Financial Accounting Final Exam (with answer choices)
In applying lower of cost or market to inventory valuation, market is defined as: A) Current replacement cost B) LIFO C) Current sales price D) Historical cost E) FIFO
A) Current replacement cost
Beginning inventory plus net purchases equals: A) Merchandise available for sale. B) The inventory amount shown on the balance sheet. C) Ending inventory. D) Sales. E) Cost of goods sold.
A) Merchandise available for sale.
168) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 14, it paid the full amount due. The amount of the cash paid on July 14 equals: A) $1,568. B) $1,800. C) $200. D) $1,600. E) $1,564.
A) $1,568
Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, what will be the amount of accumulated depreciation on this asset on December 31, Year 3? A) $13,750 B) $5,000 C) $20,000 D) $15,125 E) $15,000
A) $13,750
188) The following information is available on a depreciable asset owned by Mutual Savings Bank: Purchase date June 1, Year 1 Purchase price $85,000 Salvage value $10,000 Useful life 10 years Depreciation method Straight-line The asset's book value is $70,000 on June 1, Year 3. On that date, management determines that the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last six months of Year 3 would be: A) $4,062.50 B) $7,812.50 C) $7,375.00 D) $3,750.00
A) $4,062.50
195) A company had a beginning balance in retained earnings of $430,000. It had net income of $60,000 and paid out cash dividends of $56,250 in the current period. The ending balance in retained earnings equals: A) $433,750. B) $426,250. C) $116,250. D) $546,250. E) $490,000.
A) $433,750.
124) Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of: A) $5,000 B) $20,000 C) $9,250 D) $10,000 E) $5,500
A) $5,000
The statement of cash flows is: A) A financial statement that reports the cash inflows and cash outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities. B) A financial statement that presents information about changes in equity during a period. C) Another name for the statement of financial position. D) A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period. E) A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.
A) A financial statement that reports the cash inflows and cash outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities.
A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n) A) Account. B) Posting. C) Chart of accounts. D) Trial balance. E) Journal.
A) Account.
A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the: A) Aging of accounts receivable method. B) Direct write-off method. C) Percentage of sales method. D) Percent of accounts receivable method. E) Aging of investments method.
A) Aging of accounts receivable method.
Amortizing a bond discount: A) Allocates a portion of the total discount to interest expense each interest period. B) Increases cash flows from the bond. C) Increases the market value of the Bonds Payable. D) Decreases the Bonds Payable account. E) Decreases interest expense each period.
A) Allocates a portion of the total discount to interest expense each interest period.
153) The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000? 153) _____ A) Cost principle. B) Revenue recognition principle. C) Monetary unit assumption. D) Going-concern assumption. E) Business entity assumption.
A) Cost principle.
186) On February 1, a customer's account balance of $2,300 was deemed to be uncollectible. What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method? A) Debit Allowance for Doubtful Accounts $2,300; credit Accounts Receivable $2,300. B) Debit Bad Debts Expense $2,300; credit Accounts Receivable $2,300. C) Debit Bad Debts Expense $2,300; credit Allowance for Doubtful Accounts $2,300. D) Debit Accounts Receivable $250; credit Allowance for Doubtful Accounts $2,300. E) Debit Allowance for Doubtful Accounts $2,300; credit Bad Debts Expense $2,300.
A) Debit Allowance for Doubtful Accounts $2,300; credit Accounts Receivable $2,300.
185) The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable $435,000 Debit Allowance for Doubtful Accounts 1,250 Debit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 1% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000. B) Debit Bad Debts Expense $19,750; credit Allowance for Doubtful Accounts $19,750. C) Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225. D) Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350. E) Debit Bad Debts Expense $22,250; credit Allowance for Doubtful Accounts $22,250.
A) Debit Bad Debts Expense $21,000; credit Allowance for Doubtful Accounts $21,000.
112) Which of the following procedures would weaken control over cash receipts that arrive through the mail? A) For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank. B) After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender's name, the amount, and an explanation of why the money is sent. C) The employees handling the cash receipts are bonded. D) The bank reconciliation is prepared by a person who does not handle cash or record cash receipts. E) The cashier deposits the money in the bank and the recordkeeper records the amounts received in the accounting records.
A) For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank.
107) Which of the following is not one of the policies and procedures that make up an internal control system? A) Guarantee a return to investors. B) Promote efficient operations. C) Ensure reliable accounting. D) Protect assets. E) Urge adherence to company policies
A) Guarantee a return to investors.
161) Closing the temporary accounts at the end of each accounting period does all of the following except: A) Has no effect on the retained earnings account. B) Causes retained earnings to reflect increases from revenues and decreases from expenses and dividends. C) Serves to transfer the effects of these accounts to the retained earnings account on the balance sheet. D) Brings the revenue and expense accounts to zero balances. E) Prepares the dividends account for use in the next period.
A) Has no effect on the retained earnings account.
177) The number of days' sales uncollected: A) Is used to evaluate the liquidity of receivables. B) Is calculated by dividing accounts receivable by sales. C) Is calculated by dividing sales by accounts receivable. D) Measures a company's ability to pay its bills on time. E) Measures a company's debt to income.
A) Is used to evaluate the liquidity of receivables.
148) Investing activities do not include the: A) Issuance of common stock. B) Sale of short-term investments other than cash equivalents. C) Purchase of plant assets. D) Lending and collecting on notes receivable. E) Sale of plant assets.
A) Issuance of common stock.
123) Once the estimated depreciation expense for an asset is calculated: A) It may be revised based on new information. B) Any changes are accumulated and recognized when the asset is sold. C) It cannot be changed, based on the consistency principle. D) It cannot be changed, based on the historical cost principle. E) The estimate itself cannot be changed; however, new information should be disclosed in financial statement footnotes.
A) It may be revised based on new information.
108) Principles of internal control include all of the following except: A) Maintaining security by having one person track and record assets. B) Separate recordkeeping from custody of assets. C) Perform regular and independent reviews. D) Divide responsibilities for related transactions. E) Apply technological controls.
A) Maintaining security by having one person track and record assets.
141) Stockholders' equity consists of which of the following? A) Paid-in capital and retained earnings. B) Long-term assets. C) Paid-in capital and par value. D) Retained earnings and cash. E) Premiums and discounts.
A) Paid-in capital and retained earnings.
147) Which of the following items is reported on the statement of cash flows under financing activities? A) Payment of a cash dividend. B) Stock split. C) Payment of a stock dividend. D) Declaration of a stock dividend. E) Declaration of a cash dividend.
A) Payment of a cash dividend.
111) Preparing a bank reconciliation on a monthly basis is an example of: A) Protecting assets by proving the accuracy of cash records. B) Separation of duties. C) A technological control. D) Poor internal control. E) Establishing responsibility.
