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principles of financial accounting
Questions and Answers of
Principles Of Financial Accounting
Which of the following is not a characteristic of the common stock of a large, publicly owned corporation?a. The shares may be transferred from one investor to another without disrupting the
Tri-State Electric is a profitable utility company that has increased its dividend to common stockholders every year for 42 consecutive years. Which of the following is least likely to affect the
The following information is taken from the balance sheet and related disclosures of Maxwell, Inc.:Which of the following statements is (are) true? (For this question, more than one answer may be
On December 10, 2010, Smitty Corporation reacquired 2,000 shares of its own \(\$ 5\) par value common stock at a price of \(\$ 60\) per share. In 2011,500 of the treasury shares are reissued at a
In which of the following situations should the named company not record any depreciation expense on the asset described?a. Commuter Airline is required by law to maintain its aircraft in "as good as
Which of the following statements is (are) correct?a. Accumulated depreciation represents a cash fund being accumulated for the replacement of plant assets.b. The cost of a machine includes the cost
On April 1, 2010, Sanders Construction paid \(\$ 10,000\) for equipment with an estimated useful life of 10 years and a residual value of \(\$ 2,000\). The company uses the doubledeclining-balance
Evergreen Mfg. is a rapidly growing company that acquires equipment every year. Evergreen uses straight-line depreciation in its financial statements and an accelerated method in its tax returns.
Ladd Company sold a plant asset that originally cost \(\$ 50,000\) for \(\$ 22,000\) cash. If Ladd correctly reports a \(\$ 5,000\) gain on this sale, the accumulated depreciation on the asset at the
In which of the following situations would Martinez Industries include goodwill in its balance sheet?a. The fair market value of Martinez's net identifiable assets amounts to \(\$ 2,000,000\). Normal
The primary purpose for using an inventory cost flow assumption is to:a. Parallel the physical flow of units of merchandise.b. Offset against revenue an appropriate cost of goods sold.c. Minimize
Ace Auto Supply uses a perpetual inventory system. On March 10, the company sells two Shelby four-barrel carburetors. Immediately prior to this sale, the perpetual inventory records indicate three of
T-Shirt City uses a periodic inventory system. During the first year of operations, the company made four purchases of a particular product. Each purchase was for 500 units and the prices paid were
Trent Department Store uses a perpetual inventory system but adjusts its inventory records at year-end to reflect the results of a complete physical inventory. In the physical inventory taken at the
In July 2011, the accountant for LBJ Imports is in the process of preparing financial statements for the quarter ended June 30, 2011. The physical inventory, however, was last taken on June 5, and
Allied Products maintains a large inventory. The company has used the LIFO inventory method for many years, during which the purchase costs of its products have risen substantially. (More than one of
In general terms, financial assets appear in the balance sheet at:a. Face value.b. Current value.c. Costd. Estimated future sales value.
