2301 Final Exam Review MC Practice Solution

ACCT 2301 Final Review
Fall 2015 - Gee
Accounting Information and Decision Making

2. What is the primary purpose of financial accounting?
A. Determine the amount of tax liability owed to the government.
B. Communicate business transactions to internal management.
C. Measure business transactions and communicate those measures to external users to make decisions.
D. Measure the profitability of the company in order to assist employees with making decisions.
8. The accounting equation is defined as:
A. Assets = Liabilities + Stockholders' Equity.
B. Assets = Liabilities - Stockholders' Equity.
C. Net Income = Revenues - Expenses.
D. Liabilities + Revenues = Assets.
11. Emmitt had the following final balances after the first year of operations: assets, $55,000; stockholders'
equity, $25,000; dividends, $3,000; and net income, $10,000. What is the amount of Emmitt's liabilities?
A. $55,000.
B. $30,000.
C. $13,000.
D. $7,000.
27. Use the following appropriate amounts to calculate net income: Revenues, $12,000; Liabilities, $5,000;
Expenses, $4,000; Assets, $19,000; Dividends, $4,000.
A. $6,000.
B. $8,000.
C. $4,000.
D. $14,000.
38. Sooner Company has had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of
the company's existence. If the average annual amount of dividends paid over the last four years is $3,000,
what is the ending retained earnings balance?
A. $47,000.
B. $35,000.
C. $23,000.
D. $7,000.
40. On January 1, 2012, Gucci Brothers Inc. started the year with a $492,000 balance in Retained Earnings and
a $605,000 balance in Common Stock. During 2012, the company earned net income of $92,000, paid a
dividend of $15,200, and issued more common stock for $27,500. What is total stockholders' equity on
December 31, 2012?
A. $1,231,700.
B. $1,097,000.
C. $1,201,300.
D. $1,588,300.
42. Which of the following is the correct order for preparing the financial statements?
A. Balance sheet, statement of stockholders' equity, and income statement.
B. Balance sheet, income statement, and statement of stockholders' equity.
C. Statement of stockholders' equity, income statement, and balance sheet.
D. Income statement, statement of stockholders' equity, and balance sheet.
56. Given the information below about Thomas Corporation, what was the amount of dividends the company
paid in the current period?
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A. $13,000.
B. $110,000.
C. $28,000.
D. $18,000.
87. The assumption that a business can continue to remain in operation into the future is the:
A. Monetary unit assumption.
B. Periodicity assumption.
C. Economic entity assumption.
D. Going concern assumption.
90. The assumption that the assets and liabilities of the business are accounted for on the books of the company
but not included in the records of the owner is the:
A. Monetary unit assumption.
B. Going concern assumption.
C. Economic entity assumption.
D. Periodicity assumption.
92. If accounting information is considered to have faithful representation, then which of the following is true?
A. The information represents to users what it claims to represent.
B. The information follows conservatism principles and is also material.
C. The information is considered pertinent to or affects decisions.
D. The information will have predictive value, feedback value, and is timely.
The Accounting Information System

6. When a company incurs workers' salaries but does not pay them, how will the basic accounting equation be
affected?
A. Stockholders' equity decreases.
B. Revenues decrease.
C. Expenses decrease.
D. Liabilities decrease.
10. Receiving assets from customers before services are performed results in:
A. Prepaid Assets.
B. Service Revenue.
C. Unearned Revenues.
D. Accounts Receivable.
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11. When the company pays stockholders a dividend, what is the effect on the accounting equation for that
company?
A. Decrease stockholders' equity and increase assets.
B. Increase liabilities and increase assets.
C. Decrease assets and decrease liabilities.
D. Decrease assets and decrease stockholders' equity.
12. Pumpkin Inc. sold $500 in pumpkins to a customer on account on January 1. On January 11 Pumpkin
collected the cash from that customer. What is the impact on Pumpkin's accounting equation from the
collection of cash?
A. No net effect to the accounting equation.
B. Decrease assets and increase liabilities.
C. Increase assets and increase liabilities.
D. Decrease assets and decrease liabilities.
20. Amounts owed to suppliers for supplies purchased on account are defined as:
A. Cash.
B. Accounts Receivable.
C. Accounts Payable.
D. Supplies Expense.
21. Purchasing office supplies on account will:
A. Not change assets.
B. Increase assets and decrease liabilities.
C. Increase assets and increase liabilities.
D. Increase assets and increase stockholders' equity.
22. Providing services and receiving cash will:
A. Increase assets and increase stockholders' equity.
B. Increase assets and increase liabilities.
C. Decrease assets and increase liabilities.
D. Decrease liabilities and increase stockholders' equity.
23. When a company provides services on account, the accounting equation would be affected as follows:
A. Assets increase.
B. Revenues increase.
C. Assets increase and liabilities decrease.
D. Assets increase and stockholders' equity increases.
25. When a payment is made on an account payable:
A. Assets and stockholders' equity decrease.
B. Assets and liabilities decrease.
C. Liabilities and revenues decrease.
D. Assets and expenses decrease.
26. Purchasing office equipment on account has what impact on the accounting equation?
A. Stockholders' equity decreases and assets increase.
B. Liabilities increase and assets increase.
C. Assets decrease and liabilities decrease.
D. Assets increase and stockholders' equity increases.
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32. Assume that Sallisaw Sideboards, Inc. had a retained earnings balance of $10,000 on April 1, and that the
company had the following transactions during April.
Issued common stock for cash, $5,000.
Provided services to customers on account, $2,000.
Provided services to customers in exchange for cash, $900.
Purchased equipment and paid cash, $4,300.
Paid April rent, $800.
Paid workers salaries for April, $700.
What was Sallisaw's retained earnings balance at the end of April?
A. $11,400.
B. $12,100.
C. $16,400.
D. Some other amount.
Questions 33 & 34: Following are transactions of Gotebo Tanners, Inc., a new company, during the month of
January 2012:
1. Issued 10,000 shares of common stock for $15,000 cash.
2. Purchased land for $12,000, signing a note payable for the full amount.
3. Purchased office equipment for $1,200 cash.
4. Received cash of $14,000 for services provided to customers during the month.
5. Purchased $300 of office supplies on account.
6. Paid employees $10,000 for their first month's salaries.
33. What was the balance of Gotebo's Cash account following these six transactions?
A. $29,800.
B. $19,300.
C. $17,800.
D. $22,400.
34. What was the total amount of Gotebo's liabilities following these six transactions?
A. $12,300.
B. $27,300.
C. $22,600.
D. $15,500.
\45.
If the liabilities of a company increased by $55,000 during a month and the stockholders' equity decreased
by $21,000 during that same month, did assets increase or decrease and by how much?
A. $34,000 increase
B. $55,000 increase
C. $34,000 decrease
D. $76,000 increase
46. Which of the accounts are decreased on the debit side and increased on the credit side?
A. Liabilities, stockholders' equity, and revenues.
B. Dividends, liabilities, and assets.
C. Expenses, dividends, and stockholders' equity.
D. Assets, dividends, and expenses.
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49. Dividends normally carry a _______ balance and are shown in the _________.
A. Debit; Statement of stockholders' equity
B. Debit; Income statement
C. Credit; Balance sheet
D. Debit; Balance Sheet
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50. Expenses normally carry a _______ balance and are shown in the _________.
51. Liabilities normally carry a _______ balance and are shown in the _________.
53. Which of the following accounts would normally have a credit balance?
A. Accounts Payable, Service Revenue, Common Stock.
B. Salaries Payable, Unearned Revenue, Delivery Expense.
C. Income Tax Payable, Service Revenue, Dividends.
D. Cash, Repairs and Maintenance Expense, Dividends.
54. Which of the following accounts would normally have a debit balance?
A. Accounts Payable, Service Revenue, Common Stock.
B. Salaries Payable, Unearned Revenue, Utilities Expense.
C. Income Tax Payable, Service Revenue, Dividends.
D. Cash, Delivery expense, Dividends.
63. The following statements pertain to recording transactions. Which of them are true?
I. Total debits should equal total credits.
II. It is possible to have multiple debits or credits in one journal entry.
III. Assets are always listed first in journal entries.
IV. Some journal entries will have debits only.
A. I only.
B. I and II.
C. I, II, and IV.
D. II, III, and IV.
68. A company received a bill for newspaper advertising services received, $400. The bill will be paid in 10
days. How would the transaction be recorded today?
A. Debit Advertising Expense $400, credit Accounts Payable $400.
B. Debit Accounts Payable $400, credit Advertising Expense $400.
C. Debit Accounts Payable $400, credit Cash $400.
D. Debit Advertising Expense $400, credit Cash $400.
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70. Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are:
A. Debit Rent Expense, credit Cash.
B. Debit Prepaid Rent, credit Rent Expense.
C. Debit Prepaid Rent, credit Cash.
D. Debit Cash, credit Prepaid Rent.
71. Summer Leasing received $12,000 for 24 months rent in advance. How should Summer record this
transaction?
A. Debit Prepaid Rent; credit Rent Expense.
B. Debit Cash; credit Unearned Revenue.
C. Debit Cash; credit Service Revenue.
D. Debit Rent Expense; credit Cash.
74. Schooner Inc. purchased equipment by signing a note payable. This transaction would be recorded as:
A. Debit Equipment, credit Cash.
B. Debit Cash, credit Notes Payable.
C. Debit Notes Payable, credit Equipment.
D. Debit Equipment, credit Notes Payable.
75. When a company pays $2,500 dividends to its stockholders, the transaction should be recorded as:
A. Debit Cash; credit Dividends.
B. Debit Retained Earnings; credit Dividends.
C. Debit Dividends; credit Cash.
D. Debit Dividends; credit Accounts Payable.
83. On December 1, 2012, Bears Inc. signed a contract with a retailer to supply maintenance for the next
calendar year. How should this transaction be recorded on December 1, 2012?
A. Debit Cash, credit Service Revenue.
B. Debit Cash, credit Accounts Receivable.
C. Debit Accounts Receivable, credit Service Revenue.
D. No transaction should be recorded on December 1, 2012.
88. The Accounts Payable account has a beginning balance of $12,000 and the company purchased $50,000 of
supplies on account during the month. The ending balance was $10,000. How much did the company pay to
creditors during the month?
A. $50,000.
B. $52,000.
C. $60,000.
D. $62,000.
89. On March 3, Cobra Inc. purchased a desk for $450 on account. On March 22, Cobra purchased another desk
for $500 also on account, and then on March 24, Cobra paid $400 on account. At the end of March, what
amount should Cobra report for desks (assuming these two desks were the only desks they had)?
A. $50.
B. $450.
C. $500.
D. $950.
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90. Posting is the process of:
A. Analyzing the impact of the transaction on the accounting equation.
B. Obtaining information about external transactions from source documents.
C. Transferring the debit and credit information from the journal to individual accounts in the general
ledger.
D. Listing all accounts and their balances at a particular date.
91. Accounts Receivable account has a beginning balance of $10,000 and the company provides services of
$50,000 on account during the month. The ending balance was $12,000. How much did the company
receive from customers during the month?
A. $50,000.
B. $52,000.
C. $48,000.
D. $62,000.
96. A trial balance represents the:
A. Source documents used to determine the effects of transactions on the company's accounts.
B. List of all accounts and their balances at a particular date to ensure that debits equal credits.
C. Chronological record of all transactions affecting the company.
D. Process of transferring debit and credit information from the journal to the accounts in the general ledger.
The Financial Reporting Process

