1) When bonds payable are converted into common stock, the carrying value of the
bonds is transferred to paid-in capital.
2) A budget is a financial plan that helps coordinate business activities.
3) Accounting is moving in the direction of reporting more and more assets and
liabilities at their fair values.
4) Another name for Paid-in Capital in Excess of Par is Additional Paid-in Capital.
5) In most cases, stockholders are more concerned about the par value of a stock than
any other value.
6) The Allowance to Adjust Investment in Available-for-Sale Securities to Market
account is a liability account.
7) Comprehensive income does not include foreign-currency translation adjustments.
8) The financial statements can be prepared from the trial balance
9) Unrealized Gain on Investment in Available-for-Sale Securities is reported as other
comprehensive income on a Statement of Comprehensive Income.
10) A new corporation forms every time there is a change in ownership in the shares of
common stock.
11) Unearned revenues should be classified as Other Revenues on the Income
Statement.
12) Notes receivable from customers and vendors have a maturity date.
13) A company’s interest expense for the period is reported on the:
A) balance sheet
B) income statement
C) statement of cash flows
D) statement of retained earnings
14) A company uses LIFO to determine the cost of goods sold each year. This inventory
method always results in the lowest possible net income. This is an example of:
A) cost benefit constraint
B) materiality
C) verifiability
D) consistency
15) Which of the following statements is TRUE?
A) The income tax return is prepared using GAAP
B) The income tax return is prepared using rules set by the SEC
C) The income tax return is prepared using rules set by the IRS
D) The income tax return and the income statement are identical
16) A company is required to report both basic and diluted earnings per share when the:
A) company’s capital structure includes convertible preferred stock
B) company has extraordinary gains and losses
C) company has discontinued operations
D) company reports both net income and comprehensive income
17) Northwest Builders, Inc. reported Cost of Goods Sold for the current year of
$320,000. During the same period, the Inventory account decreased $15,000 and the
Accounts Payable account increased $25,000. The amount of cash paid to suppliers for
inventory is:
A) $280,000
B) $295,000
C) $305,000
D) $335,000
18) A company recorded a cash payment incorrectly. They debited Accounts Receivable
for $1,000 and credited Cash for $1,000. The correct entry would debit Accounts
Payable for $1,000 and credit Cash for $1,000. Is the trial balance out of balance?
A) No
B) Yes, by $1,000
C) Yes, by $2,000
D) Yes, by an indeterminate amount
19) Under the allowance method, when a company determines that they will not be able
to collect from a particular customer, they will debit:
A) Uncollectible-Account Expense and credit Accounts Receivable
B) Accounts Receivable and credit Allowance for Uncollectible Accounts
C) Allowance for Uncollectible Accounts and credit Uncollectible Account Expense
D) Allowance for Uncollectible Accounts and credit Accounts Receivable
20) In performing vertical analysis, the base for operating expenses is:
A) net sales
B) gross profit
C) net income
D) operating income
21) Which type of lease will NOT increase a company’s assets or long-term liabilities?
A) An operating lease
B) A capital lease
C) A lease that contains a bargain purchase option
D) A lease that transfers title of the leased asset to the lessee at the end of the lease term
22) Corporations may choose to distribute stock dividends in order to:
A) increase the market price per share of its stock
B) reduce the market price per share of its stock
C) increase retained earnings
D) decrease the amount of stockholders’ equity in the corporation
23) Madison Bank lends Neenah Paper Company $100,000 on January 1, 2014. Neenah
Paper Company signs a $100,000, 8%, 6-month note. The journal entry made by
Neenah Paper Company on January 1, 2014 is:
A) debit Cash for $92,000 and credit Note Payable for $92,000
B) debit Interest Expense for $8,000 and credit Cash for $8,000
C) debit Cash for $100,000 and credit Notes Payable for $100,000
D) debit Interest Expense for $8,000 and credit Interest Payable for $8,000
24) On January 2, 2015, Konrad 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. If Konrad Corporation uses the units of production method of depreciation,
what will be the debit to Depreciation Expense for the year ended December 31, 2016,
assuming that during this period, the asset was used 9,000 hours?
