Accounting final study guide

(142) Morgan Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $25,440. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes? a.) $1,527 b.) $1,440 c.) $1,435 d.) It cannot be determined.

XX a.) $1,527 ANSWER: b.) $1,440.

(148) Winrow Company received proceeds of $565,500 on 10 year, 8% bonds issued on January 1, 2013. The bonds had a face value of $600,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight line method of amortization. What is the amount of interest Winrow must pay the bondholders in 2013? a.) $45,240 b.) $48,000 c.) $51,450 d.) $44,550

XX a.) $45,240 ANSWER: b.) $48,000

(39) Crawford Company started the year with $30,000 in its Common Stock account and a credit balance in Retained Earnings of $22,000. During the year, the company earned a net income of $24,000 and declared and paid $10,000 of dividends. In addition, the company sold additional common stock amounting to $14,000. As a result, the amount of its retained earnings at the end of the year would be a.) $80,000. b.) $36,000. c.) $66,000. d.) $50,000.

XX a.) $80,000. ANSWER: b.) $36,000.

(95) Internal control is defined, in part, as a plan that safeguards a.) all balance sheet accounts. b.) assets. c.) liabilities. d.) capital stock.

XX a.) all balance sheet accounts. ANSWER: b.) assets.

(75) Sales revenues are usually considered earned when a.) cash is received from credit sales. b.) an order is received. c.) goods have been transferred from the seller to the buyer. d.) adjusting entries are made.

XX a.) cash is received from credit sales. ANSWER: c.) goods have been transferred from the seller to the buyer.

(149) Thayer Company purchased a building on January 2 by signing a long term $2,520,000 mortgage with monthly payments of $23,100. The mortgage carries an interest rate of 10%. The entry to record the first monthly payment will include a a.) debit to the Cash account for $23,100. b.) credit to the Cash account for $21,000. c.) debit to the Interest Expense account for $21,000. d.) credit to the Mortgage Payable account for $23,100.

XX a.) debit to the Cash account for $23,100. ANSWER: c.) debit to the Interest Expense Account for $21,000.

(107) Notes or accounts receivables that result from sales transactions are often called a.) sales receivables. b.) non-trade receivables. c.) trade receivables. d.) merchandise receivables.

XX a.) sales receivables. ANSWER: c.) trade receivables.

(111) 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.

XX a.) the cash realizable value of accounts receivable is greater before an account is written off than after it is written off. ANSWER: c.) the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.

(109) Wilton sells softball equipment. On November 14, they shipped $3,000 worth of softball uniforms to Paola Middle School, terms 2/10, n/30. On November 21, they received an order from Douglas High School for $1,800 worth of custom printed bats to be produced in December. On November 30, Paola Middle School returned $300 of defective merchandise. Wilton has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30? a.) $4,800 b.) $4,500 c.) $3,000 d.) $2,700

XX b.) $4,500 ANSWER: D.) $2,700

(145) On January 1, 2014, $2,000,000, 10 year, 10% bonds, were issued for $1,940,000. Interest is paid annually on January 1. If the issuing corporation uses the straight line method to amortize discount on bonds payable, the monthly amortization amount is a.) $19,400. b.) $6,000. c.) $1,616. d.) $500.

XX b.) $6,000. ANSWER: d.) $500.

(144) Bonds with a face value of $300,000 and a quoted price of 97 have a selling price of a.) $291,750. b.) $291,075. c.) $291,006. d.) $292,500.

XX c.) $291,006. ANSWER: a.) $291,750.

(146) Gomez corporation issues 600, 10 year, 8%, $1,000 bonds dated January 1, 2014, at 96. The journal entry to record the issuance will show a a.) debit Cash of $600,000. b.) credit to Discount on Bonds Payable for $24,000. c.) credit to Bonds Payable for $576,000. d.) debit to Cash for $576,000.

XX c.) credit to Bonds Payable for $576,000. ANSWER: d.) debit to Cash for $576,000.

(130) The declining- balance method of depreciation produces a(n) a.) decreasing depreciation expense each period. b.) increasing depreciation expense each period. c.) declining percentage rate each period. d.) constant amount of depreciation expense each period.

XX c.) declining percentage rate each period. ANSWER: a.) decreasing depreciation expense each period.

(150) Sielert Corporation borrowed $900,000 from National Bank on May 31, 2013. The 3 year, 7% note required annual payments of $342,945 beginning May 31, 2014. The total amount of interest to be paid over the life of the loan is a.) $63,000. b.) $128,835. c.) $251,403. d.) $189,000.

XX d.) $189,000. ANSWER: b.) $128,835.

(124) Whyte Clinic purchases land for $280,000 cash. The clinic assumes $3,000 in property taxes due on the land. The title and attorney fees totaled $2,000. The clinic had the land graded for $4,400. What amount does Whyte Clinic record as the cost for the land? a.) $284,400. b.) $280,000. c.) $289,400. d.) $285,000.

XX d.) $285,000. ANSWER: c.) $289,400.

