Which of the following statements about transaction analysis is correct?
A) Transactions are analyzed from the standpoint of the owners.
B) All business activities are considered to be accounting transactions.
C) The transaction amount is determined for each exchange based on the cost of the
items given and received.
D) A business needs journal entries only to show how transactions affect the balance
sheet.
The account entitled Premium on Bonds Payable:
A) increases when amortization entries are made.
B) appears on the balance sheet of the issuer as a deduction from bonds payable.
C) decreases when amortization entries are made and its balance is equal to zero at the
maturity date of the bond.
D) is a contra account with a normal debit balance.
If a company did not extend credit to customers:
A) gross revenue would increase.
B) costs would increase but so would sales revenue.
C) costs would decrease but so would sales revenue.
D) gross profit would increase.
Which of the following statements about the presentation of a trial balance is correct?
A) The adjusted trial balance shows the end-of-year balance for Retained Earnings.
B) An adjusted trial balance presents account balances in the same level of detail as in
the presentation of the financial statements.
C) The order of accounts on a trial balance is as follows: assets, liabilities, stockholders’
equity, dividends, revenues and expenses.
D) The adjusted trial balance shows all the debit and credit postings to all the ledger
accounts.
Goodwill may be attributable to all of the following except:
A) a significant amount of charitable contributions.
B) a great reputation.
C) an established customer base.
D) successful business operations.
The fair value of land owned by a company has increased this year. The journal entry to
record this increase in fair value would include:
A) a credit to Gain on Asset Value Increase.
B) a debit to Land.
C) a credit to Non-Impairment of Asset.
D) nothing; no entry would be made according to GAAP.
Cash and cash equivalents include assets that:
A) have stable long-term value.
B) are short-term, highly liquid, and purchased by the entity within three months of
maturity.
C) consistently grow in value over the long run.
D) are expected to be used up within a year.
Which of the following statements regarding debits and credits is always correct?
A) Debits decrease accounts while credits increase them.
B) The total value of all debits recorded in the ledger must equal the total value of all
credits recorded in the ledger.
C) The total value of all debits to a particular account must equal the total value of all
credits to that account.
D) The normal balance for an account is the side on which it decreases.
Stockholders’ equity in a corporation consists of:
A) Amounts invested and reinvested by a company’s owners.
B) Resources presently owned by a business that generate future economic benefits.
C) Amounts invested in assets that will be used for one or more years.
D) Amounts presently owed by a business.
Which of the following ratios is calculated by dividing current assets by current
liabilities?
A) Quick ratio
B) Solvency ratio
C) Debt ratio
D) Current ratio
When a company issues bonds that do not pay periodic interest, the bonds are called:
A) convertible bonds.
B) debenture bonds.
C) serial bonds.
D) zero-coupon bonds.
Which of the following events does not create a liability?
A) Buying goods and services on credit
B) Obtaining a short-term loan
C) Issuing long-term debt
D) Remitting sales tax to the government
Which of the following statements about the financial statements is correct?
A) The “change in cash” reported on the statement of cash flows is also reported on the
statement of retained earnings.
B) Both the income statement and the statement of cash flows show the result of a
company’s operating activities.
C) The statement of cash flows is for a period of time while the income statement is at a
point in time.
D) The statement of cash flows is at a point of time while the income statement is for a
period of time.
Research has found that three factors exist when fraud occurs. Which of the following
is not one of the three factors of the fraud triangle?
A) Incentive to commit fraud
B) Opportunity to commit fraud
C) Ability to rationalize the fraud
D) Lack of a code of ethics