1) The word “payable” always signifies a liability.
2) In the units-of production method, a fixed amount of depreciation expense is
assigned to each unit of output.
3) A note payable may require the borrower to accrue interest expense and interest
payable at the end of the accounting period.
4) Goodwill is recognized only when the purchase price exceeds the fair value of the
net liabilities in the acquisition of another company.
5) Under the indirect method to prepare the statement of cash flows, a loss on the sale
of long-term assets is added to net income when calculating Net Cash Provided by
Operating Activities.
6) The treasurer is solely responsible for the petty cash fund.
7) Interest rates are always for an annual period unless stated otherwise.
8) Accounting is an information system that measures business activities.
9) When a U.S. company owns a foreign subsidiary, a foreign-currency translation
adjustment is calculated using the subsidiary’s balance sheet.
10) Common stock should be purchased if the estimated value of a company exceeds its
current market value.
11) Obsolescence may cause an asset’s useful life to be longer than the asset’s physical
life.
12) The Accumulated Depreciation account is an income statement account.
13) The statement of cash flows will NOT help predict future cash flows.
14) If bonds are issued at a premium, the carrying amount of the bonds will be greater
than the face value of the bonds until the maturity date.
15) A company can use the cost-of-goods-sold model to determine how much inventory
to purchase.
16) Which of the following would be considered a financing activity that decreases cash
on the statement of cash flows?
A) The company pays a long-term loan
B) The company sells common stock
C) The company purchases a building
D) The company pays its monthly utility bill
17) With regard to Accounts Receivable, a separate account for each customer is kept in
a(n):
A) control account
B) subsidiary ledger
C) general ledger
D) control ledger
18) Year to year percentage changes in line items from comparative financial statements
is called:
A) benchmarking
B) horizontal analysis
C) vertical analysis
D) common-size financial statements
19) Under accrual-basis accounting, the event that triggers revenue recognition for the
sale of goods is the:
A) date a contract is signed
B) date the customer pays for the goods
C) date the customer orders the goods
D) delivery of goods to customer
20) The expense recognition principle requires:
A) the recognition of expenses in the same period as the related revenues are earned
B) the recognition of expenses in the period they are paid
C) the recognition of expenses in the period the benefits are received
D) the recognition of expenses using depreciation theories and methods
21) Under the direct method of preparing the statement of cash flows, the computation
of payments to suppliers includes:
A) payments for inventory only
B) payments for operating expenses only
C) payments for inventory and operating expenses
D) payments for inventory, operating expenses, interest expense and income taxes
22) Bonds that the issuer may pay off at a prearranged price whenever the issuer
chooses before the maturity date are:
A) serial bonds
B) callable bonds
C) convertible bonds
D) debenture bonds
23) Bonds with a 6% interest rate were issued when the market rate of interest was 7%.
The quoted bond price will be:
A) greater than 100
B) less than 100
C) 100
D) greater than 1000
24) Which statement is FALSE?
A) Available-for-sale securities are held with the intent of selling them some time in the
future
B) Held-to-maturity securities are stock investments that the investor has the intent and
ability to hold until they mature
C) Trading securities are debt and stock investments purchased and expected to be sold
in the near term through active trading
D) A debt security not classified as either trading or held-to-maturity is an
available-for-sale security
25) On a statement of cash flows prepared with the indirect method, financing activities
do NOT include:
A) payment of principal amounts of long-term debt
B) payment of interest on long-term debt
C) payment of dividends
D) sale of treasury stock
26) All investments in securities NOT classified as trading securities or held-to-maturity
securities are classified as:
A) debt securities
B) equity securities
C) marketable securities
D) available-for-sale securities
27) Lloyd’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 2012 was 30,000 shares. The gross profit was
$160,000. What are the earnings per share?
A) $2.10
B) $3.00
C) $3.60
D) $5.33
28) Milton Company owns 30% interest in the stock of Darcy Corporation. During the
year, Darcy pays $20,000 in dividends to Milton, and reports $100,000 in net income.
Milton Company will report Equity-Method Investment Revenue of:
A) $6,000
B) $24,000
C) $30,000
D) $36,000
29) Revenues and expenses are closed to:
A) Cash
B) Net Income
C) Dividends
D) Retained Earnings
30) The owners’ equity of any business is equal to:
A) revenues minus expenses
B) assets minus liabilities
C) assets plus liabilities
D) paid-in capital plus assets
31) Corbin Company was charged $25 for a check printing fee associated with their
checking account. What journal entry is required?
A) Debit Miscellaneous Expense for $25 and credit Accounts Payable for $25
B) Debit Miscellaneous Expense for $25 and credit Accounts Receivable for $25
C) Debit Miscellaneous Expense for $25 and credit Cash for $25
D) No journal entry is required
32) Under the direct method of preparing the statement of cash flows, which statement
is CORRECT regarding the calculation of computing cash collected from interest
revenue?
