1) If, at the end of a period, a company erroneously excluded some goods from its
ending inventory and also erroneously did not record the purchase of these goods in its
accounting records, these errors would cause
a.the ending inventory and retained earnings to be understated
b.the ending inventory, cost of goods sold, and retained earnings to be understated
c.no effect on net income, working capital, and retained earnings
d.cost of goods sold and net income to be understated
2) In 2014, Linz Corporation reported an extraordinary loss of $1,000,000, net of tax. It
declared and paid preferred stock dividends of $100,000 and common stock dividends
of $300,000. During 2014, Linz had a weighted average of 500,000 common shares
outstanding. As a result of the extraordinary loss, net of tax, the earnings per share
would decrease by
a.$1.20
b.$1.40
c.$1.80
d.$2.00
3) On July 1, 2014, Spear Co. issued 2,000 of its 10%, $1,000 bonds at 99 plus accrued
interest. The bonds are dated April 1, 2014 and mature on April 1, 2024 . Interest is
payable semiannually on April 1 and October 1 . What amount did Spear receive from
the bond issuance?
a.$2,030,000
b.$2,000,000
c.$1,980,000
d.$1,930,000
4) During 2015, Greta Company earned net income of $212,000 which included
depreciation expense of $39,000. In addition, the company experienced the following
changes in the account balances listed below:
Decreases Increases
Accounts receivable$ 6,000 Accounts payable…$22,500
Prepaid expenses 16,500 Inventory…18,000
Accrued liabilities12,000
Based upon this information what amount will be shown for net cash provided by
operating activities for 2015?
a.$266,000
b.$252,500
c.$162,500
d.$153,500
5) A major advantage of the retail inventory method is that it
a.provides reliable results in cases where the distribution of items in the inventory is
different from that of items sold during the period
b.hides costs from competitors and customers
c.gives a more accurate statement of inventory costs than other methods
d.provides a method for inventory control and facilitates determination of the periodic
inventory for certain types of companies
6) Tanner Corporation’s inventory on its balance sheet was lower using first-in, first-out
than it would have been using last-in, first-out. Assuming no beginning inventory, in
what direction did the cost of purchases move during the period?
a.Up
b.Down
c.Steady
d.Cannot be determined
7) In January 2015, Post, Inc. estimated that its year-end bonus to executives would be
$840,000 for 2015 . The actual amount paid for the year-end bonus for 2014 was
$770,000. The estimate for 2015 is subject to year-end adjustment. What amount, if
any, of expense should be reflected in Post’s quarterly income statement for the three
months ended March 31, 2015?
a.$ -0-
b.$192,500
c.$210,000
d.$840,000
8) When the purchaser in a business combination pays less then the fair value of the
identifiable net assets, such a situation is referred to as a:
a.goodwill purchase
b.bargain purchase
c.residual purchase
d.blanket purchase
9) What is the normal journal entry for recording bad debt expense under the allowance
method?
a.Debit Allowance for Doubtful Accounts, credit Accounts Receivable
b.Debit Allowance for Doubtful Accounts, credit Bad Debt Expense
c.Debit Bad Debt Expense, credit Allowance for Doubtful Accounts
d.Debit Accounts Receivable, credit Allowance for Doubtful Accounts
10) An item of inventory purchased this period for $15.00 has been incorrectly written
down to its current replacement cost of $10.00. It sells during the following period for
$30.00, its normal selling price, with disposal costs of $3.00 and normal profit of
$12.00. Which of the following statements is not true?
a.The cost of sales of the following year will be understated
b.The current year’s income is understated
c.The closing inventory of the current year is understated
d.Income of the following year will be understated
11) A common set of accounting standards and procedures are called
a.financial accounting standards
b.generally accepted accounting principles
c.objectives of financial reporting
d.statements of financial accounting concepts
12) During 2015, Orton Company earned net income of $464,000 which included
deprecia-tion expense of $78,000. In addition, the company experienced the following
changes in the account balances listed below:
IncreasesDecreases
Accounts payable$45,000Accounts receivable$12,000
Inventory36,000 Accrued liabilities24,000
Prepaid insurance33,000
Based upon this information what amount will be shown for net cash provided by
operating activities for 2015?
a.$572,000
b.$545,000
c. $365,000
d.$347,000
13) Quirk Corporation issued a 100% stock dividend of its common stock which had a
par value of $10 before and after the dividend. At what amount should retained earnings
be capitalized for the additional shares issued?
a.There should be no capitalization of retained earnings
b.Par value
c.Fair value on the declaration date
d.Fair value on the payment date
14) When using a perpetual inventory system,
a.no Purchases account is used
b.a Cost of Goods Sold account is used
c.two entries are required to record a sale
d.All of these answer choices are correct
15) On January 2, 2014, Norwin Company purchased 2,000 shares of Oslo Company
common stock for $60,000. The stock has a par value of $10 and is part of the total
stock outstanding of 20,000 shares of Oslo Company. Norwin Company intends the
stock to be available for sale. Total stockholders’ equity of Oslo Company on January 2,
2014 was $600,000.
Instructions
Prepare necessary journal entries on the books of Norwin Company for the following
transactions. If no entry is required, write “none” in the space provided. (Round all
calculations to the nearest cent.)
(a)January 2, 2014: Norwin purchases the shares described above.
(b)December 31, 2014: Norwin receives a $.75 per share dividend from Oslo, and Oslo
announces a net income for 2014 of $250,000.
(c)December 31, 2014: According to The Wall Street Journal, Oslo common is selling
for $27 per share. Norwin’s management views this decline as being only temporary in
nature. Oslo’s common is Norwin’s only available-for-sale security.
(d)February 15, 2015: Norwin sells 1,000 of the shares purchased on January 2, 2014 at
$32 per share.
16) Compared to the accrual basis of accounting, the cash basis of accounting
overstates income by the net increase during the accounting period of the
Accounts ReceivableAccrued Expenses Payable
a.NoNo
b.NoYes
c.YesNo
d.YesYes
17) Which of the following is an ingredient of relevance?
a.Verifiability
b.Neutrality
c.Timeliness
d.Materiality
18) An investor has a long-term investment in stocks. Regular cash dividends received
by the investor are recorded as
Fair Value MethodEquity Method
a.IncomeIncome
b.A reduction of the investmentA reduction of the investment
c.IncomeA reduction of the investment
d.A reduction of the investmentIncome
19) Accounting policies disclosed in the notes to the financial statements typically
include all of the following except
a.the cost flow assumption used
b.the depreciation methods used
c.significant estimates made
d.significant inventory purchasing policies