1) Gains/losses on the early extinguishment of debt are reported as part of operating
income in the income statement.
2) During periods of rising costs, LIFO generally results in a higher ending inventory
balance.
3) Convergence of accounting practices is expected to increase the flow of resources
across borders.
4) Profit margin is net income divided by net sales.
5) Purchasing supplies on account increases the balance of the Accounts Receivable
account.
6) Earnings per share (EPS) measures the net income earned per share of common stock
outstanding.
7) An impairment loss is equal to the amount by which book value exceeds the fair
value of a long-term asset.
8) Income before income taxes equals operating income plus nonoperating revenues
less nonoperating expenses.
9) Investing activities include cash transactions involving the purchase and sale of
long-term assets and current investments.
10) Earnings quality is the ability of net income to report the True underlying
performance of the company.
11) During periods of rising costs, FIFO generally results in a higher ending inventory
balance.
12) The petty cash fund should have just enough cash to make minor expenditures over
a reasonable period (such as a week or a month).
13) An NSF check is an example of a cash transaction that is initially recorded by the
bank and later by the company after notification.
14) Borrowing cash from the bank causes assets to increase and liabilities to increase.
15) We record a loss if we sell an asset for less than book value.
16) The costs of advertising, utilities, and salaries in the current reporting period are
examples of liabilities.
17) We record goodwill as an intangible asset in the balance sheet only when we
purchase it as part of the acquisition of another company.
18) A private placement is when a company chooses to sell the debt securities directly
to a single investor.
19) A companys cash balance is reported in which two financial statements?
a. Income statement and statement of cash flows
b. Balance sheet and statement of cash flows
c. Income statement and balance sheet
d. Balance sheet and statement of stockholders equity
20) When the equity method of accounting for investments is used by the investor, the
Investments account increases when:
a.A cash dividend is received from the investee
b.The investee reports a net income for the year
c.The investor records additional depreciation related to the investment
d.The investee reports a net loss for the year
21) Zulu Corporation hires a new chief executive officer and promises to pay her a
signing bonus of $2 million per year for 10 years, starting at the end of the first year.
The value of this signing bonus is:
a. The present value of the annuity
b. The future value of the annuity
c. $20 million
d. $0 because no cash is owed immediately
22) A company receives $2,500 cash from customers for services to be provided next
month. Record the cash receipt using (a) accrual-basis accounting and (b) cash-basis
accounting.
23) Using the information below, determine the ending inventory value applying the
lower-of-cost-or-market method.
Inventory ItemQuantityCostMarket
Cutlets 200 $12 $14
Chops 400$16 $14
Shanks 300 $15 $12
a. $13,300
b. $12,000
c. $11,600
d. $13,700
24) Which of the following accounts appears in the statement of stockholders equity?
a. Supplies
b. Cash
c. Salaries Payable
d. Retained Earnings
25) Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month. Ending inventory assuming FIFO
would be:
a. $500
b. $490
c. $470
d. $480
26) Which of the following is not True regarding callable bonds?
a. This feature allows the borrower to repay the bonds before their scheduled maturity
date
b. This feature helps protect the borrower against future decreases in interest rates
c. Callable bonds benefit the bond investor
d. A bond can be both callable and convertible
27) The equation best describing the balance sheet is:
a. Assets = Liabilities + Stockholders Equity
b. Revenues Expenses = Net Income
c. Ending Retained Earnings + Dividends = Net Income
d. Revenues + Expenses = Net Income
28) The balance sheet of Purdys BBQ reports total assets of $800,000 and $900,000 at
the beginning and end of the year, respectively. The return on assets for the year is 20%.
What is Purdys net income for the year?
a. $4,500,000
b. $170,000
c. $4,250,000
d. $85,000
29) The balance in the Colt Companys Cash account on August 31 was $19,700, before
the bank reconciliation was prepared. After examining the August bank statement and
items included with it, the company’s accountant found:
Checks outstanding$4,300
NSF check 140
Note collected by bank for the Colt Company 1,200
Deposits outstanding 1,800
Bank service fees 60
What is the amount of cash that should be reported in the balance sheet as of August
31? a. $20,700
b. $17,200
c. $18,700
d. $22,200
30) On November 1, 2015, New Morning Bakery signed a $200,000, 6%, six-month
note payable with the amount borrowed plus accrued interest due six months later on
May 1, 2016 . New Morning Bakery should record which of the following adjusting
entries at December 31, 2015?
