1) Fraud is a major problem in many businesses throughout the world.
2) The net of foreign-currency transaction gains and losses will appear on the income
statement.
3) The process of determining the present value of a sum of money is called discounting
because the present value of a sum of money is more than the future value of a sum of
money.
4) A statement of cash flows reports the cash inflows and cash outflows for a company
at a point in time.
5) Realized gains on the sale of long-term available-for-sale securities are reported as
other comprehensive income on the Statement of Comprehensive Income.
6) A company’s net income as a percentage of sales is 15%. Using vertical analysis, the
cost of goods sold as a percentage of sales must be 85%.
7) Temporary accounts are closed at the end of the accounting period.
8) Posting accounting transactions avoids the necessity of journalizing transactions
9) The useful lives of many franchises are indefinite and therefore are not amortized.
10) The costs assigned to the Land account include attorney fees and survey fees paid to
find the lot lines for the property in question.
11) For investment analysis, it is generally considered more useful to calculate the
percentage changes in the dollar amounts of financial statement line items from year to
year instead of using the absolute dollar amounts.
12) The following item appeared on a balance sheet:
Accounts Receivable, less allowance of $1,099 ..$1,432,600
The gross balance in Accounts Receivable before the allowance was deducted was:
A) $1,431,501
B) $1,432,600
C) $1,433,699
D) none of the above
13) For a retailer, there will be positive income from operations if:
A) revenues are greater than cost of goods sold
B) revenues are greater than operating expenses
C) gross profit is greater than operating expenses
D) cost of goods sold is greater than operating expenses
14) Under the direct write-off method, what journal entry is prepared when an account
is determined to be worthless or uncollectible?
A) debit Allowance for Uncollectible Accounts and credit Accounts Receivable
B) debit Accounts Receivable and credit Allowance for Uncollectible Accounts
C) debit Uncollectible-Account Expense and credit Allowance for Uncollectible
Accounts
D) debit Uncollectible-Account Expense and credit Accounts Receivable
15) Long-term investments include:
A) stocks and bonds
B) securities that the investor expects to hold longer than one year
C) securities reported in the noncurrent asset section of the balance sheet
D) all of the above
16) Sales revenue less cost of goods sold is called:
A) gross profit
B) net income
C) net profit
D) net sales
17) Trevino Company has decided to factor its accounts receivable in order to get the
immediate receipt of cash. The journal entry to record the factoring of the receivables
would include:
A) a debit to Accounts Receivable and a credit to Cash
B) a debit to Cash and a credit to Accounts Receivable
C) a debit to Cash, debit to Financing Expense and credit to Accounts Receivable
D) a debit to Cash, credit to Interest Revenue and credit to Accounts Receivable
18) A company uses LIFO in one year, then switches to FIFO and then to average-cost.
This is a violation of the:
A) disclosure principle
B) historical cost principle
C) consistency principle
D) conservatism principle
19) Estimating uncollectible accounts by analyzing individual accounts receivable
according to the length of time they have been outstanding is known as the:
A) direct write-off method
B) percent-of-sales method
C) allowance method
D) aging-of-receivables method
20) Which statement(s) reports the revenues, gains, expenses, and losses of an entity?
A) Balance sheet
B) Statement of cash flows and income statement
C) Statement of retained earnings and statement of operations
D) Income statement
21) Creating bogus websites for the purpose of stealing unauthorized data is a(n):
A) encryption device
B) phishing expedition
C) computer virus
D) Trojan horse
22) If, as part of the accounting for a lease, the lessee debits an asset and credits a
liability, then the lease must be a(n):
A) purchased lease
B) operating lease
C) cancelable lease
D) capital lease
23) Increases and decreases in the long-term assets are reported on the statement of
cash flows as:
A) operating activities
B) investing activities
C) financing activities
D) noncash activities
24) Secured bonds are:
A) also called mortgage bonds
B) also called serial bonds
C) bonds that give the holder the right to take specified assets of the issuer in the event
the issuer fails to pay interest or principal
D) A and C
25) Beginning inventory for the year ended December 31, 2015, is understated. How
will this error affect net income for 2015 and 2016?
A) 2015 overstated; 2016 understated
B) 2015 understated; 2016 overstated
C) 2015 overstated; 2016 no effect
D) 2015 understated; 2016 no effect
26) On the statement of cash flows prepared under the indirect method, activities that
affect stockholders’ equity and long-term debt are classified as:
A) operating activities
B) investing activities
C) financing activities
D) free cash flows
27) Other comprehensive income:
A) is a separate section of stockholders’ equity on the balance sheet
B) is reported in the liability section of the balance sheet
C) is reported on the statement of comprehensive income
D) is reported in the long-term investments section of the balance sheet
28) A company reports the following information from the statement of cash flows:
Which line item provides a signal that the company may have cash flow problems?
A) net cash provided by operating activities
B) net income
C) net cash provided by investing activities
D) net cash used by financing activities
29) Which of the following is a TRUE statement about sales?
