1. Which of the following is NOT a characteristic of a partnership?
a. Each general partner has unlimited liability for the .debts of
b. If one partner dies or leaves the partnership, the existing
partnership is terminated.,
c. The partnership income is subject to a federal income tax
that is levied on the business but not on the partners.
d. The existing partnership agreement is dissolved and a new
agreement is formed when a new partner joins the
2.Ryan Fuller, a sole proprietor, entered into partnership with another
individual. Fuller's investment in the partnership included equipment
that cost $32,000 when it was purchased. The equipment has a book value
of $13,000 and a net agreed-on value of $16,000. In the financial records of
the partnership, this equipment and its accumulated depreciation should
be recorded at
a. $16,000 and $0, respectively.
b. $13,000 and $0, respectively.
c. $32,000 and $19,000, respectively.
d. $16,000 and $3,000, respectively.
3. The general ledger of a partnership will:
a. not contain a separate drawing account for each partner.
b. contain one capital account that reflects the total equity of all
c. not contain a capital account or accounts.
d.contain a separate capital account for each partner.
4. The salary and interest allowances in a partnership profit-sharing
agreement can best be described as:
a. expenses of the business that are deducted from revenue in
the determination of net income.
b. amounts on which each partner will not have to pay income
c. a means of distributing net income in relation to the services
provided and the capital invested by each partner.
d. a legal requirement in order for a partnership to be formed.
5.Partnership net income of $33,000 is to be divided between two partners,
Elan Chan and XXXXX XXXXX, according to the following arrangement:
There will be salary allowances of $20,000 for Chan and $10,000 for
Anderson, with the remainder divided equally. How much of the net
income will be distributed to Chan and Anderson, respectively?
a.$22,000 and $11,000
b.$21,500 and $11,500
c.$16,500 and $16,000
d.$21,000 and $12,000
6.Kara Johnson and Tyler Jones are partners, and each has a capital balance
of $100,000. To gain admission to the partnership, Raiden Nash pays
$60,000 directly to Johnson for one-half of her equity. After the admission
of Nash, the total partners' equity in the records of the partnership will be:
7.A corporation is owned by:
a. the individual who started the company.
b. its board of directors.
c. the president of the corporation.
d. its stockholders.
8. Which of the following statements is correct?
a.Shareholders have no personal liability for a corporation's
b. A corporation's profits are first taxed at the corporate tax
rate and then taxed again at personal income tax rates when
the profits are paid to the stockholders in the form of
c. Limited liability partnership (LLP) partners have liability for
their own actions and the actions of those under their control
or Sll pervision.
d. All of these statements are correct.
9.If only one class of stock is issued by a corporation, it is referred to as
10.A corporation has 1,000 shares of 10 percent, $50 par-value preferred stock
and 10,000 shares of $5 par-value common stock outstanding. Jf the board
of the directors decides to distribute dividends totaling $40,000, the
common stockholders will receive a dividend of a share.
11.The entry to record the issuance of 1,000 shares of $10 par-value common
stock for $14 a share consists of a debit to Cash for:
a.$14,000 and a credit to Common Stock for $14,000.
b.$10,000 and a credit to Gain on Sale, of Common Stock for
c. $10,000 and a credit to Paid-in Capital in Excess of Par
Value-Common Stock for $4,000.
d. $10,000 and a credit to Treasury Stock for $4,000.
12.Which of the following statements is correct?
a. Market value is the figure selected by the organizers of the
corporation to be assigned to each share of stock for
b.If there is only one class of stock, the stock is called preferred
c.In the event of liquidation, preferred stockholders have a
claim on assets before that of common stockholders.
d.None of these statements is correct.
13.The Preferred Stock account is shown in the section of the
a . Assets
b. Current Liabilities
c. Long-Term Liabilities
d. Stockholders' Equity
14. When the amount of future taxes that will be paid as a result of the
MACRS depreciation deduction taken in this and prior years, an
adjustment for the future taxes is made with a debit to and a
credit to .
__a. Tax Expense; Deferred Income Tax Liability
__b. Deferred Income Tax Liability; Tax Expense
__c. Tax Expense; Deferred Income Tax Asset
__d. Deferred Income Tax Asset; Tax Expense
15. When the cumulative taxable income is higher than that reported on the
financial statements, this gives rise to:
a.a deferred income tax liability.
b. a deferred income tax asset.
c Either of the above
d.Neither of the above
16.Which of the following statements is correct?
a. Retained earnings does not represent a cash fund.
__ b. A corporation can have a large cash balance but no retained
__c. A corporation can have a balance in the Retained Earnings
account but no cash.
__d.All of these statements are correct.
17. The entry to record the declaration of a cash dividend consists of a debit to
____and a credit to _
a. Dividend Expense; Cash
b. Retained Earnings; Common Stock Dividend Distributable
c. Dividends Payable; Retained Earnings
d. Retained Earnings; Dividends Payable
18.A declaration and distribution of a 20 percent stock dividend on common
a. not change the total stockholders' equity.
b. increase the assets of the corporation.
c. result in an increase in the book value of each share of
common stock ou tstanding.
d. increase the liabilities of the corporation.
19.A corporation reported a net income 0($90,000 for its fiscal year and
declared and paid cash dividends of $60,000. A stock dividend recorded
at $30,000 was also distributed during the year. If the beginning balance
of the Retained Earnings account was $140,000, the ending balance is:
20. The Treasury Stock account is shown on the balance sheet as a(n):
b. addition to the Common Stock and Preferred Stock accounts
in the Stockholders' Equity section.
c. deduction from the Retained Earnings in the Stockholders'
d. deduction from the sum of all other items in the
Stockholders' Equity section.
1. Bonds with a face value of $200,000 were issued at 103. The entry to
record the issuance will include a credit to the Bonds Payable account for;
2. On December 31, 2010, a corporation issued $200,000 face value, 12
'percent bonds that mature 10 years from the date of issue. The issue price
was 97. If t~e
firm uses the straight-line method of amortization, interest
expense for 2011 will be reported at:
3. The Premium on Bonds Payable account is shown in the:
a. Current Assets section of the balance sheet.
b. Current Liabilities section of the balance sheet.
c. Long-Term Liabilities section of the balance sheet.
d.Revenue section of the income statement.
4. The entry to record the adjustment for accrued bond interest includes a
debit to and a credit to _
a. Bond Interest Expense; Cash
·b. Bond Interest Expense; Bond Interest Payable
c.Bond Interest Payable; the Bond Interest Expense
d. Bond lnterest Expense; Bonds Payable
5.Bonds with a face value of $400,000 were issued at 98. The entry to record
the issuance will include a credit to the Bonds Payable account for:
6.When the issuing corporation has the right to require the owners to
surrender the bonds for payment before the maturity date of the bonds,
the bonds are referred to as bonds.
7. Retained earnings are often appropriated while the bonds are
outstanding. Which of the following is a reason for the appropriation?
a. Corporation man~gementwants to protect the bondholders.
b.The bond contract or the board of directors requires it.
c. Either a or b could be a reason.
d. Neither a nor b could be a reason.
8.Retained Earnings Appropriated for Bond Retirement appears as a
separate line item on the:
a. Income Statement.
b. Balance Sheet.
c. Bond Interest Reconciliation Schedule.
d. Statement of Cash Flows.
9. The amortization of the bond discount the carrying value of
the bond, while the amortization of the bond premium the
carrying value of the bond.
a. decreases; increases
b. increases; decreases
c. Increases; mcreases
d. decreases; decreases
10.When bonds mature, a corporation will pay the bondholders the:
a. current market value of the bonds.
b. face amount plus the original premium or minus the original
c. face amount plus the interest accru~since the date the
bonds were issued.
d. face amount of the bonds.
11. If bonds are issued for a price below their face value, the bond discount
a. charged to expense on the date the bonds are issued.
b. amortized over the life of the bond issue.
c. shown as an addition to Bonds Payable in the Long-Term
Liabilities section of the balance sheet.
d. shown as a current liability on the balance sheet.
12. A corporation paid $104,000 to retire bonds with a face value of $100,000
and an unamortized premium balance of $3,000. The entry to record the
early retirement of the bonds will include the recognition of a loss of:
13.Which of the following is NOT a disadvantage of raising capital through
the issue of bonds payable?
a.The bonds are classified as a long~term
b. Interest must be paid even if the firm suffers a loss.
c. The face amount must be repaid at maturity.
d. interest is deductible for income tax purposes.
14. When bonds are issued at a premium, the bond premium:
a.reduces the amount of interest expense over the life of the
b.increases the amount of interest expense over the life of the
c. does not change the amount of interest expense over the life
of the bonds.
d. is charged to interest expense when the bond is issued.
