1) An annuity is a series of equal cash payments over equal time intervals.
2) The Dividends account increases with a credit and decreases with a debit.
3) At the time of a credit sale, a company would record an increase in assets and an
increase in revenues.
4) The primary functions of financial accounting are to measure business activities of a
company and to communicate those measurements to internal parties for
decision-making purposes.
5) After posting transactions to the general ledger accounts, the sum of the accounts
with debit balances should equal the sum of the accounts with credit balances.
6) Stock repurchases reduce the number of shares outstanding, thereby increasing
earnings per share.
7) Dividends are paid on all shares issued by the company including treasury stock.
8) We add an increase in interest payable to interest expense in arriving at cash paid for
interest under the direct method.
9) A contingent liability is an existing, uncertain situation that might result in a loss.
10) Return on equity is calculated by dividing the stock return by average stockholders
equity.
11) The adjustment to account for future bad debts has the effect of (1) reducing assets
and (2) increasing liabilities.
12) A check outstanding will cause the banks cash balance to be higher than the
companys cash balance.
13) The market value of bonds moves in the opposite direction of interest rates.
14) Accounts receivable represent the amount of cash owed to the company by its
customers from the sale of products or services on account.
15) Cash receipts of the company that have not been added to the banks record of the
companys balance are referred to as checks outstanding.
16) Below are the steps in the measurement process of external transactions. Arrange
them from first (1) to last (6).
_____ (a) Post the transaction to the T-accounts in the general ledger. _____(b) Assess
whether the impact of the transaction results in a debit or credit to the account balance.
_____(c) Use source documents to identify accounts affected by external transactions.
_____(d) Analyze the impact of the transaction on the accounting equation.
_____(e) Prepare a trial balance.
_____(f) Record transactions using debits and credits.
17) The ending balance of Retained Earnings can best be described as:
a. The amount of cash received from stockholders over the life of the company
b. The amount of net income over the life of the company not paid to owners in the
form of dividends
c. The amount of dividends paid over the life of the company
d. The amount of net income over the life of the company
18) Richards Sporting Goods reports net income of $100,000, net sales of $500,000,
and average assets of $1,000,000. The asset turnover is:
a. 0.1 times
b. 0.5 times
c. 2 times
d. 5 times
19) Which of the following is correct?
a. The receivables turnover ratio depicts the companys frequency of cash collections
b. The inventory turnover ratio can be used to assess the companys frequency of selling
inventory
c. The current ratio reflects the companys ability to pay current debt
d. All of the other options are correct
20) Which of the following is considered cash for financial reporting purposes?
a. Accounts receivable
b. Investments with maturity dates greater than three months
c. Checks received from customers
d. Accounts payable
21) Tyler Toys has beginning inventory for the year of $18,000. During the year, Tyler
purchases inventory for $230,000 and has cost of goods sold equal to $233,000. Tylers
ending inventory equals:
a. $15,000
b. $18,000
c. $21,000
d. $19,000
22) Cost of Goods Sold is:
a. An asset account
b. A revenue account
c. An expense account
d. A permanent equity account
23) The Accounts Payable account has a beginning balance of $12,000 and the
company purchased $50,000 of supplies on account during the month. The ending
balance was $10,000. How much did the company pay to creditors during the month?
a. $50,000
b. $52,000
c. $60,000
d. $62,000
24) Define the four basic assumptions underlying Generally Accepted Accounting
Principles: (a) economic entity, (b) going concern, (c) periodicity, (d) monetary unit.
25) Which of the following is incorrect regarding LIFO and FIFO?
a. In a period of decreasing costs, FIFO will result in lower total assets than LIFO
b. In a period of increasing costs, net income will be greater under FIFO than LIFO
c. In a period of increasing costs, assets will be greater for LIFO than FIFO
e. In a period of decreasing costs, LIFO will result in greater net income than FIFO
26) Match (by letter) the following terms with their definitions. Each letter is used only
once.
Definitions
a. The amount invested by stockholders.
b.Shares available to sell.
c.Shares can be returned to the corporation at a predetermined price.
d.The earnings not paid out in dividends.
e.Shares actually sold.
f.Shares receive priority for future dividends, if dividends are not paid in a given year.
g.Shares held by investors.
h.Shareholders can lose no more than the amount they invested in the company.
i.Wealthy individuals willing to risk investment funds on a promising business venture.
j.The corporations own stock that it reacquired.
27) Which of the following is not a balance sheet item?
a. Assets
b. Retained Earnings
c. Expenses
d. Liabilities
28) A company performs $4,200 of services during the month and receives full cash
payment from customers at the time of service. Record the cash receipt using (a)
accrual-basis accounting and (b) cash-basis accounting.
29) External events include all of the following except:
a. Paying employees salaries
b. Purchasing equipment
c. Using office supplies
d. Collecting an account receivable
30) All classifications on the Balance Sheet have a general relationship with sections
identified on the Statement of Cash Flows. Indicate which relationships are correctly
identified in the table below.
a. IV, V
b. I, II, III
c. I, III, IV, V
d. All five are correct
31) 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
____ A list of accounts and their balances prepared before adjusting entries are
recorded.
32) Listed below are several terms and phrases associated with current liabilities. Pair
each item from List A (by letter) with the item from List B that is most appropriately
associated with it.
List A List B
_____ 1> Cash, short-term investments, and accounts receivable all divided by current
liabilities. a. Recording a contingent liability b. Disclosure of a contingent liability c.
Interest expense
_____ 2> Loss is probable and can be reasonably estimated. d. FICA e. Commercial
paper
_____ 3> Gift cards. f. The riskiness of a businesss obligations
_____ 4> Long-term debt maturing within one year. g. Current portion of long-term
debt h. Unearned revenues
_____ 5> Social Security and Medicare. i. Acid-test ratio
_____ 6> Interest expense is recorded in the period interest is incurred rather than in the
period interest is paid. j. Accrual accounting
_____ 7> Loss is reasonably possible and can be reasonably estimated.
_____ 8> Incurred on a notes payable.
_____ 9> Unsecured notes sold in minimum denominations of $25,000 with maturities
up to 270 days.
_____ 10>Classifying liabilities as either current or long-term helps investors and
creditors assess this.
33) Sandra won $5,000,000 in the state lottery, which she has elected to receive at the
end of each month over the next thirty years. She will receive 7% interest on unpaid
amounts. To determine the amount of her monthly check, she should use a table for the:
a. Future value of $1
b. Present value of $1
c. Future value of an annuity of $1
d. Present value of an annuity of $1
34) Consider the following inventory data:
Beginning inventory$150,000
Ending inventory 100,000
Purchases 310,000
What is the average days in inventory for the year?
a. 126.7 days
b. 101.4 days
c. 152.0 days
d. 111.7 days
35) Monica wants to sell her share of an investment to Barney for $50,000 in three
years. If money is worth 6% compounded semiannually, what would Monica accept
today?
a. $8,375
b. $41,874
c. $11,941
d. $41,000
36) On February 1, 2015, Sanger Corp. lends cash and accepts a $2,000 note receivable
that offers 10% interest and is due in six months. What would Sanger record on August
1, 2015, when the borrower pays Sanger the correct amount owed?
a. Cash2,000
Interest Revenue 100
Notes Receivable2,100
b. Cash2,100
Notes Receivable2,100
c. Cash2,100
Interest Revenue 100
Notes Receivable2,000
d. Cash2,200
Notes Receivable2,200
37) Schager Company purchased a computer system at a cost of $40,000. The estimated
useful life is 10 years, and the estimated residual value is $5,000. Assuming the
company will use the double-declining-balance method, what is the depreciation
expense for the second year?
