1) The Financial Accounting Standards Boards conceptual framework does not
prescribe Generally Accepted Accounting Principles. It provides an underlying
foundation for the development of accounting standards and interpretation of
accounting information.
2) Bonds are the most common form of corporate debt.
3) For each transaction, the total debit amounts must equal the total credit amounts.
4) Freight-in is included in the cost of inventory.
5) Return on assets is calculated as net income divided by ending total assets.
6) The average collection period shows the approximate number of days the average
accounts receivable balance is outstanding.
7) Because the carrying value of bonds purchased at a premium increases over time,
interest revenue will also increase each semi-annual interest period.
8) Jones Corporation provides services to a customer on June 17, but the customer does
not pay for the services until August 12 . According to the revenue recognition
principle, Jones Corporation should record the revenue on August 12 .
9) A debit to an account balance always results in the balance increasing.
10) Amounts owed to suppliers, workers, governments, and utility companies are
examples of liabilities.
11) We can use ratios to help evaluate a firms performance and financial position.
12) Convertible bonds allow the investor to convert each bond into a specified number
of shares of common stock.
13) Under cash-basis accounting, we record revenues at the time we receive cash and
expenses at the time we pay cash.
14) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 gross profit ratio is:
a.77.1%
b.80.0%
c.40.0%
d.60.0%
15) 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 the United States.
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
16) Which step in the process of measuring external transactions involves assessing the
equality of total debits and total credits?
a. Use source documents to determine accounts affected by the transaction
b. Prepare a trial balance
c. Analyze the impact of the transaction on the accounting equation
d. Post the transaction to the T-account in the general ledger
17) The Common Stock account on a company’s balance sheet is measured as:
a.The number of common shares outstanding x the stock’s par value per share
b.The number of common shares outstanding x the stock’s current market value per
share
c.The number of common shares issued x the stock’s par value per share
d.The number of common shares issued x the stock’s current market value per share
18) Dividends normally carry a _______ balance and are shown in the
______________.
a. Debit; Statement of stockholders equity
b. Debit; Income statement
c. Credit; Balance sheet
d. Debit; Balance Sheet
19) An exclusive 20-year right to manufacture a product or to use a process is a:
a. Patent
b. Copyright
c. Trademark
d. Franchise
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. 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
_____ Cost of freight not included in inventory.
21) Which of the following statements is True regarding the amortization of intangible
assets?
a. The expected residual value of most intangible assets is zero
b. The service life of an intangible asset is always equal to its legal life
c. Intangible assets with a limited useful life are not amortized
d. In recording amortization, an accumulated amortization account is always used
22) Listed below are eight risk ratios listed in alphabetical order followed by a list of
phrases that describe or characterize the ratios. Match each phrase with the correct ratio
placing the letter designating the ratio in the space provided.
Ratios:
a. Acid-test ratio
b. Average collection period
c. Average days in inventory
d. Current ratio
e. Debt to equity ratio
f. Inventory turnover ratio
g. Receivables turnover ratio
h. Times interest earned ratio
Phrases:
_____ Cost of goods sold divided by average inventory; the number of times the firm
sells its average inventory balance during a reporting period.
_____ Total liabilities divided by total stockholders equity; measure a companys
solvency risk.
_____ Approximate number of days the average inventory is held.
_____ Ratio that compares interest expense with income available to pay those charges.
_____ Net sales divided by average accounts receivable; the number of times during a
year that the average accounts receivable balance is collected.
_____ Cash, short-term investments, and accounts receivable divided by current
liabilities; measures the availability of liquid current assets to pay current liabilities.
_____ Current assets divided by current liabilities; measures the availability of current
assets to pay current liabilities.
_____ Approximate number of days the average accounts receivable balance is
outstanding.
23) The International Accounting Standards Board:
a. Is governed by the U.S. Securities and Exchange Commission
b. Can overrule the FASB when their policies disagree
c. Promotes the use of high-quality, understandable global accounting standards
d. Is the primary standard-setting body in the United States
24) Which of the following is True about a credit?
