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principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

Which of the following accounts would not appear in a closing entry?a. Salary Expensec. Accumulated Depreciationb. Interest Incomed. Retained Earnings
On October 1, 2011, the \(\$ 12,000\) premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2011 (end of the accounting period), what
On June 1, 2010, Oakcrest Company signed a three-year \(\$ 100,000\) note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2011. What amount of interest expense
If a company is successful in reducing selling and administrative costs while maintaining sales volume and the sales price of its product, what is the effect on the net profit margin ratio?a. The
When expenses exceed revenues in a given period,a. Retained earnings are not impacted.b. Retained earnings are decreased.c. Retained earnings are increased.d. One cannot determine the impact on
On January 1, 2011, Anson Company started the year with a \(\$ 250,000\) credit balance in Retained Earnings and a \(\$ 300,000\) balance in Contributed Capital. During 2011, the company earned net
During 2011, CliffCo Inc. incurred operating expenses of \(\$ 200,000\), of which \(\$ 150,000\) was paid in cash; the balance will be paid in January 2012. Transaction analysis of operating expenses
Which of the following is the entry to be recorded by a law firm when it receives a \(\$ 2,000\) retainer from a new client at the initial client meeting?a. Debit to Cash, \(\$ 2,000\); credit to
You have observed that the total asset turnover ratio for a retail chain has increased steadily over the last three years. The most likely explanation is which of the following?a. Salaries for upper
This period a company collects \(\$ 100\) cash on an account receivable from a customer for a sale last period. How would the receipt of cash impact the following two financial statements this
As stated in the audit report, or Report of Independent Accountants, the primary responsibility for a company's financial statements lies witha. The owners of the company.b. Independent financial
Which of the following is not a typical note included in an annual report?a. A note describing the auditor's opinion of the management's past and future financial planning for the business.b. A note
What is a T-account? What is its purpose?
At the end of a recent year, The Gap, Inc., reported total assets of \(\$ 7,564\) million, current assets of \(\$ 4,005\) million, total liabilities of \(\$ 3,177\) million, current liabilities of
Which of the following statements are true about globalization methods?a. International licensing involves the creation of a new company that is owned by two or more firms from different countries.b.
Which of the following environmental factors can affect the cost of doing business in a foreign country? (Identify all correct answers.)a. The educational level of the workforce.b. Laws regulating
A country whose citizens are highly group oriented and who accept unequal power distributions between and within organizations would be considered:a. Individualistic and low power distance.b.
On March 1, Laton Products (a U.S. firm) purchased manufacturing inputs from a Mexican supplier for 20,000 pesos, payable on June 1. The exchange rate for pesos on March 1 was \(\$ 0.17\). If the
On January 1, a German company purchased merchandise from a U.S. firm for \(\$ 50,000\), payable on March 1. The exchange rate for the euro on January 1 was \(\$ 1.10\). If the exchange rate
Which of the following usually is least important as a measure of short-term liquidity?a. Quick ratio.b. Debt ratio.c. Current ratio.d. Cash flows from operating activities.
In each of the past five years, the net sales of Plaza Co. have increased at about half the rate of inflation, but net income has increased at approximately twice the rate of inflation. During this
From the viewpoint of a stockholder, which of the following relationships do you consider of least significance?a. The return on assets consistently is higher than the industry average.b. The return
The following information is available from the annual report of Frixell, Inc.:Which of the following statements are correct? (More than one statement may be correct.)a. The return on equity exceeds
Hart Corporation's net income was \(\$ 400,000\) in 2010 and \(\$ 160,000\) in 2011. What percentage increase in net income must Hart achieve in 2012 to offset the decline in profits in 2011?a. \(60
If a company's current ratio declined in a year during which its quick ratio improved, which of the following is the most likely explanation?a. Inventory is increasing.b. Inventory is declining.c.
In financial statement analysis, the most difficult of the following items to predict is whether:a. The company will be liquid in six months.b. The company's market share is increasing or
The statement of cash flows is designed to assist users in assessing each of the following, except:a. The ability of a company to remain liquid.b. The major sources of cash receipts during the
Which of the following is not included in the statement of cash flows, or in a supplementary schedule accompanying the statement of cash flows?a. Disclosure of investing or financing activities that
Cash flows are grouped in the statement of cash flows into the following major categories:a. Operating activities, investing activities, and financing activities.b. Cash receipts, cash disbursements,
The following is a list of various cash payments and cash receipts:Based only on the above items, net cash flows from operating activities are:a. \(\$ 138,000\)b. \(\$ 91,000\)c. \(\$ 120,000\)d.
During the current year, two transactions were recorded in the Land account of Duke Industries. One involved a debit of \(\$ 320,000\) to the Land account; the second was a \(\$ 210,000\) credit to
Which of the following business strategies is most likely to increase the net cash flows of a software developer in the short run but reduce them over a longer term?a. Develop software that is more
The primary purpose of showing special types of events separately in the income statement is to:a. Increase earnings per share.b. Assist users of the income statement in evaluating the profitability
Which of the following situations would not be presented in a separate section of the current year's income statement of Hamilton Corporation? During the current year:a. Hamilton's Los Angeles
When a corporation has outstanding both common and preferred stock:a. Basic and diluted earnings per share are reported only if the preferred stock is cumulative.b. Earnings per share is reported for
Which of the following is (are) not true about a stock dividend?a. Total stockholders' equity does not change when a stock dividend is declared but does change when it is distributed.b. Between the
The statement of retained earnings:a. Includes prior period adjustments, cash dividends, and stock dividends.b. Indicates the amount of cash available for the payment of dividends.c. Need not be
When a business is organized as a corporation, which of the following statements is true?a. Stockholders are liable for the debts of the business in proportion to their percentage ownership of
Western Moving Corporation was organized with authorization to issue 100,000 shares of \(\$ 1\) par value common stock. Forty thousand shares were issued to Tom Morgan, the company's founder, at a
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.

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