1) Smart hiring practices and separation of duties is part of the control environment.
2) The income statement and the statement of cash flows often paint the same picture of
the company.
3) If the stated interest rate on a bond is 8% and the market interest rate is 7%, the bond
will be issued at a price above the par value of the bond.
4) Publicly-traded companies have to file their annual financial statements with the
Securities and Exchange Commission.
5) Cash, short-term investments and net current receivables are all components of the
numerator of the acid-test ratio.
6) The stated interest rate on a bond determines the amount of interest the issuer is
expected to pay annually or semiannually.
7) A company’s debt ratio is computed as total assets minus total liabilities divided by
total assets.
8) Goodwill arises when a parent company must pay more to acquire a subsidiary
company than the fair value of the subsidiary’s net assets.
9) Prepaid Rent and Unearned Service Revenue are accounts that need to be adjusted at
the end of the accounting period.
10) When comparing companies of different sizes, vertical analysis is a useful tool.
11) The purchase of treasury stock decreases the number of shares outstanding.
12) The current ratio is a more stringent measure of a firm’s ability to pay current
liabilities than the quick ratio.
13) Under the equity method, when the investee reports net income, the Equity-Method
Investment account increases.
14) The general ledger has a separate account receivable for each customer.
15) The inventory cost under the average cost per unit method will generally fall in
between the inventory cost using the LIFO and FIFO methods.
16) On May 1, a company provided legal services for a new client. The lawyer asked
for $1,000 and the client paid with a check on May 1 before leaving the office. In
transaction analysis, how does this transaction affect the accounting equation?
A) Add $1,000 to Cash and add $1,000 to Service Revenue account
B) Add $1,000 to Cash account and add $1,000 to Retained Earnings account
C) Add $1,000 to Cash account and subtract $1,000 from Accounts Receivable account
D) Add $1,000 to Cash account and subtract $1,000 from Accounts Payable account
17) On January 1, 2015, Carmello Corporation purchased 5% bonds with a face value
of $50,000 for $42,000. Carmello Corporation intends to hold the bonds until the
maturity date of January 1, 2025. Interest is paid semiannually on January 1 and July 1.
What journal entry(ies) is(are) prepared on July 1, 2015?
A) debit Cash $1,250 and credit Interest Receivable $1,250
B) debit Cash $2,500 and credit Interest Revenue $2,500
C) debit Interest Receivable $1,250 and credit Interest Revenue $1,250; debit
Held-to-Maturity Investment in Bonds $400 and credit Interest Revenue $400
D) debit Cash $1,250 and credit Interest Revenue $1,250; debit Held-to-Maturity
Investment in Bonds $400 and credit Interest Revenue $400
18) When using the Trial Balance Worksheet to prepare the Statement of Retained
Earnings, what information is used from the Trial Balance Worksheet?
A) net income or net loss
B) revenues and expenses
C) Beginning Balance Retained Earnings and Dividends
D) Cash account
19) In what order are the financial statements generally prepared?
A) Balance sheet, income statement, and statement of retained earnings
B) Income statement, statement of retained earnings, and balance sheet
C) Income statement, balance sheet, and statement of retained earnings
D) Statement of retained earnings, balance sheet, and income statement
20) Where would income taxes paid appear on the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Noncash activities
21) Equipment is acquired by issuing a note payable for $57,000 and a down payment
of $30,000. The statement of cash flows will report a:
A) $30,000 inflow in the operating activities section
B) $57,000 inflow in the investing activities section
C) $57,000 cash inflow in the financing activities section
D) $30,000 cash outflow in the investing activities section
22) If ending inventory for the year ended December 31, 2015, is understated, this error
will cause owners’ equity to be:
A) overstated at the end of 2015 and understated at the end of 2016
B) understated at the end of 2015 and overstated at the end of 2016
C) overstated at the end of 2015 and correctly stated at the end of 2016
D) understated at the end of 2015 and correctly stated at the end of 2016
23) Following U.S. Generally Accepted Accounting Principles, the fair value of a stock
investment should be determined using ________. Assume the stock is listed on a
publicly-traded securities exchange
A) quoted prices in active markets for identical stocks
B) quoted prices for similar stocks
C) the investor’s own estimates based on certain assumptions
D) the investor’s educated guesses
24) A company buys treasury stock for $10 per share. The company later sells the
treasury stock for $11 per share. What is the difference between the resale price and the
cost of the treasury stock called?