(113) Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $45,000. If the balance of the Allowance for Doubtful Accounts is $11,000 debit before adjustment what is the amount of bad debt expense for that period? a.) $45,000 b.) $11,000 c.) $56,000 d.) $34,000

XX d.) $34,000 ANSWER: c.) $56,000

(133) Equipment costing $70,000 with a salvage value of $14,000 and an estimated life of 8 years has been depreciated using the straight line method for 2 years. Assuming a revised estimated total life of 6 years and no change in the salvage value, the depreciation expense for year 3 would be a.) $10,500. b.) $9,333. c.) $14,000. d.) $7,000.

XX d.) $7,000. ANSWER: a.) $10,500.

(139) As interest is recorded on an interest bearing note, the Interest Expense account is a.) increased; the Notes Payable account is increased. b.) increased; the Notes Payable account is decreased. c.) increased; the Interest Payable account is increased. d.) decreased; the Interest Payable account is increased.

XX d.) decreased; the Interest Payable account is increased. ANSWER: c.) increased; the Interest Payable account is increased.

(143) Bonds that may be exchanged for common stock at the option of the bondholders are called a.) options. b.) stock bonds. c.) convertible bonds. d.) callable bonds.

XXb.) stock bonds. ANSWER: c.) convertible bonds.

(72) A credit sale of $1,900 is made on April 25, terms 2/10, net/30, on which a return of $100 is granted on April 28. What amount is received as payment in full on May 4? a.) $1,764 b.) $1,862 c.) $1,900 d.) $1,800

a.) $1,764

McLaughlin Company issued common stock for proceeds of $372,000 during 2014. The company paid dividends of $66,000 and issued a long-term note payable for $250,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $54,000. The financing section of the statement of cash flows will report net cash inflows of a.) $252,000. b.) $556,000. c.) $306,000. d.) $502,000.

a.) $252,000.

Peninsula Company reported net income of $260,000 for the year. During the year, accounts receivable increased by $21,000, accounts payable decreased by $9,000 and depreciation expense of $45,000 was recorded. Net cash provided by operating activities for the year is a.) $275,000. b.) $245,000. c.) $227,000. d.) $260,000.

a.) $275,000.

(134) A company sells a plant asset that originally cost $240,000 for $80,000 on December 31, 2014. The accumulated depreciation account had a balance of $120,000 after the current year's depreciation of $20,000 had been recorded. The company should recognize a a.) $40,000 loss on disposal. b.) $40,000 gain on disposal. c.) $80,000 loss on disposal. d.) $80,000 gain on disposal.

a.) $40,000 loss on disposal.

Racer Corporation's December 31, 2014 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 40,000 shares authorized; 20,000 shares issued $ 400,000 Common stock, $10 par value, 4,000,000 shares authorized; 2,600,000 shares issued, 2,560,000 shares outstanding 26,000,000 Paid-in capital in excess of par value - preferred stock 80,000 Paid-in capital in excess of par value - common stock 36,000,000 Retained earnings 10,200,000 Treasury stock (40,000 shares) 840,000 Racer's total paid-in capital was a.) $62,480,000. b.) $63,320,000. c.) $61,640,000. d.) $36,080,000.

a.) $62,480,000.

(22) Which of the following would not be classified as a long-term liability? a.) Current maturities of long-term debt. b.) Bonds payable. c.) Mortgage payable. d.) Lease liabilities.

a.) Current maturities of long- term debt.

(20) Trademarks would appear in which balance sheet section? a.) Intangible assets. b.) Investments. c.) Property, plant, and equipment. d.) Current assets.

a.) Intangible assets.

Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, accounts receivable collected would be classified on the statement of cash flows. a.) Operating activities section. b.) Investing activities section. c.) Financing activities section. d.) Does not represent a cash flow.

a.) Operating activities section.

(48) An accounting time period that is one year in length is called: a.) a fiscal year. b.) an interim period. c.) the time period assumption. d.) a reporting period.

a.) a fiscal period.

(15) The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) a.) account payable. b.) account receivable. c.) revenue. d.) expense.

a.) account payable.

(47) One of the accounting concepts upon which adjustments for prepayments and accruals are based is: a.) expense recognition. b.) cost. c.) monetary unit. d.) economic entity.

a.) expense recognition.

(85) The term "FOB" denotes a.) free on board. b.) freight on board. c.) free only (to) buyer. d.) freight charge on buyer.

a.) free on board.

(42) 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.) in at least two different accounts.

(96) Internal controls are NOT designed to safeguard assets from a.) natural disasters. b.) employee theft. c.) robbery. d.) unauthorized use.

a.) natural disasters.

The two ways that a corporation can be classified by ownership are a.) publicly held and privately held. b.) stock and non-stock. c.) inside and outside. d.) majority and minority.

a.) publicly held and privately held.

(137) A current liability is a debt that can reasonably be expected to be paid a.) within one year, or the operating cycle, which ever is longer. b.) between 6 months and 18 months. c.) out of currently recognized revenues. d.) out of cash currently on hand.

a.) within one year, or the operating cycle, whichever is longer.

(131) Mitchell Corporation bought equipment on January 1, 2014. The equipment cost $180,000 and had an expected salvage value of $30,000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is a.) $180,000. b.) $150,000. c.) $30,000. d.) $25,000.

b.) $150,000.

Ace Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock? a.) $50 per share b.) $50,000 in total c.) $5,000 in total d.) $0.50 per share

b.) $50,000 in total

(129) Equipment with a cost of $225,000 has an estimated salvage value of $15,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the straight- line method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours? a.) $56,250. b.) $52,500. c.) $56,700. d.) $54,375.

b.) $52,500.

