1) Changing inventory methods to take advantage of the tax breaks offered by LIFO is
not a valid reason for a change in methods.
2) When reconciling a bank account, the company does not have to prepare an adjusting
entry for outstanding checks.
3) Under the cost principle, assets are always carried at their current market value.
4) Audit committees are required to consist of only directors who are key officers of the
company.
5) When a note is discounted at a bank, it is normally done with recourse.
6) If the December 31, 2012, balance of accounts receivable is higher than the January
1, 2012, balance, then the amount of cash collections will be less than the sales on
account for the year.
7) Revenue is always earned continuously over time.
8) All financial statements are prepared using the accrual basis of accounting.
9) Wens Export Co.
Wens Export Co. purchased a new delivery truck at the beginning of 2013. The truck
has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of
$7,000. A full year’s depreciation expense is to be recorded in 2013. The truck was
driven 20,000 miles during 2013 and 24,000 miles during 2014. The number of
expected miles over five years is 100,000.
Refer to information for Wens Export Co.
By what amount would double-declining-balance depreciation exceed straight-line
depreciation over the 5-year life of the truck?
A.The salvage value of $7,000
B.Cost less total depreciation
C.Cost plus total depreciation
D.Total depreciation expenses under double-declining-balance and straight-line
depreciation are equal
10) The entry required to recognize the bad debts expense for 2014 will act to:
A.Increase total assets and retained earnings
B.Decrease total assets and retained earnings
C.Decrease total assets and increase net income
D.Increase total assets and decrease net income
11) If a company overstates its ending inventory balance for 2012 by $10,000, and
overstates its ending inventory balance for 2011 by $5,000 what are the effects on its
net income for 2012 and 2011?
Effect on 2012 Net Income Effect on 2011 Net Income
A.Overstated by $15,000 Overstated by $10,000
B.Understated by $5,000 Overstated by $10,000
C.Overstated by $5,000 Overstated by $5,000
D.Overstated by $10,000 Overstated by $5,000
12) On January 1, 2014, Francisco Company’s balance in retained earnings was
$70,000. During 2014, the company earned net income of $43,000 and paid $15,000 in
dividends. Calculate the retained earnings balance at December 31, 2014.
A.$42,000
B.$90,000
C.$98,000
D.$113,000
13) Gaulle Company began the year with a balance of $6,000 in Accounts Receivable
and ended the year with $9,000 in the account. Revenues for the period amounted to
$38,000. Under the direct method, Gaulle will report cash collected from customers of:
A.$44,000
B.$35,000
C.$41,000
D.$47,000
14) Grover, Inc.
Grover, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual
value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The
crane was purchased on January 1, 2013 and was used 2,700 hours in 2013 and 2,600
hours in 2014.
Refer to the information about Grover, Inc.
If Grover uses the units-of-production method, what is the depreciation rate per hour for
the equipment?
A.$4.00
B.$5.00
C.$6.00
D.$7.50
15) Which one of the following is a financing activity of a business?
A.Paying for purchases of inventory
B.Issuing stock for cash
C.Paying salaries
D.Purchasing a manufacturing plant
16) A firm is required to estimate a liability for repairs for products sold with a
warranty. If the firm’s accountants later find that the estimated amount for repairs has
been overstated, the correct accounting procedure is to
A.make an adjustment to reduce the amount of estimate
B.make a correction because the overstatement is an error
C.show the amount of overstatement on the income statement as a loss
D.do nothing for the year in question and modify the next year’s estimate
17) Tippi Corp. invested cash in a 9-month certificate of deposit (CD) on October 1,
2014. If Tippi has an accounting period which ends on December 31, 2014, when would
it most likely recognize interest revenue from the CD?
A.On December 31, 2014 only
B.On July 1, 2013 only
C.Both Dec. 31, 2014 and July 1, 2013
D.On October 1, 2014
18) A check drawn by a company for $360 in payment of a liability was recorded in the
journal as $630. This item would be included on the bank reconciliation as a(n)
A.addition to the balance per the company’s records
B.addition to the balance per the bank statement
C.deduction from the balance per the bank statement
D.deduction from the balance per the company’s records
19) Washington Corp. reported the following information for 2013 and 2014.
If Washington uses the indirect method to prepare the operating activities section of the
statement of cash flows, what amount will be reported as net cash inflow from
operating activities for 2014?
A.$ 73,000
B.$ 83,000
C.$ 95,000
D.$105,000
20) Which of the following statements is false?
A.The method of preparing the operating activities section of a statement of cash flows
which adjusts net income to remove the effects of deferrals and accruals for revenues
and expenses is the indirect method
B.The method of preparing the operating activities section of a statement of cash flows
which reports major classes of gross cash receipts and cash payments for revenues and
expenses is the direct method
C.The FASB prefers the direct method of preparing the operating activities section of
the statement of cash flows
D.Most companies use the direct method of preparing the operating activities section of
the statement of cash flows
21) Which of the following statements does not describe the responsibilities of a
companys internal audit staff?
A.Internal auditors ensure that the companys financial statements have been presented
fairly
B.Internal auditors focus on the efficiency with which the organization is run
C.Internal auditors help ensure that the companys policies and procedures are followed
D.Internal auditors prepare the report of management to the companys stockholders
22) For each of the following sentences 3-10, select the word or group of words that
best completes the statement.
The _________________________ of accounting necessitates a number of adjustments
at the end of an accounting period.
23) Eagle Corporation
Presented below are all of the items from Eagle Corporations income statement for the
years ending December 31, 2014 and 2013
Read the information about Eagle Corporation.
Required::
How much is net income for the year ended December 31, 2014? If Eagle Corporation
had used a single-step statement, by how much would net income be different? Explain.
24) What is LIFO inventory liquidation? Why is it important to disclose the effects of a
LIFO inventory liquidation
25) Choose from the following list of account titles the one that most accurately fits the
description of that account or is an example of that account. An account title may be
used more than once or not at all.
1>Ownership in a company that allows the owner to receive dividendsbefore common
shareholders receive any distributions A. Notes Payable
2>A written obligation to repay a fixed amount, with interest, at sometime in the future
B. Investments
3>Ten acres of land used as the site for a factory C. Accounts Receivable
4>Rent paid on an office building in advance of use of the facility D. Taxes Payable
5>Amounts owed on an open account to a vendor, due in 70 days E. Preferred Stock
6>An amount owed by a customer F. Land
7>A warehouse used to store equipment G. Accounts Payable
8>A plot of land held for speculation H. Cash
9>A checking account at a bank I. Buildings
10>Claims by the owners on the undistributed net income of a business J. Retained
Earnings
11>Corporate income taxes owed to the state government K. Prepaid Asset
26) Distinguish between current assets and operating assets.