1) An extremely high inventory turnover ratio may be a signal that the company is
losing sales due to inventory shortages.
2) When preparing a statement of cash flows using the indirect method, a decrease in
accounts payable is subtracted from net income.
3) The receivables turnover ratio shows the number of times during a year that the
average accounts receivable balance is collected (or turns over).
4) The balance sheet is a financial statement that reports the companys revenues and
expenses over an interval of time.
5) More economically developed economies (the U.S. and the U.K.) have a need for
more complex accounting standards.
6) Accounts payable are amounts the company owes to suppliers of merchandise or
services that it has bought on credit.
7) Cash, inventory, supplies, and buildings are examples of liabilities.
8) We calculate cash return on assets as the change in cash divided by average total
assets.
9) Limited liability means the stockholders are not held personally responsible for the
financial obligations of the corporation.
10) Term bonds require payments in installments over a series of years.
11) Accrued interest on a note receivable has the effects of increasing assets and
increasing liabilities.
12) Since depreciation expense reduces net income, companies will add depreciation
expense back to net income as a step in arriving at net cash flows from operations under
the indirect method.
13) Any transaction that affects the income statement ultimately affects the balance
sheet through the balance of retained earnings.
14) From an income statement perspective, the percentage-of-credit-sales method is
typically preferable because it better matches the revenues (credit sales) with their
related expenses (bad debts).
15) If a transaction causes total assets of the company to increase by $2,000, then
liabilities plus stockholders equity also increases by $2,000.
16) The balance in Retained Earnings is increased by net income and is decreased by
dividends.
17) The percentage-of-credit-sales method for estimating uncollectible accounts is
commonly referred to as the income statement method, because it always results in a
higher amount of net income being reported in the income statement.
18) Investing activities include transactions designed to raise cash or finance the
business.
19) The adjustment to write down inventory from cost to its lower market value
includes a debit to Cost of Goods Sold and a credit to Inventory.
20) At the time inventory is sold, cost of goods sold is recorded under the perpetual
inventory system.
21) Consider the following events for Sophia Incorporated:
Under accrual-basis accounting, what is the appropriate day to record the
revenues from the sand volleyball camp? a. April 5
b. April 6
c. April 12
d. April 21
22) On May 1, Ace Bonding Company purchased inventory costing $2,000 on account
with terms 2/10, n/30. On May 18, Ace pays for this inventory and records which of the
following using a perpetual inventory system?
a. Accounts Payable 2,000
Cash 2,000
b. Accounts Payable 1,960
Inventory 40
Cash 2,000
c. Accounts Payable 2,000
Inventory 40
Cash 1,960
d. Cash 2,000
Accounts Payable 2,000
23) Davis Hardware Company uses a perpetual inventory system. How should Davis
record the sale of inventory costing $620 for $960 on account?
a. Inventory 620
Cost of Goods Sold 620
Sales Revenue 960
Accounts Receivable 960
b. Accounts Receivable 960
Sales Revenue 960
Cost of Goods Sold 620
Inventory 620
c. Inventory 620
Gain 340
Sales Revenue 960
d. Accounts Receivable 960
Sales Revenues 620
Gain 340
24) The three elements of the fraud triangle are:
a. Motive
b. Rationalization
c. Opportunity
d. All of the other answers are elements of the fraud triangle
25) 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. Annuity
b. Future value of a single amount
c. Discount rate
d. Future value of an annuity
e. Interest
f. Compound interest
g. Present value of a single amount
h. Time value of money
i. Simple interest
j. Present value of an annuity
Phrases:
_____A dollar now is worth more than a dollar later.
_____A series of equal periodic payments.
_____Accumulation of a series of equal payments.
_____Interest earned on the initial investment and on previous interest.
_____Accumulation of an amount with interest.
26) Which of the following is a permanent account?
a. Dividends
b. Service Revenue
c. Advertising Expense
d. Retained Earnings
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
____ An account that reflects an estimate.
28) Anthony Corporation reported the following amounts for the year:
Net sales$296,000
Cost of goods sold 138,000
Average inventory 50,000
Anthonys average days in inventory is:
a. 170 days
b. 114 days
c. 132 days
d. 151 days
29) Wireless Technologies reports cost of goods sold of $40 million. Inventory at the
beginning and end of the year are $4 million and $3 million, respectively. Accounts
payable at the beginning and end of the year are $3 million and $6 million, respectively.
What is the amount of cash paid to suppliers?
a.$40 million
b.$36 million
c.$44 million
d.$42 million
30) Which financial accounting number impacts stock prices more than any other single
piece of information?
a. Retained earnings
b. Net income
c. Common stock
d. Total assets
31) Mike Gundy is a college football coach making a base salary of $2,400,000 a year
($200,000 per month). Employers are required to withhold a 6.2% Social Security tax
up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming
the FICA maximum base amount is $113,700, how much will be withheld during the
year for the coachs Social Security and Medicare.
a. $34,800
b. $41,849
c. $148,800
d. None of these amounts is correct
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 by placing the letter
designating the term in the space provided.
a. Cash equivalent
b. Bank reconciliation
c. Petty cash
d. Debit card
e. Credit card
____ Short-term investments that have a maturity date no longer than three
months from the date of purchase.
33) Shasta Exploring purchases a piece of equipment for $50,000 and the equipment
has an expected useful life of five years. Its residual value is estimated to be $4,000.
Assuming Shasta uses the double-declining balance depreciation method, what is the
depreciation expense for the equipment for the second full year?
a. $9,200
b. $9,040
c. $12,000
d. $11,040
34) On September 30, MFP Co. paid employee salaries of $7,000, including $1,000 it
owed to its employees last month. What are the effects of this transaction on the
accounting equation?
a. Expenses increased, liabilities increased, and assets increased
b. Assets decreased, liabilities decreased, and expenses increased
c. Assets decreased, expenses decreased, and liabilities increased
d. Expenses decreased, liabilities decreased, and assets decreased
e. Assets increased, expenses increased, and liabilities decreased
35) Which of the following best describes credit sales?
a. Cash sales to customers that are new to the company
b. Sales to customers using credit cards
c. Sales to customers on account
d. Sales with a high risk that the customer will return the product
36) After preparing a bank reconciliation, a check outstanding for the payment of
advertising would be recorded with a:
a. Debit to Advertising Expense
b. Debit to Cash
c. Credit to Advertising Expense
d. No entry is needed
37) Collections of accounts receivable that previously have been written off are credited
to:
a. A Gain account
b. Accounts Receivable
c. Bad Debt Expense
d. Retained Earnings
38) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 return on equity is:
a.16.7%
b.15.0%
c.15.8%
d.21.4%
39) For each transaction recorded in an accounting system, the basic equation that must
be maintained at all times is:
a. Assets = Liabilities + Stockholders Equity
b. Cash Increases = Cash Decreases
c. Revenues = Expenses + Dividends
d. Assets = Liabilities
40) Inventory records for Marvin Company revealed the following:
Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming
LIFO would be:
a. $16,800
b. $16,760
c. $16,540
d. $16,660
41) Libby Company purchased equity securities for $100,000 and classified them as
trading securities. At the end of the year, the fair value of the securities was $105,000.
How should the investment be reported in the year-end financial statements?
a. The investment in trading securities would be reported in the balance sheet at its
$100,000 cost
b. The investment in trading securities would be reported in the balance sheet at its
$105,000 fair value
c. An unrealized holding gain would be reported in other comprehensive income
d. Both b. and c. are correct
42) The independent, private-sector group that is primarily responsible for setting
financial reporting standards in the United States is the:
a. FASB
b. IASB
c. SEC
d. IRS
43) Enhancing qualitative characteristics of accounting information include:
a. Relevance and comparability
b. Comparability and consistency
c. Faithful representation and relevance
d. Cost effectiveness and materiality
44) 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.
a. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ Payments to stockholders.
45) The primary difference between a note receivable and an account receivable is:
a. A note receivable cannot be classified as a current asset
b. Borrowers have the option of not paying a note receivable
c. An account receivable is more likely to be collected
d. A note receivable is evidenced by a written debt instrument
46) The debt to equity ratio is:
a.0.33
b.0.77
c.1.17
d.1.30
47) Which of the following leases is just like a rental?
a. An operating lease
b. A capital lease
c. Both an operating and a capital lease
d. Neither an operating lease nor a capital lease
48) Wireless Technologies reports income tax expense of $800,000. Income tax payable
at the beginning and end of the year are $50,000 and $70,000, respectively. What is the
amount of cash paid for income taxes?
a.$780,000
b.$800,000
c.$820,000
d.$870,000
49) Discount Computers’ accounts receivable increases during the year by $3 million.
What is the amount of cash received from customers during the reporting period if its
sales are $47 million?
50) Suppose a company has the following balance sheet accounts:
Calculate the missing amounts assuming the company has total assets of $40,000.
51) Under what circumstances do we use the equity method to account for an
investment in stock? Explain how we record dividends received from an investment in a
company accounted for using the equity method.
52) Below are the account balances for Huffman Corporation at the end of December.
Use only the appropriate accounts to prepare an income statement.
53) New Harvest Bakery acquired all the outstanding common stock of Red Rock
Bakery for $68,000 in cash. The book values and market values of Red Rocks assets
and liabilities were as follows:
Calculate the amount paid for goodwill.
54) During 2015, a company sells 20 units of inventory. The company has the following
inventory purchase transactions for 2015:
Calculate ending inventory and cost of goods sold for 2015 assuming the company uses
LIFO with a periodic inventory system.
55) What is an accrued expense?
56) Describe what is meant by prepaid expenses and give two examples.
57) DON Corp. is contemplating the purchase of a machine that will produce net
after-tax cash savings of $20,000 per year for 5 years. At the end of five years, the
machine can be sold to realize after-tax cash flows of $5,000. Assuming a 12% discount
rate, calculate the total present value of the cash savings.