A) $48,000
B) $56,000
C) $63,000
D) $67,500
25) The current portion of a long-term note payable is classified on the balance sheet as
a:
A) current asset
B) current liability
C) long-term asset
D) long-term liability
26) An expense occurred in 2013, and it is not paid until 2014. Using cash-basis
accounting, the expense should appear on:
A) the 2013 income statement
B) the 2014 income statement
C) neither the 2013 nor the 2014 income statement
D) both the 2013 and 2014 income statements
27) On May 10, a business collected $2,200 on account What journal entry is needed on
May 10?
A) Debit Accounts Payable for $2,200 and credit Accounts Receivable for $2,200
B) Debit Accounts Receivable for $2,200 and credit Revenue for $2,200
C) Debit Cash for $2,200 and credit Accounts Receivable for $2,200
D) Debit Accounts Payable for $2,200 and credit Revenue for $2,200
28) The gain or loss on the disposal of a business segment is shown on the income
statement as:
A) an extraordinary item
B) part of discontinued operations
C) part of income from operations
D) other gains or losses
29) When posting a journal entry to the ledger, we transfer:
A) the dollar amount of debits in the journal entry to the appropriate accounts
B) the dollar amounts of credits in the journal entry to the appropriate accounts
C) the name of the person who prepared the journal entry
D) A and B
30) A foreign currency translation adjustment is reported as:
A) Other Comprehensive Income on Statement of Comprehensive Income
B) Other Comprehensive Income on combined statement of income and comprehensive
income
C) Accumulated Other Comprehensive Income on the balance sheet
D) all of the above
31) Drury Corporation wants to raise $2,000,000. The corporation plans on selling
100,000 shares of $20 par value common stock. Drury Corporation currently has
150,000 shares of stock outstanding and net income of $1,500,000. The $2,000,000
from the stock sale is expected to generate additional income of $500,000 before
interest and taxes. The income tax rate is 30%. What are the earnings per share after the
sale of 100,000 shares of stock?
A) $7.40
B) $8.00
C) $9.40
D) $10.00
32) The leverage ratio measures:
A) the impact of equity financing on a company’s profitability
B) the impact of debt financing on a company’s profitability
C) the impact of leverage on a company’s financial position
D) the impact of equity financing on a company’s financial position
33) To compute the ending balance of Retained Earnings:
A) the beginning balance in Retained Earnings will be negative for a new business
B) net loss for the period is subtracted from the beginning balance of Retained Earnings
C) Dividends are added to the beginning balance of Retained Earnings
D) common stock sold during the period is added to the beginning balance of Retained
Earnings
34) On October 1, McReady Company paid six months’ insurance in advance totaling
$9,000. An adjusted trial balance prepared on December 31 would include a balance in
the Prepaid Insurance account of:
A) $0
B) $3,000
C) $4,500
D) $9,000
35) The statement of management’s responsibility for internal control, issued along with
a company’s financial statements, indicates all of the following EXCEPT that
management:
A) is responsible for establishing and maintaining an adequate system of internal
control
B) conducted an assessment of internal control over financial reporting based on the
framework established by COSO
C) states that the internal controls of the company have been audited by the company’s
outside auditors
D) states that the internal controls of the company have been designed by the company’s
outside auditors
36) A distinctive identification of a product or a service is a:
A) patent
B) trademark
C) copyright
D) license
37) A statement of cash flows accomplishes all of the following EXCEPT:
A) reveals the ability of the company to pay dividends and interest
B) provides information about the cash receipts and cash payments during a period
C) lists revenues and expenses
D) predicts future cash flows
38) Given the following data, by how much would taxable income change if FIFO is
used rather than LIFO?
A) Decrease by $20,000
B) Decrease by $19,000
C) Increase by $20,000
D) Increase by $19,000
39) Wininger Corporation has 1,000 shares of 6%, $50 par value, cumulative preferred
stock and 25,000 shares of $1 par value common stock outstanding on December 31,
2014 and December 31, 2015. The board of directors declared and paid a $2,000
dividend in 2014. In 2015, $12,000 of dividends are declared and paid. What are the
dividends received by the common stockholders in 2015?
A) $3,000
B) $8,000
C) $9,000
D) $12,000
40) The journal entry to record common stock issued at its par value includes a:
A) debit to Retained Earnings
B) debit to Common Stock
C) credit to Retained Earnings
D) credit to Common Stock