A) Sales plus a decrease in interest receivable
B) Interest revenue plus a decrease in interest receivable
C) Interest revenue plus an increase in interest receivable
D) Interest revenue less a decrease in interest receivable
33) When a company borrows money from the bank, which type of account(s) is(are)
increased?
A) asset account only
B) Retained Earnings only
C) liability account only
D) asset and liability accounts
34) A periodic inventory system:
A) is used for inexpensive goods
B) is not expensive to maintain
C) does not keep a running record of inventory on hand
D) is all of the above
35) Under the equity method of accounting for long-term investments in common stock,
when a cash dividend is received from the investee company:
A) the investor’s Equity-Method Investment account is increased
B) the Dividend Revenue account is increased
C) the investor’s Equity-Method Investment account is decreased
D) no entry is necessary
36) The most important internal control over cash is to:
A) have all customers pay by check
B) separate cash-handling duties from cash-accounting duties
C) separate cash-handling from the mailroom
D) have an imprest petty cash fund
37) Dividends declared are reported on the:
A) Income Statement
B) Statement of Retained Earnings
C) Balance Sheet
D) Statement of Assets
38) Economic value added (EVA) is computed as:
A) net income before taxes + long-term debt + interest expense
B) net income before taxes + interest expense – capital charge
C) net income before taxes – interest expense + capital charge
D) net income before taxes – long-term debt + interest expense
39) In making global business decisions, complications include:
A) what is legal in one country may not be legal in another country
B) what is ethical in one country may not be ethical in another country
C) a foreign government threatening to take over the company’s plant in the Phillipines
D) all of the above
40) The Home Store reported the following figures:
Retained Earnings, February 1, 2013………..$20,000,000
Retained Earnings, February 1, 2012………..$17,000,000
The company’s fiscal year ends on February 1 each year. Net income for the fiscal year
ending February 1, 2013 is $5 million. What are the dividends declared for the fiscal
year ending February 1, 2013?
A) $0
B) $2 million
C) $3 million
D) $5 million
41) The economic factor in decision making requires the decision maker to:
A) maximize the economic benefit to the decision maker
B) maximize the economic benefit to the corporation or nonprofit entity
C) maximize the corporation’s profits
D) minimize the corporation’s costs
42) Cinderella Company reports net income of $100,000 and Depreciation Expense of
$50,000 for the year ending December 31, 2015. There were no gains or losses from the
sale of long-term assets.They also have the partial balance sheets shown below:
Using the indirect method, prepare the operating activities section of the statement of
cash flows for the year ending December 31, 2015
43) Sendik’s Food Store has the following Trial Balance as of March 31, 2012.
Determine the current ratio.
44) Katie’s Garden Company purchased a machine on June 1, 2014. The machine cost
$200,000 and has a residual value of $20,000 and an estimated useful life of 8 years.
The machine is expected to last 100,000 machine hours.
Required:
1> Calculate the depreciation expense for 2014 and 2015 using the straight-line method.
2> Calculate the depreciation expense for 2014 and 2015 using the units-of-production
method. The machine was used for 8,000 machine hours in 2014 and 23,000 machine
hours in 2015.
3> Calculate the depreciation expense for 2014 and 2015 using the
double-declining-balance method.
45) Complete the chart below by putting an “X” in the appropriate box:
46) Smith Corporation purchases $620,000 of TMI Corporation stock on October 18,
2015. Smith Corporation classifies this investment as a trading security. On December
1, Smith Corporation received a cash dividend of $12,000 on the TMI Corporation
stock. On December 31, 2015, Smith Corporation’s investment in TMI Corporation has
a fair value of $600,000.
Required:
Prepare the necessary journal entries. Explanations are not required.
47) On January 1, 2014, Paulsen Company issued $600,000, 6%, 5-year bonds at face
value. Interest is payable semiannually on July 1 and January 1.
Required:
Prepare journal entries on:
1> January 1, 2014
2> July 1, 2014
3> December 31, 2014, the fiscal year end
Omit explanations.
48) Nichols Co. has the following information for the second quarter of 2012:
Cash balance, March 31$ 15,000
Sales for April; all cash200,000
Sales for May; all cash300,000
Sales for June; all cash400,000
Cost of Goods Sold is 75% of Sales; all cash
Operating expenses is 10% of Sales; all cash
Purchase a new computer in June with cash 65,000
Interest expense is paid in May40,000
Income taxes paid:
April9,000
May1,500
June18,000
The minimum cash balance for any month is $10,000.
Prepare a cash budget for each month in the second quarter of 2012, showing any
excess cash or any financing needed. Any interest on the financing will be deferred until
the fiscal year end in December.
