1) Items of comprehensive income, other than net income, do not enter into the
determination of earnings per share.
2) Common stockholders receive dividends even if the total dividend is not large
enough to pay the preferred stockholders first.
3) Details about a company’s liabilities should be included in the notes to the financial
statements.
4) Under cash-basis accounting, stockholders’ equity is increased when company makes
a sale, not when the company collects the cash at a later date.
5) Prepaid expenses are an asset
6) During the closing process, each revenue account is credited for the amount of its
balance.
7) The book value of an asset cannot be less than its residual value.
8) The cost of a new building will include the cost to demolish and remove an old
building on the same site as the new building.
9) Under cash-basis accounting, income statements and balance sheets are misstated.
10) Income tax payable is computed by multiplying income before income taxes per the
income statement by the income tax rate.
11) If $100,000 face value bonds are issued at 103, the bonds are selling for $103,000.
12) The current portion of a long-term note payable refers to the amount of interest on a
note payable that must be paid in the current year.
13) Service entities report Cost of Goods Sold on the income statement.
14) Performing services on account:
A) decreases both assets and liabilities
B) increases assets and decreases stockholders’ equity
C) decreases revenues and decreases stockholders’ equity
D) increases both net income and stockholders’ equity
15) The long-term asset that does not depreciate or amortize is:
A) land improvement
B) leasehold improvement
C) furniture and fixtures
D) land
16) On January 1, 2015, Corbin Company purchases $100,000, 5% bonds at a price of
99 and a maturity date of January 1, 2025. Corbin Company intends to hold the bonds
until their maturity date. Interest is paid semiannually, on January 1 and July 1. Corbin
Company has a calendar year end. The entry to amortize the bond investment on July 1,
2015 is:
A) debit Held-to-Maturity Investment in Bonds for $50 and credit Interest Receivable
for $50
B) debit Cash for $100 and credit Interest Revenue for $100
C) debit Held-to-Maturity Investment in Bonds for $50 and credit Interest Revenue for
$50
D) debit Held-to-Maturity Investment in Bonds for $100 and credit Interest Revenue for
$100
17) Federal income taxes are paid by ________ in a limited liability company.
A) the company
B) limited partners only
C) general partners only
D) members
18) The accounting equation can be stated as:
A) Assets + Stockholders’ Equity = Liabilities
B) Assets -Liabilities = Stockholders’ Equity
C) Assets = Liabilities – Stockholders’ Equity
D) Assets – Stockholders’ Equity + Liabilities = Zero
19) Deere Company holds a $10,000 note receivable dated July 1, 2015, with 10%
interest. What adjusting entry is needed on December 31, 2015?
A) No entry is needed
B) Debit Interest Receivable for $100 and credit Interest Revenue for $100
C) Debit Interest Receivable for $500 and credit Interest Revenue for $500
D) Debit Interest Receivable for $1,000 and credit Interest Revenue for $1,000
20) Linda Keller opened an engineering office and titled the business Engineering
Enterprises P C. During its first month of operations, it completed the following
transactions:
I Linda invested $30,000 in the business, which in turn issued common stock to her
II The business purchased equipment on account for $60,000
II The business provided engineering services on account, $10,000
III The business paid salaries to the receptionist, $2,000
IV The business received cash from a customer as payment on account $6,000
V The business borrowed $8,000 from the bank, issuing a note payable
At the end of the month, total liabilities would be:
A) $8,000
B) $60,000
C) $68,000
D) $70,000
21) Which of the following have unlimited liability for a company’s debts?
A) owners of a corporation
B) members of a limited liability company
C) limited partners in a limited liability partnership
D) general partner in a limited liability partnership
22) In 2015, Forever Young, Inc. sold land for $100,000 cash, purchased equipment for
$20,000 cash and issued bonds for $100,000 cash. The Net Cash Provided by Investing
Activities is:
A) $80,000
B) $120,000
C) $180,000
D) $200,000
23) The closing entry for the Salaries Expense account would include a debit to:
A) Salaries Expense and a credit to Retained Earnings
B) Salaries Expense and a credit to Net Income
C) Retained Earnings and a credit to Salaries Expense
D) Net Income and a credit to Salaries Expense
24) A company declared and paid dividends of $500. In transaction analysis, how does
this transaction affect the accounting equation?
