1) Financial statements are periodic reports published by the company for the purpose
of providing information to managers.
2) Allowing the employee who authorizes purchases to also prepare the check is an
example of good internal control.
3) We report the payment of cash dividends as a cash outflow from investing activities.
4) Paying dividends to its stockholders causes a companys stockholders equity to
decrease.
5) Interest on a note receivable is calculated as the face value of the note times the
annual interest rate stated on the note times the fraction of the year the note is
outstanding.
6) The sale of land is reported in the operating section of the statement of cash flows.
7) We usually record preferred stock as equity and report it in the stockholders’ equity
section of the balance sheet just above common stock.
8) Investments are reported at fair value when a company has a significant influence
over another company in which it invests.
9) Operating activities include transactions that relate to the primary operations of the
company.
10) A sales discount represents a reduction, not in the selling price of a product or
service, but in the amount to be paid by a credit customer if payment is made within a
specified period of time.
11) Current assets are assets that provide a benefit to a company over more than one
year.
12) The adjusting entry for an accrued revenue has the effects of increasing assets and
increasing net income.
13) The return on equity measures the ability of company management to generate
earnings from the resources that owners provide.
14) The matching principle states that we recognize expenses in the same period as the
revenues they help to generate.
15) The direct write-off method violates the matching principle.
16) Today, financial accounting and reporting standards in the United States are
established primarily by the Financial Accounting Standards Board (FASB).
17) The amount of cash reported in a companys balance sheet includes currency, coins,
and balances in savings and checking accounts, as well as items acceptable for deposit
in these accounts, such as checks received from customers.
18) We allocate natural resources to expense through a process known as depletion.
19) When shares of another corporation are purchased, what is the effect on total
stockholders equity?
a.Decrease
b.Increase
c.No effect
d.Cannot tell from the given information
20) Operating cash flows would exclude:
a. Payment of employee salaries
b. Receipt of cash from customers
c. Payment of dividends
d. Payment for advertising
21) Preferred stock:
a. Is always recorded as a liability
b. Is always recorded as part of stockholders equity
c. Can have features of both liabilities and stockholders equity
d. Is not included in either liabilities or stockholders equity
22) On December 31, 2015, Andy Inc. has a debit balance of $1,500 for the Allowance
for Uncollectible Accounts before any year-end adjustment. Andy Inc. also has the
following information for its accounts receivable and the estimated percentages of bad
debts for different past-due amounts:
What is the amount of bad debt expense to be reported on Andy Inc.s financial
statements for 2015?
a. $6,500
b. $1,500
c. $5,000
d. $8,000
23) A trade discount results in:
a. A contra revenue account being recorded
b. A contra asset being recorded
c. Customers delaying cash payment
d. Revenue being recorded for the discounted price
24) The act of collusion refers to:
a. Top management and lower-level employees working together to share information
necessary for effective internal controls
b. Two or more people acting in coordination to circumvent internal controls
c. Management working with an auditor to prevent occupational fraud
d. Middle-level managers taking full responsibility for effective internal controls
25) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 profit margin is:
a.17.1%
b.13.5%
c.7.6%
d.4.5%
26) 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 profit margin?
a. 5%
b. 10%
c. 20%
d. 50%
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
____ Financial statement that provides a measure of net income.
28) Countries that have similar rules for financial accounting and tax accounting, rely
more on debt financing, and have historical political and economic ties with Germany
are referred to as what types of countries?
a. Code law countries
b. European Union countries
c. Common law countries
d. Conformist countries
29) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 return on equity is:
a.17.1%
b.14.0%
c.12.6%
d.7.1%
30) During periods when inventory costs are rising, ending inventory will most likely
be:
a. Greater under LIFO than FIFO
b. Less under average cost than LIFO
c. Greater under average cost than FIFO
d. Greater under FIFO than LIFO
31) How does the amortization schedule for an installment note such as a car loan differ
from an amortization schedule for bonds?
a. The final carrying value is zero in an amortization schedule for an installment note
b. The final carrying value is zero in an amortization schedule for bonds
c. The final carrying value is zero in both amortization schedules
d. The final carrying value is not zero in either amortization schedule
32) Liabilities are best defined as:
a. Amounts the company expects to collect in the future from customers
b. Debts or obligations the company owes resulting from past transactions
c. The amounts that owners have invested in the business
d. Payments to stockholders
33) Treasury Stock:
a. Has a normal credit balance
b. Decreases stockholders equity
c. Is recorded as an investment
d. Increases stockholders equity
34) Tony Hawks Adventure (THA) issued callable bonds on January 1, 2015 . THA’s
accountant has projected the following amortization schedule from issuance until
maturity:
The THA bonds have a life of:
a.2 years
b.3 years
c.6 years
d.Cannot be determined from the given information
35) 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. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Transfer of data from lower managers to top executives for accurate financial
reporting.
36) 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 placing the letter designating
the term in the space provided.
a. Accounts receivable
b. Allowance method
c. No effect
d. Direct write-off method
e. Net realizable value
f. Aging method
g. Bad debt expense
h. Receivables written off
i. Decrease assets and increase expenses
j. Allowance for uncollectible accounts
_____ The effect of estimating future bad debts.
37) Listed below are four 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. FOB shipping point
b. FOB destination
c. Periodic inventory system
d. Perpetual inventory system
_____ Indicates that title to inventory transfers from the seller to the buyer at the
point it is shipped.
38) Marys Music Store reported net income of $135,000. Beginning balances in
Accounts Receivable and Accounts Payable were $29,000 and $26,000, respectively.
