100 Accounting Final Exam Multiple Choice Review Sheet
Note: This is meant as practice in answering multiple choice questions. It is in no way indicative of what
will be on the exam and does not provide comprehensive coverage of all material that may be
tested. This should not be your sole source of review for this material and is not meant to
indicate material that will or will not be on exam!
Chapter 1
1.
Which of the following is not an advantage of the corporate form of business
organization?
a. No personal liability
b. Easy to transfer ownership
c. Favorable tax treatment
d. Easy to raise funds
2.
Which of the following statements is true?
a. Publicly traded U.S. companies must provide an annual report to their shareholders
when operating conditions change significantly.
b. An unqualified independent auditors report must be included in the annual report.
c. Notes to the financial statements do not need to be included in the annual report
because that information is only for internal users.
d. All of the statements are false.
Chapter 2
3.
If accounting information has relevance, it is useful in making predictions about
a. future IRS audits.
b. new accounting principles.
c. foreign currency exchange rates.
d. the future events of a company.
4.
The concept that a business has a reasonable expectation of remaining in business for the
foreseeable future is called the
a. economic entity assumption.
b. monetary unit assumption.
c. periodicity assumption.
d. going concern assumption.
5.
Jackson Cement Corporation reported $35 million for sales when it only had $20 million
of actual sales. Which of the following characteristics of useful information has Jackson
most likely violated?
a. comparability
b. relevance
c. faithful representation
d. consistency
Chapter 3
6.
Which one of the following represents the expanded basic accounting equation?
1
a.
b.
c.
d.
Assets = Liabilities + Common Stock + Dividends Revenue Expenses
Assets + Dividends + Expenses = Liabilities + Common Stock + Revenues
Assets Liabilities Dividends = Common Stock + Revenues Expenses
Assets = Revenues + Expenses Liabilities
Chapter 4
7.
In a service-type business, revenue is considered earned:
a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.
8.
The primary difference between prepaid and accrued expenses is that prepaid expenses
have:
a. been incurred and accrued expenses have not.
b. not been paid and accrued expenses have.
c. been recorded and accrued expenses have not.
d. not been recorded and accrued expenses have.
9.
A law firm received $2,000 cash for legal services to be rendered in the future. The full
amount was credited to the liability account Unearned Service Revenue. If the legal
services have been rendered at the end of the accounting period and no adjusting entry is
made, this would cause:
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
10.
The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2
and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies
indicated only $2,000 on hand. The adjusting entry that should be made by the company
on June 30 is:
a. debit Laundry Supplies Expense, $2,000; credit Laundry Supplies, $2,000.
b. debit Laundry Supplies, $4,500; credit Laundry Supplies Expense, $4,500.
c. debit Laundry Supplies, $2,000; credit Laundry Supplies Expense, $2,000.
d. debit Laundry Supplies Expense, $4,500; credit Laundry Supplies, $4,500.
11.
Skypress Company collected $5,600 in May of 2010 for 4 months of service which
would take place from October of 2010 through January of 2011. The revenue reported
from this transaction during 2010 would be:
a. $0
b. $4,200
c. $5,600
d. $1,400
2
12.
The following information is from the Income Statement of the Dirt Poor Laundry
Service:
___________________________________________________________________________________
Revenues
Laundry Service Revenues
$5,500
Expenses
Wages expense
$ 1,450
Advertising expense
500
Rent expense
300
Supplies expense
200
Insurance expense
100
Total expenses
2,550
Net Income
$2,950
The entry to close the Income Summary includes a:
a. credit to Income Summary for $2,950.
b. debit to Income Summary for $2,950.
c. debit to Retained Earnings for $2,950.
d. credit to Common Stock for $2,950.
Chapter 5
13.
Which of the following items does not result in an adjustment in the merchandise
inventory account under a perpetual system?
a. A purchase of merchandise.
b. A return of merchandise inventory to the supplier
c. Payment of freight costs for goods shipped to a customer
d. Payment of freight costs for goods received from a supplier
14.
A credit sale of $1,600 is made on April 25, terms 2/10, net/30, on which a return of $100
is granted on April 28. What amount is received as payment in full on May 4?
a. $1,470
b. $1,568
c. $1,600
d $1,500
15.
Tonys Market recorded the following events involving a recent purchase of inventory:
Received goods for $30,000, terms 2/10, n/30.
Returned $600 of the shipment for credit.
Paid $150 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the companys inventory
a. increased by $28,812.
b. increased by $29,550.
c. increased by $28,959.
d. increased by $28,962.
16.
Financial information is presented below:
Operating Expenses
Sales Returns and Allowances
$ 21,000
7,000
3
Sales Discounts
Sales Revenue
Cost of Goods Sold
Gross profit would be
a. $42,000.
b. $35,000.
c. $38,000.
d. $45,000.
17.
3,000
150,000
105,000
At the beginning of the year, Uptown Athletic had an inventory of $400,000.
During the year, the company purchased goods costing $1,500,000. If Uptown
Athletic reported ending inventory of $600,000 and sales of $2,000,000, their cost
of goods sold and gross profit rate would be
a.
b.
c.
d.
$900,000 and 65%
$1,300,000 and 35%
$900,000 and 35%
$1,300,000 and 65%
Chapter 6
18.
19.
At December 31, 2012 Howell Companys inventory records indicated a balance of
$928,000. Upon further investigation it was determined that this amount included the
following:
$168,000 in inventory purchases made by Howell shipped from the seller 12/27/12
terms FOB destination, but not due to be received until January 2nd
$111,000 in goods sold by Howell with terms FOB destination on December 27th.
The goods are not expected to reach their destination until January 6th.
$9,000 of goods received on consignment from Westwood Company
What is Howells correct ending inventory balance at December 31, 2012?
a. $760,000
b. $919,000
c. $640,000
d. $751,000
Baker Bakery Company just began business and made the following four inventory
purchases in June:
June
1
150 units
$ 780
June 10
200 units
1,170
June 15
200 units
1,260
June 28
150 units
990
$4,200
A physical count of merchandise inventory on June 30 reveals that there are 250 units on
hand. Using the FIFO inventory method, the amount allocated to ending inventory for
June is
a. $1,300
b. $1,365
c. $1,620
d. $1,650
4
20.
A company just began business and made the following four inventory purchases in June:
June
1
150 units
$ 825
June 10
200 units
1,120
June 15
200 units
1,140
June 28
150 units
885
$3,970
A physical count of merchandise inventory on June 30 reveals that there are 250 units on
hand. Using the average cost method, the amount allocated to the ending inventory on
June 30 is
a. $1,418.
b. $1,475.
c. $1,425.
d. $1,400.
21.
Piper Pipes has the following inventory data:
July 1
Beginning inventory
20 units at $120
5
Purchases
120 units at $112
14
Sale
80 units
21
Purchases
60 units at $115
30
Sale
56 units
Assuming that a periodic inventory system is used, what is the cost of goods sold on a
LIFO basis.
a. $7,328
b. $7,348
c. $15,392.
d. $15,412
Chapter 7
22.
23.
Having one person responsible for the related activities of ordering merchandise,
receiving goods, and paying for them
a. increases the potential for errors and fraud.
b. decreases the potential for errors and fraud.
c. is an example of good internal control.
d. is a good example of safeguarding the company's assets.
For which of the following errors should the appropriate amount be subtracted from the
balance per book on a bank reconciliation?
a. Check written for $43, but recorded as $34.
b. Deposit of $500 recorded by bank as $50.
c. A returned $200 check recorded by bank as $20.
d. Check written for $35, but recorded as $53.
5
24.
At April 30, Mendoza Company has the following bank information:
Cash balance per bank
$3,600
Outstanding checks
$280
Deposits in transit
$550
Credit memo for interest
$10
Bank service charge
$20
What is Mendozas adjusted cash balance on April 30?
a. $3,860.
b. $3,880.
c. $3,330.
d. $3,870.
