1) A list of all account names used to record transactions of a company is referred to as
a T-account.
2) Asset turnover is net sales divided by ending total assets.
3) Management needs to monitor the internal control system, just like any other system.
Any control deficiencies spotted by employees should be reported immediately to
management.
4) The purchase of long-term assets by issuing debt is recorded as both an investing
activity and a financing activity.
5) Operating leases are contractual agreements where the lessor owns the asset and the
lessee simply uses the asset temporarily.
6) Overstating ending inventory in the current year causes net income in the current
year to be overstated.
7) A deposit outstanding will cause the banks cash balance to be higher than the
companys cash balance.
8) Whether a customer uses cash, a check, or a debit card to make a purchase, the
company records the transaction as a cash sale.
9) Differences in the companys cash balance and the banks cash balance occur because
of either timing differences or errors.
10) We record purchased intangible assets at their original cost plus all other costs
necessary to get the asset ready for use.
11) We calculate earnings per share as net income divided by the average shares
outstanding during the period.
12) If total debits equal total credits in the trial balance, then all balances are correct.
13) Straight-line, declining-balance, and activity-based depreciation all are acceptable
depreciation methods for both financial reporting and tax reporting.
14) Expense accounts increase with a debit and decrease with a credit.
15) Total assets, total liabilities, and total stockholders equity do not change as a result
of a stock dividend.
16) If a company has ending inventory of $25,000, purchases during the year of
$95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000.
17) When a company sells a $100 service with a 20% trade discount, $80 of revenue is
recognized.
18) The following amounts are reported in the ledger of Mariah Company:
What is the balance in the Common Stock account?
a. $44,000
b. $32,000
c. $48,000
d. $42,000
19) Sooner Company has had a net income of $8,000, $5,000, $12,000, and $10,000
over the first four years of the companys existence. If the average annual amount of
dividends paid over the last four years is $3,000, what is the ending retained earnings
balance?
a. $47,000
b. $35,000
c. $23,000
d. $7,000
20) Consider the following inventory data for two companies:
Nichols, Inc.Winters, Inc.
Beginning inventory$120,000 $150,000
Ending inventory 80,000 100,000
Purchases 240,000 310,000
Which of these companies had the higher inventory turnover ratio?
a. Nichols
b. Winters
c. The ratios are the same for both companies
d. Cannot determine with the information given
21) A feature common to both stock splits and stock dividends is
a. That there is no effect on total stockholders’ equity
b. A reduction in the contributed capital of a corporation
c. A transfer to earned capital of a corporation
d. An increase in total liabilities of a corporation
22) On January 1, Brad Inc. sold $30,000 in products to a customer on account. Then on
January 10, Brad collected the cash on that account. What is the impact on Brads
accounting equation from the collection of cash on January 10?
a. No net effect to the accounting equation
b. Assets increase and liabilities decrease
c. Assets decrease and liabilities decrease
d. Assets increase and stockholders equity increases
23) The financial statement(s) that record activity over an interval of time is (are) the:
a. Income statement
b. Balance sheet
c. Balance sheet and income statement
d. Income statement and statement of cash flows
24) Bostel wanted to expand the size of its warehouse in order to generate more profits.
The company decided to purchase the building adjacent to its existing warehouse. The
company pays for the building by borrowing from the bank. The purchase would be
recorded as:
a. Debit Cash; credit Notes Payable
b. Debit Buildings; credit Cash
c. Debit Buildings; credit Notes Payable
d. Debit Cash and Buildings; credit Notes Payable
25) The balance sheet of Sound Designs reports total assets of $750,000 and $800,000
at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2
million in the previous year), net income is $150,000, and net cash flows from
operating activities are $175,000. What is Sound Designs’ asset turnover?
