1) Residual value, also referred to as salvage value, is the amount the company expects
to receive from selling the asset at the end of its service life.
2) Some countries are more secretive (Brazil and Switzerland), leading to fewer
financial disclosures.
3) Section 404 of the Sarbanes-Oxley Act requires that a companys management
document and assess the effectiveness of all internal control processes that could affect
financial reporting.
4) Interest expense incurred when borrowing money, as well as dividends paid to
stockholders, are tax-deductible.
5) Secured bonds are backed by the federal government.
6) Gross profit equals net sales of inventory less cost of goods sold.
7) If a company has beginning inventory of $15,000, purchases during the year of
$75,000, and ending inventory of $20,000, cost of goods sold equals $70,000.
8) For each transaction, there must be at least one debit amount and one credit amount.
9) At the maturity date, the carrying value will equal the face amount of the bond.
10) Long-term obligations such as notes, mortgages, and bonds are reported as
long-term liabilities when they become payable within the upcoming year.
11) The future value of $1,000 invested today for three years that earns 10%
compounded annually is greater than the future value of a $500 annuity with the same
interest rate over the same period.
12) Value stocks have lower share prices in relationship to their fundamental ratios, and
therefore, trade at lower PE ratios.
13) In response to corporate accounting scandals and to public outrage over seemingly
widespread unethical behavior of top executives, Congress passed the Sarbanes-Oxley
Act.
14) When the market value of inventory falls below its cost, no adjustment to the
accounting records is needed.
15) Unearned revenues occur when cash is received after the revenue is earned.
16) Additional employee benefits paid for by the employer are often referred to as
fringe benefits.
17) Using horizontal analysis, if the base year is negative and the following year is
positive, the percentage change is just as useful as if the base year and the following
year were both positive.
18) Companies with large expansion plans, called growth companies, prefer to reinvest
earnings in the growth of the company rather than distribute earnings back to investors
in the form of cash dividends.
19) Checks outstanding are checks the company has written that have not been
subtracted from the banks record of the companys balance.
20) 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 by placing the letter designating
the term in the space.
a. Assets
b. Debit
c. Journal entry
d. Liabilities
e. Revenues
f. Expenses
g. Credit
h. General ledger
i. Trial balance
j. Dividends
____ Resources owed by a company.
21) 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 double-declining balance method, depreciation expense for 2015 would be:
a. $24,000
b. $22,000
c. $19,000
d. $20,000
22) During the first two years, Supplies, Inc. drove the truck 15,000 and 22,000 miles,
respectively, to deliver merchandise to its customers. The company originally purchased
the truck for $175,000. If the truck has an estimated life of 10 years or 300,000 miles,
with an estimated residual value of $25,000, what amount of depreciation expense
should Supplies, Inc. record in the second year using the activity-based method?
a. $11,000
b. $18,500
c. $7,500
d. $16,000
23) Tom’s Textiles shipped the wrong material to a customer, who refused to accept the
order. This is an example of a:
a. Sales revenue
b. Sales discount
c. Sales return
d. Sales allowance
24) Which accounting principle states that a company should record revenues when
they are earned?
a.Matching
b.Revenue recognition
c.Conservatism
d.Materiality
25) When a company pays $2,500 dividends to its stockholders, the transaction should
be recorded as:
a. Debit Cash; credit Dividends
b. Debit Retained Earnings; credit Dividends
c. Debit Dividends; credit Cash
d. Debit Dividends; credit Accounts Payable
26) Adjusting entries are primarily needed for:
a. Cash-basis accounting
b. Accrual-basis accounting
c. Current value accounting
d. Manual accounting systems
27) A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The
current market rate of interest is 8%. These bonds will sell at a price that is:
a.Equal to $500,000
b.More than $500,000
c.Less than $500,000
d.The answer cannot be determined from the information provided
28) Goodwill is:
a. Amortized over the greater of its estimated life or forty years
b. Only recorded by the seller of a business
c. The value of a business as a whole, over and above the value of its net identifiable
assets
d. Recorded when created internally through advertising expense
29) Given the information below, which bond(s) will be issued at a discount?
a. Bond 1
b. Bond 3
c. Bonds 2 and 4
d. Bonds 1 and 3
30) Which of the following is NOT correct regarding the reporting of cash?
a. Cash is reported in both the balance sheet and the statement of cash flows
b. Cash flows from buying and selling investments and long-term productive assets are
called operating cash flows
c. Cash flows from transactions with stockholders and creditors are called financing
cash flows
d. Net cash flows reported in the statement of cash flows should equal the change in
cash reported in the balance sheet
31) Listed below are five terms followed by a list of phrases that describe or
characterize the terms. Match each phrase with the best term placing the letter
designating the term in the space provided.
a. Accumulated depreciation
b. Book value
c. Depreciation
d. Residual value
e. Service life
Phrases:
_____ Also referred to as salvage value, is the amount the company expects to receive
from selling the asset at the end of its service life.
_____ Allocating the cost of a tangible asset over its service life.
_____ Equal to the original cost of the asset minus the current balance in accumulated
depreciation.
