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1.The fundamental accounting equation is a reflection of
the:
Money measurement concept
Conservatism concept
Dual-aspect concept
Historical cost concept
2.The historical cost concept reflects the fact that
financial accounting practice favors:
Reliability over relevance
Management's best guess over historical financial
information
Relevance over reliability
Consensus market values over historical financial
information
3.Jon Sports' inventory account increased from $25,000 on
December 31, 2003 to $30,000 on December 31, 2004. Which one of the following
items would be included in the operating section of its 2004 indirect method
statement of cash flows?
Add increase in inventory $5,000
Subtract increase in inventory ($5,000)
Add inventory balance $20,000
Subtract inventory balance ($20,000)
4.Turnkey Systems, Inc. began the month of June, 2004 with a
prepaid expenses balance of $240,000. During the month, debits totaling
$110,000 and credits totaling $80,000 were made to the prepaid expenses
account. What was the June, 2004 ending balance of prepaid expenses?
A debit balance of $210,000
A credit balance of $210,000
A debit balance of $270,000
A credit balance of $270,000
6.When an entity recognizes revenue before it has received
cash for the sale, it records an increase in a(n):
5.Pentex and Marbro, small companies in the stationery
business, each had a dollar gross margin of $20,000 during September 2004.
Pentex's September sales were twice that of Marbro's. If Pentex's gross margin
as a percentage of sales for September was 10%, Marbro's gross margin as a
percentage of sales for the same period was:
10%
5%
20%
Cannot be calculated
7.Juan Foods pays off a long-term debt in full. Which one of
the following statements describes the effect of the sale on Juan Foods?
Current ratio increases; total debt to equity ratio
decreases
Current ratio decreases; total debt to equity ratio
decreases
Current ratio decreases; total debt to equity ratio
increases
Current ratio increases; total debt to equity ratio
increases
8.On January 1, 2005, Mansfield Company has a retained
earnings balance of $256,000. During 2005, its net income is $44,000 and it
announces and pays $12,000 in dividends. There is no other dividend-related
activity during the year. Its December 31, 2005 retained earnings balance is:
$212,000
$288,000
$300,000
$224,000
9.Juan Foods makes a cash sale with a positive gross margin.
Which one of the following statements describes the effect of the sale on Juan
Foods?
Current ratio increases
Current ratio decreases
No change to Juan Foods' current ratio
Insufficient information to judge effect on current ratio
10.Juan Foods pays off a long-term debt in full. Which one
of the following statements best describes the appropriate book-keeping for
this transaction?
Debit cash; credit long-term debt
Debit long-term debt; credit owners' equity
Debit owners' equity; credit long-term debt
Debit long-term debt; credit cash
11.On March 31, 2005, Cars, Inc. owes Preston Devices, one
of its suppliers, $25,000 for previous purchases. During April 2005, Preston
sells Cars devices with a sales price of $10,000 and a cost to Preston of
$8,000. During April Cars pays Preston $12,000 against the amount owed to
Preston. What is the effect of these April transactions on Preston's balance
sheet?
Cash increased by $12,000; accounts receivable decreased by
$2,000; inventory decreased by $8,000; retained earnings increased by $2,000.
Accounts receivable increased by $2,000; inventory decreased
by $8,000; cash increased by $12,000; retained earnings increased by $12,000.
Cash increased by $12,000; retained earnings decreased by
$2,000; inventory decreased by $10,000; accounts receivable decreased by
$12,000.
Cash increased by $2,000; accounts receivable decreased by
$2,000; inventory decreased by $8,000; retained earnings decreased by $12,000.
12.Consider the same scenario as in the previous question:
On March 31, 2005, Cars, Inc. owes Preston Devices, one of its suppliers,
$25,000 for previous purchases. During April 2005, Preston sells Cars devices
with a sales price of $10,000 and a cost to Preston of $8,000. During April
Cars pays Preston $12,000 against the amount owed to Preston. If Preston had no
other sales and records no other collections from customers during the month of
April, the operating section of Preston's indirect method statement of cash
flows for April will show the following de-accrual adjustments to net income:
Subtract change in accounts receivable; add change in
inventory.
Add change in accounts receivable; subtract change in
inventory
Add change in accounts receivable; add change in inventory.
