Question 1 the accounting process involves all of the following

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Question 1

The accounting process involves all of the following except

identifying economic transactions that are relevant to the business.

analyzing and interpreting financial reports.

communicating financial information to users by preparing financial reports.

recording non-quantifiable economic events.

Question 2

Which of the following would not be considered an internal user of accounting data?

Controller of the company

Production manager

President of the company

Internal Revenue Service

Question 3

Generally Accepted Accounting Principles are

theories that are based on physical laws of the universe.

principles that have been proven correct by academic researchers.

income tax regulations of the Internal Revenue Service.

standards that indicate how to report economic events.

Question 4

The three types of business entities are

proprietorships, partnerships, and corporations.

proprietorships, partnerships, and large businesses.

financial, manufacturing, and service companies.

proprietorships, small businesses, and partnerships.

Question 5

Owner’s equity is equal to

assets minus liabilities.

assets plus liabilities.

assets minus revenues.

revenues minus expenses.

Question 6

The left side of an account

is always the credit side.

is always the debit side.

is always the balance side.

may represent the debit side or the credit side.

Question 7

Credits

decrease both assets and liabilities.

increase both assets and liabilities.

decrease both assets and equity.

increase liabilities and decrease assets.

Question 8

The second step in the recording process is

preparing a trial balance.

posting to the general ledger.

analyzing a transaction.

journalizing a transaction.

Question 9

The chart of accounts is a

device used to prove the mathematical accuracy of the ledger.

listing of the accounts and the account numbers that identify their location in the ledger.

required step in the recording process.

list of accounts and their balances at a given time.

Question 10

A list of accounts and their balances at a given point in time is called a

chart of accounts.

trial balance.

general journal.

general ledger.

Question 11

The expense recognition principle matches

assets with owner’s equity.

assets with liabilities

assets with expenses.

expenses with revenues.

Question 12

If a resource has been consumed but a bill has not been received at the end of the accounting period,

it is optional whether to record the expense before the bill is received.

an adjusting entry should be made recognizing the expense.

an expense should be recorded in the next accounting period when the bill is received.

an expense should be recorded when the cash is paid out.

Question 13

An adjusting entry for accrued expenses increases an expense and also increases a liability account.

True

False

Question 14

The adjusted trial balance is prepared

after the balance sheet is prepared.

after the adjusting entries are prepared and posted to the ledger.

to prove no errors have been made during the accounting period.

after the financial statements are prepared.

Question 15

If cash received for future services is initially recorded in revenue accounts and the company has not yet performed all of the required services at the end of the accounting period, then failure to make an adjusting entry will cause

liabilities to be overstated.

revenues to be overstated.

revenues to be understated.

accounts receivable to be overstated.

Question 16

Closing entries are necessary for

both permanent and temporary accounts.

temporary accounts only.

permanent or real accounts only.

permanent account only.

Question 17

A post-closing trial balance will contain only

permanent accounts.

temporary accounts.

income statement accounts.

nominal accounts.

Question 18

Correcting entries

may involve any combination of accounts in need of correction.

affect income statement accounts only.

always affect at least one balance sheet account and one income statement account.

affect balance sheet accounts only.

Question 19

All of the following are property, plant, and equipment except

land.

buildings.

supplies.

machinery.

Question 20

Current liabilities

are obligations that the company expects to pay within the coming year or the operating cycle, whichever is longer.

should not include long-term debt that is expected to be paid within the next year.

are listed in the balance sheet in order of their expected maturity.

must reasonably be expected to be paid within one year or the operating cycle, whichever is shorter.

Question 21

Under a perpetual inventory system

freight costs are debited to Freight-Out.

purchase returns are debited to Purchase Returns and Allowances.

purchases on account are debited to Inventory.

purchases on account are debited to Purchases.

Question 22

A company that maintains a perpetual inventory system has an inventory account balance of $50,000. The physical count of goods on hand totals $49,600. Which of the following adjusting entries is correct?

debit Inventory and credit Purchases.

debit Purchases and credit Inventory.

debit Sales Discounts and credit Inventory.

debit Cost of Goods Sold and credit Inventory.

Question 23

Which of the following accounts may be found in the adjustment columns of a worksheet for a merchandiser but not a service company?

Accumulated Depreciation – Equipment

Salaries and Wages Expense

Prepaid Insurance

Cost of Goods Sold

Question 24

When goods are purchased for resale by a company using a periodic inventory system

freight costs are debited to Purchases.

purchases on account are debited to Inventory.

purchases on account are debited to Purchases.

purchase returns are debited to Purchase Returns and Allowances.

Question 25

In a period of rising prices, FIFO will result in

lower income tax expense than LIFO.

lower net purchases than LIFO.

lower net income than LIFO.

lower cost of goods sold than LIFO.

