1) Interest is stated in terms of an annual percentage rate to be applied to the face value
of the loan.
2) Interest revenue is calculated as the carrying value of the investment in bonds times
the stated interest rate.
3) All states impose a general state sales tax, and many areas include an additional local
sales tax.
4) The mixture of liabilities and stockholders equity a business uses is called its capital
structure.
5) Transactions that dont increase or decrease cash, but that result in significant
investing and financing activities, are reported either directly after the cash flow
statement or in a separate note to the financial statements as noncash activities.
6) Customers accounts that we no longer consider collectible are referred to as
uncollectible accounts (or bad debts).
7) Internal control is a companys plan to (1) improve the accuracy and reliability of
accounting information and (2) safeguard the companys assets.
8) Unrealized gains and losses from changes in the fair value of trading securities are
reported as part of current net income.
9) Investing activities include the purchase and sale of (1) long-term resources and (2)
any resources not directly related to a companys normal operations.
10) Credit sales transfer products and services to a customer today while bearing the
risk of collecting payment from that customer in the future.
11) Limited liability means that even in the event of bankruptcy, stockholders in a
corporation can lose no more than the amount they invested in the company.
12) If you put $200 into a savings account that pays annual compound interest of 8%
per year and then withdraw the money two years later, you will earn interest of $32.
13) Most of the costs associated with internally developed intangible assets are
recorded as intangible assets on the balance sheet.
14) Vertical analysis calculates the amount and percentage change of an account over
time.
15) Under the indirect method, an increase in accounts payable is added to net income
to arrive at net cash flows from operating activities.
16) The statement of comprehensive income is a statement that includes net income
plus investment by stockholders less payment of dividends.
17) Cash return on assets indicates the amount of operating cash flow generated for
each dollar invested in assets.
18) How much will $5,000 invested at the end of each year grow to in six years,
assuming an interest rate of 7% compounded annually?
a. $35,766
b. $26,813
c. $23,833
d. $7,504
19) Regarding a bank reconciliation, which one of the following is an item recorded by
the company but not by the bank?
a. Checks outstanding
b. Interest earned
c. Service charges
d. NSF checks
20) One of the primary reasons for investing in equity securities includes:
a. Acquiring debt of competing companies
b. Appreciation in the value of the stock
c. Earning interest revenue
d. Deducting dividend payments for tax purposes
21) Terastar Corp. reports the following amounts for 2015 and 2016.
What is the trend in free cash flows relative to net income?
a. Both are increasing
b. Net income is trending upward and free cash flows are trending downward
c. Both are decreasing
d. Net income is trending downward and free cash flows are trending upward
22) The following balances come from the financial statements of Way Industries:
Given this information, what is the companys inventory turnover ratio?
a. 21.25
b. 28.33
c. 16.0
d. 9.6
e. 12.0
23) Countries that have different rules for financial accounting and tax accounting, rely
more on equity financing, and have historical political and economic ties with Great
Britain are referred to as what types of countries?
a. Code law countries
b. European Union countries
c. Common law countries
d. Conformist countries
24) Which of the following are not included in an employers payroll tax expense?
a.Employer portion of FICA taxes
b.Federal unemployment taxes
c.State unemployment taxes
d.State income taxes
25) Assuming a current ratio of 1.2 and an acid-test ratio of 0.80, how will the purchase
of inventory with cash affect each ratio?
a. Increase the current ratio and increase the acid-test ratio
b. No change to the current ratio and decrease the acid-test ratio
c. Decrease the current ratio and decrease the acid-test ratio
d. Decrease the current ratio and increase the acid-test ratio
26) Which of the following is not part of measuring external transactions?
a. Using source documents to analyze accounts affected
b. Recording transactions
c. Making payments on all amounts owed
d. Analyzing transactions for their effect on the accounting equation
27) Which of the following definitions describes a secured bond?
a.Matures on a single date
b.Secured only by the full faith and credit of the issuing corporation
c.Matures in installments
d.Supported by specific assets pledged as collateral by the issuer
28) The Pita Pit borrowed $100,000 on November 1, 2015, and signed a six-month note
bearing interest at 12%. Principal and interest are payable in full at maturity on May 1,
2016 . In connection with this note, The Pita Pit should report interest expense in 2016
for the amount of:
a.$0
b.$4,000
c.$2,000
d.$6,000
29) Compute the present value of the following single amounts to be received at the end
of the specified period at the given interest rate.
