Question 1

What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded?

a.       Assets and stockholders' equity decrease.

b.      Assets and stockholders' equity increase.

c.       Assets decrease and liabilities increase.

d.      Stockholders' equity decreases and liabilities increase.

Question 2

Cost of goods sold represents                   

a.       expired costs during a period and is reported on the income statement.

b.      unexpired costs and is reported on the balance sheet as an asset.

c.       the cost of goods that will be purchased during the next operating cycle and is reported on the balance sheet as an asset.

d.      expired costs and is reported on the balance sheet as an expense.

Question 3

County Corp. started business at the beginning of 2011. County selected the FIFO method for its inventory. In order to maximize its profits for 2011 under this method, prices must be                               

a.       increasing.

b.      decreasing.

c.       stable.

d.      fluctuating up and down at the same amount consistently over the year.

Question 4

Which method of inventory costing is not acceptable for financial accounting purposes?                               

a.       specific identification

b.      FIFO

c.       LIFO

d.      replacement cost

Question 5

Which one of the following is an accurate description of Allowance for Doubtful Accounts?                         

a.       contra account

b.      liability account

c.       revenue account

d.      expense account

Question 6

What is the distinguishing characteristic between accounts receivable and notes receivable?                     

a.       Accounts receivable are usually current assets while notes receivable are usually long-term assets.

b.      Accounts receivable require payment of interest if not paid within the usual credit terms.

c.       Notes receivable result from credit sale transactions for merchandising companies, while accounts receivable result from credit sale transactions for service companies.

d.      Notes receivable result from a written promise to pay within a specified amount of time.

Question 7

Current liabilities are defined as those liabilities which will be satisfied                   

a.       by the end of the operating cycle.

b.      within one year.

c.       within one year or within the operating cycle, whichever is longer.

d.      within one year or within the operating cycle, whichever is shorter.

Question 8

Which of the following is not classified as a noncurrent liability?                

a.       Bonds payable

b.      Capital lease obligations

c.       Current portion of long-term debt

d.      Mortgage payable

Question 9

Pat & Co. reported net income for the current year. Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?                            

a.       Cash dividends were paid to stockholders during the year.

b.      Depreciation expense was recorded for the year.

c.       A bank loan was repaid during the year.

d.      Equipment was purchased for cash during the year.

Question 10

When using the indirect method, how is an increase in accounts receivable during the year shown on the statement of cash flows?

a.       Operating activity

b.      Investing activity

c.       Financing activity

d.      Noncash investing and financing activity

Question 11

When using the direct method, how is the collection of cash from customers shown on the statement of cash flows?

a.       Operating activity

b.      Investing activity

c.       Financing activity

d.      Noncash investing and financing activity

Question 12

Which balance sheet accounts are most affected by investing activities?                              

a.       Current assets and current liabilities.

b.      Long-term assets.

c.       Long-term liabilities.

d.      Stockholders' equity.

Question 13

When using the direct method, how is the payment of a cash dividend shown on the statement of cash flows?

a.       Operating activity

b.      Investing activity

c.       Financing activity

d.      Noncash investing and financing activity

Question 14

Why is depreciation added to net income in the Operating Activities category of the statement of cash flows when the indirect method is used?                             

a.       Depreciation expense is a negative amount in the Investing Activities section and therefore is a positive amount in the Operating Activities section.

b.      Depreciation provides cash and therefore must be added to net income.

c.       Depreciation was deducted in arriving at net income on the accrual basis of accounting; however, it did not require the use of cash.

d.      Depreciation reduced the book value of plant assets and, therefore, must be reported as an investing activity.

Question 15

Skyways Airlines acquires a new aircraft. It has an estimated life of 15 years and should be used for 15,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses?                         

a.       double-declining-balance

b.      revenue expenditure method

c.       straight-line

d.      units-of-production

Question 16

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?               

a.       Accumulated Depreciation-Buildings

b.      Buildings

c.       Depreciation Expense-Buildings

d.      Land

Question 17

If technology changes rapidly, a firm should

a.       expense plant asset immediately because of the uncertainty of future benefits.

b.      depreciate plant assets over long periods of time.

c.       consider an accelerated rate of depreciation.

d.      use the straight-line method of depreciation as it is the easiest.

Question 18

Which of the following below is an example of a capital expenditure?                    

a.       cleaning the carpet in the front room

b.      tune-up for a company truck

c.       replacing an engine in a company car

d.      replacing all burned-out light bulbs in the factory

Question 19

Convertible bonds are attractive to investors because                   

a.       they usually carry a higher rate of interest than non-convertible bonds.

b.      they carry a convertible interest rate that can be increased when the prime rate of interest increases.

c.       they can be converted into stock at the issuer's option.

d.      the issuing company cannot retire the bonds before maturity.

Question 20

With regard to a corporation's stock, par value is                              

a.       the current market price of the stock.

b.      an arbitrary amount that exists to fulfill legal requirements.

c.       the amount at which the stock has been repurchased.

d.      the amount at which treasury stock can be sold.

Question 21

The current portion of long-term debt is a balance sheet item for Universal Products Company. How would it most likely be classified on the balance sheet?                               

a.       current liability

b.      long-term liability

c.       current asset

d.      long-term liability

Question 22

Which of the following is an account in stockholders' equity?                     

a.       dividends Payable

b.      Loss on Sale of Equipment

c.       Retained Earnings

d.      Net income

Question 23

A bank loaned $62 million to Global Corporation to finance the construction of a new distribution warehouse. In which section of Global's statement of cash flows would you be able to determine whether the company repaid any portion of the debt during the year?                           

a.       Operating Activities

b.      Investing Activities

c.       Financing Activities

d.      Profit Activities

Question 24

Which of the following categories on a statement of cash flows is used to report the cash flow effects of transactions involving a company's stock?                     

a.       Operating Activities

b.      Investing Activities

c.       Financing Activities

d.      Profit Activities

Question 25

During December, Dobson Inc. purchased $800 of supplies for use in its business. At the end of December, 20% of the supplies were still on hand, but only 75% had been paid. What amounts will appear on the company's balance sheet on December 31?                  

a.       Supplies on Hand, $800; Accounts Payable, $600

b.      Supplies on Hand, $160; Accounts Payable, $200

c.       Supplies on Hand, $640; Accounts Payable, $200

d.      Supplies on Hand, $160; Accounts Payable, $800