1) We record dividends received as a financing activity.
2) Investing activities include cash investments in long-term assets and investment
securities.
3) We report interest paid on bonds or notes payable with operating activities rather
than financing activities.
4) Receiving cash in advance from customers increases the Service Revenue account.
5) The adjustment for uncollectible accounts involves a debit to Bad Debt Expense and
a credit to the Allowance for Uncollectible Accounts.
6) Return on assets is calculated as net income divided by the ending balance for total
assets.
7) For bonds issued at a premium, the difference between interest expense and the cash
paid increases the carrying value of the bonds.
8) After closing entries are prepared, the balance of Retained Earnings is updated to
reflect the activity in the revenue, expense, and dividend accounts for the period.
9) A trademark is a word, slogan, or symbol that distinctively identifies a company,
product, or service.
10) According to the revenue recognition principle, if a company provides services to a
customer in the current year but does not collect cash until the following year, the
company should report the revenue in the current year.
11) A classified balance sheet separates assets into current and long-term, and separates
liabilities into current and long-term.
12) The inflow of cash received from issuing common stock is reported as an investing
activity.
13) Double taxation refers to a corporations income being taxed twicefirst when the
company earns it and pays corporate income taxes on it, and then again when
stockholders pay personal income taxes on any amounts the firm distributes to them as
dividends.
14) Managers of the company act as stewards or caretakers of the companys assets.
15) Providing services to customers is recorded with a debit to Service Revenue.
16) Accounting is a system of maintaining records of a companys operations and
communicating this information to decision makers.
17) The average days in inventory converts the inventory turnover ratio into days.
18) Using the direct method, we examine each account in the income statement and
convert it from an accrual amount to a cash amount.
19) One of the differences between a partnership and a corporation is that owners of a
partnership have limited liability.
20) Vertical analysis expresses each item in a financial statement as a percentage of the
same base amount.
21) Calculate the missing amount for each of the following notes receivable.
Face Value Annual Interest rate Fraction of the Year Interest
$15,000 4% 8 months (a)
$25,000 8% (b) $500
$30,000 (c) 4 months $500
(d) 6% 6 months $600
22) A discontinued operation refers to:
a. The sale or disposal of a significant component of a companys operations
b. Discontinued inventory items
c. Inventory items that have been completed and sold
d. The sale of most long-term assets
23) Providing employees with appropriate guidance to ensure they have the knowledge
necessary to carry out their job duties is an example of which preventive control?
a. Separation of duties
b. Physical controls
c. Proper authorization
d. Employee management
24) Journal entries to record cash dividends are made on the:
a. Declaration date, record date, and payment date
b. Record date and payment date
c. Delaration date and payment date
d. Delaration date and record date
25) Listed below are four bond terms followed by a list of definitions. Match (by letter)
the bond terms with their definitions. Each letter is used only once.
Definitions
a.Matures on a single date.
b.Secured only by the full faith and credit of the issuing corporation.
c.Matures in installments.
d.Supported by specific assets pledged as collateral by the issuer.
26) Which of the following is a sign that a company cannot quickly turn its receivables
into cash?
a. A high receivables turnover ratio
b. A low receivables turnover ratio
c. A low average collection period
d. Both a high receivables turnover ratio and a low average collection period
27) Issued stock refers to the number of shares:
a.Outstanding plus treasury shares
b.Authorized
c.In the hand of stockholders
d.That may be issued under state law
28) Suppose a company pays interest of $10,000 for the year on borrowed amounts due
in two years. Under IFRS, what is the most the company can report this year as cash
outflows from financing activities related to this item?
a. $10,000
b. $2,000
c. $5,000
d. $0
29) Which of the following would not be considered good internal control for cash
receipts?
