1) Accepting credit cards can increase revenue for a company, but the added revenue
comes at a cost.
2) The indirect method of preparing the statement of cash flows provides the clearest
picture of the cash inflows and cash outflows from investing activities.
3) When applying the lower-of-cost-or-market rules to inventory valuation in the United
States, market value generally refers to the selling price of the inventory.
4) A U.S. company sells merchandise on account to a German company. The German
company may settle the transaction in euros.
5) The book value per share of common stock is the amount of owners’ equity on the
company’s books for each share of its stock.
6) IFRS defines market value for inventory as net realizable value.
7) By selling on credit, companies run the risk of not collecting some receivables.
8) The times-interest-earned ratio is calculated by dividing operating income by
operating expenses.
9) Assets, revenues, and dividends are all increased by debits
10) When preparing a cash budget, a company must determine how much cash it will
need in a future period.
11) Short-term investments, which may be classified as current assets, may be divided
into held-to-maturity securities, trading securities and available-for-sale securities.
12) The calculation of ending retained earnings considers beginning retained earnings,
current year net income or net loss, and stockholders’ equity.
13) Operating income includes income from discontinued operations.
14) Ratios that test liquidity include all of the following EXCEPT:
A) acid-test ratio
B) current ratio
C) return on assets
D) inventory turnover
15) Comprehensive income includes net income plus:
A) Foreign-Currency Transaction Gain
B) Equity-Method Investment Revenue
C) Foreign-Currency Translation Gain
D) Unrealized Gains on Investments in Trading Securities
16) On December 31, 2015, Estimated Warranty Payable is reported on the balance
sheet for White Decker Company. The liability pertains to products sold in 2015 with
five year warranties. How should the Estimated Warranty Payable be reported on the
balance sheet at December 31, 2015?
A) stockholders’ equity
B) a long-term liability only
C) a current liability only
D) a current liability and a long-term liability
17) Current assets as reported on the Balance Sheet do NOT include:
A) cash equivalents
B) inventory
C) prepaid insurance
D) goodwill
18) Kennel Company reported the following:
Based on this information, the purchases for the next period should be:
A) $234,000
B) $315,000
C) $360,000
D) $375,000
19) Thomas Industries reported the following:
The gross profit percentage is:
A) 80%
B) 60%
C) 32%
D) 20%
20) Examples of financing activities on the statement of cash flows do NOT include:
A) payment of note payable
B) payment of dividends
C) repurchase of company’s own stock
D) loaning money to an employee
21) If a journal entry debits Accounts Payable and credits Cash, it can be determined
that:
A) Cash will have a credit balance
B) Accounts Payable increased
C) Cash increased
D) Accounts Payable decreased
22) What is the CORRECT order to list line items on the income statement?
A) Extraordinary items, Discontinued operations, Other revenues and expenses
B) Discontinued operations, Extraordinary items, Other revenues and expenses
C) Other revenues and expenses, Discontinued operations, Extraordinary items
D) Other revenues and expenses, Extraordinary items, Discontinued operations
23) The records of Milwaukee Sprinkler Systems report net sales of $500,000, net
income of $150,000 and average total assets of $330,000. Using DuPont analysis,
calculate the two ratios used for return on assets.
A) Net profit margin ratio is 29% and Total asset turnover is 1.52
B) Net profit margin ratio is 30% and Total asset turnover is 1.52
C) Net profit margin ratio is 28% and Total asset turnover is 1.55
D) Net profit margin ratio is 27% and Total asset turnover is 1.52
24) Golden Company had the following accounts and balances at the end of the year.
What are total assets at the end of the year?
A) $74,000
B) $114,000
C) $124,000
D) $164,000
25) The accounts of Yardy Company are as follows on November 30, 2015:
What is the total of the debit column in the trial balance at November 30, 2015?
A) $84,300
B) $88,300
C) $91,300
D) $182,600
26) Net income:
A) is calculated by subtracting total expenses and total dividends from total revenues
B) occurs when total revenues are less than total expenses
C) is often referred to as the “bottom line” on an income statement
D) decreases total stockholders’ equity
27) The estimated value of a share of a company’s stock is less than the current market
price per share. The appropriate investment decision should be to:
A) buy the company’s stock
B) hold the company’s stock
C) sell the company’s stock
D) sell the company’s stock on the margin
28) Financing activities on a statement of cash flows relate to:
A) current liabilities and long-term liabilities
B) current assets and long-term assets
C) long-term assets
D) long-term liabilities and stockholders’ equity
29) On December 1, Macy Company sold merchandise with a selling price of $1,000 on
account to Mrs. Jorgensen, with terms 2/10, n/30. Mrs. Jorgensen paid the amount due
on December 9. What journal entry did Macy Company prepare on December 9?
A) Debit Cash for $1,000 and credit Sales Revenue for $1,000
B) Debit Sales Revenue for $1,000 and credit Cash for $1,000
C) Debit Sales Revenue for $1,000, credit Sales Discount for $20, and credit Cash for
$980
D) Debit Cash for $980, debit Sales Discounts for $20 and credit Accounts Receivable
for $1,000
30) The cash paid to purchase 40% of a corporation’s outstanding stock to be accounted
for under the equity method is reported on the statement of cash flows as a(n):
A) increase in financing activities
B) decrease in financing activities
C) increase in investing activities
D) decrease in investing activities
31) Which of the following is a CORRECT statement about the different accounting
methods?
