Accounting Video & Quiz Questions
Belmont Corporation issues $100,000 of 7% bonds, due in 10 years, when the market rate of interest is 5%. Interest is paid semiannually on June 30 and December 31. The issue price of the bonds is:
$115,589
Cash may not include:
Accounts receivable
Which of the following is not correct about the statement of cash flows?
A company with a net loss on the income statement will always have a net cash outflow from operating activities.
Which of the following is true of public accounting?
A public accountant usually gets to work with multiple clients.
KPR, Inc. just purchased a plot of land on which it expects to build a new manufacturing facility. The Land account will not include:
All of these costs will be included in the Land account.
Adjusting entries:
Always involve at least one income statement account and one balance sheet account.
Which of the following is not a liability?
An unused line of credit.
Cash flows from financing activities include:
Cash dividends paid
Interest on bonds is traditionally paid:
twice per year.
Indus Corporation pays $100,000 for the trademark rights to a line of soda equipment. After several years, sales for this line of soda equipment are disappointing, and the company estimates the total future cash flows from sales will be only $110,000. The estimated fair value of the trademark is now $60,000. What is the amount of the impairment loss to be recorded?
$0
Sonic Corporation purchases a delivery truck for $24,000. The company expects the truck to be in service for 100,000 miles, and the residual value is estimated to be $4,000. What is the depreciation rate using activity-based depreciation?
$0.20
On September 1, Year 1, Dallas Corporation accepts a $30,000 six-month, 12 percent promissory note from one of its clients. The year-end adjustment to accrue interest revenue on December 31, Year 1 will include a _____.
$1,200 credit to Interest Revenue
Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. InventoryQuantityUnit CostUnit NRVModel A100$100 $120 Model B50 50 40 Model C20 200 210 Calculate the amount to be reported for ending inventory of Model A.
$10,000
Zeta Corporation issues $100,000 of 8% bonds maturing in 10 years on January 1, Year 1, when the market rate of interest is 9%. The bonds were issued at a discount. Market interest rates drop to 7% by December 31, Year 1. The company retires these bonds on December 31, Year 1. How much did it cost the company to retire them?
$106,595
Carrington Company agrees to make lease payments of $309.32 at the end of each month for 60 months for the use of equipment. The present value of the 60 lease payments using a 6% borrowing rate is $16,000. Total interest expense over the term of the lease is:
$2,559
The adjusted trial balance for Willow Company as of December 31 is presented below. Debit CreditCash$15,000 Accounts Receivable 22,000 Land 165,000 Accounts Payable $32,000 Common Stock 60,000 Retained Earnings 89,000 Service Revenue 57,000 Salaries Expense 19,000 Advertising Expense 11,000 Utilities Expense 6,000 Totals$238,000 $238,000 Calculate net income.
$21,000
Barnes Corporation introduces a new e-book reader that carries a two-year warranty against manufacturer's defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 10 percent of sales. By the end of the first year of selling the product, total sales are $5 million, and actual warranty expenditures are $100,000. What amount should Barnes report as a liability at the end of the year?
$400,000
Tomkin Library System issues $5 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. A portion of the bond amortization schedule appears below: DateCash PaidInterest ExpenseDecrease in Carrying ValueCarrying Value01/01/2021 $5,500,000 06/30/2021$250,000 $220,000 $30,000 5,470,000 12/31/2021 250,000 218,800 31,200 5,438,800 What is the original issue price of the bonds?
$5,500,000.
Cafe Italiano pays $70,000 for the trademark rights to a line of specialty sandwiches. After several years, sales for this line of specialty sandwiches are disappointing, and management estimates the total future cash flows from sales will be only $40,000. The estimated fair value of the trademark is now $20,000. What is the amount of the impairment loss?
$50,000
Windsor Corporation borrows $100,000 from a bank on November 1, Year 1, by signing a 9 percent, six-month note for the amount borrowed plus accrued interest due six months later on May 1, Year 2. What is the interest expense per month on this note?
$750
In what order are the following financial statements prepared: (1) balance sheet, (2) income statement, and (3) statement of stockholders' equity?
2,3,1
A small stock dividend encompasses less than ______ of the outstanding stock.
25%
The formula for average collection period is:
365 days divided by the receivable turnover ratio.
When a sale is made to a customer who pays with a check, the company records:
A debit to Cash.
Which of the following is not a current liability?
A note payable due in 2 years.
Indicate how to increase and decrease each account listed below by selecting debit or credit.
AccountIncreaseDecreaseAccounts ReceivableDebitCreditEquipmentDebitCreditSalaries PayableCreditDebitDeferred RevenueCreditDebitCommon StockCreditDebit
Which of the following is not one of the categories of business activities reported in the statement of cash flows?
Accounting
The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as the:
Accounting cycle
Which of the following is an example of a detective control in a company?
Accounting personnel routinely reconciles the company's cash records with those of its bank to identify discrepancies.
Which account would be credited when a firm pays for supplies using a credit card?
Accounts Payable
A company will debit ___________ when recording a credit sale.
Accounts Receivable
Collections of accounts receivable that previously have been written off are credited to:
Accounts Receivable
When a company provides services on account, the transaction would be recorded with a debit to:
Accounts Receivable
Which of the following ratios is most useful in evaluating liquidity?
Acid-test ratio
Which of the following items may be classified as nonoperating revenues and expenses?
All of the other answers are classified as nonoperating revenues and expenses.
Which of the following items are classified as receivables?
All of the other answers are classified as receivables.
The statement of stockholders' equity includes:
All of the other answers are correct.
Which of the following accurately describes a company's choice of inventory cost method?
All of the other answers are correct.
The three elements of the fraud triangle are:
All of the other answers are elements of the fraud triangle.
