1) In a Financing Lease the Lessee records an Asset and a Liability

A) False B) True

2) The balance sheet of ABC reports total assets of $1,500,000 and $1,700,000 at the beginning
and end of the year, respectively. Net income and sales for the year are $240,000 and
$2,000,000, respectively. What is ABC's return on assets?
A) 16%. B) 15%. C) 12%. D) 14.12%.

3) ABC purchases inventory for $2,000 and incurs shipping costs of $100 for the goods to be
delivered. To record this transaction, the company debits Inventory for $2,000, debits Selling
Expenses for $100, and credits Cash for $2,100. Which of the following statements is
correct?
A) Net income is overstated. B) Assets are understated.
C) Revenues are understated. D) All accounts are accurately stated.

4) ABC spends $50,000 this year in research and development for a new drug to cure liver damage.
By the end of the year, management feels confident that the new drug will gain FDA approval
and lead to higher future sales. What impact will the $50,000 spending have on this year's
financial statements?
A) Increase Expenses. B) Decrease Revenues.
C) Increase Revenues. D) Increase Assets.

5) For a journal entry with only two lines, the following entry is valid:
Decrease in Owners' Equity, Increase in Dividends.
A) True B) False

6) Return on assets equals:

A) Profit margin × Inventory turnover. B) Gross profit ratio × Asset turnover.
C) Gross profit ratio × Inventory turnover. D) Profit margin × Asset turnover.

7) On December 1, 2018, ABC signed a $300,000, 5%, six-month note payable with the amount
borrowed plus accrued interest due six months later on June 1, 2019. ABC records the appropriate
adjusting entry for the note on December 31, 2018. What amount of cash will be needed to pay
back the note payable plus any accrued interest on June 1, 2019?
A) $301,250. B) $300,000. C) $307,500. D) $306,250.

8) Research and development costs should be capitalized when the:

A) Future benefit is probable and the amount cannot be reasonably estimated.
B) Future benefit is reasonably possible and the amount can be reasonably estimated.
C) Future benefit is probable and the amount can be reasonably estimated.
D) None of these.

1
 9) ABC purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no
residual value. The computer was depreciated by the straight-line method and was sold at the
end of the second year of use for $5,000 cash. ABC should record:
A) neither a gain nor a loss - the gain that occurred in this case would not be recognized.
B) a gain of $1,000.
C) a loss of $1,000.
D) neither a gain nor a loss - the computer was sold at its book value.

10) In Cash Flow reporting Accounts Receivable is measured at

A) Benefit Value B) $0
C) It depends on the measuring system D) Sacrifice Value

11) For a journal entry with only two lines, the following entry is valid:
Decrease in Revenue, Decrease in Expense.
A) True B) False

12) Can a firm earn 36% risk free

A) Yes, by paying after the sales discount period
B) Yes, by paying within the sales discount period
C) No
D) Yes, by offering sales discounts

13) Under the principle of lower of cost and net realizable value, when a company has 10 units
of inventory A with net realizable value of $50 and a cost of $60, what is the adjustment?
A) Debit Cost of Goods Sold $500; credit Inventory $500.
B) Debit Inventory $100; credit Cost of Goods Sold $100.
C) Debit Inventory $500; credit Cost of Goods Sold $500.
D) Debit Cost of Goods Sold $100; credit Inventory $100.

14) Which of the following is a sign that a company can quickly turn its receivables into cash?
A) Both a low receivables turnover ratio and a high average collection period.
B) A high receivables turnover ratio.
C) A high average collection period.
D) A low receivables turnover ratio.

15) The balance sheet of ABC reports total equity of $500,000 and $650,000 at the beginning and
end of the year, respectively. The return on equity for the year is 20%. What is ABC's net
income for the year?
A) $115,000. B) $2,875,000. C) $100,000. D) $130,000.
16) In January, 2018, ABC sells a gift card for $50 and receives cash. In February, 2018, the
customer comes back and spends $20 of their gift card on a water bottle. What would be the
appropriate journal entry for the purchase of the water bottle?
A) Debit Deferred Revenue, $50; credit Sales Revenue, $50.
B) No journal entry is necessary.
C) Debit Sales Revenue, $20; credit Deferred Revenue, $20.
D) Debit Deferred Revenue, $20; credit Sales Revenue, $20.

17) When we get a line of credit from the bank

A) Expenses Increase
B) Liabilities Increase
C) No change to the Balance Sheet and no change to the Income Statement
D) Assets increase

18) Issued common stock for cash.

Purchased equipment by signing a note payable.
Provided services to customers on account.
Collected cash from customers on account.

How many of the above transactions increased the given company's total liabilities?
A) Two. B) One. C) Four. D) Three.

19) ABC purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no
residual value. The computer was depreciated by the straight-line method and was sold at the
end of the fourth year of use for $3,000 cash. ABC should record:
A) a loss of $1,000.
B) neither a gain nor a loss - the gain that occurred in this case would not be recognized.
C) a gain of $1,000.
D) neither a gain nor a loss - the computer was sold at its book value.

20) ABC purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have
a five-year life, with a residual value of $5,000 at the end of five years.
Using the straight-line method, depreciation expense for 2019 and the book value at
December 31, 2019 would be:
A) $12,000 and $36,000. B) $11,000 and $38,000.
C) $11,000 and $33,000. D) $12,000 and $31,000.

21) At the end of a reporting period, ABC determines that its ending inventory has a cost of
$300,000 and a net realizable value of $230,000. What would be the effect(s) of the adjustment
to write down inventory to net realizable value?
A) Decrease total assets. B) Decrease net income.
C) Decrease total assets and net income. D) Increase retained earnings.
22) ABC buys widgets for $5 cash and sells them on account for $8. What is the benefit value of
a receivable on the books of ABC?
A) $5
B) $3
C) $8
D) Impossible to determine from the given information

23) Issued common stock for cash.

Purchased equipment by signing a note payable.
Paid rent for the current month.
Collected cash from customers on account.

How many of the abovr transactions increased the given company's total assets?
A) Three. B) Two. C) One. D) Four.

24) During 2018, ABC had the following cash flows: (1) received cash of $5,000 billed to a
customer in 2017; (2) earned $20,000 of net income; (3) paid interest of $6,000 on a corporate
bond issued;
(4) paid dividends of $8,000 to its stockholders; (5) borrowed $40,000 from a local bank; and (6)
purchased its own shares of common stock for $10,000. What is ABC's net cash flows from
financing activities for 2018?
A) $22,000. B) $30,000. C) $16,000. D) $40,000.

25) ABC buys widgets for $5 cash and sells them on account for $8. At the point of sale, what is
the effect on the net income of ABC?
A) Decrease $5 B) Increase $3 C) No effect D) Increase $8

26) Goods Available for Sale minus Ending Inventory Equals

A) Ending Inventory B) Cost of Goods Sold
C) Goods Available for Sale D) Sales

27) The sale of a good or service is classified in the statement of cash flows as a(n):
A) Noncash activity. B) Financing activity.
C) Operating activity. D) Investing activity.

28) When we sign an Executory Contract, generally

A) Expenses Increase
B) Liabilities Increase
C) No change to the Balance Sheet and no change to the Income Statement
D) Assets increase
 29) Which type of inventory is in a factory (more than one possible correct answer)?
A) Finished Goods
B) Direct Labor
C) Overhead
D) Raw Materials
E) Work in Process

30) Suppose that ABC overstates its ending inventory for 2018. What effect will this have on
the reported amount of cost of goods sold for 2018?
A) Cannot be determined given the information provided.
B) Have no effect on cost of goods sold.
C) Understate cost of goods sold.
D) Overstate cost of goods sold.

31) The adjusting entry required when amounts previously recorded as deferred revenues are earned
by providing goods or services to customers includes:
A) A debit to an asset. B) A debit to a liability.
C) A credit to a liability. D) A credit to an asset.

32) Sales revenue $350,000

Accounts receivable $280,000
Ending inventory $230,000
Cost of goods sold $180,000
Sales returns $50,000
Sales discount $20,000
Given the information in the above table, what is the company's gross profit?
A) $100,000. B) $50,000. C) $170,000. D) $280,000.

33) THIS year a company made an error in its ending inventory

A) Neither this year's Balance Sheet nor Income Statement will be wrong
B) This year's Balance Sheet will be correct but the Income Statement will be wrong
C) This year's Balance Sheet will be wrong but the Income Statement will be correct
D) Both this year's Balance Sheet and Income Statement will be wrong

34) Which of the following are made BEFORE a Trial Balance is prepared?
A) Closing Entries B) Transaction Entries C) Adjusting Entries

35) If your employer declares bankruptcy, this can have a major effect on your pension if you are in a
A) Either plan B) Defined Benefit Plan
C) Neither Plan D) Defined Contribution Plan
36) Where do we put gains/losses on the sale of Treasury Stock (cost method)?
A) there is no gain or loss on purchase of Treasury Stock
B) Additional Paid in Capital / Retained Earnings
C) Income Statement
D) adjustments to total Equity

37) If you put $200 into a savings account that pays annual compound interest of 8% per year and
then withdraw the money two years later, you will earn interest of $32.
A) False B) True

38) In the Allowance Method when we we collect on a previously written off receivable
A) Assets stay the same, Net Income stays the same.
B) Assets decrease, Net Income decreases
C) Assets increase, Net Income increases.
D) It depends

39) ABC sold inventory for $1,200 that was purchased for $700. ABC records which of the
following when it sells inventory using a periodic inventory system?
A) No entry is required for cost of goods sold and inventory.
B) Debit Inventory $700; credit Cost of Goods Sold $700.
C) Debit Cost of Goods Sold $700; credit Inventory $700.
D) Debit Cost of Goods Sold $1,200; credit Inventory $1,200.

40) Which statement is true

A) In both plans the Employee has all the investment risk
B) In a Defined Benefit Plan the Employer has all the investment risk, in a Defined
Contribution Plan the Employee has all the investment risk
C) In a Defined Benefit Plan the Employee has all the investment risk, in a Defined
Contribution Plan the Employer has all the investment risk
D) In both plans the Employer has all the investment risk

41) When intangible assets, like franchises or patents, die, it is called

A) Amortization B) Depletion C) Depreciation D) Impairment

42) Which of the following is true regarding the relationship between the current ratio and the acid-
test ratio?
A) The current ratio will always be equal to or larger than the acid-test ratio for a specific
company.
B) The acid-test ratio will always be equal to or larger than the current ratio for a
specific company.
C) One ratio will always exceed 1.0, while the other will always be less than 1.0.
D) Either the current ratio or the acid-test ratio could be larger for a specific company.
43) The market will generally react to dividends on which day?
A) Declaration Date B) Payment Date C) Record Date

44) Define Solvency

A) Ability to pay Current Debt
B) Ability to generate free cash flow from operations
C) Ability to pay both Current and Long Term Debt
D) Ability to pay Long Term Debt

45) Which of the following expenses would you find in a factory

A) Electric expense B) Both
C) Labor expense D) Neither

46) When treasury stock is resold at a gain, the difference between its cost and the cash received
when resold:
A) Increases net income but decreases stockholders' equity.
B) Has no effect on net income or stockholders' equity.
C) Increases net income.
D) Increases stockholders' equity.

47) In accounting, goodwill

A) Is amortized over its useful life.
B) May be recorded whenever a company achieves a level of net income that exceeds
the industry average.
C) Must be expensed in the period it is recorded because benefits from goodwill are difficult to
identify.
D) May be recorded when a company purchases another business.

48) When a firm gets riskier what will happen to its bonds
A) the market interest rate of the bonds will go up and the price of the bonds will go up
B) there is no definite answer
C) the market interest rate of the bonds will go up and the price of the bonds will go down
D) the market interest rate of the bonds will go down and the price of the bonds will go down
E) the market interest rate of the bonds will go down and the price of the bonds will go up

49) The abbreviation of the rules an accountant has to follow when doing financial statement analysis
is:
A) None of these B) FASB C) GAAP D) IFRS
50) On February 22, ABC acquired 200 shares of its $5 par value common stock for $25 each. On
March 15, the company reissued 70 shares for $30 each. What is true of the entry for reissuing
the shares?
A) Credit Cash $1,750. B) Credit Treasury Stock $2,100.
C) Credit Additional Paid in Capital $350. D) Debit Treasury Stock $1,750.

51) How many types of inventory are in the factory?

A) 1 B) 2 C) 3 D) 0

52) What is expensed in a factory?

A) Period Costs B) Everything C) Product Costs D) Nothing

53) ABC's sales equal $60,000 and cost of goods sold equals $20,000. Its beginning inventory was
$1,600 and its ending inventory is $2,400. ABC's inventory turnover ratio equals:
A) 5 times. B) 30 times. C) 10 times. D) 20 times.

54) ABC has beginning inventory for the year of $18,000. During the year, ABC purchases
inventory for $230,000 and has cost of goods sold equal to $233,000. ABC's ending inventory
equals:
A) $19,000. B) $18,000. C) $15,000. D) $21,000.

55) Which of the following is possible for a particular business transaction?

A) Decrease assets; Increase assets
B) Increase assets; Decrease liabilities
C) Decrease assets; Increase stockholders' equity
D) Decrease liabilities; Increase expenses

56) ABC reported the following data for its first year of operations:
Net sales $2,800
Cost of goods sold 1,680
Operating expenses 880
Ending inventories 820
What is ABC's gross profit ratio?
A) 80%. B) 5%. C) 49%. D) 40%.

57) A Capital (Financing) Lease will have how many of these expenses
1) Depreciation Expense
2) Rental Expense
3) Interest Expense
A) None B) Three C) One D) Two
 58) A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current
market rate of interest is 6%. These bonds will sell at a price that is:
A) Less than $500,000.
B) More than $500,000.
C) The answer cannot be determined from the information provided.
D) Equal to $500,000.

59) Following are transactions of ABC, a new company, during the month of January:
1. Issued 10,000 shares of common stock for $15,000 cash.
2. Purchased land for $12,000, signing a note payable for the full amount.
3. Purchased office equipment for $1,200 cash.
4. Received cash of $14,000 for services provided to customers during the month.
5. Purchased $300 of office supplies on account.
6. Paid employees $10,000 for their first month's salaries.
How many of these transactions decreased ABC's total assets?
A) One. B) Two. C) Four. D) Three.

60) Net income (in millions) $175

Preferred stock dividends (in millions) $25
Common shares outstanding (in millions) 250
Stock price $10.00
What is earnings per share?
A) $0.50. B) $0.70. C) $0.05. D) $0.60.