1) The CEO, as head of the company, is ultimately responsible for the firms accounting.
2) Treasury stock is a contra-equity account since treasury stock increases total
stockholders equity.
3) A low receivables turnover ratio is a positive sign that a company can quickly turn its
receivables into cash.
4) Providing services to customers for cash causes stockholders equity to increase.
5) Operating cash flows generally include cash transactions for the purchase and sale of
investments and productive long-term assets.
6) The average collection period converts the receivables turnover ratio into days.
7) A statement of cash flows provides a summary of cash inflows and cash outflows
during the reporting period.
8) The total net cash flows from operating activities differ between the direct and
indirect methods.
9) Over 115 jurisdictions, including Hong Kong, Australia, and all of the countries in
the European Union (EU), either require or permit the use of IFRS.
10) If the likelihood of a loss is reasonably possible rather than probable, we record no
entry, but make full disclosure in a footnote to the financial statements to describe the
contingency.
11) The adjusting entry for an unearned revenue always includes a debit to an asset
account and a credit to a revenue account.
12) The service life of an asset is always equal to the full life of the asset.
13) Under cash-basis accounting, if a company provides services to a customer in the
current year but does not collect cash until the following year, the company should
report the revenue in the current year.
14) For inventory that is shipped FOB destination, title transfers from the seller to the
buyer once the seller ships the inventory.
15) If the beginning balance of Retained Earnings equals $10,000, net income for the
year equals $6,000, and dividends for the year equal $2,000, then the ending balance of
Retained Earnings equals $18,000.
16) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term by placing the letter designating
the term in the space provided.
a. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ Refers to the right side of an account.
17) Financial information for Retro Designs includes the following selected data:
What is the companys price-earnings ratio?
a.14.3
b.16.7
c.5.7
d.15.0
18) On December 1, Bears Inc. signed a contract with a retailer to supply maintenance
for the next calendar year. How should this transaction be recorded on December 1?
a. Debit Cash, credit Service Revenue
b. Debit Cash, credit Accounts Receivable
c. Debit Accounts Receivable, credit Service Revenue
d. No transaction should be recorded on December 1
19) Suppose you buy dinner for $23.75 that includes an 8% sales tax. How much did
the restaurant charge you for the dinner (excluding any tax) and how much do they owe
for sales tax?
a.$23.75 for dinner and $1.90 for sales tax
b.$23.75 for dinner and no sales tax
c.$21.85 for dinner and $1.90 for sales tax
d.$21.99 for dinner and $1.76 for sales tax
20) Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the
restaurant charge you for the lunch (excluding any tax) and how much do they owe for
sales tax?
a.$8.39 for lunch and $0.42 for sales tax
b.$8.39 for lunch and no sales tax
c.$8.81 for lunch and $0.42 for sales tax
d.$7.99 for lunch and $0.40 for sales tax
21) The balance sheet of Purdys BBQ reports total assets of $800,000 and $900,000 at
the beginning and end of the year, respectively. Net income and sales for the year are
$85,000 and $1,700,000, respectively. What is Purdys return on assets?
a. 10%
b. 20%
c. 200%
d. 5%
22) Consider the following events for Betterment Incorporated:
Under accrual-basis accounting, what is the appropriate day to record the
revenues related to lawn services? a. January 1
b. January 7
c. January 9
d. January 12
23) Berry Co. purchases a patent on January 1, 2015, for $40,000 and the patent has an
expected useful life of five years with no residual value. Assuming Berry Co. uses the
straight-line method, what is the carrying value of the patent on December 31, 2016?
a. $21,000
b. $33,000
c. $24,000
d. $26,000
24) A machine has a cost of $15,000, an estimated residual value of $3,000, and an
estimated useful life of four years. The machine is being depreciated on a straight-line
basis. At the end of the second year, what amount will be reported for accumulated
depreciation?
a. $9,000
b. $6,000
c. $7,500
d. $3,000
25) Summer Leasing received $12,000 for 24 months rent in advance. How should
Summer record this transaction?
a. Debit Prepaid Rent; credit Rent Expense
b. Debit Cash; credit Unearned Revenue
c. Debit Cash; credit Service Revenue
d. Debit Rent Expense; credit Cash
26) Financial accounting does not deal with which of the following?
a. Measuring a companys economic activity
b. Making business decisions
c. Preparing financial reports
d. Communicating financial results to investors
27) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the term in the space provided.
a. Accrued expenses
b. Adjusted trial balance
c. Adjusting entries
d. Depreciation expense
e. Balance sheet
f. Prepaid expenses
g. Expenses
h. Post-closing trial balance
i. Income statement
j. Trial balance
____ Represent outflows of resources incurred to generate revenues.
28) On February 1, 2015, Middleton Corp. lends cash and accepts a $1,000 note
receivable that offers 12% interest and is due in six months. How much interest revenue
will Middleton Corp report during 2015?
a. $120
b. $240
c. $100
d. $60
29) Cost of goods sold equals:
a. Beginning inventory net purchases + ending inventory
b. Beginning inventory + accounts payable net purchases
c. Net purchases + ending inventory beginning inventory
d. Beginning inventory + net purchases ending inventory
30) Oswego Clay Pipe Company provides services of $46,000 to Southeast Water
District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego
record on June 10, assuming the customer made the correct payment on that date?
