1) In the year of an overstatement of ending inventory, cost of goods sold will be
understated and net income will be overstated.
2) Information on all contractual agreements is included in notes as a financial
statement disclosure.
3) Cash paid to suppliers for inventory is an investing activity.
4) At the time of the initial cash flow, deferred expenses are recorded as assets and then,
when they are used, both expenses and liabilities will increase.
5) The accrual of interest results in an increase liabilities and a decrease in cash.
6) In the United States, the Securities and Exchange Commission (SEC) is considering
requiring the use of International Financial Reporting Standards (IFRS) by U.S.
companies for their financial reporting in the U.S.
7) A realized gain or loss is reported on the income statement when an investment
account is adjusted to reflect changes in fair value.
8) For all periods in which a security is held in the available-for-sale portfolio, the only
income reported on the income statement is dividend revenue.
9) Investments other than held-to-maturity bond investments are reported on the
balance sheet at fair value.
10) Which of the following types of bonds has specific assets pledged to guarantee
repayment?
A.Debenture bond.
B.Callable bond.
C.Secured bond.
D. Convertible bond.
11) Woodland Company uses the allowance method to account for bad debts. During
2014, a customer became bankrupt and a receivable of $10,000 was deemed
uncollectible. Which of the following journal entries records the uncollectible account
write-off?
A.Option A
B.Option B
C.Option C
D.Option D
12) Your goal is to be able to withdraw $5,000 for each of the next ten years beginning
one year from today. The return on the investment is expected to be 12%. The amount
that needs to be invested today is closest to:
A.$44,645.
B.$36,291.
C.$28,251.
D.$50,000.
13) Melanie Corp. borrowed $100,000 cash on September 1, 2014, and signed a
one-year 6%, interest-bearing note payable. The interest and principal are both due on
August 31, 2015. Assume that the appropriate adjusting entry was made on December
31, 2014 and that no adjusting entries have been made during 2015. Which of the
following would be the required journal entry to pay the note on August 31, 2015?
A.Option A
B.Option B
C.Option C
D.Option D
14) A company sells a product FOB destination. The product is shipped on December
29, 2013 and the customer receives the shipment on January 3, 2014. Which of the
following is true?
A.The sale will be recorded when the customer’s credit card information is received.
B.The sale will be recorded when the shipment is received by the customer.
C.The sale will be recorded when the shipment is shipped.
D. The sale will be recorded when it is known there will be no returns or allowances.
15) Moore Company purchased an item for inventory that cost $20 per unit and was
priced to sell at $30. It was determined that the replacement cost is $18 per unit. Using
the lower of cost or market rule, what amount should be reported on the balance sheet
for inventory?
A.$18.
B.$20.
C.$7.
D.$5.
16) Which of the following accounts is used to initially record a deferral?
A.Interest payable.
B.Interest revenue.
C.Supplies.
D.Supplies expense.
17) Which of the following is a false statement about the unadjusted trial balance?
A.It is not a financial statement for external reporting purposes.
B.It provides data in a convenient form for preparing the adjusting entries and financial
statements.
C.It provides a check of the equality of the debits and credits of the ledger accounts
after transactions have been journalized and posted.
D.It provides a listing of balance sheet accounts only.
An unadjusted trial balance is a list of all accounts with their balances, including
income statement accounts, to provide a check on the equality of the debits and credits
and determine what adjusting entries need to be made.
18) The Rye Corporation has provided the following information:
♦ Total sales were $1,200,000.
♦ Beginning net accounts receivable was $45,000.
♦ Ending net accounts receivable was $65,000.
♦ Sales returns and allowances totaled $100,000.
What was Rye’s average collection period?
A.16.73
B.19.75
C.36.50
D.18.25
19) The following data is available for Tommy’s Toys for the years 2012 through 2015:
A. Calculate the accounts payable turnover ratio for the following years:
B. Calculate the number of days it is taking Tommy’s Toys to pay its vendors (assume a
365-day year):
C. Explain whether Tommy’s Toys is doing a better job over the years of paying its
vendors in a timely manner.
20) The Statement of Comprehensive Income includes items in which order?
A.Net income, Other items of net income, Comprehensive income.
B.Comprehensive income, Net income, Other items of Comprehensive income.
C.Net income, Other Fair value items, Comprehensive income.
D.Net income, Other comprehensive income items, Comprehensive income.
21) Which of the following is included within current assets on a balance sheet?
A.Land.
B.A truck.
C.Inventory.
D.Intangible assets.
22) On October 1, 2014, Donna Equipment signed a one-year, 8% interest-bearing note
payable for $50,000. Assuming that Donna Equipment maintains its books on a
calendar year basis, how much interest expense should be reported in the 2015 income
statement?
A.$1,000.
B.$2,000.
C.$3,000.
D.$4,000.
23) Which of the following is the amount of revenue reported on the income statement
of a retail company?
A.The cash collected from customers during the current period.
B.Both cash and credit sales for the period.
C.Cash sales for the period and collections from customers.
D.Cash sales and stockholders’ investments.
24) Which of the following statements regarding the accounting for a common stock
investment using the equity method is incorrect?
A.The equity method is used for investments of ownership between 20% and 50% of
the outstanding voting stock when the investor has the ability to exert significant
influence.
B.The investment account is increased by the proportionate share of affiliate net
income.
C.The investment account is decreased by the proportionate share of affiliate dividends.
D.Investment income equals the proportionate share of affiliate dividends.
Investment income equals the proportionate share of affiliate net income.
25) Which of the following is not included as a primary part of the financial disclosure
in Form 10-K?
A.Financial data for a 5-year period.
B.Management’s opinion of the financial statements.
C.Business operations and strategy.
D.Four basic financial statements.
26) Fun with Florals Corporation acquired all the voting common stock shares of
Crafts-to-Go Corporation under the acquisition method. Crafts-to-Go remains a
separate corporation. Which of the following statements about the financial statements
is true?
A.The assets and liabilities of Crafts-to-Go Corporation would be not revalued and
disclosed at fair value on the date of acquisition.
B.Fun with Florals will use the equity method of accounting for this investment.
C.Fun with Florals will prepare consolidated financial statements.
D.Fun with Florals will use the fair value method of accounting for this investment.
27) Answer each of the independent problems (show computations):
A. Company A deposited $20,000 in a savings account on January 1, 2013, that will
accumulate 6% interest each December 31.
1. What will be the savings balance as of December 31, 2017?
2. How much interest will be earned as of December 31, 2017?
B. Company B needs to accumulate a $50,000 fund by making five equal annual
deposits. Assuming a 7% interest accumulation, how much must be deposited at the end
of each year?
C. Company C has a new machine that has an estimated life of five years and a $5,000
residual value at the end of that life. Assuming an 8% interest rate, what is the present
value of the estimated residual value?
D. Company D owes a $50,000 debt that is now due (January 1, 2015). Arrangements
have been made to pay it off in five equal annual installments starting December 31,
2015 (an ordinary annuity situation).
1. Assuming 8% interest, what is the amount of the annual payment?
2. Prepare the entry for Company D above for the first payment on December 31, 2015
on the note payable. Assume that no adjusting entries have been made during the year.
28) When a bond payable is issued at a discount, which of the following would not
occur as the bond is amortized each year?
A.Interest expense would increase.
B.The book value of the bonds would increase.
C.The amortization for each year the bond approaches maturity, when the
effective-interest method is used, would increase.
D.The amount of amortization would be reported as an increase in cash flow from
operating activities.
29) 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. Assuming the effective-interest method of amortization is used, which of the
following statements is incorrect?
A.The market rate of interest on the sale date was less than the stated rate of interest.
B.The book value of the bond will decrease as the bond reaches maturity.
C.The interest expense will decrease as the bond reaches maturity.
D.The amortization of the premium on bonds payable will decrease as the bond
matures.
30) Spa Sources Corporation purchased a machine that had an original cost of $60,000
and an estimated residual value of $10,000. The useful life was expected to be 8 years
and straight-line depreciation is used. At the end of 2014, the book value of the machine
was $35,000. Spa Sources sold the machine for $32,000 cash on October 1, 2015.
31) Determine the missing amounts for each independent case below. Assume the
amounts given are at the end of the company’s first year of operation.
33) Determine the effect of the following transactions on the financial statement
components identified. Code your answers as follows:
A: If the transaction results in an increase in the financial statement component.
B: If the transaction results in a decrease in the financial statement component.
C. If the transaction does not affect the financial statement component.
Transaction 1: Common stock was sold at a price in excess of par value.
Net income_____
Total assets_____
Stockholders’ equity_____
Transaction 2: Treasury stock was purchased using cash.
Net income_____
Total assets_____
Stockholders’ equity_____
Transaction 3: Treasury stock was resold for cash at a price less than the treasury stock’s
cost.
Net income_____
Total assets_____
Stockholders’ equity_____
Transaction 4: Treasury stock was resold for cash at a price greater than the treasury
stock’s cost.
Net income_____
Total assets_____
Stockholders’ equity_____
34) On December 31, 2014, Jean World Corporation recorded the following journal
entry relating to its investment in 9,000 shares of common stock of Soda Corporation.
At the end of 2014, Soda Corporation reported net income of $120,000. Earlier in the
year, Soda declared and paid dividends of $18,000.
35) Use the following information to prepare a statement of cash flows for Stable
Equipment Company for the year ended December 31, 2014 if using the indirect
method:
Net income for the year 2014 was $5,000. Accounts receivable decreased $2,000, while
inventories increased $4,000, and accounts payable decreased $7,000. Depreciation
expense included in net income was $8,000.
During the year, a piece of land held for future expansion was sold for its book value of
$8,000 and a new service truck was purchased for $14,000.
The company borrowed $18,000 on a two-year note from the bank. Dividends of
$6,000 were paid in cash. Preferred stock was issued to retire $7,000 of long-term notes
payable.
The beginning cash balance was $22,000 and the ending balance was $32,000.
Schedule of significant noncash investing and financing activities:
Issued preferred stock to retire long-term notes payable, $7,000
