1) The inventory turnover ratio should be the same for all types of industries.
2) Cost of Goods Sold is an operating expense on the income statement.
3) A corporation is not an entity that is separate from its owners.
4) Only stockholders holding stock on the record date will receive a dividend.
5) Comprehensive income can be presented alone in a separate statement of
comprehensive income.
6) Accrual-basis accounting records the impact of both cash and noncash transactions as
they occur.
7) A deferral is an adjustment for the receipt of cash in advance of providing services.
8) A high inventory turnover may indicate that a company is experiencing difficulty
selling its inventory.
9) Intangible assets can have finite or infinite lives.
10) The LIFO Reserve is the difference between the LIFO cost of inventory and what
the cost of that inventory
would be under FIFO.
11) Stockholders’ equity is the stockholders’ interest in the assets of the corporation.
12) When accruing interest expense on a short-term note payable, the Interest Payable
account will decrease.
13) Publicly-traded companies have the option to have the financial statements audited.
14) If the credit terms are 2/10, n/30, the buyer can get a 2% discount if the invoice is
paid within 20 days of the invoice date.
15) Natural resources are reported in the Intangible Assets section of the balance sheet.
16) When rates of return are high in a country with a stable economy, international
investors buy stocks and bonds of that country. This activity increases the country’s
exchange rate.
17) An event or transaction should be reported as an extraordinary item if it is unusual
in nature and if it occurs infrequently.
18) The revenue principle determines when to record revenue and the amount of
revenue to record.
19) Dooley Company sent a deposit of $5,000 to the bank. The bank credited Dooley
Company’s checking account for a deposit of $500. When Dooley received the bank
statement, they saw the deposit of $500. What journal entry should Dooley Company
prepare?
A) Debit Cash for $4,500 and credit Deposits fo $4,500
B) Debit Cash for $4,500 and credit Revenue for $4,500
C) Debit Cash for $4,500 and credit Accounts Receivable for $4,500
D) No journal entry is required
20) An investor owns 25% of the outstanding common stock of Stokes Corporation.
Stokes Corporation declares and pays a $100,000 dividend. What journal entry should
the investor prepare?
A) debit Equity-Method Investment for $25,000 and credit Cash for $25,000
B) debit Cash for $25,000 and credit Equity-Method Investment for $25,000
C) debit Cash for $25,000 and credit Dividend Revenue for $25,000
D) debit Dividend Receivable for $25,000 and credit Dividend Revenue for $25,000
21) Bryanwood Company reports the following data:
Based on the above information, what can be said about the company’s business
strategy?
A) The company has lost control of operating expenses
B) The company has reduced cost of goods sold
C) The company has successfully undertaken some cost-cutting measures for operating
expenses
D) The company has fewer sales in 2015 than 2014
22) To compute the gross profit percentage, divide:
A) sales by cost of goods sold
B) gross profit by net sales
C) net income by stockholders’ equity
D) operating income by net sales
23) On May 1, 2015, Continental Bank drafted a $5,000 personal loan for a customer.
The loan is due in one year with 8% interest. What journal entry should the bank
prepare on May 1, 2015?
A) Debit Cash for $5,000 and credit Notes Payable for $5,000
B) Debit Accounts Receivable for $5,000 and credit Service Revenue for $5,000
C) Debit Notes Receivable for $5,000 and credit Cash for $5,000
D) Debit Cash for $5,000 and credit Accounts Receivable for $5,000
24) When comparing the results of LIFO and FIFO when inventory costs are
decreasing:
A) cost of goods sold will be the lowest using FIFO
B) ending inventory will be the highest using FIFO
C) cost of goods sold will be the highest using LIFO
D) ending inventory will be the highest using LIFO
25) Which account includes bank account balances in multiple checking accounts?
A) Accounts Receivable
B) Notes Receivable
C) Cash
D) Prepaid Expenses
26) A company has current assets of $105,000 and current liabilities of $35,000. It made
a $5,000 sale on account. After this transaction, its current ratio will be:
A) 0.33
B) 1.14
C) 3.00
D) 3.14
27) The Statement of Retained Earnings reports a company’s net income or net loss for
a period of time. Where does the dollar amount of net income or net loss come from?
