1) What is the proper order for the different categories of cash flows reported on the
statement of cash flows?
A) Financing activities, investing activities, and operating activities
B) Operating activities, investing activities, and financing activities
C) Operating activities, financing activities, and investing activities
D) Investing activities, financing activities, and operating activities
2) How is the leverage ratio calculated?
A) Total debt divided by total assets
B) Total assets divided by total debt
C) Average total assets divided by average common stockholders’ equity
D) Average total debt divided by average total assets
3) Internal controls are designed to accomplish five objectives that include compliance
with legal requirements, promote operational efficiency, safeguard assets, encourage
employees to follow company policy and:
A) prevent misappropriation of assets
B) prevent collusion
C) prevent fraud
D) ensure accurate, reliable accounting records
4) The formula to determine income tax payable is:
A) taxable income (from the income tax return) multiplied by the income tax rate
B) taxable income(from the income statement) multiplied by the income tax rate
C) income before income tax expense (from the tax return) multiplied by the income
tax rate
D) income before income tax expense (from the income statement) multiplied by the
income tax rate
5) The dollar amount for Accounts Receivable in the Adjusted Trial Balance Debit
column of a Trial Balance Worksheet is obtained by:
A) Taking the Unadjusted Trial Balance Debit column plus the Debit Adjustments
column minus the Credit Adjustments column
B) Taking the Unadjusted Trial Balance Debit column
C) Taking the Unadjusted Trial Balance Credit column
D) Taking the Unadjusted Trial Balance Credit column plus closing entries
6) A petty cash fund:
A) is established to pay large nonrecurring expenses
B) is established to pay for minor purchases
C) should have a least two custodians
D) should issue checks for certain purchases
7) A company has a long-term Investment in Available-for-Sale Securities. The intent is
to hold the stock investment for many years, but not until maturity. The investor’s
percentage ownership is 5%. On January 1, 2014, the purchase date, the cost of the
stock investment was $100,000. On December 31, 2014, the fair value of the
investment is $99,000. An allowance account is used to write-down the investment. On
January 10, 2015, the investor sold the stock for $95,000. What journal entries are
required on January 10, 2015?
A) debit Allowance to Adjust Investment in Available-for-Sale Securities to Market for
$1,000 and credit Unrealized Loss on Investment in Available-for-Sale Securities for
$1,000
B) debit Cash for $95,000, debit Loss on Sale of Investment in Available-for-Sale
Securities for $5,000 and credit Investment in Available-for-Sale Securities for
$100,000
C) debit Cash for $95,000, debit Loss on Sale of Investment of Available-for-Sale
Securities for $4,000 and credit Investment in Available-for-Sale Securities for $99,000
D) A and B
8) On July 1, 2014, Brownlee Corporation issues $1,500,000 of 10-year, 7% bonds
dated July 1, 2014 at 90. Brownlee uses the straight-line method of amortization.
Interest is paid each July 1 and January 1. Brownlee Corporation’s fiscal year end is
June 30. The interest expense recognized for the first semiannual interest payment on
January 1, 2015 is:
A) $45,000
B) $52,500
C) $60,000
D) $105,000
9) Following the DuPont analysis model, the higher the leverage ratio, the higher the:
A) net profit margin ratio
B) return on assets
C) return on sales
D) return on stockholders’ equity
10) When 100 shares of $1 par value Common Stock are issued at $25 per share,
Paid-in Capital in Excess of ParCommon will:
A) increase $100
B) increase $2,500
C) increase $2,400
D) stay the same
11) A company has a Foreign-Currency Transaction Loss of $1,000 and a
Foreign-Currency Transaction Gain of $10,000. How is this information reported on the
income statement?
A) Other Losses: Foreign-Currency Transaction Loss $1,000 and Other Gains:
Foreign-Currency Transaction Gain $10,000
B) Other Gains: Foreign-Currency Transaction Gain, net $9,000
C) Other Comprehensive Income: Foreign-Currency Transaction Gain $10,000 and
Other Comprehensive Loss: Foreign-Currency Transaction Loss $1,000
D) Other Comprehensive Income: Foreign-Currency Transaction Gain, net $9,000
12) Newton Corporation reported an increase in inventory of $75,000. The cost of
goods sold for the year was $180,000. There was also a $7,000 decrease in accounts
payable from the beginning of the year to the end of the year. What is Newton’s cash
payment to suppliers for inventory?
A) $187,000
B) $248,000
C) $255,000
D) $262,000
13) A transaction that would include a credit to Cash is:
A) the purchase of supplies on account
B) the payment of an account payable
C) the collection of cash from an account receivable
D) provide services and receive cash from the customer
14) How is the cash conversion cycle computed?
