FinancialAccountingforDecisionMakingITestID210

1) Accountantsestablishmeasurementandreportingrulesthatbusinesspeopleusetofacilitate
communicationoffinancialinformation.Thefinancialaccountingmeasurementrulesusedinthe
UnitedStatesarereferredtoas
a) StandardU.S.accountingrules
b) Generallyacceptedaccountingprinciples
c) FinancialAccountingStandardsBoardrules
d) U.S.accountingmeasurementrules

2) Theaccountingequationisdefinedas
a) Assets+Equity=Liabilities
b) Assets=Liabilities+Equity
c) Assets=LiabilitiesEquity
d) Assets+Liabilities=Equity

3) ThelandthatBirminghamCompanypurchasedonApril15,2016,for$120,000cashhadan
appraisedmarketvalueof$135,000onDecember31,2016.Howdoesthischangeinthemarket
valueofthelandaffecttheaccountingequation?
a) Assetsincreaseandliabilitiesincreaseby$15,000
b) Assetsincreaseandequityincreasesby$15,000
c) Assetsincreaseandequitydecreasesby$15,000
d) Theaccountingequationisnotaffected
4)TheyearendbalancesheetforOmegaCorp.ispresentedbelow:

OmegaCorp.
BalanceSheet
AsofDecember31,2016
Assets

$48,550

Liabilities

Stockholders'equity

Commonstock
Retainedearnings

Totalstockholders'equity

Totalliabilitiesandstockholders'
equity

$17,000
12,550

$19,000

29,550
$48,550

Basedonthisinformation,whatpercentageoftotalassetswasprovidedbyinvestors?
a. 25.85%
b. 39.13%
c. 35.02%
d. 60.87%


5) Moore Company provided services to customers for $8,000 cash. Which of the following
answers in this horizontal financial statements model reflects how this event would affect
MooreCompany'sfinancialstatements?

a)Assets = Liab. +
Equity
Rev. Exp. = NetInc.

CashFlow
Cash N.Pay + C.Stk. + Ret.Ear.

8,000 = n/a + n/a + 8,000 n/a n/a = n/a

8,000OA
b)Assets = Liab. +
Equity
Rev. Exp. = NetInc.

CashFlow
Cash N.Pay + C.Stk. + Ret.Ear.

8,000 = n/a + n/a + 8,000 8,000 n/a = 8,000 8,000FA

c)Assets = Liab. +
Equity
Rev. Exp. = NetInc.

CashFlow
Cash N.Pay + C.Stk. + Ret.Ear.

8,000 = n/a + n/a + 8,000 8,000 n/a = 8,000 8,000OA

d)Assets = Liab. +
Equity
Rev. Exp. = NetInc.

CashFlow
Cash N.Pay + C.Stk. + Ret.Ear.

8,000 = n/a + n/a + 8,000 n/a n/a = n/a

8,000FA

6) StoschCompany'sbalancesheetreportedassetsof$97,000,liabilitiesof$26,000and
commonstockof$23,000asofDecember31,2015.IfRetainedEarningsontheDecember
31,2016balancesheetis$62,000andStoschpaida$25,000dividendduring2016,thenthe
amountofnetincomefor2016waswhichofthefollowing?
a. $39,000
b. $48,000
c. $14,000
d. $25,000

7) TheyearendfinancialstatementsofCallowayCompanycontainedthefollowingelements
andcorrespondingamounts:Assets=$33,000;Liabilities=?;CommonStock=$6,300;
Revenue=$13,600;Dividends=$1,400;BeginningRetainedEarnings=$4,400;Ending
RetainedEarnings=$8,300.Basedonthisinformation,theamountofexpenseson
Calloway'sincomestatementwas
a. $3,900
b. $8,300
c. $9,700
d. $16,600

8)Theamountofliabilitiesreportedontheendofperiodbalancesheetwas
a.
b.
c.
d.

$10,700
$18,400
$22,300
$12,700


9)YowellCompanybeganoperationsonJanuary1,2016.During2016,thecompanyengagedinthe
followingcashtransactions:

1)issuedstockfor$60,000
2)borrowed$35,000fromitsbank
3)providedconsultingservicesfor$58,000
4)paidback$25,000ofthebankloan
5)paidrentexpensefor$14,000
6)purchasedequipmentcosting$22,000
7)paid$4,000dividendstostockholders
8)paidemployees'salaries,$31,000

WhatisYowell'snetincome?
a. $25,000
b. $56,000
c. $13,000
d. $4,000

10)PackardCompanyengagedinthefollowingtransactionsduring2015,itsfirstyearinoperations:
(Assumealltransactionsarecashtransactions.)

1)Acquired$1,750cashfromtheissueofcommon stock
2)Borrowed$1,220fromabank.

3)Earned$1,400ofrevenues
.
4)Paidexpensesof$410.

5)Paida$210dividend.

During2016,Packardengagedinthefollowingtransactions:(Assumealltransactionsarecash
transactions.)

1)Issuedanadditional$1,125ofcommonstock.
2)Repaid$780ofitsdebttothebank.

3)Earnedrevenuesof$1,550.

4)Incurredexpensesof$680.

5)Paiddividendsof$260.

TheamountoftotalequityonPackard's2015balancesheetis

a. $780.
b. $1,540.
c. $2,530.
d. $2,740.

11)BledsoeCompanyreceived$21,000cashfromtheissueofstockonJanuary1,2016.During2016
Bledsoeearned$9,100ofrevenueonaccount.Thecompanycollected$7,200cashfromaccounts
receivableandpaid$6,000cashforoperatingexpenses.Basedonthisinformationalone,during2016,
a. Totalassetsincreasedby$31,300.
b. Totalassetsincreasedby$1,200.
c. Totalassetsincreasedby$24,100.
d. Totalassetsdidnotchange.


