term assets d. Longterm liabilities and stockholders' equity

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease? a. Accumulated depreciation on the leased asset b. Lease obligation in the current liability section c. Lease obligation in the long-term liability section d. Rent expense on the income statement

Which of the following activities results in a cash outflow? a. Decreases in noncash current assets (NCCA) b. Decreases in long-term assets (LTA) c. Increases in long-term liabilities (LTL) d. Decreases in retained earnings (RE)

Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital? a. The payment of dividends is at the discretion of the board of directors. b. The payment of interest on bonds payable is required by law. c. Interest accrues, whereas dividends do not accrue. d. The declaration of dividends reduces the amount of income taxes the corporation must pay.

Which of the following is not an operating activity? a. Cash collections from credit customers. b. Cash payments for operating expenses. c. Cash receipts for interest earned. d. Cash payments for dividends to stockholders.

Which of the following is true concerning a sole proprietorship? a. It is a separate legal entity. b. It may have more than one class of stock outstanding. c. It is owned by one or more persons. d. The separate entity concept applies.

Which of the following is true? a. Companies usually disclose cash flow per share on their financial statements. b. Companies usually disclose the sales price of each individual stock transaction on their financial statements. c. The issuance of a stock dividend is an investing activity. d. Financing activities can be inflows or outflows of cash.

Which of the following is true? a. The sale of stock to stockholders is an investing activity. b. The repurchase of stock from stockholders is an investing activity. c. The declaration of stock dividends is a financing activity. d. The payment of cash dividends is a financing activity.

Which of the following items is not a cash equivalent? a. Commercial paper b. A three-year Treasury note purchased two months before its maturity. c. Money market funds d. A corporate bond investment which has 5 years until maturity when they are purchased.

Which of the following should be classified as an investing activity on the statement of cash flows? a. Interest on notes payable b. Payment to suppliers for inventory c. Payment of dividends d. The sale of a warehouse

Which of the following should be considered when a company decides to declare a cash dividend on common stock? a. The retained earnings balance only b. The amount of authorized shares of common stock c. The book value of the company's stock d. The cash available and the retained earnings balance

Which of the following statements is false regarding how the cash flow effects of the changes in the equipment and accumulated depreciation accounts would be reported on a statement of cash flows if the indirect method is used to prepare the operating activities section? a. Cash proceeds from the sale of the equipment would be reported as a cash inflow in the investing activities section. b. The cash paid to purchase equipment would be reported as a cash outflow in the investing activities section. c. Depreciation expense would be added to net income in the operating activities section. d. A loss on the sale of the equipment would be subtracted from net income in the operating activities section.

Which of the following statements is false? a. Cash equivalents are included in cash on the balance sheet and on the statement of cash flows. b. Investments in cash equivalents and investments in stock have the same economic effect--assets increase and decrease by the same amount. c. An investment is a cash equivalent if it is convertible into a known amount of cash and has an original maturity of 3 months or less when purchased. d. Investments in stock are reported as a financing activity on the statement of cash flows.

Which of the following statements is false? a. The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method. b. The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the direct method. c. The FASB prefers the direct method of preparing the operating activities section of the statement of cash flows. d. Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

Which of the following statements is true with regard to early retirement of bonds? a. If the carrying value of the bonds is higher than the redemption price, the issuing firm must record a loss. b. Firms always find it advantageous to retire bonds issued at lower rates with bonds issued at higher rates. c. It is always advantageous to carry out early retirement for bonds issued at a premium but not for bonds issued at a discount. d. Any gain or loss resulting from early retirement of bonds would appear on the income statement of the issuing company.

Which of the following statements is true? a. If a company reports net income on its income statement, it should report an increase in cash on its statement of cash flows. b. If a company reports a net loss on its income statement, it should report a decrease in cash on its statement of cash flows. c. If a company uses the accrual basis of accounting, it will improve its cash position if it reports net income for the same period. d. If a company uses the accrual basis of accounting, its cash balance can increase even if it reports a net loss.

Which of the following statements is true? a. The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the direct method. b. The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the indirect method. c. The FASB prefers the indirect method of preparing the operating activities section of the statement of cash flows. d. Most companies use the indirect method of preparing the operating activities section of the statement of cash flows.

