1) If a company has sales of $250 in 2015 and $225 in 2016, the percentage decrease
from 2015 to 2016 is 10%.
2) If a corporation’s economic value added is negative, stockholders will probably be
displeased with the company’s management.
3) Horizontal analysis compares a financial statement line item in the current year with
the same line item in the prior year.
4) The managers of a company are concerned about how certain transactions will affect
ratios used in loan agreements.
5) Of the three types of business activities reported on a statement of cash flows,
investing activities are the most important when evaluating a business.
6) If a long-term plant asset is impaired, the owner is required to adjust the carrying
value downward to its fair value.
7) When goods are shipped FOB destination, revenue is recognized by the seller when
the goods leave the seller’s shipping dock.
8) Stockholders have limited liability for a corporation’s debts.
9) At maturity, the premium on bonds payable will have been amortized to zero, and the
bonds’ carrying value will be the face value of the bond.
10) The present value of a future amount is found by discounting.
11) The purpose of channel stuffing is to increase revenues.
12) Accounting is often called the language of business.
13) An unrealized gain occurs when a company sells a trading security.
14) Investments are classified as available-for-sale securities, trading securities or
held-to-maturity securities.
15) The financial statements can be prepared from the adjusted trial balance.
16) The percentage change in a financial statement line item over two years is
computed by dividing the dollar amount of the line item in the most recent year by the
prior year dollar amount of the line item.
17) Cash proceeds from the sale of available-for-sale investments is reported as an
investing activity on the Consolidated Statement of Cash Flows.
18) A transaction is any event that has a financial impact on the business and that can be
measured reliably
19) Why are adjusting entries prepared?
A) Because some accounts are not up to date
B) Because some day to day transactions have not been recorded
C) Because the financial statements are misstated
D) A and C
20) Lisle Corporation issued $200,000 of 10% bonds on January 1, 2014. The bonds
pay interest semiannually on January 1 and July 1. The company has a fiscal year end
of May 31. On May 31, 2014, the Lisle Corporation will:
A) make a journal entry to accrue interest expense from July 1 through December 31
B) make a journal entry to accrue interest expense from January 1 through July 1
C) make a journal entry to accrue interest expense from January 1 through May 31
D) make a journal entry to record cash interest paid on May 31
21) The percent-of-sales method of computing uncollectible accounts for Accounts
Receivable is used for:
A) interim statements because it is more accurate than the aging method
B) annual statements because it is more accurate than the aging method
C) interim statements because it is easier than the aging method
D) annual statements because it is easier than the aging method
22) Franco Company sold office furniture for $2,500 cash. The furniture cost $40,000
and had accumulated depreciation through the date of sale totaling $35,000. The
company will recognize:
A) a gain of $2,500
B) a loss of $2,500
C) a gain of $5,000
D) a loss of $5,000
23) A business paid $1,900 on account The journal entry would:
A) debit Accounts Receivable for $1,900 and credit Revenue for $1,900
B) debit Accounts Payable for $1,900 and credit Cash for $1,900
C) debit Cash for $1,900 and credit Retained Earnings for $1,900
D) debit Cash for $1,900 and credit Accounts Payable for $1,900
24) The inventory method used by a company affects:
A) net income on the income statement
B) the income taxes to be paid
C) the ending inventory on the balance sheet
D) all of the above
25) The entry to record Patent Amortization Expense:
A) increases total assets and decreases total stockholders’ equity
B) decreases total assets and increases total stockholders’ equity
C) decreases both total assets and total stockholders’ equity
D) increases both total assets and total stockholders’ equity
26) The purchase of treasury stock would be reported on a statement of cash flows as a:
A) cash outflow under the financing activities
B) cash inflow under the investment activities
C) cash inflow under the operating activities
D) cash outflow under the investment activities
27) The entry to close expense account(s) includes a:
A) debit to the expense accounts
B) credit to the expense accounts
C) credit to Retained Earnings
D) debit to Dividends
28) The ending balance of Retained Earnings is reported on the:
A) Balance Sheet only
B) Statement of Retained Earnings only
C) Income Statement
D) A and B
29) An example of an operating expense is:
A) cost of goods sold
B) sales returns
C) sales commissions paid to employees
D) interest expense
30) The Schauer Company had the following adjustments at December 31, 2015, the
end of the accounting period:
A.The Schauer Company uses straight-line depreciation for its equipment. The cost of
the equipment is $105,000 and the useful life is 5 years.
B.Accrued interest of $10,000 on a note receivable will be received in January.
C.On November 1, 2015, the Schauer Company paid $3,000 for six months of rent in
advance. The rental period is November 1, 2015 through April 30, 2016.
D.On August 1, 2015, the company collected $24,000 in advance for a consulting
contract, which is to be earned evenly over the next 24 months.
E.Employees are owed salaries for 3 days of a 5 day workweek; weekly payroll is
$30,000.
F.The unadjusted balance of the supplies account is $2,750. Based on a physical count,
the cost of supplies on hand is $1,000.
G.The company has incurred interest expense of $1,000 that will be paid in January.
Requirements:
1>Journalize the adjusting entries. Explanations are not required.
2>Assuming the adjustments were not made, calculate the net overstatement or
understatement this would have on net income. Would the company appear to be more
or less profitable if the adjustments were not made?
