Accounting 1-50, Accounting problems 51-100

54. Related selling activities do not include A) ordering the merchandise. C) shipping the goods. B) making a sale. D) billing the customer.

A

56. Each of the following is a feature of internal control except A) an extensive marketing plan. C) separation of duties. B) bonding of employees. D) recording of all transactions.

A

58. Under the allowance method, writing off an uncollectible account A) affects only balance sheet accounts. B) affects both balance sheet and income statement accounts. C) affects only income statement accounts. D) is not acceptable practice.

A

65. A company has an ending accounts receivable balance of $1,800,000 and it estimates that uncollectible accounts will be 2% of the receivable balance. If Allowance for Doubtful Accounts has a credit balance of $4,000 prior to adjustment, its balance after adjustment will be a credit of A) $40,000. B) $36,000. C) $35,920. D) $32,000.

A

67. A company purchased factory equipment for $450,000. It is estimated that the equipment will have a $45,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be A) $180,000. B) $108,000. C) $162,000. D) $97,200.

A

72. Additions and improvements A) occur frequently during the ownership of a plant asset. B) normally involve immaterial expenditures. C) increase the company's investment in productive facilities. D) typically only benefit the current accounting period.

A

75. Ramirez Company acquires land for $240,000 cash. Additional costs are as follow. Removal of shed $ 2,000 Filling and grading 6,000 Salvage value of lumber of shed 1,280 Broker commission 4,520 Paving of parking lot 40,000 Closing costs 3,400 Ramirez will record the acquisition cost of the land as A) $254,640. B) $257,200. C) $255,920. D) $240,000.

A

80. Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called A) callable bonds. B) early retirement bonds. C) options. D) debentures.

A

87. The amount of stock that may be issued according to the corporation's charter is referred to as the A) authorized stock. B) issued stock. C) unissued stock. D) outstanding stock.

A

90. All of the following statements regarding retained earnings are true except A) retained earnings represents a claim on cash. B) a debit balance in Retained Earnings indicates a deficit. C) some companies may restrict availability of retained earnings for dividends. D) retained earnings is net income that a company retains in a business.

A

99. The category that is generally considered to be the best measure of a company's ability to continue as a going concern is A) cash flows from operating activities. C) cash flows from financing activities. B) cash flows from investing activities. D) usually different from year to year.

A

A company shows the following balances: Sales Revenue $ 800,000 Sales Returns and Allowances $75,000 Sales Discounts $25,000 Cost of Goods Sold $490,000 What is the gross profit rate? A) 61% B) 70% C) 30% D) 39%

A

A credit sale of $3,800 is made on April 25, terms 2/10, net/30, on which a return of $200 is granted on April 28. What amount is received as payment in full on May 4? A) $3,528 B) $3,724 C) $3,800 D) $3,600

A

A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $50,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest? A) Interest Expense 500 Interest Payable 500 B) Interest Expense 750 Interest Payable 750 C) Interest Expense 500 Cash 500 D) Interest Expense 750 Note Payable 750

A

A paid dividend A) decreases assets and stockholders' equity. B) increases assets and stockholders' equity. C) increases assets and decreases stockholders' equity. D) decreases assets and increases stockholders' equity.

A

At May 1, 2017, Heineken Company had beginning inventory consisting of 300 units with a unit cost of $7. During May, the company purchased inventory as follows: 600 units at $7 900 units at $8 The company sold 1,500 units during the month for $12 per unit. Heineken uses the average cost method. Heineken's gross profit for the month of May is A) $6,750 B) $11,250 C) $13,500 D) $18,000

A

Dividends are reported on the A) income statement. B) retained earnings statement. C) balance sheet. D) income statement and balance sheet.

A

Gilkey Corporation began the year with retained earnings of $310,000. During the year, the company issued $420,000 of common stock, recorded expenses of $1,200,000, and paid dividends of $80,000. If Gilkey's ending retained earnings was $330,000, what was the company's revenue for the year? A) $1,220,000 B) $1,300,000 C) $1,640,000 D) $1,720,000

A

Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most? A) FIFO B) LIFO C) Average cost D) Income tax expense for the period will be the same under all assumptions.

