1) The term used to refer to an assets original cost is historical cost.
2) The current ratio is irrelevant in liquidity analysis for service companies because
they do not have inventories among their current assets
3) According to the accounting profession, the purpose of financial reporting is to
provide
information about a company that investors, lenders, and other creditors can use when
deciding whether to provide resources to the entity.
4) Moving average is the name given to the use of an average cost method used with a
periodic inventory system.
5) An increase in accounts receivable is reported on the statement of cash flows under
the indirect method as an addition.
6) Under the accrual method, expenses are recognized when revenue is earned.
7) A financial analyst is comparing two companies. Which of the following would cause
major problems in the evaluation process?
A.One company has a fiscal year that ends on October 31, while the other company has
a fiscal year that ends on August 31.
B.One company reported nonoperating activities, while the other company did not.
C.The companies operate in different industries.
D.Inflation has been low for the past several years.
8) Givens Corp.
Givens Corp. is a merchandising company that uses the periodic inventory system.
Selected account balances are listed below:
Refer to the information for Givens Corp.
Calculate net income.
A.$289,000
B.$141,000
C.$131,000
D.$116,000
9) When using the direct method, how is depreciation expense recorded on the
statement of cash flows?
A.Operating activity
B.Investing activity
C.Financing activity
D.Not reported on the statement of cash flows
10) Barnhill, Inc. uses straight-line depreciation for its equipment with an estimated
useful life of 10 years and zero residual value. The CEO points out that the equipment
will last much longer than 10 years, perhaps up to 20 years. What is the impact on
earnings per share and net income of depreciating equipment over 20 years rather than
10 years?
A.Both earnings per share and net income will decrease
B.Both earnings per share and net income will increase
C.Earnings per share will decrease and net income will increase
D.Earnings per share will increase and net income will decrease
11) Which of the following trends can be unfavorable from the viewpoint of a
bondholder?
A.The issuing companys debt ratio is steadily declining
B.The issuing companys interest coverage ratio is steadily rising
C.Market interest rates are steadily rising
D.The issuing companys net cash flow from operating activities is steadily increasing
12) Which of the following statements is false?
A.Cash equivalents are included in cash on the balance sheet and on the statement of
cash flows
B.Investments in cash equivalents and investments in stock have the same economic
effect–assets increase and decrease by the same amount
C.An investment is a cash equivalent if it is convertible into a known amount of cash
and has an original maturity of 3 months or less when purchased
D.Investments in stock are reported as a financing activity on the statement of cash
flows
13) Which of the following yields the return on assets ratio?
A.(return on common stockholders equity) x (asset turnover)
B.(return on sales) x (asset turnover)
C.(profit margin) x (return on sales)
D.(profit margin) x (asset turnover)
14) Cheile Transportation purchases many pieces of office furniture with an individual
cost below $200 each. Cheile chooses to account for these expenditures as expenses
when acquired rather than reporting them as property, plant, and equipment on its
balance sheet. The company’s accountant and independent CPA agree that no
accounting principle has been violated. What accounting justification allows Cheile to
expense the furniture?
A.Conservatism
B.Matching
C.Materiality
D.Verifiability
15) Creek Inc. has a weekly payroll of $8,000 for a 5-day workweek, Monday through
Friday. If December 31, the last day of the accounting year, falls on Wednesday, Creek
would make an adjustment that would
A.increase wages expense $4,800
B.decrease wages payable $4,800
C.decrease cash $4,800
D.increase wages payable $8,000
16) All of the following are intangible assets except
A.patents
B.goodwill
C.franchises
D.accounts receivable
17) Rent owed to the landlord is a balance sheet item for Generic Products Company.
How would it most likely be classified on the balance sheet?
A.Current liability
B.Long-term liability
C.Current asset
D.Owners equity
18) What effects on a retail store’s accounting equation occur when merchandise
returned by customers is recorded?
A.Assets and stockholders equity decrease
B.Assets and stockholders equity increase
C.Assets decrease and liabilities increase
D.Stockholders equity decreases and liabilities increase
19) When selecting between the best alternatives regarding an ethical dilemma in
accounting all of the following should be considered except:
A.which alternative provides the most relevant information
B.which alternative provides the most accurate information
C.which alternative provides the most neutral information
D.which alternative provides the most profitable information
20) Starship Inc.’s gross profit ratio increased from 36.5% in 2011 to 48.6% in 2012.
What is the trend in this change?
A.An upward trend
B.A downward trend
C.It depends on whether net sales increased or decreased during the period
D.Trends cannot be determined without the dollar amount of the increase provided
21) Comprehensive income is
A.considered an appropriation of retained earnings when reported in the stockholders’
equity section of the balance sheet
B.the result of all events and transactions that affect income during the accounting
period that are reported on the income statement
C.reporting all items that are not under management’s control on the statement of
retained earnings
D.an all-inclusive approach to income that includes transactions that affect
stockholders’ equity with the exception of those transactions that affect owners
22) Sliders Company
Sliders Company sells its merchandise only on credit. The following data is available at
December 31, 2014:
Refer to the data for Sliders Company.
The firm estimates that bad debts could be 1% of their net sales.
23) Which of the following formulas gives the inventory turnover ratio?
A.Net credit sales/Average inventory
B.Average inventory/Net credit sales
C.Cost of goods sold/Average inventory
D.Average inventory/Cost of goods sold
24) Dividends in Arrears
A.is a liability account
B.is a contra stockholders equity account
C.is a stockholders equity account
D.appear in the notes to the financial statements
25) Fenchurch Corp. uses the direct write-off method to account for bad debts. What are
the effects on the accounting equation when recording the write-off of a customer’s
account balance?
A.Assets and liabilities decrease
B.Assets and owners equity decrease
C.Owners equity decrease and liabilities increase
D.No effect; assets increase and decrease by the same amount
26) Which of the following below is an example of a capital expenditure?
A.cleaning the carpet in the front room
B.tune-up for a company truck
C.replacing an engine in a company car
D.replacing all burned-out light bulbs in the factory
27) The amount of money received, or the fair value of the products or services
received by the maker when a promissory note is issued is called the
____________________.
28) Selected data from the financial statements of Ames Corporation for the years
ended December 31, 2013 and 2014 are presented below.
REQUIRED:
What is the amount of cash and cash equivalents at the end of 2014?
29) The difference between the principal amount of a note and its maturity value is
called ____________________.
30) On July 1, 2012, Tawna Shop borrowed $33,000 from the bank. Tawna signed a
ten-month, 6%promissory note for the entire amount. Tawna uses a calendar year-end.
REQUIRED:
1> Identify and analyze the effect of the July 1 transaction to record the issuance of the
promissory note.
2> Identify and analyze the adjustment needed at year-end.
3> Identify and analyze the effect of the May 1 transaction to record the payment of
principal and interest.
31) If the balance of accounts receivable decreases during the year, then cash
collections will ____________________________ sales on account for the period.
32) The amount received for each share of stock in excess of par value is
______________________.