1) Under the indirect method to prepare the statement of cash flows, a decrease in
accounts payable is deducted from net income when calculating Net Cash Provided by
Operating Activities.
2) Unrealized gains and losses on trading securities are reported on the income
statement.
3) The Dividends account is a temporary account.
4) Depreciation expense is listed on the direct-method statement of cash flows because
it affects income.
5) An increase in common stock would be an listed as an investing activity when
preparing the statement of cash flows under the indirect method.
6) A trial balance is one of a company’s major financial statements
7) Some accounts do not need to be adjusted at the end of the period, since the
day-to-day transactions provide all the data for these accounts.
8) Leasehold improvements are not subject to depreciation or amortization.
9) Internal controls for cash receipts over the counter and for cash receipts by mail are
identical.
10) It is management’s responsibility to issue a report on internal control.
11) An environment with strong internal controls can be circumvented with collusion.
12) Gains on the sale of equipment increase net income while losses on the sale of
equipment decrease net income.
13) If $120,000 face value bonds are issued at 104, the proceeds received will be
$104,000.
14) On the balance sheet, Interest Receivable is reported as a long-term asset.
15) If net sales are $1,200,000 and cost of goods sold is $300,000, gross profit is
$900,000.
16) The beginning balance of Retained Earnings appears on the Balance Sheet and the
Statement of Retained Earnings.
17) Costs that extend a plant asset’s useful life should be capitalized.
18) The Allowance for Uncollectible Accounts has a normal debit balance because it is
an asset account.
19) Net income is the profit left over after subtracting expenses and dividends from
revenues and gains.
20) An investor should report securities that he or she intends to sell in the next 12
months, and that are liquid, as a current asset.
21) After preparing the Balance Sheet, the next statement to prepare is the:
A) Income Statement
B) Statement of Retained Earnings
C) Statement of Cash Flows
D) Statement of Stockholders’ Equity
22) On a statement of cash flows, activities that affect long-term assets are classified as:
A) operating activities
B) investing activities
C) financing activities
D) stockholders’ equity activities
23) Rockford Moving Company has calculated the following ratios:
Did the company’s liquidity improve in 2015?
A) No
B) Yes
C) There is conflicting information. One ratio improved and two ratios did not improve
D) There is not enough information to assess
24) An aging-of-accounts-receivable indicates that the amount of uncollectible accounts
is $3,210. The Allowance for Uncollectible Accounts prior to adjustment has a credit
balance of $200. The Accounts Receivable balance is $44,320. The amount of the
adjusting entry for uncollectible accounts should be for:
A) $200
B) $3,010
C) $3,410
D) $3,500
25) Under the direct method of preparing the statement of cash flows, cash payments
from operating activities do NOT include:
A) payments to suppliers
B) payments to employees
C) payment of dividends
D) payment of interest
26) A check received from a customer for which there are not sufficient funds in the
bank to cover the amount of the check is a(n):
A) service charge
B) error
C) nonsufficient funds check
D) blank check
27) The audit report written by the outside auditors evaluates a company’s:
A) financial statements only
B) internal controls over financial reporting only
C) management skills
D) financial statements and internal controls over financial reporting
28) On December 1, Macy Company sold merchandise with a selling price of $1,000 on
account to Mrs. Jorgensen, with terms 2/10, n/30. Ignoring Cost of Goods Sold, what
journal entry did Macy Company prepare on December 1?
A) Debit Cash for $1,000 and credit Accounts Receivable for $1,000
B) Debit Accounts Receivable for $1,000 and credit Cash for $1,000
C) Debit Accounts Receivable for $1,000 and credit Sales Revenue for $1,000
D) Debit Sales Revenue for $1,000 and credit Accounts Receivable for $1,000
29) Which of the following is a CORRECT statement about long-term assets?
A) Accumulated depreciation increases the cost of property, plant, and equipment on the
balance sheet
B) Intangible assets are long-term assets with no physical form
C) Long-term investments can never be sold by the company
D) Other long-term assets include supplies
30) Below is a list of qualitative characteristics of accounting. Following the list is a
series of descriptive phrases.
A) faithful representation
B) timeliness
C) relevance
D) comparability
E) verifiability
F) understandability
________1>Information must be transparent so it makes sense to reasonably informed
users.
________2>Accounting information must be complete, free from bias, and without
material error.
________3>The information must be capable of being checked for accuracy and
completeness.
________4>Making information available early enough to users to help them make
decisions.
________5>Accounting information is reported the same way by different companies.
________6>Information makes a difference in a decision.
Required: Match each characteristic with the appropriate phrase.
