1) On the stockholders’ equity section of the Balance Sheet, Common Stock is listed
before Preferred Stock.
2) The Loss on Disposal of Equipment account is reported as Other Losses and
Expenses on the income statement.
3) Expenses have a future benefit to the company.
4) Following U.S. GAAP, the carrying value of a building can be increased to its fair
value.
5) The creditor of a note holds a note receivable.
6) The balance sheet is also called the statement of financial position.
7) The statement of cash flows is presented for a period of time.
8) Bond investments are initially recorded at cost.
9) The matching principle matches cash receipts and cash disbursements.
10) Collections on a loan are reported as investing activities on the statement of cash
flows.
11) Long-term available-for-sale investments in stock are reported on the balance sheet
at cost.
12) The account Premium on Bonds Payable increases the issuer’s liabilities.
13) If a company reports both basic and diluted EPS, diluted EPS will always be equal
or lower than basic EPS.
14) An increase in Interest Payable during the reporting period indicates that the cash
paid for interest exceeded Interest Expense on the income statement.
15) Interest is the cost of using money.
16) The quick ratio helps to measure a company’s liquidity.
17) If bonds are issued at a discount, the issuing corporation will pay an amount greater
than the face amount of the bonds on the maturity date.
18) All of the following accounts will be closed EXCEPT for:
A) Cash
B) Service Revenue
C) Dividends
D) Utilities Expense
19) In transaction analysis, the declaration and payment of dividends is recorded in the
________ and ________ columns of the accounting equation
A) Dividends, Cash
B) Expenses, Accounts Receivable
C) Expenses, Accounts Payable
D) Retained Earnings, Cash
20) An example of a transposition error is writing:
A) $400 as $40
B) $1,000 as $2,000
C) $300 as $600
D) $1,200 as $2,100
21) Kulvekowski Company uses a cash budget. The beginning cash balance is
$1,000,000. The budgeted cash balance is $1,000,000. The company has budgeted cash
disbursements of $500,000 and budgeted cash receipts of $1,600,000. What amount of
cash is available for investing?
A) $0
B) $600,000
C) $1,000,000
D) $1,100,000
22) Basil Company issued $600,000, 8%, 5-year bonds for 106, with interest paid
annually. Assuming straight-line amortization, what is the carrying value of the bonds
after one year?
A) $636,000
B) $600,000
C) $628,800
D) $648,000
23) Which of the following is NOT considered to be an advantage of forming a
corporation?
A) Continuous life
B) Government regulations
C) Ability to raise more money
D) Limited liability of owners for corporation’s debts
24) How is the trend percentage for sales in 2015 computed? The base year is 2000.
A) Year 2015 sales Year 2000 sales
B) (Year 2015 sales – Year 2000 sales) Year 2000 sales
C) (Year 2015 sales – Year 2000 sales) Year 2015 sales
D) (Year 2015 sales Year 2000 sales) 100
25) If a company has a deficit in retained earnings:
A) then retained earnings has a credit balance
B) the deficit is subtracted to determine total stockholders’ equity on the balance sheet
C) the deficit is added to determine total stockholders’ equity on the balance sheet
D) then the corporation’s lifetime earnings exceed lifetime losses and dividends
26) How does the receipt of a cash dividend on a long-term Investment in
Available-for-Sale Securities affect the balance sheet?
A) Increases assets and increases paid-in-capital
B) Increases assets and decreases stockholders’ equity
C) Increases assets and increases retained earnings
D) Has no effect on assets or total stockholders’ equity
27) Unsecured bonds are called ________. Secured bonds are called ________.
A) convertible bonds; callable bonds
B) term bonds; serial bonds
C) debentures; mortgage bonds
D) regular bonds; special bonds
28) Patents are amortized over a period of:
A) 40 years or the expected useful life, whichever is less
B) 20 years or the expected useful life, whichever is less
C) 70 years plus life of inventor, or the expected useful life, whichever is less
D) 50 years plus life of inventor, or the expected useful life, whichever is less
29) Smiley Corporation sold equipment costing $70,000 with $65,000 of accumulated
depreciation for $10,000 cash. Which of the following journal entries should be
prepared?
A) debit Cash for $10,000 and credit Gain on Sale of Equipment for $10,000
B) debit Cash for $5,000, debit Accumulated Depreciation for $65,000 and credit
Equipment for $70,000
C) debit Cash for $10,000, credit Equipment for $5,000 and credit Gain on Sale of
Equipment for $5,000
D) debit Cash for $10,000, debit Accumulated Depreciation for $65,000, credit
Equipment for $70,000 and credit Gain on Sale of Equipment for $5,000
30) On December 31, 2015, Pilozzi Company has the following information available:
On December 31, 2015, the Board of Directors wants to declare a cash dividend of $2
million. Can it be done?
A) Yes, if they can borrow some money, or liquidate some assets
B) No, the cash balance is below $2 million
C) No, Retained Earnings is below $2 million
D) No, Cash and Retained Earnings are both below $2 million
31) A company has a Foreign-Currency Transaction Gain of $1,000 and a
Foreign-Currency Transaction Loss of $10,000. How is this information reported on the
income statement?
