1) Depreciation expense is not reported on the statement of cash flows under the direct
method.
2) When accounts payable decrease, cash paid to suppliers must have been more than
purchases.
3) Only transactions involving cash affect a companys cash flows.
4) The lower the market interest rate, the lower the bond issue price will be.
5) One advantage of the corporate form of business is double taxation.
6) If you put $500 into a savings account that pays simple interest of 8% per year and
then withdraw the money two years later, you will earn interest of $80.
7) The statement of cash flows reports a companys cash inflows and cash outflows
related to (1) operating activities, (2) investing activities, and (3) financing activities.
8) Aggressive accounting practices result in reporting higher income, higher assets, and
lower liabilities.
9) Public accounting firms are professional service firms that traditionally have focused
on three areas: auditing, tax preparation/planning, and business consulting.
10) Incurring employees salaries but not paying them causes no change to stockholders
equity.
11) Investors and creditors rely heavily on financial accounting information in making
investment and lending decisions.
12) Management must review long-term assets for impairment when events or changes
in circumstances indicate that book value might not be recoverable.
13) The rules of financial accounting are called Generally Accepted Accounting
Principles (GAAP).
14) The post-closing trial balance is a list of all accounts and their balances at a
particular date after the account balances have been updated for closing entries.
15) If the beginning balance of Retained Earnings equals $12,000, the ending balance
of Retained Earnings equals $15,000, and dividends for the year equal $1,000, then net
income for the year equals $4,000.
16) Cash flows from financing activities include:
a. Lending
b. Salaries paid
c. The sale of land
d. Dividends paid
17) The ending Retained Earnings balance of Juan’s Mexican Restaurant chain
increased by $3.2 million from the beginning of the year. The company declared a
dividend of $1.3 million during the year. What was the net income earned during the
year?
a. $1.9 million
b. $3.2 million
c. $4.5 million
d. $1.3 million
18) The assumption that the assets and liabilities of the business are accounted for on
the books of the company but not included in the records of the owner is the:
a. Monetary unit assumption
b. Economic entity assumption
c. Going concern assumption
d. Periodicity assumption
19) Away Travel filed suit against West Coast Travel seeking damages for copyright
violations. Away Travel’s legal counsel believes it is probable (but not certain) that
Away Travel will win the lawsuit for an estimated amount in the range of $100,000 to
$200,000, with all amounts in the range considered equally likely. How should Away
Travel report this litigation?
a. As a receivable for $100,000 with disclosure of the range
b. As a receivable for $150,000 with disclosure of the range
c. As a receivable for $200,000 with disclosure of the range
d. As a disclosure only. No receivable is reported
20) Which of the following is TRUE regarding the accounting for treasury stock?
a. Treasury stock is reported on the balance sheet in the equity section
b. The purchase and sale of treasury stock has no impact on the income statement
c. Treasury stock represents a negative equity account
d. All of the above are True
21) Allowing only certain individuals to have passwords to conduct online purchases is
an example of which preventive control?
a. Separation of duties
b. Physical controls
c. E-commerce controls
d. Employee management
22) When treasury stock is resold at a price above cost:
a.A gain account is credited
b.A loss is reported
c.A revenue account is credited
d.Additional Paid-in Capital is increased
23) After applying the lower-of-cost-or-market method, the accountant prepares a
year-end adjustment. That adjustment would:
a. Decrease the companys cost of goods sold
b. Reduce the companys stockholders equity
c. Increase the companys inventory
d. Increase the companys total assets
24) On November 10 of the current year, Flores Mills provides services to a customer
for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on
December 5 . How would Flores record the collection of cash on December 5?
a. Cash7,840
Accounts Receivable7,840
b. Cash7,840
Sales Discounts 160
Accounts Receivable8,000
c. Cash7,840
Sales Revenue 160
Accounts Receivable8,000
d. Cash8,000
Accounts Receivable8,000
25) Given the information below about David Corporation, what was the amount of
dividends the company paid in the current period?
a. $140,000
b. $0
c. $30,000
d. $20,000
26) 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. Annuity
b. Future value of a single amount
c. Discount rate
d. Future value of an annuity
e. Interest
f. Compound interest
g. Present value of a single amount
h. Time value of money
i. Simple interest
j. Present value of an annuity
Phrases:
_____Amount today equivalent to a specified future amount.
_____The rate at which future dollars are equal to current dollars.
_____Interest earned on the initial investment only.
_____The factor that causes money today to be worth more than the same amount in the
future.
_____Current worth of a series of equal payments received in the future.
27) Convertible bonds:
a. Provide potential benefits only to the issuer
b. Provide potential benefits only to the investor
c. Provide potential benefits to both the issuer and the investor
d. Provide no potential benefits
28) Investing cash flows would include which of the following?
a. Payment of cash dividends to stockholders
b. Purchase of office supplies with cash
c. Purchase of a building with cash
d. Cash sales to customers
29) 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 provided.
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Executives must personally certify the financial statements.
30) 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 provided.
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Routine activities that are meant to continually observe internal control
activities.
31) The following information was taken from the bank reconciliation for Mooner
Sooner Inc. at the end of the year:
Bank balance: $8,000
Checks outstanding: $5,800
Note collected by the bank: $1,500
Service fee: $20
Deposits outstanding: $4,000
NSF check (bad check) returned for $300
What is the correct cash balance that should be reported in Mooner Sooners balance
sheet at the end of the year?
a. $10,200
b. $7,400
c. $6,200
d. $6,160
32) Consider the following transactions:
Issued common stock for cash.
Purchased equipment by signing a note payable.
Provided services to customers on account.
Collected cash from customers on account.
