1) A companys cash is reported in two financial statements income statement and
statement of cash flows.
2) Sales returns and allowances occur when the buyer returns the goods or the seller
reduces the customers balance owed.
3) Auditors of public companies can perform the full range of audit and nonaudit
consulting services for their audit clients.
4) For most companies, actual physical flow of their inventory follows LIFO.
5) Current liabilities are liabilities due within one year.
6) In countries where debt financing is more common (Japan) compared to equity
financing, there is greater emphasis on reporting the ability of the company to earn
profits for its investors rather than the ability to repay debt.
7) The LIFO difference (reserve) is the additional amount of inventory a company
would report if it used FIFO instead of LIFO.
8) Adjusting entries involve recording events that have occurred but that have not yet
been recorded by the end of the period.
9) When an issuer retires debt of any type before its scheduled maturity date, the
transaction is an early extinguishment of debt.
10) Understating ending inventory in the current year causes cost of goods sold in the
current year to be understated.
11) Cost of goods sold is an expense reported in the income statement and represents
the cost of inventory sold during the period.
12) The use of the lower-of-cost-or-market method to report inventory is an example of
conservatism in financial reporting.
13) Auditors are trained individuals hired by a company as an independent party to
express a professional opinion of the accuracy of that companys financial statements.
14) A sale on account is recorded as a debit to Service Revenue and a credit to Accounts
Receivable.
15) We report any profits or losses on discontinued operations in the current year,
separately from profits and losses on the portion of the business that will continue.
16) The cash payment each period is calculated as the carrying value times the market
rate.
17) Wireless Technologies reports operating expenses of $2 million. Operating expenses
include rent expense. Prepaid rent at the beginning and end of the year are $20,000 and
$70,000, respectively. All other operating expenses were paid in cash as incurred. What
is the amount of cash paid for operating expenses?
a.$2,000,000
b.$2,070,000
c.$1,950,000
d.$2,050,000
18) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term placing the letter designating
the term in the space provided.
a. Ending inventory
b. Freight-in
c. Cost of goods sold
d. LIFO conformity rule
e. LIFO
f. Freight-out
g. LIFO reserve
h. Specific identification
i. FIFO
j. Average cost
_____ Cost of inventory not sold by the end of the period.
19) LeGrand Corporation reported the following amounts in its income statement:
Sales revenue$440,000
Advertising expense 60,000
Interest expense 10,000
Salaries expense 55,000
Utilities expense 25,000
Income tax expense 45,000
Cost of goods sold 180,000
What was LeGrands gross profit?
a. $260,000
b. $180,000
c. $220,000
d. $120,000
20) Consider the following list of accounts:
Accounts Payable
Cash
Prepaid Rent
Common Stock
Salaries Payable
Equipment
Supplies
Rent Expense
How many of these accounts have a normal credit balance?
a. Two
b. Three
c. Four
d. Five
21) The following is an example of:
a. Vertical analysis
b. Horizontal analysis
c. Diagonal analysis
d. Both vertical and horizontal analysis
22) Adjusting entries:
a. Often include the Cash account
b. Usually are recorded at the beginning of the accounting period
c. Always involve at least one income statement account and one balance sheet account
d. Adjust the balance of revenue and expense accounts to zero
23) During the year, Next Tec Corp. had the following cash flows: receipt from
customers, $10,000; receipt from the bank for long-term borrowing, $6,000; payment to
suppliers, $5,000; payment of dividends, $1,000, payment to workers, $2,000; and
payment for machinery, $8,000. What amount would be reported for investing cash
flows on the Statement of Cash Flows?
a. $5,000
b. $2,000
c. $6,000
d. ($8,000)
24) Financial information for Accessories Unlimited includes the following selected
data:
What is the companys price-earnings ratio?
a.20.0
b.40.0
c.60.0
d.80.0
25) At the time a $400 petty cash fund is being replenished, the companys accountant
finds vouchers totaling $350 and petty cash of $50. The vouchers include: postage,
$100; business lunches, $150; delivery fees, $75; and office supplies, $25. Which of the
following is not recorded when recognizing expenditures from the petty cash fund?
a. Debit Postage Expense, $100
b. Debit Supplies, $25
c. Credit Petty Cash, $350
d. Debit Petty Cash, $350
26) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term placing the letter designating
the term in the space provided.
a. Accounts receivable
b. Allowance method
c. No effect
d. Direct write-off method
e. Net realizable value
f. Aging method
g. Bad debt expense
h. Receivables written off
i. Decrease assets and increase expenses
j. Allowance for uncollectible accounts
_____ Actual bad debts.
27) 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. Work-in-process inventory
b. Merchandising companies
c. Finished goods
d. Raw materials
e. Manufacturing companies
_____ Inventory items for which the manufacturing process is complete.
28) The cash interest payment each period is calculated as the:
a. Face amount times the stated interest rate
b. Face amount times the market interest rate
c. Carrying value times the market interest rate
d. Carrying value times the stated interest rate
29) Which of the following is an example of a cash inflow from a financing activity?
a. Issuance of bonds
b. Sale of an intangible asset
c. Receipt of cash dividends
d. Purchase of land
30) Which of the following statements are correct?
For accrual-basis accounting:
(1) record revenues when earned.
(2) record expenses when cash is paid.
For cash-basis accounting:
(3) record revenue when cash is received.
