The receiving department compares the quantity of merchandise received with the
quantity ordered. The following set of items describes activities completed by a
company in purchasing and paying for merchandise and in collecting cash for
merchandise sales. For each activity, identify whether or not the activity adheres to or
violates sound internal control procedures. (Choices may be used more than once.)
a. Adheres to sound internal controls
b. Violates sound internal controls
c. Neither strengthens nor violates internal control
Refer to Medstar Ambulance Service. How much was paid to retire the $1,000,000 note
issue during 2014?
Medstar Ambulance Service
Information from the company’s financial records is presented below:
At the end of 2014, the company issued notes at par value for $1,200,000 cash. The
proceeds were used to retire the $1,000,000 note issue outstanding at the end of 2013
(before their maturity date). All interest expense was paid in cash during 2014. a. $
800,000
b. $1,200,000
c. $1,045,000
d. $1,075,000
Rent had been incurred, but not yet paid
For each transaction select the type of adjustment that would be required. (Choices
may be used more than once.)
a. Deferred (prepaid) expense
b. Deferred (unearned) revenue
c. Accrued expense
d. Accrued revenue
If a company’s asset turnover ratio decreased from 2012 to 2013, which of the following
conclusions can be made?
a. The company was more efficient during 2013 in using its assets to produce profits.
b. The company produced less sales in 2013 for each dollar invested in assets.
c. The company was less profitable in 2012.
d. The company over invested in assets in 2013.
Refer to AT&U Company. If the company estimates its bad debt to be 2% of net credit
sales, what will be the balance in the Allowance for Doubtful Accounts account after
the adjustment for bad debts?
AT&U Company
Data for the year ended December 31, 2013, are presented below:
a. $20,000
b. $19,000
c. $49,000
d. $69,000
Occurs when a company determines that an asset is no longer useful
Match these terms with their correct definition.
a. Franchise e. Organizational costs
b. Intangible operating assets f. Property, plant, and equipment
c. Natural resources g. Trademark
d. Operating assets h. Voluntary disposal
When using the direct method to determine operating cash flows, how are salaries paid
to employees reported on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
Refer to Designs on You. What is the company’s adjusted cash balance at May 31?
Designs on You The following information relates to the company’s May bank
reconciliation:
In addition, a check was recorded in the accounting records as $1,200 but the correct
amount as recorded by the bank was only $1,000. a. $4,865
b. $5,000
c. $5,365
d. $5,500
Which of the following factors is not related to the decline in the usefulness of plant
and equipment assets, and therefore does not need to be considered in selecting an
appropriate depreciation method?
a. physical deterioration
b. obsolescence
c. repair and maintenance policies
d. current replacement cost
When a corporation issues a small stock dividend, which of the following is false?
a. Cash decreases.
b. Total stockholders’ equity remains the same.
c. The capital stock accounts increase.
d. Retained earnings is decreased.
A chronological record showing the debit and credit effects of transactions on a
company.
Match the following terms with their correct definition.
a. Account f. Debit
b. Accounting cycle g. Event
c. Chart of accounts h. General ledger
d. Cost vs. benefit i. Journal
e. Credit j. Trial balance
Which balance sheet accounts are most affected by operating activities?
a. Current assets and current liabilities.
b. Long-term assets.
c. Long-term liabilities.
d. Stockholders’ equity.
Which of the following is considered a profitability ratio?
a. return on equity
b. acid test ratio
c. inventory turnover ratio
d. debt-to-equity ratio
Which of the following statements regarding amortization is true?
a. Amortization of the premium causes the premium on bonds payable account to
increase.
b. Amortization of the premium causes the amount of interest expense to increase.
c. Cash interest payments on bonds equals interest expense on the income statement
when there is amortization of bond premium.
d. Amortization of a premium continues over the life of the bond until the balance in the
account is reduced to zero.
The first cash flow in the future value of an annuity occurs when?
a. At the start of the first period.
b. At the maturity date of the loan.
c. When interest is collected.
d. At the end of the first period.
If the stated interest rate is 12% per year, but it is compounded semiannually, then the
adjusted rate used for present or future value calculations will be
a. 12% per year.
b. 3% per quarter.
c. 6% per 6-month period.
d. 1% per 6-month period.
Refer to Dance Town Academy. How will the interest earned on the checking account
be handled on a bank reconciliation?
Dance Town Academy The items listed below were identified while preparing a bank
reconciliation for the company’s checking account as of March 31, 2013.
a. add to the balance from the company records
b. subtract from the balance from the company records
c. add to the bank statement balance
d. subtract from the bank statement balance
A company with operating income of $200,000, cash flow from operating activities of
$75,000 and gross profit of $380,000, has interest payments of $25,000. What is the
company’s Interest Coverage Ratio (Cash Basis)?
a. 4 or 4 to 1
b. 3 or 3 to 1
c. 15.2 or 15.2 to 1
d. 2.67 or 2.67 to 1
Times interest earned ratio
For each ratio listed, select whether an increase or decrease in the ratio is generally
considered to be better. (Choices may be used more than once.)
The lender of a note recognizes a note receivable on the balance sheet and interest
revenue on its income statement.
Internal control over financial reporting is concerned with ensuring the reliability of the
financial statements.
The equity method of accounting is used if the investor owns between 20-50% of
another company and the investor is able to exert influence over the other company.
On the balance sheet, a company reports plant assets by subtracting residual value from
the original cost of the plant asset.
Refer to California Condos. On January 1, the balance of Unearned Rent Revenue was
$0. The company collected cash from tenants of its apartment building totaling
$600,000 during 2013. How much should be reported as unearned rent revenue as of
December 31, 2013?
California Condos California Condos uses the accrual basis of accounting, and had the
following account balances on its financial statements at December 31, 2013.
compares a single corporation across time
Match these terms to their correct definition
Since dividends do not impact income, the dividends account is not closed to the
income summary account.
The ability of a company to pay its debt as it comes due relates to
____________________.
In present value problems, the interest rate is also called the __________________.
The __________________ dividend preference is a preferred stock feature that
provides for the current stated dividends plus dividends in arrears before any dividends
are paid to the common stockholders.