1 Which of the following is a primary user of accounting information with a direct financial interest in the business?
- Taxing authority
- Creditor
- Regulatory agency
- Labor union
2 Resources owned by a business are referred to as
- stockholders’ equity.
- liabilities.
- assets.
- revenues.
3 Debts and obligations of a business are referred to as
- assets.
- equities.
- liabilities.
- expenses.
4 What organization issues U.S. accounting standards?
- Security Exchange Commission
- International Accounting Standards Committee
- International Auditing Standards Committee
- Financial Accounting Standards Board
5 The historical cost principle requires that when assets are acquired, they be recorded at
- market value.
- the amount paid for them.
- selling price.
- list price.
6 Otto’s Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?
- August 31
- August 1
- September 5
- September 6
7 The expense recognition principle matches:
- customers with businesses.
- expenses with revenues.
- assets with liabilities.
- creditors with businesses.
8 Closing entries:
- are prepared before the financial statements.
- reduce the number of permanent accounts.
- cause the revenue and expense accounts to have zero balances.
- summarize the activity in every account.
9 Using the following balance sheet and income statement data, what is the current ratio?
Current assets $ 7,000 Net income $ 15,000
Current liabilities 4,000 Stockholders’ equity 21,000
Average assets 44,000 Total liabilities 9,000
Total assets 30,000
Average common shares outstanding was 10,000.
- 0.78 : 1
- 3.33 : 1
- 0.57 : 1
- 1.75 : 1
10 Using the following balance sheet and income statement data, what is the earnings per share?
Current assets $ 7,000 Net income $ 15,000
Current liabilities 4,000 Stockholders’ equity 21,000
Average assets 44,000 Total liabilities 9,000
Total assets 30,000
Average common shares outstanding was 10,000.
- $1.50
- $2.50
- $0.67
- $0.55
11 Bathlinks Corporation has a debt to assets ratio of 93%. This tells the user of Bathlinks’s financial statements that
- Bathlinks is getting a 7% return on its assets.
- there is a risk that Bathlinks cannot pay its debts as they come due.
- 93% of the assets are financed by the stockholders.
- based on this measure, the user should invest in Bathlinks.
12 (2 points each) Indicate whether each item would appear on the statement of cash flows as a(n): (O) operating activity, (I) investing activity, or (F) financing activity.
____ a. Cash receipts from customers.
____ b. Issuance of common stock for cash.
____ c. Payment of cash dividends.
____ d. Cash purchase of equipment.
____ e. Cash payments to suppliers.
____ f. Sale of old machine for cash.
13 (50 points) The accounts in the ledger of Dependable Delivery Service contain the following balances on July 31, 2014.
Accounts Receivable | $11,400 | Prepaid Insurance | $ 1,800 |
Accounts Payable | 7,400 | Maintenance and Repairs Expense | 1,200 |
Cash | 15,940 | Service Revenue | 15,500 |
Equipment | 59,360 | Dividends | 800 |
Utilities Expense | 950 | Common Stock | 40,000 |
Insurance Expense | 600 | Salaries and Wages Expense | 8,400 |
Notes Payable, due 2017 | 31,450 | Salaries and Wages Payable | 900 |
Retained Earnings | 5,200 | ||
(July 1, 2014) |
Instructions
Prepare an income statement and a retained earnings statement for the month of July 2014, and a classified balance sheet for July 31. Grid paper is provided for you on the following pages.
DEPENDABLE DELIVERY SERVICE | ||
Income Statement | ||
(date) | ||
DEPENDABLE DELIVERY SERVICE | ||
Statement of Changes in Retained Earnings | ||
(date) | ||
DEPENDABLE DELIVERY SERVICE | ||
Classified Balance Sheet | ||
(date) | ||
14 (50 points) Journalize the following business transactions in general journal form. Identify each transaction by number instead of a date. You may omit explanations of the transactions.
- Stockholders invest $40,000 in cash in starting a real estate office operating as a corporation.
- Purchased $500 of supplies on credit.
- Purchased equipment for $25,000, paying $3,500 in cash and signed a 30-day, $21,500, note payable.
- Real estate commissions billed to clients amount to $4,000.
- Paid $700 in cash for the current month’s rent.
- Paid $250 cash on account for office supplies purchased in transaction 2.
- Received a bill for $800 for advertising for the current month.
- Paid $2,500 cash for office salaries.
- Paid $1,200 cash dividends to stockholders.
- Received a check for $2,000 from a client in payment on account for commissions billed in transaction 4.
General Journal | |||
Ref. | Account | Debit | Credit |
1 | |||
2 | |||
3 | |||
4 | |||
5 | |||
Account | Debit | Credit | |
6 | |||
7 | |||
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9 | |||
10 | |||
15 (30 points) Prepare adjusting entries for the following transactions. Refer to the transaction by number instead of date. You may omit explanations. Journal paper is provided on the next page.
- Depreciation on equipment is $1,340 for the accounting period.
- Interest owed on a loan but not paid or recorded is $275.
- There was no beginning balance of supplies and $550 of office supplies were purchased during the period. At the end of the period $100 of supplies were on hand.
- Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $700 had expired.
- Accrued salaries at the end of the period amounted to $900.
15 (continued)
General Journal | |||
Ref. | Account | Debit | Credit |
1 | |||
2 | |||
3 | |||
4 | |||
5 | |||
16 (5 points) Leyland Realty Company received a check for $15,000 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $15,000. Financial statements will be prepared on July 31. Leyland Realty should make the following adjusting entry on July 31:
- debit Unearned Rent Revenue, $2,500; credit Rent Revenue, $2,500.
- debit Rent Revenue, $2,500; credit Unearned Rent Revenue, $2,500.
- debit Unearned Rent Revenue, $15,000; credit Rent Revenue, $15,000.
- debit Cash, $15,000; credit Rent Revenue, $15,000.