Questions and Answers of Financial Accounting 13th Edition

(True or false?) The net realizable value of Accounts Receivable on the balance sheet at December 31 would be $80,000.
If the end of the accounting period ended on December 31, what would be the journal entry at that date?A. A debit to Uncollectible Accounts Expense of $3,200, and a credit to Allowance for Doubtful
(True or false?) When a company sells products under warranty, a provision must be made for warranty expense when the products are sold by debiting Warranty Expense and crediting Estimated Warranty
XYZ Company had $20,000 in sales on account, and it gave the customer a $1,000 allowance because there was a defect in some of the items. The correct journal entry would be:A. A debit to Accounts
A company that uses the direct write-off method computes and recognizes the uncollectible accounts expense:A. By aging the accounts receivable and computes a percentage for each tier B. As a
Refer to question 14. During the year JJ purchased an additional 35 percent of CC’s common stock, which gave it 60 percent of CC’s stock and effective control of the company. On June 30 of next
JJ Company purchased 25 percent of CC Company’s stock. At the end of the month, CC reported income of $100,000. What journal entry would JJ make at the end of the month?A. A debit to Investments
Assuming that the securities were Trading Securities and $3,000 of interest had accrued at June 30, how would the investments be shown on the balance sheet on June 30?A. Trading Securities $103,000
Irrespective of your answer in question 11, assume that the stock purchase was for Trading Securities. Also, assume that the company’s books were closed on June 30 and the stock had increased in
What would the journal entry be on June 1?A. A debit to Held-to-Maturity Securities for $100,000, and a credit to Cash.B. A debit to Trading Securities for $100,000, and a credit to Cash.C. A debit
XYZ Co. purchased $200,000 of held-to-maturity bonds at 98.This will result in XYZ making the recording as:A. Debit Investment in Bonds $196,000, and credit Cash for $196,000.B. Debit Investment in
With available-for-sale securities, which of the following is true?A. They are, in effect, all securities not classified as trading or held-to-maturity.B. They are not expected to be actively
When a bank reconciliation is performed, the total of outstanding checks would be:A. Deducted from the book balance B. Added to the bank balance C. Deducted from the bank balance D. None of the above
Which of the following is not a major step in managing cash in a business?A. Establishing good relations with a bank B. Preparation of a cash budget C. Maximizing cash flow D. Establishing a system
When the petty cash custodian makes a payment from the petty cash fund, he or she should immediately make which of the following journal entr(ies)?A. Debit each affected expense account B. Credit the
(True or False?) A petty cash fund is a cash fund used to pay small amounts in excess of $100.
In performing the bank reconciliation, which of the following items will require a journal entry by the depositing company?A. A bank error B. The bank’s collection of an accounts receivable C.
When the responsible person performs a bank reconciliation, he or she would handle deposits in transit by:A. Deducting it from the bank balance B. Adding to the book balance C. Adding it to the bank
A reimbursement form and receipts are submitted to replenish a $1,000 petty cash fund. The form contains receipts for $950, but there is only $20 in cash left in the fund. Which of the following is
The following items were in possession of the company’s cash receipts function on February 28.Which of the items is not included in the Cash account on the balance sheet for February 28?A. Coins
At the end of the accounting period the Income Summary account had a credit balance of $105,000. The entry to close this account would be:A. Debit Income Summary for $105,000, and credit Retained
The Accumulated Depreciation account is:A. An asset account B. An expense account C. A stockholders’ equity account D. An asset-offset (contra) account
Which of the following accounts would most likely not require an adjusting entry at the end of the accounting period?A. Prepaid Rent B. Accounts Payable C. Unearned Rental Income D. Subscriptions
On its post-adjusted trial balance, assume that a company had a balance of$10,000 in Notes Receivable. What closing entry would be made?A. Debit to Income Summary for $10,000, and credit Notes
On December 1 a building management company received $40,000 of rent in advance for a large building. The term of the rental contract is one year. What would be the entry on December 1?A. Debit Cash
On September 1, a company signed a one-year note for $10,000 at a 6 percent interest rate. What would be the adjusting entry on December 31, the end of the accounting period?A. A debit to Interest
On February 1 what would be the entry when the dividends are paid?A. A debit to Dividends Payable and a credit to Dividends B. A debit to Retained Earnings and a credit to Cash C. A debit to Retained
On December 31 what would be the closing entry?A. A debit to Retained Earnings and a credit to Dividends B. A debit to Dividends Payable and a credit to Dividends C. A debit to Income Summary and a
What would be the entries on December 1, assuming that the company uses a dividend account?A. A debit to Retained Earnings and a credit to Dividends Payable B. A debit to Dividends and a credit to
The purpose of the closing process in the accounting cycle is to:A. Close out the permanent account balances B. Record the necessary end of the accounting year adjusting entries C. Close the revenue
(True or false?) A deferred income account would never require an adjustment at the end of the accounting period.