1. The revenue recognition principle states that:
A. Revenue should be recognized in the period the cash is received.
B. Revenue should be recognized in the period earned.
C. Revenue should be recognized in the balance sheet.
D. Revenue is a component of common stock.
2. The matching principle is the principle that states:
A. All costs that are used to generate revenue are recorded in the period the revenue is recognized.
B. All transactions are recorded at the exchange price.
C. The business is separate from its owners.
D. The business will continue to operate indefinitely unless there is evidence to the contrary.
4. Air France collected cash on February 4 from the sale of a ticket to a customer on January 26.The flight took
place on April 5. According to the revenue recognition principle, in which month should Air France have
recognized this revenue?
A. January.
B. February.
C. April.
D. Evenly in each of the three months.
11. Which of the following statements are correct?
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A. (1) and (4)
B. (2) and (3)
C. (1) and (3)
D. (2) and (4)
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32. Adjusting entries are primarily needed for:

A. Cash-basis accounting.
B. Accrual-basis accounting.
C. Current value accounting.
D. Manual accounting systems.
34. Making insurance payments in advance is an example of:
A. An accrued revenue.
B. An accrued expense.
C. An unearned revenue.
D. A prepaid expense.
35. When a magazine sells subscriptions to customers, it is an example of:
A. An accrued expense.
B. An accrued revenue.
C. A prepaid expense.
D. An unearned revenue.
38. Prepayments occur when:
A. Cash payment (or an obligation to pay cash) occurs before the expense recognition.
B. Sales are delayed pending credit approval.
C. Customers are unable to pay the full amount due when goods are delivered.
D. Cash payment occurs after the expense is incurred and liability is recorded.
43. The adjusting entry required to record accrued expenses includes:
A. A credit to Cash.
B. A debit to an asset.
C. A credit to an asset.
D. A credit to liability.
48. During the year, Cheng Company paid salaries of $24,000. In addition, $8,000 in salaries has accrued by the
end of the year but has not been paid. The year-end adjusting entry would include which one of the
following?
A. Debit to Salaries Expense for $32,000.
B. Credit to Salaries Expense of $8,000.
C. Debit to Salaries Payable for $24,000.
D. Credit to Salaries Payable for $8,000.
49. At the beginning of December, Global Corporation had $2,000 in supplies on hand. During the month,
supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $800.
What is the appropriate month-end adjusting entry?
A. Debit Cash $4,200, credit Supplies $4,200.
B. Debit Supplies $4,200, credit Supplies Expense $4,200.
C. Debit Supplies Expense $4,200, credit Supplies $4,200.
D. Debit Cash $800, credit Supplies $800.
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44. Yummy Foods purchased a one-year hazard insurance policy on August 1 and recorded the $4,200 premium
to prepaid insurance. At its December 31 year-end, Yummy Foods would record which of the following
adjusting entries?
A
Insurance Expense
1,750
Prepaid Insurance
1,750
B
C
Prepaid Insurance
Insurance Expense
1,750
Insurance Expense
Prepaid Insurance
Accounts Payable
1,750
2,450
Insurance Expense
Prepaid Insurance
2,450
1,750
4,200
2,450
45. The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues
payroll checks totaling $32,000. The current pay period ends on Friday, January 3. Neat Clothes is now
preparing financial statements for the year ended December 31. What is the adjusting entry to record
accrued salaries at the end of the year?
A
Salaries Payable
22,400
Salaries Expense
22,400
B
C
D
Salaries Expense
Salaries Payable
6,400
Salaries Expense
Salaries Payable
9,600
Salaries Expense
Salaries Payable
22,400
6,400
9,600
22,400
47. On September 1, 2012, Gold Magazine sold 400 one-year subscriptions for $90 each. The total amount
received was credited to Unearned Revenue. What would be the required adjusting entry at December 31,
2012?
A
Unearned Revenue
36,000
Service Revenue
36,000
B
C
D
Service Revenue
Unearned Revenue
24,000
Unearned Revenue
Service Revenue
24,000
Unearned Revenue
Service Revenue
12,000
24,000
24,000
12,000
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50. Eve's Apples opened for business on January 1, 2012, and paid for two insurance policies effective that date.
The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a twoyear term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2012?
A. $9,000.
B. $18,000.
C. $30,000.
D. $48,000.
54. A list of all accounts and their balances after updating account balances for adjusting entries is referred to
as:
A. A trial balance.
B. An adjusted trial balance.
C. A post-closing trial balance.
D. An accounting trial balance.
57. The following financial information is from Shovels Construction Company for 2012:
What is the amount of current assets, assuming the accounts above reflect normal activity?
A. $20,000.
B. $60,000.
C. $140,000.
D. $175,000.
59. The following financial information is from Bronco Company. All debt is due within one year unless stated
otherwise.
What is the amount of current liabilities?

A. $63,000.
B. $28,000.
C. $45,600.
D. $22,000.
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Questions 60 - 62: The following table contains financial information for Trumpeter Inc. before closing entries:
60. What is Trumpeter's net income?

A. $3,500.
B. $2,500.
C. $5,000.
D. $5,500.
61. What is the amount of Trumpeter's total assets?
A. $81,500
B. $82,500
C. $68,500
D. $83,500
62. What is the amount of Trumpter's total liabilities?
A. $5,000
B. $78,500
C. $68,500
D. $83,500
63. The closing entry for expenses includes:
A. A debit to Dividends and a credit to all expense accounts.
B. A debit to Retained Earnings and a credit to all expense accounts.
C. A debit to Revenues and a credit to Retained Earnings.
D. A debit to Revenues and a credit to all expense accounts.
64. The primary purpose of closing entries is to:
A. Prove the equality of the debit and credit entries in the general journal.
B. Ensure that all assets and liabilities are recognized in the appropriate period.
C. Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next
period's transactions.
D. Assure that adjusting entries balance.
66. Permanent accounts would not include:
A. Interest Expense.
B. Salaries Payable.
C. Prepaid Rent.
D. Unearned Revenues.
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68. Which of the following is a possible closing entry?
A. Debit Cash, credit Service Revenue.
B. Debit Cash, credit Retained Earnings.
C. Debit Service Revenue, credit Retained Earnings.
D. Debit Dividends, credit Retained Earnings.
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71. Of the following six accounts, which ones have temporary balances?
(1) Service Revenue
(2) Dividends
(3) Salaries Expense
(4) Common Stock
(5) Retained Earnings
(6) Cash
A. (1), (2), and (3)
B. (4), (5), and (6)
C. (2), (4), and (5)
D. (1), (3), and (5)
72. The ending Retained Earnings balance of Juan's Mexican Restaurant chain increased by $3.2 million from
the beginning of the year. The company declared a dividend of $1.3 million during the year. What was the
net income earned during the year?
A. $1.9 million
B. $3.2 million
C. $4.5 million
D. $1.3 million
73. The Retained Earnings account had a beginning credit balance of $26,000. During the period, the business
had a net loss $12,000, and the company paid dividends of $8,000. The ending balance in the Retained
Earnings account is:
A. $6,000
B. $30,000
C. $22,000
D. $14,000
78. In the first three years of operations, Lindsey Corporation earned net income/loss of -$150,000, $100,000,
and $250,000. At the end of the third year, Lindsey Corporation has a balance of $120,000 for its Retained
Earnings account. What is the total amount of dividends Lindsey Corporation paid over the three years?
A. $130,000.
B. $120,000.
C. $80,000.
D. $380,000.
80. Which of the following is true concerning temporary and permanent accounts?
A. Cash is a temporary account.
B. Permanent accounts represent activity over the entire life of the company.
C. Permanent accounts must be closed at the end of every reporting period.
D. Temporary accounts represent activity over the previous three years.
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81. The closing process includes which of the following?
A. Closing the balance of the retained earnings account to zero.
B. Closing the balance of only the dividends account to zero.
C. Closing the balances of only revenue and expense accounts to zero.
D. Closing the balances of revenue, expense and dividend accounts to zero.
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82. Frosty Inc. has the following balances on December 31 prior to closing entries:
Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing
entries?
A. Increase of $11,000.
B. Increase of $13,000.
C. Increase of $12,000.
D. Increase of $14,000
83. A list of all accounts and their balances after posting closing entries is referred to as:
A. A trial balance.
B. An adjusted trial balance.
C. A post-closing trial balance.
D. An accounting trial balance.
85. Which of the following accounts is(are) listed in a post-closing trial balance?
A. Prepaid Rent.
B. Accounts Payable.
C. Salaries Expense.
D. Two of these three accounts would be included in a post-closing trial balance.
86. Which one of the following accounts would NOT have a balance after closing entries?
A. Unearned Revenue
B. Supplies
C. Prepaid Rent
D. Dividends
Cash and Internal Controls