Which of the following does not represent a liability of a company?
All of the other answers are liabilities.
Using a perpetual inventory system, the sale of inventory on account is recorded with a:
All of the other answers are recorded with the sale of inventory on account.
The Sarbanes-Oxley Act (SOX) mandates which of the following?
All of the other answers represent mandates of the Sarbanes-Oxley Act.
For each transaction recorded in an accounting system, the basic equation that must be maintained at all times is:
Assets = Liabilities + Stockholders' Equity.
The equation which shows a company's resources equal claims to those resources is:
Assets = Liabilities + Stockholders' Equity.
Investments by stockholders have what effect on the accounting equation?
Assets increase and stockholders' equity increases.
Which of the following is an alternate form of the accounting equation?
Assets − Liabilities = Stockholders' Equity
Tony Hawk's Adventure (THA) issued callable bonds on January 1, 2021. THA's accountant has projected the following amortization schedule from issuance until maturity: DateCash PaidInterest ExpenseIncrease in Carrying ValueCarrying Value01/01/2021 $194,758 06/30/2021$7,000 $7,790 $790 195,548 12/31/2021 7,000 7,822 822 196,370 06/30/2022 7,000 7,855 855 197,225 12/31/2022 7,000 7,889 889 198,114 06/30/2023 7,000 7,925 925 199,039 12/31/2023 7,000 7,961 961 200,000 THA issued the bonds:
At a discount.
Having an independent party assess each year the adequacy of the company's internal control procedures is an example of which detective control?
Audits.
Which financial statement provides information for a point in time only?
Balance sheet.
Which of the following is not correct about the statement of cash flows?
Cash dividends paid are classified as cash flows from operating activities.
Which of the following is an example of vertical analysis?
Comparing income statement items as a percentage of sales.
The qualitative characteristic that says accounting information can influence users' decisions by allowing them to assess past performance is:
Confirmatory Value
According to the conceptual framework, verifiability implies:
Consensus
The inventory transactions of VTS Corporation are shown below. DateTransactionNumber of UnitsUnit Cost/PriceJan. 1Beginning inventory 500 $10 Feb. 25Sale 300 20 May 21Purchase 400 12 Jul. 15Purchase 500 15 Dec. 10Sale 800 20 All purchase/sale transactions are made on credit. The company uses the FIFO method and perpetual inventory system to record transactions. Which of the following will be recorded on February 25?
Credit to Sales Revenue for $6,000
Working capital is
Current assets minus current liabilities.
On June 30, a company provides $900 of services to customers on account. It usually takes the company one week to mail bills to customers and another week for customers to pay. In June, the adjusting entry is recorded as:
Debit Accounts Receivable $900, Credit Service Revenue $900
Styleson Inc. performed cleaning services for its customers for cash. These transactions would be recorded as:
Debit Cash, credit Service Revenue.
Which of the following is a possible adjusting entry?
Debit Salaries Expense, credit Salaries Payable.
Which of the following is a possible closing entry?
Debit Service Revenue, credit Retained Earnings.
At the end of May, a company receives a utility bill for $500 associated with operations in May. The company plans to pay the bill on June 10. In May, the adjusting entry is recorded as:
Debit Utilities Expense $500, Credit Utilities Payable $500
Using a perpetual inventory system, the entry to record the return of inventory previously purchased on account includes a:
Debit to Accounts Payable.
Providing services on account would be recorded with a:
Debit to Accounts Receivable.
A company borrows cash from a local bank. The company records this transaction with a:
Debit to Cash
When bonds are issued at a premium and the effective interest method is used for amortization, at each interest payment date, the interest expense:
Decreases
A company receives cash in March for services that it will provide in April. This scenario is an example of a(n):
Deferred Revenue
Operating cash flows exclude:
Dividends paid.
Which of the following can be used to assess the adequacy of a company's level of cash at the end of the period?
Dividing the sum of cash and cash equivalents by noncash assets
The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the:
Economic entity assumption
Which of the following is not an element of the fraud triangle?
Education
Providing employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties is an example of which preventive control?
Employee management.
Which of the following would NOT represent good controls over cash disbursements?
Employees responsible for making cash disbursements should also be in charge of cash receipts.
Inventory does not include:
Equipment used in the manufacturing of assets for sale.
Note disclosure is required for material potential losses when the loss is at least reasonably possible:
Even if the amount is not reasonably estimable.
The independent, private-sector group that is primarily responsible for setting financial reporting standards in the United States is the:
FASB
Social Security and Medicare taxes withheld from employees' paychecks are collectively referred to as ________.
FICA Taxes
Separation of duties refers to:
Individuals who have physical responsibility for assets should not also have access to accounting records.
Earnings per share (EPS)
Is useful in comparing earnings performance for the same company over time.
Compared to growth stocks, value stocks' price-earnings ratio is typically:
Lower
Which of the following definitions describes a serial bond?
Matures in installments
While many financial accounting numbers have an impact on stock prices, which of the following has the single greatest impact, on average?
Net Income
The amount of cash that is actually expected to be collected on accounts receivable is referred to as:
Net accounts receivable
Which of the following best explains a company's stock price performance?
Net income
Which of the following is the complete description of the numerator in the equation used to calculate earnings per share?
Net income minus dividends on preferred stock
The conceptual framework's qualitative characteristic of faithful representation includes:
Neutrality
Under the direct write-off method, what adjustment is made at the end of the year to account for possible future bad debts?
No adjustment is made
Which of the following is true of a sale on account using a periodic inventory system?
No entry is required for inventory reduction.
Provided below are items related to Beaver Company during the month of April. The company discovered these items when examining its statement from Northern Bank. For each item, indicate whether it represents an addition or a subtraction in reconciling the company's cash balance.