Question 26

Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inventory under lower-of-cost-or-market is

$80,000.

$18,200.

$16,000.

$91,000.

Question 27

The following information is available for Tye Company at December 31: Beginning inventory $80,000; Ending inventory $120,000; Cost of goods sold $1,200,000; and Sales Revenue $1,600,000. Tye’s inventory turnover is

15 times.

10 times.

12 times.

16 times.

Question 28

Each of the following is a subsidiary ledger except the

accounts payable ledger.

customers’ ledger.

general ledger.

accounts receivable ledger.

Question 29

Which one of the following accounts is a control account?

Sales.

Accounts Payable.

Owner’s Capital.

Cash.

Question 30

Which of the following is not an element of the fraud triangle?

Opportunity.

Segregation of duties.

Rationalization.

Financial pressure.

Question 31

An employee authorized to sign checks should not record

mail receipts.

cash disbursement transactions.

owner cash contributions.

sales transactions.

Question 32

On a bank reconciliation, deposits in transit are

added to the book balance.

deducted from the bank balance.

added to the bank balance.

deducted from the book balance.

Question 33

Receivables are frequently classified as

accounts receivable, notes receivable, and other receivables.

accounts receivable, notes receivable, and employee receivables.

accounts receivable and general receivables.

accounts receivable, company receivables, and other receivables.

Question 34

The sale of receivables by a business

is an indication that the business is owned by a factor.

can be a quick way to generate cash for operating needs.

is generally the major revenue item on its income statement.

indicates that the business is in financial difficulty.

Question 35

Foti Co. accepts a $1,000, 3-month, 12% promissory note in settlement of an account with Bartelt Co. The entry to record this transaction is as follows:

Notes Receivable1,020

Accounts Receivable 1,020

Notes Receivable 1,000

Accounts Receivable 1,000

Notes Receivable1,000

Sales Revenue 1,000

Notes Receivable1,030

Accounts Receivable1,030

Question 36

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.

$77,000.

$70,000.

$75,000.

Question 37

The entry to record depletion expense

decreases assets and increases liabilities.

decreases owner’s equity and assets.

decreases assets and liabilities.

decreases net income and increases liabilities.

Question 38

Which of the following statements concerning current liabilities is incorrect?

Current liabilities include salaries and wages payable.

Current liabilities include unearned revenue.

A company that has more current liabilities than current assets is usually the subject of some concern.

Current liabilities include prepaid expenses.

Question 39

The entry to record the issuance of an interest-bearing note includes a credit to Notes Payable for the note’s

market value.

cash realizable value.

face value.

maturity value.

Question 40

Working capital is

current assets plus current liabilities.

current assets minus current liabilities.

current assets multiplied by current liabilities.

current assets divided by current liabilities.

Question 41

The current ratio is

current assets plus current liabilities.

current assets minus current liabilities.

current assets multiplied by current liabilities.

current assets divided by current liabilities.

Question 42

Companies determine net pay by subtracting payroll deductions from gross earnings.

True

False

Question 43

Which one of the following payroll taxes does not result in a payroll tax expense for the employer?

FICA tax

Federal income tax

Federal unemployment tax

State unemployment tax

Question 44

Employer payroll taxes do not include

federal unemployment taxes.

FICA taxes.

state unemployment taxes.

Federal income taxes

Question 45

Partnership dissolution occurs whenever a partner withdraws or a new partner is admitted.

True

False

Question 46

Salaries to partners and interest on partners’ capital are expenses of the partnership.

True

False

Question 47

The balance sheet of a partnership will

report retained earnings below the partnership capital accounts.

show a separate drawing account for each partner.

show the amount of income that was distributed to each partner.

show a separate capital account for each partner.

Question 48

Which of the following is not a necessary action that the partnership must take upon the death of a partner?

Prepare financial statements.

Determine net income or net loss for the year to date.

Discontinue business operations.

Close the books.

Question 49

Dividends are declared out of

capital stock.

treasury stock.

retained earnings.

paid-in capital in excess of par value.

Question 50

Common stockholders have the right to share in the distribution of corporate income before preferred stockholders.

True

False

Question 51

Which of the following is not reported under Additional paid-in capital?

Common stock.

Paid-in Capital in Excess of Par–Common Stock.

Paid-in Capital in Excess of Stated Value–Common Stock.

Paid-in Capital from Treasury stock.

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July 1, 2023

Question 1 of 38

Which of the following is NOT true of an effective accounting system?

The system must accommodate changes in the business over time.

The system must provide minimal benefits at whatever cost is necessary.

The system must work smoothly with your personnel and organizational structure.

The system has internal controls to help the owner(s) control the business.

Question 2 of 38

Which of the following are characteristics of an effective manual accounting system, but NOT characteristics of an effective computerized accounting system?

Flexibility

Control

Compatibility

All of these features are needed by both accounting systems.