1. What key piece of legislation was passed in response to corporate accounting scandals by Enron, WorldCom,
and others?
A. Sarbanes-Oxley Act.
B. 1933 Securities Act.
C. 1934 Securities Exchange Act.
D. Regulation Fair Disclosure.
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11. Separation of duties refers to:

A. Making each manager personally responsible for his/her department.
B. Keeping functions across different departments separate.
C. Preventing top management and lower-level employees from interacting.
D. Individuals who have physical responsibility for assets should not also have access to accounting records.
13. Which of the following best describes the goal of internal controls?
A. Ensuring the business is profitable.
B. Enhancing the health of employees.
C. Improving the accuracy and the reliability of financial information.
D. Ensuring the compliance with tax regulations.
16. The act of collusion refers to:
A. Top management and lower-level employees working together to share information necessary for
effective internal controls.
B. Two or more people acting in coordination to circumvent internal controls.
C. Management working with an auditor to prevent occupational fraud.
D. Middle-level managers taking full responsibility for effective internal controls.
32. Which of the following would NOT represent good controls over cash disbursements?
A. Periodically check amounts shown in the debit card and credit card statements against purchase receipts.
B. The employee verifying the accuracy of the debit card and credit card statements should not also be the
employee responsible for actual purchases.
C. Set maximum purchase limits on debit cards and credit cards.
D. Employees responsible for making cash disbursements should also be in charge of cash receipts.
33. Which of the following would not be considered good internal control for cash receipts?
A. Allowing customers to pay with a debit card.
B. Requiring the employee receiving cash from customers to also deposit the cash into the company's bank
account.
C. Recording cash receipts as soon as they are recorded.
D. Allowing customers to pay with a credit card.
36. Cash transactions recorded by the bank but not yet recorded by the company include all of the following
except
A. Service fees.
B. Interest earned.
C. Checks outstanding.
D. NSF checks.
37. The following information was taken from the bank reconciliation for Mooner Sooner Inc. at the end of
2012:Bank balance: $8,000
Checks outstanding: $5,800
Note collected by the bank: $1,500
Service fee: $20
Deposits outstanding: $4,000
NSF check (bad check) returned for $300
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What is the correct cash balance that should be reported in Mooner Sooner's balance sheet at the end of 2012?
A. $10,200.
B. $7,400.
C. $6,200.
D. $6,160.
41. After preparing a bank reconciliation, the collection of a note by the bank on a company's behalf would be
recorded with:
A. A credit to Notes Receivable.
B. A credit to Cash.
C. A debit to Notes Receivable.
D. A credit to Accounts Receivable.
42. After preparing a bank reconciliation, the service fee charged by the bank would be recorded with:
A. A credit to Service Fees Expense.
B. A debit to Cash.
C. A credit to Service Fees Revenue.
D. A debit to Service Fees Expense.
43. After preparing a bank reconciliation, a check outstanding for the payment of advertising would be recorded
with:
A. A debit to Advertising Expense.
B. A debit to Cash.
C. A credit to Advertising Expense.
D. No entry is needed.
44. The following data were obtained from the bank statement and from the process of reconciling it:
Bank service charges = $20
Deposit outstanding = $150
Interest earned on the bank account = $10
Checks outstanding = $400
Which items should be deducted from and added to the bank balance in completing the reconciliation?
A. Deduct checks outstanding; add service charges and deposit outstanding.
B. Deduct interest earned; add deposit outstanding.
C. Deduct checks outstanding; add deposit outstanding.
D. Deduct deposit outstanding; add checks outstanding.
48. After preparing the bank reconciliation, an NSF check would result in which of the following when
recording the adjustment to the company's cash balance?
A. Debit to Service Fee Expense.
B. Credit to Accounts Payable.
C. Credit to Service Revenue.
D. Debit to Accounts Receivable.
49. A minor amount of cash kept on hand to pay for small purchases is referred to as a:
A. Petty cash fund.
B. Cash receipts fund.
C. Cash payments fund.
D. Cookie jar fund.
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52. Which of the following is correct regarding a petty cash fund?
A. Petty cash fund represents cash on hand at the business for quick access.
B. Petty cash fund is used for minor purposes.
C. When cash from this fund is taken out, it should be replaced with a voucher.
D. All of the above are correct.
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Receivables and Sales

5. Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the
paint upon being offered a 15% price reduction. Gershwin would record this reduction by crediting
Accounts Receivable and debiting:
A. Sales Revenue.
B. Sales Discounts.
C. Sales Returns.
D. Sales Allowances.
6. Tom's Textiles shipped the wrong material to a customer, who refused to accept the order. Upon receipt of the
material, Tom's would credit Accounts Receivable and debit:
A. Sales Revenue.
B. Sales Discounts.
C. Sales Returns.
D. Sales Allowances.
7. When customers purchase products on account, Spitz Manufacturing offers them a 2% reduction in the
amount owed if they pay within 10 days. This is an example of a:
A. Bad debt.
B. Sales discount.
C. Sales return.
D. Sales allowances.
8. On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10,
n/30. How would Flores record the sale on November 10?
A.
Accounts Receivable
7,840
Sales Revenue
7,840
B.
C.
Accounts Receivable
Sales Revenue
8,000
Accounts Receivable
Cash Discounts
Sales Revenue
7,840
160
8,000
8,000
8,000
D.
Accounts Receivable
Cash Discounts
Sales Revenue
160
7,840
9. On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit
terms 2/10, n/30. The customer made the correct payment on November 17. How would Flores record the
collection of cash on November 17?
A.
Cash
7,840
Accounts Receivable
7,840
Page 16 of 51

B.
Cash
Sales Discounts
Accounts Receivable
C.
Cash
Sales Revenue
Accounts Receivable
Fall 2015 - Gee

7,840
160
8,000
7,840
160
8,000
8,000
D.
Cash
Accounts Receivable
8,000
10. On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit
terms 2/10, n/30. The customer made the correct payment on December 5. How would Flores record the
collection of cash on December 5?
A.
Cash
7,840
Accounts Receivable
7,840
B.
C.
Cash
Sales Discounts
Accounts Receivable
7,840
160
Cash
Sales Revenue
Accounts Receivable
7,840
160
8,000
8,000
8,000
D.
Cash
Accounts Receivable
8,000
17. On March 17, Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10, net
20. What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials?
A. $15,000.
B. $14,550.
C. $15,450.
D. $0.
19. Boynton Jewelers reported the following amounts at the end of the year: total sales = $550,000; sales
discounts = $12,000; sales returns = $44,000; sales allowances = $17,000. What was the company's net sales
for the year?
A. $489,000.
B. $485,000.
C. $477,000.
D. $499,000.
25. Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will
recording the estimate of uncollectible accounts have on the accounting equation?
A. Increase liabilities and decrease stockholders' equity
B. Decrease assets and decrease liabilities
C. Decrease assets and decrease stockholders' equity
D. Increase assets and decrease stockholders' equity
Page 17 of 51
Fall 2015 - Gee
29. At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970
(credit) in Allowance for Uncollectible Accounts. An analysis of Amy Jo's December 31 accounts receivable
suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt
expense for the year should be:
A. $6,220.
B. $6,450.
C. $5,250.
D. $7,190.
30. At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970
(debit) in Allowance for Uncollectible Accounts. An analysis of Amy Jo's December 31 accounts receivable
suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt
expense for the year should be:
A. $6,220.
B. $6,450.
C. $5,250.
D. $7,190.
32. Allowance for Uncollectible Accounts is:
A. An expense account.
B. A contra asset account.
C. A contra revenue account.
D. A liability account.
33. Richard LLC accounts for possible bad debts using the allowance method. When an actual bad debt occurs,
what effect does it have on the accounting equation?
A. Increases assets and increases stockholders' equity.
B. Decreases assets and decreases stockholders' equity.
C. Decreases assets and decreases liabilities.
D. No effect on the accounting equation.
34. On December 31, 2012, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible
Accounts has a credit balance of $2,500 before any year-end adjustment. What adjustment should Mark Inc.
record for the estimated bad debts on December 31, 2012?
A. Debit Bad Debt Expense, $6,500; credit Allowance for Uncollectible Accounts, $6,500.
B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000.
C. Debit Allowance for Uncollectible Accounts, $9,000; credit Bad Debt Expense, $6,500.
D. Debit Bad Debt Expense, $9,000; credit Allowance for Uncollectible Accounts, $9,000.
38. On December 31, 2012, Larry's Used Cars had balances in Accounts Receivable and Allowance for
Uncollectible Accounts of $53,600 and $1,325, respectively. During 2013, Larry's wrote off $1,465 in
accounts receivable and determined that there should be an allowance for uncollectible accounts of $1,280
at December 31, 2013. Bad debt expense for 2013 would be:
A. $1,280.
B. $1,465.
C. $1,420.
D. $1,140.
Page 18 of 51

