1) The market prices of bonds fluctuate inversely with market interest rates.
2) In order to effectively evaluate the days’ sales in receivables, it should be compared
to the company’s credit terms.
3) A purchaser is willing to pay for goodwill when they feel the company they are
buying has abnormal earning power.
4) The journal is the book of original entry
5) Under the double-declining balance method of depreciation, residual value is initially
ignored.
6) The carrying amount of bonds at maturity should be equal to the face value of the
bonds.
7) Accounts (trade) receivables are amounts to be collected from customers from the
sale of goods or services.
8) A capital lease requires the lessee to record the lease as a purchase of a plant asset.
9) Journal entries can have more than two accounts as long as the total debits equal the
total credits
10) Interest expense on a note payable is only recorded at maturity.
11) The charter reveals the number of shares of common stock a corporation can sell.
12) Employee compensation is a major expense for most service companies.
13) A Loss on Sale of Equipment will result when the book value of the equipment
exceeds the cash received from the sale of the equipment.
14) Convertible preferred stock is usually convertible into the issuer’s common stock at
the discretion of the preferred stockholder.
15) A debit balance in the Retained Earnings account indicates a deficit in Retained
Earnings.
16) Earnings per share is the amount of a company’s net income divided by the par
value of its stock.
17) In the periodic inventory system, the Inventory account is debited for the purchases
made during the year.
18) The Clarke Company had beginning retained earnings of $20,000, net income of
$5,000, and declared and paid dividends of $1,000. Therefore, the ending retained
earnings is $25,000.
19) A credit balance in Retained Earnings indicates that a company’s lifetime earnings
exceeded its lifetime losses and dividends declared.
20) The larger the working capital, the better the ability to pay debts.
21) Tomasino’s inventory records show the following data at January 31:
At January 31, 210 units are still on hand. What is the cost of the ending inventory at
January 31 if Tomasino uses the FIFO method?
A) $1,680
B) $2,500
C) $2,210
D) $3,000
22) On January 2, 2015, Kellogg Corporation acquired equipment for $300,000. The
estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value
is $20,000. What is the book value of the asset on December 31, 2016, if Kellogg
Corporation uses the straight-line method of depreciation?
A) $180,000
B) $188,000
C) $240,000
D) $244,000
23) As a general rule of thumb, a strong current ratio is:
A) 1.0 or higher
B) .50 or higher
C) 1.5 or higher
D) none of the above
24) The entry to establish the petty cash fund is:
A) a debit to Miscellaneous Expense and a credit to Cash
B) a debit to Miscellaneous Expense and a credit to Petty Cash
C) a debit to Petty Cash and a credit to Cash
D) a debit to Cash and a credit to Petty Cash
25) Reasons that a company would purchase treasury stock include all of the following
EXCEPT:
A) management wants to avoid a takeover by an outside party
B) it needs the stock for distribution to employees under stock purchase plans
C) it wants to increase net assets by buying its stock low and reselling it at a higher
price
D) management wants to decrease earnings per share of common stock
26) A positive economic value added (EVA) suggests an increase in stockholders’
wealth.
27) An investor purchased bonds and intends to hold them until the maturity date which
is 10 years into the future. The bonds were purchased at a discount. One year after
purchase, this Held-to-Maturity Investment in Bonds will be reported at ________ on
the balance sheet.
A) fair value
B) historical cost
C) lower of cost or market
D) amortized cost
28) Which of the following items can be added to or subtracted from the bank balance
when preparing the bank reconciliation?
A) book errors
B) bank errors
C) EFT payments by bank
D) EFT receipts by bank
29) If a natural resource is extracted and then immediately sold, we:
A) debit Cost of Goods Sold and credit Inventory
B) debit Natural Resource and credit Accumulated Depletion
C) debit Depletion Expense and credit Accumulated Depletion
D) debit Depreciation Expense and credit Accumulated Depreciation
30) On January 4, 2012, Mary’s Cafe acquired equipment for $200,000. The estimated
life of the equipment is 8 years or 60,000 hours. The estimated residual value is
$10,000. What is the balance in the Accumulated Depreciation account at December 31,
2013 if the straight-line method is used?
A) $10,000
B) $25,000
C) $47,500
D) $50,000
31) Which of the following is typically used as the base in a vertical analysis of a
balance sheet?
A) Total liabilities
B) Total stockholders’ equity
C) Total assets
D) Net sales
32) When a company receives a cash dividend from a short-term available-for-sale
security, the journal entry is:
A) debit to Investment in Available-for-Sale Securities and credit Cash
B) debit to Cash and credit to Dividend Revenue
C) debit to Dividend Revenue and credit to Cash
D) debit to Cash and credit to Investment in Available-for-Sale Securities
33) On November 1, 2014, a company using accrual-basis accounting pays $1,000,000
for a television advertising campaign. Commercials will run evenly over six months
beginning on November 1, 2014. How much Advertising Expense will be reported on
an income statement prepared for the year ended December 31, 2015?