A) Other Losses: Foreign-Currency Transaction Loss $10,000 and Other Gains:
Foreign-Currency Transaction Gain $1,000
B) Other Losses: Foreign-Currency Transaction Loss, net $9,000
C) Other Comprehensive Loss: Foreign-Currency Transaction Loss $10,000 and Other
Comprehensive Income: Foreign-Currency Transaction Gain $1,000
D) Other Comprehensive Loss: Foreign-Currency Transaction Loss, net $9,000
32) On January 1, 2015, Dooley Company purchases $100,000, 6% bonds at a price of
90.4 and a maturity date of January 1, 2025. Dooley Company intends to hold the bonds
until their maturity date. Interest is paid semiannually, on January 1 and July 1. Dooley
Company has a calendar year end. The entry for the receipt of interest on July 1, 2015
is:
A) debit Cash for $3,000 and credit Interest Revenue for $3,000
B) debit Cash for $6,000 and credit Interest Revenue for $6,000
C) debit Investment in Bonds for $3,000 and credit Interest Revenue for $3,000
D) debit Investment in Bonds for $6,000 and credit Interest Revenue for $6,000
33) What is accounts payable turnover?
A) A ratio calculated as Purchases divided by ending balance in Accounts Payable
B) A ratio calculated as Cost of Goods Sold divided by average Accounts Payable
C) A ratio calculated as Purchases divided by average Accounts Payable
D) B and C
34) If an investor wants to know a company’s cash balance at the end of the year, this
balance is reported on the:
A) balance sheet
B) statement of cash flows
C) income statement
D) A and B
35) Salem, Inc. uses the indirect method to prepare its statement of cash flows. Salem’s
Accumulated DepreciationTrucks account increased during the period. Salem did not
purchase or sell trucks during the period. The increase in Accumulated
DepreciationTrucks is:
A) subtracted from net income to determine net cash provided by operating activities
B) added to net income to determine net cash provided by operating activities
C) shown as a cash outflow on the investing activities section
D) shown as a cash outflow on the financing activities section
36) Maybelline Corporation issues $3,000,000, 10-year, 8% bonds dated January 1 at
101. The journal entry to record the issuance will include a:
A) credit to Cash for $3,030,000
B) debit to Cash for $3,000,000
C) credit to Premium on Bonds Payable for $30,000
D) credit to Bonds Payable for $3,030,000
37) The income statement:
A) is not dated
B) must cover only a month in time
C) covers a defined period of time
D) reports the results of operations since the inception of the business
38) A company has $500 in Prepaid Advertising before any adjustments. At the end of
the year, an adjusting entry is made to debit Advertising Expense for $100. The ending
balance in the Prepaid Advertising account will be:
A) $0
B) $100
C) $400
D) $500
39) Jerome Smith, Inc. began the year with $279,000 in Accounts Receivable and ended
the year with $232,700 in Accounts Receivable. Sales for the year were $3,870,000.
The cash collected from customers during the year amounted to:
A) $3,823,700
B) $3,916,300
C) $4,102,700
D) $4,149,000
40) A measure of a company’s ability to pay current liabilities with current assets is the:
A) liability ratio
B) current ratio
C) debt ratio
D) asset ratio
41) Investment in Available-for-Sale Securities is reported on the:
A) income statement at cost
B) income statement at fair value
C) balance sheet at cost
D) balance sheet at fair value
42) What is the benefit and cost of extending credit to customers?
BenefitCost
A) Increased salesUncollectible-Account Expense
B) Increased profitsIncreased assets
C) Increased salesDecreased current ratio
D) More potential customersDecreased working capital
43) Katherine’s Fashions is going to discontinue one of its manufacturing divisions. The
division’s assets with a book value of $1,000,000 are sold for $750,000. The division
generated an operating loss of $145,000 after the decision was made to discontinue the
segment. Ignoring income taxes, what total amount should be reported on the income
statement as discontinued operations?
A) $105,000 loss
B) $250,000 loss
C) $395,000 loss
D) $145,000 gain
44) Roughly half of all financial statement frauds over the past two decades have
involved:
A) improper expense recognition
B) improper revenue recognition
C) improper asset recognition
D) improper liability recognition
45) Comprehensive income is:
A) used to determine earnings per share only
B) used to determine net income only
C) not used to determine net income or earnings per share
D) used to determine net income or earnings per share
46) On January 2, 2015, Konan 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, 2016, if
Konan Corporation uses the double-declining-balance method of depreciation?
A) $192,000
B) $195,200
C) $208,000
D) $240,000
47) The objectives of internal control do NOT include:
A) safeguard assets
B) encourage employees to follow company policy
C) ensure accurate, reliable accounting records
D) strong control environment
48) In 2015, ending inventory is overstated. What is the effect of the error on total
stockholders’ equity in 2015 and 2016?
A) total stockholders’ equity is overstated in 2015 and 2016
B) total stockholders’ equity is understated in 2015 and 2016
C) total stockholders’ equity is overstated in 2015 and correctly stated at the end of
2016
D) total stockholders’ equity is overstated in 2015 and understated in 2016
49) When analyzing a company’s debt ratio:
A) the ratio measures a company’s ability to pay its total liabilities
B) the ratio indicates the proportion of a company’s assets that are financed with
stockholders’ equity
C) a high debt ratio is better than a low debt ratio
D) the norm for debt ratios is from 80% to 90%
50) Costs that do not extend a plant asset’s capacity or its useful life, but merely
maintain the asset or restore it to working order are recorded as:
A) capital expenditures
B) expenses
C) extraordinary repairs
D) modification of assets
51) What statement about corporations is FALSE?
A) An advantage of a corporation is ease of transfer of ownership
B) An advantage of a corporation is a greater ability to raise capital than other forms of
organization
C) An advantage of a corporation is limited life
D) An advantage of a corporation is stockholders have limited liability for a
corporation’s debts and acts