Question 3 of 38

A check was written by a business for $329, but recorded in the cash payments journal as $239. How would this error be included on the bank reconciliation?

A deduction on the book side

An addition on the book side

An addition on the bank side

A deduction on the bank side

Question 4 of 38

Which of the following are internal control procedures commonly used by companies to protect their assets?

a) Mandatory vacations for employees

b) The purchase of fidelity bonds on cashiers

c) Both A and B

d) Neither A nor B

Question 5 of 38

Which of the following is the first step in the purchasing and payment process?

The purchaser receives the inventory and prepares a receiving report.

The purchaser sends a purchase order to the supplier.

The supplier ships the goods and sends an invoice to the purchaser.

The purchaser sends a check to the supplier.

Question 6 of 38

Which of the following items does NOT cause a difference in the bank balance and the book balance on a bank reconciliation?

Deposits in transit

Outstanding checks

Canceled checks

Nonsufficient funds checks

Question 7 of 38

Which of the following describes the internal control procedure "separation of duties?"

Cashiers must not have access to accounting records.

The information system is critical.

External auditors will monitor internal controls.

Pre-number invoices and other documents.

Question 8 of 38

Table 9.1

The following information is from the 2008 records of Armadillo Camera Shop:

Accounts Receivable, December 31, 2008$20,000(debit)

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment600(debit)

Net credit sales for 2008 95,000

Accounts written off as uncollectible during 20087,000

Cash sales during 2008 27,000

Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method. Management estimates that 3% of net credit sales will be uncollectible. Which of the following will be the amount of net accounts receivable after adjustment?

$17,150

$16,550

$17,750

$13,000

Question 9 of 38

Which of the following is the proper accounting treatment for research and development costs?

Research and development costs must be expensed.

Research and development costs must be capitalized and expensed each year to the extent that their value has declined.

Research and development costs must be capitalized and amortized over 70 years or less.

Research and development costs must be capitalized and amortized over 20 years or less.

Question 10 of 38

Which of the following is NOT considered a plant asset?

Building

Land

Equipment

Question 11 of 38

Kelly Petroleum Products owns fully depreciated equipment that was purchased for $26,500. The equipment had an estimated useful life of 8 years and an estimated residual value of $2,500. The equipment was sold for $2,700. Which of the following is the correct entry to record the transaction?

Accumulated depreciation 26,500 Cash 2,700 Gain on sale of equipment 2,700 Equipment 26,500

Accumulated depreciation 24,000 Cash 2,700 Gain on sale of equipment 200 Equipment 26,500

Accumulated depreciation 26,500 Cash 2,700 Equipment 23,800

None of the above

Question 12 of 38

Which of the following would be expensed rather than capitalized?

Oil change and lubrication

Major engine overhaul

Addition to storage capacity

Modification for new use

Question 13 of 38

In which of the following periods should the expense for warranty costs be recorded?

The period when the product is repaired or replaced

The period when cash is collected for the sale of the product

The period when cash is paid to repair or replace the product

The period when the product is sold

Question 14 of 38

A company issues two thousand $1,000 bonds at 98. Which of the following is the entry to record this transaction?

Question 15 of 38

How much cash will be received if a corporation issues $6,000,000 of 10% bonds at 102?

$6,012,000

$6,000,000

$6,120,000

$5,880,000

Question 16 of 38

Which of the following is TRUE of the statement of cash flows?

The statement of cash flows shows where cash came from and how cash was spent.

The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year".

The statement of cash flows reports why cash increased or decreased during the period.

All of the above are true of the statement of cash flows.

Question 17 of 38

Which of the following statements about the information included on a statement of cash flows is TRUE?

The statement of cash flows contains information about the business's percentage change in each item of revenue and expense.

The statement of cash flows contains information about the differences between net income and additions to retained earnings.

The statement of cash flows contains information about stock splits and stock dividends distributed by the company.

The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods.

Question 18 of 38

Case 17.3

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

Refer to Case 17.3. What would vertical analysis report with respect to 2007 net sales revenue?

Vertical analysis would report a 2.60% decrease in net sales revenue.

Vertical analysis would report cost of goods sold as 79.19% of net sales revenue.

Vertical analysis would report a dividend yield of $8.20.

Vertical analysis would report net sales revenue as the 100% base amount.

Question 19 of 38

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

The day's sales in receivables is a measure of a company's ability to pay liabilities with current assets.

The inventory turnover ratio is a measure of a company's ability to pay liabilities with current assets.

The current ratio is a measure of a company's ability to pay liabilities with current assets.

The acid-test ratio is a measure of a company's ability to pay liabilities with current assets.

Question 20 of 38

Case 17.3

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

Refer to Case 17.3. What would vertical analysis report with respect to 2007 income tax expense?

