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Financial Accounting
Probable future sacrifice of economic benefits arising from present obligations is termed as a(n):
- Select one:
- a. revenue.
- b. expense.
- c. net asset.
- d. asset.
- e. liability.
After the temporary accounts are closed at year’s end, the resulting single figure will be equal to:
- Select one:
- a. net income reported for the year.
- b. beginning retained earning balance of the forthcoming year.
- c. ending retained earning balance of the current year.
- d. total cash flow for the current year.
- e. beginning stockholder’s equity balance of the forthcoming year.
The Financial Accounting Standards Board (FASB) is:
- Select one:
- a. a governmental organization.
- b. in charge of the creation of IFRS.
- c. an independent group supported by the U.S. government, various accounting organizations, and many private businesses.
- d. responsible for amending present accounting rules, but doesn’t have the right to pass new rules.
- e. against the switching of financial reporting from U.S GAAP to IFRS in United States.
Batman Inc. sold inventory to Housie Corporation on December 26, 2012. Inventory is shipped FOB shipping point on December 27, 2012, and arrives at the buyer’s warehouse on January 2, 2013. Batman Inc. records the sale and Housie Corporation records the purchase of inventory in their 2012 financial statements. Which of the following statements is true of the above transaction?
- Select one:
- a. Assets of Batsman are understated.
- b. Assets of Housie are understated.
- c. Assets of Batsman are overstated.
- d. Assets of Housie are overstated.
- e. Assets of Housie are correctly stated.
Which of the following is a financial statement produced by companies?
- Select one:
- a. Assessment sheet
- b. Statement of cash flows
- c. Statement of gross income
- d. Expense statement
- e. Tax statement
On February 2, Alfred Corporation issues 900 shares of $75 par value preferred stock for $80 per share. The stock has a dividend rate of 5 percent. On April 5, Alfred issues 500 more shares of this stock for $82 per share. Alfred pays dividends on October 9. Which of the following is the total amount of dividends paid by Alfred on its preferred stock?
- Select one:
- a. $5,000
- b. $5,250
- c. $5,650
- d. $6,000
- e. $7,500
Assuming a proprietorship, partnership, and corporation earns an equal amount of income and it is distributed evenly among owners, the amount collected by the government toward tax will be:
- Select one:
- a. highest for proprietorship.
- b. highest for partnership.
- c. highest for corporation.
- d. equal for all three entities.
- e. least for partnership.
Which of the following is an indicator of short-term liquidity?
- Select one:
- a. Dividends payout ratio
- b. Gross margin ratio
- c. Debt to equity ratio
- d. Receivable turnover ratio
- e. Current ratio
Which of the following is true of financial leverage?
- Select one:
- a. It refers to an organization’s ability to increase its reported net income by using equity financing.
- b. It refers to an organization’s ability to increase its reported net income by using debt financing.
- c. It refers to an organization’s ability to collect receivables faster than paying its dues.
- d. A highly leveraged firm means that the company has a high dividend payout ratio.
- e. A highly leveraged company means that most of its funds come from retained earnings.
Which of the following will create a noncurrent liability?
- Select one:
- a. Cash borrowed from a bank to be repaid in 3 years
- b. Goods sold on credit
- c. Interest on 12 percent, 5-year bonds due in 6 months
- d. Rent received in advance for 3 months
- e. Outstanding salaries for one month
Which of the following accounts shows the difference between the lifelong earnings of a company and its payments to owners?
- Select one:
- a. Retained Earnings
- b. Dividends
- c. Liabilities
- d. Common Stock
- e. Net Income
Which of the following is an intangible asset?
- Select one:
- a. Accounts Payable
- b. Retained Earnings
- c. Equipment
- d. Accounts Receivable
- e. Franchise
Which of the following terms refers to a right that allows the creditor to repossess the property or force its liquidation if the debtor fails to make payments in a timely manner?
- Select one:
- a. Convertible
- b. Security
- c. Swap
- d. Interest rate
- e. Callable
The group primarily responsible for setting accounting standards in the United States is the:
- Select one:
- a. American Institute of Certified Public Accountants (AICPA)
- b. Securities and Exchange Commission (SEC)
- c. Standing Interpretations Committee (SIC)
- d. International Accounting Standards Board (IASB)
- e. Financial Accounting Standards Board (FASB)
Creditors use financial information to predict whether a:
- Select one:
- a. company will be able to pay dividends.
