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1. (Points: 3)
Which of the following is a characteristic of a corporation?



a. A corporation has a limited life.

b. The owners of a corporation have limited liability for the corporation's debts.

c. The owners of a corporation have co-ownership of the property of the corporation.

d. A corporation is not taxed on the corporation's business income.


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2. (Points: 3)
Which of the following characteristics of a corporation exists because corporations pay taxes on corporate earnings?



a. No mutual agency

b. Separation of ownership and management

c. Double taxation

d. Transferability of ownership


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3. (Points: 3)
Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par value common stock at $13 per share?



a. Paid in capital in excess of par, common would be debited for $5,000.

b. Common stock would be debited for $50,000.

c. Cash would be debited for $65,000.

d. Common stock would be credited for $65,000.


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4. (Points: 3)
Which of the following is TRUE of retained earnings?



a. Retained earnings are a liability on the corporate balance sheet.

b. Retained earnings represent capital that the corporation has earned through profitable operations.

c. Retained earnings represent investments by the stockholders of a corporation.

d. Retained earnings do not appear on any financial statement.


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5. (Points: 3)
The following information is from the balance sheet of Tudor Corporation as of December 31, 2010.


Preferred stock, $100 par $ 500,000
Paid-in capital in excess of par - preferred 35,000
Common stock, $1 par 190,000
Paid-in capital in excess of par - common 380,000
Retained earnings 131,500
Total stockholders' equity $1,236,500


Preferred stock, $100 par
What was the average issue price of the common stock shares?



a. $1.00

b. The average price cannot be determined from the information given.

c. $1.90

d. $3.00


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6. (Points: 3)
The following information is from the balance sheet of Tudor Corporation as of December 31, 2010.


Preferred stock, $100 par $ 500,000
Paid-in capital in excess of par - preferred 35,000
Common stock, $1 par 190,000
Paid-in capital in excess of par - common 380,000
Retained earnings 131,500
Total stockholders' equity $1,236,500


What was the total paid-in capital as of December 31, 2010?



a. $ 956,000

b. Total paid-in capital cannot be determined from the information given.

c. $1,236,600

d. $1,105,000


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7. (Points: 3)
A corporation declares a dividend of $.75 per share on 12,500 shares of common stock. Which of the following would be included in the entry to record the declaration?



a. Retained earnings would be credited for $9,375.

b. Paid-in capital in excess of par-common would be credited for $9,375.

c. Retained earnings would be debited for $9,375.

d. Dividends payable would be debited for $9,375.


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8. (Points: 3)
When companies "pass the dividend", the dividends are said to be:



a. declared.

b. in arrears.

c. preferred.

d. cumulative.


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9. (Points: 3)
The following information is from the balance sheet of a corporation as of December 31, 2010. Preferred dividends are in arrears for the 2009 and 2010.



Preferred stock, cumulative, 7%, $50 par, 6,000 shares issued
What is the book value for the preferred stock?



a. The book value is $50.00 per share.

b. The book value is $53.50 per share.

c. The book value is $51.00 per share.

d. The book value is $62.00 per share.


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10. (Points: 3)
Which of the following is the amount computed by the following formula?
(Net income + interest expense. / Average total assets



a. The amount computed from the formula is the rate of return on total assets.

b. The amount computed from the formula is income tax expense.

c. The amount computed from the formula is the rate of return on stockholders' equity.

d. The amount computed from the formula is deferred taxes payable.


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11. (Points: 3)
The following information is from the books of Eastern Corporation.


Net income $170,000
Preferred dividends 24,000
Interest expense 17,500
Beginning of the year amounts:
Total assets 900,000
Total liabilities 375,000
Total common stockholders' equity 395,000
End of the year amounts:
Total assets 930,000
Total liabilities 405,000
Total common stockholders' equity 435,000


Which of the following is the return on assets for Eastern Corporation?



a. 19.2%

b. 17.5%

c. 20.5%

d. 16.8%


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12. (Points: 3)
The following information is from the books of Eastern Corporation.


Net income $170,000
Preferred dividends 24,000
Interest expense 17,500
Beginning of the year amounts:
Total assets 900,000
Total liabilities 375,000
Total common stockholders' equity 395,000
End of the year amounts:
Total assets 930,000
Total liabilities 405,000
Total common stockholders' equity 435,000


Which of the following is the return on equity for Eastern Corporation?



a. 35.9%

b. 33.4%

c. 35.2%

d. 30.3%


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13. (Points: 3)
A corporation has an income tax rate of 35%, taxable income of $100,000, and income before income tax of $300,000. Which of the following would be included in the entry to record income tax expense?



a. Income tax expense is debited for $70,000.

b. Deferred tax liability is credited for $35,000.

c. Income tax payable is credited for $35,000.

d. Prepaid income tax is credited for $35,000.