Herman Corporation had net income of $120,000 and paid dividends of $24,000 to common stockholders and $20,000 to preferred stockholders in 2014. Herman Corporation's common stockholders' equity at the beginning and end of 2014 was $450,000 and $550,000, respectively. Herman Corporation's payout ratio for 2014 is a.) 5%. b.) 20%. c.) 17%. d.) 10%.

b.) 20%.

Tomlinson Packaging Corporation began business in 2014 by issuing 30,000 shares of $5 par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2014 balance sheet, Tomlinson Packaging would report a.) Common Stock of $300,000. b.) Common Stock of $150,000. c.) Common Stock of $240,000. d.) Paid-in Capital of $200,000.

b.) Common Stock of $150,000.

(140) Interest expense on an interest bearing note is a.) always equal to zero. b.) accrued over the life of the note. c.) only recorded at the time the note is issued. d.) only recorded at maturity when the note is paid.

b.) accrued over the life of the note.

A company would not acquire treasury stock a.) in order to reissue shares to officers. b.) as an asset investment. c.) in order to increase trading of the company's stock. d.) to have additional shares available to use in acquisitions of other companies.

b.) as an asset investment.

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.) cash inflow and cash outflow must be reported separately.

The effect of a stock dividend is to a.) decrease total assets and stockholders' equity. b.) change the composition of stockholders' equity. c.) decrease total assets and total liabilities. d.) increase the book value per share of common stock.

b.) change the composition of stockholders' equity.

A corporation has the following account balances: Common Stock, $1 par value, $80,000; Paid-in Capital in Excess of Par Value, $2,700,000. Based on this information, the a.) legal capital is $2,780,000. b.) number of shares issued is 80,000. c.) number of shares outstanding is 2,780,000. d.) average price per share issued is $3.48.

b.) number of shares issued is 80,000.

The statement of cash flows a.) must be prepared on a daily basis. b.) summarizes the operating, financing, and investing activities of an entity. c.) is another name for the income statement. d.) is a special section of the income statement.

b.) summarizes the operating, financing, and investing activities of an entity.

Stockholders of a corporation directly elect a.) the president of the corporation. b.) the board of directors. c.) the treasurer of the corporation. d.) all of the employees of the corporation.

b.) the board of directors.

Anjili Company had credit sales of $1,400,000. The beginning accounts receivable balance was $165,000 and the ending accounts receivable balance was $280,000. Using the direct method of reporting cash flows from operating activities, what were the cash collections from customers during the period? a.) $1,615,000. b.) $1,400,000. c.) $1,285,000. d.) $1,565,000.

c.) $1,285,000.

The net income reported on the income statement for the current year was $1,260,000. Depreciation recorded on plant assets was $257,000. Accounts receivable and inventories increased by $72,000 and $48,000, respectively. Prepaid expenses and accounts payable decreased by $6,000 and $66,000, respectively. How much cash was provided by operating activities? a.) $1,280,000. b.) $1,400,000. c.) $1,337,000. d.) $1,697,000.

c.) $1,337,000.

(132) Jack's Copy Shop bought equipment for $150,000 on January 1, 2013. Jack estimated the useful life to be 3 years with no salvage value, and the straight line method of depreciation will be used. On January 1, 2014, Jack decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2014? a.) $50,000. b.) $20,000. c.) $25,000. d.) $37,500.

c.) $25,000.

Zoum Corporation had the following transactions during 2014: 1. Issued $125,000 of par value common stock for cash. 2. Recorded and paid wages expense of $60,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $10,000. 5. Sold a long-term investment (cost $3,000) for cash of $3,000. 6. Recorded cash sales of $400,000. 7. Bought inventory for cash of $160,000. 8. Acquired an investment in Zynga stock for cash of $21,000. 9. Converted bonds payable to common stock in the amount of $500,000. 10. Repaid a 6 year note payable in the amount of $220,000. What is the net cash provided by investing activities? a.) $432,000. b.) $212,000 c.) ($18,000). d.) ($68,000).

c.) ($18,000).

(82) When is a physical inventory usually taken? a.) When goods are not being sold or received. b.) When the company has its greatest amount of inventory. c.) At the end of the company's fiscal year. d.) When the company has its greatest amount of inventory and at the end of the company's fiscal year.

c.) At the end of the company's fiscal year.

(126) Which one of the following items is NOT a consideration when recording periodic depreciation expense on plant assets? a.) Salvage value. b.) Estimated useful life. c.) Cash needed to replace the plant asset. d.) Cost.

c.) Cash needed to replace the plant asset.

(141) On January 1, 2014, Keisler Company, a calendar year company, issued $700,000 of notes payable, of which $175,000 is due on January 1 for each of the next 4 years. The proper balance sheet presentation on December 31, 2014, is a.) Current liabilities, $700,000. b.) Long term debt, $700,000. c.) Current liabilities, $175,000; long term Debt, $525,000. d.) Current liabilities, $525,000; long term debt, $175,000.

c.) Current liabilities, $175,000;vLong term debt $525,000.

A corporation purchases 15,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity? a.) Increase by $525,000. b.) Decrease by $300,000. c.) Decrease by $525,000. d.) Decrease by $225,000.

c.) Decrease by $525,000.

