1. The accounting profession can be divided into three major categories; specifically, the practice of public accounting, private accounting, and governmental accounting. A somewhat unique and important service of public accountants is:

a.Financial accounting.b.Managerial accounting.c.Auditing.d. Cost accounting.

2. The primary private sector agency that oversees external financial reporting standards is the:

a.Financial Accounting Standards Board.b. Federal Bureau of Investigation.c. General Accounting Office.d. Internal Revenue Service.

3. Which of the following equations properly represents a derivation of the fundamental accounting equation?

a. Assets + liabilities = owner's equity.b. Assets = owner's equity.c. Cash = assets.d. Assets - liabilities = owner's equity.

4. Wilson Company owns land which cost $100,000. If a "quick sale" of the land was necessary to generate cash, the company feels it would receive only $80,000. The company continues to report the asset on the balance sheet at $100,000. This is justified under which of the following concepts?

a. The historical-cost principle.b. The value is tied to objective and verifiable past transactions.c. Neither of the above.d. Both "a" and "b".

5. Retained earnings will change over time because of several factors. Which of the following factors would explain an increase in retained earnings?

a. Net loss.b. Net income.c. Dividends.d. Investments by stockholders.

6. Which of these items would be accounted for as an expense?

a. Repayment of a bank loan.b. Dividends to stockholders.

c. The purchase of land.d. Payment of the current period's rent.

7. Which of the following transactions would have no impact on stockholders' equity?

a. Purchase of land from the proceeds of a bank loan.b. Dividends to stockholders.c. Net loss.d. Investments of cash by stockholders.

8. Which of the following would not be included on a balance sheet?

a. Accounts receivable.b. Accounts payable.c. Sales.d. Cash.

9. Remington provided the following information about its balance sheet:

Cash                                     $   100Accounts receivable                    500Stockholders' equity                    700Accounts payable                       200Bank loans                              1,000

Based on the information provided, how much are Remington's liabilities?

a. $200.b. $900.c. $1,200.d. $1,700.

10. Gerald had beginning total stockholders' equity of $160,000. During the year, total assets increased by $240,000 and total liabilities increased by $120,000. Gerald's net income was $180,000. No additional investments were made; however, dividends did occur during the year. How much were the dividends?

a. $20,000.b. $60,000.c. $140,000.d. $220,000.

11. Financial statement ratio analysis may be undertaken to study liquidity, turnover, profitability, and other indicators. To which does the current ratio most relate?

a. Liquidity

b. Turnoverc. Profitabilityd. Other indicator

12. Zhang Corporation had net income of $100,000, paid income taxes of $30,000, and had interest expense of $8,000. What was Zhang's times interest earned ratio?

a. 12.5b. 16.25c. 17.25d. 17.85

13. Selected information for 20X1 for the Bernstein Company is as follows:Cost of goods sold $6,000,000Average inventory $2,000,000Net sales $8,000,000Average receivables $3,000,000Net income $1,000,000Assuming a 360-day business year, what was the inventory turnover ratio for Bernstein?

a. 3b. 4c. 5d. 6

14. Thompson Corporation wrote off a $200 uncollectible account receivable against the $2,400 balance in its Allowance for Bad Debts account. Compare the current ratio before the write-off (X) with the current ratio after the write-off (Y).

a. X greater than Y b. X equals Yc. X less than Yd. Cannot be determined

15. Ames Corporation's net accounts receivable were $750,000 on December 31, 20X1, and $1,250,000 on December 31, 20X2. Net cash sales for 20X2 were $3,300,000. The accounts receivable turnover ratio for 20X2 was 16. What were the total net sales for 20X2?

a. $12,800,000 b. $16,000,000c. $16,100,000d. $19,300,000

16. On a statement of cash flows, which of the following types of activities would not be disclosed in a separate section?

a. Operating activitiesb. Investing activitiesc. Financing activitiesd. Contractual activities

17. Which of the following activities would generally be regarded as a financing activity in preparing a statement of cash flows?

a. Dividend distribution b. Proceeds from the sale of stocks of other firmsc. Loans made by the entity to other businessesd. Employees' salaries and wages paid

18. In preparing the statement of cash flows, how should noncash investing/financing activities be reported?

a. Not be reported b. Be reported in a separate schedule accompanying the statement of cash flowsc. Be reported in the investing activities section of the statement of cash flowsd. Be reported in the financing activities section of the statement of cash flows

19. For purposes of calculating cash receipts from customers, which of the following adjustments should be made to convert accrual basis sales to cash basis sales?

a. Add an increase in accounts receivable to accrual basis sales b. Subtract an increase in accounts receivable from accrual basis salesc. Add cash in bank to accrual basis salesd. Add the change in cash to the accrual basis sales

20. If the indirect approach for the statement of cash flows is presented, which of the following items should be subtracted from accrual basis net income to derive cash flow from operating activities?

a. Gains on the sale of long-term investments b. Losses on the sale of long-term investmentsc. Depreciation expensed. Amortization expense

21. As a generalization, the adjustment of accrual basis income to cash provided by operating activities requires which of the following to be added?

a. Increases in current assets related to operating activities b. Increases in current liabilities related to operating activitiesc. Decreases in current liabilities related to operating activitiesd. Both (a) and (c) are correct.

22. When preparing a statement of cash flows under the indirect method, supplemental disclosure should be made for which of the following?

a. Net cash consumed by operating activities b. Cash dividend distributionsc. Cash paid for interest and taxesd. All of the above

23. Wilkin Corporation reported accrual basis sales of $200,000, cost of goods sold of $80,000, and operating expenses, taxes, and interest summing to $30,000. In evaluating Wilkin's comparative balance sheets, it is determined that accounts receivable increased $10,000, inventory increased $5,000, and accounts payable decreased $7,000. There were no changes in prepaid expenses nor were there any interest or taxes payable at the beginning or end of the year. How much was cash basis income for Wilkin Corporation for the year?

a. $68,000 b. $82,000c. $105,000d. $112,000

24. Dixon Corporation reported 20X1 accrual basis net income of $50,000. Relevant information to adjust accrual basis income to cash basis income follows.Depreciation expense $12,000Loss on the sale of land 16,000Increase in accounts receivable 8,000Decrease in merchandise inventory 4,000Increase in accounts payable 3,000Increase in taxes payable 2,000How much is net cash provided by operating activities?

a. $47,000 b. $49,000c. $51,000d. $79,000

25. In preparing a work sheet for the statement of cash flows, the lower portion corresponds to a statement of cash flows prepared using the indirect method. Items in the debit column of this lower portion most closely correspond to items which:

a. Explain increases in cash. b. Explain decreases in cash.c. Relate to financing activities.d. Relate to investing activities.

 

SOLUTIONS

Multiple choice:

1. c. Auditing, along with income tax and management advisory activities, are the major services offered by public accountants. Managerial and cost accounting are generally regarded as private accounting functions. Public accountants deal with financial accounting issues, but "financial accounting" is more of a concept than a "service."

 2. a. The Financial Accounting Standards Board is the private sector oversight group for accounting standards. The Federal Bureau of Investigation is a government organization that employs many accountants, but has little to do with accounting rule development. The General Accounting Office and Internal Revenue Service are also government agencies. The GAO serves Congress and the IRS administers tax law.

 3. d. The normal expression of the accounting equation is: assets = liabilities + owners' equity. The only choice which is a correct mathematical expression is "d." In "d," liabilities are subtracted from both sides of the "normal" accounting equation.

 4. d. Both of these concepts justify the continued reporting at $100,000, as this amount is an objective and verifiable historical-cost measurement.

 5. b. Net income would cause increases in retained earnings. In contrast, losses and dividends are factors that will cause decreases in retained earnings.  Investments by stockholders' would cause an increase in capital stock, not retained earnings.

 6. d. Payment of rent for the current period would be accounted for as rent expense. The repayment of a bank loan is the reduction of a liability, dividends are a distribution of equity, and the purchase of land establishes an asset.

7. a. The purchase of land would cause assets to increase and liabilities to increase. Dividends and net losses cause reductions in total equity, while investments cause increases.

 8. c. Sales is a revenue item for the income statement. Accounts receivable and cash are assets and accounts payable is a liability.

9. c. $1,200. The only liabilities listed are accounts payable ($200) and bank loans ($1,000).

10. b. $60,000. Because total assets increased $240,000 and liabilities increased $120,000, the increase in equity must have been $120,000 ($240,000 - $120,000). Net income increases equity ($180,000) and dividends decrease equity. The increase in equity of $120,000 is therefore comprised of $180,000 in income (add) and $60,000 of dividends (subtract).