Northern Bank credited Beaver's account for $15 of interest earned during AprilAdditionNorthern Bank notifies Beaver of an NSF check in the amount of $420SubtractionNorthern Bank charges service fees of $40 to BeaverSubtractionNorthern Bank collects $2,200 for a note owed to Beaver ($2,100 principal and $100 interest)AdditionBeaver's accountant made an error in recording check #354; the check was written for $670, but was recorded incorrectly as $760AdditionBeaver paid $280 for utilities by EFTSubtractionAn employee of Beaver Company used a company debit card to purchase office supplies, $80Subtraction
Transactions related to the primary business activities of the company, such as selling goods and services to customers, are referred to as:
Operating Activities
Which of the following is not true regarding cash flows?
Operating activities include the payment of dividends.
The cash collection from the sale of a good or service is classified in the statement of cash flows as a(n):
Operating activity
The _____ is the average time between purchasing inventory and receiving cash proceeds from its sale.
Operating cycle
Which measure reflects profitability from normal operations and a key performance measure for predicting the future profit-generating ability of a company?
Operating income.
Which of the following subsequent expenditures would not be capitalized?
Ordinary repairs and maintenance
The cost of an engine tune-up is an example of which of the following expenditures after acquisition?
Ordinary repairs and maintenance.
The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the
Par value of the shares issued.
Which of the following is true concerning temporary and permanent accounts?
Permanent accounts represent activity over the entire life of the company.
A company prepares the following journal entry. In posting this transaction to T-accounts, which of the following will be required? DateAccount TitleDebitCreditJuly 1Supplies2,000 Cash 2,000(Purchase supplies for cash)
Post $2,000 on the left side of the Supplies T-account
A company prepares the following journal entry. In posting this transaction to T-accounts, which of the following will be required? DateAccount TitleDebitCreditJune 1Cash28,000 Notes Payable 28,000(Borrow cash by signing long-term note)
Post $28,000 on the left side of the Cash T-account
A company prepares the following journal entry. In posting this transaction to T-accounts, which of the following will be required? DateAccount TitleDebitCreditMarch 1Cash5,000 Service Revenue 5,000(Purchase services to customers)
Post $5,000 on the right side of the Service Revenue T-account
A company prepares the following journal entry. In posting this transaction to T-accounts, which of the following will be required? DateAccount TitleDebitCreditApril 1Salaries Expense8,000 Cash 8,000(Pay workers' salaries)
Post $8,000 on the right side of the Cash T-account
Below are the steps in the measurement process of external transactions. Arrange them from first (1) to last (6).
Post transactions to the general ledger5selected answer correctAssess whether the transaction results in a debit or credit to account balances.3selected answer correctUse source documents to identify accounts affected by an external transaction.1selected answer correctAnalyze the impact of the transaction on the accounting equation.2selected answer correctPrepare a trial balance.6selected answer correctRecord the transaction in a journal using debits and credits.4selected answer correct
Of the following, the most important objective for financial accounting is to provide information useful for:
Predicting cash flows
Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits for the period?
Prepare a trial balance.
At the beginning of the lease period, the lease is reported in the lessee's balance sheet for which amount?
Present value of lease payments over the lease period.
The balance sheet:
Presents the financial position of a company at a point in time.
Which of the following is the denominator in the formula used to calculate the percentage increase or decrease of an item in horizontal analysis?
Prior-year amount
Young Company is involved in a lawsuit. The liability that could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:
Probable and the amount is reasonably estimable.
Return on assets is equal to:
Profit margin times asset turnover.
Return on assets equals:
Profit margin × Asset turnover.
The International Accounting Standards Board:
Promotes the use of high-quality, understandable global accounting standards.
Giving only management the right to make purchases over a certain amount is an example of which preventive control?
Proper authorization
A noncash asset that is distributed to stockholders is referred to as a:
Property dividend.
Investing cash flows would include which of the following?
Purchase of a building with cash.
Which of the following is an example of a noncash activity?
Purchase of long-term assets by issuing debt
Which of the following steps in the flow of inventory costs for a manufacturing company occurs first?
Purchasing raw materials
Which of the following is an example of a cash inflow from an investing activity?
Receipt of cash from the sale of equipment
Which of the following transactions would generally result in an investing cash inflow?
Receive cash from the sale of land.
Dexter Tours is a defendant in litigation involving an accident that occurred during a cruise. The company is sued for $5 million in damages. The likelihood of a payment occurring is probable, and the amount is estimated to be $3 million. Which of the following is the company required to do in this scenario?
Record a $3 million liability.
Which of the following dates associated with dividends does not require an entry to be recorded?
Record date
The purchase of treasury stock can boost earnings per share by:
Reducing the number of shares outstanding.
When a bond's stated rate of interest is more than the market rate of interest, the bonds will issue:
at more than face amount.
An investor owns a $1,000 convertible bond that can be converted into 10 shares of common stock. The investor should exercise this conversion feature when the company's stock price is:
more than $100.
A bond will issue at a discount when:
the market rate of interest is more than the stated rate of interest.
Clarendon Corporation has a $5 million liability at December 31, Year 1, of which $1 million is payable in Year 2. In its December 31, Year 1 balance sheet, the company will report the $5 million debt as a:
$1 million current liability and $4 million long-term liability.
Bronco High School issues $10 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. A portion of the bond amortization schedule appears below: DateCash PaidInterest ExpenseIncrease in Carrying ValueCarrying Value01/01/2021 $8,800,000 06/30/2021$400,000 $440,000 $40,000 8,840,000 12/31/2021 400,000 442,000 42,000 8,882,000 What is the face amount of the bonds?
$10,000,000.
