1) The receivables turnover ratio measures how many times, on average, a company
collects its receivables during the year.
2) The Supplies account is an example of an accrued expense.
3) Cash return on assets can be separated to examine two important business strategies:
cash flow to sales and asset turnover.
4) The acid-test ratio is always smaller than the current ratio.
5) Compound interest is interest you earn on the initial investment and on previous
interest.
6) Accountants often call FIFO the balance sheet approach because the amount it
reports for ending inventory better approximates the current cost of inventory.
7) Every liquidity ratio is calculated using one or more current asset accounts.
8) We measure income statement accounts at a point in time and balance sheet accounts
over a period of time.
9) The accounting equation shows that a companys resources equal creditors and
owners claims to those resources.
10) Closing entries transfer the balances of all temporary accounts (revenues, expenses,
and dividends) to the Common Stock account.
11) Adjusting entries are not necessary when cash is paid at the same time expenses are
incurred.
12) Unsecured bonds are not backed by a specific asset.
13) We use the term capitalize to describe recording an expenditure as an expense.
14) Record the following transactions. If an entry is not required, state “No Entry.”
(a) Started business by issuing 10,000 shares of common stock for $20,000.
(b) Hired Rebecca as an administrative assistant, promising to pay her $2,000 every two
weeks.
(c) Rented a building for three years at $500 per month and paid six months’ rent in
advance.
(d) Purchased equipment for $5,400 cash.
(e) Purchased $1,800 of supplies on account.
(f) Provided services to customers for $7,800 cash.
(g) Paid employee salaries, $5,200.
(h) Paid for supplies purchased in item (e).
(i) Paid $800 for current advertising in a local newspaper.
(j) Paid utility bill of $1,300 for the current month.
15) Woods Company made an ordinary repair to a delivery truck at a cost of $500.
Woods accountant debited the asset account, Equipment. Was this treatment an error,
and if so, what will be the effect on Woods financial statements?
a. No, the repair was accounted for correctly
b. Yes, the error overstated assets and net income
c. Yes, in the years following, net income will be overstated
d. Yes, the error understated net income
16) Fruitasia purchased land, a building, and equipment for $800,000. The estimated
fair values of the land, building, and equipment are $100,000, $700,000, and $200,000,
respectively. At what amount would the company record the land?
a.$80,000
b.$90,000
c.$100,000
d.$800,000
17) Consider the following accounts:
Utilities Expense
Accounts Payable
Service Revenue
Common Stock
How many of these accounts are increased with debits?
a. One
b. Two
c. Three
d. Four
18) When bonds are issued at a premium and the effective interest method is used for
amortization, at each interest payment date, the interest expense:
a.Increases
b.Decreases
c.Remains the same
d.Is equal to the change in book value
19) Today, Thomas deposited $100,000 in a three-year, 12% CD that compounds
quarterly. What is the maturity value of the CD?
a. $109,270
b. $119,410
c. $142,576
d. $309,090
20) Sales taxes collected by a company on behalf of the state and local government are
recorded by:
a.A debit to an expense account
b.A credit to a revenue account
c.A debit to a revenue account
d.A credit to a liability account
21) Under the provisions of the Sarbanes-Oxley Act, corporate executives:
a. Have limited responsibility for financial statements
b. Must personally prepare the companys financial statements
c. Must personally certify the companys financial statements
d. Are not allowed to view the companys financial statements
22) Which of the following is True regarding a company assuming more debt?
a. Assuming more debt is always bad for the company
b. Assuming more debt is always good for the company
c. Assuming more debt can be good for the company as long as they earn a return in
excess of the rate charged on the borrowed funds
d. Assuming more debt reduces leverage
23) Kansas Enterprises purchased equipment for $60,000 on January 1, 2015 . The
equipment is expected to have a five-year life, with a residual value of $5,000 at the end
of five years.
Using the straight-line method, the book value at December 31, 2015 would be:
a.$44,000
b.$49,000
c.$55,000
d.$60,000
24) Using the notion that the accounting equation (Assets = Liabilities + Stockholders
Equity) must remain in balance, indicate whether each of the following transactions is
possible.
(a) Cash decreases; Accounts Payable decreases.
(b) Salaries Expense increases; Salaries Payable decreases.
(c) Accounts Receivable decreases; Service Revenue increases.
25) Which of the following statements is not True regarding earnings per share?
a. Earnings per share is useful in comparing earnings performance across companies at
the same point in time
b. Earnings per share is useful in comparing earnings performance for the same
company over time
c. Earnings per share is calculated as net income minus dividends on preferred stock all
divided by the average number of common shares outstanding
d. Earnings per share is forecasted by financial analysts
26) _________ is an investing cash flow and ________ is a financing cash flow, as
reported on the Statement of Cash Flows.
a. Issuing bonds; selling investments
b. Purchasing land; repaying a bank loan
c. Receiving cash from the sale of inventory; paying cash dividends
d. Purchasing treasury stock; lending cash to an employee
27) Following are transactions of Gotebo Tanners, Inc., a new company, during the
month of January:
1> Issued 10,000 shares of common stock for $15,000 cash.
2> Purchased land for $12,000, signing a note payable for the full amount.
3> Purchased office equipment for $1,200 cash.
4> Received cash of $14,000 for services provided to customers during the month.
5> Purchased $300 of office supplies on account.
6> Paid employees $10,000 for their first months salaries.
What was the total amount of Gotebos liabilities following these six transactions?
a. $12,300
b. $27,300
c. $22,600
d. $15,500
28) _ 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
____ Refund because of some deficiency in the companys product or service.
29) Allen Inc. took out a 1-year, 8%, $100,000 loan on March 31, 2015 . Interest is due
upon maturity of the loan. The loan and interest must be paid back on March 31, 2016 .
As of December 31, 2015, what amount, if any, should Allen Inc. report for interest
payable?
a. $6,000
b. $2,000
c. $0
d. $8,000
30) On July 8, Ray Inc. sold 100 printers to Office Rental Company at $600 each and
offered a 2% discount for payment within 10 days. On July 15, Office Rental Company
paid the full amount in cash. What should Ray Inc. record on July 15?
a. Cash60,000
Accounts Receivable60,000
b. Cash58,800
Accounts Receivable58,800
c. Cash58,800
Sales Discounts 1,200
Accounts Receivable60,000
d. Cash60,000
Sales Discounts 1,200
Sales Revenue58,800
31) On November 1, 2015, The Bagel Factory signed a $100,000, 6%, six-month note
payable with the amount borrowed plus accrued interest due six months later on May 1,
2016 . The Bagel Factory records the appropriate adjusting entry for the note on
December 31, 2015 . In recording the payment of the note plus accrued interest at
maturity on May 1, 2016, The Bagel Factory would
a.Debit Interest Expense, $2,000
b.Debit Interest Expense, $1,000
c.Debit Interest Payable, $2,000
d.Debit Interest Expense, $3,000
32) Real Angus Steakhouse purchased land for $75,000 cash. They also incurred
commissions of $4,500, property taxes of $5,000, and title insurance of $800. The
$5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of
the seller and $1,000 due for the current year after the purchase date. For what amount
should Real Angus Steakhouse record the land?
a. $83,500
b. $84,300
c. $85,300
d. $75,000
33) Materiality is based upon which factor(s)?
a. Timeliness of an item
b. Amount and nature of an item
c. Consistency of an item
d. Relevance of an item
34) Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due,
$100,000 is past due for up to 180 days, and $50,000 is past due for more than 180
days. Under the aging of receivables approach, Crimson Inc. expects it will not collect
1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20%
of the amount past due for more than 180 days. The allowance account had a debit
balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the
ending balance of the allowance account?
a. $29,000
b. $28,000
c. $27,000
d. $26,000
35) ABO purchased a truck at the beginning of 2015 for $140,000. They sold the truck
at the end of 2016 for $95,000. If the expected useful life of the truck was six years
with a residual value of $20,000 and ABO uses straight-line depreciation, which of the
following is True regarding the entry to record the sale of the truck?
a. Credit Gain $5,000
b. Debit Loss $5,000
c. Credit Accumulated Depreciation $40,000
d. Credit Equipment $100,000
36) The following events pertain to Jasper Corporation:
May 1 Jasper purchased office supplies of $3,000 on account.
May 5 The office supplies were shipped to Jasper.
May 8 Jasper used these office supplies for a one-time event.
May 9 Jasper paid $3,000 cash for the office supplies purchased on May 1 .