A) Cash-basis accounting records revenues when they are earned
B) Cash-basis accounting records expenses only at the end of the month
C) GAAP requires accrual-basis accounting
D) The largest companies in the United States use cash-basis accounting
32) A successful business must generate most of its cash from:
A) investing activities
B) financing activities
C) operating activities
D) noncash investing and financing activities
33) Goodwill occurs when a parent company:
A) pays less to acquire a subsidiary company than the market value of the subsidiary’s
net assets
B) pays less to acquire a subsidiary company than the book value of the subsidiary’s net
assets
C) pays more to acquire a subsidiary company than the market value of the subsidiary’s
net assets
D) pays more to acquire a subsidiary company than the book value of the subsidiary’s
net assets
34) A small stock dividend will:
A) reduce total assets
B) reduce total stockholders’ equity
C) increase total stockholders’ equity
D) have no effect on total assets or total stockholders’ equity
35) American Furniture Company has an accounts receivable turnover ratio of 20 while
the industry average is 10. What can be said about American Furniture Company’s
accounts receivable turnover ratio?
A) American Furniture Company collects accounts receivable slower than the industry
average
B) American Furniture Company collects accounts receivable faster than the industry
average
C) American Furniture Company may have a credit policy that is too lenient in granting
credit to new customers
D) American Furniture Company may have a lax credit department
36) Lorenzo Corporation purchased equipment on January 1, 2015 for $500,000. The
equipment had an estimated useful life of 5 years and an estimated salvage value of
$50,000. After using the equipment for 2 years, the company determined that the
equipment could be used for an additional 6 years and have a salvage value of $9,000.
Assuming Lorenzo Corporation uses straight-line depreciation, compute depreciation
expense for the year ending December 31, 2017.
A) $45,000
B) $48,500
C) $51,833
D) $53,333
37) Under the indirect method of preparing the statement of cash flows, the starting
point to determine Net Cash Provided by Operating Activities is:
A) the beginning cash balance
B) the ending cash balance
C) net income
D) sales
38) In the balance sheet, the account, Premium on Bonds Payable, is:
A) added to bonds payable
B) deducted from bonds payable
C) classified as a liability account
D) A and C
39) New Tech Company acquired a patent on January 1, 2015 for $35,000. The residual
value of the patent is $0. The patent is expected to be of benefit to New Tech Company
for 5 years. After using the patent one year, it was discovered that the patent would only
be useful for 3 more years.
Required:
1> Prepare the journal entry to record the acquisition of the patent. Omit explanation.
2> Prepare the adjusting journal entry at December 31, 2015. Omit explanation.
3> Prepare the adjusting journal entry at December 31, 2016. Omit explanation.
40) Complete the following chart by filling in the missing items. Use a 365-day year.
41) On February 3, 2015 Bombard Corporation acquired 4,000 shares of its own $1 par
value common stock for $30 per share. On May 24, 2015, 1,500 shares of the treasury
stock were sold for $35 per share.
Required:
Prepare the journal entries to record the purchase and sale of the treasury stock. Omit
explanations.
42) Prepare a vertical analysis for Katrina Corporation using the information shown
below. Round percentages to the nearest one-tenth percent of one percent.
43) Put an “X” in the appropriate box to indicate if the normal balance of an account is
a Debit or a Credit balance
44) 1> On June 1, 2015, Fox Company purchased Wolf Corporation for $26,000,000
cash. At the time of the purchase, the market value of Wolf Corporation’s assets and
liabilities were $30,000,000 and $5,000,000, respectively. The book value of Wolf
Corporation’s assets and liabilities were $10,000,000 and $6,000,000, respectively.
Record the journal entry for the acquisition by Fox Company.
2> By December 31, 2015, Fox Company discovered that the goodwill associated with
Wolf Corporation is impaired and is worthless. Wolf Corporation is on the brink of
bankruptcy. Record the journal entry needed by Fox Company.
45) Darla’s Cookie Emporium borrowed money by issuing $200,000 of bonds at 96 on
January 1, 2014. The bonds pay interest on January 1 and July 1. The stated rate of
interest is 5% and the bonds mature in 10 years. Any discount or premium is amortized
using the straight-line method.
Required:
Prepare journal entries on the following dates:
1> January 1, 2014
2> July 1, 2014
3> December 31, 2014, the fiscal year end
4> January 1, 2015
5> January 1, 2024
Omit explanations.
46) Matthauson Company has the following comparative balance sheet data available:
Additional information:
1> The company reports net income of $100,000 and Depreciation Expense of $20,000
for the year ending December 31, 2015.
2> Dividends declared and paid in 2015, $70,000.
3> Equipment with a cost of $20,000, with Accumulated Depreciation of $10,000 was
sold for $3,000.
4> New equipment was purchased for cash.
The company also reports the following income statement for the year ending
December 31, 2015:
Using the direct method, prepare the statement of cash flows for the year ending
December 31, 2015.
47) Complete the following chart indicating if the account is increased with a debit or a
credit
