chkpt 3 Financial Accounting Exam

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Required For each item described above indicate whether the amount should be added to or subtracted from the amount of net income when determining the amount of net cash flow from operating activities using the indirect method. 1. The amount of cash dividends paid to the stockholders. 2. The amount of a decrease in the balance of an Unearned Revenue account. 3. The amount of an increase in the balance of an Inventory account. 4. The amount of an increase in the balance of a Land account. 5. The amount of a decrease in the balance of a Prepaid Rent account. 6. The amount of an increase in the balance of a Treasury Stock account. 7. The amount of an increase in the balance of the Accounts Receivable account. 8. The amount of a loss arising from the sale of land. 9. The amount of an increase in the balance of the Other Operating Expenses Payable account. 10. The amount of a decrease in the balance of the Bonds Payable account. 11. The amount of depreciation expense shown on the income statement.

1. not affected 2. Subtracted 3. subtracted 4. not affected 5. added 6. not affected 7. subtracted 8. added 9. added 10. not affected 11. added

The following information was drawn from the annual reports of two companies. Company A Company B Sales revenue $1,000 $2,000 Cost of goods sold (600) (1,100) Gross margin 400 900 Operating expenses (220) (700) Operating income 180 200 Gain on sale of equipment 150 0 Net income $ 330 $ 200 Based on this information, Company B's return on sales is 55%. 45%. 35%. 10%.

10% $200 operating income ÷ $2,000 sales revenue = 10%

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of depreciation expense recognized on the Year 2 income statement is $10,000. $20,000. $12,000. $24,000.

10,000 Depreciation expense per year = (Cost of the asset - Salvage value) ÷ Useful life Depreciation expense per year = ($48,000 Cost - $8,000 Salvage) ÷ 4 Year life = $10,000

Kelly Company's unadjusted bank balance on May 31 is $9,500. An analysis of the bank statement revealed $1,400 of deposits in transit and $900 of outstanding checks. In addition, the bank statement showed a $200 NSF check. Based on this information, Kelly's true cash balance is $9,000. $9,800. $10,000. $10,200.

10000 Unadjusted bank balance $ 9,500 Plus: Deposits in transit 1,400 Less: Outstanding checks (900) True cash balance $ 10,000

On December 31, Year 3, Alpha Company had an ending balance of $200,000 in its accounts receivable account and an unadjusted (current) balance in its allowance for doubtful accounts account of $300. Alpha estimates uncollectible accounts expense to be 1% of receivables. Based on this information, the amount of uncollectible accounts expense shown on the Year 3 income statement is $2,300. $2,200. $1,700. $2,000.

1700 Ending balance in allowance account ($200,000 x .01) $ 2,000 Less: Unadjusted (current) balance in allowance account (300) Estimated uncollectible accounts expense $ 1,700

Revenue on account amounted to 4000. Cash collections of accounts receivable amounted to 2,300 expenses for the period were 2100 the company paid dividends of 450.

1900

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $8,000 salvage value. The truck was actually driven 40,000 miles during Year 1; 20,000 miles during Year 2; 35,000 miles during Year 3; and 10,000 miles during Year 4. If Marino uses the units-of-production method, the amount of depreciation expense recognized on the Year 4 income statement is $4,000. $2,000. $28,000. $40,000.

2000 Number of miles is used as the measure of production Depreciation expense per mile = ($48,000 Cost - $8,000 Salvage) ÷ 100,000 Miles = $0.40 Year 1 Dep. exp. = 40,000 Miles driven × $0.40 Expense per mile = $16,000 Year 2 Dep. exp. = 20,000 Miles driven × $0.40 Expense per mile = $8,000 Year 3 Dep. exp. = 35,000 Miles driven × $0.40 Expense per mile = $14,000 Year 4 Dep. exp. = 10,000 Miles driven × $0.40 Expense per mile = $4,000; $2,000

Prior to closing the accounting records of Brand Company showed $30,000 of assets, $10,000 of liabilities, $19,500 of retained earnings, $3,000 of revenue, $2,000 of expenses and $500 of dividends. After closing the balance in the retained earnings account will be $20,500. $21,000. $20,000. $19,500.

20000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $8,000 salvage value. The truck was actually driven 40,000 miles during Year 1, 20,000 miles during Year 2, 35,000 miles during Year 3 and 10,000 miles during Year 4. If Marino uses the units-of-production method, the amount of book value shown on the Year 2 balance sheet is $10,000. $20,000. $12,000. $24,000.

24000 Depreciation expense per mile = ($48,000 Cost - $8,000 Salvage) ÷ 100,000 Miles = $0.40 Year 1 Dep. exp. = 40,000 Miles driven × $0.40 Expense per mile = $16,000 Year 2 Dep. exp. = 20,000 Miles driven × $0.40 Expense per mile = $8,000 The after closing (ending) balance in the accumulated depreciation account at the end of Year 2 will be $24,000 ($16,000 from Year 1+ $8,000 from Year 2). The book value shown on the Year 2 balance sheet is $24,000 ($48,000 cost - $24,000 accumulated depreciation).

The following is a partiallist of transactions completed by the Ryan Company during its fifth year of operations. • Sold land for $50,000 cash. • Issued common stock for $20,000. • Paid $27,000 cash to purchase delivery equipment. • Issued a $15,000 note to a bank for cash. • Paid a $10,000 cash dividend. • Earned $60,000 of cash revenue. • Paid $42,000 of cash expenses. Based on these events alone, the net cash flow from financing activities is $45,000. $35,000. $25,000. $20,000.

25000 Cash inflows from financing activities: Issue of common stock $ 20,000 Issue of note payable 15,000 Cash outflows from financing activities: Payment of cash dividend (10,000) Net cash inflow from financing activities $ 25,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of book value shown on the Year 2 balance sheet is $30,000. $38,000. $20,000. $28,000.

28,000 Depreciation expense per year = (Cost of the asset - Salvage value) ÷ Useful life Depreciation expense per year = ($48,000 Cost - $8,000 Salvage) ÷ 4 Year life = $10,000 The book value is the amount of the cost of the asset minus the accumulated depreciation. At the end of Year 2, the book value is $28,000 ($48,000 Cost - $20,000 Accumulated depreciation).

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104resulting in a 4% premium. They had a 20 year term, a stated rate of interest of 7%, and an effective rate of interest of 6.633%. Assuming Residence uses the effective interest rate method, the amount of interest expense recognized on the December 31, Year 1 income statement is (round any necessary computations to the nearest whole dollar)

3449 Book value before Year 1 amortization = $50,000 Face value + $2,000 Bond premium = $52,000 Interest expense = $52,000 Book value before amortization × .06633 Effective interest rate = $3,449

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1. Immediately after the three events have been recognized, the balance in the inventory account is $3,960. $4,000. $5,000. zero.

3960 The cost of the inventory is $3,960 ($5,000 original cost - $1,000 purchase return - $40 cash discount). The amount of the cost of the inventory will remain in the inventory account until the inventory is sold.

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 tons of useable material. GMC extracted 10,000 tons of stone in Year 1, 20,000 tons of stone in Year 2, and 25,000 tons of stone in Year 3. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. Based on this information, the amount of depletion expense shown on the Year 3 income statement is $10,000,000. $6,000,000. $5,000,000. $4,000,000.

4,000,000 ($10,000,000 maximum depletion allowed − $2,000,000 recognized in Year 1 − $4,000,000 recognized in Year 2). As a result, $4,000,000 not $5,000,000 depletion expense will be recognized in Year 3.

40% $400 gross margin ÷ $1,000 sales revenue = 40%

At the end of the accounting period Anderson Company had $4,500 in accounts receivable and $500 in its allowance for doubtful accounts account. Based on this information the net realizable value of accounts receivable is $4,000. $4,500. $5,000. The answer cannot be determined with the information provided.

4000 ($4,500 - $500 = $4,000).

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. If the Company pays the account payable after the discount period has expired, how much cash will be required to settle the liability? $3,960. $4,000. $5,000. zero.

4000 If the Company pays after the discount period has expired, there will be no discount granted. The amount due will be $4,000 ($5,000 original account payable - $1,000 reduction in the account payable due to the purchase return).

At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3, Omega experienced the following events. (1) Omega earned $220,000 of revenue on account. (2) Collected $230,000 cash from accounts receivable. (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. Based on this information, the December 31, Year 3 balance in the accounts receivable account is $41,000. $40,000. $52,000. None of the answers is correct.

41000 Beginning accounts receivable balance $ 52,000 Plus: Revenue earned on account 220,000 Less: Collections of accounts receivable (230,000 ) Less: Write-off of accounts receivable (1,000 ) Ending accounts receivable balance $ 41,000

Shampoo Incorporated presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from the company's year-end balance sheets: Account Title Year 2 Year 1 Accounts recev. $21,000 $19,000 Accounts payable 12,000 9,000 The Year 2 income statement showed net income of $42,000. Based on this information, the amount of the cash flow from operating activities shown on the Year 2 statement of cash flows is? $41,000. $42,000. $43,000. $44,000.