Chapter 8
25.
In 2012 the Golic Co. had net credit sales of $900,000. On January 1, 2012, the
Allowance for Doubtful Accounts had a credit balance of $19,000. During 2012, $36,000
of uncollectible accounts receivable were written off. Past experience indicates that the
allowance should be 10% of the balance in receivables (percentage of receivable basis). If
the accounts receivable balance at December 31 was $240,000 what is the required
adjustment to the Allowance for Doubtful Accounts at December 31, 2012?
a. $24,000.
b. $41,000.
c. $43,000.
d. $36,000.
26.
You have just received notice that a customer of yours with an account receivable
balance of $100 has gone bankrupt and will not make any future payments. Assuming
you use the allowance method, the entry you make is to
a. debit Allowance for Doubtful Accounts and credit Bad Debt Expense.
b. debit Allowance for Doubtful Accounts and credit Accounts Receivable.
c. debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
d. debit Bad Debt Expense and credit Accounts Receivable.
27.
When an account is written off using the allowance method, the
a. cash realizable value of total accounts receivable will increase.
b. net accounts receivable will decrease.
c. allowance account will increase.
d. net accounts receivable will stay the same.
28.
Young Company lends Dobson industries $30,000 on August 1, 2012, accepting a
9-month, 12% interest note. If Young accrued interest at its December 31, 2012 year-end,
what entry must it make to record the collection of the note and interest at its maturity
date?
a. Cash
32,700
Notes Receivable
30,000
Interest Revenue
2,700
b. Cash
32,700
Notes Receivable
32,700
6
c. Notes Receivable
Interest Receivable
Interest Revenue
Cash
d. Cash
Notes Receivable
Interest Receivable
Interest Revenue
30,000
1,500
1,200
32,700
32,700
30,000
1,500
1,200
29.
Which one of the following is not a principle of sound accounts receivable management?
a. determine to whom to extend credit.
b. delay cash receipts from receivables if necessary.
c. monitor collections.
d. determine a payment period.
30.
When customers make purchases with a national credit card, the retailer
a. is responsible for maintaining customer accounts.
b. is not involved in the collection process.
c. absorbs any losses from uncollectible accounts.
d. receives cash equal to the full price of the merchandise sold from the credit card
company.
Chapter 9
31.
Burke Company purchases land for $85,000 cash. Burke assumes $2,500 in property
taxes due on the land. The title and attorney fees totaled $1,000. Burke has the land
graded for $2,200. They paid $10,000 for paving of a parking lot. What amount does
Burke record as the cost for the land?
a. $88,200.
b. $100,700.
c. $90,700.
d. $85,000.
32.
Recording depreciation each period is necessary in accordance with the
a. going concern principle.
b. cost principle.
c. expense recognition principle.
d. asset valuation principle.
33.
Ron's Quik Shop bought equipment for $50,000 on January 1, 2011. Joe estimated the
useful life to be 5 years with no salvage value, and the straight-line method of
depreciation will be used. On January 1, 2012, Ron decides that the business will use the
equipment for a total of 6 years. What is the revised depreciation expense for 2012?
a. $8,000.
b. $4,000.
c. $6,667.
d $10,000.
7
34.
On July 1, 2012, Dillman Kennels sells equipment for $44,000. The equipment originally
cost $120,000, had an estimated 5-year life and an expected salvage value of $20,000.
The Accumulated Depreciation account had a balance of $70,000 on January 1, 2012,
using the straight-line method. The gain or loss on disposal is
a. $6,000 gain.
b. $4,000 loss.
c. $6,000 loss.
d. $4,000 gain.
35.
Hopson Company incurred $450,000 of research and development costs in its laboratory
to develop a new product. It spent $60,000 in legal fees for a patent granted on January On 2,
2012. July 31, 2012, Hopson paid $45,000 for legal fees in a successful defense of the
patent. What is the total amount that should be debited to Patents through July 31, 2012?
a. $450,000.
b. $105,000.
c. $555,000.
d. Some other amount.
