Financial Accounting Question Database Fall 2011



Financial Accounting Question Database Fall 2011

|1. |Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, |

| |explanations of contingencies, and various statistics. |

|2. |Net income for the period is determined by subtracting total expenses and dividends from revenues. |

|3. |If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders' equity totals $25,000. |

|4. |Owners of business firms are the only people who need accounting information. |

|5. |Management of a business enterprise is the major external user of information. |

|6. |In the annual report, where would a financial statement reader find out if the company's financial statements give a fair |

| |depiction of its financial position and operating results? |

|A) |Notes to the financial statements |

|B) |Management discussion and analysis section |

|C) |Balance sheet |

|D) |Auditor's report |

|7. |Marvin Services Corporation had the following accounts and balances: |

| | |

| |Accounts payable |

| |$6,000 |

| | |

| |Equipment |

| |$14,000 |

| | |

| |Accounts receivable |

| |1,000 |

| | |

| |Land |

| |7,000 |

| | |

| |Building |

| |? |

| | |

| |Unearned revenue |

| |2,000 |

| | |

| |Cash |

| |3,000 |

| | |

| |Total stockholder's equity |

| |? |

| | |

| | |

| | |

| | |

| |If the balance of the Building account was $19,000 and the equipment was sold for $12,000, what would be the total of |

| |stockholders' equity? |

|A) |$22,000 |

|B) |$32,000 |

|C) |$36,000 |

|D) |$34,000 |

|8. |An income statement |

|A) |summarizes the changes in retained earnings for a specific period of time. |

|B) |reports the changes in assets, liabilities, and stockholders' equity over a period of time. |

|C) |reports the assets, liabilities, and stockholders' equity at a specific date. |

|D) |presents the revenues and expenses for a specific period of time. |

|9. |Common stock is reported on the |

|A) |statement of cash flows. |

|B) |retained earnings statement. |

|C) |income statement. |

|D) |balance sheet. |

|10. |Buying and selling products are examples of |

|A) |operating activities. |

|B) |investing activities. |

|C) |financing activities. |

|D) |delivering activities. |

|11. |The company's policy toward dividends and growth could best be determined by examining the |

|A) |Balance sheet. |

|B) |Income statement. |

|C) |Retained earnings statement. |

|D) |Statement of cash flows. |

|12. |Dividends are reported on the |

|A) |income statement. |

|B) |retained earnings statement. |

|C) |balance sheet. |

|D) |income statement and balance sheet. |

|13. |When expenses exceed revenues, which of the following is true? |

|A) |a net loss results |

|B) |a net income results |

|C) |assets equal liabilities |

|D) |assets are increased |

|14. |Which type of corporate information is readily available to investors? |

|A) |financial comparison of operating alternatives |

|B) |marketing strategies for a product that will be introduced in eighteen months |

|C) |forecasts of cash needs for the upcoming year |

|D) |amount of net income retained in the business |

|15. |If the retained earnings account increases from the beginning of the year to the end of the year, then |

|A) |net income is less than dividends. |

|B) |a net loss is less than dividends. |

|C) |additional investments are less than net losses. |

|D) |net income is greater than dividends. |

|16. |To be reliable, accounting information should predict future events, confirm prior expectations, and be reported on a timely |

| |basis. |

|17. |Stockholders' equity is divided into two parts: common stock and retained earnings. |

|18. |The concept of materiality requires a large company to record the purchase of a $10 wastepaper basket as an asset and depreciate|

| |it over its useful life. |

|19. |The going concern assumption is that the business will continue in operation long enough to carry out its existing objectives |

| |and commitments. |

|20. |For accounting purposes, business transactions should be kept separate from the personal transactions of the stockholders of the|

| |business. |

|21. |A general ledger should be arranged in financial statement order beginning with the balance sheet accounts. |

|22. |Assets are decreased with a credit. |

|23. |A trial balance does not prove that all transactions have been recorded or that the ledger is correct. |

|24. |The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement. |

|25. |A credit balance in a liability account indicates that an error in recording has occurred. |

|26. |Closing entries result in the transfer of net income or net loss into the Retained Earnings account. |

|27. |A liability—revenue account relationship exists with an unearned rent revenue adjusting entry. |

|28. |The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same. |

|29. |Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.|

|30. |Unearned revenue is a prepayment that requires an adjusting entry when services are performed. |

|31. |If net sales are $600,000 and cost of goods sold is $480,000, the gross profit rate is 20%. |

|32. |The multiple-step income statement is considered more useful than the single-step income statement because it highlights the |

| |components of net income. |

|33. |The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts. |

|34. |Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Merchandise Inventory account. |

|35. |The terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period. |

|36. |If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross |

| |profit for the period, than if it had used the FIFO inventory method. |

|37. |A company may use more than one inventory cost flow method at the same time. |

|38. |Under the periodic inventory system, both the sales amount and the cost of goods sold amount are recorded when each item of |

| |merchandise is sold. |

|39. |Goods in transit shipped FOB shipping point should be included in the buyer's ending inventory. |

|40. |Raw materials inventories are the goods that a manufacturing company has completed and are ready to be sold to customers. |

|41. |Segregation of duties among employees eliminates the possibility of collusion. |

|42. |To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign |

| |checks. |

|43. |Only large companies need to be concerned with a system of internal control. |

|44. |A basic principle of cash management is to increase the speed of paying liabilities. |

|45. |The most important element of the fraud triangle is rationalization. |

|46. |Accounts receivable are one of a company's least liquid assets. |

|47. |The Allowance for Doubtful Accounts is a liability account. |

|48. |Under the accounts receivable aging method, the balance in Allowance for Doubtful Accounts must be considered carefully prior to|

| |adjusting for estimated uncollectible accounts. |

|49. |Under the direct write-off method, no attempt is made to match bad debt expense to sales revenues in the same accounting period.|

