1) All employees should have a background check before being hired, and should be
properly trained and supervised.
2) If a company declares and pays a dividend to its stockholders, both cash and
expenses will decrease
3) The Retained Earnings account contains cash for paying dividends to the
stockholders.
4) The higher the quick ratio, the easier it is to pay current liabilities.
5) Premium on bonds payable is a contra account to bonds payable.
6) Vertical analysis compares a line item on the balance sheet to the same line item on
the balance sheet in a prior period.
7) An account with a normal debit balance is most often an asset or revenue account
8) A contingent liability should be disclosed in the notes to the financial statements if
there is a reasonable possibility that a loss (or expense) will occur.
9) If an investor owns between 20% and 50% of an investee’s voting stock, it is
assumed that the investor has significant influence over the investee.
10) A company will have an unrealized loss if the fair value of a trading security is
greater than its cost.
11) Accounts are listed in random order in a trial balance
12) A U.S. company sells goods on account to a French company. The French company
will pay in euros. If the euro strengthens before the U.S. company collects, the U.S.
company will have a foreign-currency transaction gain.
13) The duties of purchasing goods and receiving the goods should be given to the same
employee.
14) The cost of capital is a weighted average of the returns demanded by the company’s
stockholders and lenders.
15) If a company buys a building and the surrounding land for cash, total assets
increase.
16) A gain on sale of equipment is subtracted from net income when determining Net
Cash Provided by Operating Activities under the indirect method.
17) The times-interest-earned ratio indicates the company’s ability to pay interest
expense.
18) Under the indirect method to prepare the statement of cash flows, a decrease in a
current asset other than cash indicates a deduction from net income when calculating
Net Cash Provided by Operating Activities.
19) Every adjustment on the bank side of the bank reconciliation needs to be recorded
in the books.
20) If a bond is redeemed before maturity, the journal entry to record the redemption
will credit Cash.
21) Earnings per share is only computed for:
A) preferred stock
B) treasury stock
C) common stock
D) preferred and common stock
22) The process of verifying accounting information in financial statements is
undertaken by:
A) the Securities and Exchange Commission
B) internal auditors only
C) external auditors only
D) internal and external auditors
23) A journal entry contains a debit to a liability account and a credit to a revenue
account. This is an example of a(n):
A) accrued expense
B) deferred expense
C) unearned revenue
D) accrued revenue
24) Beck Company trades in old equipment for new equipment. The old equipment has
a cost of $10,000 and accumulated depreciation of $8,000. Beck Company pays cash of
$20,000. The fair value of the new equipment is $25,000. What is the gain or loss for
Beck Company on the exchange of equipment?
A) $3,000 Loss
B) $3,000 Gain
C) $5,000 Loss
D) $5,000 Gain
25) If a company prepares its financial statements three years after the end of their
accounting period, they have violated the qualitative characteristic of:
A) understandability
B) timeliness
C) verifiability
D) materiality
26) When a plant asset is fully depreciated:
A) the asset’s accumulated depreciation is higher than the historical cost of the asset
B) the book value is equal to the salvage value
C) the depreciable cost is equal to the salvage value, and the asset is of no further use to
the company
D) the book value is zero, and the asset has no market value
27) Simmons Company began the month with a balance of $80,000 in Accounts
Receivable An analysis of the account determined that sales on account for the month
totaled $110,000 At the end of the month, the balance in Accounts Receivable was
$85,000 From this information, it can be determined that Simmons Company had
collections from customers on account of:
A) $30,000
B) $55,000
C) $95,000
D) $105,000
28) The operating expense section of an income statement would NOT include:
A) salaries expense
B) utilities expense
C) supplies expense
D) interest expense
29) Hull Company reports the following data:
Based on the above data, what can be said about the Hull Company?
A) The company is controlling operating expenses
B) The company is reducing sales levels over time
C) The company is losing control of operating expenses
D) The company is increasing sales over time
30) Lisa Laskowski Company reports the following information at the fiscal year end of
December 31, 2015:
What was the average selling price for the common stock sold?
A) $0.088 per share
B) $0.10 per share
C) $0.895 per share
D) $1.805 per share
31) When accounting for long-term investments in available-for-sale securities, which
of the following is used to compute net income?
A) Unrealized Gains on Investments in Available-for-Sale Securities
B) Realized Gains on Investments in Available-for-Sale Securities
C) Dividend Revenue
D) B and C
32) Using a perpetual inventory system, what journal entry(ies) is(are) prepared when
two units of merchandise are sold on account?
A) debit Accounts Receivable and credit Sales Revenue only
B) debit Cash and credit Sales Revenue only
C) debit Accounts Receivable and credit Sales Revenue; debit Cost of Goods Sold and
credit Inventory
D) debit Accounts Receivable and credit Sales Revenue; debit Inventory and credit Cost
of Goods Sold
33) The method of accounting that records revenues ONLY when cash is received is
the:
A) deferral method
B) cash-basis method
C) accrual-basis method
D) hybrid method
34) On December 31, Bamber Corporation has the following data available:
What is the leverage ratio?
