1) The components of retained earnings include assets, expenses, and dividends.
2) Conservative accounting practices are those that result in reporting lower income,
lower assets, and higher liabilities.
3) Book value is equal to the original cost of the asset minus the current balance in
Accumulated Depreciation.
4) Merchandising companies purchase inventories that are primarily in finished form
for resale to customers.
5) After recording each transaction, total assets must equal total liabilities plus
stockholders equity.
6) Purchasing office supplies is recorded with a credit to office supplies.
7) The amount of retained earnings equals net income minus dividends for the current
year.
8) Adjusting entries are not necessary when cash is received at the same time revenues
are earned.
9) One of the primary benefits of using FIFO when inventory costs are rising is that it
results in greater tax savings.
10) A periodic inventory system does not continually modify inventory amounts, but
instead adjusts for purchases and sales of inventory at the end of the reporting period
based on a physical count of inventory on hand.
11) Depreciation in accounting records the decrease in value of an asset.
12) Once the adjusted trial balance is complete, financial statements are prepared.
13) Impairment occurs when the future cash flows generated for a long-term asset fall
below its fair value.
14) Suppose a severe storm floods a companys headquarters, causing damages to the
building of $300,000 and destruction of inventory of $200,000. Because of the unusual
nature of this event, the company had no flood insurance to cover these losses. Under
IFRS, how much would the company report as an extraordinary loss in the current years
income statement?
a. $0
b. $200,000
c. $300,000
d. $500,000
15) Discount-Mart issues $10 million in bonds on January 1, 2015 . The bonds have a
ten-year term and pay interest semiannually on June 30 and December 31 each year.
Below is a partial bond amortization schedule for the bonds:
What is the market annual rate of interest on the bonds? (Hint: Be sure to provide the
annual rate rather than the six month rate.)
a.3%
b.4%
c.6%
d.8%
16) The assumption that a business will continue to operate into the future is the:
a. Monetary unit assumption
b. Periodicity assumption
c. Economic entity assumption
d. Going concern assumption
17) Timkin creates the following accounts receivable aging report at the end of the year:
Prior to adjusting entries, the Allowance for Uncollectible Accounts has a debit balance
of $500. The year-end adjustment would include a:
a. Credit to Allowance for Uncollectible Accounts for $1,200
b. Debit to Bad Debt Expense for $700
c. Debit to Bad Debt Expense for $1,700
d. Debit to Bad Debt Expense for $1,200
18) Listed below are five 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. Credit sales
b. Sales returns
c. Sales allowances
d. Sales discounts
e. Trade discounts
_____ Sale on account to customers.
19) Posting transactions to T-accounts involve:
a. Analyzing source documents to determine the effects of transactions on the companys
accounts
b. Listing all accounts and their balances at a particular date to ensure that debits equal
credits
c. Preparing a chronological record of all transactions affecting the company
d. Transferring debit and credit information from the journal to the accounts in the
general ledger
20) The following financial information is from Bronco Company. All debt is due
within one year unless stated otherwise.
What is the amount of current liabilities?
a. $63,000
b. $28,000
c. $45,600
d. $22,000
21) Given the information below, what is the companys gross profit?
a. $250,000
b. $70,000
c. $220,000
d. $50,000
22) For each of the following accounts, indicate whether we use a debit or a credit to
decrease the balance of the account.
(a) Accounts Receivable
(b) Accounts Payable
(c) Salaries Expense
(d) Service Revenue
(e) Supplies
(f) Common Stock
(g) Advertising Expense
(h) Dividends
23) Good, Inc. sold inventory for $1,200 that was purchased for $700. Good records
which of the following when it sells inventory using a periodic inventory system?
a. No entry is required for cost of goods sold and inventory
b. Debit Cost of Goods Sold $700; credit Inventory $700
c. Debit Cost of Goods Sold $1,200; credit Inventory $1,200
d. Debit Inventory $700; credit Cost of Goods Sold $700
24) Under the direct write-off method, what adjustment is made at the time an actual
bad debt occurs?
a. Debit Bad Debt Expense, credit Allowance for Uncollectible Accounts
b. Debit Allowance for Uncollectible Accounts, credit Accounts Receivable
c. Debit Bad Debt Expense, credit Accounts Receivable
d. No adjustment is made
25) Selected financial data for Company A is provided below:
What is the times interest earned ratio for Company A?
a.6.9 times
b.3.9 times
c.0.3 times
d.97.9 times
26) Which of the following is a possible adjusting journal entry?
a. Debit Cash, credit Accounts Payable
b. Debit Service Revenue, credit Cash
c. Debit Salaries Expense, credit Salaries Payable
d. Debit Utilities Expense, credit Retained Earnings
27) A company issued 1,000 shares of $1 par value preferred stock for $5 per share.
