1. The ACE Company has five plants nationwide that cost $100 million.

1. The ACE Company has five plants nationwide that cost $100 million. The current market value of the plants is $500 million. The plants will be recorded and reported as assets at
a. $100 million.
b. $600 million.
c. $400 million.
d. $500 million. _____

2. A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the
a. stand alone concept.
b. monetary unit assumption.
c. corporate form of ownership.
d. economic entity assumption. _____

3. A net loss will result during a time period when
a. liabilities exceed assets.
b. dividends exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses. _____

4. As of December 31, 2008, Anders Company has assets of $35,000 and stockholders’ equity of $20,000. What are the liabilities for Anders Company as of December 31, 2008?
a. $15,000
b. $10,000
c. $25,000
d. $20,000 _____

5. A credit is not the normal balance for which account listed below?
a. Common stock account
b. Revenue account
c. Liability account
d. Dividend account _____

6. An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit an stockholders’ equity account for $500.
c. Debit another asset account for $500.
d. Credit a different asset account for $500. _____

7. Which of the following is not true of the terms debit and credit?
a. They can be abbreviated as Dr. and Cr.
b. They can be interpreted to mean increase and decrease.
c. They can be used to describe the balance of an account.
d. They can be interpreted to mean left and right. _____

8 . In the first month of operations, the total of the debit entries to the cash account amounted to $900 and the total of the credit entries to the cash account amounted to $500. The cash account has a(n)
a. $500 credit balance.
b. $800 debit balance.
c. $400 debit balance.
d. $400 credit balance. _____

9. On January 14, Franco Industries purchased supplies of $500 on account. The entry to record the purchase will include
a. a debit to Supplies and a credit to Accounts Payable.
b. a debit to Supplies Expense and a credit to Accounts Receivable.
c. a debit to Supplies and a credit to Cash.
d. a debit to Accounts Receivable and a credit to Supplies. _____

10. Management could determine the amounts due from customers by examining which ledger account?
a. Service Revenue
b. Accounts Payable
c. Accounts Receivable
d. Supplies _____

11 . A list of accounts and their balances at a given time is called a(n)
a. journal.
b. posting.
c. trial balance.
d. income statement. _____

12. Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.
a. annual, annual
b. monthly, annual
c. quarterly, monthly
d. monthly, monthly _____

13. In a service-type business, revenue is considered earned
a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received. _____

14. Ken’s Tune-up Shop follows the revenue recognition principle. Ken services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Ken on August 5. Ken receives the check in the mail on August 6. When should Ken show that the revenue was earned?
a. July 31
b. August 1
c. August 5
d. August 6 _____

15. A furniture factory’s employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in
a. February.
b. March.
c. the period when the workers receive their checks.
d. either in February or March depending on when the pay period ends. _____

16. A small company may be able to justify using a cash basis of accounting if they have
a. sales under $1,000,000.
b. no accountants on staff.
c. few receivables and payables.
d. all sales and purchases on account. _____

17. Which one of the following is not a justification for adjusting entries?
a. Adjusting entries are necessary to ensure that revenue recognition principles are followed.
b. Adjusting entries are necessary to ensure that the matching principle is followed.
c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.
d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget. _____

18. If a resource has been consumed but a bill has not been received at the end of the accounting period, then
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
d. it is optional whether to record the expense before the bill is received. _____

19. Quirk Company purchased office supplies costing $6,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,400 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
a. Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400.
b. Debit Office Supplies, $3,600; Credit Office Supplies Expense, $3,600.
c. Debit Office Supplies Expense, $3,600; Credit Office Supplies, $3,600.
d. Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400. _____

20. Closing entries are made
a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and Stockholders’ equity accounts will have zero balances when the next accounting period starts.
c. in order to transfer net income (or loss) and dividends to the retained earnings account.
d. so that financial statements can be prepared. _____

21. The relationship between current assets and current liabilities is important in evaluating a company’s
a. profitability.
b. liquidity.
c. market value.
d. accounting cycle. _____

22. An objective of financial reporting is to provide information that is mainly useful to
a. governmental taxing bodies.
b. employees and labor unions.
c. investors and creditors.
d. internal and external auditors. _____

23. Which of the following statements is not true?
a. Comparability means using the same accounting principles from year to year within a company.
b. Reliability is the quality of information that gives assurance that it is free of error or bias.
c. Relevant accounting information must be capable of making a difference in the decision.
d. The FASB concluded that the overriding criterion by which accounting choices can be judged is decision usefulness. _____

24. The going concern assumption assumes that the business
a. will be liquidated in the near future.
b. will be purchased by another business.
c. is in a growth industry.
d. will continue in operation long enough to carry out its existing commitments. _____

25. The revenue recognition principle
a. states that revenue should be recognized in the period when received.
b. states that expense recognition is tied to revenue recognition.
c. requires that revenue be recognized in the accounting period when it is earned.
d. requires that events making a difference to financial statement users be clearly disclosed. _____

