1) Unearned Revenue is a liability account.
2) A patent is an exclusive right to a published work such as a song, film, or painting.
3) Declining-balance depreciation will be lower than straight-line depreciation in earlier
years, but higher in later years.
4) Return on equity is calculated as net income divided by average stockholders equity.
5) Investments are reported at fair value when a company has an insignificant influence
over another company in which it invests.
6) Gains and losses on the sale of equity investments are recorded in the income
statement as part of net income.
7) When a change in estimate is required, the company changes depreciation in prior,
current and future years.
8) Retained Earnings is the amount stockholders have invested in the company.
9) We use the times interest earned ratio to compare interest payments with a companys
income available to pay those charges.
10) A debit balance in the Allowance for Uncollectible Accounts before adjustment
indicates that last years estimate of uncollectible accounts was too low.
11) Income statement items that have no cash effect are still reported under the direct
method.
12) A corporation is an entity that is legally separate from its owners.
13) The primary objective of financial reporting is to provide useful information to
managers in making decisions.
14) Generally, a higher inventory turnover ratio reflects positively on a companys
ability to manage its inventory.
15) All cash transactions reported in the statement of cash flows are classified as (1)
operating activities, (2) investing activities, or (3) financing activities.
16) If a company purchases shares of another company, it records this transaction as
treasury stock.
17) If there are no current assets or liabilities associated with operating expenses, the
amounts we report for these expenses in the income statement must equal the amount of
cash we paid for these items.
18) The Viper retires a $40 million bond issue when the carrying value of the bonds is
$42 million, but the market value of the bonds is $36 million. The entry to record the
retirement will include:
a. A credit of $6 million to a gain account
b. A debit of $6 million to a loss account
c. No gain or loss on retirement
d. A credit to cash for $42 million
19) Which of the following statements is True regarding revaluation of property, plant,
and equipment to fair value?
a. Only IFRS allows revaluation of property, plant, and equipment to fair value
b. Only U.S. GAAP allows revaluation of property, plant, and equipment to fair value
c. Both U.S. GAAP and IFRS allow revaluation of property, plant, and equipment to
fair value
d. Neither U.S. GAAP nor IFRS allows revaluation of property, plant, and equipment to
fair value
20) Which of the following is not an employer payroll cost?
a.FICA taxes
b.Federal and state unemployment taxes
c.Federal and state income taxes
d.Employer contributions to a retirement plan
21) Which of the following would be recorded as land improvements?
a. Property taxes
b. Title insurance
c. Real estate commissions
d. Adding a parking lot
22) On December 31, 2015, Mark Inc. estimates future bad debts to be $6,500. The
Allowance for Uncollectible Accounts has a credit balance of $2,500 before any
year-end adjustment. What adjustment should Mark Inc. record for the estimated bad
debts on December 31, 2015?
a. Debit Bad Debt Expense, $6,500; credit Allowance for Uncollectible Accounts,
$6,500
b. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts
$4,000
c. Debit Allowance for Uncollectible Accounts, $9,000; credit Bad Debt Expense,
$9,000
d. Debit Bad Debt Expense, $9,000; credit Allowance for Uncollectible Accounts,
$9,000
23) Which of the following is True for bonds issued at a discount?
a. The stated interest rate is greater than the market interest rate
b. The market interest rate is greater than the stated interest rate
c. The stated interest rate and the market interest rate are equal
d. The stated interest rate and the market interest rate are unrelated
24) Which one of the following is correct about the statement of cash flows?
a. A company with a net loss will always have a cash outflow from operating activities
b. Collecting interest earned from a note receivable creates a cash inflow from investing
activities
c. Paying dividends to investors creates a cash outflow from financing activities
d. The repayment of long-term debt is a cash inflow from financing activities
25) If a company understates its count of ending inventory in Year 1, which of the
following is True?
