1) The maker of a note records interest expense.
2) Foreign-Currency Transaction Losses can be avoided if international transactions are
settled in U.S. dollars instead of the foreign currency.
3) The principal of a note payable is the amount borrowed.
4) Unrealized gains on investments in available-for-sale securities result from sales of
the securities.
5) Depreciation expense decreases both assets and stockholders’ equity.
6) Sales discounts and sales returns and allowances are deducted from gross revenue to
determine net sales revenue.
7) The left hand side of a T account is the debit side and the right hand side is the credit
side
8) Accounts receivable can be sold to a factor as a means of speeding up cash flows.
9) Horizontal analysis highlights changes in financial statement line items from year to
year.
10) The primary way that fraud and unintentional errors in financial statements are
prevented is by external auditors.
11) The LIFO method assigns the most recent inventory cost to Cost of Goods Sold.
12) Every adjusting entry must affect both the income statement and the balance sheet.
13) An efficient capital market is one in which market prices are above stated cost.
14) The combined audit report on a company’s financial statements and internal control
over financial reporting typically contains five paragraphs.
15) The journal entry to record a cash sale will be the same under the accrual-basis and
cash-basis of accounting.
16) One of the elements of the fraud triangle is opportunity.
17) Entering a transaction in the journal is also known as booking the journal entry
18) In a perpetual inventory system, a business maintains a continuous record of the
number of units purchased, sold and on hand for each inventory item.
19) A company purchased inventory for $800 per unit. The company later sold one unit
of the inventory for cash of $1,500. Under the perpetual inventory system, which
accounts will be debited to record the sale?
A) Cash, $1,500; Inventory, $800
B) Cash, $1,500; Cost of Goods Sold, $800
C) Cash, $1,500; Cost of Goods Sold, $700
D) Cash, $1,500; Inventory, $700
20) Santa Ana Company purchased merchandise on account from a company in
England. The price was 1,000 pounds. At the time of the purchase, the exchange rate for
a pound was $1.52. At the time Santa Ana Company paid for the merchandise, the
exchange rate for a pound was $1.55. What can we say about the pound relative to the
U.S. dollar?
A) the pound weakened and the U.S. dollar strengthened over time
B) the pound strengthened and the U.S. dollar weakened over time
C) the pound and U.S. dollar strengthened over time
D) the pound and U.S. dollar weakened over time
21) On August 1, Deluka Computers, Inc. purchased thirty computer chips, on account,
from a company located in Taiwan for 500,000 Taiwan dollars. On that date the Taiwan
dollar is worth $0.040. On September 1, when the Taiwan dollar was worth $0.038,
payment was made. Deluka Computers uses the perpetual inventory system. The
journal entry on August 1 by Deluka Computers, Inc. would be:
A) debit Inventory $19,000 and credit Accounts Payable $19,000
B) debit Inventory $20,000 and credit Accounts Payable $20,000
C) debit Inventory $20,000, credit Foreign-Currency Transaction Gain $1,000, and
credit Accounts Payable $19,000
D) debit Inventory $20,000 and credit Cash $20,000
22) Zebra Company reports the following figures for the years ending December 31,
2014 and 2013:
What are the percentage changes from 2013 to 2014 for Net Sales, Cost of Goods Sold
and Gross Profit, respectively?
A) 100%, 75.4%, 24.6%
B) 100%, 77%, 23%
C) 35.4%, 24.3%, 26.9%
D) 26.9%, 24.3%, 35.4%
23) The cash received on the sale of a held-to-maturity investment in bonds is reported
on the statement of cash flows as:
A) financing activities
B) operating activities
C) investing activities
D) none of the above
24) Increases and decreases in the long-term liability accounts are reported on the
statement of cash flows as:
A) operating activities
B) investing activities
C) financing activities
D) noncash activities
25) A company omitted a journal entry to record service revenue of $5,000 on account.
Is the trial balance out of balance?
A) No
B) Yes, by $5,000
C) Yes, by $10,000
D) Yes, by an indeterminate amount
26) Kolonas, Inc., sold equipment for $5,000 cash. The equipment cost $74,300 and had
accumulated depreciation through the date of sale of $70,000. At the date of sale, the
journal entry to record the sale will have:
A) a Gain on Sale of Equipment for $4,300
B) a Gain on Sale of Equipment for $5,000
C) a Loss on Sale of Equipment for $700
D) a Gain on Sale of Equipment for $700
27) On January 1, 2014, Winston Company purchased 6% bonds with a face value of
$50,000 for par. Winston Company intends to hold the bonds until maturity. Interest is
payable semiannually on July 1 and January 1. The company’s fiscal year ends on
December 31. The journal entry on December 31, 2014 is:
A) debit Interest Receivable for $1,500 and credit Held-to-Maturity Investment in
Bonds $1,500
B) debit Cash for $1,500 and credit Interest Revenue for $1,500
C) debit Interest Receivable for $1,500 and credit Interest Revenue for $1,500
D) debit Interest Receivable for $3,000 and credit Held-to-Maturity Investment in
Bonds $3,000
28) When an investment is readily convertible to cash and the investor plans to convert
the investment to cash within one year, the investment is reported on the balance sheet
as:
A) a current asset
B) a long-term asset
C) stockholders’ equity
D) a cash equivalent
29) A net loss occurs when:
A) not enough cash exists
B) total revenues exceed total expenses
C) total expenses and losses exceed total revenues and gains
D) total revenues and dividends exceed total expenses and losses
30) Debit cards are being used:
A) in place of petty cash funds
B) for small purchases
C) for package delivery fees
D) all of the above
31) Dolanski Company declares and distributes a 50% common stock dividend when it
has 20,000 shares of $10 par common stock outstanding. The market price per share is
$50 at the date of declaration. What journal entry is prepared?
A) debit Retained Earnings $500,000, credit Common Stock $100,000 and credit
Paid-in Capital in Excess of ParCommon $400,000
B) debit Retained Earnings $500,000, credit Paid-in Capital in Excess of ParCommon
$500,000
C) debit Retained Earnings $500,000 and credit Common Stock $500,000
D) debit Retained Earnings $100,000 and credit Common Stock $100,000
32) Under the allowance method, the entry to write off a $2,600 uncollectible account
includes a:
A) debit to Uncollectible Account Expense for $2,600 and credit to Allowance for
Uncollectible Accounts for $2,600
B) debit to Accounts Receivable for $2,600 and credit to Uncollectible-Account
Expense for $2,600
C) debit to Accounts Receivable for $2,600 and credit to Allowance for Uncollectible
Accounts for $2,600
D) debit to Allowance for Uncollectible Accounts for $2,600 and credit to Accounts
Receivable for $2,600
33) Smith Corporation issues $2,000,000, 10-year, 8% bonds payable at a price of 98.
The journal entry to record the issuance will include a:
A) debit to Cash of $2,000,000
B) credit to Discount on Bonds Payable for $40,000
C) credit to Bonds Payable for $1,960,000
D) debit to Cash for $1,960,000
34) Which of the following should be included in the cost of equipment?
A) Platform for the equipment
B) Employee training costs for the use of the new equipment
C) Testing costs to see if the equipment is working properly
D) All of the above
35) On December 31, 2015, James Company has an accounts receivable balance of
$300,000 before any year-end adjustments. The Allowance for Doubtful Accounts has a
$1,000 credit balance. The company prepares the following aging schedule for accounts
receivable:
What is the Uncollectible-Account Expense at December 31, 2015?
A) $1,500
B) $8,600
C) $9,600
D) $10,600
36) Characteristics of faithfully representative information do NOT include:
A) complete
B) neutral
C) accurate
D) relevant
37) A LIFO liquidation occurs when ________ fall(s) below the ending inventory
quantities in the previous period.
A) beginning inventory quantities
B) ending inventory quantities
C) beginning inventory costs
D) beginning inventory retail value
38) Equipment with a historical cost of $60,000 and Accumulated Depreciation of
$50,000 is scrapped. No cash is received upon disposal. What journal entry is
necessary?
