1) Accumulated Depreciation is a liability account that is increased by credits.
2) When customers pay for services with a debit card, the company should debit Cash
and credit Service Revenue.
3) Revenues have the effect of increasing retained earnings.
4) The cash received from interest equals the face value of the investment in bonds
times the stated interest rate.
5) A more comparable measure of profitability than income is return on assets, which
equals net income divided by average total assets.
6) Owners in a sole proprietorship or a partnership can be held personally liable for
debts the company has incurred, over and beyond the investment they have made.
7) Selling common stock for cash causes assets to increase and stockholders equity to
decrease.
8) Outstanding stock is the number of shares held by investors.
9) When the investor has insignificant influence, the receipt of cash dividends is
recorded as dividend revenue.
10) Deductions from employee salaries in determining the amount of payroll checks
include withholdings for federal and state income taxes, FICA taxes, and the employee
portion of insurance and retirement contributions.
11) The franchisees initial fee is recorded as an expense on the income statement.
12) When a company receives cash in advance, it debits Cash and credits a revenue
account called Unearned Revenue.
13) We compute the return on equity ratio by dividing net income by ending
stockholders equity.
14) Under the allowance method, when a company collects cash from an account
previously written off, total assets increase.
15) Accounting information is used by creditors to decide whether to invest in a
companys stock.
16) We report the actual amount of cash proceeds received from the sale of land as a
cash inflow from investing activities.
17) External transactions are transactions the firm conducts with a separate economic
entity, such as selling products to a customer, purchasing supplies from a vendor,
paying salaries to an employee, and borrowing money from a bank.
18) Volt Electronics sells equipment that includes a three-year warranty. Repairs under
the warranty are performed by an independent service company under a contract with
Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold.
Volt should recognize these warranty costs:
a.When the equipment is sold
b.When the repairs are performed
c.When payments are made to the service firm
d.Evenly over the life of the warranty
19) For each company, calculate the missing amount.
Company Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income
Lennon $8,000 (a) $4,000 $3,000 $1,000
Harrison 9,000 3,000 (b) 2,000 4,000
McCartney 8,000 3,000 5,000 (c) 2,000
Starr 7,000 3,000 5,000 3,000 (d)
20) In accounting, goodwill
a. May be recorded whenever a company achieves a level of net income that exceeds
the industry average
b. Is amortized over its useful life
c. May be recorded when a company purchases another business
d. Must be expensed in the period it is recorded because benefits from goodwill are
difficult to identify
21) Incurring an expense for advertising on account would be recorded by:
a. Debiting liabilities
b. Crediting assets
c. Debiting an expense
d. Debiting assets
22) Consider the following events for Sophia Incorporated:
Under cash-basis accounting, what is the appropriate day to record the
expenses related to the sand volleyball camp? a. April 5
b. April 12
c. April 21
d. April 23
23) Lithuanian Motors has the following balance sheet accounts:
Land$170,000
Equipment 66,000
Salaries Payable ?
Notes Payable 88,000
Supplies 14,000
Cash 26,000
Common Stock 100,000
Retained Earnings 40,000
Accounts Payable ?
Prepaid Rent 12,000
If the company has total assets of $288,000, what is the balance of the companys
Salaries Payable account?
a. $15,000
b. $25,000
c. $12,000
d. Cannot be determined given the information provided
24) Which of the following are included in an employers payroll tax expense?
a.Employer portion of FICA taxes
b.Federal unemployment taxes
c.State unemployment taxes
d.All of the other answers are correct
25) 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. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ Resources owned by a company.
26) Frontier City is trying to decide between the following two alternatives to finance
its new $10 million roller coaster:
a. Issue $10 million of 6% bonds at face amount.
b. Issue one million shares of common stock for $10 per share.
Assuming bonds or shares of stock are issued at the beginning of the year, complete the
income statement listed above for each alternative. Which alternative results in the
highest earnings per share?