A) Protecting assets by proving the accuracy of cash records.
199) Which one of the following is representative of typical cash flows from operating activities? A) Receipts of cash sales. B) Proceeds from collecting the principal amounts of loans. C) Payments by a merchandiser to acquire equity securities of other companies. D) Repayment of principals on loans. E) Proceeds from the issuance of bonds and notes payable.
A) Receipts of cash sales.
103) A debit to Sales Returns and Allowances and a credit to Accounts Receivable: A) Recognizes that a customer has returned merchandise and/or received an allowance. B) Requires a debit memorandum to recognize the customer's return. C) Reflects an increase in amount due from a customer. D) Is recorded when a customer takes a discount. E) Reflects a decrease in amount due to a supplier.
A) Recognizes that a customer has returned merchandise and/or received an allowance.
132) In the accounting records of a defendant, lawsuits: A) Should be recorded if payment for damages is probable and the amount can be reasonably estimated. B) Should always be disclosed. C) Are estimated liabilities. D) Should always be recorded.
A) Should be recorded if payment for damages is probable and the amount can be reasonably estimated.
128) In order to be reported, liabilities must: A) Sometimes be estimated. B) Always have a definite date for payment. C) Be for a specific known amount. D) Involve an outflow of cash. E) Be certain.
A) Sometimes be estimated.
110) A bank statement provided by the bank includes: A) The beginning and the ending balance of the depositor's account. B) A list of outstanding checks. C) A list of petty cash amounts. D) A listing of deposits in transit. E) A reconciliation to the depositor cash account.
A) The beginning and the ending balance of the depositor's account.
155) Identify the account below that is classified as a liability in a company's chart of accounts. A) Unearned Revenue B) Supplies C) Cash D) Accounts Receivable E) Salaries Expense
A) Unearned Revenue
Select the account below that normally has a credit balance. A) Wages Payable. B) Dividends. C) Cash. D) Sales Salaries Expense. E) Office Equipment.
A) Wages Payable.
167) Using the following year-end information for Calvin's Clothing, Inc., calculate the current ratio and acid-test ratio for the business: Cash $52,000 Short-term investments 12,000 Accounts receivable 54,000 Inventory 325,000 Prepaid expenses 17,500 Accounts payable 106,500 Other current payables 25,000 A) 2.73 and 1.52 B) 3.50 and 0.90 C) 1.80 and 0.90 D) 1.80 and 1 E) 1.97 and 1.52
B) 3.50 and 0.90
189) All of the following are true of known liabilities except: A) Are definitely determinable. B) Are potential obligations that depend on some future event occurring. C) Are obligations set by agreements, contracts, or laws. D) Are measurable. E) Include accounts payable, notes payable, and payroll.
B) Are potential obligations that depend on some future event occurring.
101) A company that uses the gross method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the merchandise return on July 7 is: A) Debit Accounts Payable $196; credit Merchandise Inventory $196. B) Debit Accounts Payable $200; credit Merchandise Inventory $200. C) Debit Merchandise Inventory $200; credit Accounts Payable $200. D) Debit Merchandise Inventory $200; credit Sales Returns $200. E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.
B) Debit Accounts Payable $200; credit Merchandise Inventory $200.
144) Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a cash price of $12 per share. The entry to record this transaction would be: A) Debit Cash for $312,000; credit Common Stock $312,000. B) Debit Cash $312,000; credit Common Stock $26,000; credit Paid-in Capital in Excess of Par Value, Common Stock $286,000. C) Debit Cash $312,000; credit Stock Liability $286,000; credit Common Stock $26,000. D) Debit Common Stock $26,000; debit Paid-in Capital in Excess of Par Value, Common Stock $286,000; credit Cash $312,000. E) Debit Common Stock $26,000; credit Cash $26,000.
B) Debit Cash $312,000; credit Common Stock $26,000; credit Paid-in Capital in Excess of Par Value, Common Stock $286,000.
190) If a company has advance ticket sales totaling $2,000,000 for the upcoming football season, the receipt of cash would be journalized as: A) Debit Cash, credit Revenue. B) Debit Cash, credit Unearned Revenue. C) Debit Sales, credit Unearned Revenue. D) Debit Unearned Revenue, credit Cash. E) Debit Unearned Revenue, credit Sales.
B) Debit Cash, credit Unearned Revenue.
182) The accounts receivable turnover is calculated by: A) Dividing net income by average accounts receivable. B) Dividing net sales by average accounts receivable. C) Dividing net sales by average accounts receivable and multiplying by 365. D) Dividing average accounts receivable by net sales. E) Dividing average accounts receivable by net sales and multiplying by 365.
B) Dividing net sales by average accounts receivable.
176) Two clerks sharing the same cash register is a violation of which internal control principle? A) Apply technological controls. B) Establish responsibilities. C) Bond key employees. D) Insure assets. E) Maintain adequate records.
B) Establish responsibilities.
178) The days' sales uncollected ratio is used to: A) Determine the number of days that have passed without collecting on accounts receivable. B) Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash. C) Measure how many days of sales remain until the end of the year. D) Identify the likelihood of collecting sales on account. E) Measure the amount of cash sales during a period.
B) Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.
152) The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the: A) SEC. B) FASB. C) AAA. D) APB. E) AICPA.
B) FASB
142) A corporation's minimum legal capital is established by recording the par or stated value of the number of shares: A) Authorized. B) Issued. C) Outstanding. D) In treasury. E) Subscribed.
B) Issued.
121) The relevant factors in computing depreciation do not include: A) Cost. B) Market value. C) Salvage value. D) Depreciation method. E) Useful life.
B) Market value.
116) If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in: A) A reduction in equity. B) No effect on the expenses of the current period. C) A reduction in current liabilities. D) An increase in the expenses of the current period. E) A reduction in current assets.
B) No effect on the expenses of the current period.
102) Sales returns: A) Represent trade discounts. B) Refer to merchandise that customers return to the seller after the sale. C) Refer to reductions in the selling price of merchandise sold to customers. D) Represent cash discounts. E) Are not recorded under the perpetual inventory system until the end of each accounting period.
B) Refer to merchandise that customers return to the seller after the sale.
117) The allowance method based on the idea that a given percent of a company's credit sales for the period is uncollectible is: A) The percent of accounts receivable method. B) The percent of sales method. C) Factoring method. D) Direct write-off method. E) The aging of accounts receivable method.
B) The percent of sales method.
126) Gladstone Company liabilities include $13,500 of accounts payable, $8,000 of wages payable, $6,300 of unearned revenue, $32,000 note payable due in 18 months, $70,000 of 10-year bonds payable, and $41,000 of taxes payable. Gladstone's current liabilities equal: A) $59,800 B) $62,500 C) $68,800 D) $100,800 E) $60,800
C) $68,800
On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31, the company's year-end, on the note? A) $225 B) $900 C) $75 D) $0 E) $300
C) $75
Morgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semi-annually. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is: A) $375,000. B) $67,500. C) $33,750. D) $60,000. E) $30,000.