Vertical analysis would report a $7,500 increase income tax expense.

Vertical analysis would report income tax expense as 27.59% of net income before income tax.

Vertical analysis would report income tax expense as 4.93% of net sales revenue.

Vertical analysis would report a 45.45% increase in income tax expense.

Question 21 of 38

Which of the following are purposes of internal control?

One of the purposes of internal control is to encourage employees to follow company policy.

One of the purposes of internal control is to ensure accurate, reliable accounting records.

One of the purposes of internal control is to safeguard the company's assets.

All of the statements above are true.

Question 22 of 38

A company received a bank statement showing a balance of $62,300. Reconciling items were outstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjusted bank balance?

$70,850

$72,250

$60,850

$69,350

Question 23 of 38

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $7,400. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Loss on exchange of equipment 600 Cash 10,000 Refrigeration equipment 10,000

Refrigeration equipment 10,000 Accumulated depreciation 10,000 Gain on exchange of equipment 600 Cash 12,000 Refrigeration equipment 7,400

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Cash 10,000 Refrigeration equipment 9,400

None of the above

Question 24 of 38

Which of the following is the type of account that represents taxes withheld from employees' gross pay?

Asset

Expense

Contra asset

Liability

Question 25 of 38

Which of the following is the correct order of the sections on a statement of cash flows?

The correct order is operating, financing, investing.

The correct order is investing, operating, financing.

The correct order is operating, investing, financing.

The correct order is financing, investing, operating.

Question 26 of 38

Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?

The inventory turnover ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

The day's sales in receivables is a measure of a company's ability to pay all current liabilities if they come due immediately.

The current ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

The acid-test ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

Question 27 of 38

Which of the following is the formula to compute the dividend yield?

The formula is (total stockholders' equity − preferred equity) / number of shares of common stock outstanding.

The formula is annual dividend per share of common stock / market price per share of common stock.

The formula is market price per share of common stock / earnings per share.

The formula is (net income − preferred dividends) / number of shares of common stock outstanding.

Question 28 of 38

Which of the following is a method of establishing control over collections of accounts receivable?

Designate an authorized check signer.

Allow no one but the bookkeeper to handle cash.

Set up a petty cash fund.

Establish a bank lock-box system.

Question 29 of 38

Case 16.1

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007, financial statements.

December 31, 2006December 31, 2007

Accounts receivable $100,000$110,000

Cost of goods sold 560,000

Sales revenue 830,000

Accounts payable* 67,00075,000

Inventory 105,00086,000

Salary payable 10,00013,000

Salary expense 45,00049,000

*Relates solely to the acquisition of inventory

Refer to Case 16.1. What will appear in the operating activities section related to accounts payable?

The increase of $8,000 will be added to net income.

The increase of $8,000 will be subtracted from cost of goods sold.

The increase of $8,000 will be added to cost of goods sold.

The increase of $8,000 will be subtracted from net income.

Question 30 of 38

Failure to record an accrued liability causes a company to:

understate owners' equity.

understate liabilities.

overstate expenses.

overstate assets.

Question 31 of 38

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The amount of accrued interest on December 31 is:

$63.

$75.

$65.

$70.

Question 32 of 38

The journal entry to record accrued interest on a short-term note payable must include a debit to:

Interest Expense and a credit to Notes Payable.

Interest Expense and a credit to Interest Payable.

Interest Payable and a credit to Notes Payable.

Interest Payable and a credit to Interest Expense.

Question 33 of 38

Kosovo Company has $45 million in long-term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long-term liabilities?

Current Liabilities Long-Term Liabilities

$15 million $30 million

Current Liabilities Long-Term Liabilities

$7.5 million$40 million

Current Liabilities Long-Term Liabilities

$0 million $45 million

Current Liabilities Long-Term Liabilities

$45 million $0 million

Question 34 of 38

Which is the preferred method to use when amortizing a bond discount or premium?

Both straight-line and market-interest rate methods of amortization are equally preferable.

Straight-line method of amortization

Market-interest rate method of amortization

Effective interest method of amortization

Question 35 of 38

On a bond's maturity date, its face value will equal the:

maturity value less all interest payments.

maturity value.

maturity value plus all interest payments.

present value of the bonds on its issuance date.

Question 36 of 38

Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond was issued at:

face value.

a premium.

a discount.

par value.

Question 37 of 38

Which of the following is not an advantage of forming a corporation, as opposed to organizing as a partnership or proprietorship?

A corporation is a separate legal entity distinct from its owners.

Ease of transferring ownership

Limited liability of stockholders

Limited taxation

Question 38 of 38

The number of stocks outstanding is the same as the number of stocks:

authorized by the board of directors.

currently in the hands of the stockholders.

ready to be sold to shareholders.

issued to the shareholders.

July 1, 2023

Question 1 of 38

Which of the following is NOT true of an effective accounting system?

