1) The cost of land may include the cost of any back property taxes that the purchaser
pays.
2) A company can sell common stock in exchange for assets other than cash.
3) The statement of cash flows shows why the cash balance changed over a period of
time.
4) Days’ sales in receivables tells a company how long it takes to collect its average
level of receivables.
5) The sale of land for cash would be classified as a cash inflow from an operating
activity on the statement of cash flows.
6) On the statement of cash flows of a healthy company, Net Cash Provided by
Operating Activities is generally less than net income.
7) The person to whom a check is paid is referred to as the maker.
8) Generally accepted accounting principles, or GAAP, are the rules and procedures
established by the Securities and Exchange Commission.
9) When the exchange rate of nation A’s currency rises relative to another nation’s
currency, the currency of nation A is said to have strengthened.
10) The Allowance to Adjust Investment in Available-for-Sale Securities to Market
account will always have a debit balance.
11) Income tax expense is used to calculate income from operations.
12) Corporations may sell stock directly to the stockholders.
13) The balance of an account can be determined by adding all of the debits, adding all
of the credits, and then subtracting the two amounts
14) The adjusting entry to recognize unpaid salaries that are owed increases net income
and increases liabilities.
15) Corporations borrow large amounts of money by issuing (selling) bonds to the
public.
16) According to the converged standard for revenue recognition developed by FASB
and IASB, which item below is NOT necessary?
A) identify the contract with the customer
B) identify the separate performance obligations in the contract
C) allocate the transaction price to the separate performance obligations in the contract
D) recognize expenses as the entity satisfies the performance obligations
17) Accounting:
A) measures business activities
B) processes data into reports and communicates the data to decision makers
C) is often called the language of business
D) is all of the above
18) Minor Company purchased some land and is preparing the land for a new building.
Which of the following costs should be included in the cost of the land by Minor
Company?
A) cost of removing an old building
B) cost of clearing and grading the land
C) cost of 6 foot fence around property
D) A and B
19) Earnings per share (EPS) is calculated as:
A) net income divided by the number of shares of common stock issued at the end of
the year
B) net income divided by the number of shares of common stock outstanding at the end
of the year
C) net income divided by the average number of shares of common stock outstanding
throughout the year
D) net income divided by the average number of shares of common stock issued
throughout the year
20) Which statement is TRUE about partnerships?
A) Legally, a partnership is separate from the partners
B) A partnership has one capital account
C) For accounting purposes, a partnership is separate from the partners
D) For accounting purposes, a partnership is not separate from the partners
21) How does the declaration and payment of cash dividends affect the accounting
equation?
A) increase assets and stockholders’ equity
B) decrease assets and stockholders’ equity
C) increase assets and decrease stockholders’ equity
D) decrease assets and increase stockholders’ equity
22) On January 4, 2012, Margaret’s Cafe acquired equipment for $180,000. The
estimated life of the equipment is 4 years or 42,500 hours. The estimated residual value
is $10,000. What is the depreciation for 2012, if Margaret’s Cafe uses the asset 14,100
hours and uses the units-of-production method of depreciation?
A) $12,056
B) $56,400
C) $59,717
D) $170,000
23) Kunze Corporation has $1 par value Common Stock with 100,000 shares authorized
and 25,000 shares issued. The journal entry to record Kunze’s purchase of 5,000 shares
of common stock at $5 per share would be:
A) debit Common Stock for $5,000, debit Paid-in Capital in Excess of ParCommon for
$20,000 and credit Cash for $25,000
B) debit Common Stock for $25,000 and credit Cash for $25,000
C) debit Cash for $25,000, credit Common Stock for $5,000 and credit Paid-in Capital
in Excess of ParCommon for $20,000
D) debit Treasury Stock for $25,000 and credit Cash for $25,000
24) The direct-write off method for uncollectible accounts receivable:
A) may understate net income and total assets in the year of sale
B) may overstate net income and total assets in the year of sale
C) may understate net income and overstate total assets in the year of sale
D) may overstate net income and understate total assets in the year of sale
25) The payment for advertising costs for a monthly advertising campaign in the current
month would include a:
A) debit to Cash
B) debit to Prepaid Advertising
C) debit to Advertising Expense
D) credit to Advertising Revenue
26) In a bank reconciliation, items recorded by the bank, but not yet recorded by the
company, include:
A) deposits in transit
B) bank collections of accounts receivable
C) outstanding checks
D) both deposits in transit and outstanding checks
27) Land, a building and equipment are acquired for a lump sum of $1,000,000. The
market values of the land, building and equipment are $300,000, $600,000 and
$300,000, respectively. What is the cost assigned to the equipment?