Using cash-basis accounting, on which date should Jasper record supplies expense?
a.May 1
b.May 5
c.May 8
d.May 9
37) Consider the following information pertaining to OldWests inventory:
At what amount should OldWest report its inventory?
a. $3,213
b. $3,386
c. $2,996
d. $2,906
38) The primary focus for financial accounting information is to provide information
useful for:
39) In the operating activities section of the statement of cash flows, we start with net
income when using:
a.The direct method
b.The indirect method
c.Both the direct and the indirect method
d.Neither the direct nor the indirect method
40) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 return on assets is:
a.48.2%
b.9.3%
c.8.8%
d.9.0%
41) Shupe Inc. estimates uncollectible accounts based on the percentage of accounts
receivable. What effect will recording the estimate of uncollectible accounts have on the
accounting equation?
a. Increase liabilities and decrease stockholders equity
b. Decrease assets and decrease liabilities
c. Decrease assets and decrease stockholders equity
d. Increase assets and decrease stockholders equity
42) The amount of impairment loss is the excess of book value over:
a.Carrying value
b.Future cash flows
c.Fair value
d.Future revenues
43) Financial reporting objectives do not include providing information:
a. Useful to investors and creditors in making decisions
b. To determine market values, assess profit potential, and evaluate management
c. Helpful to investors in predicting cash flows
d. That tells about a companys economic resources and claims to those resources
44) In a periodic inventory system, the purchase of inventory is debited to:
a. Purchases
b. Cost of goods sold
c. Inventory
d. Accounts payable
45) The following financial information is from Cook Company:
What is the amount of long-term assets assuming the accounts above reflect normal
activity?
a. $342,500
b. $173,000
c. $273,500
d. $98,000
46) The full set of procedures used to accomplish the FN Measurement/communication
process of financial accounting is referred to as the:
a. Trial balance
b. Accounting cycle
c. Chart of accounts
d. General ledger
47) Which of the following statements is not True relating to cash flow analysis?
a. Cash return on assets indicates the amount of operating cash flow generated for each
dollar invested in assets
b. To maximize cash flow from operations, a company strives to increase both cash
flow per dollar of sales and sales per dollar of assets invested
c. Cash return on assets can be separated to examine two important business strategies:
cash flow to sales and asset turnover
d. Positive cash flow from operations is not important to a companys survival in the
long-run
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 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 flow assumption that assumes first units purchased are sold first.
49) For accounting information to be relevant, it should possess which of the following
characteristics?
a. Predictive value, confirmatory value, and/or materiality
b. Large in amount and timely
c. Comparability or consistency
d. Verifiability
50) Which business form has the advantage of limited liability?
a. Corporation
b. Sole proprietorship
c. Partnership
d. All business forms share equal limited liability
51) Suppose a company has research costs of $100,000 and development costs of
$200,000 for the year. Under IFRS, what amount would be reported as an expense in
the current years income statement?
a. $100,000
b. $150,000
c. $200,000
d. $300,000
52) During 2015, a company sells 400 units of inventory for $85 each. The company
has the following inventory purchase transactions for 2015:
Calculate ending inventory and cost of goods sold for 2015 assuming the company uses
LIFO with a periodic inventory system.
53) Which three factors are necessary in calculating the present value of a single
amount?
54) At the beginning of 2015, Calston Incorporated reports inventory of $9,000. During
2015, the company purchases additional inventory for $25,000. At the end of 2015, the
cost of inventory remaining is $8,000. Calculate cost of goods sold for 2015 .
55) Sandy Sensations purchases twenty, $1,000, 7%, 10-year bonds issued by Pizza Pier
for $20,000 on January 1, 2015 . The market interest rate for bonds of similar risk and
maturity is 7%. Interest is received semiannually on June 30 and December 31 .
1> Record the investment in bonds.
2> Record receipt of the first interest payment on June 30, 2015 .
56) When inventory costs are declining, __________ generally results in a lower
amount of reported inventory.
57) Selected financial data for these two close competitors in the home building
industry are provided below:
1> Calculate the debt to equity ratio for Company A and Company B. Which company
has the higher ratio?
2> Calculate the times interest earned ratio for Company A and Company B. Which
company is better able to meet interest payments as they become due?