1) In the statement of cash flows, more purchases of long-term assets than sales of
long-term assets are considered a sign of a healthy company.
2) External auditors are responsible for maintaining the internal controls for each
company they audit.
3) The gross profit percentage is net sales divided by gross profit.
4) The purpose of purchasing a trading security is to hold it for a short term and then
sell it for its cost.
5) The Internal Revenue Service allows companies to use LIFO for income tax
purposes even if they use FIFO for financial reporting.
6) The purchase of treasury stock has the same effect on stockholders’ equity as issuing
stock.
7) Passed dividends on cumulative preferred stock are considered to be a liability.
8) Book value of a plant asset equals the cost of the asset less the current year’s
depreciation expense.
9) The two major types of receivables are accounts receivable and trade receivables.
10) Outstanding checks are checks that have been recorded by the bank, but are not yet
recorded on the books.
11) At the end of the accounting period, a company has accrued interest revenue that
they will not receive until the next accounting period. The adjusting entry would
include a:
A) debit to Interest Expense
B) debit to Interest Payable
C) debit to Interest Revenue
D) debit to Interest Receivable
12) Smart hiring practices include:
A) background checks
B) clear job descriptions
C) proper training and supervision
D) all of the above
13) To help keep debt ratios within normal limits, companies might adopt the following
strategies:
A) decrease revenues
B) sell stock
C) choose to borrow more money
D) increase costs
14) When preparing the financial statements, why is the income statement prepared
first?
A) The income statement is used to prepare the balance sheet
B) The income statement is the easiest statement to prepare
C) The income statement is the most important statement to investors and creditors
D) Net income or net loss from the income statement is used for the Statement of
Retained Earnings
15) The Trial Balance Worksheet does NOT have columns for:
A) adjusting journal entries
B) closing journal entries
C) unadjusted trial balance
D) adjusted trial balance
16) A business offers credit terms of 2/15, n/30. These terms indicate that:
A) the total amount of the invoice must be paid within 15 days of the invoice date
B) a discount of 2% can be taken if the invoice is paid within 15 days of the invoice
date
C) the buyer can take a 2% discount if the bill is paid within 30 days of the invoice date
D) no discount is offered for early payment
17) The most important type of cash flows on the statement of cash flows is ________.
The least important type of cash flows on the statement of cash flows is ________.
A) operating activities; investing activities
B) investing activities; financing activities
C) financing activities; investing activities
D) operating activities; financing activities
18) On January 1, 2015, Maranto Company signed a lease agreement that requires
monthly payments of $1,000 at the beginning of every month for two years. Maranto
Company paid $1,000 on January 1, 2015. This is an operating lease. What journal
entry is required by Maranto Company on January 1, 2015?
A) debit Leased Asset $1,000 and credit Lease Obligation $1,000
B) debit Lease Expense $1,000 and credit Lease Obligation $1,000
C) debit Rent Expense $1,000 and credit Rent Payable $1,000
D) debit Rent Expense $1,000 and credit Cash $1,000
19) Which of the following should be included in the cost of land improvements?
A) fencing
B) sprinkler system for bushes and lawn
C) lighted signs
D) all of the above
20) The net income or loss is calculated on which financial statement?
A) Statement of retained earnings
B) Income statement
C) Balance sheet
D) Dividends statement
21) A company has the following information available for the year ending December
31, 2014:
REQUIRED:
Calculate the company’s (A) net income or loss for the year ending December 31, 2014
and (B) the balance in Retained Earnings on 1/1/2014.
22) Under the effective-interest method of amortization, the bond cash payment on each
interest date is calculated by multiplying the:
A) face value of the bonds times the effective-interest rate for the appropriate time
period
B) face value of the bonds times the stated interest rate for the appropriate time period
C) carrying value of the bonds times the stated interest rate for the appropriate time
period
D) carrying value of the bonds times the effective-interest rate for the appropriate time
period
23) The loss from discontinued operations includes:
A) operating loss of discontinued segment during divestiture period
B) loss on sale of discontinued segment
C) unusual and infrequent losses
D) A and B
24) A company has the following adjusted trial balance:
What closing entries are needed?