27) The purpose of closing entries is to transfer:
a. Accounts Receivable to Retained Earnings when an account is fully paid
b. Balances in temporary accounts to a permanent account
c. Inventory to Cost of Goods Sold when merchandise is sold
d. Assets and liabilities when operations are discontinued
28) Which of the following ratios is most useful in evaluating liquidity?
a. Acid-test ratio
b. Return on equity
c. Profit marginy ratio
d. Asset turnover
29) George Jones is planning on a cruise for his 70th birthday party. He wants to know
how much he should set aside at the end of each month at 6% interest to accumulate the
sum of $4,800 in five years. He 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
30) The primary purpose(s) of financial accounting is (are) to:
a. Measure and record business transactions
b. Prepare federal and state tax returns
c. Communicate financial results to investors and creditors
d. Both measure and communicate financial information
31) Which of the following is True about a debit?
I. It is part of the double-entry procedure that keeps the accounting equation in balance.
II. It represents an increase to assets.
III. It represents a decrease 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
32) Which of the following is a contingency that should be recorded?
a.The company is being sued and a loss is reasonably possible and reasonably estimable
b.The company deducts life insurance premiums from employees’ paychecks
c.The company offers a two-year warranty and the expenses can be reasonably
estimated
d.It is probable that the company will receive $100,000 in settlement of a lawsuit
33) Retained earnings at the end of the year is calculated using:
a. Beginning retained earnings, net income, and dividends
b. Common stock and dividends
c. Stockholders equity, net income, and dividends
d. Net income and dividends
34) The qualitative characteristic that says accounting information can influence users
decisions by allowing them to assess past performance is:
a. Timeliness
b. Neutrality
c. Confirmatory value
d. Predictive value
35) On November 1, 2015, New Morning Bakery signed a $200,000, 6%, six-month
note payable with the amount borrowed plus accrued interest due six months later on
May 1, 2016 . New Morning Bakery records the appropriate adjusting entry for the note
on December 31, 2015 . What amount of cash will be needed to pay back the note
payable plus any accrued interest on May 1, 2016?
a.$200,000
b.$202,000
c.$204,000
d.$206,000
36) For a bond issue that sells for less than the bond face amount, the stated interest rate
is:
a.The actual yield rate
b.The prime rate
c.More than the market rate
d.Less than the market rate
37) The owners interest in a corporation is called:
a. Dividends
b. Assets
c. Liabilities
d. Stockholders equity
38) Which of the following is NOT a design feature of effective internal controls?
a. Allow greater reliance by investors on reported financial statements
b. Prevent fraudulent or errant financial reporting
c. Ensure the companys price advantage over competitors
d. Prevent misuse of company funds by employees
39) Merchandise sold FOB destination indicates that:
a. The seller holds title until the merchandise is received at the buyer’s location
b. The merchandise has not yet been shipped
c. The merchandise will not be shipped until payment has been received
d. The seller transfers title to the buyer once the merchandise is shipped
40) Which of the following is not a primary source of corporate debt financing?
a. Bonds Payable
b. Common Stock
c. Leases
d. Notes Payable
41) Which of the following is not withheld from an employees salary?
a.FICA taxes
b.Federal and state unemployment taxes
c.Federal and state income taxes
d.Employee portion of health insurance
42) At the beginning of 2015, the balance in Jackson Enterprises Allowance for
Uncollectible Accounts was $31,800. During 2015, the company wrote off $38,000 of
accounts receivable. Writing off the individual bad debts would include a:
a. Debit to Bad Debt Expense
b. Credit to Accounts Receivable
c. Credit to the Allowance for Uncollectible Accounts
d. Both a and c
43) Suppose a company pays interest of $10,000 for the year on borrowed amounts due
in two years. Under U.S. GAAP, what is the most the company can report this year as
cash outflows from financing activities related to this item?
a. $10,000
b. $2,000
c. $5,000
d. $0
44) Generally Accepted Accounting Principles (GAAP) are best defined as:
a. Standards or methods for presenting financial accounting information
b. Government-mandated rules that companies must follow
c. Rules that best estimate profitability for a company
d. The group of individuals that create and enforce all accounting rules
45) 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. Net income and sales for
the year are $100,000 and $800,000, respectively. What is Hidden Valleys profit
margin?