(True or false?) A trial balance is simply a listing of the current balances of all accounts in the general ledger.
(True or false?) The first step in the accounting cycle is to record a transaction in the general ledger.
(True or false?) Dollar signs are entered in the journal when transactions are journalized.
(True or false?) Accountants prepare an unadjusted trial balance at the end of an accounting period, which is useful in preparing financial statements.
An Internet company receives a cash payment for future ads to be included on its Web site. The correct journal entries would be:A. Debit Cash, and credit Ad Revenue.B. Debit Cash, and credit Retained
After a transaction is analyzed, the next likely step is:A. Posting to an account in the general ledger B. Enter it into a worksheet C. Journalizing into the general journal D. None of the above
Which of the following statements is correct?A. All accounts in the general ledger are numbered.B. When transactions are posted to an account, the journal page number is included.C. The general
The board of directors declared a dividend and paid it immediately to all stockholders.The correct entries would be:A. Debit Dividend Expenses, and credit Cash.B. Debit Dividends, and credit Cash.C.
An advertising firm paid cash for a one-year building lease in advance. The correct journal entries would be:A. Debit Prepaid Leases, and credit Cash.B. Debit Lease Expense, and credit Cash.C. Debit
A retail store sells $100,000 of merchandise during a month on account that cost$60,000. Which of the following entries would the accountant make?A. Debit Cost of Goods $60,000, and credit Inventory
Which of the following accounts normally has a debit balance?A. Dividends B. Assets C. Expense D. All of the above
Which of the following statements is true?A. The journal is part of the general ledger.B. The specialized journals are part of the chart of accounts.C. Each account in the general journal has a page
Accounts that normally have credit balances are:A. Assets, Liabilities, and Shareholders’ Equity B. Liabilities, Shareholders’ Equity, and Revenues C. Liabilities, Shareholders’ Equity, and
A prepaid expense is an expense that has been:A. Paid and incurred B. Incurred before it has been paid C. Paid before it has been incurred D. None of the above
(True or false?) The normal balance in the Accumulated Depreciation account would be a debit balance.
(True or false?) According to the rules of debits and credits, expense accounts are debited to increase the account balances.
(True or false?) A law firm receives an advance fee from a client. The firm’s accountant would debit Cash and credit Earned Fees.
(True or false?) The point of original entry into the accounting system is the general ledger.
(True or false?) A trial balance that balances means that the total of all debit account balances equals the total of all credit account balances.
Which of the following would not be included in a comprehensive income statement?A. Gains B. Gross margin C. Extraordinary items D. Accumulated depreciation E. Cost of goods sold
In the income statement Net Sales means:A. Sales discounts and returns and allowances have been deducted from gross sales.B. Purchase discounts have been deducted from gross sales.C. Freight on items
On the income statement a positive gross margin results from:A. Selling and administrative expenses that are less than sales.B. Cost of goods sold that is less than sales.C. Cost of goods sold that
Which of the following would be classified under Stockholders’ Equity on the balance sheet?A. Investment in bonds B. Accumulated depreciation C. Common stock D. Intangibles
Under which heading would patents and goodwill be classified on the balance sheet?A. Property, Plant, and Equipment B. Long-Term Investments C. Intangible Assets D. Stockholders’ Equity
Assets that a company expects to convert to cash within one year are called:A. Intangible assets B. Pension assets C. Long-term notes D. Current assets
Which of the following would most likely be included under Current Liabilities on the balance sheet?A. Current portion of interest on bonds payable B. Pension obligations C. Lease obligations D.
Which of the following is not usually classified as a current asset on the balance sheet?A. Inventories B. Marketable securities C. Prepaid insurance D. Patents
Which of the following is not a characteristic of the balance sheet?A. The assets are usually listed in order of their liquidity.B. The balance sheet provides information that is useful for
List the statement in which each of the following would be included by entering BS for balance sheet, IS for income statement, or N for neither:___ A. Inventory ___ B. Sales ___ C. Cost of goods sold
(True or false?) The diluted earnings per share is included as an element on the balance sheet.
(True or false?) The income statement reports the amount of revenues and gains less any expenses or losses for a company during a period of time.
(True or false?) Net book value refers to the market value of an asset less accumulated depreciation.
