Question : 11.4 Chapter Figures The figure above shows the marginal benefit curve : 1226065

11.4 Chapter Figures

The figure above shows the marginal benefit curve (MB) and marginal cost curve (MC) of surveillance satellites that provide national defense services.

1) In the figure above, the efficient quantity of satellites to produce is

A) 200, because this is where marginal benefit equals marginal cost.

B) 200, because this is where the market is in equilibrium.

C) anywhere below 200, i.e. where marginal benefit exceeds marginal cost.

D) anywhere above 200, i.e. where marginal benefit is below marginal cost.

E) zero, because no one is willing to pay for satellites.

2) In the figure above, a private market will most likely produce

A) no satellites because of the free-rider problem.

B) 200 satellites because at this point marginal benefit equals marginal cost.

C) less than 200 satellites because over this output range marginal benefit exceeds marginal cost.

D) more than 200 satellites because over this output range marginal benefit is below marginal cost.

E) 200 satellites because at this point the market will be in equilibrium.

3) Using the figure above, suppose there are two political parties, the Hawks and the Doves, which agree on all issues except for the quantity of defense satellites. The Hawks want 300 satellites and the Doves want 100 satellites. The voters are well informed and know what is best for them. The parties run a voter survey and discover the marginal benefit curve (MB). They also know the marginal cost curve (MC). What quantity of satellites will most likely result from this political process?

A) 200, because unless each party proposes 200 satellites, the other party can beat it in an election

B) 300, because the Hawks are more likely to win

C) 100, because the Doves are more likely to win

D) 200, because the parties will strike a deal: each will agree to give up 100 satellites

E) Zero, because given the marginal benefit and the marginal cost of satellites, none should be provided

4) Suppose that satellites are publicly provided. The voters are rationally ignorant, while the Defense Ministry is well informed. Using the figure above, which of the following quantities of satellites is most likely to be provided?

A) 300

B) 200

C) 150

D) 100

E) Zero

11.5 Integrative Questions

1) Which of the following can be rival and excludable?

i)a good

ii)a service

iii)a resource

A) i and ii

B) i and iii

C) ii and iii

D) i, ii and iii

E) only i

2) National defense is a ________ because ________.

A) public good; it can be an overused resource

B) public good; it is nonrival and nonexcludable

C) common resource; no one has the incentive to pay for his or her share

D) private good; no one has an incentive to conserve the good

E) common resource; it suffers from the tragedy of the commons

3) Fish in the ocean are an example of ________ because they are ________.

A) public good; nonexcludable and nonrival

B) public good; rival and excludable

C) common resource; rival and nonexcludable

D) common resource; nonrival and nonexcludable

E) private good; caught by private fishermen

4) A natural monopoly, such as the Internet, is

A) nonrival and excludable.

B) rival and excludable.

C) nonrival and nonexcludable.

D) rival and nonexcludable.

E) None of the above answers are correct.

5) The free-rider problem applies

A) to rival and excludable goods.

B) to common resources.

C) to nonrival and nonexcludable goods.

D) when marginal social benefit exceeds marginal private benefit.

E) when marginal social cost equals marginal private cost.

6) The marginal benefit curve of a public good is calculated by ________ individual marginal ________ curves.

A) averaging; cost/benefit

B) horizontally summing; cost

C) averaging; benefit

D) vertically summing; benefit

E) horizontally summing; benefit

7) The reason that private provision of a public good often leads to inefficiency is because

A) private property rights are too costly to enforce.

B) marginal private benefits are too costly to calculate.

C) no one has the incentive to pay for the good.

D) no one has an incentive to conserve the good.

E) the tragedy of the commons occurs and too many public goods are provided.

8) Which of the following is true?

i.A common resource is a resource that is nonrival and nonexcludable.

ii.Issuing individual transferable quotas (ITQ) means that for users of common resources, the marginal cost plus the price of the ITQ equals the marginal social cost.

iii.In an unregulated market, a common resource is used to the point at which marginal private benefit equals marginal cost.

A) Only i

B) Only ii

C) Only iii

D) i and ii

E) ii and iii

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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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