The system must accommodate changes in the business over time.

The system must provide minimal benefits at whatever cost is necessary.

The system must work smoothly with your personnel and organizational structure.

The system has internal controls to help the owner(s) control the business.

Question 2 of 38

Which of the following are characteristics of an effective manual accounting system, but NOT characteristics of an effective computerized accounting system?

Flexibility

Control

Compatibility

All of these features are needed by both accounting systems.

Question 3 of 38

A check was written by a business for $329, but recorded in the cash payments journal as $239. How would this error be included on the bank reconciliation?

A deduction on the book side

An addition on the book side

An addition on the bank side

A deduction on the bank side

Question 4 of 38

Which of the following are internal control procedures commonly used by companies to protect their assets?

a) Mandatory vacations for employees

b) The purchase of fidelity bonds on cashiers

c) Both A and B

d) Neither A nor B

Question 5 of 38

Which of the following is the first step in the purchasing and payment process?

The purchaser receives the inventory and prepares a receiving report.

The purchaser sends a purchase order to the supplier.

The supplier ships the goods and sends an invoice to the purchaser.

The purchaser sends a check to the supplier.

Question 6 of 38

Which of the following items does NOT cause a difference in the bank balance and the book balance on a bank reconciliation?

Deposits in transit

Outstanding checks

Canceled checks

Nonsufficient funds checks

Question 7 of 38

Which of the following describes the internal control procedure "separation of duties?"

Cashiers must not have access to accounting records.

The information system is critical.

External auditors will monitor internal controls.

Pre-number invoices and other documents.

Question 8 of 38

Table 9.1

The following information is from the 2008 records of Armadillo Camera Shop:

Accounts Receivable, December 31, 2008$20,000(debit)

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment600(debit)

Net credit sales for 2008 95,000

Accounts written off as uncollectible during 20087,000

Cash sales during 2008 27,000

$17,150

$16,550

$17,750

$13,000

Question 9 of 38

Which of the following is the proper accounting treatment for research and development costs?

Research and development costs must be expensed.

Research and development costs must be capitalized and expensed each year to the extent that their value has declined.

Research and development costs must be capitalized and amortized over 70 years or less.

Research and development costs must be capitalized and amortized over 20 years or less.

Question 10 of 38

Which of the following is NOT considered a plant asset?

Building

Land

Equipment

Question 11 of 38

Accumulated depreciation 26,500 Cash 2,700 Gain on sale of equipment 2,700 Equipment 26,500

Accumulated depreciation 24,000 Cash 2,700 Gain on sale of equipment 200 Equipment 26,500

Accumulated depreciation 26,500 Cash 2,700 Equipment 23,800

None of the above

Question 12 of 38

Which of the following would be expensed rather than capitalized?

Oil change and lubrication

Major engine overhaul

Addition to storage capacity

Modification for new use

Question 13 of 38

In which of the following periods should the expense for warranty costs be recorded?

The period when the product is repaired or replaced

The period when cash is collected for the sale of the product

The period when cash is paid to repair or replace the product

The period when the product is sold

Question 14 of 38

A company issues two thousand $1,000 bonds at 98. Which of the following is the entry to record this transaction?

Question 15 of 38

How much cash will be received if a corporation issues $6,000,000 of 10% bonds at 102?

$6,012,000

$6,000,000

$6,120,000

$5,880,000

Question 16 of 38

Which of the following is TRUE of the statement of cash flows?

The statement of cash flows shows where cash came from and how cash was spent.

The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year".

The statement of cash flows reports why cash increased or decreased during the period.

All of the above are true of the statement of cash flows.

Question 17 of 38

Which of the following statements about the information included on a statement of cash flows is TRUE?

The statement of cash flows contains information about the business's percentage change in each item of revenue and expense.

The statement of cash flows contains information about the differences between net income and additions to retained earnings.

The statement of cash flows contains information about stock splits and stock dividends distributed by the company.

The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods.

Question 18 of 38

Case 17.3

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

Refer to Case 17.3. What would vertical analysis report with respect to 2007 net sales revenue?

Vertical analysis would report a 2.60% decrease in net sales revenue.

Vertical analysis would report cost of goods sold as 79.19% of net sales revenue.

Vertical analysis would report a dividend yield of $8.20.

Vertical analysis would report net sales revenue as the 100% base amount.

Question 19 of 38

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

The day's sales in receivables is a measure of a company's ability to pay liabilities with current assets.

The inventory turnover ratio is a measure of a company's ability to pay liabilities with current assets.

The current ratio is a measure of a company's ability to pay liabilities with current assets.

The acid-test ratio is a measure of a company's ability to pay liabilities with current assets.

Question 20 of 38

Case 17.3

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

Refer to Case 17.3. What would vertical analysis report with respect to 2007 income tax expense?