Windsor, Inc., reported $100,000 as cost of goods sold during the current year. Inventory increased by $5,000 during the year and accounts payable decreased by $10,000. What was the cash amount the company paid to suppliers during the year?
$115,000
Winner Corporation had credit sales of $30 million in the current year. At the end of the year, $20 million remained to be collected from customers. The company uses the percentage-of-credit-sales method to estimate future bad debts. The allowance account has a $2 million credit balance at the end of the current year. The company expects 10 percent of credit sales to be uncollectible. What would be the net accounts receivable after the year-end adjustment?
$15 million
Use the following amounts to calculate net income: Assets, $165,000; Dividends, $9,000; Expenses, $61,000; Liabilities, $74,000; Revenues, $82,000.
$21,000
Lilly's Boutique has two divisions: clothing and shoes. The shoes division had another good year with net sales of $80,000, cost of goods sold of $35,000, operating expenses of $10,000, and income tax expense of $5,000. The clothing division did not do as well and was sold during the year. The loss from operations and sale of the clothing division was $12,000 before taxes and $8,000 after taxes. Assuming the sale of the clothing division is reported as a discontinued operation, at what amount did Lilly's Boutique report net income?
$22,000
The payroll related information for Smart Packers is provided below. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.) Federal and state income tax withheld$20,000 Health insurance premiums paid by employer$10,000 Contribution to retirement plan paid by employer$15,000 FICA tax rate (Social Security and Medicare) 7.65%Federal and state unemployment tax rate 6.20% Knowledge Check 01What is the amount of fringe benefits for the month?
$25,000
Robinson, Inc., issues 6%, 10-year bonds with a face amount of $1 million on January 1, Year 1, for $1,077,946, when the market rate of interest is 5%. Interest expense associated with this bond for the first semiannual period is:
$26,949
Light Company acquires Photon Company by paying $25 million in cash. The fair value of the identifiable assets acquired is $30 million. The fair value of the identifiable liabilities acquired is $8 million. What will be the amount of goodwill that Light Company would record as part of this acquisition?
$3 million
Winner Corporation had credit sales of $30 million in the current year. At the end of the year, $20 million remained to be collected from customers. The company uses the percentage-of-credit-sales method to estimate future bad debts. The allowance account has a $2 million credit balance at the end of the current year. The company expects 10 percent of credit sales to be uncollectible. The year-end adjustment to estimate future bad debts will involve a _____.
$3 million debit to Bad Debt Expense
Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders' equity: Issued 40,000 shares of common stock at $8 per share. Reported a net income of $60,000. Paid dividends of $30,000. Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders' equity at the end of Year 1?
$300,000
Fallon Corporation reports net income of $370,000. Accounts Receivable balances at the beginning and end of the year were $40,000 and $48,000, respectively. Beginning and ending Inventory balances were $60,000 and $54,000, respectively. What is the company's cash inflows from operating activities?
$368,000
Tomkin Library System issues $5 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. A portion of the bond amortization schedule appears below: DateCash PaidInterest ExpenseDecrease in Carrying ValueCarrying Value01/01/2021 $5,500,000 06/30/2021$250,000 $220,000 $30,000 5,470,000 12/31/2021 250,000 218,800 31,200 5,438,800 What is the face amount of the bonds?
$5,000,000.
A company purchases a machine for $10,000. The estimated residual value is $4,000, and the estimated service life is 4 years or 10,000 units. The company uses the straight-line method of depreciation. The depreciable cost of the asset is:
$6,000
During its first year of operations, Ellison, Inc. bills customers $18,000 for the services it provided. At the end of the year, $6,000 remains due from customers. The company's credit manager estimates that 10% of the total year-end accounts receivable will not be collected. The company's estimate of uncollectible accounts is:
$600
Freddy Corporation reports income tax expense of $70,000. Income tax payable at the beginning and end of the year are $5,000 and $10,000, respectively. What is the amount of cash paid for income taxes?
$65,000
On January 1, Year 1, Toy Factory purchases a patent for a printing process for $40,000. The original legal life of the patent was 10 years, and there are 8 years remaining. However, due to expected technological obsolescence, the company estimates that the useful life of the patent is only 5 more years. What will be the amortization expense for the patent in Year 1?
$8,000
Wally, Inc. issues $100,000 of 5% bonds, due in 10 years, when the market rate of interest is 6%. Interest is paid semiannually on June 30 and December 31. The issue price of the bonds is:
$92,561
Big Hit, Inc., reported a net loss of $30 million in the current year and net income of $60 million in the prior year. Which of the following will be the percentage change in income?
(150%)
Park Corporation reports net income of $180,000 and net sales of $450,000. Total assets were $760,000 and $920,000 at the beginning and end of the year, respectively. Calculate return on assets.
21.4%
For the current year, Klay Corporation reports the following information: Net cash inflows from investing activities:$40,000 Net cash inflows from financing activities:$45,000 Cash at the beginning of the year: $340,000 Cash at the end of the year:$420,000 What was the company's cash flows from operating activities?
A cash outflow of $5,000
Innovative Media issues 1,000 shares of 8%, $50 par value preferred stock for $60 per share. Which of the following will be recorded at the time of the issue?
A credit to Additional Paid-in Capital for $10,000
When $2,500 of accounts receivable are determined to be uncollectible, which of the following should the company record to write off the accounts using the allowance method?
A debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable.
The closing entry for Service Revenue includes:
A debit to Service Revenue and a credit to Retained Earnings.
X2 issued callable bonds on January 1, 2021. The bonds pay interest annually on December 31 each year. X2's accountant has projected the following amortization schedule from issuance until maturity: DateCash PaidInterest ExpenseDecrease in Carrying ValueCarrying Value01/01/2021 $104,212 12/31/2021$7,000 $6,253 $747 103,465 12/31/2022 7,000 6,208 792 102,673 12/31/2023 7,000 6,160 840 101,833 12/31/2024 7,000 6,110 890 100,943 12/31/2025 7,000 6,057 943 100,000 X2 issued the bonds at:
A premium
If the direct write-off method is used to account for uncollectible accounts, which of the following statements is false?