a. 2.0 times
b. 1.7 times
c. 0.5 times
d. 1.9 times
26) Using the allowance method, writing off an actual bad debt would include a:
a. Debit to Bad Debt Expense
b. Credit to Accounts Receivable
c. Debit to Accounts Receivable
d. Credit to Allowance for Uncollectible Accounts
27) If a company has gone bankrupt, its financial statements likely violate the:
a. Periodicity assumption
b. Monetary unit assumption
c. Going concern assumption
d. Economic entity assumption
28) Consider the following year-end information for Spitzer Corporation:
What amount will Spitzer report for operating income?
a. $200,000
b. $210,000
c. $380,000
d. $120,000
29) Cash flows from financing activities include:
a.Interest received
b.Interest paid
c.Dividends received
d.Dividends paid
30) Union Apparel has sales including sales taxes for the month of $551,200. If the
sales tax rate is 6%, what are Union Apparels sales for the month?
a.$500,000
b.$518,128
c.$520,000
d.$551,200
31) The following data were obtained from the bank statement and from the process of
reconciling it:
Bank service charges = $ 20
Deposit outstanding = $150
Interest earned on the bank account = $10
Checks outstanding = $400
Which items should be deducted from and added to the bank balance in completing the
reconciliation? a. Deduct checks outstanding; add service charges and deposit
outstanding
b. Deduct interest earned; add deposit outstanding
c. Deduct checks outstanding; add deposit outstanding
d. Deduct deposit outstanding; add checks outstanding
32) Which of the following is not True regarding cash flows?
a. Operating activities include the payment of dividends
b. Investing activities involve long-term investments
c. Financing activities involve long-term liabilities and equities
d. Purchasing a building with a note is considered a noncash activity
33) Clothing Emporium was organized on January 1, 2015 . The firm was authorized to
issue 100,000 shares of $5 par value common stock. During 2015, Clothing Emporium
had the following transactions relating to shareholders’ equity:
Issued 30,000 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.
What is total paid-in capital at the end of 2015?
a.$420,000
b.$370,000
c.$470,000
d.$320,000
34) Nerf Mania reports net income of $500,000, net sales of $4,000,000, and average
assets of $2,000,000. The asset turnover is:
a. 0.25 times
b. 0.5 times
c. 2 times
d. 8 times
35) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 profit margin is:
a.18.8%
b. 9.0%
c.19.4%
d.15.1%
36) How much will $1,000 invested at the end of each year grow to in 20 years,
assuming an interest rate of 10% compounded annually?
a. $6,728
b. $8,514
c. $83,159
d. $57,275
37) Which of the following transactions would cause a decrease in both assets and
stockholders equity?
a. Paying insurance premium for the next two years
b. Purchasing office equipment on account
c. Paying advertising for the current month
d. Providing installation services to customers
38) On January 1, 2015, Alice & Co. lends $5,000 to an employee and accepts a
24-month, 10% note. At the end of 2015, what effect will the adjustment for accrued
interest revenue have on the Alice & Co.s financial statements?
a. Decreases assets
b. Decreases revenue
c. Increases expense
d. Increases stockholders equity
39) Anthony Corporation reported the following amounts for the year:
Net sales$296,000
Cost of goods sold 138,000
Average inventory 50,000
Anthonys gross profit ratio is:
a. 53.4%
b. 51.9%
c. 50.3%
d. 46.6%
40) The sale of gift cards by a company is a direct example of:
a.Unearned revenues
b.Sales tax payable
c.Current portion of long-term debt
dContingencies
41) Which of the following is possible for a particular business transaction?
a. Increase assets; Decrease liabilities
b. Decrease assets; Increase assets
c. Decrease assets; Increase stockholders equity
d. Decrease liabilities; Increase expenses
42) Toppleson Manufacturing reports a receivables turnover ratio of 14.5. The industry
average is 10.7. What most likely is causing this difference?
a. Toppleson is selling to high-risk customers
b. Toppleson has effective procedures related to selling goods on account
c. Toppleson provides superior products and services
d. Toppleson allows customers too long to pay
43) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 return on assets is:
a.7.1%
b.7.8%
c.13.5%
d.44.7%
44) Inventory records for Marvin Company revealed the following:
Marvin sold 2,300 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. $5,087
b. $5,107
c. $5,077
d. $5,005
45) Which transaction would not be recorded under cash-basis accounting?
