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____ 26. The necessity of making adjusting entries relates mostly to the a. economic entity assumption. b. time period assumption. c. going concern assumption. d. monetary unit assumption.
____ 27. The preparation of closing entries a. is an optional step in the accounting cycle. b. results in zero balances in all accounts at the end of the period so that they are ready for the following period’s transactions. c. is necessary before financial statements can be prepared. d. results in transferring the balances in all nominal accounts to Retained Earnings.
____ 28. Allowance for Doubtful Accounts is reported in the a. balance sheet as a contra asset. b. balance sheet as a contra liability account. c. income statement under other expenses and losses. d. income statement under other revenues and gains.
____ 29. Current liabilities are obligations that are reasonably expected to be paid from Existing Creation of Other Current Assets Current Liabilities a. No No b. Yes Yes c. Yes No d. No Yes
____ 30. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was a. not posted at all. b. posted as a debit to Cash and a credit to Accounts Payable. c. posted as a debit to Cash and a debit to Accounts Payable. d. posted as a debit to Accounts Receivable and a credit to Cash. ____ 31. Mitchell Company bought furniture on account. Their accountant debited Furniture and credited Accounts Receivable. An appropriate correcting entry is a. debit Furniture and credit Accounts Payable. b. debit Accounts Receivable and credit Accounts Payable. c. debit Miscellaneous Expense and credit Accounts Payable. d. no correcting entry is needed.
____ 32. The current source(s) of authoritative pronouncements (i.e., “generally accepted accounting principles”) for profit-oriented organizations is(are) the a. Securities and Exchange Commission. b. Accounting Principles Board. c. Financial Accounting Standards Board. d. both (a) and (c) above.
____ 33. Carey Company’s equipment account increased $400,000 during the period; the related accumulated depreciation increased $30,000. New equipment was purchased at a cost of $700,000 and used equipment was sold at a loss of $20,000. Depreciation expense was $100,000. Proceeds from the sale of the used equipment were a. $210,000. b. $250,000. c. $280,000. d. $320,000.
____ 34. Which of the following would not be included in the operating activities section of a statement of cash flows? a. Cash inflows from returns on loans (i.e., interest) b. Cash inflows from returns on equity securities (i.e., dividends) c. Cash outflows to governments for taxes d. Cash outflows to reacquire treasury stock
____ 35. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively? Liquidity Profitability Solvency a. Inventory turnover Inventory turnover Times interest earned b. Current ratio Inventory turnover Debt to total assets c. Receivables turnover Return on assets Times interest earned d. Quick ratio Payout ratio Return on assets
____ 36. The concept of “significant influence” must be satisfied before which accounting method can be used by an investor? a. Cost b. Equity c. Consolidated financial statements d. All of the above
____ 37. Which of the following pairs of terms in the area of financial statement analysis are synonymous? a. Ratio – Trend b. Horizontal – Trend c. Vertical – Ratio d. Horizontal – Ratio
____ 38. Which of the following statements is true? a. Trading securities are debt securities that the investor has the intent to hold to maturity. b. Trading securities are securities bought and held primarily for sale in the near term. c. Trading securities are securities that may be sold in the future. d. Trading securities are reported at cost in the balance sheet.
____ 39. Dividends received are credited to what account under the equity method and cost method, respectively? Equity Method Cost Method a. Stock Investments Dividend Revenue b. Dividend Revenue Dividend Revenue c. Stock Investments Stock Investments d. Dividend Revenue Stock Investments
____ 40. In accounting for available-for-sale securities, the Unrealized Loss – Equity account should be classified as a a. liability on the balance sheet. b. loss on the income statement. c. deduction in the stockholders’ equity section of the balance sheet. d. contra asset on the balance sheet.
____ 41. Nott Corporation has the following stock outstanding: 6% Preferred, $100 Par $2,000,000 Common Stock, $50 Par 4,000,000 No dividends were paid the previous 2 years. If Nott declares $600,000 of dividends in the current year, how much will common stockholders receive if the preferred stock is cumulative? a. $240,000 b. $360,000 c. $480,000 d. $160,000
____ 42. The statement of cash flows is a(n) a. required supplemental financial statement. b. required basic financial statement. c. optional basic financial statement. d. optional supplementary statement.
____ 43. The directors of Caldwell Corp. are trying to decide whether they should issue par or no par stock. They are considering three alternatives for their new stock, which they are assuming will be issued at $8 per share. The alternatives are: (A) $5 par value, (B) no par with a $1 stated value, and (C) no par, no stated value. If 90,000 shares are issued, what amount will be credited to the common stock account in each of these cases? (A) (B) (C) a. $90,000 $450,000 $720,000 b. $90,000 $720,000 $720,000 c. $720,000 $720,000 $720,000 d. $450,000 $90,000 $720,000
____ 44. Rifkin Corp. reacquired 40,000 shares of its $2 par common stock at a cost of $13 per share on April 30, 2003. The stock was originally issued at $11 per share. On January 10, 2003, the 40,000 shares were sold at $16 per share. The sales entry should include a credit to Paid-in Capital from Treasury Stock for a. $0. b. $80,000. c. $120,000. d. $560,000.
____ 45. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively? Stock Dividend Stock Split a. Increase No effect b. No effect No effect c. Decrease No effect d. Decrease Decrease
____ 46. Which of the following should be classified as an extraordinary item? a. Effects of major casualties not infrequent in the area b. Write-off of a significant amount of receivables c. Loss from the expropriation of facilities by a foreign government d. Losses due to a bitter, lengthy labor strike
____ 47. Gannon Company changed from the straight-line method to the double-declining-balance method of depreciation during 2003 for equipment purchased for $500,000 on January 1, 2001. The equipment has an estimated 5-year life with no salvage. Gannon’s tax rate is 40%. Gannon should report depreciation expense and a cumulative effect of change in accounting principle in 2003 of Depreciation Expense Cumulative Effect a. $72,000 $72,000 b. $48,000 $48,000 c. $43,200 $69,867 d. $72,000 $120,000
____ 48. A Discount on Bonds Payable account a. is a contra account to Bonds Payable. b. will cause interest expense to be less than cash interest payable. c. is increased over the life of the bond until it equals the bond’s face value. d. is an adjunct account to Bonds Payable.
____ 49. In order to be considered extraordinary, an item must be a. frequent and uninsured. b. unusual and uninsured. c. uninsured and infrequent. d. infrequent and unusual.
____ 50. If the market rate of interest is lower than the stated rate, bonds will sell at an amount a. equal to face value. b. not determinable from the given information. c. lower than face value. d. higher than face value.
