(Multiple Choice) If $1,000 is invested today, how much will it grow to in 3 years, assuming a 6%

(Multiple Choice)
If $1,000 is invested today, how much will it grow to in 3 years, assuming a 6%
annual interest rate with quarterly compounding?
A.
B.
C.
D.
E.

2.

$1,000 X 1.06 to the third power
$1,000 X 1.015 to the twelfth power
$1,000 ÷ 1.06 to the third power
$1,000 ÷ 1.015 to the twelfth power
None of these.

(Multiple Choice)
Bonds payable should be disclosed on the balance sheet:
A.
B.
C.
D.
E.

3.

at their face value plus any unamortized premium.
at their face value minus any unamortized premium.
at their maturity value.
at their face value.
None of these.

(Multiple Choice)
On April 1, 20X6, Owen issued $100,000 of 12%, 10-year bonds. The bonds were
issued at par plus accrued interest, are dated January 1, 20X6, and pay interest on
July and January 1. The entry to record issuance of the bonds will include:
A.
B.
C.
D.
E.

4.

a debit to Cash of $103,000.
a credit to Bonds Payable of $103,000.
a credit to Interest Income of $3,000.
All of the above.
None of these.

(Multiple Choice)
On June 1, Sao Corporation issued $300,000 of 9%, 5-year bonds. The
bonds which were issued at 97, pay interest on January 1 and June 1. The
entry to record issuance of the bonds includes:
A.
B.
C.
D.
E.

5.

a credit to Bonds Payable of $291,000.
a debit to Cash of $300,000.
a credit to Interest Payable of $9,000.
a debit to Discount on Notes Payable of $9,000.
None of these.

(Multiple Choice)
The effective interest method of amortization:
A. is required, even if it achieves results similar to the straight-line method.
B. results in a level amount of interest expense over the life of a bond.
C. causes interest expense to be a constant percent of the carrying value
of a bond.
D. will never produce results similar to the straight-line method.
E. None of these.

6.

(Multiple Choice)
On January 1, 20X1, Perkins issued $100,000 face, 8%, 5-year bonds at
$92,278. The bonds pay interest annually and were priced to yield 10%.
Using the effective-interest method, how much is interest expense for 20X1?
A.
B.
C.
D.
E.

$8,000.
$9,227.80.
$9,258.50.
$9,544.40.
None of these.

7.

(Essay)

8.

On January 1, 20X6, Watson secured a $100,000, 12% mortgage note. If
the monthly payments are $1,500, with the first payment being due on
January 31 20X6, what is the unpaid balance of the note on March 1, 20X6?
(Essay)

9.

Revland Corporation issued 10, $1,000 bonds at 102. The 5-year bonds,
dated January 1, 20X5, were issued January 1, 20X6. The contract interest
rate is 6%. If the straight-line amortization method is used, how much bond
interest expense should Revland record in 20X6?
(Multiple Choice)
Which of the following is not a feature of the corporate form of organization?
A.
B.
C.
D.
E.

Limited liability.
Perpetual existence.
Transferability of ownership.
Limited life.
None of these.

10. (Multiple Choice)
Stringer Corporation issued 5,000 shares of $2 par value common stock.
The issue price was $7.50 per share. The entry to record this transaction
includes a:
A.
B.
C.
D.
E.

debit to Cash for $10,000.
debit to Paid-in Capital in Excess of Par for $27,500.
debit to Common Stock for $10,000.
credit to Gain on Stock $37,500.
None of these.

11. (Multiple Choice)
Normally, the payment of a previously declared dividend will result in:
A.
B.
C.
D.
E.

a decrease in liabilities.
a decrease in working capital.
a decrease in stockholders' equity.
All of the above.
None of these.

12. (Multiple Choice)
Dividends in arrears:
A.
B.
C.
D.
E.

pertain to cumulative preferred stock.
are recorded as a liability.
pertain to cumulative common stock.
both A and B, above.
None of these.

13. (Multiple Choice)
Which of the following statements about treasury stock is true?
A. Excess of the sales price over cost should be credited to retained
earnings.
B. Gains are not recorded on treasury stock transactions but losses are.
C. Losses on treasury stock transactions are recorded in income.
D. Reacquiring treasury stock causes stockholders equity to decrease.
E. None of these.
14. (Multiple Choice)
Smith has 300,000 shares of common stock outstanding with a par value of
$3 per share. Smith authorized a 10% stock dividend when the market
value was $8 per share. A journal entry for the stock dividend would require:
A.
B.
C.
D.
E.

No entry is needed.
a debit to Retained Earnings for $90,000.
a credit to Common Stock for $240,000.
a credit to Paid-in Capital in Excess of Par for $150,000.
None of these.