41. Collections of accounts receivable that previously have been written off are credited to:
A. A Gain account.
B. Accounts Receivable.
C. Bad Debt Expense.
D. Retained Earnings.
Fall 2015 - Gee
42. Lail Inc. accounts for bad debts using the allowance method. On June 1, Lail Inc. wrote off Andrew Green's
$2,500 account. Based on Lail's estimation, Andrew Green will never pay any portion of the balance in his
account. What effect will this write-off have on Lail Inc.'s balance sheet at the time of the write-off?
A. An increase to stockholders' equity and a decrease to liabilities.
B. No effect.
C. An increase to assets and an increase to stockholders' equity.
D. A decrease to assets and a decrease to stockholders' equity.
50. The following information pertains to Lightning, Inc. at the end of December:
Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due,
10% of receivables less than 30 days past due, and 40% of receivables greater than 30 days past due. The
accounts receivable balance of $7,000 consists of $3,500 not yet due, $2,000 less than 30 days past due, and
$1,500 greater than 30 days past due. What is the appropriate amount of Bad Debt Expense?
A. $400.
B. $470.
C. $870.
D. $1,270.
54. Under the direct write-off method, what adjustment is made at the time an actual bad debt occurs?
A. Debit Bad Debt Expense, credit Allowance for Uncollectible Accounts.
B. Debit Allowance for Uncollectible Accounts, credit Accounts Receivable.
C. Debit Bad Debt Expense, credit Accounts Receivable.
D. No adjustment is made.
55. Which accounting principle does the direct write-off method violate?
A. Cost.
B. Realization.
C. Revenue recognition.
D. Matching.
60. Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12%
note for the balance. This transaction would include a:
A. Credit to Cash.
B. Debit to Sales Discount.
C. Debit to Notes Receivable.
D. Credit to Notes Receivable.
62. On February 1, 2012, Sanger Corp. lends cash and accepts a $2,000 note receivable that offers 10% interest
and is due in six months. What would Sanger record on August 1, 2012, when the borrower pays Sanger the
correct amount owed?
A.
Cash
2,000
Page 19 of 51

Interest Revenue
Notes Receivable
B.
Cash
Fall 2015 - Gee

100
2,100
2,100
Notes Receivable
C.
D.
2,100
Cash
Interest Revenue
Notes Receivable
2,100
Cash
2,200
100
2,000
Notes Receivable
2,200
Questions 63 & 65: On September 1, 2012, Middleton Corp. lends cash and accepts a $1,000 note receivable
that offers 12% interest and is due in six months.
63. How much interest revenue will Middleton Corp report during 2012?
A. $20.
B. $40.
C. $30.
D. $60.
65. How much interest revenue will Middleton Corp report during 2013?
A. $20.
B. $40.
C. $30.
D. $60.
66. On July 1, 2012, Herzog Mining lends cash and accepts a $9,000 note receivable that offers 10% interest
and is due in nine months. How would Herzog record the transaction on April 1, 2013, when the borrower
pays Herzog the correct amount owed?
A.
Cash
9,675
Notes Receivable
9,000
Interest Revenue
675
B.
Cash
9,675
Notes Receivable
Interest Revenue
Interest Receivable
C.
Cash
9,000
225
450
9,675
Notes Receivable
Interest Receivable
D.
Cash
9,000
675
9,675
Notes Receivable
9,675
Page 20 of 51

Fall 2015 - Gee
69. Beverage International reports net credit sales for the year of $240,000. The company's accounts receivable
balance at the beginning of the year equaled $20,000 and the balance at the end of the year equaled $30,000.
What is Beverage International's receivables turnover ratio?
A. 12.0.
B. 9.6.
C. 8.0.
D. 1.5.
75. The following information pertains to Lindsey Corp. at the end of the year:
Lindsey Corp. uses the percentage-of-credit-sales method and estimates that 2% of the credit sales are
uncollectible. After the year-end adjustment, what amount of bad debt expense would Lindsey report for the
year?
A. $1,200.
B. $2,200.
C. $3,000.
D. $3,800.
76. The following information pertains to Lightning, Inc. at the end of the year:
Lightning uses the percentage-of-credit-sales method and estimates 1% of sales are uncollectible. What is
the ending balance of the allowance account after the year-end adjustment?
A. $600.
B. $1,000.
C. $200.
D. $1,200.
Inventory and Cost of Goods Sold

3. If a company overstates its ending balance of inventory in year 1 and it records inventory correctly in year 2,
which one of the following is true?
A. Net income is overstated in year 2.
B. Cost of goods sold is overstated in year 1.
C. Net income is understated in year 1.
D. Retained earnings is overstated in year 1.
4. If a company understates its ending balance of inventory in year 1 and it records inventory correctly in year 2,
which one of the following is true?
A. Net income is overstated in year 1.
B. Cost of goods sold is understated in year 2.
C. Net income is understated in year 2.
D. Retained earnings is understated in year 2.
Page 21 of 51
Fall 2015 - Gee
6. Bill Inc.'s correct ending balance for the inventory account at the end of 2012 should be $5,000, but the
company incorrectly stated it as $3,000. In 2013, Bill correctly recorded its ending balance of the inventory
account. Which one of the following is true?
A. Gross profit is overstated by $2,000 in 2012.
B. Retained earnings are understated by $2,000 in 2013.
C. Gross profit is overstated by $2,000 in 2013.
D. Cost of goods sold is understated by $2,000 in 2012.
9. Cost of goods sold equals:
A. Beginning inventory - net purchases + ending inventory.
B. Beginning inventory + accounts payable - net purchases.
C. Net purchases + ending inventory - beginning inventory.
D. Beginning inventory + net purchases - ending inventory.
10. Baker Fine Foods has beginning inventory for the year of $12,000. During the year, Baker purchases
inventory for $150,000 and ends the year with $20,000 of inventory. Baker will report cost of goods sold
equal to:
A. $150,000.
B. $158,000.
C. $142,000.
D. $170,000.
11. Tyler Toys has beginning inventory for the year of $18,000. During the year, Tyler purchases inventory for
$230,000 and has cost of goods sold equal to $233,000. Tyler's ending inventory equals:
A. $15,000.
B. $18,000.
C. $21,000.
D. $19,000.
Questions 12-17. Inventory records for Dunbar Incorporated revealed the following:
12. Dunbar sold 700 units of inventory during the month. Ending inventory assuming LIFO would be:
A. $500.
B. $490.
C. $470.
D. $480.
13. Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming LIFO would be:
A. $1,730.
B. $1,700.
C. $1,720.
D. $1,710.
Page 22 of 51

Fall 2015 - Gee
14. Dunbar sold 700 units of inventory during the month. Ending inventory assuming FIFO would be:
A. $500.
B. $490.
C. $470.
D. $480.
15. Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming FIFO would be:
A. $1,730.
B. $1,700.
C. $1,720.
D. $1,710.
16. Dunbar sold 700 units of inventory during the month. Ending inventory assuming weighted-average cost
would be (round weighted-average unit cost to four decimals if necessary):
A. $502.
B. $490.
C. $489.
D. $480.
17. Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming weighted-average cost
would be (round weighted-average unit cost to four decimals if necessary):
A. $1,711.
B. $1,700.
C. $1,720.
D. $1,708.
24. The following information pertains to Julia & Company:
What is the cost of goods sold for Julia & Company assuming it uses LIFO?
A. $125.
B. $100.
C. $110.
D. $85.
Page 23 of 51
Fall 2015 - Gee
25. The following information pertains to Julia & Company:

What's the ending balance of inventory for Julia & Company assuming that it uses FIFO?
A. $125
B. $100
C. $110
D. $85
Questions 27 & 28: The following information relates to inventory for Shoeless Joe Inc.
27. At what amount would Shoeless report gross profit using periodic LIFO cost flow assumptions?
A. $105.
B. $80.
C. $175.
D. $120.
28. At what amount would Shoeless report ending inventory using periodic FIFO cost flow assumptions?
A. $55.
B. $170.
C. $110.
D. $70.
30. In a period when inventory costs are rising, the inventory method that most likely results in the highest
ending inventory is:
A. Lower-of-cost-or-market method.
B. Weighted-average cost.
C. FIFO.
D. LIFO.
31. In a period when inventory costs are falling, the lowest taxable income is most likely reported by using the
inventory method of:
A. Weighted average.
B. LIFO.
C. Moving average.
D. FIFO.
45. Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of
inventory costing $620 for $960 on account?
A.
Inventory
620
Cost of Goods Sold
620
Sales Revenue
960
Accounts Receivable
960
B.
Accounts Receivable
Sales Revenue
Cost of Goods Sold
Inventory
960
960
620
620
Page 24 of 51

C.
D.
Fall 2015 - Gee
Inventory
Gain
Sales Revenue
620
340
Accounts Receivable
Sales Revenue
Gain
960
960
620
340
46. Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell
for $3,000. How should Ace record the purchase using a perpetual inventory system?
A.
Inventory
2,000
Accounts Payable
2,000
B.
C.
D.
Cost of Goods Sold

