1) The amount of cash paid by a business for dividends would be reported as an
operating activity cash flow on the statement of cash flows.
2) A grocery store probably would use the specific identification inventory costing
method for most of the items in its inventory.
3) Gains and losses on disposal of a long-lived asset are determined by comparing the
asset’s cost to its book value.
4) The fraud triangle conditions necessary for financial statement fraud to occur are the
existence of a system of internal control, the ability to invade the system, and
rationalization to commit the fraud.
5) Investment income is reported as operating revenue and therefore increases operating
income.
6) Inventory inspection costs are reported as operating expenses on the income
statement.
7) An accrued expense is incurred and also paid for in the current period.
8) Subsequent to a merger, the assets and liabilities of the acquired company will
continue to be accounted for within the acquired company’s books.
9) When accrued liabilities increase from the beginning to the end of the year, it means
accrued expenses were greater than cash payments of such expenses, and, under the
indirect method, the increase in accrued liabilities would be added to net income to
convert to cash flow from operating activities.
10) When a particular account receivable is determined to be uncollectible, the journal
entry to write-off the account reduces cash.
11) Working capital is a measure of long-term liquidity and is calculated by subtracting
the current liabilities from the current assets.
12) Common stock and additional-paid in capital represent the financing sources from
shareholders.
13) Sales by major product category is a required financial statement disclosure.
14) The form 10-Q contains an unaudited set of quarterly financial statements.
15) Under accrual accounting, rent expense for February, 2015 would be recognized on
the income statement in February, 2015 even though it had been paid for in January.
16) Which of the following would not be a result of the adjusting entry to record
accrued interest on a note payable?
A.A decrease in net income.
B.A decrease in stockholders’ equity.
C.An increase in liabilities.
D.A decrease in current assets.
17) Which of the following statements regarding earnings per share is not correct?
A.It can be reported on the income statement.
B.The numerator is net income.
C.The denominator is the average number of shares of common stock outstanding.
D.It does not have to be disclosed on the income statement or the notes to the financial
statements.
The only ratio required to be disclosed on the income statement or notes to the financial
statements is earnings per share.
18) During 2014, Sigma Company earned service revenues amounting to $700,000, of
which $630,000 was collected in cash; the balance will be collected in January, 2015.
Also in 2014 there were collections of cash prior to the delivery of goods/services
totaling $10,000. What amount should the 2014 income statement report for service
revenues?
A.$630,000.
B.$700,000.
C.$70,000.
D.$570,000.
19) Idaho Company purchased, as a long-term investment, 30% of the outstanding
nonvoting preferred stock of Potato Corporation. Which of the following classifications
should be used by Idaho Company in accounting for the investment?
A.Trading securities.
B.Held-to-maturity.
C.Available-for-sale.
D.Consolidation.
20) Which of the following is not a criterion pertaining to the revenue realization
principle?
A.The goods or services have been delivered.
B.The selling price is fixed or determinable.
C.Collection is reasonably assured.
D. The cash payment has been received.
21) A company reported total stockholders’ equity of $540,000 on its balance sheet
dated December 31, 2014. During the year ended December 31, 2015, the company
reported net income of $60,000, declared and paid a cash dividend of $18,000, declared
and distributed a 10% stock dividend with a $15,000 total market value, sold treasury
stock costing $12,000 for $15,000, and issued additional common stock for $70,000.
What is total stockholders’ equity as of December 31, 2015?
A.$640,000.
B.$670,000.
C.$667,000.
D.$655,000.
22) Which of the following would not typically be disclosed in the notes to the financial
statements?
A.Additional detail regarding reported numbers.
B.A summary of significant accounting policies.
C.Commitments under long-term supply agreements.
D.The net income earned for the reporting period.
23) Wendell Company provided the following pertaining to its recent year of operation:
♦ Common stock with a $10,000 par value was sold for $50,000 cash.
♦ Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
♦ Net income was $70,000.
♦ A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par
value and a $23,000 market value.
♦ Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell’s capital in excess of par increase during the recent year of
operation?
A.$60,000.
B.$58,000.
C.$56,000.
D.$24,000.
24) Which of the following statements is correct with respect to a loss on the sale of a
depreciable asset?
A.Net income decreases and total assets increase.
