1) under an effective system of internal control, errors occur only as a result of fraud or
dishonesty.
2) noncash investing and financing activities must be reported in the body of a
statement of cash flows.
3) the majority of u.s. business is transacted by proprietorships.
4) the matching principle requires that the cost of goods sold be matched against the
ending merchandise inventory in order to determine income.
5) using the units-of-activity method of depreciating factory equipment will generally
result in more depreciation expense being recorded over the life of the asset than if the
straight-line method had been used.
6) in horizontal analysis, if an item has a negative amount in the base year, and a
positive amount in the following year, no percentage change for that item can be
computed.
7) unrealized gains and losses are recognized on trading securities.
8) improper recognition of income is not one of the factors affecting the quality of
earnings.
9) under the allowance method, the cash realizable value of receivables is the same both
before and after an account has been written off.
10) profitability means having enough funds on hand to pay debts when they fall due.
11) generally accepted accounting principles are rules and practices that are recognized
as a general guide for financial reporting purposes.
12) use the following information regarding black company and red company to answer
the question which amount is equal to black company’s “days in inventory” for 2012 (to
the closest decimal place)?
a.35.8 days
b.34.1 days
c.82.5 days
d.29.5 days
13) financial information is presented below:
the gross profit rate would be
a..60
b..10
c..30
d..40
14) when the allowance method of accounting for uncollectible accounts is used, bad
debt expense is recorded
a.in the year after the credit sale is made
b.in the same year as the credit sale
c.as each credit sale is made
d.when an account is written off as uncollectible
15) winrow company received proceeds of $377,000 on 10-year, 8% bonds issued on
january 1, 2011. the bonds had a face value of $400,000, pay interest annually on
december 31st, and have a call price of 101. winrow uses the straight-line method of
amortization. what is the carrying value of the bonds on january 1, 2013?
a.$400,000
b.$381,600
c.$395,400
d.$379,300
16) given equal circumstances and generally rising costs, which inventory method will
increase the tax expense the most?
a.fifo
b.lifo
c.average cost
d.income tax expense for the period will be the same under all assumptions
17) in a service-type business, revenue is considered earned:
a.at the end of the month
b.at the end of the year
c.when the service is performed
d.when cash is received
18) winrow company received proceeds of $377,000 on 10-year, 8% bonds issued on
january 1, 2011. the bonds had a face value of $400,000, pay interest annually on
december 31st, and have a call price of 101. winrow uses the straight-line method of
amortization. winrow company decided to redeem the bonds on january 1, 2013. what
amount of gain or loss would winrow report on its 2012 income statement?
a.$18,400 gain
b.$22,400 gain
c.$22,400 loss
d.$18,400 loss
19) internal auditors
a.are hired by cpa firms to audit business firms
b.are employees of the irs who evaluate the internal controls of companies filing tax
returns
c.evaluate the system of internal controls for the companies that employ them
d.cannot evaluate the system of internal controls of the company that employs them
because they are not independent
20) a plant asset acquired on october 1, 2012, at a cost of $600,000 has an estimated
useful life of 10 years. the salvage value is estimated to be $50,000 at the end of the
asset’s useful life.
instructions
determine the depreciation expense for the first two years using the:
(a)straight-line method.
(b)double-declining-balance method.
21) the current ratio is
a.calculated by dividing current liabilities by current assets
b.used to evaluate a company’s liquidity and short-term debt paying ability
c.used to evaluate a company’s solvency and long-term debt paying ability
d.calculated by subtracting current liabilities from current assets
22) depreciation is the process of allocating the cost of a plant asset over its useful life
in a(n)
a.equal and equitable manner
b.accelerated and accurate manner
c.systematic and rational manner
d.conservative market-based manner
23) the amount of sales tax collected by a retail store when making sales is
a.a miscellaneous revenue for the store
b.a current liability
c.not recorded because it is a tax paid by the customer
d.recorded as an operating expense
24) a list of accounts and their balances at a given time is called a(n)
a.journal.
b.posting.
c.trial balance.
d.income statement.
25) which item is a current asset?
a.cash regardless of whether it has a positive or negative balance
b.cash equivalents
c.cash that will be used to close a plant in eighteen months
d.restricted cash that will not be used within the upcoming year
26) on january 1, sewell corporation issues $1,000,000, 5-year, 12% bonds at 96 with
interest payable on january 1. the entry on december 31 to record accrued bond interest
and the amortization of bond discount using the straight-line method will include a
a.debit to interest expense, $60,000
b.debit to interest expense, $120,000
c.credit to discount on bonds payable, $8,000
d.credit to discount on bonds payable, $4,000
27) freidrichs company has issued and outstanding 11,000 shares of cumulative, 8%, 50
par value preference shares which it sold for 54 per share at the beginning of 2009. the
company has never paid preference dividends. as of december 31, 2011, dividends in
arrears are
a.88,000
b.132,000
c.162,000
d.142,560
28) jenny carson invested $18,000 at 8% annual interest and left the money invested
without withdrawing any of the interest for 15 years. at the end of the 15 years, jenny
decided to withdraw the accumulated amount of money. jenny has found the following
values in various tables related to the time value of money.
to the closest dollar, which amount would she withdraw, assuming that the investment
earns interest compounded annually?
a.$48,875
b.$154,071
c.$23,675
d.$57,099
29) the cash ______________ is a measure of solvency that uses cash figures.
30) how is it possible for a company to suffer a net loss for a given year, yet produce a
positive net cash flow from operating activities?
31) for each of the ratios listed below, indicate by the appropriate code letter, whether it
is a liquidity ratio, a profitability ratio, or a solvency ratio.
1>price-earnings ratio
2>return on assets ratio
3>receivables turnover ratio
4>earnings per share ratio
5>payout ratio
6>current cash debt coverage ratio
7>current ratio
8>debt to total assets ratio
9>free cash flow
10>inventory turnover ratio
32) on january 1, stuart company purchased as an investment a $1,000, 6% bond for
$1,050. the bond pays interest on january 1 and july 1. the bond is sold on september 1
for $1,100 plus accrued interest. interest has not been accrued since the last interest
payment date. what is the entry to record the cash proceeds at the time the bond is sold?
33) the ______________ of an asset should not have access to the accounting records
of that asset.
34) hansen company prepared the tabulation below at december 31, 2012.
instructions
show how each item should be reported in the statement of cash flows. use parentheses
for deductions.
35) the huntsman corporation has the following stockholders equity accounts:
preferred stock
paid-in capital in excess of par valuepreferred stock
common stock
paid-in capital in excess of stated valuecommon stock
retained earnings
treasury stockcommon
instructions
classify each account using the following tabular alignment.
36) prepare a corrected trial balance for shafer company. all accounts should have a
normal balance
37) kershaw corporation had the following comparative current assets and current
liabilities:
during 2012, net credit sales and cost of goods sold were $570,000 and $350,000,
respectively. net cash provided by operating activities for 2012 was $140,000.
instructions
compute the following liquidity measures for 2012:
1>current ratio
2>current cash debt coverage ratio
3>receivables turnover
4>inventory turnover