31) Roadway Company purchases inventory from Fedway Company with the shipping
terms FOB destination. This means that:
A) Roadway Company owns the goods while they are in transit
B) Legal title passes to Roadway Company when the goods leave Fedway’s shipping
dock
C) Fedway Company will pay the freight on this transaction
D) Roadway Company will include the goods in their inventory as soon as they leave
Fedway’s shipping dock
32) The use of the FIFO method generally increases taxable income:
A) when inventory costs are constant
B) when inventory costs are declining
C) when inventory costs are increasing
D) under all circumstances
33) The computation of depletion expense is most closely related to which method for
computing depreciation?
A) Straight-line
B) Units-of-production
C) Double-declining balance
D) Modified accelerated cost recovery system
34) Zimbalist Corporation reports a decrease in Salaries Payable of $5,000. If Salaries
Expense totaled $187,000 for the year, the cash paid to employees is:
A) $177,000
B) $182,000
C) $187,000
D) $192,000
35) The proper order for the accounting process is:
A) posting, transaction occurs, journalizing
B) transaction occurs, posting, journalizing
C) transaction occurs, transaction analyzed, journalizing, and posting
D) transaction occurs, posting, transaction analyzed, journalizing
36) A U.S.-based company purchases merchandise on account from a company in
Mexico. The purchase contract is denominated in pesos. If the peso decreases in value
relative to the dollar, the purchaser will record a ________. We say the peso ________
relative to the dollar.
A) Foreign Currency Transaction Loss; weakens
B) Foreign Currency Transaction Loss; strengthens
C) Foreign Currency Transaction Gain; weakens
D) Foreign Currency Transaction Gain; strengthens
37) In the preparation of the adjusted trial balance using a worksheet:
A) the unadjusted trial balance columns come from last period’s financial statements
B) four columns are needed for the adjustments
C) the adjusted trial balance columns give the final account balances
D) the sum of the debits do not have to equal the sum of the credits in the side-by-side
columns
38) As a depreciable plant asset is used in operations:
A) accumulated depreciation increases and the book value of the asset increases
B) accumulated depreciation increases and the book value of the asset decreases
C) accumulated depreciation remains the same and the book value of the asset
decreases
D) accumulated depreciation increases and the book value of the asset remains the same
39) On December 31, Anway Corporation reports the following amounts under
stockholders’ equity on the balance sheet:
What is the book value per share?
A) $22.31
B) $22.81
C) $25.50
D) $26.07
40) Revenues were $150,000, expenses were $140,000, and cash dividends declared
and paid were $5,000. What was the net income and the change in retained earnings for
the period?
A) Net income was $10,000; the change in retained earnings was $10,000
B) Net income was $150,000; the change in retained earnings was $15,000
C) Net income was $10,000; the change in retained earnings was $5,000
D) Net income was $150,000; the change in retained earnings was $145,000
41) Gerald Company has the following account balances at the end of the first year of
operations:
What are total assets at the end of the first year?
A) $30,000
B) $50,000
C) $100,000
D) $199,000
42) Following U.S. Generally Accepted Accounting Principles, how is a change in
accounting estimate handled?
A) The new estimate must be used in the current and future years only
B) The new estimate must be used in the prior year financial statements only
C) The new estimate must be used in the future years only
D) The new estimate must be used in the prior, current and future years
43) If the market interest rate is greater than the stated interest rate on bonds, bonds will
sell:
A) at face value
B) at a discount
C) at a premium
D) at market value
44) The control environment does NOT include:
A) a corporation’s code of ethics
B) prohibition of bribes and kickbacks
C) risk assessment
D) avoidance of transactions that involve a conflict of interest
45) Which of the following statements about financial ratios is FALSE?
A) When calculating return on assets, preferred dividends are subtracted from net
income
B) When calculating return on equity, preferred dividends are subtracted from net
income
C) When calculating the price-earnings ratio, preferred dividends are subtracted from
market price per share
D) When calculating earnings per share, preferred dividends are subtracted from net
income
46) An entity’s equity consists of two accounts, Amy Jones, Capital, and Mindy Lenz,
Capital. This indicates the entity is a:
A) proprietorship
B) corporation
C) not-for-profit
D) partnership
47) When a company receives customers’ checks by mail:
A) the mailroom sends all customer checks to the treasurer, who has the cashier deposit
the checks in the bank
B) the treasurer prepares the journal entries
C) the mailroom employee prepares the journal entries
D) the cashier in the treasury department prepares the journal entries
48) When we translate a foreign subsidiary’s balance sheet into U.S. dollars, we
calculate a:
A) foreign currency transaction gain or loss
B) foreign exchange conversion rate
C) foreign currency translation gain or loss
D) foreign currency exchange rate
49) If a company fails to record a sale on account:
A) revenue on the income statement will be understated
B) assets on the balance sheet will be understated
C) net income on the income statement will still be correct
D) A and B
50) On a statement of cash flows prepared using the indirect method, an increase in
Accounts Payable during the period is:
A) added to net income to determine net cash provided by operating activities
B) deducted from net income to determine net cash provided by operating activities
C) shown as a cash inflow in the investing activities section
D) shown as a cash inflow in the financing activities section
51) A company sells travel mugs online for $9. They purchase the mugs for $4 and
charge the customers $2 for shipping and handling. Cost of goods sold per mug is:
A) $0
B) $2
C) $4
D) $6
52) The journal entry to record an addition to an office building would include:
A) credit to Depreciation Expense
B) credit to Accumulated Depreciation
C) debit to Repair Expense
D) debit to Office Building
53) On December 31, Schmid Corporation reports the following amounts under
stockholders’ equity on the balance sheet:
No dividends are passed on the preferred stock and the current year preferred dividends
are paid. What is the book value per share?
A) $24.81
B) $25.31
C) $25.50
D) $28.36