1) Retained earnings represent the earnings retained in the corporation earnings not paid
out as dividends to stockholders.
2) A low inventory turnover ratio usually is a positive sign and indicates that inventory
is selling quickly.
3) Many intangible assets are not recorded on the balance sheet at their estimated
market values.
4) Straight-line produces a lower net income than accelerated methods in the earlier
years of an assets life.
5) Under the direct write-off method, recording an estimate of future uncollectible
accounts includes a debit to Bad Debt Expense and a credit to the Allowance for
Uncollectible Accounts.
6) During periods of rising costs, LIFO generally results in a higher cost of goods sold.
7) The value of $1 today is worth more than $1 one year from now.
8) A company is said to be liquid if it has sufficient cash to pay currently maturing
debts.
9) Amounts owed from customers are recorded in the Accounts Receivable account.
10) The three primary categories of cash flows are cash flows from operating activities,
cash flows from investing activities, and cash flows from financing activities.
11) Paying employees salaries for the current period is recorded with a debit to Salaries
Expense.
12) Purchasing office supplies on account causes assets to increase and liabilities to
increase.
13) Under the equity method, the investor includes in net income its portion of the
investees net income.
14) Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is
true about the journal entry to record the issuance?
a. Credit Common Stock $300,000
b. Credit Cash $300,000
c. Credit Common Stock $15,000
d. Debit Additional Paid-In Capital $285,000
15) The Retained Earnings account had a beginning credit balance of $26,000. During
the period, the business had a net loss $12,000, and the company paid dividends of
$8,000. The ending balance in the Retained Earnings account is:
a. $6,000
b. $30,000
c. $22,000
d. $14,000
16) Which definition below best describes financial accounting?
a. Process of measuring income taxes owed to the government
b. System of maintaining communication with a companys customers and suppliers
c. Procedures designed to enhance the companys image to potential investors
d. Measuring business activities and communicating them to external parties
17) Cash flows from investing activities do not include:
a.Proceeds from the sale of land
b.Proceeds from the issuance of common stock
c.Proceeds from the sale of marketable securities
d.Cash outflows from acquiring land
18) If A sells to B, and B obtains title while goods are in transit, the goods were shipped
. If C sells to D, and C maintains title until the goods arrive at Ds door then the goods
were shipped _______.
a. FOB shipping point, FOB destination
b. FOB destination, FOB shipping point
c. FOB destination, FOB destination
d. FOB shipping point, FOB shipping point
19) Consider the following account balances of the Shattuck Law Firm at the end of the
year:
Accounts Payable$ 4,400
Salaries Expense 12,800
Cash 1,700
Common Stock 2,400
Service Revenue 8,300
Supplies 4,300
Retained Earnings 1,100
Utilities Expense 5,000
How many of these accounts would appear in Shattucks year-end balance sheet?
a. Five
b. Four
c. Three
d. Two
20) The equity method of accounting for investments in voting common stock is
appropriate when:
a.The investor can significantly influence the investee
b.The investor has voting control over the investee
c.The investor intends to hold the common stock indefinitely
d.The investor is assured of a continued supply of a valuable raw material
21) On July 1, 2015, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18
months from July 2015 through December 2016. What adjusting entry should Charlie
Co. record on December 31, 2015?
a.Rent Expense18,000
Cash18,000
b.Rent Expense18,000
Prepaid Rent18,000
c.Prepaid Rent6,000
Rent Expense6,000
d.Rent Expense6,000
Prepaid Rent6,000
22) A post-closing trial balance:
a. Is a list of all accounts and their balances after adjusting entries
b. Is a list of all accounts and their balances before adjusting entries
c. Is a list of all accounts and their balances after closing entries
d. Is a trial balance adjusted for cash-basis accounting
23) Listed below are four 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. FOB shipping point
b. FOB destination
c. Periodic inventory system
d. Perpetual inventory system
_____ Requires a debit to cost of goods sold when inventory is sold.
24) When a country establishes financial reporting rules that closely resemble tax
reporting rules, reported accounting profits tend to be:
a. Negative
b. Higher
c. Lower
d. Misreported
25) Which accounting amount best represents value created for stockholders during the
current period?
a. Retained earnings
b. Total assets
c. Net income
d. Stockholders equity
26) 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 by placing the letter designating
the term in the space provided.
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Audit firm cannot provide a variety of other services to its client, such as
consulting.
27) Emmitt had the following final balances after the first year of operations: assets,
$55,000; stockholders equity, $25,000; dividends, $3,000; and net income, $10,000.
What is the amount of Emmitts liabilities?
a. $55,000
b. $30,000
c. $13,000
d. $7,000
28) Northern Town Equipment has four types of products in its inventory. Northern
applies the rules under lower-of-cost or market (LCM) to its inventory at the end of
each year as shown below:
The year-end adjustment based upon the information above would include a:
a. Debit to Cost of Goods Sold $65
b. Credit to Inventory $50
c. Debit to Inventory $65
d. Debit to Cost of Goods Sold $50
29) A company paid $900 to workers during May. Of this amount, $600 was for work
performed in April, while the other $300 was for work performed during May. What
would the impact of this transaction be during May on each of the following three
items?
CashCash-basisAccrual-basis
BalanceNet IncomeNet Income
a. No effectNo effectDecrease
b. DecreaseDecreaseNo Effect
c. DecreaseDecreaseDecrease
d. DecreaseNo effectNo effect
30) The closing entry for expenses includes:
a. A debit to Dividends and a credit to all expense accounts
b. A debit to Retained Earnings and a credit to all expense accounts
c. A debit to Revenues and a credit to Retained Earnings
d. A debit to Revenues and a credit to all expense accounts
31) The amount of a companys receivables is influenced by several variables, including
all of the following except:
a. The level of sales
b. The nature of the product or service sold
c. The credit and collection policies
d. Dividend payments to stockholders
32) A list of all accounts and their balances after posting closing entries is referred to as:
a. A trial balance
b. An adjusted trial balance
c. A post-closing trial balance
d. An accounting trial balance
33) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the term in the space provided.
a. Accrued expenses
b. Adjusted trial balance
c. Adjusting entries
d. Depreciation expense
e. Balance sheet
f. Prepaid expenses
g. Expenses
h. Post-closing trial balance
i. Income statement
j. Trial balance
____ Financial statement showing that assets equal liabilities plus stockholders
equity.
34) The issuer of a 100% common stock dividend (large stock dividend) to common
stockholders should debit stock dividends for an amount equal to the
a. Book value of the shares issued
b. Par value of the shares issued
c. Market value of the shares issued
d. Minimum legal requirements
35) Independent auditors express an opinion on the:
a. Fairness of financial statements
b. Amount of income taxes a company owes to the government
c. Quality of the companys products
d. Quality of a companys workforce
36) Retained Earnings:
a. Has a normal debit balance
b. Decreases stockholders equity
c. Is equal to the balance in cash
d. Increases stockholders equity
37) The conceptual frameworks qualitative characteristic of faithful representation
includes:
a. Predictive value
b. Neutrality
c. Confirmatory value
d. Comparability
38) Aspen, Inc. developed a new horse transport device and incurred research and
development costs of $250,000. Rather than continue with their own research, Aspen
decided to purchase a patent for a similar design from Vail, Inc. for $350,000. What are
the total assets and expenses for these developments?
a. Assets $600,000; Expenses $0
b. Assets $250,000; Expenses $350,000
c. Assets $350,000; Expenses $250,000
d. Assets $0; Expenses $600,000
39) The following information pertains to Lightning, Inc. at the end of the year:
Lightning uses the percentage-of-credit-sales method and estimates 1% of sales are
uncollectible. What is the ending balance of the allowance account after the year-end
adjustment?
a. $600
b. $1,000
c. $200
d. $1,200
40) Assuming an acid-test ratio of 1.0, how will the purchase of inventory with cash
affect the ratio?
a. Increase the acid-test ratio
b. No change to the acid-test ratio
c. Decrease the acid-test ratio
d. Could either increase or decrease the acid-test ratio
41) Consider the following cash flow items:
Pay amount owed to bank for previous borrowing.
Pay utility costs.
Purchase equipment to be used in operations.
Purchase office supplies.
Purchase one year of rent in advance.
Pay workers salaries.
Pay for research and development costs.
Pay taxes to the IRS.
Sell common stock to investors.
How many of these cash flow items involve financing activities?
a. Zero
b. One
c. Two
d. Three
42) The following table contains financial information for Trumpters Inc. before closing
entries:
What is the amount of Trumpters total stockholders equity?
a. $5,000
b. $78,500
c. $68,500
d. $83,500
43) Which of the following definitions describes a term bond?
a.Matures on a single date
b.Secured only by the full faith and credit of the issuing corporation
c.Matures in installments
d.Supported by specific assets pledged as collateral by the issuer
44) Below are seven reasons for differences in accounting practices among countries.
For each reason, at least two options are provided. For each reason, select the option
that best describes Germany.
Reason 1> Legal system Options (a) Common law (b) Code law
2> Tax laws (a) Different tax and financial accounting rules (b) Similar tax and
financial accounting rules
3> Sources of financing (a) More equity financing (b) More debt financing
4> Inflation (a) Low inflation (b) High inflation
5> Culture (a) Transparent (b) Secretive
6> Political and economic ties (a) British ties (b) German ties (c) Spanish ties
7> Economic development (a) Developed economy (b) Developing economy (c)
Under-developed economy
45) When a company makes an end-of-period adjusting entry, which includes a debit to
Supplies Expense, the usual credit entry is made to:
a. Accounts Payable
b. Supplies
c. Cash
d. Retained Earnings
46) Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming
weighted-average cost would be (round weighted-average unit cost to four decimals if
necessary):
a. $1,711
b. $1,700
c. $1,720
d. $1,708
47) Which of the following accounting principles states that expenses are recognized in
the same period as the revenues they help to generate?
a. Accounting equation
b. Revenue recognition
c. Matching
d. Conservatism
48) What is the annual market interest rate on the bonds?
a.3%
b.3.5%
c.6%
d.7%
49) Outstanding common stock specifically refers to:
a.Stock that is performing well
b.Stock that has been authorized for issuance
c.Stock issued plus treasury stock
d.Stock in the hands of stockholders
50) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 gross profit ratio is:
a.57.5%
b.36.5%
c.63.5%
d.60.0%
51) Compared to that in the U.S, the cost to companies in other countries of
documenting effective internal controls is:
a. Much greater
b. Slightly greater
c. About the same
d. Much less
52) Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on
long-term bonds, and $6,000 in dividends on its common stock. Arrow would report
cash outflows from activities, as follows:
a.Operating, $2,000; Financing $16,000
b.Operating, $0; Financing $18,000
c.Operating, $12,000; Financing $6,000
d.Operating, $18,000; Financing $0
53) At the end of the year, a company has the following accounts receivable and
estimates of uncollectible accounts:
1> Accounts not yet due = $80,000; estimated uncollectible = 2%.
2> Accounts 130 days past due = $20,000; estimated uncollectible = 25%.
3> Accounts more than 30 days past due = $4,000; estimated uncollectible = 60%.
Record the year-end adjustment for uncollectible accounts, assuming the current
balance of the Allowance for Uncollectible Accounts is $900 (credit).
54) Indicate whether each of the following transactions increases (+), decreases (), or
has no effect (NE) on total assets, total liabilities, and total stockholders equity.
55) Alpha Computers reports net income of $44 million. Included in that number are
depreciation expense of $7 million and a loss on the sale of land of $2 million. Records
reveal decreases in Accounts Receivable, Inventory, and Accounts Payable of $4
million, $3 million, and $2 million, respectively. Calculate Alpha Computers’ net cash
flows from operating activities using the indirect method.
56) Indicate whether a company would classify the transaction as financing, investing,
or operating.
57) When inventory costs are declining, __________ generally results in a higher
amount of reported net income.
58) Each of the following independent situations represents amounts shown on the four
basic financial statements. Fill in the missing blanks using your knowledge of amounts
that appear on the financial statements.
1> Revenues = $27,000; Expenses = $18,000; Net income = __________.
2> Increase in stockholders equity = $20,000; Issuance of common stock = $12,000;
Dividends = $5,000; Net income = __________.
3> Assets = $25,000; Liabilities = $13,000; Stockholders equity = __________.
4> Total change in cash = +$28,000; Net operating cash flows = +$30,000; Net
financing cash flows = +$18,000; Net investing cash flows = __________.
59) Which depreciation method is most common for financial reporting? Which
depreciation method is most common for tax reporting? Why do companies choose
these methods?
60) At the end of the year, a company has the following accounts receivable and
estimates of uncollectible accounts:
1> Accounts not yet due = $70,000; estimated uncollectible = 4%.
2> Accounts 130 days past due = $30,000; estimated uncollectible = 15%.
3> Accounts more than 30 days past due = $5,000; estimated uncollectible = 40%.
Record the year-end adjustment for uncollectible accounts, assuming the current
balance of the Allowance for Uncollectible Accounts is $1,200 (debit).
61) On March 13, a company writes off a customers account of $3,800. On June 3, the
customer unexpectedly pays the $3,800 balance. Using the allowance method, record
the write-off on March 13 and the cash collection on June 3 .
62) A companys general ledger shows a cash balance of $2,380. Comparing the
companys cash records with the monthly bank statement reveals several additional cash
transactions such as deposits outstanding of $1,760, note collected by the bank on the
companys behalf of $1,000, and interest earned of $20. The company also finds an error
by the bank of an additional deposit of $100. Calculate the correct balance of cash.