|50. |In computing the maturity date of a note, the date the note is issued is included but the due date is omitted. |

|51. |Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in |

| |value, in which case, market value becomes the basis for accountability. |

|52. |A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership. |

|53. |Under the double-declining-balance method, the depreciation rate used each year remains constant. |

|54. |The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial |

| |statements. |

|55. |The book value of a plant asset is always equal to its fair market value. |

|56. |The carrying value of a bond is equal to the market price on the date of sale. |

|57. |If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all |

| |periods prior to the bond maturity date. |

|58. |Total interest cost for a bond issued at a premium equals the total of the periodic interest payments added to the premium. |

|59. |If a corporation issued bonds at an amount less than face value, it indicates that the corporation has a weak credit rating. |

|60. |An unsecured bond is one that is issued against the general credit of the borrower. |

|61. |Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold. |

|62. |Return on common stockholders' equity is computed by dividing net income by ending stockholders' equity. |

|63. |A stock dividend is a pro rata distribution of cash to a corporation's stockholders. |

|64. |A corporation must be incorporated in each state in which it does business. |

|65. |The issuance of common stock affects both paid-in capital and retained earnings. |

|66. |For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both. |

|67. |A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method. |

|68. |Under the indirect method, gains and losses from the sale of equipment used in operations would be included in the cash flows |

| |from operating activities section on the statement of cash flows. |

|69. |The payment of interest on bonds payable is classified as a cash outflow from operating activities. |

|70. |Using the indirect method, an increase in accounts payable during a period is deducted from net income in calculating cash |

| |provided by operations. |

|71. |Using the following balance sheet and income statement data, what is the earnings per share? |

| |Current assets |

| |$ 7,000 |

| | |

| |Net income |

| |$ 12,000 |

| | |

| |Current liabilities |

| |4,000 |

| | |

| |Stockholders' equity |

| |27,000 |

| | |

| |Average assets |

| |40,000 |

| | |

| |Total liabilities |

| |9,000 |

| | |

| |Total assets |

| |30,000 |

| | |

| | |

| | |

| |Average common shares outstanding was 10,000 |

|A) |$3.60 |

|B) |$4.00 |

|C) |$1.20 |

|D) |$0.83 |

|72. |At December 31, 2010 Keen Company had retained earnings of $1,242,600. During 2010 they issued stock for $33,000, and paid |

| |dividends of $16,000. Net income for 2010 was $175,600. The retained earnings balance at the beginning of 2010 was: |

|A) |$1,402,200 |

|B) |$1,083,000 |

|C) |$1,116,000 |

|D) |$1369200 |

|73. |Use the following data to calculate the current ratio. |

| |Eddy Auto Supplies |

| |Balance Sheet |

| |December 31, 2010 |

| | |

| |Cash |

| |$ 50,000 |

| | |

| |Accounts Payable |

| |$ 55,000 |

| | |

| |Prepaid Insurance |

| |30,000 |

| | |

| |Salaries Payable |

| |10,000 |

| | |

| |Accounts Receivable |

| |40,000 |

| | |

| |Mortgage Payable |

| |90,000 |

| | |

| |Inventory |

| |70,000 |

| | |

| |Total Liabilities |

| |$155,000 |

| | |

| |Land held for investment |

| |80,000 |

| | |

| | |

| | |

| |Land |

| |75,000 |

| | |

| | |

| | |

| | |

| |Building |

| |$110,000 |

| | |

| | |

| |Common Stock |

| |$120,000 |

| | |

| |Less Accumulated |

| | |

| | |

| |Retained Earnings |

| |250,000 |

| | |

| |Depreciation |

| |(20,000) |

| |90,000 |

| | |

| |Total stockholders' equity |

| |$370,000 |

| | |

| |Trademark |

| |70,000 |

| | |

| |Total Liabilities and |

| | |

| |Total Assets |

| |$525,000 |

| | |

| |Stockholders' Equity |

| |$525,000 |

| | |

|A) |1.85 : 1. |

|B) |2.92 : 1. |

|C) |4.15 : 1. |

|D) |1.07 : 1. |

|74. |Based on the following data, what is the amount of current assets? |

| |Accounts payable……………………………………………………….. |

| |$31,000 |

| | |

| |Accounts receivable…………………………………………………….. |

| |50,000 |

| | |

| |Cash………………………………………………………………………. |

| |15,000 |

| | |

| |Intangible assets………………………………………………………… |

| |50,000 |

| | |

| |Inventory…………………………………………………………………. |

| |69,000 |

| | |

| |Long-term investments…………………………………………………. |

| |80,000 |

| | |

| |Long-term liabilities……………………………………………………………. |

| |100,000 |

| | |

| |Marketable securities……………………………………………………. |

| |40,000 |

| | |

| |Notes payable……………………………………………………………. |

| |28,000 |

| | |

| |Plant assets……………………………………………………………… |

| |670,000 |

| | |

| |Prepaid expenses……………………………………………………….. |

| |1,000 |

| | |

|A) |$ 96,000 |

|B) |$175,000 |

|C) |$106,000 |

|D) |$105,000 |

|75. |Use the following data to determine the total dollar amount of assets to be classified as current assets. |

