1) The amount reported on the balance sheet for bonds payable is equal to the carrying
value at the balance sheet date.
2) Convertible preferred stock allows the stockholder to exchange shares of preferred
stock for common stock at a specified conversion ratio.
3) When a company pays for services received using a credit card, it should credit
Accounts Payable.
4) Separation of duties occurs when two or more people act in coordination to
circumvent internal controls.
5) If you put $600 into a savings account that pays simple interest of 10% per year and
then withdraw the money two years later, you will earn interest of $126.
6) A lower current ratio or acid-test ratio generally indicates a greater ability to pay
current liabilities on a timely basis.
7) Liability accounts increase with a credit and decrease with a debit.
8) For inventory that is shipped FOB shipping point, title transfers from the seller to the
buyer once the seller ships the inventory.
9) When a company borrows cash from a bank promising to repay the amount borrowed
plus interest, the borrower reports its liability as notes payable.
10) A callable bond allows the borrower to repay the bonds before their scheduled
maturity date at a specified call price.
11) If a company borrows from another company rather than from a bank, the note is
referred to as commercial paper.
12) The general ledger includes all accounts used to record the companys transactions.
13) 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
_____ The procedure using an adjustment for future uncollectible accounts.
14) 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
____ PCAOB establishes standards related to the preparation of audited financial
reports.
15) What is the value today of receiving $3,000 at the end of each year for the next
three years, assuming an interest rate of 3% compounded annually?
a. $8,486
b. $8,251
c. $9,000
d. $9,273
16) Crestview Estates purchased a tractor on January 1, 2015, for $65,000. The tractors
useful life is estimated to be 30,000 miles and has a residual value of $5,000. If
Crestview used the tractor 5,000 miles in 2015 and 3,000 miles in 2016, what is the
balance for accumulated depreciation at the end of 2016 using the activity-based
method?
a. $38,000
b. $6,000
c. $16,000
d. $10,000
17) The factors used to compute depreciation expense are an asset’s:
a.Cost, residual value, and physical life
b.Cost, residual value, and service life
c.Fair market value, residual value, and economic life
d.Cost, replacement value, and service life
18) Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What
entry should First Bank record?
a. Debit Cash, $8,000; Credit Notes Receivable, $8,000
b. Debit Notes Receivable, $8,000; Credit Cash, $8,000
c. Debit Cash, $8,000; Credit Notes Payable, $8,000
d. Debit Notes Payable, $8,000; Credit Cash, $8,000
19) Consider the following T-account for Accounts Payable.
1> Compute the balance of the Accounts Payable account. 2> Give an
example of a transaction that would have resulted in the $8,800 posting to the account.
3> Give an example of a transaction that would have resulted in the $4,500 posting to
the account.
20) Giving only management the right to make purchases over a certain amount is an
example of which preventive control?
a. Separation of duties
b. Physical controls
c. Proper authorization
d. Employee management
21) 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
____ Records events that have occurred but not previously recorded.
22) The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at
the beginning and end of the year, respectively. Sales revenues are
$1,080,000($800,000 in the previous year), net income is $40,000, and net cash flows
from operating activities are $50,000. How does Tech Track’s asset turnover compare to
the industry average of 2.4 times?
a. Better
b. Worse
c. Same as
d. Cannot be determined with the data provided
23) Assume that $18,000 cash is paid for insurance to cover the next year. The
appropriate
debit and credit are:
a. Debit Insurance Expense $18,000, credit Prepaid Insurance $18,000
b. Debit Prepaid Insurance $18,000, credit Insurance Expense $18,000
c. Debit Prepaid Insurance $18,000, credit Cash $18,000
d. Debit Cash $18,000, credit Prepaid Insurance $18,000
24) The replacement of a major component increased the productive capacity of
equipment from 10 units per hour to 18 units per hour. The expenditure for the
replacement component should be debited to:
a. Repairs Expense
b. Maintenance Expense
c. Equipment
d. Gain from Repairs
25) In testing for recoverability of an operational asset, an impairment loss is required if
the:
a.Asset’s book value exceeds the present value of its expected future cash flows
b.Expected future cash flows exceeds the asset’s book value
c.Present value of expected future cash flows exceeds its carrying value
d.Asset’s book value exceeds the expected future cash flows
26) Northwest Fur Co. started the year with $94,000 of merchandise inventory on hand.