(128) Depreciation is a process of a.) asset devaluation. b.) cost accumulation. c.) cost allocation. d.) asset valuation.

c.) cost allocation.

Issuing shares of stock in exchange for cash is an example of a(n) a.) delivering activity. b.) investing activity. c.) financing activity. d.) operating activity.

c.) financing activity.

(136) Liabilities are classified on the balance sheet as current or a.) deferred. b.) unearned. c.) long term. d.) accrued.

c.) long term.

The balance sheet a.) summarizes the changes in retained earnings for a specific period of time. b.) reports the changes in assets, liabilities, and stockholders' equity over a period of time. c.) reports the assets, liabilities, and stockholders' equity at a specific date. d.) presents the revenues and expenses for a specific period of time.

c.) reports the assets, liabilities, and stockholders' equity at a specific date.

(40) The left side of an account is a.) blank. b.) a description of the account. c.) the debit side. d.) the balance of the account.

c.) the debit side.

(61) Merchandising companies that sell to retailers are known as a.) brokers. b.) corporations. c.) wholesalers. d.) service firms.

c.) wholesalers.

What is the total stockholders' equity based on the following account balances? Common Stock $1,300,000 Paid-In Capital in Excess of Par 100,000 Retained Earnings 360,000 Treasury Stock 60,000 a.) $1,400,000. b.) $1,820,000. c.) $1,760,000. d.) $1,700,000.

d.) $1,700,000.

Zoum Corporation had the following transactions during 2014: 1. Issued $125,000 of par value common stock for cash. 2. Recorded and paid wages expense of $60,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $10,000. 5. Sold a long-term investment (cost $3,000) for cash of $3,000. 6. Recorded cash sales of $400,000. 7. Bought inventory for cash of $160,000. 8. Acquired an investment in Zynga stock for cash of $21,000. 9. Converted bonds payable to common stock in the amount of $500,000. 10. Repaid a 6 year note payable in the amount of $220,000. What is the net cash provided by operating activities? a.) $305,000. b.) $290,000. c.) $240,000. d.) $180,000.

d.) $180,000.

(118) Douglas Company has a $51,000 note that carries an annual interest rate of 10%. If the amount of the total interest on the note is equal to $3,400, then what is the duration of the note in months? a.) 6 months b.) 4 months c.) 12 months d.) 8 months

d.) 8 months

On January 1, Edmiston Corporation had 1,600,000 shares of $10 par value common stock outstanding. On March 31 the company declared a 10% stock dividend. Market value of the stock was $15/share. As a result of this event, a.) Edmiston's Paid-in Capital in Excess of Par Value account increased $800,000. b.) Edmiston's total stockholders' equity was unaffected. c.) Edmiston's Stock Dividends account increased $2,400,000. d.) All of these answer choices are correct.

d.) All of these answer choices are correct.

Which of the following represents the largest number of common shares? a.) Treasury shares. b.) Issued shares. c.) Outstanding shares. d.) Authorized shares.

d.) Authorized shares.

Which one of the following affects cash during a period? a.) Recording depreciation expense. b.) Declaration of a cash dividend. c.) Write-off of an uncollectible account receivable. d.) Payment of an accounts payable.

d.) Payment of an accounts payable.

Which of the following statements is not true about a 2-for-1 stock split? a.) The market value of the stock will probably decrease. b.) A stockholder with 5 shares before the split owns 10 shares after the split. c.) Par value per share is reduced to half of what it was before the split. d.) Total paid-in capital increases.

d.) Total paid-in capital increases.

(125) The balance in the Accumulated Depreciation account represents the a.) cash fund to be used to replace plant assets. b.) amount to be deducted from the cost of the plant asset to arrive at its fair market value. c.) amount charged to expense in the current period. d.) amount charged to expense since the acquisition of the plant asset.

d.) amount charged to expense since the acquisition of the plant asset.

(127) The book value of an asset is equal to the a.) asset's fair value less its historical cost. b.) blue book value relied on by secondary markets. c.) replacement cost of the asset. d.) asset's cost less accumulated depreciation.

d.) asset's cost less accumulated depreciation.

(135) A machine costing $132,000 was destroyed when it caught fire. At the date of the fire, the accumulated depreciation on the machine was $60,000. An insurance check for $150,000 was received based on the replacement cost of the machine. The entry to record the insurance proceeds and the disposition of the machine will include a a.) gain on disposal of $18,000. b.) $credit to the Equipment account for $72,000. c.) credit to the Accumulated Depreciation account for $60,000. d.) gain on disposal of $78,000.

d.) gain on disposal of $78,000.

Par value a.) represents what a share of stock is worth. b.) represents the original selling price for a share of stock. c.) is established for a share of stock after it is issued. d.) is the value assigned per share in the corporate charter.

d.) is the value assigned per share in the corporate charter.

(14) Dividends are reported on the a.) income statement. b.) retained earnings statement. c.) balance sheet. d.) income statement and balance sheet.

XX c.) balance sheet. ANSWER: b.) retained earnings.

(52) Unearned revenue is classified as a(n): a.) asset accounts. b.) revenue account. c.) contra revenue account. d.) liability.

XX c.) contra revenue account. ANSWER: d.) liability.

