Final Review Combined F

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Final Review Combined F

Questions and Answers
  • 1. 
    If a bond is sold at par value for $1,000, has a life of 5 years, and a contract rate of 8%, how much will have to be paid to redeem the bond on its maturity date?
    • A. 

      $ 80

    • B. 

      $1,000

    • C. 

      $920

    • D. 

      $400

  • 2. 
    The ratio that is computed by taking total liabilities and dividing them by total equity is called the:
    • A. 

      Quick ratio

    • B. 

      Debt to equity ratio

    • C. 

      Reinvested assets ratio

    • D. 

      Debt ratio

  • 3. 
    While the balance sheet is a "snapshot" of the business, the income statement has been compared to a "home video" because it
    • A. 

      Shows the company's performance for a particular date in time

    • B. 

      Shows the company's performance for a period of time

    • C. 

      Depicts the operations of the company on a precise date

    • D. 

      None of these answers is correct

  • 4. 
    The relationship among the accounting elements found on the income statement can be represented by the following equation:
    • A. 

      Revenues - expenses = net loss

    • B. 

      Revenues - expenses = net income

    • C. 

      Answers A and B are both correct

    • D. 

      Assets - liabilities = net income

  • 5. 
    The excess of the rewards over the sacrifices for a given time period is the monetary reward of doing business, which is also known as:
    • A. 

      Net earnings

    • B. 

      Earnings

    • C. 

      Net profit

    • D. 

      All of these answers are correct.

  • 6. 
    Gross margin is an important item shown on the income statement because:
    • A. 

      Gross margin is not shown on a multiple-step income statement

    • B. 

      Sales minus gross margin equals net income

    • C. 

      Gross margin is the revenue generated from the sale of tangible products

    • D. 

      It highlights the relationship between sales revenue and cost of goods sold

  • 7. 
    The distributions to owners of proprietorships and partnerships are also called:
    • A. 

      Dividends

    • B. 

      Drawings

    • C. 

      Sketches

    • D. 

      Net income

  • 8. 
    The main accounting elements that make up the income statement are                  and        .
    • A. 

      Expenses; net income

    • B. 

      Assets; owners' equity

    • C. 

      Revenues; expenses

    • D. 

      Assets; liabilities

  • 9. 
    The following information is available for a company: Net sales, $750,950; Cost of goods sold, $330,418; total expenses, $214,775; average total assets for the year, $459,785. What is the company's gross profit margin ratio(round your answer to two decimal places)?
    • A. 

      45%

    • B. 

      27%

    • C. 

      56%

    • D. 

      The ratio cannot be computed from the information given.

  • 10. 
    During the month of May, $400 of services were performed by Belk & Rich, Inc. If Belk & Rich received $100 during May and $300 during June and uses the cash basis of accounting, when and how much revenue should be recognized?
    • A. 

      $100 in May; $300 in June

    • B. 

      $300 in May; $100 in June

    • C. 

      $0 in May; $400 in June

    • D. 

      $400 in May; $0 in June

  • 11. 
    If the JJ Company performs services for a client in the amount of $770 during June and collects the money from the client during July under a cash basis accounting system, when and how much revenue should JJ Company recognize in June and July?
    • A. 

      $385 during June; $385 during July

    • B. 

      $0 during June; $770 during July

    • C. 

      $770 during June; $770 during July

    • D. 

      $770 during June; $0 during July

  • 12. 
    The Corner Dress shop buys $200 of dresses during May. Corner Dress pays $150 of that amount during May and the remainder in June. During June, Corner Dress buys $300 of dresses paying for $100 during June and the remainder in July. If the Corner Dress Shop uses a cash basis accounting system, how much should the shop recognize as an expense during May?
    • A. 

      $ 50

    • B. 

      $150

    • C. 

      $200

    • D. 

      $250

  • 13. 
    Baaker Auto Body Repair uses electricity costing $200 during February and pays for them in March. How much will Baaker recognize under an accrual basis system of accounting?
    • A. 

      $200 revenue in March

    • B. 

      $200 revenue in February

    • C. 

      $200 expense in February

    • D. 

      $200 expense in March

  • 14. 
    Under accrual accounting we recognize revenue when it is:
    • A. 

      Earned, as long as payment for it occurs in the same time period

    • B. 

      Earned, no matter when payment for it is received

    • C. 

      Received, no matter when it is earned

    • D. 

      Received, as long as payment for it occurs in the same time period

  • 15. 
    If Sanford and Son's Auto Repair acquires supplies costing $200 during February and pays for the supplies in March, how much will Sanford and Son recognize under a cash basis system of accounting?
    • A. 

      $200 revenue in March only

    • B. 

      $200 expense in February only

    • C. 

      $200 expense in March only

    • D. 