Subtract change in accounts receivable; subtract change in
inventory
13.Planet Music buys all of its inventory on credit. During
2005, Planet Music's inventory account increased by $10,000. Which of the
following statements must be true for Planet Music during 2005?
It made payments of less than $10,000 to suppliers.
It made cash payments of $10,000 to suppliers.
It made more cash payments to its suppliers than it recorded
as cost of goods sold.
It paid less cash to suppliers than it recorded as cost of
goods sold.
14.On December 31, 2005, Juan Foods purchases a van for
$12,000. How does the purchase of the van affect Juan Foods' 2005 income
statement?
Decreases sales by $12,000
Increases operating expenses by $12,000
No material effect
Increases cost of goods sold by $12,000
15.To be recorded as a liability, an item must meet three
specific conditions. Two of them are: it must involve probable future sacrifice
of economic resources by the entity, and it must be a present obligation that
arose as a result of a past transaction. Which one of the following is the
third condition?
The item must reduce the market value of the recording
entity
It must involve a transfer of resources to another entity
It must involve the expenditure of cash now or in the future
It must not cause total liabilities to exceed total assets
16.During 2005, Patnode announced and paid dividends of
$1,000, the only dividend-related activity during the year. What was its 2005
net income?
$5,600
$3,600
$4,600
Cannot be estimated
17.During 2005, Patnode had a cash outflow of $15,000 for
investing activities and a cash inflow of $7,000 from financing activities. Its
2005 cash flow from operations was
Outflow of $15,000
Inflow of $15,000
Outflow of $8,000
Inflow of $8,000
18.Patnode's 2005 statement of cash flows contains four
items in the financing section. Three of them are: Short-term debt issued,
$15,000; Short-term debt paid, ($10,000) and Dividends paid, ($1,000). What is
the fourth item in the financing section
Retained earnings, $4,600
Common stock issued, $3,000
Long-term debt paid, ($3,000)
Cash from financing, $3,000
19.How much total depreciation and amortization expense did
Patnode record during 2005?
$10,000
$6,000
$3,000
$5,000
20.During 2005, Patnode recorded sales of $17,000. How much
cash did it collect from its customers?
$17,000
$14,000
$3,000
Cannot be estimated
21.Which one of the following items will not appear in the
operating section of Patnode's 2005 indirect method cash flow statement?
Deduct: increase in accounts receivable $3,000
Add: decrease in accounts payable $1,000
Add: increase in taxes payable $2,400
Add: decrease inventories $6,000
22.What is Patnode's current ratio at the end of 2004?
2.46
0.41
1.12
0.89
23.What is Patnode's total debt to equity ratio at the end
of 2004 (rounded to two decimal places)?
5.30
0.19
0.25
4.04
24.Patnode recorded a 2005 tax expense of $3,000. What
amount did it pay to the tax authorities during 2005?
$2,400
$7,000
$600
$5,400
25.Kirby, Inc. records a sale with a gross margin of $1,400.
Which one of the following statements correctly describes the effect of such a
sale on its balance sheet?
Common stock increases by $1,400
The sales revenue account increases by $1,400
The gross margin account increases by $1,400
The retained earnings account increases by $1,400
26.Sandy Robbins is the sole owner of a hair salon. He often
takes small amounts of "lunch money" from the cash register, figuring
that "it is my business anyway." His accountant, however, insists
that Sandy make a note of the cash he takes, and at the end of the each
accounting period, she debits owners' equity and credits the cash account for
the total amount that Sandy has taken during the period.
In recording the cash withdrawals even though Sandy is sole
proprietor, the accountant is correctly applying the:
Matching concept
Entity concept
Materiality concept
Conservatism concept
27.Anderson Electronics' 2005 return on sales percentage is
20%. Its 2005 net income is $40,000. What is its 2005 sales?
$400,000
$80,000
$200,000
$100,000
28.During 2005, Sunrise Foods, Inc. records an interest
expense of $5,000, and pays $2,000 of it in cash. How should this accounting
transaction be recorded?
Debit interest expense $5,000; credit cash $2,000; credit
taxes payable $3,000
Debit interest expense $5,000; credit cash $2,000; credit
interest payable $3,000
Debit various debt accounts $5,000; credit cash $2,000;
credit interest payable $3,000
Debit interest expense $5,000; credit cash $2,000; credit
various debt accounts $3,000
29.During June 2005, Bextra Inc. recorded sales of $55,000
but only $20,000 was collected in cash from customers. Cost of goods sold of
$38,000. What was the effect of these sales on Bextra's current ratio?