| |Carne Auto Supplies |

| |Balance Sheet |

| |December 31, 2010 |

| | |

| | |

| |Cash |

| | |

| |$ 82,000 |

| | |

| | |

| |Accounts Payable |

| | |

| |$ 71,000 |

| | |

| |Prepaid Insurance |

| |40,000 |

| | |

| |Salaries Payable |

| |10,000 |

| | |

| |Accounts Receivable |

| |50,000 |

| | |

| |Mortgage Payable |

| |90,000 |

| | |

| |Inventory |

| |70,000 |

| | |

| |Total Liabilities |

| |$171,000 |

| | |

| |Land held for investment |

| |65,000 |

| | |

| | |

| | |

| |Land |

| |94,000 |

| | |

| | |

| | |

| | |

| |Building |

| |$100,000 |

| | |

| | |

| |Common Stock |

| |$120,000 |

| | |

| |Less Accumulated |

| | |

| | |

| |Retained Earnings |

| |250,000 |

| | |

| |Depreciation |

| |(30,000) |

| |70,000 |

| | |

| |Total stockholders' equity |

| |$370,000 |

| | |

| |Trademark |

| |70,000 |

| | |

| |Total Liabilities and |

| | |

| |Total Assets |

| |$541,000 |

| | |

| |Stockholders' Equity |

| |$541,000 |

| | |

|A) |$242,000. |

|B) |$122,000. |

|C) |$307,000. |

|D) |$172,000. |

|76. |An intangible asset |

|A) |derives its value from the rights and privileges it provides the owner. |

|B) |is worthless because it has no physical substance. |

|C) |is converted into a tangible asset during the operating cycle. |

|D) |cannot be classified on the balance sheet because it lacks physical substance. |

|77. |Which of the following is not a qualitative characteristic associated with reliability? |

|A) |Verifiable |

|B) |Conservatism |

|C) |Neutral |

|D) |Faithful representation |

|78. |Which of the following is not a current liability? |

|A) |Wages payable |

|B) |Accounts payable |

|C) |Taxes payable |

|D) |Bonds payable |

|79. |A liquidity ratio measures the |

|A) |income or operating success of a company over a period of time. |

|B) |ability of a company to survive over a long period of time. |

|C) |short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. |

|D) |percentage of total financing provided by creditors. |

|80. |Which of the following organizations issues accounting standards for countries outside the United States? |

|A) |SEC |

|B) |GAAP |

|C) |IASB |

|D) |FASB |

|81. |Receiving payment of a portion of Accounts Receivable will |

|A) |not affect total assets. |

|B) |increase liabilities. |

|C) |increase stockholders' equity. |

|D) |decrease net income. |

|82. |An accountant has debited an asset account for $1,500 and credited a liability account for $750. What can be done to complete |

| |the recording of the transaction? |

|A) |Nothing further must be done. |

|B) |Debit a stockholders' equity account for $750. |

|C) |Debit another asset account for $750. |

|D) |Credit a different asset account for $750. |

|83. |Which one of the following is not a part of an account? |

|A) |Credit side |

|B) |Trial balance |

|C) |Debit side |

|D) |Title |

|84. |If services are rendered for cash, then |

|A) |assets will increase. |

|B) |liabilities will increase. |

|C) |stockholders' equity will decrease. |

|D) |liabilities will decrease. |

|85. |An investment by the stockholders in a business increases |

|A) |assets and stockholders' equity. |

|B) |assets and liabilities. |

|C) |liabilities and stockholders' equity. |

|D) |assets only. |

|86. |The usual ordering of accounts in the general ledger is |

|A) |assets, liabilities, stockholders' equity, revenues, and expenses. |

|B) |assets, liabilities, stockholders' equity, expenses, and revenues. |

|C) |liabilities, assets, stockholders' equity, revenues, and expenses. |

|D) |stockholders' equity, assets, liabilities, expenses, and revenues. |

|87. |An account consists of |

|A) |a title, a debit balance, and a credit balance. |

|B) |a title, a left side, and a debit balance. |

|C) |a title, a debit side, and a credit side. |

|D) |a title, a right side, and a debit balance. |

|88. |An awareness of the normal balances of accounts would help you spot which of the following as an error in recording? |

|A) |A debit balance in the Dividends account |

|B) |A credit balance in an expense account |

|C) |A credit balance in a liabilities account |

|D) |A credit balance in a revenue account |

|89. |An account will have a credit balance if the |

|A) |credits exceed the debits. |

|B) |first transaction entered was a credit. |

|C) |debits exceed the credits. |

|D) |last transaction entered was a credit. |

|90. |Debits |

|A) |increase both assets and liabilities. |

|B) |decrease both assets and liabilities. |

|C) |increase assets and decrease liabilities. |

|D) |decrease assets and increase liabilities. |

|91. |Which of the following would be unethical? |

|A) |Recording advertising costs as an expense when the advertising takes place. |

|B) |Recognizing revenue at the time a gift card is sold. |

|C) |Deferring rent expense paid in advance. |

|D) |Deferring revenue recognition on monies received in advance of providing the service. |

|92. |Which of the following accounts will reflect the account's beginning balance on the adjusted trial balance? |

|A) |Cash |

|B) |Retained earnings |

|C) |Prepaid insurance |

|D) |Unearned revenue |

|93. |The primary difference between accrued revenues and unearned revenues is that accrued revenues have: |

|A) |not been earned and accrued revenues have been. |

|B) |been paid and unearned revenues have not. |

|C) |been recorded and unearned revenues have not. |

|D) |not been recorded and unearned revenues have. |

|94. |If a company fails to make an adjusting entry to record supplies expense, then: |

|A) |stockholders' equity will be understated. |

|B) |expense will be understated. |

|C) |assets will be understated. |

|D) |net income will be understated. |

|95. |A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability |

| |account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting |

| |entry is made, this would cause: |

|A) |expenses to be overstated. |

|B) |net income to be overstated. |

|C) |liabilities to be understated. |

|D) |revenues to be understated. |

|96. |Draxon Company borrowed $41,000 from the bank signing a 9%, 3-month note on September 1. Principal and interest are payable to |

| |the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make |

| |for interest on September 30, would be: |

|A) |debit Interest Expense, $3,690; credit Interest Payable, $3,690. |

|B) |debit Interest Expense, $308; credit Interest Payable, $308. |

|C) |debit Note Payable, $3,690; credit Cash, $3,690. |

|D) |debit Cash, $923; credit Interest Payable, $923. |

|97. |Nova Real Estate signed a four-month note payable in the amount of $6,000 on September 1. The note requires interest at an |