12)Thefollowingaccountbalancesweredrawnfromthe2016financialstatementsofGrayson
Company:

Cash
$4,500 Accountspayable
$1,300
Accountsreceivable
$1,600 Commonstock
?
Land
$8,100 Retainedearnings,Jan.1
$2,800

Revenue
$9,600

Expenses
$7,300

Basedontheaboveinformation,whatisthebalanceofCommonStockforGraysonCompany?

a. $10,100
b. $7,800
c. $500
d. $10,500

13)WarrenEnterpriseshadthefollowingeventsduring2016:

Thebusinessissued$37,000ofcommonstocktoitsstockholders.
Thebusinesspurchasedlandfor$29,000cash.
Serviceswereprovidedtocustomersfor$33,000cash.
Serviceswereprovidedtocustomersfor$22,000onaccount.
Thecompanyborrowed$33,000fromthebank.
Operatingexpensesof$29,000wereincurredandpaidincash.
Salaryexpenseof$2,500wasaccrued.
Adividendof$21,000waspaidtothestockholdersofWarrenEnterprises.

Assumingthecompanybeganoperationsduring2016,theamountofretainedearningsasof
December31,2016wouldbe:
a. $2,500
b. $2,300
c. $55,000
d. $40,500

14)AddisonCompanyexperiencedanaccountingeventthataffecteditsfinancialstatementsas
indicatedbelow:

Assets+ = Liab. + Equity+ Rev.+ Exp. = NetInc. CashFlow

NA
NA
+
NA

WhichofthefollowingaccountingeventscouldhavecausedtheseeffectsonAddison's
statements?

a) Issuedcommonstock.
b) Earnedrevenueonaccount.
c) Earnedcashrevenue.
d) Collectedcashfromaccountsreceivable.

15)Whichofthefollowingchoicesaccuratelyreflectshowtherecordingofaccruedsalary
expenseaffectsthefinancialstatementsofabusiness?

Assets = Liab. + Equity

A.
NA
= + +

B.
NA
= NA +
+
C.
NA
= + +

D.
+
= + +
NA

Rev.

NA
NA
NA

Exp. =
+ =
NA =
+ =
+ =

NetInc.
NA
NA

CashFlow
NA
NA
NA
OA

a. OptionA
b. OptionB
c. OptionC
d. OptionD

16)Whichofthefollowingstatementsistrueinregardtoaccrualaccounting?
a. Revenueisrecordedonlywhencashisreceived.
b. Expensesarerecordedwhentheyareincurred.
c. Revenueisrecordedintheperiodwhenitisearned.
d. Revenueisrecordedintheperiodwhenitisearnedandexpensesarerecordedwhenthey
areincurred.

17)MizeCompanyprovided$45,500ofservicesonaccount,andcollected$38,000fromcustomers
duringtheyear.Thecompanyalsoincurred$37,000ofexpensesonaccount,andpaid$32,400
againstitspayables.Asaresultoftheseevents,
a. totalassetswouldincrease
b. totalliabilitieswouldincrease
c. totalequitywouldincrease
d. alloftheseanswerchoicesarecorrect

18)Thepurposeoftheaccrualbasisofaccountingisto
a. Reportrevenuewhenreceived.
b. Matchassetsandliabilitiesintheproperperiod.
c. Reportexpenseswhencashdisbursementsaremade.
d. Matchrevenuesandexpensesintheproperperiod.

19)Theaccountingprinciplethatguidesaccountants,whenfacedwitharecognitiondilemma,to
choosethe
alternativethatproducesthelowestnetincomeisreferredtoas

a. thematchingconcept.
b. internalcontrol.
c. conservatism.
d. materiality.


20)Whichofthefollowingisaclaimsexchangetransaction?

a. Recognizedrevenueearnedonacontractwherethecashhadbeencollectedatanearlier
date.
b. Issuedcommonstock.

c. Investedcashinaninterestearningaccount.
d. Purchasedmachineforcash.

21)
AccountNo. AccountTitle

(1)
Cash
(2)
ServiceRevenue
(3)
AccountsReceivable
(4)
SalariesExpense
(5)
Dividends
(6)
CommonStock
(7)
SalariesPayable
(8)
RetainedEarning
a) Accountnumbers2,4,and5willappearontheincomestatement.
b) Accountnumbers1,3,and8willappearonthebalancesheet.
c) Accountnumbers2,5,and8willappearonthestatementofcashflows.
d) Accountnumbers4,5,and6willappearonthestatementofchangesinequity.

22)BatesHardwarepurchasedmerchandiseinventoryforcash.Whichofthefollowingchoices
accuratelyreflectshowthiseventwouldaffectthecompanysfinancialstatements?

Assets

a.
b.
c.
d.

+
+

Liab.
n/a
n/a
n/a
n/a

Equity
n/a
n/a

Rev.
n/a
n/a
n/a
n/a

Exp.
n/a
n/a
+
+

Net Cash
Inc. Flow
n/a OA
n/a n/a
OA

n/a

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

23)In2016,MerrittCompanypurchasedlandfor$60,000touseasafuturesiteforitsnewoffice
building.Attheendof2016,thelandwasworth$67,500.Thecompanydecidednottobuildthe
newofficeandsoldthelandfor$66,000cashin2017.HowdoesMerrittCompanyssaleoftheland
affectits2017incomestatement?
a.
b.
c.
d.

Decreaseingrossmarginof$1,500.
Increaseingrossmarginof$6,000.
Gainonthesaleofland$6,000.
Lossonthesaleofland$1,500.

24)DaytonCompanymaintainsperpetualinventoryrecords.Daytondeterminedthroughaphysical
countthatithad$20,600ofmerchandiseinventoryonhandattheendoftheaccountingperiod.
ThebalanceintheMerchandiseInventoryaccountwas$21,400.Theimpactoftheadjustingentry
onthefinancialstatementsis
a.
b.
c.
d.

Merchandiseinventoryincreased$800.
Grossmarginincreased$800.
Costofgoodssoldincreased$800.
Noadjustingentrywasnecessary.

25)GalaxyCompanysoldmerchandisecosting$3,600for$6,200cash.Themerchandisewaslater
returnedbythecustomerforarefund.Iftheperpetualinventorymethodisused,whateffectwill
thesalesreturnhaveontheaccountingequation?
a.
b.
c.
d.

