1) A sale on account for $1,000 offered with terms 2/10, n/30 means that the customers
will get a $2 discount if payment is made within 10 days; otherwise, full payment is due
within 30 days.
2) Under the allowance method, when a company writes off an account receivable as an
actual bad debt, it reduces total assets.
3) Companies that are believed to have high bankruptcy risk generally receive higher
credit ratings and pay a lower interest rate for borrowing.
4) Use of a longer useful life for depreciation is an example of conservative accounting.
5) When the value of inventory falls below its cost, companies have the option of
recording the inventory at cost or the lower market value.
6) Receiving cash in advance from a customer for services to be provided in the future
causes assets to increase and stockholders equity to increase.
7) The employer is required to match the amount of FICA taxes withheld for each
employee, effectively doubling the amount paid into Social Security.
8) One disadvantage of the allowance method (over the direct write-off method) for
recording uncollectible accounts is that it generally matches bad debt expense with the
revenue it helped to generate.
9) A premium occurs when the issue price of a bond is above its face amount.
10) The Norwalk Agreement formalizes the commitment between the FASB and IASB
to the convergence of U.S. GAAP and IFRS.
11) Providing services to customers on account causes assets to increase and
stockholders equity to increase.
12) Dividends represent a return of the companys profits to its owners, the stockholders.
13) If the defense of an intangible right is unsuccessful, then the firm should expense
the litigation costs as incurred because they provide no future benefit.
14) The long-term assets section of the balance sheet is the place to look for investing
activities.
15) The Sales Discounts account is an expense account.
16) Libby Company purchased equity securities for $100,000 and classified them as
available-for-sale securities. At the end of the year, the fair value of the securities was
$105,000. How should the investment be reported in the year-end financial statements?
a. The investment in available-for-sale securities would be reported in the balance sheet
at its $100,000 cost
b. The investment in available-for sale securities would be reported in the balance sheet
at its $105,000 market value
c. An unrealized holding gain would be reported in other comprehensive income
d. Both b. and c. are correct
17) The following table contains financial information for Trumpeter Inc. before closing
entries:
What is Trumpeters net income?
a. $3,500
b. $2,500
c. $5,000
d. $5,500
18) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term by placing the letter designating
the term in the space provided.
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Procedures for maintaining separation of duties.
19) The following information pertains to Julia & Company:
March 1 Beginning inventory = 30 units @ $5
March 3 Purchased 15 units @ $4
March 9 Sold 25 units @ $8
What is the ending inventory balance for Julia & Company assuming that it uses FIFO?
a. $125
b. $100
c. $110
d. $85
20) We can identify operating activities from income statement information and
changes in
a. Long-term asset accounts
b. Long-term liability accounts
c. Current asset and current liability accounts
d. Stockholders equity accounts
21) Listed below are five terms followed by a list of phrases that describe or
characterize the terms. Match each phrase with the best term placing the letter
designating the term in the space provided.
a. Work-in-process inventory
b. Merchandising companies
c. Finished goods
d. Raw materials
e. Manufacturing companies
_____ Companies that produce the inventories they sell, rather than buying them
from suppliers in finished form.
22) Suppose a severe storm floods a companys headquarters, causing damages to the
building of $300,000 and destruction of inventory of $200,000. Because of the unusual
nature of this event, the company had no flood insurance to cover these losses. Under
U.S. GAAP, how much would the company report as an extraordinary loss in the
current years income statement?
a. $0
b. $200,000
c. $300,000
d. $500,000
23) On December 2, Coley Corp. reacquired 1,000 shares of its $2 par value common
stock for $27 each. On December 20, Coley Corp. reissued 400 shares for $15 each.
Which of the following is correct regarding the journal entry for the reissued shares?
a. Debit Cash $15,000
b. Credit Treasury Stock $10,800
c. Credit Paid in Capital – Treasury Stock $5,200
d. Credit Treasury Stock $6,000
24) The corporations own stock that has been issued and then repurchased by the
company is referred to as:
a. Preferred Stock
b. Authorized Stock
c. Treasury Stock
d. Common Stock
25) Listed below are ten terms followed by a list of phrases that describe or characterize
the terms. Match each phrase with the best term placing the letter designating the term
in the space provided.
a. Asset turnover
b. Cash flow to sales
c. Cash return on assets
d. Direct method
e. Financing activities
f. Indirect method
g. Investing activities
h. Noncash activities
i. Operating activities
j. Statement of cash flows
Phrases:
_____ Begins with net income and then list adjustments to net income in order to arrive
at operating cash flows.
