1) a contra account’s normal balance (debit or credit) is the opposite of the normal
balance of the related account.
2) the net cash flow from operating activities is calculated in the same way, whether the
company uses the direct or the indirect method of preparing the statement of cash flow.
the only difference in the two methods is the way the financing activities section is
prepared.
3) the merchandise inventory account is debited to write down the inventory as per the
lower-of-cost-or-market rule.
4) mutual agency of the owners is not present in a corporation as it is in a partnership.
5) companies make a year-end adjustment to trading investments to bring the account to
historical value.
6) the income statement is also called the statement of financial position.
7) exchanges of plant assets that have commercial substance require any gain or loss on
the transaction to be recognized.
8) the environment is the culture of a business, and it starts with the ceo or cfo and the
top managers.
9) when a plant asset is sold for a price lower than its book value, there will be a gain.
10) a receivable can be described as a monetary claim against a business or an
individual.
11) the current ratio is calculated using the values from the income statement.
12) the debt to equity ratio shows the proportion of total liabilities relative to total
equity.
13) the operating cycle is the process by which companies produce their financial
statements for a specific period.
14) in a vertical analysis of the income statement, each line item is shown as a
percentage of net sales.
15) stock sold for amounts in excess of par value results in a gain reported on the
income statement.
16) hamilton lawn services incurred $500 as labor expense and promised to pay the
labor agency within 30 days. which of the following accounts would increase as a result
of this transaction?
a) accounts receivable
b) cash
c) accounts payable
d) retained earnings
17) which of the following inventory valuation methods minimizes income tax payment
during a period of rising inventory costs?
a) first-in, first-out
b) last-in, first-out
c) weighted-average
d) specific identification
18) a(n) ________ represents stock ownership in another company and sometimes pays
dividends.
a) debt security
b) forward contracts
c) futures contract
d) equity security
19) saran digital inc. starts the year with $2,500 in its estimated warranty payable
account. during the year, there were $210,000 of sales and $4,500 of warranty repair
payments. saran digital estimates warranty expense at 2% of sales. the journal entry to
record this will include a debit to warranty expense for ________.
a) $4,200
b) $4,500
c) $2,500
d) $2,200
20) on june 30, 2015, roger inc. showed the following data on the equity section of their
balance sheet:
on july 1, 2015, the company declared and distributed a 5% stock dividend. the market
value of the stock at that time was $13 per share. following this transaction, what would
be the new balance in the common stock account?
a) $147,000
b) $26,000
c) $66,000
d) $246,000
21) rosewood inc. earned revenues of $15,000 and incurred expenses of $9,000. the
company declared and paid cash dividends of $3,000. what is the balance in the income
summary account prior to closing net income or loss to the retained earnings account?
a) debit balance of $6,000
b) debit balance of $15,000
c) credit balance of $6,000
d) credit balance of $15,000
22) which of the following financial statements lists the entity’s assets, liabilities, and
stockholders’ equity as of a specific date?
a) balance sheet
b) statement of retained earnings
c) income statement
d) statement of cash flows
23) a depreciable asset’s cost minus accumulated depreciation is called ________.
a) book value
b) residual value
c) accrued revenue
d) accrued expense
24) nuptial inc. paid the rent for the current month in cash. which of the following
account titles will be debited?
a) prepaid rent
b) rent payable
c) rent revenue
d) rent expense
25) a company purchased 100 units for $30 each on january 31. it purchased 150 units
for $25 on february 28. it sold a total of 150 units for $50 each from march 1 through
december 31. if the company uses the weighted-average inventory costing method,
calculate the amount of ending inventory on december 31. (assume that the company
uses a perpetual inventory system.)
a) $6,750
b) $2,700
c) $4,350
d) $2,900
26) the purpose of reviewing fob terms on the invoice is to:
a) identify the person liable to pay freight
b) calculate the amount of freight payable
c) to locate the transporter
d) to decide and conform the transporter
27) company reported net loss of $13,000 for the year.
what was the amount of dividends declared during the year?