a.Debit Interest Expense and credit Interest Payable, $2,000
b.Debit Interest Expense and credit Cash, $2,000
c.Debit Interest Expense and credit Interest Payable, $6,000
d.Debit Interest Expense and credit Cash, $6,000
31) Inventory records for Marvin Company revealed the following:
Marvin sold 2,300 units of inventory during the month. Ending inventory assuming
FIFO would be:
a. $5,140
b. $5,080
c. $5,060
d. $5,050
32) The balance sheet of Sound Designs reports total assets of $750,000 and $800,000
at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2
million in the previous year), net income is $150,000, and net cash flows from
operating activities are $175,000. What is Sound Designs’ cash flow to sales?
a. 22.6%
b. 11.7%
c. 14.6%
d. 13.0%
33) Which one of the following statements regarding financial reports is correct?
a. The balance sheet classifies all assets according to operating, investing, and financing
activities
b. The income statement is used to show that a companys resources equal claims to
those resources
c. The statement of stockholders equity updates the balances of common stock and
retained earnings for related transactions during the year
d. The statement of cash flows shows cash inflows and outflows from operating
activities only
34) The owner of an office building should report rent collected in advance as a debit to
Cash and a credit to:
a. A liability
b. An asset other than Cash
c. Revenue
d. Stockholders equity
35) At the end of each quarter, Patti deposits $500 into an account that pays 12%
interest compounded quarterly. How much will Patti have in the account in three years?
a. $7,096
b. $7,013
c. $7,129
d. $8,880
36) Richards Sporting Goods reports net income of $100,000, net sales of $500,000,
and average assets of $1,000,000. The profit margin is:
a. 10%
b. 20%
c. 50%
d. 5 times
37) Inventory records for Marvin Company revealed the following:
Marvin sold 2,300 units of inventory during the month. Ending inventory assuming
LIFO would be:
a. $5,040
b. $5,055
c. $5,075
d. $5,135
38) The balance sheet of Sound Designs reports total assets of $750,000 and $800,000
at the beginning and end of the year, respectively. Sales revenues are $1.5 million ($1.2
million in the previous year), net income is $150,000, and net cash flows from
operating activities are $175,000. What is Sound Designs’ cash return on assets?
a. 19.4%
b. 21.9%
c. 22.6%
d. 18.8%
39) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the correct term by placing the letter
designating the term in the space provided.
a. Accrued expenses
b. Adjusted trial balance
c. Adjusting entries
d. Depreciation expense
e. Balance sheet
f. Prepaid expenses
g. Expenses
h. Post-closing trial balance
i. Income statement
j. Trial balance
____ Assets created before the expense is recognized.
40) At the beginning of the year, Gilman Company purchased 10,000 of the 200,000
shares of common stock of Burke Corporation at $40 per share as a long-term
investment. The records of Burke Corporation showed the following by the end of the
year:
What amount should Gilman Company report in its year-end balance sheet for its
investment in Burke?
a. $380,000
b. $400,000
c. $415,000
d. $425,000
41) Liabilities can be best described as:
a. The amount of expenses over the past year
b. The amount expected to be distributed to stockholders
c. The amount owed to creditors
d. The amount of services provided to customers during the year
42) The primary difference in accounting for available-for-sale securities and
accounting for trading securities is:
a. Measuring the fair value of the long-term and short-term stock portfolios
b. Computing the cost at acquisition
c. Determining where the unrealized holding gain or loss on investments is reported in
the financial statements; in current net income or in comprehensive income
d. Accounting for dividends received
43) Why doesnt stockholders equity equal the market value of equity?
a. Stockholders equity usually does equal the market value of equity
b. Investors tend to incorrectly price the market value of equity
c. Its related to the use of historical cost to report many long-term assets and the
expensing of value generating costs such as research and development and advertising
d. Its due to incorrect entries prepared by accountants
44) Listed below are ten terms followed by a list of phrases that describe or characterize
the terms. Match each phrase with the best term placing the letter designating the term
in the space provided.
a.Additional paid-in capital
b.Articles of incorporation
c.Dividends
d.Organization chart
e.Preferred stock
f.Retained earnings
g.Statement of stockholders equity
h.Stock dividends
i.Stock split
j.Venture capital firms
Phrases:
_____ Provide additional financing, often in the millions, for a percentage ownership in
the company.
_____ A mixture of attributes somewhere between common stock and bonds payable.
_____ Summarizes the changes in the balance in each stockholders equity account over
a period of time.
_____ Traces the line of authority for a typical corporation.
_____ The portion of the cash proceeds above par value.
_____ A large stock dividend recorded as a reduction in the par or stated value per
share.
_____ Represents all net income, less all dividends, since the company began.
_____ Distributions by a corporation to its stockholders.
_____ Additional shares of the companies own stock given to stockholders.
_____ Describes the nature of the firms business activities, the shares to be issued, and
the composition of the initial board of directors.