_____ Significant investing and financing activities that do not affect cash.
_____ Sales revenue divided by average total assets; measures the sales revenue
generated per dollar of assets.
_____ Includes cash receipts and cash payments for transactions relating to revenue and
expense activities.
_____ Net cash flows from operating activities divided by average total assets;
measures the operating cash flow generated per dollar of assets.
_____ A summary of cash inflows and cash outflows during the reporting period sorted
by operating, investing, and financing activities.
_____ Net cash flows from operating activities divided by sales revenue; measures the
operating cash flow generated per dollar of sales.
_____ Includes cash transactions resulting from the external financing of a business.
_____ Includes cash transactions involving the purchase and sale of long-term assets
and current investments.
_____ Adjusts the items on the income statement to show items such as cash received
from customers, and cash paid for inventory, salaries, rent, interest and taxes.
26) The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at
the beginning and end of the year, respectively. Sales revenues are $1.1 million ($0.8
million in the previous year), net income is $40,000, and net cash flows from operating
activities are $50,000. How does Tech Track’s cash return on assets compare to the
industry average of 10%?
a. Better
b. Worse
c. Same as
d. Cannot be determined with the data provided
27) A contingent liability should be recorded on a company’s financial statements only
if the likelihood of a loss occurring is:
a.At least remotely possible and the amount of the loss is known
b.At least reasonably possible and the amount of the loss is known
c.At least reasonably possible and the amount of the loss can be reasonably estimated
d.Probable and the amount of the loss can be reasonably estimated
28) Which of the following best explains the meaning of total stockholders equity?
a. The difference between total revenues and total expenses, less dividends for the year
b. The amount of common stock less dividends over the life of the company
c. All revenues, expenses, and dividends over the life of the company
d. The amount of capital invested by stockholders plus profits retained over the life of
the company
29) Which of the following subsequent expenditures would be capitalized?
a. Ordinary repairs and maintenance
b. Additions
c. Improvements
d. Both b and c
30) Which of the following items would not appear in an income statement?
a. Delivery Expense
b. Accounts Payable
c. Service Revenue
d. Utilities Expense
31) Landon Co. purchased a $500,000 tract of land that is intended to be the site of a
new office complex. Landon incurred additional costs and realized salvage proceeds as
follows:
What would be the capitalized cost of the land?
a.$500,000
b.$575,000
c.$580,000
d.$590,000
32) Inventory does not include:
a. Materials used in the production of goods to be sold
b. Assets intended to be sold in the normal course of business
c. Equipment used in the manufacturing of assets for sale
d. Assets currently in production for normal sales
33) Permanent accounts would not include:
a. Accounts Payable
b. Office Supplies
c. Utilities Expense
d. Common Stock
34) An adjusted trial balance:
a. Is a list of all accounts and their balances after adjusting entries
b. Is a list of all accounts and their balances before adjusting entries
c. Is a list of all accounts and their balances after closing entries
d. Is a trial balance adjusted for cash-basis accounting
35) Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per
share. The entry to record the issuance will not include a:
a. Debit to Cash $1,500
b. Credit to Additional Paid-In Capital $1,400
c. Credit to Common Stock of $100
d. All of the other options would be included
36) Occupational fraud:
a. Is the use of ones occupation for personal enrichment through the deliberate misuse
or misapplication of the employing organizations resources
b. Occurs in only a few organizations and generally involves minor amounts
c. Will be prevented when companies employ an auditor
d. Is committed only by lower-level employees
37) Checking actual outcome of individuals or processes against their expected
outcome is an example of which detective control?
a. Separation of duties
b. Reconciliations
c. Performance reviews
d. Employee management
38) The carrying value using the effective interest method would decrease each year if
the bonds were sold at a:
Discount Premium
a. No No
b. No Yes
c. Yes Yes
d. Yes No
39) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 average collection period is:
a.69 days
b.65 days
c.73 days
d.1,825 days
40) Inventory records for Marvin Company revealed the following:
Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming
FIFO would be:
a. $16,800
b. $16,760
c. $16,540
d. $16,660
41) Listed below are five terms followed by a list of phrases that describe or
characterize the terms. Match each phrase with the best term placing the letter
designating the term in the space provided.
a. Amortization
b. Depletion
c. Straight-line method
d. Declining-balance method
e. Activity-based method
Phrases:
_____ The process of recording expense for natural resources.
_____ Allocates an assets cost based on its use.
_____ An accelerated depreciation method that records more depreciation in earlier
years and less depreciation in later years.