B.Net income decreases and stockholders’ equity increases.
C.Total assets decrease and stockholders’ equity decreases.
D.Total assets increase and stockholders’ equity decreases.
25) Which of the following does not represent a description of shares of stock presented
on the balance sheet?
A.Authorized shares.
B.Issued shares.
C.Outstanding shares.
D.Contributed shares.
26) On December 31, 2014, Hamilton Inc. sold a used industrial crane for $600,000
cash. The original cost of the crane was $5.0 million and its accumulated depreciation
equaled $4.2 million on December 31, 2014. What is the gain or loss from the
December 31, 2014 equipment sale?
A.$600,000 gain.
B.$600,000 loss.
C.$200,000 loss.
D.$200,000 gain.
27) Which of the following accounts does not have a debit balance?
A.Prepaid expenses.
B.Insurance expense.
C.Unearned revenue.
D.Investments.
Unearned revenue is liability account with a credit balance.
28) Dally Company has just finished preparing its bank reconciliation. If everything
was done correctly, which of the following items would be reported as a deduction from
the company’s ending balance per the bank?
A.Deposits in transit.
B.Service Fees.
C.Outstanding checks.
D.NSF checks.
29) Borrowing cash from a bank would result in which of the following?
A.A debit to cash and a credit to notes payable.
B.A debit to notes payable and a credit to cash.
C.A debit to both cash and notes payable.
D.A debit to cash and a credit to additional paid-in capital.
Cash is received and increased with a debit; the loan from the bank is recognized with a
credit to notes payable.
30) Which of the following statements about the quality of income ratio is incorrect?
A.An increase in operating assets and a decrease in liabilities will reduce operating cash
flows and thereby reduce the quality of income ratio.
B.Seasonal variations in sales and purchases of inventory can cause wide deviations in
the quality of income ratio.
C.When sales are growing, receivables and inventory normally increase at a faster rate
than accounts payable, which often causes cash flows from operating activities to be
less than net income.
D.Aggressive revenue recognition tends to increase the quality of income ratio.
31) Which of the following statements is false?
A.Gross profit percentage is calculated as gross profit divided by net sales.
B.Gross profit should only be viewed for each reporting company and is not useful in
comparing different companies in the same industry.
C.Gross profit is calculated as net sales less cost of sales.
D.A higher gross profit might be strategic in order to afford high research and
development costs.
32) 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 previously declared $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 investment value will be reflected on Phillips’ balance sheet at December
31, 2014?
A.$42,000,000.
B.$45,000,000.
C.$46,800,000.
D.$47,200,000.
33) Which of the following does not properly describe reasons for a retailer of pianos
having 30 stores to acquire control of another retailer of pianos having 12 stores?
A.The companies would be vertically integrated to have access across United States
markets.
B.The companies would be integrated for horizontal growth by having more retail
stores to sell pianos.
C.The companies would be integrated to experience synergies in delivery costs to
customers because pianos could be shipped from a central warehouse in each
geographic territory.
D.The companies would be integrated to share advertising costs.
34) Which of the following is true about a passive investment in common stock?
A.The investing company usually owns less than 20% of the voting stock in the affiliate
and the investment is reported on the balance sheet at cost.
B.The investment must not have any voting rights.
C.The fair value method requires unrealized gains and losses to be recognized on the
income statement.
D.The investing company usually owns less than 20% of the voting stock in the affiliate
and the investment must be reported at fair value on the balance sheet.
Passive common stock investments are usually less than 20% of the voting stock and
are reported on the balance sheet at fair value.
35) Rio Company uses the FIFO inventory costing method and has a perpetual
inventory system. All purchases and sales were cash transactions. The records reflected
the following for January, 2014:
Determine the following:
A 2014 cost of goods available for sale
B 2014 cost of goods sold
C 2014 ending inventory
D The journal entries for January 6 and 10
36) Johnson Corporation is completing the accounting information processing cycle at
the end of the fiscal year, June 30, 2014. Johnson has provided the following trial
balances as of June 30, 2014:
A. Reconstruct the adjusting entries and give a brief explanation of each.
B. What is the amount of net income?C Calculate earnings per share (EPS) assuming
1,000 shares of common stock are outstanding.
37)
38)