1. (TCO A, B, C) External users want answers to all of the following questions except:

Is the company earning satisfactory income?

Will the company be able to pay its debts as they come due?

Did the company use a budget to plan its expenses?

How does the company compare in profitability with competitors?

2. (TCO C) Issuing shares of stock in exchange for cash is an example of a(n):

delivering activity.

investing activity.

financing activity.

operating activity.

3. (TCO C) Which activities involve putting the resources of the business into action to generate a profit?





4. (TCO A) The cost of assets consumed or services used is also known as:

a revenue.

an expense.

a liability.

an asset.

5. (TCO C) Edwards Company recorded the following cash transactions for the year:

Paid $45,000 for salaries.

Paid $20,000 to purchase office equipment.

Paid $5,000 for utilities.

Paid $2,000 in dividends.

Collected $75,000 from customers.

What was Edwards’ net cash provided by operating activities





6. (TCO A) In a classified balance sheet, assets are usually classified as:

current assets; long-term assets; property, plant, and equipment; and tangible assets.

current assets; long-term investments; property, plant, and equipment; and common stocks.

current assets; long-term investments; and tangible assets.

current assets; long-term investments; property, plant, and equipment; and intangible assets..

7. (TCO A) Which of the following is not considered an asset



Accounts receivable


8. (TCO A) These are selected account balances on December 31, 2010.

-Land (location of the corporation’s office building) $50,000

-Land (held for future use) 75,000

-Corporate Office Building 300,000

-Inventory 100,000

-Equipment 225,000

-Office Furniture 50,000

-Accumulated Depreciation 150,000

What is the total NET amount of property, plant, and equipment that will appear on the balance sheet





9. (TCO B) For 2010, Mossland Corporation reported net income of $28,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2010 earnings per share?





10. (TCO B) Morten Corporation had beginning retained earnings of $764,000 and ending retained earnings of $833,000. During the year they issued common stock totaling $47,000. There were no dividends issued. What was their net income for the year? (Points : 3)





11. (TCO D) Money collected from customers before the work is done is treated as:

prepaid expenses

accrued revenues

unearned revenues

accrued expenses

12. (TCO D) Which one of the following is not a part of an account

Credit side

Trial balance

Debit side


13. (TCO D) Which of the following describes the classification and normal balance of the retained earnings account

Asset, debit

Stockholders’ equity, credit

Revenues, credit

Expense, debit

14. (TCO D) A debit is the normal balance for which account listed below?


Accounts payable

Rent revenue

Capital stock issued

15. (TCO D) Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner

Dividends payable and rent expense

Repair expense and notes payable

Prepaid insurance and advertising expense

Service revenues and equipment

1. (TCO E) One of the accounting concepts upon which adjustments for prepayments and accruals are based is:



monetary unit.

economic entity.

2. (TCO E) In a service-type business, revenue is considered earned:

at the end of the month.

at the end of the year.

when the service is performed.

when cash is received.

3. (TCO E) On April 1, 2010, M Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years and will have no residual value. M records depreciation expense of $9,000 for the calendar year ending December 31, 2010. Which accounting principle has been violated

Revenue recognition principle

No principle has been violated because M has correctly matched the expense for using the equipment to the period during which it generated revenue.

no violation

Matching principle because the cash was paid in 2007 and should be expensed in 2007.

Cost principle

4. (TCO E) The following is selected information from M Corporation for the fiscal year ending October 31, 2010:

Cash received from customers $300,000

Revenue earned 350,000

Cash paid for expenses 170,000

Expenses incurred 200,000

Based on the accrual basis of accounting, what is M Corporation’s net income for the year ending October 31, 2010? $140,000




5. (TCO E) Adjusting entries are made to ensure that:

expense are recognized in the period in which they are incurred.

revenues are recorded in the period in which they are earned.

balance sheet and income statement accounts have correct balances at the end of an accounting period.

All of the above

6. (TCO A, B) Detailed records of movements in merchandise (each purchase and sale) are not maintained in the inventory account in a:

perpetual inventory system.

periodic inventory system.

double entry accounting system.

business that sells expensive merchandise.

7. (TCO B) Hunter Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period





8. (TCO A, B) Lindy’s Market recorded the following events involving a recent purchase of merchandise:

Received goods for $80,000, terms 2/10, n/30.

Returned $2,000 of the shipment for credit.

Paid $500 freight on the shipment.

Paid the invoice within the discount period.

As a result of these events, the company’s merchandise inventory:

increased by $76,440.

increased by $78,000.

increased by $76,940.

increased by $76,840.

9. (TCO A) The Freight-in account:

increases the cost of merchandise purchased.

is contra to the Purchases account.

is a permanent account.

has a normal credit balance.

10. (TCO A) Which statement is false

Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.

No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period.

An inventory count is generally more accurate when goods are not being sold or received during the counting.

Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.


11. (TCO A) Of the following companies, which one would not likely employ the specific identification method for inventory costing

Music store specializing in piano sales

Custom Jewelry store

Antique shop

Hardware store


12. (TCO A) Which of the following statements is true regarding inventory cost flow assumptions

A company may use more than one cost-flow assumption concurrently for different product lines.

A company must comply with the method specified by industry standards.

A company must use the same method for domestic and foreign operations.

A company may never change its inventory costing method once it has chosen a method.

13. (TCO A) In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?

Average cost method

LIFO method

FIFO method

Need more information to answer

14. (TCO B) The figure for which of the following items is determined at a different time under the perpetual inventory method than under the periodic method


Cost of Goods Sold


Accounts Receivable

15. (TCO B) Two categories of expenses in merchandising companies are:

cost of goods sold and financing expenses.

operating expenses and financing expenses.

cost of goods sold and operating expenses.

sales and cost of goods sold.

1. (TCO D) A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits. Explain the rules of debits and credits in a way that will help him understand them. Cite examples for each of the major sections of the balance sheet (assets, liabilities and stockholders’ equity) and the income statement (revenues and expenses).

2. (TCOs B & E) The following information is available for Partin Company:

Sales $598,000

Sales Returns and Allowances 20,000

Cost of Goods Sold 398,000

Selling expense 69,000

Administrative expense 25,000

Interest expense 19,000

Interest revenue 20,000


1. Use the above information to prepare a multiple-step income statement for the year ended December 31, 2007.

2. Compute the profit margin ratio and gross profit rate. Partin Company s assets at the beginning of the year were $770,000, and were $830,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings.