1) During periods of rising costs, FIFO generally results in a higher cost of goods sold.
2) We expense internally generated intangible assets, such as research and development
and advertising costs, as we incur them.
3) Bonds issued below face amount are said to be issued at a discount.
4) Seasonal refers to the revenue activities of a company varying based on the time (or
season) of the year.
5) Under cash-basis accounting, the timing of cash inflows and outflows exactly
matches the reporting of revenues and expenses in the income statement.
6) Sales taxes collected from customers by the seller are not an expense, instead they
represent current liabilities payable to the government.
7) For vertical analysis, we express each balance sheet item as a percentage of sales.
8) Under IFRS, inventory write-downs due to using the lower-of-cost-or-market rule are
allowed to be reversed in a future year if the market value subsequently increases.
9) Inventory is usually reported as a long-term asset in the balance sheet.
10) We record treasury stock at the cost of the shares reacquired.
11) With the straight-line depreciation method, we allocate an equal amount of the
depreciable cost to each year of the assets service life.
12) The two primary components of stockholders equity include common stock and
revenue.
13) Under the allowance method, the write-off of an actual bad debt is recorded with a
debit to the Allowance for Uncollectible Accounts and a credit to Accounts Receivable.
14) The final step in reconciling the banks cash balance and the companys cash balance
is to update the companys cash balance for the items used to reconcile the banks cash
balance.
15) We can estimate the average purchase cost of treasury stock per share by dividing
the treasury stock balance by the number of shares repurchased.
16) Under the allowance method, when a company writes off an account receivable as
an actual bad debt, it records an expense.
17) Given a choice, most managers would choose to record an obligation as long-term
rather than current.
18) Cash is typically reported as a current asset in the balance sheet.
19) A bank reconciliation matches the balance of cash in the bank account with the
balance of cash in the companys own records.
20) 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 placing the letter designating
the term in the space provided.
a. Accounts receivable
b. Allowance method
c. No effect
d. Direct write-off method
e. Net realizable value
f. Aging method
g. Bad debt expense
h. Receivables written off
i. Decrease assets and increase expenses
j. Allowance for uncollectible accounts
_____ Considers that the longer past due the account receivable is, the less likely it
is to be collected.
21) A trial balance represents the:
a. Source documents used to determine the effects of transactions on the companys
accounts
b. List of all accounts and their balances at a particular date to ensure that debits equal
credits
c. Chronological record of all transactions affecting the company
d. Process of transferring debit and credit information from the journal to the accounts
in the general ledger
22) 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
____ A list of only permanent accounts and their balances prepared to prove that
total debits equal total credits.
23) Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for
$30 per share. The investment is properly classified as an available-for-sale security. By
the end of the year, the stock price has increased to $32 per share. How would the
change in stock price affect Sports Spectaculars net income?
a. Increase net income by $32,000
b. Increase net income by $30,000
c. Increase net income by $2,000
d. No effect
24) How much will $8,000 grow to in five years, assuming an interest rate of 8%
compounded quarterly?
a. $10,989
b. $11,755
c. $11,888
d. $12,013
25) Which of the following financing alternatives has the highest preference of payment
in a case where the company liquidates its assets?
a. Common Stock
b. Preferred Stock
c. Bonds
d.They have equal preference
26) The advantages of obtaining long-term funds by issuing bonds, rather than issuing
additional common stock, include which of the following?
a. Funds are obtained without surrendering ownership control
b. Interest expense is tax-deductible
c. The companys default risk decreases
d. a and b
27) At the end of the next four years, a new machine is expected to generate net cash
flows of $8,000, $12,000, $10,000, and $15,000, respectively. What are the cash flows
worth today if a 3% interest rate properly reflects the time value of money in this
situation?
a. $41,557
b. $47,700.
c. $32,403
d. $38,108
28) Which accounting number has the single greatest impact on stock prices?
a. Total dividends
b. Total assets
c. Total revenues
d. Net income
29) General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s
accountant has projected the following amortization schedule from purchase until
maturity:
GIC purchased the bonds for:
a.$200,000
b.$194,758
c.$242,000
d.Cannot be determined from the given information
30) Away Travel filed suit against West Coast Travel seeking damages for copyright
violations. West Coast Travel’s legal counsel believes it is reasonably possible that West
Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to
$200,000, with all amounts in the range considered equally likely. How should West
Coast Travel report this litigation?