C) $33,750.
119) Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. The amount of interest that Jasper will collect on the loan is: A) $1,750. B) $19.44. C) $437.50. D) $145.83. E) $875.00.
C) $437.50
113) A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total interest due on the maturity date is. A) $1,800 B) $75 C) $450 D) $900 E) $300
C) $450
170) A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge of $500 was paid by the seller and added to the sales invoice. On June 20, the company returned $800 of the merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals: A) $9,224. B) $10,200. C) $9,424. D) $10,300. E) $10,500.
C) $9,424.
151) A corporation is: A) Not subject to double taxation. B) The same as a limited liability partnership. C) A business legally separate from its owners. D) Controlled by the FASB. E) Not responsible for its own acts and own debts.
C) A business legally separate from its owners.
118) Which of the following is an accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected? A) Direct write-off method of accounting for bad debts. B) Cash basis method of accounting for bad debts. C) Allowance method of accounting for bad debts. D) Adjustment method for uncollectible debts. E) Aging of notes receivable.
C) Allowance method of accounting for bad debts.
129) Which of the following do not apply to unearned revenues? A) Also called collections in advance. B) Also called deferred revenues. C) Amounts to be received in the future from customers for delivery of products or services in the current period. D) Amounts received in advance from customers for future delivery of products or services. E) Also called prepayments.
C) Amounts to be received in the future from customers for delivery of products or services in the current period.
192) A disadvantage of bond financing is: A) Interest on bonds is tax deductible. B) Bonds do not affect owners' control. C) Bonds require cash payments of periodic interest and the repayment of par value at maturity. D) Bonds can increase return on equity. E) It allows firms to trade on the equity.
C) Bonds require cash payments of periodic interest and the repayment of par value at maturity.
145) The statement of cash flows reports: A) Revenues, gains, expenses, and losses. B) Equity, net income, and dividends. C) Cash inflows and cash outflows for an accounting period. D) Changes in equity. E) Assets, liabilities, and equity.
C) Cash inflows and cash outflows for an accounting period.
197) Dividend yield is the percent of cash dividends paid to common shareholders relative to the: A) Earnings per share. B) Amount of cash. C) Common stock's market value. D) Investors' purchase price of the stock. E) Amount of retained earnings.
C) Common stock's market value.
172) The understatement of the ending inventory balance causes: A) Cost of goods sold to be understated and net income to be overstated. B) Cost of goods sold to be overstated and net income to be correct. C) Cost of goods sold to be overstated and net income to be overstated. D) Cost of goods sold to be overstated and net income to be understated. E) Cost of goods sold to be understated and net income to be understated.
C) Cost of goods sold to be overstated and net income to be overstated.
138) A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semi-annually. The current market rate is 8%. The journal entry to record each semiannual interest payment is: A) Debit Bond Interest Expense $44,000; credit Cash $44,000. B) Debit Bond Interest Payable $22,000; credit Cash $22,000. C) Debit Bond Interest Expense $22,000; credit Cash $22,000. D) Debit Bond Interest Expense $550,000; credit Cash $550,000. E) No entry is needed, since no interest is paid until the bond is due.
C) Debit Bond Interest Expense $22,000; credit Cash $22,000.
165) Permanent accounts include all of the following except: A) Unearned Revenue. B) Accumulated Depreciation—Equipment. C) Depreciation Expense—Equipment. D) Prepaid Insurance. E) Accounts Receivable.
C) Depreciation Expense—Equipment.
143) The amount of income earned per share of a company's outstanding common stock is known as: A) Dividends per share. B) Book value per share. C) Earnings per share. D) Continuing operations per share. E) Restricted retained earnings per share.
C) Earnings per share.
150) A company's transactions with its creditors to borrow money and/or to repay the principal amounts of both short- and long-term debt are reported as cash flows from: A) Direct activities. B) Indirect activities. C) Financing activities. D) Investing activities. E) Operating activities.
C) Financing activities.
120) Which of the following is not true about the Allowance for Doubtful Accounts? A) It is debited when uncollectible accounts are written off. B) It is a contra asset account. C) It is a liability account. D) It is credited when bad debts expense is estimated and recorded. E) It is used instead of reducing accounts receivable directly.
C) It is a liability account.
127) Obligations not expected to be paid within the longer of one year or the company's operating cycle are reported as: A) Bills. B) Operating cycle liabilities. C) Long-term liabilities. D) Current liabilities. E) Current assets.
C) Long-term liabilities.
174) Days' sales in inventory: A) Is calculated by dividing cost of goods sold by ending inventory. B) Is a substitute for the acid-test ratio. C) Measures the adequacy of inventory to meet sales demand. D) Is used to measure solvency. E) Focuses on average inventory rather than ending inventory.
C) Measures the adequacy of inventory to meet sales demand.
109) A company's internal control system: A) Eliminates the company's risk of loss. B) Eliminates human error. C) Monitors company and employee performance. D) Eliminates the need for managers' certification of controls. E) Eliminates the need for audits.
C) Monitors company and employee performance.
198) The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is: A) Investing activities. B) This is not reported on the statement of cash flows. C) Operating activities. D) Financing activities. E) Schedule of noncash investing or financing activity.
C) Operating activities.
158) An account balance is: A) Assets = liabilities + equity. B) The total of the debit side of the account. C) The difference between the total debits and total credits for an account including the beginning balance. D) The total of the credit side of the account. E) Always a credit.
C) The difference between the total debits and total credits for an account including the beginning balance.
125) Total asset turnover is used to evaluate: A) The necessity for asset replacement. B) The number of times operating assets were sold during the year. C) The efficient use of assets to generate sales. D) The cash flows used to acquire assets. E) The relation between asset cost and book value.
C) The efficient use of assets to generate sales.
122) The useful life of a plant asset is: A) Determined by law. B) Its productive life, but not to exceed one year. C) The length of time it is productively used in a company's operations. D) Determined by the FASB. E) Never related to its physical life.
C) The length of time it is productively used in a company's operations.
136) A bond is issued at par value when: A) The issue price is greater than the maturity price. B) The contract rate and market rate of interest are different. C) The market rate of interest is the same as the contract rate of interest. D) The bond pays no interest. E) Straight line amortization is used by the company.
C) The market rate of interest is the same as the contract rate of interest.
133) The carrying value of a long-term note payable is computed as: A) The face value of the long-term note plus the total of all future interest payments. B) The future value of all remaining payments, using the market rate of interest. C) The present value of all remaining payments, discounted using the market rate of interest at the time of issuance. D) The present value of all remaining interest payments, discounted using the note's rate of interest. E) The face value of the long-term note less the total of all future interest payments.
C) The present value of all remaining payments, discounted using the market rate of interest at the time of issuance.
The inventory valuation method that tends to smooth out erratic changes in costs is: A) LIFO B) WIFO C) Weighted average D) Specific identification E) FIFO
C) Weighted average
134) The carrying value of bonds at maturity always equals: A) the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. B) the amount of cash originally received in exchange for the bonds. C) the par value of the bond. D) $0. E) the amount of discount or premium.
C) the par value of the bond.
A company's board of directors votes to declare a cash dividend of $.75 per share of common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is: A) $7,500. B) $11,250. C) $10,250. D) $14,625. E) $7,125.
E) $7,125.
171) Given the following items and costs as of the balance sheet date, determine the value of Faltron Company's merchandise inventory. • $1,000 of goods sold by Faltron to another company are in transit and shipping terms are FOB destination. • $2,000 of goods sold by another company to Faltron are in transit and shipping terms are FOB destination. • $3,000 of goods owned by Faltron are in the possession of a consignee. • Damaged goods owned by Faltron that originally cost $4,000 now have a $500 net realizable value. A) $5,000 B) $10,000 C) $5,500 D) $4,500 E) $6,500
D) $4,500
181) A company receives a 10%, 120-day note for $1,500. The total interest due on the maturity date is: A) $75.00. B) $87.50. C) $150.00. D) $50.00. E) $37.50.
D) $50.00.
130) A contingent liability is: A) An obligation arising from a future event. B) Always of a specific amount. C) An obligation arising from the purchase of goods or services on credit. D) A potential obligation that depends on a future event arising from a past transaction or event. E) An obligation not requiring future payment.
D) A potential obligation that depends on a future event arising from a past transaction or event.
104) Physical inventory counts: A) Are not necessary under the cost-to benefit constraint. B) Require the use of hand-held portable computers. C) Must be taken at least once a month. D) Are necessary to determine differences between actual inventory available and the Inventory account balance. E) Are not necessary under the perpetual system.
D) Are necessary to determine differences between actual inventory available and the Inventory account balance.
Ethical behavior requires that: A) Analysts report information favorable to their companies. B) Managers use accounting information to benefit themselves. C) Auditors' pay depends on the success of the client's business. D) Auditors' pay not depend on the success of the client's business. E) Auditors invest in businesses they audit.
D) Auditors' pay not depend on the success of the client's business.
139) The number of shares that a corporation's charter allows it to sell is referred to as: A) Common stock. B) Outstanding stock. C) Issued stock. D) Authorized stock. E) Preferred stock.
D) Authorized stock.
162) The Income Summary account is used to: A) Replace the income statement under certain circumstances. B) Replace the retained earnings account in some businesses. C) Adjust and update asset and liability accounts. D) Close the revenue and expense accounts. E) Determine the appropriate dividend amount.
D) Close the revenue and expense accounts.
175) The inventory turnover ratio is calculated as: A) Sales divided by cost of goods sold. B) Cost of goods sold divided by ending inventory times 365. C) Cost of goods sold divided by ending inventory. D) Cost of goods sold divided by average merchandise inventory. E) Ending inventory divided by cost of goods sold.
D) Cost of goods sold divided by average merchandise inventory.
193) A company's total liabilities divided by its total stockholders' equity is called the: A) Return on total assets ratio. B) Equity ratio. C) Pledged assets to secured liabilities ratio. D) Debt-to-equity ratio. E) Times secured liabilities earned ratio.
D) Debt-to-equity ratio.
149) The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is: A) Operating activities. B) This is not reported on the statement of cash flows. C) Investing activities. D) Financing activities.
D) Financing activities.
166) Liquidity problems are likely to exist when a company's acid-test ratio: A) Equals 1. B) Is higher than the current ratio. C) Is less than the current ratio. D) Is substantially lower than 1. E) Is higher than 1.
D) Is substantially lower than 1.
105) The inventory valuation method that results in the lowest taxable income in a period of rising costs is: A) FIFO method B) Specific identification method C) Weighted average cost method D) LIFO method E) Gross profit method
D) LIFO method
191) Uncertainties such as natural disasters are: A) Reported in the same way as debt guarantees. B) Disclosed because of their usefulness to financial statements. C) Estimated liabilities because the amounts are uncertain. D) Not contingent liabilities because they are future events not arising from past transactions or events. E) Contingent liabilities because they are future events arising from past transactions or events.
D) Not contingent liabilities because they are future events not arising from past transactions or events.
140) The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is: A) Always equal to its par value. B) Referred to as retained earnings. C) Always below its stated value. D) Referred to as paid-in capital. E) Always equal to its stated value
D) Referred to as paid-in capital.
196) Rights to purchase common stock at a fixed price over a specified period are: A) Preferred stocks. B) Class B stocks. C) Stock restrictions. D) Stock options. E) Preemptive rights.
D) Stock options.
146) The statement of cash flows reports all but which of the following? A) Cash flows from operating activities. B) Cash flows from financing activities. C) Cash flows from investing activities. D) The financial position of the company at the end of the accounting period. E) Significant noncash financing and investing activities.
D) The financial position of the company at the end of the accounting period.
156) Identify the account below that impacts the Equity of a business. A) Unearned Revenue B) Accounts Receivable C) Cash D) Utilities Expense E) Accounts Payable
D) Utilities Expense
A company's current assets are $17,980, its quick assets are $11,420 and its current liabilities are $12,190. Its acid-test ratio equals: A) 1.48. B) 2.40. C) 1.07. D) 1.57. E) 0.94.
E) 0.94.
169) On September 12, Jepson Company purchased merchandise in the amount of $5,800 from Vander Company, Inc. on credit with terms of 2/10, n/30. Jepson uses the gross method of accounting for purchases and a periodic inventory system. On September 14, Jepson returns some of the merchandise with a purchase price of $500. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Jepson makes on September 18 is: A) Cash 5,194 Accounts payable 5,194 B) Accounts payable 5,684 Cash 5,684 C) Cash 5,800 Accounts payable 5,800 D) Accounts payable 5,194 Purchase discounts 106 Cash 5,300 E) Accounts payable 5,300 Purchase discounts 106 Cash 5,194
E) Accounts payable 5,300 Purchase discounts 106 Cash 5,194
On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will the balance be in the Prepaid Insurance account on the Balance Sheet for the current year ended December 31? A) $2,400. B) $1,000. C) $1,200. D) $400. E) $1,400.
E) $1,400.
A company that uses a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals: A) $1,568. B) $1,800. C) $1,564. D) $200. E) $1,600.
E) $1,600.