Totalassetsandtotalequityincreaseby$2,600.
Totalassetsdecreaseby$6,200andtotalequityisdecreasedby$3,600.
Totalassetsandtotalequitydecreaseby$6,200.
Totalassetsandtotalequitydecreaseby$2,600.

Usethefollowingdataforansweringbothquestionno26&27.

SanchezCompanyengagedinthefollowingtransactionsduring2015:

Startedthebusinessbyissuing$11,900of
commonstockforcash.
Thecompanypaidcashtopurchase$7,300
ofinventory.

Thecompanysoldinventorythatcost
$4,700for$9,400cash.

Operatingexpensesincurredandpaid
duringtheyear,$4,200.

SanchezCompanyengagedinthefollowingtransactionsduring2016:

1)Thecompanypaidcashtopurchase$10,200ofinventory.
2)Thecompanysoldinventorythatcost$8,900for$16,000cash.
3)Operatingexpensesincurredandpaidduringtheyear,$5,200.

Note:Sanchezusestheperpetualinventorysystem.

26)Sanchez'sgrossmarginfortheyear2016is:

a. $7,100.
b. $1,900.
c. $5,800.
d. $8,900.

27)ThebalanceintheinventoryaccountshownatDecember31,2016is:
a.
b.
c.
d.

$3,900.
$1,300.
$18,400.
$8,600.


28) Thefollowinginformationfortheyear2016istakenfromtheaccountsofTuttleCompany.The
companyusestheperiodicinventorymethod.
Inventory,December31,2015
$9,900
Purchases
41,900
Purchasereturnsandallowances
790
Purchasediscounts
590
Freightongoodspurchasedunder
termsFOBshippingpoint
1,790
Freightongoodssoldunderterms
FOBdestination
990
Costofgoodssold
30,300

Basedonthisinformation,theinventoryatDecember31,2016is
a. $19,020.

b. $21,910.

c. $12,390.

d. $29,310.

29)ThefollowingselectedfinancialinformationrelatestoDenverCompanysbeginninginventory,
inventorypurchases,andsaleofinventoryfor2016.

01/01/2016 Beginning
15units @$24
$360
inventory
05/31/2016 Firstpurchase
20units @$25
500
09/26/2016 Secondpurchase
10units @$26
260

Total
45units

$1,120

11/04/2016 Sales
40units @$44
$1,760

WhatisthecostofgoodssoldusingtheFIFOcostflowmethod?
a. $960
b. $1,000
c. $990
d. $1,120

30)ThefollowingselectedfinancialinformationrelatestoDenverCompanysbeginninginventory,inventory
purchases,andsaleofinventoryfor2013.

01/01/2016 Beginning
15units @$24
$360
inventory
05/31/2016 Firstpurchase
20units @$25
500
09/26/2016 Secondpurchase
10units @$26
260

Total
45units

$1,120

11/04/2016 Sales
40units @$44
$1,760


Whatisthecostofgoodssoldusingtheweightedaveragecostflowmethod?

a. $950
b. $1,000
c. $1,120
d. $995.60

31)HughesCorporationhasthefollowinginventoryrelatedinformationattheendof2016:

Item
Quantity
UnitCost UnitMarket
A
60
$12
$10
B
30
$20
$18
C
45
$30
$28
D
20
$16
$19

IfHughesCorporationappliesthelowerofcostormarketruletoeachindividualitem,whatistheamountof
inventorythatHugheswillshowonitsbooksaftertheadjustment,ifany?

a. $2,780
b. $2,720
c. $2,990
d. Cannotdeterminefromtheinformationprovided

32)KincaidCompanyappliesthelowerofcostormarketruletoeachindividualiteminitsending
inventory.Thecompanydeterminesthatitmustwritedownitsinventoryby$4,000.Whichofthefollowing
answersreflectshowthisinventorywritedownwouldaffectKincaidsfinancialstatements?

Assets
=
Liab.
+
Equity Rev.

Exp.
=
Net
CashFlow
Inc.
a. (4,000)
=
n/a
+
(4,000)
n/a
4,000
= (4,000) (4,000)OA
b. (4,000)
=
n/a
+
(4,000)
n/a
4,000
= (4,000)
n/a
c. (4,000)
=
n/a
+
(4,000)
n/a

n/a
=
n/a
n/a
d. (4,000)
=
n/a
+
4,000 4,000

n/a
= 4,000
n/a
a. A
b. B
c. C
d. D

33)TheendinginventoryforBrewerCompanywaserroneouslywrittendowncausingan
understatementof$9,800attheendof2016.Basedonthis,whichofthefollowingwouldbe
overstated?

a. 2016costofgoodssold,2016grossmargin,and2017netincome.
b. 2016grossmargin,2016netincome,and2017costofgoodssold.
c. 2016costofgoodssold,2017costofgoodsavailable,and2017grossmargin.
d. 2017beginninginventory,2017netincome,and2016goodsavailableforsale.

34)BlakeCompanypurchasedtwoidenticalinventoryitems.Theitempurchasedfirstcost$31.00,
andtheitempurchasedsecondcost$32.00.Blakesoldoneoftheitemsfor$58.00.Whichofthe
followingstatementsistrue?
a. EndinginventorywillbelowerifBlakeusesweightedaveragethanifFIFOwereused.
b. CostofgoodssoldwillbehigherifBlakeusesFIFOthanifweightedaveragewereused.
c. Thedollaramountassignedtoendinginventorywillbethesamenomatterwhichcostflow
methodisused.
d. GrossmarginwillbehigherifBlakeusesLIFOthanitwouldbeifFIFOwereused.
35)PooleCompanypurchasedtwoidenticalinventoryitems.Oneoftheitems,purchasedinJanuary,
cost$28.Theother,purchasedinFebruary,cost$34.OneoftheitemswassoldinMarchataselling
priceof$80.SelectthecorrectanswerassumingthatPooleusesaLIFOCostflow
a.
b.
c.
d.

