1) Given a choice, most companies would prefer to report a liability as current rather
than long-term, because doing so may cause the firm to appear less risky.
2) The location where a loss is reported in the income statement does not really matter
as long as the loss is reported.
3) Conservative accounting practices are those that result in reporting higher income,
higher assets, and lower liabilities.
4) When insignificant influence exists, the investment should be accounted for by the
equity method.
5) Financing activities are transactions involving externals sources of funding.
6) The stated interest rate does not change over time.
7) The 1934 Securities Exchange Act gives the Securities and Exchange Commission
(SEC) the power to require companies with publicly traded securities to prepare
periodic financial statements for distribution to investors and creditors.
8) A $10,000 note that has a stated interest rate of 10% and is due in six months would
have interest of $1,000.
9) Taking a big bath is recording all losses in one year to make a bad year even worse.
10) The acquiring company records goodwill equal to the purchase price less the book
value of the net assets acquired.
11) Research and development costs incurred in developing a patent internally are not
recorded as an intangible asset in the balance sheet, but rather are expensed directly in
the income statement.
12) The amount of cash reported in a companys balance sheet includes items acceptable
for deposit in bank accounts, such as checks received from customers.
13) The adjusting entry for a prepaid expense always includes a debit to an expense
account and a credit to a liability account.
14) A contingent liability is recorded only if a loss is at least reasonably possible and
the amount can be reasonably estimated.
15) When the investor has significant influence, the receipt of cash dividends is
recorded as dividend revenue.
16) The following information relates to inventory for Shoeless Joe Inc.
At what amount would Shoeless report cost of goods sold using the weighted-average
cost flow assumption? (Round your answer to the nearest dollar)
a. $110
b. $73
c. $70
d. $105
17) On November 6, Coleman Corp. reacquired 1,000 shares of its $2 par value
common stock for $27 each. On November 20, Coleman Corp. reissued 400 shares for
$30 each. Which of the following is correct regarding the effect of the journal entry for
the reissued shares?
a. Assets decrease
b. Liabilities decrease
c. Expenses increase
d. Stockholders Equity increases
18) Barton Health Services provided care to a patient worth $1,200. Because the patient
was over the age of 65, Barton granted the patient a 20% discount and the customer
paid the correct amount in cash. How would Barton record the service transaction?
a. Cash 960
Service Revenue 960
b. Cash 960
Trade Discount 240
Service Revenue1,200
c. Cash1,200
Service Revenue1,200
d. Cash1,200
Trade Discount 240
Service Revenue 960
19) 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
____ Checks written by the company but not yet recorded by the bank.
20) In common law countries (such as the U.S., the U.K., and Canada), greater
emphasis is placed on public information than in code law countries (such as France
and Germany).
21) The purchase of treasury stock is classified in the statement of cash flows as a(n):
a. Operating activity
b. Investing activity
c. Financing activity
d. Noncash activity
22) When a company provides services on account, the accounting equation would be
affected as follows:
a. Assets increase
b. Revenues increase
c. Assets increase and liabilities decrease
d. Assets increase and stockholders equity increases
23) The accounting equation is defined as:
a. Assets = Liabilities + Stockholders Equity
b. Assets = Liabilities Stockholders Equity
c. Net Income = Revenues Expenses
d. Liabilities + Revenues = Assets
24) Of the following, the most important objective for financial reporting is to provide
information useful for:
a. Predicting cash flows
b. Determining taxable income
c. Providing accountability
d. Increasing future profits
25) Which of the following is NOT involved in the replenishment of the petty cash
fund?
a. Transactions related to vouchers will be recorded
b. Management will verify that the total of all vouchers equals the amount of cash
missing from the petty cash fund
c. Weekly payroll checks will be recorded
d. Management will withdraw cash from the bank and place it in the petty cash fund
26) Consider the following events for Sophia Incorporated:
Under accrual-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
27) Which of the following is an example of a cash outflow from an investing activity?
a. Payment of cash for treasury stock
b. Payment of cash for the purchase of land
c. Payment of cash for inventory
d. Payment on a long-term note payable
28) Which employees have an impact on the operation and effectiveness of internal
controls?
a. Upper management
b. Mid-level managers
c. Lower-level employees
d. All employees
29) Strikers, Inc. sells soccer goals to customers over the Internet. History has shown
that 2% of Strikers goals will need repair under the warranty program. For the year,
Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a
goal is $200, what would be the Warranty Liability at the end of the year?
a. $0
b. $16,000
c. $7,000
d. $9,000
30) Which of the following items is not reported in the operating section of the
statement of cash flows using the direct method?
a. Depreciation expense
b. Cash paid to suppliers
c. Cash received from customers
d. Cash paid for income taxes
31) After preparing a bank reconciliation, the collection of a note by the bank on a
companys behalf would be recorded with a:
a. Credit to Notes Receivable
b. Credit to Cash
c. Debit to Notes Receivable
d. Credit to Accounts Receivable
32) Below are some of the items found in a multiple-step income statement:
a. Sales revenue
b. Net income
c. Operating income
d. Income before income taxes
e. Gross profit
Place these items in the order they would appear from first to last.
33) Explain what it means that external transactions have a dual effect.
34) ACME Drilling is evaluating an offshore oil-drilling platform for possible
impairment. They estimate the following: book value, $18.5 million; fair value, $12
million; sum of estimated future cash flows generated from the oil drilling platform,
$16 million. What amount of impairment loss, if any, should they record?
35) The balance sheet of The Computer Doctor reports total assets of $160,000 and
$220,000 at the beginning and end of the year, respectively. The cash return on assets
for the year is 10%. Calculate The Computer Doctors net cash flows from operating
activities for the year.
36) At the beginning of the period, a company reports a balance in office supplies of
$500. During the period, the company purchases an additional $3,500 of office supplies
for cash. By the end of the period, only $700 of office supplies remains. Record the
period-end adjusting entry.
37) At the end of the current period, Rogers Company reports the following amounts:
Assets = $25,000; Liabilities = $15,000; Dividends = $3,000; Revenues = $20,000;
Expenses = $13,000. Calculate net income and stockholders equity at the end of the
period.