a. $8,000
b. $7,000
c. $5,600
d. $6,400
38) The statement of stockholders equity shows:
a. Only the ending balance in each stockholders equity account
b. How each equity account changed over time
c. Only the beginning balance in each stockholders equity account
d. Less information than the stockholders equity section in the balance sheet
39) Wiley Company purchased new equipment for $60,000. Wiley paid cash for the
equipment. Other costs associated with the equipment were: transportation costs,
$1,000; sales tax paid $3,000; and installation cost, $2,500. The cost recorded for the
equipment was:
a. $60,000
b. $61,000
c. $64,000
d. $66,500
40) Selected financial data for Company B is provided below:
What is the times interest earned ratio for Company B?
a.6.2 times
b.10.8 times
c.0.2 times
d.164.5 times
41) Tammy wants to buy a car that costs $10,000 and wishes to know the amount of the
monthly payments, which will be made at the end of the month, with interest of 12% on
the unpaid balance. She should use a table for the:
a. Future value of $1
b. Present value of $1
c. Future value of an annuity of $1
d. Present value of an annuity of $1
42) On January 1, 2013, Jacob Inc. purchased a commercial truck for $48,000 and uses
the straight-line depreciation method. The truck has a useful life of eight years and an
estimated residual value of $8,000. On December 31, 2015, Jacob Inc. sold the truck for
$30,000. What amount of gain or loss should Jacob Inc. record on December 31, 2015?
a. Gain, $22,000
b. Loss, $18,000
c. Gain, $5,000
d. Loss, $3,000
43) When preparing a bank reconciliation, a deposit outstanding would be:
a. Added to the companys cash balance
b. Added to the banks cash balance
c. Subtracted from the companys cash balance
d. Subtracted from the banks cash balance
44) We can separate cash return on assets into:
a. Cash flow to sales and return on assets
b. Cash flow to sales and asset turnover
c. Cash flow to sales and profit margin
d. Profit margin and asset turnover
45) A companys liquidity refers to its:
a. Ability to collect accounts receivable
b. Ability to sell inventory efficiently
c. Ability to generate profits from operations
d. Ability to pay currently maturing debts
46) Crossroads Mall had 100,000 outstanding shares of common stock. On June 16,
2015, Crossroads repurchased 20,000 shares of its own stock at $30 per share. On July
23, 2015, Crossroads resold 10,000 shares at $28 per share. What net effect did the
repurchase and the resell of common stock have on the accounting equation?
a. Increase in assets and decrease in stockholders equity
b. Decrease in assets and increase in stockholders equity
c. Increase in assets and increase in stockholders equity
d. Decrease in assets and decrease in stockholders equity
47) Serial bonds are:
a. Bonds backed by collateral
b. Bonds that mature in installments
c. Bonds with greater risk
d. Bonds issued below the face amount
48) Listed below are eight bond terms followed by a list of definitions. Match (by
letter) the bond terms with their definitions. Each letter is used only once.
Definitions
a. Allows the issuer to pay off the bonds early at a fixed price.
b.Matures in installments.
c.Secured only by the full faith and credit of the issuing corporation.
d.Allows the investor to transfer each bond into shares of common stock.
e.Sale of debt securities directly to a single investor.
f.Matures on a single date.
g.Supported by specific assets pledged as collateral by the issuer.
h.Includes underwriting, legal, accounting, registration, and printing fees.
49) On May 31, Money Corporations Cash account showed a balance of $10,000 before
the bank reconciliation was prepared. After examining the May bank statement and
items included with it, the companys accountant found the following items:
Checks outstanding $2,250
Deposits outstanding 1,900
NSF check 100
Service fees 40
Error: Money Corp. wrote a check for $30 but recorded it incorrectly for $300.
What is the amount of cash that should be reported in the companys balance sheet as of
May 31? a. $9,860
b. $9,650
c. $10,130
d. $10,410
50) Midwest Shipping pays employees at the end of each month. Payroll information is
listed below for January, the first month of the fiscal year. Assume that none of the
employees exceeds the Federal unemployment tax maximum salary of $7,000 in
January.