Thebalanceinendinginventorywouldbe$34.
Theamountofgrossmarginwouldbe$46.
Theamountofendinginventorywouldbe$31.0.
Theamountofcostofgoodssoldwouldbe$28.

36)VargasCompanyusestheperpetualinventorymethod.Vargaspurchased700unitsofinventory
thatcost$8each.Atalaterdatethecompanypurchasedanadditional1,100unitsofinventorythat
cost$9each.Vargassold800unitsofinventoryfor$12.IfVargasusesaFIFOcostflowmethod,the
amountofcostofgoodssoldappearingontheincomestatementwillbe:
a.
b.
c.
d.

$3,100.
$5,600.
$2,400.
$6,500.

37)SingletonCompany'sperpetualinventoryrecordsincludedthefollowinginformation:

Date

Numberofunitsandunitcost Totalcost
January1
Beginninginventory
400units@$17
$6,800
March4
Purchase
350units@$28
$9,800
September28 Purchase
750units@$19
$14,250

Numberofunitssoldduringtheyear:

1,120
IfSingletonusestheLIFOcostflowmethod,itsendinginventorywouldbe$6,460
a.
b.
c.
d.

True
False
Cannotbedetermined
Datainsufficient

38)WarnerCompanypurchasedthirtytwounitsofaproductfor$21eachandlaterpurchased
sixteenmorefor$20.00each.Ifthecompanyusestheweightedaveragecostflowmethod,andit
soldoneunitoftheproductfor$30,itsgrossmarginwouldbe$9.33.
a.
b.
c.
d.

True
False
Cannotbedetermined
Datainsufficient

39)Whichofthefollowingisacorrectstatement?
a. Writingoffanuncollectibleaccountundertheallowancemethoddecreasesnetincome.
b. Writingoffanuncollectibleaccountunderthedirectwriteoffmethoddoesnotaffectnet
income.
c. Estimatinguncollectibleaccountsexpenseimprovesthematchingofrevenuesand
expenses.
d. Allofthesearecorrectstatements.
40)LewisCompanybeganoperationsonFebruary1,2016,andexperiencedthefollowingeventsduring
theyear:

1.Earned$300,000ofrevenueonaccount.
2.Collected$250,000cashfromaccountsreceivable.
3.Paid$110,000cashforsalariesexpense.
4.Adjusted the accounting records to reflect management's belief that $6,000 of the accounts
receivable balance would be uncollectible. Lewis uses the allowance method of accounting for
uncollectibleaccounts.

WhatistheLewisCompany'snetincomefor2016?
a. $184,000
b. $190,000
c. $250,000
d. $300,000

41) Carson Company began operations on February 1, 2016, and experienced the following events
duringtheyear:

1.Earned$150,000ofrevenueonaccount
2.Collected$125,000cashfromaccountsreceivable
3.Paid$55,000cashforsalariesexpense
4.Adjusted the accounting records to reflect management's belief that $3,000 of the accounts
receivablebalancewouldbeuncollectible.Carsonusestheallowancemethodofaccountingforbad
debts.

WhatisCarsonCompany'snetrealizablevalueoftheaccountsreceivableattheendof2016?
a. $25,000
b. $22,000
c. $95,000
d. $150,000

42)OnJanuary1,2016GrandeCompanyhada$12,000balanceintheAccountsReceivableaccount
andazerobalanceintheAllowanceforDoubtfulAccountsaccount.During2016,Grandeprovided
$60,000ofserviceonaccount.Thecompanycollected$56,500cashfromaccountsreceivable.
Uncollectibleaccountsareestimatedtobe2%ofsalesonaccount.
Theamountofuncollectibleaccountsexpenserecognizedonthe2016incomestatementis:
a.
b.
c.
d.

$240.
$2,500.
$1,130.
$1,200.


43)ThebalanceinAccountsReceivableatthebeginningoftheperiodamountedto$3,680.During
theperiod$11,400ofcreditsalesweremadetocustomers.IftheendingbalanceinAccounts
Receivableamountedto$2,420,anduncollectibleaccountsexpenseamountedto$1,040,thenthe
amountofcashinflowfromcustomersthatwouldappearintheoperatingactivitiessectionofthe
cashflowstatementwouldbe:
a.
b.
c.
d.

$11,620.
$11,400.
$15,080.
Noneofthese.

44)OnJanuary1,2016,KincaidCompany'sAccountsReceivableandtheAllowanceforDoubtful
Accountscarriedbalancesof$69,600and$2,600,respectively.DuringtheyearKincaidreported
$183,000ofcreditsales.Kincaidwroteoff$1,650ofreceivablesasuncollectiblein2016.Cash
collectionsofreceivablesamountedto$215,500.Kincaidestimatesthatitwillbeunabletocollect
onepercent(1%)ofcreditsales.
Kincaid's entry to recognize the write-off of the uncollectible accounts will

a.
b.
c.
d.

Decreasetotalassets&totalequity
increasetotalassetsandtotalequity.
increasetotalassetsanddecreasetotalequity.
notaffecttotalassetsortotalequity.

45)RosewoodCompanymadealoanof$8,400tooneofthecompany'semployeesonApril1,2016.
Theoneyearnotecarrieda6%rateofinterest.TheamountofinterestrevenuethatRosewood
wouldreportin2016and2017,respectivelywouldbe:
a.
b.
c.
d.

$504,$0
$0,$504
$378,$126
$126,$378

46)Howwouldaccountantsestimatetheamountofacompany'suncollectibleaccountsexpense?
a.
b.
c.
d.

Considernewcircumstancesthatareanticipatedtobeexperiencedinthefuture.
Computeasapercentageofcreditsales.
Consultwithtradeassociationandbusinessassociates.
Alloftheseanswerchoicesarecorrect.

47)Whichaccountingconceptcanbeusedbysomecompaniestojustifytheuseofthedirectwrite
offmethodofaccountingforuncollectibleaccounts?
a.
b.
c.
d.

Theentityconcept.
Thematerialityconcept.
Thegoingconcernconcept.
Themonetaryprinciple.

