1) Access to sensitive data files in a business should be protected by Trojan horses.
2) A receiving report informs a vendor of the amount of goods received by the
purchaser.
3) Cash equivalents do NOT include highly liquid short-term investments.
4) The revenue principle states that revenue should be recorded in the same period as
the cash is received.
5) Expenses are decreases in retained earnings that result from operations.
6) If bonds are issued at a premium, the carrying value of the bonds will be greater than
the face value of the bonds for all interest periods prior to the bond’s maturity date.
7) Long-term available-for-sale investments are adjusted to fair value at the end of each
accounting period.
8) Since a perpetual inventory system continuously updates the inventory account, a
physical inventory count is not necessary to prove the inventory records.
9) Interest is the difference between the amount borrowed and the principal on a note
payable.
10) Current liabilities are expected to be paid within one year or the operating cycle,
whichever is shorter.
11) One of the most common types of fraud that impacts the financial statements is the
misappropriation of assets.
12) Accounting produces financial statements, which report information about a
business entity.
13) In a journal entry, the sum of the debits must always equal the sum of the credits
14) Another name for the continuity assumption is the going-concern assumption.
15) The two main components of stockholders’ equity are paid-in capital and dividends.
16) If the interest rate on a note is 12.5% and the principal was $50,000, what is the
maturity value of the note, if the term of the note is 7 months? (Round to the nearest
dollar.)
A) $50,000
B) $53,646
C) $56,250
D) $57,230
17) Investments in trading securities:
A) are reported after accounts receivable on the balance sheet
B) are more liquid than cash
C) are reported at historical cost on the balance sheet
D) are reported at fair value on the balance sheet
18) Unrealized Gains on Investment in Available-for-Sale Securities are reported on the:
A) income statement
B) statement of Retained Earnings
C) current asset section of the balance sheet
D) stockholders’ equity section of the balance sheet
19) Immediately after the last interest payment, Henry Company converted $3,000,000
of its bonds into 300,000 shares of $10 par value common stock. The unamortized
premium on the bonds at the date of the conversion was $870,000. As a result of this
conversion:
A) liabilities decreased by $3,870,000 and stockholders’ equity increased by $3,000,000
B) liabilities decreased by $3,000,000 and stockholders’ equity increased by $3,000,000
C) liabilities decreased by $3,870,000 and stockholders’ equity increased by $3,870,000
D) liabilities decreased by $870,000 and stockholders’ equity increased by $870,000
20) Excalibur Company sells a piece of equipment for $20,000 cash. The gain or loss
on the sale of equipment equals:
A) the cash received upon the sale
B) the book value of the equipment
C) the accumulated depreciation of the equipment plus the cash received from the sale
D) the difference between the cash received on sale and the book value of the
equipment
21) The International Accounting Standards Board is responsible for establishing:
A) the code of professional conduct for accountants
B) the Securities and Exchange Commission
C) Generally Accepted Accounting Principles used in the United States
D) International Financial Reporting Standards
22) Every journal entry:
A) must increase at least one account and decrease at least one account
B) must debit at least one account and credit at least one account
C) is recorded in either the journal or the ledger
D) affects both an income statement account and a balance sheet account
23) On August 15, a customer paid $3,000 for services provided a month earlier. The
customer was billed on August 1. In transaction analysis, how does this transaction
affect the accounting equation?
A) Add $3,000 to Cash account and add $3,000 to Service Revenue account
B) Add $3,000 to Cash account and add $3,000 to Retained Earnings account
C) Add $3,000 to Cash account and subtract $3,000 from Accounts Receivable account
D) Add $3,000 to Accounts Payable account and add $3,000 to Cash account
24) The difference between the issue price per share of the stock and the par value per
share of the stock is credited to:
A) Retained Earnings
B) Common Stock
C) Paid-in Capital in Excess of Par
D) Income Summary
25) If a corporation declares a $100,000 cash dividend, the account to be debited on the
date of declaration is:
A) Common Stock
B) Dividends Payable
C) Retained Earnings or Dividends
D) Paid-in Capital in Excess of Par
26) When preparing the statement of cash flows using the indirect method, which
statement is FALSE?
A) Gains on the sale of long-term assets are subtracted from net income
B) Losses on the sale of long-term assets are subtracted from net income
C) Depreciation expense is added to net income
D) Increases in current liabilities are added to net income
27) In a bank reconciliation, an EFT cash payment is:
A) added to the bank balance
B) added to the book balance
C) deducted from the book balance
D) deducted from the bank balance
28) The two types of accounting are:
A) profit and nonprofit
B) financial and managerial
C) internal and external
D) bookkeeping and decision-oriented
29) A company incurred the following costs for a new vehicle:
What is the cost of the delivery truck?
A) $137,800
B) $140,800
C) $145,800
D) $146,900
30) Margaret Company has the following information available for the current year:
Industry Averages available are:
How do the inventory turnover and gross profit percentage for Margaret Company
compare to the industry averages for the same ratios?
A) Margaret Company has superior gross profit percentage and inventory turnover
B) Margaret Company has superior gross profit percentage and inferior inventory
turnover
C) Margaret Company has inferior gross profit percentage and superior inventory
turnover
D) Margarent Company has inferior gross profit percentage and inventory turnover
31) On July 1, the Corrao Company purchased $1,000 of inventory on account with
credit terms of 2/10, net 30. Corrao Company uses the perpetual inventory system. On
July 5, the Corrao Company paid the amount due. What journal entry did they prepare
on July 5?
A) debit Accounts Receivable for $1,000 and credit Cash for $1,000
B) debit Accounts Payable for $1,000, credit Inventory for $20 and credit Cash for $980
C) debit Purchase Discount for $20, debit Accounts Payable for $960 and credit Cash
for $980
D) debit Accounts Payable for $980 and credit Cash for $980
32) Treasury stock has a:
A) debit balance, the opposite of other stockholders’ equity accounts
B) credit balance, the same as other stockholders’ equity accounts
C) credit balance, the opposite of other stockholders’ equity accounts
D) debit balance, the same as other stockholders’ equity accounts
33) Census Company had the following accounts and balances at the end of the year.
What are total liabilities at the end of the year?
A) $12,000
B) $45,000
C) $66,000
D) $69,000
34) When a company borrows cash from the bank:
A) total assets remain the same
B) liabilities are increased
C) retained earnings is decreased
D) total liabilities remain the same
35) Using DuPont analysis, what are the components of return on stockholders’ equity?
A) Return on Sales and Leverage Ratio
B) Return on Sales, Debt Ratio and Asset Turnover Ratio
C) Return on Assets and Debt Ratio
D) Net Profit Margin Ratio, Asset Turnover Ratio, and Leverage Ratio
36) Miller Corporation issued 5,000 shares of its $5 par value common stock in
payment for attorney services billed at $40,000. Miller Corporation’s stock has been
actively trading at $8 per share. The journal entry for this transaction would include a:
A) credit to Paid-in Capital in Excess of ParCommon for $40,000
B) credit to Paid-in Capital in Excess of ParCommon for $15,000
C) credit to Cash for $40,000
D) credit to Common Stock for $40,000
37) To be classified as a current asset, an investment must meet the following criteria
which include:
A) the investment must be liquid
B) the investor must intend to convert the investment to cash within one year or
operating cycle, whichever is longer
C) the investment must be easily convertible to cash
D) all of the above
38) An internal control system can be circumvented by:
A) collusion, encryption and management override
B) collusion, management override and segregation of duties
C) collusion, management override and human limitations
D) nothing, if it is a good internal control system
39) Net cash provided by operating activities under the indirect method must be
________ net cash provided by operating activities under the direct method.
A) equal to
B) larger than
C) smaller than
D) none of the above
40) Calculate Company Y’s total asset turnover based on the following information for
the current year:
A) 1.50
B) 2.31
C) 2.61
D) 3.00
41) Doorglam paid $105,000 for office furniture. The furniture is depreciated using the
straight-line method and has an estimated service life of 7 years. After three years of
use, the accumulated depreciation of the furniture will be:
A) $45,000
B) $60,000
C) $90,000
D) $105,000