1) A gain or loss on the sale of a long-term investment using the equity method is
calculated by taking the difference between the cash received and:
A) fair value of the investment
B) lower-of-cost-or-market value of the investment
C) cost of the investment
D) carrying value of the investment
2) If bonds have been issued at a discount, the ________ over the life of the bonds.
A) carrying value of the bonds will decrease
B) interest payment will increase
C) interest expense will decrease
D) interest expense will increase
3) Carrie Heffernan Company purchased a delivery van on January 1, 2013, for
$50,000. The van was expected to remain in service 4 years (or 100,000 miles) and has
a residual value of $5,000. The van traveled 30,000 miles the first year, 25,000 miles
the second year, and 22,500 miles in the third and fourth years.
Required:
1> Prepare a schedule of depreciation expense per year for the first four years of the
asset’s life using the (a) straight-line method, (b) units-of-production method, and (c)
double-declining-balance method.
2> Prepare a schedule of the book value of the van for each of the four years using the
(a) straight-line method, (b) units-of-production method and (c)
double-declining-balance method.
4) On October 1 of the current year, a company received $4,800 for services to be
performed evenly over the next six months. If no adjusting entry was made on
December 31 of the current year:
A) net income would be understated by $4,800
B) net income would be understated by $2,400
C) net income would be overstated by $1,200
D) net income would be overstated by $2,400
5) Big Company owns 100% of the outstanding common stock of Small Company.
Small Company borrowed $10,000 from Big Company. What elimination entry is
required for this transaction?
A) debit Note Payable for $10,000 and credit Note Receivable for $10,000
B) debit Note Receivable for $10,000 and credit Note Payable for $10,000
C) debit Common Stock for $10,000 and credit Note Receivable for $10,000
D) debit Note Payable for $10,000 and credit Investment in Subsidiary for $10,000
6) All of the following would be considered investing activities on the statement of cash
flows EXCEPT for:
A) purchase of land for cash
B) the sale of equipment for cash
C) the payment of cash dividends
D) the purchase of equipment for cash
7) The trial balance is used to prepare the:
A) balance sheet only
B) income statement only
C) statement of retained earnings only
D) all of the above
8) A company received $30,000 cash and issued common stock in exchange. In
transaction analysis, how does this transaction affect the accounting equation?
A) Add $30,000 to Cash account and add $30,000 to Retained Earnings account
B) Add $30,000 to Cash account and add $30,000 to Revenue account
C) Add $30,000 to Dividends account and subtract $30,000 to Retained Earnings
account
D) Add $30,000 to Cash account and add $30,000 to Common Stock account
9) A company issues common stock for $100,000. On a statement of cash flows, this
will be reported as a(n):
A) financing cash flow
B) investing cash flow
C) operating cash flow
D) noncash activity
10) What is an accounts payable?
A) It is a liability for goods or services purchased on credit and supported by a written
agreement
B) It is a liability for goods or services purchased on credit and supported by the credit
standing of the purchaser
C) It is an amount of money to be received from a supplier
D) It is an asset arising from the sale of goods or services on credit
11) Trevor Company has the following adjusted trial balance at December 31, 2016:
What is the Retained Earnings balance at December 31, 2016?
A) $20,100
B) $23,200
C) $24,200
D) $25,800
12) If a company capitalizes a plant asset that should have been expensed:
A) expenses and net income will be overstated in the year of the error
B) expenses and net income will be understated in the year of the error
C) expenses will be overstated and net income will be understated in the year of the
error
D) expenses will be understated and net income will be overstated in the year of the
error
13) When a company sells a trading security, the Gain on the Sale of Trading Securities
is reported in the:
A) stockholders’ equity section of the balance sheet
B) short-term investments section of the balance sheet
C) other revenue, gains, and losses section of the balance sheet
D) other revenues and gains of the income statement
14) Which cost is NOT included in the cost of Land Improvements?
A) sprinkler systems for landscaping
B) lights on exterior of new building
C) back property taxes on land parcel
D) B and C
15) Analyzing the statement of cash flows may help analysts determine the financial
health of a company. Which of the following signs below is NOT an indicator of a
financially healthy company?
A) The company’s operations are a major source (not a use) of cash
B) The company’s operations result in Net Cash Used by Operating Activities
C) The company’s investing activities include more purchases than sales of long-term
assets
D) The company’s financing activities are not dominated by borrowing
16) Why are consolidated financial statements prepared?
A) The American Institute of Certified Public Accountants requires consolidated
financial statements in certain situations
B) The Securities and Merchant Commission requires consolidated financial statements
in certain situations
C) The Society of Certified Fraud Examiners requires consolidated financial statements
in certain situations
D) So financial statement users get a better picture of the total operations of the parent
and subsidiary together
17) A disadvantage of issuing stock instead of debt is that stock:
A) creates no interest expense which must be paid
B) is less risky to the issuing corporation
C) creates no liabilities for the corporation
D) generally results in lower earnings per share
18) CBS Corporation acquired a patent for $1,000,000. The patent has a legal life of 20
years. Because of changing technology, this patent is expected to generate revenue for
only 10 years and have no residual value. The annual amortization expense for the
patent is:
A) $0
B) $30,000
C) $50,000
D) $100,000
19) The Allowance to Adjust Investment in Available-for-Sale Securities to Market has
a debit balance. Therefore:
A) the Allowance account is subtracted from the carrying amount of the Investment in
Available-for-Sale Securities
B) the Allowance account is added to the carrying amount of the Investment in
Available-for-Sale Securities
C) the Allowance account is neither added nor subtracted from the carrying amount of
the Investment in Available-for-Sale Securities
D) the Allowance account is added to Unrealized Gain or Loss on Investment in
Available-for-Sale Securities
20) A consolidated income statement will show:
A) only the parent’s net income
B) only the income from partially owned subsidiaries
C) the parent’s net income plus the parent’s share of the subsidiary’s net income
D) the parent’s net income plus the subsidiary’s net income
21) The following earnings per share information is available for a stock you are
interested in purchasing as an investment:
The investment capitalization rate is 7.5%. How much should an investor pay for a
share of stock?
