1) Which of the following is true?
A.An extraordinary gain would increase income before taxes.
B.Discontinued operations would be shown as a component of continuing operations on
the income statement.
C.Discontinued operations shown on the income statement will include that
component’s income or loss from operations from before its disposal.
D.Results from discontinued operations may be used to predict future company results.
2) Which of the following statements is not correct?
A.Cash flow from financing activities increases when treasury shares are resold.
B.Cash dividends decrease cash flow from financing activities.
C.Cash flow from investing activities decreases when treasury shares are purchased.
D. Issuance of new shares of stock increases cash flow from financing activities.
4) A $25,000 overstatement of the 2014 ending inventory was discovered after the
financial statements for 2014 were prepared. Which of the following describes the
effect of the inventory error on the 2014 financial statements?
A.Current assets were overstated and net income was understated.
B.Current assets were understated and net income was understated.
C.Current assets were overstated and net income was overstated.
D.Current assets were understated and net income was overstated.
An overstatement of ending inventory overstates current assets and understates cost of
goods sold and therefore overstates net income.
5) Which of the following transactions increases the quality of income ratio?
A.The accrual of revenue.
B.The accrual of an expense.
C.The cash payment of an account payable.
D.The payment of a cash dividend.
6) Which of the following is not a primary advantage of a general partnership relative to
a corporation?
A.The ease of formation.
B.The limited liability for the owners.
C.The business is not taxed separate from the partners.
D.The complete control of the business given to the partners.
7) Which of the following journal entries is correct for Smith Company when Smith
issues 10,000 shares of $20 par value common stock and pays $20,000 cash in
exchange for a building? The market price of the Smith stock on the exchange date was
$35 per share and the building’s book value on the books of the seller was $200,000.
A.Option A
B.Option B
C.Option C
D.Option D
8) Slickers, Inc. had the following capital structure during 2014:
Preferred stock, 7%, $50 par value, 1,000 shares issued and outstanding with dividends
in arrears for 2012 and 2013.
Common stock, $100 par value, 2,000 shares issued and outstanding.
The total dividends declared and paid during 2014 totaled $25,000. How much of the
dividend is paid to the common stockholders during 2014 assuming the preferred stock
is noncumulative?
A.$3,500.
B.$7,000.
C.$21,500.
D.$14,500.
9) Examples of nonoperating items that would appear on an income statement are:
A.Interest income, sales salaries, gain on sale of land.
B.Income taxes, interest expense, loss on sale of investments.
C.Interest expense, gain on sale of equipment, loss on sale of investments.
D.Depreciation expense, interest income, interest expense.
10) Which of the following costs does not become a part of inventory of a
manufacturer?
A.The cost of raw materials used.
B.The cost of factory overhead.
C.The cost of rent on the factory building.
D.Rent on corporate headquarters.
11) Which financial statement would you use to determine a company’s earnings
performance during an accounting period?
A.Balance sheet.
B.Statement of stockholders’ equity.
C.Income statement.
D.Statement of cash flows.
12) Which of the following transactions would not be considered an external exchange?
A.The purchase of supplies on credit.
B.Cash received from the issuance of common stock.
C.Cash paid to a bank for interest on a loan.
D.Using up insurance, which had been paid for in advance.
13) Which of the following transactions decreases the quality of income ratio?
A.The cash purchase of equipment.
B.The issue of stock in exchange for cash.
C.Collecting cash for services to be provided in the future.
D.Earning revenue that was previously recorded as unearned revenue.
14) Which of the following groups has primary responsibility for the information
contained in the financial statements?
A.The company’s management.
B.The company’s auditors.
C.The company’s investors.
D.SEC.
15) Which of the following includes only tangible assets?
A.Land, buildings, and natural resources.
B.Land, buildings, and leasehold rights.
C.Natural resources, buildings, and franchises.
D.Licenses, trademarks, and land.
Tangible assets have physical substance. Land, buildings, and natural resources are
assets that have physical substance.
16) Lauer Corporation uses the periodic inventory system and has provided the
following information about one of its laptop computers:
During the year, Lauer sold 750 laptop computers.
What was cost of goods sold using the LIFO cost flow assumption?
A.$725,000.
B.$740,000.
C.$735,000.
D.$720,000.