A

Howard Company had a transaction that caused a $5,000 increase in both assets and total liabilities. This transaction could have been a(n) A) purchase of office equipment for $12,000, paying $7,000 cash and issuing a note payable for the balance. B) investment of $5,000 cash in the business by the stockholders. C) purchase of office equipment for $5,000 cash. D) repayment of a $5,000 bank loan.

A

Mitchell Corporation has current assets of $1,600,000 million and current liabilities of $750,000. If they pay $350,000 of their accounts payable what will their new current ratio be? A) 3.1:1 B) 4.0:1 C) 1.5:1 D) 2.1:1

A

The double-entry system requires that each transaction must be recorded A) in at least two different accounts. B) in two sets of books. C) in a journal and in a ledger. D) first as a revenue and then as an expense.

A

Under a perpetual inventory system, acquisition of merchandise for resale is debited to A) the Inventory account. B) the Purchases account. C) the Supplies account. D) the Cost of Goods Sold account.

A

Using the following balance sheet and income statement data, what is the current ratio? Current assets 32,000 Current liabilities 16,000 Average assets 160,000 Total assets 120,000 Net Income 42,000 Stockholders' equity 78,000 Total liabilities 42,000 Average common shares outstanding was 15,000. A) 2.0:1 B) 2.6:1 C) 0.5:1 D) 2.9:1

A

Which account will have a zero balance after closing entries have been journalized and posted? A) Service revenue. B) Supplies. C) Prepaid Insurance. D) Accumulated Depreciation.

A

Which of the following describes an accrued expense? A) Incurred but not yet paid or recorded. B) Paid and recorded in an asset account after they are used or consumed. C) Paid and recorded in an asset account before they are used or consumed. D) Incurred and already paid or recorded.

A

Which of the following would not be classified as a contra account? A) Sales Revenue B) Sales Returns and Allowances C) Accumulated Depreciation D) Sales Discounts

A

53. A deposit made by a company will appear on the bank statement as a A) debit. B) credit. C) debit memorandum. D) credit memorandum.

B

59. The interest on a $20,000, 6%, 60-day note receivable is A) $1,200. B) $200. C) $400. D) $600.

B

60. If a company fails to record estimated bad debts expense, A) cash realizable value is understated. C) revenues are understated. B) expenses are understated. D) receivables are understated.

B

71. Runge Company purchased machinery on January 1 at a list price of $300,000, with credit terms 2/10, n/30. Payment was made within the discount period. Runge paid $15,000 sales tax on the machinery, and paid installation charges of $5,300. Prior to installation, Runge paid $12,000 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery? A) $314,300. B) $326,300. C) $332,300. D) $309,000.

B

73. A company purchased factory equipment on April 1, 2017, for $128,000. It is estimated that the equipment will have a $16,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2017, is A) $12,800. B) $11,200. C) $8,400. D) $9,600.

B

76. Which of the following is not an advantage of issuing bonds instead of common stock? A) Stockholder control is not affected B) Earnings per share on common stock may be lower C) Tax savings result D) Each of these answer choices is an advantage.

B

78. Madson Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 90,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions? A) Subscriptions Receivable 900,000 Subscription Revenue 900,000 B) Cash 900,000 Unearned Subscription Revenue 900,000 C) Subscriptions Receivable 150,000 Unearned Subscription Revenue 150,000 D) Prepaid Subscriptions 900,000 Cash 900,000

B

79. Wolford Company borrowed $2,000,000 from U.S. Bank on January 1, 2016 in order to expand its mining capabilities. The five-year note required annual payments of $520,872 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2017 after the annual payment? A) $2,000,000 B) $1,306,824 C) $1,669,128 D) $1,620,000

B

81. The current portion of long-term debt should A) be paid immediately. B) be reclassified as a current liability. C) be classified as a long-term liability. D) not be separated from the long-term portion of debt

B

89. When stock dividends are distributed, A) Common Stock Dividends Distributable is decreased. B) Retained earnings is decreased. C) Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend. D) No entry is necessary if it is a large stock dividend.

B

92. Which of the following is not a significant date with respect to dividends? A) The declaration date. C) The record date. B) The incorporation date. D) The payment date.

B

94. If a company has both an inflow and outflow of cash related to property, plant, and equipment, the ______________ in the investing activities section. A) two cash effects must be netted and presented as one item B) cash inflow and cash outflow must be reported separately C) cash outflow is only is presented D) cash inflow and cash outflow can either be reported separately or presented as one item

B

96. Which of the following would be subtracted from net income using the indirect method? A) Depreciation expense. C) An increase in accounts payable. B) An increase in accounts receivable. D) A decrease in prepaid expenses.

