1) The more frequent the rate of compounding, the more interest that is earned on
previous interest, resulting in a higher future value.
2) Intangible assets with an indefinite useful life (goodwill and most trademarks) are
not amortized.
3) On November 1, 2015, a company receives $1,800 for services to be provided evenly
over the next six months. The December 31, 2015, adjusting entry for the company
would include a credit to Unearned Revenue for $600.
4) As a companys level of debt increases, bankruptcy risk increases.
5) Straight-line depreciation assumes that the benefits we derive from the use of an
asset are the same each year.
6) Asset turnover measures sales volume in relation to the investment in assets, and is
calculated as net sales divided by average total assets.
7) Accrued expenses involve the payment of cash before recording an expense and a
liability.
8) Treasury stock is the repurchase of a companys own issued stock.
9) If a company has total revenues of $100,000, sales discounts of $3,000, sales returns
of $4,000, and sales allowances of $2,000, the income statement will report net
revenues of $91,000.
10) A line of credit is an informal agreement that permits a company to borrow up to a
prearranged limit without having to follow formal loan procedures and paperwork.
11) If the base-year amount is zero, we cant calculate a percentage change under
horizontal analysis.
12) If a company has expenses that are more than revenues, the net loss decreases
retained earnings.
13) We calculate the times interest earned ratio by dividing net income by interest
expense.
14) To be an extraordinary item, an event that produces a gain or loss must be either
unusual in nature or infrequent in occurrence.
15) Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds.
Which is more common?
a. Secured and term
b. Secured and serial
c. Unsecured and term
d. Unsecured and serial
16) The primary purpose of closing entries is to:
a. Prove the equality of the debit and credit entries in the general journal
b. Ensure that all assets and liabilities are recognized in the appropriate period
c. Update the balance of Retained Earnings and prepare revenue, expense, and dividend
accounts for next periods transactions
d. Assure that adjusting entries balance
17) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term by placing the letter designating
the term in the space.
a. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ Contains all the accounts of a company.
18) On July 1, 2015, Herzog Mining lends cash and accepts a $9,000 note receivable
that offers 10% interest and is due in nine months. How would Herzog record the
transaction on April 1, 2016, when the borrower pays Herzog the correct amount owed?
a. Cash9,675
Notes Receivable9,000
Interest Revenue 675
b. Cash9,675
Notes Receivable9,000
Interest Revenue 225
Interest Receivable 450
a. Cash9,675
Notes Receivable9,000
Interest Receivable 675
d. Cash9,675
Notes Receivable9,675
19) LeGrand Corporation reported the following amounts in its income statement:
Sales revenue$440,000
Advertising expense 60,000
Interest expense 10,000
Salaries expense 55,000
Utilities expense 25,000
Income tax expense 45,000
Cost of goods sold 180,000
What was LeGrands net income?
a. $120,000
b. $60,000
c. $110,000
d. $65,000
20) Consider the following accounts:
Dividends
Insurance Expense
Cash
Service Revenue
How many of these accounts are increased with credits?
a. One
b. Two
c. Three
d. Four
21) The True interest rate used by investors to value a bond is called the:
a.Face interest rate
b.Cash payment rate
c.Market interest rate
d.Stated interest rate
22) Niva Company has the following information for its inventories A, B, C, and D:
The necessary adjustment associated with the lower-of-cost-or-market method would
be:
a. Inventory675
Cost of Goods Sold675
b. Cost of Goods Sold675
Inventory675
c. Inventory475
Cost of Goods Sold475
d. Cost of Goods Sold475
Inventory475
23) In the first three years of operations, Lindsey Corporation earned net income/loss of
-$150,000, $100,000, and $250,000. At the end of the third year, Lindsey Corporation
has a balance of $120,000 in its Retained Earnings account. What is the total amount of
dividends Lindsey Corporation paid over the three years?
a. $130,000
b. $120,000
c. $80,000
d. $380,000
24) Consider the following cash flow items:
Pay amount owed to bank for previous borrowing.
Pay utility costs.
Purchase equipment to be used in operations.
Purchase office supplies.
Pay one year of rent in advance.
Pay workers salaries.
Pay for research and development costs.
Pay taxes to the IRS.
Sell common stock to investors.
How many of these cash flow items involve investing activities?
a. Zero
b. One
c. Two
d. Three
25) Kansas Enterprises purchased equipment for $60,000 on January 1, 2015 . The
equipment is expected to have a five-year life, with a residual value of $5,000 at the end
of five years.