15. (Essay)
In its initial capital stock transaction, the Board of Directors of Manning
Corporation approved the issuance of 5,000 shares of $5 par value common
stock, which were sold on the same day for $60 per share. The board was
authorized to issue 10,000 shares of this class of stock. What is the balance
in the Common Stock account after recording this stock issuance?
16. (Essay)
At the beginning of the current year, Symbol Corporation had $20,000 of
dividends in arrears on preferred stock. This represents the dividend
requirement for a two-year period. During the current year, common
shareholders received a dividend distribution. The preferred stock is nonparticipating. How much in preferred dividends was paid during the current
17. year?
(Multiple Choice)
When an error is discovered it should be reported by:
A. prior period adjustment.
B. redoing erroneous data from prior periods that is being shown for
comparison.
C. prospective adjustment.
D. Both A and B.
E. None of these.
18. (Multiple Choice)
Extraordinary items are disclosed in:
A. the statement of retained earnings.
B. the main body of the income statement.
C. a separate section of the income statement following discontinued
operations.
D. a separate section of the income statement preceding discontinued
operations.
E. None of these.
19. (Multiple Choice)
A change in accounting principle:
A. may occur frequently to utilize favorable alternative reporting
procedures.
B. should be made when the new procedure will result in improved
financial income.
C. is shown as a cumulative catch-up adjustment in current period's
income.
D. All of the above.
20. (Multiple Choice)
Chandler had 7,500 shares of common stock outstanding on January 1, and
issued an additional 2,500 shares on June 1. There was no preferred stock,
and net income was $124,700. How much is diluted earnings per share for
the calendar year?
A.
B.
C.
D.
E.

$12.47
$13.92
$14.25
Diluted EPS is not applicable because of the simple capital structure.
None of these.

21. (Multiple Choice)
At calendar year end, Logan Corporation had total stockholders' equity of
$10,000,000. The calendar year began with 100,000 shares outstanding,
and 20,000 additional shares were issued on July 1. There is no preferred
stock. At year end, book value is:
A.
B.
C.
D.
E.

$100 per share.
$90.91 per share.
$83.33 per share.
The answer cannot be determined without knowing beginning equity.
None of these.

22. (Multiple Choice)
To which organization has Congress given the power to set accounting
principles for public companies?
A.
B.
C.
D.
E.

Internal Revenue Service
Financial Accounting Standards Board
Securities and Exchange Commission
American Accounting Association
None of these.

23. (Essay)
Red Oak Corporation experienced a before tax operating loss of $135,000.
During the same time period a net of tax extraordinary gain of $180,000 was
realized. If the tax rate was 40%, what was the total tax expense during this
time period?
24. (Essay)
The Andreas Corporation had 15,000 shares of common stock outstanding
on January 1, and issued an additional 2,400 shares on October 1. There
was no preferred stock outstanding. If Andreas reports earnings per share
of $4.50 for the year ending December 31, how much is net income?
25. (Multiple Choice)
Financial statement ratio analysis may be undertaken to study liquidity,
turnover, profitability, and other measures. What type of ratio is the quick
ratio?
A. liquidity
B. turnover
C. profitability
D. other
E. None of these.
26. (Multiple Choice)
A balance sheet included cash ($4,000,000), accounts receivable
($16,000,000), inventories ($10,000,000), prepaid expenses ($2,000,000),
accounts payable ($9,000,000), and accrued expenses ($7,000,000). These
are the only current items.
A.
B.
C.
D.
E.

The quick ratio is 2:1.
The quick ratio is 1.25:1.
The current ratio is 1.875:1.
Both A and C.
None of these.

27. (Multiple Choice)
Selected information for 20X6 is: net sales (all on account), $7,200,000;
average receivables, $960,000; and net income, $720,000. Assuming a
360-day year, what was the average collection period (in days) for the
receivables during 20X6?
A. 7.5
B. 36
C. 48
D. 84
E. None of these.
28. (Multiple Choice)
Assuming use of the direct approach for preparing a statement of cash
flows, which of the following would be most likely reported as a line item in
the "operating activity" section?
A.
B.
C.
D.
E.

Dividends paid to shareholders.
Cash paid for taxes.
Proceeds from issuing capital stock.
A reduction in inventory levels.
None of these.

29.
Which of the following items represents a potential use of cash?
A.
B.
C.
D.
E.

Depreciation.
Sale of fixed assets at a loss.
Net loss from operations.
Declaration of a stock dividend.
None of these.

30. (Multiple Choice)
First City prepares its cash flow statement using the direct approach. First
City:

31.

32.

A. is not following the FASB preferred approach.
B. is violating GAAP.
C. can elect to not present information on changes equity or retained
earnings.
D. is required to be profitable to use this approach.
The following financial information is available for Masters Corporation for
20X5:
Current Assets (end of year / beginning of year) $96,000 / $60,000
Current Liabilities (end of year / beginning of year) $76,000 / $42,000
Inventory (average / end of year) $26,000 / $30,000
Accounts Receivable (average / end of year) $45,000 / $40,000
Sales ($10,000 cash sales included) $400,000
Cost of Goods Sold $260,000
Cash (end of year) $26,000
What is the inventory turnover ratio?
Stingray Corporation had the following changes in current accounts during
20X7:
Decrease in Cash
Increase in Accounts Receivable
Increase in Inventory
Decrease in Accounts Payable
Increase in Dividends Payable
In reconciling net income to cash providing by operating activities, which of
the preceding items would be subtracted, and which would be added?

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