The interest accrued on $7,500 at 6% for 90 days is: A) $11.25. B) $450.00. C) $1,800.00. D) $37.50. E) $112.50.
E) $112.50.
106) A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market. A) $3,200 B) $3,000 C) $2,700 D) $2,550 E) $2,600
E) $2,600
184) A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for: A) $2,800 B) $3,568 C) $3,632 D) $3,600 E) $4,400
E) $4,400
187) Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be: A) $36,000 B) $42,000 C) $16,000 D) $90,000 E) $54,000
E) $54,000
194) Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals): A) 0.56 B) 0.80 C) 0.44 D) 1.80 E) 1.25
E) 1.25
115) A company has net sales of $1,200,000 and average accounts receivable of $400,000. What is its accounts receivable turnover for the period? A) 0.20 B) 73.0 C) 5.00 D) 20.0 E) 3.0
E) 3.0
183) Pepperdine reported net sales of $8,600 million, net income of $126 million and average accounts receivable of $890 million. Its accounts receivable turnover is: A) 7.1. B) 51.7. C) 37.8. D) 68.3. E) 9.7
E) 9.7
137) A bond sells at a discount when the: A) Contract rate is equal to the market rate. B) Bond pays interest only once a year. C) Bond has a short-term life. D) Contract rate is above the market rate. E) Contract rate is below the market rate.
E) Contract rate is below the market rate.
180) Which of the following is not true regarding a credit card expense? A) Credit card expense may be classified as an administrative expense. B) Credit card expense may be classified as a selling expense. C) Credit card expense is a fee the seller pays for services provided by the card company. D) Credit card expense may be classified as a "discount" deducted from sales to get net sales. E) Credit card expense is not recorded by the seller.
E) Credit card expense is not recorded by the seller.
159) A credit entry: A) Is always a decrease in an account. B) Is always an increase in an account. C) Is recorded on the left side of a T-account. D) Increases asset and expense accounts, and decreases liability, stockholders' equity, and revenue accounts. E) Decreases asset and expense accounts, and increases liability, stockholders' equity, and revenue accounts.
E) Decreases asset and expense accounts, and increases liability, stockholders' equity, and revenue accounts.
164) Which of the following accounts showing a balance on the post-closing trial balance indicate an error? A) Accumulated Depreciation—Office Equipment. B) Office Equipment. C) Retained Earnings. D) Salaries Payable. E) Depreciation Expense—Office Equipment.
E) Depreciation Expense—Office Equipment.
114) A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a: A) Pledger. B) Payee. C) Payer. D) Pledgee. E) Factor.
E) Factor.
135) Which of the following statements is true? A) Dividends to stockholders are tax deductible. B) Bonds do not have to be repaid. C) Bonds always increase return on equity. D) Interest on bonds is not tax deductible. E) Interest on bonds is tax deductible.
E) Interest on bonds is tax deductible.
173) The inventory turnover ratio: A) Is used to measure solvency. B) Is used to analyze profitability. C) Calculation depends on the company's inventory valuation method. D) Validates the acid-test ratio. E) Is one measure of a merchandiser's ability to pay its short term obligations.
E) Is one measure of a merchandiser's ability to pay its short term obligations.
179) The Cash Over and Short account: A) Can never have a debit balance. B) Is not necessary in a computerized accounting system. C) Can never have a credit balance. D) Is used when the cash account reports a credit balance. E) Is used to record the income effects of errors in making change from a cash register and/or processing petty cash transactions.
E) Is used to record the income effects of errors in making change from a cash register and/or processing petty cash transactions.
154) Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported? A) Going-concern assumption. B) Consideration assumption. C) Cost principle. D) Business entity assumption. E) Matching principle.
E) Matching principle.
200) If a company borrows money from a bank, the interest paid on this loan should be reported on the statement of cash flows as a(n): A) Investing activity. B) Noncash investing and financing activity. C) This is not reported in the statement of cash flows. D) Financing activity. E) Operating activity.
E) Operating activity.
160) Assets, liabilities, and equity accounts are not closed; these accounts are called: A) Nominal accounts. B) Accrued accounts. C) Temporary accounts. D) Contra accounts. E) Permanent accounts.
E) Permanent accounts.
163) The trial balance prepared after all closing entries have been journalized and posted is called the: A) Unadjusted trial balance. B) Adjusted trial balance. C) Work sheet. D) General ledger. E) Post-closing trial balance.
E) Post-closing trial balance.
131) Contingent liabilities must be recorded if: A) The amount owed cannot be reasonably estimated. B) The future event is probable but not estimable. C) The future event is reasonably possible but not estimable. D) The future event is remote. E) The future event is probable and the amount owed can be reasonably estimated.
E) The future event is probable and the amount owed can be reasonably estimated.
157) Identify the statement below that is correct. A) The left side of a T-account is the credit side. B) Credits increase asset and expense accounts, and decrease liability, equity, and revenue accounts. C) Debits decrease asset and expense accounts, and increase liability, equity, and revenue accounts. D) In certain circumstances the total amount debited need not equal the total amount credited for a particular transaction. E) The left side of a T-account is the debit side.
E) The left side of a T-account is the debit side.
Distributions of cash or other resources by a business to its stockholders are called: A) Dividends. B) Retained earnings. C) Net Income. D) Expenses. E) Assets.
A) Dividends.
The account receivable turnover measures: A) How often, on average, receivables are received and collected during the period. B) The relation of cash sales to credit sales. C) How long it takes to sell accounts receivable to a factor. D) How long it takes to sell merchandise inventory. E) All of the options are correct.
A) How often, on average, receivables are received and collected during the period.
Depreciation: A) Is the process of allocating the cost of a plant asset to expense. B) Measures the decline in market value of an asset. C) Is applied to land. D) Is an outflow of cash from the use of a plant asset. E) Measures physical deterioration of an asset.
A) Is the process of allocating the cost of a plant asset to expense.
A benefit of using an accelerated depreciation method is that: A) It yields larger depreciation expense in the early years of an asset's life. B) It is preferred by the tax code. C) The results are identical to straight-line depreciation. D) It is the simplest method to calculate. E) It yields a higher income in the early years of the asset's useful life.
A) It yields larger depreciation expense in the early years of an asset's life.
Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of: A) Items that require adjusting entries. B) Items that require contra accounts. C) Asset and equity. D) Income statement accounts. E) Asset accounts.
A) Items that require adjusting entries.
In many states, the minimum amount that stockholders must contribute to the corporation, and which is intended to protect the creditors of the corporation, is called the: A) Legal capital. B) Par value of preferred. C) Stated value. D) Premium capital. E) Working capital.
A) Legal capital.
Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as: A) Operating activities. B) Direct activities. C) Financing activities. D) Investing activities. E) Indirect activities.
A) Operating activities.