A) Gain on Sale of Treasury Stock
B) Loss on Sale of Treasury Stock
C) Paid-in Capital in Excess of Par
D) Paid-in Capital from Treasury Stock Transactions
25) The type of fraud committed by employees of an entity who steal money from the
company and cover it up through erroneous entries in the books is called:
A) misappropriation of assets
B) fraudulent financial reporting
C) phishing
D) collusion
26) A company reports the following information from the statement of cash flows:
Which line item provides a signal that the company may have cash flow problems?
A) net cash provided by operating activities
B) net income
C) net cash used by investing activities
D) net cash used by financing activities
27) The requirement to report accounting information at regular intervals is known as
the:
A) interim reporting concept
B) revenue principle
C) time-period concept
D) expense recognition principle
28) Mariano Corporation sells 10,000 units of inventory during the first year of
operations for $500 each. The selling price includes a one-year warranty on parts. It is
estimated that 3% of the units will be defective and that repair costs are estimated to be
$50 per unit. In the year of sale, warranty contracts are honored on 80 units for a total
cost of $4,000. What amount will be reported as Estimated Warranty Liability at the end
of the year?
A) $4,000
B) $6,000
C) $11,000
D) $15,000
29) The ratio that measures the number of times that operating income can cover
interest expense is the:
A) leverage
B) rate of return on total assets
C) debt ratio
D) times-interest-earned ratio
30) Land is purchased for $600,000. Back taxes paid by the purchaser were $8,500;
total costs to demolish an existing building were $12,000 and the cost to clear the land
was $15,000. The cost of paving the parking lot was $100,000. What is the cost of the
land and land improvements?
A) $620,500; $0
B) $635,500; $100,000
C) $708,500; $0
D) $735,500; $0
31) To determine the Cost of Goods Sold to report on the income statement, we take:
A) the number of units of inventory sold times the retail price per unit
B) the number of units of inventory sold times the cost per unit
C) the number of units of inventory purchased times the retail price per unit
D) the number of units of inventory purchased times the cost per unit
32) Williamson Company declared and distributed a 10% stock dividend when it had
150,000 shares of $1 par value common stock outstanding. The market price per share
of common stock was $10 per share when the dividend was declared. The journal entry
to record the stock dividend would include a credit to:
A) Retained Earnings $150,000
B) Paid-in Capital in Excess of ParCommon $135,000
C) Common Stock $150,000
D) Retained Earnings $15,000
33) A tired accountant failed to record the adjusting entry for accrued revenues. How
does this error affect the balance sheet?
A) The assets for the period will be overstated
B) The assets for the period will be understated
C) The liabilities for the period will be overstated
D) The liabilities for the period will be understated
34) On a statement of cash flows, collection of accounts receivable are classified as:
A) an financing activity
B) an investing activity
C) an operating activity
D) noncash investing and financing activity
35) Monthly sales are $500,000. Warranty costs are estimated at 4% of monthly sales.
Warranties are honored with replacement products. No defective products are returned
during the month. At the end of the month, the company should record a journal entry
with a credit to:
A) Estimated Warranty Payable for $20,000
B) Warranty Expense for $20,000
C) Sales for $20,000
D) Inventory for $20,000
36) Goelzer Company reports the following trend percentages for net income:
Given the above data, which statement is FALSE?
A) When compared to 2010, net income is falling in 2011
B) Net income is increasing in 2009 and 2010
C) Net income is lower in 2012 than in 2008
D) Net income is higher in 2012 than in 2008
37) Which statement is FALSE?
A) Sales to customers should be approved by a separate credit department
B) Purchases on credit should be approved by a separate purchasing department
C) Transactions with a large dollar amount should be approved by the Board of
Directors or top management
D) The firing of employees should be handled by the department where the employee
works
38) Which of the following accounts are considered permanent accounts?
A) Inventory and Cost of Goods Sold
B) Land and Accounts Receivable
C) Accounts Payable and Service Revenue
D) Common Stock and Salary Expense
39) For the period from 2014 to 2015, a company reports the following:
If sales are $1,000,000 in 2014, what are sales in 2015?
A) $800,000
B) $1,000,000
C) $1,020,000
D) $1,200,000
40) Equipment acquired on January 1, 2014, is sold on June 30, 2018, for $11,200. The
equipment cost $46,800, had an estimated residual value of $6,800, and an estimated
useful life of 5 years. The company prepared financial statements on December 31, and
the equipment has been depreciated using the straight-line method. On June 30, 2018,
the company should record Depreciation Expense of:
A) $0
B) $2,000
C) $4,000
D) $8,000
41) On June 15, Copps Stores sold twenty-five computers, on account, to a company
located in Argentina for 3,000,000 pesos. On that date the peso is worth $0.079. On July
15, when the peso was worth $0.070, payment was received. The journal entry on July
15 by Copps Stores would include a:
A) credit to Cash $237,000
B) credit to Accounts Receivable $210,000
C) debit to Foreign-Currency Transaction Loss $27,000
D) credit to Sales $210,000
42) The Statement of Stockholders’ Equity has separate columns for:
A) each revenue and expense account
B) each asset account
C) each liability account
D) each stockholders’ equity account
43) If inventory costs are decreasing over time, the income taxes paid using FIFO will
________ the income taxes paid using LIFO.
A) exceed
B) equal
C) be less than
D) none of the above
44) The future value of 1 will always be:
A) equal to 1
B) greater than 1
C) less than 1
D) equal to the interest rate
45) Zemanowski Company reports the following sales figures(in millions):
What is the trend percentage in 2010 if 2008 is the base year?
A) 98%
B) 102%
C) 103%
D) 105%
46) What are some examples of the misappropriation of assets?
A) An employee overstates an expense reimbursement request after a company trip
B) An employee steals some money from the petty cash fund
C) Kickback scheme between a purchasing agent and vendor
D) all of the above
47) Bayer Company uses the periodic inventory system. Bayer Company sold goods on
account with a retail price of $1,000 and a cost of $500. What journal entry(ies) is(are)
prepared?
A) debit Accounts Receivable for $1,000 and credit Sales Revenue for $1,000
B) debit Accounts Receivable for $500 and credit Sales Revenue for $500
C) debit Accounts Receivable for $1,000 and credit Sales Revenue for $1,000
debit Cost of Goods Sold for $500 and credit Inventory for $500
D) debit Inventory for $500 and credit Purchases for $500
48) A company has a beginning cash balance of $3,000. For the year, the company
estimates cash disbursements of $85,900. It has a desired ending cash balance of $5,500
and anticipates no new financing. The estimated cash receipts are:
A) $77,400
B) $79,900
C) $82,900
D) $88,400
49) Bird’s Nest had net credit sales for the current period of $600,000 and average net
receivables were $55,000. What is the days’ sales in receivables?
A) 11 days
B) 17 days
C) 33 days
D) 79 days
50) On December 31, Mercury Corporation has the following data available:
What is return on equity?
A) 30%
B) 34.6%
C) 36%
D) 38%
51) A cash budget does all of the following EXCEPT:
A) helps a company manage cash by planning cash receipts and cash payments
B) determines if the company will have excess cash available for investing purposes
C) determines if the company will need to borrow money
D) assess the riskiness of a new product