- b. company will be able to pay interest.
- c. company will be able to pay salaries.
- d. company will be able to issue additional shares.
- e. company’s stock price will increase.
Why does a company voluntarily choose the LIFO approach that reduces reported income and total assets when prices rise?
- Select one:
- a. It leads to lower income tax costs.
- b. It yields a higher return on assets.
- c. It reduces the dividend payout ratio.
- d. It shows an overall healthier position of the company.
- e. It reduces the debt to equity ratio.
Janus Corporation purchases all of the outstanding stock of Paula Company for $500,000. The net assets of Paula have a fair value of $350,000 which includes a copyright with a book value of $6,000 and a fair value of $80,000. Determine the amount of goodwill to be reported on consolidated financial statements on the date of purchase?
- Select one:
- a. $156,000
- b. $144,000
- c. $74,000
- d. $70,000
- e. $150,000
Marlin Corporation uses the percentage of receivables method to estimate its uncollectible accounts. Marlin’s ending accounts receivable amounted to $50,000 while the balance of the allowance for doubtful accounts was $3,000 (credit balance). Marlin estimates that 8% of receivables will never be collected. What is the bad debt expense of Marlin Corporation?
- Select one:
- a. $600
- b. $400
- c. $1,000
- d. $1,600
- e. $1,400
Which of the following is reported as an asset?
- Select one:
- a. Insurance expense paid for next year
- b. Income tax paid for the current year
- c. Salaries paid for the current year
- d. Dividends paid during the year
- e. Rent paid for last year
Purchase of inventory on account will result in:
- Select one:
- a. increase in cash.
- b. decrease in inventory.
- c. increase in accounts payable.
- d. decrease in cash.
- e. decrease in accounts receivable.
Which of the following would appear in cash flows from operations prepared using the direct method?
- Select one:
- a. Cash received from issuance of stock
- b. Cash paid for depreciation
- c. Cash paid for inventory purchases
- d. Cash dividends paid to shareholders
- e. Cash paid to repurchase common stock
A company’s creditors are those who:
- Select one:
- a. have invested in the company’s shares.
- b. have purchased the company’s inventory.
- c. have lent the company money.
- d. the company has lent money.
- e. are eligible to receive dividends declared by the company.
Which of the following statements is true of financial information?
- Select one:
- a. It should always be exactly accurate.
- b. It does not represent the likeliness of an organization if it is not exact.
- c. It is free from uncertainties.
- d. It can be useful even if it is not exact.
- e. It almost always contains material misstatements.
Modern Company reported a net income of $280,000 for the year 2015. Income tax expense and interest expense for the year amounted to $56,000 and $63,000 respectively. The company had assets worth $1,200,000 and liabilities of $890,000. Calculate the times interest earned ratio for the year.
- Select one:
- a. 3.6 times
- b. 6.3 times
- c. 4.4 times
- d. 2.9 times
- e. 2.3 times
Investors use financial information to predict whether a:
- Select one:
- a. company has invested in buildings.
- b. company will pay salaries.
- c. company will recruit more employees.
- d. company’s stock price will increase
- e. company’s bond price will increase.
A company makes a cash payment for ads which will run over the next three months. The amount paid for advertising should be reported as a(an):
- Select one:
- a. expense.
- b. dividend.
- c. loss.
- d. asset.
- e. liability.
A journal entry made to write off a specific account as uncollectible includes:
- Select one:
- a. a debit to Accounts Receivable.
- b. a debit to Allowance for Doubtful Accounts.
- c. a credit to Accounts Payable.
- d. a credit to Bad Debt Expense.
- e. a debit to Cash.
Hyena Corporation pays $700,000 to acquire Quinton Company. Quinton has two assets. The first is a building with a book value of $200,000 and a fair value of $300,000. The second is a patent with a book value of $10,000 and a fair value of $250,000. Assume the company had no liabilities. What amount is reported as goodwill as part of this sale?