B

A problem with the specific identification method is that A) inventories can be reported at actual costs. B) management can manipulate income. C) matching is not achieved. D) the lower of cost or market basis cannot be applied.

B

At the beginning of the year, Uptown Athletic had an inventory of $600,000. During the year, the company purchased goods costing $2,250,000. If Uptown Athletic reported ending inventory of $750,000 and sales of $3,000,000, their cost of goods sold and gross profit rate would be A) $1,500,000 and 70%. B) $2,100,000 and 30%. C) $1,500,000 and 30%. D) $2,100,000 and 70%.

B

Borrowing money is an example of a(n) A) delivering activity. B) financing activity. C) investing activity. D) operating activity.

B

If a company fails to make an adjusting entry to record supplies expense, then: A) stockholders' equity will be understated. B) expense will be understated. C) assets will be understated. D) net income will be understated.

B

It is assumed that the activities of Ford Motor company can be distinguished from those of General Motors because of the A) going concern assumption. B) economic entity assumption. C) monetary unit assumption. D) periodicity assumption.

B

The accounting equation may be expressed as A) Assets = Stockholders' Equity - Liabilities. C) Assets + Liabilities = Stockholders' Equity. B) Assets = Liabilities + Stockholders' Equity. D) Assets + Stockholders' Equity = Liabilities.

B

The assumption that requires only those things that can be expressed in money are included in the accounting records is the A) economic entity assumption. B) monetary unit assumption. C) going concern assumption. D) periodicity assumption.

B

The policy at Adler Corporation is to expense all office supplies at the time of purchase. On the last day of the accounting period, there are $1,100 of unused office supplies on hand and the balance of supplies expense is $3,500. What should the accountant do? A) Debit Supplies and credit Supplies Expense for $1,100. B) Nothing, company policy says to expense supplies when purchased. C) Convince management to change its policy to avoid problems in the future. D) Debit Supplies Expense for $2,400 and credit Supplies for $2,400.

B

When goods are returned that relate to a prior cash sale A) the Sales Returns and Allowances account should not be used. B) the Cash account will be credited. C) Sales Returns and Allowances will be credited. D) Accounts Receivable will be credited.

B

Which of the following accounts has a normal debit balance? A) Accounts Payable B) Prepaid Rent C) Retained Earnings D) Common Stock

B

Which of the following is not a common cost flow assumption used in costing inventory? A) First-in, first-out B) Middle-in, first-out C) Last-in, first-out D) Average cost

B

Which of the following would not be considered an external user of accounting data for the Julian Company? A) Internal Revenue Service agent B) Management C) Creditors D) Customers

B

51. Which one of the following items would never appear on a cash budget? A) Office salaries expense. B) Interest expense. C) Depreciation expense. D) Travel expense.

C

52. Which one of the following is not an objective of a system of internal controls? A) Safeguard company assets. B) Enhance the accuracy and reliability of accounting records. C) Fairness of the financial statements. D) Reduce the risks of errors.

C

62. Which of the following is least likely to help a company minimize losses as credit standards are relaxed? A) Require potential customers to provide bank guarantees. B) Ask a potential customer for references regarding payment history. C) Increase the estimate of uncollectible accounts at the end of each period. D) Check a potential customer's credit rating

C

64. Which of the following receivables would not be classified as an "other receivable"? A) Advance to an employee C) Notes receivable B) Refundable income tax D) Interest receivable

C

66. Under the allowance method of accounting for uncollectible accounts, A) the cash realizable value of accounts receivable is greater before an account is written off than after it is written off. B) Bad Debt Expense is debited when a specific account is written off as uncollectible. C) the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off. D) Allowance for Doubtful Accounts is closed each year to Income Summary.

C

68. If disposal of a plant asset occurs during the year, depreciation is A) not recorded for the year. B) recorded for the whole year. C) recorded for the fraction of the year to the date of the disposal. D) not recorded if the asset is scrapped.

C

69. Which of the following methods of computing depreciation is production based? A) Straight-line. C) Units-of-activity. B) Declining-balance. D) None of these answer choices are correct.