What is True about the journal entry to record the issuance?
a. Debit Preferred Stock $5,000
b. Credit Cash $5,000
c. Credit Preferred Stock $5,000
d. Credit Additional Paid-In Capital $4,000
28) Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month. Ending inventory assuming LIFO
would be:
a. $500
b. $490
c. $470
d. $480
29) Of the following six accounts, which ones have temporary balances:
(1) Service Revenue
(2) Dividends
(3) Salaries Expense
(4) Common Stock
(5) Retained Earnings
(6) Cash
a. (1), (2), and (3)
b. (4), (5), and (6)
c. (2), (4), and (5)
d. (1), (3), and (5)
30) The Norwalk Agreement:
a. Allows foreign companies listed on U.S. stock exchanges to prepare financial
statements in accordance with IFRS
b. Formalizes the commitment between the FASB and IASB to converge U.S. GAAP
and IFRS
c. Eliminates the requirement that U.S. firms report under U.S. GAAP
d. Gives authority to the IASB to set accounting standards for U.S. companies
31) When the company pays stockholders a dividend, what is the effect on the
accounting equation for that company?
a. Decrease stockholders equity and increase assets
b. Increase liabilities and increase assets
c. Decrease assets and decrease liabilities
d. Decrease assets and decrease stockholders equity
32) 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
____ Issue common stock.
33) Nu Company reported the following data for its first year of operations:
What is Nu’s gross profit ratio?
a. 80%
b. 49%
c. 40%
d. 5%
34) Financial information for Retro Designs includes the following selected data:
What is the companys earnings per share?
a.$0.60
b.$0.70
c.$0.50
d.$0.05
35) Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown
below.
HHF’s times interest earned ratio is:
a.3.47
b.1.72
c.2.47
d.10.0
36) Which of the following is an aggressive accounting practice?
a. The use of a shorter service life for depreciation
b. Waiting to record a litigation loss
c. Adjust the allowance for uncollectible accounts to a larger amount
d. The write-down of overvalued inventory
37) Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright
violations. Higgins’ legal counsel believes it is probable that Higgins will settle the
lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts
in the range considered equally likely. How should Higgins report this litigation?
a. As a liability for $100,000 with disclosure of the range
b. As a liability for $150,000 with disclosure of the range
c. As a liability for $200,000 with disclosure of the range
d. As a disclosure only. No liability is reported
38) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 average collection period is:
a.73 days
b.104 days
c.109 days
d.128 days
39) Listed below are seven terms listed in alphabetical order followed by a list of
phrases that describe or characterize the terms. Match each phrase with the best term
placing the letter designating the term in the space provided.
a. Growth stocks
b. Horizontal analysis
c. Liquidity
d. Profitability ratios
e. Solvency
f. Value Stocks
g. Vertical analysis
Phrases:
_____ Analyzes trends in financial statement data for a single company over time.
_____ Have lower share prices in relationship to their fundamental ratios and therefore
trade at lower PE ratios.
_____ Expresses each item in a financial statement as a percentage of the same base
amount.
_____ Refers to a companys ability to pay its current liabilities.
_____ Refers to a companys ability to pay its long-term liabilities.
_____ Have high expectations of future earnings and therefore usually trade at higher
P/E ratios.
_____ Measure the earnings or operating effectiveness of a company.
40) Jerome purchased a building for his business by signing a note to be repaid over the
next ten years. Which of the following correctly describes how to record this
transaction?
a. Debit assets, credit liabilities
b. Debit assets, credit stockholders equity
c. Debit liabilities, credit assets
e. Debit expenses, credit liabilities
41) The value that an amount today will grow to in the future is referred to as the:
a. Future value of a single amount
b. Present value of a single amount
c. Future value of an annuity
d. Present value of an annuity
42) Term bonds are:
a. Bonds issued below the face amount
b. Bonds that mature in installments
c. Bonds that mature all at once
d. Bonds issued below the face amount
43) Which of the following transactions would cause an increase in both the assets and
liabilities of a company?
a. Paying for the current months rent
b. Pay for inventory purchased 90 days ago
c. Purchase of a building by issuing a note payable
e. Services received on account
44) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the term in the space provided.