      $200 revenue in February only

  • 16. 
    The Corner Dress shop uses $200 in advertising during May. Corner Dress pays $150 of that amount during May and the remainder in June. During June, Corner Dress uses $300 in advertising paying for $100 during June and the remainder in July. If Corner Dress uses an accrual basis accounting system, how much should the shop recognize as an advertising expense during May?
    • A. 

      $ 50

    • B. 

      $200

    • C. 

      $150

    • D. 

      $250

  • 17. 
    What is the relationship between a company receiving cash and recognizing revenue?
    • A. 

      All of these answers are correct.

    • B. 

      Cash is received after the revenue has been earned.

    • C. 

      Cash is received before the revenue has been earned.

    • D. 

      Cash is received at the time revenue is earned.

  • 18. 
    Accrual accounting attempts to establish a relationship between revenues and expenses. This relationship is called:
    • A. 

      Recognition

    • B. 

      Realization

    • C. 

      Matching

    • D. 

      Articulation

  • 19. 
    The Ladybug Dress shop uses $200 in advertising during May. Ladybug pays $150 of that amount during May and the remainder in June. During June, Ladybug uses $300 in advertising paying for $200 during June and the remainder in July. If Ladybug uses an accrual basis accounting system, how much should the shop recognize as an advertising expense during June?
    • A. 

      $150

    • B. 

      $300

    • C. 

      $250

    • D. 

      $ 50

  • 20. 
    A company can adopt a policy in which it resolves to pay a set amount as a dividend each year as long as it has:
    • A. 

      Both sufficient retained earnings and sufficient cash each year to pay the amount

    • B. 

      Sufficient net income for the current year to cover the amount of the dividend payment

    • C. 

      The approval of the stockholders

    • D. 

      None of these answers is correct

  • 21. 
    Adam's Chili Bowl and Space Burgers purchases a grill for $5,000. The company expects to use it for four years. If the company thinks that it can sell the grill at the end of the fourth year for $500, how much is the residual value of the grill?
    • A. 

      $4,500

    • B. 

      $ 500

    • C. 

      $1,250

    • D. 

      $1,125

  • 22. 
    The first step in the accrual matching process is:
    • A. 

      To determine in which income statement period a company should recognize a particular revenue

    • B. 

      To determine which expenses helped to generate specific revenue

    • C. 

      To match those expenses paid in the same period with the revenues received in cash during the same period

    • D. 

      To recognize only those expenses actually paid in the same period as the revenue they helped to generate

  • 23. 
    In accounting, an asset's depreciable base is calculated as:
    • A. 

      Asset cost - residual value

    • B. 

      Asset cost + residual value

    • C. 

      Asset cost × residual value

    • D. 

      Asset cost ÷ residual value

  • 24. 
    An inflow of resources that comes to the business when it delivers services to a customer is a(n):
    • A. 

      Liability

    • B. 

      Asset

    • C. 

      Expense

    • D. 

      Revenue

  • 25. 
    The basic formula used by a company to compute its income tax is:
    • A. 

      Taxable income × tax rate

    • B. 

      Sales × tax rate

    • C. 

      Cost of goods sold × tax rate

    • D. 

      Total assets × tax rate

  • 26. 
    Ratios cover four main areas of financial concern: profitability, efficiency, liquidity, and solvency. Ratios that look at how a company is financed and its prospects for making payments to creditors and owners are:
    • A. 

      Liquidity ratios

    • B. 

      Efficiency ratios

    • C. 

      Solvency ratios

    • D. 

      Profitability ratios

  • 27. 
    The statement that provides a "bridge" between the information the income statement provides and the information the balance sheet provides is the:
    • A. 

      Statement of owners' equity

    • B. 

      Statement of cash flows

    • C. 

      Statement of financial position

    • D. 

      None of these answers is correct.

  • 28. 
    The ratio that is computed by taking total assets and dividing them by total liabilities is called the:
    • A. 

      Reinvested assets ratio

    • B. 

      Debt to equity ratio

    • C. 

      Debt ratio

    • D. 

      Quick ratio

  • 29. 
    An agreement between a lender and a borrower that sets forth the terms of the loan and repayment arrangement is called a:
    • A. 

      Commercial borrowing

    • B. 

      Promissory note

    • C. 

      Consumer borrowing

    • D. 

      Note payable

  • 30. 
    In the statement of cash flows, activities that are associated with a company's ownership of stock and bonds of other companies are called:
    • A. 

      Continuing activities

    • B. 

      Financing activities

    • C. 

      Investing activities

    • D. 

      Operating activities

  • 31. 
    When compared to partnerships and sole proprietorships, corporations are at a disadvantage as a form of business because they have:
    • A. 

      No separate income taxes

    • B. 

      More government regulations with which to comply

    • C. 

      Greater capital access

    • D. 

      An unlimited life

  • 32. 
    A company invests in a new building and equipment to manufacture a new product. In the statement of cash flows, this activity would be considered a(n):
    • A. 

      Financing activity

    • B. 

