1) Even though the percentage-of-receivables method and the percentage-of-credit-sales
method use different accounts to estimate future uncollectible accounts, the amount of
bad debt expense reported in the income statement will always be the same under the
two methods.
2) The control environment refers to the overall top-to-bottom attitude of the company
with respect to internal controls.
3) We report interest and dividends received from investments with investing activities.
4) When preparing a statement of cash flows, IFRS allows companies to report cash
inflows from interest and dividends as either operating or investing cash flows, while
U.S. GAAP requires these inflows to be reported as only operating activities.
5) The discount rate is the rate at which someone is willing to give up current dollars
for future dollars.
6) When bonds are issued at a discount (below face amount), the carrying value and the
corresponding interest expense increase over time.
7) Common examples of cash equivalents are money market funds, Treasury bills, and
certificates of deposit.
8) A multiple-step income statement reports multiple levels of profitability, such as
gross profit, operating income, income before income taxes, and net income.
9) Adjusting entries are unnecessary for transactions that do not involve revenue or
expense activities, such as selling common stock or paying dividends.
10) Investing activities include cash transactions involving revenue and expense events
during the period.
11) The Sales Discounts account is an example of a contra revenue account.
12) The total of the cash flows from operating, investing, and financing activities equals
the net increase or decrease in cash for the year.
13) We calculate the PE ratio as the stock price divided by earnings per share so that
both stock price and earnings are expressed on a per share basis.
14) Accrual-basis accounting involves recording revenues when earned and recording
expenses with their related revenues.
15) McGregor Company allows customers to pay with credit cards. The credit card
company charges McGregor 3% of the sale. When a customer uses a credit card to pay
McGregor $200 for services provided, McGregor would:
a. Debit Cash for $200
b. Credit Service Revenue for $194
c. Debit Service Fee Expense for $6
d. Credit Service Revenue for $206
16) A bond issued at a premium indicates that at the date of issue:
a. Its stated rate was lower than the prevailing market rate of interest on similar bonds
b. Its stated rate was higher than the prevailing market rate of interest on similar bonds
c. The bonds were issued at a price greater than their face value
d. The bonds must be non-interest bearing
17) Styleson Inc. performed cleaning services for its customers for cash. These
transactions would be recorded as:
a. Debit Service Revenue, credit Cash
b. Debit Cash, credit Service Revenue
c. Debit Cash, credit Accounts Receivable
d. Debit Accounts Receivable, credit Service Revenue
18) Issuing common stock for cash is considered a(n):
a. Operating cash flow
b. Investing cash flow
c. Financing cash flow
d. Not a cash flow
19) Consider the following events for Sophia Incorporated:
Under cash-basis accounting, what is the appropriate day to record the
revenues related to the sand volleyball camp? a. April 5
b. April 12
c. April 21
d. April 23
20) X2 issued callable bonds on January 1, 2015 . The bonds pay interest annually on
December 31 each year. X2’s accountant has projected the following amortization
schedule from issuance until maturity:
X2 buys back the bonds for $103,000 immediately after the interest payment on
12/31/2016 and retires them. What gain or loss, if any, would X2 record on this date?
a.No gain or loss
b.$3,000 gain
c.$1,202 loss
d.$327 loss
21) When using vertical analysis, we express balance sheet accounts as a percentage of
a. Sales
b. Total assets
c. Total liabilities
d. Total stockholders equity
22) The following events pertain to Bills Company:
December 28, 2015 – Bills was contacted by a customer for possible accounting and tax
services.
December 30, 2015 – Bills signed a formal agreement with the customer to provide
accounting and tax services in 2016.
January 4, 2016 – The customer paid $1,000 in advance for the services to be provided
by Bills Company.
January 11, 2016 – Bills provided accounting and tax services to the customer.