Using the straight-line method, depreciation expense for 2015 would be:
a.$12,000
b.$11,000
c.$60,000
d.None of the other answers are correct
26) An amortization schedule for a bond issued at a premium:
a.Has a carrying value that increases over time
b.Is contained in the balance sheet
c.Is a schedule that reflects the changes in bonds payable over its term to maturity
d.All of the other answers are correct
27) Which of the following is not possible when recording a transaction?
a. Liabilities increase and assets decrease
b. Stockholders equity increases and assets increase
c. One asset increases and another asset decreases
d. Stockholders equity decreases and assets decrease
28) Payment of dividends to stockholders is considered a(n):
a. Operating cash flow
b. Investing cash flow
c. Financing cash flow
d. Not a cash flow
29) The stockholders equity section in the balance sheet shows:
a. The ending balance in each stockholders equity account
b. How each equity account changed over time
c. The average balance in each stockholders equity account
d. More information than the statement of stockholders equity
30) Discount Travel has the following current assets: cash, $102 million; receivables,
$94 million; inventory, $182 million; and other current assets, $18 million. Discount
Travel also has the following liabilities: accounts payable, $98 million; current portion
of long-term debt, $35 million; and long-term debt, $23 million. Based on these
amounts, what is the current ratio?
a. 2.54
b. 2.98
c. 4.04
d. 2.84
31) The Accounts Receivable account has a beginning balance of $10,000 and the
company provides services of $50,000 on account during the month. The ending
balance was $12,000. How much did the company receive from customers during the
month?
a. $50,000
b. $52,000
c. $48,000
d. $62,000
32) GAAP is an abbreviation for:
a. Generally authorized accounting procedures
b. Generally applied accounting procedures
c. Generally accepted auditing practices
d. Generally accepted accounting principles
33) Bad Brads BBQ had cash flows for the year as follows ($ in millions):
Bad Brad’s would report net cash inflows (outflows) from investing activities in the
amount of:
a.$(4,000)
b.$100
c.$(3,900)
d.$(1,900)
34) Consider the following events for Betterment Incorporated:
Under cash-basis accounting, what is the appropriate day to record the
expenses related to the gasoline? a. January 1
b. January 9
c. January 12
d. January 13
35) The LIFO conformity rule states that if LIFO is used for:
a. One class of inventory, it must be used for all classes of inventory
b. Tax purposes, it must be used for financial reporting
c. One company in an affiliated group, it must be used by all companies in an affiliated
group
d. Domestic companies, it must be used by foreign partners
36) At the beginning of the year, Gilman Company purchased 10,000 of the 40,000
shares of common stock of Burke Corporation at $40 per share as a long-term
investment. Gilman can exercise significant influence over Burke and properly records
the investment using the equity method. The records of Burke Corporation showed the
following by the end of the year:
What amount should Gilman Company report in its year-end balance sheet for its
investment in Burke?
a. $380,000
b. $400,000
c. $475,000
d. $425,000
37) Which of the following accounts would normally have a credit balance?
a. Accounts Payable, Service Revenue, Common Stock
b. Salaries Payable, Unearned Revenue, Delivery Expense
c. Income Tax Payable, Service Revenue, Dividends
d. Cash, Repairs and Maintenance Expense, Dividends
38) One motivation for reducing differences in accounting practices across countries is
to:
a. Decrease the flow of international capital
b. Allow greater competition among companies
c. Reduce companies tax burdens
d. Make it easier for investors to compare companies from different countries
39) Bad Brads BBQ had cash flows for the year as follows ($ in millions):
Bad Brad’s would report net cash inflows (outflows) from operating activities in the
amount of:
a.$(80)
b.$120
c.$200
d.$420
40) Which inventory cost flow assumption generally results in the highest reported
amount for cost of goods sold when inventory costs are falling?
a. FIFO
b. LIFO
c. Weighted-average cost
d. Straight-line
41) A company pays its employees $5,600 every two weeks ($400/day). The current
two-week pay period ends on December 26, 2015, and employees are paid $5,600. The
next two-week pay period ends on January 9, 2016, and employees will be paid $5,600.
Record the adjusting entry on December 31, 2015 .
42) Contrast the effects of a cash dividend and a stock dividend on total assets, total
liabilities, and total stockholders equity.
43) On September 1, Investors, Inc. purchases 1,000 shares (insignificant influence) of
$1 par value common stock of Hamilton International at $15 per share. On October 15,
the investment is sold for $18 per share. Record the purchase and sale of the investment
in Hamilton International.
44) Below is cash flow information for five independent situations. Calculate the
answer to each.
1> A company reports operating cash flows of $3,200, investing cash flows of $700,
and financing cash flows of $400. What is the amount of the change in total
cash?
2> A company reports operating cash flows of $1,800, investing cash flows of
$400, and financing cash flows of $1,100. If the beginning cash
amount is $500, what is the ending cash amount?
3> A company reports operating cash flows of $700, investing cash flows of $300, and
a change in total cash of $100. What is the amount of cash flows from financing
activities?
4> A company reports operating cash flows of $600, financing cash flows of $400, and
a change in total cash of $100. What is the amount of cash flows from investing
activities?
5> A company reports investing cash flows of $1,400, financing cash flows
of $900, and a change in total cash of $200. What is the amount of cash flows from
operating activities?
45) A company pays $800 dividends to stockholders. Indicate the amount of increases
and decreases in the accounting equation.
46) On November 1, Vacation Destinations borrows $1.5 million and issues a
six-month, 8% note payable. Interest is payable at maturity. Record the issuance of the
note and the appropriate adjusting entry for interest expense at December 31, the end of
the reporting period.