1) The amount of prepaid insurance used up during a period of time is called Insurance
Expense.
2) If the market interest rate is greater than the stated interest rate, the bonds will sell at
a discount.
3) The SEC establishes international financial reporting standards.
4) The statement of cash flows classifies cash receipts and payments as operating,
investing, and financing activities.
5) Small stock dividends are recorded at market value per share and large stock
dividends are recorded at par value per share.
6) If the market interest rate is greater than the coupon rate of interest on a bond, the
bond will sell at a discount.
7) Unearned Service Revenue is a revenue account.
8) Bookkeeping is the mechanical part of accounting.
9) Uncollectible-account expense is included in Cost of Goods Sold on the income
statement.
10) The total debits to an account must equal the total credits to the account
11) The double-entry system of accounting records the dual effects of transactions on
the entity
12) The account is the basic summary device used in accounting
13) The weighted-average cost per unit is calculated as the cost of goods available for
sale divided by the number of units sold.
14) Every corporation must pay dividends every year.
15) If the sum of the credits to an account exceed the sum of the debits to the account,
the account will have a credit balance
16) The accumulated depreciation account decreases over the life of the asset.
17) When computing the present value of an ordinary annuity, it is not necessary to
know the number of discount periods.
18) The sale of treasury stock is reported as a cash inflow in the financing activities
section of a statement of cash flows.
19) The statement of cash flows is an optional statement.
20) When the market interest rate is equal to the stated rate of interest on bonds, the
present value of the bonds will equal the bond’s face value.
21) The ________ factor recognizes that while certain actions might be both
economically profitable and legal, they still may not be right.
A) economic
B) legal
C) profitability
D) ethical
22) The Statement of Retained Earnings reports a company’s declared dividends over a
period of time. Where does the amount of declared dividends come from?
A) Balance Sheet
B) Income Statement
C) Adjusted Trial Balance
D) Unadjusted Trial Balance
23) On a statement of cash flows, cash receipts from interest and dividends are
classified as:
A) operating activities
B) investing activities
C) financing activities
D) noncash activities
24) Which transaction decreases stockholders’ equity?
A) purchase inventory on account
B) provided services on account
C) provided services and received cash from the customer immediately
D) Employees worked one week and were paid at the end of the week
25) Given the following data, by how much would taxable income change if LIFO is
used rather than FIFO?
A) There is no difference
B) Increase by $30,000
C) Decrease by $30,000
D) Decrease by $40,000
26) A company purchased a machine for $200,000 many years earlier. The accumulated
depreciation on the machine is $150,000. The machine is scrapped. Which journal entry
is prepared to record the disposal?
A) debit Loss on Disposal of Machine for $50,000, debit Accumulated Depreciation
$50,000 and credit Machine for $100,000
B) debit Accumulated Depreciation for $150,000 and credit Machine for $150,000
C) debit Accumulated Depreciation for $200,000, credit Machine for $150,000 and
credit Gain on Disposal of Machine for $50,000
D) debit Loss on Disposal of Machine for $50,000, debit Accumulated Depreciation for
$150,000 and credit Machine for $200,000
27) Current assets are assets expected to be converted to cash, sold, or consumed within
the next:
A) 12 months or within the business’s normal operating cycle if longer than a year
B) 12 months or within the business’s normal operating cycle if less than a year
C) 6 months
D) 24 months
28) Tony Company sells a piece of equipment for $20,000 cash. The equipment has a
historical cost of $60,000 and accumulated depreciation of $50,000. What is the gain or
loss on sale of the equipment?
A) $10,000 Loss
B) $10,000 Gain
C) $20,000 Loss
D) $20,000 Gain
29) Another term for a “hot check” is:
A) electronic check
B) outstanding check
C) nonsufficient funds (NSF) check
D) cleared checks
30) A record of all the changes in a particular asset during a period of time is found in
a(n):
A) transaction
B) trial balance
C) prior period’s balance sheet
D) account
31) On January 1, 2015, Centre Company purchases $100,000, 6% bonds at a price of
95 and a maturity date of January 1, 2025. Centre Company intends to hold the bonds
until the maturity date. Interest is paid semiannually, on January 1 and July 1. Centre
Company has a calendar year end. The journal entry on January 1, 2016 is:
A) debit Cash $6,000 and credit Interest Revenue $6,000
B) debit Cash $6,000 and credit Interest Receivable $6,000
C) debit Cash $3,000 and credit Interest Revenue $3,000
D) debit Cash $3,000 and credit Interest Receivable $3,000
32) Jerry Willis 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
double-declining-balance method?