31) The purchase of office computers for cash would include a debit to:
A) Cash and a credit to Office Equipment
B) Office Equipment and a credit to Accounts Payable
C) Accounts Receivable and credit to Office Equipment
D) Office Equipment and a credit to Cash
32) An investor owns 30% of the outstanding common stock of Leshan Company.
Leshan Company reports net income of $100,000 for the current year. What journal
entry should the investor prepare?
A) debit Cash for $30,000 and credit Dividend Revenue for $30,000
B) debit Cash for $30,000 and credit Equity-Method Investment for $30,000
C) debit Equity-Method Investment for $30,000 and credit Equity-Method Investment
Revenue for $30,000
D) debit Equity-Method Investment Revenue for $30,000 and credit Equity-Method
Investment for $30,000
33) Decision makers who use accounting information include:
A) creditors
B) the Internal Revenue Service
C) the Securities and Exchange Commission
D) all of the above
34) Expressing cash and cash equivalents as a percentage of total assets is an example
of:
A) horizontal analysis
B) economic value added
C) ratio analysis
D) vertical analysis
35) Interest paid on debt would be reported on a statement of cash flows under:
A) financing activities
B) investing activities
C) operating activities
D) noncash activities
36) An asset is ________ when another asset can do the job more efficiently.
A) fully depreciated
B) old
C) physically worn
D) obsolete
37) A company’s trading security has a fair value which exceeds its cost. When
recording the journal entry:
A) the Investment in Trading Securities account will be credited
B) the Unrealized Gain on Trading Securities account will be credited
C) the Unrealized Loss on Trading Securities account will be debited
D) the Gain on Treasury Securities will be credited
38) Beck Company had the following accounts and balances at the end of the year.
What is net income or net loss for the year?
A) Net income of $90,000
B) Net income of $78,000
C) Net loss of $7,000
D) Net income of $5,000
39) The McCarthy Company has the following adjusted trial balance as of December
31, 2015:
What are total current assets at December 31, 2015?
A) $3,800
B) $4,300
C) $6,200
D) $12,200
40) All of the following costs would be included in the cost of inventory EXCEPT for:
A) insurance while in transit from seller
B) costs to get inventory ready for sale
C) taxes paid on the purchase price
D) sales commission given to salesperson when the inventory is sold
41) The lower-of-cost-or-market rule for inventory is based on the accounting
principle(s) of:
A) relevance
B) representational faithfulness
C) disclosure
D) A and B
42) ________ will be increased when a company receives cash before performing the
services.
A) Service Revenue
B) Accumulated Depreciation
C) Unearned Service Revenue
D) Accrued Salaries Payable
43) When a U.S.-based company holds a receivable denominated in a foreign currency,
the U.S. company wants the foreign currency to _________ against the U.S. dollar so
that the foreign currency can be converted into ________.
A) weaken; fewer dollars
B) weaken; more dollars
C) strengthen; fewer dollars
D) strengthen; more dollars
44) Jim’s Company has the following items: cash in a checking account, $1,000; cash in
a savings account, $4,000; high-grade government securities due in one month, $3,586;
accounts receivable, $3,000; cash pledged as collateral for a loan, $10,000. How much
should appear as Restricted Cash on the balance sheet?
A) $5,000
B) $10,000
C) $15,000
D) $18,586
45) On June 5, 2014, Mabel Company purchased an oil well for $650,000. The well
contains an estimated 162,500 barrels of oil, with an estimated residual value of zero.
During July, 2014, 32,500 barrels of oil were removed from the well. All of the oil went
into inventory. What amount of Depletion Expense is recorded in July, 2014?
A) $0
B) $65,000
C) $108,500
D) $130,000
46) A bond with a face value of $100,000 and a quoted price of 105 has a selling price
of:
A) $95,000
B) $100,000
C) $105,000
D) $110,000
47) A company reports Cost of Goods Sold of $305,000, Ending Inventory of $100,000,
Beginning Inventory of $10,000, Ending Accounts Payable of $90,000 and Beginning
Accounts Payable of $60,000. What is the days’ payable outstanding? (Round
calculations to one decimal place.)
A) 68.9 days
B) 83 days
C) 89 days
D) 107.4 days
48) Extraordinary items:
A) include the expropriation of a company’s assets by a foreign government
B) include the loss from the sale or exchange of equipment
C) are treated the same under IFRS and GAAP
D) include the gains and losses due to management restructuring
49) For a retailer, how is Interest Expense classified on the income statement?
