2) Which of the following is correct for Smith Company when Smith issues 10,000
shares of $10 par value common stock and pays $20,000 cash in exchange for a
building? The market price of the Smith stock on the exchange date was $35 per share
and the building’s book value on the books of the seller was $250,000.
A.Total assets increase $350,000.
B.Stockholders’ equity increases $250,000.
C.Stockholders’ equity increases $330,000.
D.Total assets increase $330,000.
3) Which of the following would not be included under the account category of
expenses within the chart of accounts?
A.Cost of goods sold.
B.Interest expense.
C.Prepaid insurance expense.
D.Income tax expense.
4) Flyer Company has provided the following information prior to any year-end bad
debt adjustment:
♦ Cash sales, $150,000
♦ Credit sales, $450,000
♦ Selling and administrative expenses, $110,000
♦ Sales returns and allowances, $30,000
♦ Gross profit, $490,000
♦ Accounts receivable, $110,000
♦ Sales discounts, $14,000
♦ Allowance for doubtful accounts credit balance, $1,200
Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts
receivable is estimated to be uncollectible. How much is bad debt expense?
A.$5,500.
B.$6,700.
C.$4,240.
D.$4,300.
5) Which of the following correctly describes the various financial statements?
A.An income statement covers a period of time.
B.The cash flow statement is a financial statement at a specific point in time.
C.The balance sheet is a financial statement that covers a period of time.
D.The statement of stockholders’ equity is a financial statement at a specific point in
time.
6) Which of the following would lengthen the operating cycle?
A.Faster collection of accounts receivables.
B.Selling inventory in a shorter period of time.
C.Increasing the number of customers who paid cash.
D.Relaxing credit terms and allowing customers more time to pay.
The operating cycle can be described as cash-to-cash. Allowing customers more time to
pay increases the time it takes to collect cash and finish the operating cycle.
7) Miller Corp. purchased $1,000,000 of bonds at 105 when the market yield was 8%.
The bonds pay interest at the rate of 10%. Miller intends to hold these bonds to maturity
and will not need to sell the bonds before that date. Which of the following statements
is false?
A.Since the bonds were issued at a premium, the cash interest will be based on the 10%
rate.
B.Since the bonds were issued at a premium, the book value of the bond investment
will decrease toward its maturity value.
C.The company would recognize unrealized gains or losses on the bonds as the
premium is amortized.
8) Lena Company has provided the following data (ignore income taxes):
2014 revenues were $99,000.
2014 expenses were $47,800.
Dividends declared and paid during 2014 totaled $9,500.
Total assets at December 31, 2014 were $177,000.
Total liabilities at December 31, 2014 were $89,000.
Common stock at December 31, 2014 was $28,000.
Which of the following is not correct?
A.2014 net income was $51,200.
B.Total stockholders’ equity at December 31, 2014 was $88,000.
C.Total liabilities and stockholders’ equity at December 31, 2014 was $177,000.
D.Retained earnings on December 31, 2014 were $41,700.
9) Lauer Corporation uses the periodic inventory system and has provided the following
information about one of its laptop computers:
During the year, Lauer sold 750 laptop computers.
What was ending inventory using the FIFO cost flow assumption?
A.$60,000.
B.$55,000.
C.$45,000.
D.$40,000.
10) Black Corporation entered into the following transactions:
♦ The accrual of wages and salaries expense.
♦ The cash sale of equipment for a loss.
♦ The cash payment in advance for a one-year insurance policy.
Which of the following statements is correct with respect to determining Rocket’s cash
flows from operating activities on the statement of cash flows?
A.The accrual of wages and salaries expense is subtracted from net income.
B.The loss on the equipment sale is subtracted from net income.
C.The cash payment to purchase the insurance policy is subtracted from net income.
D.The accrual of wages and the equipment loss are both subtracted from net income.
11) CHS Company has just finished preparing its bank reconciliation. If CHS did
everything correctly, which items would have been included as an addition to the
company’s cash account?
A.Deposits in transit.
B.Interest received and collections of notes receivables.
C.Outstanding checks.
D.ATM and check printing fees.
12) Which of the following journal entries is created to adjust for a deferral?
A.Option A
B.Option B
C.Option C
D.Option D
13) Which of the following journal entries is correct when a business entity pays cash
for advertising to be used next year?
A.Option A
B.Option B
C.Option C
D.Option D
14) For each of the accounts listed below, indicate whether the typical or normal
balance is a debit or credit.
A. Supplies
B. Notes payable
C. Retained earnings
D. Equipment
E. Prepaid insurance expense
F. Accounts receivable
G. Land
H. Additional paid-in capital
I. Accounts payable
J. Unearned revenue
15) A corporation purchased factory equipment using cash. Which of the following
statements regarding this purchase is correct?
A.The cost of the factory equipment is an expense at the time of purchase.
B.The total assets will not change.
C.The total liabilities will increase.
D.The current stockholders’ equity will decrease.
16) Information disclosed in a balance sheet about shares of common stock includes the
number of shares that are:
A.Authorized and Issued.
B.Issued and Outstanding.
C.Authorized, Issued, and Outstanding.
D.Authorized, Issued, Outstanding, and Not Outstanding.
17) Which of the following is an example of revenue or expense to be recognized in the
current period’s income statement?
A.Cash received from a client before the service is provided.
B.Inventory purchased for sale to customers.
C.Wages owed to employees who worked during the period.
D.Cash collected from an account receivable.
18) SRJ Corporation entered into the following transactions:
♦ The accrual of interest expense on a six-month note payable.
♦ Collected cash for services to be provided within the next six months.
♦ The reclassification of short-term debt to long-term debt.
Which of the following statements is correct with respect to determining the net cash
flow from operating activities on a statement of cash flows?
A.The increase in interest payable for the accrual of interest expense is added to net
income.
B.Collecting cash for services to be provided in the future is subtracted from net
income.
C.The reclassification of short-term debt to long-term debt is subtracted from net
income.
D.Collecting cash for services to be provided in the future does not require an
adjustment to net income.