(84) Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination point (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point Which items should be included in Tidwell's inventory at December 31? a.) Sales made FOB shipping point and purchase made FOB destination. b.) (1) and (4) c.) (1) and (3) d.) (2) and (4)

XX a.) Sales made FOB shipping point and purchases made FOB destination. ANSWER: b.) (1) and (4)

(102) If a check correctly written and paid by the bank for $491 is incorrectly recorded on the company's books for $419, the appropriate treatment on the bank reconciliation would be to a.) add $72 to the book's balance. b.) subtract $72 from the book's balance. c.) deduct $72 from the bank's balance. d.) deduct $491 from the book's balance.

XX a.) add $72 to the book's balance. ANSWER: b.)

(66) The operating cycle of a merchandising company is a.) always one year in length. b.) ordinarily longer than that of a service company. c.) about the same as that of a service company. d.) ordinarily shorter than that of a service company.

XX a.) always one year in length. ANSWER: b.) ordinarily longer than that of a service company.

(16) In a classified balance sheet, assets are usually classified as a.) current assets; long-term assets; property, plant, and equipment; and intangible assets. b.) current assets; long-term investments; property, plant, and equipment; and common stocks. c.) current assets; long-term investments; tangible assets; and intangible assets. d.) current assets; long-term investments; property, plant, and equipment; and intangible assets.

XX a.) current assets; long-term assets; property, plant, and equipment; and intangible assets. ANSWER: d.) current assets; long term investments; property, plant, and equipment; and intangible assets.

(51) The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1,000 on hand. The adjusting entry that should be made by the company on June 30 is: a.) debit Supplies Expense, $1,000; credit Supplies, $1,000. b.) debit Supplies, $5,500; credit Supplies, $5,500. c.) debit Supplies, $1,000; credit Supplies Expense, $1,000. d.) debit Supplies Expense, $5,500; credit Supplies, $5,500.

XX a.) debit Supplies Expense, $1,000; credit Supplies, $1,000. ANSWER: d.) debit Supplies Expense, $5,500; credit Supplies, $5,500.

(110) A debit balance in the Allowance for Doubtful Accounts a.) is the normal balance for that account. b.) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. c.) indicates that actual bad debt write-offs have been less than what was estimated. d.) cannot occur if the percentage of receivables method of estimating bad debts is used.

XX a.) is the normal balance for that account. ANSWER: b.) indicates that actual bad debt write offs have exceeded previous provisions for bad debts.

(94) Which of the following is NOT a limitation of internal control? a.) Cost of establishing control procedures should not exceed their benefit. b.) The human element. c.) Collusion. d.) The size of the company.

XX b.) The human element. ANSWER: c.) Collusion.

(97) Two individuals at a retail store work the same cash register. You evaluate this situation as a.) a violation of establishment of responsibility. b.) a violation of separation of duties. c.) supporting the establishment of responsibility. d.) supporting internal independent verification.

XX b.) a violation of separation of duties. ANSWER: a.) a violation of establishment of responsibility.

The best definition of assets is the a.) cash owned by the company. b.) collections of resources belonging to the company and the claims on these resources. c.) owners' investment in the business. d.) resources belonging to a company that have future benefit to the company.

XX b.) collections of resources belonging to the company and the claims on these resources. ANSWER: d.) resources belonging to a company that have future benefit to the company.

(53) On July 1 the Fisher Shoe Store paid $18,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is: a.) debit Rent Expense, $18,000; credit Prepaid Rent, $3,000. b.) debit Prepaid Rent, $3,000; credit Rent Expense, $3,000. c.) debit Rent Expense, $3,000; credit Prepaid Rent, $3,000. d.) debit Rent Expense, $18,000; credit Prepaid Rent, $15,000.

XX b.) debit Prepaid Expense, $3,000; credit Rent Expense, $3,000. ANSWER: c.) debit Rent expense, $3,000; credit Prepaid Rent, $3,000.

(32) If services are rendered on account, then a.) assets will decrease. b.) liabilities will increase. c.) stockholders' equity will increase. d.) liabilities will decrease.

XX b.) liabilities will increase. ANSWER: c.) stockholders' equity will increase.

(81) After the physical inventory is completed, a.) quantities are listed on inventory summary sheets. b.) quantities are entered into various general ledger inventory accounts. c.) the accuracy of the inventory summary sheets is checked by the person listing the quantities on the sheets. d.) unit costs are determined by dividing the quantities on the summary sheets by the total inventory costs.

XX b.) quantities are entered into various general ledger inventory accounts. ANSWER: a.) quantities are listed on inventory summary sheets.

(114) In 2014 the Golic Co. had net credit sales of $600,000. On January 1, 2014, the Allowance for Doubtful Accounts had a credit balance of $15,000. During 2014, $24,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $160,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014? a.) $16,000. b.) $25,000. c.) $31,000. d.) $24,000.

XX c.) $31,000. ANSWER: b.) $25,000.

Which of the following is NOT a step for solving an ethical dilemma? a.) Identifying the alternatives and weighing the impact of each alternative on various stakeholders. b.) Certifying the ethical accuracy of the financial information. c.) Identifying and analyzing the principal elements in the situation. d.) Recognizing the ethical situation and issues involved.

