1) Cash-basis accounting does NOT record:
A) purchase of supplies with cash
B) sale of common stock
C) payment of note payable
D) depreciation expense
2) When a company uses borrowed money to earn a higher profit than the cost of the
interest, this is called:
A) the asset multiplier effect
B) the debt multiplier effect
C) trading on the equity
D) riding the interest effect
3) Most companies will use:
A) the direct write-off method for interim statements and the allowance method at the
end of the year
B) the allowance method for interim statements and the direct write-off method at the
end of the year
C) the percent-of-sales method for interim statements and the aging-of-receivables
method at the end of the year
D) the aging-of-receivables method for interim statements and the percent-of-sales
method at the end of the year
4) The rule that all major groups of transactions should be supported by hard copy
documents or electronic records is part of the control procedure of:
A) limited access
B) segregation of duties
C) adequate records
D) proper approvals
5) The loss incurred as a result of the impairment of goodwill should be reported as:
A) part of discontinued operations
B) an operating expense
C) other expenses and losses
D) an extraordinary item
6) Net working capital:
A) represents the company’s ability to pay its long-term debts
B) is computed by subtracting total current liabilities from total current assets
C) should be a negative number to ensure the profitability of the company
D) should be the same for all companies
7) Which transaction increases stockholders’ equity?
A) sale of common stock
B) declared dividends
C) Total expenses for the period exceed total revenues for the period
D) payment of operating expenses
8) The Sally Company has the following data available at December 31, 2016:
At December 31, 2016, what are the total current liabilities?
A) $7,500
B) $11,600
C) $13,900
D) $17,000
9) Managers control cash receipts and disbursements, as well as the ending cash
balance, through a(n):
A) sales budget
B) operating budget
C) statement of cash flows
D) cash budget
10) Which of the following is a CORRECT statement about a chart of accounts?
A) It lists the income statement accounts first
B) It can be used to determine the balance in an account
C) It is a tool used by accountants to help prepare the financial statements
D) It lists the balance sheet accounts first
11) Amber Corporation purchases 40,000 shares of its own $10 par value common
stock for $30 per share. What will be the effect on stockholders’ equity?
A) Increase $400,000
B) Increase $1,200,000
C) Decrease $400,000
D) Decrease $1,200,000
12) Nationwide Magazine sells 60,000 subscriptions on account in March. The
subscription price is $15 each. The subscriptions start in April. The journal entry in
March would include a:
A) debit to Cash for $900,000
B) debit to prepaid subscriptions for $900,000
C) credit to Cash for $900,000
D) credit to Unearned Subscription Revenue for $900,000
13) Under the equity method, if an Equity-Method Investment is sold at a gain, the gain
is:
A) reported as operating revenue on the income statement
B) reported on the balance sheet as an adjustment to Accumulated Other
Comprehensive Income
C) reported in the Other Revenue and Gain section of the income statement
D) reported as Other Comprehensive Income on the Statement of Comprehensive
Income
14) On December 15, 2015, a company receives an order from a customer for services
to be performed on December 28, 2015. Due to a backlog of orders, the company does
not perform the services until January 3, 2016. The customer pays for the services on
January 6, 2016. The revenue principle requires the revenue to be recorded by the
company on:
A) December 15, 2015
B) January 3, 2016
C) December 28, 2015
D) January 6, 2016
15) The fair value of a long-term available-for-sale security has increased from the last
carrying value. The company uses an allowance account to adjust the investment. The
journal entry to record this increase will include:
A) a debit to the Allowance to Adjust Investment in Available-for-Sale Securities to
Market
B) a credit to the Allowance to Adjust Investment in Available-for-Sale Securities to
Market
C) a debit to the Unrealized Gain on Investment in Available-for-Sale Securities
D) a credit to the Unrealized Loss on Investment in Available-for-Sale Securities
16) Which of the following is a CORRECT statement regarding the direct write-off
method for uncollectible accounts?