C

70. Which of the following is not properly classified as property, plant, and equipment? A) Building used as a factory. B) Land used in ordinary business operations. C) A truck held for resale by an automobile dealership. D) Land improvement, such as parking lots and fences.

C

74. Pearson Company bought a machine on January 1, 2017. The machine cost $180,000 and had an expected salvage value of $30,000. The life of the machine was estimated to be 5 years. The depreciation expense using the straight-line method of depreciation is A) $50,000. B) $36,000. C) $30,000. D) none of these answer choices are correct.

C

77. The statement "Bond prices vary inversely with changes in the market rate of interest" means that if the A) market rate of interest increases, the contractual interest rate will decrease. B) contractual interest rate increases, then bond prices will go down. C) market rate of interest decreases, then bond prices will go up. D) contractual interest rate increases, the market rate of interest will decrease.

C

84. Liabilities are classified on the balance sheet as current or A) deferred. B) unearned. C) long-term. D) accrued.

C

85. A measure of a company's solvency is the A) acid-test ratio. B) current ratio. C) times interest earned. D) asset turnover ratio.

C

91. Which of the following statements is not considered a disadvantage of the corporate form of organization? A) Additional taxes. C) Limited liability of stockholders. B) Government regulations. D) Separation of ownership and management.

C

97. Preferred stock issued in exchange for land 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 or note to the financial statements. D) the cash flows from operating section.

C

98. In preparing the statement of cash flows, determining the net increase or decrease in cash requires the use of A) the adjusted trial balance. B) the current period's retained earnings statement. C) a comparative balance sheet. D) a comparative income statement.

C

A corporation has which of the following set of characteristics? A) Shared control, tax advantages, increased skills and resources B) Simple to set up and maintains control with founder C) Easier to transfer ownership and raise funds, no personal liability D) Harder to raise funds and gives owner control

C

At September 1, 2017, Baxter Inc. reported Retained Earnings of $423,000. During the month, Baxter generated revenues of $60,000, incurred expenses of $36,000, purchased equipment for $15,000 and paid dividends of $6,000. What is the balance in Retained Earnings at September 30, 2017? A) $423,000 debit B) $24,000 credit C) $426,000 credit D) $ 441,000 credit

C

Hogan Industries had the following inventory transactions occur during 2017: Units Cost/unit Feb. 1, 2017 Purchase 108 $45 Mar. 14, 2017 Purchase 186 $47 May 1, 2017 Purchase 132 $49 The company sold 306 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used and operating expenses of $1,800, what is the company's after-tax income using FIFO? (rounded to whole dollars) A) $2,832 B) $3,288 C) $2,302 D) $1,982

C

In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement? A) I've been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets. B) You are right. Revenues and expenses are shown on the income statement. Dividends are a cost of generating revenues and that makes them an expense. Why else would a corporation pay dividends? C) Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement. D) Dividends are deducted from retained earnings on the balance sheet.

C

In the first month of operations, the total of the debit entries to the credit entries to the Cash account amounted to $1,800. The the Cash account amounted to $3,000 and the total of Cash account has a A) $1,800 debit balance. B) $3,000 debit balance C) $1,200 debit balance. D) $1,800 credit balance.

C

The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is A) called the matching principle. B) called the consistency principle. C) nonexistent; that is, there is no such accounting requirement. D) called the physical flow assumption.

C

The inventory turnover is calculated by dividing cost of goods sold by A) beginning inventory. B) ending inventory. C) average inventory. D) 365 days.

C

The normal balance of any account is the A) left side. B) right side. C) side which increases that account. D) side which decreases that account.

C

Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system? A) A purchase of merchandise. B) A return of merchandise inventory to the supplier C) Payment of freight costs for goods shipped to a customer D) Payment of freight costs for goods received from a supplier

C

100. Which of the following would not be an adjustment to net income using the indirect method? A) Depreciation Expense. B) An increase in Prepaid Insurance. C) Amortization Expense. D) An increase in Land.

D

55. All of the following requirements about internal controls were enacted under the Sarbanes Oxley Act except A) independent outside auditors must attest to the level of internal control. B) companies must develop sound internal controls over financial reporting. C) companies must continually assess the functionality of internal controls. D) independent outside auditors must eliminate redundant internal controls.

D

57. Each of the following is a feature of internal control except A) limited access to assets. C) authorization of transactions. B) independent internal verifications. D) generic design of documents.

