1) Accounts payable turnover is an important measure of liquidity for a retail business.
2) The choice of an inventory costing method does not impact a company’s balance
sheet.
3) If a corporation pays taxes on its income, then the stockholders will not have to pay
taxes on the dividends received from that corporation.
4) Using the indirect method to prepare the statement of cash flows, an increase in
accounts receivable is subtracted from net income in calculating Net Cash Provided by
Operating Activities.
5) In an efficient market, an investor’s search for “underpriced” stock will be
unsuccessful unless the investor has knowledge of confidential information.
6) Only the balance sheet is used to prepare the statement of cash flows.
7) The Foreign-Currency Transaction Gain account holds gains and losses on
transactions settled in a foreign currency.
8) A firm’s ability to pay current liabilities can be evaluated using the quick ratio and
the current ratio.
9) Collusion is the method used to defeat an internal controls system.
10) When performing a vertical analysis of the income statement, each line item is
stated as a percentage of net income.
11) In consolidation accounting, a year-end elimination entry is required to remove the
subsidiary company’s stockholders’ equity accounts and the parent company’s
Investment in Subsidiary account.
12) The carrying value of bonds decreases over the term of the bonds if the bonds were
issued at a discount.
13) Extraordinary gains and losses are shown “net of tax” on the income statement.
14) Financial statement fraud does not include the improper recognition of expenses.
15) An operating lease transfers title of the leased asset to the lessee at the end of the
lease term.
16) The amount of revenue to be recognized in a sale transaction is the cash value of the
goods or services transferred from the seller to the buyer.
17) The cash payment of interest on bonds payable is a cash outflow from operating
activities on the statement of cash flows.
18) David Company has total assets of $500,000 and total liabilities of $180,000. David
Company’s stockholders’ equity must therefore be $680,000.
19) If ending inventory for a year is overstated, then gross profit for that year will be
overstated.
20) Most of the time, net income will be the same as net cash provided by operating
activities.
21) Current assets listed in the order of liquidity are:
A) accounts receivable, inventory, cash and cash equivalents
B) cash and cash equivalents, accounts receivable, short-term investments, inventory
C) cash and cash equivalents, short-term investments, accounts receivable, inventory
D) marketable securities, cash and cash equivalents, accounts receivable, inventory
22) A company has pension plan assets with a fair value of $9 million. The accumulated
benefit obligation for pensions is $10 million and the projected benefit obligation for
pensions is $15 million. What pension liability is reported on the balance sheet?
A) $1 million
B) $6 million
C) $10 million
D) $15 million
23) An employee states that he steals office supplies for his wife and children because
“Everyone is doing it.” This is an example of:
A) opportunity
B) motive
C) rationalization
D) understanding
24) David Corporation issued $100,000, 5-year bonds at 97 on January 1, 2008. On
December 31, 2018 the bonds matured. The payment of the bonds at maturity would be
reported on the statement of cash flows as a cash outflow of:
A) $97,000 in the financing activities section
B) $97,000 in the investing activities section
C) $100,000 in the financing activities section
D) $100,000 in the investing activities section
25) A company received cash in exchange for issuing stock This transaction increased
assets and:
A) increased expenses
B) increased revenues
C) increased liabilities
D) increased stockholders’ equity
26) Payments by EFT are an important internal control for all of the following reasons
EXCEPT for:
A) the EFTs provide a record of the payments
B) the EFT must be authorized by an authorized official
C) all EFT payments are made by the cashier in the Accounting Department
D) before authorizing the EFT, the authorized official should study the evidence
supporting the payment
27) The purchase of treasury stock is reported on the statement of cash flows as a:
A) positive amount in the financing activities section
B) negative amount in the financing activities section
C) positive amount in the investing activities section
D) negative amount in the investing activities section
28) The balance sheet reports information about:
A) revenues, expenses, and equity
B) liabilities, equity, and expenses
C) assets, revenues, and liabilities
D) assets, liabilities, and owners’ equity
29) What is(are) good predictors of future cash flows?
A) net income in past year
B) net income in current year
C) past cash receipts and past cash payments
D) cash receipts and cash payments in the current year
30) In 2015, beginning inventory is overstated. What is the effect of the error on net
income in 2015 and 2016?
A) net income is overstated in 2015 and 2016
B) net income is understated in 2015 and 2016
C) net income is understated in 2015 and overstated in 2016
D) net income is understated in 2015 and correctly stated in 2016
31) Usually, the most important category on the statement of cash flows is cash flows
from:
A) operating activities
B) investing activities
C) financing activities
D) noncash activities
32) Slowinski Corporation reported net income of $425,000 for the current year. After
the financial statements had been prepared, it was discovered that ending inventory had
been overstated by $25,000 and beginning inventory was understated by $1,000. The
correct net income was:
A) $399,000
B) $401,000
C) $424,000
D) $426,000
33) The statement of cash flows is designed to fulfill all the following purposes
EXCEPT to:
A) show the relationship of net income to changes in the company’s cash
B) assess the collectability of accounts receivable
C) evaluate management decisions
D) help predict future cash flows
34) Land Improvements include:
A) fences
B) lights in parking lot
C) neon signs on property
D) all of the above
35) Which error will be uncovered by a trial balance?
A) The bookkeeper recorded the same journal entry three times
B) The bookkeeper forgot to record a journal entry for a large amount
C) The bookkeeper recorded both the debit and credit of a journal entry as $200 instead
of $700
D) The bookkeeper recorded a journal entry with a debit of $400 and a credit of $400,
as a debit of $400 and a credit of $40
36) On January 1, 2014, Imagine Corporation purchases bonds in Berkeley Company.
