1) We report extraordinary items separately, net of taxes, near the bottom of the income
statement just below discontinued operations.
2) Financing activities include cash receipts and cash payments for transactions relating
to revenue and expense activities.
3) When significant influence exists, the investment should be accounted for by the
equity method.
4) Interest earned on a bank account is an example of a cash transaction recorded by the
company and then later by the bank after notification.
5) Present value indicates how much a present amount of money will grow to in the
future.
6) Cash received from the sale of salvaged materials increases the total cost of land.
7) A gain contingency is an existing uncertain situation that might result in a gain,
which often is the flip side of loss contingencies.
8) When a company pays for services received using a check, it should credit Accounts
Payable until the check is paid by the bank.
9) Long-term liabilities are liabilities due in more than one year.
10) Sales revenue minus cost of goods sold is referred to as operating income.
11) Common stock represents an external source of stockholders equity, whereas
retained earnings represents an internal source.
12) When a company with a current ratio of 1.2 pays a current liability:
a.Its current ratio decreases
b.Its current ratio increases
c.Its current ratio remains unchanged
d.Its debt to equity ratio increases
13) Data Solutions reports sales of $100 million. Accounts receivable at the beginning
and end of the year are $6 million and $9 million, respectively. What is the amount of
cash received from customers?
a.$100 million
b.$103 million
c.$97 million
d.$109 million
14) Accounting for impairment losses:
a.Involves a two-step process to first test for impairment and then record the loss
b.Applies only to depreciable, operational assets
c.Applies only to assets with finite lives
d.All of the other answers are correct
15) 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. Gross profit
b. Net income
c. Inventory turnover ratio
d. Operating income
e. Income before income taxes
_____ Equals sales revenue minus cost of goods sold.
16) Horizontal analysis examines trends in a company
a. Over time
b. Between income statement accounts in the same year
c. Between balance sheet accounts in the same year
d. Between income statement and balance sheet accounts in the same year
17) When treasury stock is resold at a gain, the difference between its cost and the cash
received when resold:
a. Increases net income
b. Increases stockholders equity
c. Has no effect on net income or stockholders equity
d. Increases net income but decreases stockholders equity
18) If management can estimate the amount of loss that will occur due to litigation
against the company, and the likelihood of the loss is probable, a contingent liability
should be
a. Disclosed, but not reported as a liability
b. Disclosed and reported as a liability
c. Neither disclosed nor reported as a liability
d. Reported as a liability, but not disclosed
19) The following information pertains to Alpha Computing at the end of 2015:
Alpha Computings Retained Earnings account had a zero balance at the beginning of
2015 . What amount of dividends did the company pay in 2015?
a. $280,000
b. $150,000
c. $30,000
d. $80,000
20) Constraints on qualitative characteristics of accounting information include:
a. Freedom from material error
b. Going concern
c. Neutrality
d. Cost effectiveness
21) During the year, Victory Solutions: (1) received cash of $5,000 billed to a customer
in 2014; (2) earned $20,000 of net income; (3) paid interest of $6,000 on a corporate
bond issued; (4) paid dividends of $8,000 to its stockholders; (5) borrowed $40,000
from a local bank; and (6) purchased its own shares of common stock for $10,000.
What is Victoria Solutions cash flow from financing activities?
a. $40,000
b. $30,000
c. $22,000
d. $16,000
22) The balance sheet of California Clothing reports total equity of $600,000 and
$700,000 at the beginning and end of the year, respectively. Net income and sales for
the year are $65,000 and $1,300,000, respectively. What is California Clothings return
on equity?
a. 10%
b. 20%
c. 200%
d. 5%
23) On December 1, 2015, Old World Deli signed a $300,000, 5%, six-month note
payable with the amount borrowed plus accrued interest due six months later on June 1,
2016 . Old World Deli should record which of the following adjusting entries at
December 31, 2015?
a.Debit Interest Expense and credit Interest Payable, $7,500
b.Debit Interest Expense and credit Cash, $7,500
c.Debit Interest Expense and credit Interest Payable, $1,250
d.Debit Interest Expense and credit Cash, $1,250
24) Record revenue in the period in which its earned is the definition of which principle
in accounting?
a. Trial balance
b. Debits and credits
c. Revenue recognition
d. Accounting equation
25) The cost of the goods that a company sold during a period is shown in its financial
statements as ___________ and the cost of the goods that a company still has on hand
at the end of the year is shown in the financial statements as ____________.
a. Cost of goods sold; inventory
b. Goods on hand; inventory expense
c. Inventory; cost of goods sold
d. Sales revenue; cost of goods sold
26) Innovative Products reported net income of $205,000. Beginning and ending
Inventory balances were $40,000 and $45,000, respectively. Accounts Payable balances
at the beginning and end of the year were $35,000 and $33,000, respectively. Assuming
that all relevant information has been presented, the company would report operating
cash flows of:
a.$202,000
b.$198,000
c.$212,000
d.$205,000
27) 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
_____ Inventory costing method that matches each unit of inventory with its actual
cost.