A) $200,000
B) $250,000
C) $300,000
D) $333,333
28) If a bank statement included a bank collection of a note receivable and the related
interest revenue, the journal entry to record this item should include a:
A) debit to Note Receivable and a credit to Cash
B) debit to Cash and a credit to Note Receivable
C) debit to Cash, credit to Note Receivable, and credit to Interest Revenue
D) debit to Note Payable, credit to Cash and credit to Interest Revenue
29) Earnings per share is calculated:
A) only for preferred stock
B) only for common stock
C) for common and preferred stock
D) only for treasury stock
30) On December 31, Elker Corporation reports the following amounts under
stockholders’ equity on the balance sheet:
No dividends are passed on the preferred stock and the current year preferred dividends
are paid. The redemption value of the preferred stock is $1,200,000. What is the book
value per share?
A) $21.81
B) $22.31
C) $24.93
D) $25.50
31) The Statement of Stockholders’ Equity reports all of the following transactions
EXCEPT:
A) cash dividends declared and distributed
B) stock dividends declared and distributed
C) purchase of treasury stock
D) foreign-currency transaction gain
32) On May 1, a business rendered legal services to a client and billed the client $2,200
The client promised to pay the business in one week What journal entry does the
business record on May 1?
A) Debit Cash for $2,200 and credit Service Revenue for $2,200
B) Debit Cash for $2,200 and credit Retained Earnings for $2,200
C) Debit Accounts Receivable for $2,200 and credit Service Revenue for $2,200
D) Debit Accounts Payable for $2,200 and credit Cash for $2,200
33) Paltrowski Company issued 1 million shares of $10 stated value common stock.
The selling price was $40 per share. What journal entry is prepared?
A) debit Cash $40 million and credit Common Stock $40 million
B) debit Cash $40 million, credit Common Stock $10 million and credit Paid-in Capital
in Excess of ParCommon $30 million
C) debit Cash $40 million, credit Common Stock $10 million and credit Paid-in Capital
in Excess of Stated ValueCommon $30 million
D) debit Cash $40 million and credit Retained Earnings $40 million
34) On June 15, Blonski Computer Company sold twenty-five computers on account to
a company located in Argentina for 3,000,000 pesos. On that date, the peso is worth
$0.079. On July 15, when the peso was worth $0.070, payment was received. Blonski
Computer Company uses the perpetual inventory system. Ignoring Cost of Goods Sold,
the journal entry on June 15 by Blonski Computer Company would be:
A) debit Accounts Receivable $237,000 and credit Sales Revenue $237,000
B) debit Accounts Receivable $210,000 and credit Sales Revenue $210,000
C) debit Accounts Receivable $210,000, debit to Foreign-Currency Transaction Loss
$27,000 and credit Sales Revenue $237,000
D) debit Accounts Receivable $237,000, credit Sales $210,000, and credit Foreign
Currency Transaction Gain $27,000
35) The first paragraph of the combined audit report on financial statements and
internal controls:
A) describes how the audit was performed in accordance with GAAP and other auditing
standards
B) describes a system of internal controls
C) describes inherent limitations in a system of internal controls
D) identifies the company and financial statements audited
36) With an accrual of revenue:
A) the cash is received after the revenue is recorded
B) the cash is paid before the expense is recorded
C) plant assets can create an accrual adjustment
D) prepaid expenses can create an accrual adjustment
37) If the quick ratio is 2.0, and the current liabilities are $110,000, what is the amount
of quick assets?
A) $110,000
B) $200,000
C) $220,000
D) none of the above
38) There are two parties to a note and:
A) the creditor has a note receivable and the debtor has a note payable
B) the creditor has a note payable and the debtor has a note receivable
C) the creditor and debtor both have notes receivable
D) the creditor and debtor both have notes payable
39) Factoring accounts receivable is used by:
A) start-up companies
B) companies with a weak or no credit history
C) companies with a significant amount of debt
D) all of the above
40) Fourth Company receives a note from a customer for a $5,000 sale. On the date of
sale, what journal entry did Fourth Company prepare?
A) debit Accounts Receivable for $5,000 and credit Sales Revenue for $5,000
B) debit Notes Receivable for $5,000 and credit Cash for $5,000
C) debit Notes Receivable for $5,000 and credit Sales Revenue for $5,000
D) debit Cash for $5,000 and credit Notes Receivable for $5,000
41) The ending bank statement balance at November 30 is $6,750. The bank statement
shows a service charge of $95, electronic funds receipts of $500 and a NSF check for
$350. Deposits in transit total $2,050 and outstanding checks are $1,835. The balance
per books at November 30 is $6,910. What is the adjusted book balance at November
30?