15. A bond sinking fund investment is started on January 5, 2010, by
transferring $10,000 in cash to the fund. This $10,000 is invested and earns
$1,100 during 2010. The entry to record the earnings made on the sinking
fund investment includes a debit to and a credit to
a. Cash for $1.100; lncome from Sinking Fund Investment for
b. Cash for $1,100; Bond Sinking Fund Investment for $1,100
c. Bond Sinking Fund Investment for $1,100; Income from
Sinking Fund Investment for $1,100
d. Cash for $1,100; Interest Income for $1,100
16. The corporation must maintain a subsidiary ledger showing who owns
the bonds and is entitled to receive interest payments if the bonds are
17. Using borrowed funds to earn a profit higher than the interest charged for
borrowing is called:
d. secured borrowing.
18. Bonds issued at a premium are:
a. traded for stock.
b. sold at face value.
c. sold at less than face value.
d. sold for more than face value.
19.If market interest rates are higher than the rate offered on the bonds being
sold, they will be sold at:
a. a premIum.
b. a discount.
c. face value.
d. a loss.
20 Bonds that are payable over a period of years are called bonds.
1.Trend analysis looks at:
a. selected ratios over a period of time.
b. two years of information for comparison.
c. two or more companies for comparison.
d. profitabitity by industry.
2. A firm has Iiabitities of $60,000 and stockholders' equity of $180,000. The
percentage of total liabil ities to total assets-is:
a. 25 percent.
c. 50 percent.
d. 75 percent.
3.Comparing the amount of change in a balance sheet item from a base year
to the current year is analysis.
4.Vertical analysis of income statement data most often involves a
comparison of each income statement item with:
b. gross profit on sales.
c. net income before taxes.
d. net income after taxes.
5.A firm had retained earnings of $100,000 in 2009 and $125,000 in 2010.
The increase in retained earnings from 2009 to 2010 is:
6.In vertical analysis of the balance sheet, each item is expressed as a
d. total assets or of total liabilities and stockholders' equity.
7. A company has total assets of $120,000, current assets of $80,000, total
Iiabil ilies of $50,000, and current liabilities of $25,000. What is the current ratio?
b. 3.20 to 1
d. 1.60 to 1
8. A company's January 1 balance in Merchandise Inventory is $40,000. The
December 31 balance is $35,000. Cost of goods sold is $220,000. The company's inventory turnover is:
a. 17.05 to 1.
b. 6.29 to 1.
c. 5.87 to 1.
d. 18.18 to 1.
9. Which of the following is a ratio that measures financial strength?
a. Ratio of stockholders' equity to total liabilities
b. Current ratio
c. Working capital
d. Rate of return on sales
10.If current assets are $90/000 and total assets are $270,000, what percentage
of total assets are current assets?
b. 30 percent
c. 25 percent
11.If the comparative balance sheet shows the amount and percentage of
decrease in merchandise inventory from 2009 to 2010, the firm llsed
Use the following information to answer questions 12, 13, and 14.
The following financial data was taken from a company's balance sheet
and notes to the financial statements.
Accounts Payable $140,000
Bonds Payable, 2020 100,000
Common Stock ($25 par value) 200,000
Retained Earnings 230,000
Market price of the common stock on December 31 was $50.
12.The ratio of stockholders' equity to total liabilities is:
__a. 0.64 to 1.
__b. 0.83 to 1.
__c. 1.79 to 1.
__d. 3.07 to 1.
13. The ratio of stockholders' equity to total equities is:
__ a. 0.64 to 1.
__b. 0.83 to 1.
__d. 3.07 to 1.
14. The book value per share of common stock is:
Use the following information to answer questions 15, 16, and 17.
The following financial data was taken from a firm's balance sheet.
Accounts Receivable (Net) 160,000 .
Merchandise Inventory 310,000
Property, Plant, and Equipment (Net) 400,000
Accounts Payable 120,000
Bonds Payable, 2025 100,000
15. Working capital is:
16.The current ratio is:
a. 1.67 to 1.
b.4.14 to 1.
c. 0.91 to 1.
d.4.25 to 1.
17. The acid test ratio is:
a.1.67 to 1.
b. 4.14 to 1.
c.0.91 to 1.
d. 4.25 to 1.
18.A measure of the speed with which sales on account are collected is a ratio
a. the acid test ratio.
b.accounts receivable turnover.
e. the current ratio.
d. inventory turnover.
19.The ability of a business to pay its debts when due is known as:
20.The ratio that measures the effectiveness of management in utilizing
business assets to generate profits is the:
a. price earnings ratio.
b. rate of return on total assets.
c. book value per share of common stock.
d. acid-test ratio.