a. Accrued expenses
b. Adjusted trial balance
c. Adjusting entries
d. Depreciation expense
e. Balance sheet
f. Prepaid expenses
g. Expenses
h. Post-closing trial balance
i. Income statement
j. Trial balance
____ Liabilities created when expenses are recognized before cash flows.
45) Interest expense on bonds payable is calculated as the:
a. Face amount times the stated interest rate
b. Face amount times the market interest rate
c. Carrying value times the market interest rate
d. Carrying value times the stated interest rate
46) Air France collected cash on February 4 from the sale of a ticket to a customer on
January 26. The flight took place on April 5. According to the revenue recognition
principle, in which month should Air France have recognized this revenue?
a. January
b. February
c. April
d. Evenly in each of the three months
47) Which of the following would increase assets and increase liabilities?
a. Provide services to customers on account
b. Purchase office supplies on account
c. Pay dividends to stockholders
d. Receive a utility bill but do not pay it immediately
48) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 average days in inventory is:
a.60.5 days
b.92.2 days
c.100.8 days
d.89.7 days
49) Which of the following is True concerning inventory cost flow assumptions?
a. LIFO produces higher net income than FIFO in a period of rising costs
b. FIFO is an income statement focus
c. LIFO is a balance sheet focus
d. None of the above are True
50) A company pays $1,700 cash to employees for work performed during the month.
Record the payment using (a) accrual-basis accounting and (b) cash-basis accounting.
51) Merchandise sold FOB shipping point indicates that:
a. The seller holds title until the merchandise is received at the buyer’s location
b. The merchandise has not yet been shipped
c. The merchandise will not be shipped until payment has been received
d. The seller transfers title to the buyer once the merchandise is shipped
52) Nina Corp. had the following net income (loss) the first three years of operation:
$7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three
is $1,100, what was the total amount of dividends paid over these three years?
a. $500
b. $0
c. $9,100
d. $8,000
53) In terms of total sales, assets, and earnings, the dominant form of business
organization is the:
a.Sole proprietorship
b.Partnership
c.Corporation
d.Limited liability company (LLC)
54) Nathan Herrmann has completed the basic format to be used in preparing the
statement of cash flows (indirect method) for CEO Consultants.
Listed below in random order are line items to be included in the statement of cash
flows.
Purchase of equipment $220,000
Increase in inventory30,000
Increase in prepaid rent10,000
Payment of dividends40,000
Depreciation expense20,000
Increase in accounts receivable60,000
Increase in accounts payable10,000
Loss on sale of land 7,000
Net income70,000
Repayment of notes payable50,000
Cash received from the sale of land 3,000
Issuance of common stock 250,000
Prepare the statement of cash flows for CEO Consultants using the indirect method.
55) During the current year, a company provides services on account for $100,000. By
the end of the year, $60,000 of this amount had been received. In addition, cash
payments for the year were employees salaries, $50,000; office supplies, $10,000; and
utilities $20,000. Determine the amount of operating cash flows the company will
report in the current year.
56) A company collects $4,000 cash from customers for services previously provided
on account. Record the transaction.
57) On August 12, a company provides services on account to a customer for $3,000.
However, on August 16, the customer is not completely satisfied with the service and
the company grants an allowance on the amount owed of $400. On August 20, the
customer makes full payment of the balance owed, excluding the allowance. Record the
services provided on August 12, the sales allowance on August 16, and the cash
collection on August 20 .
58) Two competing advertising agencies provide similar services, but record sales using
different methods.
1> Diversified Advertising records sales and sales taxes in separate accounts. For the
month of March, sales total $10,000 and sales taxes are $600.
2> Centralized Advertising records sales and sales taxes together. For the month of
March, sales total $5,300, including a 6% sales tax.
Record sales revenue and the related sales tax payable for (1) Diversified Advertising
and (2) Centralized Advertising.
59) LeBrons Kids Camps has a current ratio of 0.75 to 1, based on current assets of $3
million and current liabilities of $4 million. How, if at all, will a $500,000 cash
purchase of inventory affect the current ratio? How, if at all, will a $500,000 purchase
of inventory on account affect the current ratio?
60) A companys general ledger shows a cash balance of $4,570. Comparing the
companys cash records with the monthly bank statement reveals several additional cash
transactions such as checks outstanding of $2,840, bank service fees of $110, and
interest earned of $15. Calculate the correct balance of cash.
61) A company reports the following amounts at the end of the year: Total sales =
$400,000; cash = $35,000; sales discounts = $10,000; accounts receivable = $20,000;
sales returns = $15,000; operating expenses = $70,000; sales allowances = $25,000.
Compute net revenues.