48)Whichofthefollowingitemswouldbeclassifiedaslongtermoperationalassets?
a.
b.
c.
d.

Patent,inventory,computer.
Automobile,patent,tractoftimber.
Cash,buildings,productionmachinery.
Accountsreceivable,prepaidrent,franchise.

49)PlowmanCompanypurchasedlandandabuildingfor$430,000.Anappraisalwasobtainedthat
indicatedthatthelandwasworth$125,000andthebuildingwasworth$375,000.Whatamountof
thepurchasepriceshouldPlowmanCompanyallocatetothelandandthebuilding?
a. Land$125,000;building$375,000
b. Land$125,000;building$305,000
c. Land$107,500;building$322,500
d. Land$55,000;building$375,000

50)WoodwardCompanypurchasedanewpieceofequipmenttouseinitsbusiness.Thedetailsofthe
purchaseandrelatedcostsareasfollows:

1. Purchasepriceofequipment
$70,000
2. Installationofequipment
6,000
3. Freightcosts(FOBshippingpoint)
1,000
4. Annualsalaryofnewemployeehiredtooperatetheequipment
20,000
5. Increase in the annual cost of the fire and theft insurance policy to cover the new
equipment
500

Determinetheamounttobecapitalizedforthisequipment.

a. $76,000
b. $77,500
c. $77,000
d. $97,500
51)OnJanuary1,2016,GodwinCompanypurchasedaproductionmachinefor$32,000.Themachine
wasestimatedtohavea5yearusefullifeanditssalvagevaluewasestimatedat$2,000.Godwin
Companyusesthestraightlinedepreciationmethod.Whatistheamountofdepreciationexpense
for2017andtheaccumulateddepreciationattheendof2017?
a. Depreciationexpense$6,400;accumulateddepreciation$6,400
b. Depreciationexpense$6,400;accumulateddepreciation$12,800
c. Depreciationexpense$6,000;accumulateddepreciation$6,000
d. Depreciationexpense$6,000;accumulateddepreciation$12,000

52)OnJanuary1,2016,PearsonCompanypurchasedadeliverytruckfor$64,000.Thevanwas
estimatedtohavea5yearusefullifeor100,000miles.Salvagevaluewasestimatedat$4,000.The
vanwasdriven25,000milesin2016and22,000milesin2017.Whichofthefollowingisanincorrect
statement?
a.
b.
c.
d.

Depreciationexpensefor2017usingthedoubledecliningbalancemethodis$14,400.
Depreciationexpensefor2017usingtheunitsofproductionmethodis$13,200.
Depreciationexpensefor2016usingthedoubledecliningbalancemethodis$25,600.
Depreciationexpensefor2016usingtheunitsofproductionmethodis$15,000.


53)MaysCompanysoldamachinefor$10,000cash.Themachineoriginallycost$65,000andthe
companyhadrecognized$53,000indepreciationoverthelifeofthemachine.Whatistheeffectof
thissaleonMaysCompany'sincomestatementanditsstatementofcashflows?
a.
b.
c.
d.

$2,000lossontheincomestatement;$10,000cashoutflowfromoperatingactivities
$2,000lossontheincomestatement;$10,000cashinflowfrominvestingactivities
$55,000lossontheincomestatement;$10,000cashinflowfromoperatingactivities
$55,000lossontheincomestatement;$10,000cashinflowfrominvestingactivities

54)MortonCompanypurchasedamachinefor$45,000.Themachinehadanexpectedusefullifeof
7yearsanda$3,000salvagevalue.After3yearsofusingstraightlinedepreciation,Morton
Companyrevisedtheexpectedlifefrom7yearsto11yearswithnochangeinexpectedsalvage
value.Whatisthedepreciationexpenseforyear4forthismachine?
a.
b.
c.
d.

$6,000
$3,214
$3,375
$3,000

55)OnJune1,2015HooverMiningCompanypaid$6,000,000cashtopurchaseaminewithan
estimated20,000,000tonsofcoal.In2017,HooverCompanymined400,000tonsofcoal.Whatis
theeffectontheincomestatementandthestatementofcashflowsfor2017?
a. $120,000depletionexpenseontheincomestatement;noeffectonthestatementofcash
flows
b. $120,000depletionexpenseontheincomestatement;$120,000cashoutflowfrom
operatingactivities
c. $1,666,667depletionexpenseontheincomestatement;$1,666,667cashoutflowfrom
operatingactivities.
d. $1,666,667depletionexpenseontheincomestatement;noeffectonthestatementofcash
flows
56)In2016,EastCorporationandSouthCorporationeachpaid$100,000foranassetwithan
expectedusefullifeof5yearsandnosalvagevalue.EastCorporationusesthestraightline
depreciationmethodandSouthCorporationusesthedoubledecliningbalancedepreciation
method.Assumingthatallrevenueandotherexpenseitemsareidenticalforbothcompanies,which
ofthefollowingstatementsiscorrectforthefirstyearoftheequipment'slife?
a. Doubledecliningbalancedepreciationprovidesthelowestdepreciationexpenseandthe
bestreturnonassetsratio.
b. Straightlinedepreciationprovidesthehighestdepreciationexpenseandthebestreturnon
assetsratio.
c. Straightlinedepreciationprovidesthelowestdepreciationexpenseandthebestreturnon
assetsratio.
d. Doubledecliningbalancedepreciationprovidesthehighestdepreciationexpenseandthe
bestreturnonassetsratio.
57)Whichofthefollowingwouldnotbeclassifiedasatangiblelongtermasset?
a.
b.
c.
d.

Deliverytruck
Timberreserve
Land
Copyright

58)HardingCorporationacquiredrealestatethatcontainedland,buildingandequipment.The
propertycostHarding$1,900,000.Hardingpaid$350,000andissuedanotepayableforthe
remainderofthecost.Anappraisalofthepropertyreportedthefollowingvalues:Land,$374,000;
Building,$1,100,000andEquipment,$726,000.
Whatvaluewillberecordedforthebuilding?
a.
b.
c.
d.

