• 1. The 2003 records of Thomasville Company showed beginning inventory, $50,000; cost of goods sold, $100,000; and ending inventory, $60,000. The purchases for 2003 equal

• a. $100,000 • b. $90,000 • c. $110,000 • d. $120,000

• 2. Which of the following is an example of a typical institutional investor.

• a. The officers of Callaway Golf who own shares of stock in the company

• b. Employees who participate in a stock option plan and own shares of Callaway Golf

• c. The mutual funds managed by Fidelity Management and Research

• d. All of the above are institutional investors

• 3. On December 31, 2003, the end of the accounting period, Dunn Company has on hand 5,000 units of a resale item which cost $21 per unit when purchased on June 15, 2003. The selling price is $35 per unit. On December 30, 2003, the cost had dropped to $20 per unit. In view of the large quantity of units on hand, no purchases are anticipated in the next six to nine months. At what inventory amount should the 5,000 units be reported?

• a. $175,000. • b. $110,000. • c. $105,000. • d. $100,000

• 4. The Securities and Exchange Commission's (SEC report that is required to be filed if any special event occurs that is material in amount is the

• a. Form 10K

• b. Form 8K

• c. Form 10Q

• d. Prospectus

• 5. On March 1, Chapine Company purchased a new stamping machine for $5,000. Chapine paid cash for the machine. Other costs associated with the machine were: transportation costs, $300; sales tax paid $200; and installation cost, $100. The cost recorded for the machine was

• a. $5,200. • b. $5,600. • c. $5,500. • d. $5,000.

• 6. Johnstone Co. uses the periodic inventory system. The following information about their inventory of Model ZZ Mountain Bicycles is available:

• Date• TransactionNumber of UnitsCost per Unit1/1Beginning

Inventory50$8004/12Purchase80$8207/8Purchase75$8409/22Purchase90$850

• During the year, 235 bicycles were sold at a price of $1,500 each. Round final answers to the nearest dollar. What was ending inventory and cost of goods sold on 12/31 under the FIFO cost flow assumption? Round final answers to the nearest dollar.

• a. $51,000 and $194,100 • b. $48,200 and $196,900 • c. $49,851 and $195,249 • d. None of the above.

• 7. The primary qualities of accounting information that increase the usefulness to decision makers are

• a. relevance and cost-benefit.

• b. reliability and comparability.

• c. materiality and relevance.

• d. reliability and relevance.

• 8. Which of the following condition(s) must be met for an item to be disclosed as extraordinary on the income statement?

• a. It must be unusual in nature. • b. Extraordinarily large in

comparison to other items on the income statement.

• c. Infrequent in occurrence. • d. Both A and C.

9.Which of the following statements is true? a.Depreciation expense is added to net income in

the operating activities section of the statement of cash flows because it had no cash effect on net income under the indirect method.

b.Depreciation is a non-cash expense that reduces net income but involves no outflow of cash.

c. The only cash effect for depreciation is the tax savings provided by its deduction to derive taxable income.

d.All of the above are true.

• 10. Which of the following describes the conservatism constraint?

• a. Avoid overstating assets and revenues and avoid understating expenses and liabilities.

• b. The benefits of accounting for and reporting information should outweigh the costs.

• c. Amounts that are large enough to influence a user's decisions.

• d. Differences due to long-standing and accepted accounting and reporting in a particular industry.

11.In 1998, Delta Air Lines had a fixed asset turnover of 1.63 compared to Southwest Airlines of 1.10. What is the most likely cause of Delta's higher ratio? (FATO = Sales / Average Net Fixed Assets)

a. Delta is less efficient in generating net sales from its operational assets.

b. Delta is more efficient at generating net income from employing its operational assets.

c. Delta is able to generate greater sales from its operational assets.

d. Delta is able to generate less net income from its operational assets.

12.Under the FIFO cost flow assumption during a period of inflation, which of the following is false?

a. Income tax expense will be higher than under LIFO.

b.Gross margin will be higher than under LIFO.

c. Ending inventory will be lower than under LIFO.

d.Cost of goods sold will be lower than under LIFO.

13.Waves Inc. issues 100,000 shares of its $.10 par stock for $20 per share. Which of the following would NOT be an effect of that sale?

