Accounting Exam 2 Multiple Choice Practice
Which of the following should be disclosed in the balance sheet or the notes to the financial statements?
amount of depreciation and amortization expense for the period balances of the major classes of assets depreciation and amortization methods used
If a check written and paid by the bank for $638 is incorrectly recorded on the company's books at $683, the appropriate treatment on the bank reconciliation would be to
add $45 to the book's balance.
Liabilities are classified on the balance sheet as current or
long-term
By computing the present value of the principal paid at maturity and all interest payments to be made over the term of the bond, you can obtain the ________ of bonds.
market price
When a note receivable is honored, Cash is debited for the note's ________ value.
maturity
Which of the following is considered a cash equivalent?
money market funds
What does a check marked NSF mean?
no sufficient funds
When will the carrying value of bonds equal the market price?
on the date of issuance
The issuance of common stock affects
only the paid-in capital account.
Which of the following affects the cash balance per bank?
outstanding checks
Printing check amounts by machine in indelible ink is an example of
physical controls
Cash equivalents are highly liquid investments that are both
readily convertible and very close to their maturity dates.
The board of directors of Pilgrim Company authorizes a $100,000 restriction of retained earnings for a future plant expansion. This action will
reduce the amount of retained earnings available for dividend declarations.
Which of the following is BEST at providing evidence that helps companies enforce the principle of establishing responsibility?
requiring identifying passcodes in order to carry out activities
To find the asset turnover ratio, divide net ________ total assets.
sales by average
Which of the following is an example of an electronic funds transfer?
sending payroll data directly to banks for direct deposit to employee accounts
A promissory note holds a _______ legal claim than an account receivable.
stronger
A small business owner has two employees but each employee has a separate cash register drawer. This situation can be viewed as
supporting establishment of responsibility.
When companies set their dividend payout, they generally aim for a rate that is
sustainable
If the estimated useful life of equipment changes, then this change requires
that the amount of the periodic depreciation be changed in the current year and in future years.
An investor knows the total assets and total liabilities of a company, but they are not sure how much of the assets and liabilities are current versus long-term. Based on this, the investor could calculate
the company's solvency but not their liquidity.
Why should a bank reconciliation be prepared?
to explain any difference between the company's balance per books and the balance per bank
If the allowance method is used to account for uncollectible accounts, when is bad debt expense debited?
when management estimates the amount of uncollectibles
Which of the following items would most likely be paid from a petty cash fund?
working lunches for employees
Wells Company's delivery truck, with a cost of $56,000 was destroyed by fire. At the time of the fire, the balance of the Accumulated Depreciation account amounted to $38,000. The company received $32,000 reimbursement from its insurance company. The gain or loss as a result of the fire was
$14,000 gain
Pat's Garage installed a new parking lot. The paving cost $10,000 and the lights to illuminate the new parking area cost $5,000. These additions require that
$15,000 should be debited to land improvements.
What is the loss on disposal of a plant asset that cost $100,000, had accumulated depreciation of $24,000, and was sold for $60,000?
$16,000
Keck Industries is planning to issue $7 million in bonds with a six-year maturity date and an annual rate of 5.4 percent. How much will they pay in interest over the life of the bonds?
$2,268,000 Interest over the life of the bonds will be $7 million 0.054 6 = $2,268,000.
Wilmington Sports has the following account balances at year end. What are the total intangible assets on the balance sheet?Land: $2,500,000 Trademarks: $1,500,000 Copyrights: $800,000 Research & Development: $800,000
$2,300,000
Maggie Sharrer Company borrows $88,500 on September 1, 2017, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2017?
$3,540
Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2nd, 2017. On July 31st, 2017, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31st, 2017, should be
$35,000
A company has the following accounts: Buildings and Equipment: $34,000,000 Accumulated Depreciation: $4,000,000 Copyrights: $2,500,000 Patents: 3,000,000 Land: 6,000,000 The total net amount reported under Property, Plant, and Equipment would be
$36,000,000
Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is
$4,300
A computer company has $3,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,400,000. What is the amount of net income or loss after these R & D costs are accounted for?
$600,000 loss
The book value, after three years, of a plant asset which cost $100,000, has useful life of ten years, and a salvage value of $20,000, depreciated using straight line method, is
$76,000
A company purchased land for $70,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at
$82,000
A-Team Corporation issued 1,000 shares of $5 par value stock for land. The stock is actively traded at $9 per share. The land was advertised for sale at $10,500. The land should be recorded at
$9,000
Which of the following would be reported on the balance sheet as a cash equivalent? Select all that apply.
