1) A company reports the following balances:
What is reported on the statement of cash flows prepared with the indirect method for
the year ended December 31, 2016? Assume there were no retirements of common
stock during 2016. No dividends were declared in 2016.
A) Financing Activity: Sale of Common Stock, $10,000
B) Financing Activity: Sale of Common Stock, $20,000
C) Operating Activity: Net Income $10,000
D) B and C
2) At December 31, the NBC Company owes an employee for four days of work that
will not be paid until January 5th. The weekly rate of pay for a five-day workweek is
$1,000.The adjusting entry to record the accrued wages will include a:
A) debit to Salaries Payable for $1,000
B) debit to Salaries Expense for $1,000
C) debit to Salaries Payable for $800
D) debit to Salaries Expense for $800
3) A company reports Cost of Goods Sold of $400,000, Ending Inventory of $50,000,
Beginning Inventory of $30,000, Ending Accounts Payable of $40,000 and Beginning
Accounts Payable of $32,000. What is the accounts payable turnover?
A) 8.0
B) 10.0
C) 11.1
D) 11.7
4) A Trial Balance Worksheet can be used to prepare:
A) balance sheet
B) income statement
C) statement of retained earnings
D) all of the above
5) Interest Expense for 2016 is $300,000. Interest Payable increased $50,000 during the
year. Interest Receivable increased $10,000 during the year. Interest Expense includes
$50,000 for the amortization of discount. What is the cash paid for interest?
A) $200,000
B) $250,000
C) $300,000
D) $350,000
6) When a business purchases land with a note payable:
A) both assets and stockholders’ equity are increased
B) assets are decreased and stockholder’s equity is increased
C) both assets and liabilities are increased
D) assets are increased and liabilities are decreased
7) ________ will not be found on the Statement of Retained Earnings.
A) Net income
B) Dividends
C) Stockholders’ equity
D) Net loss
8) The accounts of Local Company at May 31, 2015 are as follows:
What are the first four lines, in proper order, on the trial balance at May 31, 2015?
A) Accounts Payable, Accounts Receivable, Cash, Common Stock
B) Sales Revenue, Salary Expense, Insurance Expense, Supplies
C) Cash, Accounts Receivable, Supplies, Accounts Payable
D) Accounts Payable, Notes Payable, Common Stock, Retained Earnings
9) On a common-size balance sheet, each line item is expressed as a percentage of:
A) current assets
B) operating income
C) total assets
D) net income
10) Which of the following statements regarding leases is CORRECT?
A) Capital leases are favored over operating leases
B) A debit balance in the Leased Asset account on the balance sheet indicates an
operating lease
C) Title is transferred to the lessee at the end of an operating lease term
D) Operating leases require the lessee to make rent payments
11) What is the accounts payable turnover?
A) a measure of liquidity
B) a measure of the number of times a year a company is able to pay off its accounts
payable
C) purchases on account from suppliers divided by average accounts payable
D) all of the above
12) In transaction analysis, revenues and expenses that arise in different transactions are
recorded in the ________ column of the accounting equation
A) Cash
B) Common Stock
C) Dividends
D) Retained Earnings
13) A company has gross revenue of $500,000; sales discounts of $2,500; and sales
returns and allowances of $3,000. Net revenue is:
A) $494,500
B) $497,000
C) $497,500
D) $500,000
14) Bamboo Industries, Inc., has $30,000 in cash and cash equivalents, $15,000 in
short-term investments, $125,000 in net current receivables, $50,000 in inventory and
$12,000 in prepaid expenses. The total current liabilities of the firm are $200,000.
Bamboo Industries’ current ratio is:
A) 0.85
B) 0.91
C) 1.10
D) 1.16
15) The three main components of the fraud triangle are:
A) rationalization, opportunity and greed
B) opportunity, motive and lack of ethics
C) motive, opportunity and rationalization
D) none of the above
16) What are some examples of fraudulent financial reporting?
A) Enron Corporation
B) WorldCom Corporation
C) A company overstates total assets and net income
D) all of the above
17) The formula to determine income tax expense is:
A) taxable income (from the income tax return) multiplied by the income tax rate
B) taxable income(from the income statement) multiplied by the income tax rate
C) income before income tax expense (from the tax return) multiplied by the income
tax rate
D) income before income tax expense (from the income statement) multiplied by the
income tax rate
18) U.S. Generally Accepted Accounting Principles require that a company adjust
________ of available-for-sale securities to ________ at the end of each accounting
period.
A) each security; amortized cost
B) each security; lower of cost or market
C) the portfolio; current replacement cost
D) the portfolio; fair value
19) Which of the following is CORRECT regarding liquidity?
A) Liquidity measures how quickly an item can be paid
B) Accounts receivable is the most liquid asset
C) A balance sheet lists assets and liabilities in the order of relative liquidity
D) Equipment is a highly liquid asset
20) For each of the following situations, indicate which internal control procedure
Johnson Company has violated:
1>Since they are costly, background checks are not done for the employees.