A) Add $500 to Revenue account and add $500 to Cash account
B) Add $500 to Dividends account and add $500 to Accounts Receivable account
C) Subtract $500 from Retained Earnings account and subtract $500 from Cash account
D) Add $500 to Dividend Expense account and subtract $500 from Cash account
25) The normal balance of an expense account is a ________ because expenses
decrease ________
A) debit, assets
B) debit, expenses
C) debit, Retained Earnings
D) credit, Retained Earnings
26) A single amount of $5,000 is to be received in 3 years. If the single amount is
discounted at 6% for 3 periods, the present value is ________. The present value of one
for 3 periods at 6% is 0.84. The present value of an ordinary annuity of one for 3
periods at 6% is 2.673.
A) $4,200
B) $4,450
C) $5,000
D) $13,365
27) Under the periodic inventory system, which of the following entries is prepared at
the end of the accounting period?
A) debit Purchases and credit Cost of Goods Sold
B) debit Cost of Goods Sold and credit Inventory
C) debit Cost of Goods Sold and credit Purchases
D) B and C
28) Grogan Company purchases inventory on account with a cost of $1,000 and a retail
price of $2,000. Grogan Company uses the perpetual inventory method. What journal
entry is required on the date of purchase?
A) debit Purchases for $1,000 and credit Accounts Payable for $1,000
B) debit Purchases for $2,000 and credit Cash for $2,000
C) debit Inventory for $1,000 and credit Accounts Payable for $1,000
D) debit Accounts Receivable for $2,000 and credit Purchases for $2,000
29) The financial statements are prepared from the:
A) unadjusted trial balance columns of the Trial Balance Worksheet
B) adjusted trial balance columns of the Trial Balance Worksheet
C) adjustment columns of the Trial Balance Worksheet
D) closing entries columns of the Trial Balance Worksheet
30) The exclusive right to produce and sell an invention like the smart phone requires a:
A) copyright
B) license
C) trademark
D) patent
31) If a natural resource is extracted and not sold, we:
A) debit Depletion Expense and credit Accumulated Depletion
B) debit Cost of Goods Sold and credit Inventory
C) debit Accumulated Depletion and credit Natural Resource
D) debit Inventory and credit Natural Resource
32) The ending bank statement balance at November 30 is $6,750. The bank statement
shows a service charge of $95, electronic funds receipts of $500, and a NSF check for
$350. Deposits in transit total $2,050 and outstanding checks are $1,835. The balance
per books at November 30 is $6,910.What is the adjusted bank balance at November
30?
A) $6,750
B) $6,805
C) $6,965
D) $7,105
33) Which statement about internal controls is FALSE?
A) Public companies must issue a report on internal control with their financial
statements
B) Outside auditors much evaluate and report on the soundness of a company’s internal
controls C) The Sarbanes-Oxley Act requires public companies to issue a report on
internal control
D) Public companies do not have to evaluate the effectiveness of internal controls
34) A construction company purchased a new bulldozer for $90,000 on January 1, 2011.
The company estimates that the bulldozer will have a useful life of nine years and then
be worthless. Using the straight-line depreciation method, yearly depreciation expense
will be:
A) $0
B) $10,000
C) $45,000
D) $90,000
35) Historical cost:
A) is determined for each asset on a yearly basis
B) is equal to the amount of cash paid less the dollar value of all non-cash consideration
given in the exchange
C) is a verifiable measure that is relatively free from bias
D) is the amount that the business could sell the asset for
36) Which balance sheet account shows the amount of accounts receivable that the
business does NOT expect to collect?
A) Unearned Sales Revenue
B) Accounts Receivable
C) Allowance for Uncollectible Accounts
D) Uncollectible-Account Expense
37) Jimmy Company leased a delivery van for payments of $10,000 per year for three
years. Jimmy Company also paid $1,200 for new larger windows in the van. Jimmy
Company also spent $4,300 for special storage racks for the van. What do Leasehold
Improvements equal?
