Practice Final Exam – Acct 284
1. Matlock Company reported total sales revenue of $55,000 and total expenses amounting to $45,000 on its income statement for the year ended December 31, 2008. During 2008, accounts receivable decreased by $4,000, merchandise inventory decreased by $6,000, accounts payable increased by $2,000 and depreciation of $8,000 was recorded. Therefore, based on this information, the net cash flow from operating activities for 2008 was:
A. $10,000
B. $18,000
C. $26,000
D. $30,000
2. The principle which holds that all of the expenses incurred in earning revenue should be identified with the revenue recognized and reported for the same period is the
A. Revenue principle
B. Conservatism principle
C. Timing principle
D. Matching principle
3. During 2008, Abby Corporation reacquired some shares of its own common stock. It records this treasury stock at cost. What effect did this transaction have on 2008 stockholders’ equity and assets, respectively?
A. Stockholders’ Equity: Decrease; Assets: No effect
B. Stockholders’ Equity: Increase; Assets: No effect
C. Stockholders’ Equity: Decrease; Assets: Decrease
D. Stockholders’ Equity: Increase; Assets: Decrease
4. Schager Company purchased a computer system on January 1, 2006, at a cash cost of $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double-declining balance method. Depreciation expense for the second year will be
A. $5,000
B. $4,000
C. $4,400
D. $3,520
5. If a bond is sold (issued) above its face value (par), the stated rate of interest was
A. higher than market rate
B. lower than market rate
C. equal to market rate
D. not enough information to tell
6. Which of the following statements is incorrect?
A. Issuance of stock creates cash inflow connected to financing activities
B. Payment of a cash dividend creates cash outflow connected to investing activities
C. Repurchase of the company’s stock, called treasury stock, creates cash outflow connected to financing activities
D. All of the above are correct
7. An example of an investing transaction would be
A. purchasing equipment for cash
B. buying inventory from a supplier on credit
C. selling stock to investors for cash
D. all of the above are investing activities
8. The effect of a stock split is to
A. reduce the amount of retained earnings and increase total contributed capital
B. reduce the amount of retained earnings and reduce the amount of total assets
C. reduce the amount of retained earnings and reduce total contributed capital
D. None of the above is correct
9. If a bond payable is sold (issued) at a discount, the amount of carrying value (long-term liability) reported on the subsequent balance sheets
A. remains constant
B. increases each year
C. decreases each year
D. changes from year to year depending upon the market rate of interest each year
10. During 2006, Avalon Company recorded estimated bad debt expense of $10,000 and wrote-off an uncollectible account receivable amounting to $15,000. Assuming a January 1, 2006, balance in the allowance for doubtful accounts of $18,000, the December 31, 2006 balance in the allowance account would be
A. $23,000
B. $15,000
C. $13,000
D. $28,000
11. Newton Company sold its $1,000,000, 7%, ten-year bonds to the public on January 1, 2006. The bonds pay interest annually, beginning on December 31, 2006. Newton received $1,153,420 in cash at the issuance of the bonds. The market rate of interest when the bonds were sold was 5%. Compute the amount of the premium that Newton Corporation should amortize on December 31, 2006, assuming the “effective-interest” method is used.
A. $15,342
B. $14,865
C. $12,329
D. $10,276
12. Bateman Company reported total stockholders’ equity of $58,000 on its balance sheet dated December 31, 2005. During 2005, it reported net income of $4,000, declared and paid a cash dividend of $2,000, and issued additional capital stock of $20,000. Therefore, total stockholders’ equity at January 1, 2005, was
A. $38,000
B. $36,000
C. $34,000
D. $16,000
13. Which of the following groups has primary responsibility for information contained in the financial statements?
a. The company’s auditors
b. The company’s investors
c. The SEC
d. The company’s management
14. Which of the following is the entry to be recorded by Company A on September 1, when they pay $6000 in advance for September, October, and November rent?
a. Debit Prepaid Rent; Credit Cash
b. Debit Cash; Credit Prepaid Rent
c. Debit Accounts Payable; Credit Cash
d. Debit Unearned Rent Revenue; Credit Cash
15. On May 1, Nike, Inc. purchased equipment costs $500,000, paying $200,000 cash and signing a formal promissory note to pay the balance in three years. What affect does this transaction have on the accounting equation?