• a. Cash would increase by $2,000,000• b. Total stockholders’ equity would

increase by $2,000,000• c. Common stock would increase by

$10,000• d. Capital paid in excess of par (Paid in

Capital) would increase by $2,000,000

• 14. Bethany Company plans to depreciate a new building using declining-balance depreciation with 200 percent acceleration rate. The building cost $400,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?

• a. $15,360. • b. $16,000. • c. $29,440. • d. $32,000.

• 15. If a company increases their inventory turnover ratio from last year to the current year, which of the following would cause that increase? (ITO= COGS/ Average Inventory)

a.Reduction of inventory levels b.Speedier production processes c. Increasing sales at a faster rate than the growth

in inventory while maintaining a constant gross profit percentage

d.All of the above

• 16. When preparing the monthly bank reconciliation, the accountant for Tiffany Toys noted that a check received from a customer last month for $89 was marked NSF and returned along with the bank statement. In reconciling the bank balance with the company's cash account, the $89 should be

a.deducted from the company's cash balance. b.added to the bank balance. c. deducted from the bank balance. d.added to the company's cash balance.

17. Intangible assets include

a.Natural resources, patents, and trademarks.

b.Accounts receivable, franchises, and trademarks.

c.Copyrights, licenses, and land.

d.Leaseholds, patents and copyrights.

• 18. Bangor Industries purchased a car for $35,000 on January 1, 2003. The car had an estimated useful life of 80,000 miles and an estimated residual value of $8,000. In the second year of ownership (2004), the car was driven 25,000 miles. Using the units of production method, the amount of depreciation expense for 2004 was

• a. $10,938. • b. $ 8,438. • c. $ 9,538. • d. $11,238.

• 19. When goods are sold to a customer with credit terms of 2/15, n/30, the customer will

a. receive a 15% discount if they pay within 2 days.

b. receive a 2% discount if they pay 15% of the amount due within 30 days.

c. receive a 15% discount if they pay within 30 days.

d. receive a 2% discount if they pay within 15 days.

• 20. In 2001, Toys “ R” Us had an accounts payable turnover ratio of 5.65; in 2000, 5.49 and 6.08 in 1999. Which statement is true about what the ratios indicate? (PTO = COGS / Average Accounts Payable)

a. Toys “R” Us is taking longer to pay its vendors in 2001 versus 2000.

b. Toys “R” Us is taking more time to pay vendors in 2001 than in 1999.

c. Toys “R” Us appears to be paying off their accounts payable in about 30 days on average.

d. Both B and C are true.

• 21. Amgen and Genentech are competitors in the biotechnology market. In 2000, Amgen reported a gross profit percentage of 87.2% while Genentech's percentage was 71.5%. What is the most likely cause of Amgen's higher gross profit percentage? (GP% = Gross Profit/ Net Sales)

a. Lower product selling prices for Amgen. b. Lower product costs for Amgen. c. Genentech's inability to control selling and administrative

expenses. d. Both B and C led to a higher gross profit percentage for

Amgen

• 22. A company recorded net purchases of $20.3 billion for 2004. In 2003, ending accounts payable was $1.2 billion and in 2004, it was $1.6 billion. How much cash was paid to suppliers in 2004?

• a. $18.7 billion • b. $19.9 billion • c. $21.9 billion • d. $20.7 billion

• 23. On January 31, 2004, Low Company wrote off an uncollectible account of $2,000. The allowance method is used. The write-off would cause bad debt expense to

• a. decrease $2,000. • b. increase $2,000. • c. be unchanged.

• d. None of the above is correct.

• 24. A contingent liability that is “reasonably possible” but “cannot reasonably be estimated”

a.must be recorded and reported as a liability.

b.does not need to be recorded or reported as a liability.

c. must only be disclosed as a note to the financial statements.

d.must be reported as a liability, but not recorded.