      Investing activity

    • C. 

      Expansion activity

    • D. 

      Operating activity

  • 33. 
    Looking closely at financial statements to scrutinize how the various financial statement items and amounts relate to each other is known as:
    • A. 

      None of these answers is correct.

    • B. 

      An internal audit

    • C. 

      An external audit

    • D. 

      Financial statement analysis

  • 34. 
    The rate of interest printed on a bond that is used to calculate the bond's interest payments is called the:
    • A. 

      Nominal interest rate

    • B. 

      Debenture value

    • C. 

      Par value

    • D. 

      Effective interest rate

  • 35. 
    When a bond sells for 102, it has sold at a:
    • A. 

      Discount

    • B. 

      Loss

    • C. 

      Premium

    • D. 

      Gain

  • 36. 
    If a $1,000 bond sells for 95, this bond has sold at a:
    • A. 

      Premium

    • B. 

      Discount

    • C. 

      Gain

    • D. 

      Loss

  • 37. 
    You buy a used pickup truck for $10,000. You pay $3,500 in cash and borrow the rest of the money from a bank. Using the accounting equation, how much do you still owe for the truck?
    • A. 

      $10,000

    • B. 

      $6,500

    • C. 

      $0

    • D. 

      $3,500

  • 38. 
    The cost of borrowing money is known as:
    • A. 

      Rate

    • B. 

      Time

    • C. 

      Principal

    • D. 

      Interest

  • 39. 
    A bond is sold below its par value. The amount below par value for which it is sold is called the:
    • A. 

      Premium

    • B. 

      Face

    • C. 

      Discount

    • D. 

      Principal

  • 40. 
    Li Pe wishes to purchase $5 par value stock from Star Industries Corporation. Li Pe is willing to pay $12 for each of the shares if Star Industries will sell her 100 of them. The amount that Star will record as "Additional paid-in capital" on this sale is:
    • A. 

      $1,200

    • B. 

      $700

    • C. 

      $0

    • D. 

      $500

  • 41. 
    The amount that must be paid back upon maturity of the bond is known as the bond's:
    • A. 

      Discount

    • B. 

      Premium

    • C. 

      Interest

    • D. 

      Par value

  • 42. 
    A company pays off a bond issue. This activity would be considered a(n):
    • A. 

      Operating activities

    • B. 

      Financing activities

    • C. 

      Investing activities

    • D. 

      Continuing activities

  • 43. 
    The economic sacrifices that are a normal part of operating a business are commonly referred to as:
    • A. 

      Owners' equity

    • B. 

      Net income

    • C. 

      Revenue

    • D. 

      Expenses

  • 44. 
    Whirlwind Tours has just acquired a new tour bus. The bus cost $45,000 to purchase, but then Whirlwind had to spend an additional $3,000 to get it painted with the Whirlwind logo and ready to use. If Whirlwind plans to use the bus for five years, and then hopes to sell it for $12,000, how much depreciation will be recognized each year under the straight-line method?
    • A. 

      $9,600

    • B. 

      $9,000

    • C. 

      $7,200

    • D. 

      $6,600

  • 45. 
    The Tool Box has just purchased a new machine for $50,000. The Tool Box plans to use the machine for 10 years, at which time they believe that they will be able to sell it for $2,000. If The Tool Box uses straight-line depreciation, how much will they depreciate each year?
    • A. 

      $5,000

    • B. 

      $5,200

    • C. 

      $10,000

    • D. 

      $4,800

  • 46. 
    If Ruby's Video Store purchases a new cash register for $2,500 and plans to use it for three years before disposing of it for an estimated $400, how much depreciation will Ruby's recognize each year under the straight-line method?
    • A. 

      $700

    • B. 

      $967

    • C. 

      $400

    • D. 

      $833

  • 47. 
    The double-declining-balance method calculates depreciation expense:
    • A. 

      At twice (or double) the straight-line rate

    • B. 

      At twice (or double) the straight-line dollar amount each year

    • C. 

      Without using book value in its calculation

    • D. 

      Without considering the asset's residual value at any point in its calculations

  • 48. 
    If a stock carries a par value, the par value multiplied by the number of shares issued is classified as stock on the balance sheet. Any amount received in excess of the stock's par value is classified as:
    • A. 

      Additional paid-in capital

    • B. 

      Paid-in capital in excess of par

    • C. 

      Answers A and B are both correct.

    • D. 

      Reinvested earnings

  • 49. 
    Juanita has just paid $500 to purchase 25 shares of Active Company stock. If the par value on each share is $10, then the amount that Active Company records as "Common stock" is:
    • A. 

      $250

    • B. 

      $10

    • C. 

      $500

    • D. 

      $20

  • 50. 
    Lonnie has just purchased 50 shares of $3 par value stock from JML Corporation. He paid a total of $275 for the shares. How much will JML recognize as "Additional paid-in capital" from the sale?
    • A. 