A) $6,750
B) $6,805
C) $6,965
D) $7,105
42) On a statement of cash flows of a healthy company, net income would ordinarily
be:
A) less than depreciation expense
B) more than depreciation expense
C) greater than Net Cash Provided by Operating Activities
D) less than Net Cash Provided by Operating Activities
43) When using a four-column ledger account format, the pair of columns on the far
right is used to show the:
A) names of the accounts being debited and credited
B) transaction dates and journal reference
C) account balance
D) debit and credit amounts posted from journal entries
44) The following information is available for a retail store for the month of February:
1> Wahlberg Computers sells computers for $2,500 each on account. On February 1,
Wahlberg sold 20 computers. The cost of each computer sold was $1,000. The store
uses the perpetual inventory system.
2> It is estimated that the warranty expense is 5% of gross sales. A journal entry is
prepared on February 1.
3> During February, Wahlberg replaced two computers due to product warranty
complaints for products purchased in a prior month.
4> A customer fell in the store and is seeking $100,000 in damages. Wahlberg’s attorney
believes the case is frivolous because the customer has similar lawsuits pending against
other retail stores.
5> A customer is suing Wahlberg Computers for $100,000 because the customer’s
computer purchased from Wahlberg Computers started on fire and destroyed the
customer’s residence. Wahlberg’s attorney believes the customer will probably win the
case and receive $100,000.
Required: Prepare the journal entries to record the transactions above. Omit
explanations.
45) The information below was used to prepare a bank reconciliation for Lorena
Company at October 31:
According to the bank statement, the bank balance as of October 31 was $8,765.
According to the books, the cash balance as of October 31 is $9,557.
Outstanding checks totaled $1,433.
A customer’s check for $999 was returned for NSF.
October’s service charge was $100.
Bank collected $1,600 from a customer of Lorena Company in payment of a note
receivable, including interest of $100.
A new bookkeeper had problems posting checks and recording cash receipts:
1>Check #930 for Salaries Expense written for $930, recorded as $430.
2>A cash sale for $2,300 on October 15 was not recorded by the bookkeeper since she
was in a hurry to go to lunch. Ignore Cost of Goods Sold.
A deposit was made by the company for $900. This was the correct amount, however,
the bank made a mistake and recorded the deposit as $890.
Deposits made at month-end totaled $4,516; these were not shown on the bank
statement.
Required:
1>Prepare the bank reconciliation at October 31.
2>Prepare the journal entries at October 31.
46) Dolhune Company has a balance of $20,000 in Retained Earnings as of January 1,
2015. For the year ended December 31, 2015, Dolhune had a net loss of $16,400.
$3,000 was declared and paid in dividends for the year. Prepare the Statement of
Retained Earnings for the year ended December 31, 2015.
47) Slowinski Company is preparing its cash budget for the upcoming year. It
anticipates the following cash receipts and cash disbursements for the year:
Collections from customers$ 999,400
Cash paid for operating expenses360,000
Interest on investments12,000
Sale of machinery for cash45,000
Purchase of inventory for cash407,000
Payment of interest expense14,000
Payment for land75,000
Payment of long-term debt23,000
Using the information above, prepare Slowinski’s cash budget for the upcoming year.
The cash balance at the beginning of the year is $46,400. The minimum cash balance
according to management is $100,000.
48) Several intangible assets are listed. Match the intangible asset with the correct
definition.
49) During the month of February, B & B Builders, Inc. completed the following
transactions related to its stock:
February 2: Issued 3,000 shares of no-par, Class A common stock with a stated value of
$1 for $15 cash per share.
February 3: Issued 9,000 shares of no-par, Class B common stock with no stated value
for $20 per share
February 20: Issued 600 shares of $4 par value preferred stock for equipment with a fair
market value of $5,000.
Required:
Prepare journal entries for the above transactions. Omit explanations.
50) Parent Company acquired a subsidiary in Germany in 2009. The subsidiary’s
balance sheet is stated in euros. When Parent Company acquired the subsidiary in 2009,
a euro was worth $1.35. When the subsidiary earned its income during 2009-2014, the
average exchange rate was $1.32. On December 31, 2014, a euro is worth $1.20.
At December 31, 2014, the subsidiary’s assets were 1,000,000 euros; the liabilities were
500,000 euros, common stock was 400,000 euros and retained earnings was 100,000
euros.
Required:
Translate the subsidiary’s balance sheet into dollars.