1) Which of the following is an accurate statement about book and tax depreciation
methods?
A) Straight-line depreciation is the most popular method for income-tax purposes
B) The IRS has their own set of rules to compute depreciation for income tax purposes
C) The Modified Accelerated Cost Recovery System can be used for both book and tax
purposes
D) If an accelerated depreciation method is used for tax purposes, a company will pay
more in income taxes
2) In 2015, beginning inventory is overstated. What is the effect of the error on total
stockholders’ equity in 2016?
A) total stockholders’ equity is overstated in 2016
B) total stockholders’ equity is understated in 2016
C) total stockholders’ equity is correctly stated in 2016
D) none of the above
3) Income Tax Expense for 2016 is $43,000. Income Tax Payable increased $5,000
during the year. Interest Payable increased $7,000 during the year. What is the cash paid
for income taxes?
A) $38,000
B) $43,000
C) $48,000
D) $50,000
4) Apple Inc. issued 1 million shares of no-par common stock for $10 million. What
journal entry is prepared?
A) debit Cash $10 million and credit Paid-in Capital in Excess of Par $10 million
B) debit Cash $10 million and credit Retained Earnings $10 million
C) debit Cash $10 million and credit Paid-in Capital in Excess of Stated Value $10
million
D) debit Cash $10 million and credit Common Stock $10 million
5) Morgan Oaks Company replaced the windshields and painted several of its vehicles
during the year. These costs should be:
A) debited to Equipment
B) depreciated over the life of the vehicles
C) credited to Accumulated Depreciation
D) debited to Repair Expense
6) When calculating the denominator for the quick ratio, you would NOT include:
A) accounts payable
B) long-term debt
C) salaries payable
D) current maturities of long-term debt
7) Another way to state the accounting equation is:
A) Assets = Liabilities + Paid-in Capital – Common Stock
B) Assets + Liabilities = Stockholders’ Equity
C) Assets = Liabilities + Paid-in Capital + Retained Earnings
D) Assets = Liabilities – Paid-in Capital – Dividends
8) The receipt of interest on loans would be reported on a statement of cash flows
under:
A) operating activities
B) investing activities
C) financing activities
D) noncash activities
9) A measure of a company’s ability to collect cash from credit customers is the:
A) accounts receivable turnover
B) days’ payable outstanding
C) inventory turnover
D) cash conversion cycle
10) The objectives of internal control do NOT include:
A) compliance with standards of social responsibility
B) safeguard assets
C) promoting operational efficiency
D) compliance with legal requirements
11) Kathy’s Corner Store has total cash sales for the month of $36,000 excluding sales
taxes. If the sales tax rate is 5%, what journal entry is needed? (Ignore Cost of Goods
Sold.)
A) debit Cash $37,800, credit Sales $37,800
B) debit Cash $36,000 and credit Sales $36,000
C) debit Cash $34,200, debit Sales Tax Receivable for $1,800 and credit Sales for
$36,000
D) debit Cash $37,800, credit Sales $36,000 and credit Sales Tax Payable $1,800
12) Merck Pharmaceutical Company has many scientists working in their labs trying to
develop a new drug to treat congestive heart failure. Following U.S. Generally
Accepted Accounting Principles, the cost of this research and development must be:
A) set up as an intangible asset and not amortized
B) set up as an intangible asset and amortized over 20 years
C) set up as an intangible asset and tested for impairment on a yearly basis
D) expensed as incurred
13) Corporations with convertible securities outstanding such as convertible preferred
stock report:
A) basic and diluted EPS
B) basic EPS only
C) diluted EPS only
D) no EPS figures
14) Lewandowski Company reports the following information at the fiscal year end of
December 31, 2015:
What is the total paid-in capital for this company at December 31, 2015?
A) $88 million
B) $788 million
C) $888 million
D) $1,588 million
15) Which of the following would NOT be reported in the operating activities section of
a statement of cash flows using the direct method?