- 60-day certificate of deposit - money market fund - money market savings certificate
Justice Enterprises has current assets of $593 million and current liabilities of $316 million. What is their current ratio?
1.88:1 The current ratio is calculated as current assets divided by current liabilities. Therefore, the current ratio is $593 million/$316 million = 1.88:1.
Corn Flake Corporation reported net income of $300,000. Interest expense was $40,000 and income taxes were $100,000. The times interest earned ratio was
11 times
Taft Industries had 250,000 shares of common stock outstanding before a stock split occurred and 500,000 shares outstanding after the stock split. The stock split was
2-for-1
When a company offers a ________, the event does not require a formal journal entry on a corporation's books.
2-for-1 stock split
Companies can amortize a patent for a period that cannot exceed ________ years.
20
When a bond is issued for more than its face value, the market rate of interest is ________ the interest rate stated on the bond.
less than
If $400,000 bonds are issued on January 1 and pay $24,000 interest annually, what is the rate of interest?
6%
In what way is a corporation different from a sole proprietorship or partnership?
A corporation is subject to more federal and state government regulations.
_______ is added to net income when computing cash from operating activities. A. A decrease in accounts payable B. Write-off of an uncollectible account receivable C. Depreciation expense D. Declaration of a cash dividend
A. A decrease in accounts payable
In general, which of the following is considered the MOST important category on the statement of cash flows? A. cash flows from operating activities B. cash flows from financing activities C. cash flows from significant noncash activities D. cash flows from investing activities
A. cash flows from operating activities
If a company uses the indirect method to report cash flows, where, if at all, would a decrease in accounts receivable be classified on the statement of cash flows? A. operating activities section B. financing activities section C. investing activities section D. noncash activities
A. operating activities section
________ are also called trade receivables.
Account Receivables
Which of the following statements regarding reporting receivables on the balance sheet is true?
Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet.
Which of the following statements about free cash flow is true?A.Significant free cash flow indicates less potential to finance new investments. B.Free cash flow is not reported on the statement of cash flows. C.Significant free cash flow indicates less potential to pay additional dividends. D.Free cash flow is most commonly calculated by subtracting capital expenditures from cash provided by operations and then adding cash dividends.
B. Free cash flow is not reported on the statement of cash flows.
______ causes a change in cash during a period. A. Declaration of a cash dividend B. Payment of an accounts payable C. Recording depreciation expense D. Accrual of an expense
B. Payment of an accounts payable
What is the result of an increase in accounts receivable during a period? A. Expenses on an accrual basis are less than expenses on a cash basis. B. Revenues on an accrual basis are greater than revenues on a cash basis. C. Revenues on an accrual basis are the same as revenues on a cash basis. D. Revenues on an accrual basis are less than revenues on a cash basis.
B. Revenues on an accrual basis are greater than revenues on a cash basis.
On the statement of cash flows, how are cash receipts from interest and dividends classified? A. as investing activities B. as operating activities C. as significant noncash activities D. as financing activities
B. as operating activities
Identify the type of activity that includes lending money and collecting on the loans. A. noncash investing and financing activities B. investing activities C. operating activities D. financing activities
B. investing activities
Which of the following is associated with financing activities?A.acquiring investments B.issuing debt C.lending money D.acquiring long-lived assets
B. issuing debt
Blackstone Company has the following information available: Net income, $20,000; Cash provided by operating activities, $30,000; Cash sales, $75,000; Capital expenditures, $12,000; and Cash dividends, $6,000. What is Blackstone's free cash flow? A$27,000 B$12,000 C$48,000 D$2,000
B: $12,000
Which of the following statements is true?
Both a stock split and a stock dividend will increase the number of shares outstanding but will have no effect on total stockholders' equity.
What is the result of an increase in accounts payable during a period? A. Expenses on an accrual basis are the same as expenses on a cash basis. B. Expenses on an accrual basis are less than expenses on a cash basis. C. Expenses on an accrual basis are greater than expenses on a cash basis. D. Revenues on an accrual basis are less than revenues on a cash basis.
C. Expenses on an accrual basis are greater than expenses on a cash basis.
Dividends paid is equal to: A. cash provided by operations less capital expenditures. B. cash provided by investing activities less capital expenditures. C. Free cash flow less cash provided by operations and capital expenditures. D. Free cash flow less cash provided by investing activities and capital expenditures.
C. Free cash flow less cash provided by operations and capital expenditures.
Which is true of the growth phase? A. Positive cash from investing, and negative cash from financing. B. Negative cash from operations, negative cash from investing, and positive cash from financing. C. Small amounts of cash from operations, negative cash from investing, and positive cash from financing. D. Net cash from operations and net income roughly the same, and negative cash from financing.