A) days’ inventory outstanding + days’ sales outstanding – days’ payable outstanding
B) days’ inventory outstanding – days’ sales outstanding – days’ payable outstanding
C) days’ inventory outstanding – days’ sales outstanding + days’ payable outstanding
D) days’ inventory outstanding + days’ sales outstanding + days’ payable outstanding
15) Under the periodic inventory system:
A) the Inventory account is always up-to-date
B) the Purchases account is an asset account
C) an entry to credit Inventory must be made at the time a sale is recorded
D) an entry must be made at the end of the period to transfer Purchases to Cost of
Goods Sold
16) How does the declaration of a cash dividend affect the accounting equation?
A) increase to Liabilities and a decrease to Stockholders’ Equity
B) increase to Liabilities and a decrease to Assets
C) increase to Assets and a decrease to Liabilities
D) increase to Stockholders’ Equity and a decrease to Assets
17) A U.S.-based company sells merchandise on account to a company in Mexico. The
Mexican company wants to pay for the merchandise in pesos. If the peso decreases in
value relative to the dollar, the seller will record a ________. We say the peso
________ relative to the dollar.
A) Foreign Currency Transaction Gain; weakens
B) Foreign Currency Transaction Gain; strengthens
C) Foreign Currency Transaction Loss; weakens
D) Foreign Currency Transaction Loss; strengthens
18) Which of the three types of activities reported on the statement of cash flows is the
most critical for a company’s long-term survival?
A) Investing activities
B) Operating activities
C) Financing activities
D) Noncash investing and financing activities
19) The revenue principle governs two things:
A) when to record revenue and where to record this revenue
B) where to record revenue and the amount of revenue to record
C) when to record revenue and the amount of revenue to record
D) when to record revenue and in which journal to record the revenue
20) Xanadu Manufacturing Company has total stockholders’ equity of $18 billion.
Retained Earnings is $20 billion. How can total stockholders’ equity be less than
Retained Earnings?
A) Because Retained Earnings is a deficit
B) Because the company is going out of business
C) Because the company has a large amount of paid-in capital
D) Because the company has a large amount of treasury stock
21) The balance in Accounts Receivable at the beginning of the year was $500,000. The
balance in Accounts Receivable at the end of the year was $700,000. Customer
accounts of $400,000 were written off. The company collected $4,000,000 from credit
customers and $1,000,000 from cash customers. What are credit sales for the year?
A) $400,000
B) $4,000,000
C) $4,400,000
D) $4,600,000
22) The dollar amounts listed on the trial balance are obtained from the:
A) beginning balances in the ledger accounts
B) ending balances in the ledger accounts
C) last period’s balance sheet
D) last period’s income statement
23) An extraordinary item is:
A) both infrequent in occurrence and unusual in nature for the company
B) unusual in nature for the company only
C) infrequent in occurrence for the company only
D) commonly reported by companies following U.S. Generally Accepted Accounting
Principles
24) On January 1, 2014, bonds with a face value of $100,000 were sold. The bonds
mature on January 1, 2024. The stated rate of interest is 9% annually. The bonds pay
interest semiannually on July 1 and January 1. The market rate of interest is 10%
annually. What is the market price of the bonds? The present value of 1 for 20 periods
at 5% is 0.377. The present value of an ordinary annuity of $1 for 20 periods at 5% is
12.462. The present value of 1 for 10 periods at 10% is 0.386. The present value of an
ordinary annuity of $1 for 10 periods at 10% is 6.145.
A) $93,779
B) $93,905
C) $100,000
D) $102,000
25) Preferred stock is NOT similar to debt because:
A) preferred dividends are not tax-deductible whereas interest expense is tax-deductible
B) preferred dividends do not have to be paid whereas interest expense must be paid
C) preferred stock does not have a maturity date whereas debt usually has a maturity
date
D) all of the above
26) The basic unit of ownership for a corporation is:
A) a share of preferred stock
B) a share of common stock
C) a cash dividend
D) a stock dividend
27) Following Generally Accepted Accounting Principles, which method of estimating
uncollectible accounts is NOT acceptable?
A) allowance method
B) percent-of-sales method
C) aging-of-receivables method
D) direct write-off method
28) Where are stock dividends reported on the statement of cash flows?
A) Do not appear anywhere in the statement of cash flows
B) Operating activities section
C) Financing activities section
D) Investing activities section
29) An investor wishing to assess the reasons for a change in retained earnings over a
period of a year would probably examine the:
A) statement of cash flows and the income statement
B) income statement only
C) balance sheet
D) statement of retained earnings
30) Which of the following is a CORRECT statement regarding methods to speed up
the collection of cash from receivables?
A) Factoring is used frequently by companies since it is an inexpensive way to raise
cash
B) Credit card companies will charge a fee of 20-30% of the total amount of the sale
C) The company that factors its receivables maintains control over the collection
process
D) The Credit Card Discount Expense is reported on the income statement