1) Accounts receivable is increased with a credit
2) Inventory is reported on the balance sheet at the selling price of the item.
3) In the statement of cash flows, purchases of fixed assets are considered to be
investing activities.
4) Although a trial balance can be prepared at any time, the most common time is at the
end of the accounting period
5) Beginning inventory and ending inventory have opposite effects on cost of goods
sold.
6) Small companies cannot have internal controls since they do not have enough
employees to segregate duties.
7) During 2015, ABC Corporation’s Income Tax Expense totaled $20,000 and Income
Tax Payable increased by $3,000; therefore, the cash paid for income taxes was
$17,000.
8) The disposal of a plant asset will be reported on the statement of cash flows as a
financing activity.
9) A low debt ratio is safer than a high debt ratio.
10) Information is taken from the journal and then posted to the ledger
11) Habitat for Humanity does not use accounting information since they are not
concerned about making a profit.
12) Under the disclosure principle, the inventory accounting method used by a company
must be described in the footnotes.
13) If $500,000, 6% bonds are issued on January 1 and pay interest semiannually, the
amount of interest paid on July 1 will be $15,000.
14) When a trial balance is out of balance due to a slide-type error, the difference
between total debits and total credits will be evenly divisible by 9
15) The stated interest rate is always equal to the market interest rate on the date the
bonds are issued.
16) The equity method is used to account for stock investments in which the investor
company owns less than 20% of the outstanding stock of the investee.
17) Which of the following entities pays federal income taxes?
A) limited liability partnership
B) general partnership
C) limited liability company
D) corporation
18) Aisha Company paid $1,500 cash to replace a wheel on equipment sold under a
two-year warranty in the prior year. The entry to record the payment would be to:
A) debit Warranty Expense and credit Cash
B) debit Repair Expense and credit Cash
C) debit Estimated Warranty Payable and credit Cash
D) debit Operating Expense and credit Cash
19) Which of the following transactions would be recorded under accrual-basis
accounting but NOT under cash-basis accounting?
A) Collecting cash from customers
B) Borrowing money from the bank
C) Purchasing of inventory on account
D) Issuing stock for cash
20) Stock investments that are to be sold in the near future with the intent of generating
profits on the sale are called:
A) held-to-maturity investments
B) trading securities
C) available-for-sale securities
D) equity-method investments
21) The leverage ratio is a component of:
A) return on assets under DuPont analysis
B) return on equity under DuPont analysis
C) return on sales under DuPont analysis
D) total asset turnover under DuPont analysis
22) Roho Company acquired equipment on July 1, 2013, for $200,000. The residual
value is $20,000 and the estimated life is 5 years or 40,000 hours. Compute the
Depreciation Expense for the years ending December 31, 2013 and December 31, 2014
if Roho Company uses the double-declining-balance method of depreciation.
A) $36,000 for 2013; $73,600 for 2014
B) $40,000 for 2013; $64,000 for 2014
C) $40,000 for 2013; $80,000 for 2014
D) $64,000 for 2013; $40,000 for 2014
23) A long-term investment in available-for-sale securities was acquired at a cost of
$40,000. At year-end, the fair value of the securities is $42,250. The year-end adjusting
entry requires a:
A) credit Investment in Available-for-Sale Securities for $2,250
B) debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for
$2,250
C) credit Allowance to Adjust Investment in Available-for-Sale Securities to Market for
$2,250
D) debit Unrealized Loss on Investment in Available-for-Sale Securities for $2,250
24) A trial balance has which of the following features?
A) Totals for balance sheet accounts only
B) Totals for income statement accounts only
C) Totals for all accounts listed in the ledger
D) Totals for all asset and liability accounts only
25) The retirement of callable bonds at an amount below face value would appear on a
statement of cash flows as an:
A) outflow in the financing activities section
B) inflow in the financing activities section
C) outflow in the operating activities section
D) inflow in the operating activities section
26) An investor who owns 25% of the outstanding stock of another company should
report the investment using the:
A) fair value method
B) consolidated method
C) equity method
D) available-for-sale method
27) Creditors analyze the statement of cash flows to determine:
A) total interest earned during the period
B) the quality of the company’s earnings
C) whether or not the company can pay interest on debt
D) if management was overpaid
28) On a classified balance sheet:
A) Accounts Receivable is a current liability
B) Salaries Payable is a long-term liability
C) Notes Payable due in one year is a current liability
D) Dividends is a current asset
29) Accounting transactions are initially recorded in the:
A) T-account
B) ledger
C) journal
D) financial statements
30) On February 1, a corporation has 30,000 shares of $1 par value common stock
issued and outstanding. The corporation also has Additional Paid-in Capital of $100,000
and Retained Earnings of $100,000. On February 1, the corporation declared a 2-for-1
stock split. After the split, what is the total par value of the common stock and the total
stockholders’ equity, respectively?
A) 0; $230,000
B) $30,000; $230,000
C) $60,000; $260,000
D) $130,000; $260,000
31) Which of the following statements is CORRECT?
