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.
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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.
Page 4 of 51
50. Expenses 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
51. Liabilities 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
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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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
Page 9 of 51
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.
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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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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
Page 13 of 51
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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
Cash
Sales Revenue
Accounts Receivable
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
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
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
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Cash
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
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.
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.
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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
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
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D.
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.
2,000
1,000
2,000
2,000
1,000
3,000
2,000
3,000
Accounts Payable
Inventory
200
Purchase Returns
Accounts Payable
200
Accounts Payable
Purchase Returns
200
200
200
200
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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
54. On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30.
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:
Page 26 of 51
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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
89. 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 periodic inventory
system?
A.
Accounts Payable
2,000
Cash
2,000
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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
90. On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30.
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
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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
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
Page 33 of 51
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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65. 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 profit margin?
A. 10%.
B. 12.5%.
C. 18%.
D. 22%.
66. 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 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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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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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:
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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Dividends
9,000
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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.
Issued 20,000 shares of common stock at $8 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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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.
D. Noncash activity.
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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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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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.
C. Financing activity.
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.
C. Financing activity.
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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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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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.
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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.
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