Vertical analysis would report a $7,500 increase income tax expense.

Vertical analysis would report income tax expense as 27.59% of net income before income tax.

Vertical analysis would report income tax expense as 4.93% of net sales revenue.

Vertical analysis would report a 45.45% increase in income tax expense.

Question 21 of 38

Which of the following are purposes of internal control?

One of the purposes of internal control is to encourage employees to follow company policy.

One of the purposes of internal control is to ensure accurate, reliable accounting records.

One of the purposes of internal control is to safeguard the company's assets.

All of the statements above are true.

Question 22 of 38

A company received a bank statement showing a balance of $62,300. Reconciling items were outstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjusted bank balance?

$70,850

$72,250

$60,850

$69,350

Question 23 of 38

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Loss on exchange of equipment 600 Cash 10,000 Refrigeration equipment 10,000

Refrigeration equipment 10,000 Accumulated depreciation 10,000 Gain on exchange of equipment 600 Cash 12,000 Refrigeration equipment 7,400

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Cash 10,000 Refrigeration equipment 9,400

None of the above

Question 24 of 38

Which of the following is the type of account that represents taxes withheld from employees' gross pay?

Asset

Expense

Contra asset

Liability

Question 25 of 38

Which of the following is the correct order of the sections on a statement of cash flows?

The correct order is operating, financing, investing.

The correct order is investing, operating, financing.

The correct order is operating, investing, financing.

The correct order is financing, investing, operating.

Question 26 of 38

Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?

The inventory turnover ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

The day's sales in receivables is a measure of a company's ability to pay all current liabilities if they come due immediately.

The current ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

The acid-test ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

Question 27 of 38

Which of the following is the formula to compute the dividend yield?

The formula is (total stockholders' equity − preferred equity) / number of shares of common stock outstanding.

The formula is annual dividend per share of common stock / market price per share of common stock.

The formula is market price per share of common stock / earnings per share.

The formula is (net income − preferred dividends) / number of shares of common stock outstanding.

Question 28 of 38

Which of the following is a method of establishing control over collections of accounts receivable?

Designate an authorized check signer.

Allow no one but the bookkeeper to handle cash.

Set up a petty cash fund.

Establish a bank lock-box system.

Question 29 of 38

Case 16.1

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007, financial statements.

December 31, 2006December 31, 2007

Accounts receivable $100,000$110,000

Cost of goods sold 560,000

Sales revenue 830,000

Accounts payable* 67,00075,000

Inventory 105,00086,000

Salary payable 10,00013,000

Salary expense 45,00049,000

*Relates solely to the acquisition of inventory

Refer to Case 16.1. What will appear in the operating activities section related to accounts payable?

The increase of $8,000 will be added to net income.

The increase of $8,000 will be subtracted from cost of goods sold.

The increase of $8,000 will be added to cost of goods sold.

The increase of $8,000 will be subtracted from net income.

Question 30 of 38

Failure to record an accrued liability causes a company to:

understate owners' equity.

understate liabilities.

overstate expenses.

overstate assets.

Question 31 of 38

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The amount of accrued interest on December 31 is:

$63.

$75.

$65.

$70.

Question 32 of 38

The journal entry to record accrued interest on a short-term note payable must include a debit to:

Interest Expense and a credit to Notes Payable.

Interest Expense and a credit to Interest Payable.

Interest Payable and a credit to Notes Payable.

Interest Payable and a credit to Interest Expense.

Question 33 of 38

Kosovo Company has $45 million in long-term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long-term liabilities?

Current Liabilities Long-Term Liabilities

$15 million $30 million

Current Liabilities Long-Term Liabilities

$7.5 million$40 million

Current Liabilities Long-Term Liabilities

$0 million $45 million

Current Liabilities Long-Term Liabilities

$45 million $0 million

Question 34 of 38

Which is the preferred method to use when amortizing a bond discount or premium?

Both straight-line and market-interest rate methods of amortization are equally preferable.

Straight-line method of amortization

Market-interest rate method of amortization

Effective interest method of amortization

Question 35 of 38

On a bond's maturity date, its face value will equal the:

maturity value less all interest payments.

maturity value.

maturity value plus all interest payments.

present value of the bonds on its issuance date.

Question 36 of 38

Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond was issued at:

face value.

a premium.

a discount.

par value.

Question 37 of 38

Which of the following is not an advantage of forming a corporation, as opposed to organizing as a partnership or proprietorship?

A corporation is a separate legal entity distinct from its owners.

Ease of transferring ownership

Limited liability of stockholders

Limited taxation

Question 38 of 38

The number of stocks outstanding is the same as the number of stocks:

authorized by the board of directors.

currently in the hands of the stockholders.

ready to be sold to shareholders.

issued to the shareholders.