- Select one:
- a. $250,000
- b. $390,000
- c. $700,000
- d. $150,000
- e. $490,000
The Big Four Public Accounting Firms include:
- Select one:
- a. Grant Thornton
- b. Arthur Andersen
- c. BDO Seidman
- d. PricewaterhouseCoopers
- e. McGladrey & Pullen
Which of the following is true of the FIFO cost flow assumption?
- Select one:
- a. In a period of rising prices, FIFO yields a higher cost of goods sold than other costing methods.
- b. In a period of falling prices, FIFO yields a higher ending inventory than other costing methods.
- c. In a period of falling prices, FIFO yields a higher net income than other costing methods.
- d. In a period of rising prices, FIFO yields a lower net income than other costing methods.
- e. In a period of rising prices, FIFO yields a higher ending inventory than other costing methods.
Which of the following is true about consolidated financial statements prepared on the date of acquisition of a subsidiary?
- Select one:
- a. The subsidiary’s revenues and expenses from the entire year are included.
- b. The subsidiary’s assets and liabilities are reported at their historical cost.
- c. If a parent company owns less than 100% of a subsidiary, it can only consolidate the percentage of assets and liabilities that it owns.
- d. Goodwill is recorded if the parent company paid more than the fair value of net assets of the subsidiary.
- e. The parent company reports an investment in subsidiary separately on its balance sheet.
Tydings Corporation is being sued by a former employee. Tydings’ lawyer believes that the chance of loss is remote. Which of the following is true of reporting this contingent loss?
- Select one:
- a. The loss should not be reported.
- b. The loss should be disclosed in the notes to the financial statements.
- c. The loss should be reported in the statement of cash flows.
- d. The loss should be reported on the balance sheet.
- e. The loss should be reported on the income statement.
The group stockholders elect to oversee their corporation is _____ .
- Select one:
- a. management
- b. the board of directors
- c. employees
- d. a stock exchange
- e. investors
If a company pays for inventory previously acquired on account:
- Select one:
- a. Cost of Goods Sold should be credited.
- b. Unearned Revenue should be debited.
- c. Inventory should be credited.
- d. Cash should be debited.
- e. Accounts Payable should be debited.
Which of the following factors leads auditors to provide only reasonable assurance?
- Select one:
- a. Ambiguous U.S.GAAP guidelines
- b. Use of estimates
- c. Different financial year and calendar year end
- d. Separation of accounting and custody of assets
- e. Change in total assets by more than 10%
_____ is defined as the anticipated sales price of the item reduced by the estimated costs to complete the item and any estimated costs needed to make the sale.
- Select one:
- a. Replacement cost
- b. Market value
- c. Selling price
- d. Net realizable value
- e. Estimated original price
Which of the following is an operating activity?
- Select one:
- a. Paying dividends
- b. Issuing common stock
- c. Paying interest
- d. Repurchase of common stock
- e. Proceeds from long-term debt
Which of the following statements is true about financial statements?
- Select one:
- a. Dividends paid are shown as a reduction on the income statement.
- b. Assets reported on the balance sheet may or may not have a source.
- c. Income statement is prepared for a particular date.
- d. The total of assets is equal to the total of liabilities.
- e. There is no T-account for ending retained earnings balance.
Foster Company acquired Robert Corporation for $10 million on January 1, 2011. Included in this amount was goodwill of $500,000. Which of the following is true of consolidated statements prepared as of December 31, 2011?
- Select one:
- a. Goodwill will still be reported at $500,000 less any beginning balance.
- b. The amount of goodwill reported would be less than $500,000 because of amortization.
- c. The amount of goodwill reported may still be $500,000, but it also may be less than it if any impairment has occurred.
- d. The amount of goodwill reported may be more than $500,000 if Robert has had a profitable year.
- e. The amount of goodwill will be reported at $500,000 throughout the life of Foster Company even if impairment has occurred.
Coffee-cup Corporation received an invoice on May 2, 2012, stating the discount terms as 2/10, n/30. The company settled the invoice amount by paying $1,470 on May 10, 2012. What is the amount of discount received by Coffee-cup Corporation?