2>Purchases of items on credit do not need the approval of the purchasing department.
3>All hard copies of documents are shredded after one month and electronic records are
deleted after two months.
4>The company does not prepare operating or cash budgets.
5>The accountant receives the checks from customers in payment of amounts due and
records the cash receipts.
6>There are no locks in the area where inventory is stored.
7>The hiring, firing and pay adjustments are made by the foremen in the manufacturing
area.
21) All of the following are necessary to compute the future value of a single amount
EXCEPT the:
A) interest rate
B) number of periods
C) principal
D) maturity value
22) In computing Net Cash Provided by Operating Activities using the indirect method,
each of the following is added to net income EXCEPT:
A) an increase in accrued expenses payable
B) a gain on sale of equipment
C) depreciation expense
D) a decrease in inventory
23) If inventory costs are rising and a company is using LIFO, large purchases of
inventory near the end of the year will:
A) increase income taxes paid
B) decrease income taxes paid
C) not change the amount of income taxes paid
D) cannot be determined
24) A bookkeeper forgot to post a credit to Accounts Receivable, but did post the debit
part of the journal entry correctly. Then:
A) the trial balance would still balance
B) total debits would exceed total credits on the trial balance
C) total credits would exceed total debits on the trial balance
D) total debits and total credits would both be incorrect on the trial balance
25) Dorman Company purchased new machinery for its production process. The
following costs were incurred for the new machine:
Which costs should be added to the cost of the machine?
A) $10,000
B) $30,000
C) $42,000
D) $142,000
26) Lori’s Company has the following items: cash in a checking account, $1,000; cash
in a savings account, $4,000; high-grade government securities due in one month,
$3,586; accounts receivable, $3,000; cash in a compensating balance agreement,
$3,200. How much should appear as Cash and Cash Equivalents on the balance sheet?
A) $4,000
B) $8,586
C) $11,558
D) $11,786
27) On June 1, Roadway’s Trucking Company paid $3,000 to overhaul the engine on a
delivery truck to allow it to be used for two additional years. It also paid $7,500
changing the storage capacity of the truck so that it could haul more merchandise.
Which of the following statements is TRUE?
A) The $3,000 is a capital expenditure and the $7,500 is an expense
B) The $3,000 is an expense and the $7,500 is a capital expenditure
C) Both items are capital expenditures
D) Both items are expenses
28) Dividends are declared by the:
A) Chief Accounting Officer
B) Chief Financial Officer
C) President
D) Board of directors
29) If inventory costs are increasing over time, the income taxes paid using FIFO will
________ the income taxes paid using LIFO.
A) exceed
B) equal
C) be less than
D) none of the above
30) A company purchased supplies of $1,000 on account. In transaction analysis, how
does this transaction affect the accounting equation?
A) Add $1,000 to Supplies account and add $1,000 to Notes Payable account
B) Add $1,000 to Supplies account and subtract $1,000 from Cash account
C) Add $1,000 to Supplies Expense account and add $1,000 to Notes Payable account
D) Add $1,000 to Supplies account and add $1,000 to Accounts Payable account
31) Rosewood Company had current assets of $582, current liabilities of $433, total
assets of $732, and long-term liabilities of $200. What is Rosewood’s debt ratio?
A) 0.59
B) 0.80
C) 0.86
D) 1.95
32) When a U.S.-based company has a payable denominated in a foreign currency, the
U.S. company wants the foreign currency to ________ and the U.S. dollar to
_________.
A) strengthen; strengthen
B) strengthen; weaken
C) weaken; strengthen
D) weaken; weaken
33) Newsome Corporation had accounts receivable of $110,000 at the beginning of the
year and $125,000 at the end of the year. Sales for the year amounted to $575,000. Cash
collections from customers are:
A) $15,000
B) $465,000
C) $560,000
D) $575,000
34) A sign of decreasing earnings quality is:
A) declining Cost of Goods Sold to sales ratio
B) declining Gross Margin to sales ratio
C) declining operating expenses to sales ratio
D) increasing operating income to sales ratio
35) The inventory turnover ratio:
A) is determined by dividing cost of goods sold by net sales
B) shows how many times the company sold its average level of inventory
C) should be high for a company that sells high-priced inventory items
D) will be lower for companies that have many low-priced items in their inventory
36) On January 1, 2015, a machine has a remaining book value of $5,300. The residual
value of the machine is $1,000. The company uses the double-declining-balance
method of depreciation. If 2015 is the last year for depreciation, what is Depreciation
Expense for the year ending December 31, 2015?
A) $0
B) $1,000
C) $4,300
D) $5,300
37) All of the following line items are found on the balance sheet EXCEPT for:
A) current maturities of long-term debt
B) accounts payable
C) treasury stock
D) dividends declared