45) Wireless Technologies reports sales of $50 million. Accounts receivable at the
beginning and end of the year are $5 million and $7 million, respectively. What is the
amount of cash received from customers?
a.$50 million
b.$52 million
c.$48 million
d.$55 million
46) Wildwood, an outdoors clothing store, reports the following information for June:
What is Wildwoods gross profit for June?
a. $18,000
b. $39,000
c. $104,000
d. $17,000
47) Which inventory cost flow assumption is allowed under U.S. GAAP but not under
IFRS?
a. Specific identification
b. FIFO
c. LIFO
d. Average cost
48) How many of the following transactions are operating activities?
Borrowed $50,000 from the bank
Purchased $12,000 in supplies
Provide services to customers for $27,000
Paid the utility bill of $750
Purchased a delivery truck for $12,000
Received $25,000 from issuing common stock
a. One
b. Two
c. Three
d. Four
49) The acid-test ratio is:
a.0.25
b.0.88
c.1.17
d.1.58
50) What is the value today of receiving $5,000 at the end of six years, assuming an
interest rate of 8% compounded semiannually?
a. $3,151
b. $3,203
c. $3,428
d. $3,123
51) United Supply has a $5 million liability at December 31, 2015, of which $1 million
is payable in each of the next five years. United Supply reports the liability on the
balance sheet as:
a.A $5 million current liability
b.A $5 million long-term liability
c.A $1 million current liability and a $4 million long-term liability
d.A $4 million current liability and a $1 million long-term liability
52) Garber Plumbers offers a 20% trade discount when providing $2,000 or more of
plumbing services to its customers. In March 2015, Garber provided $4,000 of
plumbing services to Red Oak, Inc. and $1,500 of services to Cyril, Inc. Each of these
customers was granted credit terms of 2/10, net 30 . If both customers paid for the
plumbing services within the discount period, what was the net revenues figure for
these two transactions?
a. $5,500
b. $4,312
c. $4,486
d. $4,606
53) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term by placing the letter designating
the term in the space provided.
a. Monitoring
b. Oversight board
c. Control activities
d. Corporate executive accountability
e. Nonaudit services
f. Control environment
g. Internal control
h. Information and communication
i. Auditor rotation
j. Risk assessment
____ Lead audit partners are required to change every five years.
54) Credits sales are recorded as:
a. Debit Cash, credit Unearned Revenue
b. Debit Service Revenue, credit Accounts Receivable
c. Debit Cash, credit Service Revenue
d. Debit Accounts Receivable, credit Service Revenue
55) Cash may not include:
a. Foreign currency
b. Money orders
c. Accounts receivable
d. Undeposited customer checks
56) When the balance of the Unearned Revenue account decreases during an accounting
period:
a. Accrual-basis revenues exceed cash collections from customers
b. Accrual-basis expenses exceed cash collections from customers
c. Accrual-basis revenues are less than cash collections from customers
d. Accrual-basis net income is less than cash-basis net income
57) Selected financial data regarding current assets and current liabilities for two
competing companies, Simon and Garfunkel, are provided as follows:
1> Calculate the current ratio for Simon. Then calculate the current ratio for Garfunkel.
Which of the two companies has the best current ratio?
2> Calculate the acid-test (quick) ratio for Simon. Then calculate the acid-test (quick)
ratio for Garfunkel. Which of the two companies has the best acid-test ratio?
58) A company uses the allowance method to account for uncollectible accounts.
During the year, the company has actual bad debts of $25,000. Record the write-off of
the uncollectible accounts.
59) A company understated its ending inventory balance by $8,000 in 2015 . What
impact will this error have on cost of goods sold and gross profit in 2015 and 2016?
60) On April 14, a company lends $10,000 cash to one of its employees and accepts a
six-month, 12% note in return. Record the acceptance of the note receivable.
61) Sideline Sports Products reports a return on assets of 6%, and a return on equity of
10%. Why do these two ratios differ?
62) Thomason Financial has the following cash transactions for the year. Assume cash
at the beginning of the period is $6,000. Prepare a statement of cash flows.
63) A company uses the following process for its cash receipts. At the end of each day,
the secretary places all cash and checks received from customers in a desk drawer. Each
Monday, the secretary totals all amounts received, records this in the accounting
records, and deposits the money in the bank account. Then, once every three months,
the office manager requests information from the bank necessary to prepare a bank
reconciliation. Discuss the companys internal control procedures related to cash
receipts.
64) At the end of the year, a company reports a balance in its Allowance for
Uncollectible Accounts of $1,400 (credit) before any year-end adjustment. The
company estimates future uncollectible accounts to be 3% of credit sales for the year.
Credit sales for the year total $280,000. Record the adjustment for the allowance for
uncollectible accounts using the percentage-of-credit-sales method.
65) When inventory costs are rising, __________ generally results in a higher amount
of reported net income.