a. Costs of good sold is understated at the end of Year 1
b. Profit is correct in Year 2
c. The balance of retained earnings is overstated at the end of Year 1
d. The balance of retained earnings is correct at the end of Year 2
26) On September 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. $20
b. $40
c. $30
d. $60
27) Gains on the sale of fixed assets for cash:
a.Are the excess of the book value over the cash received
b.Are recorded as a debit
c.Are reported on a net-of-tax basis if material
d.Are the excess of the cash received over the book value
28) Assume net income was $100,000, depreciation expense was $8,000, accounts
receivable decreased by $7,500, and accounts payable decreased by $2,500. The
amount of cash flows from operating activities is:
a. $103,000
b. $100,000
c. $108,000
d. $113,000
29) Ordinarily, the proceeds from the sale of a bond issue will be equal to:
a.The face amount of the bond
b.The total of the face amount plus all interest payments
c.The present value of the face amount plus the present value of the stream of interest
payments
d.The face amount of the bond plus the present value of the stream of interest payments
30) In what order are the following financial statements prepared: (1) balance sheet, (2)
income statement, and (3) statement of stockholders equity?
a. 1, 2, 3
b. 3, 2, 1
c. 1, 3, 2
d. 2, 3, 1
31) A customer purchased a drill press on November 14 on account from Sears. The
drill press was delivered two weeks later. The customer paid for the drill press on
December 5 . When should Sears record the revenue for this transaction according to
the revenue recognition principle?
a. November
b. December
c. Evenly in each of the two months
d. One-third in November and two-thirds in December
32) A home loan with fixed monthly payments and the house as collateral most closely
represents which of the following bond characteristics?
a. Secured and term
b. Secured and serial
c. Unsecured and term
d. Unsecured and serial
33) Which of the following ratios is most useful in evaluating liquidity?
a. Return on assets
b. Return on equity
c. Debt to equity ratio
d. Current ratio
34) 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. Gross profit
b. Net income
c. Inventory turnover ratio
d. Operating income
e. Income before income taxes
_____ Equals income before income taxes less income taxes.
35) Authorized common stock refers to the total number of shares:
a.Outstanding
b.Issued
c.Issued and outstanding
d.That can be issued
36) Shively Mfg. Co. sold land costing $10,000 for $12,000. Shively would report:
a.Operating cash inflows of $12,000
b.Investing cash inflows of $12,000
c.Financing cash inflows of $12,000
d.Financing cash inflows of $2,000
37) Tony Hawks Adventure (THA) issued callable bonds on January 1, 2015 . THA’s
accountant has projected the following amortization schedule from issuance until
maturity:
THA issued the bonds:
a.At par
b.At a premium
c.At a discount
d.Cannot be determined from the given information
38) California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at
the beginning of 2014 . All remaining shares are common stock. The company was not
able to pay dividends in 2014, but plans to pay dividends of $100,000 in 2015 .
Assuming the preferred stock is cumulative, how much of the $100,000 dividend will
be paid to preferred stockholders and how much will be paid to common stockholders
in 2015?
a. $40,000 to preferred stockholders and $60,000 to common stockholders
b. $80,000 to preferred stockholders and $20,000 to common stockholders
c. $20,000 to preferred stockholders and $80,000 to common stockholders
d. $100,000 to preferred stockholders and $0 to common stockholders
39) Young Company is involved in a lawsuit. The liability that could arise as a result of
this lawsuit should be recorded on the books if the probability of Young owing money
as a result of the lawsuit is:
a. Remote and the amount can be reasonably estimated
b. Probable and the amount can be reasonably estimated
c. Reasonably possible and the amount can be reasonably estimated
d. Probable and the amount cannot be reasonably estimated
40) Clothing Emporium was organized on January 1, 2015 . The firm was authorized to
issue 100,000 shares of $5 par value common stock. During 2015, Clothing Emporium
had the following transactions relating to shareholders’ equity:
Issued 30,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.
What is the total amount recorded in the Common Stock account at the end of 2015?
a.$420,000
b.$370,000
c.$470,000
d.$250,000
41) Which of the following accounts would normally have a debit balance and appear in
the balance sheet?
a. Accounts Receivable
b. Unearned Revenue
c. Salaries Expense
d. Dividends
42) Sooner purchased office supplies on account. The transaction would be recorded as:
a. Debit Supplies, Credit Cash
b. Debit Cash, Credit Accounts Payable
c. Debit Accounts Payable, Credit Supplies
d. Debit Supplies, Credit Accounts Payable
43) Under what section of the Statement of Cash Flows would you classify dividends
paid on common stock?
a. Operating
b. Investing
c. Financing
d. Noncash activity
44) Which of the following is correct with respect to a bank reconciliation?
