1) We can calculate the issue price of a bond as the face amount plus the total periodic
interest payments.
2) Financial accounting has an impact on everyday business decisions as well as
wide-ranging economic consequences.
3) Bond investments are long-term assets that earn interest revenue, while bonds
payable are long-term liabilities that incur interest expense.
4) The stockholders equity section of the balance sheet shows how each equity account
changed during the year.
5) Solvency refers to a companys ability to pay its current liabilities while liquidity
refers to a companys ability to pay its long-term liabilities.
6) All states impose a state income tax.
7) If a company is owed $10,000 by its customers, but it expects that $1,000 will not be
collected, accounts receivable in the balance sheet are reported at the net amount of
$9,000.
8) To maximize cash flow from operations, a company strives to increase both cash
flows per dollar of sales and sales per dollar of assets invested.
9) One benefit of internal control is greater reliance by investors on reported financial
statements.
10) All publicly held corporations in the United States are regulated by the Securities
and Exchange Commission.
11) Assets plus liabilities equal stockholders equity.
12) The matching principle is the principle that states:
a. All costs that are used to generate revenue are recorded in the period the revenue is
recognized
b. All transactions are recorded at the exchange price
c. The business is separate from its owners
d. The business will continue to operate indefinitely unless there is evidence to the
contrary
13) General Investment Co. (GIC) purchased bonds on January 1, 2015 . GIC’s
accountant has projected the following amortization schedule from purchase until
maturity:
GIC sells the bonds for $196,000 immediately after the interest payment on 12/31/15.
What gain or loss, if any, would GIC record on this date?
a.No gain or loss
b.$370 loss
c.$4,000 loss
d.$4,000 gain
14) Which of the following definitions describes a serial bond?
a.Matures on a single date
b.Secured only by the full faith and credit of the issuing corporation
c.Matures in installments
d.Supported by specific assets pledged as collateral by the issuer
15) On July 7, Saints Inc. received $10,000 in cash from a customer for services to be
provided on October 10 . Which of the following describes how the transaction should
be recorded on July 7?
a. Debit Cash $10,000, credit Service Revenue $10,000
b. Debit Accounts Receivable $10,000, credit Service Revenue $10,000
c. Debit Cash $10,000, credit Unearned Revenue $10,000
d. Debit Unearned Revenue $10,000, credit Cash $10,000
16) The financial statement that represents activity over the entire life of the company is
the:
a. Income statement
b. Balance sheet
c. Statement of financial accounting
d. Statement of cash flows
17) The correct order from the smallest number of shares to the largest number of
shares is:
a. Authorized, issued, and outstanding
b. Outstanding, issued, and authorized
c. Issued, outstanding, and authorized
d. Issued, authorized, and outstanding
18) Roberto Designers was organized on January 1, 2015 . The firm was authorized to
issue 100,000 shares of $5 par value common stock. During 2015, Roberto had the
following transactions relating to stockholders equity:
Issued 10,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.
Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).
What is total stockholders equity at the end of 2015?
a.$270,000
b.$300,000
c.$250,000
d.$200,000
19) Quaker State Inc. offers a new employee a lump-sum signing bonus at the date of
employment. Alternatively, the employee can take $8,000 at the date of employment
plus $20,000 at the end of each of his first three years of service. Assuming the
employee’s time value of money is 10% annually, what lump-sum at employment date
would make him indifferent between the two options?
a. $23,026
b. $57,737
c. $62,711
d. None of the above is correct
20) Common examples of cash equivalents include all of the following except:
a. Money market funds
b. Treasury bills
c. Certificates of deposit
d. Accounts receivable
21) A company has the following transactions:
1> Pay workers salaries for the current period.
2> Pay rent in advance.
3> Pay dividends to stockholders in the current period.
4> Receive (but do not pay) a utility bill.
5> Use supplies previously purchased.