      $275

    • B. 

      $0

    • C. 

      $125

    • D. 

      $150

  • 51. 
    The RFD Mailbox Company has declared a dividend on its common stock of $10,000. If the firm has 10,000 shares outstanding, the dividend per share will be:
    • A. 

      $2.00

    • B. 

      $4.00

    • C. 

      $0.25

    • D. 

      $1.00

  • 52. 
    Picasso's Tow Truck Services has just spent $40,000 on a new tow truck. Picasso then had to spend $5,000 to get the firm's logo stenciled onto the truck. If Picasso plans to use the truck for seven years, and then hopes to sell it for $6,000, using straight-line depreciation the yearly expense will be:
    • A. 

      $5,000

    • B. 

      $5,714

    • C. 

      $4,857

    • D. 

      $5,571

  • 53. 
    If Reneta's CDs purchases a new cash register for $2,700 and plans to use it for three years before disposing of it for an estimated $300, how much depreciation will Reneta recognize the first year under the double-declining-balance method?
    • A. 

      $ 900

    • B. 

      $ 800

    • C. 

      $1,600

    • D. 

      $1,800

  • 54. 
    Leatherwood's Tool & Die Shop has just purchased a new machine for $50,000. Leatherwood's plans to use the machine for 10 years at which time they believe that they will be able to sell it for $2,000. If Leatherwood's uses double-declining-balance depreciation, how much will they depreciate the machine in the first year of its life?
    • A. 

      $ 9,600

    • B. 

      $ 4,800

    • C. 

      $5,000

    • D. 

      $10,000

  • 55. 
    Martha's Hideaway Tours has just acquired a new tour bus. The bus cost $45,000 to purchase, but then Martha had to spend an additional $3,000 to get it painted with the Hideaway logo and ready to use. If Martha plans to use the bus for five years, and then hopes to sell it for $12,000, how much depreciation will be recognized the first year under the double-declining-balance method?
    • A. 

      $18,000

    • B. 

      $14,400

    • C. 

      $19,200

    • D. 

      $ 7,200

  • 56. 
    ADC Logistics Company has a truck that it paid $15,000 for and has accumulated depreciation of $11,000. If ADC sells the truck for $3,000 it will realize a:
    • A. 

      $3,000 gain

    • B. 

      $1,000 loss

    • C. 

      $1,000 gain

    • D. 

      $3,000 loss

  • 57. 
    Tran-Can Products has equipment that it purchased for $5,000 three years ago. If the current accumulated depreciation is $4,000 and Tran-Can sells the equipment for $1,200, Tran-Can will realize a:
    • A. 

      $200 loss

    • B. 

      $1,200 loss

    • C. 

      $200 gain

    • D. 

      $1,200 gain

  • 58. 
    Karen has a boat that she purchased for $10,000. If the current book value of the boat is $3,000 and Karen sells the boat for $4,500, she will have a:
    • A. 

      $1,500 gain

    • B. 

      $1,500 loss

    • C. 

      $2,500 loss

    • D. 

      $2,500 gain

  • 59. 
    Denton's Family Diner has an oven that was acquired at a cost of $22,000. If the current book value of the oven is $12,000 and Denton's sells the oven for $10,000, the diner will have:
    • A. 

      $12,000 loss

    • B. 

      $2,000 gain

    • C. 

      $ 0 gain

    • D. 

      $2,000 loss

  • 60. 
    A utility bill was received on February 3 for electricity used during January. The amount of the bill that should be recognized during January is a(n):
    • A. 

      Deferred expense

    • B. 

      Deferred revenue

    • C. 

      Accrued expense

    • D. 

      Accrued revenue

  • 61. 
    For the month of January, the Cold Storage Company paid $95,750 for inventory for sale to customers. As of January 1, Cold Storage had $42,000 of inventory on hand. During the month of January, Cold Storage had sales of $125,000. The cost of the goods Cold Storage sold during January was $68,750. Using accrual accounting, the cost of goods sold for January is:
    • A. 

      $125,000

    • B. 

      $68,750

    • C. 

      $137,750

    • D. 

      $95,750

  • 62. 
    Jason pays $180 for insurance coverage on his motorcycle for a three-month policy starting June 1. If Jason makes this payment on June 1, what is the amount of deferred revenue the insurance company will have remaining at the end of July?
    • A. 

      $ 60

    • B. 

      $ 0

    • C. 

      $ 90

    • D. 

      $120

  • 63. 
    Mr. and Mrs. Jacobi pay Johnny Elam of Elam's Landscaping $75 in June to mow their lawn during July while they are on vacation. For the month of June, Mr. and Mrs. Jacobi should recognize this as a (n):
    • A. 

      Accrued expense

    • B. 

      Deferred revenue

    • C. 

      Accrued revenue

    • D. 

      Deferred expense

  • 64. 
    The weakness of the accrual basis system, taking the focus off cash, is addressed in which financial statement?
    • A. 