Which of the following statements regarding amortization is true? a. Amortization of the premium causes the premium on bonds payable account to increase. b. Amortization of the premium causes the amount of interest expense to increase. c. Cash interest payments on bonds equals interest expense on the income statement when there is amortization of bond premium. d. Amortization of premium continues over the life of the bond until the balance in the account is reduced to zero.

Which of the following statements regarding bonds payable is true? a. Generally, bonds are issued in denominations of $100. b. When an issuing company's bonds are traded in the "secondary" market, the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser. c. A debenture bond is backed by specific assets of the issuing company. d. Most bonds are term bonds, meaning that the entire principal amount will mature on a single date.

Which of the following statements regarding leases is false? a. Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash. b. Accounting recognizes two types of leases--operating and capital leases. c. If a lessor classifies a lease as a capital lease, then the lessee records a lease liability on its balance sheet. d. If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet.

Which of the following statements regarding partnerships is true? a. Partnerships must register with the federal government. b. Partnerships pay taxes to the IRS. c. Partners must register with the state government. d. Partners must abide by the separate entity concept and keep their personal assets separate from the partnership assets.

Which of the following statements regarding serial bonds is true? a. They are likely to be issued by food companies. b. They have shorter lives than term bonds. c. They are strongly backed by the issuer's collateral. d. The bonds do not all mature on the same date.

Which of the following statements regarding the inclusion of liabilities on the statement of cash flows is true? a. Long-term liabilities generally affect the investing activities section. b. A decrease in a current liability from the beginning to the end of the year is accompanied by an inflow of cash. c. All current liabilities affect the operating activities section. d. A decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash.

Which of the following transactions is a significant noncash investing and financing activity? a. Land is purchased for cash. b. Bonds are issued for cash. c. Cash equivalents are purchased. d. Equipment is acquired by issuing a long-term note.

With the effective interest method of amortization, the amortization of bond premium results in a(n) a. increase in stockholders' equity. b. no change in stockholders' equity. c. increase in interest expense. d. decrease in interest expense.

52. Which pair of accounts has the same set of rules for debit and credit entries? a. Common Stock (Capital Stock) and Accounts Payable b. Salaries Expense and Retained Earnings c. Cash and Notes Payable d. Sales Revenue and Accounts Receivable ANSWER:

6. Which one of the following ratios is a common analytical tool used by merchandise corporations, but not by service corporations? a. Gross profit ratio b. Earnings per share c. Current ratio d. Profit margin ANSWER:

49. Which of the following accounts is increased by a debit entry? a. Common Stock (Capital Stock) b. Equipment c. Unearned Subscription Revenue d. Notes Payable ANSWER:

5. All of the following events (transactions) would be identified from standard source documents except for: a. freight charges for merchandise purchased from suppliers. b. the amount to be paid to settle a lawsuit for discrimination in hiring employees. c. wages to be paid to hourly employees. d. commissions earned by sales employees. ANSWER:

5. Which one of the following accounts most likely would appear on the income statement of a merchandise company, but not on the income statement of a service company? a. Cost of Goods Sold b. Selling Expenses c. Administrative Expenses d. Income Tax Expense ANSWER:

70. When the amount for a debit entry in a journal is transferred to a specific account in the general ledger, it must be recorded: a. as a debit to that account in the general ledger. b. as a credit to that account in the general ledger. c. in sum only, without any regard for debit or credit, since the general ledger accounts do not have spaces for debit and credit entries. d. cannot be determined without further information. ANSWER:

44. An abbreviated version of an account which is useful for analyzing the effects of business transactions is the: a. Chart of Accounts. b. Double-entry system. c. T Account. d. Trial Balance. ANSWER:

51. All of the following accounts have normal credit balances except: a. Accounts Payable. b. Common Stock (Capital Stock). c. Investments. d. Service Revenue. ANSWER:

58. Read the information about Parachute Country Club. Assuming that there are no other transactions, how much was owed to the club by the membership on August 8th? a. $1,800 b. $1,300 c. $ 900 d. $ 500 ANSWER:

59. A credit means that: a. the event has an effect on the right side of an account. b. the event is unfavorable. c. the event is favorable. d. the event always decreases the account. ANSWER:

7. A customer returned damaged goods for credit. Which of the seller's accounts decreases? a. Purchase Returns b. Accounts Receivable c. Sales Returns d. Sales Revenue ANSWER:

77. See the transactions for Morton & Associates. Based only on these transactions, what is the total amount of expenses that should appear on the income statement for the month of May? a. $430 b. $850 c. $1,280 d. $1,440 ANSWER:

79. A trial balance is a(an): a. optional financial statement used only by accountants. b. device used to prove the equality of debits and credits in the general ledger. c. list of accounts and their balances taken from the chart of accounts. d. financial statement which can be used in place of a balance sheet. ANSWER:

Krenshaw Rentals Use the five transactions for Krenshaw Rentals described below to answer the question(s) that follow(s). Oct 1 Krenshaw purchases two new saws on credit at $375 each. The saws are added to Krenshaw's rental inventory. Payment is due in 30 days. 8 Krenshaw accepts advance deposits for tool rentals of $75. 15 Krenshaw receives a bill from Farmer's Electric Company for $150. Payment is due in 30 days. 20 Customers are charged $750 by Krenshaw for tool rentals. Payment is due from the customers in 30 days. 31 Krenshaw receives $500 in payments from the customers that were billed for rentals on October 20. 33. Refer to the transactions for Krenshaw Rentals. Based on the above transactions, how much is still owed to Krenshaw on October 31 from its customers? a. $ -0- b. $ 250 c. $ 500 d. $ 750 ANSWER:

Wolfe Inc. Wolfe Inc. reports these account balances at January 1, 2015: Retained Earnings $49,000 Accounts Receivable 20,000 Accounts Payable 24,000 Capital Stock 185,000 Land 153,000 Cash 13,000 Equipment 20,000 Notes Payable 28,000 Buildings 80,000 82. See the account balances for Wolfe Inc. On January 31, Wolfe collected $12,000 of its accounts receivable and paid $11,000 on its note payable. In Wolfe's trial balance prepared on January 1, 2015, the total of the credit column is: a. $182,000 b. $286,000 c. $196,000 d. $166,000 ANSWER:

78. A list of all accounts and their balances which is used to prove the equality of debits and credits as of a specific date is a(an): a. Account. b. General Journal. c. Trial Balance. d. Chart of Accounts. ANSWER:

15. Refer to the information for Givens Corp. Calculate net income. a. $289,000 b. $141,000 c. $131,000 d. $116,000 ANSWER:

2. The inventory account a manufacturer uses to record the cost of products completed and available for sale is called a. Raw materials inventory b. Work in process inventory c. Finished goods inventory d. Merchandise inventory ANSWER:

11. During May, Aniston, Inc. purchased office supplies for cash. The supplies will be used in June. What effect does this purchase transaction have on the accounting equation? a. Assets increase and stockholders' equity decreases. b. Assets increase and liabilities increase. c. Assets decrease and liabilities decrease. d. There is no effect on the accounting equation as one asset account increases while another asset account decreases. ANSWER:

1. Which one of the following types of inventory accounts would be used by a wholesaler or retailer? a. Raw materials inventory b. Work in process inventory c. Finished goods inventory d. Merchandise inventory ANSWER:

80. If the sum of the debits and credits in a trial balance is not equal, then: a. there is no concern because the two amounts are not meant to be equal. b. the chart of accounts also does not balance. c. it is safe to proceed with the preparation of financial statements. d. most likely an error was made in posting journal entries to the general ledger or in preparing the trial balance. ANSWER:

83. See the account balances for Wolfe Inc. On January 31, Wolfe collected $12,000 of its accounts receivable and paid $11,000 on its note payable. In Wolfe's trial balance prepared on January 31, 2015, the total of the credit column is: a. $297,000 b. $287,000 c. $286,000 d. $275,000 ANSWER:

41. The record used to accumulate monetary information for each individual asset, liability, stockholders' equity, revenue, and expense item is a(an): a. Account. b. General Journal. c. General Ledger. d. Chart of Accounts. ANSWER:

1. Which one of the following statements is true? a. External events (transactions) involve interactions between an entity and a party outside the entity. b. Every event or transaction which affects an entity is identified from a source document. c. All economic events can be reliably measured. d. The movement of raw material into production is an external event. ANSWER:

10. The payment of employee salaries has what effect on the accounting equation? a. Assets decrease and stockholders' equity decreases b. Liabilities decrease and stockholders' equity decreases c. Assets decrease and liabilities increase d. Assets increase and liabilities decrease ANSWER:

14. Land is purchased on credit. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and owners' equity increases. c. Liabilities increase and owners' equity decreases. d. Liabilities decrease and assets decrease. ANSWER:

21. Owners of Tri-States Industries, Ralph and Maureen, are sent a dividend check from the company. For this transaction, what is the effect on the accounting equation for Tri-States Industries? a. Assets decrease and stockholders' equity decreases. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decreases. d. Liabilities increase and stockholders' equity decreases. ANSWER:

27. Which of the following transactions does not affect the total assets of Horizon Sailing Corp.? a. A bill is received for the telephone service used by Horizon Sailing during the past month. b. Dividends are paid by Horizon Sailing. c. Customers are billed for sales made on credit by Horizon Sailing. d. A new computer is purchased on credit by Horizon Sailing. ANSWER:

3. All of the following are external events (transactions) except for: a. a department store recognizing losses from shoplifting. b. a department store running ads in a local newspaper. c. a department store purchasing merchandise from a clothing manufacturer. d. a department store selling clothing to customers on credit. ANSWER:

3. Items should be reported as part of the company's "inventory" at year end, if they are a. Purchased from a creditor, available for sale, and paid for the following year. b. Held in anticipation of an increase in market value. c. Determined to be part of cost of goods sold. d. Sold during the period. ANSWER:

31. Given a current ratio of 5 to 3, what is the effect of paying a supplier within 30 days of the purchase? a. The current ratio would increase. b. The current ratio would decrease. c. The current ratio would remain the same. d. Unable to determine. ANSWER:

37. Which of the following entries causes a decrease in assets and in net income? a. The entry to record the payment of utilities with cash. b. The entry to record the payment of rent for three months in advance. c. The entry to record accrued wages payable. d. The entry to record revenue earned but not yet received. ANSWER:

Parachute Country Club Use the selected accounts for Parachute Country Club presented below to answer the following question(s). CASH ACCOUNTS RECEIVABLE 8/1 Balance 6,000 8/2 1,800 8/7 900 8/3 500 8/5 400 8/7 900 DEPOSITS RECEIVED IN ADVANCE (A Liability Account) SALES 8/3 500 8/2 1,800 8/5 400 54. Read the information for Parachute Country Club. On which date did the country club make a credit sale of club memberships? a. August 2 b. August 3 c. August 5 d. August 7 ANSWER:

12. Ending inventory is equal to the cost of items on hand plus a. Merchandise in transit sold to customers FOB shipping point b. Merchandise in transit sold to customers FOB destination c. The cost of all inventory purchased during the period d. Merchandise purchased in transit with terms FOB destination ANSWER:

13. Carl and Stefanie each invest $15,000 in a business and are given shares of stock in Thibeau Industries as evidence of their ownership interests. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decreases. d. Liabilities decrease and assets decrease. ANSWER:

15. Services are provided for customers who are sent bills for the amount they owe. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decreases. d. Liabilities decrease and assets decrease. ANSWER:

20. Services are provided for customers who pay for the services immediately. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decreases. d. Liabilities decrease and assets decrease. ANSWER:

22. One effect on the accounting equation when a firm borrows money is: a. Stockholders' equity decreases. b. Assets increase. c. Liabilities decrease. d. Assets decrease. ANSWER:

29. The Holmes Company purchased a building for $75,000 in cash. What is the effect on current assets? a. Increase in current assets b. Decrease in current assets c. No effect on current assets d. Unable to determine ANSWER:

35. If the landlord has rent , then the tenant has rent . a. revenue; revenue b. revenue; expense c. expense; revenue d. expense; expense ANSWER:

36. Your bookkeeper is off for the day and you are trying to figure out the last entry she recorded in the journal. Unfortunately, she only recorded part of the transaction as a decrease of $4,400 in the Accounts Payable account. It is possible that this partial entry could correspond to: a. a purchase of equipment costing $4,400 on credit. b. a payment of $4,400 to a supplier to settle a balance due. c. a $4,400 sale to a customer. d. a $4,400 issuance of the company's capital stock. ANSWER:

43. A file or book which contains a record for all accounts used by a company, including the account balance, is called a: a. Chart of Accounts. b. General Journal. c. General Ledger. d. Trial Balance. ANSWER:

4. For what reason might retailers like Target select an accounting period that ends on or near the end of January? a. The company originally started business operations on that date. b. Business activity has reached a slow period that is suited to the preparation of its financial statements at the end of the year. c. The company's CPAs are attempting to spread out the workload. d. The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year. ANSWER:

47. Credit entries are used to: a. increase asset accounts. b. increase liability accounts. c. decrease revenue accounts. d. decrease liability accounts. ANSWER:

60. The correct term for an entry made to the left side of an account is: a. Double-entry system. b. Debit. c. Credit. d. Journalizing. ANSWER:

62. Which of the following statements is true? a. If a debit entry is made to an account in the general journal, the same account will receive a credit entry when the amount is posted to the general ledger. b. If all transactions are correctly posted to the general ledger, the sum of the accounts with debit balances should be equal to the sum of the accounts with credit balances. c. Posting occurs when numbers in the general ledger accounts are transferred to the general journal. d. If the sum of the debit balances equals the sum of the credit balances then there were no mistakes made in the posting process. ANSWER:

63. Which of the following statements is true? a. An entry in a general ledger account can be traced to the trial balance by referring to the page listed in the posting reference column of that ledger account. b. The posting of an amount recorded in the general journal can be verified by referring to the account number listed in the posting reference column on that line in the general journal. c. Business transactions are recorded first in the general ledger; then that information is transferred to the general journal. d. No explanation is needed for each entry in the general journal. ANSWER:

65. Squidly Products sold and delivered modems to Detail Solutions for $6,600 to be paid by Detail Solutions in three equal installments over the next three months. The journal entry made by Squidly to record this transaction will include: a. a decrease in Cash for $6,600. b. an increase in Accounts Receivable for $6,600. c. an increase in Accounts Receivable for $2,200. d. a decrease in Sales Revenue for $6,600. ANSWER:

67. The record in which transactions are initially recorded in chronological order as they occur is a(an): a. Account. b. General Journal. c. General Ledger. d. Chart of Accounts. ANSWER:

68. The correct term for the process of transferring amounts from a book of original entry to specific assets, liabilities, revenues, expenses, and stockholders' equity items is: a. Double-entry system. b. Posting. c. Credit. d. Journalizing. ANSWER:

9. A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to a. $12,670 b. $9,070 c. $8,420 d. $17,230 ANSWER:

Morton & Associates Use the following five transactions for Morton & Associates, Inc. to answer the question(s). May 1 Bills are sent to clients for services provided in April in the amount of $800. 9 Techno, Inc. delivers office furniture ($1,060) and office supplies ($160) to Morton leaving an invoice for $1,220. 15 Payment is made to Techno, Inc. for the furniture and office supplies delivered on May 9. 23 A bill for $430 for electricity for the month of April is received and will be paid on its due date in June. 31 Salaries of $850 are paid to employees. 72. See the transactions to Morton & Associates. The journal entry to record the May 1 transaction will include an increase of $800 to a. Accounts Payable b. Accounts Receivable c. Cash d. Prepaid Expenses ANSWER:

18. A bill is received for electric service; the charge for the electricity is recorded, but payment will be made later. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decreases. d. Liabilities decrease and assets decrease. ANSWER:

24. Which of the following statements best describes the effects of recognizing revenue earned by a business entity? a. Assets increase only when cash sales are made. b. Stockholders' equity increases only when credit sales are made. c. Assets and stockholders' equity increase when either cash or credit sales are made. d. Assets increase, but stockholders' equity decreases, when either cash or credit sales are made. ANSWER:

26. Which of the following statements regarding the activities of Forman Corp. is true? a. Revenues decrease Forman's stockholders' equity. b. Expenses increase Forman's stockholders' equity. c. Expenses decrease Forman's stockholders' equity. d. None of these answer choices is correct. ANSWER:

32. Given that Carlson Corp.'s current ratio is 3 to 2, what is the effect of obtaining a patent from the inventor in exchange for shares of stock in Carlson Corp.? a. The current ratio would increase. b. The current ratio would decrease. c. The current ratio would remain the same. d. Unable to determine. ANSWER:

34. If the business has an from a customer, then the customer has an to the business. a. account receivable; account receivable b. account payable; account payable c. account receivable; account payable d. account payable; account receivable ANSWER:

4. Which of the following events (transactions) is an internal event for a business entity? a. An accountant provides services for clients. b. An accountant purchases computer equipment to maintain business records and prepare legal documents. c. Periodically, part of the cost of the computer equipment used by an accountant is assigned to depreciation expenses. d. An accountant receives cash payments from clients who were billed for services. ANSWER:

66. The purchase of office equipment at a cost of $2,600 with an immediate down payment of $1,200 and agreement to pay the balance within 60 days is recorded in the accounts by: a. increasing Office Equipment for $2,600, increasing Accounts Receivable for $1,200, and increasing Accounts Payable for $1,400. b. increasing Accounts Receivable for $1,400, increasing Cash for $1,200, and decreasing Office Equipment for $2,600. c. increasing Office Equipment for $2,600, decreasing Cash for $1,200, and increasing Accounts Payable for $1,400. d. increasing Office Equipment for $2,600, decreasing Cash for $1,200, and decreasing Accounts Receivable for $1,400. ANSWER:

71. Transactions are recorded in the general journal in: a. alphabetical order. b. account number order. c. chronological order. d. financial statement order. ANSWER:

73. See the transactions to Morton & Associates. The journal entry to record the May 9 transaction will include an increase of $1,220 to a. Accounts Receivable b. Cash c. Accounts Payable d. Administrative Expenses ANSWER:

8. Asago Co. sold merchandise to Health Co. on account, $18,000, terms 2/15, net 45. The cost of the merchandise sold is $15,500. Asago Co. issued a credit memo for $1,750 for merchandise returned that originally cost $1,400. The Health Co. paid the invoice within the discount period. What is amount of net sales from the above transactions? a. $16,250 b. $14,100 c. $15,925 d. $13,818 ANSWER:

8. Which of the following statements is false? a. Checks and deposit slips are the main source of documents backing up the bank statement. b. Retailers use cash register tapes to recognize sales. c. Stock certificates are evidence of being a creditor of the company. d. Time cards are used as the source of information to record wages. ANSWER:

84. See the account balances for Wolfe Inc. On January 31, Wolfe collected $12,000 of its accounts receivable and paid $11,000 on its note payable. On January 31, 2015, the total liabilities are: a. $0 b. $56,000 c. $41,000 d. $30,000 ANSWER:

9. The purchase of office equipment on credit has what effect on the accounting equation? a. Assets decrease and stockholders' equity decreases b. Liabilities increase and stockholders' equity decreases c. Assets increase and liabilities increase d. Assets decrease and liabilities decrease ANSWER:

10. Using the following information, what is the amount of cost of goods sold? Purchases $32,000 Purchases discounts $960 Merchandise inventory September 1 5,700 Merchandise inventory September 30 6,370 Sales returns and allowances 910 Sales 63,000 Purchases returns and allowances 1,200 Freight In 1,040 a. $26,900 b. $20,530 c. $28,130 d. $30,210 ANSWER:

11. Which of the following terms best describes "Cost of goods available for sale"? a. Cost of goods available for sale is an expense account. b. Cost of goods available for sale is added to beginning inventory to determine cost of purchases during the period. c. Cost of goods available for sale is subtracted from net sales to arrive at the gross margin d. Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the fiscal year ANSWER:

12. Blecker Corp. made cash sales to customers. What effect does this transaction have on the accounting equation? a. Liabilities increase and stockholders' equity increases. b. There is no effect on the accounting equation as one asset account increases while another asset account decreases. c. Assets increase and liabilities increase. d. Assets increase and stockholders' equity increases. ANSWER:

16. Payment is received from customers who were billed earlier for services provided for them. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decreases. d. There is no effect on the accounting equation as one asset account increases while another asset account decreases. ANSWER:

17. Payment is made for land purchased earlier on credit. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decrease. d. Liabilities decrease and assets decrease. ANSWER:

19. Payment is made for an electric bill which was received and recorded earlier. For this transaction, identify the effect on the accounting equation. a. Assets increase and liabilities increase. b. Assets increase and stockholders' equity increases. c. Liabilities increase and stockholders' equity decreases. d. Liabilities decrease and assets decrease. ANSWER:

2. Which of the following is an internal event (transaction)? a. Life guard salaries are paid by a swim club. b. Dividends are distributed to shareholders. c. Eggs used to make omelets in a restaurant are purchased. d. Potato chips are transferred from the production line to the packaging area. ANSWER:

23. One effect on the accounting equation when a firm lends money is: a. stockholders' equity decreases. b. liabilities decrease. c. liabilities increase. d. total assets remain the same. ANSWER:

25. Which of the following statements best describes one effect of recognizing expenses incurred by a business entity? a. Assets will increase. b. Liabilities will decrease. c. Stockholders' equity will increase. d. Stockholders' equity will decrease. ANSWER:

28. Which of the following transactions affects the liabilities for Gravette, Inc.? a. Supplies are purchased for cash by Gravette. b. Gravette places an order for merchandise with a supplier; the merchandise will be shipped to Ernest White in 60 days. c. The owners of Gravette invest $100,000 in the company. d. Payment is made on a bank loan which Gravette had obtained 6 months ago. ANSWER:

38. A list of all asset, liability, stockholders' equity, revenue, and expense accounts, along with their assigned account numbers, which are used by a company is a(an): a. Account. b. General Journal. c. General Ledger. d. Chart of Accounts. ANSWER:

39. The following transactions occurred during March, the first month of operations for Canyon Products, Inc.. 1. Issued 50,000 shares of capital stock in exchange for $600,000 cash. 2. Purchased land for $400,000, using a $150,000 cash down payment and signing a note payable for the balance. 3. Made a $60,000 cash payment on the note payable from the purchase of land. 4. Purchased equipment on credit from Burton, Inc. for $63,000. What is the balance in the Cash account at the end of March? a. $810,000 b. $210,000 c. $600,000 d. $390,000 ANSWER:

40. Double-entry accounting is best characterized as: a. the number of debit entries posted to the ledger equals the number of credit entries. b. the number of ledger accounts with debit balances is equal to the number with credit balances. c. every transaction affects both an asset account and either a liability account or a stockholders' equity account. d. the total dollar amount of debit entries posted to the ledger is equal to the dollar amount of the credit entries. ANSWER:

50. All of the following accounts have normal debit balances except: a. Accounts Receivable. b. Dividends. c. Office Supplies Expense. d. Sales. ANSWER:

57. Read the information about Parachute Country Club. Which of the following describes the transaction which occurred on August 7? a. Sold club memberships on credit. b. Cash sales of daily fees. c. Collected an advance deposit in cash. d. Received cash payments of accounts receivable. ANSWER:

61. What type of account is increased with a debit but is a decrease to retained earnings? a. Liability b. Asset c. Revenue d. Expense ANSWER:

64. Maryland Vacations has a $2,200 account receivable from the Miami Kiwanis. On March 11, the Kiwanis makes a partial payment of $1,050 to Maryland. The journal entry made on March 11 by Maryland to record this transaction includes: a. an increase in the Cash account of $1,150. b. an increase in the Accounts Receivable account of $1,150. c. an increase in the Service Revenue account of $1,050. d. a decrease in the Accounts Receivable account of $1,050. ANSWER:

69. The correct term for the process of recording the economic effects of business transactions in a book of original entry is: a. Double-entry system. b. Debit. c. Credit. d. Journalizing. ANSWER:

74. See the transactions to Morton & Associates. The journal entry to record the May 15 transaction will include a decrease of $1,220 to a. Accounts Receivable b. Unearned Revenue c. Prepaid Expenses d. Accounts Payable ANSWER:

75. See the transactions to Morton & Associates. The journal entry to record the May 23 transaction will include an increase of $430 to a. Accounts Receivable b. Cash c. Prepaid Expenses d. Accounts Payable ANSWER:

76. See the transactions to Morton & Associates. The journal entry to record the May 31 transaction will include a decrease in a. Salaries Expense b. Service Revenue c. Accounts Receivable d. Cash ANSWER:

85. Unfortunately, the bookkeeper notices that two transactions for Patio Publications were not reflected in the balances of the trial balance: one to record $800 of accrued wages and salaries to be paid in the next period, and the other was the use of $560 of office supplies from the supplies on hand. If the Trial Balance column totals are $15,380 prior to discovering these mistakes, what are the totals of the Trial Balance columns after the corrections are made? a. $15,860 b. $15,140 c. $16,740 d. $16,180 ANSWER:

Givens Corp. Givens Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales $500,000 Purchases 225,000 Inventory (beginning) 16,000 Inventory (ending) 30,000 Operating Expenses 148,000 Income Tax Expense 10,000 Retained Earnings (beginning) 53,000 Dividends 15,000 13. Refer to information for Givens Corp. Calculate the cost of goods sold for Givens Corp. a. $275,000 b. $259,000 c. $241,000 d. $211,000 ANSWER:

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