C. Small amounts of cash from operations, negative cash from investing, and positive cash from financing.
Which component of net income does not affect cash flow?A. purchase of inventory B. payment of cash dividends C. depreciation on plant assets D. issuance of notes payable
C. depreciation on plant assets
Where is a conversion of bonds into common stock reported on a statement of cash flows? A. in the financing section B. in the stockholders' equity section C. in the significant noncash activities D. in the extraordinary section
C. in the significant noncash activities
________ are the costs incurred to increase the operating efficiency or useful life of a plant asset.
Capital Expenditures
Which of the following statements correctly describes the reporting of cash?
Cash is listed first in the current assets section.
ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits are made to
Common Stock $10,000 and Paid-in Capital in Excess of Par-Common Stock $2,000.
An example of a noncash transaction that is not reported in the body of a statement of cash flows is: A. delivering payment for equipment. B. repaying money previously borrowed. C. obtaining capital from owners. D. acquiring land by issuing common stock.
D. acquiring land by issuing common stock.
Which of the following describes free cash flow? A. cash provided by operations less cash dividends B. cash provided by investing activities less capital expenditures and cash dividends C. cash provided by investing activities less capital expenditures D. cash provided by operations less capital expenditures and cash dividends
D. cash provided by operations less capital expenditures and cash dividends
Which of the following terms is computed as cash provided by operations less capital expenditures and cash dividends? A. adjusted cash flow B. direct cash flow C. indirect cash flow D. free cash flow
D. free cash flow
The ________ method adjusts net income to find net cash provided by operating activities. A. working capital B. direct C. cost-benefit D. indirect
D. indirect
What can be determined by converting net income from an accrual basis to a cash basis under either the direct or the indirect method?A.net cash provided by goods sold B.operating expenses C.gross sales revenue D.net cash provided by operating activities
D.net cash provided by operating activities
Valente Company received a $10,000, 12%, 1-year note from Andrea Foley on June 1st, as full payment on her account. Which of the following is the correct journal entry?
DR- Notes Receivable 10,000 CR- Accounts Receivable 10,000
________ controls enhance the accuracy and reliability of the accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.
Internal
How is depreciation accounted for if disposal of a plant asset occurs during the year?
It is recorded for the fraction of the year to the date of the disposal.
A(n)________ requires a journal entry by the depositor.
NSF check
What happens if the amount of uncollectible account expense is overstated at year end?
Net Accounts Receivable will be understated.
Identify the example of poor internal control.
One person should be responsible for handling related transactions.
In vertical analysis, the base amount for depreciation expense is generally: a. net sales b. depreciation expense in a previous year c. gross profit d. fixed assets
a
How to report $500 short-term loan?
Report short-term notes receivable at their cash (net) realizable value. Notes Receivable = debit of $500; Cash = credit of $500
What is the difference between the contractual interest rate and the market interest rate?
The contractual interest rate is used to determine the actual amount of cash interest the issuer pays and the investor receives, whereas the market interest rate is the general rate investors demand for loaning funds.
Which of the following is true about corporations?
The corporation's life is stipulated in its charter.
What is one difference between the current ratio and the times interest earned ratio?
The current ratio measures a company's ability to meet short-term obligations, and the times interest earned ratio measures a company's ability to meet long-term obligations.
What happens if no-par value stock does not have a stated value?
The entire proceeds from the issuance of the stock become legal capital.
Maynard Mills received a 60-day, 5% note for $10,000 on April 5th. Which of the following statements is true?
The principal of the note plus interest is due on June 4.
Candela Company has retained earnings of $500,000, common stock of $400,000, and total common stockholders' equity of $1,200,000. It has 200,000 shares of $2 par value common stock outstanding which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its common stock, which of the following will occur?
There will be no effect on total common stockholders' equity.
Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. Which of the following is/are the debit entry(ies) required to record this transaction by Good Stuff Retailers? a. Cash $48,000 and Service Charge Expense $2,000 b. Accounts Receivable $48,000 and Service Charge Expense $2,000 c. Cash $50,000 d. Accounts Receivable at $50,000
a
What does the term "bonding" mean when it refers to employees?
They have been insured against theft of assets.
What are notes or accounts receivable that result from sales transactions often called?