• 25. On September 30, 2003, Mixx Inc. sold a used industrial crane for $800,000 cash. The original cost of the crane was $5.0 million and its accumulated depreciation equaled $3.8 million on December 31, 2002; they had been using the straight-line depreciation method. The estimated residual value was zero and its useful life was 25 years. What is the gain or loss on the equipment on September 30, 2003? (Hint: remember to depreciate up to the date of sale)

• a. $250,000 loss • b. $400,000 gain • c. $200,000 loss • d. $200,000 gain

26. A company had credit sales of $5.0 million for the year and estimates their bad debts to be 1% of net credit sales. Accounts receivable has a $450,000 balance and the allowance for doubtful accounts has a credit balance of $3,000 prior to adjustment. The transaction analysis entry to adjust the books when the net credit sales method is used to account for bad debts will be:

a. An increase to the bad debts expense account for $50,000 and an increase to accounts receivable for $50,000.

b. An increase to bad debts expense for $47,000 and a decrease to the allowance for doubtful accounts for $47,000.

c. An increase to bad debts expense for $50,000 and an increase to the allowance for doubtful accounts for $50,000.

d. An increase to bad debts expense for $47,000 and a decrease to accounts receivable for $47,000.

• - Use the following Time Value of Money tables to complete the next two questions--

Present Value Factor of $1, i=6%, t=5………………….0.7473

Present Value Factor of a $1 Annuity, i=6%, t=5………4.2124

Future Value Factor of $1, i=6%, t=5…………………..1.3382

Future Value Factor of a $1 Annuity, i=6%, t=5……….5.6371

• 27. How much would Jordan have to deposit in the bank today if she will be earning a 6% annual rate of return and wants to have $5,000 in the bank at the end of five years? (Round to the nearest dollar).

a.$3,737.

b.$4,212.

c. $4,737.

d.$5,637.

• 28. How much would Jordan have to deposit in the bank at the end of each of the next five years if she wishes to have $5,000 in the bank at the end of that time period, assuming she will be earning 6% annual rate of return? (Round to the nearest dollar).

a.$ 887. b.$ 943. c. $1,000. d.$1,187.

• 29. In 2000, Timberland reported a receivables turnover ratio of 11.8 and their competitor, Wolverine World Wide, reported a ratio of 4.2. Which of the following is false? (RTO = Sales / Average Accounts Receivable)

a. Wolverine needs to increase their ratio in order to improve collection time.

b. Wolverine needs to focus on improving their credit and collection process.

c. Wolverine has done a better job of collecting their receivables than Timberland.

d. All of the above are true.

30.Goodman Company borrowed $100,000 cash on September 1, 2004, and signed a one-year 12%, interest-bearing note payable. The required adjusting entry at the end of the accounting period, December 31, 2004, would be:

a.Interest expense 4,000

Interest payable 4,000

b.Interest expense 12,000

Interest payable 12,000

c.Notes payable 100,000

Interest expense 12,000

Cash 112,000

d.Interest payable 4,000

Interest expense 4,000

Sunny Corporation reports a gross profit of $3,500,000 and a gross profit percentage of 35%. What amount of cost of goods sold did Sunny report for the period? (Hint: Gross Profit Percentage = Gross Profit ÷ Net Sales

a. $ 1,225,000

b. $ 3,750,000

c. $ 6,500,000

d. $10,000,000

When a company writes off an uncollectible account, bad debt expense

a. increases.

b. decreases.

c. is equal to the amount in the allowance for doubtful accounts.

d. is unaffected.

Kelley’s TV Corporation had the following information in its inventory records for the month of March 2005.

3/1/05 Beginning Inventory 5000 units @ $200 per unit3/4/05 Sale 4000 units @ $500 per unit3/10/05 Purchase 3500 units @ $210 per unit3/20/05 Sale 3000 units @ $500 per unit3/29/05 Purchase 2500 units @ $220 per unit

Assuming Kelley’s uses the LIFO method, what amount of cost of goods sold and ending inventory should Kelley’s report in its financial statements for the month ended March 31, 2005?

• Cost of goods sold Ending inventory• a. $1,420,000 $865,000• b. $1,470,000 $815,000• c. $1,485,000 $800,000• d. $2,285,000 $545,000

• Harris Company issued 10,000 shares of its $1 par common stock for $25 per share. When Harris records this transaction,

a. paid in capital will increase by $240,000b. common stock will increase by $250,000c. total stockholders equity will increase by $10,000d. cash will increase by $10,000

• The 2005 records of Tom Company showed beginning inventory of $6,000; purchases of $16,000; and cost of goods sold of $14,000. What amount of ending inventory was reported for 2005?

a. $8,000b. $10,000c. $12,000d. $14,000