Invested Interest Number of
Item Amount Rate Periods
a. $40,000 7% 20
b. $20,000 6% 25
c. $50,000 11% 10
30) Below are excerpts from interest tables for 8% interest.
Column 4 is an interest table for the:
a. Future value of $1
b. Present value of $1
c. Future value of an annuity of $1
d. Present value of an annuity of $1
31) In a period when inventory costs are rising, the inventory method that most likely
results in the highest ending inventory is:
a. Lower-of-cost-or-market method
b. Weighted-average cost
c. FIFO
d. LIFO
32) The PE ratio:
a. Tends to be higher for growth stocks
b. Tends to be higher for value stocks
c. Indicates how a stock is trading in relation to cumulative earnings over the life of the
company
d. Typically is less than 1
33) Which of the following statements regarding liquidity ratios is False?
a.A high current ratio generally indicates the ability to pay current liabilities on a timely
basis
b.A high acid-test ratio generally indicates the ability to pay current liabilities on a
timely basis
c.All current assets are due within one year and therefore have essentially equal
liquidity
d.As a rule of thumb, a current ratio of 1 or higher often reflects an acceptable level of
liquidity
34) Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming
FIFO would be:
a. $1,730
b. $1,700
c. $1,720
d. $1,710
35) Which of the following is a positive sign that a company is selling its inventory
quickly?
a. A low inventory turnover ratio
b. A high inventory turnover ratio
c. A low average days in inventory
d. Both a high inventory turnover ratio and a low average days in inventory
36) Strikers, Inc. sells soccer goals to customers over the Internet. History has shown
that 2% of Strikers goals will need repair under the warranty program. For the year,
Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a
goal is $200, what would be the Warranty expense for the year?
a. $0
b. $16,000
c. $7,000
d. $9,000
37) The ending Retained Earnings balance of Boomer Inc. decreased by $1.0 million
from the beginning of the year. The company declared a dividend of $5.4 million during
the year. What was the net income earned during the year?
a. $7.5 million
b. $6.4 million
c. $4.4 million
d. $1.0 million
38) Which of the following statements regarding the corporate form of business is
correct?
a. The disadvantages are that generating capital is difficult and that owners have limited
liability
b. Disadvantages are that the business is subject to government regulations and double
taxation on its income
c. One disadvantage is that ownership is easy to transfer
d. All of the other options are correct
39) General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s
accountant has projected the following amortization schedule from purchase until
maturity:
Recording the bond purchase would have what effect on the financial statements?
a. Increase assets
b. Increase liabilities
c. Increase assets and liabilities
d. No effect on total assets and total liabilities
40) Given the information below about Thomas Corporation, what was the amount of
dividends the company paid in the current period?
a. $13,000
b. $110,000
c. $28,000
d. $18,000
41) In accounting, goodwill
a. Is never recorded
b. May be recorded when a companys level of net income exceeds the industry average
c. Must be expensed in the period when it is acquired
d. May be recorded when the company purchases another business
42) Schooner Inc. purchased equipment by signing a note payable. This transaction
would be recorded as:
a. Debit Equipment, credit Cash
b. Debit Cash, credit Notes Payable
c. Debit Notes Payable, credit Equipment
d. Debit Equipment, credit Notes Payable
43) On February 22, Brett Corporation reacquired 200 shares of its $5 par value
common stock for $25 each. On March 15, the company reissued 70 shares for $30
each. What is true of the entry for reissuing their shares?
a. Credit Cash $1,750
b. Credit Additional Paid in Capital $350
c. Debit Treasury Stock $1,750
d. Credit Treasury Stock $2,100
44) Which of the following accounts has a debit balance?
a. Accounts Payable
b. Unearned Revenue
c. Service Revenue
d. Salaries Expense
45) The legal life of a patent is:
a.Forty years
b.Twenty years
c.Life of the inventor plus fifty years
d.Indefinite
46) Cash received from issuing common stock would be classified in which section of
the Statement of Cash Flows?
a. Operating
b. Investing
c. Financing
d. Not shown
47) Earnings per share (EPS)
a. Is useful in comparing earnings performance across companies
b. Is useful in comparing earnings performance for the same company over time
c. Is useful in both comparing earnings performance across companies and in
comparing earnings performance for the same company over time
d. Is not useful in comparing earnings performance across companies or in comparing
earnings performance for the same company over time
48) The following information pertains to Sooner Company:
Assuming that Sooner Company uses accrual-basis accounting, when would
the company record the expense related to the supplies? a. May 2
b. May 8
c. May 15
d. May 20
49) The balance sheet of Computer World reports total assets of $350,000 and $450,000
at the beginning and end of the year, respectively. Sales revenues are $800,000, net
income is $100,000, and net cash flows from operating activities are $150,000. What is
Computer Worlds’ cash return on assets?