Accounts receivable will be reported at the net amount of cash expected to be collected.
In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported as a(n):
Addition to net income in the operating activities section.
Adding a refrigeration unit to a delivery truck that previously did not have this capability is an example of:
Additions.
Which of the following is a conservative accounting practice?
Adjust the allowance for uncollectible accounts to a larger amount.
The basic principle involved with expense recognition is:
All costs that are used to generate revenue are recorded in the period the revenue is recognized.
Given a choice, most companies would prefer to report a liability as long-term rather than current because:
All of the other answer choices are correct.
The articles of incorporation describe:
All of the other answer choices are correct.
Which of the following are included in an employer's payroll tax expense?
All of the other answer choices are correct.
The balance of cash reported in the balance sheet would include which of the following?
All of the other answers would be reported in the balance of cash.
Which of the following would be an example of conservative accounting?
Assessing the probability of a contingent liability as probable.
In testing for impairment of an operational asset, an impairment loss has occurred if the:
Asset's book value exceeds the expected future cash flows.
Under the allowance method, which of the following does not change the balance in the Accounts Receivable account?
Bad debt expense adjustment.
Which of the following financial statements reports a company's retained earnings?
Balance Sheet
The Deferred Revenue account is shown in which statement?
Balance sheet
LIFO is considered an income-statement approach for reporting inventory because it:
Better approximates inventory cost necessary to generate revenue.
FIFO is considered a balance-sheet approach for reporting inventory because it:
Better approximates the value of ending inventory.
Given the information below, which bond(s) will be issued at a discount? Bond 1Bond 2Bond 3Bond 4Stated Rate of Return5%7%12%10%Market Rate of Return7%8%12%9%
Bonds 1 & 2
Which of the following financing alternatives has the highest preference for dividends/interest payments?
Bonds.
Financing activities would include cash paid for:
Both dividends to stockholders and the purchase of treasury stock.
The primary purpose(s) of financial accounting is(are) to:
Both measure and communicate financial information to external parties.
Preferred stock:
Can have features of both liabilities and stockholders' equity.
Interest expense on bonds payable is calculated as the:
Carrying value times the market interest rate
Which of the following is correct about the statement of cash flows?
Cash dividends received on stock investments are classified as cash flows from operating activities.
Which of the following accounts would normally have a debit balance?
Cash, Delivery Expense, Dividends.
The acid-test ratio is
Cash, short-term investments, and accounts receivable divided by current liabilities.
The statement of stockholders' equity includes which of the following for the period?
Changes in stockholders' equity accounts.
A list of all account names used to record transactions of a company is referred to as the:
Chart of Accounts
Cash transactions recorded by the bank but not yet recorded by the company include all of the following except -
Checks outstanding
The closing process includes which of the following?
Closing the balances of revenue, expense and dividend accounts to zero.
Which of the following is the primary source of corporate equity financing?
Common Stock
What are the primary components of stockholders' equity?
Common Stock and Retained Earnings
Which of the following are reported as stockholders' equity in a classified balance sheet?
Common Stock and Retained Earnings.
The form of business organization that is legally separate from its owners is a:
Corporation.
Tune Store reports inventory using the lower of cost and net realizable value (NRV). Information related to its year-end inventory appears below. InventoryQuantityUnit CostUnit NRVModel A100$100 $120 Model B50 50 40 Model C20 200 210 The year-end adjustment to mark inventory down to net realizable value will involve a debit to _____.
Cost of Goods Sold for $500
The largest expense on a retailer's income statement is typically:
Cost of goods sold
Which of the following subsequent expenditures would be capitalized?
Costs that increase the service life of an asset.
The income statement method for estimating bad debts uses a percentage of
Credit sales
Using the allowance method, writing off an actual bad debt would include a:
Credit to Accounts Receivable.
A company pays cash for utilities. The company records this transaction with a:
Credit to Cash
Tyler Incorporated receives $150,000 from investors in exchange for shares of its common stock. Tyler Incorporated records this transaction with a:
Credit to Common Stock.
A company bills customers for services provided. The company records this transaction with a:
Credit to Service Revenue
Revenues normally carry a _______ balance and are shown in the ______________.
Credit; Income statement
Which financial ratio relates most closely to a company's ability to pay its short-term debts?
Current Ratio
Bostel wanted to expand the size of its warehouse in order to generate more profits. The company decided to purchase the building adjacent to its existing warehouse. The company pays for the building by borrowing from the bank. The purchase would be recorded as:
Debit Buildings; credit Notes Payable.
Depreciation on a company's equipment for the year is $6,000. The adjusting entry for depreciation is recorded as:
Debit Depreciation Expense $6,000, Credit Accumulated Depreciation $6,000
When a company prepares closing entries, which one of the following is NOT a correct closing entry?
Debit Dividends; credit Retained Earnings.
Using a perpetual inventory system, the purchase of inventory on account is recorded with a:
Debit to Inventory.
Hughes Aircraft sold a four-passenger airplane for $380,000, accepting a 12% note for the purchase price. This transaction would include a:
Debit to Notes Receivable
A company purchases supplies for cash. The company records this transaction with a:
Debit to Supplies
Incurring an expense for advertising on account would be recorded by:
Debiting an expense account.
Journal entries to record cash dividends are made on the:
Declaration date and payment date.
A company pays one year of rent in advance on January 1. On January 31, the company will record an adjusting entry that will:
Decrease assets and increase expenses
Which of the following current liabilities does not involve the future payment of cash?
Deferred Revenue.
Receiving cash from customers before services are performed results in:
Deferred Revenues
The sale of gift cards by a company is a direct example of:
Deferred revenues
Cash transactions that have been recorded by the company but not the bank include:
Deposits outstanding.
Which of the following is not subtracted from net income as an adjustment under the indirect method of preparing the statement of cash flows?
Depreciation expense
Which of the following would not appear in the statement of cash flows under the direct method?
Depreciation expense
The first step involved in preparing the statement of cash flows is:
Determine net cash flows from operating activities
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be
Disclosed and reported as a liability.
Which of the following items would be reported at the very bottom of the income statement just before net income?
Discounted operations
The amount of a company's receivables is influenced by several variables, including all of the following except:
Dividend payments to stockholders.
The account type that represents payments to stockholders is called:
Dividends
The role of the Public Company Accounting Oversight Board is to:
Ensure that auditors follow a strict set of guidelines when conducting their audits.
A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%. These bonds will sell at a price that is:
Equal to $500,000.
The replacement of a major component increased the productive capacity of equipment from 10 units per hour to 18 units per hour. The expenditure for the replacement component should be debited to:
Equipment
The cost of inventory sold during the current year is classified as a(n) ______ in the ______.
Expense; Income statement
The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:
FIFO
Which inventory method is better described as having a balance-sheet focus and why is it considered as such?
FIFO; better approximates the value of ending inventory.
Which of the following is not an employer payroll cost?
Federal and state income taxes.
Which of the following is not withheld from an employee's salary?
Federal and state unemployment taxes.
Payment of dividends to stockholders is considered a(n):
Financing cash flow.
The statement of cash flows reports cash flows from the activities of:
Financing, investing, and operating.
Horizontal analysis is used to analyze trends in financial statement data over time:
For one company
The exclusive right to use another company's name and to sell its products within a specified geographical area is a:
Franchise
Which of the following is not an example of a tangible asset?
Franchise Rights
The three elements present in every fraud are commonly referred to as the ___________.
Fraud triangle
Which of the following intangible assets has an indefinite useful life?
Goodwill
With respect to current assets, liquidity refers to:
How quickly the asset can be converted to cash.
The liquidity of an asset in a classified balance sheet refers to:
How quickly the asset will be converted to cash.
Which of the following statements accurately describes depreciation? Depreciation is used to allocate the cost of the asset over periods benefited. Depreciation is used to track the fair value of the asset. The book value of an asset is its original cost less accumulated depreciation.
I and III
Which of the following are employer payroll costs? I. FICA taxes. II. Federal and state unemployment taxes. III. Federal and state income taxes. IV. Employer contributions to a retirement plan.
I, II, & IV
Which of the following is true about a "credit"?I. It is part of the double-entry procedure that keeps the accounting equation in balance.II. It represents a decrease to assets.III. It represents an increase to liabilities.IV. It is on the right side of a T-account.
I, II, III, and IV.
Which of the following is true about a "debit"?I. It is part of the double-entry procedure that keeps the accounting equation in balance.II. It represents an increase to assets.III. It represents a decrease to liabilities.IV. It is on the right side of a T-account.
I, II, and III.
Advantages of the corporate form of business include which of the following? I. Double taxation II. Ability to raise capital III. Ability to transfer ownership IV. More paperwork V. Limited liability
II., III., V.
Which of the following is the correct order for preparing the financial statements listed?
Income statement, statement of stockholders' equity, and balance sheet.
Identify the likely advantage of extending credit to customers.
Increased sales
Which of the following stages of equity financing comes last in the traditional order of progression?
Initial public offering (IPO).
Which of the following is an example of a nonoperating expense for a merchandising company?
Interest expense
Cash flows from financing activities do not include:
Interest received
The organization responsible for creating a single set of global accounting standards is the:
International Accounting Standards Board
Accountants are responsible for measuring various operating, investing and financing activities. Which of the following correctly matches the activity with its type?
Investing - purchasing land.
An amortization schedule for a bond issued at a discount:
Is a schedule that reflects the changes in carrying value of the bond over its term to maturity.
Occupational fraud:
Is the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources.
Which one of the following regarding the book value of an asset is correct?
It reflects the original cost of the asset less accumulated depreciation.
A transaction is initially recorded in the ______, and then subsequently posted to the general ______.
Journal; Ledger
On June 1, the board of directors declares a cash dividend to be paid on June 30 to stockholders of record on June 15. On which date would the company record a credit to the Dividends Payable account?
June 1
The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the:
LIFO reserve
Amounts owed to suppliers for supplies purchased on account are defined as a(n):
Liability
Deferred Revenues is a(n):
Liability account
Which of the following statements is true?
Losses on the sale of long-term assets are an adjustment reported in the operating activities section of the statement of cash flows under the indirect method.
Which of the following is a result of conservative accounting practices?
Lower income, lower assets, and higher liabilities.
Large stock dividends and stock splits are issued primarily to:
Lower the trading price of the stock per share.
A perpetual inventory system measures cost of goods sold by:
Making entries to the inventory account for each purchase and sale.
Which of the following is not part of measuring external transactions?
Making payments on all amounts owed.
Which of the following groups is not among the external users for whom financial statements are prepared?
Managers
The issuer of a 5% common stock dividend (small stock dividend) to common stockholders should debit stock dividends for an amount equal to the
Market value of the shares issued.
Based on the concept of _____, big companies probably do not record all their assets as assets.
Materiality
In accounting, goodwill
May be recorded when the company purchases another business.
For a ten-year installment note, the portion of the periodic installment payment that represents interest in the third year is:
More than in the fourth year.