I. It is part of the double-entry procedure that keeps the accounting equation in balance.
II. It represents a decrease to assets.
III. It represents an increase to liabilities.
IV. It is on the right side of a T-account.
a. I and II
b. IV only
c. I, II, and III
d. I, II, III, and IV
25) Kansas Enterprises purchased equipment for $60,000 on January 1, 2015 . The
equipment is expected to have a five-year life, with a residual value of $5,000 at the end
of five years.
Using the straight-line method, depreciation expense for 2016 and the book value at
December 31, 2016 would be:
a.$12,000 and $36,000
b.$12,000 and $31,000
c.$11,000 and $33,000
d.$11,000 and $38,000
26) Financial information for Accessories Unlimited includes the following selected
data:
What is the companys return on the market value of equity?
a.2.5%
b.7.5%
c.25%
d.50%
27) Providing services to customers on account is considered a(n):
a. Operating cash flow
b. Investing cash flow
c. Financing cash flow
d. Not a cash flow
28) Below are excerpts from interest tables for 8% interest.
Column 1 is an interest table for the:
a. Future value of $1
b. Present value of $1
c. Future value of an annuity of $1
d. Present value of an annuity of $1
29) Beverage International reports net credit sales for the year of $240,000. The
companys accounts receivable balance at the beginning of the year equaled $20,000 and
the balance at the end of the year equaled $30,000. What is Beverage Internationals
receivables turnover ratio?
a. 12.0
b. 9.6
c. 8.0
d. 1.5
30) Universal Travel, Inc. borrowed $500,000 on November 1, 2015, and signed a
twelve-month note bearing interest at 6%. Principal and interest are payable in full at
maturity on October 31, 2016 . In connection with this note, Universal Travel, Inc.
should record interest expense in 2016 in the amount of:
a.$8,000
b.$30,000
c.$5,000
d.$25,000
31) Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month. Ending inventory assuming
weighted-average cost would be (round weighted-average unit cost to four decimals if
necessary):
a. $502
b. $490
c. $489
d. $480
32) Match (by letter) the following terms with their definitions. Each letter is used only
once.
Definitions
a. Stockholders can lose no more than the amount they invest in the company.
b.Corporate earnings are taxed twice – at the corporate level and individual stockholder
level.
c.Like an S corporation, but there are no limitations on the number of owners as in an S
corporation.
d.Wealthy individuals willing to risk investment funds on a promising business venture.
e.Allows for legal treatment as a corporation, but tax treatment as a partnership.
f.Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE).
g.Provide additional financing, often in the millions, for a percentage ownership in the
company.
h.Describe (a) the nature of the firms business activities, (b) the shares to be issued, and
(c) the composition of the initial board of directors.
33) Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and
due in 5 years. Interest payments are made semi-annually. The market rate for this type
of bond is 8%. What is the issue price of the bond?
a. $83,920
b. $46,320
c. $54,055
d. $50,000
34) One disadvantage of the corporate form of business is:
a. Limited liability
b. Access to more capital
c. Smaller in size
d. Double taxation
35) On November 10 of the current year, Flores Mills sold carpet to a customer for
$8,000 with credit terms 2/10, n/30. How would Flores record the sale on November
10?
a. Accounts Receivable7,840
Sales Revenue7,840
b. Accounts Receivable8,000
Sales Revenue8,000
c. Accounts Receivable7,840
Cash Discounts 160
Sales Revenue8,000
d. Accounts Receivable8,000
Cash Discounts 160
Sales Revenue7,840
36) The largest expense on a retailer’s income statement is typically:
a. Salaries
b. Cost of goods sold
c. Income tax expense
d. Depreciation expense
37) The par value of shares issued is normally recorded in the:
a.Additional Paid-in Capital account
b.Common Stock account
c.Retained Earnings account
d.Treasury Stock account
38) After preparing the bank reconciliation, an NSF check would result in which of the
following when recording the adjustment to the companys cash balance?
