1) Three measures of liquidity are: working capital, the acid-test ratio, and the
debt-to-equity ratio.
2) All line items in common-size comparative income statements are stated as a
percentage of net income.
3) Every business transaction is recorded by a debit to a balance sheet account and a
credit to an income statement account.
4) $2,000 invested today at 12% with compound interest will yield $2,480 in 2 years.
5) If you plan to invest $10,000 and want to determine how much will be accumulated
in six years if you earn interest at 7% per year, you would calculate this using the future
value of an annuity.
6) Convertible bonds normally sell at a higher price than non-convertible bonds.
7) Most companies use the cash basis of accounting.
8) A company uses the same depreciation method as other firms in the same industry.
Because of this, investors will have enhanced comparability of the financial reporting
results.
9) If the December 31, 2012, balance of accounts payable is higher than the January 1,
2012, balance, then the amount of cash payments will exceed the purchases on account
for the year.
10) Bonds are generally issued in denominations of $1,000.
11) On a bank reconciliation, bank charges for the month are added to the cash balance
per the books.
12) Purchase returns and allowances is subtracted from cost of goods sold to determine
net purchases.
13) Failure to record amounts earned for services provided to customers but not yet
paid results in which of the following
A.Net income being overstated
B.No effect on total assets
C.Stockholders equity being overstated
D.Total assets being understated
14) Adam Inc. uses a perpetual inventory system.
If Adam uses the FIFO method, how much is ending inventory on January 31?
A.$ 8
B.$ 12
C.$ 16
D.$ 40
15) CarWorks Company has 100,000 authorized shares of $4 par common stock. The
company issued 40,000 shares at $8. Subsequently, CarWorks declared a 2% stock
dividend on a date when the market price was $11 a share. What is the amount
transferred from the retained earnings account to paid-in capital accounts as a result of
the stock dividend?
A.$8,800
B.$4,800
C.$3,200
D.$6,400
16) Which set of items below are current assets?
A.Accounts receivable, net income, inventory, and dividends
B.Cash, accounts receivable, capital stock, and sales
C.Net income, cash, office supplies, and inventory
D.Cash, accounts receivable, inventory, and office supplies
17) Which of the following statements is false?
A.A balance sheet reports a company’s cash balance at a specific date
B.An income statement reports the amounts of revenue and expense on an accrual basis,
not the amount of cash received from revenues or paid for expenses
C.A statement of retained earnings reports the amount of cash received from operating
activities and the amount of cash paid for dividends
D.A statement of cash flows explains the changes in cash from operating, investing, and
financing activities
18) During 2014, the accounts receivable turnover rate for Cordner Company increased
from 10 to 14 times per year. Which one of the following statements is the most likely
explanation for the change?
A.The company’s credit department has followed up with customers whose account
balances are past due in order to generate quicker collections
B.The company has decreased sales to its most credit worthy customers
C.The company has increased the amount of time customers have to pay their accounts
before they are past due
D.The company has extended credit to more risky customers in order to increase sales
19) Satin Corporation
The data presented below is for Satin Corporation for the year ended December 31,
2014.
Refer to the information for Satin Corporation.
If Satin uses the aging of accounts receivable approach to estimate its bad debts, what
will be the net realizable value of its accounts receivable after the adjustment for bad
debt expense?
A.$216,000
B.$219,000
C.$222,000
D.$250,000
20) Assets classified as property, plant, and equipment are reported at
A.each assets estimated market value at the balance sheet date
B.each assets estimated salvage value at the balance sheet date
C.the estimated depreciable cost at the balance sheet date
D.each assets original cost less depreciation since acquisition
21) The selection of historical cost over current value as the attribute to be measured for
assets is an example of the trade-off of
A.Reliability over relevance
B.Costs over benefit
C.Comparability over consistency
D.Understandability over verifiability
22)
Select the choice that lists the items in the order they would appear on a multi-step
income statement
A.6, 1, 7, 4, 2, 3, 5
B.7, 6, 1, 4, 2, 3, 5
C.6, 4, 7, 1, 2, 3, 5
D.6, 7, 4, 1, 2, 3, 5
23) Anchor, Inc. paid salaries expense of $292,000 during 2014. However, additional
salaries of $14,000 had been earned by employees, but not paid or recorded at
December 31, 2014 by Anchor.
24) A company that uses leverage is attempting to earn an overall return that is higher
than the cost of funds received from
A.preferred and common stockholders.
B.common stockholders only
C.preferred stockholders and borrowed funds
D.borrowed funds only
25) Payment is made for an electric bill which was received and recorded earlier. For
this transaction, identify the effect on the accounting equation
A.Assets increase and liabilities increase
B.Assets increase and stockholders equity increases
C.Liabilities increase and stockholders equity decreases
D.Liabilities decrease and assets decrease
26) Which one of the approaches for the allowance method of accounting for bad debts
emphasizes the net realizable value of accounts receivable on the balance sheet?
A.The percentage of accounts receivable approach
B.The percentage of net credit sales approach
C.The direct write-off method
D.The uncollectible approach
27) When are consolidated financial statements prepared?
A.At the option of an investee company
B.At the option of an investor company
C.If one company owns more than 50% of another company
D.Only if one company owns 100% of another company
28) For what reason would retailers like The Gap select an accounting period that ends
on or near the end of January?
A.The company originally started business operations on that date
B.Business activity has reached a slow period that is suited to the preparation of its
financial statements at the end of the year
C.The company’s CPAs are attempting to spread out the workload
D.The Internal Revenue Service requires merchandise companies to select such a date
for their fiscal year
29) [APPENDIX] A decrease in deferred taxes (liability) would appear on the statement
of cash flows, prepared using the indirect method as a(n)
A.addition to net income in the operating activities category
B.deduction to net income in the operating activities category
C.inflow of cash in the financing activities category
D.outflow of cash in the financing activities category
30) [APPPENDIX] When an individual wishes to form a sole proprietorship, he or she
does so by
A.filing a petition with the IRS
B.purchasing stock in the proprietorship
C.filing corporate paperwork with the state
D.contributing cash or other assets.
31) Volt Corp. reported the following information for the year ended December 31,
2014:
How much was paid out in dividends by Volt in 2014?
A.$ 20,000
B.$ 25,000
C.$ 30,000
D.$ 50,000
32) All of the following are important provisions of the Sarbanes-Oxley Act except:
A.The establishment of a new Public Company Accounting Oversight Board
B.The requirement to prepare both FASB and IASB financial statements
C.A requirement that the external auditors report directly to the companys audit
committee
D.A clause to prohibit public accounting firms that audit a company from providing any
other services that could impair their ability to act independently in the course of their
audit
33) Cyprus Corp. received a 7%, 6-month promissory note with a face amount of
$8,000 from the Mustafa Company for the sale of merchandise on May 1, 2014. Cyprus
accounting year-end is December 31.
REQUIRED: Identify the maturity date of the note.
34) ____________________ and ____________________ have claims to an entitys
economic resources.
Creditors, Investorsor
investors, creditorsor
Lenders, Stockholdersor
35) How frequently should entries be posted from the journal to the ledger? How have
computers improved the posting process?
36) The document that specifies how much the owners will invest, what their salaries
will be, and how profits will be shared in a partnership is known as a
______________________.
37) The party that agrees to repay is the ____________________ of the note.