Chapter 1: Accounting and Business
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Q1) The rights of owners in a corporation are referred to as
A) proprietor's equity
B) stockholder's equity
C) dividends
D) equity in assets
Answer: B
Q2) Organized as a separate legal taxable entity
A)Proprietorship
B)Partnership
C)Corporation
Answer: C
Q3) Earning revenue
A) increases assets, increases stockholders' equity
B) increases assets, decreases stockholders' equity
C) increases one asset, decreases another asset
D) decreases assets, increases liabilities
Answer: A
Q4) What are the three sections of the statement of cash flows?
Answer: Operating Activities, Investing Activities, and Financing Activities
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Chapter 3: Adjustments: Accruals and Deferrals
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Q1) Under the accrual basis, some accounts in the ledger require updating at the end of the period. Discuss the three main reasons for this updating and give an example of each.
Answer: 1. Some expenses are not recorded daily. For example, the daily use of supplies would require many entries with small amounts. Also, the amount of supplies on hand on a day-to-day basis is normally not needed.
2. Some revenues and expenses are incurred as time passes rather than as separate transactions. For example, rent received in advance (unearned rent) expires and becomes revenue with the passage of time. Likewise, prepaid insurance expires and becomes an expense with the passage of time.
3. Some revenues and expenses may be unrecorded at the end of the accounting period. For example, a company may have provided services to customers that it has not billed or recorded at the end of the accounting period. Likewise, a company may not pay its employees until the next accounting period even though the employees have earned their wages in the current period.
Q2) On January 1, Power House Co. prepaid the annual rent of $10,140. Prepare the journal entry to record this transaction.
Answer: 11ea84e6_b030_20cb_9a63_a1ebbde3ee0a_TB2281_00_TB2281_00
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Chapter 4: The Accounting Cycle
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Q1) After net income is entered on the end-of-period spreadsheet, the Balance Sheet Debit and Credit columns must
A) be the same amount as the total amount of the Income Statement Debit and Credit columns
B) equal each other
C) be the same amount as the total amount in the Adjusted Trial Balance Debit and Credit columns
D) not be equal to each other and need not be the same total amounts as any other pair of columns on the end-of-period spreadsheet
Q2) The trial balance may be listed on the end-of-period spreadsheet instead of being prepared separately.
A)True
B)False
Q3) The usual presentation of the retained earnings statement is (1) Beginning balance, (2) Net income or loss, (3) Dividends, (4) Stockholders' contributions, (5) Ending balance. A)True B)False
Q4) Describe a classified balance sheet.
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Chapter 5: Accounting for Retail Businesses
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Q1) During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the goods sold is $322,325. What is the amount of the gross profit?
Q2) Account where returned merchandise or price adjustments are recorded by the buyer under the periodic inventory system.
A)Freight
B)Delivery Expense
C)Inventory
D)Sales discount
E)Purchases Returns and Allowances
F)Debit memo
G)Purchases discount
H)Trade discount
Q3) Freight-in is the amount paid by the company to deliver merchandise sold to a customer.
A)True
B)False
Q4) Gross profit minus selling expenses equals net income.
A)True
B)False
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Chapter 6: Inventories
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Q1) If inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income?
A) average cost
B) LIFO
C) FIFO
D) weighted average
Q2) Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the
A) customer's ledger
B) creditor's ledger
C) inventory ledger
D) purchase ledger
Q3) One unit is sold on October 31 for $28. Using the table provided, what is the cost of goods sold under the LIFO method?
A) $28
B) $18
C) $15
D) $13
Q4) List three different security measures taken to safeguard inventory.
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Chapter 7: Internal Control and Cash
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Q1) Credit memos from the bank
A) decrease a bank customer's account
B) are used to show a bank service charge
C) show that a company has deposited a customer's NSF check
D) show the bank has collected a note receivable for the customer
Q2) The actual cash received during the week ended October 31 for cash sales was $23,447 and the amount indicated by the cash register total was $23,457. Journalize the entry to record the cash receipts and cash sales. \[\begin{array} { | c | c | c | c | c | }
\hline && { \text { Journal } } \\
\hline \text { Date } & \text { Description } & \text { P ost. Ref. } & \text { Debit } & \text { Credit } \\
\hline & & & & \\
\hline & & & & \\
\hline & & & & \\
\hline
\end{array}\]
Q3) List the principal advantages of electronic funds transfers.
Q4) Why would a bank require a company to maintain a compensating balance?
Q5) List and define each of the five elements of internal control.
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Chapter 8: Receivables
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Q1) To record estimated uncollectible receivables using the allowance method, the adjusting entry would be a
A) debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts
B) debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts
C) debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable
D) debit to Loss on Credit Sales and a credit to Accounts Receivable
Q2) Current assets are usually listed in order
A) of the due date
B) of the size
C) alphabetically
D) of liquidity
Q3) Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts
A) liabilities decrease
B) net income is unchanged
C) total assets are unchanged
D) total assets decrease
Q4) Suppose that at the end of the year there is an outstanding note receivable. The adjusting entry to recognize the interest to be paid has what effect on the accounting equation?
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Chapter 9: Long-Term Assets: Fixed and Intangible
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Q1) Comment on the validity of the following statements. "As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal."
Q2) Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $55,000 (including depreciation for the current year to date) is exchanged for similar machinery. Assume that the transaction has commercial substance. For financial reporting purposes, present entries to record the exchange of the machinery under each of the following assumptions: (a) Frice of new, \( \$ 120,000 \); trade-in allowance on old, \( \$ 4,000 \); balance paid in cash.
(b) Price of new, \( \$ 120,000 \); trade-in allowance on old, \( \$ 34,000 \); bal ance paid in cash.
Q3) New landscaping
A)Ordinary maintenance and repairs
B)Asset improvements
C)Extraordinary repairs
Q4) The depreciable cost of a building is the same as its acquisition cost.
A)True
B)False
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Chapter 10: Liabilities: Current, Installment Notes, and Contingencies
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Q1) The journal entry to record the cost of warranty repairs that were incurred during the current period, but related to sales made in prior years, includes a debit to Warranty Expense.
A)True
B)False
Q2) The amount of federal income taxes withheld from an employee's gross pay is recorded as a(n)
A) payroll expense
B) contra account
C) asset
D) liability
Q3) Salaries Payable would be recorded in the amount of
A) $8,200
B) $6,830
C) $8,630
D) $7,450
Q4) For a current liability to exist, the liability must be due usually within a year and must be paid out of current assets.
A)True
B)False
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Chapter 11: Liabilities: Bonds Payable
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Q1) The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be
A) debit Bonds Payable, credit Cash
B) debit Cash and Discount on Bonds Payable, credit Bonds Payable
C) debit Cash, credit Premium on Bonds Payable and Bonds Payable
D) debit Cash, credit Bonds Payable
Q2) If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?
A) Annual interest expense will increase over the life of the bonds with the amortization of bond premium.
B) Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.
C) Annual interest expense will decrease over the life of the bonds with the amortization of bond discount.
D) Annual interest expense will increase over the life of the bonds with the amortization of bond discount.
Q3) How should any unamortized premium be reported on the balance sheet of the issuing corporation?
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Chapter 12: Corporations: Organization, Stock Transactions, and Dividends
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Q1) A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to
A) decrease retained earnings, increase common stock, and increase paid-in capital
B) increase retained earnings, decrease common stock, and decrease paid-in capital
C) increase retained earnings, decrease common stock, and increase paid-in capital
D) decrease retained earnings, increase common stock, and decrease paid-in capital
Q2) On February 1, Marine Company reacquired 7,500 shares of its common stock at $30 per share. On March 15, Marine sold 4,500 of the reacquired shares at $34 per share. On June 2, Marine sold the remaining shares at $28 per share.
Journalize the transaction of February 1, March 15, and June 2.
Q3) Nexis Corp. issues 1,000 shares of $15 par value common stock at $22 per share. Journalize the transaction.
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Chapter 13: Statement of Cash Flows
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Q1) Baxter Company reported a net loss of $13,000 for the year ended December 31. During the year, accounts receivable decreased by $5,000, inventory increased by $8,000, accounts payable increased by $10,000, and depreciation expense of $4,000 was recorded. During the year, operating activities
A) provided net cash of $8,000
B) provided net cash of $2,000
C) used net cash of $8,000
D) used net cash of $2,000
Q2) In preparing the statement of cash flows, the correct order of reporting cash activities is financing, operating, and investing.
A)True
B)False
Q3) When using the spreadsheet (work sheet) method to analyzing noncash accounts, no order of analysis is required, but it is more efficient to start with Retained Earnings and proceed upward in the account listing.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Q1) Why would you or why wouldn't you compare an organization like Ford Motor Company to the local car dealer "Johnson City Ford/Lincoln/Mercury" using vertical and horizontal analysis?
Q2) current ratio
A)assess the profitability of the assets
B)assess how effectively assets are used
C)indicate the ability to pay current liabilities
D)indicate how much of the company is financed by debt and equity
E)indicate instant debt-paying ability
F)assess the profitability of the investment by common stockholders
G)indicate future earnings prospects
H)indicate the extent to which earnings are being distributed to common stockholders
Q3) A clean audit opinion is not the same as an unmodified opinion.
A)True
B)False
Q4) In computing the return on total assets, interest expense is subtracted from net income before dividing by average total assets.
A)True B)False
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Chapter 15:Investments
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Q1) The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the
A) fair value method
B) market method
C) income method
D) equity method
Q2) Changes in the value of available-for-sale securities
A) are reported as part of stockholders' equity
B) are recognized on the income statement
C) are not recognized
D) are recognized on the income statement and as part of stockholders' equity
Q3) The primary objectives of investing in temporary investments is to
A) all of these
B) realize gains from increases in market price of the securities
C) receive dividends
D) earn interest revenue
Q4) Trading securities should be reported on the financial statements at fair value.
A)True
B)False
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