| |annual rate of 6%. The amount of interest to be accrued at the end of September is: |

|A) |$360. |

|B) |$90. |

|C) |$30. |

|D) |$60. |

|98. |A post-closing trial balance will show: |

|A) |zero balances for all accounts. |

|B) |zero balances for balance sheet accounts. |

|C) |only balance sheet accounts. |

|D) |only income statement accounts. |

|99. |The primary difference between prepaid and accrued expenses is that prepaid expenses have: |

|A) |been incurred and accrued expenses have not. |

|B) |not been paid and accrued expenses have. |

|C) |been recorded and accrued expenses have not. |

|D) |not been recorded and accrued expenses have. |

|100. |The trial balance for Greeley Corporation appears as follows: |

| | |

| |Greeley Corporation |

| |Trial Balance |

| |December 31, 2010 |

| | |

| |Cash |

| |$ 300 |

| | |

| |Accounts Receivable |

| |500 |

| | |

| |Prepaid Insurance |

| |60 |

| | |

| |Supplies |

| |140 |

| | |

| |Office Equipment |

| |4,000 |

| | |

| |Accumulated Depreciation, Office Equipment |

| | |

| |$ 800 |

| | |

| |Accounts Payable |

| | |

| |300 |

| | |

| |Common Stock |

| | |

| |1,000 |

| | |

| |Retained Earnings |

| | |

| |1,400 |

| | |

| |Service Revenue |

| | |

| |3,000 |

| | |

| |Salaries Expense |

| |1,000 |

| | |

| |Rent Expense |

| |500 |

| |0 |

| | |

| | |

| |$6,500 |

| |$6,500 |

| | |

| | |

| | |

| |If service for $125 had been performed but not billed, the adjusting entry to record this would include a: |

| | |

|A) |debit to Service Revenue for $125. |

|B) |credit to Unearned Service Revenue for $125. |

|C) |credit for Service Revenue for $125. |

|D) |debit to Unearned Revenue for $125. |

|101. |At the beginning of the year, Uptown Athletic had an inventory of $400,000. During the year, the company purchased goods costing|

| |$1,600,000. If Uptown Athletic reported ending inventory of $600,000 and sales of $2,000,000, their cost of goods sold and gross|

| |profit rate would be |

|A) |$1,000,000 and 50% |

|B) |$1,400,000 and 30% |

|C) |$1,000,000 and 30% |

|D) |$1,400,000 and 70% |

|102. |Financial information is presented below: |

| |Operating Expenses |

| |$ 45,000 |

| | |

| |Sales Returns and Allowances |

| |13,000 |

| | |

| |Sales Discount |

| |6,000 |

| | |

| |Sales |

| |160,000 |

| | |

| |Cost of Goods Sold |

| |77,000 |

| | |

| |The gross profit rate would be |

|A) |.454. |

|B) |.546. |

|C) |.500. |

|D) |.538. |

|103. |Income from operations is gross profit less |

| | |

| |1. operating expenses and other expenses and losses. |

| | |

| |2. operating expenses plus other revenues and gains. |

| | |

| |3. operating expenses. |

| | |

| |. |

|A) |1 |

|B) |2 |

|C) |3 |

|D) |both 1 and 2 |

|104. |A credit sale of $60,300 is made on July 15, terms 2/10, net/30, on which a return of $2,175 is granted on July 18. What amount |

| |is received as payment in full on July 24? |

|A) |$60,300 |

|B) |$56,963 |

|C) |$58,125 |

|D) |$59,094 |

|105. |The credit terms offered to a customer by a business firm were 2/10, n/30, which means |

|A) |the customer must pay the bill within 10 days. |

|B) |the customer can deduct a 2% discount if the bill is paid between the 10th and 30th day from the invoice date. |

|C) |the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date. |

|D) |two sales returns can be made within 10 days of the invoice date and no returns thereafter. |

|106. |Indicate which one of the following would appear on the income statement of both a merchandising company and a service company. |

|A) |Gross profit |

|B) |Operating expenses |

|C) |Sales revenues |

|D) |Cost of goods sold |

|107. |The operating cycle of a merchandising company is |

|A) |always one year in length. |

|B) |ordinarily longer than that of a service company. |

|C) |about the same as that of a service company. |

|D) |ordinarily shorter than that of a service company. |

|108. |When a seller records a return of goods, the account that is credited is |

|A) |Sales. |

|B) |Sales Returns and Allowances. |

|C) |Merchandise Inventory. |

|D) |Accounts Receivable. |

|109. |As an incentive for customers to pay their accounts promptly, a business may offer its customers |

|A) |a sales discount. |

|B) |free delivery. |

|C) |a sales allowance. |

|D) |a sales return. |

|110. |Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system? |

|A) |A purchase of merchandise. |

|B) |A return of merchandise inventory to the supplier |

|C) |Payment of freight costs for goods shipped to a customer |

|D) |Payment of freight costs for goods received from a supplier |

|111. |Use the following information regarding Black Company and Red Company to answer the question “Which amount is equal to Red |

