1) A compensating balance maintained for a loan increases the actual interest rate on a
loan.
2) The Sarbanes-Oxley Act created the American Institute of Certified Public
Accountants to oversee the audits of public companies.
3) Comprehensive income is reported on the statement of comprehensive income.
4) A stockholder has the right to vote in the election of the board of directors.
5) One reason why taxable income and pretax accounting income may not be equal is
due to the difference in depreciation methods used.
6) Consolidated financial statements combine the financial statements of the parent
company and its subsidiaries.
7) The depreciation process follows the revenue recognition principle.
8) Treasury stock is a contra-stockholders’ equity account.
9) Revenues are cash distributions to the stockholders.
10) At the end of its useful life, the book value of an asset must be zero.
11) An accounts receivable usually specifies an interest rate
12) Treasury stock belongs in the stockholders’ equity section of the balance sheet.
13) The Cost of Goods Sold Model is often used for calculating inventory destroyed by
a disaster, such as a fire.
14) The distinction between a capital expenditure and an expense can be difficult to
determine for a plant asset.
15) The balance sheet is organized in terms of the organization’s operating, investing,
and financing activities.
16) Following Generally Accepted Accounting Principles, two methods to estimate
uncollectible accounts receivable are the direct write-off method and the allowance
method.
17) The acid-test ratio reflects the company’s percentage of total assets financed with
debt.
18) A company purchased a long-term available-for-sale security at a cost of $50,000.
At year end, the fair value is $50,290. The adjusting entry requires a credit to
Allowance to Adjust Investment in Available-for-Sale Securities to Market for $290.
19) Owners’ equity is called stockholders’ equity for a corporation.
20) Excalibur Company has calculated the following ratios:
Did the company’s liquidity improve in 2015?
A) No
B) Yes, all the ratios improved
C) There is conflicting information. Two ratios improved and one ratio declined
D) There is not enough information to assess
21) A payment packet of documents:
A) reports the arrival of items purchased
B) is sent by the purchasing department to the vendor selling the item
C) identifies the need for merchandise and begins the purchasing process
D) includes the invoice, receiving report and purchase order
22) On a statement of cash flows, cash receipts are reported as:
A) positive amounts
B) negative amounts
C) in parentheses
D) operating activities only
23) A financial statement line item expressed as a percentage of a base amount is a
result of:
A) horizontal analysis
B) economic value added
C) vertical analysis
D) comparative analysis
24) Enhancing qualitative characteristics of accounting information do NOT include:
A) comparability
B) verifiability
C) timeliness
D) materiality
25) A depreciation method in which an equal amount of depreciation expense is
assigned to each year of the asset’s use is the:
A) units-of-production method
B) straight-line method
C) accelerated depreciation method
D) estimated residual value method
26) Under the direct method of preparing the statement of cash flows, which statement
is CORRECT regarding the method of computing cash payments to suppliers for
inventory?
A) Cost of goods sold less a decrease in inventory plus an increase in accounts payable
B) Cost of goods sold plus an increase in inventory less an increase in accounts payable
C) Cost of goods sold plus an increase in inventory plus an increase in accounts payable
D) Cost of goods sold plus a decrease in inventory plus an increase in accounts payable
27) The type of fraud committed by company managers who make false and misleading
entries in the books in order to improve a company’s financial statements is called:
A) misappropriation of assets
B) fraudulent financial reporting
C) embezzlement
D) collusion
28) On January 1, 2015, Notes Receivable have a balance of $10,000. On December 31,
2015, Notes Receivable have a balance of $90,000. No collections on notes receivable
occurred in 2015. What amount of new notes were written in 2015?
A) $10,000
B) $80,000
C) $90,000
D) $100,000
29) The carrying value of a bond immediately after the bond was issued was $245,000.
The bond price was 98. The face value of the bond was:
A) $240,100
B) $245,000
C) $249,900
D) $250,000
30) When comparing U.S. Generally Accepted Accounting Principles and International
Financial Reporting Standards, ________ are treated the same way.
A) Research and Development Costs
B) Research Costs
C) Development Costs
D) the calculation of depreciation expenses
31) Seidner Store sells expensive watches. An inventory at the beginning of the day
showed 40 watches in the store. 10 new watches were added to the inventory during the
day. The point-of-sale terminal recorded 3 watches sold. An inventory taken at the end
of the day should show how many watches still in the store?
A) 27
B) 47
C) 53
D) Cannot be determined from the data
32) If a company buys inventory on account:
A) cash would decrease
B) accounts payable would increase
C) net income would increase
D) common stock would decrease
33) A company paid $2,500 for supplies purchased earlier in the month on account. In
transaction analysis, how does this transaction affect the accounting equation?