A) Most companies use the direct-write off method for their financial statements
B) Companies are required to use the direct write-off method for federal income tax
purposes
C) A company records the Uncollectible-Account Expense when it writes off an
individual account receivable
D) Both B and C
17) Walton Company’s return on sales for the most recent year was 5%. The industry
leader reports a return on sales of 7%. The comparison of Walton Company’s return on
sales to the industry leader is an example of:
A) benchmarking
B) gross margin analysis
C) detail analysis
D) intercompany analysis
18) Equipment would appear on the:
A) balance sheet with the long-term assets
B) income statement with the revenues
C) income statement with the operating expenses
D) balance sheet with the current assets
19) The journal entry to record accrued interest on a note receivable at year end is:
A) debit Interest Receivable and credit Interest Revenue
B) debit Note Receivable and credit Interest Revenue
C) debit Interest Receivable and credit Note Receivable
D) debit Cash and credit Interest Receivable
20) Noncontrolling Interest is reported in the:
A) liability section of the consolidated balance sheet
B) intangible asset section of the consolidated balance sheet
C) long-term investment section of the consolidated balance sheet
D) stockholders’ equity section of the consolidated balance sheet
21) Samson Company has a machine with the following data:
Is the machine impaired?
A) No, the net book value of the machine exceeds the estimated future cash flows from
the machine
B) No, the estimated future cash flows from the machine exceed the fair value of the
machine
C) Yes, the fair value of the machine is less than the book value of the machine
D) Yes, the estimated future cash flows from the machine are less than the book value
of the machine
22) All of the following line items are found on the Statement of Cash Flows EXCEPT
for:
A) net cash used by investing activities
B) net cash provided by operating activities
C) net cash used by financing activities
D) total stockholders’ equity
23) In the cash budget, the beginning balance Cash plus budgeted cash receipts minus
________, equals Cash available before new financing
A) budgeted cash disbursements
B) budgeted cash balance
C) cash used for investing activities
D) cash used for investing and financing activities
24) Gengler Company acquired equipment #1, equipment #2, and equipment #3, for
$1,300,000. Equipment #1 is appraised at $450,000, equipment #2 is appraised at
$250,000 and equipment #3 is appraised for $800,000.The cost of equipment #1 is:
A) $250,000
B) $325,000
C) $390,000
D) $450,000
25) A company reports the following balances:
During 2016, net income of $30,000 was reported. No treasury stock was sold during
2016. No common stock was retired during 2016. What financing activities are reported
on the statement of cash flows prepared with the indirect method for the year ending
December 31, 2016?
A) Sale of treasury stock $5,000 and Payment of dividends $20,000
B) Purchase of treasury stock $5,000, Payment of dividends $20,000 and Sale of
common stock $20,000
C) Sale of treasury stock $5,000, Sale of common stock $10,000
D) Payment of dividends $10,000, Sale of common stock $20,000, and Purchase of
treasury stock $5,000
26) Marshall Corporation has $30,000 of bonds outstanding with a carrying value of
$38,400. The bonds are converted into 15,000 shares of $1 par value common stock
immediately after the last interest payment. The common stock had a market value of
$5 per share on the date of conversion. The entry to record the conversion would
include a credit to:
A) Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for $8,400
B) Bonds Payable for $30,000 and credit to Premium on Bonds Payable for $8,400
C) Cash for $38,400
D) Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for
$23,400
27) A machine is purchased for $70,000. The transportation costs were $4,000,
installation costs were $1,000 and taxes on the purchase price were $700. Testing runs
of the new machine cost $5,000. What is the cost of the machine?
A) $70,000
B) $75,000
C) $80,000
D) $80,700
28) Mr. Seider, a shareholder in the Greenfield Corporation, owns 1,000 shares of their
common stock, which represents 30% of the outstanding common stock of Greenfield
Corporation. Mr. Seider receives a 10% stock dividend. After the stock dividend, what
is Mr. Seider’s ownership in Greenfield Corporation’s common stock?
A) 10% ownership
B) 20% ownership
C) 30% ownership
D) 40% ownership
29) If a company wants to maximize earnings per share it would issue:
A) stock or bonds, depending on the tax rate
B) stock or bonds, depending on the interest rate
C) bonds instead of stock
D) stock instead of bonds