A) Net revenue is gross revenue plus sales discounts less sales returns and allowances
B) Sales discounts are offered to customers in order to speed up cash flow
C) Sales returns and allowances increase a company’s profit
D) Retailers do not generally record sales returns and allowances in a separate account
30) The normal balance of a revenue account is a ________ because revenues increase
________
A) credit, assets
B) debit, expenses
C) debit, Retained Earnings
D) credit, Retained Earnings
31) Receivables are classified as:
A) increases in earnings
B) decreases in earnings
C) liabilities
D) assets
32) Which financial statement answers the following question: What is the company’s
financial position?
A) statement of cash flows
B) income statement
C) statement of retained earnings
D) balance sheet
33) After vertical analysis of a balance sheet, current assets have increased from 42% to
56%, this would always mean that:
A) current assets have increased as a percentage of total assets
B) the dollar amount of total assets has increased
C) the dollar amount of total assets has decreased
D) the dollar amount of long-term assets has increased
34) Consider the following INDEPENDENT situations for Tommy Company:
a.The Allowance for Uncollectible Accounts has a $1,200 credit balance prior to
adjustment. Net credit sales during the year are $830,000 and 2% are estimated to be
uncollectible. Accounts Receivable has a balance of $110,000 at the end of the year.
The company uses the percent-of-sales method
b.The Allowance for Uncollectible Accounts has a $900 credit balance prior to
adjustment. Based on an aging schedule of accounts receivable prepared at the end of
the year, $20,000 of accounts receivable are estimated to be uncollectible. Accounts
Receivable has a balance of $104,000 at the end of the year
c.The Allowance for Uncollectible Accounts has a $16,300 debit balance prior to
adjustment. Based on an aging schedule of accounts receivable prepared at the end of
the year, $200,000 of accounts receivable are estimated to be uncollectible. Accounts
Receivable has a balance of $958,000 at the end of the year
d.The Allowance for Uncollectible Accounts has a $500 credit balance prior to
adjustment. Net credit sales during the year are $900,000 and 1% are estimated to be
uncollectible. Accounts Receivable has a balance of $825,000 at the end of the year.
The company uses the percent-of-sales method
Required:
Prepare the adjusting journal entries for uncollectible accounts for each
INDEPENDENT situation. Explanations are not required.
35) The Good Word Store reported the following figures:
Retained Earnings, January 31, 2014…………………….$20,000,000
Retained Earnings, January 31, 2015…………………….$15,000,000
Total Stockholders’ Equity, January 31, 2014………..$29,000,000
Total Stockholders’ Equity, January 31, 2015………..$25,000,000
The company’s fiscal year ends on January 31 each year. Dividends declared for the
fiscal year ending January 31, 2015 are $1 million. What is the net income or net loss
for the fiscal year ending January 31, 2015?
A) $1 million net loss
B) $4 million net loss
C) $5 million net loss
D) $6 million net loss
36) To shorten the collection period on credit sales, a company may:
A) emphasize credit card sales
B) charge interest on unpaid customer accounts that exceed a certain age
C) increase the discount offered for early payment
D) all of the above
37) The following accounts and balances are taken from Jenny Company’s adjusted trial
balance:
In the closing process, which accounts are debited?
A) Accounts Payable, Retained Earnings
B) Service Revenue, Interest Revenue
C) Depreciation Expense, Insurance Expense, Salary Expense
D) Depreciation Expense, Insurance Expense, Salary Expense, Dividends
38) New Store has the following information at August 31:
Two deposits made on August 31 were not on the bank statement, totaling $5,300.
The bank collected an EFT payment on a note receivable for $2,750. Of this amount,
$150 represented interest on the note.
August 31 balance in Cash was $11,677.
The bookkeeper forgot to record check #1578 for $843 which was cashed by the bank
on August 15th.
The balance on the bank statement as of August 31 was $10,500.
A check printing fee of $40 was shown on the bank statement. NSF check $100.
Checks #1572, 1606, and 1548, totaling $2,356, were not shown on the bank statement,
even though the company had sent the checks.
What is the adjusted bank balance at August 31?
A) $8,144
B) $10,500
C) $13,444
D) $14,817
39) The financial statements of a merchandising company will show:
A) the same accounts as the financial statements of a service company
B) gross profit after operating income on the income statement
C) inventory as a current asset on the balance sheet
D) cost of goods sold as an operating expense on the income statement
40) On August 1, the Savage Company purchased $2,000 of inventory on account with
credit terms of 2/10, net 30. Savage Company uses the perpetual inventory system. On
August 15, the Savage Company paid the amount due. What journal entry did they
prepare on August 15?