A) $50.00
B) $58.00
C) $64.00
D) $70.00
22) The debt created by a business when it makes a purchase of inventory on account is
a(n):
A) revenue
B) account receivable
C) note payable
D) account payable
23) Martin Company paid $500,000 for a piece of equipment. Martin uses straight-line
depreciation. Currently the equipment has a balance in the accumulated depreciation
account of $200,000. If the asset has no residual value and an estimated life of 10 years,
how many years has the asset been depreciated?
A) 1
B) 2
C) 4
D) 6
24) Which of the following is NOT a correct statement about adjusting entries?
A) Every adjusting entry affects Cash
B) Every adjusting entry affects the balance sheet
C) Every adjusting entry affects net income
D) Every adjusting entry must balance
25) An aging-of-accounts-receivable indicates that the amount of uncollectible accounts
is $3,210. The Allowance for Uncollectible Accounts prior to adjustment has a debit
balance of $200. The Accounts Receivable balance is $44,320. The amount of the
adjusting entry for uncollectible accounts should be for:
A) $200
B) $3,010
C) $3,210
D) $3,410
26) On January 1, 2014, Chin Corporation issued $3,000,000, 14%, 5-year bonds. The
bond interest is payable on January 1 and July 1. The bonds sold for $3,219,600. The
market rate of interest for these bonds was 12%. Under the effective-interest method,
what is the interest expense for the six months ending July 1, 2014?
A) $180,000
B) $188,040
C) $193,176
D) $210,000
27) All of the following will appear on the income statement EXCEPT for:
A) assets
B) expenses
C) gains
D) revenues
28) Plenty of Oil, Inc. purchased an oil field that is estimated to have 15,000,000 barrels
of oil for $45 million in 2014. In 2014, 1,800,000 barrels of oil were extracted and sold.
In 2015, 2,000,000 barrels of oil were extracted and sold. The oil field will have no
residual value. What is the book value of the oil reserves that will be reported on the
balance sheet as of December 31, 2015?
A) $31,785,000
B) $33,600,000
C) $39,000,000
D) $45,000,000
29) Under accrual-basis accounting, revenue is recorded:
A) when the cash is collected, regardless of when the services are performed
B) when the services are performed, regardless of when the cash is received
C) at the end of every month
D) only if the cash is received at the same time the services are performed
30) Under the direct method of preparing the financing section of the statement of cash
flows, net cash provided by financing activities is $388,000. If the indirect method of
preparing the statement of cash flows was used:
A) net cash provided by financing activities would be less than $388,000
B) net cash provided by financing activities would be more than $388,000
C) net cash provided by financing activities would be the same, $388,000
D) net cash provided by operating activities would equal $388,000
31) When inventory is shipped from the seller to the buyer with shipping terms of FOB
destination:
A) title passes from the seller to the buyer when the goods leave the seller’s shipping
dock
B) the goods will be included in the inventory of the buyer while in transit
C) the seller has title to the goods while they are in transit
D) the buyer will pay the transportation costs associated with the purchase
32) Given the following data:
In vertical analysis, Accounts Receivable, net would be expressed as:
A) 5%
B) 7%
C) 10%
D) 20%
33) On October 1, 2015, the Early Bank lends money to a customer on a six month
note. The bank accrues interest on the note at December 31, 2015. The journal entry on
December 31, 2015 by the bank would include a:
A) debit to Cash and a credit to Interest Revenue for three months of interest
B) debit to Cash and a credit to Interest Payable for three months of interest
C) debit to Interest Receivable and a credit to Interest Revenue for three months of
interest
D) debit to Interest Revenue and a credit to Interest Receivable for three months of
interest
34) Emporium Bank lends money to a customer on a six month note. What journal
entry does the bank prepare?
A) debit Note Receivable and credit Service Revenue
B) debit Cash and credit Note Payable
C) debit Note Receivable and credit Cash
D) debit Cash and credit Note Receivable
35) A company has a beginning inventory of $40,000 and purchases during the year of
$110,000. The beginning inventory consisted of 3,000 units and 7,000 units were
purchased during the year. The company has 4,000 units left at year-end. Under
average-cost, what is Cost of Goods Sold?
A) $60,000
B) $90,000
C) $110,000
D) $150,000
36) Trading securities purchased for $400,000, had a fair value of $410,000 at the end
of the year. The adjusting entry to record this difference included a credit to:
A) Retained Earnings
B) Unrealized Gain on Trading Securities
C) Investment in Trading Securities
D) Accumulated Other Comprehensive Income
37) The allowance method records Uncollectible-Account Expense:
A) in the year of sale
B) at the end of the accounting period
C) when the specific account receivable is determined to be uncollectible
D) A and B
38) Carey’s Department Store had net sales of $20 million and cost of goods sold of $14
million for the year. The beginning inventory for the year was $3 million. The ending
inventory for the year was $5 million. What was the days’ inventory outstanding?
A) 73
B) 78
C) 104
D) 130
39) Days’ sales in receivables is also called:
A) days’ sales outstanding
B) collection period
C) accounts receivable turnover
D) A and B