Using accrual-basis accounting, on which date should Bills Company record revenue
for the accounting and tax services?
a. December 30, 2015
b. December 31, 2015
c. January 4, 2016
d. January 11, 2016
23) Samuel is trying to determine what its worth today to receive $10,000 in four years
at a 7% interest rate. He should use a table for the:
a. Future value of $1
b. Present value of $1
c. Future value of an annuity of $1
d. Present value of an annuity of $1
24) Which of the following is not a possible journal entry?
a. Credit assets; Debit expenses
b. Debit assets; Debit stockholders equity
c. Credit revenues; Debit assets
d. Debit expenses; Credit liabilities
25) Listed below are six 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 inflow from operating activities
b. Cash outflow from financing activities
c. Cash outflow from operating activities
d. Cash inflow from investing activities
e. Cash inflow from financing activities
f. Cash outflow from investing activities
____ Receive payment from customers.
26) The balance sheet of Hidden Valley Farms reports total assets of $450,000 and
$550,000 at the beginning and end of the year, respectively. Net income and sales for
the year are $100,000 and $800,000, respectively. What is Hidden Valleys return on
assets?
a. 10%
b. 20%
c. 160%
d. 18%
27) Which of the following is(are) True regarding the characteristics of adjusting
entries?
a. Adjusting entries reduce the balance of revenue, expense, and dividend accounts to
zero
b. Adjusting entries allow for the proper recognition of revenue
c. Adjusting entries allow for the proper recognition of expenses
d. Both b and c are True
28) At the beginning of the year, Vici Ventures had accounts receivable of $220,000. At
the end of the year, the company had accounts receivable of $340,000. During the year,
Vici had total sales of $1,000,000, 70% of which were credit sales. What was Vicis
receivables turnover ratio for the year?
a. 2.50
b. 3.57
c. 2.94
d. 146 days
29) A series of equal periodic payments is referred to as:
a. The time value of money
b. An annuity
c. The future value
d. Interest
30) Which of the following does not represent a major provision of the Sarbanes-Oxley
Act?
a. Nonaudit services
b. Quarterly financial statements
c. Auditor rotation
d. Corporate executive accountability
31) In each succeeding payment on an installment note:
a.The amount that goes to decreasing the carrying value of the note increases
b.The amount that goes to decreasing the carrying value of the note decreases
c.The amount that goes to decreasing the carrying value of the note is unchanged
d.The amounts paid for both interest and principal increase proportionately
32) The carrying value using the effective interest method would increase each year if
the bonds were sold at a:
Discount Premium
a. No No
b. No Yes
c. Yes Yes
d. Yes No
33) The employees of Neat Clothes work Monday through Friday. Every other Friday
the company issues payroll checks totaling $32,000. The current pay period ends on
Friday, January 3 . Neat Clothes is now preparing financial statements for the year
ended December 31 . What is the adjusting entry to record accrued salaries at the end of
the year?
a. Salaries Payable 22,400
Salaries Expense 22,400
b. Salaries Expense 6,400
Salaries Payable 6,400
c. Salaries Expense 9,600
Salaries Payable 9,600
d. Salaries Expense 22,400
Salaries Payable 22,400
34) Data Solutions reports cost of goods sold of $75 million. Inventory at the beginning
and end of the year are $8 million and $9 million, respectively. Accounts payable at the
beginning and end of the year are $5 million and $3 million, respectively. What is the
amount of cash paid to suppliers?
a.$78 million
b.$72 million
c.$75 million
d.$76 million
35) Aikman Company has paid dividends of $2,410, $0, $1,570 and $1,060 over the
first four years of the companys existence. If Retained Earnings after year four has an
ending balance of $9,700, what is the average annual amount of net income (loss) over
the past four years for Aikman?
a. $3,685
b. $14,740
c. $840
d. $1,260
36) Lense Laboratories net income was $250,000. Given the account information
below, what is the net operating cash flows for Lense Laboratories?
a. $152,000
b. $278,000
c. $312,000
d. $438,000
37) Which financial statement is typically prepared first?
a. Balance sheet
b. Income statement
c. Statement of stockholders equity
d. Statement of cash flows
38) Dividends received from an investment is classified as a(an) __________ cash flow,
and paying dividends on stock issued is classified as a(an) ____________ cash flow on
the Statement of Cash Flows.