How many of these transactions result in an expense being reported in the current
period using accrual-basis accounting?
a. 1
b. 2
c. 3
d. 4
e. 5
22) Given the information below, which bond(s) will be issued at a discount?
a. Bond 1
b. Bond 2
c. Bond 4
d. Bonds 1 and 2
23) Which of the following would not typically be used as an adjusting entry?
a. Prepaid Rent
Rent Expense
b. Cash
Unearned Revenue
c. Interest Expense
Interest Payable
d. Unearned Revenue
Service Revenue
24) Footnote disclosure is required for material potential losses when the loss is at least
reasonably possible:
a.Only if the amount is known
b.Only if the amount is known or reasonably estimable
c.Unless the amount is not reasonably estimable
d.Even if the amount is not reasonably estimable
25) The balance sheet of Cattlemans Steakhouse shows assets of $86,400 and liabilities
of $15,000. The fair value of the assets is $90,000 and the fair value of its liabilities is
$15,000. Longhorn paid Cattlemans $95,000 to acquire it. Longhorn should record
goodwill on this purchase of:
a. $3,600
b. $5,000
c. $20,000
d. $23,600
26) 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
_____ Requires a year-end adjustment for inventory.
27) A company pays $1,200 on account for supplies purchased last month. All supplies
were used last month. Record the payment using (a) accrual-basis accounting and (b)
cash-basis accounting.
28) During 2015, Bears Inc. recorded credit sales of $500,000. Before adjustments at
year-end, Bears has accounts receivable of $300,000, of which $50,000 is past due, and
the allowance account had a credit balance of $2,500. Using the aging of receivables
approach, what would be the adjustment assuming Bears expects it will not to collect
5% of the amount not yet past due and 20% of the amount past due?
a. Bad Debt Expense22,500
Allowance for Uncollectible Accounts22,500
b. Bad Debt Expense25,000
Allowance for Uncollectible Accounts25,000
c. Bad Debt Expense20,000
Allowance for Uncollectible Accounts20,000
d. Allowance for Uncollectible Accounts20,000
Bad Debt Expense20,000
29) 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:
_____ Used when an investor has controlling influence.
_____ This category is not used for equity investments.
_____ Used when an investor has insignificant influence and does not expect to sell in
the near future.
_____ Used when an investor has significant, but not controlling influence.
_____ Used when an investor expects to sell in the near future.
30) On May 1, Ace Bonding Company purchased inventory costing $2,000 on account
with terms 2/10, n/30. On May 18, Ace pays for this inventory and records which of the
following using a periodic inventory system?
a. Accounts Payable 2,000
Cash 2,000
b. Accounts Payable 1,960
Purchase Discounts 40
Cash 2,000
c. Accounts Payable 2,000
Purchase Discounts 40
Cash 1,960
d. Cash 2,000
Accounts Payable 2,000
31) A company records a sales return from a credit customer. Indicate how this
transaction would affect the following five financial statement items.
Stockholders
Assets LiabilitiesEquity Revenues Expenses
a.Decrease No effect Decrease Decrease No effect
b.Increase No effect Increase Increase Decrease
c.Increase Increase Increase Increase No effect
d.No effect No effect No effect No effect No effect
32) An amortization schedule for a bond issued at a discount:
a.Has a carrying value that decreases over time
b.Is contained in the balance sheet
c.Is a schedule that reflects the changes in bonds payable over its term to maturity
d.All of the other answers are correct
33) Which of the following statements about treasury stock transactions is True?
a. Treasury stock is recorded as an asset by the acquiring company
b. Only losses on the sale of treasury stock are recorded on the income statement
c. Stockholders equity is reduced when treasury stock is purchased
d. Gains and losses on the sale of treasury stock are recorded on the income statement
34) The value today of receiving a series of equal payments 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
35) The balance sheet depicts which of the following equations?
a. Net income = revenue expenses
b. Ending retained earnings = beginning retained earnings + net income dividends
c. Assets = liabilities + stockholders equity
d. Net cash flows = total cash inflows total cash outflows
36) Under what section of the Statement of Cash Flows would you classify the purchase
of equipment by issuing a long-term note payable?
a. Operating
b. Investing
c. Financing
d. Noncash activity
37) An expense has what effect on the accounting equation?