Which of the following practices contributes to efficient cash management?a. Never borrow money-maintain a cash balance sufficient to make all necessary payments.b. Record all cash receipts and cash
Each of the following measures strengthens internal control over cash receipts except:a. Factoring accounts receivable.b. Preparation of a daily listing of all checks received through the mail.c. The
Which of the following best describes the application of generally accepted accounting principles to the valuation of accounts receivable?a. Realization principle Accounts receivable are shown at
On January 1, Dillon Company had a \(\$ 3,100\) credit balance in the Allowance for Doubtful Accounts. During the year, sales totaled \(\$ 780,000\), and \(\$ 6,900\) of accounts receivable were
Under the direct write-off method of accounting for uncollectible accounts:a. The current year uncollectible accounts expense is less than the expense would be under the allowance approach.b. The
Which of the following actions is least likely to increase a company's accounts receivable turnover?a. Encouraging customers to use bank credit cards, such as Visa and MasterCard, rather than other
On October 1,2011, Coast Financial loaned Barr Corporation \(\$ 300,000\), receiving in exchange a nine-month, 12 percent note receivable. Coast ends its fiscal year on December 31 and makes
Puget Sound Co. sold marketable securities costing \(\$ 80,000\) for \(\$ 92,000\) cash. In the company's income statement and statement of cash flows, respectively, this will appear as:a. A \(\$
Mark and Amanda Carter own an appliance store and a restaurant. The appliance store sells merchandise on a 12-month installment plan; the restaurant sells only for cash. Which of the following
Which of the following statements about merchandising activities is true? (More than one answer may be correct.)a. As inventory is purchased, the Inventory Expense account is debited and Cash (or
Marietta Corporation uses a perpetual inventory system. All of its sales are made on account. The company sells merchandise costing $3,000 at a sales price of $4,300. In recording this transaction,
Fashion House uses a perpetual inventory system. At the beginning of the year, inventory amounted to \($50,000\). During the year, the company purchased merchandise for \($230,000\) and sold
Best Hardware uses a periodic inventory system. Its inventory was \($38,000\) at the beginning of the year and \($40,000\) at the end. During the year, Best made purchases of mer- chandise totaling
The two basic approaches to accounting for inventory and the cost of goods sold are the perpetual inventory system and the periodic inventory system. Indicate which of the following statements are
Big Brother, a retail store, purchased 100 television sets from Krueger Electronics on account at a cost of \$200 each. Krueger offers credit terms of \(2 / 10, n / 30\). Big Brother uses a perpetual
Two of the lawn mowers sold by Garden Products Co. are the LawnMaster and the Mark 5. LawnMasters sell for \$250 apiece, which results in a 35 percent gross profit margin. Each Mark 5 costs Garden
For a publicly owned company, indicate which of the following accounting activities are likely to occur at or shortly after year-end. (More than one answer may be correct.)a. Preparation of income
Which of the following accounts would never be reported in the income statement as an expense?a. Depreciation expense.b. Income taxes expense.c. Interest expense.d. Dividends expense.
Which of the following journal entries is required to close the Income Summary account of a profitable company?a. Debit Income Summary, credit Retained Earnings.b. Credit Income Summary, debit
Indicate those items for which generally accepted accounting principles require disclosure in notes accompanying the financial statements. (More than one answer may be correct.)a. A large lawsuit was
Ski West adjusts its accounts at the end of each month but closes them only at the end of the calendar year (December 31). The ending balances in the Equipment Rental Revenue account and the Cash
Which of the following accounts is not closed to the Income Summary account at the end of the accounting period? (More than one answer may be correct.)a. Rent Expense.b. Accumulated Depreciation.c.
The purpose of adjusting entries is to:a. Adjust the Retained Earnings account for the revenue, expense, and dividends recorded during the accounting period.b. Adjust daily the balances in asset,
Before month-end adjustments are made, the January 31 trial balance of Rover Excursions contains revenue of \($27,900\) and expenses of \($17,340\). Adjustments are necessary for the following items:
The CPA firm auditing Mason Street Recording Studios found that total stockholders' equity was understated and liabilities were overstated. Which of the following errors could have been the cause?a.
Assume Fisher Corporation usually earns taxable income, but sustains a loss in the current period. The entry to record income taxes expense in the current period will most likely (indicate all
The concept of materiality (indicate all correct answers):a. Requires that financial statements be accurate to the nearest dollar, but need not show cents.b. Is based upon what users of financial
According to the rules of debit and credit for balance sheet accounts:a. Increases in asset, liability, and owners' equity accounts are recorded by debits.b. Decreases in asset and liability accounts
Sunset Tours has a \($3,500\) account receivable from the Del Mar Rotary. On January 20, the Rotary makes a partial pay- ment of \($2,100\) to Sunset Tours. The journal entry made on January 20 by
Indicate all of the following statements that correctly describe net income. Net income:a. Is equal to revenue minus expenses.b. Is equal to revenue minus the sum of expenses and dividends.c.