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14. (Points: 3)
A company issued 40,000 shares of $5 common stock at $8. The company has now issued a 5% stock dividend when the market price of the stock is $10 a share. What is the amount transferred from the Retained earnings account to the Paid-in capital accounts as a result of the stock dividend?



a. $20,000

b. $45,000

c. $16,000

d. $10,000


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15. (Points: 3)
Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share.


Common stock, $5 par, 100,000 shares authorized, 40,000 shares issued $200,000
Paid in capital in excess of par - common 120,000
Retained earnings 290,000
Total stockholders' equity $610,000


What would be the total paid-in capital after a 10% common stock dividend?



a. Total paid-in capital would be $320,000.

b. Total paid-in capital would be $610,000.

c. Total paid-in capital would be $366,000.

d. Total paid-in capital would be $656,000.


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16. (Points: 3)
Which of the following occurs when a 2-for-1 stock split is declared?



a. The balance in common stock remains the same.

b. The balance in common stock doubles.

c. The balance in common stock is reduced to half the original amount.

d. The balance in common stock cannot be determined from the information given.


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17. (Points: 3)
Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share.


Common stock, $5 par, 100,000 shares authorized, 40,000 shares issued $200,000
Paid in capital in excess of par - common 120,000
Retained earnings 290,000
Total stockholders' equity $610,000


Which of the following would be included in the entry to record a 2-for-1 stock split?



a. Common stock would be credited for $46,000.

b. Retained earnings would be debited for $46,000.

c. Paid-in capital in excess of par - common is credited for $$46,000.

d. Common stock would not change.


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18. (Points: 3)
ABC has 45,000 shares of $10 par common stock outstanding. They offer a stock split of 4 for 1. The effect of the split will be:



a. par goes to $40, total shares go to 180,000.

b. par drops to $2.50, total shares go to 180,000.

c. par stays at $10, total shares go to 11,250.

d. par drops to $5, total shares stay at 45,000.


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19. (Points: 3)
A corporation originally issued $5 par value stock for $6 per share. Which of the following would be included in the entry to record the reacquisition of 200 shares for $8 per share?



a. Treasury stock would be debited for $1,600.

b. Retained earnings would be debited for $1,000.

c. Treasury stock would be debited for $1,000.

d. Treasury stock would be credited for $1,600.


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20. (Points: 3)
How is treasury stock reported on the balance sheet?



a. Treasury stock is a contra liability account.

b. Treasury stock is a contra asset account.

c. Treasury stock is liability account.

d. Treasury stock is a contra stockholders' equity account.


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21. (Points: 3)
A corporation has 40,000 shares of $5 par common stock outstanding. The corporation has acquired treasury stock for $8.00 per share. Which of the following would be included in the entry to record the reissue of 8,000 shares of the treasury stock for $10 per share?



a. Retained earnings would be debited for $16,000.

b. Treasury stock would be debited for $80,000.

c. Common stock would be credited for $80,000

d. Paid-in capital from treasury stock transactions would be credited for $16,000.


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22. (Points: 3)
Which of the following occurs as the result of a retirement of common stock?



a. The balance in the common stock account increases.

b. The number of shares of common stock issued decreases.

c. The number of shares of common stock outstanding decreases.

d. Both A and C occur.


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23. (Points: 3)
A corporation has $250,000 in retained earnings. The board of directors appropriates $50,000 for the purchase of a new building. Which of the following would be included in the entry to record this appropriation?



a. Appropriated retained earnings would be debited for $20,000.

b. Cash would be credited for $20,000.

c. Retained earnings would be debited for $50,000.

d. No formal entry would be made.


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24. (Points: 3)
How would the expenses of an employee strike be reported on an income statement?



a. The expenses of an employee strike would be reported as part of cost of goods sold.

b. The expenses of an employee strike would be reported as a normal business event and as a part of net income from continuing operations.

c. The expenses of an employee strike would be reported as an extraordinary item.

d. The expenses of an employee strike would be reported as a discontinued operation.


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25. (Points: 3)
A corporation has $40,000 of retained earnings at the beginning of the period. The company has net income of $5,000 and pays dividends of $30,000 during the period. What is the balance in retained earnings at the end of the period?



a. $25,000

b. $15,000

c. $ 5,000

d. $35,000


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26. (Points: 3)
A statement of cash flows is generated to show:



a. the inflow and outflow of cash during the time period.

b. how profits were generated.

c. the revenues the company has earned.

d. the expenses the company incurred during the time period.


