Archives: Quiz

A company has positive cash flow from investing and financing activities, but negative cash flow from operating activities. The likely result is: A) investors may not buy the company’s stock because the receipt of dividends is unlikely. B) investors will […]

Langley Company uses the allowance method. During January 2016, Langley writes off a $500 customer account balance when it becomes clear that the customer will never pay. The entry to record the write-off will: A) decrease total assets by $500. […]

Chino Company reported net income of $20,000 for the current year. During the year, Inventory decreased by $7,000, Accounts Payable decreased by $8,000, Depreciation Expense was $10,000, and Accounts Receivable increased by $6,500. If the indirect method is used, what […]

A company purchased equipment by issuing a $200,000, one-year, 8% note payable. The transaction would be recorded in the accounting records with a credit to Notes Payable for: A) $200,000. B) $216,000. C) $184,000. D) $208,000. Which of the following […]

Stock dividends and stock splits are similar in all of the following ways except: A) they both involve a pro rata distribution of shares to existing stockholders. B) they both reduce the stock price. C) they both decrease Retained Earnings. […]

T. Powers Company’s financial statements on December 31, 2015, showed the following: Net Sales $275,000 Fixed Assets, January 1 $ 73,000 Fixed Assets, December 31 $ 67,000 Total Assets, January 1 $ 97,000 Total Assets, December 31 $100,000 What is […]

Which of the following is a financing activity? A) The business receives land and gives a check for $1,000. B) The business receives $1,000 cash and in exchange gives a promissory note. C) The business promises to hire an employee […]

Use the information above to answer the following question. Assuming that the company uses cash basis accounting, what is net income for May? Melody’s Piano School operations for the month of May were limited to the following transactions: – Provided […]

Use the information above to answer the following question. What is the ending balance of the Cash account? Cash Beg. Bal. 123,900 (a) 14,700 6,000 (c) (b) 38,300 5,800 (d) 7,400 (e) 12,000 (f) 11,200 (g) A) $219,300 B) $113,300 […]

When the amount of a contingent liability can be reasonably estimated and its likelihood is possible but not probable, the company should: A) include a description in the notes to the financial statements. B) record the amount of the liability […]

Tyler Corporation was organized in 2015. Its corporate charter authorized the issuance of 50,000 shares of common stock, par value $5 per share, and 10,000 shares of 8% preferred stock, par value $25 per share. The following transactions took place […]

Which of the following is not an amount that is needed to calculate straight-line depreciation? A) The cost of the asset B) An estimate of the asset’s useful economic life to the company C) The estimated amount that the company […]

Which of the following factors would cause the least amount of concern about a company’s ability to continue as a going-concern? A) Excessive reliance on debt financing B) Loss of key personnel without comparable replacement C) Inadequate maintenance of long-lived […]

Assets reported on the balance sheet include: A) Accounts Receivable, Sales Revenue, and Cash. B) Equipment, Supplies Expense, and Cash. C) Accounts Payable, Retained Earnings, and Cash. D) Accounts Receivable, Equipment, and Cash. Which of the following would not be […]

Which of the following statements about cash flows from investing activities is correct? A) The proceeds from sales of investments are reported as cash inflows from investing activities. B) Cash flows from investing activities are calculated by making adjustments to […]

Which of the following statements about financing activities is not correct? A) Cash dividends paid to a company’s stockholders are reported as cash outflows from financing activities. B) When a company issues stock for cash, it reports a cash inflow […]

Which of the following statements about equity and debt financing is correct? A) Equity financing is always better than debt financing. B) Equity financing requires dividends to be paid. C) Dividends are tax deductible. D) Equity financing can change stockholder […]

GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later it reissues this stock for $65 a share. The stock reissue would be recorded with a debit to Cash for: A) $19.5 million […]

Your company buys a computer server that it expects to use for eight years and then sell when it upgrades to a more powerful model. The server would probably be used by the business that buys it at that time […]

Your company issues $500,000 in bonds at a price of 98. The journal entry used to record the issuance will include a debit to: A) Cash for $490,000, a debit to Discount on Bonds Payable for $10,000, and a credit […]

Which number is potentially the largest? A) The number of shares authorized. B) The number of shares issued. C) The number of shares outstanding. D) The number of shares certified. Use the information above to answer the following question. What […]

If a company receives $20,000 cash from its customers on account and uses the cash to pay $20,000 to its suppliers on accounts, the net result is that: A) assets would increase by $20,000 while liabilities would decrease by $20,000. […]

The combined effect of the declaration and payment of a cash dividend on a company’s financial statements is to: A) increase total liabilities and decrease stockholders’ equity. B) increase total expenses and decrease assets. C) increase total assets and increase […]

When the lower of cost or market rule requires an inventory adjustment, the: A) adjustment usually, but not always, reduces the book value of inventory. B) write-down is usually reported as a part of cost of goods sold. C) inventory […]