$175,000
$950,000
$800,000
$1,100,000

59)HardingCorporationacquiredrealestatethatcontainedland,buildingandequipment.The
propertycostHarding$1,900,000.Hardingpaid$350,000andissuedanotepayableforthe
remainderofthecost.Anappraisalofthepropertyreportedthefollowingvalues:Land,$374,000;
Building,$1,100,000andEquipment,$726,000.
AssumethatHardingusestheunitsofproductionmethodwhendepreciatingitsequipment.Harding
estimatesthatthepurchasedequipmentwillproduce1,000,000unitsoverits5yearusefullifeand
hassalvagevalueof$34,000.Hardingproduced265,000unitswiththeequipmentbytheendofthe
firstyearofpurchase.
WhichamountbelowisclosesttotheamountHardingwillrecordfordepreciationexpenseforthe
equipmentinthefirstyear?
a.
b.
c.
d.

$193,450
$125,200
$157,145
$165,890

60)OnJanuary6,2016,theMountJacksonCorporationpurchasedatractoflandforafactorysite
for$1,500,000.Anexistingbuildingonthesitewasdemolishedandthenewfactorywascompleted
onOctober11,2016.Additionalcostdataareshownbelow:
Constructioncostornewbuilding

$1,760,000

Realestateandattorneyfees 15,400
Architectfees 138,000
Costtodemolisholdbuilding

133,200

Salvagerecoveryfromoldbuilding

(11,000)

Whichofthefollowingcorrectlystatesthecapitalizedcostofthe(a)landand(b)thenewbuilding?
a.
b.
c.
d.

$1,637,600/$1,898,000
$1,515,400/$2,020,200
$1,648,600/$1,887,000
$1,500,000/$2,035,600

61)ChicoCompanypaid$950,000forabasketpurchasethatincludedofficefurniture,abuildingand
land.Anappraiserprovidedthefollowingestimatesofthemarketvaluesoftheassetsiftheyhad
beenpurchasedseparately:Officefurniture$190,000;Building$740,000,Land$132,000.Based
onthisinformation,androundingallocationstotwodecimalplaces,theamountofcostthatwould
beallocatedtotheofficefurnitureisclosestto:
a.
b.
c.
d.

$171,000.
$190,000.
$316,667.
$105,000.

62)OnMarch1,BartholomewCompanypurchasedanewstampingmachinewithalistpriceof
$34,000.Thecompanypaidcashforthemachine;therefore,itwasalloweda5%discount.Other
costsassociatedwiththemachinewere:transportationcosts,$550;salestaxpaid,$1,360;
installationcosts,$450;routinemaintenanceduringthefirstmonthofoperation,$500.Thecost
recordedforthemachinewas:
a.
b.
c.
d.

$34,210.
$32,300.
$35,160.
$34,660.

63)OnJanuary1,2016MissouriCo.purchasedatruckthatcost$57,000.Thetruckhadanexpected
usefullifeof10yearsanda$6,000salvagevalue.Theamountofdepreciationexpenserecognizedin
2017assumingthatMissouriusesthedoubledecliningbalancemethodis:
a.
b.
c.
d.

$9,120.
$11,400.
$10,200.
$8,160.

64)Attheendofthecurrentaccountingperiod,RinggoldCo.recordeddepreciationof$15,000on
itsequipment.Theeffectofthisentryonthecompany'sbalancesheetisto:
a.
b.
c.
d.

decreaseassetsandincreaseliabilities.
decreaseowners'equityanddecreaseassets.
decreaseassetsandincreaseowners'equity.
decreaseowners'equityandincreaseliabilities.

65)EmirCompanypurchasedequipmentthatcost$110,000cashonJanuary1,2015.The
equipmenthadanexpectedusefullifeofsixyearsandanestimatedsalvagevalueof$8,000.
AssumingthatEmirdepreciatesitsassetsunderthestraightlinemethod,theamountof
depreciationexpenseappearingonthe2018incomestatementandtheamountofaccumulated
depreciationappearingontheDecember31,2018balancesheetwouldbe:

DepreciationExpense
AccumulatedDepreciation
A.
$17,000
$17,000
B.
$17,000
$68,000
C.
$68,000
$17,000
D.
$17,000
$51,000
a. optionA
b. optionB
c. optionC
d. optionD


66)WestCompanyborrowed$52,000onSeptember1,2016fromtheValleyBank.Westagreedto
payinterestannuallyattherateof9%peryear.ThenoteissuedbyWestcarriedan18monthterm.
BasedonthisinformationtheamountofinterestexpenseappearingonWest's2016income
statementwouldbe:
a.
b.
c.
d.

$0.
$1,560.
$468.
$1,170.

67)MadisonCompanyissuedaninterestbearingnotepayablewithafaceamountof$6,000anda
statedinterestrateof8%totheMetropolitanBankonAugust1,2016.Thenotecarriedaoneyear
term.
Theamountofcashflowfromoperatingactivitiesonthe2016statementofcashflowswouldbe:
a.
b.
c.
d.

$480.
$200.
$6,000.
zero.

68)Basedontheaboveinformationalone,theamountoftotalliabilitiesappearingonMadison's
2016balancesheetwouldbe:
a.
b.
c.
d.

$6,280
$6,200
$6,480
$6,000

Usethedatagivenbelowforquestions69,70&71.
RileyCompanyborrowed$26,000onApril1,2016fromtheTitanBank.ThenoteissuedbyRiley
carriedaoneyeartermanda5%annualinterestrate.Rileyearnedcashrevenueof$920in2016
and$700in2017.Assumenoothertransactions.

69)Theamountofnetincomeonthe2017incomestatementwouldbe:
a.
b.
c.
d.

$325.
$375.
$(50).
$1,025.

70)BasedontheinformationgiveninQ69whatwouldbetheamountofcashflowfromoperating
activitiesthatwouldappearonthe2017statementofcashflows:$375inflow.
a.
b.
c.
d.

$700inflow.
$600outflow.
$26,375outflow.
$26,375outflow.