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27. (Points: 3)
Which of the following are created by operating activities?



a. Revenues and expenses

b. An increase in long-term debt

c. An increase in common stock

d. Both A and B


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28. (Points: 3)
Which of the following descriptions DO apply to cash equivalents?



a. Cash equivalents are highly liquid.

b. Cash equivalents are invested in fixed assets.

c. Cash equivalents' values change because of interest rate changes.

d. Cash equivalents are long-term.


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29. (Points: 3)
Which of the following is the correct order of the sections on a statement of cash flows?



a. The correct order is financing, investing, operating.

b. The correct order is investing, operating, financing.

c. The correct order is operating, investing, financing.

d. The correct order is operating, financing, investing.


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30. (Points: 3)
Which of the following sections from the statement of cash flows is the most important section because it reflects the day-to-day operations that determine the future of an organization?



a. The operating section is the most important section of the statement of cash flows.

b. The most important section of the statement of cash flows is not included in the above-mentioned sections.

c. The investing section is the most important section of the statement of cash flows.

d. The financing section is the most important section of the statement of cash flows.


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31. (Points: 3)
Which of the following sections from the statement of cash flows would include the payment of a note payable by issuing common stock?



a. The payment of a note payable by issuing common stock would be included in the operating section.

b. The payment of a note payable by issuing common stock would not be included in any of the above-mentioned sections.

c. The payment of a note payable by issuing common stock would be included in the investing section.

d. The payment of a note payable by issuing common stock would be included in the financing section.


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32. (Points: 3)
Paying cash dividends would be:



a. a cash outflow from operations.

b. a cash outflow from financing.

c. a cash outflow from investing.

d. none of the above.


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33. (Points: 3)
Of the following, which is NOT a cash outflow from an investing activity?



a. Purchase of commercial real estate

b. Purchase of equity securities

c. Loans made to another party

d. Purchase of treasury stock


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34. (Points: 3)
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, 2007 December 31, 2006
Accounts receivable $110,000 $100,000
Cost of goods sold 560,000
Sales revenue 830,000
Accounts payable* 75,000 67,000
Inventory 86,000 105,000
Salary payable 13,000 10,000
Salary expense 49,000 45,000


*Relates solely to the acquisition of inventory

What will appear in the operating activities section related to accounts receivable?



a. The increase of $10,000 will be added to sales revenue.

b. The increase of $10,000 will be added to net income.

c. The increase of $10,000 will be subtracted from net income

d. The increase of $10,000 will be subtracted from sales revenue.


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35. (Points: 3)
A company sold equipment with a book value of $9,000 at a gain of $2,500. How much will be reported in the investing activities section of the statement of cash flows as cash received upon the sale of the equipment?



a. The cash received upon the sale of the equipment was $6,500.

b. The cash received upon the sale of the equipment was $13,000.

c. The cash received upon the sale of the equipment was $11,500.

d. The cash received upon the sale of the equipment was $2,500.


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36. (Points: 3)
A company uses the direct method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2009 financial statements.


December 31, 2009 December 31, 2008
Accounts receivable $110,000 $100,000
Cost of goods sold 560,000
Sales revenue 830,000
Accounts payable* 75,000 67,000
Inventory 86,000 105,000
Salary payable 13,000 10,000
Salary expense 49,000 45,000


*Relates solely to the acquisition of inventory

What will appear in the operating activities section related to inventory?



a. The decrease of $19,000 will be subtracted from cost of goods sold to determine payments to suppliers.

b. The decrease of $19,000 will be subtracted from net income.

c. The decrease of $19,000 will be added to net income.

d. The decrease of $19,000 will be added to cost of goods sold to determine payments to suppliers.


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37. (Points: 3)
Which of the following is the definition of trend percentage analysis?



a. Trend percentage analysis is the study of percentage changes in comparative financial statements.

b. Trend percentage analysis is the analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount.

c. Trend percentage analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure.

d. Trend percentage analysis is the practice of comparing a company with other companies that are leaders.


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38. (Points: 3)
Which of the following types of analysis would reveal that sales increased by $20,000 from 2005 to 2006?



a. Profitability analysis

b. Horizontal analysis

c. Capital analysis

d. Vertical analysis


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39. (Points: 3)
The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007.


Account 2007 2006
Current assets $65,000 $50,000
Accounts receivable 80,000 75,000
Merchandise inventory 50,000 40,000
Current liabilities 75,000 50,000
Long-term liabilities 30,000 50,000
Common stock (2007: 5,000 shares; 2006: 4,000 shares) 50,000 40,000
Retained earnings 40,000 25,000

Net sales revenue $525,000 $500,000
Cost of goods sold 400,000 395,000
Gross profit 125,000 105,000
Selling and general expenses 45,000 50,000
Net income before income tax expense 80,000 55,000
Income tax expense 24,000 16,500
Net income $56,000 $38,500


What would a horizontal analysis report with respect to current liabilities?



a. Horizontal analysis would report current liabilities as 38.46% of total capital.

b. Horizontal analysis would report 33.33% increase in current liabilities.

c. Horizontal analysis would report a 50.00% increase in current liabilities.

d. Horizontal analysis would report a current ratio of .87.