A) Operating Expenses
B) Extraordinary Expense
C) Income Tax Expense
D) Other Expenses and Losses
50) ABC Furniture Unlimited sells antique furniture. ABC will most likely use the
________ method to cost its ending inventory.
A) First-in, first-out
B) Last-in, first-out
C) Specific-unit-cost
D) Weighted-average
51) The assets of a company:
A) must equal the liabilities of the company
B) include property, plant, and equipment and accounts payable
C) represent economic resources that are expected to produce a future benefit
D) include short-term investments and notes payable
52) Lori Nichols opened an engineering office and titled the business Engineering
Enterprises P C. During its first month of operations, it completed the following
transactions:
I Lori invested $30,000 in the business, which in turn issued common stock to her
II The business purchased equipment on account for $6,000
II The business provided engineering services on account, $10,000
III The business paid salaries to the receptionist, $1,000
IV The business received cash from a customer as payment on account $6,000
V The business borrowed $8,000 from the bank, issuing a note payable
At the end of the month, Cash would equal:
A) $30,000
B) $37,000
C) $43,000
D) $61,000
53) Footnotes about a company’s segments are useful because the notes reveal:
A) the different types of business activities and the different economic environments
B) the company’s internal controls over financial reporting
C) the company’s blueprint for competitive advantage
D) the outside auditor’s audit report
54) The date when a cash dividend becomes a legal obligation is the:
A) date of record
B) declaration date
C) last day of the fiscal year
D) payment date
55) Potential liabilities that depend on future events arising out of past events are
called:
A) long-term liabilities
B) estimated liabilities
C) contingent liabilities
D) current liabilities
56) Blue Company has the following data for the year:
What is the estimated ending inventory?
A) $20,000
B) $24,000
C) $32,000
D) $120,000
57) Accounts receivable turnover equals:
A) days’ sales in receivables
B) average collection period
C) average net accounts receivable
D) net credit sales divided by average net accounts receivable
58) Which type of business organization transacts the most business and is the largest in
terms of assets, income, and number of employees?
A) Proprietorship
B) Partnership
C) Limited-liability company
D) Corporation
59) Entries are listed in the journal:
A) alphabetically
B) chronologically
C) with income statement accounts first and then balance sheet accounts
D) in order of importance
60) The Watertown Bank lent Sandy’s Pastry Store $40,000 on a sixty day, 7% note
dated June 10th. Use a 365 day year when calculating interest and round all amounts to
the nearest dollar. The fiscal year end of the bank is June 30.
Required:
1>Determine the due date of the note.
2>Determine the maturity value of the note.
3>Prepare the journal entries made by the bank. Omit explanations.
61) Mary’s Dairy has the following information available for the preparation of the cash
budget for the second quarter:
Cash balance, March 31$ 15,000
Sales for April; all cash220,000
Sales for May; all cash330,000
Sales for June; all cash440,000
Cost of Goods Sold is 80% of Sales; all cash
Operating expenses is 8% of Sales; all cash
Interest expense is paid in June40,000
Income tax rate is 30%
The minimum cash balance for any month is $10,000.
Prepare a cash budget for each month in the second quarter for this company. No
additional equipment will be purchased this quarter.
62) A computer, with a cost of $10,000 is sold on July 1. Accumulated depreciation up
to the date of sale is $5,000. Journalize the entries for the disposal of the computer
under the following INDEPENDENT scenarios:
1>The computer was sold for $6,000.
2>The computer was sold for $1,000.
3>The computer is obsolete and was thrown in the trash.
63) Jolly Rancher Company uses the periodic inventory system.
Required:
Prepare the journal entries to record the following transactions. Omit explanations.
1> Purchased $500,000 of inventory on account.
2> Sales on account were $840,000.
3> Closed out beginning inventory of $110,000.
4> The ending inventory based on a physical count was $117,000.
5> Closed out purchases account.
64) Colassal Company paid $100,000 for all the common stock of Glass Company.
Glass Company borrowed $20,000 from Colassal Company on a note payable. The
following information is available:
Required:
Prepare the elimination entries.
65) At December 31, 2014, Lansing Company’s general ledger shows the following
balances after posting adjusting entries:
Additional information:
1> $50,000 of the 8% note due December 31, 2019 is due on December 31, 2015.
2> The Estimated Warranty Liability relates to a multiple year product warranty.
One-half of the liability will be honored in 2015, and one-half in 2016.
3> The Unearned Service Revenue pertains to a service contract to be performed in
2016.
Required:
Prepare the liability section of Lansing Company’s balance sheet at December 31, 2014.