During the year, $400,000 in merchandise was purchased on account with credit terms
of 1/15, n/45. All discounts were taken. Northwest paid freight-in charges of $7,500.
Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods
sold for the year was $380,000. What is ending inventory?
a. $112,490
b. $112,550
c. $116,500
d. $120,300
27) Listed below are five terms followed by a list of phrases that describe or
characterize the terms. Match each phrase with the best term by placing the letter
designating the term in the space provided.
a. Credit sales
b. Sales returns
c. Sales allowances
d. Sales discounts
e. Trade discounts
_____ Offered to induce prompt payment.
28) Bricktown Exchange purchases a copyright for $50,000. The copyright has a
remaining legal life of 25 years, but only an expected useful life of five years with no
residual value. Assuming the company uses the straight-line method, what is the
amortization expense for the first year?
a. $0
b. $2,000
c. $3,333
d. $10,000
29) Daniel Dino Restaurant owes employee salaries of $15,000. This would be recorded
as:
a. Debit Salaries Expense, credit Cash
b. Debit Salaries Payable, credit Cash
c. Debit Salaries Expense, credit Salaries Payable
d. Debit Salaries Payable, credit Salaries Expense
30) The advantages of obtaining long-term funds by issuing bonds, rather than issuing
additional common stock, include which of the following?
a. Interest payments are tax deductible to the company, while dividends are not
b. The risk of going bankrupt decreases
c. Expansion is achieved without surrendering ownership control
d. a and c
31) 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. Ending inventory
b. Freight-in
c. Cost of goods sold
d. LIFO conformity rule
e. LIFO
f. Freight-out
g. LIFO reserve
h. Specific identification
i. FIFO
j. Average cost
_____ Additional amount of inventory a company would report if it used FIFO
instead of LIFO.
32) Which statement below best describes the objectives of financial accounting?
a. Provide information that helps predict cash flows
b. Provide information about the economic resources, claims to resources and changes
in resources and claims
c. Provide information that is useful in making decisions
d. All of the other answers are correct
33) Receiving cash from an account receivable:
a. Increases revenue and decreases an asset
b. Decreases a liability and increases an asset
c. Increases an asset and increases revenue
d. Increases one asset and decreases another asset
34) When a company issues common stock for cash, what is the effect on the
accounting equation for the company?
a. Assets increase and liabilities increase
b. Assets increase and stockholders equity increases
c. Assets decrease and liabilities decrease
d. Liabilities decrease and stockholders equity increases
35) The issuer of a 5% common stock dividend (small stock dividend) to common
stockholders should debit stock dividends for an amount equal to the
a. Book value of the shares issued
b. Par or stated value of the shares issued
c. Market value of the shares issued
d. Minimum legal requirements
36) Which of the following is a reason that a corporation would prefer to issue stock
instead of bonds?
a. Dividend payments can be deducted for income tax purposes but interest payments
cannot
b. Expansion is accomplished without surrendering ownership control
c. The risk of going bankrupt is less
d. All of the above are reasons for issuing stock
37) Which one of the following accounts will have a credit balance?
a. Dividends
b. Salary Expense
c. Supplies
d. Common Stock
38) Listed below are six terms followed by a list of phrases that describe or characterize
the terms. Match each phrase with the best term by placing the letter designating the
term in the space provided.
a. Cash inflow from operating activities
b. Cash outflow from financing activities
c. Cash outflow from operating activities
d. Cash inflow from investing activities
e. Cash inflow from financing activities
f. Cash outflow from investing activities
____ Purchase equipment.
39) Permanent accounts would not include:
a. Interest Expense
b. Salaries Payable
c. Prepaid Rent
d. Unearned Revenues
40) Which of the following is an example of a noncash activity?
a. Sale of land for less than its cost
b. Purchase of land by issuing debt
c. Sale of land for more than its cost
d. Purchase of land using cash proceeds from issuance of common stock
41) If a company overstates its ending balance of inventory in year 1 and it records
inventory correctly in year 2, which one of the following is True?
a. Net income is overstated in year 2
b. Cost of goods sold is overstated in year 1
c. Net income is understated in year 1
d. Retained earnings is overstated in year 1
42) Discount-Mart issues $10 million in bonds on January 1, 2015 . The bonds have a
ten-year term and pay interest semiannually on June 30 and December 31 each year.