A) $0
B) $1,200
C) $4,300
D) $5,500
38) On January 1, 2015, Anthony Corporation issued $800,000 of 6%, 5-year bonds at
98, with interest paid annually. Using the straight-line amortization method, what is the
carrying value of the bonds one year later on January 1, 2016?
A) $784,000
B) $785,600
C) $787,200
D) $790,400
39) On a multiple-step income statement, the heading or classification “Other Income”
refers to:
A) Sales Returns and Sales Discounts
B) Interest Income and Investment Income
C) Sales Revenue
D) Interest Expense
40) A company borrows $10,000 from the bank at 10% interest for sixty days. $10,000
is the ________ of the note. The maturity value of the note is ________.
A) maturity value; 10,164
B) present value; 10,000
C) future value; 10,000
D) principal; $10,164
41) Muddle Company performs a service for one of its customers and immediately
collects the cash This transaction will:
A) have no effect on liabilities
B) decrease net income
C) decrease Retained Earnings
D) increase Accounts Receivable
42) The following accounts are listed in order of liquidity:
A) Cash, Inventory, Accounts Receivable, Furniture
B) Cash, Accounts Receivable, Inventory, Furniture
C) Furniture, Cash, Accounts Receivable, Inventory
D) Furniture, Cash, Inventory, Accounts Receivable
43) Poultry Company had the following transactions pertaining to stock investments:
a.February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the
market price of $17 per share. Poultry Company intends to keep the stock for more than
one year and classifies the stock as available-for-sale.
b.June 1, Received cash dividends of $0.50 per share on Hudson Company stock.
c.October 1, Sold 3,000 shares of Hudson stock for $54,000.
What journal entry is prepared on June 1?
A) debit Cash $1,500 and credit Interest Revenue $1,500
B) debit Cash $3,000 and credit Long-Term Investment for $3,000
C) debit Interest Receivable for $1,500 and credit Interest Revenue for $1,500
D) debit Cash $1,500 and credit Dividend Revenue for $1,500
44) All of the following are true statements about the entity assumption EXCEPT for:
A) the entity assumption draws a sharp boundary around each entity
B) the transactions of the business cannot be combined with the transactions of the
owner
C) the entity assumption ensures that the business will continue indefinitely
D) under the entity assumption, the entity is any organization that stands apart as a
separate economic unit
45) The accounting assumption that states that the business, rather than its owners, is
the reporting unit is the:
A) entity assumption
B) going concern assumption
C) stable-monetary-unit assumption
D) historical cost assumption
46) Auto Shop, Inc., incurred the following costs in acquiring plant assets:
a.Purchased land with a $100,000 down payment and signed a $75,000 note payable for
the balance.
b.Delinquent property tax of $2,500 and legal fees of $1,000 had to be paid before the
land could be purchased.
c.$12,000 was paid to demolish an unwanted building on the land.
d.Architect fee of $7,000 was paid for the design of a new office building.
e.An office building was constructed at a cost of $500,000. A long-term note payable
was used to pay for the cost.
f.$17,500 was paid for fencing around the new building. $55,000 was paid for paving
the parking lot by the new building.
g.$20,000 was paid for lights in the new parking lot.
h.$10,000 was paid for a sprinkler system for the bushes and grass.
Required:
Prepare journal entries for the above transactions. Explanations are not required.
47) On August 1, 2014, Brian Quinn received $5,400 for legal services to be performed
evenly throughout the next twelve months, beginning August 1, 2014. An adjusted trial
balance prepared on December 31, 2014 will show a credit balance in Unearned
Revenue in the amount of:
A) $0
B) $450
C) $2,250
D) $3,150
48) On December 1, 2015, Carrie’s Day Care receives $3,000 in advance for an
agreement to care for Susan’s children for the months of December, January, and
February. Carrie’s Day Care will make an adjusting entry on December 31, 2015 to:
A) credit Revenue for $3,000
B) debit Unearned Revenue for $1,000
C) credit Revenue for $2,000
D) credit Prepaid Revenue for $2,000
49) Modern Detailing, Inc. has incurred a $50,000 loss on property due to an
earthquake. Earthquakes are rare in this region. What amount will be reported for this
loss on the company’s income statement, assuming a 30% tax rate? How will the loss be
classified on the income statement?
