Chapter 6: Accounting for Merchandising Businesses
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Q1) If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination.
A)True
B)False
Q2) Which of the following items should not be included in the cost of ending merchandise inventory?
A) purchased units in transit, shipped FOB shipping point
B) purchased units in transit, shipped FOB destination
C) units on hand in the warehouse
D) sold units in transit, not invoiced and shipped FOB destination
Q3) Under a periodic inventory system, closing entries will include
A) Dr. Sales, Purchases Returns and Allowances, Purchases Discounts
B) Cr. Purchases, Sales Discounts, Sales Returns and Allowances
C) Adjust Merchandise Inventory account to match physical inventory
D) All are correct
Q4) Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the buyer.
A)True
B)False
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Chapter 7: Inventories
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Q1) Unsold consigned merchandise should be included in the consignee's inventory.
A)True
B)False
Q2) Inventory turnover measures the length of time is takes to acquire, sell and replace the inventory.
A)True
B)False
Q3) During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory.
A) average method
B) LIFO method
C) FIFO method
D) can not tell without more information
Q4) If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods
Sold (COGS), an equivalent equation can be written as?
A) BI + P = COGS - EI
B) BI - P = COGS + EI
C) BI + P = COGS + EI
D) EI + P = COGS - BI
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Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
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Q1) Journal entries based on the bank reconciliation are required in the company's accounts for
A) outstanding checks
B) deposits in transit
C) bank errors
D) book errors
Q2) After a bank reconciliation is completed, adjusting entries are prepared for items in the balance per company's records as well as items in the balance per bank statement.
A)True
B)False
Q3) The main reason that the bank statement cash balance and the company's cash balance do initially balance is due to timing differences.
A)True
B)False
Q4) Which one of the following below is not an element of internal control?
A) risk assessment
B) monitoring
C) information and communication
D) cost-benefit considerations
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Chapter 9: Receivables
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Q1) Allowance for Doubtful Accounts has a credit balance of $1,300 at the end of the year (before adjustment). The company prepares an analysis of customers' accounts to estimate the amount of uncollectible accounts of $41,900. Which of the following adjusting entries would be made to record the Bad Debt Expense for the year?
A) debit Allowance for Doubtful Accounts, $40,600; credit Bad Debt Expense, $40,600
B) debit Allowance for Doubtful Accounts $43,200; credit Bad Debt Expense, $43,200
C) debit Bad Debt Expense, $43,200; credit Allowance for Doubtful Accounts, $43,200
D) debit Bad Debt Expense, $40,600; credit Allowance for Doubtful Accounts, $40,600
Q2) Notes or accounts receivables that result from sales transactions are often called
A) non-trade receivables.
B) trade receivables.
C) merchandise receivables.
D) sales receivables.
Q3) List at least three things that indicate a receivable may be uncollectible.
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Chapter 10: Fixed Assets and Intangible Assets
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Q1) As a company records depreciation expense for a period of time a corresponding cash inflow from investing activities is reported on the statement of cash flows.
A)True
B)False
Q2) When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.
A)True B)False
Q3) For income tax purposes most companies use an accelerated deprecation method called double declining balance.
A)True B)False
Q4) Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been fully depreciated.
A)True B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200.
A)True
B)False
Q2) List five internal controls that relate directly to payroll.
Q3) Mobile Co. issued a $45,000, 60-day, discounted note to Guarantee Bank. The discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay:
A) $45,450
B) $42,300
C) $45,000
D) $44,550
Q4) An unfunded pension liability is reported on the balance sheet as A) current liability B) owner's equity
C) long-term liability
D) current liability or long-term liability, depending upon when the pension liability is to be paid
Q5) FICA tax is a payroll tax that is paid only by employers.
A)True B)False
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Q1) The capital accounts of Harrison and Marti have balances of $160,000 and $110,000, respectively, on January 1, 2014, the beginning of the current fiscal year. On April 10, Harrison invested an additional $20,000. During the year, Harrison and Marti withdrew $96,000 and $78,000, respectively, and net income for the year was $264,000. The articles of partnership make no reference to the division of net income. Based on this information, the statement of partners' equity for 2010 would show what amount as total capital for the partnership on December 31, 2010?