a. Assets decrease $500,000
b. Assets decrease $200,000
c. Assets increase $500,000
d. Assets increase $300,000
16. Which group of accounts contains only those that normally have debit balance?
a. Retained earnings, cost of goods sold, wages expense
b. Prepaid expenses, wages payable, and contributed capital
c. Cash, utilities expense, accounts receivable
d. Utilities expense, unearned revenue, prepaid expenses
17. Failure to make an adjusting entry to recognize rent revenue receivable would cause
- an understatement of assets, net income, and stockholder’s equity
- an overstatement of assets stockholder’s equity and understatement of net income
- no effect on assets, liabilities, net income, nor stockholder’s equity
- an overstatement of assets, net income, and stockholder’s equity
18. Assume the balance in prepaid insurance is $2,500 but it should be $1,500. The adjusting journal entry should include which of the following?
a. Debit to Prepaid Insurance for $1,000
b. Credit to insurance expense for $1,000
c. Debit to Insurance expense for $1,000
d. Debit to insurance expense for $1,500
19. A deposit in transit on a bank reconciliation should be
a. added to the depositors book cash balance
b. subtracted from the depositors book cash balance
c. added to the bank statement balance
d. subtracted from the bank statement balance
(Use the following information for Questions 20-21)
Turnwell Corporation uses the periodic inventory system. The following information about their inventory is available:
Date Transaction Number of Units Cost per Unit
1/1 Beg Inventory 60 $200
4/12 Purchase 100 $230
7/8 Purchase 50 $210
9/22 Purchase 70 $205
During the year, 130 units were sold at a price of $225 per unit. Round final answers to the nearest dollar
20. What was the ending inventory and cost of goods sold on 12/31 under the LIFO cost flow assumption?
a. $27,150 and $32,700
b. $28,100 and $31,750
c. $32,700 and $27,150
d. $31,750 and $28,100
21. What was the ending inventory and cost of goods sold on 12/31 under the FIFO cost flow assumption?
a. $27,150 and $32,700
b. $28,100 and $31,750
c. $32,700 and $27,150
d. $31,750 and $28,100
22. On January 1, 2008, Company ABC purchased equipment for $70,000. The estimated salvage value is $10,000. The estimated useful life is 12 years. Using STRAIGHT LINE depreciation, how much is the depreciation expense per year?
a. $10,000
b. $1,200
c. $5,000
d. $80,000
23. Which of the following is not an advantage of preferred stock?
a. Right to vote
b. Priority in receiving dividends
c. Preference on asset distributions in the event of the corporation is liquidated
d. All of the above are advantages of preferred stock
24. Which of the following is not added when computing cash flows from operations using the indirect method?
a. the net increase in accounts payable
b. the net decrease in accounts receivable
c. the net decrease in inventory
d. all of the above should be added
25. Which of the following would not appear in the investing section of the statement of cash flows?
a. purchase of inventory
b. interest expense
c. purchase of land
d. all of the above would appear in the investing section
26. Which is a major disadvantage of a corporation?
a. limited liability of owners
b. unlimited liability of owners
c. double taxation
d. none of the above
27. Adjusting entries always affect:
a. only balance sheet accounts
b. only income statement accounts
c. both a balance sheet and a stockholder’s equity account
d. both a balance sheet and an income statement account
28. COGS = $55,000; Net Sales = $120,000; Operating Expenses = $15,000; Income Tax Expense = $10,000; What is gross profit?
a. $65,000
b. $40,000
c. $55,000
d. $105,000
29. When using Vertical Analysis, what is the base for the balance sheet?
a. total liabilities
b. total assets
c. total sales
d. total stockholder’s equity
30. The par value of preferred stock is $20 and the dividend rate is 7%. There are 1,000,000 shares authorized, 900,000 shares issued, and 850,000 shares outstanding. What is the amount of dividend that preferred shareholders could expect to receive this year?
a. $1,260,000
b. $1,400,000
c. $595,000
d. $1,190,000
31. XYZ corporation’s total stockholder’s equity was $450,000 on 12/31/2008. Total revenue for the year was $900,000, total expenses were $750,000, and dividends paid were $50,000. If retained earnings was $150,000 on 01/01/2008, how much was contributed capital on 01/01/2008?
a. $400,000
b. $200,000
c. $350,000
d. $550,000
32. In 2008, Sammy Corp. decided to pay a total of $500,000 in dividends. Use the following information to determine how much should be paid to preferred shareholders and common shareholders: There are 100,000 shares of cumulative preferred stock outstanding with a par value of $10 and a dividend rate of 5%. Dividends have not been paid for 2005, 2006, or 2007. There are 1,000,000 shares of common stock authorized with only 400,000 outstanding at a par value of $0.20. How much in dividends should each class receive?
(Preferred; Common)
a. $50,000; $450,000
b. $20,000; $480,000
c. $200,000; $300,000
d. $420,000; $80,000