a. Allowing customers to pay with a debit card
b. Requiring the employee receiving cash from customers to also deposit the cash into
the companys bank account
c. Recording cash receipts as soon as they are recorded
d. Allowing customers to pay with a credit card
30) The following information pertains to Lindsey Corp. at the end of the year:
Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 2% of the
credit sales are uncollectible. After the year-end adjustment, what amount of bad debt
expense would Lindsey report for the year?
a. $1,200
b. $2,200
c. $3,000
d. $3,800
31) What is the value today of receiving five annual payments of $500,000, beginning
one year from now, assuming an 11% discount rate?
a. $2,500,000
b. $2,225,000
c. $1,847,950
d. $2,115,270
32) Financial accounting:
a. Provides information primarily for external decision makers
b. Provides information primarily for a companys employees
c. Provides information primarily for the use of managers of the company
d. Is primarily used to compute a companys tax obligation
33) For each transaction below, calculate the amount of expense to be recognized in the
current period using accrual-basis accounting:
(a) Paid $3,500 on account for supplies purchased last period. All supplies were used
last month.
(b) Paid $5,000 cash for advertising in the current period.
(c) Employees worked in the current period but will not be paid until the following
period, $4,500.
34) When bonds are issued at a premium, what happens to the carrying value and
interest expense over the life of the bonds?
a. Carrying value and interest expense increase
b. Carrying value and interest expense decrease
c. Carrying value decreases and interest expense increases
d. Carrying value increases and interest expense decreases
35) Terastar Corp. reports the following amounts for 2015 and 2016:
What is the amount of Terastars free cash flows for 2016? a. $3,000
b. $13,000
c. $9,000
d. $7,000
36) Below are excerpts from interest tables for 8% interest.
Column 3 is an interest table for the:
a. Future value of $1
b. Present value of $1
c. Future value of an annuity of $1
d. Present value of an annuity of $1
37) Purchasing supplies for cash has what effect on the accounting equation?
a. Increase assets
b. Decrease stockholders equity
c. Decrease liabilities
d. No effect
38) Which method is not allowed under Generally Accepted Accounting Principles for
the purpose of accounting for uncollectible accounts?
a. Allowance method
b. Direct write-off method
c. Aging method
d. Percentage-of-receivables method
39) How much must be invested now at 9% interest to accumulate to $10,000 in five
years?
a. $9,176
b. $6,499
c. $5,500
d. $5,960
40) Which of the following statements is true?
a. Investment in another companys common stock is classified as a cash outflow from
financing activities on the Statement of Cash Flows
b. Repayment of long-term debt is classified as a cash outflow from investing activities
on the Statement of Cash Flows
c. Losses on the sale of long-term assets are an adjustment reported in the operating
activities section of the Statement of Cash Flows under the indirect method
d. Dividends paid are classified as a cash outflow from operating activities on the
Statement of Cash Flows
41) Which of the following best describes the goal of internal controls?
a. Ensuring the business is profitable
b. Enhancing the health of employees
c. Improving the accuracy and the reliability of financial information
d. Ensuring the compliance with tax regulations
42) When using vertical analysis,we express income statement accounts as a percentage
of
a. Net income
b. Gross profit
c. Sales
d. Total assets
43) The inventory method that will always produce the same amount for cost of goods
sold in a periodic inventory system as in a perpetual inventory system would be:
a. FIFO
b. LIFO
c. Weighted average
d. Each method always produces a different amount
44) Tony Hawks Adventure (THA) issued callable bonds on January 1, 2015 . THA’s
accountant has projected the following amortization schedule from issuance until
maturity:
THA buys back the bonds for $196,000 immediately after the interest payment on
12/31/2015 and retires them. What gain or loss, if any, would THA record on this date?
a.No gain or loss
b.$370 gain
c.$4,000 gain
d.$1,242 loss
45) Assuming Net Income for the year is $115,000, what is the Operating Cash Flows
given the following information:
a. $112,000
b. $88,000
c. $118,000
d. $188,000
46) Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident
that it will win the case and will be awarded the full amount. Amplify, Inc. feels it is
probable that it will lose the case and pay Sound City the full amount. Which of the
following is correct?
