1. Communication of economic events is the part of the accounting process that involves
A) identifying economic events.
B) quantifying transactions into dollars and cents.
C) preparing accounting reports.
D) recording and classifying information.
2. The SEC and FASB are two organizations that are primarily responsible for establishing generally accepted accounting principles. It is true that
A) they are both governmental agencies.
B) the SEC is a private organization of accountants.
C) the SEC often mandates guidelines when no accounting principles exist.
D) the SEC and FASB rarely cooperate in developing accounting standards.
3. Revenues would not result from
A) sale of merchandise.
B) issuance of common stock.
C) performance of services.
D) rental of property.
4. The accounting equation for Goodboys Enterprises is as follows:
Assets Liabilities Stockholders' Equity
$120,000 = $60,000 + $60,000
If Goodboys purchases office equipment on account for $12,000, the accounting equation will change to
Assets Liabilities Stockholders' Equity
a. $120,000 = $60,000 + $60,000
b. $132,000 = $60,000 + $72,000
c. $132,000 = $66,000 + $66,000
d. $132,000 = $72,000 + $60,000
5. The usual sequence of steps in the transaction recording process is:
A) journal ? analyze ? ledger.
B) analyze ? journal ? ledger.
C) journal ? ledger ? analyze.
D) ledger ? journal ? analyze.
6. At September 1, 2008, Foli Co. reported retained earnings of $136,000. During the month, Foli generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the amount of retained earnings at September 30, 2008?
7. Which of the following statements is false?
A) Revenues increase stockholders' equity.
B) Revenues have normal credit balances.
C) Revenues are a positive factor in the computation of net income.
D) Revenues are increased by debits.
8. Under accrual-basis accounting
A) cash must be received before revenue is recognized.
B) net income is calculated by matching cash outflows against cash inflows.
C) events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
D) the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
9. The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
A) assets should be matched with liabilities.
B) efforts should be matched with accomplishments.
C) dividends to stockholders should be matched with stockholders' investments.
D) cash payments should be matched with cash receipts.
10. Which statement is correct?
A) As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
B) The use of the cash basis of accounting violates both the revenue recognition and matching principles.
C) The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
D) As long as management is ethical, there are no problems with using the cash basis of accounting.
11. An adjusting entry
A) affects two balance sheet accounts.
B) affects two income statement accounts.
C) affects a balance sheet account and an income statement account.
D) is always a compound entry.
12. Expenses incurred but not yet paid or recorded are called
A) prepaid expenses.
B) accrued expenses.
C) interim expenses.
D) unearned expenses.
13. Unearned revenues are
A) received and recorded as liabilities before they are earned.
B) earned and recorded as liabilities before they are received.
C) earned but not yet received or recorded.
D) earned and already received and recorded.
14. Younger Corporation purchased a one-year insurance policy in January 2008 for $48,000. The insurance policy is in effect from May 2008 through April 2009. If the company neglects to make the proper year-end adjustment for the expired insurance
A) Net income and assets will be understated by $32,000.
B) Net income and assets will be overstated by $32,000.
C) Net income and assets will be understated by $16,000.
D) Net income and assets will be overstated by $16,000.
Use the following to answer questions 15-19:
The following items are taken from the financial statements of Cerner Company for the year ending December 31, 2008:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Retained Earnings (1/1/08) 80,000
Common Stock 22,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/10 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Salaries expense 32,000
Service revenue 133,000
Supplies expense 6,000
15. What is the company's net income for the year ending December 31, 2008?
16. What is the total that would be reported for stockholders' equity at December 31, 2008?
17. What are total current assets at December 31, 2008?
18. What are total current liabilities at December 31, 2008?
19. What is total liabilities and stockholders' equity at December 31, 2008?
20. Which of the following steps in the accounting cycle may be performed more frequently than annually?
A) Prepare a post-closing trial balance
B) Journalize closing entries
C) Post closing entries
D) Prepare a trial balance
21. If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has
A) earned net income for the period.
B) an error because debits do not equal credits.
C) suffered a net loss for the period.
D) to make an adjusting entry.
22. Closing entries are necessary for
A) permanent accounts only.
B) temporary accounts only.
C) both permanent and temporary accounts.
D) permanent or real accounts only.
23. The principle that requires circumstances and events that make a difference to financial statement users be reported is the
A) cost principle.
B) full disclosure principle.
C) matching principle.
D) revenue recognition principle.
24. Constraints in accounting include each of the following except
D) All of these are constraints.
25. Which one of the following is not an objective of financial reporting according to the conceptual framework?
A) To provide information that will increase the value of the company
B) To provide information in assessing future cash flows
C) To provide information that is useful for making investment and credit decisions
D) To provide information that identifies economic resources, the claims to those resources, and the changes in those resources and claims
26. The time period assumption recognizes that
A) revenue should be recognized in the accounting period in which it is earned.
B) the economic life of a business can be divided into artificial time periods.
C) expenses should be recognized in the period of their association with earned revenue.
D) economic events can be identified with a particular unit of accountability.
27. Profit margin is a measure of
28. Zendejas Company purchased a ruler for $2.00. The ruler is expected to last for ten years. Tony, the accountant, expensed the cost of the ruler in the year of the purchase. Which constraint has Tony taken into account when making his accounting decision?
B) Faithful Representation
29. Allowing only designated personnel to handle cash receipts is an example of
A) establishment of responsibility.
B) segregation of duties.
C) documentation procedures.
D) independent internal verification.
30. Internal control is defined, in part, as a plan that safeguards
A) all balance sheet accounts.
D) capital stock.
31. An application of good internal control over cash disbursements is
A) following payment, the approved invoice should be stamped PAID.
B) blank checks should be stored in the treasurer's desk.
C) each check should be compared with the approved invoice after the check is issued.
D) check signers should record the cash disbursements.
32. Horizontal analysis evaluates a series of financial statement data over a period of time
A) that has been arranged from the highest number to the lowest number.
B) that has been arranged from the lowest number to the highest number.
C) to determine which items are in error.
D) to determine the amount and/or percentage increase or decrease that has taken place.
Use the following to answer questions 33-39:
The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
I can email you the information (please advise)
33. What is the current ratio for this company?
34. What is the receivables turnover for this company?
A) 2.8 times
B) 2 times
C) 3.4 times
D) 3 times
35. What is the inventory turnover for this company?
A) 2 times
B) 2.25 times
C) 1 time
D) .44 times
36. What is the return on assets for this company?
37. What is the profit margin for this company?
38. What is the return on common stockholders' equity for this company?
39. What is the price-earnings ratio for this company?
A) 6 times
B) 2.5 times
C) 8 times
D) 4 times
40. Which one of the following is primarily interested in the liquidity of a company?
A) Federal government
C) Long-term creditors
D) Short-term creditors
41. Stockholders are most interested in evaluating
A) liquidity and solvency.
B) profitability and solvency.
C) liquidity and profitability.
D) marketability and solvency.
42. Vertical analysis is also known as
A) perpendicular analysis.
B) common size analysis.
C) trend analysis.
D) straight-line analysis.
43. A general rule to use in assessing the average collection period is that
A) it should not exceed 30 days.
B) it can be any length as long as the customer continues to buy merchandise.
C) it should not greatly exceed the discount period.
D) it should not greatly exceed the credit term period.