| |Company's "days in inventory" for 2009 (to the closest decimal place)?” |

| | |

| | |

| |Year |

| |Inventory Turnover Ratio |

| |Ending Inventory |

| | |

| |Black Company |

| |2008 |

| | |

| |$26,340 |

| | |

| | |

| |2009 |

| |10.7 |

| |$29,890 |

| | |

| | |

| |2010 |

| |10.2 |

| |$30,100 |

| | |

| | |

| | |

| | |

| | |

| | |

| |Red Company |

| |2008 |

| | |

| |$25,860 |

| | |

| | |

| |2009 |

| |8.8 |

| |$24,750 |

| | |

| | |

| |2010 |

| |9.5 |

| |$22,530 |

| | |

|A) |67.8 days |

|B) |38.4 days |

|C) |28.1 days |

|D) |41.5 days |

|112. |The specific identification method of inventory costing |

|A) |always maximizes a company's net income. |

|B) |always minimizes a company's net income. |

|C) |has no effect on a company's net income. |

|D) |may enable management to manipulate net income. |

|113. |Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost? |

|A) |LIFO |

|B) |FIFO |

|C) |Average Cost Method |

|D) |Whichever method that produces the highest ending inventory figure |

|114. |Classic Floors has the following inventory data: |

| | |

| |July 1 |

| | |

| |Beginning inventory |

| | |

| |15 units at $4.00 |

| | |

| | |

| |5 |

| | |

| |Purchases |

| | |

| |60 units at $4.40 |

| | |

| | |

| |14 |

| | |

| |Sale |

| | |

| |40 units |

| | |

| | |

| |21 |

| | |

| |Purchases |

| | |

| |30 units at $4.80 |

| | |

| | |

| |30 |

| | |

| |Sale |

| | |

| |28 units |

| | |

| | |

| |Assuming that a perpetual inventory system is used, what is the value of ending inventory on a LIFO basis for July? |

|A) |$310.40 |

|B) |$468.00 |

|C) |$236.00 |

|D) |$157.60 |

|115. |All of the following statements are true regarding the LIFO reserve except: |

|A) |Companies using LIFO are required to report the LIFO reserve. |

|B) |The equation (LIFO inventory – LIFO reserve = FIFO inventory) adjusts the inventory balance from LIFO to FIFO. |

|C) |The financial statement differences of using LIFO normally increase the longer a company uses LIFO. |

|D) |Current ratios and the inventory turnover ratio can be significantly affected if a company has material LIFO reserves. |

|116. |The term "FOB" denotes |

|A) |free on board. |

|B) |freight on board. |

|C) |free only (to) buyer. |

|D) |freight charge on buyer. |

|117. |Pop-up Party Favors Inc has the following inventory data: |

| | |

| |July 1 |

| | |

| |Beginning inventory |

| |20 units at $22 |

| |$ 440 |

| | |

| | |

| |7 |

| | |

| |Purchases |

| |70 units at $23 |

| |1,610 |

| | |

| | |

| |22 |

| | |

| |Purchases |

| |10 units at $25 |

| |250 |

| | |

| | |

| | |

| | |

| | |

| | |

| |$2,300 |

| | |

| |A physical count of merchandise inventory on July 30 reveals that there are 30 units on hand. Using the FIFO method, the value |

| |of ending inventory is |

|A) |$670. |

|B) |$710. |

|C) |$700. |

|D) |$690. |

|118. |The managers of Hong Company receive performance bonuses based on the net income of the firm. Which inventory costing method are|

| |they likely to favor in periods of declining prices? |

|A) |LIFO |

|B) |Average Cost |

|C) |FIFO |

|D) |Physical inventory method |

|119. |Apple-A-Day Company has the following inventory data: |

| | |

| |July 1 |

| | |

| |Beginning inventory |

| |20 units at $15 |

| |$ 300 |

| | |

| | |

| |7 |

| | |

| |Purchases |

| |70 units at $16 |

| |1,120 |

| | |

| | |

| |22 |

| | |

| |Purchases |

| |10 units at $18 |

| |180 |

| | |

| | |

| | |

| | |

| | |

| | |

| |$1,600 |

| | |

| |A physical count of merchandise inventory on July 30 reveals that there are 35 units on hand. Using the LIFO cost method, the |

| |amount allocated to cost of goods sold is |

|A) |$1,060. |

|B) |$1,040. |

|C) |$1,020. |

|D) |$540. |

|120. |Selection of an inventory costing method by management does not usually depend on |

|A) |the fiscal year end. |

|B) |income statement effects. |

|C) |balance sheet effects. |

|D) |tax effects. |

|121. |Which of the following bank reconciliation items would not result in an adjusting entry? |

|A) |Service charge. |

|B) |Outstanding checks. |

|C) |NSF check of customer. |

|D) |Collection of a note by the bank. |

|122. |Which of the following is not a limitation of internal control? |

|A) |Cost of establishing control procedures should not exceed their benefit. |

|B) |The human element. |

|C) |Collusion. |

|D) |The size of the company. |

|123. |A petty cash fund of $100 is replenished when the fund contains $5 in cash and receipts for $92. The entry to replenish the fund|

| |would |

|A) |credit Cash Over and Short for $3. |

|B) |credit Miscellaneous Revenue for $3. |

|C) |debit Cash Over and Short for $3. |

|D) |debit Miscellaneous Expense for $3. |

|124. |A debit memorandum would not be issued by the bank for |

|A) |a bank service charge. |

|B) |the issuance of traveler's checks. |

|C) |the wiring of funds. |

|D) |the collection of a notes receivable. |

|125. |Supervisors counting cash receipts daily is an example of |

|A) |human resource controls. |

|B) |independent internal verification. |

|C) |establishment of responsibility. |

|D) |segregation of duties. |

|126. |Each of the following is a feature of internal control except |

|A) |an extensive marketing plan. |

|B) |bonding of employees. |

|C) |separation of duties. |

|D) |recording of all transactions. |

|127. |Before a check authorization is issued, the following documents must be in agreement, except for the |

|A) |invoice. |

|B) |remittance advice. |

|C) |receiving report. |

|D) |purchase order. |

|128. |A debit balance in Cash Over and Short is reported as a |

|A) |contra asset. |

|B) |miscellaneous asset. |

|C) |miscellaneous expense. |

|D) |miscellaneous revenue. |

|129. |Which one of the following items would never appear on a cash budget? |

|A) |Office salaries expense. |

|B) |Interest expense. |

|C) |Depreciation expense. |

|D) |Travel expense. |

|130. |Which of the following statements is true? |

|A) |Due to its liquid nature, cash is the easiest asset to steal. |

|B) |A good system of internal control will ensure that employees will not be able to steal cash. |

|C) |It takes two or more employees working together to be able to steal cash. |

|D) |All statements are true. |

|131. |An aging of a company's accounts receivable indicates that $57,000 are estimated to be uncollectible. If Allowance for Doubtful |

| |Accounts has a $22,800 debit balance, the adjustment to record bad debts for the period will require a |

|A) |debit to Bad Debts Expense for $57,000. |

|B) |debit to Allowance for Doubtful Accounts for $79,800. |

|C) |debit to Bad Debts Expense for $79,800. |

|D) |credit to Allowance for Doubtful Accounts for $57,000. |

|132. |If a company fails to record estimated bad debts expense, |

|A) |cash realizable value is understated. |

|B) |expenses are understated. |

|C) |revenues are understated. |

|D) |receivables are understated. |

|133. |The maturity value of a $2,000, 6%, 60-day note receivable dated February 10th is |

|A) |$2,020. |

|B) |$2,010. |

|C) |$2,000. |

|D) |$2,120. |

|134. |When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded |

|A) |in the year after the credit sale is made. |

|B) |in the same year as the credit sale. |

|C) |as each credit sale is made. |

|D) |when an account is written off as uncollectible. |

|135. |Which of the following would probably be the most significant type of a claim held by a company? |

|A) |notes receivable |

|B) |non-trade receivables |

|C) |accounts receivable |

|D) |interest receivable |

|136. |The financial statements of the Belfry Manufacturing Company reports net sales of $400,000 and accounts receivable of $80,000 |

| |and $40,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts |

| |receivable in days? |

|A) |40 times |

|B) |80 times |

|C) |54.7 times |

|D) |50 times |

|137. |When using the balance sheet approach, the balance in Allowance for Doubtful Accounts must be considered prior to the end of |

| |period adjustment when using which of the following methods? |

|A) |Net realizable method |

|B) |Direct write-off method |

|C) |Accrual method |

|D) |Allowance method |

|138. |The financial statements of the Phelps Manufacturing Company reports net sales of $400,000 and accounts receivable of $80,000 |

| |and $40,000 at the beginning of the year and end of year, respectively. What is the receivables turnover ratio for Phelps? |

|A) |6.7 times |

|B) |10 times |

|C) |5 times |

|D) |8 times |

|139. |The interest rate for a three-month loan would normally be stated in terms of which of the following rates of interest? |

|A) |Daily |

|B) |Monthly |

|C) |Quarterly |

|D) |Annual |

|140. |Bad Debts Expense is reported on the income statement as |

|A) |part of cost of goods sold. |

|B) |an expense subtracted from net sales to determine gross profit. |

|C) |an operating expense. |

|D) |a contra revenue account. |

|141. |The following information is provided for Nguyen Company and Northwest Corporation. |

| |(in $ millions) |

| |Nguyen Company |

| |Northwest Corporation |

| | |

| |Net income 2010 |

| |$275 |

| |$325 |

| | |

| |Net sales 2010 |

| |1,500 |

| |3,700 |

| | |

| |Total assets 12/31/08 |

| |1,000 |

| |2,400 |

| | |

| |Total assets 12/31/09 |

| |1,050 |

| |3,000 |

| | |

| |Total assets 12/31/10 |

| |1,150 |

| |4,000 |

| | |

| |What is Northwest's return on assets for 2010? |

|A) |10.6% |

|B) |9.5% |

|C) |10.8% |

|D) |9.3% |

|142. |Which of the following is not considered an intangible asset? |

|A) |Goodwill. |

|B) |An oil well. |

|C) |A franchise. |

|D) |A patent. |

|143. |During 2010, Ronald Corporation reported net sales of $2,000,000, net income of $1,200,000, and depreciation expense of |

| |$100,000. Ronald also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of |

| |$800,000, and accumulated depreciation of $500,000. Ronald's asset turnover ratio is |

|A) |2 times. |

|B) |1.6 times. |

|C) |1.3 times. |

|D) |0.96 times. |

|144. |A machine with a cost of $160,000 has an estimated salvage value of $10,000 and an estimated useful life of 5 years or 15,000 |

| |hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the |

| |second full year, during which the machine was used 5,000 hours? |

|A) |$50,000. |

|B) |$30,000. |

|C) |$43,333. |

|D) |$53,333. |

|145. |When estimating the useful life of an asset, accountants do not consider |

|A) |the cost to replace the asset at the end of its useful life. |

|B) |vulnerability to obsolescence. |

|C) |expected repairs and maintenance. |

|D) |the intended use of the asset. |

|146. |The Land account would include all of the following costs except |

|A) |drainage costs. |

|B) |the cost of building a fence. |

|C) |commissions paid to real estate agents. |

|D) |the cost of tearing down a building. |

|147. |Arnold Company purchases a new delivery truck for $35,000. The sales taxes are $2,000. The logo of the company is painted on the|

| |side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold |

| |record as the cost of the new truck? |

|A) |$38,540. |

|B) |$38,420. |

|C) |$37,000. |

|D) |$36,420. |

|148. |A company purchased factory equipment for $165,000. It is estimated that the equipment will have a $16,500 salvage value at the |

| |end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of |

| |annual depreciation recorded for the second year after purchase would be |

|A) |$66,000. |

|B) |$39,600. |

|C) |$59,400. |

|D) |$35,640. |

|149. |On January 1, a machine with a useful life of four years and a residual value of $3,000 was purchased for $19,000. What is the |