Unearned Revenue
Sales Revenue
2,000
1,000
Cost of Goods Sold

Accounts Payable
2,000
Cost of Goods Sold

Gain
Accounts Payable
2,000
1,000
3,000
2,000
3,000
47. Merchandise sold FOB destination indicates that:

A. The seller holds title until the merchandise is received at the buyer's location.
B. The merchandise has not yet been shipped.
C. The merchandise will not be shipped until payment has been received.
D. The seller transfers title to the buyer once the merchandise is shipped.
48. Merchandise sold FOB shipping point indicates that:
A. The seller holds title until the merchandise is received at the buyer's location.
B. The merchandise has not yet been shipped.
C. The merchandise will not be shipped until payment has been received.
D. The seller transfers title to the buyer once the merchandise is shipped.
52. Davis Hardware Company uses a perpetual inventory system. How should Davis record the return of
inventory previously purchased on account for $200?
A.
Inventory
200
Accounts Payable
200
B.
C.
D.
Accounts Payable
Inventory
200
Purchase Returns
Accounts Payable
200
Accounts Payable
Purchase Returns
200
200
200
200
Page 25 of 51

Fall 2015 - Gee
53. On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30.
On May 8, Ace pays for this inventory and records which of the following using a perpetual inventory
system?
A.
Accounts Payable
2,000
Cash
2,000
B.
C.
D.
Accounts Payable
Inventory
Cash
1,960
40
Accounts Payable
Inventory
Cash
2,000
Cash
2,000
2,000
40
1,960
Accounts Payable
2,000
On May 18, Ace pays for this inventory and records which of the following using a perpetual inventory
system?
A.
Accounts Payable
2,000
Cash
2,000
B.
C.
D.
Accounts Payable
Inventory
Cash
1,960
40
Accounts Payable
Inventory
Cash
2,000
Cash
2,000
Accounts Payable
2,000
40
1,960
2,000
Questions 59-61: LeGrand Corporation reported the following amounts in its income statement:
59. What was LeGrand's gross profit?

A. $260,000.
B. $180,000.
C. $220,000.
D. $120,000
Page 26 of 51
Fall 2015 - Gee
60. What was LeGrand's operating income?

A. $120,000.
B. $260,000.
C. $110,000.
D. $65,000.
61. What was LeGrand's net income?
A. $120,000.
B. $60,000.
C. $110,000.
D. $65,000.
65. Consider the following information pertaining to OldWest's inventory:
At what amount should OldWest report its inventory?

A. $3,213.
B. $3,386.
C. $2,996.
D. $2,906.
Questions 75-77. Anthony Corporation reported the following amounts for the year:
75. Anthony's inventory turnover ratio is:

A. 2.42.
B. 2.76.
C. 3.21.
D. 2.14.
76. Anthony's average days in inventory is:
A. 170 days.
B. 114 days.
C. 132 days.
D. 151 days.
Page 27 of 51

77. Anthony's gross profit ratio is:
A. 53.4%.
B. 51.9%.
C. 50.3%.
D. 46.6%.
Fall 2015 - Gee
81. Northwest Fur Co. started the year with $94,000 of merchandise inventory on hand. During the year,
$400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were
taken. Northwest paid freight-in charges of $7,500. Merchandise with an invoice amount of $5,000 was
returned for credit. Cost of goods sold for the year was $380,000. What is ending inventory?
A. $112,490.
B. $112,550.
C. $116,500.
D. $120,300.
84. Davis Hardware Company uses a periodic inventory system. How should Davis record the return of
inventory previously purchased on account for $200?
A.
Inventory
200
Accounts Payable
200
B.
C.
D.
Accounts Payable
Inventory
200
Purchase Returns
Accounts Payable
200
Accounts Payable
Purchase Returns
200
200
200
200
87. 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.
C.
D
.
Accounts Receivable
Sales Revenue
960
Purchases
Gain
Sales Revenue
620
340
Accounts Receivable
Sales Revenue
Gain
960
960
960
620
340
On May 8, Ace pays for this inventory and records which of the following using a periodic inventory
system?
A.
Accounts Payable
2,000
Cash
2,000
Page 28 of 51

B.
C.
D.
Fall 2015 - Gee
Accounts Payable
Purchase Discounts
Cash
1,960
40
Accounts Payable
Purchase Discounts
Cash
2,000
Cash
2,000
2,000
40
1,960
Accounts Payable
2,000
On May 18, Ace pays for this inventory and records which of the following using a periodic inventory
system?
A.
Accounts Payable
2,000
Cash
2,000
B.
C.
D.
Accounts Payable
Purchase Discounts
Cash
1,960
40
Accounts Payable
Purchase Discounts
Cash
2,000
Cash
2,000
2,000
40
1,960
Accounts Payable
2,000
Long-Term Assets
2. Which of the following would be recorded as land improvements?
A. Property taxes.
B. Title insurance.
C. Real estate commissions.
D. Adding a parking lot.
3. Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash. They also incurred a shipping cost of
$400 to get the equipment to its factory. The fair value of this equipment is $7,000. For what amount should
Bad Brads BBQ record the equipment?
A. $5,000.
B. $5,400.
C. $7,000.
D. $7,400.
Page 29 of 51

Fall 2015 - Gee
4. Wiley Company purchased new equipment for $60,000. Wiley paid cash for the equipment. Other costs
associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation
cost, $2,500. The cost recorded for the equipment was:
A. $60,000.
B. $61,000.
C. $64,000.
D. $66,500.
5. Cowboy Development incurred the following costs associated with the purchase of a piece of land that it will
use to re-build an office building:
What amount should be recorded for the purchase of the land?

A. $437,500.
B. $417,500.
C. $439,000.
D. $419,000.
6. Bahama Catering purchased a commercial dishwasher by paying cash of $5,000. The dishwasher's fair value
on the date of the purchase was $5,600. The company incurred $400 in transportation costs, $300
installation fees, and paid a $200 fine for illegal parking while the dishwasher was being delivered. For what
amount will Bahama record the dishwasher?
A. $5,600.
B. $5,700.
C. $5,900.
D. $6,300.
9. Fruitasia purchased land, a building, and equipment for $800,000. The estimated fair values of the land,
building, and equipment are $100,000, $700,000, and $200,000, respectively. At what amount would the
company record the land?
A. $80,000.
B. $90,000.
C. $100,000.
D. $800,000.
Page 30 of 51

11. The following financial information is from Cook Company:
Fall 2015 - Gee
What is the amount of long-term assets assuming the accounts above reflect normal activity?
A. $342,500.
B. $173,000.
C. $273,500.
D. $98,000.
22. In accounting, goodwill
A. May be recorded whenever a company achieves a level of net income that exceeds the industry average.
B. Is amortized over its useful life.
C. May be recorded when a company purchases another business.
D. Must be expensed in the period it is recorded because benefits from goodwill are difficult to identify.
24. The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000. The fair
value of the assets is $90,000 and the fair value of its liabilities is $15,000. Longhorn paid Cattleman's
$95,000 to acquire it. Longhorn should record goodwill on this purchase of:
A. $3,600.
B. $5,000.
C. $20,000.
D. $23,600.
27. Which of the following subsequent expenditures would be capitalized?
A. Ordinary repair.
B. Costs that increase the service life of an asset.
C. Routine maintenance.
D. Both a and c.
32. Which one of the following regarding the book value of an asset is correct?
A. It is the fair value of the asset if the asset is sold.
B. It reflects the original cost of the asset less accumulated depreciation.
C. It is the original cost of the asset minus the depreciation expense for that asset during the year.
D. It is the original cost at which the asset was purchased.
33. Which of the following is considered a "contra" account?
A. Unearned Revenue.
B. Goodwill.
C. Accumulated Depreciation.
D. Costs of Good Sold.
Page 31 of 51

35. The depreciable cost used in calculating depreciation expense is:
A. Its service life.
B. The amount allowable under tax depreciation methods.
C. The difference between its replacement value and cost.
D. The asset's cost minus its estimated residual value.
Fall 2015 - Gee
Questions 36-41: Kansas Enterprises purchased equipment for $60,000 on January 1, 2012. The equipment is
expected to have a five-year life, with a residual value of $5,000 at the end of five years.
36. Using the straight-line method, depreciation expense for 2012 would be:
A. $12,000.
B. $11,000.
C. $60,000.
D. None of the other answers are correct.
37. Using the straight-line method, the book value at December 31, 2012 would be:
A. $44,000.
B. $49,000.
C. $55,000.
D. $60,000.
38. Using the straight-line method, depreciation expense for 2013 and the book value at December 31, 2013
would be:
A. $12,000 and $36,000.
B. $12,000 and $31,000.
C. $11,000 and $33,000.
D. $11,000 and $38,000.
39. Using the double-declining balance method, depreciation expense for 2012 would be:
A. $24,000.
B. $22,000.
C. $19,000.
D. $20,000.
40. Using the double-declining balance method, depreciation expense for 2013 would be:
A. $22,000.
B. $13,200.
C. $14,400.
D. $24,000.
41. Using the double-declining balance method, the book value at December 31, 2013 would be:
A. $21,600.
B. $24,800.
C. $36,000.
D. $45,600.
Page 32 of 51

