Negative numbers are never used in the journal or the ledger; the effect on the account
is conveyed by the side on which the number appears.
Another name for the P-E ratio is the earnings multiple.
The major reason for using the equity method instead of the market method for an
investment is that the equity method does a better job of recognizing increases or
decreases in the economic resources that the investor can influence.
U.S. tax law contains a conformity requirement that allows companies to use LIFO for
tax purposes only if the companies use LIFO for financial reporting purposes.
Even if a company holds part of its portfolio of short-term investments for more than 1
year, that portion of the portfolio will not be reclassified as a long-term investment.
Retained earnings is debited on the date of payment for a cash dividend.
A creditor is one to whom money is owed.
Statement of financial position is another name for the balance sheet.
Held-to-maturity securities are equity securities that the company purchases with the
intent to hold them to a maturity date.
Corporations pay taxes in one lump sum at the end of the year.
Montreal Electronics has the following data available:
What is the gross profit rate for Montreal Electronics in 2X13? Has the gross profit rate
improved or not improved since 2X12?
A) 58.0%, improved
B) 39.9%, not improved
C) 58.0%, not improved
D) 39.9%, improved
E) 60.1%, improved
With respect to the role of the government in establishing accounting standards in the
United States, which of the following statements is incorrect?
A) Most accounting reporting requirements are determined by the FASB, which is a
non-government institution.
B) The SEC, and not the FASB, has the ultimate legal authority over most financial
reporting to investors.
C) The FASB can act independently of the SEC and does not need the SEC’s support in
establishing accounting standards.
D) The SEC, which is an agency of the federal government, is empowered to ensure full
and fair disclosures by corporations.
E) The SEC is allowed to take an active role in establishing accounting standards.
The calculation of cost of goods sold under the periodic system is
A) beginning inventory + purchases.
B) beginning inventory + ending inventory – purchases.
C) beginning inventory + ending inventory + purchases.
D) beginning inventory + purchases – ending inventory.
E) ending inventory + purchases – beginning inventory.
Montreal Electronics has the following data available:
What is the current ratio for Montreal Electronics in 2013? Has the current ratio
improved or not improved since 2012?
A) 2.0, improved
B) 1.3, improved
C) 1.3, not improved
D) 0.5, improved
E) 2.0, not improved
The principal task of the FASB is to
A) be a link between the business community and the Securities and Exchange
Commission (SEC).
B) establish GAAP in the United States.
C) audit each public company’s financial statements and records.
D) act as a counsel and advocate for business in its dealings with the government,
particularly, but not solely, to the SEC.
E) review financial statements, so as to ensure adherence to GAAP.
Interest expense on bonds exhibits the following attributes except
A) interest expense is greater than the cash payment for interest when a bond is sold at a
premium and effective-interest amortization is used.
B) interest expense is the same dollar amount for every interest payment period, if a
bond was issued at a discount and straight-line amortization is used.
C) interest expense is greater than the cash payment for interest when a bond is sold at a
discount, regardless of whether straight-line or effective-interest amortization is used.
D) interest expense equals the cash payment for interest if a bond is sold at par.
E) interest expense becomes a larger dollar amount over time when a bond is sold at a
discount and effective-interest amortization is used.
Which of the following statements is FALSE?
A) Historically, the periodic system has been associated with low volume, high value
items.
B) Historically, the perpetual system has been considered more expensive and
cumbersome to maintain.
C) The perpetual system is better able to aid management in pricing and ordering
inventory.
D) Computerized inventory systems and optical scanning equipment are examples of
ways to implement a perpetual inventory system.
E) The perpetual inventory system is more likely than the periodic inventory system to
isolate inventory shrinkage due to breakage, loss, or theft.
Extraordinary items occur when
A) a company sells an entire segment of the business.
B) an event is unusual in nature but not infrequent in occurrence
C) an event is infrequent in occurrence but not unusual in nature
D) the event is unusual in nature and infrequent in occurrence.
E) a company records an impairment loss on goodwill.
Which of the following statements regarding the current ratio is true?
A) The current ratio is calculated as the difference between current assets and current
liabilities.
B) Other things being equal, the lower the current ratio, the more assurance creditors
have about being paid in full and on time.
C) The current ratio is widely used to evaluate liquidity.
D) The main components of the current ratio are cash and property, plant, and
equipment.
E) The comparison of a company’s current ratio to the industry average is meaningless.
________ are a form of long-term debt that is secured by the pledge of specific
property.
A) Convertible bonds
B) Mortgage bonds
C) Callable bonds
D) Sinking fund bonds
E) Debentures
In its first year of operations, 20X2, Flow Crafts, Inc., had credit sales of $420,000 to
many different customers. Of this amount, P. Walker purchased $400 and J. Jocke
purchased $180 on account. During the year, cash collections of $389,000 were made,
of which P. Walker paid $360 and J. Jocke paid $60. At the end of 20X2, bad debts
expense was estimated to be 5% of ending accounts receivable. At December 31, 20X2,
the Allowance for Uncollectible Accounts is $0. On February 23, 20X3, the balance in
J. Jocke’s account was written off as uncollectible.
Prepare the appropriate journal entry on the books of Flow Crafts, Inc. for
a. the $420,000 in credit sales.
b. the collection of $389,000 from credit customers.
c. the estimation of bad debts expense.
d. the write-off of J. Jocke’s account.
Under the effective-method of amortizing bond premium, the interest expense recorded
for each semiannual interest payment
A) is equal to the face value of the bond times the coupon rate of interest for each
semiannual interest period.
B) is equal to the selling price of the bond times the coupon rate of interest.
C) will equal the amount of cash paid for each semiannual interest payment.
D) will decrease over the life of the bonds.
E) will increase over the life of the bonds.
Equipment costing $45,000 with a book value of $12,000 is sold for $21,500. The
journal entry will involve a
A) credit to accumulated depreciation for $14,900.
B) debit to accumulated depreciation for $22,000.
C) debit to accumulated depreciation for $33,000.
D) credit to equipment for $22,000.
E) credit to accumulated depreciation for $22,000.
Redwing Company has the following data:
What is the average collection period in days for Redwing Company in 2X13? Has the
average collection period in days improved or not improved since 2X12?
A) 41.1, improved
B) 36.5, improved
C) 36.5, not improved
D) 8.9, improved
E) 41.1, not improved
The two equity accounts that Total Paid-in Capital is split between are
A) capital stock at par and owners’ equity.
B) capital stock at par and paid-in capital in excess of par.
C) capital stock at par and stockholders’ equity.
D) paid-in capital in excess of par and owners’ equity.
E) paid-in capital in excess of par and stockholders’ equity.
Chris buys a note from a municipality that promises to pay $1,500 at the end of each of
3 years. How much should Chris pay for the note if she desires a rate of return of 8%,
compounded annually?
A) $4,000
B) $3,866
C) $3,905
D) $3,950
E) $3,750
The issuance of stock for cash would be classified as a(n)
A) investing activity on the statement of cash flows.
B) equity activity on the statement of cash flows.
C) operating activity on the statement of cash flows.
D) would not appear on the statement of cash flows.
E) financing activity on the statement of cash flows.