43,000 ($42,000 Net income - $2,000 increase in accounts receivable + $3,000 increase in accounts payable)

If a company has total assets of $100,000, current assets of $20,000, total liabilities of $60,000, current liabilities of $10,000, and total stockholders' equity of $40,000, what is its debt to assets ratio? 10% 80% 40% 60%

60%

Perry Corporation was established on January 1, Year 1 when it issued 20,000 shares of $50 par, 5 percent, cumulative preferred stock and 30,000 shares of $10 par value common stock. The company's earnings history is as follows: Year 1 $40,000 Net loss Year 2 $110,000 Net income Year 3 $120,000 Net income The corporation paid the maximum amount of dividends possible in each year of operation. The dividend paid to preferred stockholders at the end of Year 2 is zero. $50,000. $70,000. $100,000.

70,000 $50,000 ($50 par value × 20,000 shares × .05 dividend rate) of dividends per year. Since the dividends are cumulative, the preferred stockholders are entitled to $100,000 of dividend at the end of Year 2 ($50,000 in arrears from Year 1 + $50,000 due for Year 2). Even so there is only a $70,000 ($40,000 Net loss + $110,000 Net income)

Kilgore Company experienced the following events during its first accounting period. (1) Issued common stock for $5,000 cash. (2) Earned $3,000 of cash revenue. (3) Paid a $4,000 cash to purchase land. (4) Paid cash dividends amounting to $400. (5) Paid $2,200 of cash expenses. Based on this information the amount of net income is $800. $400. $2,200. $4,400.

800

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, the amount of book value shown on the Year 3 balance sheet is $6,000. $8,000. $12,000. $24,000.

8000 Year 1 Dep. exp. = ($48,000 Cost - $0 Accumulated Depreciation) × (2 × .25) = $24,000 Year 2 Dep. exp. = ($48,000 Cost - $24,000 Accumulated Depreciation) × (2 × .25) = $12,000 Year 3 Dep. exp. = ($48,000 Cost - $36,000 accumulated Depreciation) × (2 × .25) = $4,000 Accumulated depreciation at the end of Year 3 is $40,000 ($24,000 + $12,000 + $4,000) Book value at the end of Year 3 = $48,000 Cost - $40,000 Accumulated Depreciation = $8,000

A callable bond provides an option A. for the issuer to repay the bond liability before the maturity date. B. for the issuer to extend the maturity date. C. for the lender to demand payment of the bond liability before the maturity date. D. for the lender to extend the maturity date.

All other things being equal, the profitability is maximized when a company sells inventory with A. a high gross margin per unit and a high inventory turnover. B. a high gross margin per unit and a low inventory turnover. C. a low gross margin per unit and a high inventory turnover. D. a low gross margin per unit and low inventory turnover.

Closing the dividends account would require which of the following? A. A debit to the retained earnings account. B. A debit to the dividends account. C. A credit to the common stock account. D. A credit to the cash account.

Computer equipment is a (an) A. tangible asset. B. intangible asset.

Garcia Company recognized revenue on account. The recognition will affect which of the following financial statements? A. Income statement and the balance sheet B. Income statement C. Balance sheet D. Statement of cash flows

Generally Accepted Accounting Principles (GAAP) are designed to provide guidance for A. financial accounting. B. managerial accounting. C. tax accounting. D. auditing service accounting.

Guadalupe, Inc. provided $5,000 of services in Year 1 but did not collect cash from its customers until Year 2. Select the correct answer from the following options assuming Guadalupe used accrual accounting. A. The Company will recognize $5,000 of revenue in Year 1 and $5,000 of cash flow from operations in Year 2. B. The Company will recognize $5,000 of revenue and $5,000 of cash flow from operations in Year 1. C. The Company will recognize zero of revenue in Year 1 and $5,000 of cash flow from operations in Year 2. D. The Company will recognize $5,000 of cash flow from operations in Year 1 and $5,000 of revenue in Year 2.

If a company recognizes accrued salary expense A. the employees have completed work but have not been paid. B. the employees have worked and have been paid for the work they completed. C. the employees have been paid but have not completed their work. D. the employees will work in the future and will be paid in the future.

If a company uses the effective interest rate method the amount of a bond discount on the maturity date immediately after the last amortization is recognized will be A. the same as it would have been if the company had used the straight-line method. B. more than it would have been if the company had used the straight-line method. C. less than it would have been if the company had used the straight-line method. D. The answer cannot be determined from the information provided.

If a company uses the effective interest rate method, the amount of the cash flow from operating activities will be A. the same as it would have been had the company used the straight-line method. B. more than it would have been had the company used the straight-line method. C. less than it would have been had the company used the straight-line method. D. None of the answers is correc

Inventory is A. an asset account that appears on the balance sheet. B. an expense account that appears on the income statement. C. a cash item that appears on the statement of cash flows. D. not an account. Instead, it is an information item like gross margin or net income

Keisha Dress Shops experienced the following events during its third accounting period. (1) Sold merchandise that cost $92,000 for $140,000 cash. (2) Paid $30,000 of operating expenses. (3) Paid a $4,000 cash dividend. Based on this information, the amount of the gross margin is A. $48,000. B. $18,000. C $14,000. D. None of the answers is correct.

Paying cash to settle a salaries payable obligation will affect which section of the statement of cash flows? A. Operating activities B. Noncash activities C. Investing activities D. Financing activities

The MACRS method of determining depreciation expense has been established by the A. Internal Revenue Service. B. Management Accounting Association. C. Financial Accounting Standards Board. D. American Accounting Association.

The accounts payable account appears on A. the balance sheet. B. the statement of cash flows. C. the statement of changes in stockholders' equity. D. the income statement.

The accounts receivable turnover ratio is calculated by A. dividing the amount of credit sales by the average balance of accounts receivable. B. dividing the average balance of accounts receivable by the amount of credit sales. C. subtracting the average balance of accounts receivable from the amount of credit sales. D. subtracting the amount of credit sales from the average balance of accounts receivable.

The acronym MACRS stands for which of the following? A. Modified Accelerated Cost Recovery System B. Management Accounting Cost and Revenue Streams C. Management Assurance Cost and Revenue System D. Modified Accounting of Cost and Revenue Streams

The journal entry to recognize accrued interest expense would include a A. a debit to interest expense and a credit to interest payable. B. a debit to retained earnings and a credit to interest payable. C. a debit to interest payable and a credit to retained earnings. D. a debit to interest payable and a credit to interest expense

The journal entry to recognize depreciation expense for office equipment would include a A. credit to accumulated depreciation. B. debit to retained earnings. C. credit to depreciation expense. D. debit to office equipment.

The statement of changes in stockholders' equity presents A. an explanation of the changes in the beginning and ending balances of stockholders' equity. B. a comparison of the benefits and the sacrifices a company experiences from its operations. C. information in three categories including operating, investing, and financial activities. D. a list of a company's assets and the sources of those assets.

To determine the true cash balance A. add deposits in transit to and subtract outstanding checks from the unadjusted bank balance. B. subtract deposits in transit from and add outstanding checks to the unadjusted bank balance. C. add deposits in transit and outstanding checks to the unadjusted bank balance. D. segment elimination decision.

When a company purchases supplies on account A. liabilities increase. B. cash flow from investing activities decreases. C. total assets decrease. D. expenses increase.

When reporting to the Internal Revenue System companies are most likely to use A. an accelerated depreciation. B. straight-line depreciation. C. reverse accelerated depreciation. D. units-of-production depreciation.

Which of the following is an accurate depiction of the accounting equation? A. Assets = Liabilities + Common Stock + Retained Earnings B. Assets = Liabilities + Common Stock - Expenses C. Assets = Liabilities + Retained Earnings - Dividends D. Assets = Liabilities + Common Stock + Dividends

Which of the following normally has an associated contra account? A. Tangible long-term assets B. Intangible long-term assets C. Natural resources D. Land

Which of the following opinions is the most favorable opinion issued by an external auditor? A. Unqualified opinion B. Qualified opinion C. Disclaimer of opinion D. Adverse opinion

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104 resulting in a 4% premium. They had a 20 year term and a stated rate of interest of 7%.Based on this information the carrying value of the bond liability on January 1, Year 1 is A. $52,000. B. $50,000. C.$48,000. D. $46,500.

A $50,000 × 1.04 = $52,000.

Assuming all transactions are cash transactions A. An increase in the balance in the Land account suggests a cash inflow occurred. B. A decrease in the balance in the Marketable Securities account suggests a cash outflow occurred. C. A decrease in the balance in the Manufacturing Equipment account suggests a cash inflow occurred. D. An increase in the balance in the Office Furniture account suggests a cash inflow occurred.

A decrease in the balance in the Manufacturing Equipment account suggests a cash inflow occurred

The following information was drawn from the accounting records of Kassouf Sales Company (KSF). Sales Revenue $ 124,000 Cost of Goods Sold 90,000 Gross Margin $ 34,000 The inventory account showed a $17,000 beginning balance and a $19,000 ending balance. Based on this information, the inventory turnover ratio is (if necessary round calculations to two decimal points) A. 5.00 times B.2.65 times C. 1.36 times D. 6.89 times

A. Inventory turnover = Cost of goods sold ÷ Average inventory Inventory turnover = $90,000 ÷ [($17,000 + $19,000) ÷2] = 5 times

Which of the following represent operating asset accounts considered in the calculation of CFO? Accounts receivable and cash Accounts payable and accrued wages Accounts receivable and inventory Accounts receivable and accounts payable

Accounts receivable and inventory Accounts payable and accrued wages are operating liabilities; as such, they are not operating assets. Cash is an asset but is not considered in the calculation of CFO.

