1) A cost can be an asset or expense depending on whether the future economic benefits
have expired or not.
2) When borrowing money to be repaid in regular future payments, the payment is
based on the present value of the loan, the interest rate and the length of the loan.
3) The accounts receivable turnover ratio is a measure of how well a company manages
its receivables.
4) Companies prepare classified financial statements because they are required by
international accounting principles.
5) When Company A buys stock in Company B, Company A is referred to as the
investee.
6) Treasury stock is stock that has been issued, but not currently outstanding.
7) Summer, Inc. has been in business for 20 years. During that time the company has
consistently used the LIFO inventory costing method. Because of inflation, prices for
merchandise have increased consistently over the 20 years. The company has
maintained the same inventory quantities over the 20-year period. Which one of the
following statements is true?
A.Summer, Inc.’s total net income for the past 20 years is greater than it would have
reported using another inventory method
B.Summer, Inc. will have paid more income taxes over the past 20 years than it would
have if it had used the FIFO method
C.Summer will have to continue using the LIFO method indefinitely because of
generally accepted accounting principles and federal income tax rules
D.The ending inventory figure reported on the balance sheet may be significantly lower
than its current value
8) Which of the following statements is true with regard to early retirement of bonds?
A.If the carrying value of the bonds is higher than the redemption price, the issuing firm
must record a loss.
B.Firms always find it advantageous to retire bonds issued at lower rates with bonds
issued at higher rates.
C.It is always advantageous to carry out early retirement for bonds issued at a premium
but not for bonds issued at a discount.
D.Any gain or loss resulting from early retirement of bonds would appear on the
income statement of the issuing company.
9) Stately Co. began construction of a new factory at the beginning of 2013. At the end
of the year, construction was completed, and construction costs totaled $200,000.
Stately borrowed $180,000 at the beginning of 2013 to finance the construction and
repaid the loan at the end of 2013. The interest rate on the loan was 9%. Determine the
following amounts.
A. The actual interest incurred on the construction loan during 2013.
B. The interest to be capitalized for 2013.
C. The total cost of the factory reported on the balance sheet.
D. What impact does capitalizing interest have on net income for 2013? Explain.
10) Which of the following events will cause a companys current ratio to increase?
A.The collection of an account receivable
B.Selling land for cash at a loss
C.The discharge of an account payable by signing a short-term note payable
D.Paying off a long-term loan
11) The total amount of simple interest calculated annually on a $4,000 note payable in
5 years at 9% is:
A.$1,800.00
B.$1,411.20
C.$2,154.60
D.$554.04
12) The preparation of financial statements requires that the information be
understandable
A.Only to CPAs
B.To those willing to spend the time to understand it
C.Only to those who take an accounting course
D.Only to financial analysts and brokers
13) An investor found the following in an annual report: “The financial statements, in
our opinion, present fairly the financial position, operating results, and cash flows, in
conformity with accounting principles generally accepted in the United States.” In
which section of the annual report did the investor find this?
A.Balance Sheet
B.Notes to the Financial Statements
C.Managements Discussion and Analysis
D.Report of the Independent Accountants
14) Which one of the following items is correct concerning the time element of
financial statements?
A.The balance sheet covers a period of time
B.The statement of retained earnings explains changes during a particular period
C.An income statement lists amounts at a specific point in time
D.Both the income statement and the balance sheet cover a period of time
15) The Dividend account is known as which of the following?
A.Nominal account
B.Closing account
C.Real account
D.both b and c
16) Adjustments are necessary only if
A.The cash basis of accounting is used for all accounting periods
B.Cash receipts and payments occur before or after the point in time when revenues and
expenses should be recognized under the accrual basis of accounting
C.Management reports its adjustments on the statement of cash flows
D.The company reports revenue in the same period cash is collected
17) Which one of the following is considered a financing activity?
A.The payment of interest on a note payable to the bank
B.Selling products to customers
C.Paying wages to employees
D.The payment of a cash dividend
18) Which of the following is a five-member body that has the authority from Congress
to set standards for conducting audits?
A.FASB
B.SEC
C.PCAOB
D.
19) Assume the current ratio is 2 to 1. Payment on accrued salaries payable would cause
the current ratioto
A.increase
B.decrease
C.be unchanged since the effects offset one another
D.be unchanged since it has no impact on any current accounts
20) Which of the following include only current assets?
A.Accounts receivable, cash, inventory, office supplies
B.Cash, accounts payable, inventory, office supplies
C.Cash, land, accounts receivable, inventory
D.Accounts receivable, cash, furniture, office supplies
21) Assume that you want to determine the profit margin for a company. Which one of
the following financial statements is the best source of this information?
A.Statement of retained earnings
B.Statement of cash flows
C.Statement of stockholders equity
D.Income statement
22) GAAP require that research and development costs to develop a new product be
A.capitalized in the patents account
B.expensed in the period incurred
C.capitalized in the research and development costs account
D.amortized over the expected economic life of the new product
23) Pinecrest Company
Use the selected data from Pinecrest Companys financial statements to answer the
following question.
Refer to the data for Pinecrest Company.
The amount of working capital at the end of 2014 is
A.$ 36,000
B.$ 44,000
C.$ 99,000
D.$174,000
24) [APPENDIX] Deferred income taxes arise because
A.corporations often make errors in their tax estimations
B.companies can use accounting methods that minimize net income for tax purposes
and other methods that maximize net income for reporting to shareholders
C.the IRS owes a company a refund from last year
D.large corporations generally have operations in foreign countries whose tax law is
quite different from U.S. tax law
25) The balance sheet of Evanston Inc. includes the following items:
Required:
(1) Determine the current ratio and working capital.
(2) What does the composition of the current assets tell you about Evanstons liquidity?
(3) What other information do you need to fully assess Evanstons liquidity?
26) For each of the following sentences 11-14, select the word or group of words that
best completes the statement.
______________________________ is(are) a cost(s) that improves an operating asset
and is (are) added to the asset account.
27) What is the purpose of the current ratio? How does the quick ratio differ from the
current ratio?
28) For each of the following sentences 11-14, select the word or group of words that
best completes the statement.
______________________________ is an account that can only exist if one company
purchases another business and the cost exceeds the fair market values of the
identifiable net assets at the time acquired.
29) Motor Repair Shop uses the accrual basis of accounting, and had the following
account balances on its financial statements at December 31, 2014:
On January 1, the Utilities Payable Account had a zero balance. Motor Repair paid cash
for utilities totaling $45,000 during 2014. How much should Motor Repair report as
utilities expense as of December 31, 2014?
30) Items that are included on a bank statement and decrease the bank account balance
are called _________________________.
31) A general ledger account that is supported by a subsidiary ledger is called a(n)
____________________.