a. Amplify, Inc. would record a loss and contingent liability for $50,000
b. Sound City would record a gain and lawsuit receivable for $50,000
c. Sound City would record nothing
d. Both a. and c. are correct
47) How much will $25,000 grow to in seven years, assuming an interest rate of 12%
compounded annually?
a. $55,267
b. $46,000
c. $61,899
d. $52,344
48) Purchasing office equipment on account has what impact on the accounting
equation?
a. Stockholders equity decreases and assets increase
b. Liabilities increase and assets increase
c. Assets decrease and liabilities decrease
d. Assets increase and stockholders equity increases
49) When a company provides services on account, which of the following would be
recorded using cash-basis accounting?
a. Debit to Cash
b. Debit to Service Revenue
c. Credit to Unearned Revenue
d. No entry would be recorded
50) What is capital structure? Why would a company choose to borrow money rather
than issue additional stock?
51) Taco Hut purchased equipment on May 1, 2015, for $15,000. Residual value at the
end of an estimated 8 year service life is expected to be $3,000. Calculate depreciation
expense using the straight-line method for 2015 and 2016, assuming a December 31
year-end.
52) If a company initially records an expense incorrectly as an asset, explain how this
mistake affects the income statement and the balance sheet.
53) The primary difference between accrual-basis and cash-basis accounting is:
The timing of when revenues and expenses are recorded
Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis
accounting
Accrual-basis accounting violates both the revenue recognition and matching principles
Adjusting entries are only a necessary part of cash-basis accounting
54) During the current year, a company purchases equipment for $250,000, paying
$50,000 immediately and promising to pay the remainder within 30 days after the end
of the year. Determine the amount of investing cash flows the company will report in
the current year.
55) Athletic Accessories has the following transactions related to investments in
common stock.
May 1Purchases 5,000 shares (insignificant influence) of Endurance Wear common
stock for $22 per share. The investment is properly classified as an available-for-sale
security.
June 30Receives a cash dividend of $1 per share.
October 18Sells 2,000 shares of Endurance Wear common stock at $25 per share.
December 31Adjusts the investments to fair value. The fair value of Endurance Wear
common stock is now $30 per share.
1> Record each of these transactions, including an entry on December 31 to adjust the
investment to fair value.
2> Calculate the balance of the investment account on December 31 .
56) Presented below is a partial amortization schedule for Premium Foods:
1> Record the bond issue.
2> Record the first interest payment.
57) On July 8, Compusoft receives $250,000 from a customer toward a cash sale of $1
million for customized computer equipment to be completed on August 1 . The
remaining $750,000 payment is received upon delivery of the product on August 1 . The
equipment had a total production cost of $700,000. What journal entries should
Compusoft record on July 8 and August 1? Assume Compusoft uses the perpetual
inventory system.
58) Court Casuals has the following beginning balances in its stockholders equity
accounts on January 1, 2015: Common Stock, $100,000; Additional Paid-in Capital,
$4,100,000; and Retained Earnings, $3,000,000. Net income for the year ended
December 31, 2015, is $800,000. Court Casuals has the following transactions affecting
stockholders equity in 2015:
May 18Issues 25,000 additional shares of $1 par value common stock for $40 per share.
May 31Repurchases 5,000 shares of treasury stock for $45 per share.
July 1Declares a cash dividend of $1 per share to all stockholders of record on July 15 .
Hint: Dividends are not paid on treasury stock.
July 31Pays the cash dividend declared on July 1 .
August 10Reissues 2,500 shares of treasury stock purchased on May 31 for $48 per
share.
Taking into consideration all the entries described above, prepare the statement of
stockholders equity for the year ended December 31, 2015, using the format provided.
59) The following data are taken from the cash-basis accounting records of Myerson
Company for the year ended December 31, 2015:
Calculate the amount of revenues and expenses for 2015 under accrual-basis
accounting.