A) 1.6
B) 2.0
C) 2.14
D) 3.0
35) Under the periodic inventory system, the journal entry to record the cost of ending
inventory determined by a physical count is:
A) debit Inventory and credit Cost of Goods Sold
B) debit Inventory and credit Sales Revenue
C) debit Purchases and credit Inventory
D) debit Cost of Goods Sold and credit Inventory
36) How does the payment of a previously declared dividend affect the accounting
equation?
A) increase assets and decrease stockolders’ equity
B) decrease assets and decrease stockholders’ equity
C) increase assets and decrease liabilities
D) decrease assets and decrease liabilities
37) Ending inventory for the year ended December 31, 2015, is understated by $8,000.
How will this error affect net income for 2016?
A) Net income will be understated by $16,000
B) Net income will be overstated by $16,000
C) Net income will be understated by $8,000
D) Net income will be overstated by $8,000
38) Which of the following statements is FALSE?
A) The Securities and Exchange Commission is investigating whether all U.S. public
companies should adopt International Financial Reporting Standards
B) The advantage of a uniform set of global accounting standards is that financial
statements from a U.S. company will be comparable to those of a foreign company
C) In the long run, a uniform set of global accounting standards will reduce the costs of
doing business globally
D) With a uniform set of global accounting standards, companies will have to produce
multiple versions of their financial statements
39) Held-to-maturity investments in bonds are initially reported at ________ on the
purchase date. On a subsequent balance sheet date, the bonds are reported at ________.
A) cost; fair value
B) amortized cost; fair value
C) cost; amortized cost
D) cost; lower of cost or market
40) The Sarbanes-Oxley Act of 2002:
A) requires public companies to issue an internal control report
B) requires an outside auditor to evaluate the soundness of a public company’s internal
controls
C) requires public companies to issue a special report on the amount of collusion within
a company
D) A and B
41) The Allowance to Adjust Investment in Available-for-Sale Securities to Market
account has a current credit balance of $1,000 after the adjustment at year-end.
Available-for-sale investments have a fair value of $20,000. The original cost of the
investments was $21,000. The carrying value of the investments is:
A) $18,000
B) $19,000
C) $20,000
D) $21,000
42) Paying a repair bill as soon as it was received would:
A) increase expenses
B) increase liabilities
C) increase owners’ equity
D) decrease revenues
43) Perfect Catering Company’s ending inventory was $106,700 at historical cost and
$113,500 at current replacement cost. Before consideration of the
lower-of-cost-or-market rule, the company’s cost of goods sold was $60,000. Following
U.S. GAAP, which of the following statements reflect the correct application of the
lower-of-cost-or-market rule?
A) The Ending Inventory balance will be $106,700, and Cost of Goods Sold will be
$60,000
B) The Ending Inventory balance will be $113,500, and Cost of Goods Sold will be
$60,000
C) The Ending Inventory balance will be $106,700, and Cost of Goods Sold will be
$66,800
D) The Ending Inventory balance will be $113,500, and Cost of Goods Sold will be
$53,200
44) A company that owns 40% of the common stock of another business recognizes
revenue from the investment when:
A) the investor sells the shares in the investee company
B) the investee issues a cash dividend
C) the investee recognizes net income
D) the investee issues a stock dividend
45) Flanders Company has total assets of $360,000 and total liabilities of $300,000. The
company collects an account receivable of $20,000. After this transaction, the
company’s debt ratio will be:
A) 0.56
B) 0.83
C) 1.80
D) 1.90
46) If stock is issued for an asset other than cash, the asset should be recorded on the
books of the corporation at:
A) fair market value of the asset
B) book value of the asset
C) par value of the stock
D) fair value of the stock minus the par value of the stock
47) On December 31, 2014, salaries owed to employees total $4,150. These will be paid
on January 4, 2015. An adjusted trial balance prepared on December 31, 2014, includes
which of the following?
A) Salaries Expense, $4,150 and Salaries Payable, $4,150
B) Salaries Payable, $4,150 and Unearned Salaries Revenue, $4,150
C) Unearned Salaries, $4,150
D) Unearned Salaries, $4,150 and Salaries Payable, $4,150
48) Which inventory costing method provides the most current, up-to-date cost of
inventory on the balance sheet?
A) FIFO
B) LIFO
C) average cost
D) specific identification
49) On January 2, 2015, Kaiman Corporation acquired equipment for $300,000. The
estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value
is $20,000. What is the balance in Accumulated Depreciation on December 31, 2016, if
Kaiman Corporation uses the straight-line method of depreciation?
A) $30,000
B) $60,000
C) $112,000
D) $120,000
50) Nekich Company reports the following sales figures(in millions):
What is the trend percentage in 2013 if 2008 is the base year?
A) 6%
B) 14%
C) 86%
D) 94%