Productive assets that are physically used up or depleted are:
Natural resources
Some cash flow ratios are derived by substituting net cash flows from operating activities in place of:
Net Income
Some transactions of Blue River Company are given below. Indicate whether the transaction is an operating, financing, or investing activity.
On May 1, the company pays salaries to employees.Operatingselected answer correctOn May 8, the company purchases supplies worth $4,000, on account.Operatingselected answer correctOn May 21, the company borrows $10,000 from the bank to finance its short-term capital requirements.Financingselected answer correctOn May 24, the company receives $1,000 cash from customers for services performed in April.Operatingselected answer correctOn May 28, the company pays $9,000 to purchase equipment.Investingselected answer correct
Some transactions of Blue River Company are given below. Indicate whether the transaction will be reported in the statement of cash flows.
On May 1, the company pays salaries to employees.YesOn May 8, the company purchases supplies worth $4,000, on account.NoOn May 21, the company borrows $10,000 from the bank to finance its short-term capital requirements.YesOn May 24, the company receives $1,000 cash from customers for services performed in April.YesOn May 28, the company pays $9,000 to purchase equipment.Yes
The statement of cash flows reports cash flows from the activities of:
Operating, investing, and financing
Dividends received from an investment is classified as a(an) __________ cash flow, and paying dividends on stock issued is classified as a(an) ____________ cash flow on the Statement of Cash Flows.
Operating; Financing
Danton Hardware Company uses a perpetual inventory system. How should Danton record the return of inventory previously purchased on account for $200? 1.Inventory200 Accounts Payable 2002.Accounts Payable200 Inventory 2003.Purchase Returns200 Accounts Payable 2004.Accounts Payable200 Purchase Returns 200
Option 2
The correct order from the smallest number of shares to the largest number of shares is:
Outstanding, issued, and authorized.
Which of the following is an example of a cash outflow for a financing activity?
Payment of cash for treasury stock
Which of the following is NOT an example of aggressive accounting practices?
Recording contingent losses that are probable.
Which of the following is a disadvantage of an S Corporation?
Restrictions on number of stockholders
Which of the following is an advantage of using LIFO in a period of rising costs?
Results in lower taxes
The Stock Dividends account is a temporary stockholders' equity account that is closed into ______.
Retained Earnings
A trade discount results in:
Revenue being recorded for the discounted price.
An accrued revenue represents:
Revenue being recorded prior to cash collection from the customer.
"Record revenue when goods or services are provided to customers" is the definition of which principle in accounting?
Revenue recognition.
Which of the following is a temporary account?
Salaries Expense
Temporary accounts would not include:
Salaries Payable.
Which of the following is subtracted from net income as an adjustment under the indirect method of preparing the statement of cash flows?
Salaries payable decrease.
In vertical analysis of the income statement, we usually express each income statement item as a percentage of:
Sales
A company sells goods to a customer on account for $800, terms 3/10, n/30. The customer pays within the discount period. On the date of payment, the company will debit:
Sales Discounts for $24
Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a:
Sales allowance
Which of the following best describes credit sales?
Sales to customers on account.
A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?
Secured and serial.
Which of the following would be classified as an investing cash flow?
Sell a piece of equipment below cost.
Cash equivalents refer to:
Short-term investments that have a maturity date no longer than three months from the date of purchase.
The Statement of Cash Flows:
Shows that the change in total cash from one year to the next is equal to the net operating, investing, and financing cash flows.
The statement of cash flows:
Shows the net change in cash over a period of time.
Profits generated by the company are a(n):
Source of internal financing
The rate quoted in the bond contract used to calculate the cash payments for interest is called the:
Stated rate
Outstanding common stock specifically refers to:
Stock in the hands of stockholders.
The price-earnings (PE) ratio is calculated as:
Stock price divided by earnings per share
If a company provides services on account, which of the following is true?
Stockholders' equity increases.
Which of the following amortization methods is most commonly used?
Straight-line
Which of the following is NOT a correct practice when adjusting net income to net operating cash flows?
Subtract depreciation expense
Which of the following is a conservative accounting practice?
Taking an asset write-down early.
The LIFO conformity rule states that if LIFO is used for:
Tax purposes, it must be used for financial reporting.
The current ratio measures:
The ability of a company to pay its current obligations.
The gross profit ratio measures:
The amount by which the sale of inventory exceeds its cost per dollar of sales.
The distinction between the direct write-off method and the allowance method is:
The amount of bad debt expense reported in each year.
In each succeeding payment on an installment note:
The amount of interest expense decreases.
Which of the following best describes the information reported in the income statement?
The amount recognized from providing goods and services to customers compared to the cost of doing so.
The current portion of long-term debt is:
The amount that will be paid within one year of the balance sheet date.
Liquidity measures:
The company's ability to pay current obligations using current assets.
Gain contingencies usually are recognized in a company's income statement when:
The gain is certain.
The percentage-of-credit-sales method for estimating uncollectible accounts is sometimes described as:
The income statement method
Which of the following is true for bonds issued at a discount?
The market interest rate is greater than the stated interest rate.
Which of the following describes monthly installment payments of a note payable?
The monthly payments equal interest expense plus the reduction of the note's carrying value.
The Common Stock account in a company's balance sheet is measured as:
The number of common shares issued × the stock's par value per share.
Gift card breakage refers to:
The point in time when gift cards expire or when the likelihood of redemption by customers is viewed as remote.
Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?
The risk of going bankrupt is less.
A discontinued operation refers to:
The sale or disposal of a significant component of a company's operations.
How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?
The stockholders' equity section shows balances at a point in time; whereas, the statement of stockholders' equity shows activity over a period of time.
The inventory turnover ratio measures:
The times per period the average inventory balance is sold.
Goodwill is:
The value of a business as a whole, over and above the value of its net identifiable assets.
