1) Under the indirect method, an increase in inventory is added to net income and a
decrease in inventory is subtracted from net income to arrive at net cash flows from
operating activities.
2) A copyright is an exclusive right of protection given to the creator of a published
work such as a song, film, painting, photograph, book, or computer software.
3) At December 31, 2015, a company has received, but not paid, a utility bill for $250.
The amount of utility expense for 2015 equals $250.
4) Common types of financial statement fraud include creating fictitious revenues from
a fake customer, improperly valuing assets, and mismatching revenues and expenses.
5) Consolidated financial statements combine the separate financial statements of the
purchasing company and the acquired company into a single set of financial statements.
6) The aging method for estimating uncollectible accounts considers that a higher
percentage of older accounts will not be collected compared to newer accounts.
7) Recording all cash receipts as soon as possible is considered a good internal control.
8) The price-earnings (PE) ratio compares a companys share price with its earnings per
share.
9) A trial balance is a list of all accounts and their balances at a particular date, showing
that assets equal liabilities.
10) If no cash was exchanged in the purchase of equipment financed entirely with a
note payable, we represent this as both an investing activity and a financing activity in
the statement of cash flows.
11) Cumulative preferred stock means that dividends accumulate interest during the
year.
12) No journal entry is made to record a stock split.
13) The balance in the Warranty Liability account is always equal to Warranty Expense.
14) Which of the following is not a current liability?
a.Accounts payable
b.A note payable due in 2 years
c.Current portion of long-term debt
d.Sales tax payable
15) Tyler Incorporated receives $150,000 from investors in exchange for shares of its
common stock. Tyler Incorporated records this transaction with a:
a. Debit to Investments
b. Credit to Retained Earnings
c. Credit to Common Stock
d. Credit to Service Revenue
16) A company performs $2,800 of services during the month and bills customers. The
customers are expected to pay next month. Record the customer billing using (a)
accrual-basis accounting and (b) cash-basis accounting.
17) The following statements pertain to recording transactions. Which of them are
True?
I. Total debits should equal total credits.
II. It is possible to have multiple debits or credits in one journal entry.
III. Assets are always listed first in journal entries.
IV. Some journal entries will have debits only.
a. I only
b. I and II
c. I, II, and IV
d. II, III, and IV
18) Which of the following accounts is not reported in the stockholders equity section
of the balance sheet?
a.Treasury Stock
b.Common Stock
c.Sales Revenue
d.Retained Earnings
19) General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s
accountant has projected the following amortization schedule from purchase until
maturity:
The investment in bonds has a maturity in:
a.Two years
b.Three years
c.Six years
d.Cannot be determined from the given information
20) Which of the following leases is essentially the purchase of an asset with debt
financing?
a. An operating lease
b. A capital lease
c. Both an operating and a capital lease
d. Neither an operating lease nor a capital lease
21) On September 1, 2015, Gold Magazine sold 400 one-year subscriptions for $90
each. The total amount received was credited to Unearned Revenue. What would be the
required adjusting entry at December 31, 2015?
a. Unearned Revenue 36,000
Service Revenue 36,000
b. Service Revenue 24,000
Unearned Revenue 24,000
c. Unearned Revenue 24,000
Service Revenue 24,000
d. Unearned Revenue 12,000
Service Revenue 12,000
22) For the past five years, Mookie Consulting Services reported the following annual
net income and dividend amounts:
YearNet IncomeDividends
1 $22,000 $2,000
2 17,000 2,000
3 9,000 1,000
4 14,000 3,000
5 25,000 4,000
If Mookie had Retained Earnings of $88,000 at the end of year 5, what was the
companys Retained Earnings at the beginning of Year 1?
a. $13,000
b. $25,000
c. $7,000
d. $1,000
23) Consider the following inventory transactions for September:
Beginning inventory 15 units @ $3.00
Purchase on September 1220 units @ $3.50
Purchased on September 2310 units @ $4.00
For the month of September, the company sold 35 units. What is cost of good sold
under the weighted-average cost method (round the weighted-average unit cost to four
decimals if necessary)?
a. $121
b. $116
c. $124
d. $131
24) Which of the accounts are decreased on the debit side and increased on the credit
side?
a. Liabilities, stockholders equity, and revenues
b. Dividends, liabilities, and assets
c. Expenses, dividends, and stockholders equity
d. Assets, dividends, and expenses
25) Expenses normally carry a _______ balance and are shown in the
______________.
a. Debit; Statement of stockholders equity
b. Debit; Income statement
c. Credit; Balance sheet
d. Debit; Balance Sheet
26) Accountants are responsible for measuring various operating, investing and
financing activities. Which of the following correctly matches the activity with its type?
a. Investing – paying utilities for the month
b. Investing – purchasing land
c. Operating – paying dividends to stockholders
d. Financing – selling equipment for cash
27) The Raptor retires a $20 million bond issue when the carrying value of the bonds is
$18 million, but the market value of the bonds is $15 million. The entry to record the
retirement will include:
a. A debit of $3 million to a loss account
b. A credit of $3 million to a gain account
c. No gain or loss on retirement
d. A credit to cash for $18 million
28) On December 1, 2015, Old World Deli signed a $300,000, 5%, six-month note
payable with the amount borrowed plus accrued interest due six months later on June 1,
2016 . Old World Deli records the appropriate adjusting entry for the note on December
31, 2015 . What amount of cash will be needed to pay back the note payable plus any
accrued interest on June 1, 2016?