July 1, 2023

Question 1 of 38

Which of the following is NOT true of an effective accounting system?

The system must accommodate changes in the business over time.

The system must provide minimal benefits at whatever cost is necessary.

The system must work smoothly with your personnel and organizational structure.

The system has internal controls to help the owner(s) control the business.

Question 2 of 38

Which of the following are characteristics of an effective manual accounting system, but NOT characteristics of an effective computerized accounting system?

Flexibility

Control

Compatibility

All of these features are needed by both accounting systems.

Question 3 of 38

A check was written by a business for $329, but recorded in the cash payments journal as $239. How would this error be included on the bank reconciliation?

A deduction on the book side

An addition on the book side

An addition on the bank side

A deduction on the bank side

Question 4 of 38

Which of the following are internal control procedures commonly used by companies to protect their assets?

a) Mandatory vacations for employees

b) The purchase of fidelity bonds on cashiers

c) Both A and B

d) Neither A nor B

Question 5 of 38

Which of the following is the first step in the purchasing and payment process?

The purchaser receives the inventory and prepares a receiving report.

The purchaser sends a purchase order to the supplier.

The supplier ships the goods and sends an invoice to the purchaser.

The purchaser sends a check to the supplier.

Question 6 of 38

Which of the following items does NOT cause a difference in the bank balance and the book balance on a bank reconciliation?

Deposits in transit

Outstanding checks

Canceled checks

Nonsufficient funds checks

Question 7 of 38

Which of the following describes the internal control procedure "separation of duties?"

Cashiers must not have access to accounting records.

The information system is critical.

External auditors will monitor internal controls.

Pre-number invoices and other documents.

Question 8 of 38

Table 9.1

The following information is from the 2008 records of Armadillo Camera Shop:

Accounts Receivable, December 31, 2008$20,000(debit)

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment600(debit)

Net credit sales for 2008 95,000

Accounts written off as uncollectible during 20087,000

Cash sales during 2008 27,000

$17,150

$16,550

$17,750

$13,000

Question 9 of 38

Which of the following is the proper accounting treatment for research and development costs?

Research and development costs must be expensed.

Research and development costs must be capitalized and expensed each year to the extent that their value has declined.

Research and development costs must be capitalized and amortized over 70 years or less.

Research and development costs must be capitalized and amortized over 20 years or less.

Question 10 of 38

Which of the following is NOT considered a plant asset?

Building

Land

Equipment

Question 11 of 38

Accumulated depreciation 26,500 Cash 2,700 Gain on sale of equipment 2,700 Equipment 26,500

Accumulated depreciation 24,000 Cash 2,700 Gain on sale of equipment 200 Equipment 26,500

Accumulated depreciation 26,500 Cash 2,700 Equipment 23,800

None of the above

Question 12 of 38

Which of the following would be expensed rather than capitalized?

Oil change and lubrication

Major engine overhaul

Addition to storage capacity

Modification for new use

Question 13 of 38

In which of the following periods should the expense for warranty costs be recorded?

The period when the product is repaired or replaced

The period when cash is collected for the sale of the product

The period when cash is paid to repair or replace the product

The period when the product is sold

Question 14 of 38

A company issues two thousand $1,000 bonds at 98. Which of the following is the entry to record this transaction?

Question 15 of 38

How much cash will be received if a corporation issues $6,000,000 of 10% bonds at 102?

$6,012,000

$6,000,000

$6,120,000

$5,880,000

Question 16 of 38

Which of the following is TRUE of the statement of cash flows?

The statement of cash flows shows where cash came from and how cash was spent.

The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year".

The statement of cash flows reports why cash increased or decreased during the period.

All of the above are true of the statement of cash flows.

Question 17 of 38

Which of the following statements about the information included on a statement of cash flows is TRUE?

The statement of cash flows contains information about the business's percentage change in each item of revenue and expense.

The statement of cash flows contains information about the differences between net income and additions to retained earnings.

The statement of cash flows contains information about stock splits and stock dividends distributed by the company.

The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods.

Question 18 of 38

Case 17.3

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

Refer to Case 17.3. What would vertical analysis report with respect to 2007 net sales revenue?

Vertical analysis would report a 2.60% decrease in net sales revenue.

Vertical analysis would report cost of goods sold as 79.19% of net sales revenue.

Vertical analysis would report a dividend yield of $8.20.

Vertical analysis would report net sales revenue as the 100% base amount.

Question 19 of 38

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

The day's sales in receivables is a measure of a company's ability to pay liabilities with current assets.

The inventory turnover ratio is a measure of a company's ability to pay liabilities with current assets.

The current ratio is a measure of a company's ability to pay liabilities with current assets.

The acid-test ratio is a measure of a company's ability to pay liabilities with current assets.

Question 20 of 38

Case 17.3

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

Refer to Case 17.3. What would vertical analysis report with respect to 2007 income tax expense?

