1) Prepaid expenses involve payment of cash (or an obligation to pay cash) for the
purchase of an asset before the expense is incurred.
2) A credit balance in the Allowance for Uncollectible Accounts before adjustment
indicates that last years estimate of uncollectible accounts may have been too high.
3) The post-closing trial balance does not include any assets or liabilities, because these
accounts all have zero balances after closing entries.
4) The time value of money is a concept, which means that the value of $1 increases
over time.
5) American, Delta, and United Airlines have all, at one time, filed for bankruptcy.
6) A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales
Allowances.
7) If total liabilities of a company equal $16,000 and total stockholders equity equals
$9,000, then total assets equal $7,000.
8) Under U.S. GAAP, development expenditures are capitalized, while under IFRS,
these expenditures must be expensed immediately.
9) The adjusting entry for an accrued expense has the effects of decreasing net income
and decreasing liabilities.
10) Paid-in Capital is the amount stockholders have invested in the company.
11) Bad debt expense is the amount of the adjustment to the allowance for uncollectible
accounts that represents the cost of the estimated future bad debts.
12) Investing cash flows generally include cash receipts and cash payments for
transactions involving revenues and expenses.
13) Leverage enables a company to earn a higher return using debt than without debt.
14) Retained earnings represents the cumulative amount of net income earned over the
life of the company that has not been distributed to stockholders as dividends.
15) Under the indirect method, a decrease in accounts payable is added to net income to
arrive at net cash flows from operating activities.
16) If total change in cash = $44,000, net operating cash flows = $22,000, and net
investing cash flows = ($13,000); then net financing cash flows =
a. $15,000
b. $35,000
c. $25,000
d. $45,000
17) The par value of common stock represents:
a.The amount received when the stock was issued
b.The liquidation value of a share
c.The market value of a share of stock
d.The legal capital per share of stock assigned when the corporation was first
established
18) Why are some U.S. companies opposed to elimination of the LIFO inventory
method?
a. Inventory amounts are more difficult to calculate under FIFO
b. LIFO most likely matches actual flow of inventory
c. Increased tax burden
d. Most international companies use LIFO
19) On December 31, 2015, Larry’s Used Cars had balances in Accounts Receivable
and Allowance for Uncollectible Accounts of $53,600 and $1,325, respectively. During
2016, Larry’s wrote off $1,465 in accounts receivable and determined that there should
be an allowance for uncollectible accounts of $1,280 at December 31, 2016 . Bad debt
expense for 2016 would be:
a. $1,280
b. $1,465
c. $1,420
d. $1,140
20) 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. Cash inflow from operating activities
b. Cash outflow from financing activities
c. Cash outflow from operating activities
d. Cash inflow from investing activities
e. Cash inflow from financing activities
f. Cash outflow from investing activities
____ Pay salaries to employees.
21) When a gain contingency is probable and the amount of gain can be reasonably
estimated, the gain should be:
a.Reported in the income statement and disclosed
b.Offset against stockholders equity
c.Disclosed, but not recognized in the income statement
d.Reported in the income statement, but not disclosed
22) Purchasing office supplies on account will:
a. Not change assets
b. Increase assets and decrease liabilities
c. Increase assets and increase liabilities
d. Increase assets and increase stockholders equity
23) On April 1, Robert LLC purchased two units of inventory, A and B. The cost of unit
A was $650, and the cost of unit B was $625. On April 30, Robert LLC had not sold the
inventory. The market value of unit A was now $685 while the market value of unit B
was $550. The adjustment associated with the lower-of-cost-or-market method on April
30 will be:
a. Cost of Goods Sold40
Inventory40
b. Inventory40
Cost of Goods Sold40
c. Cost of Goods Sold75
Inventory75
d. Inventory75
Cost of Goods Sold75
24) 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
_____ LIFO must be used for financial reporting if elected for taxes.
25) Return on assets is calculated as:
a. Net Income divided by total assets
b. Net Income divided by average total assets
c. Net Income divided by ending total assets
d. Ending total assets divided by net income
26) Today, financial accounting and reporting standards in the United States are
established primarily by the:
a. Securities and Exchange Commission
b. Financial Accounting Standards Board
c. International Accounting Standards Board
d. U.S. Congress
27) In 2015, Hope Company incurred sales on account of $100,000. The company also
has the following information:
What is the amount of cash received from customers for Hope Company in 2015?
a. $100,000
b. $45,000
c. $130,000
d. $70,000
28) Common stockholders usually have all of the following rights except:
a.To receive dividends when declared
b.To share in the distribution of assets
c.To elect board of directors
d.To participate in the day-to-day operations
29) The current portion of long-term debt should be
a.Reported as a current liability on the balance sheet
b.Reported as a long-term liability on the balance sheet
c.Combined with the rest of the long-term debt on the balance sheet
d.Paid immediately
30) Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What
entry should Brian Inc. record?
a. Debit Cash, $8,000; Credit Notes Receivable, $8,000
b. Debit Notes Receivable, $8,000; Credit Cash, $8,000
c. Debit Cash, $8,000; Credit Notes Payable, $8,000
d. Debit Notes Payable, $8,000; Credit Cash, $8,000
31) 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 by placing the letter designating
the term in the space provided.
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Overall attitude of the company with respect to internal controls.
32) When a company makes an end-of-period adjusting entry that includes a credit to
Prepaid Rent, the debit is usually made to:
a. Cash
b. Rent Expense
c. Rent Payable
d. Rent Receivable
33) The following table contains financial information for Fisher Inc. before closing
entries:
How many of the above accounts are permanent?
a. Three
b. Four
c. Five
d. Six
34) The Surfs Up issues 1,000 shares of 6%, $100 par value preferred stock at the
beginning of 2014 . All remaining shares are common stock. The company was not able
to pay dividends in 2014, but plans to pay dividends of $18,000 in 2015 . Assuming the
preferred stock is noncumulative, how much of the $18,000 dividend will be paid to
preferred stockholders and how much will be paid to common stockholders in 2015?
a. $6,000 to preferred stockholders and $12,000 to common stockholders
b. $18,000 to preferred stockholders and $0 to common stockholders
c. $12,000 to preferred stockholders and $6,000 to common stockholders
d. $9,000 to preferred stockholders and $9,000 to common stockholders
35) 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
_____ Cost of freight included in inventory.
36) Berry Co. purchases a patent on January 1, 2015, for $40,000 and the patent has an
expected useful life of five years with no residual value. Assuming Berry Co. uses the
straight-line method, what is the amortization expense for the year ended December 31,
2016?
a. $0
b. $8,000
c. $16,000
d. $40,000
37) An account receivable can best be defined as:
a. A payment to the owners
b. A sale of goods and services
c. A resource owned by the company
d. An amount owed by the company
38) Eric Company has the following information:
What is the amount of net revenues for Eric Company?
a. $330,000
b. $230,000
c. $680,000
d. $780,000
39) 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
____ Fees imposed by the bank to the company for providing routine services.
40) The following information pertains to Sooner Companys cash balance and bank
reconciliation as of August 31:
What is the correct cash balance for Sooner Company?
a. $7,150
b. $5,150
c. $7,650
d. $7,250
41) Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones
sold will be returned for repair under its warranty program. The average repair cost is
$75 per phone. For 2015, Talks-A-Lot has sold 750 cell phones and has repaired 30 of
them as of December 31, 2015 . What amount of warranty liability should be reported
at December 31, 2015?
a. $2,250
b. $3,375
c. $5,625
d. None, all expected returns from warranties have been received
42) Transactions of a company that include the purchase and sale of long-term
productive assets are referred to as:
a. Investing activities
b. Financing activities
c. Expenditure activities
d. Operating activities
43) Which of the following transactions would not create a cash flow?
a. The company purchased some of its own stock from a stockholder
b. Payment of a dividend
c. The company purchased land by issuing common stock
d. Sale of equipment at book value
44) X2 issued callable bonds on January 1, 2015 . The bonds pay interest annually on
December 31 each year. X2’s accountant has projected the following amortization
schedule from issuance until maturity:
X2 issued the bonds for:
a.$100,000
b.$107,000
c.$104,212
d.Cannot be determined from the given information
45) Samson Enterprises issued a ten-year, $20 million bond with a 10% interest rate for
$19,500,000. The entry to record the bond issuance would have what effect on the
financial statements?
a. Increase assets
b. Increase liabilities
c. Increase stockholders equity
d. a and b
46) Assuming a current ratio of 1.0 and an acid-test ratio of 0.80, how will the
borrowing of cash by issuing a six-month note payable affect each ratio?
a. Increase the current ratio and increase the acid-test ratio
b. No change to the current ratio and increase the acid-test ratio
c. Decrease the current ratio and decrease the acid-test ratio
d. Decrease the current ratio and increase the acid-test ratio
47) Which of the following is not a common type of comparison in accounting?
a. Comparisons of sales growth between companies
b. Comparisons of earnings per share between companies
c. Comparisons of earnings this year with earnings for the same company last year
d. Comparisons to industry
48) 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 by placing the letter designating
the term in the space provided.
a. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ Convention used to record transactions of a company.
49) Which of the following is NOT a correct practice when adjusting net income to net
operating cash flows?
a. Subtract depreciation expense
b. Add losses on sales of assets
c. Subtract increase in Accounts Receivable
d. Add increase in Accounts Payable
50) The balance sheet of Sub America reports total equity of $400,000 and $450,000 at
the beginning and end of the year, respectively. The return on equity for the year is
10%. What is Sub Americas net income for the year?
a. $42,500
b. $45,000
c. $4,250,000
d. $85,000
51) When a company sells land for cash and makes a $25,000 gain:
a.Its acid-test ratio decreases
b.Its current ratio decreases
c.Its debt to equity ratio decreases
d.Cannot determine from the given information
52) Which of the following statements regarding liquidity ratios is True?
a.A low current ratio generally indicates the ability to pay current liabilities on a timely
basis
b.A low acid-test ratio generally indicates the ability to pay current liabilities on a
timely basis
c.All current assets are due within one year and therefore have essentially equal
liquidity
d.A high working capital generally indicates the ability to pay current liabilities on a
timely basis
53) The financial statements of a firm that uses more conservative accounting practices
would be likely to report:
a. Higher profitability
b. Higher dividends
c. Higher liabilities
d. Higher stockholders equity
54) Inventory records for Marvin Company revealed the following:
Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming
weighted-average cost would be (round weighted-average unit cost to four decimals if
necessary):
a. $16,733
b. $17,408
c. $16,713
d. $16,089
55) The financial statements of Heatwave Athletic Wear include the following selected
data ($ in millions): Sales, $22,502; Net income $875; Beginning stockholders equity
$3,567; Ending stockholders equity, $4,102. Calculate the return on equity.
56) Describe what is meant by unearned revenues and give two examples.
57) What does it mean to report accounts receivable at their net realizable value.
58) Barrys BBQ had sales revenue for the year of $200 million and net income of $20
million.. Total assets were $70 million at the beginning of the year, and $80 million at
the end of the year. Calculate Barrys return on assets, profit margin, and asset turnover
ratios.
59) On October 22, a company provides services on account to a customer for $1,800,
terms 3/15, n/30. The customer pays for those services on December 19 . Record the
transactions for the company when the services are provided on October 22 and when
cash is collected on December 19 .
60) Western Wholesale Foods incurs the following expenditures during the current
fiscal year: (1) salaries for the repair technicians, $155,000; (2) remodeling of the
executive offices, $84,000; (3) annual maintenance costs related to its machinery,
$72,900; (4) improvement of the production line resulting in an increase in productivity,
$38,000; and (5) addition of a sprinkler system to the manufacturing facility to reduce
the risk of fire damage, $35,000. How should Western account for each of these
expenditures?
61) During 2015, a company sells 20 units of inventory. The company has the following
inventory purchase transactions for 2015:
Calculate ending inventory and cost of goods sold for 2015 assuming the company uses
weighted-average cost with a periodic inventory system.
62) Phillips Fun Center has go-karts, miniature golf, bumper boats, paintball, and laser
tag. Determine whether the company should report each of the following items as
discontinued operations, extraordinary items, or other expenses:
1> Uninsured losses of $200,000 were incurred due to a hurricane that swept through
the area for the first time in 50 years.
2> The company sold its old go-karts at a loss of $25,000 and replaced them with all
new go-karts.
3> The company sold its laser tag center at a loss of $10,000 to focus on the other more
profitable segments. Laser tag is considered to be a separate business segment.
4> The company restructured its business at a cost of $75,000, replacing some
employee positions with automated equipment.
63) The following account balances appear in the 2015 adjusted trial balance of
Diamond Corporation: Common Stock, $21,000; Retained Earnings, $8,000;
Dividends,
$2,000; Service Revenue, $30,000; Salaries Expense, $13,000; and Utilities Expense,
$7,000. No common stock was issued during the year. Prepare the statement of
stockholders equity for the year ended December 31, 2015 .
64) The balance sheet of Integrated Systems reports total assets of $890,000 and
$950,000 at the beginning and end of the year, respectively. Sales revenues are $1.6
million, net income is $185,000, and net cash flows from operating activities are
$155,000. Calculate the cash return on assets, cash flow to sales, and asset turnover for
Integrated Systems.