Ending balances in these accounts were $30,000 and $24,000, respectively. Assuming
that all relevant information has been presented, Mary’s cash flows from operating
activities would be:
a.$132,000
b.$134,000
c.$136,000
d.$138,000
39) Net income can best be described as:
a. Net cash received by a company during the year
b. Revenues minus expenses
c. The amount of profits retained in a company for the year
d. Resources of a company
40) Which of the following statements regarding financial reports is not correct?
a. A balance sheet contains assets, liabilities, and stockholders equity information
b. An income statement shows revenues and expenses
c. A statement of stockholders equity reports revenues, net income, and dividends
information
d. A statement of cash flows shows cash inflows and outflows from operating,
investing, and financing activities
41) Madison Companys cash ledger reports the following for the month ending March
31 .
Information from Marchs bank statement and company records reveals the
following additional information: a. The ending cash balance recorded in the bank
statement is $6,790.
b. Cash receipts of $2,100 from 3/263/31 are outstanding.
c. Checks 545 and 547 are outstanding.
d. The deposit on 3/11 included a customers check for $400 that did not clear the bank
(NSF check).
e. Check 543 was written for $2,800 for office supplies in March. The bank properly
recorded the check for this amount.
f. An automatic withdrawal for March rent was made on March 4 for $1,500.
g. Madisons checking account earns interest based on the average daily balance. The
amount of interest earned for March is $50.
h. Last year, one of Madisons top executives borrowed $4,000 from Madison. On
March 24, the executive paid $4,200 ($4,000 borrowed amount plus $200 interest)
directly to the bank in payment for the borrowing.
i. The bank charged the following service fees: $30 for NSF check, $10 for automatic
withdrawal for rent payment, and $20 for collection of the loan amount from the
executive.
Prepare a bank reconciliation for March 31, and record the necessary cash adjustments.
42) When bonds are retired before their maturity date:
a.GAAP has been violated
b.The issuing company will always report a non-operating gain
c.The issuing company will always report a non-operating loss
d.The issuing company will report a non-operating gain or loss
43) The revenue recognition principle states that:
a. Revenue should be recognized in the period the cash is received
b. Revenue should be recognized in the period earned
c. Revenue should be recognized in the balance sheet
d. Revenue is a component of common stock
44) A company collects an account receivable previously written off. Indicate how this
transaction would affect the following five financial statement items:
Stockholders
AssetsLiabilities EquityRevenuesExpenses
a.IncreaseDecrease Increase Decrease No effect
b.IncreaseNo effect Increase Increase Decrease
c.Increase No effect Increase Increase No effect
d.No effectNo effect No effect No effect No effect
45) The following is an example of:
a. Vertical analysis
b. Horizontal analysis
c. Diagonal analysis
d. Both vertical and horizontal analysis
46) Which of the following is a balance sheet item?
a. Net Income
b. Dividends
c. Utilities Expense
d. Cash
47) Pawn Shops Unlimited recorded the following four transactions during April.
Which of these transactions would have the same income statement impact in April
regardless of whether the company used accrual-basis or cash-basis accounting?
a. Purchased $500 of office supplies on account (supplies were used in May and paid
for in May)
b. Paid $1,800 for a six-month insurance policy covering the period July 1December 31
c. Paid $700 for an advertisement that appeared in the May 17 edition of the Las Vegas
Sun newspaper
d. Received $300 from customers for services performed in March
48) C-Stop reports the following information at year-end:
Based on the above information, what is the total amount of impairment loss that
C-Stop should record at year end?
a. $141,000
b. $126,000
c. $123,000
d. $122,000
49) Operating cash flows exclude:
a.Interest received
b.Interest paid
c.Dividends received
d.Dividends paid
50) 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
____ Resources earned by providing goods and services to customers.
51) Why dont we depreciate land? What are land improvements? Why do we record
land and land improvements separately?
52) Samson Inc. is contemplating the purchase of a machine that will provide it with net
after-tax cash savings of $100,000 per year for 8 years. Assuming a 10% discount rate,
calculate the present value of the cash savings.
53) What is meant by the assertion that the lower-of-cost-or-market method is an
example of conservatism in accounting?
54) Match (by letter) the correct reporting method for each of the items listed below.
Reporting Method
C. Current liability
L. Long-term liability
D. Disclosure note only
N. Not reported
55) Dianes Designs has two classes of stock authorized: 8%, $10 par preferred and $1
par value common. The following transactions affect stockholders equity during 2015,
its first year of operations:
January 1 Issue 200,000 shares of common stock for $15 per share.
February 6 Issue 1,000 shares of preferred stock for $11 per share.
October 10 Repurchase 10,000 shares of its own common stock for $18 per share.
November 12 Reissue 5,000 shares of treasury stock at $20 per share.
Record each of these transactions.
56) Distinguish between the indirect method and the direct method for reporting net
cash flows from operating activities. Which method is more common in practice?
Which method provides a more logical presentation of cash flows?
57) Define accounting. Describe the two primary functions of financial accounting and
its role in our society.
58) A company borrows $20,000 with 8% interest on October 1, 2015 . This amount
plus interest is due on September 30, 2016 . Record the adjusting entry on December
31, 2015 .
59) At the end of the year, a company has a balance in Allowance for Uncollectible
Accounts of $2,000 (debit) before any year-end adjustment. The balance of Accounts
Receivable is $180,000. The company estimates that 5% of accounts receivable will not
be collected over the next year. Record the adjustment for uncollectible accounts.
60) Explain the difference between present value and future value.