(True or False?) Marketable securities are those short-term investments from extra cash that can be converted back to cash at a readily marketable price.
(True or False?) The balance sheet is a summary of the changes in assets, liabilities, and stockholders’ equity during a period of time.
The period assumption means:A. The company will remain in business for an indefinite period of time B. That revenue should be matched with the related expenses in the same period that they occur C.
A business includes a footnote to fully explain the company’s pension plan. This would be based on the:A. Realization principle.B. Full disclosure principle.C. Conservatism concept.D. Need to
Using the accounting equation, enter the missing amount in the following: ASSETS LIABILITIES + STOCKHOLDERS' EQUITY A. $10,000 = $6,000 + B. $50,000 = + $40,000 C. = $8,000 +$12,000
For each item, indicate which major balance sheet category it would fall under(A = Assets), (L = Liabilities), (SE = Stockholders’ Equity):____ A. Office Equipment ____ B. Land ____ C. Accounts
Show the effects on total assets (increase = I; decrease = D; no effect = NE) for the following:____ A. The company issues stock for cash.____ B. The company pays an accounts payable with cash.____
An insurance agency receives premiums in advance and records an increase in cash and an increase in premiums received in advance. This would be an example of an accounting:A. Deferral B. Accrual C.
Which of the following events is best for recognizing revenue?A. When costs are recovered B. Receipt of cash C. Point of sale D. End of the production process
A retail establishment that only reported the number of each appliance in its inventory would violate which accounting assumption?A. Period assumption B. Going concern assumption C. Accounting entity
A music store purchases 300 DVDs from a wholesaler and records them as an Asset (inventory) in the accounting records in July. Which of the following is true concerning the matching principle?A. The
A computer store orders 10 computers from a wholesaler in March, receives them in April, and pays for them in May. Which of the following statement is correct using the realization principle?A. The
(True or false?) The accounting equation is always stated as: Assets = Liabilities+ Stockholders’ Equity.
(True or false?) The cost principle states that an item is valued at cost and is constantly updated as the cost changes.
(True or false?) The going concern assumption states that an organization will continue in business indefinitely.
(True or false?) The Conceptual Framework for Financial Reporting is a foundation for the creation of Generally Accepted Auditing Standards.
(True or false?) An accounting standard issued by the FASB is automatically accepted as a generally accepted accounting principle.
Which of the following parties need financial information from a business to perform critical decisions?A. Investors B. Investment bankers C. The Securities and Exchange Commission D. Pension funds
Which financial statement presents a summary of a business’s assets, liabilities, and owners’ equity?A. Cash flow statement B. Spreadsheet C. Balance sheet D. Income statement
Which of the following can not be sued for the business’s debts?A. The sole proprietorship B. A partnership C. A corporation D. Stockholders
Which of the following organizations is not a source of generally accepted accounting principles?A. The Financial Accounting Standards Board B. The Internal Revenue Service C. The Securities and
Which of the following is a component of the quality of relevance?A. Neutrality B. Verifiability C. Timeliness D. None of the above
Which of the following financial statements is a snapshot of the financial position of the company at a specific date in time?A. Statement of cash flows B. Income statement C. Statement of Changes in
Financial accounting information is most effective when:A. The information aids internal management in controlling costs.B. The value of the information exceeds the costs of producing it.C. The
Which of the following is a primary user of financial statements?A. Customers B. Labor unions C. Investors and creditors D. Governmental agencies, e.g., the SEC or IRS E. All of the above F. None of
For each of the following, check each item that is issued to external parties by the financial accounting function of a business enterprise:____ A. Balance sheet ____ B. Approved annual budget ____
(True or false?) To be employed in a corporation’s financial accounting function, an individual must legally be certified as a Certified Public Accountant.
(True or false?) Generally accepted accounting principles were established by Congress in 1933 and are updated annually by the American Institute of Certified Public Accountants.
(True or false?) The primary purpose of management accounting is to assist internal managers in their planning, controlling, and decision-making roles.
(True or false?) The income statement reports on the financial performance of a business entity in terms of revenue earned and expenses incurred during a specific period of time.
(True or false?) A partnership is a business entity in which the owners cannot be sued for debts incurred by the business.
(True or false?) The Financial Accounting Standards Board is responsible for certifying a CPA.
Introduce the accounting equation and its impact on the financial statements?
Describe measuring income and expenses using accrual accounting?
Describe the basic principles of accounting?
Describe the basic assumptions underlying generally accepted accounting principles?
Discuss how generally accepted accounting principles are developed?

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