Trade Receivables
A check is written to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check: a. debit cash over and short for $2 b. debit petty cash for $94 c. credit cash for $94 d. credit petty cash for $2
a
Accounts and notes receivable are reported in the current assets section of the balance sheet at: a. cash (net) realizable value b. net book value c. lower-of-cost-or market value d. invoice cost
a
Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2022. The machine was purchased for $80,000 on January 1, 2018, and was depreciated on a straight-line basis over a 10-year life assuming no salvage value. If the machine was sold for $26,000, how much is the gain or loss to be recorded at the time of the sale? a. $18,000 loss b. $54,000 loss c. $22,000 gain d. $46,000 gain
a
During the introductory phase of a company's life cycle, one would normally expect to see: a. negative cash from operations, negative cash from investing, and positive cash from financing b. negative cash from operations, positive cash from investing, and positive cash from financing c. positive cash from operations, negative cash from investing, and negative cash from from financing d. positive cash from operations, negative cash from investing, and positive cash from financing
a
For the bonds issued in question 17, what is the carrying value of the bonds at the end of the third interest period? a. $492,000 b. $488,000 c. $472,000 d. $464,000
a
In the stockholders' equity section, the cost of treasury stock is deducted from: a. total paid-in capital and retained earnings b. retained earnings c. total stockholders' equity d. common stock in paid-in capital
a
Laurel Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that: a. the contractual interest rate exceeds the market interest rate b. the market interest rate exceeds the contractual interest rate c. the contractual interest rate and the market interest rate are the same d. no relationship exists between the two rates
a
Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage-of-receivables basis. If Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment, what is the balance after adjustment? a. $12,000 b. $7,000 c. $17,000 d. $31,000
a
Plano Corporation reported net income $24,000; net sales $400,000; and average assets of $600,000 for 2022. What is the 2022 profit margin? A. 6% B. 12% C. 40% D. 200%
a
The benefits to leasing include each of the following except: a. higher resale value b. reduced risk of obsolescence c. little or no down payment d. shared tax advantages
a
The control features of a bank account do not include: a. having bank auditors verify the correctness of the bank balance per books. b. minimizing the amount of cash that must be kept on hand. c. providing a double record of all bank transactions. d. safeguarding cash by using a bank as a depository.
a
The time period for classifying a liability as current is one year or the operating cycle, whichever is a longer b. shorter c. probable d. possible
a
What is an example of a cash flow from an operating activity? a. payment of cash to lenders for interest b. receipt of cash from the sale of common stock c. payment of cash dividends to the company's stockholders d. none of the above
a
Which of the following was not a result of the Sarbanes-Oxley Act? a. companies must file financial statements with the Internal Revenue Service b. all publicly traded companies must maintain adequate internal controls c. the Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity d. corporate executives and boards of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so
a
Which of the following will not be reported in the statement of cash flows? a. the net change in stockholders' equity during the year b. cash payments for plant assets during the year c. cash receipts from sales of plant assets during the year d. sources of financing during the period
a
What is a note payable?
a written promissory note
To find the return on common stockholders' equity, divide net income available to common stockholders by ________ stockholders' equity.
average common
A major disadvantage of a corporation is: a. limited liability of stockholders b. additional taxes c. transferable ownership rights d. none of the above
b
Alexis Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, what is the amount to be credited to Sales Revenue? a. $4,000 b. $4,300 c. $4,289.25 d. the correct answer is not given
b
Depreciation is a process of: a. valuation b. cost allocation c. cash accumulation d. appraisal
b
Goethe Corporation redeems its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. The entry to record the redemption will include a: (a) credit of $3,745 to Loss on Bond Redemption. (b) debit of $3,745 to Premium on Bonds Payable. (c) credit of $1,255 to Gain on Bond Redemption. (d) debit of $5,000 to Premium on Bonds Payable.
b
Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on the review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is: a. $5,000 b. $55,000 c. $60,000 d. $65,000
b
Items that are added back to net income in determining net cash provided by operating activities under the indirect method do not include: a. depreciation expense b. an increase in inventory c. amortization expense d. loss on disposal of equipment
b
Jackson Inc. reported net income of $186,000 during 2014 and paid dividends of $26,000 on common stock. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common stockholders' equity was $1,200,000 on January 1, 2014, and $1,600,000 on December 31, 2014. The company's return on common stockholders' equity for 2014 is: (a) 10.0%. (b) 9.0%. (c) 7.1%. (d) 13.3%.
