1) The cost of installing lights in a company’s parking lot should be recorded as a cost
of:
A) land
B) land improvements
C) leasehold improvements
D) leaseholds
2) The amount of owners’ equity attributable to each share of common stock is known
as the:
A) earnings per share
B) book value per share
C) market value per share
D) preferred value per share
3) Under the average-cost inventory method, to determine the average cost per unit:
A) the cost of beginning inventory is divided by the number of units available
B) the cost of beginning inventory plus the cost of purchases is divided by the number
of units sold
C) the cost of purchases for the period are divided by the number of units available
D) the cost of beginning inventory plus the cost of purchases is divided by the number
of units available
4) A partner in the partnership called Sturm Company purchased a new yacht with his
own funds Sturm Company would:
A) debit an asset account
B) credit a revenue account
C) credit a liability account
D) not record the transaction in their books
5) The primary way that fraud is prevented and detected is through a proper system of:
A) ethical standards and a code of ethics
B) policies developed by upper management
C) internal control
D) internal and external audits
6) A company receives customer checks in the mail for credit sales. Which people are
involved in processing the checks?
A) mailroom employee, treasurer, cashier in treasurer’s department
B) mailroom employee, bookkeeper in accounting department, controller
C) mailroom employee, bookkeeper in accounting department, controller, treasurer
D) mailroom employee, bookkeeper in accounting department, controller, treasurer,
cashier in treasurer’s department
7) Which financial statements cover a period of time?
A) Income Statement only
B) Income Statement and Statement of Stockholders’ Equity
C) Income Statement, Statement of Stockholders’ Equity and Statement of Cash Flows
D) Income Statement, Statement of Stockholders’ Equity, Statement of Cash Flows and
Balance Sheet
8) Using DuPont analysis, what are the components of return on assets?
A) Return on Sales and Debt Ratio
B) Return on Sales and Leverage Ratio
C) Return on Sales and Total Asset Turnover Ratio
D) Total Asset Turnover Ratio and Leverage Ratio
9) Solderman Company issued $500,000, 6%, 10-year bonds for $432,800 with a
market rate of 8%. The effective-interest method of amortization is to be used and
interest is paid annually. The journal entry on the first interest payment date would
include a:
A) credit to Interest Expense of $30,000
B) credit to Cash of $34,624
C) credit to Discount on Bonds Payable of $4,624
D) credit to Interest Expense of $4,624
10) An investor receives a cash dividend from a long-term available-for-sale
investment. Which journal entry is required?
A) a debit to Cash and a credit to Dividend Revenue
B) a debit to Cash and a credit to Interest Revenue
C) a debit to Cash and credit to Investment in Available-for-Sale Securities
D) a debit to Cash and credit to Interest Receivable
11) If a company has goodwill on its books, then the goodwill:
A) is amortized over 40 years or useful life, whichever is less
B) is tested for impairment annually
C) may have been internally created
D) may be written up to fair value
12) Zeman, Inc. declares and distributes a 10% common stock dividend when it has
20,000 shares of $10 par value common stock outstanding. If the market value of the
common stock is $25, the journal entry to record the stock dividend would include a:
A) credit to Common Stock $50,000
B) credit to Common Stock $30,000
C) credit to Paid-in Capital in Excess of ParCommon $30,000
D) credit to Paid-in Capital in Excess of ParCommon $20,000
13) Which of the following discount rates will produce the smallest present value of a
single sum of money?
A) 4%
B) 6%
C) 7%
D) 9%
14) A company is adjusting net income to determine Net Cash Provided by Operating
Activities for the statement of cash flows. The indirect method is used. Which statement
is FALSE?
A) An increase in a noncash current asset is subtracted from net income
B) A decrease in a noncash current asset is added to net income
C) A decrease in a current liability is added to net income
D) An increase in a current liability is added to net income
15) Decreases in stockholders’ equity that result from the cost of operating the business
are:
A) assets
B) revenues
C) expenses
D) liabilities
16) If a corporation has only one class of stock, it is understood to be:
A) preferred stock
B) common stock
C) participating stock
D) redeemable stock
17) On January 1, 2014, Always Corporation issues $3,000,000, 5-year, 10% bonds for
$2,910,000. Interest is paid semiannually on January 1 and July 1. Always Corporation
uses the straight-line method of amortization. The company’s fiscal year ends on
December 31. The amount of discount amortized on July 1, 2014 is:
A) $4,500
B) $9,000
C) $18,000
D) $90,000
18) Wetzel Company has the following accounts and balances at the end of the fiscal
year:
What is the total amount of liabilities at the end of the year?