XX c.) Identifying and analyzing the principal elements in the situation. ANSWER: b.) Certifying the ethical accuracy of the financial information.

(56) Raxon Company borrowed $40,000 from the bank signing a 6%, 3 month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be: a.) debit Interest Expense, $2,400; credit Interest Paybale, $2,400. b.) debit Interest Expense, $200; credit Interest Payable, $200. c.) debit Note Payable, $2,400; credit Cash, $2,400. d.) debit Cash, $600; credit Interest Payable, $600.

XX c.) debit Note Payable, $2,400; credit Cash, $2,400. ANSWER: b.) debit Interest Expense, $200; credit Interest Payable, $200.

(41) A debit to an asset account indicates a(n) a.) error. b.) credit was made to a liability account. c.) decrease in the assets. d.) increase in the asset.

XX c.) decrease in the assets. ANSWER: d.) increase in the asset.

(63) Gross profit equals the difference between a.) net incomes and operating expense. b.) sales revenue and cost of goods sold. c.) sales revenue and operating expenses. d.) sales revenue and cost of goods sold plus operating.

XX c.) sales revenue and operating expenses. ANSWER: b.) sales revenue and cost of goods sold.

(83) Which of the following should not be included in the physical inventory of a company? a.) Goods held on consignment from another company. b.) Goods in transit from another company shipped FOB shipping point. c.) Goods shipped on consignment to another company. d.) All of these answer choices should be included.

XX d.) All of these answer choices should be included. ANSWER: a.) Goods held on consignment form another company.

(98) Which of the following statements is correct? a.) Due to its liquid nature, cash is the easiest asset to steal. b.) A good system of internal control will ensure that employees will not be able to steal cash. c.) It takes two or more employees working together to be able to steal cash. d.) All of these answers are correct.

XX d.) All of these answers are correct. ANSWER: a.) Due to its liquid nature, cash is the easiest asset to steal.

(74) Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in which account? a.) Freight Expense b.) Freight-In c.) Inventory d.) Freight-Out

XX d.) Freight-Out ANSWER: c.) Inventory.

(122) 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 improvements, such as parking lots and fences.

XX d.) Land improvements, such as parking lots and fences. ANSWER: c.) A truck held for resale by an automobile dealership.

(59) Which of the following is a true statement about closing the books of a corporation? a.) Expenses are closed to the Expense Summary account. b.) Only revenues are closed to the Income Summary account. c.) Revenues and expenses are closed to the Income Summary account. d.) Revenues, expenses, and the Dividends account are closed to the Income Summary account.

XX d.) Revenues, expense, and the Dividends account are closed to the Income Summary account. ANSWER: c.) Revenues and expenses are closed to the Income Summary account.

(55) Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause: a.) net income to be overstated. b.) an understatement of assets and and understatement of revenues. c.) an understatement of revenues and an understatement of liabilities. d.) an understatement of revenues and an overstatement of liabilities.

XX d.) an understatement of revenues and an overstatement of liabilities. ANSWER: b.) an understatement of revenues.

(64) Net income will result if gross profit exceeds a.) cost of goods sold. b.) operating expenses. c.) purchases. d.) cost of goods sold plus operating expenses.

XX d.) cost of goods sold plus operating expenses. ANSWER: b.) operating expenses.

(54) An adjusting entry can include a: a.) debit to an asset and a credit to a revenue. b.) debit to a revenue and a credit to an asset. c.) credit to an expense and a debit to a revenue. d.) debit to an expense and a credit to a revenue.

XX d.) debit to an expense and a credit to a revenue. ANSWER: a.) debit to an asset and a credit to a revenue.

(77) The factor which determines whether or not goods should be included in a physical count of inventory is a.) physical possession. b.) legal title. c.) management's judgement. d.) whether or not the purchase price has been paid.

XX d.) whether or not the purchase price has been paid. ANSWER: b.) legal title.

(30) McKinney Corporation had beginning retained earnings of $2,242,000 and ending retained earnings of $2,499,000. During the year they issued common stock totaling $141,000. No dividends were paid. What was their net income for the year? a.) $257,000 b.) $116,000 c.) $398,000 d.) $323,000

a.) $257,000

(120) The financial statements of the Phelps Manufacturing Company reports net sales of $500,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Phelps? a.) 8.3 times b.) 12.5 times c.) 6.3 times d.) 4.2 times

a.) 8.3 times

(65) Under a perpetual inventory system a.) accounting records continuously disclose the amount of inventory. b.) increases in inventory resulting from purchases are debited to purchases. c.) there is no need for a year- end physical count. d.) the account purchase returns and allowances is credited when goods are returned to vendors.

a.) accounting records continuously disclose the amount of inventory.

(33) An investment by the stockholders in a business increases a.) assets and stockholders' equity. b.) assets and liabilities. c.) liabilities and stockholders' equity. d.) assets only.

a.) assets and stockholders' equity.

(18) An intangible asset a.) derives its value from the rights and privileges it provides the owner. b.) is worthless because it has no physical substance. c.) is converted into a tangible asset during the operating cycle. d.) cannot be classified on a balance sheet because it lacks physical substance.

a.) derives its value from the rights and privileges it provides the owner.