36.
A company purchased factory equipment for $250,000. It is estimated that the equipment
will have a $25,000 salvage value at the end of its estimated 5-year useful life. If the
company uses the double-declining-balance method of depreciation, the amount of
annual depreciation recorded for the second year after purchase would be
a. $100,000.
b. $60,000.
c. $90,000.
d. $54,000.
37.
Interline Trucking purchased a tractor trailer for $98,000. Interline uses the units-ofactivity method for depreciating its trucks and expects to drive the truck 1,000,000 miles
over its 12-year useful life. Salvage value is estimated to be $14,000. If the truck is
driven 80,000 miles in its first year, how much depreciation expense should Interline
record?
a. $6,222.
b. $7,840.
c. $6,720.
d. $7,259.
Chapter 10
38.
Norlan Company does not ring up sales taxes separately on the cash register.
Total receipts for October amounted to $14,700. If the sales tax rate is 5%, what
amount must be remitted to the state for October's sales taxes?
a. $700.
b. $735.
c. $35.
d. It cannot be determined.
39.
Stockholders of a company may be reluctant to finance expansion through issuing
more equity because
8
a.
b.
c.
d.
leveraging with debt is always a better idea.
their earnings per share may decrease.
the price of the stock will automatically decrease.
dividends must be paid on a periodic basis.
40.
If the market rate of interest is greater than the contractual rate of interest, bonds
will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated rate of interest is increased.
41.
The current carrying value of Kennetts $800,000 face value bonds is $797,000. If
the bonds are retired at 102, what would be the amount Kennett would pay its
bondholders?
a. $797,000
b. $800,000
c. $804,000
d. $816,000
42.
Warner Company issued $1,600,000 of 6%, 10-year bonds on one of its interest
dates for $1,381,920 to yield an effective annual rate of 8%. The effective-interest
method of amortization is to be used. The journal entry to be recorded at the end
of the second year for the payment of interest and the amortization of discount
will include a
a. debit to Bond Interest Expense for $96,000.
b. credit to Cash for $111,718.
c. credit to Discount on Bonds Payable for $14,554.
d. credit to Discount on Bonds Payable for $15,718.
Appendix D
43.
44.
A $10,000, 8%, 10-year note payable that pays interest quarterly would be discounted
back to its present value by using tables that would indicate which one of the following
period-interest combinations?
a. 10 interest periods, 8% interest.
b. 40 interest periods, 8% interest.
c. 40 interest periods, 2% interest.
d. 10 interest periods, 2% interest.
Garcia Company is about to issue $300,000 of 8-year bonds paying a 12% interest rate
with interest payable semiannually. The discount rate for such securities is 10%. Below
are time value of money factors that Garcia uses to calculate compounded interest.
Present value 1
8 periods,
10%
0.46651
16 periods, 5%
0.45811
8 periods,
12%
0.40388
16 periods,
6%
0.39365
9
Future value 1
Present value of an annuity of 1
Future value of an annuity of 1
2.14359
5.33493
11.43589
2.18287
10.83777
23.65749
2.47596
4.96764
12.29969
2.54035
10.10590
25.67253
To the closest dollar, how much can Garcia expect to receive for the sale of these bonds?
a. $319,339.
b. $229,371.
c. $332,513.
d. $540,000.
Chapter 11
45.
Jason Hansen has invested $600,000 in a privately held family corporation. The
corporation does not do well and must declare bankruptcy. What amount does Hansen
stand to lose?
a. Up to his total investment of $600,000.
b. Zero.
c. The $600,000 plus any personal assets the creditors demand.
d. $400,000.
46.
A company would not acquire treasury stock
a. in order to reissue shares to officers.
b. as an asset investment.
c. in order to increase trading of the companys stock.
d. to have additional shares available to use in acquisitions of other companies.
47.