D

61. Young Company lends Dobson industries $40,000 on August 1, 2017, accepting a 9-month, 9% interest note. If Young accrued interest at its December 31, 2017 year-end, what entry must it make to record the collection of the note and interest at its maturity date? A) Cash 42,700 Notes Receivable 40,000 Interest Revenue 2,700 B) Cash 42,700 Notes Receivable 42,700 C) Notes Receivable 40,000 Interest Receivable 1,500 Interest Revenue 1,200 Cash 42,700 D) Cash 42,700 Notes Receivable 40,000 Interest Receivable 1,500 Interest Revenue 1,200

D

63. Rosen Company receives a $9,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note? A) Notes Receivable 9,135 Accounts Receivable—Bay Company 9,135 B) Notes Receivable 9,135 Accounts Receivable—Bay Company 9,000 Interest Revenue 135 C) Notes Receivable 9,000 Interest Receivable 135 Accounts Receivable—Bay Company 9,000 Interest Revenue 135 D) Notes Receivable 9,000 Accounts Receivable—Bay Company 9,000

D

82. The times interest earned is computed by dividing A) net income by interest expense. B) income before income taxes by interest expense. C) income before interest expense by interest expense. D) income before interest expense and income taxes by interest expense.

D

83. When the effective-interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated multiplying the A) face value of the bonds at the beginning of the period by the contractual interest rate. B) face value of the bonds at the beginning of the period by the effective interest rate. C) carrying value of the bonds at the beginning of the period by the contractual interest rate. D) carrying value of the bonds at the beginning of the period by the effective interest rate.

D

86. Treasury Stock is a(n) A) contra asset account. C) asset account. B) retained earnings account. D) contra stockholders' equity account.

D

88. Paid-in Capital in Excess of Par Value A) is credited when no-par stock does not have a stated value. B) is reported as part of paid-in capital on the balance sheet. C) represents the amount of legal capital. D) normally has a debit balance

D

93. Free cash flow provides an indication of a company's ability to A) generate cash to invest in capital expenditures. B) generate net income. C) generate cash to pay dividends. D) generate cash to invest in capital expenditures and to pay dividends.

D

95. LKN Company reported net income of $90,000 for the year. During the year, accounts receivable increased by $6,000, accounts payable decreased by $4,000 and depreciation expense of $10,000 was recorded. Net cash provided by operating activities for the year is A) $100,000. B) $80,000. C) $82,000. D) $90,000

D

A check returned by the bank marked "NSF" means A) no service fee. B) no signature found. C) not satisfactorily filled out. D) not sufficient funds.

D

A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in: A) January. B) February. C) the period when the workers receive their checks. D) either January or February depending on when the pay period ends.

D

Financial information is presented below: Operating expenses 28,000 Sales returns and allowances 7,000 Sales discounts 3,000 Sales revenue 150,000 Cost of goods sold 98,000 The profit margin would be A) .28. B) .09. C) .30. D) .10.

D

For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except to: A) check the accuracy of the records. B) determine the amount of wasted raw materials. C) determine losses due to employee theft. D) determine ownership of the goods.

D

If a company determines cost of goods sold each time a sale occurs, it A) must have a computer accounting system. B) uses a combination of the perpetual and periodic inventory systems. C) uses a periodic inventory system. D) uses a perpetual inventory system.

D

If a company fails to adjust for accrued revenues: A) liabilities will be understated and revenues will be understated. B) liabilities will be overstated and revenues will be understated. C) assets will be overstated and revenues will be understated. D) assets will be understated and revenues will be understated.

D

The journal entry to record a credit sale ignoring cost of goods sold is A) Cash Sales Revenue B) Cash Service Revenue C) Accounts Receivable Sales Returns and Allowances D) Accounts Receivable Sales Revenue

D

The right side of an account A) is the correct side. B) reflects all transactions for the accounting period. C) shows all the balances of the accounts in the system. D) is the credit side.

D

The statement of cash flows would disclose the payment of a dividend A) nowhere on the statement. B) in the operating activities section. C) in the investing activities section. D) in the financing activities section.

D

Which of the following account's balance will change between the adjusted trial balance and the post-closing trial balance? A) Common stock B) Prepaid rent C) Unearned service revenue D) Retained earnings

D

Earning per share

EPS = net income / average outstanding common shares