Below is a partial bond amortization schedule for the bonds:
What is the stated annual rate of interest on the bonds? (Hint: Be sure to provide the
annual rate rather than the six month rate.)
a.3%
b.4%
c.6%
d.8%
43) A company collects a customers account within the discount period. Indicate how
this transaction would affect the following five financial statement items:
Stockholders
AssetsLiabilities Equity Revenues Expenses
a.Decrease No effect Decrease Decrease No effect
b.Increase No effect Increase Increase Decrease
c.Increase No effect Increase Increase No effect
d.No effect No effect No effect No effect No effect
44) Which of the accounts are increased with a debit and decreased with a credit?
a. Liabilities, stockholders equity, and revenues
b. Dividends, liabilities, and assets
c. Expenses, dividends, and stockholders equity
d. Assets, dividends, and expenses
45) Providing services and receiving cash will:
a. Increase assets and increase stockholders equity
b. Increase assets and increase liabilities
c. Decrease assets and increase liabilities
d. Decrease liabilities and increase stockholders equity
46) The value that a series of equal payments will grow to in the future is referred to as
the:
a. Future value of a single amount
b. Present value of a single amount
c. Future value of an annuity
d. Present value of an annuity
47) The balance sheet of Storage Solutions reports total assets of $300,000 and
$350,000 at the beginning and end of the year, respectively. The cash return on assets
for the year is 10%. What is Storage Solutions net cash flows from operating activities
for the year?
a. $25,000
b. $30,000
c. $32,500
d. $35,000
48) Oregon Adventures purchased equipment for $80,000. They sold the equipment at
the end of three years for $45,000. If the expected useful life of the equipment was
seven years with a residual value of $10,000, and they use straight-line depreciation,
which of the following is True regarding the entry to record the sale of the equipment?
a. Debit Loss $5,000
b. Credit Gain $5,000
c. Credit Accumulated Depreciation $40,000
d. Credit Equipment $5,000
49) Which of the following describes the purpose(s) of closing entries?
a. Adjust the balances of asset and liability accounts for unrecorded activity during the
period
b. Transfer the balances of temporary accounts to common stock
c. Reduce the balances of the temporary accounts to zero to prepare them for measuring
activity in the next period
d. Both b and c
50) Which of the following is True for bonds issued at a premium?
a. The stated interest rate is less than the market interest rate
b. The market interest rate is less than the stated interest rate
c. The stated interest rate and the market interest rate are equal
d. The stated interest rate and the market interest rate are unrelated
51) Making insurance payments in advance is an example of:
a. An accrued revenue
b. An accrued expense
c. An unearned revenue
d. A prepaid expense
52) For each item below, indicate whether FIFO or LIFO will generally result in a
higher reported amount when inventory costs are rising versus falling.
53) On July 1, 2015, a company loans one of its employees $20,000 and accepts a
nine-month, 8% note receivable. Calculate the amount of interest revenue the company
will recognize in 2015 and 2016 .
54) For each of the following five transactions, indicate by letter whether the cash effect
of each transaction is reported in a statement of cash flows as an operating (O),
investing (I), financing (F), or noncash (NC) activity.
55) Explain why preferred stock often is said to have a mixture of attributes somewhere
between common stock and bonds.
56) When inventory costs are rising, __________ generally results in a lower income
tax obligation.
57) A company pays $5,400 for maintenance in the current period. Record the
transaction.
58) A company has the following balances on December 31, 2015, before any year-end
adjustments: Accounts Receivable = $80,000; Allowance for Uncollectible Accounts =
$1,100 (credit). The company estimates uncollectible accounts based on an aging of
accounts receivable as shown below:
Record the adjustment for uncollectible accounts on December 31, 2015 .