A) Balance Sheet
B) Unadjusted Trial Balance
C) Trial Balance Worksheet
D) Income Statement
28) Seifert Company uses the periodic inventory system. At the end of the accounting
period on December 31, ending inventory is $10,000 and beginning inventory is
$5,000. Purchases for the period are $99,000. Which of the following journal entries did
Seifert Company prepare on December 31?
A) debit Cost of Goods Sold for $99,000 and credit Purchases for $99,000
B) debit Cost of Goods Sold for $10,000 and credit Inventory for $10,000
C) debit Inventory for $5,000 and credit Cost of Goods Sold for $5,000
D) all of the above
29) If the bank records a deposit of $900 as $90, the error should be shown on a bank
reconciliation as a(n):
A) deduction from the book balance of $990
B) deduction from the bank balance of $990
C) addition to the bank balance of $810
D) addition to the book balance of $810
30) Company Z sells land for the same amount it paid for it three years ago When the
company records this transaction:
A) assets and stockholders’ equity are increased
B) one asset is increased and another asset is decreased
C) one liability is increased and another liability is decreased
D) assets are increased and liabilities are decreased
31) A company’s balance sheet:
A) is dated for a period of time
B) has three main categories of assets
C) has two main categories of liabilities
D) lists liabilities before assets
32) A company incurred the following costs:
What is the cost of the land?
A) $210,000
B) $243,000
C) $283,000
D) $298,000
33) U.S. Generally Accepted Accounting Principles differ from IFRS in the accounting
treatment of:
A) R and D Costs
B) capitalization of internally generated intangible assets
C) reversals of write-downs due to the impairment of plant assets
D) all of the above
34) If a company only has common stock outstanding, book value per share of common
stock is computed by dividing:
A) total paid-in capital by the number of common shares of stock issued
B) total paid-in capital by the number of common shares of stock outstanding
C) total stockholders’ equity by the number of common shares of stock issued
D) total stockholders’ equity by the number of common shares of stock outstanding
35) Horizontal analysis is performed on information from:
A) only the income statement
B) only the balance sheet
C) only the statement of cash flows
D) the income statement, the balance sheet, and the statement of cash flows
36) On a statement of cash flows(indirect method), an increase or decrease in inventory
is considered:
A) an operating activity
B) an investing activity
C) a financing activity
D) an noncash investing or financing activity
37) Which is the CORRECT order for items to appear on the income statement?
A) Revenues, operating expenses, net income
B) Cost of goods sold, revenues, net income
C) Revenues, net income, operating expenses
D) Interest expense, revenues, operating income
38) A doctor performed surgery in April and did not receive cash payment from the
patient until August. Under cash-basis accounting, the doctor recognizes revenue:
A) in April
B) in August
C) in April or August
D) at a time that cannot be determined from the facts
39) On January 1, 2015, a customer places an order for a new vehicle built especially
for the customer. The contract price is $22,000. The vehicle is delivered to the dealer
and customer on April 1, 2015. What amount of revenue does the dealer record on
January 1, 2015 and April 1, 2015?
A) $22,000; $0
B) $11,000; $11,000
C) $7,333; $7,333
D) $0; $22,000
40) The Adjustments columns of the Trial Balance Worksheet summarize the:
A) day-to-day journal entries
B) closing journal entries
C) adjusting journal entries
D) cash-basis journal entries
41) Peter’s Computers purchased 4,000 shares of its own $10 par value common stock
for $92,000. As a result of this transaction:
A) Peter’s stockholders’ equity increased $52,000
B) Peter’s stockholders’ equity increased $40,000
C) Peter’s stockholders’ equity decreased $92,000
D) Peter’s stockholders’ equity increased $92,000
42) Another term for gross profit is:
A) gross income
B) gross sales
C) gross margin
D) gross operating income
43) If a Trial Balance Worksheet is used to prepare the financial statements, which
columns are used to prepare the financial statements?
