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Practice Final Exam
Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. Which of the following would be classified as external users of financial statements? a. Stockholders and management of the company b. The controller of the company and a company's stockholders c. The company's marketing managers d. The creditors and stockholders of the company ____ 2. Which financial statement would you analyze to determine if a company distributed any of its profits to its shareholders? a. Balance sheet b. Statement of retained earnings c. Income statement d. Both the balance sheet and income statement ____ 3. CSX Transportation purchases many pieces of office furniture with an individual cost below $200 each. CSX chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company's accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows CSX to expense the furniture? a. Materiality b. Matching c. Conservatism d. Verifiability ____ 4. Which pair of accounts cause owners equity to decrease? a. Capital stock and accounts payable b. Salaries expense and retained earnings c. Utilities expense and dividends d. Sales revenues and accounts receivable ____ 5. Which pair of transactions cause assets to increase? a. Sale of a company's stock and collections of accounts receivable b. Borrowing from the bank and payment of accounts payable c. Collection of cash from customers and payment of notes payable d. Sales of products to customers and acquisition of supplies on account ____ 6. Highland Corp.'s current ratio is 2 to 1. Highland acquired a patent from an inventor in exchange for shares of Highland Corp. stock. What effect does this transaction have on Highland's current ratio? a. The current ratio would increase. b. The current ratio would decrease. c. The current ratio would stay the same. d. Unable to determine. ____ 7. Which of the following is the attribute used to measure many assets that are recognized on a balance sheet, because it is more objective and verifiable? a. Market value b. Historical cost c. Liquidation value d. Current replacement cost ____ 8. When are revenues recognized under the accrual basis of accounting? a. When cash is received, and expenses when cash is paid b. When cash is received, and expenses when the costs are incurred
c. When earned, and expenses when the costs are incurred d. When earned, and expenses when cash is paid ____ 9. Hanna’s Swim Club sells season memberships for $200 each. During January of 2005, 60 season memberships were sold. As of March 31, 2005, only $3,000 of season membership fees had been collected from customers. The swim season runs for 4 months starting May 15, 2005. Which one of the following is an amount reported on the financial statements for the period ending March 31, 2005? a. Unearned swim membership revenue of $3, b. Unearned swim membership revenue of $9, c. Accounts receivable of $3, d. Swim membership revenue of $9, ____ 10. Which of the following concepts is important to accrual accounting? a. Time period, because accrual accounting divides earnings into time periods b. Monetary unit, because inflation is a big factor in the environment c. Cash basis, because if cash is not received, revenue is not accrued d. Entity concept, because personal transactions must be separated from business transactions ____ 11. Which of the following statements does not present financial information based on the accrual basis of accounting? a. Balance sheet b. Income statement c. Retained earnings statement d. Statement of cash flows ____ 12. Which one of the following items is not included in cash? a. A bank certificate of deposit for 1 year b. A savings account at a bank c. A checking account balance d. Petty cash account e. All of the above are included in cash. ____ 13. Which one of the following is not considered to be cash equivalent? a. Corporate commercial paper due in 90 days after purchase b. U.S. Treasury bills with an original maturity of 6 months c. A money market account with a stock brokerage firm d. A certificate of deposit with a term of 75 days when acquired ____ 14. How are cash equivalents reported or disclosed in the financial statements? a. They appear only on the statement of cash flows. b. They are included with short-term investments under current assets on the balance sheet. c. They are included with cash under current assets on the balance sheet. d. They are disclosed only in a footnote to the balance sheet. ____ 1 5. Jake’s Pawn Shop borrowed $5000 from Royal Bank on October 1, 2005. The note carried a one-year term and a 12% rate of interest. The adjusting entry on Jake’s books to record accrued interest expense on December 31, 2005 will act to: a. Decrease equity and increase liabilities by $ b. Increase liabilities and decrease equity by $ c. Decrease equity and increase retained earnings by $ d. None of the above ____ 16. Which one of the following best describes the allowance for doubtful account? a. Contra Account b. Liability Account c. Income Statement Account