- Select one:
- a. $29.4
- b. $147
- c. $30
- d. $150
- e. $50
When preparing a tax return, a company must follow the rules of:
- Select one:
- a. U.S. GAAP.
- b. SEC.
- c. PCAOB.
- d. IFRS.
- e. Internal Revenue Code.
In October, Janus Corporation received a payment in advance from a customer for work to be performed in November. To record this, Janus’ accountant debited Cash and credited Revenue. Which of the following is true?
- Select one:
- a. Revenue is understated
- b. Assets are overstated
- c. Liabilities are understated
- d. Cash is understated
- e. Unearned revenue is overstated
Coastal Corporation pays salaries of $30,000 to its employees. No accrual has been made for this amount. What is the financial impact of this transaction?
- Select one:
- a. Increase Salary Expense – Decrease Cash
- b. Increase Salary Expense – Decrease Salary Payable
- c. Increase Salary Payable – Decrease Salary Expense
- d. Increase Cash – Decrease Salary Payable
- e. Increase Prepaid Salary – Decrease Cash
Which of the following accounts decreases with a credit?
- Select one:
- a. Expense
- b. Capital Stock
- c. Gain
- d. Retained Earnings
- e. Revenues
Charlie Corporation purchased 2,000 shares of Robbins Company for $5 per share on October 15, 2017 and accounts for it as an available-for-sale security. On December 31, 2017, Robbins’ stock was selling for $8 per share. On November 8, 2018, Charlie sold all of its shares of Robbins for $7 per share. Which of the following would be the amount credited to the Investment in Available-for-Securities account on November 8, 2018?
- Select one:
- a. $16,000
- b. $14,000
- c. $10,000
- d. $2,000
- e. $1,000
Which of the following refers to the process whereby a liability is increased each period by unpaid interest?
- Select one:
- a. Present value
- b. Ordinary annuity
- c. Compounding
- d. Annuity due
- e. Amortizing
Chris Company prepays insurance for the month of February and records it by debiting prepaid insurance and crediting cash. At the end of February, Chris’ accountant debits rent expense and credits cash. Which of the following statements is true?
- Select one:
- a. Assets are overstated
- b. Net Income is overstated
- c. Expenses are understated
- d. Assets are understated
- e. Prepaid Insurance is overstated
Which of the following would be capitalized to equipment account?
- Select one:
- a. Discount received on the purchase of the equipment
- b. Cost of training employees on the proper use of equipment
- c. Depreciation cost
- d. Inventory produced by the equipment
- e. Interest paid on loan borrowed to purchase the equipment
Gershwin Corporation issues $100,000 in 2-year zero-coupon bonds with a negotiated interest rate of 5%. If Gershwin uses the effective interest rate method, which of the following is the interest expense Gershwin will accrue for the bonds at the end of Year Two?
- Select one:
- a. $4,762
- b. $5,000
- c. $4,535
- d. $4,500
- e. $4,673
Carter Co. placed an order for a machine on January 5. The company received the machine on January 20. The company installed the machine on 29 January and started production from 1 February. The company paid the amount due for the machine on February 5. On which date will Carter recognize the liability for the purchase of the machine?
- Select one:
- a. 5th January
- b. 20th January
- c. 29th January
- d. 1st February
- e. 5th February
Which of the following is true of the Modified Accelerated Cost Recovery System (MACRS)?
- Select one:
- a. It is useful for companies to show lower taxable income.
- b. Each depreciable asset must be placed into one of 2 classes based upon its life.
- c. Residual value is very important in MACRS.
- d. This system discourages acquisition of depreciable assets.
- e. Greater depreciation expense is allowed, especially in the earlier years of use.
A deferred income tax liability on a balance sheet indicates:
- Select one:
- a. a company has delayed its current payment of income tax amount to a future date.
- b. a low debt-equity ratio.
- c. a company is highly leveraged.
- d. a company didn’t have enough funds to pay its income tax expense in that year.
- e. a company’s policy towards debt and tax payment.
Haley’s Hair Salon specializes in cuts and color for all hair types. Haley also sells beauty products. Last week, Haley borrowed $10,000 from the bank to buy new equipment for the salon. Which of the following is a true statement?
