Corporate Accounting
Study Guide Questions
Course Introduction
Corporate Accounting provides an in-depth exploration of the principles, practices, and procedures related to accounting for corporations. The course covers key topics such as the formation and structure of corporations, issue and redemption of shares and debentures, preparation and presentation of final accounts, interpretation of financial statements, and accounting for amalgamations, mergers, and acquisitions. It also examines regulatory requirements, disclosure norms, and corporate governance practices in financial reporting. Through case studies and practical problems, students gain a comprehensive understanding of managing corporate finances, compliance with statutory obligations, and making informed business decisions based on accounting data.
Recommended Textbook
Corporate Financial Accounting 15th Edition by Carl S. Warren
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Page 2
Chapter 1: Accounting and Business
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Sample Questions
Q1) Within the United States, the dominant body in the primary development of accounting principles is the
A) American Institute of Certified Public Accountants (AICPA)
B) American Accounting Association (AAA)
C) Financial Accounting Standards Board (FASB)
D) Institute of Management Accountants (IMA)
Answer: C
Q2) A dressmaking company
A)Service business
B)Manufacturing business
C)Retail business
Answer: B
Q3) A health club and spa
A)Service business
B)Manufacturing business
C)Retail business
Answer: A
Q4) What are the three sections of the statement of cash flows?
Answer: Operating Activities, Investing Activities, and Financing Activities
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Chapter 2: Double-Entry Accounting
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Sample Questions
Q1) Prepare a journal entry for the purchase of a truck on April 4 for $85,700, paying $15,000 cash and the remainder on account. Omit explanation.
Answer: 11ea84e6_b038_acca_9a63_0f528a2b1fa2_TB2281_00_TB2281_00
Q2) During May, $245,000 was paid to creditors on account, and purchases on account were $210,500. Assuming the May 31 balance of Accounts Payable was $62,800, what was the account balance on May 1.
Answer: + $210,500 $245,000 = $62,800
Accounts Payable balance at May 1 is $97,300
Q3) The Posting Reference columns are used to trace transactions from the accounts to the journal. What will be entered in the Posting Reference column of (1) the journal and (2) the account?
A) (1) the amount of the debit or credit and (2) the journal page number
B) (1) the journal page number and (2) the date of the transaction
C) (1) the journal page number and (2) the account number
D) (1) the account number and (2) the journal page number
Answer: D
Q4) Prepare an unadjusted trial balance, listing the accounts in their proper order.
Answer: 11ea84e6_b039_e56a_9a63_1b5f6860b9cc_TB2281_00_TB2281_00
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Chapter 3: Adjustments: Accruals and Deferrals
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Sample Questions
Q1) The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received.
A)True
B)False
Answer: False
Q2) The matching principle
A) addresses the relationship between the journal and the balance sheet
B) determines whether the normal balance of an account is a debit or credit
C) requires that the dollar amount of debits equal the dollar amount of credits on a trial balance
D) states that the revenues and related expenses should be reported in the same period
Answer: D
Q3) The adjusted trial balance verifies that total debits equals total credits before the adjusting entries are prepared.
A)True
B)False Answer: False
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Chapter 4: The Accounting Cycle
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Sample Questions
Q1) A post-closing trial balance should be prepared before the financial statements are prepared.
A)True
B)False
Q2) The end-of-period spreadsheet is not considered a part of the formal accounting records.
A)True
B)False
Q3) The balance sheet should be prepared
A) before the income statement and the retained earnings statement
B) before the income statement and after the retained earnings statement
C) after the income statement and the retained earnings statement
D) after the income statement and before the retained earnings statement
Q4) Prepaid insurance is reported on the balance sheet as a
A) current asset
B) fixed asset
C) current liability
D) long-term liability
Q5) Explain how net income or loss is determined by using the end-of-period spreadsheets.
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Chapter 5: Accounting for Retail Businesses
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Sample Questions
Q1) If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
A) consigned
B) n/30
C) FOB shipping point
D) FOB destination
Q2) Sellers and buyers are required to record trade discounts.
A)True
B)False
Q3) The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include
A) only the list price
B) only the sales tax
C) the list price plus the sales tax
D) the list price less the sales tax
Q4) Most companies will not take a purchase discount, because 1% or 2% discounts are insignificant.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) Use the information in the table to answer this question. If Addison uses LIFO, the September 17 cost of goods sold would be:
A) $400
B) $450
C) $500
D) $600
Q2) One unit is sold on October 31 for $28. Using the table provided, determine cost of goods sold under the average cost method.
A) $22
B) $17
C) $13
D) $11
Q3) Assuming that the company uses the perpetual inventory system, determine the May 31 inventory balance using the LIFO inventory cost method.
A) $324
B) $372
C) $320
D) $364
Q4) List three different security measures taken to safeguard inventory.
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Chapter 7: Internal Control and Cash
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Q1) Which of the following is a reason that businesses use bank accounts as part of their internal control measures.
A) The bank records incoming checks as liabilities.
B) Customer's returned checks can be charged an NSF fee.
C) Bank accounts are an independent record of cash transactions.
D) Differences between the company balance and the bank balance will automatically indicate fraud.
Q2) Error in recording a check
A)bank statement adjustment
B)company books adjustment
C)either
Q3) Sarbanes-Oxley applies to
A) publicly held companies
B) not-for-profit organizations
C) privately held businesses
D) all of these
Q4) Interest revenue
A)bank statement adjustment
B)company books adjustment
C)either
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Chapter 8: Receivables
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Sample Questions
Q1) Lone Star Company received a 90-day, 6% note for $80,000, dated March 12 from a customer on account. (Assume a 360-day year when calculating interest.) (a) Determine the due date of the note.
(b) Determine the maturity value of the note.
(c) Journalize the entry to record the receipt of the payment of the note at maturity.
Q2) A 60-day, 12% note for $7,000, dated April 15, is received from a customer on account. The face value of the note is
A) $6,860
B) $7,140
C) $7,840
D) $7,000
Q3) Fellows Corporation has determined that the $2,700 accounts receivable due from Andrew Stevens is uncollectible. Compare the journal entry that is required under the direct write-off method to the journal entry that is required using the allowance method.
Q4) Discuss the (a) focus and (b) financial statement emphasis of the percent of sales and the analysis of receivables methods of estimating bad debts.
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Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the remaining useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is
A) $11,636
B) $16,000
C) $11,000
D) $8,000
Q2) The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called
A) depletion
B) deferral
C) amortization
D) depreciation
Q3) A machine costing $185,000 with a 5-year life and $20,000 residual value was purchased January 2. Compute depreciation for each of the five years, using the double-declining-balance method.
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Chapter 10: Liabilities: Current, Installment Notes, and Contingencies
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Sample Questions
Q1) The entry to record accrual of employer's payroll taxes would include a
A) debit to Payroll Tax Expense for $2,500
B) debit to FICA Taxes Payable for $1,800
C) credit to Payroll Tax Expense for $248
D) debit to Payroll Tax Expense for $1,148
Q2) On January 5, Thomas Company, a calendar-year company, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 each of the next four years. The proper balance sheet presentation on December 31 is
A) Current Liabilities, $1,000,000
B) Current Liabilities, $250,000; Long-Term Debt, $750,000
C) Long-Term Debt, $1,000,000
D) Current Liabilities, $750,000; Long-Term Debt, $250,000
Q3) Federal unemployment compensation taxes that are collected by the federal government are not paid directly to the unemployed but are allocated among the states for use in state programs.
A)True
B)False
Q4) The borrower issues a note payable to a creditor.
A)True
B)False
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.
A)True
B)False
Q2) The times interest earned ratio is computed as
A) Income before income taxes + Interest expense ÷ Interest expense
B) Income before income taxes - Interest expense ÷ Interest expense
C) Income before income taxes ÷ Interest expense
D) Income before income taxes + Interest expense ÷ Interest revenue
Q3) If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.
A)True
B)False
Q4) There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.
A)True
B)False
Q5) How should any unamortized premium be reported on the balance sheet of the issuing corporation?
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Chapter 12: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) The date on which a cash dividend becomes a binding legal obligation is on the A) declaration date
B) date of record
C) payment date
D) last day of fiscal year
Q2) Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: \(\begin{array}{lr}
\text { Year 1: } & \$ 10,000 \\
\text { Year 2: } & 45,000 \\
\text { Year 3: } & 90,000 \end{array}\)
Determine the dividends per share for preferred and common stock for the second year.
A) $2.25 and $0.00
B) $2.25 and $0.45
C) $0.00 and $0.45
D) $2.00 and $0.45
Q3) Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. Journalize the transaction.
Page 14
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Chapter 13: Statement of Cash Flows
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Q1) The net income reported on the income statement for the current year was $275,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: \(\begin{array}{lrr} & \text { End } & \text { Beginning } \\
\text { Cash } & \$ 50,000 & \$ 60,000 \\
\text { Accounts receivable } & 112,000 & 108,000 \\
\text { Inventories } & 105,000 & 93,000 \\
\text { Prepaid expenses } & 4,500 & 6,500 \\
\text { Accounts payable (merchandise creditors) } & 75,000 & 89,000 \end{array}\)
What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
A) $198,000
B) $324,000
C) $352,000
D) $296,000
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures.
A)True
B)False
Q2) Using the balance sheets for Kellman Company, if net income is $150,000 and interest expense is $20,000 for Year 2, what is the return on total assets for the year?
A) 10.4%
B) 11.9%
C) 10.5%
D) 8.4%
Q3) Based on the data for Privett Company, what is the amount of working capital?
A) $213,000
B) $113,000
C) $153,000
D) $39,000
Q4) For the current year, Lynx Company's comprehensive income was $245,000 and its net income was $198,000. What is Lynx Company's other comprehensive income?
Q5) The following data are available for Martin
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Chapter 15:Investments
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Q1) Trading securities are reported on the balance sheet at fair value.
A)True
B)False
Q2) Temporary investments such as in trading securities are
A) recorded at cost but reported at fair value
B) recorded at cost and reported at cost
C) recorded at cost but reported at lower of cost or fair value
D) recorded at fair value and reported at fair value
Q3) On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment-Treasury Bonds account?
A) $50,000
B) $50,500
C) $49,500
D) $53,000
Q4) Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net income of $75,000 and declared dividends of $15,000 during the current year. How much would Pepito adjust its investment in Reyes Company under the equity method?
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