1) Cost of goods sold is an asset reported in the balance sheet and inventory is an
expense reported in the income statement.
2) In an activity-based depreciation method, we allocate an assets cost based on its use.
3) Companies are required by law to withhold federal and state income taxes from
employees paychecks and remit these taxes to the government.
4) A corporation has lower taxes and less paperwork relative to sole-proprietorships and
partnerships.
5) We use horizontal analysis to analyze trends in financial statement data, such as the
dollar amount of change and the percentage change, for one company over time.
6) Accounting information is used by investors to decide whether to invest in a
companys stock.
7) Depreciation in accounting is the process of allocating to expense the cost of an asset
over its service life.
8) Companies selling products subject to sales taxes are responsible for collecting the
sales tax directly from customers and periodically remitting the sales taxes collected to
the state and local governments.
9) The acid-test ratio, or quick ratio, is similar to the current ratio but is based on a more
conservative measure of current assets available to pay current liabilities.
10) Paying for one year of rent in advance does not affect the accounting equation.
11) IFRS allows, but does not require, revaluation of property, plant and equipment to
fair value.
12) Contrast the following types of bonds:
(a) Secured and unsecured.
(b) Term and serial.
(c) Callable and convertible.
13) Treasury Stock is normally reported as:
a.A reduction of total stockholders equity
b.An asset account
c.A liability account
d.An expense account
14) The acid-test ratio is:
a.The liquidity ratio divided by the equity ratio
b.Current assets minus inventory divided by current liabilities minus accounts payable
c.Cash, net receivables, and current investments divided by current liabilities
d.Cash divided by accounts payable
15) Nerf Mania reports net income of $500,000, net sales of $4,000,000, and average
assets of $2,000,000. The profit margin is:
a. 12.5%
b. 25%
c. 50%
d. 8 times
16) Carpenter Inc. estimates warranty expense at 2% of sales. Sales during the year
were $4 million and warranty expenditures were $44,000. What was the balance in the
Warranty Liability account at the end of the year?
a.$44,000
b.$80,000
c.$36,000
d.$480,000
17) Which of the following is deducted from net income as an adjustment under the
indirect method of preparing the statement of cash flows?
a.Salaries payable decrease
b.Inventory decrease
c.Depreciation expense
d.Accounts receivable decrease
18) Which of the following accounts would normally have a debit balance?
a. Accounts Payable, Service Revenue, Common Stock
b. Salaries Payable, Unearned Revenue, Utilities Expense
c. Income Tax Payable, Service Revenue, Dividends
d. Cash, Delivery expense, Dividends
19) Which of the following is a sign that a company can quickly turn its receivables into
cash?
a. A low receivables turnover ratio
b. A high receivables turnover ratio
c. A high average collection period
d. Both a low receivables turnover ratio and a high average collection period
20) Which of the following is NOT possible for a business transaction?
a. Increase assets and decrease revenue
b. Decrease assets and increase expense
c. Increase liabilities and increase expense
d. Decrease liabilities and increase revenue
21) The costs associated with producing revenues are referred to as:
a. Dividends
b. Assets
c. Liabilities
d. Expenses
22) General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s
accountant has projected the following amortization schedule from purchase until
maturity:
GIC purchased the bonds:
a.At par
b.At a discount
c.At a premium
d.Cannot be determined from the given information
23) Which of the following measures of liquidity does not control for the relative size
of the company?
a. Working capital
b. Current ratio
c. Acid-test ratio
d. They all control for the relative size of the company
24) Under the provisions of the Sarbanes-Oxley Act, auditors must do which of the
following?
a. Provide nonaudit services for their clients
b. Audit public companies whose chief executives worked for the audit firm in the
preceding year
c. Be hired by company management
d. Maintain working papers for at least seven years following an audit
25) Which of the following is recorded upon receipt of a payment on April 7, 2015, by a
customer who pays a $900 invoice dated March 3, 2015, with terms 2/10, n/60?
a. Debit Sales Discounts $18
b. Credit Purchase Discounts $18
c. Credit Accounts Receivable $882
d. Debit Cash $900
26) The conceptual framework’s qualitative characteristic of relevance includes:
a. Predictive value
b. Verifiability
c. Completeness
d. Neutrality
27) Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and
due in 5 years. Interest payments are made semi-annually. The market rate for this type
of bond is 12%. What is the issue price of the bond?
a. $83,920
b. $46,320
c. $53,605
d. $50,000
28) On September 1, 2015, Daylight Donuts signed a $100,000, 9%, six-month note
payable with the amount borrowed plus accrued interest due six months later on March
1, 2016 . Daylight Donuts records the appropriate adjusting entry for the note on
December 31, 2015 . In recording the payment of the note plus accrued interest at
maturity on March 1, 2016, Daylight Donuts would
a.Debit Interest Expense, $3,000
b.Debit Interest Expense, $1,500
c.Debit Interest Payable, $1,500
d.Debit Interest Expense, $4,500
29) 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. Bonds issued at face value
b. Bonds issued at a discount
c. Bonds issued at a premium
d. Stated interest rate
e. Market interest rate
Phrases:
_____ The True interest rate used by investors to value a bond.
_____ The stated interest rate is more than the market interest rate.
_____ The stated interest rate equals the market interest rate.
_____ The stated interest rate is less than the market interest rate.
_____ The rate quoted in the bond contract used to calculate the cash payments for
interest.