- Select one:
- a. If Haley sells the equipment, the amount realized from the sale will be reported as revenue.
- b. The amount borrowed from the bank will increase the amount of owners’ equity.
- c. The $10,000 received from the bank is revenue for Haley.
- d. The beauty products Haley has in stock are an expense to her.
- e. Haley earns revenue by cutting hair.
Which of the following is a criteria used to determine if a lease should be recorded as a capital lease or not?
- Select one:
- a. The lease contract allows the lessee to buy the property above its expected fair value at a future date.
- b. The lease term covers at least 90 percent of the asset’s life.
- c. The lessee gets ownership of the asset at the end of the lease.
- d. The lease payments must cover at least 80 percent of the value of the asset.
- e. The lease payments of the lessee will make for at least 75 percent of the amount asked for by the lessor.
On January 1, 2019, Stella Corporation issues $300,000 in term bonds with a stated interest rate of 4%. The effective interest rate is 6%. The bonds have a term of 3 years and interest is paid twice a year, on June 30 and December 31. Determine the issuance price of the bonds.
- Select one:
- a. $300,000
- b. $283,747
- c. $290,000
- d. $294,602
- e. $289,101
Which of the following statements is true of retained earnings?
- Select one:
- a. The retained earnings statement is also referred to as the statement of operations.
- b. The retained earnings balance is expected to rise when a company reports a net loss.
- c. The retained earnings balance includes the amount of dividend paid during the life of the organization.
- d. The retained earnings balance reflects the amount of the profits retained in a business throughout its existence.
- e. The retained earnings balance reflects the total amount of net income earned during the life of the organization.
Which of the following is a reason that reasonable assurance by an auditor is adequate?
- Select one:
- a. Financial statements’ amounts are based on material evidence.
- b. The FASB has determined that reasonable assurance is adequate.
- c. Informed decision makers understand that reasonable assurance is all that is provided.
- d. A CPA from the auditing firm always sits at the client location.
- e. Organizations provide all invoices to auditors to aid them uncover any problem.
A party that receives cash for granting the use of owned property through a lease contract is called a(n):
- Select one:
- a. lessee.
- b. debtor.
- c. licensee.
- d. lessor.
- e. franchisee.
Which of the following inventory methods are most likely to be used by automobile dealers, jewelers, and art galleries?
- Select one:
- a. Weighted averaging
- b. FIFO
- c. Specific identification
- d. LIFO
- e. Moving averaging
On January 1, 2012 Vision Corporation purchased Lite Inc. for $300,000. The company paid $50,000 over and above the net asset value to Lite. At the end of the year, the fair value of the goodwill was $60,000. Compute the amount of goodwill to be reported on the consolidated balance sheet of Vision Corporation.
- Select one:
- a. $300,000
- b. $250,000
- c. $60,000
- d. $50,000
- e. $10,000
Robinson Corporation uses a perpetual FIFO system. Robinson’s accountant debited cost of goods sold for $1,600. Which of the following is true?
- Select one:
- a. Cost of goods sold is correctly stated.
- b. Retained earnings is overstated.
- c. Gross profit is overstated.
- d. Sales are understated.
- e. Net income is understated.
Flanders Company sells capital stock of $4,500. Which of the following correctly identifies the accounts and their movements for this transaction?
- Select one:
- a. Cash increases by $4,500; Capital Stock decreases by $4,500.
- b. Cash decreases by $4,500; Capital Stock decreases by $4,500.
- c. Cash increases by $4,500; Note Payable increases by $4,500.
- d. Cash increases by $4,500; Capital Stock increases by $4,500.
- e. Capital Stock decreases by $4,500; Note Payable increases by $4,500.
Boston Company pays salaries of $2,000 to employees. No accrual has been made for this amount. Which of the following is true of this transaction?
- Select one:
- a. Cash increases by $2,000; Salaries Payable decreases by $2,000
- b. Cash decreases by $2,000; Salaries Expense decreases by $2,000
- c. Salaries Expense increases by $2,000; Salaries Payable decreases by $2,000
- d. Salaries Expense increases by $2,000; Cash decreases by $2,000
- e. Cash decreases by $2,000; Salaries Payable increases by $2,000
Hercules Company purchased land and a building for $350,000. The fair value of the land was $240,000 and the fair value of the building was $160,000. Determine the amount at which Hercules will record the building.
