1. An advantage of the corporate form of business is _____

1. it is simple to establish

2. the corporate tax rate is less than the personal tax rate

3. corporations must pay dividends

4. the shareholders are not responsible for the corporation's debts

2. Dividends flow through which one of the following statements?

1. The Balance Sheet

2. The Statement of Retained Earnings

3. The Income Statement

4. None of the above

3. Below is a partial list of account balances for LBJ Company.

Cash    $12,000

Prepaid rent     1,300

Accounts receivable    7,000

Accounts payable        5,000

Notes payable  9,000

Common stock            22,000

Dividends        2,000

Revenues         45,000

Expenses         35,000

$57,300

$81,000

$55,300

$56,000

What did LBJ Company show as total debits?

4. Which of the following statements is correct with regard to accrual accounting?

1. Accrual accounting is consistent with the matching principle.

2. Accrual accounting is less complex than the cash-basis method.

3. Accrual accounting does not record expenses until paid.

4. Accrual accounting does not record revenue until payment is received.

5. Which inventory method will result in the lowest income taxes when prices are decreasing?

1. The average cost method

2. LIFO

3. FIFO

4. Income tax expense will be the same.

6. Equipment was purchased for $27,000. Freight charges amounted to $1,000 and there was a cost of $5,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $5,000 salvage value at the end of its 7-year useful life. Depreciation expense each year using the straight-line method will be _____

$4,714

$4,000

$3,857

$3,285

7. When the market rate of interest exceeds the stated rate of interest on the bond, the bond will require _____

a debit to Discount on Bonds Payable

a credit to Premium on Bonds Payable

a debit to Loss on Bonds Payable

a credit to Gain on Bonds Payable

8. Accounts receivable arising from sales to customers amounted to $75,000 and $90,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $100,000. Based on these transactions, the cash flows from operating activities to be reported on the statement of cash flows would be _____

$115,000

$85,000

$175,000

$190,000

9. A company has Preferred stock, 8%, $10 par, 30,000 shares authorized and issued. The balance in the Preferred Stock account is $300,000. This means that:

Preferred stockholders receive dividends before the common stockholders.

Dividends on preferred stock are always paid even if the board of directors does not declare the dividend.

Preferred stock provides voting rights.

All corporations issue preferred stock.

10. When performing a common-size income statement, the 100% figure is _____

net sales

total liabilities plus stockholders' equity

net income

total assets

11. Which one of the following is typically analyzed via financial statement ratio analysis?

The design of a new product

The internal control failure rate

The leverage of the firm

The effectiveness of a marketing campaign

12. Creditors are usually most concerned with analyzing _____

the company stock price

turnover

liquidity

profitability

13. Shareholders are usually most interested in evaluating _____

profitability

leverage

turnover

the ability to pay debts as they come due

14. Which factors below impact the present value of a bond?

The dollar amounts to be received

The market interest rate

The time to maturity of the bond

All of the above