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  

Copyright  

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? 

 

  

A  

B  

C  

D  

 

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.