The receipt of cash is one of the operating activities of: A) companies that sell goods but not companies that sell services. B) companies that sell to consumers but do not sell to other companies. C) merchandising, manufacturing, and service […]

The useful life of an asset is always measured in units of time, such as years or months. Net income is based on estimates. Answer: True Feedback: Proper counting is critical to income measurement, but estimation also plays a role. […]

Benchmarks are required to evaluate a company’s performance. If the total dollar value of credits to an account exceeds the total dollar value of debits to that account, the ending balance of the account will be a debit balance. Answer: […]

Corporate income taxes cannot be calculated until all other adjustments are made. If a company uses $100 million of its cash to pay off debt, its stockholders’ equity will increase $100 million. Answer: False Feedback: Assets and liabilities would each […]

All corporations acquire financing by issuing stock for sale on public stock exchanges. Every transaction increases at least one account and decreases at least one account. Answer: False AICPA B: Resource Management Feedback: A transaction may have any combination of […]

Income tax expense would be found on the income statement of a corporation, but not on the income statement of a sole proprietorship. A company does not need to record the receipt of a bill for utilities used during this […]

Assume the periodic inventory method is used. When LIFO is used, costs are assigned to cost of goods sold using the most recent purchase at the time of the sale. In general, the cash flow from operating activities is considered […]

The normal balance of an account is on the same side that increases the account. The effective-interest method of amortization is considered a conceptually superior method of accounting for bonds. Answer: True Feedback: The effective-interest method of amortization is considered […]

Cash that is legally or contractually required to be set aside for a specific purpose cannot be reported with Cash and Cash Equivalents on the balance sheet. When costs per unit are increasing, the inventory costing method that results in […]

A corporation does not have a legal obligation to pay dividends. A deferral adjustment may involve one asset and one expense account. Answer: True AICPB BB: Critical thinking Feedback: Deferrals commonly involve (1) an asset and an expense or (2) […]

Inventory is reported on the balance sheet as a current asset. When a company pays its rent in advance, an asset is reported on the balance sheet. Answer: True Feedback: When a company pays its rent in advance, the expense […]

The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system is used. A company can use different methods for inventories […]

The asset, liability, and stockholders’ equity accounts are referred to as permanent accounts. Adjusting entries often involve cash. Answer: False Feedback: Adjusting entries never involve the Cash account. Transactions involving cash are recorded as regular journal entries. Company X issues […]

A contra account is added to the account it offsets. The Sarbanes-Oxley Act (SOX) requires top management of companies to sign a report certifying that the financial statements are free of error. Answer: False Feedback: SOX requires top managers of […]

Interest revenue from notes receivable is typically reported on a multiple step income statement as a part of Income from Operations. Because it is easier to use, the direct write-off method for uncollectible accounts is typically used instead of the […]

The use of internal controls guarantees protection against losses due to fraud, errors, and inefficiencies. The daily activities involved in running a business, such as buying supplies and paying salaries and wages, are classified as operating activities on the statement […]

Gross profit is not a ledger account name. A company that pays no dividends is always a poor investment. Answer: False Feedback: Investors acquire common stock because they expect a return on their investment. This return can come in two […]

The gross earnings for all employees is credited to Salaries and Salaries and Wages Payable. A liability for dividends is recorded on the date of record. Answer: False Feedback: On the declaration date, the company’s board of directors formally approves […]

Dividends in arrears are reported as current liabilities on the balance sheet. The higher the receivables turnover, the slower accounts receivable are being collected. Answer: False Receivable turnover = Net sales / Average net receivable The higher the receivables turnover, […]

The closing process includes a transfer of the Dividends account balance to the Retained Earnings account. One reason why a company may choose a stock split over a stock dividend is that the stock split does not reduce Retained Earnings. […]

Cost of goods sold = Beginning inventory + Purchases – Ending inventory You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company’s jeans. Later, your company’s sales increase by $500,000 as a […]

The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings. If a merchandiser offers a sales discount of 2/10, net/30 on a sale of $1,000, the amount due in 30 days is the net amount […]

LIFO and weighted average results will be the same using either a perpetual or periodic system. Stockholders are creditors of a corporation. Answer: False Feedback: Stockholders are the owners of a corporation. The periodic inventory system uses the Purchases account […]

If the Retained Earnings account is debited for $4,000 in the closing process, the company had a net income of $4,000. A merchandising company’s operating cycle begins with the sale of inventory and ends with the cash collection from sales. […]

One common reason that organizations do not have internal communication programs is that management assumes communication just happens. a. True b. False Public communication is the management function that evaluates public attitudes, identifies the policies and procedures of an individual […]

is the organized activity of identifying emerging trends, concerns, or issues likely to affect an organization in the next few years and developing a wider and more positive range of organizational responses. a. Investor relations b. Public relations c. Issues […]