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40. (Points: 3)
The net income for a company was $630,000 last year and $540,000 this year. The percentage of increase or decrease was from last year to this year is:



a. 7.14%.

b. 14.29%.

c. 16.67%.

d. 8.33%.


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41. (Points: 3)
Which of the following is generally the base amount when performing vertical analysis of an income statement?



a. Gross profit

b. Net sales

c. Total expenses

d. Gross sales


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42. (Points: 3)
The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007.


Account 2007 2006
Net sales revenue $487,000 100.00% $500,000
Cost of goods sold 330,000 67.76% 395,000
Gross profit 157,000 32.24% 105,000
Selling and general expenses 70,000 14.37% 50,000
Net income before income tax expense 87,000 17.86% 55,000
Income tax expense 24,000 4.93% 16,500
Net income $ 63,000 12.94% $ 38,500


What would vertical analysis report with respect to 2007 selling and general expenses?



a. Vertical analysis would report a 40.00% decrease in selling and general expenses.

b. Vertical analysis would report selling and general expenses as 10.00% of net sales revenue.

c. Vertical analysis would report selling and general expenses as 14.37% of net sales revenue.

d. Vertical analysis would report a 40.00% increase in selling and general expenses.


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43. (Points: 3)
What type of analysis is illustrated in the following table?


Company A Industry Average
Account 2007 -- % 2006 -- %
Current assets 33.33% 30.30%
Accounts receivable 41.03% 45.45%
Merchandise inventory 25.64% 24.24%
Total assets 100.00% 100.00%
Current liabilities 38.46% 30.30%
Long-term liabilities 15.38% 30.30%
Common stock 25.64% 24.24%
Retained earnings 20.51% 15.15%
Total liabilities and
stockholders' equity 100.00% 100.00%





a. The table illustrates vertical analysis.

b. The table illustrates benchmarking.

c. The table illustrates a common-size balance sheet

d. The table illustrates horizontal analysis.


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44. (Points: 3)
The following is a summary of information presented on the income statements of Haley Publications and Johnston Publications for December 31, 2007.


Haley Publications Johnston Publications
Account 2007 % 2007 %
Net sales revenue $487,000 100.00% $500,000 100.00%
Cost of goods sold 400,000 82.14% 395,000 79.00%
Gross profit 87,000 17.86% 105,000 21.00%
Selling and general expenses 30,000 6.16% 50,000 10.00%
Income from operations 57,000 11.70% 55,000 11.00%
Income tax expense 17,100 3.51% 16,500 3.30%
Net income $39,900 8.19% $38,500 7.70%


Based on the information presented, what steps should Johnston take to improve its performance to match or exceed Haley's performance?



a. Johnston should reduce its cost of goods sold as a percentage of net sales revenue.

b. Johnston should reduce its selling and general expenses as a percentage of net sales revenue.

c. Johnston should reduce its income tax expense as a percentage of net sales revenue.

d. All of these actions would improve Johnston's performance.


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45. (Points: 3)
Which of the following balance sheets displays only percentages?



a. A common-size balance sheet

b. A comparative balance sheet

c. A report form balance sheet

d. An account form balance sheet


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46. (Points: 3)
What are the two main ways to analyze financial statements?



a. Benchmarking and common-size analysis

b. Common-size analysis and vertical analysis

c. Horizontal analysis and vertical analysis

d. Benchmarking and horizontal analysis


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47. (Points: 3)
The price/earnings ratio indicates the:



a. percentage of common stock financed by debt.

b. market price of $1 of earnings.

c. ability for a stock to be sold.

d. dividend yield of the company.


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48. (Points: 3)
The net sales for a company were $3,600,000; gross profit was $600,000; and net income was $260,000. The rate of return on net sales would be:



a. 0.2389.

b. 0.4333.

c. 0.1667.

d. 0.0722.


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49. (Points: 3)
A company has cash, $85,000; temporary investments, $30,000; net receivables, $60,000; and inventory, $350,000. Current liabilities are $300,000. The current ratio is:



a. 1.86.

b. 0.58.

c. 0.74.

d. 1.75.


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50. (Points: 3)
A company has net sales on account of $1,750,000. Net accounts receivable at the beginning of the year are $147,000 and at the end of the year are $153,000. The days' sales in average receivables is:



a. 30.67.

b. 31.28.

c. 32.02.

d. 365.0.


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