My choice are marked in bold below. If you have any question on the choice we differ, feel free to ask. I would be happy to provide clarifications.
1. The officer of a corporation responsible for the firm’s published financial statements would be most concerned about pronouncements of the: A. FASB. B. AICPA. C. GASB. D. SEC. E. IRS.
2. Which of the following is not a characteristic or limitation of the kind of information that financial reporting by business enterprises can provide? A. The information results in approximate, rather than exact, measures. B. The information largely reflects the financial effects of transactions that have already happened. C. The information is provided and used at a cost. D. All of the above are characteristics or limitations of the kind of information that financial reporting by business enterprises can provide.
3. The ethical concept of independence means that an accountant employed: A. By a corporation cannot prepare financial statements for use by the company’s bank. B. By one company cannot work part-time for another company. C. By an auditing firm cannot own any stock in the company being audited. D. By one company cannot accept a job with another company in the same industry.
4. The objectives of financial reporting for non-business enterprises: A. Are exactly the same as those for business enterprises. B. Focus on providing information for resource providers, rather than investors. C. Have more of an internal utilization rather than external reporting focus. D. Do not give consideration to the cost of providing information.
5. The ethical concept of integrity means that an individual must: A. Sign a pledge to abide by all laws and regulations. B. Report to a supervisor any violation of the code of conduct of her company that is observed. C. Read, understand, and agree to follow all provisions of her employer’s code of conduct. D. Attempt to be honest and forthright in dealings and communications with others.
6. Which of the following is an objective of financial reporting by business enterprises? A. Financial reporting should provide assurance that all liabilities of business enterprises will be paid. B. Financial reporting should show the timing and amount of future cash dividends to potential investors. C. The primary focus of financial reporting is information about the assets of the entity. D. Financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and changes in those resources and claims to them.
7. Which of the following is true about the IASB? A. Created to promote world acceptance and observation of accounting and financial reports. B. The IASB is a private body and the pronouncements cannot be enforced. C. Both A and B are correct. D. None of the above is correct.
8. The provisions of the Sarbanes-Oxley Act of 2002 had the following components: A. Enforce auditing. B. Attestation. C. Quality control. D. None of the above are provisions. E. A, B and C are correct.
9. Expenses are: A. cash disbursements. B. decreases in net assets from uninsured accidents. C. decreases in net assets from dividends to stockholders. D. decreases in net assets resulting from usual operating activities.
10. The purpose of the income statement is to show the: A. change in the fair market value of the assets from the prior income statement. B. market value per share of stock at the date of the statement. C. revenues collected during the period covered by the statement. D. net income or net loss for the period covered by the statement.
11. The Statement of Changes in Owners’ Equity shows: A. the change in cash during a year. B. revenues, expenses, and liabilities for the period. C. net income and dividends for the period. D. paid-in capital and long-term debt at the end of the period.
12. Paid-in Capital represents: A. Earnings retained for use in the business. B. The amount invested in the entity by the owners. C. Market value of the entity’s common stock. D. Net assets of the entity at the date of the statement.
13. Retained Earnings represents: A. the amount invested in the entity by the owners. B. cash that is available for dividends. C. cumulative net income that has not been distributed to owners as dividends. D. par value of common stock outstanding.
14. Additional paid-in-capital represents: A. The difference between the total amounts invested by the owners and the par or stated value of the stock. B. Distributions of earnings that have been made to the owners. C. Distributions of earnings that have not been made to the owners. D. The summation of the total amount invested by the owners and the par or stated value of the stock.
15. The Statement of Cash Flows: A. Shows how cash changed during the period. B. Is an optional financial statement. C. Shows the change in the market value of the entity’s common stock during the period. D. Shows the dividends that will be paid in the future.
16. On January 31, an entity’s balance sheet showed total assets of $750 and liabilities of $250. Owners’ equity at January 31 was: A. $500 B. $1,000 C. $750 D. $250
17. On January 31, an entity’s balance sheet showed net assets of $1,025 and liabilities of $225. Owners’ equity on January 31 was: A. $800 B. $1,025 C. $1,250 D. $225
18. At the end of the year, retained earnings totaled $1,700. During the year, net income was $250, and dividends of $120 were declared and paid. Retained earnings at the beginning of the year totaled: A. $2,070 B. $1,330 C. $1,230 D. $1,570
At the beginning of the fiscal year, the balance sheet showed assets of $1,364 and owners’ equity of $836. During the year, assets increased $74 and liabilities decreased $38.
19. Owners’ equity at the end of the year totaled: A. $836 B. $872 C. $948 D. $1,438
20. Liabilities at the end of the year totaled: A. $490 B. $528 C. $836 D. $910
At the beginning of the year, paid-in capital was $82 and retained earnings was $47. During the year, the owners invested $24 and dividends of $6 were declared and paid. Retained earnings at the end of the year were $52.
21. Total owners’ equity at the end of the year was: A. $82 B. $94 C. $106 D. $158
22. A firm’s net income for the year was $200,000. Average assets totaled $1.5 million, and average liabilities totaled $0.3 million. Return on equity was: A. 13.3% B. 16.7% C. 10% D. 20%
23. Which of the following is not usually considered a measure of an entity’s liquidity? A. Current ratio. B. Acid-test ratio. C. Cash ratio. D. Working capital.
24. A current ratio of 6 is usually an indication that the firm: A. Has a low degree of liquidity. B. Has a reasonable degree of liquidity. C. Has not made the most productive use of its assets. D. Has made the most productive use of its assets.
25. For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is: A. Raises the current ratio. B. Lowers the current ratio. C. Doesn’t affect the current ratio. D. Depends on the amount paid.
26. Which of the following is a universally accepted measure of profitability? A. Rate of return on investment. B. Rate of return on retained earnings. C. Rate of return on liabilities. D. All of these.
27. If a firm borrowed money on a six-month bank loan, the firm’s working capital immediately after obtaining the loan, relative to its working capital just prior to the loan, would be: A. Higher. B. Lower. C. The same. D. Would depend on the amount borrowed.
28. Which of the following accounts is part of working capital? A. Retained Earnings B. Sales C. Merchandise Inventory D. Common Stock
29. To accrue $5,500 of employee salaries for the last week of February, the employer’s journal entry is: A. B. C. D.
Dr Salaries expense……….……….……….…… 5,500
Cr Salaries payable……….……….……….…… 5,50
30. Sage, Inc. has 20 employees who each earn $100 per day and are paid every Friday. The end of the accounting period is on a Wednesday. How much wages should the firm accrue at the end of the period? A. $2,000. B. $1,000. C. $0. D. $6,000.
31. Which of the following is not one of the 5 questions of transaction analysis? A. What’s going on? B. Which accounts are affected? C. Is this an accrual? D. Does the balance sheet balance? E. Does my analysis make sense?
32. The effect of an adjustment is: A. To correct an entry that was not in balance. B. To increase the accuracy of the financial statements. C. To record transactions not previously recorded. D. To close the books.
33. A journal entry recording an accrual: A. Results in a better matching of revenues and expenses. B. Will involve a debit or credit to cash. C. Will affect balance sheet accounts only. D. Will most likely include a debit to a liability account.
34. Wisdom Co. has a note payable to its bank. An adjustment is likely to be required on Wisdom’s books at the end of every month that the loan is outstanding to record the: A. Amount of interest paid during the month. B. Amount of total interest to be paid when the note is paid off. C. Amount of principal payable at the maturity date of the note. D. Accrued interest expense for the month.
Martin & Associates borrowed $5,000 on April 1, 2010 at 8% interest with both principal and interest due on March 31, 2011.
35. Which of the following journal entries should the firm use to accrue interest at the end of each month? A. B. C. D.
Interest Expense XXX
Interest Payable XXX
36. How much should be in the firm’s interest payable account at December 31, 2010? A. $300 B. $400 C. $0 D. $333
37. Which of the following journal entries should the firm use to record the payment of interest on March 31, 2011? A. B. C. D.
Interest Payable……XXXX
Interest Expense……XXXX
Cash……….XXXX
38. The accountant at Abco, Inc. made an adjusting entry at the end of February to accrue interest on a note receivable from a customer. The effect of this entry is to: A. Decrease ROI for February. B. Increase ROI for February. C. Decrease working capital at February 28. D. Decrease the acid-test ratio at February 28.
39. The accounting concept/principle being applied when an adjustment is made is usually: A. matching revenue and expense. B. consistency. C. original cost. D. materiality.
40. The Interest Receivable account for February showed transactions totaling $8,500 and an adjustment of $11,200.All of the following responses are correct except: A. The transactions probably resulted from accruing interest income earned. B. The transactions were probably entered on the credit side of the account. C. The adjustment was probably for cash receipts of interest receivable accrued in prior months. D. The balance in the interest receivable account decreased $2,700.
41. The balance in the Accrued Wages Payable account increased from $12,200 at the beginning of the month to $15,000 at the end of the month. Wages accrued during the month totaled $61,000. A. Wages paid during the month totaled $58,200. B. Wages paid during the month totaled $64,800. C. Wages expense for the month totaled $58,200. D. Wages expense for the month totaled $76,000.
42. Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because: A. the accounts receivable asset should be stated at original cost. B. the exact amount of the losses from bad debts is known. C. revenues should be stated at realizable value. D. all costs incurred in the current period should be subtracted from current period revenues.
43. When an uncollectible account receivable is written off against the allowance for bad debts: A. total current assets decrease and expenses increase. B. total current assets are not affected. C. total current assets decrease and expenses decrease. D. current assets decrease and expenses are not affected.
44. With respect to the write-off of an uncollectible account receivable against the allowance for bad debts, a sound system of internal control would require: A. the write-off be approved by two employees. B. an investigation of why credit was extended to this customer in the first place. C. a lawsuit to be initiated to recover the uncollectible amount. D. the write-off to be made within six months after the date of sale.
45. An organization’s system of internal control is designed primarily to: A. ensure that no employees steal the organization’s property. B. increase efficiency by letting one employee handle all aspects of a transaction from beginning to end. C. ensure that the organization’s balance sheet will always balance. D. provide an operating framework for all employees as they work to achieve the organization’s goals.
46. If an organization purchases $700 of supplies on account, with terms of 2/15, n50: A. $650 must be paid within 15 days of the invoice date. B. $698 must be paid within 50 days of the invoice date. C. $686 can be paid within 15 days of the invoice date, or $700 must be paid within 50 days of the invoice date. D. $686 can be paid within 15 days of the invoice date, or $714 must be paid within 50 days of the invoice date.
47. Trading and Available-for-Sale securities are reported on the balance sheet at: A. Net realizable value. B. Historical cost. C. Weighted average cost. D. Market value.
48. Which of the following is(are) a category for securities? A. Trading. B. Held-to-maturity. C. Available-for-sale. D. All of the above.
49. When a firm uses the LIFO inventory cost flow assumption: A. cost of goods sold will be greater than if FIFO were used. B. net income will be greater than if FIFO were used. C. cost of goods sold will be the same as if FIFO were used. D. better matching of revenue and expense is achieved than under FIFO.
50. Accounts receivable are reported at: A. Net realizable value. B. Historical cost. C. Weighted average cost. D. Market value.