A) Other Losses, $50,000
B) Extraordinary Loss, $35,000
C) Extraordinary Loss, $15,000
D) Other Losses, $35,000
50) Using the indirect method of preparing the statement of cash flows, which of the
following would be added to net income?
A) Depletion expense
B) An increase in accounts receivable
C) A decrease in accounts payable
D) A gain on the sale of property
51) Santa Barbara Company purchased merchandise on account from a company in
England. The price was 1,000 pounds. At the time of the purchase, the exchange rate for
a pound was $1.52. At the time Santa Barbara Company paid for the merchandise, the
exchange rate for a pound was $1.55. What is the amount of the gain or loss recorded
by the Santa Barbara Company upon payment?
A) Foreign currency transaction gain $30
B) Foreign currency transaction loss $30
C) Foreign currency translation gain $30
D) Foreign currency translation loss $30
52) Before a company can pay dividends to the common stockholders, the owners of
cumulative preferred stock must receive:
A) the current year’s dividends, but not dividends in arrears
B) neither the current year’s dividends nor dividends in arrears
C) all dividends in arrears plus the current year’s dividends
D) all dividends in arrears, but not the current year’s dividends
53) It is the end of the year and Katerinos Company is applying the
lower-of-cost-or-market (LCM) rule to inventory. The company uses the perpetual
inventory system. The company has obtained the following information before any
year-end adjustments:
Required:
1>Following U.S. GAAP, prepare the required journal entry at year-end.
2>Following IFRS, prepare the required journal entry at year-end.
54) A fire destroyed the inventory of Barber Company. The following information is
available:
Prepare a schedule to compute the amount of inventory lost in the fire.
55) Martindale Motors purchased a machine that will help diagnose problems with
engines. The machine cost $210,000 on January 1, 2014 and a residual value of $10,000
was anticipated, with a useful life of 5 years. In 2014, Martindale Motors has a gross
profit of $400,000 and operating expenses of $180,000.
Martindale Motors has a tax rate of 35%.
Required:
1> Compute the Depreciation Expense for 2014 under both the straight-line and
double-declining balance depreciation methods.
2> What is the net cash saved if the accelerated depreciation method is used in 2014?
56) On January 1, 2015, Las Vegas Company issued 8%, 20-year bonds with a face
amount of $3,000,000 at 101. Interest is payable semiannually on June 30 and
December 31. Las Vegas Company uses the straight-line method to amortize bond
premium or discount. The company’s fiscal year ends December 31.
Required:
Prepare the journal entries to record the issuance of the bonds and the first semiannual
interest payment. Omit explanations.
57) The following pertains to Carlisle Company:
1> Balance per bank statement, dated March 31, $4,450.
2>Balance of Cash account on company’s books at March 31, $4,459.
3> The $1,300 deposit of March 31 was not on the bank statement.
4> Of the checks recorded as cash disbursements in March, some checks totaling
$1,050 have not cleared the bank.
5> Service charges for the month, $10.
6>The bank erroneously charged the company’s account for the $200 check of another
company with a similar name.
7>The bank credited the company’s account with the $1,000 proceeds of a
noninterest-bearing note that it collected for the company.
8>NSF check of $75 was returned with the bank statement.
9> The bank paid and charged to the company’s account a $507 noninterest-bearing
note of the company. The payment has not been recorded by the company.
10> The bookkeeper recorded a customer’s check of $148 as $135.
11> The bank credited the company’s account for $20 interest earned.
Prepare the bank reconciliation as of March 31.
58) After posting the adjusting entries, Bing Corporation has the following account
balances (partial listing) at December 31, 2015.
Prepare the current liability section of Bing Corporation’s balance sheet at December
31, 2015. Assume that the current portion of the note payable due February 1, 2022 is
$15,000.