Which of the following is provided by a trial balance in which total debits equal total credits?a. Proof that no transaction was completely omitted from the ledger during the posting process.b. Proof
Which of the following explains the debit and credit rules relating to the recording of revenue and expenses?a. Expenses appear on the left side of the balance sheet and are recorded by debits;
Which of the following is not considered an analytical aspect of the accounting profession?a. Evaluating an organization's operational efficiency.b. Forecasting the probable results of future
Indicate all correct answers. In the accounting cycle:a. Transactions are posted before they are journalized.b. A trial balance is prepared after journal entries have been posted.c. The Retained
Indicate all correct answers. Dividends:a. Decrease owners' equity.b. Decrease net income.c. Are recorded by debiting the Dividend account.d. Are a business expense.
Waterworld Boat Shop purchased a truck for \(\$ 12,000\), making a down payment of \(\$ 5,000\) cash and signing a \(\$ 7,000\) note payable due in 60 days. As a result of this transaction:a. Total
A transaction caused a \(\$ 15,000\) decrease in both total assets and total liabilities. This transaction could have been:a. Purchase of a delivery truck for \(\$ 15,000\) cash.b. An asset with a
Which of the following is (are) correct about a company's balance sheet?a. Displays sources and uses of cash for the period.b. Is an expansion of the basic accounting equation: Assets = Liabilities +
Which of the following would you expect to find in a correctly prepared income statement?a. Cash balance at the end of the period.b. Revenues earned during the period.c. Contributions by the owner
What information would you find in a statement of cash flows that you would not be able to get from the other two primary financial statements?a. Cash provided by or used in financing activities.b.
To understand and use accounting information in making economic decisions, you must understand:a. The nature of economic activities that accounting information describes.b. The assumptions and
Purposes of an accounting system include all of the following except:a. Interpret and record the effects of business transactions.b. Classify the effects of transactions to facilitate the preparation
Financial accounting information is characterized by all of the following except.a. It is historical in nature.b. It sometimes results from inexact and approximate measures.c. It is factual, so it
Which of the following is not a user of internal accounting information?a. Store manager.b. Chief executive officer.c. Creditor.d. Chief financial officer.
Characteristics of internal accounting information include all of the following except:a. It is audited by a CPA.b. It must be timely,c. It is oriented toward the future.d. It measures efficiency and
Which of the following are important factors in ensuring the integrity of accounting information?a. Institutional factors, such as standards for preparing information.b. Professional organizations,
The code of conduct of the American Institute of Certified Public Accountants includes requirements in which of the following areas?a. The Public Interest.c. Independence.b. Objectivity.d. All of the
Open the following T accounts: Cash; Repair Supplies; Repair Equipment; Accounts Payable; T. Ornega, Capital; Withdrawals; Repair Fees Earned; Salaries Expense; and Rent Expense. Record the following
Record in \(\mathrm{T}\) account form each of the following transactions, assuming the perpetual inventory system is used: Aug. 2 Purchased merchandise on credit from Indio Company, invoice dated
Record in \(\mathrm{T}\) account form the following transactions, assuming the periodic inventory system is used: Aug. 4 Sold merchandise on credit to Rivera Company, terms n/30, FOB destination,
The management of Posad Cotton Company made the decisions that follow. Indicate whether each decision pertains primarily to (a) cash flow management, (b) choice of inventory system, or (c) foreign
A household appliance dealer buys refrigerators from a manufacturer and resells them to its customers.a. The manufacturer sets a list or catalogue price of \(\$ 2,500\) for a refrigerator. The
Given the following transactions engaged in by Stanford Company, prepare journal entries and, assuming the periodic inventory system, determine the total amount received from Penkas Company. Mar. 1
Lien Company engaged in the following transactions:Prepare journal entries and, assuming the perpetual inventory system, determine the total amount paid to Jonak Company. July 2 Purchased merchandise
The total assets and liabilities at the beginning and end of the year for Schupan Company are listed below.Determine Schupan Company's net income or loss for the year under each of the following
Which form of financing allows the source of the funds to share in the wealth if the company which received the financing does well?a. A loanb. An investmentc. Both a loan and an investmentd. Neither
Which form of financing requires repayment, regardless of whether the company receiving the funds does well or not?a. A loanb. An investmentc. Both a loan and an investmentd. Neither a loan nor an
What are vertical and horizontal financial statement analyses? What are their advantages?
