Eric is considering buying a car. He can either purchase the car outright or make 5
annual payments of $10,000 at the end of each year. If the interest rate is 7%, how
much is the outright purchase price?
a. $14,025.50
b. $7,129.90
c. $41,002.00
d. $57,863.70
Cash flows related to the acquisition or sale of investment and long-term assets
Match each statement to the item listed below.
a. Cash flows from financing activities
b. Cash flows from investing activities
c. Cash flows from operating activities
A local medical clinic operates five days per week with a daily payroll of $100,000.
Employees are paid every Tuesday for the prior week’s work (Monday through Friday).
The last day of the month is Tuesday, April 30. What effect does the accrual at April 30
have on the clinic’s net income?
a. Increase by $200,000
b. Decrease by $300,000
c. Decrease by $200,000
d. Increase by $300,000
When determining the amount of interest to be paid on a bond, which of the following
information is necessary?
a. the value of the bonds in one year
b. the selling price of the bonds
c. the stated rate of interest on the bonds
d. the effective rate of interest on the bonds
The control activity ‘segregation of duties” is most effective in
a. increasing cost of sales.
b. preventing collusion.
c. assisting employees in performing risk assessment procedures.
d. increasing the likelihood of embezzlement.
Paying for a previous purchase on credit
Several transactions are listed. Use the choices to identify the effect on the accounting
equation for each transaction listed. (Choices may be used more than once.)
a. Assets and liabilities increase
b. Assets and contributed capital increase
c. Assets and retained earnings increase
d. Two asset accounts are impacted, but there is no net effect on total assets
e. Assets and liabilities decrease
f. Assets and retained earnings decrease
g. Liabilities increase and retained earnings decrease
h. Liabilities decrease and retained earnings increase
What effect does “recognizing revenue at the end of the accounting period for rent
previously received in advance” have on the accounting equation for the insurance
company?
a. Assets increase and liabilities decrease.
b. Assets increase and Stockholders’ equity increases.
c. Assets decrease and liabilities decrease.
d. Liabilities decrease and Stockholders’ equity increases.
Refer to Lake Lanier Grill, Inc. The journal entry to record the transaction on March 1
includes a credit to what account and for what amount?
a. $3,000 to paid in capital from treasury stock transactions
b. $4,500 to treasury stock
c. $3,000 to common stock
d. $4,500 to cash
When the market rate of interest was 9%, Kennesaw Van Lines leased several transfer
trucks. The annual payments are $1,000,000 and the life of the lease is 8 years. It is
estimated that the useful life of the trucks is 10 years. The present value interest factors
for 9% are provided below:
The company should record the acquisition of the trucks (rounded to nearest thousand)
as an asset with a cost of:
a. $422,000.
b. $502,000.
c. $5,535,000.
d. $6,418,000.
Measures the proportion of each sales dollar that is profit.
Match these terms to their correct definition.
Clearly defined authority and responsibility
Choose the proper category of internal control activities that best matches the
following actions. Each action should be matched with a different numbered item
within the internal controls list.
a. One employee or department should verify the work of another.
b. Specific approval is given by management for the performance of activities.
c. Accounting and cash collections should be properly separated.
d. Blank checks should be stored in a locked location.
e. Initial entry into the accounting system should be from a consistent source with
complete information.
Refer to Rags to Riches. Which of the following would result from a vertical analysis of
the company’s income statement?
Rags to Riches
Selected data from the financial statements are provided below:
a. The accounts receivable turnover ratio is 7.76 in 2015.
b. Gross profit is 57.9% of net sales for 2015.
c. Cost of goods sold decreased $50,000 or 23.8% during 2015.
d. Net sales is 84.4% of total assets for 2015.
While preparing a bank reconciliation, which of the following items would be added to
the bank statement balance?
a. outstanding checks
b. deposits in transit
c. bank service charges
d. interest earned on the bank account
Net profit margin percentage
Indicate the type of each ratio listed. (Choices may be used more than once.)
a. Liquidity ratio
b. Debt management ratio
c. Asset efficiency ratio
d. Profitability ratio
e. Stockholder ratio
The resources used to earn revenues during a period are called
a. net income.
b. expenses.
c. revenues.
d. dividends.
Recognized a gain on the sale of securities.
Use the following codes to indicate how the cash flow effect, if any, of each transaction
or event would be reported on a statement of cash flows if the operating activities
section is prepared using the indirect method. (Choices may be used more than once.)
a. Operating activity-add to net income
b. Operating activity-deduct from net income
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
Refer to Georgia’s Salon. On May 31, 2013, all but $1,500 of the gift cards had been
redeemed for salon services. Which of the following is the correct journal entry to
record for the expired gift cards?
Georgia’s Salon The salon sells $50,000 of gift cards in May 2013. These gift cards
may be used anytime before their expiration on May 31, 2014. a. Unearned Sales
Revenue 1,500 Accounts Payable 1,500
b. Unearned Sales Revenue 1,500 Sales Revenue 1,500
c. Loss on Gift Cards 1,500 Sales Revenue 1,500
d. No entry is necessary.
This method maximizes net income. Given the following list of methods of
depreciation, select the method that is best for the situation or purpose given. (Choices
may be used more than once.)
a. Straight-line
b. Units-of-production
c. Double-declining-balance
d. MACRS
All of the following would be considered internal control weaknesses except
a. the practice of shipping goods to customers right before year-end even though the
customers had not ordered them.
b. the person who opens the mail also makes the journal entry to record any customer
payments received in the mail.
c. it takes two days to get a check written because of the approvals required.
d. no physical inventory is ever taken to confirm the amount of inventory recorded in
the accounting records.
The least liquid of all assets is cash.
The foundation of the internal control system is the control _____________ – the
collection of environmental factors that influence the effectiveness of control
procedures.
If the balance of prepaid insurance was the same on January 1, 2014, and December 31,
2014, then the insurance expense must have been ____________________ the cash
payments made for insurance during the year.
You Decide Essay You are interning at a financial services firm and have been asked to
evaluate the performance of two major department stores. The following information
(in millions) is available for Wal-Mart and Nordstrom for the most recent fiscal periods
available:
Wal-Mart
Nordstrom
Compute the (1) gross profit margin, (2) operating margin, (3) net profit margin, and (4)
accounts receivable turnover for the two companies and indicate which company’s
performed better.
____________________ securities are equity or debt investments that are bought and
sold frequently and are typically owned for less than one month.
The amount recognized on the balance sheet as the cost of inventory will ultimately be
recognized as a(n) ____________________.
Once adjustments have been made, an ____________________ is prepared to ensure
the accounting equation is still in balance and to facilitate preparation of the financial
statements.
A company’s management expects to incur future expenses related to the repair or
replacement of defective products sold. Those expenses must be matched to revenues in
the period of the repair or replacement.