71)BasedontheinformationgiveninQ69whatwouldbetheamountoftotalliabilitiesthatwould
appearonRiley'sDecember31balancesheetsfor2016and2017wouldbe

2016
2017
A.
$26,000
$0
B.
$26,975
$0
C.
$26,975
$27,350
D.
$975
$375

a. OptionB
b. OptionA
c. OptionC
d. OptionD

72)BenitezCo.hadsalesof$360,000in2016.Thecompanyexpectstoincurwarrantyexpenses
amountingto2%ofsales.Therewere$4,800ofwarrantyobligationspaidincashduring2016.
Basedonthisinformation:

a. Warrantyexpenseswoulddecreasenetearningsby$7,200in2016.
b. Cashwoulddecreaseby$4,800asaresultoftheaccountingeventsassociatedwith
warrantiesin2016.
c. Thewarrantiespayableaccountwouldincreaseby$2,400in2016.
d. Alloftheseanswerchoicesarecorrect.

73)SeattleCompanyissueda$24,000facevaluediscountnotepayabletotheFirstFederalBankon
September1,2016.Thenotecarriedaoneyeartermanda6%discountrate.

ThecarryingvalueoftheliabilityappearingontheDecember31,2016balancesheetwillamountto:

a. $20,160
b. $23,040
c. $24,000
d. $23,520

74)Howdoesthegoingconcernassumptionaffectaccountingfornotespayable?

a. Itdictatesthatnotespayablebereportedattheirfacevalue.

b. Itdictatesthatinterestexpensebeaccruedattheendoftheaccountingperiod.

c. Itdictatesthatnotespayablebereportedattheirnetrealizablevalue.

d. Itdictatesthatinterestexpensebepaidwhenthenotematures.

75)Receivablesarenormallyreportedonthebalancesheetatnetrealizablevalue.Incontrast,
payablesarecarriedatfacevalue.Whichaccountingprinciplerequiresthistreatmentofpayables?

a. Materialityconcept.
b. Monetaryunitassumption.
c. Goingconcernassumption.
d. Matchingconcept.

76)HoustonCo.borrowed$20,000fromDallasCo.onMarch1,2016.Houstonistorepaythe
principalandinterestonMarch1,2017.Theinterestrateis8%.Iftheyearendadjustmentis
properlyrecorded,whatwillbetheeffectsoftheaccrualonHouston's2016financialstatements?

a. Increaseliabilitiesandincreaseexpenses

b. Increaseassetsandincreaserevenues

c. Increaseassetsandincreaseliabilities

d. Noeffect

77)Selling$130ofmerchandisetoacustomerfor$200cashinastatewherethesalestaxrateis4%:

a. Increasescashflowfromoperatingactivitiesby$208.
b. Increasestotalassetsby$78.
c. Increasesequityby$70.
d. Alloftheseanswerchoicesarecorrect.

78)Monthlyremittanceofsalestax:

a. Reducesliabilities.
b. Isaclaimsexchangetransaction.
c. Reducesstockholders'equity.
d. Alloftheseanswerchoicesarecorrect.

79)Underwhatconditionshouldapendinglawsuitberecognizedasaliabilityonacompany's
balancesheet?

a. Theamountcanbereasonablyestimated.
b. Theoutcomeisprobable.
c. Theoutcomeisreasonablypossible.
d. Theoutcomeisprobableandcanbereasonablyestimated.

80)BurgerBarnhasbeennamedasaplaintiffina$5millionlawsuitfiledbyacustomeroverthe
addictivenatureofthecompany'sFrenchfries.BurgerBarn'sattorneyshaveadvisedthemthatthe
likelihoodofafutureobligationfromthesuitisremote.Asaresultofthelawsuit,BurgerBarn
should:

a. Disclosethelawsuitinthenotestothefinancialstatements.
b. Recognizea$5millionliabilityonitsbalancesheetforthecontingency.
c. Ignorethelawsuitinitsfinancialstatements.
d. Settlewiththecustomerimmediatelyfor$5milliontoavoidharmfulpublicity.


81)InDecember2016,LucasCorporationsoldmerchandisefor$10,000cash.Lucasestimatedthat
$700ofwarrantyclaimsmightbefiledinregardtothesesales.OnFebruary12,2017,warrantywork
amountingto$550wasperformedforoneofthecustomers($430laborpaidincashand$120from
thematerialsinventory).

WhichofthefollowinganswersindicatestheeffectoftheFebruary12,2017entryonthefinancial
statementsofLucasCorporation?

Assets = Liab. + Equity

Revenue Expense = NetInc.
CashFlow
A.
(430) = (550) +
(120)
NA

120 =
(120)
(430)OA
B.
(550) = (550) +
NA
NA

NA
=
NA
(430)OA
C.
(550) = (550) +
NA
NA

550 =
(550)
(430)FA
D.
(550) = NA +
(550)
NA

550 =
(550)
(430)OA

a. OptionA
b. OptionB
c. OptionC
d. OptionD

82)BenitezCo.hadsalesof$800,000in2016.Thecompanyexpectstoincurwarrantyexpenses
amountingto3%ofsales.Therewere$13,000ofwarrantyobligationspaidincashduring2016.
Basedonthisinformation:

a. Warrantyexpenseswoulddecreasenetearningsby$24,000in2016.
b. Cashwoulddecreaseby$13,000asaresultoftheaccountingeventsassociatedwith
warrantiesin2016.
c. Thewarrantiespayableaccountwouldincreaseby$11,000in2016.
d. Alloftheseanswerchoicesarecorrect.

83)Onaclassifiedbalancesheet,thefinancialstatementuserwillbeabletodistinguishbetween:

a. cashflowfromoperationsandcashflowfrominvestingactivities.
b. currentandnoncurrentassets.
c. productandperiodcosts.
d. noneoftheseanswerchoicesiscorrect.

84)LexingtonCompanyengagedinthefollowingtransactionsduring2015,itsfirstyearinoperation:
(Assumealltransactionsarecashtransactions)

Acquired$4,200cashfromissuingcommon
stock.

Borrowed$2,800fromabank.