A) Debit Retained Earnings for $1,000 and credit Dividends $1,000
B) Debit Retained Earnings for $3,500, credit Rent Expense for $2,300 and credit
Supplies Expense for $1,200
C) Debit Retained Earnings for $9,400, credit Salaries Expense for $6,400, credit
Depreciation Expense for $1,400 and credit Utilities Expense for $1,600
D) all of the above
25) The ________ is elected by the stockholders and is responsible for setting policy
and appointing officers.
A) board of directors
B) chief executive officer (CEO)
C) chief financial officer (CFO)
D) advisory council
26) If a bookkeeper mistakenly records a disbursement as $47 instead of the correct
amount of $74, the error should be shown on the bank reconciliation as a:
A) $27 addition to the balance per books
B) $27 deduction from the balance per books
C) $36 addition to the balance per books
D) $36 deduction from the balance per books
27) On January 1, 2014, Naperville Corporation issued $2,000,000, 14%, 5-year bonds
with interest payable on January 1 and July 1. The bonds sold for $2,146,400. The
market rate of interest was 12%. Using the effective-interest method, the debit entry to
interest expense on July 1, 2014 is (round to the nearest dollar):
A) $120,000
B) $125,360
C) $128,784
D) $140,000
28) Wisconsin Bank lends Local Furniture Company $100,000 on November 1. Local
Furniture Company signs a $100,000, 8%, 4-month note. The fiscal year end of Local
Furniture Company is December 31. The journal entry made by Local Furniture
Company on December 31 is:
A) debit Interest Expense and credit Interest Payable for $1,333
B) debit Interest Payable and credit Interest Expense for $1,333
C) debit Interest Expense and credit Cash for $1,333
D) debit Interest Payable and credit Cash for $1,333
29) When determining the rate of return on assets:
A) return on assets is the product of three “drivers” according to the DuPont model
B) the DuPont model calculates the rate of return on assets as the net profit margin ratio
times total asset turnover ratio
C) it is important for companies to develop strategies to decrease total asset turnover
D) total asset turnover measures how much every sales dollar generates in profit
30) The ledger:
A) is a grouping of all of the balance sheet accounts only
B) is a grouping of all the income statement accounts only
C) contains all the accounts used by a business
D) contains only the permanent accounts used by a business
31) A vertical analysis is primarily concerned with:
A) the dollar amount of the change in various financial statement line items from year
to year
B) individual financial statement line items expressed as a percentage of a base (which
represents 100%)
C) percentage changes in the balances of line items from comparative financial
statements
D) the change in key financial statement ratios over a specified period of time
32) Seider Company receives a stock dividend of 100 shares from Dolhun Company.
Seider previously owned 750 shares of Dolhun stock that had a cost of $4,800. After the
stock dividend, the cost per share of Dolhun stock is now:
A) $5.40
B) $5.65
C) $5.76
D) $6.40
33) Dooley Company had current assets of $582, current liabilities of $433, total assets
of $732, and long-term liabilities of $200. If Dooley executes a six-month note for
$500, what is the new current ratio?
A) 0.76
B) 1.16
C) 1.34
D) 2.50
34) Cost minus residual value divided by useful life in years is the:
A) straight-line method
B) units-of-production method
C) double-declining balance method
D) modified accelerated cost recovery method
35) Pansee Company had the following transactions pertaining to stock investments:
a.February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the
market price of $17 per share. Pansee Company intends to keep the stock for more than
one year and classifies the stock as available-for-sale.
b.June 1, Received cash dividends of $6,000 on Hudson Company stock.
c.June 30, End of accounting period. Fair value of Hudson Company stock is $50,000.
The company uses an allowance account to adjust the investment.
What journal entry is prepared on June 30?
A) debit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000 and
credit Allowance to Adjust Investment in Available-for-Sale Securities to Market for
$1,000
B) debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for
$1,000 and credit Unrealized Loss on Investment in Available-for-Sale Securities for
$1,000
C) debit Unrealized Loss on Investment in Available-for-Sale Securities for $1,000 and
credit Investment in Available-for-Sale Securities for $1,000
D) debit Investment in Available-for-Sale Securities for $1,000 and credit Unrealized
Gain on Investment in Available-for-Sale Securities for $1,000
36) The relevant measure of the value of the assets of a company that is going out of
business is the:
A) liquidating value
B) inflation-adjusted book value
C) historical cost
D) book value
37) A company reports Cost of Goods Sold of $305,000, Ending Inventory of $100,000,
Beginning Inventory of $10,000, Ending Accounts Payable of $90,000 and Beginning
Accounts Payable of $60,000. What is the accounts payable turnover? (Round
calculations to one decimal place.)