a. As a liability for $100,000 with disclosure of the range
b. As a liability for $150,000 with disclosure of the range
c. As a liability for $200,000 with disclosure of the range
d. As a disclosure only. No liability is reported
31) Which of the following is not a True statement?
a. The debt to equity ratio measures a companys risk and is calculated as total liabilities
divided by stockholders equity
b. Leverage enables a company to earn a higher return using debt than without debt
c. Return on assets is calculated as net income divided by the ending balance for total
assets
d. The times interest earned ratio compares interest expense with income available to
pay interest charges
32) Match (by letter) the following terms with their definitions. Each letter is used only
once.
Definitions
a. A debit balance in retained earnings.
b.Priced high in relation to current earnings as investors expect future earnings to be
higher.
c.Effectively the same as a 2-for-1 stock split.
d.The earnings not paid out in dividends.
e.The stock price divided by earnings per share.
f.Summarizes the changes in the balance in each stockholders equity account over a
period of time.
g.Priced low in relation to current earnings.
h.Measures the ability of company management to generate earnings from the resources
that owners provide.
i.Shows the balance in each equity account at a point in time.
j.The corporations own stock that it reacquired.
33) Listed below are five 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. Held-to-maturity securities
b. Trading securities
c. Available-for-sale securities
d. Equity method
e. Consolidation method
Phrases:
_____ This category is used only for debt securities.
_____ An investor owns 40% of the common voting shares in the company and can
exercise significant influence.
_____ Common stock not held for immediate resale and the investor owns 2% of the
outstanding shares.
_____ An investor owns over 50% of the common voting shares in the company.
_____ Common stock held for immediate resale.
34) The current years beginning and ending balances for Allowance for Uncollectible
Accounts is $23,000 and $27,000, respectively. If the amount of Bad Debt Expense for
the year is $18,000, what is the amount of actual bad debts for the year?
a. $14,000
b. $10,000
c. $18,000
d. $22,000
35) Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury
will find in favor of the plaintiff and Ogden will owe ten million dollars. What is the
appropriate reporting of this lawsuit and what is the effect on the balance sheet?
a. Record; decrease stockholders equity and increase liabilities
b. Record; increase stockholders equity and decrease liabilities
c. Disclose; no effect on the balance sheet
d. Disclose; decrease stockholders equity and decrease liabilities
36) The acid-test ratio is
a. Current assets divided by current liabilities
b. Cash and short-term investments divided by current liabilities
c. Cash, short-term investments, and accounts receivable divided by current liabilities
d. Cash, short-term investments, accounts receivable, and inventory divided by current
liabilities
37) Which of the following items is most likely to be reported as an extraordinary loss?
a. Losses due to the write-down of inventory
b. Losses on the sale of long-term assets
c. Losses due to business restructuring
d. Uninsured losses from a natural disaster
38) Net income (loss) appears in which two financial statements?
a. Balance sheet and income statement
b. Income statement and statement of stockholders equity
c. Statement of stockholders equity and balance sheet
d. Net income appears in only one financial statement
39) Cash transactions recorded by the bank but not yet recorded by the company
include all of the following except
a. Service fees
b. Interest earned
c. Checks outstanding
d. NSF checks
40) Working capital is
a. Current assets divided by current liabilities
b. Current assets minus current liabilities
c. Cash, short-term investments, and accounts receivable divided by current liabilities
d. Cash, short-term investments, and accounts receivable minus current liabilities
41) Which of the following would be classified as an investing cash flow?
a. Issue bonds
b. Receive cash in advance from a customer
c. Sell a piece of equipment below cost
d. Repurchase the companys own shares of common stock
42) Record the following transactions for the Stroud Music Store:
(a) Provide music lessons to students for $12,000 on account.
(b) Purchase music supplies on account, $1,500.
(c) Pay rent for the current month, $2,000.
(d) Receive $10,000 cash from students in (a) above.
43) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 inventory turnover is:
a.3.0 times
b.5.2 times
c.3.3 times
d.3.6 times
44) Finnish Motors has the following balance sheet accounts:
Land$150,000
Equipment 90,000
Salaries Payable 12,000
Notes Payable 99,000
Supplies 10,000
Cash 25,000
Common Stock 40,000
Retained Earnings 100,000
Accounts Payable ?
