The Grass is Greener Corporation provides $6,000 worth of lawn care on account
during the month. Experience suggests that about 2% of net credit sales will not be
collected. To record the potential bad debts, The Grass is Greener Corporation would:
A. debit Accounts Receivable and credit Allowance for Doubtful Accounts for $120.
B. debit Allowance for Doubtful Accounts and credit Bad Debt Expense for $120.
C. debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $120.
D. debit Bad Debt Expense and credit Accounts Receivable for $120.
Answer:
A company reported the following in its recent balance sheet:
What is the amount of the current ratio (round to two decimal places)?
A. 8.05
B. 6.44
C. 5.22
D. 1.00
Answer:
During November 2013, Asler Inc. performs consulting services. The client does not
pay Asler until January, 2014.
A. Using the accrual basis of accounting, the revenue is reported in January 2014.
B. Using the cash basis of accounting, the revenue is reported in November 2013.
C. Using the accrual basis of accounting, the revenue is reported in November 2013.
D. Using the accrual basis of accounting, the revenue is reported when Asler’s expenses
are paid.
Answer:
Match the appropriate variable or variables to each space in the appropriate equation.
Note: you may use a variable more than once and some variables may not be used at all.
A. Current liabilities
B. Cash
C. Net income
D. Quick ratio
E. Net receivables
F. Current ratio
G. Income tax expense
H. Interest revenue
I. Short-term investments
J. Bonds payable
K. Interest expense
L. Inventory
Answer:
Thirty years ago, most companies relied mainly upon periodic inventory systems. Why?
A. Theft was an insignificant source of loss compared to today.
B. The tax code required physical inventory counts until tax regulations were changed
in the 1980s.
C. New technology, allowing perpetual inventory systems to be installed more easily
and inexpensively, was not available thirty years ago.
D. Before the advent of computers, perpetual systems were less accurate than periodic
systems.
Answer:
Obligations due to be paid within one year or the company’s operating cycle, whichever
is longer, are:
A. current assets.
B. current liabilities.
C. earned revenues.
D. non-current liabilities.
Answer:
Which of the following statements regarding the presentation of a trial balance is
correct?
A. The adjusted trial balance shows the end-of-year balance for Retained Earnings.
B. An adjusted trial balance presents account balances in the same level of detail as in
the presentation of the financial statements.
C. The order of accounts is assets, liabilities, stockholders’ equity, dividends, revenues
and expenses.
D. The adjusted trial balance shows all the debit and credit postings to all the ledger
accounts.
Answer:
Use the information above to answer the following question. If sales revenue for 2015
is $850,000, which of the following is closest to the asset turnover ratio for 2015?
A. 0.68
B. 0.63
C. 0
D. 0.74
Answer:
Some bonds allow the borrower to repay the bond by issuing stock. These bonds are
known as:
A. convertible bonds.
B. debenture bonds.
C. callable bonds.
D. coupon bonds.
Answer:
In January 2013, a new consulting firm recorded the following transactions:
1. Issued stock to investors for $20,000 cash.
2. Purchased $5,000 of equipment, paying 20% in cash and giving a promissory note
for the balance.
3. Received $9,000 in cash for consulting services performed in January.
4. Bought $1,500 of supplies on account; all of the supplies were used in January.
5. Provided consulting services for clients and billed them $16,000.
6. Paid $750 toward the supplies purchased in #4.
7. Paid $3,000 to employees for work performed in January.
8. Received a bill for rent and utilities for January of $3,400.
What is the amount of Current Assets on the classified balance sheet at the end of
January?
A. $25,750
B. $26,500
C. $41,750
D. $40,250
Answer:
Alphabet Company buys different letters for resale. It buys A thru J on January 1 at $4
per letter, and sells C on January 15. On February 1, it buys K and L at $6 per letter and
sells A and K on February 9. It then buys M thru O on March 1 at $7 per letter and sells
F, L, M, N, and O on March 19. If the company uses the LIFO method on a perpetual
basis, what is the cost of goods sold for the three months ended March 31 (rounded to
the nearest dollar)?
A. $32
B. $41
C. $45
D. $56
Answer:
Accrued revenues recorded at the end of the current year:
A. often result in cash receipts from customers in the next period.
B. often result in cash payments in the next period.
C. are also called Unearned Revenues.
D. are recorded in the current year when cash is received.
Answer:
The following information is taken from the financial statements of B. Darin Company:
In addition, there was an average of 40,000 shares of common stock outstanding and
the current market price of the stock is $15 per share.
Use the information above to answer the following question. Which of the following is
closest to the price/earnings ratio for the current year?
A. 2.07
B. 1.50
C. 0.50
D. 2.0
Answer:
When a company lends cash to a customer who signs a promissory note:
A. net assets decrease for the current accounting period, but increase when the money is
repaid.
B. net assets increase in the current accounting period but revenues increase when the
money is repaid.
C. net assets increase and liabilities increase when the transaction occurs.
D. net assets and net income do not change when the transaction occurs.
Answer:
A retail clothing company began operations in 2014 with assets of $42,000. The
following additional data have been taken from the records as of December 31, 2014:
All accounts have normal balances.
