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A company made net sales revenue of $540,000 and cost of goods sold totaled $324,000. Calculate its gross profit percentage.


Gross profit is calculated as the difference between net sales revenue and ________.

costs of goods sold

Which of the following is a disadvantage of accepting credit cards or debit cards for a business?

It will have to pay a certain amount as processing fee.

Which of the following statements describes a purchase order?

It is an order to purchase goods from a supplier.

An entry to write off an account receivable under the allowance method will ________.

have no effect on net income

In a large company, the person who is responsible for comparing cash and the bank balance is the ________.


Merchandise Inventory and Cost of Goods Sold appear ________.

on the balance sheet and income statement, respectively

Which of the following states that the business should use the same accounting methods from period to period?

consistency principle

A company has a petty cash fund amount of $300. When replenished, it has petty cash receipts of $30 for gas expense, $32 for postage expense, $16 for supplies expense, and $10 for miscellaneous expenses. Assume the cash balance is not over or short. In the journal entry, Cash would be credited with ________.


A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)


The beginning inventory of Soft Toys Inc. was $46,000. The purchases (excluding returns) and sales revenue for the year were $230,000 and $325,000, respectively. The purchase returns amounted to $30,000. The company’s normal gross profit percent is 60%. What is the amount of the estimated ending inventory?


Under the direct write-off method, which of the following is included in the entry to write off an uncollectible account?

a credit to the customers account receivable

Calculate the interest on a 90-day, 9% note for $36,000. (Use a 360-day year to compute interest.)


In a multi-step income statement, which of the following items is excluded from the calculation of operating income?

interest expense

Which of the following is representative of safeguarding assets

keeping office supplies under lock and key

What is the maturity value of a 3-month, 10% note for $40,000?


A check was written by a business for $507, but was recorded in the cash payments journal as $705. How would this error be included on the bank reconciliation?

an addition on the book side

Which of the following is a requirement of the Sarbanes-Oxley Act?

An outside auditor must issue an internal control report for each public company.

What does "2/10" mean, with respect to "credit terms of 2/10, n/30"?

A discount of 2% will be allowed if invoice is paid within 10 days from the date of the invoice.

Which of the following inventory valuation methods should be used for unique items?

specific identification

The entity that signs the promissory note and promises to pay the required amount is the ________.

maker of the note

The Sales Discounts account is a contra account to the ________

Sales Revenue account

The petty cash fund had an initial imprest balance of $200. It currently has $17 in cash, $3 in miscellaneous cash receipts, and an additional $180 in specific cash receipts. The debit to Cash Short & Over would be ________.


Which of the following is an application of the conservatism principle?

reporting inventory at the lower of cost or market

A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold a total of 150 units for $45 each from March 1 through December 31. What is the amount of ending inventory on December 31, if the company uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.)


Which of the following is described as a system where customers send their checks directly to a post office box that belongs to a bank?

lock box system

For a company with significant uncollectible receivables, the direct write-off method is unsuitable because ________.

it violates the matching principle

Which of the following is the correct formula to calculate average merchandise inventory?

Average merchandise inventory = (Beginning merchandise inventory + Ending merchandise inventory) ÷ 2

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

costs of goods sold

Which of the following statements describes a receiving report?

It is a report showing that the goods have been received in good condition, as ordered

Which of the following statements is true?

Notes receivable are longer in term than accounts receivable.

On January 1, Ajax Corp. accepted a one-year note for $50,000 at 5% from one of its customers. When the note matured on December 31, the customer was unable to pay, and the company recorded the dishonor. The amount of the debit in the dishonor entry would be: ________.


Michelin Jewelers uses the perpetual inventory system. On April 2, Michelin sold merchandise with a cost of $5,500 for $9,000 to a customer on account with terms of 3/15, n/30. On April 4, the customer reported damaged goods and Michelin granted a $1,000 sales allowance. On April 10, Michelin received payment from the customer. Calculate the amount of net sales revenue.


A company using the perpetual inventory system purchased inventory worth $25,000 on account with terms of 2/10, n/30. Defective inventory of $2,000 was returned 2 days later and the accounts were appropriately adjusted. If the invoice is paid within 10 days, the amount of the purchase discount that would be available to the company is ________.


Which of the following is true of internal control?

One of the major purposes of internal control is to ensure that the assets are safeguarded.

The bank made an EFT payment of a telephone bill of $5,000. How would this information be included on the bank reconciliation?

deduction on the book side

Which of the following is shown on a multi-step income statement, but not on a single-step income statement?

gross profit

A company has the cash ratio of 2.3. What does this imply?

The company has an unnecessarily large amount of cash supply.

Misty Inc. had 20,000 units of ending inventory that were recorded at their cost of $5.00 per unit using the first-in, first-out (FIFO) method. The current replacement cost is $4.25 per unit. Which of the following amounts would be reported as Ending Merchandise Inventory on the balance sheet using the lower-of-cost-or-market rule?


The inventory account balance is $50,000. An actual count of inventory reveals that actual inventory is $43,000. Which of the following would be included in the adjusting entry? (Assume a perpetual inventory system)

a $7,000 credit to Merchandise Inventory

A way to account for petty cash by maintaining a constant balance in the petty cash account and which at any time requires that cash plus petty cash tickets must total the amount allocated to the petty cash fund, is known as the ________.

imprest system

The Allowance for Bad Debts has a credit balance of $9,000 before the adjusting entry for bad debt expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging method, the company’s management estimates that uncollectible accounts will be $15,000. What will be the amount of bad debts expense reported on the income statement?


Which of the following statements is true of the direct write-off method?

It is only suitable for small companies that have very few uncollectible receivables.

Which of the following is true of the proper balance sheet treatment of the Allowance for Bad Debts with a credit balance?

It is shown as a contra account related to accounts receivable.

Which of the following statements describes an invoice from a supplier?

It is a statement from the supplier showing the goods purchased and the amount due.

A deposit receipt is

retained by the customer as proof of a deposit transaction

When a company uses the perpetual inventory method, which of the following would be the entry to adjust inventory to lower-of-cost-or-market?

debit Cost of Goods Sold and credit Merchandise Inventory

Which of the following is a collection of all the accounts, the changes in those accounts, and their balances?

a ledger

When is a trial balance usually prepared?

before the financial statements are prepared

Lush Lawns Corporation earned $1,000 for lawn mowing services rendered. The customer promised to pay at a later time. Which of the following accounts increased as a result of this transaction?

accounts recievable

Which of the following financial statements lists the entity’s assets, liabilities, and stockholders’ equity as of a specific date?

balance sheet

According to the ________, the acquired assets should be recorded at the amount actually paid rather than at the estimated market value.

cost principle

Revenues and expenses are transferred to the ________ account before their final transfer into the Retained Earnings account.

income summary

Which of the following categories of accounts are temporary accounts that are closed at the end of the year?

revenues, expenses, dividends

Which of the following groups of accounts normally have a debit balance?

assets, and expenses

Posting a transaction means ________.

transferring data from the journal to the ledger

Financial statements are prepared from the balances in a(n) ________

adjusted trial balance

Patents, copyrights, and trademarks are examples of ________.

intangible assets

Accountants first record transactions in a ________.


________ are professional accountants who serve the general public, not one particular company.

Certified public accountants

A company has $130,000 in current assets; $500,000 in total assets; $90,000 in current liabilities, and $110,000 in total liabilities. Calculate the current ratio of the company.


On the first day of January, Maywood Inc. borrowed $2,000 on a one-year note payable bearing interest at 4% per year. The note specifies that principal and interest must be paid in full at the end of the one-year period. On June 30, the adjusted trial balance will show Interest Payable of ________.


