1) IFRS typically uses a more rule-based approach than U.S. GAAP.
2) One measure of a company’s overall long-term financial health is the debt-to-equity
ratio.
3) Some analysts properly refer to a companys profit margin as its return on assets.
4) Research and development costs should be presented as intangible assets.
5) Financial accounting is the branch of accounting concerned with communication
with internal management.
6) All the information needed to compute the cash flow adequacy ratio is found on the
balance sheet.
7) In the independent auditors’ report included with the annual report, management
discusses the financial statements and provides the shareholders with explanations for
certain amounts reported in the statements.
8) Cost of goods available for sale is equal to beginning inventory less cost of goods
sold.
9) Investing activities are needed to provide the funds to start a business.
10) Many countries prohibit the use of LIFO for tax or financial reporting purposes.
11) An amount that has been incurred as an expense, but has not yet been paid should
be considered an accrued liability.
12) The work sheet used to prepare a statement of cash flows (indirect method to
determine cash flows from operating activities) should have a total in the Changes
column equal to total assets.
13) Bonds are a popular source of financing because
A.bond interest expense is deductible for tax purposes, while dividends paid on stock
are not
B.financial analysts tend to downgrade a company that has raised large amounts of cash
by frequent issues of stock
C.a company having cash flow problems can postpone payment of interest to
bondholders
D.the bondholders can always convert their bonds into stock if they choose
14) Use the data presented below which Raines Corp. identified in preparing a bank
reconciliation on October 31, 2014, to answer the questions that follow.
What is the net amount of the increase or decrease in Raines cash balance which must
be recorded as a result of the adjustments identified by the bank reconciliation?
A.$100 decrease
B.$300 decrease
C.$400 decrease
D.$600 decrease
15) Which one of the following statements is true?
A.External events (transactions) involve interactions between an entity and a party
outside the entity
B.Every event or transaction which affects an entity is identified from a source
document
C.All economic events can be reliably measured
D.The movement of raw material into production is an external event
16) A liability for dividends is created
A.at the end of each fiscal year
B.at the date of payment
C.at the date of record
D.at the date of declaration
17) When the amount for a debit entry in a journal is transferred to a specific account in
the general ledger, it must be recorded
A.as a debit to that account in the general ledger
B.as a credit to that account in the general ledger
C.in sum only, without any regard for debit or credit, since the general ledger accounts
do not have spaces for debit and credit entries
D.cannot be determined without further information
18) Which of the following is the attribute used to measure many assets that are
recognized on a balance sheet, because it is more objective and verifiable?
A.Market value
B.Historical cost
C.Liquidation value
D.Current replacement cost
19) Adam Inc. uses a perpetual inventory system.
If Adam uses the LIFO method, how much is cost of goods sold for the sale of January
15?
A.$204
B.$208
C.$212
D.$560
20) On January 1, 2012, Sandy Shores Company issued 10,000 shares of 10%, $20 par
value cumulative preferred stock. In 2012 and 2013, no dividends were declared on
preferred stock. In 2014, Sandy Shores had a profitable year and decided to pay
dividends to stockholders of both preferred and common stock. If they have $200,000
available for dividends in 2014, how much could it pay to the common stockholders?
A.$140,000
B.$160,000
C.$180,000
D.$200,000
21) Which of the following statements is true of liabilities?
A.Accounts payable are listed in the current liabilities section in alphabetical order by
vendor
B.Classification of current liabilities is important because of the liquidity concept
C.Current liabilities are listed in order of decreasing amounts in the current liability
section of the balance sheet
D.The accounting principles followed in the U.S. differ from those of other countries;
this is especially true for current liabilities
22) Which of the following statements regarding the statement of cash flows is true?
A.The statement of cash flows analyzes the changes in consecutive balance sheets in
conjunction with the income statement
B.The statement of cash flows is organized as cash inflows less cash outflows
C.The statement of cash flows analyzes only the changes in current assets and current
liabilities
D.The statement of cash flows is an optional financial statement
23) A company forgot to record four adjustments during 2012. Which one of the
following omissions of adjustments will understate net income?
A.Sales made during the last week of the period are not recorded
B.Interest on monies borrowed has not yet been recorded
C.Prepaid insurance is not reduced for the portion of the policy that has expired during
the period
D.Income taxes owed but not yet paid are ignored
24) A cereal company includes one premium coupon in every cereal box. Upon
returning 10 such coupons to the company, a customer will be sent a free cereal bowl.
In a recent year, the company sold 200,000 boxes of cereal for $1 a box. It is estimated
that 20% of the coupons will be returned. If the cereal bowls cost the company $3 each,
what amount of liability for premium redemptions must be recorded by the company?
A.$ 6,000
B.$ 12,000
C.$ 24,000
D.$200,000
25) Wens Export Co.
Wens Export Co. purchased a new delivery truck at the beginning of 2013. The truck
has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of
$7,000. A full year’s depreciation expense is to be recorded in 2013. The truck was
driven 20,000 miles during 2013 and 24,000 miles during 2014. The number of
expected miles over five years is 100,000.
Refer to information for Wens Export Co.
Wens is comparing the straight-line and double-declining-balance depreciation
methods. Of these two methods, which method creates the larger expense and larger tax
savings in 2013?
A.Straight-line depreciation creates the larger expense, while double-declining-balance
depreciation creates the larger tax savings
B.Straight-line depreciation creates both the larger expense and the larger tax savings
C.Double-declining-balance depreciation creates both the larger expense and the larger
tax savings
D.Double-declining-balance depreciation creates the larger expense, while straight-line
depreciation creates the larger tax savings
26) Burke Company
The following income statement items are taken from the records of Burke Company
for the year ended December 31, 2014:
Read the information about Burke Company.
Required:
Prepare a multiple-step income statement for the year ended December 31, 2014.
27) Gently Used Cars is a dealer that uses the periodic inventory system. The data
presented below is from the accounting records of Gently for the year ended December
31, 2014.
Using the amounts provided above, calculate the cost of goods sold for 2014.
28) All liabilities that are not classified as current liabilities are classified as
___________________.
29) Loren Corporation
Listed below is information from the financial records of Loren Corporation at
December 31, 2014:
Read the information about Loren Corporation.
Required:
Prepare the long-term asset section of Loren Corp.’s balance sheet at December 31,
2014. You may omit the heading. Why are these amounts classified as “long-term”?
30) Twilight Corp. began the year with a balance in its Income Taxes Payable account
of $13,000. The year-end balance in the account was $18,000. The company uses the
indirect method in the Operating Activities section of the statement of cash flows.
Therefore, it presents the amount of income taxes paid at the bottom of the statement as
a supplemental disclosure. The amount of taxes paid during the year was
$15,000.
REQUIRED:
What amount of income tax expense will appear on Twilights income statement?
31) The following list of accounts was taken from the general ledger of Bassett
Corporation on December 31, 2014. The bookkeeper thought it would be helpful if the
accounts were arranged in alphabetical order. Each account contains the balance that is
normal for that type of account; for example, Cash normally has a debit balance.
Prepare a trial balance as of this date with the accounts arranged in the following order:
(1) assets, (2) liabilities, (3) stockholders equity, (4) revenues, (5) expenses, and (6)
dividends.