How many of these four transactions increased the given companys total liabilities?
a. One
b. Two
c. Three
d. Four
33) Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase
of inventory with cash affect each ratio?
a. Increase the current ratio and increase the acid-test ratio
b. No change to the current ratio and decrease the acid-test ratio
c. Decrease the current ratio and decrease the acid-test ratio
d. Increase the current ratio and decrease the acid-test ratio
34) The current ratio is:
a.1.98
b.1.58
c.1.17
d.0.66
35) Reba wishes to know how much would be in her savings account in five years if she
deposits a given sum in an account that earns 6% interest. 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
36) The body of rules and procedures that guide the measurement and communication
of financial accounting information in the United States is known as:
a. Standards of Professional Compliance (SPC)
b. Generally Accepted Accounting Principles (GAAP)
c. Generally Accepted Auditing Standards (GAAS)
d. Rules of Financial Reporting (RFR)
37) Which of the following best describes revenue?
a. Resources of a company
b. Amounts earned from providing goods and services to a customer
c. Cash received from a customer
d. Dividends paid to stockholders
38) The following information relates to inventory for Shoeless Joe Inc.
At what amount would Shoeless report ending inventory using FIFO cost flow
assumptions?
a. $55
b. $170
c. $110
d. $70
39) If a company issues 1,000 shares of $1 par value common stock for $20 per share,
what would be the effect on the accounting equation?
a. Increase assets and increase liabilities
b. Increase assets and increase revenue
c. Increase assets and increase stockholders equity
d. Increase assets and decrease stockholders equity
40) 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 2016 would be:
a.$22,000
b.$13,200
c.$14,400
d.$24,000
41) Listed below are six 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. Bank service fees
b. Deposits outstanding
c. Interest earned
d. NSF checks
e. Company error
f. Checks outstanding
____ Checks written to the company that are returned by the bank as not having
adequate funds.
42) For a bond issue that sells for more than the bond face amount, the stated interest
rate is:
a.The actual yield rate
b.The prime rate
c.More than the market rate
d.Less than the market rate
43) Providing services to customers on account would affect the balances reported in
which financial statement(s)?
a. Income statement
b. Statement of stockholders equity
c. Balance sheet
d. All of the financial statements would be affected
44) In each succeeding payment on an installment note:
a.The amount of interest expense increases
b.The amount of interest expense decreases
c.The amount of interest expense is unchanged
d.The amounts paid for both interest and principal increase proportionately
45) The equation best describing the income statement is:
a. Revenues Expenses = Net Income
b. Assets = Revenues Expenses
c. Assets = Liabilities + Stockholders Equity
d. Revenues + Expenses = Net Income
46) The mixture of liabilities and stockholders equity a business uses is called its:
a. Bond contract
b. Carrying value
c. Capital structure
d. Accounting equation
47) Which of the following would NOT represent good controls over cash receipts?
a. Record all cash receipts as soon as possible
b. The employee that receives cash and checks should also deposit them in the bank
c. Open mail each day and make a list of checks received with the amount and payers
name
d. Verify cash receipts by comparing the bank deposit slip with the accounting records
48) If a company understates its ending balance of inventory in year 1 and it records
inventory correctly in year 2, which one of the following is True?
a. Net income is overstated in year 1
b. Cost of goods sold is overstated in year 2
c. Net income is understated in year 2
d. Retained earnings is understated in year 2
49) Would a company be more likely to report a contingent liability under U.S. GAAP
or IFRS?
a. U.S. GAAP
b. IFRS
c. Equally likely
d. Contingent liabilities are not reported under IFRS
50) Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The
customer agreed to keep the paint upon being offered a 15% price reduction. The price
reduction is an example of a:
a. Sales revenue
b. Sales discount
c. Sales return
d. Sales allowance
51) Capital Construction purchased a 3-acre tract of land for a building site for
$350,000. The company demolished the old building at a cost of $12,000, but was able
to sell scrap from the building for $1,500. The cost of title insurance was $900 and
attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of
which $250 covered the period after the purchase date. The capitalized cost of the land
is:
a. $366,400
b. $366,150
c. $364,650
d. $231,150
52) A company provided $1,500 of services to customers during the month of May. The
customers paid in June. What would the impact of these transactions be during May on
each of the following three items?
CashCash-basisAccrual-basis
BalanceNet IncomeNet Income
a. No effectNo effectIncrease
b. No effectNo effectNo Effect
c. IncreaseIncreaseIncrease
d. IncreaseIncreaseNo effect
53) The concept that interest causes the value of money received today to be greater
than the value of that same amount of money received in the future is referred to as the:
a. Monetary unit assumption
b. Historical cost principle
c. Time value of money
d. Matching principle
54) When a company issues 25,000 shares of $1 par value common stock for $10 per
share, the journal entry for this issuance would include:
a. A debit to Cash for $25,000
b. A debit to Additional Paid-in Capital for $25,000
c. A credit to Common Stock for $250,000
d. A credit to Additional Paid-in Capital for $225,000
55) Temporary accounts would not include:
a. Salaries Payable
b. Advertising Expense
c. Supplies Expense
d. Dividends
56) Environmental Designs issues 10,000 shares of its $1 par value common stock at
$25 per share. (1) Record the issuance of the stock. (2) Record the issuance of the stock
assuming it is no-par value stock.
57) Incognito Company is contemplating the purchase of a machine that provides it
with net after-tax cash savings of $80,000 per year for 5 years. Assuming an 8%
discount rate, calculate the present value of the cash savings.
58) A company reports inventory using the lower-of-cost-or-market method. Below is
information related to its year-end inventory:
Calculate ending inventory under lower-of-cost-or-market and record any
necessary adjustment to inventory.
59) What are the three primary cost flow assumptions? How does the specific
identification method differ from these three primary cost flow assumptions?
60) __________ is commonly referred to as the income statement approach.