The explanation of why the net income differs from the change in cash balance for the period is explained in the ________.

statement of cash flows

Ace Inc. had the following transactions in June:
Sold goods for $4,000 on account; received cash on account, $5,000; paid $800 for repair expense; paid $2,000 to a supplier that it owed from the previous month. What is the combined effect on Cash of the June transactions?

$2,200 increase

Rosewood Inc. earned revenues of $15,000 and incurred expenses of $9,000. The company declared and paid cash dividends of $3,000. What is the balance in the Income Summary account prior to closing net income or loss to the Retained Earnings account?

credit balance of $6,000

The accounting principle that ensures all expenses are recorded when they are incurred during the period and offsets those expenses against the revenues of the period, is called the ________ principle.


The Accounts Receivable account is a(n) ________ account and carries a ________ normal balance.

asset: debit

Which of the following is a liability account?

notes payable

An account that is not closed at the end of the period is called a(n) ________.

permanent account

Which of the following accounts will be closed by crediting the Income Summary account?

service revenue

The economic resources of a business such as furniture, building, and land are its ________.


Dividends is a(n) ________ account that has a normal ________ balance.

equity: debit

Closing journal entries are posted ________.

after preparing the financial statement

Assets that are expected to be converted to cash, sold, or used up during the next 12 months, or within the business’s normal operating cycle if the cycle is longer than a year are called ________ assets.


Which of the following statements is true of a trial balance?

A trial balance is a list of all accounts with their balances

The time span during which cash is paid for goods and services, which are then sold to customers from whom the business collects cash, is called the ________.

operating cycle

Unearned Revenue is classified as a(n) ________ account.


The adjusted trial balance shows ________.

account balance after adjustments

Which of the following factors is assessed using the debt ratio?


Which of the following users would rely on management accounting information for decision-making purposes?

company managers

Which of the following accounts would be used under the accrual method of accounting, but not under cash basis accounting?

unearned revenue

Mitchell Florists & Co. reported assets of $1,000 and equity of $350. What is its debt ratio?


Which of the following accounts will be included in a post-closing trial balance?

common stock

If a company is using the accrual basis accounting method, when should it record its earned revenue?

when services are rendered, even though cash may be received at a later date

The income statement presents a summary of an entity’s revenues and expenses for a period of time. Which of the following statements is true of an income statement?

There is net income when total revenues are greater than total expenses.

Paramount Event Planning Services collects fees from its customers in advance. On January 1, 2015, the balance of its Unearned Revenue account had a balance of $6,000 (Cr.). During January and February, the company collected $3,000 and $1,000 as advance fees. During the two-month period, it rendered services of $6,500 related to the prepaid revenue. What is the balance in Unearned Revenue at the end of February?

credit balance of $3,500

The current ratio measures ________.

a company’s ability to pay current liabilities with current assets

Which of the following organizations is responsible for the creation and governance of accounting standards in the United States?

Financial Accounting Standards Board

Which of the following is the correct accounting equation

Assets = Liabilities + Equity

Assume MetAmbit Corporation had a net income of $2,500 for the year ending December, 2014. Its beginning and ending total assets were $35,500 and $20,500, respectively. Calculate MetAmbit’s return on assets (ROA). (Round your percentage answer to two decimal places.)


A business makes a payment in cash for advertising expense. Which of the following accounts will be debited?

advertising expense

A list of the accounts and their balances at the end of the period after journalizing and posting the closing entries and includes only permanent accounts is called ________.

post-closing trial balance

The process by which companies produce their financial statements for a specific period is called the ________.

accounting cycle

Healthy Living, a diet magazine, collected $480,000 in subscription revenue on May 31st. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. What is the amount of Subscription Revenue that has been earned by the end of December?


The account title used for recording the payment of rent in advance for an office building is ________.

prepaid rent

Which of the following account’s balance is carried forward to the next accounting period?

accumulated depreciation

Which of the following is considered a fiscal year?

12 months

A coal mine costs $1,000,000 and is estimated to hold 50,000 tons of coal. There is no residual value. 3,000 tons are extracted and sold during the first year of operations. Calculate depletion per unit.


On October 1, 2015, Nurix Inc. purchased a patent for $200,000 cash. Although the patent gives legal protection for 20 years, the patent is expected to be used for only 10 years. What will be the balance in the patent account on September 30, 2016?


The cost of an asset is $1,000,000 and its residual value is $100,000. Estimated useful life of the asset is four years. Calculate depreciation for the first year using the double-declining-balance method of depreciation


Which of the following describes a serial bond?

a bond that repays principal in installments

On January 1, 2015, Anodel Inc. acquired a machine for $1,000,000. The estimated useful life of the asset is 5 years. Residual value at the end of 5 years is estimated to be $50,000. Calculate the depreciation expense per year using the straight-line method.


Steel Rolling Corp. purchased a mine on January 1, 2015, for $500,000 and it is estimated to contain 30,000 tons of iron ore. There is no residual value. The corporation has extracted 2,500 tons of ore in 2015 and 3,800 tons of ore in 2016. What is depletion expense for 2016? (Do not round your intermediate calculations


Which of the following is paid by the employer only?

Federal Unemployment Tax

Trek Holidays Company signed a 9%, 10-year note for $150,000. The company paid $1,900 as the installment for the first month. After the first payment, what is the updated principal balance?


A photocopier costs $95,000 when new and has accumulated depreciation of $88,000. Suppose the corporation junks this machine and receives nothing. What is the result of the disposal transaction?

loss of $7,000

The balance in the Bonds Payable account is a credit of $65,500. The balance in the Discount on Bonds Payable account is a debit of $2,150. How much is the bond’s carrying amount?


Which of the following is included in the cost of a plant asset?

amounts paid to make the asset ready for its intended use

Debra Technologies invested $50,000 to buy $50,000 face value, 8%, five-year in municipal bonds on January 2, 2010. The bonds will mature on January 2, 2015. The bonds pay interest semiannually on January 2 and July 2 every year till maturity. Based on the information provided, which of the following will be included in the journal entry for the transaction on January 2, 2014?

a credit to Interest Revenue for $2,000

Which of the following is the correct accounting treatment for a patent?

A patent must be capitalized and amortized over 20 years or less

Which of the following is an intangible asset?


Which of the following asset categories would include the cost of clearing land and removing unwanted buildings?


An asset was purchased for $24,000. The asset’s estimated useful life was 5 years, and its residual value was $4,000. The straight-line method of depreciation was used. Calculate the gain or loss on sale if the asset is sold for $18,000 at the end of the first year.

$2,000 loss

Which of the following depreciation methods allocates a varying amount of depreciation each year based on an asset’s usage?

the units-of-production metho

The gain or loss on the sale of a plant asset is determined by comparing ________.

sale value and book value

Which of the following items should be amortized

patents, copyrights, trademarksn

Synergy Appliances sells dishwashers with a 4-year warranty. In 2013, sales revenue for dishwashers is $85,000. The company estimates warranty expense at 4.5% of revenues. What is the total estimated warranty payable of Synergy Appliances in 2013?


Which of the following categories of assets should be depreciated?

tangible property, plant and equipment, other than land

Businesses are allowed to record goodwill ________.

if they acquire another corporation at a price higher than the market value of its net assets

Blandings Glassware Company issues $1,000,000 of 8%, 10-year bonds at 98 on February 28, 2014. The bonds pay interest on February 28 and August 31. Assume that Blandings uses the straight-line method for amortization. The journal entry to record the first interest payment on August 31, 2014 would be a ________.

debit to Interest Expense for $41,000

A machine that was purchased for $100,000 has an accumulated depreciation of $70,000 as of the current date. The corporation exchanges the machine for a new machine. The new machine has a market value of $120,000 and the corporation pays cash of $100,000. Assume the exchange has commercial substance. What is the result of this exchange?

loss of $10,000

Moretown Inc. had the following transactions in 2015, its first year of operations.