| |depreciation expense for year 2 under straight-line depreciation? |

|A) |$2,000. |

|B) |$4,000. |

|C) |$8,000. |

|D) |$4,750. |

|150. |When an asset is sold, a gain occurs when the |

|A) |sale price exceeds the book value of the asset sold. |

|B) |sale price exceeds the original cost of the asset sold. |

|C) |book value exceeds the sale price of the asset sold. |

|D) |sale price exceeds the depreciable cost of the asset sold. |

|151. |The following partial amortization schedule is available for Courtney Company who sold $200,000, five-year, 10% bonds on January|

| |1, 2010 for $208,000 and uses annual straight-line amortization. |

| |BOND AMORTIZATION SCHEDULE |

| | |

| |Interest Periods |

| |Interest |

| |to be paid |

| |Interest expense |

| |Premium Amortization |

| |Unamortized Premium |

| |Bond Carrying Value |

| | |

| |January 1, 2010 |

| | |

| | |

| | |

| |$8,000 |

| |$208,000 |

| | |

| |January 1, 2011 |

| |(i) |

| |(ii) |

| |(iii) |

| |(iv) |

| |(v) |

| | |

| | |

| |Which of the following amounts should be shown in cell (iii)? |

|A) |$4,000 |

|B) |$8,000 |

|C) |$1,600 |

|D) |$800 |

|152. |The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that |

|A) |is less than the amount of cash to be paid for interest for the period. |

|B) |exceeds the amount of cash to be paid for interest for the period. |

|C) |equals the amount of cash to be paid for interest for the period. |

|D) |has no predictable relationship with the amount of cash to be paid for interest for the period. |

|153. |When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period|

| |is calculated by |

|A) |adding the amount of discount amortized for that period to the amount of cash paid for interest during the period. |

|B) |subtracting the amount of discount amortized for that period from the amount of cash paid for interest during the period.|

|C) |multiplying the face value of the bonds by the stated interest rate. |

|D) |multiplying the face value of the bonds by the market interest rate. |

|154. |Winrow Company received proceeds of $94,250 on 10-year, 8% bonds issued on January 1, 2009. The bonds had a face value of |

| |$100,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of |

| |amortization. Winrow Company decided to redeem the bonds on January 1, 2011. What amount of gain or loss would Winrow report on |

| |its 2010 income statement? |

|A) |$4,600 gain |

|B) |$5,600 gain |

|C) |$5,600 loss |

|D) |$4,600 loss |

|155. |The following totals for the month of April were taken from the payroll register of Noll Company. |

| |Salaries |

| |$24,000 |

| | |

| |FICA taxes withheld |

| |1,100 |

| | |

| |Income taxes withheld |

| |5,000 |

| | |

| |Medical insurance deductions |

| |900 |

| | |

| |Federal unemployment taxes |

| |64 |

| | |

| |State unemployment taxes |

| |432 |

| | |

| |The journal entry to record the monthly payroll on April 30 would include a |

|A) |debit to Salaries Expense for $24,000. |

|B) |credit to Salaries Payable for $24,000. |

|C) |debit to Salaries Payable for $24,000. |

|D) |debit to Salaries Expense for $17,000. |

|156. |A bond with a face value of $100,000 and a quoted price of 104¼ has a selling price of |

|A) |$104,250 |

|B) |$104,025. |

|C) |$100,425. |

|D) |$104,000. |

|157. |Wolford Company borrowed $750,000 from U.S. Bank on January 1, 2009 in order to expand its mining capabilities. The five-year |

| |note required annual payments of $195,327 and carried an annual interest rate of 9.5%. What is the balance in the notes payable |

| |account at December 31, 2010? |

|A) |$750,000 |

|B) |$490,059 |

|C) |$625,923 |

|D) |$607,500 |

|158. |Yanik Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2010, at 97. The journal entry to record the issuance|

| |will show a |

|A) |debit to Cash of $1,000,000. |

|B) |debit to Discount on Bonds Payable for $30,000. |

|C) |credit to Bonds Payable for $970,000. |

|D) |credit to Cash for $970,000. |

|159. |A $500,000 bond was retired at 98 when the carrying value of the bond was $515,000. The entry to record the retirement would |

| |include a |

|A) |gain on bond redemption of $15,000. |

|B) |loss on bond redemption of $15,000. |

|C) |loss on bond redemption of $25,000. |

|D) |gain on bond redemption of $25,000. |

|160. |The following partial amortization schedule is available for Courtney Company who sold $200,000, five-year, 10% bonds on January|

| |1, 2010 for $208,000 and uses annual straight-line amortization. |

| |BOND AMORTIZATION SCHEDULE |

| | |

| |Interest Periods |

| |Interest |

| |to be paid |

| |Interest expense |

| |Premium Amortization |

| |Unamortized Premium |

| |Bond Carrying Value |

| | |

| |January 1, 2010 |

| | |

| | |

| | |

| |$8,000 |

| |$208,000 |

| | |

| |January 1, 2011 |

| |(i) |

| |(ii) |

| |(iii) |

| |(iv) |

| |(v) |

| | |

| | |

| |Which of the following amounts should be shown in cell (i)? |

|A) |$20,800 |

|B) |$21,600 |

|C) |$20,000 |

|D) |$ 4,000 |

|161. |The cash debt coverage ratio is computed by dividing net cash provided by operating activities by |

|A) |average current liabilities. |

|B) |net sales. |

|C) |average long-term liabilities. |

|D) |average total liabilities. |

|162. |Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict |

| |cash flows. Indicate where, if at all, purchased land and building with a mortgage would be classified on the statement of cash |

| |flows. |

|A) |Operating activities section. |

|B) |Investing activities section. |

|C) |Financing activities section. |

|D) |Does not represent a cash flow. |

|163. |In preparing a statement of cash flows, a conversion of bonds into common stock will be reported in |

