1) The ratio that measures a company’s success in using its assets to earn income for the
persons who finance the business is the:
A) leverage
B) rate of return on total assets
C) debt ratio
D) times-interest-earned ratio
2) The revenue principle requires that a business record revenue when the business:
A) receives an order from a customer
B) prepares the invoice for the customer
C) delivers goods or services to a customer
D) receives payment from a customer
3) How much does a company expect to collect from Accounts Receivable?
A) gross amount of Accounts Receivable
B) net realizable value of Accounts Receivable
C) gross amount of Accounts Receivable minus Allowance for Uncollectible Accounts
D) B and C
4) Marvin Corporation has the following information reported on the balance sheet as
of December 31, 2014:
Based on the information above, how many shares of common stock are outstanding?
A) 20,000
B) 7,000
C) 5,000
D) 2,000
5) Treasury stock accounts for the difference between the number of:
A) issued shares and authorized shares
B) issued shares and preferred shares
C) outstanding shares and issued shares
D) authorized shares and outstanding shares
6) Assume the balance in the Retained Earnings account at January 1, 2015 is zero, and
no dividends are declared in 2015. If a debit balance of $5,000 exists in Retained
Earnings after closing out revenues and expenses at the end of 2015, this indicates:
A) that the company had net income of $5,000
B) an increase in cash of $5,000
C) the company had a net loss of $5,000
D) a decrease in cash of $5,000
7) A company has current assets of $80,000, long-term assets of $150,000, current
liabilities of $40,000, and long-term liabilities of $40,000. The current ratio is:
A) .80
B) 1.33
C) 2.00
D) 2.33
8) Equipment purchased for $80,000 on January 1, 2014, was sold on July 1, 2017. The
company uses the straight-line method of computing depreciation and recognizes
$10,000 of depreciation expense annually. When recording the sale, the company
should record a debit to Accumulated Depreciation for:
A) $0
B) $30,000
C) $35,000
D) $40,000
9) Major Company purchased a piece of equipment. All of the following costs should
be included in the cost of the equipment EXCEPT for:
A) insurance while in transit
B) wages of workers who test the equipment before it is placed in service
C) employee training costs before the equipment is placed in service
D) insurance costs after the equipment is up and running
10) Which of the following is a CORRECT statement about GAAP and IFRS?
A) IFRS prefers valuing assets at historical cost while GAAP prefers using fair value
B) IFRS is more “rules-based” than GAAP
C) The FASB and the IASB are working towards convergence of standards
D) The SEC will require all companies to use IFRS beginning in 2013
11) Independent Support, Inc. issued common stock for $500,000 cash in 2015. The
company declared and paid cash dividends of $50,000 and purchased treasury stock at a
cost of $20,000. The financing section of the statement of cash flows will report Net
Cash Provided by Financing Activities of:
A) $430,000
B) $450,000
C) $500,000
D) $520,000
12) The financial statements are the responsibility of:
A) the independent auditors
B) the shareholders
C) management
D) the board of directors
13) To compute ending Retained Earnings on the Statement of Retained Earnings:
A) net loss is added to the beginning Retained Earnings and declared dividends are
subtracted from the beginning Retained Earnings
B) net income and dividends are both added to beginning Retained Earnings
C) net loss and dividends are both added to beginning Retained Earnings
D) net income is added to the beginning Retained Earnings
14) Bonds with a face value of $300,000 are issued at 101. The statement of cash flows
would report a cash inflow of:
A) $300,000 in the financing activities section
B) $303,000 in the financing activities section
C) $3,000 in the financing activities section
D) $300,000 in the investing activities section
15) If the collection period of a company is 30 days, and the average receivables are
$80,000 what is the total amount of the credit sales? (Round all calculations to the
nearest dollar.)
A) $2,667
B) $10,950
C) $941,935
D) $973,455
16) Kincaid Company’s Retained Earnings balance on January 1 was $6,000. During
the current year, Kincaid earned $3,400 in revenues and incurred $4,200 in expenses.
Kincaid declared and paid $2,500 in dividends, all in cash. After the closing entries are
made, Kincaid’s Retained Earnings balance on December 31 will be:
A) $4,300
B) $7,700
C) $6,000
D) $2,700
17) Posting is:
A) copying the information from the journal to the trial balance
B) entering the data into the journal
C) copying the information from the journal to the ledger
D) copying the information from the ledger to the financial statements
18) All of the following are expenses EXCEPT for:
A) Cost of Goods Sold
B) Depreciation Expense
C) Salary Expense
D) Dividends
19) Purchasing supplies on account would:
A) increase total assets and decrease total liabilities
B) increase total liabilities and decrease total assets
C) increase total assets and increase total liabilities
D) increase total liabilities and increase stockholders’ equity
20) When computing depreciation using the units-of-production method:
A) a variable amount of depreciation is assigned to each unit of output
B) a fixed amount of depreciation is assigned to each unit of output
C) the depreciation expense depends directly on the amount of output or usage
D) B and C
21) A disadvantage of general partnerships is:
A) double taxation of distributed profits
B) the partnership’s assets are commingled with each partner’s personal assets
C) state rules and regulations must be followed
D) each partner may conduct business in the name of the entity and make agreements
that legally bind all partners
22) Carboni Company had the following data available for the current month:
Assume 40 units were sold during the month. Sales Revenue for the month is $7,000
and operating expenses are $2,200. The income tax rate is 30%.
Required:
1> Compute Cost of Goods Sold using:
a. FIFO
b. LIFO
2> How much would Carboni Company save in income taxes if they used LIFO instead
of FIFO?
23) A company has 500,000 shares issued and outstanding of $1 par common stock.
After a 2-for-1 stock split, which of the following statements is FALSE?
A) The par value per share decreases to $0.50 per share
B) The number of shares issued is 1,000,000
C) The number of shares outstanding is 1,000,000
D) The number of shares issued is 250,000
24) Over the term of a bond, the amortization of the premium on bonds payable:
A) increases the amount of cash paid to bondholders annually
B) decreases the amount of cash paid to bondholders annually
C) increases interest expense
D) decreases interest expense
25) Following the expense recognition principle, recognizing expenses along with the
related revenues means to:
A) add expenses and revenues together to compute net income or net loss
B) add all the expenses paid during the period and call it a net loss
C) abandon the matching principle
D) subtract expenses from the related revenues to compute net income or net loss
26) A company has return on assets of -10%. Return on sales are -5%. The leverage
ratio is 2.0. Following DuPont analysis, what is return on equity?
A) -5%
B) -10%
C) -20%
D) -30%