∙ Issued 30,000 shares of common stock. Stock has par value of $1.00 per share and was issued at $18.00 per share.
∙ Earned net income of $70,000.
∙ Paid no dividends.

At the end of 2015, what is the total amount of stockholders’ equity?


Assume the following information for Petra Sales Inc.:

∙ Common stock, $1.00 par, 200,000 issued, 180,000 outstanding
∙ Paid-In Capital in Excess of ParCommon: $1,600,000
∙ Retained earnings: $2,440,000
∙ Treasury stock: 20,000 shares purchased at $12 per share

If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, what number of shares will be shown as issued and outstanding?

200,000 issued; 175,000 outstanding

Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par value common stock at $13 per share cash

Cash would be debited for $65,000

The ________ section of the statement of cash flows includes increase and decrease in long-term assets.

investing activities

Which of the following is a cash outflow for a financing activity on the statement of cash flows?

purchase of treasury stock

The purchase of equipment financed by a long-term notes payable is an example of ________.

non-cash investing and financing activity

A corporation originally issued $5 par value common stock for $6 per share. Which of the following would be included in the entry to record the purchase of 300 shares of treasury stock for $10 per share?

Treasury StockCommon would be debited for $3,000

Bradley Corporation issued 10,000 shares of common stock on January 1, 2015. The stock has a par value of $0.01 per share and was sold for cash at par. Which of the following is the correct journal entry to record this transaction?

Cash debited for $100 and Common Stock$0.01 Par Value credited for $100

Harrison Recyclers Company uses the indirect method to prepare its statement of cash flows. Refer to the following information for the year 2014:
1) Retained Earnings, beginning balance, $138,000
2) Retained Earnings, ending balance, $125,000
3) Company reported net loss of $13,000 for the year.
What was the amount of dividends declared during the year?


Which of the following explains the term "lack of mutual agency" of a corporation?

Stockholders are not authorized to sign contracts or make business commitments on behalf of the corporation.

A summary of significant accounting policies and explanations of specific items on the financial statements will be given in ________.

the notes to financial statement

Dividends in arrears are ________.

passed dividends on cumulative preferred stockWhich of the following is the typical order of the sections on a statement of cash flows?

Which of the following is the typical order of the sections on a statement of cash flows?

operating, investing, financing

Which of the following is true of dividends?

Dividends are a distribution of cash, stock, or other assets to the stockholders.

A business’s cash receipts and cash payments for a specific period are reported on a(n) ________.

cash flow statement

Perez Biofuels Company is preparing its statement of cash flows using the indirect method. Refer to the following information.
1) Repayments on Long-Term Notes Payable $58,000
2) New borrowing on Long-Term Notes Payable $19,000

Which of the following statements is accurate regarding the statement of cash flows?

Net cash used for financing activities will amount to $(39,000)

Outstanding stock refers to the ________.

shares of stock that are held by the stockholders

Which of the following describes the operating activities section of the statement of cash flows?

It includes cash transactions that primarily affect current assets and current liabilities

On the ________, cash dividends become a liability of a corporation.

declaration date

Which of the following statements is true of a corporation?

Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock

Avatar Auto Parts Company uses the indirect method to prepare its statement of cash flows. Refer to the following information for the year 2015:
Net cash provided by operating activities: $102,000
Net cash used in investing activities: $(113,500)
Net cash provided by financing activities: $15,000
If the cash balance at the beginning of the year was $13,000, what would be the ending cash balance?


While preparing a statement of cash flows using the indirect method, the Depreciation Expense ________.

is added back as an adjustment to Net Income in the operating activities section

The issue of Common Stock for cash will be shown as a ________.

positive cash flow in the financing section of the statement of cash flows

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