a. 33.3%
b. 42.9%
c. 25.0%
d. 37.5%
50) Comparing operating expenses as a percentage of sales is an example of:
a. Vertical analysis
b. Horizontal analysis
c. Diagonal analysis
d. Both vertical and horizontal analysis
51) Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000
down payment and a 12% note for the balance. This transaction would include a:
a. Credit to Cash
b. Debit to Sales Discount
c. Debit to Notes Receivable
d. Credit to Notes Receivable
52) Suppose that the balance of a companys Allowance for Uncollectible Accounts was
$6,200 (credit) at the end of 2015, prior to any adjustments. The company estimated
that the total of uncollectible accounts in its accounts receivable was $44,300 at the end
of 2015 . What amount of bad debt expense would appear in the companys 2015
income statement?
a. $38,100
b. $105,700
c. $33,000
d. $50,500
53) Excerpts from TPX Company’s December 31, 2015 and 2014, financial statements
are presented below:
TPX Companys 2015 average days in inventory is:
a.121.7 days
b.70.2 days
c.110.6 days
d.101.4 days
54) Miller borrows $300,000 to be paid off in three years. The loan payments are
semiannual with the first payment due in six months, and interest is at 6%. What is the
amount of each payment?
a. $55,379
b. $106,059
c. $30,138
d. $60,276
55) The declaration and issuance of a stock dividend:
a.Does not change total assets, liabilities, or total stockholders equity
b.Decreases total stockholders equity and increases common stock
c.Decreases assets and decreases total stockholders equity
d.Does not change retained earnings or paid-in capital
56) Listed below are five 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. Gross profit
b. Net income
c. Inventory turnover ratio
d. Operating income
e. Income before income taxes
_____ Equals gross profit less operating expenses.
57) The direct write-off method is generally not permitted for financial reporting
purposes because:
a. Compared to the allowance method, it would allow greater flexibility to managers in
manipulating reported net income
b. This method is primarily used for tax purposes
c. It is too difficult to accurately estimate future bad debts
d. Expenses (bad debts) are not properly matched with the revenues (credit sales) that
they help to generate
58) On February 1, 2015, a company loans one of its employees $20,000 and accepts a
nine-month, 8% note receivable. Calculate the amount of interest revenue the company
will recognize in 2015 .
59) A company has the following transactions during March:
March 3 Purchases inventory on account for $3,500, terms 2/10, n/30. March 5 Pays
freight costs of $200 on inventory purchased on March 3 .
March 6 Returns inventory with a cost of $500.
March 12 Pays the full amount due on March 3 purchase.
March 29 Sells all inventory purchased on March 3 (less those returned on March 6) for
$5,000 on account.
Record all transactions, assuming the company uses a perpetual inventory system.
60) Below is balance sheet information for five independent situations. Calculate the
answer to each.
1> A company reports total assets of $2,000 and total liabilities of $900. What is the
amount of stockholders equity?
2> A company reports total liabilities of $2,400 and stockholders equity of $1,100.
What is the amount of total assets?
3> A company reports total assets of $2,700 and total stockholders equity of $700.
What is the amount of total liabilities?
4> A company reports an increase in assets of $1,700 and an increase in liabilities of
$400. What is the amount of the change in stockholders equity?
5> A company reports an increase in liabilities of $300 and a decrease in stockholders
equity of $800. What is the amount of the change in total assets?
61) Explain how companies account for uncollectible accounts receivable (bad debts).
62) The adjusted trial balance for China Tea Company at December 31, 2015, is
presented below:
Prepare an income statement for China Tea Company for the year ended December 31,
2015:
63) Name as many items as you can that are withheld from employee payroll checks.
Which employee deductions are required by law and which are voluntary? Name as
many items as you can that are employer payroll costs in addition to the employees
salary. Which employer costs are required by law and which are voluntary?
64) Consultants notify management of Generic Drug that a prescription medication
poses a potential health risk. Legal counsel indicates that a product recall is probable
and is estimated to cost the company between $5 and $8 million. How will this affect
the companys income statement and balance sheet this period?
65) The following is selected financial information for Osmond Dental Laboratories for
2015 and 2016:
Osmond issued 2,000 shares of additional capital stock in 2016 for $20,000. There were
no other capital transactions. Prepare a statement of stockholders equity for the year
ended December 31, 2016 .