      Statement of Owners' Equity

    • B. 

      Income Statement

    • C. 

      Statement of Cash Flows

    • D. 

      Balance Sheet

  • 65. 
    Mr. and Mrs. Jacobi pay Johnny Elam of Elam's Landscaping $75 in June to mow their lawn during July while they are on vacation. For the month of June, Johnny should recognize this as a(n):
    • A. 

      Accrued expense

    • B. 

      Deferred expense

    • C. 

      Accrued revenue

    • D. 

      Deferred revenue

  • 66. 
    Jason pays $180 for insurance coverage on his motorcycle for a three-month policy starting June 1. If Jason makes this payment on June 1, what is the amount that should be shown as an expense as of the end of June?
    • A. 

      $60

    • B. 

      $ 0

    • C. 

      $40

    • D. 

      $90

  • 67. 
    Which of the accounts below is never affected by an adjusting entry?
    • A. 

      Accounts Receivable

    • B. 

      Accounts Payable

    • C. 

      Cash

    • D. 

      Sales

  • 68. 
    A weakness of the accrual basis accounting system is that it takes the focus off of:
    • A. 

      Stock

    • B. 

      Inventory

    • C. 

      Cash

    • D. 

      Notes payable

  • 69. 
    Mondragon's Pet Store has purchased a cash register for $2,500. Charlie Mondragon plans to use the cash register for five years at which time he thinks he will be able to sell it for $400. How much is the residual value of the cash register?
    • A. 

      $ 500

    • B. 

      $2,100

    • C. 

      $ 400

    • D. 

      $ 0

  • 70. 
    When the financial statements depart so pervasively from GAAP that they cannot reasonably be relied upon, an auditor will issue a(n):
    • A. 

      Disclaimer

    • B. 

      Adverse opinion

    • C. 

      Qualified opinion

    • D. 

      Unqualified opinion

  • 71. 
    For the month of January, the Cold Storage Company had sales of $125,000 to customers. It received $55,000 in cash for the sales in January, extended credit to its customers for $70,000 in January sales, and received $12,500 in cash for credit sales made in December. Using accrual accounting, total sales for January are:
    • A. 

      $125,000

    • B. 

      $55,000

    • C. 

      $70,000

    • D. 

      $67,500

  • 72. 
    Adam's Chili Bowl and Space Burgers purchases a grill for $5,000. The company expects to use it for four years. If the company thinks that it can sell the grill at the end of the fourth year for $500, how much is the annual depreciation expense of the grill using straight-line method of depreciation?
    • A. 

      $1,250

    • B. 

      $4,500

    • C. 

      $ 500

    • D. 

      $1,125

  • 73. 
    Adam's Chili Bowl and Space Burgers purchases a grill for $5,000. The company expects to use it for four years. If the company thinks that it can sell the grill at the end of the fourth year for $500, how much is the depreciable base of the grill?
    • A. 

      $4,500

    • B. 

      $1,250

    • C. 

      $ 500

    • D. 

      $1,125

  • 74. 
    Mondragon's Pet Store has purchased a cash register for $2,500. Charlie Mondragon plans to use the cash register for five years at which time he thinks he will be able to sell it for $400. How much is the depreciable base of the cash register?
    • A. 

      $ 400

    • B. 

      $2,100

    • C. 

      $ 500

    • D. 

      $2,500

  • 75. 
    To be truly useful to decision makers, financial statements must be analyzed. Many financial statement users consider the relationship between assets and liabilities on the balance sheet to be extremely important. This relationship is known as the:
    • A. 

      Financial position ratio

    • B. 

      Debt ratio

    • C. 

      Asset-to-liability ratio

    • D. 

      None of these answers are correct.

  • 76. 
    Although they represent a small percentage of the total number of businesses in the United States, the form of business that transacts more business than the other business forms combined is the:
    • A. 

      Sole proprietorship

    • B. 

      Limited partnership

    • C. 

      Corporation

    • D. 

      Partnership

  • 77. 
    Which form of business ownership controls the majority of business resources in the United States
    • A. 

      Limited partnership

    • B. 

      Partnership

    • C. 

      Sole proprietorship

    • D. 

      Corporation

  • 78. 
    The section of the statement of cash flows that shows the company's cash flows associated with obtaining and repaying the funds it needs to conduct business is called:
    • A. 

      Financing activities

    • B. 

      Operating activities

    • C. 

      Investing activities

    • D. 

      None of these answers are correct.

  • 79. 
    In which respect is a limited partner in a limited partnership "limited"?
    • A. 

      They are limited to corporations

    • B. 

      They are subject to double taxation

    • C. 

      They are not permitted to share company profits

    • D. 

      They have limited liability

  • 80. 
    If the auditor is unable to achieve reasonable assurance because the company has not provided enough evidence, the auditor will issue a(n):
    • A. 