____ 22. Refer to Kellogg Corp. Assume that Kellogg's gross margin is $300,000. Calculate Net income. a. $27,000. b. $42,000. c. $142,000. d. Undeterminable without more information Rasta Corp Rasta Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales $175, Purchases 90, Inventory (beginning) 23, Inventory (ending) 17, Purchase returns and allowance 3, Purchase discounts 7, Transportation-in 4, Sales discounts 8, Sales returns and allowances 5, ____ 23. Refer to Rasta Corp. Calculate Rasta's cost of goods purchased. a. $84, b. $90, c. $103, d. $117, ____ 24. Refer to Rasta Corp. Calculate Rasta's net sales. a. $162, b. $175, c. $170, d. $167, ____ 25. The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the a. matching principle. b. full disclosure principle. c. revenue realization principle. d. historical cost principle. Cooker Kitchen Cooker Kitchen's 2005 income statement information. Purchases $182, Transportation-In 11, Inventory, January 1, 2005 26, Inventory, December 31, 2005 28, Purchase Returns & Allowances 8, ____ 26. Refer to Cooker Kitchen. How much will Cooker Kitchen report as cost of goods purchased in its 2005 income statement? a. $193, b. $201,
c. $184, d. $211, ____ 27. Refer to Cooker Kitchen. How much will Cooker Kitchen report as its cost of goods sold in its 2005 income statement? a. $182, b. $186, c. $179, d. $190, ____ 28. Which one of the following statements is false? a. The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system. b. The inventory account is updated only at the end of the accounting period under the periodic inventory system. c. A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system. d. A purchases account is used only under the periodic inventory system. ____ 29. M&J Enterprises purchased a building for $400,000 in 1981. At the end of November, 2005, when the building's book value was $200,000, it was appraised for $1,300,000. A potential buyer offered M&J $1,000,000 during the last week of December, 2005. M&J rejected the offer and did not sell. At what amount should the cost of the building be in the Building account at the end of 2005? a. $1,300, b. $1,200, c. $400, d. $200, ____ 30. The Magnolia sisters bought a bed and breakfast inn at a cost of $1,000,000. The appraiser indicated the following property values: land, $380,000: building, $360,000, and equipment, $60,000. What cost should be allocated to the building? a. $360, b. $450, c. $475, d. $900, ____ 31. The Brooks brothers purchased a warehouse at a cost of $1,000,000. The appraiser indicated the following property values: land, $380,000: building, $360,000, and equipment, $60,000. What cost should be allocated to the land? a. $375, b. $380, c. $475, d. $487, ____ 32. Why is land not depreciated? a. Because it appreciates in value. b. Because land has an unlimited useful life. c. Because land has a limited useful life. d. Both a. and b. above. ____ 33. Depreciation expense is recorded so that a. A company can better estimate the market value of the depreciated assets. b. The balance sheet value of plant assets will more accurately reflect the replacement cost of the assets. c. Cash will be available at the end of the asset's useful life in order to replace it. d. Expenses are matched against revenues using a reasonable allocation method.
b. $3,150. c. $3,168. d. $3,200. ____ 41. Which of the following is least useful in evaluating a company's financial statements? a. Comparison with government economic data for the economy as a whole b. Comparison with other companies in the same industry c. Comparison of the company's current period data with accounting data from 15 years ago d. All of the above are very useful ____ 42. A financial analyst is comparing two companies. Which of the following would cause major problems in the evaluation process? a. One company has a fiscal year that ends on October 31, while the other company has a fiscal year that ends on August 31. b. One company reported non-operating activities, while the other company did not. c. The companies operate in different industries. d. Inflation has been low for the past several years. ____ 43. Horizontal analysis is analysis a. of dollar changes and percentage changes over several years. b. in which all items are presented as a percentage of one selected item on a financial statement. c. in which a statistic is calculated for the relationship between two items on a single financial statement or for two items on different financial statements. d. of all ratios that increased or decreased over past accounting periods. ____ 44. Trend analysis is analysis a. of dollar changes and percentage changes over several years. b. in which all items are presented as a percentage of one selected item on a financial statement. c. in which a statistic is calculated for the relationship between two items on a single financial statement or for two items on different financial statements. d. of all ratios that increased or decreased over past accounting periods. ____ 45. Liquidity analysis is required a. to assess the nearness to cash of a company's assets and liabilities. b. to be reported in the financial statements for all companies publicly traded. c. when a company reports nonrecurring items in its financial statements. d. in order to evaluate the profitability over past accounting periods. ____ 46. Which of the following is a component of stockholders' equity? a. Dividends payable b. Loss on sale of equipment c. Retained earnings d. Net income ____ 47. The Retained Earnings account balance for a large corporation is $10,000,000. This amount represents a. earnings that have not been distributed to shareholders. b. cash in the bank. c. the amount of cash available for dividends. d. revenues for all past years of operations. ____ 48. Capitalization of interest refers to treating interest as a. an asset b. a part of stockholders equity c. revenue
d. an expense ____ 49. Equipment that originally cost $100,000 with accumulated depreciation of $40,000 is sold for $50,000. The entry to record the sale should include a: a. Gain on Sale of Asset of $50, b. Gain on Sale of Asset of $10, c. Loss on Sale of Asset of $50, d. Loss on Sale of Asset of $10, ____ 50. The sale of a building would be reported on the statement of cash flows as what kind of activity? a. Financing b. Investing c. Operating d. Not Reported on the Statement of Cash Flows
