1) During 2014, Edna Enterprises had a capital acquisitions ratio of 8.0. During 2014,
Carlos’ Corporation had a capital acquisitions ratio of 3.4. The amount of cash flow
from operating activities was $5,968,000 for Edna’s and $5,054,000 for Carlos. Which
of the following statements is incorrect?
A.Edna used less cash for investments in property, plant and equipment during 2014
than did Carlos.
B.Compared to Carlos, Edna’s capital acquisitions ratio is higher which indicates that
Edna has less need for external financing of its investments in property, plant, and
equipment.
C.Edna invested approximately $746,000 in property, plant, and equipment during
2014.
D.Carlos invested approximately one-half the amount that Edna invested in property,
plant, and equipment during 2014.
2) Wendell Company provided the following pertaining to its recent year of operation:
♦ Common stock with a $10,000 par value was sold for $50,000 cash.
♦ Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
♦ Net income was $70,000.
♦ A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par
value and a $23,000 market value.
♦ Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell’s total stockholders’ equity increase during the recent year of
operation?
A.$107,000.
B.$84,000.
C.$98,000.
D.$112,000.
3) Which of the following best describes the accrual of interest?
A.Assets and stockholders’ equity decrease.
B.Assets and liabilities decrease.
C.Net income and expenses decrease.
D.Expenses and liabilities increase.
4) Trent Corp. purchased $1,000,000 of bonds at 96 when the market yield was 8%. The
bonds pay interest at the rate of 6%. Miller intends to hold these bonds to maturity and
will not need to sell the bonds before that date. Which of the following statements is not
correct?
A.Since the bonds were purchased at a discount, the cash interest will be less than
interest revenue.
B.Since the bonds were purchased at a discount, the book value of the bond investment
will increase toward its maturity value.
C.The bond investment will be classified and accounted for as amortized debt.
D.The company would not recognize unrealized gains or losses on the bonds.
5) Which of the following are the criteria used to determine whether an item is
extraordinary?
A.It is unusual in nature and occurs frequently.
B.It is unusual in nature and occurs infrequently.
C.It is unusual in nature or occurs infrequently.
D.It is infrequent in occurrence only.
Extraordinary items occur infrequently and are unusual in nature.
6) Cadet Company paid an account payable of $1,000. This transaction should be
recorded on the payment date as follows:
A.Option A
B.Option B
C.Option C
D.Option D
7) Which of the following would be included in Latimer Company’s sales in 2014?
A.Goods shipped from a supplier in 2014 with terms of FOB shipping point. Latimer
received the goods in 2014.
B.Goods shipped to customers in 2014 with terms of FOB destination. The customer
received the goods in 2015.
C.Goods shipped to customers in 2013 with terms of FOB destination. The customer
received the goods in 2014.
D.Goods shipped to customers in 2013 with terms of FOB shipping point. The customer
received the goods in 2014.
8) Which of the following statements is correct?
A.Assets normally have a credit balance and are increased with debits.
B.Assets normally have a debit balance and are increased with credits.
C.Liability accounts normally have debit balances and are increased with debits.
D.Stockholders’ equity accounts normally have credit balances and are increased with
credits.
An account balance increases on the same side as the normal balance. Stockholders’
equity accounts have a normal credit balance and are increased with credits.
9) When preparing the monthly bank reconciliation, the accountant for Farris
Corporation discovered that a check correctly written to one of Farris’ suppliers for
$159 had been incorrectly recorded in the books as $195. Which of the following
statements is correct with respect to the bank reconciliation process?
A.The cash balance per the books will be decreased.
B.The cash balance per the bank statement will be increased.
C.The cash balance per the bank statement will be decreased.
D.The cash balance per the books will be increased.
The error incorrectly decreases the cash balance per the books. To correct the books, the
difference [$195 – $159] is added back to the book balance.
10) Stockholders’ equity, also called shareholders’ equity, includes which of the
following two accounts?
A.Common stock and Deferred revenue.
B.Common stock and Retained earnings.
C.Liabilities and Retained earnings.
D.Retained earnings and Cash.
11) Which of the following journal entries is not consistent with the use of a perpetual
inventory system?
A.Option A
B.Option B
C.Option C
D.Option D
12) Which of the following transactions increases the quality of income ratio?
A.The cash payment of an account payable.
B.The payment of a cash dividend.
C.A decrease in receivables.
D.The accrual of revenue.
13) Which of the following statements is not correct?
A.Purchasing fixed assets through debt financing decreases the financial leverage ratio.
B.Accruing an expense will affect the net profit margin ratio.
C.Return on equity may increase even when the financial leverage ratio decreases.
D.Purchasing treasury stock results in a decrease in asset turnover.
14) Which of the following transactions would result in a decrease in the current ratio?
A.Collection of cash from an account receivable.
B.Selling shares of stock to stockholders in exchange for cash.
C.Purchasing a delivery vehicle by signing a long-term note payable.
D.Purchasing land by paying cash.
15) Wendell Company provided the following pertaining to its recent year of operation:
♦ Common stock with a $10,000 par value was sold for $50,000 cash.
♦ Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
♦ Net income was $70,000.
♦ A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par
value and a $23,000 market value.
♦ Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell’s retained earnings increase during the recent year of operation?
A.$32,000.
B.$25,000.
C.$29,000.
D.$27,000.
16) Which of the following ratios is not part of the DuPont model?
A.Asset turnover.
B.Debt-to-equity.
C.Net profit margin.
D.Return on equity.
17) Which of the following is correct?
A.The raw materials inventory account is used to record inventory purchased by a
retailer for resale.
B.Work in process is an expense account used by a manufacturing company.
C.Finished goods is an asset account used by a manufacturing company to record the
cost of inventory ready for sale.
D.Retailers use a purchases account to record raw materials inventory.
18) DRP, Inc. issued 50,000 shares of its own $50 par value preferred stock for cash of
$110 per share, and issued 200,000 shares of its no-par common stock for cash of $40
per share.
Prepare the required journal entries for the issuance of each class of stock.
19) The records of Atlantis Company reflected the following for the month of February:
Determine the amount of ending inventory and cost of goods sold using the following
periodic system inventory costing methods:
20) On January 1, 2014, Presto Corporation purchased, as a long-term investment,
5,000 shares of the outstanding voting common stock of Shazam Corporation at $30 per
share. During 2014, the following events occurred at Shazam Corporation:
21) Indicate whether each of the accounts listed below normally will have a debit
balance or a credit balance. Record your answer to the left of each account by entering
either Dr or Cr.
24) On July 10, 2014, Rex Company sold merchandise at an invoice price of $5,000
with terms of 2/10, n/30.
Prepare the journal entries required below by indicating the account code of the
appropriate account for each debit and credit and enter the dollar amounts for each item.