b
Jefferson Company purchased a piece of equipment on January 1, 2022. The equipment cost $60,000 and had an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2023 under the double-declining-balance method? a. $6,500 b. $11,250 c. $15,000 d. $6,562
b
No Fault Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should No Fault report as a current liability for Unearned Insurance Premiums at December 31? a. $0 b. $4,500 c. $13,500 d. $18,000
b
On January 1, Holly Ester Inc. issued $1,000,000, 10-year, 9% bonds for $938,554. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Holly Ester uses the effective-interest method of amortizing bond discount. At the end of the first year, Holly Ester should report unamortized bond discount of: (a) $54,900. (b) $57,591. (c) $51,610. (d) $51,000.
b
Ottman Company borrows $88,500 on September 1, 2022, from Farley State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2022? (a) $2,655. (b) $3,540. (c) $4,425. (d) $10,620.
b
Permitting only designated personnel to handle cash receipts is an application of the principle of: a. segregation of duties b. establishment of responsibility c. independent internal verification d. human resource controls
b
Physical controls do not include: a. safes and vaults to store cash b. independent bank reconciliations c. locked warehouses for inventories d. bank safety deposit boxes for important papers
b
Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2022. On July 31, 2022, Pierce paid $15,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2022? a. $150,000 b. $35,000 c. $185,000 d. $170,000
b
The statement of cash flows classifies cash receipts and cash payments by these activities: a. operating and nonoperating b. operating, investing, and financing c. financing, operating, and nonoperating d. investing, financing, and nonoperating
b
Thomas is nearing retirement and would like to invest in a stock that will provide a good steady income. Thomas should choose a stock with a: a. high current ratio b. high dividend payout c. high earnings per share d. high price-earnings ratio
b
When there is a change in estimated depreciation: a. previous depreciation should be corrected b. current and future years' depreciation should be revised c. only future years' depreciation should be revised d. none of the above
b
Which is an example of a cash flow from a financing activity? a. receipt of cash from the sale of land b. issuance of debt for cash c. purchase of equipment for cash d. none of the above
b
Which of the following about stock dividends is true? a. stock dividends reduce a company's cash balance b. a stock dividend has no effect on total stockholders' equity c. a stock dividend decreases total stockholders' equity d. a stock dividend ordinarily will increase total stockholders' equity
b
Which of the following would be considered an "Other comprehensive income" item? a. gain on disposal of discontinued operations b. unrealized loss on available-for-sale securities c. loss related to flood d. net income
b
Which of the following would not be an example of good cash management? a. provide discounts to customers to encourage early payment b. invest temporary excess cash in stock of a small company c. carefully monitor payments so that payments are not made early d. employ just-in-time inventory methods to keep inventory low
b
Which of these is not a liquidity ratio? a. current ratio b. asset turnover c. inventory turnover d. accounts receivable turnover
b
A patent that has a legal life of 20 years and a useful life of less than 20 years should
be amortized over its useful life.
In selecting a depreciation method, a company should choose the method that
best measures the plant asset's contribution to revenue over its useful life.
The carrying value of bonds is another term for
book value
A company would minimize its depreciation expense in the first year of owning an asset if it used: a. a high estimated life, a high salvage value, and declining-balance depreciation b. a low estimated life, a high salvage value, and straight-line depreciation c. a high estimated life, a high salvage value, and declining-balance depreciation d. a low estimated life, a low salvage value, and declining-balance depreciation
c
A receivable that is evidenced by a formal instrument and that normally requires the payment of interest is: a. an account receivable b. a trade receivable c. a note receivable d. a classified receivable
c
ABC Corp. issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, credits are made to: a. common stock 10000 and paid-in capital in excess of stated value 2000 b. common stock 12,000 c. common stock 10000 and paid-in capital in excess of par value 2000 d. common stock 10000 and retained earnings 2000
c
Adams Corporation reported net sales of $300,000, $330,000, and $360,000 in the years 2020, 2021, and 2022, respectively. If 2020 is the base year, what percentage do 2022 sales represent of the base? a. 77% b. 108% c. 120% d. 130%
c
Andrews Inc. issues a $497,000, 10% 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc. in the second year? a. $16,567 b. $49,700 c. $34,670 d. $346,700
c
Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. How much is the accounts receivables turnover? a. 4.0 and 91.3 days b. 5.3 and 68.9 days c. 6.4 and 57 days d. 8.0 and 45.6 days
c
Employer payroll taxes do not include: a. federal unemployment taxes b. state unemployment taxes c. federal income taxes d. FICA taxes
c
Howard Corporation issued a 20-year mortgage note payable on January 1, 2022. At December 31, 2022, the unpaid principle balance will be reported as: a. a current liability b. a long-term liability c. part current and part long-term liability d. interest payable
c
If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty? a. the company is a valuable company worth investing in b. the company has a well-established brand name c. the company purchased another company d. the goodwill will generate a lot of positive business for the company for many years to come
c
In 2022, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2022, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2022, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to Allowance for Doubtful Accounts at December 31, 2022? a. $20,000 b. $75,000 c. $32,000 d. $30,000
c
In a bank reconciliation, deposits in transit are: a. deducted from the book balance b. added to the book balance c. added to the bank balance d. deducted from the bank balance
c
In a recent year, Derek Corporation had net income of $150,000, interest expense of $30,000, and income tax expense of $20,000. What was Derek Corporation's times interest earned for the year? (a) 5.00. (b) 4.00. (c) 6.67. (d) 7.50.