a. Operating; Operating
b. Operating; Financing
c. Financing; Operating
d. Investing; Financing
39) Cash paid for financing activities would include cash paid for:
a. The stock of another company
b. Dividends to stockholders
c. The purchase of treasury stock
d. B and C
40) An example of an adjusting entry would not include:
a. Recording the use of office supplies
b. Recording the expiration of prepaid insurance
c. Recording unpaid salaries
d. Paying salaries to company employees
41) Separation of duties refers to:
a. Making each manager personally responsible for his/her department
b. Keeping functions across different departments separate
c. Preventing top management and lower-level employees from interacting
d. Individuals who have physical responsibility for assets should not also have access to
accounting records
42) Both cash dividends and stock dividends:
a. Reduce total assets
b. Reduce total liabilities
c. Reduce total stockholders’ equity
d. Reduce retained earnings
43) Ace Bonding Company purchased inventory on account. The inventory costs
$2,000 and is expected to sell for $3,000. How should Ace record the purchase using a
periodic inventory system?
a. Purchases 2,000
Accounts Payable 2,000
b. Cost of Goods Sold 2,000
Unearned Revenue 1,000
Sales Revenue 3,000
c. Cost of Goods Sold 2,000
Accounts Payable 2,000
d. Cost of Goods Sold 2,000
Gain 1,000
Accounts Payable 3,000
44) Sandburg Veterinarian reports the following information for the year:
Net credit sales$120,000
Average accounts receivable 20,000
Cash collections on credit sales 100,000
What is Sandburgs receivables turnover ratio?
a. 6.0
b. 5.0
c. 1.2
d. 0.2
45) The Surfs Up issues 1,000 shares of 6%, $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 $18,000 in 2015 . Assuming the
preferred stock is cumulative, how much of the $18,000 dividend will be paid to
preferred stockholders and how much will be paid to common stockholders in 2015?
a. $6,000 to preferred stockholders and $12,000 to common stockholders
b. $18,000 to preferred stockholders and $0 to common stockholders
c. $12,000 to preferred stockholders and $6,000 to common stockholders
d. $9,000 to preferred stockholders and $9,000 to common stockholders
46) Advantages of the corporate form that have led to the growth of this form of
business ownership include all of the following except:
a.Ability to raise capital
b.Low government regulation
c.Limited liability
d.Ability to transfer ownership
47) Discount Travel has the following current assets: cash, $102 million; receivables,
$94 million; inventory, $182 million; and other current assets, $18 million. Discount
Travel also has the following liabilities: accounts payable, $98 million; current portion
of long-term debt, $35 million; and long-term debt, $23 million. Based on these
amounts, what is the acid-test ratio?
a. 1.47
b. 2.00
c. 2.84
d. 3.86
48) Which of the following items is reported in the statement of stockholders equity?
a. Total assets
b. Total expenses
c. Net income
d. Operating cash flows
49) Listed below are six 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 inflow from operating activities
b. Cash outflow from financing activities
c. Cash outflow from operating activities
d. Cash inflow from investing activities
e. Cash inflow from financing activities
f. Cash outflow from investing activities
____ Sell office building.
50) Rite Shoes was involved in the transactions described below. Record each
transaction. If an entry is not required, state “No Entry.”
(a) Purchased $8,200 of supplies on account.
(b) Paid weekly salaries, $920.
(c) Provide services to customers: Cash: $7,100; On account: $5,300.
(d) Paid for supplies purchased in (a) above.
(e) Placed an order for $6,200 of supplies.
51) A company offers a 20% trade discount when providing services of $5,000 or more
to its customers. Record the transaction when the company provides services of $8,000
(not including the trade discount) on account.
52) On January 1, 2015, Julee Enterprises borrows $30,000 to purchase a new Toyota
Highlander by agreeing to a 6%, 4-year note with the bank. Payments of $704.55 are
due at the end of each month with the first installment due on January 31, 2015 . Record
the issuance of the note payable and the first two monthly payments.
53) Sandy Sensations purchases twenty, $1,000, 7%, 10-year bonds issued by Pizza Pier
for $18,641 on January 1, 2015 . The market interest rate for bonds of similar risk and
maturity is 8%. Interest is received semiannually on June 30 and December 31 .
1> Record the investment in bonds.
2> Record receipt of the first interest payment on June 30, 2015 .
54) Briefly describe the difference between simple interest and compound interest.
55) What is the main objective of the International Accounting Standards Board (the
IASB)?