a. Cash 46,000
Accounts Receivable 45,540
Discounts Receivable 460
b. Cash 46,000
Accounts Receivable 45,540
Interest Revenue 460
c. Cash 46,000
Accounts Receivable 46,000
d. Cash 46,460
Accounts Receivable 46,000
Interest Revenue 460
31) McConnells Bakeries had the following balances on December 31, 2015, before
any adjustment: Accounts Receivable = $100,000; Allowance for Uncollectible
Accounts = $4,100 (credit). McConnells estimates uncollectible accounts based on an
aging of accounts receivable as shown below:
What amount of bad debt expense did McConnells record in its December 31, 2015,
adjustment to the allowance account?
a. $10,200
b. $12,800
c. $15,300
d. $6,100
32) Listed below are five terms followed by a list of phrases that describe or
characterize the terms. Match each phrase with the best term placing the letter
designating the term in the space provided.
a. Work-in-process inventory
b. Merchandising companies
c. Finished goods
d. Raw materials
e. Manufacturing companies
_____ Companies that purchase inventories that are primarily in finished form for
resale to customers.
33) The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on
its $1 par common stock. On the date of declaration, there were 50,000 shares
authorized, 20,000 shares issued, and 5,000 shares held as treasury stock. Assuming the
dividends were declared on June 1, what is the entry on June 30 to record the payment
of cash dividends?
a. Dividends 9,000
Dividends Payable 9,000
b. Dividends Payable 9,000
Cash 9,000
c. Dividends 12,000
Dividends Payable 12,000
d. Dividends Payable 12,000
Cash 12,000
34) When a company pays cash for equipment, what is the effect on the accounting
equation for that company?
a. Increase assets and increase liabilities
b. Decrease assets and decrease liabilities
c. No change
d. Increase assets and increase stockholders equity
35) Consider the following transactions:
Issued common stock for cash
Purchased equipment by signing a note payable
Paid rent for the current month
Collected cash from customers on account
How many of these four transactions increased the given companys total assets?
a. One
b. Two
c. Three
d. Four
36) A companys Income Tax Payable account decreased from $14 million to $12
million during the year. If its income tax expense was $80 million, what would be
shown as cash paid for income taxes under the direct method?
a.A cash outflow of $12 million
b.A cash outflow of $78 million
c.A cash outflow of $80 million
d.A cash outflow of $82 million
37) The primary difference between the periodic and perpetual inventory systems is:
a. The reported amount of ending inventory is higher under the periodic system
b. The perpetual system maintains a continual record of inventory transactions, whereas
the periodic system records these transactions only at the end of the period
c. The reported amount of sales revenue is higher under the periodic inventory system
d. The reported amount of cost of goods sold is higher under the perpetual inventory
system
38) Financial information for Accessories Unlimited includes the following selected
data:
What is the companys earnings per share?
a.$0.50
b.$0.25
c.$2.00
d.$0.05
39) Which of the following characteristics of a country most likely affects the extent of
companies financial disclosure practices?
a. Inflation
b. Tax laws
c. Population
d. Culture
40) Company A is identical to Company B in every regard except that Company A uses
FIFO and Company B uses LIFO. In an extended period of rising inventory costs,
Company A’s gross profit and inventory turnover, compared to Company B’s, would be:
Gross profit Inventory turnover
a. Lower Lower
b. Higher Higher
c. Higher Lower
d. Lower Higher
41) The components of internal control do not directly include:
a. Risk assessment
b. Inflation adjustment
c. Monitoring
d. Control activities
42) Career Services, Incorporated sold some office equipment for $52,000 on
December 31, 2015 . The journal entry to record the sale would include which of the
following if the original cost of the equipment was $80,000 with a residual value of
$5,000 and a useful life of 10 years? Assume the machine was purchased on January 1,
2012 and depreciated using the straight-line method.
a. Gain of $2,000
b. Loss of $9,500
c. Gain of $9,500
d. Loss of $2,000
43) A building was purchased for $50,000. The asset has an expected useful life of 6
years and depreciation expense each year is $8,000 using the straight-line method. What
is the residual value of the building?
a. $0
b. $2,000
c. $4,000
d. $6,000
44) A company reports inventory using lower-of-cost-or-market. Below is information
related to its year-end inventory:
Calculate ending inventory under lower-of-cost-or-market and record any
necessary adjustment to inventory.
45) Match each business activity with its example.
46) How is preferred stock reported differently under U.S. GAAP and IFRS? Do you
think preferred stock is a liability or an equity item? Why?
47) What is the relationship between the present value of a single amount and the
present value of an annuity?
48) If a companys sales are $648,000 in 2015, and this represents an 8% increase over
sales in 2014, what were sales in 2014?
49) Peterson Companys general ledger shows a cash balance of $7,850 on May 31 .
May cash receipts of $1,250, included in the general ledger balance, are placed in the
night depository at the bank on May 31 and processed by the bank on June 1 . The bank
statement dated May 31 shows an NSF check for $200 and a service fee of $50. The
bank processes all checks written by the company by May 31 and lists them on the bank
statement, except for one check totaling $1,640. The bank statement shows a balance of
$7,990 on May 31 . Prepare a bank reconciliation to calculate the correct ending
balance of cash on May 31 .