A) debit Inventory for $2,000 and credit Accounts Payable for $2,000
B) debit Accounts Payable for $2,000, credit Purchase Discounts for $40 and credit
Cash for $1,960
C) debit Accounts Payable for $2,000 and credit Cash for $2,000
D) debit Accounts Payable for $1,960 and credit Cash for $1,960
41) Legal capital for a corporation equals:
A) the selling price of stock that has been issued
B) the par value of stock that has been authorized
C) the par value of stock that has been issued
D) the par value of stock that is outstanding
42) NBC Corporation issued $600,000, 10%, 5-year bonds on January 1, 2014 for
$648,930 when the market interest rate was 8%. Interest is paid semiannually on
January 1 and July 1. The corporation uses the effective-interest method to amortize
bond premium. The total amount of bond interest expense recognized on July 1, 2014
is:
A) $24,000
B) $25,957
C) $28,800
D) $30,000
43) Free cash flow equals:
A) net cash provided by investing activities minus cash payments for investments in
plant assets
B) net cash provided by financing activities minus cash payments for investments in
plant assets
C) net cash provided by operating activities minus cash payments for investments in
plant assets
D) net change in cash minus cash payments for investments in plant assets
44) Speedy Corporation reported net income of $425,000 for the current year. After the
financial statements had been prepared, it was discovered that ending inventory had
been understated by $25,000. If the tax rate is 40%, after the error has been corrected,
net income will:
A) increase by $15,000
B) decrease by $15,000
C) increase by $25,000
D) decrease by $25,000
45) Notes payable (due in 60 days) would appear on the balance sheet as a:
A) current liability
B) current asset
C) long-term asset
D) long-term liability
46) An investor receives a stock dividend on a long-term Investment in
Available-for-Sale Securities. What journal entry is required?
A) debit Cash and credit Investment in Available-for-Sale Securities
B) debit Cash and credit Dividend Revenue
C) debit Investment in Available-for-Sale Securities and credit Investment Revenue
D) No journal entry is required.
47) The person who prepares the bank reconciliation:
A) should also be responsible for cash receipts
B) should also be responsible for cash disbursements
C) should be responsible for both cash receipts and cash disbursements
D) should have no other cash duties
48) In a cash budget, if the cash available before financing falls below the budgeted
balance:
A) the company should reduce its cash receipts
B) the company can invest the excess cash
C) the company will need additional financing
D) the company is facing bankruptcy
49) Slowly Company had the following transactions during its first month of
operations:
June1The company received cash of $35,000 and issued common stock to the
shareholders
2Borrowed $20,000 from the bank and signed a long-term note payable
8Purchased equipment with a short-term note payable for $10,000
9Rendered services billed at $3,000 and received cash of $3,000
10Performed services for a client on account, $6,500
12Employees worked two weeks and were paid salaries of $1,000
15Paid the short-term note payable from the June 8 purchase
22Purchased office supplies on account for $7,000
30Paid amount due for office supplies
30 Paid monthly rent of $500, due on the last day of the month for the month of June
30Paid the monthly income taxes of $2,200
30 The Board of Directors declared and paid dividends of $1,000
REQUIRED:
1> Journalize the entries Omit the explanations
2> Prepare a single-step income statement for the first month of operations
3> Prepare a statement of retained earnings for the first month of operations
50) Latinovich Legal Services had the following transactions during its first month of
operations:
May 1 Latinovich Legal Services received $20,000 cash and issued common stock to
the stockholders
May 1 Paid the May rent, $5,000
May 3 Purchased equipment on account for $3,000
May 5 Purchased supplies for $2,000 on account
May 8 Performed services for a client and received cash of $11,800
May 12 Performed services for a client and billed the customer $12,200. The customer
promised to pay within 10 days
May 15 Paid for the equipment purchased May 3 on account
May 22 Received payment from a customer on account, $12,200
May 28 Borrowed $10,000 from First National Bank for business use
May 30 Employees worked for one month and were paid $3,000 at the end of the month
May 31 Received and paid the utility bill of $1,800
Required: Record the transactions of the business in a journal Include an explanation
for each entry
51) Journalize the following transactions for The Computer Store. The Computer Store
uses the direct write-off method of accounting for uncollectible receivables. Ignore Cost
of Goods Sold. Explanations are not required.
April 5The Computer Store sells $6,200 of computer equipment on account to Mrs.
Jones.
June 5Mrs. Jones pays The Computer Store $2,000 of the amount she owes.
July 7After repeated attempts to collect the balance due from Mrs. Jones fail, The
Computer Store writes-off the remainder of the amount she owes.
52) On January 1, 2015, Williams Company, Inc. purchased machinery for $350,000
and depreciated it on a straight-line basis over 20 years. The estimated residual value
was zero. On January 1, 2018, the company realized the machine will remain useful for
only 5 more years and also revised the residual value to $12,000.
Required:
1> What is the depreciation expense per year before the change in estimate?
2> What is the revised depreciation expense per year?
3> Prepare the adjusting journal entry for the year ending December 31, 2018. Omit the
explanation.
53) A fire destroyed the inventory and store of Schlichting Company. They have the
following information available:
Prepare a schedule to compute the amount of inventory lost in the fire.