a. Debit to Service Fee Expense
b. Credit to Accounts Payable
c. Credit to Service Revenue
d. Debit to Accounts Receivable
39) Which of the following is an example of horizontal analysis?
a. Comparing gross profit across companies
b. Comparing gross profit with operating expenses
c. Comparing assets with equity
d. Comparing the change in sales over time
40) During the year, Next Tec Corp. had the following cash flows: receipt from
customers, $10,000; receipt from the bank for long-term borrowing, $6,000; payment to
suppliers, $5,000; payment of dividends, $1,000, payment to workers, $2,000; and
payment for machinery, $8,000. What amount would be reported for financing cash
flows on the Statement of Cash Flows?
a. $5,000
b. $2,000
c. $6,000
d. ($8,000)
41) The following information pertains to Lightning, Inc. at the end of December:
Lightning uses the aging method and estimates it will not collect 2% of accounts
receivable not yet due, 10% of receivables less than 30 days past due, and 40% of
receivables greater than 30 days past due. The accounts receivable balance of $7,000
consists of $3,500 not yet due, $2,000 less than 30 days past due, and $1,500 greater
than 30 days past due. What is the appropriate amount of Bad Debt Expense?
a. $400
b. $470
c. $870
d. $1,270
42) The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million
from the beginning of the year. The companys net income earned during the year is $3.5
million. What is the amount of dividends Lambert Inc. declared and paid?
a. $1.5 million
b. $3.5 million
c. $2.0 million
d. $5.0 million
43) When a company incurs employee salaries but does not pay them, how will the
basic accounting equation be affected?
a. Stockholders equity decreases
b. Revenues decrease
c. Expenses decrease
d. Liabilities decrease
44) Given the information below, which bond(s) will be issued at a premium?
a. Bond 1
b. Bond 2
c. Bond 3
d. Bonds 2 and 4
45) Bond X and Bond Y are both issued by the same company. Each of the bonds has a
face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while
Bond Y pays 9% interest. The current market rate of interest is 8%. Which of the
following is correct?
a.Both bonds will sell for the same amount
b.Bond X will sell for more than Bond Y
c.Bond Y will sell for more than Bond X
d.Both bonds will sell at a discount
46) Explain the difference between conservative and aggressive accounting practices.
Provide an example of a conservative accounting practice and explain why this practice
is conservative. Provide an example of an aggressive accounting practice and explain
why this practice is aggressive.
47) Suppose a customer rents a vehicle for four months from Rent-A-Car on October 1,
paying $4,000 ($1,000/month). Record Rent-A-Cars adjusting entry on December 31 .
48) What is a multiple-step income statement? What information does it provide
beyond bottom-line net income?
49) Analysis of an income statement, balance sheets, and additional information from
the accounting records of Gaming Strategies reveal the following items:
1> Collection of notes receivable.
2> Purchase of equipment.
3> Exchange of long-term assets.
4> Decrease in accounts payable.
5> Payment of dividends.
6> Purchase of a patent.
7> Depreciation expense.
8> Decrease in accounts receivable.
9> Issuance of note payable.
10> Increase in inventory.
Indicate in which section of the statement of cash flows each of these items would be
reported: operating activities (indirect method), investing activities, financing activities,
or noncash activities.
50) Corporations typically do not start raising capital by issuing stock to the general
public. What are the common stages of equity financing leading to an initial public
offering (IPO)?
51) T. Boone Pickens football stadium at Oklahoma State University has a seating
capacity of about 60,000. Assume the stadium sells out all six home games before the
season begins and the athletic department collects $30.6 million in ticket sales.
1> What was the average price per season ticket and average price per individual game
ticket sold?
2> Record the advance collection of $30.6 million in ticket sales.
3> Record the revenue earned after the first home game was completed.
52) Why is it important to distinguish between current and long-term liabilities?
53) Describe at least five reasons why accounting practices differ across countries.
Which reason do you think is most important? Explain why.