1) An error in ending inventory creates errors for two accounting periods.
2) Trend analysis using income statement data is widely used for predicting the future.
3) Trend percentages are computed only for balance sheet items.
4) Under the allowance method, Uncollectible-Account Expense is recorded in the
same accounting period as the sale.
5) The cash-budget can span any length of time.
6) The carrying amount of bonds is calculated by adding the balance of the Discount on
Bonds Payable account to the balance in the Bonds Payable account.
7) Unearned revenue will be zero when a company has earned all of the revenue it had
collected in advance.
8) Accounts receivable are reported on the balance sheet at their net realizable value.
9) If a company has high net income, it may still have difficulty paying its bills.
10) Cash that results from collections on account are reported as operating activities on
the statement of cash flows.
11) A company received a utility bill for $500 and decided to pay it next month due to a
shortage of cash. In transaction analysis, how does this transaction affect the accounting
equation?
A) Add $500 to Utilities Expense account and add $500 to Cash account
B) Subtract $500 from Cash account and add $500 to Accounts Payable account
C) Add $500 to Accounts Receivable account and subtract $500 from Retained
Earnings account
D) Add $500 to Accounts Payable account and subtract $500 from Retained Earnings
account
12) Anew Health Care Company reports net income of $200,000 and Depreciation
Expense of $20,000 for the year ending December 31, 2015. No long-term assets were
sold or exchanged during 2015. They also have the following data available:
Using the indirect method, what is the net cash provided (or used) from operating
activities for the year ending December 31, 2015?
A) $70,000
B) $90,000
C) $120,000
D) $190,000
13) Clarke Company owns all of the stock of Patterson Corporation and 80% of the
stock of Tyra Corporation. Clarke Company earned net income of $750,000; Patterson
earned $200,000; and Tyra earned $100,000. Clarke Company’s consolidated income
statement would report net income of:
A) $750,000
B) $950,000
C) $1,030,000
D) $1,050,000
14) Under International Financial Reporting Standards, which line item or caption
below is NOT used?
A) other losses and expenses
B) other gains and revenues
C) loss due to discontinued operations
D) extraordinary loss
15) On January 1, 2015, Ferguson Company signed a lease agreement that requires
monthly payments of $1,000 at the beginning of every month for two years. Ferguson
Company paid $1,000 on January 1, 2015. This is a capital lease. The present value of
the lease payments is $19,000. What journal entry is required by Ferguson Company on
January 1, 2015?
A) debit Leased Asset $1,000 and credit Lease Obligation $1,000
B) debit Rent Expense $1,000 and credit Cash $1,000
C) debit Leased Asset $19,000, credit Cash $1,000 and credit Lease Obligation $18,000
D) debit Leased Asset $18,000 and credit Lease Obligation $18,000
16) When a company pays an amount it owes a creditor:
A) assets are decreased and net income is decreased
B) assets are decreased and liabilities are increased
C) liabilities are decreased and net income is increased
D) assets are decreased and liabilities are decreased
17) The book value of a plant asset is the:
A) accumulated depreciation less the cost of the asset
B) cost of the asset
C) balance in the accumulated depreciation account
D) cost of the asset less the accumulated depreciation
18) In order to determine the balance in an account, you must look at the:
A) source documents
B) journals
C) ledger
D) book of original entry
19) An important fact to consider when determining how to organize a business is that:
A) members of an LLC have unlimited liability and are taxed like members of a
partnership
B) for accounting purposes, a proprietorship is a distinct entity from the proprietor
C) the records of a partnership can include each partner’s personal assets and debts
D) the proprietor and the proprietorship are separate legal entities
20) Jumpin Corporation uses the percent-of-sales method to estimate uncollectibles. Net
credit sales for the current year amount to $2,000,000, and management estimates 2%
will be uncollectible. The Allowance for Uncollectible Accounts prior to adjustment has
a debit balance of $1,000. The amount of Uncollectible-Account Expense reported on
the income statement will be:
A) $1,000
B) $39,000
C) $40,000
D) $41,000
21) On August 1, Steffen Computers, Inc. purchased thirty computer chips, on account,
from a company located in Taiwan for 500,000 Taiwan dollars. On that date the Taiwan
dollar is worth $0.040. On September 1, when the Taiwan dollar was worth $0.038,
payment was made. The journal entry on September 1 by Steffen Computers, Inc.