A) Trading securities can be current or long-term assets
B) Available-for-sale securities are always current assets
C) Held-to-maturity securities are always current assets
D) Trading securities are always current assets
32) The current market price per share is $32. Earnings per share for income from
continuing operations is $10.00 per share. Earnings per share for net income is $5.00
per share. The investment capitalization rate is 10%. What is the estimated value of the
stock per share?
A) $10.00
B) $50.00
C) $100.00
D) $320.00
33) A company has a policy that all checks over $5,000 need to have the signature of
the owner in addition to the signature of the bookkeeper. This is an example of:
A) limited access
B) proper approvals
C) adequate records
D) encryption
34) On January 1, 2014, bonds with a face value of $100,000 were sold. The bonds
mature on January 1, 2024. The stated rate of interest is 8%. The bonds pay interest
semiannually on July 1 and January 1. The market rate of interest is 10%. What is the
market price of the bonds? The present value of 1 for 20 periods at 5% is 0.377. The
present value of an ordinary annuity of $1 for 20 periods at 5% is 12.462. The present
value of 1 for 20 periods at 4% is 0.456. The present value of an ordinary annuity of $1
for 20 periods at 4% is 13.59.
A) $87,548
B) $92,346
C) $99,960
D) $100,000
35) The maturity value of a $50,000 note at 11% for 5 months is (round to nearest
dollar):
A) $50,000
B) $52,292
C) $53,208
D) $55,500
36) Which method to record uncollectible accounts does NOT use estimates?
A) Allowance method
B) Percent-of-Sales
C) Aging-of-receivables method
D) Direct write-off method
37) When computing the acid-test ratio, the numerator will include all of the following
EXCEPT for:
A) net current receivables
B) short-term investments
C) inventory
D) cash and cash equivalents
38) A company has $23,000 in cash and cash equivalents, $81,000 in short-term
investments, $120,000 in net current receivables, $55,000 in inventory, $10,000 of
prepaid insurance and $5,000 of supplies. The total current liabilities of the firm are
$298,000. The quick ratio of the company is:
A) 0.35
B) 0.75
C) 0.94
D) 0.99
39) When analyzing a company’s current ratio:
A) the current ratio is equal to total current assets divided by total liabilities
B) most successful businesses operate with current ratios between 0.1 and 0.5
C) a current ratio of less than 1.00 means that current liabilities exceed current assets
D) the industry the company is in should not be considered
40) When preparing the balance sheet, the final balancing element of the balance sheet
is:
A) Cash
B) Net income
C) Retained Earnings
D) Dividends
41) In performing vertical analysis, the base for inventory is:
A) total liabilities and stockholders’ equity
B) total assets
C) total cash and cash equivalents
D) total current assets
42) On August 1 of the current year, Trevor Beck received $5,400 for legal services to
be performed evenly throughout the next six months. The adjusting entry on December
31 of the current year would include a:
A) credit to Unearned Service Revenue of $4,500
B) debit to Unearned Service Revenue of $900
C) debit to Service Revenue of $900
D) credit to Service Revenue of $4,500
43) Michael Company purchased a trading investment that had a carrying amount of
$35,000 when they decided to sell it. Michael Company purchased the investment for
$31,000. If Michael Company sold this investment for $45,000, Michael will have a(n):
A) Gain on Sale of Trading Security for $14,000
B) Gain on Sale of Trading Security for $10,000
C) Unrealized Loss on Trading Security of $4,000
D) Unrealized Gain on Trading Security of $14,000
44) Lennon Company signed a 12-month, $50,000, 8% note on June 1, 2015. The
amount of interest to be accrued on December 31, 2015, is (round to nearest dollar):
A) $333
B) $1,667
C) $2,333
D) $4,000
45) An increase in the number of issued and outstanding shares of stock along with a
proportional reduction in the stock’s par value is a:
A) deficit
B) stock dividend
C) stock split
D) cash dividend
46) Which of the following statements is TRUE for a limited liability partnership?
A) The partners all have limited liability for the debts of the partnership
B) The partners all have limited liability for the acts of the other partners
C) The general partner has unlimited liability for the debts of the partnership
D) The limited partners have unlimited liability for the debts of the partnership
47) Mews Corporation has the following information reported on the balance sheet as
of December 31, 2014:
Based on the information above, how many shares of common stock have been issued?
A) 20,000
B) 7,000
C) 5,000
D) 2,000
48) The journal entry to record the purchase of inventory on account under the periodic
inventory system is:
A) debit Inventory and credit Accounts Payable
B) debit Purchases and credit Accounts Payable
C) debit Cost of Goods Sold and credit Accounts Payable
D) debit Inventory and credit Cost of Goods Sold
49) On January 2, 2014, Helmkamp Company purchased a $10,000 machine. It had an
estimated useful life of 5 years and a residual value of $1,000. What is the amount of
depreciation expense for 2015, the second year of the asset’s life using the double
declining-balance method?
A) $2,000
B) $2,400
C) $2,560
D) $4,000
50) Ongoing expenses incurred by the entity, other than the direct expenses for
merchandise, are called:
A) other expenses
B) extraordinary items
C) cost of goods sold
D) operating expenses