A company borrows $10,000 and signs a 90-day nontrade note payable

1 A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows
(indirect method), this event would be reflected as a(n) (Points : 5)
addition adjustment to net income in the
cash flows from operating activities section.
cash outflow from investing activities.
cash inflow from investing activities.
cash inflow from financing activities.

Question 2. 2. One of the primary benefits of the multiple-step income statement over
the single-step income statement is that the multiple-step income statement (Points : 5)
shows gross margin and recognizes different types of costs and expenses.
shows last year's figures in comparison with the current year.
discriminates between administrative and selling expenses.
recognizes no distinction in types of costs or expenses.

Question 3. 3. Which of the following publications does not qualify as a statement of
generally accepted accounting principles? (Points : 5)
Statements of financial standards issued by the FASB
Accounting interpretations issued by the FASB
APB Opinions
Accounting research studies issued by the AICPA

Question 4. 4. For Nicholson Company, the following information is available:
Capitalized leases
Trademarks
Long-term receivables

$200,000
65,000
75,000

In Nicholson’s balance sheet, intangible assets should be reported at (Points : 5)
$65,000.
$75,000.
$265,000.
$275,000.

Question 5. 5. On January 1, 2008, Dole Co. sold land that cost $210,000 for $280,000,
receiving a note bearing interest at 10%. The note will be paid in three annual
installments of $112,595 starting on December 31, 2008. Because collection of the note
is very uncertain, Dole will use the cost-recovery method. How much revenue from this
sale should Dole recognize in 2008? (Points : 5)
$0
$21,000
$28,000
$70,000

Question 6. 6. Joe Novak Corporation reports the following information:
Correction of overstatement of depreciation expense
in prior years, net of tax
Dividends declared
Net income
Retained earnings, 1/1/08, as reported

$ 215,000
160,000
500,000
1,000,000

Joe Novak should report retained earnings, 12/31/08, at (Points : 5)
$785,000.
$1,125,000.
$1,340,000.
$1,555,000.

Question 7. 7. The purpose of Statements of Financial Accounting Concepts is to
(Points : 5)
establish GAAP.
modify or extend the existing FASB Standards Statement.
form a conceptual framework for solving existing and emerging problems.
determine the need for FASB involvement in an emerging issue.

Question 8. 8. Decision makers vary widely in the types of decisions they make, the
methods of decision making they employ, the information they already possess or can
obtain from other sources, and their ability to process information. Consequently, for
information to be useful there must be a linkage between these users and the decisions
they make. This link is (Points : 5)
relevance.
reliability.
understandability.
materiality.

Question 9. 9. Maso Company recorded journal entries for the issuance of common
stock for $40,000, the payment of $13,000 on accounts payable, and the payment of
salaries expense of $21,000. What net effect do these entries have on owners’
equity? (Points : 5)
Increase of $40,000
Increase of $27,000
Increase of $19,000
Increase of $6,000

Question 10. 10. Willingham Construction Company uses the percentage-of-completion
method. During 2008, the company entered into a fixed-price contract to construct a
building for Richman Company for $30,000,000. The following details pertain to the
contract:
At December 31, 2008
Percentage of completion
Estimated total cost of contract
$25,000,000
Gross profit recognized to date
3,000,000

At December 31, 2009
25%
$22,500,000

60%

1,875,000

The amount of construction costs incurred during 2009 was (Points : 5)
$15,000,000.
$9,375,000.
$5,625,000.
$2,500,000.

Question 11. 11. The accountant for Orion Sales Company is preparing the income
statement for 2008 and the balance sheet at December 31, 2008. The January 1, 2008
merchandise inventory balance will appear (Points : 5)
only as an asset on the balance sheet.
only in the cost of goods sold section of the income statement.
as a deduction in the cost of goods sold section of the income statement and as a current asset on the
balance sheet.
as an addition in the cost of goods sold section of the income statement and as a current asset on the
balance sheet.

Question 12. 12. How should the balances of progress billings and construction in
process be shown at reporting dates prior to the completion of a long-term contract?
(Points : 5)
Progress billings as deferred income, construction in progress as a deferred expense.
Progress billings as income, construction in process as inventory.
Net, as a current asset if debit balance, and current liability if credit balance.
Net, as income from construction if credit balance, and loss from construction if debit balance.

Question 13. 13. Silas Company reported the following information for 2008:
Sales revenue
Cost of goods sold
Operating expenses

$500,000
350,000
55,000

Unrealized holding gain on available-for-sale securities
Cash dividends received on the securities

20,000
2,000

For 2008, Silas would report comprehensive income of (Points : 5)
$117,000.
$115,000.
$97,000.
$20,000.

Question 14. 14. On January 1, 2008, Mann Company borrows $2,000,000 from
National Bank at 11% annual interest. In addition, Mann is required to keep a
compensatory balance of $200,000 on deposit at National Bank which will earn interest
at 5%. The effective interest that Mann pays on its $2,000,000 loan is (Points : 5)
10.0%.
11.0%.
11.5%.
11.6%.

Question 15. 15. Mune Company recorded journal entries for the payment of $50,000 of
dividends, the $32,000 increase in accounts receivable for services rendered, and the
purchase of equipment for $21,000. What net effect do these entries have on owners’
equity? (Points : 5)
Decrease of $71,000
Decrease of $39,000
Decrease of $18,000
Increase of $11,000

Question 16. 16. The role of the Securities and Exchange Commission in the
formulation of accounting principles can be best described as (Points : 5)
consistently primary.
consistently secondary.
sometimes primary and sometimes secondary.
non-existent.

Question 17. 17. The most authoritative category of generally accepted accounting
principles includes all of the following except (Points : 5)
Accounting Research Bulletins.
APB Opinions.
FASB Standards.
FASB Technical Bulletins.

Question 18. 18. Baker Company has been using the LIFO method of inventory
valuation for 10 years, since it began operations. Its 2008 ending inventory was
$40,000, but it would have been $60,000 if FIFO had been used. Thus, if FIFO had
been used, Baker's income before income taxes would have been (Points : 5)
$20,000 greater over the 10-year period.
$20,000 less over the 10-year period.
$20,000 greater in 2008.
$20,000 less in 2008.

Question 19. 19. The following account balances (normal balances) were taken from
the journal entry used to transfer various merchandise accounts under a periodic
inventory system into the Cost of Goods Sold account:
Cost of Goods Sold
Inventory (beginning)
Transportation-In
Purchase Discounts
Purchases
Purchase Allowances

$235,000
62,500
6,700
4,500
214,000
5,700

Based on the above facts, what was ending inventory? (Points : 5)
$21,000
$45,600
$38,000
$37,900

Question 20. 20. The objectives of financial reporting include all of the following except
to provide information that (Points : 5)
is useful to the Internal Revenue Service in allocating the tax burden to the business community.
is useful to those making investment and credit decisions.
is helpful in assessing future cash flows.
identifies the economic resources (assets), the claims to those resources (liabilities), and the changes in
those resources and claims.