A) Add $2,500 to Supplies account and add $2,500 to Supplies Expense account
B) Add $2,500 to Supplies Expense account and subtract $2,500 from Cash account
C) Add $2,500 to Supplies Expense account and add $2,500 to Cash account
D) Subtract $2,500 from Accounts Payable account and subtract $2,500 from Cash
account
34) Which financial statement answers the following question: What is the company’s
operating performance over the past year?
A) statement of cash flows
B) income statement
C) statement of retained earnings
D) balance sheet
35) Which method is used when one company owns less than 20% of the shares of
another company?
A) consolidation method
B) fair value method
C) equity method
D) amortized cost
36) Hedging foreign currency transactions can be accomplished by:
A) equal amounts of receivables and payables in foreign currencies
B) the purchase of future contracts
C) the purchase of foreign currencies to be received in the future
D) all of the above
37) After preparing the Statement of Retained Earnings, the next statement to prepare is
the:
A) Income Statement
B) Statement of Dividends and Distributions
C) Statement of Cash Flows
D) Balance Sheet
38) Wendell Corporation reported net income for the current year of $800,000. Wendell
had 5,000 shares of $100 par value, 10% preferred stock outstanding and 40,000 shares
of $1 par value common stock outstanding for the entire year. Earnings per share is:
A) $16.67
B) $17.77
C) $18.75
D) $20.00
39) An airline has the following data about an airplane:
Annual lease cost $10,000,000
Lease term: 20 years
Useful life of airplane: 25 years
Fair market value of leased asset: $85 million
Present value of lease payments: $75 million
Bargain purchase option: None
Transfer to lessor at end of lease? Yes
Is this a capital or operating lease and why?
A) This is an operating lease. It fails all the capital lease tests
B) This is a capital lease because the substance of the transaction is a capital lease
C) This is a capital lease because it meets at least one of the four tests
D) This is a capital lease because the leased asset costs over $1 million
40) On January 2, 2013, Saminski, Inc., acquired equipment for $200,000. The
estimated life of the equipment is 5 years. The estimated residual value is $30,000.
What is the Accumulated Depreciation of the equipment on December 31, 2014, if
Saminski uses the double-declining-balance method of depreciation?
A) $68,000
B) $80,000
C) $108,800
D) $128,000
41) When computing trend percentages:
A) the current year is always equal to 100%
B) the base year is always the latest year
C) the base year is always equal to 100%
D) the base year is equal to the current year plus the previous year divided by two
42) When inventory costs are falling, the LIFO costing method will generally result in:
A) a higher gross profit than under FIFO
B) a lower gross profit than under FIFO
C) a lower inventory value than under FIFO
D) the same inventory value as FIFO
43) Days’ sales in receivables can be computed in two logical steps. In the second step:
A) the collection period must be determined
B) the average daily sales are computed
C) the average daily sales are divided by the average net receivables
D) the average net receivables are divided by the average daily sales
44) The principle stating that assets acquired by the business should be recorded at their
actual cost on the date of purchase is the:
A) historical cost principle
B) objectivity principle
C) reliability principle
D) stable dollar principle
45) Under the equity method, the Equity-Method Investment account is debited when
the:
A) investee reports net income
B) investee reports net loss
C) investor receives a cash dividend
D) investment is sold
46) A bank statement included a NSF check from customer Kim Fields for $2,100. The
journal entry to record this reconciling item should:
A) debit NSF and credit Cash for $2,100
B) debit Cash and credit Accounts Receivable for $2,100
C) debit Accounts Receivable and credit Cash for $2,100
D) debit Cash and credit NSF for $2,100
47) In general, the order of reporting stockholders’ equity on the balance sheet is:
A) Common Stock, Preferred Stock, Paid-in Capital in Excess of Par, Retained
Earnings, Treasury Stock
B) Preferred Stock, Common Stock, Treasury Stock, Paid-in Capital in Excess of Par,
Retained Earnings
C) Preferred Stock, Common Stock, Paid-in Capital in Excess of Par, Retained
Earnings, Treasury Stock
D) Retained Earnings, Preferred Stock, Common Stock, Paid-in Capital in Excess of
Par, Treasury Stock
48) Which of the following would be most helpful in the comparison of different size
companies?
A) Horizontal analysis
B) Comparison of their net incomes
C) Comparison of their working capital balances
D) Preparation of common-size financial statements
49) A company has net credit sales of $900,000, a beginning balance of net receivables
of $70,000, and an ending balance of net receivables of $90,000. Its days’ sales in
receivables is:
A) 28 days
B) 30 days
C) 32 days
D) 36 days
50) A construction company paid $80,000 cash for equipment used in the business. At
the time of purchase, the equipment had a list price of $90,000. When the balance sheet
was prepared, the fair value of the equipment was $83,000. At what amount should the
equipment be reported on the balance sheet of the company?
A) $80,000
B) $83,000
C) $85,000
D) $90,000
51) The ________ method is used to allocate the cost of multiple assets acquired in a
basket purchase.