A) $12,000
B) $13,333
C) $18,000
D) $20,000
33) What is fraud?
A) Fraud is the intentional misrepresentation of facts made for the purpose of
persuading another individual to act in a way that causes injury or damage to that
individual
B) Fraud is the misappropriation of assets
C) Fraud is untruthful financial reporting
D) all of the above
34) A bond will sell at a premium when:
A) the coupon rate is equal to the effective rate
B) the coupon rate is greater than the effective rate
C) the coupon rate is less than the effective rate
D) the stated rate is less than the market rate of interest
35) A company sold land for the same price that they paid for it last year. When entering
this transaction in the journal, there will be a:
A) credit to Land
B) debit to Land
C) debit to Accounts Payable
D) credit to Accounts Receivable
36) Wilde Company earned revenues of $160,000 in cash and $210,000 on account
during 2014. Of the $210,000 on account, $80,000 was collected in cash in 2014 and
the rest in 2015. The company incurred expenses of $125,000 in 2014 and made
payments of $90,000 towards the expenses in 2014. What is net income in 2014 under
cash-basis accounting?
A) ($10,000)
B) $70,000
C) $150,000
D) $240,000
37) A fidelity bond is a(n):
A) employment contract for a specified period of time
B) insurance policy that reimburses a company for employee theft
C) contract prohibiting former employees from working for a competitor
D) promise by a company to safeguard customers’ personal information
38) Highly liquid short-term investments that are easily convertible into cash are called:
A) trading securities
B) cash equivalents
C) current assets
D) accounts receivable
39) A company has days’ payable outstanding of 70 days. If credit terms of purchases
are 2/10, net 30, is the company paying accounts payable on a timely basis?
A) Yes, days’ payable outstanding exceeds the net period of 30 days
B) Yes, days’ payable outstanding exceeds the discount period of 10 days and the net
period of 30 days
C) No, days’ payable outstanding exceeds the discount period of 10 days and the net
period of 30 days
D) There is not enough information to make an assessment
40) The inventory system that uses computer software to keep a running record of
inventory on hand is the:
A) cost of goods sold inventory system
B) periodic inventory system
C) perpetual inventory system
D) hybrid inventory system
41) The impairment test for long-term assets applies to:
A) tangible long-term assets
B) long-term liabilities
C) current assets
D) prepaid assets
42) On a worksheet for a consolidated balance sheet, one elimination entry:
A) debits notes payable to supplier and credits notes receivable from vendor
B) debits notes payable to customer and credits notes receivable from customer
C) debits the subsidiary’s stockholders’ equity accounts and credits the parent
company’s Investment in Subsidiary account
D) debits the parent company’s Investment in Subsidiary account and credits the
subsidiary’s stockholders’ equity accounts
43) Examples of liabilities include:
A) accounts payable and dividends
B) accounts payable and common stock
C) investments and note payable
D) accounts payable and note payable
44) Corrao Foods Corporation has 2,000 shares of 6%, $50 par value, cumulative
preferred stock and 150,000 shares of $1 par value common stock outstanding at
December 31, 2013 and December 31, 2014. In 2013, a $5,000 dividend was declared
and paid. In 2014, $32,000 of dividends are declared and paid. What are the dividends
received by the preferred stockholders in 2014?
A) $3,000
B) $6,000
C) $7,000
D) $12,000
45) When an intangible asset is amortized:
A) stockholders’ equity decreases
B) net income decreases
C) net assets decrease
D) all of the above
46) Which statement about a company’s internal controls over financial reporting is
FALSE?
A) Management must determine whether the internal controls over financial reporting
are effective
B) The internal controls over financial reporting are the responsibility of management
C) The internal controls over financial reporting are studied and assessed by
management
D) The internal controls over financial reporting are established by the outside auditors
47) The Postotnik Construction Company has ending inventory with a historical cost of
$630,000. Assume the company uses the perpetual inventory system. The current
replacement cost of the inventory is $608,000. The net realizable value is $650,000.