(31) Collection of a $600 Accounts Receivable a.) increases an asset $600; decreases an asset $600. b.) increases an assets $600; decreases a liability $600. c.) decreases a liability $600; increases stockholders' equity $600. d.) decreases an asset $600; decreases a liability $600.

a.) increases an asset $600; decreases an asset $600.

(100) An adjusting entry is not required for a.) outstanding checks. b.) collection of a note by the bank. c.) NSF checks. d.) bank service charges.

a.) outstanding checks.

(78) If goods in transit are shipped FOB destination a.) the seller has legal title to the goods until they are delivered. b.) the buyer has legal title to the goods until they are delivered. c.) the transportation company has legal title to the goods while the goods are in transit. d.) no one has legal title until they are delivered.

a.) the seller has legal title to the goods until they are delivered.

(76) Manufactured inventory that has begun the production process but is not yet completed is a.) work in process. b.) raw materials. c.) merchandise inventory. d.) finished goods.

a.) work in process.

Borrowing money is an example of a(n) a.) delivering activity. b.) financing activity. c.) investing activity. d.) operating activity.

b.) financing activity.

(101) In the month of November Gavin Company Inc. wrote checks in the amount of $37,000. In December, checks in the amount of $50,632 were written. In November, $33,872 of these checks were presented to the bank for payment, and $43,532 in December. What is the amount of outstanding checks at the end of December? a.) $7,100. b.) $10,228. c.) $3,128. d.) $14,200.

b.) $10,228.

(117) The interest on a $10,000, 6%, 60 day note receivable is a.) $680. b.) $100. c.) $200. d.) $300.

b.) $100.

(108) On January 15, Nifty Company sells merchandise on account to Martinez Associates for $3,000 with terms 3/10, n/30. On January 20, Martinez returns merchandise worth $600 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received? a.) $2,400 b.) $2,328 c.) $2,310 d.) $1,680

b.) $2,328

(71) Conway Company purchased merchandise inventory with an invoice price of $9,000 and credit terms of 2/10, n/30. What is the net cost of goods if Conway Company pays within the discount period? a.) $9,000 b.) $8,820 c.) $8,100 d.) $8,280

b.) $8,820

(19) Which of the following is not considered an asset? a.) Equipment. b.) Dividends. c.) Accounts receivable. d.) Inventory.

b.) Dividends.

(91) Which of the following is NOT one of the main factors that contribute to fraudulent activity? a.) Opportunity. b.) Incompatible duties. c.) Financial pressure. d.) Rationalization.

b.) Incompatible duties.

(43) Which of the following describes the classification and normal balance of the Unearned Rent Revenue account? a.) Asset, debit b.) Liability, credit c.) Revenues, credit d.) Expense, debit

b.) Liability, credit

(93) Which one of the following is NOT an objective of a system of internal controls? a.) Safeguard company assets. b.) Overstate liabilities in order to be conservative. c.) Enhance the accuracy and reliability of accounting records. d.) Reduce the risk of errors.

b.) Overstate liabilities in order to be conservative.

(62) Which of the following activities is not a component of the operating cycle? a.) Sale of merchandise. b.) Payment of employees' salaries. c.) Collection of cash from merchandise sales. d.) Purchase of merchandise.

b.) Payment of employees' salaries.

(68) Which of the following is a true statement about inventory systems? a.) Periodic inventory systems require more detailed inventory records. b.) Perpetual inventory systems require more detailed inventory records. c.) A periodic system requires cost of goods sold be determined after each sale. d.) A perpetual system determines cost of goods sold only at the end of the accounting period.

b.) Perpetual inventory systems require more detailed inventory records.

The proprietorship form of business organization a.) must have at least 2 owners in most states. b.) generally receives favorable tax treatment relative to a corporation. c.) combines the records of the business with the personal records of the owner. d.) is classified as a separate legal entity.

b.) generally receives favorable tax treatment relative to a corporation.

(35) The purchase of an asset on credit a.) increase assets and stockholders' equity. b.) increases assets and liabilities. c.) decreases assets and increases liabilities. d.) leaves total assets unchanged.

b.) increases assets and liabilities.

Which of the following is an asset? a.) mortgage payable b.) investments c.) common stock d.) retained earnings

b.) investments

(49) Management usually wants _______ financial statements and the IRS requires all businesses to file ____ tax returns. a.) annual, annual b.) monthly, annual c.) quarterly, monthly d.) monthly, monthly

b.) monthly, annual

(106) Interest is usually associated with a.) accounts receivable. b.) notes receivable. c.) doubtful accounts. d.) bad debts.

b.) notes receivable.

(67) Detailed records of goods held for resale are not maintained under a a.) perpetual inventory system. b.) periodic inventory system. c.) double entry accounting system. d.) single entry accounting system.

b.) periodic inventory system.

(50) On January 1, 2013, M. Johanson Company purchased equipment for $36,000. The company is depreciating the equipment at the rate of $500 per month. The book value of the equipment at December 31, 2013 is: a.) $0. b.) $6,000. c.) $30,000. d.) $36,000.

c.) $30,000.

(45) In the first month of operation, the total of the debit entries to the Cash account amounted to $1,400 and the total of the credit entries to the Cash account amounted to $800. The Cash account has a a.) $800 credit balance. b.) $1,400 debit balance. c.) $600 debit balance. d.) $600 credit balance.

c.) $600 debit balance.

