1) Every accounting transaction affects both the balance sheet and the income
statement.
2) Whether LIFO costing is applied at the time each sale is made or only at the end of
the period, both the periodic and perpetual systems will yield the same ending inventory
under LIFO.
3) Capital stock indicates the owners contributions to a partnership.
4) The most liquid of all assets is cash.
5) Generally, an increase in a current liability results in an increase in the operating
activities category of the cash flow statement.
6) The general ledger is sometimes called the book of original entry because it is the
accounting record where transactions are first recorded.
7) The amount of interest accrued is added to the note payable account and reported in
the liabilities section of the balance sheet.
8) An annuity is a series of equal payments made at equal intervals in the future.
9) All operating assets, except land, are subject to depreciation, amortization, or
depletion.
10) If ending inventory is understated, then cost of goods sold is overstated.
11) If current assets amount to $62,000, total assets $350,000, current liabilities
$31,000, and total liabilities $125,000, then the current ratio is
A.0.5 to 1
B.2.0 to 1
C.2.8 to 1
D.3.0 to 1
12) What are the effects on the accounting equation when a company writes off a bad
debt?
A.Assets and stockholders’ equity increase
B.Assets and stockholders’ equity decrease
C.Assets increase and stockholders’ equity decreases
D.No effect on overall assets or equity
13) Which one of the following items would be added to the balance per bank statement
in a bank reconciliation?
A.Outstanding checks
B.Deposits in transit
C.Service charge
D.Interest on customer note
14) Which of the following statements about current liabilities is true?
A.Current liabilities are listed in order of decreasing amounts in the current liability
section of the balance sheet
B.The amount of current liabilities has little implication for a company’s liquidity
C.The current liability section never contains any portion of long-term liabilities
D.The current ratio is defined as current assets divided by current liabilities
15) What are the effects on the accounting equation when a company makes the
adjustment to record bad debt expense using the allowance method?
A.Assets and owners’ equity increase
B.Assets and owners’ equity decrease
C.Assets increase and owners’ equity decreases
D.Assets decrease and owners’ equity increases
16) Duggard Transport Company
On January 1, 2013, Duggard Transport Company purchased a ship for $2,000,000. It
has a ten-year useful life and a residual value of $50,000. The company uses the
double-declining-balance method.
If Duggard Transport continues to use the ship in its eleventh year, what is the correct
accounting procedure?
A.Take the asset off the books and record a gain on the disposal
B.Continue to depreciate it
C.The company may not use it any longer
D.No longer depreciate it but leave it on the records at its book value at the end of its
useful life
17) Which one of the following is not an accurate description of Allowance for
Doubtful Accounts?
A.Contra account
B.Balance sheet account
C.Income statement account
D.Current asset account
18) Which of the following items is not a cash equivalent?
A.Commercial paper
B.A three-year Treasury note purchased two months before its maturity
C.Money market funds
D.A corporate bond investment which has 5 years until maturity when they are
purchased
19) Tara Dance Studios accounting records reflect the following account balances at
January 1, 2014.
During 2014, the following transactions occurred:
Required:
20) Josh Co. reported a net loss of $30,000 for 2014, yet its cash balance increased
during the year. Which financial statement should Joshs management refer to for an
explanation of this situation?
A.Balance sheet
B.Income statement
C.Statement of Retained Earnings
D.Statement of Cash Flows
21) Which of the following statements is trueconcerning intangible assets?
A.Intangible assets have no economic substance
B.Intangible assets lack physical existence
C.Intangible assets are listed in the stockholders equity section of the balance sheet
D.Intangible assets appear in the current assets section of the balance sheet
22) Recently, companies have been ordered by governmental agencies to clean up
environmental damages caused by business operations. How should costs incurred in
these situations be treated?
A.If a legal obligation exists, the cost of restoring the property must be added to the
asset account
B.As an expense entirely in one accounting period
C.As an amortized expense in the period the cost is incurred
D.Added to the asset, and then depreciated over 15 years
23) Line Corporation’s balance sheet showed the following amounts for their liability
and stockholders equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500;
Lease Obligations, $2,000; and Deferred Income Taxes, $300. Total stockholders’
equity was $6,000. The debt-to-equity ratio is
A.0.63
B.0.83
C.1.42
D.1.47
24) Giant-Mart purchased a big shipment of shoes from Right Balance, Inc. on credit
near the end of its accounting period. Right Balance shipped the shoes in January and
Giant-Mart received the shoes in February. Assume that Giant-Mart’s accounting period
ends on January 31, while Right Balances accounting period ends on May 31
REQUIRED: If the shoes are shipped FOB destination, who will pay the freight costs?
If the shoes are shipped FOB shipping point, who will pay the freight costs?
25) The ____________________ method results in the best approximation of
replacement cost of goods sold on the income statement during periods of rising prices.
26) Share, Inc.
The following data is available for one of the products sold by Share, Inc., which uses a
perpetual inventory system.
Refer to the data for Share, Inc.
If the LIFO method is used, how much is cost of goods sold for May?
27) Explain the difference between IFRS and U.S. GAAP presentation for bonds that
can be converted by investors into stock.
28) How does goodwill arise? How is it accounted for and reported on the financial
statements?
29) What is treasury stock? How is it reported on the financial statements?
30) Service-oriented companies have different needs than product-oriented companies
when analyzing financial statements.
REQUIRED: Why is this true? Give an example of a financial ratio that is meaningless
to a service business.
31) Hound Dog Bisquits reported the following financial data for 2013 and 2014:
Provide the answer for each missing letter above.
32) The private sector group with authority to set accounting standards is the
__________________________________________________.
33) Hawthorne Industries comparative balance sheets included accounts receivable of
$221,400
at December 31, 2013, and $205,900 at December 31, 2014. Sales reported on
Hawthornes
2014 income statement amounted to $2,550,000. What is the amount of cash collections
that Hawthorne will report in the Operating Activities category of its 2014 statement of
cash flows assuming that the direct method is used? Show your calculations.