a) $4,000
b) $2,000
c) zero
d) $3,000
28) which of the following financial statements reports that total assets are equal to total
liabilities plus total stockholders’ equity?
a) statement of retained earnings
b) statement of cash flows
c) income statement
d) balance sheet
29) atlantis inc. reported the following data:
the horizontal report shows that the amount of total liabilities has ________.
a) increased by $22,700
b) increased by $2,500
c) decreased by $2,500
d) increased by $24,000
30) the interest rate that determines the amount of cash interest the borrower pays and
the investor receives each year is called ________.
a) amortization rate
b) market interest rate
c) stated interest rate
d) discounting rate
31) which of the following formulae is used to calculate average total assets for the
return on assets ratio?
a) average total assets = (beginning total assets + ending total assets) 2
b) average total assets = (beginning total assets – ending total assets) 2
c) average total assets = (beginning total assets – ending total assets) 2
d) average total assets = (beginning total assets + ending total assets) 2
32) which of the following is the correct formula to calculate inventory turnover?
a) inventory turnover = cost of goods sold average merchandise inventory
b) inventory turnover = cost of goods sold average merchandise inventory
c) inventory turnover = cost of goods sold + average merchandise inventory
d) inventory turnover = cost of goods sold – average merchandise inventory
33) fashion fiesta company uses the indirect method to prepare its statement of cash
flows. refer to the following portion of the comparative balance sheet:
fashion fiesta company
comparative balance sheet
december 31, 2014 and 2013
20142013increase/decrease
accounts payable$6,000$9,000$(3,000)
accrued liabilities3,0001,5001,500
long-term notes payable126,000135,000(9,000)
total liabilities$135,000$145,500$(10,500)
additional information provided by the company includes the following:
during 2014, the company repaid $60,000 of long-term notes payable.
during 2014, the company borrowed $51,000 on a new long-term note payable.
with the help of t-account format, analyze the transactions affecting the long-term notes
payable account.
34) the balance sheet of atlantis inc. is below:
atlantis inc.
comparative balance sheet
december 31, 2016 and 2015
20162015
assets
total current assets$200,000$100,000
property, plant, and equipment, net550,000500,000
other assets50,00050,000
total assets$800,000$650,000
liabilities
total current liabilities150,000100,000
long-term debt350,000250,000
total liabilities500,000350,000
stockholders’ equity
total stockholders’ equity300,000300,000
total liabilities and stockholders’ equity$800,000$650,000
calculate the current ratio for each year.
35) briyanne inc. purchased a computer for $5,000. during 2015 and 2016, the company
recorded total depreciation of $4,000 on the computer. on january 1, 2017, the company
traded in the computer for a new one, paying $4,000 cash. the fair market value of the
new computer is $6,000. journalize the company’s exchange of computers. assume the
exchange had commercial substance.
36) avatar auto parts company uses the direct method to prepare its statement of cash
flows. refer to the following financial statement information for the year ending
december 31, 2015:
avatar company
comparative balance sheet
december 31, 2015 and 2014
avatar company
income statement
year ended december 31, 2015
avatar company
statement of retained earnings
year ended december 31, 2015
prepare the operating activities section of the statement of cash flows, using the direct
method.
37) pearland inc. has 50,000 shares of common stock outstanding and 2,000 shares of
preferred stock outstanding. the common stock is $1.00 par value. the preferred stock
has a $100 par value, a 5% dividend rate, and is noncumulative. on october 31, 2015,
the company declares dividends of $0.25 per share for common. provide the journal
entry for the declaration of dividends.
38) on january 1, 2013, anderson tools company purchases machinery with a fair value
of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for
the balance. on january 1, 2013, what will be the journal entry?
39) smart art is a new establishment. during the first year, there were credit sales of
$40,000 and collections of credit sales of $36,000. one account for $650 was written
off. the company decided to use the aging method to account for bad debts expense. it
has calculated an amount of $200 as its estimate of uncollectible amounts at year-end.
prepare the journal entry required to record bad debts expense at the end of the year.