What is the net profit margin ratio for 2014?
A. .068
B. .059
C. .104
D. .078
Answer:
The amount of uncollectible accounts at the end of the year is estimated to be $25,000
using the aging of accounts receivable method. The balance in the Allowance for
Doubtful Accounts account is an $8,000 credit before adjustment. Assuming no
accounts are written off during the period, what will be the amount of bad debt expense
for the period?
A. $8,000.
B. $17,000.
C. $25,000.
D. $33,000.
Answer:
If a truck’s engine is overhauled for $8,000, the journal entry would normally include a
debit to
A. Truck
B. Accounts Payable
C. Depreciation Expense
D. Cash
Answer:
Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate.
Its net income should be reported as:
A. $55,760.
B. $108,240.
C. $219,760.
D. $482,353.
Answer:
Supplemental disclosures required by companies using the indirect method include all
of the following except:
A. cash paid for interest.
B. cash paid for income tax.
C. cash paid for dividends.
D. noncash investing and financing activities.
Answer:
Assets:
A. represent the amounts earned by a company.
B. must equal the liabilities of a company.
C. must equal the stockholders’ equity of the company.
D. represent the resources owned by a company.
Answer:
A company lends a major client $90,000 for one year at a 7% annual interest rate.
Interest payments are to be made twice a year but the company wants to recognize
interest earned on a monthly basis. On a month in which the company does not receive
any interest payments, interest is recorded with:
A. a debit to Cash of $525 and a credit to Interest Revenue of $525.
B. a debit to Notes Receivable of $525 and a credit to Cash of $525.
C. a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
D. no adjusting entry, since no transaction has occurred.
Answer:
On January 1, 2014, a company issued $500,000, 10-year, 10 percent bonds at 88.5.
Interest is payable annually. The market rate of interest was 12% at the time the bonds
were issued and the company uses the effective interest amortization method.
Use the information above to answer the following question. The entry to record the
issuance of the bonds on January 1, 2014, would include:
A. a credit to Discount on Bonds Payable of $57,500.
B. a debit to Cash of $442,500.
C. a debit to Bonds Payable of $500,000.
D. a credit to Premium on Bonds Payable of $90,000.
Answer:
The issuance price of a bond does not depend on
A. the face value of the bond.
B. the market rate of interest.
C. the perceived risk associated with the bond.
D. the method used to amortize the discount or premium.
Answer:
A company declared and paid a dividend of $8,000 this year. The entry to close the
dividend account at the end of the year is:
A. Option A
B. Option B
C. Option C
D. Option D
Answer:
Which of the following is not a commonly used internal control?
A. Mandatory vacations.
B. Anonymous hotlines.
C. Bonding of employees.
D. Consolidating duties.
Answer:
The potential advantages of extending credit include all of the following except:
A. higher selling expenses.
B. higher profits.
C. higher customer satisfaction.
D. higher revenues.
Answer:
Wickersham Brothers Inc. is developing its annual financial statements at December 31,
2014. The statements are complete except for the statement of cash flows. The
completed comparative balance sheets and income statements are summarized.
Additional Data:
a. Bought equipment for cash, $50,000.
b. Paid $10,000 on long-term note payable.
c. Issued new shares of stock for $20,000 cash.
d. Cash dividends of $16,000 were declared and paid.
e. Accounts payable are exclusively related to inventory purchases on credit.
f. Tax expense ($4,000) and interest expense ($3,000) were paid in full at the end of
both years and are included in other expenses.
a. Prepare the statement of cash flows for 2014 using the indirect method. Include any
supplemental disclosures.
b. Interpret the statement of cash flows by explaining the main sources and uses of cash
during the year.
Answer:
Earnings forecasts:
A. are issued by the S.E.C.
B. are calculated by taking net income and dividing by expenses.
C. estimate future net income.
D. are included in audited financial statements.
Answer:
Which of the following would be listed as a current liability?
A. Cash in the bank
B. Notes payable due in two years
C. Supplies
D. Accounts payable
Answer:
The table shows financial data for Purrfect Pets, Inc. as of June 30,
Prepare a balance sheet using these data.
Answer:
Which of the following misstatements would cause the asset turnover ratio to be
overstated?
A. Misclassifying an expense as an asset.
B. Failing to adjust the unearned revenue account for amounts earned.
C. Failing to accrue interest on a loan payable to the bank.
D. Failing to accrue rent earned for the current period.
Answer:
According to the Sarbanes-Oxley Act (SOX), who are possible members of the Audit
Committee?
A. The president of the company.
B. Chief financial officer of the company.
C. Independent directors.
D. External auditors.
Answer:
If sales are $850,000 and the beginning and ending balances of accounts receivable are
$43,000 and $48,000, respectively, the cash collected from customers is:
A. $850,000
B. $802,000
C. $845,000
D. $855,000
Answer:
If a company’s ending inventory count was $50,000, cost of goods sold was $27,000,
and purchases were $56,000, its beginning inventory must have been
A. $33,000.
B. $133,000.
C. $79,000.
D. $21,000.
Answer: