1) Land is purchased on credit. For this transaction, identify the effect on the accounting
equation.
A.Assets increase and liabilities increase
B.Assets increase and owners equity increases
C.Liabilities increase and owners equity decreases
D.Liabilities decrease and assets decrease
2) Excursion Corp. increased its dollar amount of working capital over the past several
years. To further evaluate the company’s short-run liquidity, which one of the following
measures should be used?
A.The current ratio
B.An analysis of the companys long-term debt
C.An analysis of the return on stockholders equity
D.An analysis of retained earnings
3) Which one of the following would not appear on a bank statement for a checking
account?
A.Service charges
B.Interest earned
C.Outstanding checks
D.Deposits
4) A credit means that
A.the event has an effect on the right side of an account
B.the event is unfavorable
C.the event is favorable
D.the event always decreases the account
5) On November 1, 2014, Chancellor Co. borrowed $80,000 from State Bank and
signed a 12%, six-month note payable, all due at maturity. The interest on this loan is
stated separately. At December 31, 2014, Chancellor Co.’s overall liability for this loan
amounts to:
A.$84,800
B.$80,000
C.$81,600
D.$83,200
6) Gyros Shop reported a net loss of $15,000 and total expenses of $80,000. How much
are total revenues?
A.$ 15,000
B.$ 65,000
C.$ 95,000
D.The answer cannot be determined from the information given.
7) A banker is analyzing a company which operates in the petroleum industry. Which of
the following might be a major consideration in determining whether the company
should receive a loan?
A.The petroleum industry suffers from political pressures concerning the selling price
of its products.
B.Inflation has been high for several years in a row.
C.All companies in the petroleum industry use the same accounting principles.
D.The company has a large amount of interest payments related to many outstanding
loans.
8) A new company issues 2,000 shares of $5 par common stock in exchange for the
services of a lawyer during its first month of business. The lawyers normal fee is
$15,000 for similar work. Which of the following would be recorded if the stock is not
currently trading?
A.A decrease in Common Stock for $10,000
B.An increase in Common Stock for $15,000
C.A decrease in Additional Paid-In Capital–Common Stock of $5,000
D.An increase in Additional Paid-In Capital–Common Stock of $5,000
9) What type of account is increased with a debit but is a decrease to retained earnings?
A.Liability
B.Asset
C.Revenue
D.Expense
10) Which of the following statements regarding leases is false?
A.Lease agreements are a popular form of financing the purchase of assets because
leases do not require a large initial outlay of cash
B.Accounting recognizes two types of leases–operating and capital leases
C.If a lessor classifies a lease as a capital lease, then the lessee records a lease liability
on its balance sheet
D.If a lease is classified as an operating lease, the lessee records a lease liability on its
balance sheet
11) Match each of the following terms related to interest and time value of money
calculations to their appropriate definition.
1>The amount that will be accumulated in the future when one amount is invested atthe
present time and accrues interest until the future time. A. Present value of a single
amount
2>Interest calculated on the principal plus previous amounts of interest accumulated. B.
Time value of money
3>A series of payments of equal amount. C. Annuity
4>Interest that is earned or paid on the principal amount only. D. Simple interest
5>The present amount that is equivalent to an amount at a future time. E. Future value
of an annuity
6>The concept that indicates that people should prefer to receive an immediateamount
at the present time over an equal amount in the future. F. Compound interest
7>The amount needed at the present time to be equivalent to a series of paymentsand
interest in the future. E. Present value of an annuity
8>The amount that will be accumulated in the future when a series of payments
isinvested and accrues interest until the future time. G. Future value of a single amount
12) Which of the following items would not be a reconciling item?
A.Canceled checks
B.NSF checks
C.Outstanding checks
D.Deposits in transit
13) All of the following statements are true about inflation except:
A.The U.S. and Germany adjust their financial statements for inflation
B.In recent years, inflation has been more rampant in Latin America and South America
than the rest of the world
C.The FASB developed rules for companies in the United States to use to adjust for
inflation
D.U.S. companies no longer present financial information adjusted for the effects of
inflation
14) Which statement summarizes the income earned and the dividends paid?
A.Statement of cash flows
B.Statement of retained earnings
C.Balance sheet
D.Income statement
15) Pierce Corp. identified the following data in preparing a bank reconciliation on
October 31, 2014.
What is the net amount of the adjustments to Pierces cash balance as a result of the
bank reconciliation?
A.No amounts need to be recorded
B.$400 increase
C.$400 decrease
D.$900 decrease
16) Over the life of a note, the maker of a note recognizes ____________ on the
balance sheet and _____________ on the income statement.
Note payableor
17) Would errors made by a bookkeeper in recording journal entries and in posting
journal entries to the general ledger be discovered by preparing a trial balance? Explain
why or why not for both the journal entry errors and the posting errors.
18) Lagoon Industries
Lagoon Industries received authorization on December 31, 2012, to issue $7,000,000
face value of 6%, 10-year bonds. The interest payment dates are June 30 and December
31. All the bonds were issued at par, plus accrued interest, April 1, 2013. The bonds are
callable by Echo Industries at any time at 102.
Review the information about Lagoon Industries.
REQUIRED:
Identify and analyze the effects of the transaction to record issuance of the bonds on
April 1, 2013.
19) In the following information from the 2014 annual reports of Technic Industries all
figures have been rounded to millions of dollars.
REQUIRED:
(1) Describe what costs are included in each of the three types of inventories listed
above for Technic Industries.
(2) Even though the footnote describing the inventory costing method(s) used by
Technic Industries is not provided above, what can you conclude about the inventory
costing method(s) used by the company?
20) Terms of 2/10, n30 mean that if the discount is not taken, full payment is due within
___________________________ days.
21) The left or debit side of a liability account is used to record
____________________.