1) Which of the following has primary responsibility to develop Generally Accepted
Accounting Principles?
A.Financial Accounting Standards Board.
B.Company Executives.
C.Securities & Exchange Commission.
D.Public Company Accounting Oversight Board.
2) Which of the following journal entries is correct when common stock is sold for cash
at a price greater than par value?
A.Option A
B.Option B
C.Option C
D.Option D
Common stock and additional paid-in capital are both credited when common stock is
sold for more than par value.
3) A company prepared the following journal entry:
Which of the following statements incorrectly describes the effect of this journal entry
on the financial statements?
A.Total liabilities increase by only the amount of the credit to bonds payable.
B.Discount on bonds payable is reported on the balance sheet as a contra-liability
account.
C.Assets increase by the amount of the debit to cash.
D.The cash inflow (debit) is reported as a cash flow from financing activities.
Total liabilities increase by the amount of the bonds payable less the debit to discount
on the bonds payable.
4) Which of the following statements is incorrect?
A.Ordinary repairs and maintenance decrease net income.
B.Capital expenditures decrease assets.
C.Ordinary repairs and maintenance are recurring in nature.
D.Additions and improvements to a depreciable asset occur infrequently.
5) Which of the following statements is incorrect about fundamental business
strategies?
A.A company implementing a cost differentiation strategy is attempting to increase
operating efficiency of assets and improve the asset turnover ratio.
B.A company implementing a product differentiation strategy is attempting to improve
its profit margin through charging higher prices.
C.A company will be more profitable because it will attract a higher volume of
customers and sales revenue when it follows a product differentiation strategy versus a
cost differentiation strategy.
D.Financial leverage is how a company finances its assets and can affect total
profitability return to stockholders.
6) Sabre Company sold inventory costing $600 to a customer on account for $900 with
terms of 3/15, n/30. Which of the following is not correct?
A.Gross profit increases $300 on the date of sale.
B.Total current assets are not affected on the date of cash collection if the customer
pays 30 days after the date of sale.
C.Total current assets increase $27 on the date of cash collection if the customer pays
within 15 days of the date of sale.
D.Gross profit and net sales both decrease $27 on the date of cash collection if the
customer pays within 15 days of the date of sale.
7) Which of the following is not an alternate title for the Statement of Income?
A.Income Statement.
B.Statement of Net Income.
C.Statement of Operations.
D.Statement of Income.
8) Purdum Farms borrowed $10 million by signing a five-year note on December 31,
2013. Repayments of the principal are payable annually in installments of $2 million
each. Purdum Farms makes the first payment on December 31, 2014 and then prepares
its balance sheet. What amount will be reported as current and long-term liabilities,
respectively, in connection with the note at December 31, 2014, after the first payment
is made?
A.$2 million in current liabilities and $8 million in long-term liabilities.
B.$2 million in current liabilities and $6 million in long-term liabilities.
C.Zero in current liabilities and $8 million in long-term liabilities.
D.Zero in current liabilities and $10 million in long-term liabilities.
9) Which of the following equations best describes the income statement?
A.Assets – Liabilities = Stockholders’ Equity.
B.Net income = Revenues + Expenses.
C.Net income = Revenues – Expenses.
D.Retained earnings = Net Income + Dividends.
The income statement equation is revenues – expenses = net income.
10) Which of the following statements does not correctly describe the allowance for
doubtful accounts balance?
A.It is reported on the balance sheet as a component of current assets.
B.It is a contra-asset account.
C.It is reported on the balance sheet as a stockholders’ equity account.
D.It is created as a result of the adjusting entry to record bad debt expense.
11) Alpha Company issued 1,000 shares of $10 par value common stock to
stockholders, in exchange for $15,000 cash. Which of the following correctly describes
the impact of this transaction on Alpha’s financial statements?
A.A $15,000 investment is reported as a long-term investment.
B.Stockholders have invested $25,000 as stockholders’ equity.
C.Common stock is reported at $15,000 as a liability.
D.Additional paid-in capital of $5,000 is reported in stockholders’ equity.
12) On December 31, 2014, Avery Corporation paid $10,000 for next year’s insurance
policy. This transaction should be recorded as follows by Avery:
A.Option A
B.Option B
C.Option C
D.Option D
13) Which of the following would not be classified as a current asset?
A.Accounts receivable.
B.Goodwill.
C.Inventories.
D.Non-trade receivables.
14) Schager Company purchased a computer system on January 1, 2014, at a cash cost
of $25,000. The estimated useful life is 10 years, and the estimated residual value is
$3,000. The company will use the double declining-balance depreciation method. What
is the accumulated depreciation balance as of December 31, 2015?
A.$9,000.
B.$4,000.
C.$7,920.
D.$8,520.
15) In what order would the items on the balance sheet appear?
A.Assets, retained earnings, liabilities, and common stock.
B.Common stock, retained earnings, liabilities, and assets.
C.Assets, liabilities, common stock, and retained earnings.
D.Common stock, assets, liabilities, and retained earnings.