a. Providing services to customers for cash
b. Paying one year of rent in advance
c. Paying salaries to employees
d. Purchasing supplies on account
46) The balance sheet of Hidden Valley Farms reports total assets of $450,000 and
$550,000 at the beginning and end of the year, respectively. The return on assets for the
year is 10%. What is Hidden Valleys net income for the year?
a. $5,000,000
b. $55,000
c. $5,500,000
d. $50,000
47) At December 31, Gill Co. reported accounts receivable of $238,000 and an
allowance for uncollectible accounts of $600 (debit). An analysis of accounts receivable
suggests that the allowance for uncollectible accounts should be 3% of accounts
receivable. The amount of the adjustment for uncollectible accounts would be:
a. $6,540
b. $7,800
c. $7,140
d. $7,740
48) Fraudulent reporting by management could include:
a. Fictitious revenues from a fake customer
b. Improper asset valuation
c. Mismatching revenues and expenses
d. All of the above
49) Tony Hawks Adventure (THA) issued callable bonds on January 1, 2015 . THA’s
accountant has projected the following amortization schedule from issuance until
maturity:
What is the annual market interest rate on the bonds? (Hint: Be sure to provide the
annual rate rather than the six month rate.)
a.4%
b.3.5%
c.7%
d.8%
50) LeAnn wishes to know how much she should set aside now at 7% interest in order
to accumulate a sum of $5,000 in four years. She should use a 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
51) Which of the following is True about adjusting entries?
a. Entries are necessary due to the conservatism principle
b. Entries can be done at the beginning or end of the accounting period
c. They zero the balance of all income statement accounts
d. They are a necessary part of accrual-basis accounting
52) On September 1, 2015, Daylight Donuts signed a $100,000, 9%, six-month note
payable with the amount borrowed plus accrued interest due six months later on March
1, 2016 . Daylight Donuts should report interest payable at December 31, 2015, in the
amount of:
a.$0
b.$1,500
c.$3,000
d.$4,500
53) Which of the following is an example of horizontal analysis?
a. Comparing COGS with sales
b. Comparing net income across companies
c. Comparing debt with equity
d. Comparing the growth in sales over time
54) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 inventory turnover is:
a.3.62 times
b.3.96 times
c.4.07 times
d.6.03 times
55) 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 9%, the bonds will issue at $747,968.
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 .
56) For each of the following accounts, indicate whether the account is shown in the
income statement or the balance sheet:
57) Contrast the effects of the straight-line, declining-balance, and activity-based
depreciation methods on annual depreciation expense.
58) A company overstated its ending inventory balance by $6,000 in 2015 . What
impact will this error have on cost of goods sold and gross profit in 2015 and 2016?
59) The adjusted trial balance for Yondel Company at December 31, 2015 is presented
below:
Prepare the closing entries for Yondel Company for the year ended December 31, 2015 .
60) Pizza Pier retires its 7% bonds for $70,000 before their scheduled maturity. At the
time, the bonds have a carrying value of $74,937. Record the early retirement of the
bonds.
61) List and describe the four financial statements most frequently provided to external
users.
62) A company provides services on account during the current year totaling $400,000.
By the end of the year, $350,000 of this amount had been received. In addition, $75,000
was received on account from customers for services provided in the prior year.
Determine the amount of operating cash flows the company will report as received from
customers in the current year.
63) On April 1, a company provides services to one of its customers for $12,000. As
payment for the services, the company accepts a six-month, 10% note from the
customer. Record the acceptance of the note receivable on April 1 and the cash
collection on October 1 .
64) Two competitors in the construction supply industry report the following selected
financial data:
Calculate the cash return on assets, cash flow to sales ratio, and asset turnover ratio for
each company. Which company has the better cash flow to sales ratio and which
company has the better asset turnover ratio?