A) $48,500
B) $98,500
C) $198,500
D) $208,000
19) A company purchased a machine for $100,000 many years earlier. The accumulated
depreciation on the machine is $100,000. Which of the following statements is TRUE
regarding the disposal of the machine for no cash proceeds?
A) The cost of the asset, but not its accumulated depreciation, must be removed from
the books
B) A gain or loss on the disposal can occur
C) The journal entry to record the disposal will decrease net assets
D) There will be no gain or loss on the disposal
20) All of the following may appear as an adjustment of net income when preparing the
statement of cash flows using the indirect method EXCEPT:
A) payment of cash dividends
B) depreciation expense
C) loss on sale of long-term assets
D) an increase in accounts payable
21) Declaring and distributing stock dividends:
A) is the distribution of cash to the stockholders
B) increases the total liabilities of the corporation and decreases the total stockholders’
equity
C) reduces the total assets of the corporation
D) has no effect on total stockholders’ equity
22) When a company receives customers’ checks by mail:
A) all incoming mail containing checks from customers should be opened by the
mailroom
B) the mailroom sends all customer checks to the accounting department
C) the remittance advices go to the treasurer for deposit
D) the bank deposit is prepared by the mailroom
23) The Daisy Company had net credit sales of $830,000 for the year. Cash sales for the
year were $1,120,000. Its receivables at the beginning of the year were $47,000 and at
the end of the year they had increased to $82,000. The Daisy Company has credit terms
of net 30 days. Compute the days’ sales in receivables and evaluate the ratio as strong or
weak. (Round all calculations to the nearest dollar or whole day.)
A) Days’ sales in receivables 28 days; strong
B) Days’ sales in receivables 28 days; weak
C) Days’ sales in receivables 12 days; strong
D) Days’ sales in receivables 12 days; weak
24) The issuance of common stock in exchange for cash will be reported in:
A) the noncash financing section of the statement of cash flows
B) the operating activities section of the statement of cash flows
C) the investing activities section of the statement of cash flows
D) the financing activities section of the statement of cash flows
25) Positive signs of a successful company as seen on the statement of cash flows do
NOT include:
A) capital investments in property, plant and equipment
B) operating activities are the largest source of cash
C) banks are willing to lend money to the company
D) the sale of a majority of a company’s plant assets
26) Components of increasing earnings quality include all of the following EXCEPT:
A) declining or stable operating expenses compared to sales
B) improving gross margin compared to sales
C) increasing cost of goods sold to sales ratio
D) proper revenue and expense recognition
27) Marvin Company purchased Marathon Company on August 31, 2014. Marvin
Company recorded goodwill in the purchase of Marathon Company. How will Marvin
Company account for Marathon Company’s goodwill in future accounting periods?
A) Marvin Company will amortize the goodwill over a 40-year life
B) If the value of the goodwill increases in subsequent years, Marvin Company will
increase the Goodwill account
C) If the goodwill is impaired in subsequent years, Marvin Company will decrease the
Goodwill account
D) Marvin Company is not allowed to change the value of the Goodwill account
28) Mariah Company has inventory at the end of the year with a historical cost of
$75,000. Mariah Company uses the perpetual inventory system. Under the LCM rules,
the current replacement cost is $72,600. Under U.S. GAAP, the journal entry to record
the write-down to LCM will:
A) debit Cost of Goods Sold for $2,400 and credit Inventory for $2,400
B) debit Cost of Goods Sold for $2,400 and credit Purchases for $2,400
C) debit Inventory for $2,400 and credit Cost of Goods Sold for $2,400
D) debit Purchases for $2,400 and credit Cost of Goods Sold for $2,400