_____ Allocating the cost of an intangible asset over its service life.
_____ Allocates an equal amount of depreciation to each year of the assets service life.
42) Bill wants to give Maria a $500,000 gift in seven years. If money is worth 6%
compounded semiannually, what is Maria’s gift worth today?
a. $66,110
b. $81,310
c. $406,550
d. $330,560
43) A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The
current market rate of interest is also 10%. These bonds will sell at a price that is:
a.Equal to $500,000
b.More than $500,000
c.Less than $500,000
d.The answer cannot be determined from the information provided
44) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term by placing the letter designating
the term in the space.
a. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ Costs to generate revenues.
45) Which of the following is the correct order for preparing the financial statements?
a. Balance sheet, statement of stockholders equity, and income statement
b. Balance sheet, income statement, and statement of stockholders equity
c. Statement of stockholders equity, income statement, and balance sheet
d. Income statement, statement of stockholders equity, and balance sheet
46) The following transactions occur for the Hamilton Manufacturers.
(a) Provide services to customers on account for $4,500.
(b) Purchase equipment by signing a note with the bank for $10,000.
(c) Pay advertising of $1,500 for the current month.
Analyze each transaction and indicate the amount of increases and decreases in the
accounting equation.
47) Listed below are several terms and phrases associated with current liabilities. Pair
each item from List A (by letter) with the item from List B that is most appropriately
associated with it.
List A List B
_____ 1> Long-term debt maturing within one year. a. Payroll taxes b. Line of credit
_____ 2> FICA and FUTA. c. The riskiness of a businesss obligations
_____ 3> Informal agreement that permits a company to borrow up to a prearranged
limit. d. Interest on debt e. Current portion of long-term debt
_____ 4> Classifying liabilities as either current or long-term helps investors and
creditors assess this.
_____ 5> Amount of note payable x annual interest rate x fraction of the year.
48) The Unearned Revenue account is shown in which statement?
a. Income statement
b. Statement of cash flows
c. Balance sheet
d. Statement of stockholders equity
49) DW has an ending Retained Earnings balance of $51,100. If during the year DW
paid dividends of $4,300 and had net income of $22,500, then what was the beginning
Retained Earnings balance?
a. $24,300
b. $32,900
c. $300
d. $69,300
50) A $500,000 bond issue sold for $510,000. Therefore, the bonds:
a.Sold at a premium because the stated interest rate was higher than the market rate
b.Sold for the $500,000 face amount plus $10,000 of accrued interest
c.Sold at a discount because the stated interest rate of was higher than the market rate
d.Sold at a premium because the market interest rate was higher than the stated rate
51) When bonds are issued at a discount and the effective interest method is used for
amortization, at each interest payment date, the interest expense:
a.Increases
b.Decreases
c.Remains the same
d.Is equal to the change in book value
52) Which one of the following accounts would NOT have a balance after closing
entries?
a. Unearned Revenue
b. Supplies
c. Prepaid Rent
d. Dividends
53) A companys bank statement shows a cash balance of $4,170. Comparing the
companys cash records with the monthly bank statement reveals several additional cash
transactions such as checks outstanding of $2,110, NSF check of $200, interest earned
of $30, service fee of $40, and a check for $150 recorded twice by the company.
Calculate the correct balance of cash.
54) For each of the following accounts, indicate whether a debit or credit is used to
increase (+) or decrease () the balance of the account.
55) Describe the primary advantages and disadvantages of a corporation in comparison
to a sole-proprietorship or partnership.
56) A company purchases one year of flood insurance in advance on May 1, paying
$24,000 ($2,000/month). Record the adjusting entry on December 31 .
57) Below are amounts for two companies:
For each company, calculate the receivables turnover ratio. Which company appears
more efficient in collecting cash from sales?