A) Cash paid for income taxes
B) Interest received on notes receivable
C) Loss on sale of equipment
D) Payments to suppliers
16) A company with low earnings quality is more likely to report ________ than a
company with high earnings quality.
A) high earnings in the future
B) low earnings in the future
C) high revenue levels in the future
D) decreasing operating expenses to sales in the future
17) On a statement of cash flows(indirect method), which item is reported as a line item
under Cash From Operating Activities?
A) Sale of securities
B) Purchase of fixed assets
C) Purchase of securities
D) Amortization Expense
18) A stock split:
A) increases assets and decreases stockholders’ equity
B) decreases assets and increases stockholders’ equity
C) increases assets and stockholders’ equity
D) has no effect on total stockholders’ equity
19) The payment of dividends will be reported on the statement of cash flows as a:
A) positive amount in the investing activities section
B) negative amount in the investing activities section
C) positive amount in the financing activities section
D) negative amount in the financing activities section
20) Which statement is TRUE?
A) Available-for-sale securities are debt securities only
B) Trading securities are debt securities only
C) Held-to-maturity securities are debt securities only
D) Held-to-maturity securities are reported as long-term assets only
21) To record a 10% stock dividend, accountants use ________. To record a 40% stock
dividend, accountants use ________.
A) market price per share; market price per share
B) par value per share; par value per share
C) par value per share; market price per share
D) market price per share; par value per share
22) ________ rearranges messages by a mathematical formula making the message
impossible to read by someone who does not know the code.
A) Encryption
B) Firewall
C) Security wall
D) Access device
23) WorldCom’s fraudulent scheme of capitalizing telephone line costs instead of
expensing them was discovered by:
A) external auditors
B) astute investors
C) U.S. Securities and Exchange Commission
D) internal auditors
24) Which statement is FALSE?
A) International Financial Reporting Standards are used by many countries in the world
B) U.S. Generally Accepted Accounting Principles are used by many countries in the
world
C) The Financial Accounting Standards Board is working with the International
Accounting Standards Board to develop similar accounting standards
D) For many years, U.S. Generally Accepted Accounting Principles were considered to
be the superior set of accounting standards in the world
25) A business sold equipment for $40,000 cash They purchased the equipment one day
earlier for $40,000 but changed their plans
A) Debit Equipment for $40,000 and credit Cash for $40,000
B) Debit Equipment for $40,000 and credit Retained Earnings for $40,000
C) Debit Cash for $40,000 and credit Equipment for $40,000
D) Debit Retained Earnings for $40,000 and credit Equipment for $40,000
26) Eastwich Corporation has pretax accounting income of $575,000 and taxable
income of $560,000. The company’s income tax rate is 30%. The journal entry to record
the income tax includes a:
A) debit to Deferred Tax Asset $4,500
B) credit Income Tax Payable $172,500
C) credit to Deferred Tax Liability $4,500
D) debit Income Tax Expense $168,000
27) Which of the following transactions would decrease an asset and decrease
stockholders’ equity?
A) The payment of an account payable
B) The performance of a service for a client on account
C) The borrowing of money from the bank for thirty days
D) The declaration and payment of a dividend to the shareholders
28) On January 2, 2015, Kornis 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 balance in Accumulated Depreciation on December 31, 2015, if
Kornis Corporation uses the double-declining-balance method of depreciation?
A) $56,000
B) $60,000
C) $112,000
D) $120,000
29) On each balance sheet after the purchase date, long-term available-for-sale
investments in stock are reported at:
A) cost
B) the lower-of-cost-or-market
C) amortized cost
D) fair value
30) Under the effective-interest method, the amount of bond discount amortized each
interest period is equal to the:
A) amount of interest expense less the cash paid for interest
B) amount of interest expense plus the cash paid for interest
C) face value of the bond times the stated interest rate
D) face value of the bond times the market interest rate at the date of issue