30) Xenon Corporation borrows $75,000 from First Bank. Xenon Corporation records
this transaction with a:
a. Debit to Investments
b. Credit to Retained Earnings
c. Credit to Notes Payable
d. Credit to Interest Expense
31) Alliance Products purchased equipment that cost $120,000. It had an estimated
useful life of four years and no residual value. The equipment was depreciated by the
straight-line method and was sold at the end of the third year of use for $25,000 cash.
Abbott should record:
a. A gain of $5,000
b. A loss of $5,000
c. Neither a gain nor a loss since the computer was sold at its book value
d. Neither a gain nor a loss since the gain would not be recognized
32) Which of the following would NOT be recorded as a cash sale?
a. Customer who pays with a check
b. Customer who pays with a debit card
c. Customer who pays with a credit card
d. A customers who buys on account
33) Which of the following ratios is most useful in evaluating solvency?
a. Debt to equity ratio
b. Current ratio
c. Receivables turnover ratio
d. Inventory turnover ratio
34) Which of the following is added to net income as an adjustment under the indirect
method of preparing the statement of cash flows?
a.Salaries payable increase
b.Gain on the sale of land
c.Inventory increase
d.Accounts receivable increase
35) Wilson Inc. owns equipment for which it originally paid $70 million and has
recorded accumulated depreciation on the equipment of $12 million. Due to adverse
economic conditions, Wilson’s management determined that it should assess whether an
impairment should be recognized for the equipment. The estimated future cash flows to
be provided by the equipment total $60 million, and its fair value at that point totals $50
million. Under these circumstances, Wilson:
a.Would record no impairment loss on the equipment
b.Would record an $8 million impairment loss on the equipment
c.Would record a $20 million impairment loss on the equipment
d.Would record a $2 million impairment loss on the equipment
36) Which inventory method is better described as having an income statement focus
and why is it considered as such?
a. FIFO; better approximates the value of ending inventory
b. LIFO; better approximates the value of ending inventory
c. LIFO; better approximates inventory cost necessary to generate revenue
d. FIFO; better approximates inventory cost necessary to generate revenue
37) If management can estimate the amount of loss that will occur due to litigation
against the company, and the likelihood of the loss is reasonably possible, a contingent
liability should be
a. Disclosed, but not reported as a liability
b. Disclosed and reported as a liability
c. Neither disclosed nor reported as a liability
d. Reported as a liability, but not disclosed
38) Listed below are seven reasons why accounting practices differ across countries
followed by a list of descriptions. Match each description with the best reason placing
the letter designating the reason in the space provided.
Reason:
a. Legal system
b. Tax laws
c. Sources of financing
d. Inflation
e. Culture
f. Political and economic ties
g. Economic development
Description:
_____ The extent of public disclosure depends on the secretiveness of society.
_____ In some countries, asset values increase rapidly because of the general price
level changes.
_____ Countries share business activities and have political connections.
_____ Some countries rely more heavily on debt capital than on equity capital to fund
operations.
_____ Common law countries rely more heavily on public information.
_____ More developed economies have more complex business transactions.
_____ Alignment between financial reporting and tax reporting rules.
39) Providing services on account would be recorded with a:
a. Debit to Service Revenue
b. Credit to Accounts Receivable
c. Credit to Accounts Payable
d. Debit to Accounts Receivable
40) Which of the following groups is not among the external users for whom financial
statements are prepared?
a. Creditors
b. Regulators
c. Investors
d. Managers
41) 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 placing the letter designating
the term in the space provided.
a. Accounts receivable
b. Allowance method
c. No effect
d. Direct write-off method
e. Net realizable value
f. Aging method
g. Bad debt expense
h. Receivables written off
i. Decrease assets and increase expenses
j. Allowance for uncollectible accounts
_____ Contra asset that represents the estimated amount of future bad debts.
42) Burger Chef acquired a delivery truck on March 1, 2015 for $26,000. The company
estimates a residual value of $2,000 and a 6-year service life. It expects to drive the
truck 80,000 miles. Actual mileage was 12,000 miles in 2015 and 16,000 miles in 2016.
Calculate depreciation expense using the activity-based method for 2015 and 2016,
assuming a December 31 year-end.
43) Classify each of the following accounting practices as conservative or aggressive:
1> Choosing a shorter life for calculating depreciation.
2> The write-down of inventory.
3> Decrease the allowance for uncollectible accounts.
4> Recording revenues sooner.
44) A company lends $30,000 with 10% interest on May 1, 2015 . This amount plus
interest is due on April 30, 2016 . Record the adjusting entry on December 31, 2015 .
45) A company reports the following amounts for 2015:
Calculate cost of goods sold, the inventory turnover ratio, and the average
days in inventory for 2015 .
46) Describe the three fundamental business activities that accountants measure. What
account classifications are typically associated with each type of business activity?
47) Soccer Wholesale purchased land and a warehouse for $800,000. In addition to the
purchase price, Soccer Wholesale makes the following expenditures related to the
acquisition: brokers commission, $48,000; title insurance, $3,000; and miscellaneous
closing costs, $8,000. The warehouse is immediately demolished at a cost of $80,000 in
anticipation of building a new warehouse. Determine the amount Soccer Wholesale
should record as the cost of the land.