Operational Assets

All current assets except cash. Used for CFO

Operational Liabilities

All current liabilities except notes payable. Used for CFO

Which of the following items appears on the statement of cash flows? A. Beginning cash balance. B. Ending cash balance. C. An explanation of the activities that caused the change between the beginning and ending balances in the cash account. D. All of the choices are items that appear on the statement of cash flows.

All of the choices are items that appear on the statement of cash flows.

Which of the following will decrease CFO? A decrease in inventory and an increase in accounts payable An increase in inventory and a decrease in notes payable An increase in inventory and an increase in accounts payable An increase in accounts receivable and a decrease in accounts payable

An increase in accounts receivable and a decrease in accounts payable An increase in inventory or accounts receivable and decreases in accounts payable will decrease CFO. Notes payable is a financing item.

Which of the following is true with respect to CFO? A decrease in notes payable indicates a reduction in CFO An increase in accounts payable indicates a reduction in CFO An increase in inventory indicates a reduction in CFO An increase in cash indicates a reduction in CFO

An increase in inventory indicates a reduction in CFO

On January 1, Year 1 Graham Corporation issued 200 shares of $5 par value common stock for $40 per share. Which of the following shows how the stock issue will affect Graham's financial statements on January 1, Year 1?

Asses increase 8000 Common stock increase 1000 PIC excess par 7000 CF increase of 8000 FA

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at face value. They had a 20 year term and a stated rate of interest of 7%. Which of the following shows how the payoff of the bond liability will affect Residence's financial statements on December 31, Year 20 (the maturity date)?

Assets(50000) Liab(50000) CF(50000)FA

Accounts receivable will appear on which of the following financial statements? A. Statement of cash flows B. Balance sheet C. Income statement D. Statement of changes in stockholders' equity

Assume four companies have the following debt to assets ratios: Trent Company 57% Gardendale Company 39% Palmetto Company 78% Dunes Company 82% All other things being equal, which company appears to have the lowest financial risk? A. Trent Company B. Gardendale Company C. Dunes Company D. Palmetto Company

Barnett Company paid a cash dividend. This event is A. an asset source transaction. B. an asset use transaction. C. an asset exchange transaction. D. None of the answers describes this event.

Rex Company's bank statement shows a $200 NSF check. To determine the true cash balance the A. amount of the NSF check must be added to the unadjusted bank balance. B. amount of the NSF check must be subtracted from the unadjusted book balance. C. amount of the NSF check must be added to the unadjusted book balance. D. amount of the NSF check must be subtracted from the unadjusted bank balance.

The bank statement for Franklin Company showed a $4,000 credit. Which of the following could have caused this credit? A. Franklin Company wrote a check. B. Franklin Company made a deposit. C.Franklin Company paid bills with cash. D. Franklin Company collected cash that was not deposited.

The gross margin appears on a A. single-step income statement. B. multistep income statement. C. single-step statement of cash flows. D. multistep statement of cash flows.

The gross margin percentage is determined by A. dividing net sales revenue by the gross margin. B. dividing the gross margin by the net sales revenue. C. dividing the gross margin by the cost of goods sold. D. dividing the cost of goods sold by the gross margin.

The income statement presents A. an explanation of the changes in the beginning and ending balances of stockholders' equity. B. a comparison of the benefits and the sacrifices a company experiences from its operations. C. information in three categories including operating, investing, and financial activities. D. a list of a company's assets and the sources of those assets.

To avoid the risk of fraud associated with inventory manipulation A. the company Chief Executive Officer (CEO) should supervise the counting of inventory. B. the employee in charge of counting inventory should be different from the employee in charge of recording inventory transactions. C. companies should not sell inventory. D. all inventory must be counted by government regulators.

Which of the following cost flow methods would provide the lowest amount of net income in an inflationary environment? A. FIFO B. LIFO C. Weighted average D. NIFO

Which of the following formulas yields the return on assets ratio? A. Sales divided by total assets B. Net income divided by total assets C. Net income divided by long-term assets D. Sales divided by long-term assets

Which of the following is an accurate definition of the term asset? A. An obligation to creditors B. A resource that will be used to produce revenue C. A transfer of wealth from the business to its owners D. A sacrifice incurred from operating the business

Which of the following is normally shown first on the statement of cash flows? A. Cash flow from financing activities B. Cash flow from operating activities C. Cash flow from investing activities D. Noncash transactions

Which of the following statements is true? A. Companies with large amounts of uncollectible accounts normally use the direct-write off method to account for uncollectible accounts expense. B. The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity. C. Only banks are permitted to use the direct write-off method. D. The direct write-off method is used to assure the matching of expenses with revenue.

Wild company purchased an asset. Wild used the Modified Accelerated Cost Recovery System (MACRS) to depreciate the asset for tax reporting purposes and the straight-line depreciation method for financial reporting purposes. All other things being equal, in the early years of the asset's life the amount of income shown A. on the tax return will be higher than the amount of income shown on the income statement. B. on the tax return will be lower than the amount of income shown on the income statement. C. on the tax return will be same as the amount of income shown on the income statement. D. on the tax return will not be affected by depreciation expense.

On January 1, Year 1, Raven Limo Service, Inc. paid $64,000 cash to purchase a limousine. The limo was expected to have a six year useful life and a $10,000 salvage value. On January 1, Year 5 the limo was sold for $30,000 cash. Assuming Raven uses straight-line depreciation, the Company would recognize a A. $2,000 loss. B. $2,000 gain. C. $20,000 loss. D. $20,000 gain.

B Depreciation expense per year = (Cost of the asset - Salvage value) ÷ Useful life Depreciation expense per year = ($64,000 Cost - $10,000 Salvage) ÷ 6 Year life = $9,000 Accumulated depreciation on January 1, Year 5 = $9,000 per year × 4 years = $36,000 Book value = $64,000 Cost - $36,000 Accumulated depreciation = $28,000 Gain on sale = $30,000 Sales price - $28,000 Book value = $2,000

On September 1, Year 1 Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's Year 2 financial statements would be A. $600 interest revenue and $1,800 cash inflow from operating activities. B. $1,200 interest revenue and $1,800 cash inflow from operating activities. C. $600 interest revenue and zero cash inflow from operating activities. D. $1,200 interest revenue and zero cash inflow from operating activities.

B Total annual interest = $36,000 × .05 = $1,800 Monthly interest = $1,800 annual interest ÷ 12 months = $150 Four months of interest was accrued in Year 1. The remaining 8 months is earned in Year 2. Interest earned in Year 2 = $150 per month × 8 months = $1,200 Since the total amount of interest will be collected on the maturity date in Year 2, the cash flow associated with interest revenue in Year 2 is $1,800.

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104resulting in a 4% premium. They had a 20 year term and a stated rate of interest of 7%.Assuming a straight-line amortization of the premium, the amount of interest expense recognized on the December 31, Year 1 income statement is A. $5,500. B. $3,400. C. $3,500. D. $3,600.

B Bond premium = $50,000 Face value × .04 Premium = $2,000 Premium amortization = $2,000 Bond premium ÷ 20 Years = $100 Per year Interest expense paid in cash = $50,000 Face value × .07 Stated interest rate = $3,500 Total interest expense = $3,500 Stated interest - $100 Premium amortization = $3,400

A deferral A. exists when a company pays cash at the time the associated expense is recognized. B. exists when a company pays cash after recognizing the associated expense. C. exists when a company pays cash before recognizing the associated expense

AmRon Company sold land that had cost $25,000 for $26,500. Based on this information, the company's year-end financial statements would show A. a cash inflow from operating activities of $1,500 on the statement of cash flows. B. a gain of $26,500 on the income statement. C. a cash inflow from investing activities of $26,500 on the statement of cash flows. D. a balance of $25,000 in the cash account on the balance sheet.

Appropriating retained earnings will A. cause an increase in stockholders' equity. B. cause a decrease in stockholders' equity. C.have no effect on total stockholders' equity. D. cause an increase in the dividends payable account

Cash paid for interest is shown on the statement of cash flows as A. a financing activity. B. an investing activity. C. an operating activity. D. a noncash activity.

Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest expense that Clayton would report in Year 1 and Year 2, respectively would be A. $360, and $0. B. $0, and $360. C. $270, and $90. D. $270, and $0.

Depletion is the term used to recognize expense associated with A. tangible assets. B. intangible assets. C. natural resources. D. land.

If the amount of ending inventory is overstated, the amount of A. net income will be understated. B. liabilities will be overstated. C. cost of goods sold will be understated. D. cash flow from operating activities will be overstated.

If total assets increase then A. liabilities must decrease and retained earnings must increase. B. common stock must increase and retained earnings must decrease. C. liabilities, common stock, or retained earnings must increase. D. liabilities, common stock, or retained earnings must decrease.

Instead of using cash to pay bills, many companies pay with checks because A. checks cannot be stolen. B. checks are always written for exact amounts. C. checks facilitate the separation of duties associated with cash payments. D. checks can be written on any day the week.