a. Decrease liabilities
b. Decrease stockholders equity
c. Increase assets
d. No effect
38) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 receivables turnover ratio is:
a.2.85
b.4.70
c.5.00
d.10.63
39) Tomlin & Company provides music for special occasions. On January 14, the Smith
family hired Tomlin for an upcoming family wedding for an agreed upon fee of
$10,000. The wedding was scheduled for May 23 . As part of the agreement, the Smiths
paid Tomlin half of the fee at the end of April with the remaining amount due by the
end of June. How would Tomlin record the receipt of the final payment in June?
a. Credit to Accounts Receivable
b. Credit to Service Revenue
c. Credit to Cash
d. Debit to Unearned Revenue
40) Nerf Mania reports net income of $500,000, net sales of $4,000,000, and average
assets of $2,000,000. The return on assets is:
a. 200%
b. 25%
c. 50%
d. 12.5%
41) Pawn Shops Unlimited recorded the following four transactions during April.
Which of these transactions would have the same income statement impact in April
regardless of whether the company used accrual-basis or cash-basis accounting?
a. Received $600 from customers for services to be provided in May
b. Paid $1,800 for a six-month insurance policy covering the period July 1December 31
c. Paid $700 for an advertisement that appeared in the April 17 edition of the Las Vegas
Sun newspaper
d. Received $300 from customers for services performed in March
42) Cowboy Development incurred the following costs associated with the purchase of
a piece of land that it will use to re-build an office building:
What amount should be recorded for the purchase of the land?
a. $437,500
b. $417,500
c. $439,000
d. $419,000
43) Given the information in the table below, what is the companys gross profit?
a. $280,000
b. $170,000
c. $50,000
d. $100,000
44) Which of the following items would not appear in an income statement?
a. Salaries expense
b. Advertising expense
c. Service revenue
d. Cash.
45) Below are excerpts from interest tables for 8% interest.
Column 2 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
46) Eve’s Apples opened for business on January 1, 2015, and paid for two insurance
policies effective that date. The liability policy was $36,000 for eighteen-months, and
the crop damage policy was $12,000 for a two-year term. What was the balance in Eve’s
Prepaid Insurance account as of December 31, 2015?
a. $ 9,000
b. $18,000
c. $30,000
d. $48,000
47) Posting is the process of:
a. Analyzing the impact of the transaction on the accounting equation
b. Obtaining information about external transactions from source documents
c. Transferring the debit and credit information from the journal to individual accounts
in the general ledger
d. Listing all accounts and their balances at a particular date
48) Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The
customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin
would record this reduction by crediting Accounts Receivable and debiting:
a. Sales Revenue
b. Sales Discounts
c. Sales Returns
d. Sales Allowances
49) In December, 2014, Quebecor Printing received magazine subscriptions for 2015
from a customer, who paid $500 in cash. What would be the appropriate journal entry
for this event?
a. Debit Cash, $500; credit Subscription Revenue, $500
b. Debit Cash, $500; credit Unearned Revenue, $500
c. Debit Subscription Revenue, $200; credit Cash, $200
d. No journal entry is necessary
50) At the beginning of the year (January 1), Maurice and Sons has $12,000 of common
stock outstanding and retained earnings of $4,200. During the year, the company reports
net income of $3,200 and pays dividends of $1,200. In addition, the company issues
additional common stock for $5,000. Prepare the statement of stockholders equity at the
end of the year (December 31).
51) Oregon Outfitters issues 1,000 shares of $1 par value common stock at $20 per
share. Later in the year, the company decides to repurchase 200 shares at a cost of $22
per share. (1) Record the original issue of the 1,000 shares, (2) Record the repurchase of
200 shares, and (3) record the entry if Oregon Outfitters reissues the 200 shares of
treasury stock at $25 per share.
52) Classify each of the following items as an operating, investing, or financing activity.
1> Payment of income taxes.
2> Sale of investments.
3> Receipt of interest.
4> Issuance of common stock.
5> Purchase of intangibles.
53) A company incurs employee salaries of $4,200 but does not pay them. Record the
transaction.
54) Below is a summary of all the transactions of Sampson Consulting for the month of
April 2015 .
Prepare a statement of cash flows for the month of April, properly
classifying each of the transactions into operating, investing, and financing activities.
The cash balance at the beginning of April is $14,800.