Vertical analysis would report a $7,500 increase income tax expense.

Vertical analysis would report income tax expense as 27.59% of net income before income tax.

Vertical analysis would report income tax expense as 4.93% of net sales revenue.

Vertical analysis would report a 45.45% increase in income tax expense.

Question 21 of 38

Which of the following are purposes of internal control?

One of the purposes of internal control is to encourage employees to follow company policy.

One of the purposes of internal control is to ensure accurate, reliable accounting records.

One of the purposes of internal control is to safeguard the company's assets.

All of the statements above are true.

Question 22 of 38

A company received a bank statement showing a balance of $62,300. Reconciling items were outstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjusted bank balance?

$70,850

$72,250

$60,850

$69,350

Question 23 of 38

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Loss on exchange of equipment 600 Cash 10,000 Refrigeration equipment 10,000

Refrigeration equipment 10,000 Accumulated depreciation 10,000 Gain on exchange of equipment 600 Cash 12,000 Refrigeration equipment 7,400

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Cash 10,000 Refrigeration equipment 9,400

None of the above

Question 24 of 38

Which of the following is the type of account that represents taxes withheld from employees' gross pay?

Asset

Expense

Contra asset

Liability

Question 25 of 38

Which of the following is the correct order of the sections on a statement of cash flows?

The correct order is operating, financing, investing.

The correct order is investing, operating, financing.

The correct order is operating, investing, financing.

The correct order is financing, investing, operating.

Question 26 of 38

Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?

The inventory turnover ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

The day's sales in receivables is a measure of a company's ability to pay all current liabilities if they come due immediately.

The current ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

The acid-test ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

Question 27 of 38

Which of the following is the formula to compute the dividend yield?

The formula is (total stockholders' equity − preferred equity) / number of shares of common stock outstanding.

The formula is annual dividend per share of common stock / market price per share of common stock.

The formula is market price per share of common stock / earnings per share.

The formula is (net income − preferred dividends) / number of shares of common stock outstanding.

Question 28 of 38

Which of the following is a method of establishing control over collections of accounts receivable?

Designate an authorized check signer.

Allow no one but the bookkeeper to handle cash.

Set up a petty cash fund.

Establish a bank lock-box system.

Question 29 of 38

Case 16.1

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007, financial statements.

December 31, 2006December 31, 2007

Accounts receivable $100,000$110,000

Cost of goods sold 560,000

Sales revenue 830,000

Accounts payable* 67,00075,000

Inventory 105,00086,000

Salary payable 10,00013,000

Salary expense 45,00049,000

*Relates solely to the acquisition of inventory

Refer to Case 16.1. What will appear in the operating activities section related to accounts payable?

The increase of $8,000 will be added to net income.

The increase of $8,000 will be subtracted from cost of goods sold.

The increase of $8,000 will be added to cost of goods sold.

The increase of $8,000 will be subtracted from net income.

Question 30 of 38

Failure to record an accrued liability causes a company to:

understate owners' equity.

understate liabilities.

overstate expenses.

overstate assets.

Question 31 of 38

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The amount of accrued interest on December 31 is:

$63.

$75.

$65.

$70.

Question 32 of 38

The journal entry to record accrued interest on a short-term note payable must include a debit to:

Interest Expense and a credit to Notes Payable.

Interest Expense and a credit to Interest Payable.

Interest Payable and a credit to Notes Payable.

Interest Payable and a credit to Interest Expense.

Question 33 of 38

Kosovo Company has $45 million in long-term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long-term liabilities?

Current Liabilities Long-Term Liabilities

$15 million $30 million

Current Liabilities Long-Term Liabilities

$7.5 million$40 million

Current Liabilities Long-Term Liabilities

$0 million $45 million

Current Liabilities Long-Term Liabilities

$45 million $0 million

Question 34 of 38

Which is the preferred method to use when amortizing a bond discount or premium?

Both straight-line and market-interest rate methods of amortization are equally preferable.

Straight-line method of amortization

Market-interest rate method of amortization

Effective interest method of amortization

Question 35 of 38

On a bond's maturity date, its face value will equal the:

maturity value less all interest payments.

maturity value.

maturity value plus all interest payments.

present value of the bonds on its issuance date.

Question 36 of 38

Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond was issued at:

face value.

a premium.

a discount.

par value.

Question 37 of 38

Which of the following is not an advantage of forming a corporation, as opposed to organizing as a partnership or proprietorship?

A corporation is a separate legal entity distinct from its owners.

Ease of transferring ownership

Limited liability of stockholders

Limited taxation

Question 38 of 38

The number of stocks outstanding is the same as the number of stocks:

authorized by the board of directors.

currently in the hands of the stockholders.

ready to be sold to shareholders.

issued to the shareholders.

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