Fall 2015 - Gee
42. A machine has a cost of $15,000, an estimated residual value of $3,000, and an estimated useful life of four
years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount
will be reported for accumulated depreciation?
A. $9,000.
B. $6,000.
C. $7,500.
D. $3,000.
43. A building was purchased for $50,000. The asset has an expected useful life of 6 years and depreciation
expense each year is $8,000 using the straight-line method. What is the residual value of the building?
A. $0.
B. $2,000.
C. $4,000.
D. $6,000.
44. Bricker Enterprises purchased a machine for $100,000 on October 1, 2012. The estimated service life is ten
years with a $10,000 residual value. Bricker records partial-year depreciation based on the number of
months in service. Depreciation expense for 2012, using straight-line, is:
A. $1,500.
B. $7,500.
C. $2,250.
D. $2,500.
48. Crestview Estates purchased a tractor on January 1, 2012, for $65,000. The tractor's useful life is estimated
to be 30,000 miles and has a residual value of $5,000. If Crestview used the tractor 5,000 miles in 2012 and
3,000 miles in 2013, what is the balance for accumulated depreciation at the end of 2013 using the activity
method?
A. $38,000.
B. $6,000.
C. $16,000.
D. $10,000.
49. Nanki Corporation purchased equipment at the beginning of 2012 for $650,000. In 2012 and 2013, Nanki
depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual
value. In 2014, due to changes in technology, Nanki revised the useful life to a total of six years (four more
years) with zero residual value. What depreciation expense would Nanki record for the year 2014 on this
equipment?
A. $108,333.
B. $106,667.
C. $122,500.
D. $81,667.
50. Which of the following intangible assets is not amortized?
A. Patents.
B. Copyrights.
C. Franchises.
D. Goodwill.
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52. Bricktown Exchange purchases a copyright on January 1, 2012, for $50,000. The copyright has a remaining
legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the
company uses the straight-line method, what is the amortization expense for the year ended December 31,
2012?
A. $0.
B. $2,000.
C. $3,333.
D. $10,000.
54. Berry Co. purchases a patent on January 1, 2012, for $40,000 and the patent has an expected useful life of
five years with no residual value. Assuming Berry Co. uses the straight-line method, what is the carrying
value of the patent on December 31, 2013?
A. $21,000
B. $33,000
C. $24,000
D. $26,000
56. Abbott Company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no
residual value. The computer was depreciated by the straight-line method and was sold at the end of the
fourth year of use for $3,000 cash. Abbott should record:
A. a gain of $1,000.
B. a loss of $1,000.
C. neither a gain nor a loss - the computer was sold at its book value.
D. neither a gain nor a loss - the gain that occurred in this case would not be recognized.
57. On January 1, 2010, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight-line
depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On
December 31, 2012, Jacob Inc. sold the truck for $30,000. What amount of gain or loss should Jacob Inc.
record on December 31, 2012?
A. Gain, $22,000.
B. Loss, $18,000.
C. Gain, $5,000.
D. Loss, $3,000.
59. Career Services, Incorporated sold some office equipment for $52,000 on December 31, 2012. The journal
entry to record the sale would include which of the following if the original cost of the equipment was
$80,000 with a residual value of $5,000 and a useful life of 10 years? Assume the machine was purchased
on January 1, 2009 and depreciated using the straight-line method.
A. Gain of $2,000.
B. Loss of $9,500.
C. Gain of $9,500.
D. Loss of $2,000.
64. The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning
and end of the year, respectively. Net income and sales for the year are $100,000 and $800,000, respectively.
What is Hidden Valley's return on assets?
A. 10%.
B. 20%.
C. 160%.
D. 18%.
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What is Hidden Valley's profit margin?
A. 10%.
B. 12.5%.
C. 18%.
D. 22%.
What is Hidden Valley's asset turnover?
A. 1.6 times.
B. 1.8 times.
C. 1.5 times.
D. 0.2 times.
Current Liabilities
3. Which of the following is not a current liability?
A. Accounts payable.
B. A note payable due in 2 years.
C. Current portion of long-term debt.
D. Sales tax payable.
7. Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Brian Inc.
record?
A. Debit Cash, $8,000; Credit Notes Receivable, $8,000.
B. Debit Notes Receivable, $8,000; Credit Cash, $8,000.
C. Debit Cash, $8,000; Credit Notes Payable, $8,000.
D. Debit Notes Payable, $8,000; Credit Cash, $8,000.
9. On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount
borrowed plus accrued interest due six months later on May 1, 2013. The Bagel Factory should report
interest payable at December 31, 2012, in the amount of:
A. $0.
B. $1,000.
C. $2,000.
D. $3,000.
10. On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount
borrowed plus accrued interest due six months later on May 1, 2013. The Bagel Factory records the
appropriate adjusting entry for the note on December 31, 2012. In recording the payment of the note plus
accrued interest at maturity on May 1, 2013, The Bagel Factory would
A. Debit Interest Expense, $2,000.
B. Debit Interest Expense, $1,000.
C. Debit Interest Payable, $2,000.
D. Debit Interest Expense, $3,000.
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13. On December 1, 2012, Old World Deli signed a $300,000, 5%, six-month note payable with the amount
borrowed plus accrued interest due six months later on June 1, 2013. Old World Deli should record which of
the following adjusting entries at December 31, 2012?
A. Debit Interest Expense and credit Interest Payable, $7,500.
B. Debit Interest Expense and credit Cash, $7,500.
C. Debit Interest Expense and credit Interest Payable, $1,250.
D. Debit Interest Expense and credit Cash, $1,250.
14. On December 1, 2012, Old World Deli signed a $300,000, 5%, six-month note payable with the amount
borrowed plus accrued interest due six months later on June 1, 2013. Old World Deli records the appropriate
adjusting entry for the note on December 31, 2012. What amount of cash will be needed to pay back the
note payable plus any accrued interest on June 1, 2013?
A. $300,000.
B. $301,250.
C. $306,250.
D. $307,500.
20. Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-month note bearing
interest at 6%. Principal and interest are payable in full at maturity on October 31, 2013. In connection with
this note, Universal Travel, Inc. should record interest expense in 2013 in the amount of:
A. $8,000.
B. $30,000.
C. $5,000.
D. $25,000.
22. Which of the following is not an employer payroll cost?
A. FICA taxes.
B. Federal and state unemployment taxes.
C. Federal and state income taxes.
D. Employer contributions to a retirement plan.
23. Which of the following is not withheld from an employee's salary?
A. FICA taxes.
B. Federal and state unemployment taxes.
C. Federal and state income taxes.
D. Employee portion of health insurance.
24. Which of the following is true regarding FICA taxes?
A. FICA taxes are paid only by the employee.
B. FICA taxes are paid only by the employer.
C. FICA taxes are paid in equal amounts by the employee and the employer.
D. FICA taxes are paid in different amounts by the employee and the employer.
29. Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income
taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are
3.8% of the first $7,000 earned per employee. What is the actual direct deposit of payroll for the first week
of January?
A. $5,404.
B. $5,708.
C. $4,792.
D. $8,000.
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30. Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income
taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are
3.8% of the first $7,000 earned per employee. What is the total payroll tax expense for the first week of
January?
A. $612.
B. $1,224.
C. $916.
D. $304.
34. When a company delivers a product or service for which a customer has previously paid, the company
records the following:
A. A debit to a revenue account and a credit to a liability account.
B. A debit to a revenue account and a credit to an asset account.
C. A debit to an asset account and a credit to a revenue account.
D. A debit to a liability account and a credit to a revenue account.
36. When a company collects sales tax from a customer, the event is recorded by:
A. A debit to Sales Tax Expense and a credit to Sales Tax Payable.
B. A debit to Cash and a credit to Sales Tax Payable.
C. A debit to Sales Tax Payable and a credit to Sales Tax Expense.
D. A debit to Sales Tax Payable and a credit to Cash.
37. Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the restaurant charge you for
the lunch (excluding any tax) and how much do they owe for sales tax?
A. $8.39 for lunch and $0.42 for sales tax.
B. $8.39 for lunch and no sales tax.
C. $8.81 for lunch and $0.42 for sales tax.
D. $7.99 for lunch and $0.40 for sales tax.
40. Region Jet has a $50 million liability at December 31, 2012, of which $10 million is payable in 2013. In its
December 31, 2012 balance sheet, the company reports the $50 million debt as
A. A $50 million current liability on the balance sheet.
B. A $50 million long-term liability on the balance sheet.
C. A $10 million current liability and a $40 million long-term liability on the balance sheet.
D. A $40 million current liability and a $10 million long-term liability on the balance sheet.
49. Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury will find in favor of the
plaintiff and Ogden will owe ten million dollars. What is the appropriate reporting of this lawsuit and what
is the effect on the balance sheet?
A. Record; decrease stockholders' equity and increase liabilities.
B. Record; increase stockholders' equity and decrease liabilities.
C. Disclose; no effect on the balance sheet.
D. Disclose; decrease stockholders' equity and decrease liabilities.
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51. At the beginning of 2012, Angel Corporation began offering a 1-year warranty on its products. The warranty
program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2012 were $180
million. Five percent of the units sold were returned in 2012 and repaired or replaced at a cost of $5.3
million. The amount of warranty expense on Angel's 2012 income statement is:
A. $5.3 million.
B. $7.2 million.
C. $9.0 million.
D. $27.0 million.
52. Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals
are faulty and will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and
45 have been repaired. If the estimated cost to repair a goal is $200, what would be the Warranty Liability at
the end of the year?
A. $0.
B. $16,000.
C. $7,000.
D. $6,750.
61. Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are
performed by an independent service company under a contract with Volt. Based on prior experience,
warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:
A. When the equipment is sold.
B. When the repairs are performed.
C. When payments are made to the service firm.
D. Evenly over the life of the warranty.
67. A company's liquidity refers to its:
A. Ability to collect accounts receivable.
B. Ability to sell inventory efficiently.
C. Ability to generate profits from operations.
D. Ability to pay currently maturing debts.
69. The current ratio is
A. Current assets divided by current liabilities.
B. Cash and short-term investments divided by current liabilities.
C. Cash, short-term investments, and accounts receivable divided by current liabilities.
D. Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.
70. The acid-test ratio is
A. Current assets divided by current liabilities.
B. Cash and short-term investments divided by current liabilities.
C. Cash, short-term investments, and accounts receivable divided by current liabilities.
D. Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.
Long-Term Liabilities
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4. Samson Enterprises issued a ten-year, $20 million bond with a 10% interest rate for $19,500,000. The entry
to record the bond issuance would have what effect on the financial statements?
A. Increase assets.
B. Increase liabilities.
C. Increase stockholders' equity.
D. a. and b.
10. Which of the following definitions describes a secured bond?
A. Matures on a single date.
B. Secured only by the "full faith and credit" of the issuing corporation.
C. Matures in installments.
D. Supported by specific assets pledged as collateral by the issuer.
11. Term bonds are:
A. bonds issued above the face amount.
B. bonds that mature in installments.
C. bonds that mature all at once.
D. bonds issued below the face amount.
12. Serial bonds are:
A. bonds backed by collateral.
B. bonds that mature in installments.
C. bonds with greater risk.
D. bonds issued below the face amount.
17. The price of a bond is equal to:
A. the future value of the face amount only.
B. the present value of the interest only.
C. the present value of the face amount plus the present value of the stated interest payments.
D. the future value of the face amount plus the future value of the stated interest payments.
18. A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of
interest is also 10%. These bonds will sell at a price that is:
A. Equal to $500,000.
B. More than $500,000.
C. Less than $500,000.
D. The answer cannot be determined from the information provided.
interest is 8%. These bonds will sell at a price that is:
A. Equal to $500,000.
interest is 6%. These bonds will sell at a price that is:
A. Equal to $500,000.
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29. Raiders Company issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years.
Interest payments are made semi-annually. The market rate for this type of bond is 12%. What is the issue
price of the bond?
A. $83,920
B. $46,320
C. $53,605
D. $50,000
39. 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.
70. X2 issued callable bonds on January 1, 2012. The bonds pay interest annually on December 31 each year.
X2's accountant has projected the following amortization schedule from issuance until maturity:
X2 buys back the bonds for $103,000 immediately after the interest payment on 12/31/12 and retires them.
What gain or loss, if any, would X2 record on this date?
A. No gain or loss.
B. $3,000 gain.
C. $1,202 loss.
D. $327 loss.
72. The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million, but the
market value of the bonds is $36 million. The entry to record the retirement will include:
A. A credit of $6 million to a gain account.
B. A debit of $6 million to a loss account.
C. No gain or loss on retirement.
D. A debit to cash for $42 million.
73. The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the
market value of the bonds is $23 million. The entry to record the retirement will include:
A. A debit of $5 million to a loss account.
B. A credit of $5 million to a gain account.
C. No gain or loss on retirement.
D. A debit to cash for $18 million.
75. The entry to record a monthly payment on an installment note such as a car loan:
A. Increases expense, decreases liabilities, and decreases assets.
B. Increases expense, increases liabilities, and increases assets.
C. Increases expense, decreases liabilities, and increases assets.
D. Increases expense, increases liabilities, and decreases assets.
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76. How does the amortization schedule for an installment note such as a car loan differ from an amortization
schedule for bonds?
A. The final carrying value is zero in an amortization schedule for an installment note.
B. The final carrying value is zero in an amortization schedule for bonds.
C. The final carrying value is zero in both amortization schedules.
D. The final carrying value is not zero in either amortization schedule.
80. Financial leverage is best measured by which of the following ratios?
A. The debt to equity ratio.
B. The return on equity ratio.
C. The times interest earned ratio.
D. The return on assets ratio.
84. Selected financial data for Home Depot is provided below:
What is the times interest earned ratio for Home Depot?