|A) |the financing section. |

|B) |the "extraordinary" section. |

|C) |a separate schedule or note to the financial statements. |

|D) |the stockholders' equity section. |

|164. |Which of the following is not typically a characteristic experienced by a company during the growth phase of the corporate life |

| |cycle? |

|A) |Cash from operations on the statements of cash flows will be less than net income on the income statement. |

|B) |Collections on accounts receivable will lag behind sales. |

|C) |Cash from investing is positive. |

|D) |Cash from financing is positive. |

|165. |Norris Company issued 10,500 shares of $1 par common stock for $30 per share during 2010. The company paid dividends of $18,000 |

| |and issued long-term notes payable of $230,000 during the year. What amount of cash flows from financing activities will be |

| |reported on the statement of cash flows? |

|A) |$18,000 net cash inflow. |

|B) |$222,500 net cash inflow. |

|C) |$545,000 net cash outflow. |

|D) |$527,000 net cash inflow. |

|166. |Which of the following is not typically a characteristic experienced by a company during the introductory phase of the corporate|

| |life cycle? |

|A) |Cash used in operations will exceed cash generated by operations. |

|B) |Considerable cash will be used to purchase productive assets. |

|C) |Cash from investing is positive. |

|D) |Cash from financing is positive. |

|167. |Geary Company had credit sales of $1,080,000. The beginning accounts receivable balance was $48,000 and the ending accounts |

| |receivable balance was $118,000. Using the direct method of reporting cash flows from operating activities, what were the cash |

| |collections from customers during the period? |

|A) |$1,150,000. |

|B) |$1,080,000. |

|C) |$1,010,000. |

|D) |$1,128,000. |

|168. |The acquisition of land by issuing common stock is |

|A) |a noncash transaction that is not reported in the body of a statement of cash flows. |

|B) |a cash transaction and would be reported in the body of a statement of cash flows. |

|C) |a noncash transaction and would be reported in the body of a statement of cash flows. |

|D) |only reported if the statement of cash flows is prepared using the direct method. |

|169. |Cash from operations and net income are approximately the same during the |

|A) |introductory phase. |

|B) |growth phase. |

|C) |maturity phase. |

|D) |decline phase. |

|170. |Using the indirect method, patent amortization expense for the period |

|A) |is deducted from net income. |

|B) |causes cash to increase. |

|C) |causes cash to decrease. |

|D) |is added to net income. |

|171. |Those most responsible for the major policy decisions of a corporation are the |

|A) |stockholders. |

|B) |board of directors. |

|C) |management. |

|D) |employees. |

|172. |A disadvantage of the corporate form of organization is |

|A) |professional management. |

|B) |tax treatment. |

|C) |ease of transfer of ownership. |

|D) |lack of mutual agency. |

|173. |XYZ Company has $20,000 of dividends in arrears. Based on this information, which of the following statements is false? |

|A) |Dividends in arrears are not considered to be liabilities. |

|B) |An obligation for dividends in arrears exists only after the board of directors declares payment. |

|C) |The investment community looks favorably on companies with dividends in arrears, since the money is redirected toward |

| |more important growth opportunities. |

|D) |The amount of dividends in arrears should be disclosed in the notes to the financial statements. |

|174. |The date on which a cash dividend becomes a binding legal obligation is on the |

|A) |declaration date. |

|B) |date of record. |

|C) |payment date. |

|D) |last day of the fiscal year end. |

|175. |Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections: |

| | |

| |Total Assets |

| | |

| | |

| |Total Liabilities |

| |Total Stockholders' Equity |

| | |

|A) | Increase |

| |Decrease |

| |No change |

| | |

|B) |No change |

| |Increase |

| |Decrease |

| | |

|C) |Decrease |

| |Increase |

| |Decrease |

| | |

|D) |Decrease |

| |No change |

| |Increase |

| | |

|176. |Alt Corp. issues 11,000 shares of $1 par value common stock at $6 per share. When the transaction is recorded, credits are made |

| |to: |

|A) |Common Stock $11,000 and Paid-in Capital in Excess of Stated Value $55,000. |

|B) |Common Stock $66,000. |

|C) |Common Stock $11,000 and Paid-in Capital in Excess of Par Value $55,000. |

|D) |Common Stock $11,000 and Retained Earnings $55,000. |

|177. |Retro Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common |

| |stock with a stated value of $1 per share. If Retro issues 5,000 shares of common stock to pay its recent attorney's bill of |

| |$20,000 for legal services on a land access dispute, which of the following would be the best journal entry for Retro to record?|

|A) |Legal Expense 5,000 |

| |Common Stock – Stated value 5,000 |

|B) |Legal Expense 20,000 |

| |Common Stock – Stated value 20,000 |

|C) |Legal Expense 20,000 |

| |Common Stock – Stated value 5,000 |

| |Paid-in Capital in Excess of Stated Value - Common 15,000 |

|D) |Legal Expense 20,000 |

| |Common Stock 5,000 |

| |Paid-in Capital in Excess of Par - Preferred 15,000 |

|178. |The following selected amounts are available for Thomas Company. |

| |Retained earnings (beginning) |

| |$19,000 |

| | |

| |Net loss |

| |200 |

| | |

| |Cash dividends declared |

| |100 |

| | |

| |Stock dividends declared |

| |500 |

| | |

| |What is its ending Retained Earnings balance? |

|A) |$19,000. |

|B) |$18,800. |

|C) |$18,200. |

|D) |$18,700. |

|179. |The effect of a stock dividend is to |

|A) |decrease total assets and stockholders' equity. |

|B) |change the composition of stockholders' equity. |

|C) |decrease total assets and total liabilities. |

|D) |increase the book value per share of common stock. |

|180. |Paid-in capital in excess of stated value would appear on a balance sheet under the category |

|A) |capital stock. |

|B) |retained earnings. |

|C) |additional paid-in capital. |

|D) |contra to stockholders' equity. |

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