Employers' responsibilities for payroll do not include: A) Recording an expense for the employee Federal Income Tax withholding. B) Maintaining individual earnings records for each employee. C) Providing each employee with an annual report of his or her wages subject to FICA and federal income taxes along with the amount of these taxes withheld. D) Filing Form 941, the Employer's Quarterly Federal Tax Return. E) Filing Form 940, the Annual Federal Unemployment Tax Return.
A) Recording an expense for the employee Federal Income Tax withholding.
The principles of internal control include: A) Separate recordkeeping from custody of assets. B) Require automated sales systems. C) Maintain minimal records. D) Use only computerized systems. E) Bond all employees.
A) Separate recordkeeping from custody of assets.
Identify the statement below that is incorrect. A) The normal balance of an expense account is a credit. B) The normal balance of unearned revenues is a credit. C) The normal balance of accounts receivable is a debit. D) The normal balance of the common stock account is a credit. E) The normal balance of dividends is a debit.
A) The normal balance of an expense account is a credit.
Juniper Company, Inc. uses a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The amount of the cash paid on August 26 equals: A) $9,652.50. B) $8,250.00. C) $8,167.50. D) $8,152.50. E) $9,750.00.
B) $8,250.00.
A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals: A) 31.5%. B) 46.6%. C) 53.4%. D) 40.5%. E) 28.3%.
B) 46.6%.
A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include: A) A debit to Cash for $14,000. B) A credit to Common Stock for $14,000. C) A credit to Common Stock for $182,000. D) A credit to Paid-in Capital in Excess of Par Value, Common Stock for $196,000. E) A debit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000.
B) A credit to Common Stock for $14,000.
Which of the following accounts is a permanent (real) account? A) Salaries expense. B) Accounts payable. C) Interest revenue. D) Office supplies expense. E) Fees earned.
B) Accounts payable.
Amounts received in advance from customers for future products or services: A) Require an outlay of cash in the future. B) Are liabilities. C) Increase income. D) Are revenues. E) Are not allowed under GAAP.
B) Are liabilities.
Resources a company owns or controls that are expected to yield future benefits are: A) Liabilities. B) Assets. C) Stockholders' Equity. D) Revenues. E) Expenses.
B) Assets.
Quick assets are defined as: A) Accounts receivable, inventory, and prepaid expenses. B) Cash, short-term investments, and current receivables. C) Cash, noncurrent receivables, and prepaid expenses. D) Cash, short-term investments, and inventory. E) Cash, inventory, and current receivables.
B) Cash, short-term investments, and current receivables.
The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the: A) Going-concern assumption. B) Cost principle. C) Realization principle. D) Accounting equation. E) Business entity assumption.
B) Cost principle.
A company issued 70 shares of $30 par value preferred stock for $4,000 cash. The journal entry to record the issuance is: A) Debit Cash $4,000; credit Preferred Stock $4,000. B) Debit Cash $4,000; credit Paid-in Capital in Excess of Par Value, Preferred Stock $1,900, credit Preferred Stock $2,100. C) Debit Cash $2,100; credit Preferred Stock $2,100. D) Debit Preferred Stock $2,100, debit Investment in Preferred Stock $1,900; credit Cash $4,000. E) Debit Investment in Preferred Stock $2,100; credit Cash $2,100.
B) Debit Cash $4,000; credit Paid-in Capital in Excess of Par Value, Preferred Stock $1,900, credit Preferred Stock $2,100.
The amount recorded for merchandise inventory purchases includes all of the following except: A) Purchase discounts. B) Freight costs paid by the seller. C) Returns and allowances. D) Trade discounts. E) Freight costs paid by the buyer.
B) Freight costs paid by the seller.
Net Income: A) Equals assets minus liabilities. B) Is the excess of revenues over expenses. C) Decreases equity. D) Represents the amount of assets stockholders put into a business. E) Represents stockholders' claims against assets.
B) Is the excess of revenues over expenses.
During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is: A) Specific identification method B) LIFO method C) Weighted average method D) FIFO method E) Average cost method
B) LIFO method
Unearned revenues are generally: A) Recorded as an asset in the accounting records. B) Liabilities created when a customer pays in advance for products or services before the revenue is earned. C) Revenues that have been earned and received in cash. D) Increases to stockholders equity. E) Revenues that have been earned but not yet collected in cash.
B) Liabilities created when a customer pays in advance for products or services before the revenue is earned.
When preparing a statement of cash flows using the indirect method, each of the following should be classified as an operating cash flow except: A) An increase in prepaid expenses. B) Proceeds from the disposal of a long-term asset with no gain or loss. C) A decrease in accounts payable. D) A decrease in accrued expenses payable. E) An increase in accounts receivable.
B) Proceeds from the disposal of a long-term asset with no gain or loss.
Contingent liabilities are recorded or disclosed unless they are: A) Probable and estimable. B) Remote. C) Possible and estimable. D) Probable and not estimable. E) Reasonably possible.
B) Remote.
The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the: A) Objectivity principle. B) Revenue recognition principle. C) Cost principle. D) Business entity assumption. E) Going-concern assumption.
B) Revenue recognition principle.
A bond traded at 102½ means that: A) The market rate of interest is 2.5%. B) The bond traded at 102.5% of its par value. C) The market rate of interest is 2½% above the contract rate. D) The bond pays 2.5% interest. E) The bonds were retired at $1,025 each.
B) The bond traded at 102.5% of its par value.
The three parties involved with a check are: A) The bookkeeper, the maker, and the bank. B) The maker, the payee, and the bank. C) The signer, the cashier, and the company. D) The maker, the manager, and the payee. E) The writer, the cashier, and the bank.
B) The maker, the payee, and the bank.
The issue price of a bond is equal to: A) The future value of all future cash payments provided by a bond. B) The present value of the bond's cash payments discounted at the bond's market rate. C) The present value of all future interest payments provided by a bond. D) The future value of all future interest payments provided by a bond. E) The present value of the principal for an interest-bearing bond.
B) The present value of the bond's cash payments discounted at the bond's market rate.
The matching principle, as applied to bad debts, requires: A) That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions. B) The use of the allowance method of accounting for bad debts. C) That bad debts be disclosed in the financial statements. D) The use of the direct write-off method for bad debts. E) That bad debts not be written off.
B) The use of the allowance method of accounting for bad debts.
Par value of a stock refers to the: A) Dividend value of the stock. B) Value assigned per share by the corporate charter. C) Market value of the stock on the date of the financial statements. D) Maximum selling price of the stock. E) Issue price of the stock.
B) Value assigned per share by the corporate charter.