would include a:
A) debit to Accounts Payable $19,000
B) debit to Foreign-Currency Transaction Loss $1,000
C) credit to Foreign-Currency Transaction Gain $1,000
D) credit to Cash $20,000
22) On the statement of cash flows, investing activities include:
A) obtaining cash from creditors
B) collecting cash on loans
C) selling stock to stockholders
D) repaying borrowed money
23) The Accumulated Depreciation account:
A) is another term for depreciation expense
B) represents the original cost of a plant asset
C) is a contra asset account
D) has a normal balance which is the same as its companion account
24) A type of financial statement fraud that is accomplished by shipping more to
customers than they ordered, with the expectation that they may return some or all of
the items is called:
A) improper asset recognition
B) improper expense recognition
C) channel stuffing
D) cooking the books
25) A company sells 1,000,000 shares of $0.50 par value preferred stock. The selling
price for the stock was $3,000,000. The stated dividend is $1 per share and the stock is
cumulative. What journal entry is needed for the sale?
A) debit Cash $3 million and credit Preferred Stock $3,000,000
B) debit Cash $3 million, credit Preferred Stock $500,000 and credit Paid-in Capital in
Excess of ParPreferred $2.5 million
C) debit Cash $3 million and credit Paid-in Capital in Excess of ParPreferred $3 million
D) debit Cash $3 million and credit Retained Earnings $3 million
26) On December 31, Clorine Corporation has the following data available:
What is return on assets?
A) 18.75%
B) 20.9%
C) 22.5%
D) 25%
27) Under a perpetual inventory system, when a sale is made, the seller prepares:
A) no journal entry
B) one journal entry only
C) two journal entries
D) three journal entries
28) On December 1 of the current year, Prepaid Rent was debited $5,400 for three
months of rent, to cover the period, December 1 to February 28. The amount of the
adjusting entry on December 31 is:
A) $0
B) $1,800
C) $3,600
D) $5,400
29) On January 1, 2015, Dodge Company purchases $100,000, 6% bonds at a price of
90.4 and a maturity date of January 1, 2025. Dodge Company intends to hold the bonds
until their maturity date. Interest is paid semiannually, on January 1 and July 1. Dodge
Company has a calendar year end. The entry to record the purchase of the bond
investment on January 1, 2015, is:
A) debit Held-to-Maturity Investment in Bonds for $100,000 and credit Cash for
$100,000
B) debit Held-to-Maturity Investment in Bonds for $90,400 and credit Cash for $90,400
C) debit Cash for $100,000 and credit Bonds Payable for $100,000
D) debit Cash for $90,400 and credit Investment in Bonds for $90,400
30) Padowski Corporation’s net income for the current year is $500,000. At year end,
the corporation had outstanding 4,500 shares of 15%, $100 par value nonconvertible
preferred stock and 15,000 shares of $10 par value common stock. No shares were
issued or retired during the year. What is basic earnings per share?
A) $22.18
B) $25.64
C) $28.83
D) $33.33
31) When evaluating the collectability of accounts receivable:
A) the Uncollectible-Account Expense is a contra account
B) the Allowance for Uncollectible Accounts is an operating expense in the selling,
general and administrative category
C) the allowance method uses estimates developed from the company’s collection
experience
D) the direct write-off method uses the Allowance for Uncollectible Accounts to record
bad debts
32) The book side of a bank reconciliation includes:
A) deposits in transit, bank collections and NSF checks
B) NSF checks, bank collections of notes receivable and interest earned on the checking
account
C) outstanding checks and deposits in transit
D) outstanding checks, NSF checks and cost of printed checks
33) The accounting principle that requires a company to record warranty expense in the
same period that it records sales revenue is the:
A) going concern principle
B) expense recognition principle
C) conservatism principle
D) consistency principle
34) Which inventory costing method provides the most realistic measure of net income?