A) unadjusted trial balance columns
B) adjustments columns
C) adjusted trial balance columns
D) none of the above
44) Equipment with a book value of $8,000 is sold for $3,000 cash. The statement of
cash flows will report a:
A) $3,000 cash inflow in the operating activities section
B) $3,000 cash inflow in the investing activities section
C) $5,000 cash outflow in the operating activities section
D) $5,000 cash outflow in the financing activities section
45) The statement of cash flows will NOT report:
A) cash payments in the current year
B) cash receipts in the current year
C) noncash investing and financing activities
D) revenues and expenses for the current year
46) You are using a leading competitor, Company B, for benchmarking your company,
Company A. When benchmarking, the gross margin of Company A is expressed as a
percentage of:
A) the net sales of Companies A and B
B) Company B’s net sales
C) Company A’s net income
D) Company A’s net sales
47) When preparing a bank reconciliation:
A) deposits in transit are added to the bank balance
B) service charges are subtracted from the bank balance
C) outstanding checks are deducted from the book balance
D) book errors are subtracted from the bank balance
48) The arbitrary amount assigned by a company to a share of its stock is the:
A) stated value per share
B) par value per share
C) book value per share
D) A and B
49) Which of the following transactions will increase Stockholders’ Equity?
A) The company pays a dividend to its shareholders
B) The company issues common stock to new shareholders
C) The company purchases equipment
D) The company makes a payment on account
50) The Statement of Retained Earnings is used to prepare the:
A) Income Statement
B) Statement of Assets
C) Statement of Cash Flows
D) Balance Sheet
51) On December 31, 2014, a note payable of $200,000 has installments of $50,000 due
yearly, beginning on December 31, 2015. On December 31, 2014, how will the note
payable be reported on the balance sheet?
A) $50,000 current liability and $100,000 long-term liability
B) $200,000 long-term liability
C) $200,000 current liability
D) $50,000 current liability and $150,000 long-term liability
52) On a statement of cash flows(indirect method), which line item is NOT reported as
an operating activity?
A) Depreciation expense
B) Net income
C) Increase in inventory
D) Repayment of long-term debt
53) Burkert Company has 50,000 shares of $1 par value common stock issued and
outstanding. The company also has 2,000 shares of $100 par value, 5% cumulative
preferred stock outstanding. Burkert did not pay the preferred dividends in 2014 and
2015. What amount of dividends must the company declare in 2016 for the common
stockholders to receive a dividend of $1?
A) $10,001
B) $20,001
C) $30,001
D) $40,001
54) Return on assets measures:
A) how much the entity earned for each dollar of assets invested
B) return on sales times total asset turnover
C) profitability of a company’s core business operations
D) A and B
55) ________ is the element in the fraud triangle that results from weak internal
controls.
A) Motive
B) Opportunity
C) Rationalization
D) Reasoning
56) If ending inventory is understated for Year 1, then in Year 2:
A) cost of goods sold and gross profit will both be understated
B) cost of goods sold and gross profit will both be overstated
C) cost of goods sold will be overstated and gross profit will be understated
D) cost of goods sold will be understated and gross profit will be overstated
57) Scheeler Company has the following comparative balance sheet data available:
Additional information:
1> The company reports net income of $100,000 and Depreciation Expense of $20,000
for the year ending December 31, 2015.
2> Dividends declared and paid in 2015, $70,000.
3> Equipment with a cost of $20,000, with Accumulated Depreciation of $10,000 was
sold for $3,000.
4> New equipment was purchased for cash.
Using the indirect method, prepare the statement of cash flows for the year ending
December 31, 2015.
58) During its first year of operations, Ness Company had the following transactions.
The company uses the percent-of-sales method to estimate uncollectible accounts.
Required:
Prepare all journal entries for the transactions below. Explanations are not required.
Ignore Cost of Goods Sold.
59) On January 1, 2014, Walker Company pays $10 million for 40% of the outstanding
common stock of a supplier called Dorglass, Inc. On December 1, 2014, Dorglass, Inc.,
declared and paid cash dividends of $100,000. For the year ending December 31, 2014,
Dorglass, Inc. also reported net income of $1,000,000. At December 31, 2014, the fair
value of 40% of Dorglass, Inc.’s stock was $9 million. On January 1, 2015, all the
Dorglass, Inc.’s stock was sold for $9 million.