A credit is used to record an increase in all of the following accounts except: A) Service Revenue B) Wages Expense C) Common Stock D) Accounts Payable E) Unearned Revenue
B) Wages Expense
The credit terms 2/10, n/30 are interpreted as: A) 30% discount if paid within 10 days. B) 30% discount if paid within 2 days. C) 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days. D) 2% discount if paid within 30 days. E) 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
C) 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A) Time-period assumption. B) Revenue recognition principle. C) Business entity assumption. D) Cost principle. E) Going-concern assumption.
C) Business entity assumption.
When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for all but which of the following? A) Changes in current liabilities related to operating activities. B) Revenues and expenses that did not provide or use cash. C) Changes in noncurrent assets and noncurrent liabilities. D) Depreciation and amortization expense. E) Gains and losses from non-operating items.
C) Changes in noncurrent assets and noncurrent liabilities.
MacKenzie Company sold $300 of merchandise to a customer who used a Regional Bank credit card. Regional Bank deducts a 1.5% service charge for sales on its credit cards and credits MacKenzie's account immediately when sales are made. The journal entry to record this sale transaction would be: A) Debit Accounts Receivable $300 and credit Sales $300. B) Debit Cash of $300 and credit Sales $300. C) Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300. D) Debit Cash $295.50 and credit Sales $295.50. E) Debit Cash of $300 and credit Accounts Receivable $300.
C) Debit Cash $295.50; debit Credit Card Expense $4.50 and credit Sales $300.
Which of the following accounts showing a balance on the post-closing trial balance indicate an error? A) Land. B) Accounts Payable. C) Dividends. D) Unearned Revenue. E) Prepaid Insurance.
C) Dividends.
Accounting is an information and measurement system that does all of the following except: A) Communicates business activities. B) Helps people make better decisions. C) Eliminates the need for interpreting financial data. D) Identifies business activities. E) Records business activities.
C) Eliminates the need for interpreting financial data.
Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses? A) Specific identification B) First in still here C) FIFO D) LIFO E) Weighted average
C) FIFO
The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the: A) Nominal account. B) Closing account. C) Income Summary account. D) Balance column account. E) Contra account.
C) Income Summary account.
The appropriate section in the statement of cash flows for reporting the purchase of equipment for cash is: A) Operating activities. B) Financing activities. C) Investing activities. D) This is not reported on the statement of cash flows. E) Schedule of noncash investing or financing activity.
C) Investing activities.
Kramer, Inc. uses a perpetual inventory system. Kramer purchased $1,000 of merchandise on credit, with terms 1/10, n/30, FOB shipping point. The shipping cost of $150 was paid upon receipt of the goods. The journal entry to record the shipping cost includes a credit to Cash and a debit to: A) Accounts Payable B) Freight Expense C) Merchandise Inventory D) Purchases E) Freight-In
C) Merchandise Inventory
The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is: A) Revenue recognition principle. B) Time-period assumption. C) Objectivity principle. D) Going-concern assumption. E) Business entity assumption.
C) Objectivity principle.
A liability for dividends exists: A) On the date of payment. B) On the date of record. C) On the date of declaration. D) For dividends in arrears on cumulative preferred stock. E) When cumulative preferred stock is sold.
C) On the date of declaration.
The straight-line depreciation method, the units-of-production method, and the double-declining-balance depreciation method: A) Produce the same book value each year. B) Are the only acceptable methods of depreciation for financial reporting. C) Produce the same total depreciation over an asset's useful life. D) Are acceptable for tax purposes only. E) Produce the same depreciation expense each year.
C) Produce the same total depreciation over an asset's useful life.
Revenue, expense, and dividend accounts, which are closed at the end of each accounting period, are: A) Balance sheet accounts. B) Permanent accounts. C) Temporary accounts. D) Closing accounts. E) Real accounts.
C) Temporary accounts.
Revenues are: A) The costs of assets or services used. B) Resources owned or controlled by a company. C) The increase in equity from a company's sales of products and services. D) The same as net income. E) The excess of expenses over assets.
C) The increase in equity from a company's sales of products and services.
Cost of goods sold is: A) A term only used by service firms. B) Also called gross margin. C) The term used for the expense of buying and preparing merchandise for sale. D) Another term for merchandise sales. E) Another term for revenue.
C) The term used for the expense of buying and preparing merchandise for sale.
A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n): A) Statement of cash flows. B) Financial Status Statement. C) Income statement. D) Balance sheet. E) Statement of retained earnings.
D) Balance sheet.
K. Canopy, the stockholder of Canopy Services, Inc., The company paid $5,700 cash in dividends to the owner (sole stockholder). The entry to close the dividends account at the end of the year is: A) Debit Dividends $5,700; credit Retained Earnings $5,700 B) Debit Retained Earnings $5,700; credit Salary Expense $5,700 C) Debit Income Summary $5,700; credit Retained Earnings $5,700 D) Debit Retained Earnings $5,700; credit Dividends $5,700 E) Debit Dividends $5,700; credit Cash, $5,700
D) Debit Retained Earnings $5,700; credit Dividends $5,700
If a check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing this period's reconciliation, the amount of this check should be: A) Deducted from the book balance of cash. B) Added to the bank balance of cash. C) Added to the book balance of cash. D) Deducted from the bank balance of cash. E) Ignored in preparing the period's bank reconciliation.
D) Deducted from the bank balance of cash.
The closing process is necessary in order to: A) Ensure that all permanent accounts are closed to zero at the end of each accounting period. B) Calculate net income or net loss for an accounting period. C) Ensure that the company complies with state laws. D) Ensure that net income or net loss and dividends for the period are closed into the retained earnings account. E) Ensure that management is aware of how well the company is operating.
D) Ensure that net income or net loss and dividends for the period are closed into the retained earnings account.
The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the: A) Business entity assumption. B) Monetary unit assumption. C) Cost Principle. D) Going-concern assumption. E) Objectivity principle.
D) Going-concern assumption.
Sales less sales discounts less sales returns and allowances equals: A) Net purchases. B) Net income. C) Cost of goods sold. D) Net sales. E) Gross profit.
D) Net sales.
On October 17 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets? A) No effect on net income; decrease in total assets. B) Decrease in net income; no effect on total assets. C) Increase in net income; no effect on total assets. D) No effect on net income; no effect on total assets. E) Decrease in net income; decrease in total assets.
D) No effect on net income; no effect on total assets.
The appropriate section in the statement of cash flows for reporting the cash payment of wages is: A) Schedule of noncash investing or financing activity. B) This is not reported on the statement of cash flows. C) Financing activities. D) Operating activities. E) Investing activities.
D) Operating activities.
The process of transferring general journal entry information to the ledger is called: A) Journalizing. B) Balancing an account. C) Double-entry accounting. D) Posting. E) Not required unless debits do not equal credits.
D) Posting.
The acid-test ratio differs from the current ratio in that: A) The acid-test ratio measures profitability and the current ratio does not. B) Liabilities are divided by current assets. C) The acid-test ratio is a measure of liquidity but the current ratio is not. D) Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio. E) The acid-test ratio excludes short-term investments from the calculation.
D) Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.
The primary objective of financial accounting is to: A) Know what, when, and how much product to produce. B) Serve the decision-making needs of internal users. C) Provide information on both the costs and benefits of looking after products and services. D) Provide accounting information that serves external users. E) Monitor and control company activities.
D) Provide accounting information that serves external users.
When a bond sells at a premium: A) It means that the bond is a zero coupon bond. B) The contract rate is equal to the market rate. C) The bond pays no interest. D) The contract rate is above the market rate. E) The contract rate is below the market rate.
D) The contract rate is above the market rate.
A debit is used to record which of the following? A) An increase in a contributed capital account. B) An increase in a revenue account. C) A decrease in an expense account. D) A decrease in an asset account. E) An increase in the dividends account.
E) An increase in the dividends account.
Prepaid expenses are generally: A) Classified as liabilities on the balance sheet. B) Payments made for products and services that do not ever expire. C) Promises of payments by customers. D) Decreases in equity. E) Assets that represent prepayments of future expenses.
E) Assets that represent prepayments of future expenses.
A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals: A) $157,500. B) $(217,000). C) $532,500. D) $375,000. E) $217,500.
E) $217,500.
A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals: A) $278,000. B) $695,000. C) $(417,000). D) $973,000. E) $417,000.
E) $417,000.
The Retained Earnings account has a credit balance of $37,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800, and dividends are $9,000, what is the ending balance in the Retained Earnings account after all closing entries are made? A) $35,400. B) $37,000. C) $52,400. D) $28,000. E) $43,400.
E) $43,400.
All of the following statements regarding uncertainty in liabilities are true except: A) A company can create a liability with a known amount even when the holder of the note may not be known until the maturity date. B) A company can be aware of an obligation but not know how much will be required to settle it. C) Liabilities can involve uncertainty in whom to pay. D) A company can have an obligation of a known amount to a known creditor but not know when it must be paid. E) A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.
E) A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.
A business uses a credit to record: A) A decrease in an equity account. B) A decrease in an unearned revenue account. C) A decrease in a revenue account. D) An increase in an expense account. E) A decrease in an asset account.
E) A decrease in an asset account.
A debit is used to record an increase in all of the following accounts except: A) Cash B) Prepaid Insurance C) Supplies D) Dividends E) Accounts Payable
E) Accounts Payable
When closing entries are made: A) All permanent accounts are closed but nominal accounts are not closed. B) All balance sheet accounts are closed. C) All ledger accounts are closed to start the new accounting period. D) All real accounts are closed but nominal accounts are not closed. E) All temporary accounts are closed but permanent accounts are not closed.
E) All temporary accounts are closed but permanent accounts are not closed.
Salvage value is: A) A factor relevant to amortizing an intangible asset with an indefinite life. B) Not a factor relevant to determining depletion. C) A factor relevant to determining depreciation that cannot be revised during an asset's useful life. D) A factor relevant to determining depreciation under MACRS. E) An estimate of the asset's value at the end of its benefit period.
E) An estimate of the asset's value at the end of its benefit period.
Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and dividend accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as: A) Work sheet entries. B) Updating entries. C) Final entries. D) Adjusting entries. E) Closing entries.
E) Closing entries.
The right side of a T-account is a(n): A) Account balance. B) Decrease. C) Debit. D) Increase. E) Credit.
E) Credit.
The amount of federal income taxes withheld from an employee's paycheck is determined by: A) The employer's merit rating. B) The amount of social security taxes withheld. C) Tax tables provided by the state in which the employee works. D) Multiplying the gross pay by 6.2%. E) Current earnings for the pay period and number of withholding allowances the employee claims.
E) Current earnings for the pay period and number of withholding allowances the employee claims.
On January 1 of 2015, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semi-annually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as: A) Debit Cash $2,000,000; credit Bonds Payable $2,000,000. B) Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000. C) Debit Cash $1,864,097; credit Bonds Payable $1,864,097. D) Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903. E) Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000.
E) Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000.
On a trial balance, if the Debit and Credit column totals are equal, then: A) All entries from the journal have been posted to the ledger correctly. B) All transactions have been recorded correctly. C) The balance sheet would be correct. D) All ledger account balances are correct. E) Equal debits and credits have been recorded for transactions.
E) Equal debits and credits have been recorded for transactions.
Retained earnings: A) Can only be appropriated by setting aside a cash fund. B) Represent an amount of cash available to pay shareholders. C) Are never adjusted for anything other than net income or dividends. D) Represents the amount shareholders are guaranteed to receive upon company liquidation. E) Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception.
E) Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception.
A partnership: A) Is a legal organization separate from its owners. B) Has owners called shareholders. C) Is also called a sole proprietorship. D) Has to have a written agreement in order to be legal. E) Has unlimited liability for its partners.
E) Has unlimited liability for its partners.
A debit: A) Always decreases an account. B) Is the right-hand side of a T-account. C) Is not need to record a transaction. D) Always increases an account. E) Is the left-hand side of a T-account.
E) Is the left-hand side of a T-account.
Temporary accounts include all of the following except: A) Dividends. B) Rent expense. C) Income Summary. D) Consulting revenue. E) Prepaid rent.
E) Prepaid rent.
Which of the following is the usual final step in the accounting cycle? A) Preparing a work sheet. B) Journalizing transactions. C) Preparing an adjusted trial balance. D) Preparing the financial statements. E) Preparing a post-closing trial balance.
E) Preparing a post-closing trial balance.
The consistency concept: A) Requires a company to use a single method of inventory valuation for all categories of inventory. B) Requires that all companies in the same industry use the same method of inventory valuation. C) Is also called the full disclosure concept. D) Is also called the matching concept. E) Prescribes that a company use the same accounting method period after period except when a change of method will improve financial reporting.
E) Prescribes that a company use the same accounting method period after period except when a change of method will improve financial reporting.
Identify the statement below that is correct. A) When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. B) Increases and decreases in cash are always recorded in the common stock account. C) Accrued liabilities include accounts receivable. D) An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business. E) Promises of future payment by the customer are called accounts receivable.
E) Promises of future payment by the customer are called accounts receivable.
Internal control systems are: A) Developed by the Securities and Exchange Commission for public companies. B) Developed by the Internal Revenue Service for all U.S. companies. C) Developed by the Small Business Administration for non-public companies. D) Required only if a company plans to engage in interstate commerce. E) Required by Sarbanes-Oxley (SOX) to be documented and certified if the company's stock is traded on an exchange.
E) Required by Sarbanes-Oxley (SOX) to be documented and certified if the company's stock is traded on an exchange.
