If total liabilities decreased by $25,000 and stockholders’ equity increased by $5,000
during a period of time, then total assets must change by what amount and direction
during the same time period?
A) $20,000 increase
B) $20,000 decrease
C) $30,000 increase
D) $30,000 decrease
Which concept should be applied when reporting a piece of land that was bought for
$50,000 five years ago, and which would probably now sell for $80,000?
A) The cost principle
B) The accounting equation
C) The separate entity concept
D) The monetary concept
Use the information above to answer the following question. What is the inventory
turnover ratio?
A) 3.87 times
B) 4.00 times
C) 4.14 times
D) 2.00 times
Which of the following statements about the concepts underlying the balance sheet is
correct?
A) A company bought land for $5 million dollars 10 years ago. The land is now worth
$15 million. The company should increase the book value of this asset on its balance
sheet to reflect its current value.
B) All events affecting the current value of a company are reported on the balance
sheet.
C) According to the cost principle, assets are valued at their replacement cost.
D) If an asset’s value increases, the increase in value is generally not recorded under
GAAP.
Which of the following statements accurately explains why the board of directors of a
company whose financial future contains some uncertainties might issue a 2-for-1 stock
split rather than declare a 100% stock dividend?
A) A stock split would not reduce the market price per share, whereas a stock dividend
would.
B) A stock split would reduce the market price per share, whereas a stock dividend
would not.
C) A stock split would increase total stockholders’ equity, whereas a stock dividend
would not.
D) A stock split would not reduce Retained Earnings, whereas a stock dividend would.
All other things being equal, when companies repurchases its common stock:
A) EPS decreases and ROE increases.
B) EPS increases and ROE stays the same.
C) EPS increases and ROE decreases.
D) EPS and ROE both increase.
The following data came from the financial statements of a company:
What is the company’s times interest earned ratio?
A) 130
B) 129
C) 122
D) 139
Which of the following statements about stock options is not correct?
A) Stock options are intended to give upper management the same goals as
stockholders.
B) When stock options are exercised by upper management, existing stockholders lose
voting power.
C) Stock options may create an incentive for upper management to overstate net
income.
D) An expense is reported by the company when stock options are exercised.
Consider the following information for Maynor Company, which uses a periodic
inventory system:
The company sold 25 units on May 1 and 20 units on October 28.
Required:
Calculate the company’s ending inventory and cost of goods sold using the each of
following inventory costing methods. (Round the per unit cost to two decimal places
and then round your answer to the nearest whole dollar.)
Part a. FIFO
Part b. LIFO
Part c. Weighted Average
Outstanding checks refer to checks that have been:
A)written, recorded, sent to payees, and received and paid by the bank.
B)written and not yet recorded in the company books.
C)written, recorded, sent to the payees, but not yet paid by the bank.
D)paid by the bank.
When bonds are retired at their maturity date, the balance in the Bonds Payable account
is equal to the bond’s:
A) face value minus any premium amortized.
B) face value plus interest to be paid.
C) face value plus any discount amortized.
D) face value.
The ratio that measures the company’s ability to meet required interest payments is the:
A) debt-to-equity ratio.
B) current ratio.
C) Price/Earnings ratio.
D) times interest earned ratio.
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term:
1) _____ Convertible
2) _____ Carrying value
3) _____ Discount
4) _____ Callable
5) _____ Maturity
6) _____ Market interest rate
7) _____ Stated interest rate
8) _____ Premium
Definition:
A. A bond feature that changes the interest rate on the bond with market conditions.
B. When a bond is issued for a price less than its face value.
C. Also known as the face value or par value of a bond.
D. A bond with the feature that allows creditors to exchange the bond for company
stock.
E. The interest rate printed on the bond certificate.
F. A bond with the feature that lets creditors examine financial data and demand new
loan conditions.
G. The amount a company receives when it sells a bond; also known as issue price.
H. When a bond is issued for a price greater than its face value.
I. A bond with the feature that allows the borrowing company to pay off a bond
whenever it wishes.
J. Rate of interest that investors demand from a bond.
K. The time at which the face value of a bond must be paid to the lender.
L. Is multiplied by the market interest rate to calculate the (effective) interest expense
on a bond.
If no errors have been made, when a company prepares its adjusted trial balance:
A) assets will equal liabilities plus Retained Earnings.
B) stockholders’ equity will include the current period’s net income.
C) the debit column and the credit column will be equal.
D) income statement accounts will have been closed.
A company retires its bonds with a face value of $100,000 at 105. The carrying value of
the bonds at the retirement date is $103,745. The journal entry to record this retirement
will include a:
A) debit to Premium on Bonds Payable.
B) credit to Gain on Bond Retirement.
C) credit to Bonds Payable.
D) debit to Discount on Bonds Payable.
When you identify outstanding checks in performing a bank reconciliation, you must:
A) deduct the amount of the outstanding checks from the balance per books.
B) deduct the amount of the outstanding checks from the balance per bank.
C) add the amount of the outstanding checks to the balance per books.
D) add the amount of the outstanding checks to the balance per bank.
Generally accepted accounting principles (GAAP) were (are) established by:
A) an Italian monk in 1494.
B) the U.S. Congress and the SEC.
C) the PCAOB.
D) the FASB on an ongoing basis.
One of the advantages of a partnership is:
A) limited liability.
B) the salaries of the partners can be written off as an expense.
C) ease of formation.
D) income tax is paid by the business.
An increase in the gross profit percentage indicates that:
A) cost of goods sold as a percentage of sales has decreased.
B) cost of goods sold as a percentage of sales has increased.
C) operating expenses as a percentage of sales have increased.
D) operating expenses as a percentage of sales have decreased.