2251 Fall 2013: Review Document

Name: ___________________________________ Date: ______________

1. Dawson's Delivery Service purchased equipment for $2,500. Dawson paid $500 in cash and
signed a note for the balance. Dawson debited the Equipment account, credited Cash and
A) nothing further must be done.
B) debited the Dawson, Capital account for $2,000.
C) credited another asset account for $500.
D) credited a liability account for $2,000.

2. The accounting process involves all of the following except

A) identifying economic transactions that are relevant to the business.
B) communicating financial information to users by preparing financial reports.
C) recording nonquantifiable economic events.
D) analyzing and interpreting financial reports.

3. Denton Company showed the following balances at the end of its first year.

What did Denton Company show as total credits on its trial balance?
A) $30,100
B) $29,400
C) $28,700
D) $30,800

4. Benson Company began the year with owner's equity of $175,000. During the year, the
company recorded revenues of $250,000, expenses of $190,000, and had owner drawings of
$20,000. What was Benson's owner's equity at the end of the year?
A) $255,000
B) $215,000
C) $405,000
D) $235,000

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5. The cost principle requires that when assets are acquired, they be recorded at
A) appraisal value.
B) price paid.
C) market value.
D) list price.

6. A T-account is
A) a way of depicting the basic form of an account.
B) what the computer uses to organize bytes of information.
C) a special account used instead of a trial balance.
D) used for accounts that have both a debit and credit balance.

7. The economic entity assumption requires that the activities

A) of different entities can be combined if all the entities are corporations.
B) must be reported to the Securities and Exchange Commission.
C) of a sole proprietorship cannot be distinguished from the personal economic events of
its owners.
D) of an entity be kept separate from the activities of its owner.

8. The normal balance of any account is the

A) left side.
B) right side.
C) side which increases that account.
D) side which decreases that account.

9. The basic accounting equation cannot be restated as

A) Assets – Liabilities = Owner's Equity.
B) Assets – Owner's Equity = Liabilities.
C) Owner's Equity + Liabilities = Assets.
D) Assets + Liabilities = Owner's Equity.

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10. In the first month of operations for Pocket Industries, the total of the debit entries to the
cash account amounted to $8,000 ($4,000 investment by the owner and revenues of
$4,000). The total of the credit entries to the cash account amounted to $5,000 (purchase of
equipment $2,000 and payment of expenses $3,000). At the end of the month, the cash
account has a(n)
A) $2,000 credit balance.
B) $2,000 debit balance.
C) $3,000 debit balance.
D) $3,000 credit balance.

Use the following to answer questions 11-12.

Benny's Repair Shop started the year with total assets of $100,000 and total liabilities of
$80,000. During the year, the business recorded $210,000 in revenues, $110,000 in
expenses, and owner drawings of $20,000.

11. Owner's equity at the end of the year was

A) $120,000.
B) $100,000.
C) $80,000.
D) $90,000.

12. The net income reported by Benny's Repair Shop for the year was
A) $80,000.
B) $100,000.
C) $60,000.
D) $190,000.

13. Sales revenue less cost of goods sold is called

A) gross profit.
B) net profit.
C) net income.
D) marginal income.

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14. If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then
the
A) Merchandise Inventory account will be increased.
B) Merchandise Inventory account will not be affected.
C) seller will bear the freight cost.
D) carrier will bear the freight cost.

Use the following to answer questions 15-16.

During 2008, Salon Enterprises generated revenues of $60,000. The company’s

expenses were as follows: cost of goods sold of $30,000, operating expenses of
$12,000 and a loss on the sale of equipment of $2,000.

15. Salon's gross profit is

A) $60,000.
B) $30,000.
C) $18,000.
D) $16,000.

16. Salon's net income is

A) $60,000.
B) $30,000.
C) $18,000.
D) $16,000.

17. The journal entry to record a return of merchandise purchased on account under a periodic
inventory system would be

A) a
B) b
C) c
D) d

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18. Under a periodic inventory system, acquisition of merchandise is debited to the

A) Merchandise Inventory account.
B) Cost of Goods Sold account.
C) Purchases account.
D) Accounts Payable account.

19. Net sales is sales less

A) sales discounts.
B) sales returns.
C) sales returns and allowances.
D) sales discounts and sales returns and allowances.

20. Westcoe Company's goods in transit at December 31 include:

sales made purchases made
(1) FOB destination (3) FOB destination
(2) FOB shipping point (4) FOB shipping point
Which items should be included in Westcoe's inventory at December 31?
A) (2) and (3)
B) (1) and (4)
C) (1) and (3)
D) (2) and (4)

21. Cost of goods sold is computed from the following equation:

A) beginning inventory – cost of goods purchased + ending inventory.
B) sales – cost of goods purchased + beginning inventory – ending inventory.
C) sales + gross profit – ending inventory + beginning inventory.
D) beginning inventory + cost of goods purchased – ending inventory

22. Of the following companies, which one would not likely employ the specific identification
method for inventory costing?
A) Music store specializing in organ sales
B) Farm implement dealership
C) Antique shop
D) Hardware store

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23. In periods of rising prices, the inventory method which results in the inventory value on the
balance sheet that is closest to current cost is the
A) FIFO method.
B) LIFO method.
C) average-cost method.
D) tax method.

24. If beginning inventory is understated by $10,000, the effect of this error in the current
period is

A) a
B) b
C) c
D) d

25. The cost flow method that often parallels the actual physical flow of merchandise is the
A) FIFO method.
B) LIFO method.
C) average-cost method.
D) gross profit method.

26. Internal controls are concerned with

A) only manual systems of accounting.
B) the extent of government regulations.
C) safeguarding assets.
D) preparing income tax returns.

27. The control principle related to not having the same person authorize and pay for goods is
known as
A) establishment of responsibility.
B) independent internal verification.
C) segregation of duties.
D) rotation of duties.

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28. Which one of the following is not an objective of a system of internal controls?
A) Safeguard company assets
B) Overstate liabilities in order to be conservative
C) Enhance the accuracy and reliability of accounting records
D) Reduce the risks of errors

29. Replenishing the petty cash fund requires

A) a debit to Cash.
B) a credit to Petty Cash.
C) a debit to various expense accounts.
D) no accounting entry.

30. Entries are made to the Petty Cash account when

A) establishing the fund.
B) making payments out of the fund.
C) recording shortages in the fund.
D) replenishing the fund.

31. A $100 petty cash fund has cash of $15 and receipts of $80. The journal entry to replenish
the account would include a credit to
A) Cash for $85.
B) Petty Cash for $85.
C) Cash Over and Short for $5.
D) Cash for $80.

32. The size of the petty cash fund is dependent on

A) the wishes of the custodian of the fund.
B) anticipated disbursements for the year.
C) anticipated disbursements for a three- to four-week period.
D) the size of the regular cash account.

33. A debit balance in Cash Over and Short is reported as a

A) contra asset.
B) miscellaneous asset.
C) miscellaneous expense.
D) miscellaneous revenue.

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34. Notification by the bank that a deposited customer check was returned NSF requires that
the company make the following adjusting entry:

A) a
B) b
C) c
D) d

35. If an account is collected after having been previously written off,

A) the allowance account should be debited.
B) only the control account needs to be credited.
C) both income statement and balance sheet accounts will be affected.
D) there will be both a debit and a credit to accounts receivable.

36. Long Company uses the percentage of sales method for recording bad debts expense. For
the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates
that 1% is the sales percentage to use. What adjusting entry will Long Company make to
record the bad debts expense?

A) a
B) b
C) c
D) d

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37. The direct write-off method of accounting for bad debts

A) uses an allowance account.
B) uses a contra-asset account.
C) does not require estimates of bad debt losses.
D) is the preferred method under generally accepted accounting principles.

38. In reviewing the accounts receivable, the cash realizable value is $16,000 before the write-
off of a $1,500 account. What is the cash realizable value after the write-off?
A) $16,000
B) $1,500
C) $17,500
D) $14,500

39. A 60-day note receivable dated June 13 has a maturity date of

A) August 13.
B) August 12.
C) August 11.
D) August 10.

40. The maturity value of a $90,000, 10%, 60-day note receivable dated July 3 is
A) $90,000.
B) $99,000.
C) $105,000.
D) $91,500.

41. The interest on a $4,000, 6%, 60-day note receivable is

A) $240.
B) $40.
C) $80.
D) $120.

42. A current liability is a debt that can reasonably be expected to be paid

A) within one year.
B) between 6 months and 18 months.
C) out of currently recognized revenues.
D) out of cash currently on hand.

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43. Which one of the following items is not a consideration when recording periodic
depreciation expense on plant assets?
A) Salvage value
B) Estimated useful life
C) Cost
D) Cash needed to replace the plant asset

44. Identify the item below where the terms are not related.
A) Franchise—depreciation
B) Oil well—depletion
C) Copyright—amortization
D) Equipment—depreciation

45. Interline Trucking purchased a tractor trailer for $98,000. Interline uses the units-of-activity
method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its
12-year useful life. Salvage value is estimated to be $14,000. If the truck is driven 90,000
miles in its first year, how much depreciation expense should Interline record?
A) $7,000
B) $8,820
C) $7,560
D) $8,167

46. Depreciation is a process of

A) asset devaluation.
B) cost accumulation.
C) cost allocation.
D) asset valuation.

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47. A cash register tape shows cash sales of $1,500 and sales taxes of $120. The journal entry
to record this information is

A) a
B) b
C) c
D) d

48. The outstanding stock is composed of 10,000 shares of $100 par, cumulative preferred 5%
stock, !and 50,000 shares of $20 par common stock. Preferred dividends have been paid every
year !except for the preceding two years and the current year. If $145,000 is to be distributed
as a !dividend for the current year, what total amount will be distributed to the preferred
stockholders?
A) $75,000
B) $0
C) $145,000
D) $150,000

49. What is the total stockholders’ equity based on the following account balances?
!Common Stock!!!!$400,000
!Paid-In Capital in Excess of Par!!$ 40,000
!Retained Earnings!!!$190,000
!Treasury Stock!!!!$ 20,000
A) $640,000
B) $630,000
C) $610,000
D) $650,000

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50. Reeves Company originally issued 2,000 shares of $10 par value common stock for $60,000
($30 per share). Reeves subsequently purchases 200 shares of treasury stock for $27 per
share and resells the 200 shares of treasury stock for $29 per share. In the entry to record
the sale of the treasury stock, there will be a
A) credit to Common Stock for $5,400.
B) credit to Treasury Stock for $2,000.
C) debit to Paid-In Capital in Excess of Par Value of $6,000.
D) credit to Paid-In Capital from Treasury Stock for $400.

51. When the bonds are sold for more than their face value, the carrying value of the bonds is equal
to
A) face value
B) face value plus the unamortized discount
C) face value minus the unamortized premium
D) face value plus the unamortized premium

52. The following selected amounts are available for Sanders Company.
Retained earnings (beginning) $1,000
Net loss 100
Cash dividends declared 100
Stock dividends declared 50
What is its ending retained earnings balance?
A) $850
B) $900
C) $750
D) $800

Use the following to answer questions 53-55.

Triad Corporation's December 31, 2008 balance sheet showed the following:

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53. Triad declared and paid a $25,000 cash dividend on December 15, 2008. If the company's
dividends in arrears prior to that date were $6,000, Triad's common stockholders received
A) $19,000.
B) $9,000.
C) $11,000.
D) no dividend.

54. Triad's total paid-in capital was

A) $15,620,000.
B) $15,830,000.
C) $15,410,000.
D) $9,020,000.

55. Triad's total stockholders' equity was

A) $18,380,000.
B) $15,620,000.
C) $18,170,000.
D) $17,910,000.

56. Mendez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2008, at
103. The journal entry to record the issuance will show a
A) debit to Cash of $2,000,000.
B) credit to Premium on Bonds Payable for $60,000.
C) credit to Bonds Payable for $2,030,000.
D) credit to Cash for $2,060,000.

57. Bryce Company has $500,000 of bonds outstanding. The unamortized premium is $7,200.
If the company redeemed the bonds at 101, what would be the gain or loss on the
redemption?
A) $2,200 gain
B) $2,200 loss
C) $5,000 gain
D) $5,000 loss

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58. $3 million, 10%, 10-year bonds are issued at face value. Interest will be paid semi-annually.
When calculating the market price of the bond, the present value of
A) $300,000 received for 10 periods must be calculated.
B) $3 million received in 10 periods must be calculated.
C) $3 million received in 20 periods must be calculated.
D) $150,000 received for 10 periods must be calculated.

59. Either the straight-line method or the effective-interest method of amortization will always
result in
A) the same amount of interest expense being recognized over the term of the bonds.
B) the same amount of interest expense being recognized each year.
C) more interest expense being recognized than if premium or discounts were not
amortized.
D) the same carrying value each year during the term of the bonds.

60. The market price of a bond is the

A) present value of its principal amount at maturity plus the present value of all future
interest payments.
B) principal amount plus the present value of all future interest payments.
C) principal amount plus all future interest payments.
D) present value of its principal amount only.

61. The statement of cash flows should help investors and creditors assess each of the
following except the
A) entity's ability to generate future income.
B) entity's ability to pay dividends.
C) reasons for the difference between net income and net cash provided by operating
activities.
D) cash investing and financing transactions during the period.

62. If a gain of $10,000 is incurred in selling (for cash) office equipment having a book value of
$100,000, the total amount reported in the cash flows from investing activities section of
the statement of cash flows is
A) $90,000.
B) $110,000.
C) $100,000.
D) $10,000.

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63. Based on the following information, what is Company B's price-earnings ratio?
!!!! Comapny B
Market price per share!!! $85.00
Earning per share $11.00
Dividends per share: $ 0.10
Investor's cost per share $50.00
A) 4.53
B) 7.73
C) 500
D) 850

64. Vertical analysis is also called

A) common size analysis.
B) horizontal analysis.
C) ratio analysis.
D) trend analysis.

65. Which of the following is NOT included in the computation of the quick ratio?
A) inventory
B) marketable securities
C) accounts receivable
D) cash

66. The net income reported on the income statement for the current year was $275,000.
Depreciation recorded on fixed assets and amortizations of patents for the year were
$40,000 and $9,000, respectively. Balances of current asset and current liability accounts at
the end and beginning of the year are as follows:
End Beginning
Cash $50,000 $60,000
Accounts Receivable $112,000 $108,000
Inventories $105,000 $93,000
Prepaid Expenses $4,500 $6,500
Accounts Payable (Merchandise Creditors) $75,000 $89,000

What is the amount of cash flows from operating activities reported on the statement of
cash flows prepared by the indirect method?
A) $198,000
B) $324,000
C) $352,000
D) $296,000

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Use the following to answer questions 67-68.

Joy Elle's Vegetable Market had the following transactions during 2008:
1. Issued $25,000 of par value common stock for cash.
2. Repaid a 6 year note payable in the amount of $11,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $1,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Acquired an investment in IBM stock for cash of $6,000.

67. What is the net cash provided by financing activities?

A) $13,000
B) $25,000
C) $14,000
D) $9,000

68. What is the net cash provided by investing activities?

A) $6,000
B) $16,000
C) ($3,000)
D) $3,000

69. The formula for horizontal analysis of changes since the base period is the current year
amount
A) divided by the base year amount.
B) minus the base year amount divided by the base year amount.
C) minus the base year amount divided by the current year amount.
D) plus the base year amount divided by the base year amount.

70. When performing vertical analysis, the base amount for administrative expense is generally
A) administrative expense in a previous year.
B) net sales.
C) gross profit.
D) fixed assets.

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71. DV's Pest Control Products has the following information available:

Net Income $15,000

Cash Provided by Operations 21,000
Cash Sales 65,000
Capital Expenditures 11,000
Dividends Paid 3,000

What is DV's free cash flow?

A) $18,000
B) $10,000
C) $7,000
D) $1,000

72. Silva Corporation reported net sales of $240,000, $420,000, and $540,000 in the years
2007, 2008, and 2009 respectively. If 2007 is the base year, what is the trend percentage for
2009?
A) 129%
B) 135%
C) 164%
D) 225%

Use the following to answer question 73.

Waters Department Store had net credit sales of $12,000,000 and cost of goods sold of
$9,000,000 for the year. The average inventory for the year amounted to $2,000,000.

73. Inventory turnover for the year is

A) 6 times.
B) 10.5 times.
C) 4.5 times.
D) 3 times.

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74. Selected transactions for the Eldon Company are listed below.
1. Collected accounts receivable.
2. Declared and paid dividends on common stock.
3. Sold long-term investments for cash.
4. Issued stock for equipment.
5. Repaid five year note payable.
6. Paid employee wages.
7. Converted bonds payable to common stock.
8. Acquired long-term investment with cash.
9. Sold buildings and equipment for cash.
10. Sold merchandise to customers.

NOTE: Be as clear as possible in the text box so that maximum points can be
awarded (lay it out easily for me to read).

Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a
financing activity, or (d) a noncash investing and financing activity.

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Answer Key - 2251 Fall 2013 Rvw Doc

1. D
2. C
3. B
4. B
5. B
6. A
7. D
8. C
9. D
10. C
11. B
12. B
13. A
14. A
15. B
16. D
17. A
18. C
19. D
20. B
21. D
22. D
23. A
24. C
25. A
26. C
27. C
28. B
29. C
30. A
31. A
32. C
33. C
34. A
35. D
36. B
37. C
38. A
39. B
40. D
41. B

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42. A
43. D
44. A
45. C
46. C
47. B
48. C
49. C
50. D
51. D
52. C
53. C
54. A
55. D
56. B
57. A
58. C
59. A
60. A
61. A
62. B
63. B
64. A
65. A
66. D
67. A
68. C
69. B
70. B
71. C
72. D
73. C
74. (5 min.)
1. (a) Operating activity 6. (a) Operating activity
2. (c) Financing activity 7. (d) Noncash activity
3. (b) Investing activity 8. (b) Investing activity
4. (d) Noncash activity 9. (b) Investing activity
5. (c) Financing activity 10. (a) Operating activity

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