a. Subtract interest earned from the banks balance
b. Add service charge to the companys balance
c. Subtract NSF checks from the companys balance
d. Add deposits outstanding to the companys balance
45) Which of the following stages of equity financing comes last in the traditional order
of progression?
a.Investment by friends and family of the founders
b.Investment by the founders of the business
c.Initial public offering (IPO)
d.Outside investment by angel investors and venture capital firms
46) Consider the following events for Betterment Incorporated:
Under accrual-basis accounting, what is the appropriate day to record the
expenses related to the gasoline? a. January 1
b. January 7
c. January 12
d. January 13
47) Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming
LIFO would be:
a. $1,730
b. $1,700
c. $1,720
d. $1,710
48) Action Travel has 10 employees each working 40 hours per week and earning $20
an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA
taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per
employee. What is the actual direct deposit of payroll for the first week of January?
a. $5,404
b. $5,708
c. $4,792
d. $8,000
49) At the beginning of December, Global Corporation had $2,000 in supplies on hand.
During the month, supplies purchased amounted to $3,000, but by the end of the month
the supplies balance was only $800. What is the appropriate month-end adjusting entry?
a. Debit Cash $4,200, credit Supplies $4,200
b. Debit Supplies $4,200, credit Supplies Expense $4,200
c. Debit Supplies Expense $4,200, credit Supplies $4,200
d. Debit Cash $800, credit Supplies $800
50) During the year, Cheng Company paid salaries of $24,000. In addition, $8,000 in
salaries has accrued by the end of the year but has not been paid. The year-end
adjusting entry would include which one of the following?
a. Debit to Salaries Expense for $32,000
b. Credit to Salaries Expense of $8,000
c. Debit to Salaries Payable for $24,000
d. Credit to Salaries Payable for $8,000
51) Research and development costs should be capitalized when the:
a. Future benefit is probable and the amount can be reasonably estimated
b. Future benefit is reasonably possible and the amount can be reasonably estimated
c. Future benefit is probable and the amount cannot be reasonably estimated
d. None of the above are correct as research and development costs are never
capitalized under U.S. accounting rules
52) What key piece of legislation was passed in response to corporate accounting
scandals by Enron, WorldCom, and others?
a. Sarbanes-Oxley Act.
b. 1933 Securities Act.
c. 1934 Securities Exchange Act.
d. Regulation Fair Disclosure.
53) Rotary Tools sells power tools and backs each product it sells with a one-year
warranty against defects. Based on previous experience, the company expects warranty
costs to be approximately 5% of sales. By the end of the first year, sales and actual
warranty expenditures are $800,000 and $13,000, respectively.
1> Does this situation represent a contingent liability? Why or why not?
2> Record warranty expense and warranty liability for the year based on 5% of sales.
3> Record the reduction in warranty liability for the actual warranty expenditures
incurred during the year.
4> What is the balance in the Warranty Liability account after the entries in parts 2 and
3?
54) A company had the following sales transactions:
1> Total debit card sales = $200,000.
2> Total credit card sales = $400,000.
3> Total cash sales = $800,000.
4> Total check sales = $100,000.
There is a charge of 2% on all credit card transactions. Calculate total sales revenue
recorded for the year.
55) A company reports inventory using lower-of-cost-or-market. Below is information
related to its year-end inventory. Calculate the amount to be reported for ending
inventory.
56) China Dragon purchased new restaurant equipment on September 1, 2015, for
$8,000. Residual value at the end of an estimated 5 year service life is expected to be
$2,000. Calculate depreciation expense using the straight-line method for 2015 and
2016, assuming a December 31 year-end.
57) A company had the following transactions:
1> Paid $150 for office supplies using a debit card.
2> Purchased office equipment costing $700 using a credit card.
3> Paid utilities bill of $400 by issuing a check.
Record each transaction.
58) During November, Wireless, Inc. makes a $1,600 credit sale excluding sales tax.
The state sales tax rate is 5% and the local sales tax rate is 1.5%. Record sales revenue
and sales tax payable.
59) On April 1, 2015, the Electronic Superstore borrows $22 million of which $4
million is due in 2016 . Show how the company would report the $22 million debt on
its December 31, 2015 balance sheet.