On September 1, Year 1 Gomez Company borrowed $36,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the accrual of interest expense in Year 1 will effect Gomez's financial statements? A. $1,200 interest expense and $1,800 cash outflow from operating activities. B. $600 interest expense and $1,800 cash outflow from operating activities. C. $600 interest expense and zero cash outflow from operating activities. D. $1,200 interest expense and zero cash outflow from operating activities.

Simpson Company paid cash to purchase land. This event is A. an asset source transaction. B. an asset use transaction. C. an asset exchange transaction. D. None of the answers describes this event.

Tangier Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated) A. on the day it is purchased. B. at the end of its useful life. C. over the useful life of the asset. D. when the asset is sold.

The amount of net sales is determined by which of the following formulas? A. Gross sales + Sales Returns and Allowances - Sales discounts B. Gross sales + Sales Returns and Allowances + Sales discounts C. Gross sales - Sales Returns and Allowances - Sales discounts D. Gross sales - Sales Returns and Allowances + Sales discounts

The framework that is used to assess the effectiveness of a company's internal control was established by the A. Securities and Exchange Commission. B. Financial Accounting Standards Board. C. Committee of Sponsoring Organizations of the Treadway Commission. D. American Institute of Certified Public Accountants.

The journal entry to close the revenue account would include which of the following? A. a debit to both the revenue and the retained earnings account. B. a credit to both the revenue and the retained earnings account. C. a debit to the revenue account and a credit to the retained earnings account. D. a credit to the revenue account and a debit to the retained earnings account.

The statement of cash flows presents A. an explanation of the changes in the beginning and ending balances of stockholders' equity. B. a comparison of the benefits and the sacrifices a company experiences from its operations. C. information in three categories including operating, investing, and financial activities. D. a list of a company's assets and the sources of those assets.

Under the direct write-off method, uncollectible accounts expense is recognized A. in an adjusting entry at the end of the accounting period. B. when the allowance account has a zero balance. C. when an account is determined to be uncollectible. D. in a closing entry at the end of the accounting period.

Which of the follo wing conveys an exclusive right to produce and sell the content contained in a textbook? A. Patent B. Goodwill C. Copyright D. Trademark

Which of the following behaviors are included in the Articles of American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct? A. AICPA members must act in a way that will serve the public interest. B. AICPA members must avoid conflicts of interest that threaten their objectivity or independence. C. AICPA members must conduct their activities with integrity so as to maintain or broaden public confidence in the profession. C. All of the answers represent behaviors that are expressed in the Articles of AICPA Code of Professional Conduct.

Which of the following entities is responsible for establishing auditing standards? A. The Financial Accounting Standards Board. B. The Institute of Management Accountants. C. The Public Company Accounting Oversight Board. D. The American Accounting Association.

Which of the following entities receives cash when a company borrows money through a bond issue? A. Bondholder B. Lender C. Issuer D. Resource provider

Which of the following formulas is used to calculate the number of days to sell inventory? A. Inventory turnover ÷ 365 B. Inventory turnover × 365 C. 365 ÷ Inventory turnover D. 365 × Gross margin

Which of the following intangible assets has an indefinite useful life? A. Patent B. Copyright C. Goodwill D. All of the assets listed have an indefinite life.

Which of the following is a financing activity? A. Collecting cash from customers B. Collecting cash from the sale of a building C. Paying cash dividends D. Paying cash to purchase land

Which of the following is a reason a company would acquire treasury stock? A. Increase the amount of paid-in capital B. Lower its stock price C. Reduce the likelihood of a hostile takeover D. Support the US Treasury Department

Which of the following is not a common characteristic associated with preferred stock? A. Priority in business liquidations B. Cumulative dividends C. Voting rights D. Limited dividends

Which of the following is not a date associated with the declaration and payment of dividends? A. Date of declaration B. Date of record C. Date of disposal D. Date of payment

Which of the following statements is true? A. Debits are always used to describe an increase in an account balance. B. Debits are always used to describe a decrease in an account balance. C. Debits may be used to describe either an increase or a decrease in an account balance.

Which of the following statements is true? A. Checks that a company has written are shown as credits on a bank statement. B. Deposits will be shown as debits on a bank statement. C. interest revenue will be shown as a credit on a bank statement. D. Bank services charges are not shown on a bank statement.

Which of the following statements regarding a trial balance is true? A. An equality between the total of the debit balances and the total of the credit balances provides proof that there have been no errors in the accounting system. B. Most companies prepare a trial balance only once during the accounting period. C. The accounting records may contain errors even if the total amount of debit and credit balances are equal. D. The accounting records may be error free even if the total amount of debit and credit balances are not equal.

On January 1, Year 1 Residence Companyissued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%.Based on this information, the carrying value of the bond liability on January 1, Year 1 is A. $52,000. B. $50,000. C. $48,000. D. $46,500.

C $48,000 [($50,000 - ($50,000 × .04

Escrow Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information, the net income or (net loss) amounted to A. $12,000. B. ($20,000). C. ($8,000). D. None of the answers is correct.

C $8,000 [$12,000 - $20,000 = ($8,000)].

Senath Company's annual report reveals net credit sales of $240,000 and average accounts receivable of $20,000. The report also shows an average inventory balance of $10,000 and cost of goods of $200,000. Based on this information, the number of days to collect accounts receivable is (treat any partial day as a whole day) A. 12 days. B. 20 days. C. 31 days. D. 19 days.

C Accounts receivable turnover: $240,000 net credit sales ÷ $20,000 average accounts receivable = 12 times Average days to collect receivables: 365 days in year ÷ 12 accounts receivable turnover = 30.41 days Partial days are normally converted to whole days when reporting the average days to collect receivables. As a result, the average number of days to collect receivables in this case is 31.

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 offering a 4% discount. They had a 20 year term, a stated rate of interest of 7%, and an effective rate of interest of 7.389%. Assuming Residence uses the effective interest rate method, the amount of interest expense recognized on the December 31, Year 1 income statement is (round any necessary computations to the nearest whole dollar) A. $3,499. B. $3,500. C. $3,547. D. $3,600.

C Book value before Year 1 amortization = $50,000 Face value- $2,000 Bond discount = $48,000 Interest expense = $48,000 Book value before amortization x .07389 Effective interest rate = $3,547

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the LIFO cost flow method, the balance in the inventory account after the sales transaction will be A. $32. B. $31. C. $30. D. $8.

C If the Company is using LIFO, it would have recognized $32 of cost of goods sold (last item purchased) and there would be $30 left in inventory.

Corazon Company purchased an asset with a list price of $14,000. Corazon paid $500 of transportation in cost, $800 to train an employee to operate the equipment, and $200 to insure the asset against theft after it has been setup in the factory. The asset was purchased under terms 1/20/n30 and Corazon paid for the asset within the discount period. Based on this information, Corazon would capitalize the asset on its books at A. $14,000. B. $14,660. C. $15,160. D. $14,800.

C List price $ 14,000 Plus: Transportation-in 500 Plus: Training 800 Less: Cash discount ($14,000 list price x .01 discount) (140) Total cost capitalized $ 15,160

Zane Enterprises accepts a credit card as payment for $500 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Based on this information A. Zane will collect $500 cash from the credit card company. B. Zane will pay the credit card company $500 cash. C. Zane will collect $480 cash from the credit card company. D. Zane will pay the credit card company $480 cash.

C The fee charged by the credit card company is $20 ($500 x .04). The customer will ultimately pay the credit card company $500,and the credit card company will pay Zane $480 ($500 - $20).

On September 1, Year 1 Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's December 31, Year 1 financial statements would be A.$600 interest revenue and $1,800 cash flow from operating activities. B. $1,200 interest revenue and $1,800 cash flow from operating activities. C. $600 interest revenue and zero cash flow from operating activities. D. $1,200 interest revenue and zero cash flow from operating activities.

C Total annual interest = $36,000 × .05 = $1,800 Monthly interest = $1,800 annual interest ÷ 12 months = $150 Interest earned in Year 1 = $150 per month × 4 months = $600

On September 1, Year 1 Western Company borrowed $36,000 cash. The one-year note carried a 5% rate of interest. The amount of interest expense on the income statement and the amount of cash flow from operating activities shown on Western's December 31, Year 1 financial statements would be A. $600 interest expense and $1,800 cash outflow from operating activities. B. $1,200 interest expense and $1,800 cash outflow from operating activities. C. $600 interest expense and zero cash outflow from operating activities. D. $1,200 interest expense and zero cash outflow from operating activities.

C Total annual interest = $36,000 × .05 = $1,800 Monthly interest = $1,800 annual interest ÷ 12 months = $150 Interest expense in Year 1 = $150 per month × 4 months = $600. Since the total amount of interest will be paid on the maturity date in Year 2, the cash flow associated with interest expense in Year 1 is zero.

C Total annual interest = $6,000 × .06 = $360 Monthly interest = $360 annual interest ÷ 12 months = $30 Interest expense in Year 1 = $30 per month × 9 months = $270 Nine months of interest was accrued in Year 1. The remaining 3 months is expensed in Year 2. Interest expense in Year 2 = $30 per month × 3 months = $90

Yang Company sold merchandise for $2,000. The event is subject to a state sales tax of 9%. Based on this information, Yang would be required to recognize A. sales revenue of $2,180. B. sales tax expense of $180. C. sales tax liability of $180. D. sales revenue of $1,820.

C Yang is required by the government to collect the tax from the customer. Yang is then obligated to pay the tax to the government. As a result, Yang incurs a $180 liability ($2,000 x .09) when the sales event occurs.

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104resulting in a 4% premium. They had a 20 year term and a stated rate of interest of 7%.Based on this information, the carrying value of the bond liability on January 1, Year 6 is A. $50,000. B. $48,500. C. $51,500. D. $52,000.

C $50,000 face value + $1,500 premium).

Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $40,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned net income of $20,000 and John Crowe withdrew $15,000 from the business. Based on this information, the Company would show A. $5,000 in its capital account on the Year 1 balance sheet. B. $40,000 in its capital account on the Year 1 balance sheet. C. $45,000 in its capital account on the Year 1 balance sheet. D. $25,000 in its capital account on the Year 1 balance sheet.

C Zero Beginning capital balance + $40,000 Owner investment + $20,000 Net income - $15,000 Withdrawal

Which of the following best describes the simplified calculation of CFO: CFO = NI + Accum. depreciation + changes in operating accounts CFO = NI + Accum. Depreciation + changes in accounts receivable CFO = NI + Depreciation expense + changes in accounts receivable CFO = NI + Depreciation expense + changes in operating accounts

CFO = NI + Depreciation expense + changes in operating accounts CFO is calculated for a single period, so we need depreciation expense for that period and not total accumulated depreciation. Additionally, while changes in accounts receivable are included in the calculation of CFO we need to examine all operating accounts not just this one.

Which item would not appear in the investing activities section of the statement of cash flows? A. Cash inflow from the sale of land. B. Cash outflow from the purchase of equipment. C. Cash inflow from the issue of common stock. D. All of the answers identify items that would appear in the investing activities section of the statement of cash flows.

Cash inflow from the issue of common stock.

On January 1, Year 1 Graham Corporation issued 200 shares of $5 par value common stock for $40 per share. Which of the following journal entries shows how this event would be recorded on January 1, Year 1?

Cash= debit of 8000 CommonStock= credit of 1000 Additional PIC par= credit of 7000

Smith Company sold merchandise for $3,000 cash. Assume the event is subject to a state sales tax of 9%. Which of the following journal entries would be required to record the sales event? (Ignore any effects associated with the recognition of cost of goods sold.)

Cash=Debit= 3270 Sales tax payable=Credit= 270 Sales Revenue=credit= 3000

On November 1, Year 1 Dixon Company paid $20 per share to buy back 1,000 shares of its $8 par value common stock. The stock had originally sold for $15. On December 15, Year 1 Dixon sold 400 shares of the treasury stock at $24 per share. Which of the following journal entries is necessary to record the sale of the treasury stock on December 15, Year 1?

Cash=Debit= 9600 Treasury Stock=Credit=8000 PIC Treasury stock=credit=1600

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at face value. They had a 20 year term and a stated rate of interest of 7% payable in cash on December 31 of each year. Which of the following shows the journal entry required to recognize the bond issue on January 1, Year 1?

Cash=Debit=50000 Bonds payable=Credit=50000

Cash=debit= 52,000 Premium on Bonds Payable=Credit= 2,000 Bonds Payable=credit= 50,000

Cash=debit=48000 Disc bondspayable=debit=2000 bonds payable=credit=50000

On November 1, Year 1 Cove Company borrowed $7,000 cash from Shelter Company. Cove issued a one-year note that carried a 7% annual rate of interest. Which of the following journal entries would be necessary to record the issue of the note on November 1, Year 1?

Cash=debit=7000 Notes Payable=Credit=7000

Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following journal entries would be required to recognize the cost of goods sold? (Ignore the effects of the associated revenue recognition.)

Cogs=5700 inventory= 5700

A convertible provision in a bond certificate normally allows the A. issuer to convert a fixed interest rate to a variable interest rate. B. borrower to convert a short-term debt to long-term debt. C. issuer's Chief Executive Officer (CEO) to convert stock option to debt. D. bondholder to convert the bond investment into a common stock investment.

A strong set of internal controls is designed to minimize which of the following factors that motivate fraud? A. Pressure B. Internal controls focus on profit maximization not fraud minimization. C. Rationalization D. Opportunity

According to GAAP a contingent liability can be classified as A. probable and estimable. B. reasonably possible, or probable but not estimable. C. remote. D. All of the answers describe classifications of contingent liabilities.

Based on the fraud triangle, which of the following is not a factor that motivates fraud? A. Opportunity B. Pressure C. Rationalization D. Punishment

Expenses are recognized A. when a petty cash account is established. B. when an employee is reimbursed for expenses incurred on behalf of the business. C. when cash is collected from a customer. D. when the petty cash fund is replenished.

If a company has total assets of $40,000, sales of $88,000, cost of goods sold of $55,000, and net income of $4,400, what is its return on assets ratio? A. 10% B.8% C. 5% D. 11%

If a company has total assets of $800,000, total liabilities of $300,000, total stockholders' equity of $500,000, sales of $400,000, and net income of $80,000, what is its return on equity ratio? A. 10% B. 19% C. 20% D. 16%

If an auditor has insufficient information to determine whether a company's statements are prepared in accordance with Generally Accepted Accounting Principles, the auditor should issue a(n) A. unqualified opinion. B. qualified opinion. C. adverse opinion. D. disclaimer of opinion.

Internal control is a process designed to ensure A. reliable financial reporting. B. effective and efficient operations. C. compliance with applicable laws and regulations. D. Internal control is designed to ensure all of the items described in the answers.

Lawyers Inc. accepted a $12,000 retainer for which the company agreed to provide services in the future. Recognizing this event would A. defer the recognition of revenue. B. cause the company's assets to increase. C. cause the company's liabilities to increase. D. All of the answers are correct.

Liabilities A. represent obligations to repay debts. B. may increase when assets increase. B. have priority in business liquidations. D. All of the answers are qualities of liabilities.

Standard Company has a contingent liability that has a likelihood of actual occurrence that is classified probable. Also, the amount of the liability can be reasonably estimated. Under these circumstances, Standard is required to A. recognize a liability only. B. recognize an expense only. C. disclose but not recognize the liability or the expense. D. recognize a liability and an expense in its financial statements.

The Committee of Sponsoring Organizations (COSO) framework for the evaluation of internal controls contains which of the following interrelated components? A. Risk assessment B. Information and communication C. Monitoring D. All of the answers are components of the COSO framework

The accounting records of Liz Company contained the following journal entry. Account Titles Debit Credit Uncollectible Accounts Expense 440 Allowance for Doubtful Accounts 440 Which of the following events could have required this journal entry? A. Recognized uncollectible accounts expense under percent of receivables method. B. Recognized uncollectible accounts expense under the aging method. C. Recognized uncollectible accounts expense under the percent of revenue method. D. All of the answers describe events that could have caused the effects shown in the statements model.

The balance sheet presents A. an explanation of the changes in the beginning and ending balances of stockholders' equity. B. a comparison of the benefits and the sacrifices a company experiences from its operations. C. information in three categories including operating, investing, and financial activities. D. a list of a company's assets and the sources of those assets.

Which of the following accounts is closed at the end of an accounting period? A. Common Stock B. Retained Earnings C. Land D. Revenue

Which of the following accounts is closed at the end of an accounting period? A. Expense B. Dividend C. Revenue D. All of the answers represent accounts that are closed at the end of an accounting period.

Which of the following accounts would be closed at the end of an accounting period? A. Accounts receivable B. Land C. Account payable D. None of the accounts listed would be closed at the end of an accounting period.

Which of the following formulas is used to calculate the inventory turnover ratio? A. Inventory ÷ Cost of goods sold B. Inventory ÷ Net sales C. Net income ÷ Inventory D. Cost of goods sold ÷ Inventory

Which of the following formulas yields the debt to assets ratio? A. Total assets divided by total liabilities (debt) B. Total liabilities (debt) divided by total stockholders' equity C. Total liabilities (debt) divided by current liabilities D. Total liabilities (debt) divided by total assets

Which of the following formulas yields the return on equity ratio? A. Net income divided by total common stock B. Net income divided by price paid to purchase stock C. Sales divided by total stockholders' equity D. Net income divided by total stockholders' equity

Which of the following is a true statement? A. A cash revenue is an economic benefit that will cause assets and retained earnings to increase. B. A cash expense is an economic sacrifice that will cause assets and retained earnings to decrease. C. A cash dividend is a transfer of assets from a business to its owners that will cause the assets and retained earnings of the business to decrease. D. All of the answers represent true statements.

Which of the following is an asset source event? A. Received cash from the issue of stock B. Borrowed cash from creditors C. Earned cash revenue D. All of the answers represent asset source transactions

Which of the following is an intangible asset? A. Patent B. Copyright C. Trademark D. All of the answers are names of intangible asset

Which of the following is an internal control procedure designed to protect cash receipts? A. Record cash collections immediately. B. Provide customers with receipts. C. Deposit cash collections immediately. D. All of the answers described internal control procedures designed to protect cash receipts.