Which of the following is a conservative accounting practice?
The write-down of overvalued inventory.
Which of the following is not a potential feature of preferred stock?
They all are potential features of preferred stock.
Which of the following is true about adjusting entries?
They are a necessary part of accrual-basis accounting.
The research and development (R&D) team at a pharmaceutical company is developing a drug for colon cancer. Which of the following is true of the R&D costs incurred in developing this drug during the current year?
They are expensed directly in the income statement.
Which accounting concept does the direct write-off method violate?
Timeliness in recognizing uncollectible accounts.
What is the primary purpose of a bank reconciliation?
To ensure the bank balance per reconciliation is equal to the company balance per reconciliation.
Which of the following is an objective for preparing closing entries?
To transfer the balances of temporary accounts to the Retained Earnings account.
In vertical analysis of the balance sheet, we usually express each balance sheet item as a percentage of:
Total assets
A word, slogan, or symbol that distinctively identifies a company, product, or service is a:
Trademark
Which of the following intangible assets may or may not be amortized depending on whether it has a finite or an indefinite life?
Trademarks
The legal life of a patent is:
Twenty years
Which of the following accounts is(are) listed in a post-closing trial balance?
Two of these three accounts would be included in a post-closing trial balance.
Unified Airlines is being sued by Northeast Airlines for $5,000,000. At the end of the year, Unified feels it is probable that it will pay $5,000,000 at some point in the following year. What should Unified and Northeast record at the end of the year concerning the lawsuit?
Unified records a $5,000,000 loss; Northeast does not record any gain.
Which of the following subsequent expenditures would not be capitalized?
Unsuccessful legal defense of intangible assets.
Which of the following is not a step in preparing a bank reconciliation?
Update the company's Cash account by recording reconciling items related to the bank's cash balance
Common-size analysis is another term used for ____ analysis.
Vertical
The following is an example of: Amount%Cash$300,000 6.0 Accounts receivable 500,000 10.0 Inventory 800,000 16.0 Long-term assets 3,400,000 68.0 Total assets$5,000,000 100.0
Vertical analysis
Which of the following types of analysis allows for the comparison of financial statement items between companies of different size?
Vertical approach
Which of the following is NOT involved in the replenishment of the petty cash fund?
Weekly payroll checks will be recorded.
Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:
When the equipment is sold.
Which of the following questions is most likely to be asked by a creditor?
Will the company be capable of repaying its debt when it is due?
For a manufacturing company, the combination of the cost of raw materials, direct labor, and overhead for inventory that has not yet completed production is known as:
Work-in-process.
We use horizontal analysis to _____.
analyze trends in financial statement data for a company over time
Sales Returns is an example of a(n) ____________ account, which is used to keep a record of reductions from revenue due to sales returns separate from total revenue itself.
contra revenue
According to the allowance method, writing off an account receivable will include a:
credit to Accounts Receivable
Marina, Inc., acquires 1 million shares of its own $1 par value common stock at $70 per share. It later resells the 1 million shares of treasury stock for $75. We record the $5 difference per share as a:
credit to Additional Paid-in Capital
On January 1, Year 1, McGee Corporation issues 5%, 10-year bonds with a face amount of $100,000. Interest is paid semiannually on June 30 and December 31. On issuance date, the market rate of interest is 5%; therefore, the issue price of the bonds is $100,000. The journal entry for the issuance of the bonds will include a:
credit to Bonds Payable for $100,000
Recording the establishment of a petty cash account will include a _____.
credit to Cash
Sales taxes collected from customers by the seller are recorded as _____.
current liabilities
Banner Corporation receives $30,000 in May, Year 1 to manufacture and deliver its product in September, Year 1. At the time the product is delivered, Banner will _____.
debit Deferred Revenue and credit Sales Revenue
The journal entry to record annual depreciation for equipment includes a:
debit to Depreciation Expense
On January 1, Year 1, Boyd Corporation accepts a $10,000 three-month, nine percent promissory note from one of its customers. To record acceptance of the note, the company will record a:
debit to Notes Receivable for $10,000
When a corporation acquires shares of its own common stock, it records a:
debit to Treasury Stock for cost
After the preparation of preliminary financial statements, Saturn Corporation changes the depreciation estimate of the factory building. It reduces the estimated useful life to 15 years from the earlier estimate of 20 years. This change will __________ net income reported.
decrease
A current ratio of 2.20 indicates that:
for each $1 in current liabilities, the company has $2.20 in current assets.
A gross profit ratio of 55% indicates that:
for each $1 of sales, the company generates $0.55 in gross profit.
Boyd Corporation borrows $300,000 from a bank on March 1, Year 1, by signing a 6 percent, nine-month note for the amount borrowed plus accrued interest due nine months later. On issuance date, this transaction:
increases assets and increases liabilities.
Fairfield Corporation issues 100,000 shares of $1 par value common stock for $10 per share. This transaction:
increases assets and increases stockholders' equity.
All of the following are components of stockholders' equity, except ____________.
notes payable
A _____________ inventory system is one that is continually updated to reflect inventory purchases and sales.
perpetual
Net cash flows from operating activities uses information from all of the following sources, except the _____.
stockholders' equity section of the balance sheet
The weighted-average method assumes that:
the cost of goods sold consists of a random mixture of all goods available for sale.
The entry to write-off uncollectible accounts results in a reduction in total assets when using:
the direct write-off method.
The FIFO method assumes that:
the first units purchased are the first ones sold.
To calculate a year-to-year percentage change in any financial statement line item such as sales, you should take the current year's amount, subtract the prior year's amount, then divide by ______, and finally multiply the result by 100.
the prior year's amount
All of the following are essential characteristics of liabilities, except _____.
they represent probable future benefits