      Adverse opinion

    • B. 

      Qualified opinion

    • C. 

      Unqualified opinion

    • D. 

      Disclaimer

  • 81. 
    Which item below is considered a disadvantage of the partnership form of business?
    • A. 

      Increased management expertise

    • B. 

      Sharing of profits

    • C. 

      Few government regulations

    • D. 

      More access to capital

  • 82. 
    One of the advantages of the partnership form of business enterprise is that it has:
    • A. 

      No profit sharing

    • B. 

      Common stock

    • C. 

      Limited liability

    • D. 

      Ease of formation

  • 83. 
    A business which does not issue stock and that has more than one owner is called a:
    • A. 

      Limited liability corporation

    • B. 

      Corporation

    • C. 

      Partnership

    • D. 

      Sole proprietorship

  • 84. 
    The financial information report that uses the company's net income as one amount in an equation to arrive at an ending amount is known as:
    • A. 

      Statement of owners' equity

    • B. 

      Statement of cash flows

    • C. 

      Balance sheet

    • D. 

      Income statement

  • 85. 
    Jasmine sells flowers for $25 per bunch. The flowers cost Jasmine $14 per bunch. The delivery driver charges $5 per delivery and the clerk is paid $2 for each order processed. If Jasmine sells 8 bunches of flowers, what is the net income that she'll receive?
    • A. 

      $28

    • B. 

      $32

    • C. 

      $11

    • D. 

      $ 4

  • 86. 
    The report, prepared from the company's financial information, which is organized around the principal business activities of operating, investing, and financing is called the:
    • A. 

      Statement of cash flows

    • B. 

      Statement of financial position

    • C. 

      Income statement

    • D. 

      Statement of owners' equity

  • 87. 
    Tamisha buys calculators for $10 each. She sells them for $55 each. Tamisha pays commissions to her employee of $5 and pays advertising costs that average $1 per calculator. What is Tamisha's gross profit on five calculators?
    • A. 

      $225

    • B. 

      $ 40

    • C. 

      $165

    • D. 

      $ 33

  • 88. 
    The balance sheet is a financial tool that focuses on the:
    • A. 

      Predictive value of the business

    • B. 

      Present value of the business

    • C. 

      Present condition of the business

    • D. 

      Past performance of the business

  • 89. 
    All companies must obtain capital (money) to support their operations. A company that finances its operations with the profits it generates is using:
    • A. 

      External financing

    • B. 

      Internal financing

    • C. 

      Debt financing

    • D. 

      Compound financing

  • 90. 
    The report, prepared from financial information, which uses the equation "revenue less expenses equals net income" is called the:
    • A. 

      Statement of financial position

    • B. 

      Balance sheet

    • C. 

      Income statement

    • D. 

      Statement of cash flows

  • 91. 
    There are several reports prepared from financial information. The report that presents the past performance of a business for a time period by showing the amount the company charged to its customers (revenue) and the costs incurred to produce the revenue (expenses) is called the:
    • A. 

      Income statement

    • B. 

      Balance sheet

    • C. 

      Statement of financial position

    • D. 

      Statement of owners' equity

  • 92. 
    The balance sheet element identified as the residual interest in the assets of an entity that remains after deducting its liabilities is called:
    • A. 

      Equity

    • B. 

      Liabilities

    • C. 

      Cash flows

    • D. 

      Assets

  • 93. 
    The ownership interest in the company is known as:
    • A. 

      Equity

    • B. 

      Net assets

    • C. 

      Net worth

    • D. 

      All of these answers are correct.

  • 94. 
    The balance sheet is also known as:
    • A. 

      Statement of financial condition

    • B. 

      Statement of financial position

    • C. 

      Statement of cash flows

    • D. 

      Answers A and B are both correct.

  • 95. 
    The FASB has identified ten accounting elements, which are really broad classifications. The balance sheet uses several such accounting elements. Probable future sacrifices of economic benefits arising from present obligations of a particular entity are called:
    • A. 

      Equity

    • B. 

      Cash flows

    • C. 

      Liabilities

    • D. 

      Assets

  • 96. 
    Which one of the following items is an example of equity as found on the balance sheet?
    • A. 

      Land

    • B. 

      Common stock

    • C. 

      Cash

    • D. 

      Note payable

  • 97. 
    Merinda starts a new business by taking $5,000 out of her personal savings account and depositing the money into a business bank account. When Merinda does this, the accounting equation would show that $5,000 in __________ equals $5,000 in __________ for her business.
    • A. 

      Assets; owners' equity

    • B. 

      Owners' equity; owners' equity

    • C. 

      Assets; liabilities

    • D. 

      Owners' equity; liabilities

  • 98. 
    The owners' equity section for a sole proprietorship differs from the owners' equity section of a partnership because:
    • A. 

      A sole proprietorship has more than one capital account

    • B. 