Which of the following is normally included in the description of cumulative preferred stock when shown in the stockholders' equity section of the balance sheet? A. the par value of the stock. B. the number of shares authorized, issued, and outstanding. C. the amount of the dividend. D. All of the items are included in the description shown on the balance sheet.

Which of the following is not a source of assets? A. Creditors B. Investors C. Operations D. All of the answers represent sources of assets.

Which of the following items is normally included in a bond certificate issued by a corporation? A. The face value of the bond B. The stated rate of interest C. The term to the maturity date D. All of the answers represent items that are normally included in a corporate bond certificate.

Which of the following most accurately depicts the steps in an accounting cycle? A. Prepare Statements → Close temporary accounts → Adjust accounts → Record transaction data B. Close temporary accounts → Record transaction data → Adjust accounts → Prepare Statements C. Record transaction data → Close temporary accounts → Adjust accounts → Prepare Statements D. Record transaction data → Adjust accounts → Prepare Statements →Close temporary accounts

Which of the following opinions is the least favorable opinion issued by an external auditor? A. Unqualified opinion B. Qualified opinion C. Disclaimer of opinion D. Adverse opinion

Which of the following statements is true? A. To determine the book value of a long-term asset, the balance in the B.accumulated depreciation account must be subtracted from cost of the asset. Accumulated depreciation is a contra asset account. C. The amount of depreciation expense recognized each year is added to the beginning balance of accumulated depreciation account to determine the ending balance of the account. D. All of the statements are true.

Which of the following statements is true? A. Closing the revenue account increases retained earnings. B. Closing expense accounts decrease retained earnings. C. Closing the dividend account decreases retained earnings. D. All of the statements are true.

Senath Company's annual report reveals net credit sales of $240,000 and average accounts receivable of $20,000. The report also shows an average inventory balance of $10,000 and cost of goods of $200,000. Based on this information,the accounts receivable turnover is A. 31 times per year. B. 20 times per year. C. 19 times per year. D. 12 times per year.

D Accounts receivable turnover: $240,000 net credit sales ÷ $20,000 average accounts receivable = 12 times

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%.Assuming as straight-line amortization of the discount, the amount of interest expense recognized on the December 31, Year 1 income statement is A. $5,500. B. $3,400. C. $3,500. D. $3,600.

D Bond discount = $50,000 Face value × .04 Discount = $2,000 Discount amortization = $2,000 Bond discount ÷ 20 Years = $100 Per year Interest expense paid in cash = $50,000 Face value × .07 Stated interest rate = $3,500 Total interest expense = $3,500 Stated interest + $100 Discount amortization = $3,600

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 offering a 4% discount. They had a 20 year term, a stated rate of interest of 7% and an effective rate of interest of 7.389%. Assuming Residence uses the effective interest rate method, the amount of bond discount amortization recognized on December 31, Year 1 is (round any necessary computations to the nearest whole dollar) A. $200. B. $100. C. $52. D. $47.

D Book value before Year 1 amortization = $50,000 Face value - $2,000 Bond discount = $48,000 Interest expense = $48,000 Book value before amortization × .07389 Effective interest rate = $3,547 Discount amortization = Interest expense $3,547 - ($50,000 × .07) Cash payment = $47

Sales on account amounted to $80,000. Sales returns were $2,000 and sales discounts were $1,000. Cost of goods sold amounted to $45,000. Based on this information the amount of gross margin was A. $33,000. B. $48,000. C. $42,000. D. $32,000.

D Net sales = $80,000 Sales revenue - $2,000 Sales returns - $1,000 Sales discounts = $77,000. Gross Margin = $77,000 Net sales - $45,000 Cost of goods sold = $32,000.

Walter Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information the sales revenue amounted to A. $72,000. B. $60,000. C. $122,000. D. $102,000.

D if revenue - cost of goods sold = gross margin; then cost of goods sold + gross margin = revenue. In this case revenue is $102,000 ($60,000 cost of goods sold + $42,000 gross margin). Operating income and losses are shown after the computation of gross margin and therefore, are not relevant to the determination of revenue in this problem.

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the weighted average cost flow method, the amount of gross margin shown on the income statement will be A. $12. B. $8. C. $10. D. $9.

D weighted average cost of inventory is $31 per unit [($30 + $32) ÷ 2]. Based on this computation, $31 would be recognized as cost of goods sold and $31 would be left in inventory after the sales transaction. Recall that the amount of gross margin is equal to the amount of sales revenue minus the cost of goods sold. Therefore, the amount of gross margin is $9 ($40 sales revenue - $31 cost of goods sold).

A review of Pueblo Company's balance sheet revealed a beginning balance in its Land account of $150,000. The ending balance in the account was $225,000. All transactions associated with the purchase or sale of land were cash transactions. Based on this information alone, Pueblo would show a A. $75,000 cash outflow in the financing activities section of its statement of cash flows. B. $225,000 cash outflow in the financing activities section of its statement of cash flows. C. $225,000 cash outflow in the investing activities section of its statement of cash flows. D. $75,000 cash outflow in the investing activities section of its statement of cash flows.

D Beginning balance in the land account $ 150,000 Cash payment to purchase land ? = $75,000 Ending balance in accounts receivable $ 225,000

AOn January 1, Year 5, Raven Limo Service, Inc. sold a used limo that had cost $64,000 and had accumulated depreciation of $36,000. The limo was sold for $30,000 cash. Which of the following shows the adjusting entry necessary to recognize the sale of the asset?

DEBITS-- Cash 30,000 Accumulated Depreciation 36,000 CREDITS -- Limo 64,000 Gain on sale of limo 2,000 The book value of the limo is computed as follows: Cost of limo - Accumulated depreciation = $64,000 - $36,000 = $28,000 Gain on the sale of the limo is computed as follows: Sales price - Book value = Gain on sale of limo = $30,000 - $28,000 = $2,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $8,000 salvage value. The truck was actually driven 40,000 miles during Year 1, 20,000 miles during Year 2, 35,000 miles during Year 3 and 10,000 miles during Year 4. If Marino uses the units-of-production method, which of the following shows the adjusting entry necessary to recognize depreciation expense at the end of Year 2?

Depexp= debit=8000 Adep=crdit=8000 Depreciation expense per mile = ($48,000 Cost - $8,000 Salvage) ÷ 100,000 Miles = $0.40 Year 1 Dep. exp. = 40,000 Miles driven × $0.40 Expense per mile = $16,000 Year 2 Dep. exp. = 20,000 Miles driven × $0.40 Expense per mile = $8,000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the straight-line method, which of the following shows the adjusting entry to recognize depreciation expense at the end of Year 2? Depreciation exp=debit=10000 Accumulated dep=credit= 10000

Depreciation expense per year = (Cost of the asset - Salvage value) ÷ Useful life Depreciation expense per year = ($48,000 Cost - $8,000 Salvage) ÷ 4 Year life = $10,000 Under straight-line depreciation the same amount of depreciation expense ($10,000) is recognized each year of the asset's useful life. Accordingly, $10,000 of depreciation expense would be recognized in Year 2.

On October 1, Allison Corporation declared a $70,000 cash dividend to be paid on December 15 to shareholders of record on November 1. Which of the following shows the journal entry necessary on December 15?

Dividends payable=70K Cash=credit= 70K

Dividends=debit=70K Dividends Payable=credit= 70K

Which of the following is a disadvantage of a corporate form of business? A. Limited liability B. Transferability of ownership C. Double taxation D. Continuity of existence

Double taxation

Which of the following is not a generally recognized internal control procedure

Duplication of duties

Which of the following statements is true? A. Debits describe increases in assets and decreases in stockholders' equity. B. Debits describe increases in assets and decreases in liabilities. C. Credits describe decreases in assets and increases in stockholders' equity. D. Credits describe decreases in assets and increases in liabilities. E. All of the answers are correct.

Free Cash Flow

Excess of operating cash flow that can be reinvested

Which of the following statements is true in regard to accrual accounting

Expenses are recorded when they are incurred Revenue is recorded in the period when it is earned

The adjustment made at the end of the accounting period to record the estimate of uncollectible accounts does not impact the net realizable value of accounts receivable

Fals e

A negative net cash flow (a net cash outflow) in the investing activities section of the statement of cash flows is an indication that a business is shrinking. This statement is True False

False

A two for one stock split will double the amount of total stockholders' equity shown on the balance sheet. This statement is True False

False

Assuming that a bond is originally issued at a discount, the carrying value of the bond liability will decrease over the life of the bond. This statement is True False

False

If a corporation sells treasury stock for more than it paid to acquire the stock, it will record a gain that will be shown in the nonoperating section of the income statement. This statement is True False

False

If a shortage occurs in the Petty cash fund, a credit is entered to the cash short and over account

False

Paying cash to settle a previously declared dividend will reduce the balance of the retained earnings account. This statement is True False

False

Sarbanes Oxley is a major fraud case that motivated Congress to establish rules governing internal control. This statement is true. false.

False

The allowance for doubtful accounts is an expense account

False

The amount of net income shown on a multi-step income statement will differ from the amount of net income shown on a single-step income statement. true. false.

False

The implementation of an effective internal control system eliminates the possibility of fraud. This statement is true. false.