A) $228,000
B) $176,000
C) $404,000
D) $752,000
Q2) When a new partner is admitted to a partnership, there should be a(n)
A) increase in the total assets of the partnership.
B) new capital account added to the ledger for the new partner.
C) increase in the total owner's equity of the partnership.
D) debit amount to the partner's capital account for the cash received by the current partner.
Q3) What is a partnership? List three advantages and three disadvantages of the partnership form of business organization.
Page 14
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Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
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Q1) The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.
A)True B)False
Q2) A corporation is a separate entity for accounting purposes but for legal purposes. A)True B)False
Q3) On February 1 of the current year, Motor, Inc. issued 700 shares of $2 par common stock to an attorney in return for preparing and filing the Articles of Incorporation. The value of the services is $9,600. Journalize this transaction.
Q4) A sale of treasury stock may result in a decrease in paid-in-capital. All decreases should be charged to the Paid-In-Capital from Sale of Treasury account. A)True B)False
Q5) The main source of paid-in-capital is from issuing stock. A)True B)False
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Q1) If bonds are issued at a discount, it means that the A) bondholder will receive effectively less interest than the contractual rate of interest.
B) market interest rate is lower than the contractual interest rate.
C) market interest rate is higher than the contractual interest rate.
D) financial strength of the issuer is suspect.
Q2) On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2013 carrying amount in the amortization table for this installment note will be equal to:
A) $0
B) $13,000
C) $14,252
D) $16,603
Q3) Selling the bonds at a premium has the effect of A) raising the effective interest rate above the stated interest rate.
B) attracting investors that are willing to pay a lower rate of interest than on similar bonds.
C) causing the interest expense to be higher than the bond interest paid.
D) causing the interest expense to be lower than the bond interest paid.
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Chapter 15: Investments and Fair Value Accounting
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Q1) When shares of stock held as an investment are sold, the difference between the proceeds and the carrying amount of the investment is recorded as a(n)
A) prior period adjustment
B) operating income and losses
C) paid-in capital addition
D) gain or loss
Q2) Companies may report comprehensive income on each of the statements below except
A) income statement
B) separate statement of comprehensive income
C) statement of cash flows
D) retained earnings statement
Q3) For accounting purposes, the method used to account for investments in common stock is determined by
A) the amount paid for the stock by the investor.
B) whether the acquisition of the stock by the investor was "friendly" or "hostile."
C) the extent of an investor's influence over the operating and financial affairs of the investee.
D) whether the stock has paid dividends in past years.
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Chapter 16: Statement of Cash Flows
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Q1) Cash receipts from interest and dividends are classified as
A) financing activities
B) operating activities.
C) investing activities.
D) either financing or investing activities.
Q2) Equipment with an original cost of $75,000 and accumulated depreciation of $20,000 was sold at a loss of $7,000. As a result of this transaction, cash would
A) increase by $48,000
B) decrease by $7,000
C) increase by $55,000
D) decrease by $27,000
Q3) A business issues 20-year bonds payable in exchange for preferred stock. This transaction would be reported on the statement of cash flows in A) a separate schedule
B) the cash flows from financing activities section
C) the cash flows from investing activities section
D) the cash flows from operating activities section
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Chapter 17: Financial Statement Analysis
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Q1) The rate earned on total assets measures the profitability of total assets, without considering how the assets are financed.
A)True
B)False
Q2) The relationship of $325,000 to $125,000, expressed as a ratio, is
A) 2.0 to 1
B) 2.6 to 1
C) 2.5 to 1
D) 0.45 to 1
Q3) Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures.
A)True
B)False
Q4) Which of the following measures a company's ability to pay its current liabilities?
A) earnings per share
B) inventory turnover
C) current ratio
D) number of times interest charges earned
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