A) debit Accumulated Depreciation for $60,000 and credit Equipment for $60,000
B) debit Accumulated Depreciation for $50,000, debit Gain on Disposal of Equipment
for $10,000 and credit Equipment for $60,000
C) debit Accumulated Depreciation for $50,000, debit Loss on Disposal of Equipment
for $10,000 and credit Equipment for $60,000
D) debit Accumulated Depreciation for $50,000 and credit Equipment for $50,000
39) A company has a lawsuit pending with regard to patent infringement. The amount
of the loss can be estimated and has a probable chance of occurrence. What journal
entry is required?
A) debit Lawsuit Loss and credit Cash
B) debit Estimated Lawsuit Loss and credit Cash
C) debit Cash and credit Estimated Lawsuit Liability
D) debit Estimated Lawsuit Loss and credit Estimated Lawsuit Liability
40) Jenkins Company began business in June when stockholders invested $80,000 in
the business, which in turn issued its common stock to them. Jenkins Company then
purchased a building for $40,000 cash and inventory for $20,000 cash, performed
services for clients for $10,000 cash, purchased supplies for $5,000 cash, and paid
utilities of $2,000 cash. What is the amount of Cash at the end of June?
A) $20,000
B) $23,000
C) $30,000
D) $43,000
41) With regard to cash dividends:
A) they must be paid on a yearly basis
B) the Board of Directors of the corporation determines if a dividend will be paid
C) developmental-stage companies will pay large dividends to their shareholders
D) a corporation must have enough paid-in capital and cash to pay dividends
42) The percent-of-sales method for computing uncollectible accounts:
A) computes Uncollectible-Account Expense as a percent of accounts receivable
B) takes a balance sheet approach
C) employs the expense recognition (matching) concept
D) will result in the same amount of estimated Uncollectible-Accounts Expense as the
aging-of-receivables method
43) A company completed the following transactions during the month of October:
I Purchased office supplies on account, $4,000
II Provided services for cash, $20,000
III Provided services on account, $12,000
IV Collected cash from a customer on account $7,000
V Paid the monthly rent of $13,000
What was the company’s net income for the month?
A) $12,000
B) $19,000
C) $32,000
D) $45,000
44) Gruber Law Offices paid $54,000 to buy back 9,000 shares of its $1 par value
common stock. The stock was sold later at a selling price of $10 per share. The journal
entry to record the sale would include a:
A) credit to Paid-in Capital from Treasury Stock Transactions $54,000
B) debit to Common Stock $54,000
C) credit to Paid-in Capital from Treasury Stock Transactions $36,000
D) credit to Common Stock $36,000
45) On a statement of cash flows prepared with the indirect method, investing activities
do NOT include:
A) sale of investments that are not cash equivalents
B) receipt of interest on investments
C) collection of note receivable
D) lending money to an employee
46) The Allowance to Adjust Investment in Available-for-Sale Securities to Market is:
A) a required account used with Investment in Available-for-Sale Securities
B) an optional account to Investment in Available-for-Sale Securities
C) always added to the Investment in Available-for-Sale Securities
D) always subtracted from the Investment in Available-for-Sale Securities
47) If the market interest rate is 6%, a $10,000, 7%, 5-year bond, that pays interest
semiannually would sell at an amount:
A) less than face value
B) equal to face value
C) greater than face value
D) less than the maturity value
48) Western Corporation has taxable income of $390,000 and pretax accounting income
of $363,000. The company’s income tax rate is 30%. The journal entry to record the
income tax includes a:
A) debit to Income Tax Expense $117,000
B) credit to Deferred Tax Asset $8,100
C) debit to Deferred Tax Asset $8,100
D) credit to Income Tax Payable $108,900
49) A company’s current ratio is decreasing every year and currently stands at 1.00. This
indicates:
A) an improving financial position
B) an improving liquidity position
C) a declining ability to pay current liabilities
D) an increase in profitability
50) At the end of the year, a company makes a journal entry to accrue the interest
expense on a short-term note payable. As a result of this transaction:
A) current liabilities increase and current assets increase
B) current liabilities increase and stockholders’ equity increases
C) current liabilities decrease and stockholders’ equity decreases
D) current liabilities increase and stockholders’ equity decreases
51) Frank’s Boat Shop, Inc. reports net income of $63,000, income before taxes of
$90,000 and interest expense of $18,000. The weighted-average number of shares of
common stock outstanding during the year was 30,000 shares. What is the
times-interest-earned ratio?