Salaries $800,000
Federal and state income taxes withheld 160,000
Federal unemployment tax rate 0.80%
State unemployment tax rate (after FUTA deduction) 3.00%
Social Security (FICA) tax rate 7.65%
Record salaries expense and payroll tax expense for the January pay period.
51) Which of the following is True regarding the relationship between the current ratio
and the acid-test ratio?
a. The current ratio will always be equal to or larger than the acid-test ratio for a
specific company
b. The acid-test ratio will always be equal to or larger than the current ratio for a
specific company
c. Either the current ratio or the acid-test ratio could be larger for a specific company
d. One ratio will always exceed 1.0, while the other will always be less than 1.0
52) How would the carrying value of bonds payable change over time for bonds issued
at a
Discount Premium
a. No effect No effect
b. No effect Increase
c. Increase Decrease
d. Decrease Increase
53) The following information pertains to Sooner Company:
Assuming that Sooner Company uses cash-basis accounting, when would
the company record the expense related to the supplies? a. May 2
b. May 8
c. May 15
d. May 20
54) 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 carrying value of the bonds as of December 31, 2016?
a.$8,834,770
b.$8,686,606
c.$8,734,070
d.$8,783,433
55) Liabilities are defined as:
a. Resources owed by an entity as a result of past transactions
b. Resources owned by an entity as a result of past transactions
c. Selling products and services to customers in the current period
d. Costs of running the business in the current period
56) At the end of the year, a company reports a balance in its Allowance for
Uncollectible Accounts of $1,400 (debit) before any year-end adjustment. The company
estimates future uncollectible accounts to be 3% of credit sales for the year. Credit sales
for the year total $280,000. Record the adjustment for the allowance for uncollectible
accounts using the percentage-of-credit-sales method?
57) BC Training reports sales revenue of $2,200,000. Average inventory during the year
was $200,000. The inventory turnover ratio for the year is 8.0. What amount of gross
profit would the company report in its income statement?
58) At the beginning of the current year, a company issued stock for $100,000 and
borrowed $50,000 from the bank. By the end of the year, the company had provided
services of $80,000 for cash, paid employee salaries of $30,000, and paid utilities of
$10,000. Determine the amount of financing cash flows the company will report in the
current year.
59) Pizza Pier issues 7%, 10-year bonds with a face amount of $80,000 for $74,564 on
January 1, 2015 . The market interest rate for bonds of similar risk and maturity is 8%.
Interest is paid semiannually on June 30 and December 31 .
1> Record the bond issue.
2> Record the first interest payment on June 30, 2015 .
60) The Copper Grill has the following current assets: cash, $12 million; receivables,
$50 million; inventory, $44 million; and other current assets $4 million. The Copper
Grill has the following liabilities: accounts payable, $38 million; current portion of
long-term debt, $7 million; and long-term debt, $12 million. Based on these amounts,
calculate the current ratio and the acid-test ratio for The Copper Grill.
61) Match each financial statement with the accounts reported in it.
62) Prom Night Formal Wear has the following stockholders equity accounts at
December 31, 2015: Common Stock, $1 par value, 2,000,000 shares; Additional Paid-in
Capital, $22 million; Retained Earnings, $15 million; and Treasury Stock, 50,000
shares, $1.25 million. Prepare the stockholders equity section of the balance sheet.
63) On February 23, a company provides services on account to a customer for $4,500.
The customer pays in full for those services on March 4 . Record the transactions for
the company when the services are provided on February 23 and when the cash is
collected on March 4 .
64) Account classifications include assets, liabilities, stockholders equity, dividends,
revenues, and expenses. Indicate the account classification for each account name.
65) Portions of the financial statements for Horizon Telecom are provided below.
Prepare the operating activities section of the statement of cash flows for Horizon
Telecom using the indirect method.