c
In the stockholders' equity section of the balance sheet, common stock: a. is listed before preferred stock b. is added to total capital stock c. is part of paid-in capital d. is part of additional paid-in capital
c
Indicate which of these statements is true: a. since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements b. goodwill should be reported as a contra asset in the stockholders equity section c. totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements d. intangible assets are typically combined with plant assets and inventory and then shown in the property, plant, and equipment section
c
Kersee Company on June 15 sells merchandise on account to Soo Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received? a. $700 b. $680 c. $686 d. none of the above
c
Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover? a. 0.90 b. 0.20 c. 0.72 d. 1.39
c
Look at 7 in book pp. 13-33
c
On January 1, 2022, Kelly Corp. issues $200,000, 5-year, 7% bonds at face value. The entry to record the issuance of the bonds would include a: a. debit to Cash for $14,000 b. debit to Bonds Payable for $200,000 c. credit to Bonds Payable for $200,000 d. credit to Interest Expense of $14,000
c
On January 1, Nicholas Corporation issued $1,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for: (a) $120,000. (b) $125,581. (c) $128,652. (d) $140,000.
c
On January 1, Xiang Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a: (a) debit to Interest Expense, $57,600. (b) debit to Interest Expense, $60,000. (c) credit to Discount on Bonds Payable, $4,000. (d) credit to Discount on Bonds Payable, $2,000.
c
Prall Company sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 7. What is its average collection period (days)? a. 2,555 b. 30 c. 52 d. 210
c
Sampson Corp. purchased a piece of equipment by issuing a $20,000, 6% installment note payable. Quarterly payments on the note are $1,165. What will be the reduction in the principal portion of the note payable that results from the first payment? (a) $1,165. (b) $300. (c) $865. (d) $1,200.
c
The beginning balance in accounts receivable is $44,000, the ending balance is $42,000, and sales during the period are $129,000. What are cash receipts from customers? a. $127,000 b. $129,000 c. $131,000 d. $141,000
c
The market interest rate: a. is the contractual interest rate used to determine the amount of cash interest paid by the borrower b. is listed in the bond indenture c. is the rate investors demand for loaning funds d. more than one of the above is true
c
The principles of internal control do not include: a. establishment of responsibility b. documentation procedures c. management responsibility d. independent internal verification
c
The return on common stockholders' equity is usually increased by all of the following, except: a. an increase in the return on assets ratio b. an increase in the use of debt financing c. an increase in the company's stock price d. an increase in the company's net income
c
What term is used for bonds that have specific assets pledged as collateral? a. callable bonds b. convertible bonds c. secured bonds d. discount bonds
c
When recording payroll: a. gross earnings are recorded as salaries and wages payable b. net pay is recorded as salaries and wages payable c. payroll deductions are recorded as liabilities d. more than one of the above
c
Which is an example of a cash flow from an investing activity? a. receipt of cash from the issuance of bonds payable b. payment of cash to repurchase outstanding common stock c. receipt of cash from the sale of equipment d. payment of cash to suppliers for inventory
c
Which measure is an evaluation of a company's ability to pay current liabilities? a. accounts receivable turnover b. current ratio c. both a and b d. none of the above
c
Which measure is useful in evaluating the efficiency in managing inventories? a. inventory turnover b. days in inventory c. both a and b d. none of the above
c
Which of the following is incorrect about the statement of cash flows? a. it is the fourth basic financial statement b. it provides information about cash receipts and cash payments of an entity during a period c. it reconciles the ending cash account balance to the balance per the bank statement d. it provides information about the operating, investing, and financing activities of the business
c
Which of the following is incorrect about the statement of cash flows? a. the direct method may be used to report net cash provided by operating activities b. the statement shows the net cash provided (used) for three categories of activity c. the operating activities section is the last section of the statement d. the indirect method may be used to report net cash provided by operating activities
c
Which of the following is not a major advantage of a corporation? a. separate legal existence b. continuous life c. government regulations d. transferable ownership rights
c
Which of the following is not an element of the fraud triangle? a. rationalization b. financial pressure c. segregation of duties d. opportunity
c
Which of the following items in a cash drawer at November 30 is not cash? a. money orders b. coins and currency c. an NSF check d. a customer check dated November 28
c
Which of these statements about Visa credit card sales is incorrect? a. the credit card issuer conducts the credit investigation of the customer b. the retailer is not involved in the collection process c. the retailer must wait to receive payment from the issuer d. the retailer received cash more quickly than it would from individual customers
c
Which of these statements about promissory notes is incorrect? a. the party making the promise to pay is called the maker b. the party to whom payment is to be made is called the payee c. a promissory note is not a negotiable instrument d. a promissory note is more liquid than an account receivable
c
Which situation below might indicate a company has a low quality of earnings? a. the same accounting principles are used each year b. revenue is recognized when the performance obligation is satisfied c. maintenance costs are capitalized and then depreciated d. the company's P-E ratio is high relative to competitors
c
Which statement correctly described the reporting of cash? a. cash cannot be combined with cash equivalents b. restricted cash funds may be combined with cash c. cash is listed first in the current assets section d. restricted cash funds cannot be reported as a current asset
c
If a company wants to reserve the right to purchase their issued bonds back from the bondholder, they should issue ________ bonds.
callable
Stewart Soaps began business by issuing 25,000 shares of $5 par value common stock for $20 per share. During its first year, the corporation sustained a net loss of $5,000. The year-end balance sheet would show
common stock of $125,000.
To find the book value of a plant asset, you find the difference between the
cost of the asset and the accumulated depreciation to date.
A company receives $198, $13 of which is for sales tax. The journal entry to record the sale would include a
credit to Sales Taxes Payable for $13.
From a liquidity standpoint, which is more desirable for a company to have?
current assets exceed current liabilities
A company can accelerate its cash receipts by all of the following except: a. offering discounts for early year payment b. accepting national credit cards for customer purchases c. selling receivables to a factor d. writing off receivables
d
Able Towing Company purchased a tow truck for $60,000 on January 1, 2022. It was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000. On December 31, 2024, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 more years as of January 1, 2024, and the salvage value was adjusted to $2,000. How much is depreciation expense for 2024? a. $6,000 b. $4,800 c. $15,000 d. $12,100
d
Additions to plant assets are: a. revenue expenditures b. debited to the Maintenance and Repairs Expense account c. debited to the purchases account d. capital expenditures
d
Cash dividends paid to stockholders are classified on the statement of cash flows as: a. operating activities b. investing activities c. a combination of (a) and (b) d. financing activities
d
Cool Stools Corporation has income before taxes of $400,000 and a pretax extraordinary loss of $100,000. If the income tax rate is 25%, the income statement should show income before irregular items and extraordinary items, respectively, of A. $325,000 and $100,000 B. $325,000 and $75,000 C. $300,000 and $100,000 D. $300,000 and $75,000
d
Cuso Company purchased equipment on January 1, 2021, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2022, if the straight-line method of depreciation is used? a. $80,000 b. $160,000 c. $78,000 d. $156,000
d
Entries for cash dividends are required on the: a. declaration date and the record date b. record date and the payment date c. declaration date, record date, and payment date d. declaration date and the payment date
d
Free cash flow provides an indication of a company's ability for: a. manage inventory b. generate cash to pay dividends c. generate cash to invest in new capital expenditures d. both (b) and (c)
d
If a company is concerned about extending credit to a risky customer, it could do any of the following except: a. require the customer to pay cash in advance b. require the customer to provide a letter of credit or a bank guarantee c. contact references provided by the customer, such as banks and other suppliers d. provide the customer a lengthy payment period to increase the chance of paying
d
If everything else is held constant, earnings per share is increased by: a. the payment of a cash dividend to common shareholders b. the payment of a cash dividend to preferred shareholders c. the issuance of new shares of common stock d. the purchase of treasury stock
d
In horizontal analysis, each item is expressed as a percentage of the: a. net income amount b. stockholders' equity amount c. total assets amount d. base-year amount
d
In reporting discontinued operations, the income statement should should show in a special section: a. gains on the disposal of the discontinued component b. losses on the disposal of the discontinued component c. neither a nor b d. both a and b
d
Internal control is used in a business to: a. safeguard its assets b. enhance the accuracy and reliability of its accounting records c. ensure compliance with laws and regulations d. all of these answer choices are correct
d
JD Company borrowed $70,000 on December 1 on a 6-month, 12% note. At December 31: a. neither the note payable nor the interest payable is a current liability b. the note payable is a current liability but the interest payable is not c. the interest payable is a current liability but the note payable is not d. both the note payable and the interest payable are current liabilities
d
Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the indirect method, what is net cash provided by operating activities? a. $102,000 b. $112,000 c. $124,000 d. $136,000
d
Preferred stock may have priority over common stock except in: a. dividend preference b. preference to assets in the event of liquidation c. cumulative dividends d. voting
d
Prescher Corporation issued bonds that pay interest every January 1. The entry to accrue bond interest at December 31 includes a: (a) debit to Interest Payable. (b) credit to Cash. (c) credit to Interest Expense. (d) credit to Interest Payable.