a.$300,000
b.$301,250
c.$306,250
d.$307,500
29) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 asset turnover is:
a.3.7 times
b.2.8 times
c.2.2 times
d.0.5 times
30) The issuance of notes payable for borrowing is classified in the statement of cash
flows as a(n):
a. Operating activity
b. Investing activity
c. Financing activity
d. Noncash activity
31) Assume a company’s current ratio and acid-test ratio are less than 1.0 before it
purchases inventory on credit. When it makes the purchase:
a.Its current ratio decreases
b.Its acid-test ratio decreases
c.Its current ratio remains unchanged
d.Its acid-test ratio remains unchanged
32) Which of the following accounts appears in the statement of stockholders equity?
a. Accounts Payable
b. Accounts Receivable
c. Common Stock
d. Supplies
33) Retained Earnings represent a company’s:
a.Net income less dividends since the company first started
b.Undistributed net assets
c.Extra paid-in capital
d.Undistributed cash
34) Discount-Mart issues $10 million in bonds on January 1, 2015 . The bonds have a
ten-year term and pay interest semiannually on June 30 and December 31 each year.
Below is a partial bond amortization schedule for the bonds:
What is the interest expense on the bonds in 2015?
a.$693,103
b.$600,000
c.$345,639
d.$347,464
35) How does the stockholders equity section in the balance sheet differ from the
statement of stockholders equity?
a. The stockholders equity section is more detailed than the statement of stockholders
equity
b. The stockholders’ equity section shows balances at a point in time, whereas the
statement of stockholders’ equity shows activity over a period of time
c. The stockholders’ equity section shows activity over a period of time, whereas the
statement of stockholders’ equity is at a point time
d. There are no differences between them
36) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term by placing the letter designating
the term in the space provided.
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Formal policies to evaluate internal and external threats to achieving
company objectives.
37) The value today of receiving an amount in the future is referred to as the:
a. Future value of a single amount
b. Present value of a single amount
c. Future value of an annuity
d. Present value of an annuity
38) The following table contains financial information for Trumpters Inc. before closing
entries:
What is the amount of Trumpters total liabilities?
a. $5,000
b. $78,500
c. $68,500
d. $83,500
39) Listed below are five 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. Credit sales
b. Sales returns
c. Sales allowances
d. Sales discounts
e. Trade discounts
_____ When a customer returns a product.
40) Which of the following has the highest expected return to the investor?
a. Common Stock
b. Preferred Stock
c. Bonds
d. They all have similar expected returns
41) Comparing changes in net income for one company over time is an example of:
a. Vertical analysis
b. Horizontal analysis
c. Diagonal analysis
d. Both vertical and horizontal analysis
42) Which of the following is not a True statement?
a. Companies that are believed to have high bankruptcy risk generally receive low
credit ratings and must pay a higher interest rate for borrowing
b. As a companys level of debt increases, the risk of bankruptcy increases
c. Interest expense incurred when borrowing money, as well as dividends paid to
stockholders, are both tax-deductible
d. The mixture of liabilities and stockholders equity a business uses is called its capital
structure
43) Which of the following regarding adjusting entries is correct?
a. Adjusting entries are recorded for all external transactions
b. Adjusting entries are recorded to make sure all cash inflows and outflows are
recorded in the current period
c. Adjusting entries are needed because we use accrual-basis accounting
d. After adjusting entries, all temporary accounts should have a balance of zero
44) Which of the following is a negative sign that a company is not selling its inventory
quickly?
a. A low inventory turnover ratio
b. A high inventory turnover ratio
c. A low average days in inventory
d. Both a high inventory turnover ratio and a low average days in inventory
45) 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 issued the bonds:
a.At par
b.At a premium
c.At a discount
d.Cannot be determined from the given information
46) What are the purposes of closing entries?
47) Why do some companies issue bonds rather than borrow money directly from a
bank?
48) Decorative Concrete produces a concrete overlay for residential and commercial
concrete flooring. Customers have complained that one of the products results in
excessive cracking. The likelihood the company will incur a loss on this product is
probable and the amount of the loss is estimated to be somewhere between $1.5 and $3
million.
1> Should this contingent liability be reported, disclosed in a note only, or both?
Explain.
2> What loss, if any, should Decorative Concrete report in its income statement?
3> What liability, if any, should Decorative Concrete report in its balance sheet?
4> What entry, if any, should be recorded?
49) At the end of the year, a company has a balance in Allowance for Uncollectible
Accounts of $200 (credit) before any year-end adjustment. The balance of Accounts
Receivable is $15,000. The company estimates that 10% of accounts receivable will not
be collected over the next year. Record the adjustment for uncollectible accounts.
50) A company purchases machinery for $15,000 cash. Record the transaction.
51) A company has the following accounts receivable and estimates of uncollectible
accounts:
1> Accounts not yet due = $60,000; estimated uncollectible = 3%.
2> Accounts 130 days past due = $20,000; estimated uncollectible = 20%.
3> Accounts more than 30 days past due = $10,000; estimated uncollectible = 50%.
Compute the total estimated uncollectible accounts.