A) FIFO
B) LIFO
C) average cost
D) specific identification
35) The balance in the Allowance for Uncollectible Accounts is considered prior to the
year-end adjustment under:
A) the direct write-off method
B) the percent-of-sales method
C) the aging-of-receivables method
D) both the percent-of-sales and aging-of-receivables methods
36) A consolidated balance sheet will NOT report:
A) the Investment account in a 100% owned subsidiary
B) the Common Stock of a 100% owned subsidiary
C) the Retained Earnings of a 100% owned subsidiary
D) all of the above
37) A receiving report:
A) identifies the need for merchandise and begins the purchasing process
B) identifies that the merchandise has been received and ends the purchasing process
C) is sent by the purchasing department to the customer who purchases the item
D) includes the invoice, receiving report, purchase order and purchase request
38) Smith Corporation purchases 40,000 shares of its own $10 par value common stock
for $50 per share. What will be the effect on stockholders’ equity?
A) Increase $400,000
B) Decrease $400,000
C) Increase $2,000,000
D) Decrease $2,000,000
39) Timothy Company has the following trial balance at December 31, 2015:
Prepare a balance sheet at December 31, 2015
40) The following information is available for George Company at March 31:
Adjusted bank balance as of March 31 was $6,450.
Outstanding checks totaled $850.
A customer’s check for $260 was returned due to nonsufficient funds.
March’s service charge was $25.
Bank collected an account receivable of $1,550.
A new bookkeeper had the following errors:
# 930 for Rent Expense written for $900, recorded as $90
#1207 for Office Equipment written for $8,450, recorded as $4,850.
Forgot to record a cash sale of $1,000.
A deposit was shown on the bank statement as $965, when the deposit ticket was
correctly totaled to be $695.
Deposits made at month-end totaled $4,516; these were not shown on bank statement.
41) On January 1, 2014, Fleming Corporation issued 9%, 10-year bonds with a face
value of $900,000 at 93.78. Interest is payable semiannually on January 1 and July 1.
The effective-interest rate when the bonds were issued was 10%. Any discount or
premium is amortized using the effective-interest method.
Required:
Prepare journal entries on:
1> January 1, 2014
2> July 1, 2014
3> December 31, 2014, the fiscal year end
Omit explanations.
42) On April 3, Jenny’s Store purchased stock in New Company for $36,000, and
classified it as a short-term available-for-sale security. On April 28, Jenny’s Store
received dividends from New Company of $1,250. On June 30, the New Company
stock had a fair value of $32,000.
Required:
1>Prepare the journal entries needed to record the transactions. Explanations are not
required.
2>What will Jenny’s Store report on its income statement for the year ended December
31?
43) Devin’s Animal Shop has the following information for the pay period of March 15
to March 31:
Gross payroll$20,000
FICA tax rate7%
Federal income tax withheld15%
Required:
Prepare the journal entry to record the accrued payroll on March 31 and the journal
entry to remit the payroll taxes to the government on April 15. Omit explanations.
44) On April 1, 2015, Eiche Company issues $2,500,000 of 6%, 5-year bonds, with
interest payments made each October 1 and April 1. The bonds are issued at 98. Eiche
Company amortizes any premium or discount using the straight-line method.
Required:
Prepare journal entries on the following dates:
1>April 1, 2015.
2>October 1, 2015.
3>December 31, 2015, the fiscal year end.
Omit explanations.
45) For the year ended, December 31, 2015, the Aldrich Chemical Company omitted
the following adjusting journal entries in error. For each entry, indicate if net income
will be overstated or understated by placing an “X” in the appropriate box.
