1) 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 ending inventory using the LIFO cost flow assumption?
A.$40,000.
B.$45,000.
C.$55,000.
D.$60,000.
2) Katie Company had 40,000 shares of $2 par value common stock outstanding prior
to a 40% common stock dividend declaration and distribution. The market value of the
common stock on the declaration date was $10. Which of the following statements
incorrectly describes the effect of the common stock dividend and declaration?
A.Retained earnings decreased $32,000.
B.Capital in excess of par remained the same.
C.Additional Paid in capital increased $128,000.
D.Total stockholders’ equity remained the same.
3) The Wilson Company has provided the following information:
♦ Net sales, $200,000
♦ Net operating income, $40,000
♦ Net income, $20,000
♦ Average total assets, $125,000
♦ Average net fixed assets; $80,000
What is Wilson’s fixed asset turnover ratio?
A.1.60
B.2.50
C.0.25
D.0.50
4) Which of the following is the best description of investments in available-for-sale
securities?
A.Investments in bonds that management intends to hold to maturity.
B.Investments in stocks or bonds that are held primarily for the purpose of selling them
in the near future.
C.Investments in more than fifty percent of the voting stock of another company.
D.Investments in securities that are passive investments other than trading securities
and held-to-maturity investments and are accounted for under the fair value method.
5) Which of the following is correct?
A.Unearned revenues are considered increases to stockholders’ equity.
B.Working capital is measured as current liabilities minus current assets.
C.Working capital increases when a company pays the principal on a long-term note.
D.Unearned revenues will eventually become revenue earned.
6) Atomic Company did not record a December 2013 purchase of inventory on credit
until January 2014. Assuming that the December 31, 2013 ending inventory was
correctly determined, what is the effect of this error on the financial statements for the
year ended December 31, 2013?
A.Net income is correct.
B.Stockholders’ equity is understated.
C.Net income is overstated.
D. Current assets are understated.
7) Which of the following includes only intangible assets?
A.Natural resources, patents, and trademarks.
B.Research and development costs, franchises, and trademarks.
C.Copyrights, licenses, and land.
D.Leaseholds, patents, and copyrights.
Intangible assets have physical form. Leaseholds, patents, and copyrights are assets that
lack physical substance.
8) Phillips Corporation purchased 1,000,000 shares of Martin Corporation’s common
stock, which constitutes 10% of Martin’s voting stock on June 30, 2014 for $42 per
share. Phillips’ intent is to keep these shares beyond the current year. On December 20,
2014, Martin paid a $4,000,000 cash dividend. On December 31, Martin’s stock was
trading at $45 per share and their reported 2014 net income was $52 million. What
effect will the dividend have on Phillips’ 2014 financial statements?
A.It would increase cash and increase investment income.
B.It would increase cash and decrease investment in associated companies.
C.It would increase cash and increase net unrealized gains/losses.
D.It would increase cash and increase the investment account.
10) Significant influence over the operating and financial policies of another company
would not be indicated by:
A.Participation on its board of directors.
B.Participation in its policy-making process.
C.Evidence of material transactions between the two companies.
D.Both firms using the services of the same law firms and investment advisors.
Independent choice of professional service firms is not an indicator of significant
influence.
11) Which of the following is incorrect for Smith Company when Smith issues 10,000
shares of $10 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.The common stock account increases by $100,000.
B.The building account increases by $370,000.
C.Stockholders’ equity increases $350,000.
D.The additional paid-in capital account increases by $100,000.
12) Under the LIFO cost flow assumption during a period of rising costs, which of the
following is false?
A.Cost of goods sold will be lower under LIFO than under FIFO.
B.Net income will be lower under LIFO than under FIFO.
C.Income tax expense will be lower under LIFO than under FIFO.
D.Ending inventory will be lower under LIFO than under FIFO.
13) Which of the following describes the operating activities section of a cash flow
statement?
A.It provides information about how operations have been financed.
B.It provides information pertaining to dividend payments to stockholders.
C.It provides information with respect to a company’s ability to generate cash flows to
pay for goods and services.
D.It provides the net increase or decrease in cash during the period.
Cash flows from operating activities are cash flows directly related to earning income.
14) Which of the following journal entries is correct when a company has incurred an
expense for work performed but has not yet paid for theses salaries to employees?
A.Option A
B.Option B
C.Option C
D.Option D
15) What is the effect on the financial statements when a company fails to accrue
salaries expense at year-end?
A.Net income is overstated and liabilities are understated.
B.Expenses are understated and stockholders’ equity is understated.
C.Expenses and liabilities are both overstated.
D.Net income is overstated and liabilities are properly reported.
16) Which of the following account balances would not be included in the calculation
of the current ratio?
A.Accounts receivable.
B.Short-term notes payable.
C.Equipment.
D.Supplies.
17) On January 1, 2014, a corporation issued $400,000 of 10-year, 12% bonds. The
interest is payable semi-annually on June 30 and December 31. The issue price was
$413,153 based on a 10% effective (market) interest rate. Assuming the
effective-interest method of amortization is used, what is the book value of the bond
liability on December 31, 2014 is closest to:
A.$400,000.
B.$413,320.
C.$406,302.
D.$407,432.
18) Which of the following transactions will cause both the left and right side of the
accounting equation to decrease?
A.Collecting cash from a customer who owed us money.
B.Paying a supplier for inventory we previously purchased on account.
C.Borrowing money from a bank.
D.Purchasing equipment using cash.
Paying a supplier for inventory purchased on account reduces assets and reduces
accounts payable.
19) The board of directors of Atlantic Corp. does not know whether to declare and pay a
cash dividend or to declare and distribute a stock dividend.
Complete the following chart to show the overall effect on each financial statement
item for a cash dividend and a stock dividend. Enter the letter “I” if the effect of the
dividend is to increase the financial statement item, a letter “D” if the effect of the
dividend is to decrease the financial statement item, or a letter “N” if there is no overall
effect. (Hint: Think of the journal entries that would be prepared for a cash dividend
and a stock dividend. The overall effect is the net effect from declaration to final
payment or distribution.)
20) A comparison of the balance in Cottonwood Company’s cash account per its books
as of April 30, 2014 and the bank statement dated April 30, 2014 revealed the following
information:
Prepare a complete bank reconciliation using the format below. In each section of the
bank reconciliation indicate the proper handling of each of the items shown above by
listing the appropriate item code letter and the respective amount
21) Cutting Edge Technologies reported the following information in its 2014 annual
report:
1. Determine the inventory turnover ratio. (Round your answer to two decimal places.)
2. Determine the average days to sell inventory. (Round your answer to a whole
number.)3. Explain the meaning of each ratio.
22) Classify the following balance sheet accounts as current assets, noncurrent assets,
current liabilities, noncurrent liabilities, or stockholders’ equity.
1. Building
2. Retained earnings
3. Notes payable due in 3 months
4. Land
5. Prepaid expenses
6. Supplies inventory
7. Common stock
8. Notes payable due in 5 years
9. Income taxes payable
10. Accounts receivable
23) On January 1, 2014, Gordon Company purchased a patent for $420,000 from an
inventor who had developed a new manufacturing process. At the time of the purchase,
the patent had a remaining useful life of 10 years.