False

The number of shares a corporation has outstanding may exceed the amount of shares authorized. This statement is True False

False

Uncollectible accounts expense would be recognized earlier under the direct write-off method than the percent of receivables method. This statement is true. false.

False

Under FIFO method, each time units are sold the unit cost of the most recently acquired inventory is applied to the number of units sold

False

A change in notes payable will impact CFO. True or false

False Solution: A change in notes payable will NOT impact CFO (Note: notes payable is a financing variable; hence, changes in notes payable impact CFF).

A corporation paid cash to purchase treasury stock. The cash outflow associated with this purchase should be shown in which section of the statement of cash flows? A. Operating activities. B. Investing activities. C. Financing activities. D. Noncash activities.

Financing activities

GAAP stands for

Generally Accepted Accounting Principles

Does the statement of cash flow show health of company?

In order to understand the health of a company, you must understand how the firm generates and expends cash. The impacts of accrual accounting are seen most in relation to net income.

On October 1 of Year 1 Lesikar Company paid $1,200 cash for an insurance policy that would provide protection for a one year term. Which of the following adjusting entries would be require on December 31, Year 1 to recognize insurance expense?

Insurance Expense =debit=300 Prepaid Insurance=credit= 300

Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. Which of the following journal entries would be required to recognize accrued interest on December 31, Year 1?

Interest Exp=debit= 270 Interest payable=credit= 270 The amount of interest expense incurred in Year 1 is computed as follows: Total annual interest = $6,000 × .06 = $360 Monthly interest = $360 annual interest ÷ 12 months = $30 Interest expense in Year 1 = $30 per month × 9 months = $270

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%payable in cash on December 31 of each year. The effective rate of interest was 7.389%. Assuming Residence uses the effective interest rate method, the journal entry necessary to recognize interest expense on the December 31, Year 1 is

Interest Expense=debit= 3,547 Discount on Bonds Payable=credit= 47 Cash =credit= 3,500

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104 resulting in a 4% premium. They had a 20 year term and a stated rate of interest of 7% payable in cash on December 31 of each year. The effective rate of interest was 6.633%. Assuming Residence uses the effective interest rate method, the journal entry necessary to recognize interest expense on the December 31, Year 1 is

Interest exp=debit=3449 Premium on bond=debit=51 Cash=credit=3500

Which of the following journal entries would be required to recognize the cash purchase of $500 of merchandise inventory?

Inventory=debit=500 Cash=credit=500

JOURNAL ENTRY NOT REQUIRED

Which of the following shows how disbursing funds from a petty cash fund will affect a company's financial statements?

Journal entries are normally not made at the time of reimbursement.

On October 1, Allison Corporation declared a $70,000 cash dividend to be paid on December 15 to shareholders of record on November 1. Which of the following shows how Allison's financial statements will be affected on November 1?

NOTHING

Which of the following is not a reason for the difference between CFO and net income? Net income includes gains and losses from the sale of assets Revenue is not equal to cash collected Net income doesn't account for the change in cash Net income includes non-cash expenses

Net income doesn't account for the change in cash While technically true (i.e., net income doesn't account for the change in cash), this is not a reason for the difference in CFO and net income. Neither net income nor CFO "accounts" for the change in cash.

Net income vs CFO

Net income includes gains and losses from the sale of assets Revenue is not equal to cash collected Net income includes non-cash expenses

The market value of Yeates Corporation's common stock had become excessively high. The stock was currently selling for $240 per share. To reduce the market price of the common stock, Yeates declared a 3-for-1 stock split for the 100,000 outstanding shares of its $10 par value common stock.

Number of common shares outstanding 300,000 Par value per share after the split $3.33

Cash flow from financing

Obtaining or repaying capital = change in notes payable + change in long-term debt - dividends (assuming no other relevant changes);

What action did the US Congress take because of the audit failures at Enron, Worldcom, and other companies

Passes the sarbanes-oxley act

Which of the following is not a section of the statement of cash flows? A.Operating activities. B.Purchasing activities. C.Financing activities. D.Investing activities.

Purchasing activities.

Wallace Corporation issued a 6 percent stock dividend on the 30,000 shares of stock outstanding. The par value of the common stock was $10 per share. At the time of the dividend, the market value of the stock was $40 per share. Which of the following shows the journal entry necessary to record the stock dividend?

RE=Debit= 72K CS=Credit=18K PIC par value=credit= 54K

To comply with restrictive bond covenants, Chang Corporation appropriated $90,000 of retained earnings. Which of the following shows the journal entry necessary to recognize the appropriation?

RE=Debit=90000 Appropriated RE=credit= 90000

The purpose of the matching concept is to

Record revenue and expenses in the same accounting period

Sable Co. paid $400,000 cash for a basket purchase that included land, a building, and equipment. An appraiser estimated the market value of the land to be $100,000, the building to be $350,000, and the equipment to be $50,000. Which of the following journal entries could be used to record this event? Account Titles =Debit Equipment 40,000 Building 280,000 Land 80,000 Cash= CREDIT= 400,000

Relative market values expressed as a percentages: Land: $100,000 / ($100,000 + $350,000 + $50,000) = 20% Building: $350,000 / ($100,000 + $350,000 + $50,000) = 70% Equipment: $50,000 / ($100,000 + $350,000 + $50,000) = 10% Cost allocated to each asset: Land: $400,000 × 20% = $80,000 Building: $400,000 × 70% = $280,000 Equipment: $400,000 × 10% = $40,000

Free Cash Flow (FCF) is different from Cash Flows from Operations (CFO) because FCF: Represents all actual cash flowing into the firm Does not represent distributable cash Does not allow for required reinvestment Represents cash flow after required investment

Represents cash flow after required investment Solution: FCF allows for required reinvestment (i.e., FCF is after reinvestment cash). Conceptually, FCF is distributable cash.

Smith Company paid $270 cash to settle its sales tax liability. Which of the following journal entries would be required to record the cash payment.

Sales tax payable=Debit=270 Cash=Credit=270

Which of the following first required corporations to file quarterly and annual financial statements that are prepared in accordance with Generally Accepted Accounting Principles? A. Securities Act of 1933 B. Securities Act of 1934 C. Sarbanes Oxley Act D. Fair Disclosure Act

Securities Act of 1934

Which internal control procedure reduces the ability of a single employee committing fraud without the assistance of other employees

Separation of duties

When using the indirect method, which of the following items should be added to the amount of net income when determining the amount of net cash flow from operating activities? A. The amount of an increase in the balance of a Land account. B. The amount of a decrease in the balance of a Prepaid Rent account. C. The amount of an increase in the balance of the Accounts Receivable account. D. The amount of a decrease in the balance of the other Operating Expenses Payable account.

The amount of a decrease in the balance of a Prepaid Rent account.

The sum of CFO + CFI + CFF is equal to: Net income Cash on hand The change in cash during the period The ending cash balance

The change in cash during the period CFO + CFI + CFF = change in cash during the period.

Suppose a firm shows an increase in accounts receivable of $100 during a period. Considered in isolation, which of the follow best describes the impact of this change on the Statement of Cash Flows? The change will increase CFO by $100 times the tax rate ($100 x t) The change will decrease CFO by $100 The change will increase CFI by $100 The change will increase CFO by $100

The change will decrease CFO by $100 An increase in an asset account indicates an outflow of cash. Since A/R is an operating account, the $100 increase will decrease CFO by $100.

The term "FOB Destination" means

The seller pays the shipping cost

Which of the following is an internal control procedure used to safeguard a companies assets

Timely deposits of cash receipts Separation of duties Reconciliation of the bank statement

On November 1, Year 1 Dixon Company paid $20 per share to buy back 1,000 shares of its $8 par value common stock. The stock had originally sold for $15. Which of the following shows the journal entry necessary to recognize the purchase of the treasury stock on November 1, Year 1?

Treasury stock= Debit= 20000 Cash=Credit= 20000

A U.S. company can use LIFO for income tax purposes only if it also uses LIFO for financial reporting purposes

True

A company is not required to recognize or disclose a contingent liability that has a remote chance of actually occurring. This statement is True False

True

A general journal entry is not required to recognize a stock split. This statement is True False

True

Accounting controls are composed of procedures designed to safeguard assets and ensure accounting records contain reliable information

True

Appropriating retained earnings reduces the amount of retained earnings that are available for the declaration of dividends. This statement is True False

True

Because of its size, cost of goods sold normally has a significant impact on the amount of net income that is reported on the income statement. Since the reported balance in the inventory account has a direct effect on the amount of cost of goods sold, inventory manipulation is a target for unscrupulous managers seeking to control the amount of reported earnings. These statements are true false

True

Common size statements are presented as percentages to promote comparisons between different size companies. This statement is true. false.

True

Goodwill is recognized only when it is purchased. This statement is true. false.

True

If investors require more interest than the rate of interest stated in a bond, the bond must be sold at a discount in order to motivate the investors to purchase the bond. This statement is True False

True

In a business organized as a sole proprietorship, retained earnings and capital acquired from owners are combined is a single account. This statement is True False

True

Land is different from other tangible assets in that its utility is not diminished by its use. This statement is true. false.