26. Which of the following is not a characteristic of the cost principle?
a. Reliability
b. Subjectivity
c. Objectivity
d. Verifiability _____

1. (TCO A) Which of the following is an advantage of the sole proprietorship relative to the corporate form of business organization? (Points : 5)
Limited liability of investor
Transferability of ownership
Simple to establish
Unlimited life
2. (TCO A) Dividends _____. (Points : 5)
represent an expense and are an operating activity
represent an obligation and are an operating activity
represent a distribution of earnings and are a financing activity
represent an asset and are an investing activity
3. (TCOs A, B) Below is a partial list of account balances for LBJ Company:

Cash $15,000
Prepaid insurance 5,000
Accounts receivable 2,500
Accounts payable 3,000
Notes payable 6,000
Common stock 10,000
Dividends 500
Revenues 15,000
Expenses 13,000

What did LBJ Company show as total debits?
(Points : 5)
$34,000
$36,000
$70,000
$31,000
4. (TCOs B, E) Why is the accrual basis of accounting preferred by GAAP? (Points : 5)

The Accrual basis is easier to use.
The Accrual basis is also preferred by the Internal Revenue Service.
The Accrual basis complies with the revenue recognition and matching principles.
The Accrual basis requires fewer accounting resources.
5. (TCO D) In a period of increasing prices, which inventory cost flow assumption will result in the highest amount of net income?(Points : 5)
LIFO
The average cost method
FIFO
Income tax expense for the period will be the same under all assumptions.
6. (TCOs A, E) Equipment was purchased for $75,000 on January 1, 2011. Freight charges of $3,200 were incurred and there was a cost of $6,000 for installation. It is estimated the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense for 2011 using the straight-line method will be _____. (Points : 5)
$13,800
$14,440
$12,600
$13,240
7. (TCO D,G) Payne Corporation issues 100 twenty-year, 6%, $1,000 bonds dated July 1, 2010, at 94. The journal entry to record the issuance will show a _____. (Points : 5)
debit to Cash of $100,000
credit to Bonds Payable of $94,000
credit to Premium on Bonds Payable of $4,000
debit to Discount on Bonds Payable of $6,000
8. (TCO C) Accounts receivable arising from sales to customers amounted to $80,000 and $100,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $1,000,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is _____. (Points : 5)
$20,000
$1,020,000
$1,000,000
$980,000
9. (TCO F) If you are making comparisons within a company to detect changes in financial relationships and significant trends, you are performing what type of analysis? (Points : 5)
Industry averages analysis
Intercompany analysis
Common-size analysis
Intracompany analysis
10. (TCO F) The formula for performing horizontal analysis is _____. (Points : 5)
(Current Year Amount minus Base Year Amount) divided by Current Year Amount
Base Year Amount divided by Current Year Amount
Current Year Amount minus Base Year Amount
(Current Year Amount minus Base Year Amount) divided by Base Year Amount
11. (TCO F) Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time _____.(Points : 5)
that has been arranged from the highest number to the lowest number
that has been arranged from the lowest number to the highest number
to determine which numbers are in error
to determine the amount and/or percentage increase or decrease that has taken place
12. (TCO F) A common measure of liquidity is _____. (Points : 5)
debt-to-total-assets ratio
cash debt coverage
free cash flow
working capital
13. (TCO F) Short-term creditors would be most interested in which of the following ratios? (Points : 5)
Average collection period
Times interest earned
Cash debt coverage
Free cash flow
14. (TCO G) To calculate the market value of a bond, we need to _____. (Points : 5)
multiply the bond price times the interest rate
calculate the present value of the principal only
calculate the present value of the interest only
calculate the present value of both the principal and

1. (TCO A) Use the following partial financial statement information below to calculate the liquidity and profitability ratios. This information can be used to correctly solve each of the ratios below.
Average common shares outstanding 35,000 Current liabilities $25,000
Capital expenditures $20,000 Net income $50,000
Cash provided by operations $77,000 Net sales $100,000
Preferred stock dividends paid $30,000 Total liabilities $50,000
Current assets $20,000 Total assets $80,000
Instructions: Compute the following.
a) Current ratio
b) Working capital
c) Earnings per share
d) Debt-to-total-assets ratio
e) Free cash flow

2. (TCOs D, E) Please prepare the following journal entries. Indicate which account should be debited with the abbreviation DR in front of the account name and which account should be credited with the abbreviation CR in front of the account name along with the dollar amount of the debit and credit.
a) Investors invested $150,000 in exchange for 10,000 shares of common stock.
b) Company made payment on account for $10,000
c) Company received $15,000 for services not yet performed
d) Company purchased $7,500 worth of equipment
e) Company billed $5,000 for services performed
(Points : 30)