- Select one:
- a. $210,000
- b. $140,000
- c. $240,000
- d. $160,000
- e. $350,000
Wild Cart Inc. made sales of $730,000 during Year Two. Cash of $720,000 was collected and no accounts were written off as uncollectible. The beginning balance of accounts receivable was $20,000. Calculate the age of receivables of Wild Cart Inc. at the end of Year Two.
- Select one:
- a. 15 days
- b. 24.3 days
- c. 36.5 days
- d. 10 days
- e. 12.5 days
At the beginning of the year 2013, Trannik had 50 units in its inventory, each costing $4. In January, Trannik purchased 30 units for $5 each. On January 31, Trannik sold 20 units. Assuming a FIFO cost flow assumption, what would be Trannik’s cost of goods sold?
- Select one:
- a. $200
- b. $100
- c. $150
- d. $120
- e. $80
On November 1, Year One, a company is paid $12,000 in advance to do a job for a customer. The job has ten separate steps. The first four steps were completed in Year One and the remaining six steps were completed in Year Two. The accountant mistakenly believed that this was just one big job and recorded it in that fashion. However, each of the ten steps was really an individual job and should have been accounted for in that way. Which of the following statements is true?
- Select one:
- a. At the end of Year One, the company’s retained earnings are understated.
- b. At the end of Year One, the company’s liabilities are understated.
- c. At the end of Year Two, the company’s retained earnings are overstated.
- d. At the end of Year Two, the company’s net income is understated.
- e. At the end of Year Two, the company’s assets are overstated.
Who is responsible for the development of effective internal control systems in a company?
- Select one:
- a. The auditor
- b. The management
- c. The stockholders
- d. The creditors
- e. The government
Oliver Company purchases inventory costing $34 on September 14. The company spends $5 to transfer the inventory to its store and an additional $8 to set it up. One of Oliver’s employees accidentally dented an item that had to be fixed at a cost of $3. What would be the amount of inventory purchase?
- Select one:
- a. $34
- b. $39
- c. $42
- d. $47
- e. $50
Contingent gains are reported:
- Select one:
- a. when it is probable.
- b. when the amount of the gain can be reasonably estimated.
- c. when the gain actually occurs.
- d. in the notes to the financial statement.
- e. as assets in the balance sheet.
Which of the following organizations produces accounting standards for state and local governments in the U.S.?
- Select one:
- a. The SEC
- b. The EITF
- c. The GASB
- d. The FASB
- e. The IASB
Who elects a corporation’s board of directors?
- Select one:
- a. Management
- b. Stockholders
- c. Employees
- d. Creditor
- e. Government
Which of the following is true of property and equipment category?
- Select one:
- a. They should have tangible physical substance to be classified under this category.
- b. They will generate revenue for a single year.
- c. They will not be used within normal operating activities of a business.
- d. They include assets held for resale.
- e. They include land acquired to construct a future plant.
Andrew Company uses the indirect method to determine its cash flows from operating activities. Andrew reported net income of $300,000 for the year. Depreciation expense is $30,000 and gain on sale of equipment is $50,000. Determine the amount of cash generated by operating activities?
- Select one:
- a. $220,000
- b. $280,000
- c. $320,000
- d. $380,000
- e. $330,000
Under an operating lease:
- Select one:
- a. the lessee does not obtain substantially all the benefits and risks of ownership.
- b. the lease transaction is reported more like a purchase.
- c. the leased asset is depreciated by the lessee over its useful life.
- d. all lease payments are ordinary annuities.
- e. the initial liability recognized is equal to the present value of all the lease payments.
Which of the following is true concerning trading securities?
- Select one:
- a. They are expected to be held for a long period of time.
- b. They are recorded at historical cost on the acquisition date.
- c. Dividends are not paid on them.
- d. They are purchased to make the company look financially strong.