A. 6.9 times.
B. 3.9 times.
C. 0.3 times.
D. 97.9 times.
Stockholders' Equity
7. Advantages of the corporate form of business include which of the following?
I. Double taxation
II. Ability to raise capital
III. Lack of mutual agency
IV. More paperwork
V. Limited liability
A. II.
B. II., III., V.
C. I., II., III.
D. II., IV., V.
9. The disadvantages of the corporate form of business include:
A. Lack of mutual agency.
B. Additional taxes.
C. Limited liability.
D. Ability to raise capital.
12. Authorized common stock refers to the total number of shares:
A. Outstanding.
B. Issued.
C. Issued and outstanding.
D. That can be issued.
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13. Outstanding common stock is:
A. Stock that is performing well on the New York Stock Exchange.
B. Stock that has been authorized by the state for issue.
C. Stock issued plus treasury stock.
D. Stock in the hands of stockholders.
Fall 2015 - Gee
14. Issued stock refers to the number of shares:

A. Outstanding plus treasury shares.
B. Authorized.
C. In the hand of stockholders.
D. That may be issued under state law.
18. When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for
this issuance would include:
A. A debit to Cash for $25,000.
B. A debit to Additional Paid-in Capital for $25,000.
C. A credit to Common Stock for $250,000.
D. A credit to Additional Paid-in Capital for $225,000.
22. Preferred stock is called preferred because it usually has two preferences over common stock. These
preferences relate to:
A. Dividends and voting rights.
B. Par value and dividends.
C. The preemptive right and voting rights.
D. Dividends and distribution of assets if the corporation is dissolved.
27. A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the
journal entry to record the issuance?
A. Debit Preferred Stock $5,000.
B. Credit Cash $5,000.
C. Credit Preferred Stock $5,000.
D. Credit Additional Paid-In Capital $4,000.
28. The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2011. All
remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay
dividends of $18,000 in 2012. Assuming the preferred stock is cumulative, how much of the $18,000
dividend will be paid to preferred stockholders and how much will be paid to common stockholders in
2012?
A. $6,000 to preferred stockholders and $12,000 to common stockholders.
B. $18,000 to preferred stockholders and $0 to common stockholders.
C. $12,000 to preferred stockholders and $6,000 to common stockholders.
D. $9,000 to preferred stockholders and $9,000 to common stockholders.
29. The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2011. All
remaining shares are common stock. The company was not able to pay dividends in 2011, but plans to pay
dividends of $18,000 in 2012. Assuming the preferred stock is noncumulative, how much of the $18,000
dividend will be paid to preferred stockholders and how much will be paid to common stockholders in
2012?
A. $6,000 to preferred stockholders and $12,000 to common stockholders.
B. $18,000 to preferred stockholders and $0 to common stockholders.
C. $12,000 to preferred stockholders and $6,000 to common stockholders.
D. $9,000 to preferred stockholders and $9,000 to common stockholders.
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32. Treasury Stock is normally reported as:

A. A reduction of total stockholders' equity.
B. An asset account.
C. A liability account.
D. An expense account.
34. When treasury stock is resold at a price below cost:
A. Additional Paid-in Capital is decreased.
B. Additional Paid-in Capital is increased.
C. A gain is reported on the income statement.
D. A loss is reported on the income statement.
35. When treasury stock is purchased, what is the effect on assets and stockholders' equity?
A. Assets and stockholders' equity increase.
B. Assets and stockholders' equity decrease.
C. Assets increase and stockholders' equity decrease.
D. Assets decrease and stockholders' equity increase.
37. Treasury Stock:
A. has a normal credit balance.
B. decreases stockholders' equity.
C. is recorded as an investment.
D. increases stockholders' equity.
46. On February 22, Brett Corporation reacquired 200 shares of its $5 par value common stock for $25 each. On
March 15, the company reissued 70 shares for $30 each. What is true of the journal entry for reissuing their
shares?
A. Credit Cash $1,750.
B. Credit Additional Paid in Capital $350.
C. Debit Treasury Stock $1,750.
D. Credit Treasury Stock $2,100.
47. Retained Earnings represent a company's:
A. Net income less dividends since the company first started.
B. Undistributed net assets.
C. Extra paid-in capital.
D. Undistributed cash.
51. Journal entries to record cash dividends are made on the:
A. declaration date, record date, and payment date.
B. record date and payment date.
C. declaration date and payment date.
D. declaration date and record date.
52. The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common
stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000
shares held as treasury stock. What is the entry for the dividend declaration?
A.
Dividends
9,000
Dividends Payable
9,000
B.
Dividends
9,000
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Cash
C.
D.
9,000
Dividends
Dividends Payable
10,000
Dividends
Cash
10,000
10,000
10,000
53. The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the
year. The company's net income earned during the year is $3.5 million. What is the amount of dividends
Lambert Inc. declared and paid?
A. $1.5 million.
B. $3.5 million.
C. $2.0 million.
D. $5.0 million.
54. Over the first four years of the company's life, it earned the following net income (loss): $6,000; $3,000;
$6,000, and ($2,000). If the company's 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.
57. The declaration and issuance of a stock dividend:
A. Does not change total assets, liabilities, or total stockholders' equity.
B. Decreases total stockholders' equity and increases common stock.
C. Decreases assets and decreases total stockholders' equity.
D. Does not change retained earnings or paid-in capital.
60. A feature common to both stock splits and stock dividends is
A. That there is no effect on total stockholders' equity.
B. A reduction in the contributed capital of a corporation.
C. A transfer to earned capital of a corporation.
D. An increase in total liabilities of a corporation.
65. Panhandle Corporation was organized on January 3, 2012. The firm was authorized to issue 100,000 shares
of $5 par value common stock. During 2012, Panhandle had the following transactions relating to
shareholders' equity:
Issued 30,000 shares of common stock at $7 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.
What is total paid-in capital at the end of 2012?
A. $420,000.
B. $370,000.
C. $470,000.
D. $320,000.
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66. Roberto Corporation was organized on January 1, 2012. The firm was authorized to issue 100,000 shares of
$5 par value common stock. During 2012, Roberto had the following transactions relating to stockholders'
equity:
Reported a net income of $100,000.
Paid dividends of $50,000.
Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).
What is total stockholders' equity at the end of 2012?
A. $270,000.
B. $300,000.
C. $250,000.
D. $200,000.
67. Return on equity is calculated as:
A. Net income divided by average stockholders' equity.
B. Net income divided by ending stockholders' equity.
C. Net income divided by average market value of equity.
D. Net income divided by ending market value of equity.
71. Financial information for Retro Designs includes the following selected data:
What is the company's earnings per share?