A) 3.5
B) 5.0
C) 6.0
D) 8.9
52) On December 1, the Youngstown Company accepted a $8,000 note in settlement of
an overdue Accounts Receivable. The note bears 8% interest for 90 days. The
Youngstown Company has a year end of December 31.
Required:
Prepare the journal entries to record the (1) transaction on December 1, (2) the accrued
interest at December 31, and (3) the collection of the note on March 1. Round any
amounts to the nearest dollar. Omit explanations.
53) On January 1, 2014, Innocente Company purchases 1,000 shares of Intel common
stock at $40 per share. Innocente intends to hold this investment for longer than one
year. On June 1, 2014, Intel declares and distributes a cash dividend of $0.50 per share.
On December 31, 2014, the market price of Intel’s stock is $44 per share. On December
31, 2015, the market price of Intel’s stock is $56 per share. On December 31, 2016, the
market price of Intel’s stock is $50 per share. Innocente Company uses a separate
Allowance account to adjust the investment.
Prepare the journal entries on:
1> January 1, 2014
2> June 1, 2014
3> December 31, 2014
4> December 31, 2015
5> December 31, 2016
Explanations are not required.
54) Dynasty Incorporated has the following data available at December 31, 2015:
Prepare a vertical analysis of this company’s balance sheet. Round to the nearest
one-tenth of one percent.
55) On January 1, 2014, Exclusive Company purchases $10,000 of 6% bonds in Smiley
Company at a price of 95. Exclusive Company intends to hold the bonds until the
maturity date on January 1, 2024. The interest dates are January 1 and July 1. Exclusive
Company amortizes any discount or premium using the straight-line method. The fiscal
year end of Exclusive Company is December 31.
Required:
Prepare the journal entries on:
1> January 1, 2014
2> July 1, 2014
3> December 31, 2014
4> January 1, 2015
Explanations are not required.
56) On March 1, 2014, Emma’s Toy Store purchased Hasbro stock for $33,400, as a
short-term available-for-sale security. On April 10, dividends of $1,075 were received
from the Hasbro stock. On December 31, 2014, the end of Emma’s Toy Store’s
accounting year, the Hasbro stock had a market value of $34,300. On January 1, 2015,
Emma’s Toy Store sold all of the Hasbro stock for $35,000.
Required:
Prepare the journal entries needed to record the transactions for 2014 and 2015.
Explanations are not required.
57) On July 1, 2014, Bobby’s Building Corp. issued $1,000,000 of 10% bonds dated
July 1, 2014 for $937,229. The bonds were sold to yield 11% and pay interest
semiannually on July 1 and January 1. Bobby’s Building Corp. uses the effective
interest method of amortization. The company’s fiscal year ends on February 28.
Required (Round all amounts to the nearest dollar):
1>Prepare the journal entry on July 1, 2014. Omit explanations for all journal entries.
2>Prepare the amortization table for the first two interest periods.
3>Prepare the journal entry on January 1, 2015.
4>Prepare the adjusting entry needed on February 28, 2015.
58) In 2014, David Company paid $250,000 for an oil field that contains an estimated
20,000 barrels of oil. The oil field has no residual value. 5,000 barrels are extracted and
sold in 2014 and 6,500 barrels are extracted and sold in 2015.
Required:
Prepare all journal entries. Explanations are not required.
59) On January 1, 2014, Tarantino Corporation issued $4,000,000, 9%, 5-year bonds at
96. The bonds pay semiannual interest on January 1 and July 1. Tarantino uses the
straight-line method of amortization and has a calendar year end.
Required:
Prepare all the journal entries that Tarantino Corporation would make related to this
bond issue through January 1, 2015. Omit explanations.
60) Jones Company purchases 1,000 shares of Microsoft Corporation stock at $34 per
share on July 31. The company expects to hold the stock for 6 months and then sell it.
At December 31, the market price of the stock is $32 per share.
Required:
1>What type of investment is this for Jones Company? Explain your answer.
2>Journalize the purchase on July 31 and the necessary adjustment on December 31.
Explanations are not required.
3>Discuss how Jones Company would report this investment on its balance sheet at
December 31 and any gain or loss on its income statement for the year ended December
31.