A) 3.4
B) 4.1
C) 4.4
D) 5.3
38) How do purchase returns and allowances and purchase discounts affect gross
purchases?
A) Both are added to purchases
B) Both are subtracted from purchases
C) Purchase returns and allowances are added to purchases; purchase discounts are
subtracted from purchases
D) Purchase returns and allowances are subtracted from purchases; purchase discounts
are added to purchases
39) A company had credit sales of $30,000 and cash sales of $10,000 during the month
of May Also during May, the company paid wages of $12,000 and utilities of $1,800 It
also received payments from customers on account totaling $4,000 At the beginning of
May, the company had a cash balance of $25,000 What is the company’s Cash balance
at the end of May?
A) $21,200
B) $25,200
C) $35,000
D) $39,000
40) Accrual-basis accounting records all of the following transactions EXCEPT:
A) earning of unearned revenue received in advance
B) expiration of prepaid insurance
C) accrual of expenses incurred but not paid
D) receipt of Award for Service to the Community of Naperville, Illinois
41) When computing depreciation for a partial year using straight-line depreciation:
A) compute depreciation for a full year under straight-line depreciation and multiply it
by 50%
B) compute depreciation for a full year under straight-line depreciation and use that
amount
C) the straight-line method automatically adjusts for partial periods, so no adjustments
are needed
D) compute depreciation for a full year under straight-line depreciation and multiply it
by the fraction of the year that you held the asset
42) The following information is available for Golden Image, Inc.:
The bank statement indicated a monthly service charge of $200.
Golden Image made a deposit on June 30, but this deposit did not appear on the bank
statement until July 6. The amount of the deposit was $2,660.
The bank collected an account receivable of $900 from one of Golden Image’s
customers.
The bank also collected interest revenue for Golden Image of $99.
The bank also returned a nonsufficient funds check for $378 from John Able, one of
Golden Image’s customers.
Checks #1874 for $1,140, #1898 for $609, and #1899 for $875 were written by Golden
Image and sent to the respective companies, but these checks do not appear on the bank
statement.
The balance on the bank statement as of June 30 was $16,711.
On June 30, the Cash account from Golden Image’s books showed an amount of
$16,326.
Required:
1> Prepare the bank reconciliation at June 30 for Golden Image, Inc.
2> Prepare the necessary journal entries by Golden Image, Inc., at June 30.
43) The owner of Samuelson Inc. has reason to believe that an employee has been
stealing cash from the company. The employee receives cash from clients, makes the
bank deposit, and also prepares the monthly bank reconciliation. To check up on the
employee, the owner prepares his own bank reconciliation, as follows:
Samuelson Inc.
Bank Reconciliation
September 30
Does it appear the employee has stolen from the company? If so, how much? Explain
your answer.
Which side of the bank reconciliation shows the company’s TRUE cash balance?
44) Prepare a multiple-step income statement for Sterner Corporation for the year
ending December 31, 2015. The tax rate for Sterner Corporation is 30%. The following
information is available:
45) The Manson Company purchased assets for a lump sum price of $1,000,000. The
assets purchased had an appraised value of:
Equipment$560,000
Land$210,000
Building$630,000
Prepare the appropriate journal entry if Manson Company paid cash for this transaction.
46) Journalize the following transactions for The Computer Store. The Computer Store
uses the allowance method of accounting for uncollectible receivables. Ignore Cost of
Goods Sold Explanations are not required.
April 5The Computer Store sells $5,200 of computer equipment on account to Mr.
Jones.
June 5Mr. Jones pays The Computer Store $2,000 of the amount he owes.
July 7After repeated attempts to collect the balance due from Mr. Jones fail, The
Computer Store writes-off the remainder of the amount he owes.