a. 10%
b. 12.5%
c. 18%
d. 22%
46) The financial statement that represents the accounting equation is the:
a. Income statement
b. Statement of cash flows
c. Balance sheet
d. Statement of stockholders equity
47) The times interest earned ratio is calculated as
a. Interest expense / Net income
b. Net income / Interest expense
c.(Net income + interest expense + tax expense) / Interest expense
d.Interest expense / (Net income + interest expense + tax expense)
48) The balance sheet of Sand Sportswear reports total equity of $500,000 and
$650,000 at the beginning and end of the year, respectively. The return on equity for the
year is 20%. What is Sand Sportswears net income for the year?
a. $100,000
b. $130,000
c. $2,875,000
d. $115,000
49) Keeping supplies in a locked room with access allowed only to authorized
personnel is an example of which preventive control?
a. Separation of duties
b. Physical controls
c. Proper authorization
d. Employee management
50) 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. Bank service fees
b. Deposits outstanding
c. Interest earned
d. NSF checks
e. Company error
f. Checks outstanding
____ The company recorded a deposit twice.
51) Cash flows from investing do not include cash flows from:
a. Lending
b. The sale of equipment
c. Borrowing
d. The purchase of a building
52) When bonds are issued at a discount and the effective interest method is used for
amortization, at each subsequent interest payment date, the cash paid is:
a.Less than the interest expense
b.Equal to the interest expense
c.Greater than the interest expense
d.More than if the bonds had been sold at a premium
53) Which of the following statements is true with respect to the
percentage-of-credit-sales method for estimating uncollectible accounts?
a. The amount recorded for bad debt expense does not depend on the balance of the
allowance for uncollectible accounts
b. This method is referred to as the balance sheet approach
c. This method does not allow for future uncollectible accounts
d. Under this method, bad debt expense is recorded at the time of an actual bad debt
54) Transactions related to the primary business activities of the company, such as
selling goods and services to customers, are referred to as:
a. Investing activities
b. Operating activities
c. Management activities
d. Financing activities
55) Oswego Clay Pipe Company provides services of $46,000 to Southeast Water
District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego
record on April 12?
a. Accounts Receivable 46,000
Sales Revenue 46,000
b. Accounts Receivable 46,000
Sales Revenue 45,540
Sales Discounts 460
c. Accounts Receivable 45,540
Sales Revenue 45,540
d. Accounts Receivable 45,540
Sales Discounts 460
Sales Revenue 46,000
56) 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 total amount owed to a company from credit sales to customers.
57) Desert Apparel has 5,000 shares of common stock outstanding. On April 1, the
company declares a $2 per share dividend to stockholders of record on April 15 . The
dividend is paid on April 30 . Record all necessary entries on the appropriate dates for
cash dividends.
58) United Products began the year with an Inventory balance of $180,000, and had a
year-end balance of $200,000. Sales of $800,000 generated a gross profit of $150,000.
Calculate the inventory turnover ratio for the year.
59) A company provides services to customers for $2,400 cash. Record the transaction.
60) Two banks each have stated CD rates of 12%. Bank A compounds quarterly and
Bank B compounds semiannually. Explain which bank offers the better CD.
61) Baird Bros. Construction is considering the purchase of a machine at a cost of
$125,000. The machine is expected to generate cash flows of $20,000 per year for ten
years and can be sold at the end of ten years for $10,000. The discount rate is 10%.
Assume the machine would be paid for on the first day of year one, but that all other
cash flows occur at the end of the year. Ignore income tax considerations. Determine if
Baird should purchase the machine.
62) What are the potential risks and rewards of carrying additional debt? How does
additional debt affect a companys return to investors?
63) Suppose Casey Title Company normally charges $500 for services related to selling
a house. As part of a summer special, Casey offers customers a trade discount of 20%.
On July 9, Linda Holmes uses the services of Casey and pays cash equal to the
discounted price. Record the revenue earned by Casey on July 9 .