Required:
Prepare journal entries on the following dates:
1> January 1, 2014
2> December 1, 2014
3> December 31, 2014
4> January 1, 2015
Explanations are not required.
60) Johnson Corporation had the following transactions:
1>Issued 7,000 shares of common stock with a stated value of $15 per share for
$155,000.
2>Issued 3,000 shares of $100 par value preferred stock at $117 per share for cash.
Required:
Prepare the journal entries for the above transactions. Omit explanations.
61) An auto dealer uses a perpetual inventory system. The dealer incurred the following
transactions during the month of May:
1> On May 1, a dealer purchased 10 vehicles on account at $20,000 each, with credit
terms of 2/10, net 30
2> On May 2, the dealer returned one vehicle due to a product defect.
3> On May 3, the dealer sold 5 vehicles for $25,000 each on account to a local town.
The credit terms were 3/10, net 30
4> On May 9, the dealer paid for the vehicles purchased less the return on May 2
5> On May 31, the dealer collected one-half of the amount due from the May 3 sale.
6> On May 31, the dealer paid the rent for the next month of $2,500.
Required:
Prepare the journal entries for the dealer during the month of May. Explanations are not
required.
62) The Target Company has current assets of $10,000 and current liabilities of $8,000.
They are concerned about their current ratio and are considering paying Accounts
Payable totaling $3,000. The Target Company has a loan with National Bank which
requires them to maintain a minimum current ratio of 1.4.
Required:
1>What is the formula for the current ratio?
2>Compute the current ratio before the possible payment of the liabilities of $3,000.
3>Compute the current ratio assuming that Target Company pays the $3,000 in current
liabilities.
4>Compute the current ratio assuming that Target Company buys inventory of $3,000
on account. Ignore Requirement 3.
5>Compute the current ratio assuming that Target Company sells short-term
investments with a carrying value of $3,000 for $3,000. Ignore Requirements 3 and 4.
63) Davies Accessories Company entered into the following transactions relating to
notes payable:
August 1Purchased inventory costing $42,000 by signing an 8-month, 5% note payable.
October 1Purchased inventory costing $15,000 by signing a 1-year, 6% note payable.
Required:
Prepare journal entries to record the above transactions. Also, prepare journal entries
needed on December 31, the company’s fiscal year end. Omit explanations.
64) In the following table, indicate the effects of failing to recognize each of the
indicated adjustments by writing “O” for overstated and “U” for understated. If there is
no effect, write “NE.”
65) The balance sheet at December 31, 2015 for Zumba Company follows:
Additional information follows:
1> Net income for the year ended December 31, 2015 is $2,020.
2> Cost of goods sold for the year ended December 31, 2015 is $4,400.
3> Inventory on January 1, 2015 is $1,800.
4> Accounts Receivable, net on January 1, 2015 is $4,400.
5> Total assets on January 1, 2015 is $20,000.
6> Net credit sales for the year ended December 31, 2015 is $14,600.
7> Net income before interest and taxes for the year ended December 31, 2015 is
$4,800.
8> Interest expense for the year ended December 31, 2015 is $550.
9> Total stockholders’ equity on January 1, 2015 is $3,500.
Compute the following ratios:
1> Current ratio
2> Quick ratio
3> Accounts receivable turnover
4> Days’ inventory outstanding
5> Times interest earned
6> Return on assets
7> Return on equity
66) Johnsen Company had service revenue on account for the year of $300,000 and
cash collections of $130,000. During the year, uncollectible accounts receivable of
$2,000 were written off. At December 31, an aging of accounts receivable indicated that
Johnsen Company will not collect $10,000 of its accounts receivable. Johnsen
Company had a $2,100 credit balance in the Allowance for Uncollectible Accounts at
the beginning of the year.
Required:
1>Journalize the entries to record (1) the service revenue, (2) the cash collections, (3)
the write-off of the uncollectible receivables and (4) the year end entry to record
Uncollectible-Account Expense. Ignore Cost of Goods Sold. Explanations are not
required.