True

Partnerships are frequently managed by the owners of the business. This statement is True False

True

Separation of duties is an internal control feature that requires different individuals to perform the following functions: Authorization, Recording and custody of assets

True

The Lower-of-Cost-Market rule may reduce a company's net income but it will never increase net income

True

The market price per share of stock normally declines when a corporation issues a stock dividend. This statement is True False

True

The par value or stated value of stock represents the amount of legal capital that a corporation must maintain for the protection of the creditors. This statement is True False

True

international financial reporting standards do not permit the use of LIFO cost flow method

True

the most favorable audit opinion that a company can receive is an unqualified opinion

True

the net realizable value of receivables is calculated by subracting the ending balance in the allowance for doubtful accounts from the ending balance in accounts receivable

True

An increase in inventory will decrease CFO. True or false .

True An increase in an operating asset such as inventory represents an outflow of cash attributable to CFO

Baltic Company issued a long-term mortgage note to pay for the purchase of a building. This event must be disclosed to stockholders even though it did not involve the exchange of cash. This statement is True or false

True This event must be disclosed

Financing activities involve transactions between a company and its creditors or owners. This statement is True False

True, a company and its creditors or owners.

A corporation may have issued more shares of stock than it has outstanding. This statement is True False

True, may have issued more shares

On August 1 of Year 1 Accounting Associates (AA) collected $1,200 cash for consulting services to be provided for one year beginning immediately. Based on this information, which of the following show how the required adjustment on December 31, Year 1 would affect AA's ledger accounts?

Unearned Revenue=debit= 500 Revenue=Credit= 500

Explorer Supplies, Inc. had sales of $120,000 in Year 1. Explorer warrants its products and estimates warranty expense to be 3% of sales. Which of the following journal entries would be required to recognize the year-end warranty obligation?

Warranty expense=Debit=3600 Warranty payable=Credit=3600 $3,600 ($120,000 x .03)

Stable Enterprises had sales of $230,000 in Year 1. Stable warrants its products and estimates warranty expense to be 4% of sales. In Year 2 Stable paid $9,000 cash to settle warranty obligations. Which of the following journal entries would be required to recognize the settlement of the warranty obligations?

Warranty payable=Debit=9000 Cash=Credit=9000

Assuming all transactions are cash transactions A. an increase in the balance in the Common Stock account suggests a cash inflow occurred. B. a decrease in the Notes Payable account suggests a cash inflow occurred. C. a decrease in the Retained Earnings caused by dividends suggests a cash inflow occurred. D. an increase in the Treasury Stock account suggests a cash inflow occurred.

an increase in the balance in the Common Stock account suggests a cash inflow occurred.

Which of the following shows how paying off a warranty obligation will affect a company's financial statements?

assets (-) Liab(-) CF (-oa)

On November 1, Year 1 Dixon Company paid $20 per share to buy back 1,000 shares of its $8 par value common stock. The stock had originally sold for $15. Which of the following shows how the purchase of the treasury stock will affect Dixon's financial statements on November 1, Year 1?

assets (20000) Treasury stock 20000 CF (20000) FA

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at face value. They had a 20 year term and a stated rate of interest of 7% payable in cash on December 31 of each year. Which of the following shows how the recognition of interest expense will affect Residence's financial statements on December31, Year 14?

assets (3500) Equity(3500) Exp 3500 NET (3500) CF=OA (3500)

On January 1, Year 1 Residence Companyissued bonds with a $50,000 face value. The bonds were issued at face value. They had a 20 year term and a stated rate of interest of 7%. Which of the following shows how the bond issue will affectResidence's financial statements on January 1, Year 1?

assets 50000 Liab 50000 CF 50000 FA

which of the of the following financial statements provides information about a company as a specific point in time

balance sheet

Gains and losses are reported A. as operating items on the income statement. B. in the operating activities section of the statement of cash flows. C. as nonoperating items on the income statement. D. in the financing activities section of the statement of cash flows.

Cole Company acquired $2,000 cash from the issue of common stock. Which of the following shows the general journal entry required to recognize this event?

cash -debit-2,000 Common Stock credit- 2,000

Assume a company paid $800 for a computer that it plans to sell to its customers. Suppose that as a result of new technology the company could buy the same computer today for $600. Which of the following journal entries would be required to show the inventory at the lower of cost or market?

cogs=debit=200 Inventory=credit=200

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase a stone pit estimated to hold 50,000 tons of useable material. GMC extracted 10,000 tons of stone in Year 1. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. Based on this information, the journal entry necessary to recognize depletion expense for Year 1 is

depletionexp-debit-2000000 stone pit-credit-2000000 Number of tons of stone is used as the measure of production Depletion expense per ton = ($10,500,000 cost - $500,000 salvage) ÷ 50,000 tons =$200 per ton Year 1 Depletion expense = 10,000 tons x $200 per ton = $2,000,000

All common stockholders have the same rights and privileges. This statement is True False

false

All permanent accounts are adjusted at the end of an accounting period. This statement is true. false.

false

GAAP requires that inventory be shown on the balance sheet at its cost (the price paid) regardless of its current value. true. false.

false

If a company has to change an estimate, such as the salvage value of an asset, the company is required to reissue prior year statements that were based on the estimate. This statement is true. false.

false

Information in temporary accounts is transferred to the common stock account at the end of an accounting period. This statement is true. false.

false

McDonald's will recognize a gain if it generates an amount of revenue that is higher than its operating expenses. This statement is true. false.

false

Recognizing a sales discount will cause the amount of net sales to increase. This statement is true. false.

false

The Lower-Of-Cost Market rule defines market value strictly as the current appraised value of the goods

false

The amount of depletion expense is accumulated in a contra asset account at the end of each accounting period. This statement is True False

false

When petty cash funds are disbursed, a journal entry should be made, debiting the appropriate asset of expense account

false

which type of accounting information is intended to satisfy the needs of external users of accounting information

financial accounting

An increase in an operating liability (like A/P) will

increase CFO.

Cash Flows from Operation

indicates the amount of money a company brings in from its ongoing, regular business activities

which of the following accounts would not appear on a balance sheet?

interest revenue

notes payable

is a written promissory note. Under this agreement, a borrower obtains a specific amount of money

Point Company paid $4,000 cash to purchase a new machine. The company also paid $500 cash for an initial training cost that was necessary to teach an employee how to operate the machine. Which of the following represents the journal entry that would be necessary to record all capitalized costs related to the purchase of the machine?

machine=debit=4500 cash=credit=4500

Which of the following shows how replenishing a petty cash fund will affect a company's financial statements?

miscellaneous exp=debit cash=credit

Accounts payable and accrued wages are

operating liabilities;

An increase in an asset account indicates an outflow of cash.

outflow of cash.

Accounts receivable turnover is computed by dividing

sales dived by accounts receivable

A company using accrual accounting may report revenue on the income statement even if it does not collect cash. This statement is true. false.

true

A company will earn more profit from a cash sale than from a credit card sale. True False

true

Accounting provides a service to society by gathering and reporting information about a company's profit potential. This statement is true. false.

true

Accrued interest revenue will appear on the income statement but not on the statement of cash flows. This statement is True False

true

An operating cycle is the length of time it takes to convert inventory to accounts receivable plus the time it takes to convert the account receivable back to cash. This statement is true. false.

true

Assuming that a bond is originally issued at a premium, the carrying value of the bond liability will decrease over the life of the bond. This statement is True False

true

If the stated rate of interest of a bond is higher than the rate of interest paid on other bonds of equal risk, the bond will sell for more than face value. This statement is True False

true

It is legal for a company to use one method of depreciation for tax reporting purposes and a different method for financial reporting purposes. This statement is true. false.

true

Many retail companies are motivated to incur credit costs because many customers are emotional buyers and offering credit generally leads to increases in sales revenue. This statement is true. false.

true

Public companies under the jurisdiction of the Securities and Exchange Commission are required by law to hire a certified public accounting firm (independent auditor) to assess whether their published financial statements are in compliance with Generally Accepted Accounting Principles (GAAP). This statement is true. false.

true

The aging method of estimating uncollectible accounts method is based on the assumption that the longer an account receivable remains outstanding, the less likely it is to be collected. This statement is True False

true

The amount of revenue shown on the income statement may differ from the amount of cash inflow from operating activities shown on the statement of cash flows. This statement is true. false.

true

The balance in the allowance for doubtful accounts provides an estimate of the amount of the accounts receivable that is expected to be uncollectible. This statement is true. false.

true

The cash flow associated with buying and selling inventory is not affected by the inventory cost flow method. This statement is true. false.

true

The net realizable value of accounts receivable represents an estimate of the amount of the accounts receivable that a company realistically expects to collect. This statement is true. false.

true

While independent auditors are responsible to the public they receive compensation for their work from the companies they audit. This statement is true. false.

true

only two things we can do with net income: 1) we can pay it out as dividends or 2) we can retain it within the company.

we can retain it within the company.

calculate dividends by comparing the change in the retained earnings (RE) account to net income. If our new RE balance is lower than the sum of our old RE balance plus net income, we know that

we must have paid part of our net income as dividends. How much was paid in dividends? We can use our RE relationship discussed above to calculate dividends paid: Dividends=(Old RE+Net Income)−New RE

chkpt 3 Financial Accounting Exam

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