1) the statement of retained earnings informs users about how much of the earnings
were kept and reinvested in the company.
2) ifrs are comparatively more specific and more rule based than u.s. gaap.
3) when a business makes a cash payment, the cash account is debited.
4) in a vertical analysis of the balance sheet, each line item is shown as a percentage of
shareholders’ equity.
5) ending inventory equals the cost of goods available for sale less beginning inventory.
6) if a debt security is purchased at a discount, the discount must be amortized when the
interest revenue is earned.
7) the declaration of a stock dividend creates a liability for the corporation.
8) the beginning balance in the common stock account of a company was $10,000. the
revenues and expenses were $200,000 and $120,000, respectively. during the year, the
company declared and paid dividends for $4,000. the ending balance in the retained
earnings was $76,000. (assume that the opening balance of retained earnings was zero.)
9) when an asset is fully depreciated, no further depreciation expense is recorded.
10) walker inc. uses the indirect method to prepare the statement of cash flows. refer to
the following section of the comparative balance sheet:
walker inc.
comparative balance sheet
december 31, 2014 and 2013
the change in inventory will be shown as a negative cash flow in the adjustments to net
income.
11) which of the following is included in a voucher?
a) the rate of profit
b) a check
c) the invoice number
d) a company identification number
12) which of the following requires a formal journal entry?
a) selection of a new ceo
b) stock dividend distribution
c) stock split
d) promotion of a cfo
13) the following information is from the 2015 records of armand camera shop:
bad debts expense is estimated by the percent-of-sales method. management estimates
that 3% of net credit sales will be uncollectible. the balance of the allowance for bad
debts account after adjustment will be ________.
a) $7,000
b) $3,450
c) $2,850
d) $3,750
14) calculate the current ratio using the following information:
cash$5,000
accounts receivable1,400
prepaid rent900
land20,000
equipment4,000
accumulated depreciation800
accounts payable3,000
salaries payable800
notes payablelong term9,000
a) 1.92
b) 2.43
c) 1.55
d) 1.68
15) if goods are sold on terms fob shipping point, the ________.
a) seller normally pays the transportation costs
b) buyer normally pays the transportation costs
c) buyer and the seller split the shipping costs
d) shipping company bears the transportation cost
16) which of the following statements is an accurate interpretation of the current ratio?
a) a current ratio of 1.5 or higher is considered a high-risk ratio
b) a current ratio below 1.00 is considered a good and safe ratio
c) a current ratio of 2.0 indicates strong ability to pay current liabilities
d) a current ratio of 0.60 or lower is a good and safe ratio
17) which of the following inventory costing methods results in the lowest value of
ending inventory during a period of rising inventory costs?
a) specific identification
b) weighted-average
c) last-in, first-out
d) first-in, first-out
18) a company received a bank statement with a balance of $6,350. reconciling items
included a bookkeeper error of $300a $300 check recorded as $600two outstanding
checks totaling $820, a service charge of $25, a deposit in transit of $280, and interest
revenue of $21. what is the adjusted bank balance?
a) $5,636
b) $5,610
c) $5,016
d) $5,810
19) a six-month note receivable for $4,000 at 12%, dated september 1, 2015, has
accrued interest revenue of ________ on december 31, 2015.
a) $480
b) $240
c) $160
d) $80
20) unrealized holding gains or losses on trading investments are reported in the
________ section of the income statement.
a) current assets
b) other revenues and expenses
c) fixed assets
d) minority interest
21) martin ceramics company is preparing its statement of cash flows using the indirect
method. during the year, they purchased equipment for $15,000 cash. which of the
following statements is true?
a) $15,000 would be shown as a negative cash flow in the operating activities section
b) $15,000 would be shown as a negative cash flow in the investing activities section
c) $15,000 would be shown as a positive cash flow in the investing activities section
d) $15,000 would be shown as a positive cash flow in the financing activities section
22) a certain contingent liability was evaluated at year-end, and considered to have a
remote possibility of becoming an actual liability. if the accountant decided not to report
it on the balance sheet or in the notes to the financial statement, what effect would this
have on the financial reporting of the company?
a) there would be no effect
b) the liabilities on the balance sheet would be understated
c) the information about the transaction would be inadequately disclosed in the notes
d) the net income of the company would be understated
23) an invoice for an amount of $600 for merchandise purchased is showing 2/15, n/30
as terms of credit. if the invoice is paid on or before the fifteenth day, the amount to be
paid is ________.
a) $588
b) $600
c) $612
d) $615
24) a corporation reported the following equity section on its current balance sheet. the
common stock is currently selling for $12.00 per share.
which of the following would be included in the entry to record the distribution of a
15% stock dividend?
a) common stock$5 par value would be credited for $37,500
b) retained earnings would be debited for $35,000
c) paid-in capital in excess of parcommon is debited for $35,000
d) retained earnings would be credited for $60,000
25) hank’s tax planning service started business in january, 2014. the company rented an
office for $1,800 per month starting from january 1. on january 1, hank prepaid the
rentals through june 30. the company makes accrual adjustments monthly. what is the
balance in the prepaid rent account as of april 30?
a) $3,600
b) $300
c) $1,800
d) $900
26) james inc. earned revenue of $500,000 and incurred cost of goods sold of $100,000.
what is the gross profit percent?
a) 80%
b) 20%
c) 100%
d) 40%
27) avatar company uses the indirect method to prepare its statement of cash flows.
using the worksheet shown below, enter the adjustments needed to record the following
transactions:
purchased treasury stock for $3,000
paid dividends of $10,000
avatar company
spreadsheet for statement of cash flows
year ended december 31, 2014
28) an adjusted trial balance of a merchandiser is given below.
give the journal entry to close the sales revenue account.
29) newage inc. made total cash sales in february of $666,000, and they are subject to
7.5% sales tax. please provide the summary entry to record sales revenues and sales tax
payable.
30) the following is the adjusted trial balance as of december 31, 2014 of tuttle
photography:
provide the closing entry for expenses.
31) avatar auto parts company uses the indirect method to prepare the statement of cash
flows. refer to the following income statement:
avatar company
income statement
year ended december 31, 2015
sales revenue$360,000
interest revenue1,500
gain on sale of plant assets6,000
total revenues and gains$367,500
cost of goods sold165,000
salary expense67,500
depreciation expense18,000
other operating expenses34,500
interest expense1,500
income tax expense7,500
total expenses294,000
net income/(loss)$73,500
additional information provided by the company includes the following:
current assets other than cash increase by $36,000.
current liabilities decrease by $1,500.
prepare the operating activities section of the statement of cash flows.
32) a petty cash fund was established with a $250 balance. it currently has cash of $38
and petty cash tickets totaling $212 for travel expense. provide the journal entry to
record the replenishment of the fund.
33) a business paid salaries of $6,000 in cash. record the transaction in the journal.
34) on december 31, 2014, axle services inc. prepared the following accrual adjustment:
axle uses reversing entries. prepare the reversing entry that would be prepared on
january 1, 2015.
35) on january 16, whole circle inc. sold goods worth $5,000 to smith on account. it
could not collect cash from the customer, and finally decided to write off the account.
give journal entry to record the write-off assuming that the company uses the allowance
method.