A) book-value
B) cost
C) gross margin ratio
D) relative-sales-value
52) The entry to write off an Account Receivable under the allowance method:
A) reduces total assets and increases net income
B) reduces net income and total assets
C) has no effect on total assets and net income
D) increases net income and total assets
53) The financial statement that reports cash receipts and cash payments classified
according to the company’s operating, investing, and financing activities is the:
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of stockholders’ equity
54) Which of the following would be reported on a statement of cash flows as an
investing activity?
A) Depreciation expense
B) Purchase of treasury stock
C) Sale of equipment for cash
D) Paying cash dividends
55) The formula for the percentage change in a financial statement line item is the
current year amount:
A) divided by the base year amount
B) minus the base year amount divided by the base year amount
C) minus the base year amount divided by current year amount
D) added to the base year amount divided by the base year amount
56) Signs of a cash healthy company do NOT include:
A) net cash provided by operating activities exceeds net income
B) operating activities are the major source of cash
C) investing activities include more purchases than sales of long-term assets
D) borrowing $100 million and repaying $1 million
57) At the end of the current year, Accounts Receivable has a balance of $900,000, the
Allowance for Uncollectible Accounts has a debit balance of $1,000 and net credit sales
for the year are $3,000,000. Using the percent-of-sales method, the company
determines that uncollectible accounts will amount to 2% of net credit sales.
Required:
1>Prepare the adjusting journal entry at the end of the year. Omit the explanation.
2>Determine the adjusted balances for Accounts Receivable and the Allowance for
Uncollectible Accounts at the end of the year.
3>Determine the net realizable value of accounts receivable at the end of the year.
58) Lori’s Bath Supplies has the following Trial Balance as of March 31, 2012.
Determine the debt ratio.
59) ( the balance in the Cash account at March 31 before any reconciling items.
60) Use the information below to prepare a bank reconciliation for Martindale
Company for the month of January.
Outstanding checks as of January 31 amounted to $2,223.
Deposits in transit as of January 31 amounted to $1,879.
The ending balance per the January bank statement is $36,482.
The bank statement shows that Martindale earned $150 of interest on its bank balance
for the month of January.
The bank mistakenly recorded a deposit of $2,800 as $280 on January 15.
The company pays its insurance of $986 by EFT.
Bank collected rent for the company, $3,000. Bank statement had EFT receipt from a
Martindale customer of $481.
There was a NSF check on the bank statement for $368
The ending cash balance per the books for January before any adjustments was
$36,381.
61) On February 4, Osterheld Corporation’s stockholders’ equity section appears as
follows:
On February 4, Osterheld Corporation declares and distributes a 10% stock dividend
when the market value of the stock is $5.
Required:
Show the balances in the stockholders’ equity accounts after the stock dividend has been
distributed.
62) On January 1, 2014, Patterson Corporation issued $100,000, 9%, 5-year bonds with
semiannual interest payments on June 30 and December 31. The bonds were issued at
$96,149 yielding an effective-interest rate of 10%. Patterson uses the effective-interest
method of amortization. The company’s fiscal year ends on December 31.
Required:
Prepare the journal entries that Patterson would make on January 1, June 30 and
December 31, 2014. Round all amounts to the nearest dollar. Omit explanations.
63) During the first year of operations, New York Corporation had the following
transactions:
Jan. 1 Issued 50,000 shares of $1 par value common stock at $20 per share.
May 24 Reacquired 5,000 shares of common stock sold on Jan. 1 for $23 per share.
Aug. 31 Sold 500 shares of its treasury stock purchased on May 24 for $25 per share.
Oct. 18 The board of directors declared and distributed a 10% common stock dividend.
The selling price of the common stock was $26 per share at the time of the declaration.
Nov. 24 The board of directors declared a cash dividend of $0.50 per share payable to
stockholders on December 8.
Dec. 8 Paid the cash dividends declared on November 24.
Dec. 10 Sold 1,000 shares of treasury stock for $10 per share.
Required:
Prepare the journal entries for the above transactions. Omit explanations.
64) Christine’s Cleaning Services, Inc. has the following adjusted trial balance as of
March 31, 2015. Prepare a classified balance sheet as of that date.
65) A plant asset is acquired by a business on January 1, 2014, for $100,000. The asset’s
estimated residual value is $10,000 and its estimated life is 5 years. Management
chooses to use straight-line depreciation.
On January 1, 2016, management revises the total useful life to 8 years and the residual
value to $5,000.
Required:
1> Compute the balance in Accumulated Depreciation on January 1, 2016
2> Compute the Depreciation Expense for the year ending December 31, 2016
3> Compute the balance in Accumulated Depreciation on December 31, 2016
4> Prepare the adjusting journal entry on December 31, 2016 for the year. Omit the
explanation