On January 1, Edmiston Corporation had 1,200,000 shares of $10 par value common
stock outstanding. On March 31 the company declared a 10% stock dividend. Market
value of the stock was $15/share. As a result of this event,
a. Edmistons Paid-in Capital in Excess of Par Value account increased $600,000.
b. Edmistons total stockholders equity was unaffected.
c. Edmistons Stock Dividends account increased $1,800,000.
d. All of the above.
48.
Indicate the respective effects of the declaration of a cash dividend on the following
balance sheet sections:
Total Assets
Total Liabilities
Total Stockholders Equity
a.
Increase
Decrease
No change
b.
No change
Increase
Decrease
c.
Decrease
Increase
Decrease
d.
Decrease
No change
Increase
Appendix E
49.
Reed Company acquires 80 Holmes 10%, 5 year, $1,000 bonds on January 1, 2012 for
$82,000. This includes a brokerage commission of $2,000. Assume Holmes pays interest
semiannually and the July 1 entry was done correctly. The journal entry at December 31,
2012 would include a credit to
a. Interest Receivable for $4,000.
b. Interest Revenue for $8,000.
10
c. Accrued Expense for $8,000.
d. Interest Revenue for $4,000.
50.
Garza Company owns 40% interest in the stock of Kenney Corporation. During the year,
Kenny pays $30,000 in dividends to Garza, and reports $150,000 in net income. Garza
Companys investment in Kenney will increase Garza net income by
a. $30,000.
b. $60,000.
c. $48,000.
d. $12,000.
51.
Holland Corporation's trading portfolio at the end of the year is as follows:
Investment
Cost
Market Value
Common Stock A
$15,000
$18,000
Common Stock B
12,000
7,000
$27,000
$25,000
At the end of the year, Holland Corporation should
a. set up a Market Adjustment account for Common Stock B.
b. set up a Market Adjustment account for the portfolio.
c. recognize an Unrealized Gain or LossIncome for $5,000.
d. report a loss on the income statement for $5,000 under "Other Expenses and Losses."
52.
Unrealized gains or losses on available-for-sale securities are reported where in the
financial statements?
a. Nowhere since only realized gains are reported.
b. In the Other revenues and gains or Other expenses and losses sections of the
income statement.
c. Below extraordinary items in the income statement.
d. In the stockholders equity section of the balance sheet.
Chapter 12
53.
54.
If a company reports a net loss, it
a. may still have a net increase in cash.
b. will not be able to pay cash dividends.
c. will not be able to get a loan.
d. will not be able to make capital expenditures.
Investing activities include
a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.
11
55.
Harden Corporation engaged in the following transaction. Assume that the Harden
Corporation uses the indirect method to depict cash flows. Indicate where, if at all,
interest paid on note would be classified on the statement of cash flows.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
56.
Wilmas Vegetable Market had the following transactions during 2012:
1. Issued $25,000 of par value common stock for cash.
2. Recorded and paid wages expense of $10,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $1,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $20,000.
7. Bought inventory for cash of $2,000.
8. Acquired an investment in IBM stock for cash of $6,000.
9. Converted bonds payable to common stock in the amount of $10,000.
10. Repaid a 6 year note payable in the amount of $11,000.
What is the net cash provided by operating activities?
a. $20,000.
b. $18,000.
c. $10,000.
d. $8,000.
57.
Cash generated from operations exceeds investing needs, and the company can begin
retiring debt during the
a. introductory phase.
b. growth phase.
c. maturity phase.
d. decline phase.
58.
The information in the following table is from the statement of cash flows for a company
at four different points in time (Period 1, Period 2, Period 3, and Period 4). Negative
values are presented in parentheses.