Prepaid Rent?
If the company has total liabilities and stockholders equity of $290,000, what is the
balance of the companys Prepaid Rent account?
a. $15,000
b. $25,000
c. $12,000
d. $39,000
45) Under the principle of lower-of-cost-or-market, when a company has 10 units of
inventory A with market value of $50 and a cost of $60, what is the adjustment?
a. Debit Inventory $100; credit Cost of Goods Sold $100
b. Debit Inventory $500; credit Cost of Goods Sold $500
c. Debit Cost of Goods Sold $100; credit Inventory $100
d. Debit Cost of Goods Sold $500; credit Inventory $500
46) Listed below are five 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. Work-in-process inventory
b. Merchandising companies
c. Finished goods
d. Raw materials
e. Manufacturing companies
_____ Cost of components that will become part of the finished product but have
not yet been used in production.
47) Claudine Corporation will deposit $5,000 into a money market account at the end of
each year for the next five years. How much will accumulate by the end of the fifth and
final payment if the account earns 9% interest?
a. $32,617
b. $29,924
c. $27,250
d. $26,800
48) Schneider Inc. purchases its inventory from suppliers on account. During the year,
its Inventory account increased by $10 million and its accounts payable to suppliers
decreased by $3 million. Cost of goods sold was $440 million, its cash outflows to
inventory suppliers totaled:
a.$453 million
b.$447 million
c.$433 million
d.$427 million
49) The purchase of a new cooling system for $150,000 to upgrade an office building
owned by the company would be accounted for as:
a. Goodwill
b. An addition in the Buildings account
c. An expense in the period incurred
d. A patent
50) 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. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ List of all accounts and their balances after external transactions are
recorded.
51) 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
_____ Indicates that title to inventory transfers from the seller to the buyer once it
reaches the buyer.
52) Give three examples of contra revenue accounts and the transactions with which
they are associated.
53) On January 1, 2015, Ripstick Park issues $800,000 of 8% bonds, due in ten years,
with interest payable semiannually on June 30 and December 31 each year. Assuming
the market interest rate on the issue date is 7%, the bonds will issue at $856,850.
1>Complete the first three rows of an amortization table through December 31, 2015 .
2> Record the bond issue on January 1, 2015, and the first two semi-annual interest
payments on June 30, 2015, and December 31, 2015 .
54) Strawberry Fields purchased a tractor at a cost of $38,000 and sold it two years later
for $25,000. Strawberry Fields recorded depreciation using the straight-line method, a
five-year service life, and an $8,000 residual value. What was the gain or loss on the
sale? Record the sale.
55) Investments in equity securities for which the investor has insignificant influence
over the investee are classified for reporting purposes under the fair value method in
one of two categories. What are these two categories? How do we report unrealized
holding gains and losses under each of these two categories?
56) Tropical Rainwear issues 1,000 shares of its $20 par value preferred stock for cash
at $22 per share. Record the issuance of the preferred shares.
57) What is the purpose of the statement of cash flows? List the three major categories
of cash flows and give an example of a cash transaction for each category.
58) On January 1, 2015, The Donut Stop purchased a patent for $80,000. The remaining
legal life is 20 years, but the company estimates the patent will be useful for only five
more years. In January 2016, the company incurred legal fees of $25,000 in
successfully defending a patent infringement suit. The successful defense did not
change the companys estimate of useful life. The Donut Stops year end is December
31 . Record the purchase and amortization in 2015 and the legal fees and amortization
in 2016 . What is the balance in the Patents account at the end of 2016?
59) Use the following information available at the end of 2015 to prepare an income
statement and balance sheet on December 31, 2015, for Goldie Company.
Fees for services performed during the year, $120,000 Accounts payable, $18,500
Accounts receivable, $17,300
Miscellaneous costs for the year, $8,700
Supplies on hand, $2,700
Notes payable outstanding, $30,000
Interest cost on the note for the year, $3,000
Equipment, $84,400
Cash on hand, $11,200
Salaries cost for the year, $71,500
Supplies cost for the year, $9,400
Rent cost for the year, $12,000
Common stock that has been issued, $60,000
Retained earnings at the end of the year, $7,100