_____ A contra-asset account representing the total depreciation taken to date.
_____ How long the company expects to receive benefits from the asset before
disposing of it.
32) Which of the following is not a potential feature of preferred stock?
a. Convertible
b. Redeemable
c. Cumulative
d. They all are potential features of preferred stock
33) Extraordinary items:
a. Include very large gains or losses from ordinary business activities
b. Are both unusual in nature and infrequent in occurrence
c. Are shown on the income statement before the tax effect
d. Are either unusual in nature or infrequent in occurrence
34) Bonds payable should be reported as a long-term liability in the balance sheet at:
a.Face Value
b.Current bond market price
c.Carrying value
d.Face value less accrued interest since the last interest payment date
35) The balance sheet of Hidden Valley Farms reports total assets of $450,000 and
$550,000 at the beginning and end of the year, respectively. Net income and sales for
the year are $100,000 and $800,000, respectively. What is Hidden Valleys asset
turnover?
a. 1.6 times
b. 1.8 times
c. 1.5 times
d. 0.2 times
36) Tony Hawks Adventure (THA) issued callable bonds on January 1, 2015 . THA’s
accountant has projected the following amortization schedule from issuance until
maturity:
What is the annual stated interest rate on the bonds? (Hint: Be sure to provide the
annual rate rather than the six month rate.)
a.3%
b.3.5%
c.6%
d.7%
37) Sports Spectacular purchased 100,000 shares of stock in The Athletic Warehouse
for $30 per share. The investment is properly recorded using the equity method. By the
end of the year, the stock price has increased to $32 per share. How would the change in
stock price affect Sports Spectaculars net income under the equity method?
a. Increase net income by $32,000
b. Increase net income by $30,000
c. Increase net income by $2,000
d. No effect
38) Amounts owed to suppliers for supplies purchased on account are defined as:
a. Cash
b. Accounts Receivable
c. Accounts Payable
d. Supplies Expense
39) Davis Hardware Company uses a perpetual inventory system. How should Davis
record the return of inventory previously purchased on account for $200?
a. Inventory 200
Accounts Payable 200
b. Accounts Payable 200
Inventory 200
c. Purchase Returns 200
Accounts Payable 200
d. Accounts Payable 200
Purchase Returns 200
40) The account type that represents payments to stockholders is called:
a. Liabilities
b. Assets
c. Stockholders equity
d. Dividends
41) When a company prepares closing entries, which one of the following is NOT a
correct closing entry?
a. Debit Retained Earnings; credit Salaries Expense
b. Debit Dividends; credit Retained Earnings
c. Debit Service Revenue; credit Retained earnings
d. All of the above are correct
42) Region Jet has a $50 million liability at December 31, 2015, of which $10 million is
payable in 2016. In its December 31, 2015 balance sheet, the company reports the $50
million debt as
a.A $50 million current liability on the balance sheet
b.A $50 million long-term liability on the balance sheet
c.A $10 million current liability and a $40 million long-term liability on the balance
sheet
d.A $40 million current liability and a $10 million long-term liability on the balance
sheet
43) Rachels Recordings reported net income of $200,000. Beginning balances in
Accounts Receivable and Accounts Payable were $15,000 and $20,000, respectively.
Ending balances in these accounts were $12,000 and $22,000, respectively. Assuming
that all relevant information has been presented, Rachels cash flows from operating
activities would be:
a.$200,000
b.$195,000
c.$205,000
d.$199,000
44) What is the value today of receiving $5,000 at the end of each year for the next 10
years, assuming an interest rate of 12% compounded annually?
a. $87,744
b. $28,251
c. $50,000
d. $15,529
45) Prepayments occur when:
a. Cash payment (or an obligation to pay cash) occurs before the expense recognition
b. Sales are delayed pending credit approval
c. Customers are unable to pay the full amount due when goods are delivered
d. Cash payment occurs after the expense is incurred and liability is recorded
46) Bad Brads BBQ had cash flows for the year as follows ($ in millions):
Bad Brad’s would report net cash inflows (outflows) from financing activities in the
amount of:
a.$ 1,100
b.$(1,100)
c.$ 820
d.$ 900
47) A company pays $1,300 on account for supplies previously purchased on account.
Indicate the amount of increases and decreases in the accounting equation.
48) On September 1, 2015, Allied Moving Corp. borrows $100,000 cash from First
National Bank. Allied signs a six-month, 6% note payable. Interest is payable at
maturity. Allieds year-end is December 31 .
1> Record the note payable by Allied Moving Corp.
2> Record the appropriate adjusting entry for the note by Allied Moving Corp. on
December 31, 2015 .
3> Record the payment of the note at maturity.
49) A company reports the following amounts: Assets = $6,000; Liabilities = $2,000;
Stockholders equity = $4,000; Dividends = $500; Revenues = $5,000; and Expenses =
$3,000. What amount is reported for net income?
50) Explain why the percentage-of-receivables method is referred to as the balance
sheet method and the percentage-of-credit-sales method is referred to as the income
statement method. Which method is typically used in practice? Why?
51) Explain why we record interest in the period in which we incur it rather than in the
period we pay it.