      A partnership has more than one capital account

    • C. 

      There is no difference in the owners' equity section of a sole proprietorship and a partnership

    • D. 

      A partnership has a common stock account

  • 99. 
    Tami and Sue decide to go into business together, forming a partnership. Tami and Sue each take $6,500 from their personal bank accounts and deposit the money into a business bank account they started for the partnership. The accounting equation for the partnership would show $__________ in __________ equals $__________ in __________.
    • A. 

      $6,500; assets; $6,500; capital

    • B. 

      $13,000; assets; $13,000; liabilities

    • C. 

      $13,000; assets; $6,500; liabilities and $6,500 in capital

    • D. 

      $13,000; assets; $13,000; total owners' equity

  • 100. 
    A constant relationship exists among the three elements in the balance sheet. This relationship can be expressed as:
    • A. 

      Owners' equity + assets = liabilities

    • B. 

      Liabilities - owners' equity = assets

    • C. 

      Assets = liabilities + owners' equity

    • D. 

      Assets + liabilities = owners' equity

  • 101. 
    Cash is what type of account on the balance sheet?
    • A. 

      Net worth

    • B. 

      Asset

    • C. 

      Liability

    • D. 

      Equity

  • 102. 
    __________ stock causes the number of shares outstanding to be less than the number of shares issued.
    • A. 

      Common

    • B. 

      Preferred

    • C. 

      Treasury

    • D. 

      Authorized

  • 103. 
    The shares of stock a corporation has already distributed to stockholders in exchange for cash or other assets are called:
    • A. 

      Investment stock

    • B. 

      Treasury stock

    • C. 

      Issued stock

    • D. 

      Authorized stock

  • 104. 
    For corporations, owners' equity is called stockholders' equity. The amount a corporation receives in exchange for shares of stock is called:
    • A. 

      Retained earnings

    • B. 

      Dividends

    • C. 

      Paid-in capital

    • D. 

      Reinvested earnings

  • 105. 
    The two basic classes of stock are:
    • A. 

      Preferred and treasury stock

    • B. 

      Common and preferred stock

    • C. 

      Common and treasury stock

    • D. 

      There is only one class of stock in a corporation.

  • 106. 
    The maximum number of shares of stock a corporation can legally sell are called:
    • A. 

      Outstanding shares

    • B. 

      Treasury stock

    • C. 

      Issued shares

    • D. 

      Authorized shares

  • 107. 
    If a company acquires an asset at a total cost of $5,000, plans to use it for four years and then sell it for $500, how much depreciation will be recognized each year under the straight-line method?
    • A. 

      $1,000

    • B. 

      $ 500

    • C. 

      $1,250

    • D. 

      $1,125

  • 108. 
    If common stock does not carry a par value:
    • A. 

      Less manipulation is possible on the balance sheet

    • B. 

      Any amount received in excess of the stock's market value is classified as "Additional Paid-in Capital - Common"

    • C. 

      There is no need for the classification "Additional Paid-in Capital - Common" on the balance sheet

    • D. 

      The stock cannot be sold to shareholders

  • 109. 
    The shares of stock currently being held by stockholders are called:
    • A. 

      Outstanding shares

    • B. 

      Authorized shares

    • C. 

      Treasury stock

    • D. 

      Issued shares

  • 110. 
    What two items will be estimated when calculating the amount of depreciation expense for an asset?
    • A. 

      Residual value and historical cost

    • B. 

      Historical cost and useful life

    • C. 

      Useful life and residual value

    • D. 

      None of these answers is correct.

  • 111. 
    Which cost below is not part of the cost of a depreciable asset?
    • A. 

      Repairs and maintenance

    • B. 

      Installation costs

    • C. 

      Applicable sales tax

    • D. 

      Invoice price

  • 112. 
    What is not a step in calculating the straight-line depreciation of an asset?
    • A. 

      Estimate residual value

    • B. 

      Estimate repairs and maintenance costs

    • C. 

      Estimate useful life

    • D. 

      Determine cost

  • 113. 
    A company has a truck that it purchased for $16,000. The truck has an estimated useful life of four years and an estimated residual value of $4,000. What is the depreciable base of the truck?
    • A. 

      None of these answers is correct.

    • B. 

      $12,000

    • C. 

      $16,000

    • D. 

      $ 4,000

  • 114. 
    If a firm purchases an asset for $10,000 and plans to use it for four years, what would be the difference in depreciation expense each year using the straight-line method if the residual value was estimated to be $2,000 rather than $4,000?
    • A. 

      $ 750

    • B. 

      $1,000

    • C. 

      $ 500

    • D. 

      $1,250

  • 115. 
    There are several differences in the calculation of depreciation between the straight-line and double-declining-balance methods. Which item below would not be a difference if a company were to calculate depreciation for an asset using the straight-line and double-declining-balance methods?
    • A. 

      Accumulated depreciation in each year of the asset's life

    • B. 