Before any adjustments at the end of the period, the cost of goods sold account has a
balance of $900,000. What journal entry is required under IFRS?
A) No journal entry is required
B) debit Cost of Goods Sold $20,000 and credit Inventory $20,000
C) debit Inventory $20,000 and credit Cost of Goods Sold $20,000
D) debit Cost of Goods Sold $22,000 and credit Inventory $22,000
48) Once the company receives the newly purchased inventory, it prepares a(n)
________ to list the goods received.
A) invoice
B) purchase approval form
C) receiving report
D) EFT transfer
49) When computing the normal balance of an account:
A) salaries expense should have a credit balance
B) accounts payable should have a credit balance
C) equipment should have a credit balance
D) notes payable should have a debit balance
50) On January 1, 2014, a bond was issued at a discount. The journal entry to record the
semiannual interest payment on July 1, 2014 would include a:
A) debit to Interest Expense, a credit to Discount on Bonds Payable and a credit to Cash
B) debit to Interest Expense, a debit to Discount on Bonds Payable and a credit to Cash
C) debit to Interest Expense, a debit to Cash and a credit to Discount on Bonds Payable
D) debit to Discount on Bonds Payable and a credit to Cash
51) A company performs services for a client on account When the company receives
the cash from the customer one month later:
A) a revenue account is increased
B) a liability account is decreased
C) there is no change in total assets
D) an expense account is decreased
52) On January 1, 2014, Pale Company purchased as an investment a $1,000, 7% bond
for $760. Pale plans to hold the bond until the maturity date on January 1, 2024. The
bond pays interest on January 1 and July 1. The company’s fiscal year ends on
December 31. The entries on December 31, 2014 would include a:
A) debit Interest Receivable for $35
B) debit Held-to-Maturity Investment in Bonds for $35
C) debit Interest Receivable for $10
D) debit Held-to-Maturity Investment in Bonds for $10
53) The following transactions occurred for Marjorie’s Jewelry Store during the month:
a.On May 1, the owner, Marjorie, purchased 10 rings on account at $6,000 each. Credit
terms were 2/10, net 30
b.On May 2, Marjorie returned one ring due to a defect in cut
c.On May 3, Marjorie’s Jewelry Store sold three of the rings on account at $8,000 each
to one customer. The credit terms were 2/10, net 30
d.On May 9, Marjorie paid off the accounts payable.
e.On May 10, the customer paid for one ring sold on May 3
f.On May 31, Marjorie paid rent of $4,000 for the month of May and wages of $5,000
Required:
1>Journalize the above transactions for Marjorie’s Jewelry Store. The store uses the
perpetual inventory system. Explanations are not required.
2>Prepare the income statement for the month ending May 31, 2014. Use the
multiple-step format and ignore taxes.
54) If Abby, Inc. sells items to a customer who uses a credit card for $1,000, and there
is a credit card fee of 1.5%, Abby will record a(n):
A) credit to Sales Revenue for $985
B) debit to Accounts Receivable for $985
C) debit to Sales expense for $65
D) debit to Credit Card Discount Expense for $15
55) The available-for-sale(fair value) method of accounting for long-term investments
in stock should be used when the:
A) investor owns less than 20% of the outstanding stock of the investee
B) investor has significant influence over the investee’s operating decisions and policies
C) investor has little or no influence on the investee
D) A and C
56) If an item is unusual but not infrequent it is:
A) reported net of tax as Other Gains and Losses
B) reported at its gross amount as Other Gains and Losses
C) disclosed as a note to the financial statements
D) reported as an extraordinary item
57) Given the following data, what is Cost of Goods Sold as determined by the FIFO
method?
A) $1,400
B) $1,460
C) $1,724
D) $2,240
58) Which account has a normal debit balance?
A) Salaries payable
B) Common Stock
C) Advertising Expense
D) Service revenue
59) Mary Smith Company has the following information available:
Did the quick ratio improve from 2014 to 2015?
A) No
B) Yes
C) It stayed the same
D) There is not enough information