On December 31, 2015, Hoosier Inc. paid $10,000 to rent a storage facility from July 1,
2016 to July 1, 2017. Which of the following statements about the effect of this
transaction on Hoosier’ financial statements is correct?
A) Prepaid Rent in the amount of $10,000 will be reported as a liability on the balance
sheet at December 31, 2015.
B) Rent Expense in the amount of $10,000 should be reported on the income statement
for the year ended December 31, 2015.
C) The income statement for the year ended December 31, 2015 is unaffected by this
transaction.
D) The balance sheet at December 31, 2016 will not report any assets relating to this
transaction.
Internal controls are concerned with:
A) only manual accounting systems.
B) the extent of government regulations.
C) protecting against theft of assets and enhancing accounting information.
D) preparing income tax returns.
If a company that uses a perpetual inventory system sold inventory which cost $1,000
for a selling price of $3,000, the accounting equation would show a net:
A) increase in assets and net increase in stockholders’ equity.
B) increase in assets and net decrease in liabilities.
C) decrease in assets and net increase in liabilities.
D) decrease in assets and net decrease in stockholders’ equity.
What would a user of financial statements learn from reading the auditors’ report?
A) Whether the financial statements present a fair picture of the company’s financial
results and are prepared in accordance with GAAP.
B) Whether or not it is a good time to purchase the stock.
C) How much the company plans to distribute as dividends.
D) Whether or not the company has plans for future expansion.
Use the information above to answer the following question. How long on average does
it take to sell something from inventory after it is purchased?
A) 12.5 days
B) 24.8 days
C) 29.2 days
D) 165.9 days
Use the information above to answer the following question. If the company pays a
$100,000 dividend, and the preferred stock is cumulative and three years’ dividends are
in arrears, what is the amount the preferred stockholders will receive?
A) $18,000
B) $24,000
C) $6,000
D) $54,000
Use the information above to answer the following question. What journal entry should
be recorded by Flynn Company for the EFT?
Flynn Company’s monthly bank statement showed the ending balance of cash of
$18,500. The bank reconciliation for the period showed an adjustment for a deposit in
transit of $1,500, outstanding checks of $2,000, a NSF check of $700, bank service
charges of $30 and the EFT from a customer in payment of the customer’s account of
$1,500.
A) Debit Cash and credit Accounts Receivable for $1,500
B) Debit Accounts Receivable and credit Cash for $1,500
C) Debit Cash and credit Sales Revenue for $1,500
D) No journal entry is necessary for this item.
Anthem Inc. issues 200,000 shares of stock with a par value of $0.01 for $150 per
share. Three years later, it repurchases these shares for $80 per share. Anthem records
the repurchase in which of the following ways?
A) Debit Common Stock for $2,000, debit Additional Paid-in Capital for $29,998,000
and credit Cash for $30 million.
B) Debit Treasury Stock for $16 million and credit Cash for $16 million.
C) Debit Common Stock for $2,000, debit Additional Paid-in Capital for $15,998,000
and credit Cash for $16 million.
D) Debit Stockholders’ Equity for $30 million, credit Additional Paid-in Capital for $16
million and credit Cash for $16 million.
Which of the following statements about the debit/credit framework is correct?
A) Asset and liability accounts have a normal debit balance.
B) To debit an account means to increase it.
C) Common Stock has a normal credit balance.
D) To credit an account means to decrease it.
The stockholders’ equity section of the balance sheet includes all of the following
except:
A) Retained Earnings.
B) Contributed Capital.
C) Treasury Stock.
D) Dividends.
Which of the following would not represent a financing activity?
A) Paying dividends to stockholders.
B) An investment of capital by the owners.
C) Borrowing money from a bank to purchase new equipment.
D) Buying supplies on account.
The Accumulated Depreciation account is a(n):
A) expense account.
B) liability account.
C) asset account.
D) contra-asset account.
Which of the following statements about payroll is correct?
A) Payroll deductions are an expense of the company.
B) When recording the payroll, Salaries and Wages Expense equals the sum of all the
deductions.
C) The net pay is debited to Salaries and Wages Expense when the payroll is recorded.
D) Gross earnings are computed by multiplying the time worked by the pay rate
promised by the employer.
If an analyst wants to examine a company’s current ability to generate income, which of
the following would best be considered?
A) Liquidity
B) Market share
C) Profitability
D) Solvency