d
Receivables are frequently classified as: a. accounts receivable, company receivables, and other receivables b. accounts receivable, notes receivable, and employee receivables c. accounts receivable and general receivables d. accounts receivables, notes receivable, and other receivables
d
The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is: a. outstanding checks b. deposit in transit c. a bank error d. bank service charges
d
The use of prenumbered checks in distributing cash is an application of the principle of: a. establishment of responsibility b. segregation of duties c. physical controls d. documentation procedures
d
To be classified as a current liability, a debt must be expected to be paid within: a. 1 year b. the operating cycle c. 2 years d. (a) or (b) whichever is longer
d
Treasury stock may be repurchased: a. to reissue the shares to officers and employees under bonus and stock compensation plans b. to signal to the stock market that management believes the stock is underpriced c. to have additional shares available for use in the acquisition of other companies d. more than one of the above
d
U-Bet Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2014. No dividends were declared in 2012 or 2013. If U-Bet wants to pay $375,000 of dividends in 2014, common stockholders will receive: (a) $0. (b) $295,000. (c) $215,000. (d) $135,000.
d
Use the same information as in question 11, except that Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. In this situation, the amount of bad debt expense that should be reported for the year is: a. $5,000 b. $55,000 c. $60,000 d. $65,000
d
Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system? a. establishment of responsibility b. segregation of duties c. independent internal verification d. all of these control activities are relevant to a computerized system
d
Which of the following is a measure of liquidity? a. debt to assets ratio b. working capital c. current ratio d. both working capital and current ratio
d
Which of the following is not one of the sections of a cash budget? a. cash receipts section b. cash disbursements section c. financing section d. cash from operations section
d
Which of the following items is reported on a statement of cash flows prepared by the direct method? a. loss on disposal of building b. increase in accounts receivable c. depreciation expense d. cash payments to suppliers
d
Which of the following measures provides an indication of how efficient a company is in employing its assets? a. current ratio b. profit margin c. debt to assets ratio d. asset turnover
d
Which of the following statements is false? a. if an intangible asset has a finite life, it should be amortized b. the amortization period of an intangible asset can exceed 20 years c. goodwill is recorded only when a business is purchased d. research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent
d
Which of these statements is false? a. ownership of common stock gives the owner a voting right b. the stockholders' equity section begins with paid-in capital c. the authorization of capital stock does not result in a formal accounting entry d. legal capital is intended to protect stockholders
d
Zealot Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Zealot declares a 10% stock dividend on its common stock: a. net income will decrease by $80,000 b. retained earnings will decrease by $80,000 and total stockholders' equity will increase by $80,000 c. retained earnings will decrease by $300,000 and total stockholders' equity will increase by $300,000 d. retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000
d
Bent Corporation issues 500, 10-year, 6%, $4,000 bonds dated January 1, 2017, at 96. The journal entry to record the issuance will show a
debit to Cash for $1,920,000.
Jordan Corporation issues 100, 5-year, 8%, $2,000 bonds dated January 1, 2017, at 96. The journal entry to record the issuance will show a
debit to Cash for $192,000.
The entry to recognize the bad debt expense ________ when the allowance method is used.
decreases current assets
When a corporation purchases treasury stock, the acquisition
decreases the company's total assets and total stockholders' equity.
When a company uses prenumbered checks and requires an approved invoice for each check, it is using which internal control?
documentation procedures
When can interest be included in the acquisition cost of a plant asset?
during the construction period of a self-constructed asset
A voucher system is a series of prescribed control procedures that are designed to
ensure that disbursements by check are proper.
When a company allows only designated personnel to handle cash receipts, it is applying the internal control principle of
establishment of responsibility.
Where is the loss on disposal of a plant asset reported in the financial statements?
in the Other Expenses and Losses section of the income statement
When a company declares a stock dividend, the declaration will
increase paid-in capital.