Current ratio increases
Current ratio decreases
Current ratio remains unchanged
Insufficient information provided to judge effect on current
ratio
30.Which one of the following statements is not true about
statements of cash flows prepared according to U.S. GAAP?
The operating section of the indirect method starts with the
net income of the period
In the indirect method statement, the period's depreciation
is added to net income because it is a source of cash
Interest payments are included in the operating section of
the direct method statement
The investing section of the direct method statement for a
period is identical to the investing section of the indirect method statement
for the same period
31.A company raised $50,000 in cash
by taking a one-year loan of $10,000 and a 5-year loan of $40,000. Which of the
following is the correct journal entry to record this transaction?
Debit short-term debt $40,000; debit
retained earnings $10,000; credit cash $50,000
Debit short-term debt $50,000;
credit cash $50,000
Debit cash $50,000; credit long-term
debt $50,000
Debit cash $50,000; credit
short-term debt $10,000; credit long-term debt $40,000
32.Which one of the following
statements describes the rules about posting transactions into T-accounts in
the ledger?
For assets, debits are entered on
the left; for liabilities, credits are entered on the left
For assets, credits are entered on
the left; for liabilities, debits are entered on the left
Debits on the left; credits on the
right
Credits on the left; debits on the
right
33.Baxtra, Inc. pays $20,000
in cash as interest to its lenders during 2005. According to U.S. GAAP, in
which section of the statement of cash flows would this payment be included?
The operating section
The financing section
The investing section
Depends on whether cash flow
statement is direct or indirect method.
34.Taylor Company had a salaries
payable balance of $18,000 on December 31, 2004. During 2005, it paid $50,000
in cash as salaries, and recorded a salary expense of $50,000. Its December 31,
2005 salaries payable balance is:
$50,000
$18,000
$100,000
Cannot be determined from the
information provided
35.On April 30, 2005, Zono
Electronics, Inc. made a payment of $3,500 to Imperial Distributors, a
supplier. Choose the statement that best describes the recording of this
financial transaction by Imperial Distributors.
Debit cash $3,500; credit accounts
payable $3,500
Debit accounts receivable $3,500;
credit cash $3,500
Debit accounts payable $3,500;
credit cash $3,500
Debit cash $3,500; credit accounts
receivable $3,500
36.Sardi Company estimates its 2005
tax expense to be $80,000. It makes a cash payment of $20,000 to the tax
authorities on December 31, 2005. How should this transaction be recorded by
Sardi?
Debit tax expense $80,000; credit
cash $60,000; credit taxes payable $20,000
Debit tax expense $80,000; credit
cash $20,000; credit taxes payable $60,000
Debit tax expense $80,000; credit
cash $20,000
Debit tax expense $80,000; credit
cash $20,000; credit accounts payable $60,000
37.On June 1, 2005, Planet Music has
accounts payable of $45,000. During the month, debits of $3,000 and credits of
$11,000 were made to the account. At the end of June 2005, what was the
accounts payable balance?
A credit balance of $53,000
A debit balance of $42,000
A credit balance of $56,000
A debit balance of $53,000
38.Barnaby & Sons receives a
large shipment of goods from its supplier. It pays $58,000 at the time of
delivery and promises to pay the remaining $42,000 within the next two months.
What is appropriate journal entry for this transaction?
Debit cash $42,000; debit inventory
$16,000; credit accounts payable $58,000;
Debit inventory $100,000; credit
cash $58,000; credit accounts payable $42,000
Debit accounts payable $58,000;
credit cash $42,000; credit inventory $16,000
Debit accounts payable $58,000;
debit cash $42,000; credit inventory $100,000
39.Annie's Fitness sells a set of
free weights to a customer for $1,000. The customer pays $600 in cash and puts
the rest on her store credit account. Which one of the following statements
describes the most appropriate accounting for the transaction?
Debit cash $600; debit accounts
receivable $400; credit cost of good sold $1000
Debit cash $600; debit accounts
receivable $400; credit revenues $1,000
Debit revenues $1,000; credit cash
$600; credit accounts receivable $400
Debit cash $600; debit accounts
receivable $400; credit inventory $1,000
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