A. $0.60.
B. $0.71.
C. $0.50.
D. $0.05.
72. Financial information for Retro Designs includes the following selected data:
What is the company's price-earnings ratio?
A. 20.0.
B. 15.0.
C. 6.9.
D. 0.05.
Statement of Cash Flows

2. The purchase of land is classified in the statement of cash flows as a(n):
A. Operating activity.
B. Investing activity.
C. Financing activity.
D. Noncash activity.
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3. The issuance of notes payable for borrowing is classified in the statement of cash flows as a(n):
4. The purchase of treasury stock is classified in the statement of cash flows as a(n):
6. The statement of cash flows reports cash flows from the activities of:
A. Operating, purchasing, and investing.
B. Borrowing, paying, and investing.
C. Operating, investing, and financing.
D. Using, investing, and financing.
9. All classifications on the Balance Sheet have a general relationship with sections identified on the Statement
of Cash Flows. Indicate which relationships are correctly identified in the table below.
A. IV, V.
B. I, II, III.
C. I, III, IV, V.
D. All five are correct.
11. Under what section of the Statement of Cash Flows would you classify the purchase of equipment by
issuing a long-term note payable?
A. Operating.
B. Investing.
C. Financing.
13. Which of the following is an example of a noncash activity?
A. Sale of land for less than its cost.
B. Purchase of land by issuing debt.
C. Sale of land for more than its cost.
D. Purchase of land using cash proceeds from issuance of common stock.
15. Dividends received from an investment is classified as a(an) __________ cash flow, and paying dividends
on stock issued is classified as a(an) ____________ cash flow on the Statement of Cash Flows.
A. Operating; Operating.
B. Operating; Financing.
C. Financing; Operating.
D. Investing; Financing.
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Fall 2015 - Gee
16. 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.
17. 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.
18. In the operating activities section of the statement of cash flows, we start with net income when using:
A. the direct method.
B. the indirect method.
C. both the direct and the indirect method.
D. neither the direct nor the indirect method.
Questions 20-22: Bad Brad's BBQ had cash flows for the year as follows ($ in millions):
20. Bad Brad's would report net cash inflows (outflows) from operating activities in the amount of:
A. $(80).
B. $120.
C. $200.
D. $420.
21. Bad Brad's would report net cash inflows (outflows) from investing activities in the amount of:
A. $(4,000).
B. $100.
C. $(3,900).
D. $(1,900).
22. Bad Brad's would report net cash inflows (outflows) from financing activities in the amount of:
A. $1,100.
B. $(1,100).
C. $820.
D. $900.
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23. We can identify operating activities from income statement information and changes in
A. Long-term asset accounts.
B. Long-term liability accounts.
C. Current asset and current liability accounts.
D. Stockholders' equity accounts.
Fall 2015 - Gee
24. In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would
be reported or included as a(n):
A. Addition to net income in the operating activities section.
B. Deduction from net income in the operating activities section.
D. Investing activity.
25. In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be
reported as a(n):
A. Addition to net income in the operating activities section.
B. Deduction from net income in the operating activities section.
D. Investing activity.
26. Which of the following is NOT a correct practice when adjusting net income to net operating cash flows?
A. Subtract depreciation expense.
B. Add losses on sales of assets.
C. Subtract increase in Accounts Receivable.
D. Add increase in Accounts Payable.
29. Given the items below, which of the following is a subtraction from net income to arrive at Operating Cash
Flows using the indirect method?
A. II. only.
B. IV. only.
C. I. and II.
D. II. and III.
30. Rachel's Recordings reported net income of $200,000. Beginning balances in Accounts Receivable and
Accounts Payable were $15,000 and $20,000, respectively. Ending balances in these accounts were $12,000
and $22,000, respectively. Assuming that all relevant information has been presented, Rachel's cash flows
from operating activities would be:
A. $200,000.
B. $195,000.
C. $205,000.
D. $199,000.
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Fall 2015 - Gee
32. Kela Corporation reports net income of $450,000 that includes depreciation expense of $70,000. Also, cash
of $50,000 was borrowed on a 5-year note payable. Based on this data, total cash inflows from operating
activities are:
A. $380,000.
B. $470,000.
C. $520,000.
D. $570,000.
37. Assuming Net Income for the year is $115,000, what is the Operating Cash Flows given the following
information:
A. $112,000.
B. $88,000.
C. $118,000.
D. $188,000.
Questions 46 & 47: During 2012, Smithson 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.
46. 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).
47. What amount would be reported for financing cash flows on the Statement of Cash Flows?
A. $5,000.
B. $2,000.
C. $6,000.
D. ($8,000).
51. During 2012, Victoria Group: (1) received cash of $5,000 billed to a customer in 2011; (2) earned $20,000
of net income; (3) paid interest of $6,000 on a corporate bond issued; (4) paid dividends of $8,000 to its
stockholders; (5) borrowed $40,000 from a local bank; and (6) purchased its own shares of common stock
for $10,000. What is Victoria Group's cash flow from financing activities in 2012?
A. $40,000.
B. $30,000.
C. $22,000.
D. $16,000.
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52. The following information pertains to Alpha Computing at the end of 2012:
Fall 2015 - Gee
Alpha Computing's Retained Earnings account had a zero balance at the beginning of 2012.
What amount of dividends did the company pay in 2012?
A. $280,000.
B. $150,000.
C. $30,000.
D. $80,000.
Bonds
150.
On January 1, 2007, $1,000,000, 10-year, 10% bonds, were issued for $970,000. Interest is paid
annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on
bonds payable, the monthly amortization amount is
a. $9,700.
b. $3,000.
c. $808.
d. $250.
151.
A corporation issues $100,000, 10%, 5-year bonds on January 1, 2007, for $95,800. Interest is paid
annually on January 1. If the corporation uses the straight-line method of amortization of bond discount,
the amount of bond interest expense to be recognized in December 31, 2007s adjusting entry is
a. $10,840.
b. $10,000.
c. $9,160.
d. $840.
160.
Joyce Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2007, 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.
161.
Mendez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2007, at 103. The journal
entry to record the issuance will show a
a. debit to Cash of $2,000,000.
b. debit to Premium on Bonds Payable for $60,000.
c. credit to Bonds Payable for $2,000,000.
d. credit to Cash for $2,060,000.
Use the following information for questions 177-180.

Golden Company received proceeds of $94,250 on 10-year, 8% bonds issued on January 1, 2006. The bonds
had a face value of $100,000, pay interest annually on December 31st, and have a call price of 101. Golden uses
the straight-line method of amortization.
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177. What is the amount of interest Golden must pay the bondholders in 2006?
a. $7,540
b. $8,000
c. $8,575
d. $7,425
Fall 2015 - Gee
178.
What is the amount of interest expense Golden will show with relation to these bonds for the year ended
December 31, 2007?
a. $8,000
b. $7,540
c. $8,575
d. $7,425
179.
What is the carrying value of the bonds on January 1, 2008?

a. $100,000
b. $95,400
c. $98,850
d. $94,825
Page 51 of 51

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ACCT 2301 Final Review

Fall 2015 - Gee

Accounting Information and Decision Making

ACCT 2301 Final Review

Fall 2015 - Gee

The Accounting Information System

ACCT 2301 Final Review

ACCT 2301 Final Review

ACCT 2301 Final Review

Fall 2015 - Gee

ACCT 2301 Final Review

ACCT 2301 Final Review

The Financial Reporting Process

ACCT 2301 Final Review

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32. Adjusting entries are primarily needed for:

ACCT 2301 Final Review

ACCT 2301 Final Review

What is the amount of current liabilities?

ACCT 2301 Final Review

60. What is Trumpeter's net income?

ACCT 2301 Final Review

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ACCT 2301 Final Review

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Cash and Internal Controls

ACCT 2301 Final Review

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11. Separation of duties refers to:

ACCT 2301 Final Review

ACCT 2301 Final Review

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Receivables and Sales

ACCT 2301 Final Review

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ACCT 2301 Final Review

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ACCT 2301 Final Review

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ACCT 2301 Final Review

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ACCT 2301 Final Review

Inventory and Cost of Goods Sold

ACCT 2301 Final Review

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ACCT 2301 Final Review

ACCT 2301 Final Review

Fall 2015 - Gee

25. The following information pertains to Julia & Company:

ACCT 2301 Final Review

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Cost of Goods Sold

Cost of Goods Sold

Cost of Goods Sold

47. Merchandise sold FOB destination indicates that:

ACCT 2301 Final Review

59. What was LeGrand's gross profit?

ACCT 2301 Final Review

Fall 2015 - Gee

60. What was LeGrand's operating income?

At what amount should OldWest report its inventory?

75. Anthony's inventory turnover ratio is:

ACCT 2301 Final Review