28) The rate quoted on the bond contract used to calculate the cash payments for
interest is called the:
a.Face interest rate
b.Interest expense rate
c.Market interest rate
d.Stated interest rate
29) Which of the following financial statements reports a companys retained earnings?
a. Income statement
b. Balance sheet
c. Statement of cash flows
d. All of the other answers are correct
30) Pumpkin Inc. sold $500 in pumpkins to a customer on account on January 1 . On
January 11
Pumpkin collected the cash from that customer. What is the impact on Pumpkins
accounting equation from the collection of cash?
a. No net effect to the accounting equation
b. Decrease assets and increase liabilities
c. Increase assets and increase liabilities
d. Decrease assets and decrease liabilities
31) A companys adjustment for uncollectible accounts at year-end would include a:
a. Debit to Bad Debt Expense
b. Credit to Accounts Receivable
c. Debit to Accounts Receivable
d. Debit to Allowance for Uncollectible Accounts
32) Bio-Lab Pharmaceuticals carried on a project to develop a new drug that
dramatically shortened the recovery period for flu infection. The project cost the
company $150,000 before Bio-Lab abandoned the project due to the slim possibility to
gain FDA approval. Bio-Lab then spent $300,000 on another project developing a kind
of shot that achieves the same goal for flu recovery, and the company is confident in
gaining FDA approval for the new shot and in making profits out of the shot. What
amount would be expensed?
a. $0
b. $150,000
c. $300,000
d. $450,000
33) When bonds are issued at a premium 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 discount
34) At the end of a reporting period, Gamble Corporation determines that its ending
inventory has a cost of $300,000 and a market value of $230,000. What would be the
effect(s) of the adjustment to write down inventory to market value?
a. Decrease total assets
b. Decrease net income
c. Increase retained earnings
d. a and b
35) 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. Work-in-process inventory
b. Merchandising companies
c. Finished goods
d. Raw materials
e. Manufacturing companies
_____ Products that have started the production process but are not yet complete
at the end of the period.
36) Cash transactions that have been recorded by the company but not the bank include:
a. NSF checks
b. Interest earned
c. Service fees
d. Deposits outstanding
37) A $500,000 bond issue sold for $490,000. Therefore, the bonds:
a.Sold at a discount because the stated interest rate was higher than the market rate
b.Sold for the $500,000 face amount less $10,000 of accrued interest
c.Sold at a premium because the stated interest rate of was higher than the market rate
d.Sold at a discount because the market interest rate was higher than the stated rate
38) The price of a bond is equal to:
a. The future value of the face amount only
b. The present value of the interest only
c. The present value of the face amount plus the present value of the stated interest
payments
d. The future value of the face amount plus the future value of the stated interest
payments
39) Which statement below best describes the accounting equation?
a. The change in retained earnings equals net income less dividends
b. Equality of revenue and expense transactions over time
c. Resources of the company equal creditors and owners claims to those resources
d. Financing activities equal investing and operating activities
40) LeGrand Corporation reported the following amounts in its income statement:
Sales revenue$440,000
Advertising expense 60,000
Interest expense 10,000
Salaries expense 55,000
Utilities expense 25,000
Income tax expense 45,000
Cost of goods sold 180,000
What was LeGrands operating income?
a. $120,000
b. $260,000
c. $110,000
d. $65,000
41) Which of the following is not an example of preventive controls?
a. Separation of duties
b. Physical controls
c. Proper authorization
d. Reconciliations
42) The costs of providing goods and services to customers are referred to as:
a. Assets
b. Expenses
c. Liabilities
d. Revenues
43) Below are typical transactions for a company. Indicate whether each transaction is
classified as a financing, investing, or operating activity.
44) A companys Cash account shows a balance of $3,450 at the end of the month.
Comparing the companys Cash account with the monthly bank statement reveals
several additional cash transactions such as bank service fees ($50), an NSF check from
a customer ($300), a customers note receivable collected by the bank ($1,000), and
interest earned ($100). Prepare the necessary entries to adjust the balance of cash.
45) Mike Smith is a college football coach making a base salary of $960,000 a year
($80,000 per month). Employers are required to withhold a 6.2% Social Security tax up
to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming
the FICA base amount is $113,700, compute how much will be withheld during the year
for Coach Smiths Social Security and Medicare. Through what month will Social
Security be withheld? What additional amount will the employer need to contribute?
46) A company purchases office supplies on account for $7,500. Record the transaction.
47) Suppose a company rents office space for one year, paying $12,000 ($1,000/month)
in advance on September 1 . Record the adjusting entry on December 31 .
48) Michaela would like to have $10,000 for a European vacation in four years.
Currently, she has saved $8,000. If she puts $8,000 in an account that earns 6% interest,
compounded annually, will she be able to take the vacation in four years?
49) Assume that on July 1, 2015, Togos Sandwiches issues a $2 million, one-year note.
Interest is payable at maturity. Determine the amount of interest expense that should be
recorded in a year-end adjusting entry under each of the following independent
assumptions:
Interest Rate Fiscal Year-End
1> 8% December 31
2> 9% September 30
3> 6% October 31
4> 7% January 31
50) Chubbyville purchases a delivery van for $23,500. Chubbyville estimates a
four-year service life and a residual value of $2,500. During the four-year period, the
company expects to drive the van 105,000 miles. Calculate annual depreciation for the
four-year life of the van using each of the following methods. Round all amounts to the
nearest dollar.
1> Straight line.
2> Double-declining-balance.
3> Activity-based. Actual miles driven each year were 24,000 miles in Year 1; 26,000
miles in Year 2; 22,000 miles in Year 3; and 25,000 miles in Year 4 . Note that actual
total miles of 97,000 fall short of expectations by 8,000 miles.