      Net income in each year of the asset's life

    • C. 

      Depreciation expense in each year of the asset's life

    • D. 

      The total accumulated depreciation for the asset

  • 116. 
    Tony's Tow Truck Services has just spent $40,000 on a new tow truck. Tony then had to spend $5,000 to get the firm's logo stenciled onto the truck. If Tony plans to use the truck for six years, and then hopes to sell it for $6,000, using double-declining-balance depreciation the expense for the second year will be:
    • A. 

      $13,000

    • B. 

      $10,000

    • C. 

      $15,000

    • D. 

      $ 8,667

  • 117. 
    Two companies buy identical assets at the same time and use the same estimated residual value and estimated useful life. One company depreciates the asset using the straight-line method, while the other uses double-declining-balance method. Both companies decide to sell the asset on the same day two years later for the same selling price. The company using the double-declining-balance method has a $58,000 gain, while the company using the straight-line method has a $10,000 loss on the sale. Which statement below regarding this situation is the best answer?
    • A. 

      The loss from the sale of a depreciable asset is bad for the business.

    • B. 

      The company using straight-line depreciation should have used the double-declining-balance method.

    • C. 

      The gain from the sale of a depreciable asset is good for the business.

    • D. 

      Smart financial statement users are not overly impressed by gains or overly alarmed by losses associated with the disposal of depreciable assets.

  • 118. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsIf Snowstorm Transit has been using the straight-line depreciation method and sells the asset for $22,000 on January 1, 2008, it would have a __________, but if it had used double-declining-balance method it would have a __________.
    • A. 

      $3,000 gain, $ 9,440 gain

    • B. 

      $3,000 gain, $13,360 gain

    • C. 

      $6,000 gain, $13,360 gain

    • D. 

      $6,000 gain, $ 9,440 gain

  • 119. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsUsing the information above, if Snowstorm Transit has been using the double-declining-balance depreciation method and sells the asset on January 1, 2007, for $26,000, it will have a:
    • A. 

      $ 8,400 gain

    • B. 

      $2,000 gain

    • C. 

      $11,600 gain

    • D. 

      No gain or loss

  • 120. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsUsing the information above, if Snowstorm Transit is using the straight-line depreciation method and sells the asset on January 1, 2008, for $15,000, it will have a:
    • A. 

      $1,000 gain

    • B. 

      $4,000 loss

    • C. 

      $4,000 gain

    • D. 

      $1,000 loss

  • 121. 
    The following information is available for Snowstorm Transit Company:· A machine is purchased on January 1, 2005, for $40,000.· The machine's residual value on January 1, 2005, is estimated to be $5,000· The machine's estimated useful life is five yearsUsing the information above, if Snowstorm Transit has been using the straight-line depreciation method and sells the asset on January 1, 2007, for $30,000, it will have a:
    • A. 

      $5,000 gain

    • B. 

      $5,000 loss

    • C. 

      $4,000 loss

    • D. 

      $4,000 gain

  • 122. 
    For the month of January, the Cold Storage Company paid its employees $11,000 in wages. Cold Storage owes its employees $2,500 for work done during January which has not yet been paid. Under accrual accounting, Cold Storage's wage expense for January is:
    • A. 

      $11,000

    • B. 

      $4,000

    • C. 

      $13,500

    • D. 

      $2,500

  • 123. 
    The Cold Storage Company has one delivery truck. It paid $24,000 cash for the truck on January 1, 200X. Cold Storage estimates that the truck will be worth $4,000 in five years, at the end of its useful life. Cold Storage will use straight-line depreciation to recognize the appropriate cost of the truck each income statement period. Using accrual accounting, the amount of depreciation Cold Storage will show on its income statement on December 31, 200X, is:
    • A. 

      $24,000

    • B. 

      $20,000

    • C. 

      $4,800

    • D. 

      $4,000

  • 124. 
    The opinion issued by the auditor that is known as a "clean" opinion is the:
    • A. 

      Adverse opinion

    • B. 

      Qualified opinion

    • C. 

      Unqualified opinion

    • D. 

      Disclaimer

  • 125. 
    Mondragon's Pet Store has purchased a cash register for $2,500. Charlie Mondragon plans to use the cash register for five years at which time he thinks he will be able to sell it for $400. How much is the depreciation expense each year under straight-line method?
    • A. 

      $420

    • B. 

      $410

    • C. 

      $500

    • D. 

      $400

  • 126. 
    When the auditor states an exception to the audit report, he/she issues a(n):
    • A. 

      Qualified opinion

    • B. 

      Disclaimer

    • C. 

      Unqualified opinion

    • D. 

      Adverse opinion

  • 127. 
    The process whereby a company's records are examined to determine if they were prepared in accordance with GAAP is known as a(n):
    • A. 

      Compilation

    • B. 

      Review

    • C. 

      Audit

    • D. 

      Consolidation