A) $333,333
B) $500,000
C) $666,667
D) $1,000,000
34) Tanya Company has the following information:
What are collections from customers during 2014?
A) $1,590,000
B) $1,600,000
C) $2,590,000
D) $2,600,000
35) Revenues are:
A) decreases in assets resulting from delivering goods or services to customers
B) increases in liabilities resulting from delivering goods or services to customers
C) increases in retained earnings resulting from delivering goods or services to
customers
D) decreases in retained earnings resulting from delivering goods or services to
customers
36) Internal control procedures do NOT include:
A) smart hiring practices
B) adequate records
C) limited access
D) control environment
37) What is the impairment test for long-term plant assets?
A) Is the book value greater than the fair value?
B) Is the fair value greater than the book value?
C) Is the book value greater than the expected future cash flows?
D) Are the expected future cash flows greater than the book value?
38) Cramer Company purchased equipment on May 1, 2014 for $100,000. The residual
value is $10,000 and the estimated useful life is 10 years. What is the Depreciation
Expense for the year ending December 31, 2014, if the company uses the straight-line
method?
A) $5,250
B) $6,000
C) $6,667
D) $9,000
39) The category “Other Receivables” on the balance sheet includes:
A) Accounts Receivable, Interest Receivable
B) Notes Receivable, Accounts Receivable, Interest Receivable
C) Interest Receivable, Dividend Receivable, Advances to employees
D) none of the above
40) If 15% of the common stock of an investee company is purchased as a long-term
investment, the appropriate method of accounting for the investment is:
A) the equity method
B) the consolidation method
C) the available-for-sale(fair value) method
D) the lower of cost or market method
41) Gia Company has the following information available:
What is the amount of Cash to be listed on the balance sheet?
A) $0
B) $100,000
C) $1,000,000
D) $2,000,000
42) At the beginning of the year, Butters Company’s balance sheet showed current
assets of $36,000 and current liabilities of $10,000. During the current year, Butters
issued common stock for $5,000 for cash and purchased $3,000 of inventory on
account. After these transactions were recorded, Butter’s current ratio was:
A) 1.17
B) 1.60
C) 3.38
D) 3.60
43) Alpha Company has an account at First Bank. Alpha writes a check payable to Beta
Company. In this transaction, Beta Company is the:
A) payee
B) payer
C) drawer
D) maker
44) Which of the following statements is TRUE?
A) Dividends are expenses of a business
B) Dividends reduce retained earnings
C) Dividends increase retained earnings
D) Dividends reduce net income
45) Under the direct method of preparing the statement of cash flows, cash receipts
from operating activities do NOT include:
A) collection of note receivable
B) collections from customers
C) receipt of interest on investments
D) receipt of dividends on investments
46) A company performed services for a customer for cash This transaction increased
assets and:
A) decreased stockholders’ equity
B) increased liabilities
C) increased expenses
D) increased revenues
47) The major types of transactions that affect retained earnings are:
A) paid-in capital and common stock
B) assets and liabilities
C) revenues, expenses, and dividends
D) revenues and liabilities
48) Maydak Company has the following items for the month of July:
The gross profit percentage is:
A) 25.0%
B) 34.9%
C) 51.6%
D) 65.0%
49) Which of the following statements about the rules of debits and credits is
CORRECT?
A) An asset is increased by a credit
B) Dividends are decreased by debits
C) A liability is increased by a debit
D) Revenue is increased by a credit
50) ________ is the most common fraud, but ________ is the most expensive fraud.
A) Fraudulent financial reporting, misappropriation of assets
B) Misappropriation of assets, fraudulent financial reporting
C) Misappropriation of assets, cooking the books
D) Cooking the books, misappropriation of assets
51) Cooper Company has purchased equipment that requires annual payments of
$20,000 to be paid at the end of each of the next 6 years. The discount rate is 12%. The
present value of one for six periods at 12% is 0.507. The present value of an ordinary
annuity of one for six periods at 12% is 4.111. What amount will be assigned to the
equipment?
A) $60,840
B) $82,220
C) $110,515
D) $120,000
52) The Financial Accounting Standards Board(FASB) and the International Accounting
Standards Board(IASB) are working together to develop similar standards. Which of
the following statements is FALSE?
A) The FASB and IASB have recently developed a new standard that has a globally
consistent and converged way to recognize revenue
B) In the retail merchandising industry, FASB and IASB have used the same rules for
revenue recognition
C) In the retail merchandising industry, FASB and IASB have used different rules for
revenue recognition
D) FASB and IASB have developed similar standards for the past few years
53) Which statement about the statement of cash flows is FALSE?
A) Operating activities should be the company’s main source of cash
B) Purchases and sales of long-term assets are financing cash flows
C) The payment of a dividend is a financing cash flow
D) The payment of a note payable is a financing activity