Which one of the following costs is not included in inventory for manufacturing firms?a. Raw materials used in productionb. Raw materials unused and stored in the warehousec. Salary paid to the
Stevenson Company's trial balance as of December 31, 2022 shows \($35,000\) for inventory; but the balance sheet shows \($33,000.\) Assuming no inventory shrinkage, what is the most likely reason for
Amanda Company started business at the beginning of 2022. The company applies the lower-of-cost- or-net-realizable-value rule to its inventory as a whole. Inventory cost and market value as of the
On June 24, 2022, Reed Company sold merchandise to Emily Clark for \(£ 75,000\). On June 30, Clark paid \(£ 40,000\).Assuming that Reed uses the perpetual inventory system, record the necessary
Assume an employee earns $900 per day and accrues one sick leave each month. Make the journal entry necessary at the end of the quarter to record the accrual of the sick leaves during the quarter.
Gordon Inc. adopts a defined contribution pension plan, which requires Gordon Inc. to contribute NT$250,000 for February 2022. Prepare a journal entry for the payment.
Joyce Company adopts a defined benefit plan for its employees as a post-retirement benefit. According to the plan and the actuarial assumptions, the pension expense is NT\($200,000,\) and Joyce only
Why is preparing bank reconciliation an internal control procedure?
Smith Company establishes a petty cash fund. Explain the purposes of doing So.
At the beginning of this month, Friedman Company established a petty cash fund with the amount of \($10,000.\) At the end of this month, it was found that the balance of this fund was \($490,\) but
Shiller Company received a bank statement showing the account balance $268,500, which is different from the amount shown in Shiller's general ledger. The following events account for the discrepancy
Lucas Company had the following transactions in March:a. Purchasing inventory on accountb. Borrowing cash from a bankC. Cash sales of merchandised. Disposal of a trucke. Paying employees'
Sargent Company is a medium-sized merchandising firm. Below are the company's internal control procedures of cash. Indicate the weaknesses and how to improve, if any.a. The founder's sister serves
Listed below are five procedures followed by Alpha Corporation related with cash. 1. Payments are paid with checks numbered randomly.2. A bank reconciliation is prepared monthly.3. Anita writes
Assume that Kingston bookstore decided to buy 150 books at NT$350 per book on April 5. The credit terms were 2/10, n/30. Kingston paid half the price on April 10, the others were paid on April 20.
Referring to E 6-4, assume that Kingston found 10 books to have significant defects and decided to return these 10 books on April 8. It also found other 15 books to have small defects and asked for
Assume that HTC Corporation had the following transactions in July: paid one year insurance of NT$36,000 on July 1 for their managers; paid the rent of the office NT$100,000 for July on July 1;
Volvo Company established a petty cash fund on June 1, cashing a check for 100. During June, the petty cash receipts are as followed:The fund was replenished on June 30, and the fund contained 45. On
Libby Company established a petty cash fund on January 2 by cashing a check for NT$3,500. During January, the following expenditures were paid out of the fund. The cashier handling the fund found
Refer to E 6-8. Prepare the journal entries for replenishing petty cash funds when the cashier found that the amount left was NT\$345.E 6-8.Libby Company established a petty cash fund on January 2 by
Prepare a bank reconciliation for Bend Company at January 31, 2022, using the information shown.1. Cash per the accounting records at January 31 amounted to \(\$ 228,909\); the bank statement on this
Below are six descriptions of internal control problems. In the space to the left of each description, enter the code letter of the internal control principle that is most related to the problem
Francis Company prepared the following journal entries for the transactions about petty cash funds.Required:1. What was the size of the petty cash fund?2. What was the amount left before replenishing
Shiller Company established a petty cash fund \(\$ 5,000\) on February 1. During February, the company paid for the following expenditures out of the petty cash funds:On February 28, the clerk
According to the books of Alexander Company, the cash balance on October 31, 2022 was \(\$ 50,000\), while the bank statement showed \(\$ 66,185\). After inspection, the company found that the
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