(38) Jamal company began the year with $84,000 in its Common Stock account and a DEBIT balance in Retained Earnings of $36,000. During the year, the company earned a net income of $18,000 and declared and paid $6,000 of dividends. In addition, the company sold additional common stock amounting to $22,000. Based on this information, what should the transaction analysis show for the ending total of all stockholders' equity accounts? a.) $154,000 b.) $166,000 c.) $82,000 d.) $110,000

c.) $82,000

Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is true regarding this debt? a.) Only Jack is personally liable for the debt, since he has been the managing partner during that time. b.) Only Jill is personally liable for the debt of the business, since Jack has been working and she has not. c.) Both Jack and Jill are personally liable for the business debt. d.) Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.

c.) Both Jack and Jill are personally liable for the business debt.

(103) Collier Company has implemented a just-in-time system, which relies on suppliers to deliver goods for resale as needed. This implementation is most consistent with which of the following basic principles of cash management? a.) Increasing the speed of receivables collection. b.) Planning the timing of major expenditures, c.) Keeping inventory levels low. d.) Delaying the payment of liabilities.

c.) Keeping inventory levels low.

(104) Which of the following is NOT a basic principle of cash management? a.) Increase collection of receivables. b.) Keep inventory levels low. c.) Pay all liabilities early. d.) Invest idle cash.

c.) Pay all liabilities early.

(99) At Emerson Company, one bookkeeper prepares the cash deposits while the other bookkeeper enters the collections in the journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts? a.) Physical controls. b.) Documentation procedures. c.) Segregation of duties. d.) Mechanical controls.

c.) Segregation of duties.

External users want answers to all of the following questions EXCEPT a.) Is the company earning satisfactory income? b.) Will the company be able to pay its debts as they come due? c.) Will the company be able to afford employee pay raises this year? d.) How does the company compare in profitability with competitors?

c.) Will the company be able to afford employee pay raises this year?

(17) On a classified balance sheet, short-term investments are classified as a.) an intangible assets. b.) property, plant, and equipment. c.) a current asset. d.) a long-term investment.

c.) a current asset.

(79) Independent internal verification of the physical inventory process occurs when a.) the employee is required to count all items twice for sake of verification. b.) the items counted are compared to the inventory account balance. c.) a second employee counts the inventory and compares the result to the count made by the first employee. d.) all prenumbered inventory tags are accounted for.

c.) a second employee counts the inventory and compares the result to the count made by the first employee.

(80) An employee assigned to counting computer monitors in boxes should a.) estimate the number if there is a large quantity to be counted. b.) read each box and rely on the box description for the contents. c.) determine that the box contains a monitor. d.) rely on the warehouse records of the number of computer monitors.

c.) determine that each box contains a monitor.

(121) A company purchased land for $350,000 cash. Real estate brokers' commission was $25,000 and $35,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at a.) $385,000. b.) $350,000. c.) $375,000. d.) $410,000.

d.) $410,000.

(23) Which of the following is not a current liability? a.) Salaries and wages payable. b.) Accounts payable. c.) Taxes payable. d.) Bonds payable.

d.) Bonds payable.

(37) Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not? a.) yes, they are treated as revenue at the time of receipt because the company has access to the cash. b.) No, the amount of revenue cannot be adequately determined until the company completes the work. c.) Yes, the intent of the company is to perform the work and the customer is confident that the services will be completed. d.) No, revenue cannot be recognized until work is performed.

d.) No, revenue cannot be recognized until the work is performed.

(60) The closing entry process consists of closing: a.) all asset and liability accounts. b.) out the Retained Earnings account. c.) all permanent accounts. d.) all temporary accounts.

d.) all temporary accounts.

(21) Liabilities are generally classified on a balance sheet as a.) small liabilities and large liabilities. b.) present liabilities and future liabilities. c.) tangible liabilities and intangible liabilities. d.) current liabilities and long-term liabilities.

d.) current liabilities and long-term liabilities.

(36) The payment of a liability a.) decreases assets and stockholders' equity. b.) increases assets and decreases liabilities. c.) decreases assets and increases liabilities. d.) decreases assets and liabilities.

d.) decreases assets and liabilities.

(70) The primary difference between a periodic and perpetual inventory system is that a periodic system a.) keeps a record showing the inventory on hand at all time. b.) provides better control over inventories. c.) records the cost of the sale on the date the sale is made. d.) determines the inventory on hand only at the end of the accounting period.

d.) determines the inventory on hand only at the end of the accounting period.

(69) In a perpetual inventory system, cost of goods sold is recorded a.) on a daily basis. b.) on a monthly basis. c.) on an annual basis. d.) each time a sale occurs.

d.) each time a sale occurs.

(92) 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 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.) independent outside auditors must eliminate redundant internal controls.

(34) The purchase of an asset for cash a.) increases assets and stockholders' equity. b.) increases assets and liabilities. c.) decreases assets and increases liabilities. d.) leaves total assets unchanged.

d.) leaves total assets unchanged.

(46) The periodicity assumption states that: a.) a transaction can only affect one period at a time. b.) estimates should not be made if a transaction affects more than one time period. c.) adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operation. d.) the economic life of a business can be divided into artificial time periods.

d.) the economic life of a business can be divided into artificial time periods.