The bonds mature on January 1, 2024. Imagine Corporation intends to hold the bonds
longer than one year but not until the maturity date. How should Imagine Corporation
classify these bonds?
A) trading security
B) held-to-maturity investment in bonds
C) equity method investment
D) investment in available-for-sale securities
37) All of the following accounts would be considered assets EXCEPT for:
A) Cash
B) Retained Earnings
C) Prepaid Expenses
D) Notes Receivable
38) Premium on Bonds Payable:
A) has a debit balance
B) is a contra account to bonds payable
C) has a credit balance
D) is deducted from bonds payable on the balance sheet
39) A system of handling cash receipts by mail whereby customers send checks in
payment of their accounts directly to a post office box controlled by a bank is a(n):
A) imprest system
B) lock-box system
C) phishing system
D) online banking system
40) The balance sheet contains the:
A) amount of net income or net loss
B) beginning balance in retained earnings
C) ending balance in retained earnings
D) amount of cash dividends paid to stockholders
41) An interim period used for reporting purposes is generally:
A) more than one year, but less than the life of the company
B) more than one year
C) less than one year
D) half of the life of the company
42) Which of the following is a CORRECT statement?
A) Shareholders’ equity is also called Proprietorship Equity
B) A proprietorship has more than one capital account
C) A partnership has a separate owner’s equity account for each partner
D) Retained earnings is the owner’s investment in the corporation
43) If a company wants to increase its quick ratio, it should consider:
A) buying equipment on account
B) paying off long-term notes payable
C) issuing long-term notes payable
D) collecting an accounts receivable
44) Sales taxes collected from customers are sent to the state government at the end of
each month. What journal entry is prepared?
A) debit Accounts Receivable and credit Sales
B) debit Sales Tax Payable and credit Sales
C) debit Accounts Payable and credit Cash
D) debit Sales Taxes Payable and credit Cash
45) The ratio that uses weighted-average number of shares of common stock
outstanding in the denominator is the:
A) earnings per share
B) gross profit percentage
C) leverage ratio
D) current ratio
46) On December 31, Mosaic Corporation has the following data available:
What is return on equity?
A) 25%
B) 25.7%
C) 28.6%
D) 30%
47) Sylvia Company has a long-term plant asset with the following information as of
the end of the year:
The amount of the impairment loss is:
A) $15,000
B) $17,600
C) $19,000
D) $22,600
48) Which is the preferred method to use when amortizing a bond discount or
premium?
A) Market-interest rate method of amortization
B) Straight-line method of amortization
C) Effective-interest method of amortization
D) Both straight-line and market-interest rate methods of amortization are equally
preferred
49) A company posted a $2,000 debit to Cash as $200. The credit of $2,000 to Service
Revenue in the entry was posted correctly Is the trial balance out of balance?
A) No
B) Yes, by $200
C) Yes, by $1,800
D) Yes, by $2,000
50) At the end of the current year, Accounts Receivable has a balance of $900,000, the
Allowance for Uncollectible Accounts has a debit balance of $1,000 and net credit sales
for the year are $3,000,000. Using the aging method, the balance of Allowance for
Uncollectible Accounts is estimated at $30,000.
Required:
1>Prepare the adjusting journal entry at the end of the year. Omit the explanation.
2>Determine the adjusted balances for Accounts Receivable and the Allowance for
Uncollectible Accounts at the end of the year.
3>Determine the net realizable value of accounts receivable at the end of the year.
51) On December 1, 2014, Goliath Corporation borrowed $120,000 on a 120-day, 10%
note. Goliath Corporation’s year end is December 31.
Required:
1> Prepare the journal entries in 2014 and 2015 for Goliath Corporation. Round all
numbers to the nearest dollar. Omit explanations.
2> At December 31, 2014, what is reported on the balance sheet for the note?
52) For each of the following independent notes, determine: (1) the due date of the note,
(2) the number of days of accrued interest assuming a fiscal year end of September 30,
2014 and (3) the amount of interest expense for each note at September 30, 2014. Use
365 days for a year.
53) The income statement and other data for Davidson Carpet Town, Inc., follow:
The changes in the current assets and current liabilities for the year ending December
31, 2015 were:
Using the direct method, prepare the operating activities section of the statement of
cash flows for the year ending December 31, 2015. Please show calculations.
54) Sullivan Sales purchased a machine on January 1, 2013 which cost $450,000, had a
residual value of $50,000 and a useful life of 10 years. Sullivan Sales can replace this
machine with one that is more efficient and sells the old machine for $100,000 on July
1, 2015.
Required:
Prepare the appropriate journal entry to record the sale of this machine, assuming the
company uses the double-declining-balance method of depreciation.
55) Prince Charming Inc. has the following accounts available at December 31, 2015:
Additional information:
1> No plant assets were sold or exchanged during 2015. New plant assets were acquired
with cash.
2> No notes receivable were collected during 2015.
3> No common stock was retired during 2015.
Using the indirect method, prepare the investing and financing sections of the statement
of cash flows for the year ending December 31, 2015.
56) The units of inventory available for sale during the month of June were as follows:
There are 20 units of inventory at June 30. Round all calculations to two decimal
places.
Required: Determine the ending inventory using:
1> FIFO
2> LIFO
3> Average-cost method
57) 1> During 2015, Vanderbilt Corporation had 500,000 shares of $1 par value
common stock outstanding and 25,000 shares of 5%, $100 par value preferred stock
outstanding. There were no stock transactions during the year. Net income for the year
was $540,000. Compute the earnings per share.
2> During 2015, Fusion Valley Corporation had 500,000 shares of $1 par value
common stock outstanding and 40,000 shares of 5%, $100 par value preferred stock
outstanding. There were no stock transactions during the year. Net income for the year
was $740,000. Compute the earnings per share.