Name For each question, please circle the best answer. 1.
Which of the financial accounting statements provides information about the financial state of the organization at a specified point in time? a) b) c) d)
2.
Balance Sheet Income Statement Statement of Cash Flows Statement of Shareholders’ Equity ABC company has provided services to customers on account. These customers are expected to pay ABC, but not until next period. What effect would the provision of services have on the following financial statement components in the current period?
a) b) c) d)
Net Income on the Income Statement Increase Increase Increase No impact
Total Assets on Balance Sheet Increase Increase Increase No Impact
Total Shareholders’ Equity on Balance Sheet Increase Increase No Impact Increase
Total Cash Flows on Statement of Cash Flows Increase No Impact No Impact Increase
3. Consider the following totals: Revenues Cost and expenses Other revenues Income taxes Net income
$100,000 $ 45,000 $ 5,000 $ 18,000 $ 42,000
What was the total of operating income? a) $42,000 b) $55,000 c) $60,000 d) $37,000 4.
Which of the following describes how assets are listed on the balance sheet? a) b) c) d)
In alphabetical order In order of magnitude, lowest value to highest value From most liquid to least liquid From least liquid to most liquid
5.
Assets total $450,000, liabilities total $120,000, and contributed capital totals $200,000. What is the dollar amount of retained earnings? a) b) c) d)
6.
$ 80,000 $330,000 $320,000 $130,000 A company purchased a computer, office furniture, and office supplies by issuing a check for $5,000 and a note payable for $19,500. The market value of the items was $26,300. The total recorded value of the items is
a) b) c) d) 7.
$26,300 $19,500 $24,500 $31,300 A company sold 10,000 shares of its common stock for a total of $45,000. What would be the effect on the following financial statement components?
a) b) c) d) 8.
Total Assets on Balance Sheet Increase Increase Increase No Impact
Total Liabilities on Balance Sheet Increase Increase No Impact No Impact
Total Shareholders’ Equity on Balance Sheet Increase No Impact Increase No Impact
The beginning balance of retained earnings was $7,500. Dividends declared and paid to stockholders' were $1,500. The ending balance of retained earnings is $5,000. What was the net income or net loss for the accounting period? a) b) c) d)
net loss of $1,000 net income of $1,000 net loss of $2,000 net income of $2,500
9.
Based on the partial balance sheet information below, and the fact that the company recorded $1,000 as cost of goods sold for the year ended 12/31/2010, how much cash was paid to suppliers during the year ended 12/31/2010? Assume that there were no inventory write-downs during the period.
Inventory Accounts Payable a) b) c) d) 10.
a) b) c) d)
11.
a) b) c) d)
12/31/2009 $180 $110
12/31/2010 $200 $ 70
$1,000 $1,020 $1,060 $ 980 At the beginning of January, Langhurst Company paid $6,000 for insurance for the next four months beginning January 1, $3,000 for advertising to be run from February 1 to March 15, and $8,000 for rent over the next two months beginning January 1. What would be the effect of the January 1 entry on the following financial statement components? Total Assets on Balance Sheet -$17,000 No Impact No Impact -$3,000
Total Liabilities on Balance Sheet No impact +$17,000 No Impact No Impact
Total Cash Flows on Statement of Cash Flows -$17,000 No Impact -$17,000 -$17,000
Net Income on Income Statement -$17,000 -$17,000 No Impact $-3,000
Employees are paid $5,000 on every Friday for a five-day workweek. The accounting period ends on Wednesday, December 31. What would be the effect on the following financial statement components of adjusting for the salaries and benefits expense for the last three days of the accounting period?
Total Assets on Balance Sheet -$5,000 No Impact No Impact -$5,000
Total Liabilities on Balance Sheet No impact +$3,000 +$2,000 No Impact
Total Cash Flows on Statement of Cash Flows -$5,000 No Impact No Impact -$5,000
Net Income on Income Statement -$5,000 -$3,000 -$2,000 No Impact
12.
When a concert promoting company collects cash for tickets sales two months in advance of the show date, what would be the effect on the following financial statement components?
Total Assets on Balance Sheet Increase Increase No Impact No Impact
a) b) c) d) 13.
14.
Total Cash Flows on Statement of Cash Flows Increase Increase No Impact No Impact
Net Income on Income Statement Increase No Impact Decrease No Impact
A company collects $100 cash on an account receivable from a customer for a sale last period. How would the receipt of cash impact the following financial statement components?
Total Assets on Balance Sheet Increase No Impact Decrease No Impact
a) b) c) d)
Total Liabilities on Balance Sheet No impact Increase Increase No Impact
Total Liabilities on Balance Sheet No impact No Impact Decrease No Impact
Total Cash Flows on Statement of Cash Flows Increase Increase Increase No Impact
Net Income on Income Statement Increase No Impact Decrease No Impact
A company is engaged in a long-term construction project, and is paid $150 per year for four years. Total costs to the company are $500, incurred as follows: $200 in year 1; $100 in year 2; $50 in year 3; and $150 in year 4. The company uses the percentage-ofcompletion method using the ratio of total costs incurred to total costs to measure the percentage completed. How much gross profit is recognized in year 3? a) b) c) d)
15.
$ 0 $10 $25 $50 Which of the following is not one of the conditions that would normally be met for revenue to be recognized according to the revenue principle for accrual basis accounting?
a) b) c) d)
The price is determinable Services have been performed Cash has been collected Evidence of an arrangement exists
16. The matching concept determines a) Where on the income statement expenses should be presented b) How costs are allocated between Cost of Goods Sold and General and Administrative Expenses c) The ordering of current assets and current liabilities on the Balance Sheet d) When costs are recognized as expenses on the Income Statement
17.
At December 31, 2011, a company identifies three loss contingencies, with the following characteristics: Likelihood of incurrrence Probable
Litigation Claim Warranty Obligation
Probable
Environmental Damage
Reasonably Possible
Estimability
Best Estimate
Not Reasonably Estimable Reasonably Estimable Reasonably Estimable
$5m $11m $7m
What should be the total liability recorded on the company’s December 31, 2011 balance sheet, related to the above items? a) b) c) d) 18.
$11m $16m $18m $23m At December 31, a company has a balance in their allowance for doubtful accounts of $12,000. Based on an ageing of accounts receivable, the company estimates that $18,000 worth of outstanding accounts receivable will ultimately not be collected, and records the appropriate adjusting entry. How would this entry impact the following financial statement components?
Total Assets on Balance Sheet No Impact No Impact Decrease Decrease
a) b) c) d)
Total Liabilities on Balance Sheet No impact Increase Increase No Impact
Total Cash Flows on Statement of Cash Flows Decrease Decrease No Impact No Impact
Net Income on Income Statement No Impact Decrease No Impact Decrease
On January 1st, a company purchases 1000 units of a new product at $5 per unit. On June 15th, they purchase an additional 2000 units at $8 per unit. A December 31 inventory count shows that 200 units remain in inventory at the end of the year. What is the firm’s cost of goods sold, if the firm uses LIFO (last-in-first-out)?
19.
a) b) c) d)
$19,400 $19,600 $20,000 $21,000
20.
On January 1, a company purchased marketable securities for $500. At December 31, their market value had risen to $550. If the company treats these securities as securities available for sale, how would the adjustment to record the change in market value impact the following financial statement components?
Total Assets on Balance Sheet No Impact No Impact Increase Increase
a) b) c) d)
21.
a) b) c) d) 22.
Total Shareholders’ Equity on Balance Sheet No impact Increase Increase Increase
Total Cash Flows on Statement of Cash Flows Increase Increase No Impact No Impact
Net Income on Income Statement No Impact Increase No Impact Increase
Hanna Company purchased 25% of the common stock of Denver Company on January 1 for $150. The contributed capital balance of Denver Company at this date was $250 and the retained earnings balance was $350. During the year, net income of Denver Company was $120 and dividends declared were $40. Hanna uses the equity method to account for the investment. How much income from this investment will Hanna show on their income statement for the year? $ 0 $ 20 $ 30 $120 On January 1, 2008 a company purchased a new van for $24,000. The van had an expected useful life of three years, and to have a market value at that the end of three years of $9,000. The company used straight-line depreciation. On January 1, 2010, the company sold the van for $11,000. What impact would this have on the firm’s net income, before taxes?
a) b) c) d) 23.
Loss of $13,000 Loss of $3,000 Gain of $2,000 Gain of $3,000 Company P purchases 100% of the outstanding shares of company T for $400. At the time of the acquisition, company T has the following balance sheet information:
Assets Liabilities Shareholders’ Equity
Book Value $300 $200 $100
Market Value $450 $200
On Company P’s consolidated balance sheet immediately after the acquisition, how much goodwill will be recorded relating to the acquisition of company T? a) b) c) d)
$ 0 $150 $300 $400
24. Which of the following is not a financing activity on the statement of cash flows? a) b) c) d) 25.
a) b) c) d) 26.
When the company lends money When the company borrows money When the company pays dividends When the company sells stock to shareholders During the year, the salaries payable account on the balance sheet decreased from $102 to $97. If salaries expense on the income statement was $1,000, how much in salaries would be included in the operating section of the statement of cash flow? $ 0 $ 995 $1,000 $1,005 On January 1, 2011 a company issues bonds with a face value of $1,000,000 for $1,297,549 in cash. The bonds pay a coupon of $50,000 every six months, starting on June 30, 2011 and have a maturity of ten years. The bonds are priced to have a yield of 6% per year, compounded semi-annually. How much interest expense will the company record for the first six months of 2011? Note that no present value computations are necessary to solve this problem.
a) b) c) d) 27.
$30,000 $38,926 $50,000 $77,853 The pension liability reported on the balance sheet includes:
a) Benefits for vested employees measured at current salaries b) Benefits for vested and nonvested employees measured at current salaries c) Benefits for vested employees measured at future salaries AND benefits for nonvested employees measured at current salaries d) Benefits for vested and nonvested employees measured at future salaries 28.
a) b) c) d)
On January 1, 2011, a company purchases a vehicle for $10,000. The vehicle has a five year useful life, and no salvage value. For financial reporting purposes, the firm will record $2,000 of depreciation in 2011. For tax reporting purposes, however, the firm will get a $5,000 tax deduction in 2011. Taken by itself, and assuming a tax rate of 30%, this will most likely create a: $1,500 deferred tax asset $1,500 deferred tax liability $ 900 deferred tax asset $ 900 deferred tax liability
29.
a) b) c) d)
30.
a) b) c) d)
On January 1, a company purchased 100 shares of its own stock for $10 per share (this is the first time the firm has ever done this). On January 31st, the firm sells 80 of those shares for $7 per share. How would these two transactions impact the following financial statement components?
Total Assets on Balance Sheet -$440 -$440 No Impact No Impact
Total Shareholders’ Equity on Balance Sheet -$440 -$440 No Impact -$440
Total Cash Flows on Statement of Cash Flows -$440 -$440 No Impact -$440
Net Income on Income Statement No Impact -$240 No Impact -$240
A company declares a cash dividend to be paid to its stockholders next month. How would the declaration of dividends impact the following financial statement components?
Total Assets on Balance Sheet Decrease Decrease No Impact No Impact
Total Shareholders’ Equity on Balance Sheet Decrease No Impact Decrease No Impact
Total Cash Flows on Statement of Cash Flows Decrease Decrease No Impact No Impact
Net Income on Income Statement Decrease No Impact No Impact Decrease
Solutions 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
A B B C D C C A C C B B B B C D A D C C C B B A D B D D A C