Earned$3,700ofrevenues.

Incurred$2,520inexpenses.

Paiddividendsof$520.

LexingtonCompanyengagedinthefollowingtransactionsduring2016:

Acquiredanadditional$1,100cashfromtheissueofcommonstock.
Repaid$1,720ofitsdebttothebank.
Earnedrevenues,$5,100.
Incurredexpensesof$2,990.
Paiddividendsof$1,360.

TheamountoftotalassetsonLexington's2015balancesheetwas

a. $3,920.
b. $1,400.
c. $7,680.
d. $7,660.

85)BasedontheaboveinformationwhatwouldbetheamountofliabilitiesonLexington's2016
balancesheetwas

a. $840.
b. $1,720.
c. $1,080.
d. $1,100.

86)StoschCompany'sbalancesheetreportedassetsof$40,000,liabilitiesof$15,000andcommon
stockof$12,000asofDecember31,2015.IfRetainedEarningsontheDecember31,2016balance
sheetis$18,000andStoschpaida$14,000dividendduring2016,thentheamountofnetincomefor
2016waswhichofthefollowing?

a. $17,000
b. $19,000
c. $13,000
d. $21,000

87)Ifacompany'stotalassetsincreasedwhileliabilitiesandcommonstockwereunchanged,then

a. revenuesweregreaterthanexpenses.

b. retainedearningswerelessthannetincomeduringtheperiod.

c. nodividendswerepaidduringtheperiod.

d. thecompanymusthavepurchasedassetswithcash.

88)TurnerCompanyreportedassetsof$20,000(includingcashof$9,000),liabilitiesof$8,000,
commonstockof$7,000,andretainedearningsof$5,000.Basedonthisinformation,whatcanbe
concluded?

a. 25%ofTurner'sassetsaretheresultofpriorearnings.
b. $5,000isthemaximumdividendthatcanbepaidtoshareholders.
c. 40%ofTurner'sassetsaretheresultofborrowingfromcreditors.
d. 25%ofTurner'sassetsarefrompriorearnings,$5,000isthemaximumpossibledividend,
and40%ofassetsaretheresultofborrowedresources.

89)AsofDecember31,2016,BristolCompanyhad$100,000ofassets,$40,000ofliabilitiesand
$25,000ofretainedearnings.WhatpercentageofBristol'sassetswereobtainedthroughinvestors?

a. 60%
b. 25%
c. 40%
d. 35%

90)During2016,MillstoneCompanyearned$6,500ofcashrevenue,paidcashdividendsof$1,000
toownersandpaid$4,000forcashexpenses.Liabilitieswereunchanged.Whichofthefollowing
accuratelydescribestheeffectoftheseeventsontheelementsofthecompany'sfinancial
statements?

a. Assetsincreasedby$6,500.
b. Assetsincreasedby$1,500.
c. Equityincreasedby$2,500.
d. Assetsincreasedby$5,500.

91)Whichofthefollowingcashtransactionsresultsinnonetchangeinassets?

a. Borrowingcashfromabank
b. Issuingcommonstockforcash
c. Purchasinglandforcash
d. Providingservicesforcash

92)TheyearendfinancialstatementsofCallowayCompanycontainedthefollowingelementsand
correspondingamounts:Assets=$50,000;Liabilities=?;CommonStock=$15,000;Revenue=
$22,000;Dividends=$1,500;BeginningRetainedEarnings=$3,500;EndingRetainedEarnings=
$7,500.

Basedonthisinformation,theamountofexpensesonCalloway'sincomestatementwas

a. $18,500.
b. $13,000.
c. $16,500.
d. $10,000.

93)Whichfinancialstatementmatchesassetincreasesfromoperatingabusinesswithasset
decreasesfromoperatingthebusiness?

a. Balancesheet.
b. Statementofchangesinequity.
c. Incomestatement.
d. Statementofcashflows.

94)YiCompanyprovidedservicestoacustomerfor$5,500cash.Asaresultofthisevent,

a. totalassetsincreasedandtotalequitydecreased.
b. totalassetswereunchangedandcashflowsfromoperatingactivitiesincreased.
c. liabilitiesdecreasedandnetincomeincreased.
d. totalassetsincreasedandnetincomeincreased.

95)RetainedEarningsatthebeginningandendingoftheaccountingperiodwas$1,150and$2,400,
respectively.Ifrevenueswere$4,500anddividendspaidtostockholderswere$1,050,expensesfor
theperiodmusthavebeen

a. $3,250.
b. $1,250.
c. $3,450.
d. $2,200.


96)Revenueonaccountamountedto$5,000.Cashcollectionsofaccountsreceivableamountedto
$2,300.Expensesfortheperiodwere$2,100.Thecompanypaiddividendsof$450.Netincomefor
theperiodwas

a. $1,200.
b. $2,900.
c. $2,850.
d. $2,450.

97)Productcostsarematchedagainstsalesrevenue

a. intheperiodimmediatelyfollowingthepurchase.
b. intheperiodimmediatelyfollowingthesale.
c. whenthemerchandiseispurchased.
d. whenthemerchandiseissold.

98)Atatimeofdecliningprices,whichcostflowassumptionwillresultinthehighestending
inventory?

a. Weightedaverage
b. FIFO
c. LIFO
d. EitherweightedaverageorFIFO

99)OnJanuary1,2016,PhillipsCompanymadeabasketpurchaseincludingland,abuildingand
equipmentfor$380,000.Theappraisedvaluesoftheassetsare$20,000fortheland,$340,000for
thebuildingand$40,000forequipment.Phillipsusesthedoubledecliningbalancemethodof
depreciationfortheequipmentwhichisestimatedtohaveausefullifeoffouryearsandasalvage
valueof$5,000.Thedepreciationexpensefor2016fortheequipmentis:
a. $17,000.
b. $20,000.
c. $9,500.
d. $19,000.

100)Whichofthefollowingtermsisusedtoidentifytheprocessofexpenserecognitionfor
property,plantandequipment?

a. Amortization
b. Depreciation
c. Depletion
d. Revision