Cash provided by operations
Cash provided by investing
Cash provided by financing
Net income
Period 1
$ (180,000)
(300,000)
210,000
(120,000)
Period 2
$ 90,000
75,000
(330,000)
30,000
Period 3
$ 360,000
90,000
(150,000)
300,000
Period 4
$ (30,000)
(120,000)
360,000
(15,000)
Based on this information, which of the following answers most likely corresponds with
the introductory phase, growth phase, maturity phase, or decline phase?
a. Period 2, Period 1, Period 3, Period 4.
b. Period 1, Period 4, Period 3, Period 2.
c. Period 3, Period 4, Period 1, Period 2.
d. Period 4, Period 3, Period 2, Period 1.
12
59.
In calculating cash flows from operating activities using the indirect method, a loss on the
sale of equipment is
a. added to net income.
b. deducted from net income.
c. ignored because it does not affect cash.
d. not reported on a statement of cash flows.
60.
The net income reported on the income statement for the current year was $1,260,000.
Depreciation recorded on plant assets was $57,000. Accounts receivable and inventories
increased by $12,000 and $48,000, respectively. Prepaid expenses and accounts payable
decreased by $6,000 and $66,000, respectively. How much cash was provided by
operating activities?
a. $1,140,000.
b. $1,260,000.
c. $1,197,000.
d. $1,476,000.
Chapter 13
61.
Which of the following income statement figures would probably be the best indicator of
a companys future performance?
a. Total revenues.
b. Income from operations.
c. Net income.
d. Gross profit.
62.
Which one of the following would be classified as an extraordinary item?
a. Expropriation of property by a foreign government.
b. Losses attributed to a labor strike.
c. Write-down of inventories.
d. Gains or losses from sales of equipment.
63.
Jennifers Noel Shoppe had severe damage done to its Christmas inventory due to an
escaped circus elephant rampaging through the store. The inventory loss was $120,000
before applicable taxes of $30,000. Jennifers Noel Shoppe should record the loss as a(n)
a. $120,000 loss in other expenses and losses.
b. $120,000 extraordinary loss.
c. $90,000 extraordinary loss.
d. $150,000 extraordinary loss.
64.
Winsor Clothing Store had a balance in the Accounts Receivable account of $760,000 at
the beginning of the year and a balance of $840,000 at the end of the year. Net credit
sales during the year amounted to $6,800,000. The receivables turnover ratio was
a. 8.0 times.
b. 8.3 times.
c. 8.5 times.
d. 7.9 times.
13
65.
Which one of the following would not be considered a liquidity ratio?
a. Current ratio.
b. Inventory turnover ratio.
c. Current cash debt coverage ratio.
d. Return on assets ratio.
66.
Hermann Corporation had net income of $200,000 and paid dividends to common
stockholders of $50,000 in 2012. The weighted average number of shares outstanding in
2012 was 50,000 shares. Hermann Corporation's common stock is selling for $50 per
share on the New York Stock Exchange. Hermann Corporation's price-earnings ratio is
a. 3 times.
b. 10 times.
c. 12.5 times.
d. 4 times.
67.
If a company has a current ratio of 1.2:1, what respective effects will the borrowing of
cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing
Collection of Receivable
a.
Increase
No effect
b.
Increase
Increase
c.
Decrease
No effect
d.
Decrease
Decrease
68.
The following information pertains to Bell Company. Assume that all balance sheet
amounts represent both average and ending balance figures. Assume that all sales were
on credit.
Assets
Cash and short-term investments
$ 40,000
Accounts receivable (net)
25,000
Inventory
20,000
Property, plant and equipment
210,000
Total Assets
$295,000
Liabilities and Stockholders Equity
Current liabilities
$ 60,000
Long-term liabilities
85,000
Stockholders equitycommon
150,000
Total Liabilities and Stockholders Equity
$295,000
Income Statement
Sales
Cost of goods sold
Gross margin
Operating expenses
Net income
Number of shares of common stock
Market price of common stock
Dividends per share on common stock
$ 85,000
45,000
40,000
20,000
$ 20,000
6,000
$20
0.90
14
Cash provided by operations
$30,000
What is the inventory turnover for this company?
a. 2 times.
b. 2.25 times.
c. 1 time.
d. .44 times.
15