- e. Unrealized gains and losses are reported in the stockholders’ equity
Champion Enterprises issued 10-year bonds in the amount of $120,000 on November 1, 2016. The bonds pay an annual rate of interest of 5%. Interest payments are made on June 1 and December 1 of each year. Which of the following is the amount of interest expense Champion should record on December 1, 2016 when interest is paid?
- Select one:
- a. $0
- b. $500
- c. $1,000
- d. $3,000
- e. $6,000
Hudson Corporation created a technology in the year 2008 and got it patented. The legal cost for getting the patent was $60,000. The useful life of the patent is 10 years. The company was acquired by Meditech on January 1, 2012. The fair value of the patent on the date on acquisition was $300,000. Determine the amount paid by Meditech towards patent on acquisition.
- Select one:
- a. $60,000
- b. $24,000
- c. $36,000
- d. $300,000
- e. $-0-
Phyllis Company purchases an asset on December 14, 2014, for $3,000. The estimated life is 5 years with no salvage value. The company does not apply the half-year convention but rounds depreciation to the nearest month when assets are bought and sold during the year. What depreciation expense should be recorded in 2014?
- Select one:
- a. $3,000
- b. $600
- c. $50
- d. $500
- e. $1,000
An obligation established by the sale of a product where the seller promises to fix or replace the product if it proves to be defective is called:
- Select one:
- a. embedded product warranty.
- b. product benefits.
- c. gift card.
- d. redeemable vouchers.
- e. exchange coupons.
The communication of financial information within an organization so that internal decisions can be made in an appropriate manner is known as:
- Select one:
- a. financial accounting.
- b. managerial accounting.
- c. cost analysis.
- d. tax accounting.
- e. information analysis.
On January 1, 2013, Opie Corporation issues $200,000 in term bonds with a stated rate of interest of 7% and an effective rate of interest of 8%. The term of the bonds is 6 years, and interest is paid every June 30 and December 31. Determine the balance in the Bonds Payable account on June 30, 2013.
- Select one:
- a. $190,000
- b. $191,889
- c. $191,240
- d. $200,000
- e. $190,615
A party that pays cash for the use of an asset in a lease contract is called a(n):
- Select one:
- a. lessee.
- b. debtor.
- c. licensor.
- d. lessor.
- e. franchisor.
Xander Company began the year with $100,000 in inventory and $210,000 in accounts payable. During the year, Xander incurred a cost of goods sold of $1,200,000. Xander ended the year with $105,000 in inventory and $200,000 in accounts payable. How much cash did Xander pay for purchases during the year?
- Select one:
- a. $1,205,000
- b. $1,195,000
- c. $1,215,000
- d. $1,200,000
- e. $1,210,000
Yates Corporation issued 400 shares of $1 par value common stock for $5 per share. Yates’ accountant credited common stock for $2,000. Which of the following statements is true of this transaction?
- Select one:
- a. Yates’ stockholders’ equity is overstated.
- b. Yates’ assets are overstated.
- c. Yates’ common stock is understated.
- d. Yates’ stockholders’ equity is correctly stated.
- e. Yates retained earnings is understated.
Lira Company reported the following account balances on its income statement: cost of goods sold—$320,000, rent expense—$30,000, and salary expense—$90,000. During the year, prepaid rent went up by $5,000, accounts payable went down by $4,000, salary payable went up by $3,000, and inventory went down by $2,000. Determine the amount of cash paid for rent.
- Select one:
- a. $25,000
- b. $28,000
- c. $35,000
- d. $30,000
- e. $31,000
What is the minimum percentage that a parent company must own of a subsidiary’s stock in order to present consolidated financial statements?
- Select one:
- a. 100%
- b. 75%
- c. 50%
- d. 20%
- e. 25%
Kites Inc. placed an order for inventory on December 24, 2015. Inventory was shipped from the supplier on December 26, 2015, and arrived at Kites’ warehouse on January 3, 2016. The terms of the shipment were FOB shipping point. The company uses a periodic system, and the inventory was not included in the end-of-the-year count. Kites accountant recorded the purchases by debiting purchases and crediting accounts payable on January 3, 2016. Which of the following is true of Kites’ financial statements?
- Select one:
- a. Liabilities for 2015 are understated.
