____ 16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a:

a. debit to an expense account.

b. credit to an expense account.

c. credit to the Allowance account.

d. debit to the Allowance account.

____ 17. Shipping terms of FOB destination mean that the:

a. purchaser is responsible for the shipping charges.

b. shipping charges are debited to Freight-Out.

c. items should be in the purchaser’s inventory account at year-end if the items are in transit.

d. Both (a) and (c) above.

____ 18. Helix Company has a $280,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Helix uses a percentage-of-receivables basis (at 10%)?

a. $30,000.

b. $28,000.

c. $32,000.

d. $30,400.

____ 19. The constraint of conservatism is best expressed as:

a. the cost of applying an accounting principle should not exceed its benefit.

b. only material items should be recorded and reported.

c. when in doubt, choose the method that will least likely overstate assets and net income.

d. the lower-of-cost-or-market method should be used for inventories.

____ 20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a:

a. debit to Sales Discounts for $40.

b. credit to Cash for $1,960.

c. credit to Accounts Receivable for $40.

d. None of the above.

____ 21. Barken Company’s records show the following for the month of January:

Total Retained Earnings at January 1 $600,000

Total Retained Earnings at January 31 750,000

Total Revenues 1,005,000

Total Dividends Declared 60,000

Total expenses for January were:

a. $1,110,000.

b. $1,155,000.

c. $855,000.

d. $795,000.

22. Stetson Company’s financial information is presented below.

Sales $ ???? Purchase Returns and Allowances $ 30,000

Sales Returns and Allowances 60,000 Ending Merchandise Inventory 70,000

Net Sales 500,000 Cost of Goods Sold 360,000

Beginning Merchandise Inventory ???? Gross Profit ????

Purchases 340,000

The missing amounts above are:

Sales Beginning Inventory Gross Profit

a. $560,000 $90,000 $140,000

b. $440,000 $90,000 $200,000

c. $560,000 $120,000 $140,000

d. $440,000 $120,000 $200,000

____ 23. The preparation of closing entries:

a. is an optional step in the accounting cycle.

b. results in zero balances in all accounts at the end of the period so that they are ready for the following period’s transactions.

c. is necessary before financial statements can be prepared.

d. results in transferring the balances in all temporary accounts to Retained Earnings.

____ 24. Allowance for Doubtful Accounts is reported in the:

a. balance sheet as a contra asset.

b. balance sheet as a contra liability account.

c. income statement under other expenses and losses.

d. income statement under other revenues and gains.

____ 25. Current liabilities are obligations that are reasonably expected to be paid from:

Existing Creation of Other

Current Assets Current Liabilities

a. No No

b. Yes Yes

c. Yes No

d. No Yes

____ 26. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was:

a. not posted at all.

b. posted as a debit to Cash and a credit to Accounts Payable.

c. posted as a debit to Cash and a debit to Accounts Payable.

d. posted as a debit to Accounts Receivable and a credit to Cash.

____ 27. The primary accounting standard-setting body in the United States is the:

a. Securities and Exchange Commission.

b. Accounting Principles Board.

c. Financial Accounting Standards Board.

d. Internal Revenue Service.

____ 28. Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the:

a. direct method.

b. indirect method.

c. working capital method.

d. cost-benefit method.

____ 29. Which of the following would not be included in the operating activities section of a statement of cash flows?

a. Cash inflows from returns on loans (i.e., interest).

b. Cash inflows from returns on equity securities (i.e., dividends).

c. Cash outflows to governments for taxes.

d. Cash outflows to reacquire treasury stock.

____ 30. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?

Liquidity Profitability Solvency

a. Inventory turnover Inventory turnover Times interest earned

b. Current ratio Inventory turnover Debt to total assets

c. Receivable turnover Return on assets Times interest earned

d. Average days collection Payout ratio Return on assets

____ 31. Carne Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $15 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to:

a. Stock Dividends of $300,000.

b. Paid-in Capital in Excess of Par for $200,000.

c. Common Stock for $300,000.

d. Stock Dividends for $100,000.

____ 32. Which of the following pairs of terms in the area of financial statement analysis are synonymous?

a. Ratio — Trend

b. Horizontal — Trend

c. Vertical — Ratio

d. Horizontal — Ratio

____ 33. Which of the following statements is true?

a. Trading securities are debt securities that the investor has the intent to hold to maturity.

b. Trading securities are securities bought and held primarily for sale in the near term.

c. Trading securities are securities that may be sold in the future.

d. Trading securities are reported at cost in the balance sheet.

____ 34. The statement of cash flows is a(n):

a. required supplemental financial statement.

b. required basic financial statement.

c. optional basic financial statement.

d. optional supplementary statement.

____ 35. Koon Corporation has the following stock outstanding:

5% Preferred, $100 Par $1,200,000

Common Stock, $50 Par 2,000,000

No dividends were paid the previous 2 years. If Koon declares $400,000 of dividends in the current year, how much will preferred stockholders receive if the preferred stock is cumulative?

a. $150,000.

b. $180,000.

c. $60,000.

d. $120,000.

____ 36. Bison Corp. purchased 25,000 shares of its $2 par common stock at a cost of $12 per share on April 30, 2012. The stock was originally issued at $10 per share. The entry to record the purchase of the stock should include a debit to:

a. Common Stock for $50,000.

b. Treasury Stock for $50,000.

c. Common Stock for $300,000.

d. Treasury Stock for $300,000.

____ 37. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively?

Stock Dividend Stock Split

a. Increase No effect

b. No effect No effect

c. Decrease No effect

d. Decrease Decrease

____ 38. Which of the following should be classified as an extraordinary item?

a. Effects of major casualties not infrequent in the area.

b. Write-off of a significant amount of receivables.

c. Loss from the expropriation of facilities by a foreign government.

d. Losses due to a bitter, lengthy labor strike.

____ 39. The Discount on Bonds Payable account:

a. is a contra account to Bonds Payable.

b. will cause interest expense to be less than cash interest payable.

c. is increased over the life of the bond until it equals the bond’s face value.

d. is an adjunct account to Bonds Payable.

____ 40. If the market rate of interest is lower than the stated rate, bonds will sell at an amount:

a. equal to face value.

b. not determinable from the given information.

c. lower than face value

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