(4) record expenses when benefit is received.
a. (1) and (4)
b. (2) and (3)
c. (1) and (3)
d. (2) and (4)
31) Listed below are five terms followed by a list of phrases that describe or
characterize the terms. Match each phrase with the best term by placing the letter
designating the term in the space provided.
a. Cash equivalent
b. Bank reconciliation
c. Petty cash
d. Debit card
e. Credit card
____ Minor amount of cash kept on hand.
32) The financial statements of a firm that uses more aggressive accounting practices
would be likely to report:
a. Higher profitability
b. Higher dividends
c. Higher liabilities
d. Fewer total assets
33) 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 World’s asset turnover?
a. 2.0 times
b. 2.3 times
c. 0.5 times
d. 1.8 times
34) Davis Hardware Company uses a periodic inventory system. How should Davis
record the sale of inventory costing $620 for $960 on account?
a. Cost of Goods Sold 620
Purchases 620
Accounts Receivable 960
Sales Revenue 960
b. Accounts Receivable 960
Sales Revenue 960
c. Purchases 620
Gain 340
Sales Revenue 960
d. Accounts Receivable 960
Sales Revenues 620
Gain 340
35) When using an aging method for estimating uncollectible accounts:
a. Older accounts are considered less likely to be collected
b. The number of days the account is past due is not considered
c. Older accounts are considered more likely to be collected
d. No estimate of uncollectible accounts is made
36) On August 1, 2015, Turner Manufacturing lends cash and accepts a $6,000 note
receivable that offers 8% interest and is due in nine months. How would Turner record
the year-end adjustment to accrue interest in 2015?
a. Interest Revenue360
Interest Receivable360
b. Interest Receivable480
Interest Revenue480
c. Interest Receivable360
Interest Revenue360
d. Interest Receivable200
Interest Revenue200
37) The balance sheet of Purdys BBQ reports total assets of $800,000 and $900,000 at
the beginning and end of the year, respectively. Net income and sales for the year are
$85,000 and $1,700,000, respectively. What is Purdys asset turnover?
a. 0.5 times
b. 20.0 times
c. 10.0 times
d. 2.0 times
38) The indirect and direct methods:
a. Are used by companies about equally in actual practice
b. Affect the presentations of operating, investing, and financing activities
c. Arrive at different amounts for net cash flows from operating activities
d. Are two allowable methods to present operating activities in the statement of cash
flows
39) Excerpts from Stealth Company’s December 31, 2015 and 2014, financial
statements are presented below:
Stealth Companys 2015 asset turnover is:
a.3.7 times
b.2.8 times
c.2.2 times
d.0.5 times
40) Which employees are the ones who must take final responsibility for the
establishment and success of internal controls?
a. Top executives
b. Mid-level managers
c. Lower-level employees
d. All employees
41) Bears Inc. sells football helmets to local schools and warrants all of its products for
one year. While no helmets sold in 2015 have been returned yet, based upon previous
years, Bears Inc. estimates that 3% of its products will need repairs or be replaced
within the next year. What effect would this warranty have on assets, liabilities, and
stockholders equity in 2015?
a. A decrease in assets and decrease in stockholders equity
b. No journal entry is necessary until products under warranty are returned
c. An increase in stockholders equity and a decrease in liabilities
d. A decrease in stockholders equity and an increase in liabilities
42) The collection of cash from customers would be classified as which type of cash
flow on the Statement of Cash Flows?
a. Financing
b. Investing
c. Operating
d. Not reported on the statement of cash flows
43) Which inventory method is better described as having a balance sheet focus and
why is it considered as such?
a. FIFO; better approximates the value of ending inventory
b. LIFO; better approximates the value of ending inventory
c. LIFO; better approximates inventory cost necessary to generate revenue
d. FIFO; better approximates inventory cost necessary to generate revenue
44) Over the first four years of the companys life, it earned the following net income
(loss): $6,000; $3,000; $6,000, and ($2,000). If the companys ending retained earnings
is $10,000 after year 4, what is the average amount of dividends paid per year?
a. $3,000
b. $7,000
c. $0
d. $750
45) Gain contingencies usually are recognized in a company’s income statement when:
a.The gain is certain
b.The amount can be reasonably estimated
c.The gain is reasonably possible and the amount can be reasonable estimated
d.The gain is probable and the amount can be reasonably estimated
46) In a period of rising costs, which inventory valuation method would a company
likely choose if they want to have the highest possible balance of inventory on the
balance sheet?
a. Weighted-average cost
b. FIFO
c. LIFO
d. Periodic
47) Listed below are ten terms followed by a list of phrases that describe or characterize
five of the terms. Match each phrase with the best term placing the letter designating
the term in the space provided.
a. Accounts receivable
b. Allowance method
c. No effect
d. Direct write-off method
e. Net realizable value
f. Aging method
g. Bad debt expense
h. Receivables written off
i. Decrease assets and increase expenses
j. Allowance for uncollectible accounts
_____ Recognizes bad debts when accounts become uncollectible.
48) Nates Hot Dogs exchanges long-term assets with Lizzys Lemonade. Nate receives a
delivery truck and gives up a piece of machinery. The fair value and book value of the
machinery were $27,000 and $25,000 (original cost of $35,000 less accumulated
depreciation of $10,000), respectively. Since the delivery truck was worth $32,000,
Nate paid an additional $5,000 in cash to Lizzy. Record the exchange for Nates Hot
Dogs.
49) New World Deli exchanged land for a more suitable parcel of land to be used for a
new restaurant. New World Deli reported the old land at its original cost of $85,000.
According to an independent appraisal, the old land currently is worth $110,000. New
World Deli paid $15,000 in cash to complete the transaction. Record the exchange.
50) In preparing a statement of cash flows under the indirect method, a decrease in
accounts receivable would be reported or included as a(n):
51) When inventory costs are rising, __________ generally results in a lower amount of
reported cost of goods sold.
52) On May 15, Canadian Falcon declares a quarterly cash dividend of $0.15 per share
payable on June 10 to all stockholders of record on May 31 . Record Canadian Falcons
declaration and payment of cash dividends for its 200,000 shares of common stock.