- b. Purchases for 2015 are overstated.
- c. Retained earnings for 2016 are understated.
- d. Net income for 2016 is understated.
- e. Ending inventory for 2015 is overstated.
Pointer Inc. reported a net income of $60,000 during 2013. The company has a weighted average of 40,000 common shares outstanding. The company also had 10,000 convertible preferred stock. Compute the basic earnings per share.
- Select one:
- a. $1.09 per share
- b. $1.33 per share
- c. $1.20 per share
- d. $1.50 per share
- e. $4.00 per share
Which of the following is an accidental misstatement?
- Select one:
- a. Error
- b. Materiality
- c. Representational faithfulness
- d. Irrelevance
- e. Fraud
A company has 100,000 shares of common stock outstanding on January 1 and issued 40,000 more common shares on October 1. Net income for the year is reported as $600,000. During the year, a $65,000 dividend was paid on common stock while a $105,000 dividend was paid on preferred stock. The market price of the common stock was $27.00 per share at the end of the year. What is the P/E ratio as of December 31?
- Select one:
- a. 6.91
- b. 4.95
- c. 6.31
- d. 6.00
- e. 7.63
What type of account is accumulated depreciation?
- Select one:
- a. Equity
- b. Contra asset
- c. Liability
- d. Expense
- e. Loss
Speers Corporation owns 40% of Queens Company, which Speers originally purchased at the beginning of the year for $300,000. Queens earned $30,000 income for the year and distributed dividends of $5,000. If this investment is accounted for by means of the equity method, it should be reported on a year-end balance sheet at:
- Select one:
- a. $300,000.
- b. $310,000.
- c. $325,000.
- d. $330,000.
- e. $312,000.
Traylor Beauty Supply is in the business of selling hair care and other beauty products. It recently sold an old piece of equipment to Shaw Company for an amount more than what it had originally paid. Traylor should record a(an) _____ on the sale of the equipment.
- Select one:
- a. revenue
- b. expense
- c. gain
- d. loss
- e. gross profit
A company ends Year One with 100,000 shares of common stock and 30,000 shares of preferred stock outstanding. Net income for the year is reported as $400,000. During the year, the company paid a $1 per share cash dividend on its common stock and a $2 per share cash dividend on its preferred stock. The number of preferred shares did not change during the year. The number of common shares at the beginning of the year was 80,000 and an additional 20,000 shares were issued on July 1. Determine the company’s basic earnings per share.
- Select one:
- a. $3.78 per share
- b. $3.84 per share
- c. $4.00 per share
- d. $4.44 per share
- e. $5.00 per share
When a perpetual inventory system is in use, all additions and reductions are monitored in the _____ T-account.
- Select one:
- a. inventory
- b. purchases
- c. accounts payable
- d. perpetual purchases
- e. assembly of inventory
Sparta Inc., a retail company, located in U.S. sold products on account for 440,000 rupees on November 30 to Global Inc., an Indian company. The amount will be paid in 60 days. On the date of sale, one dollar was equal to 50 rupees. On December 31, when Sparta prepares its financial statements, the exchange rate is 45 rupees to $1. At what amount should the account receivable be recorded on November 30?
- Select one:
- a. $8,800
- b. $440,000
- c. $9,778
- d. $22,000,000
- e. $40,000
Who pays the auditor’s remuneration?
- Select one:
- a. The PCAOB
- b. The SEC
- c. The AICPA
- d. The reporting company
- e. The group of investors and creditors
Hyena Corporation pays $700,000 to acquire Quinton Company. Quinton has two assets. The first is a building with a book value of $200,000 and a fair value of $300,000. The second is a patent with a book value of $10,000 and a fair value of $250,000. Assume the company had no liabilities. What amount is reported as goodwill as part of this sale?
- Select one:
- a. $250,000
- b. $390,000
- c. $700,000
- d. $150,000
- e. $490,000
Creditors use financial information to predict whether a:
- Select one:
- a. company will be able to pay dividends.
- b. company will be able to pay interest.
- c. company will be able to pay salaries.
- d. company will be able to issue additional shares.
- e. company’s stock price will increase.
