True/False
1. The cash budget is an operating budget–(T or F)
2. The extent of internal control features adopted by a company must be evaluate in terms of cost benefit.–(T or F)
3. If a lease qualifies as an operating lease, it does not add debt to the balance sheet. (T/F)
4. The allowance method of accounting for bad debts violates the matching principle. (T/F)
5. When the disposal of a significant segment occurs, the income statement should report both income from continuing operations and income (loss) from discontinued operations. (T/T)
6. Interest expense on a note payabe is only recorded at maturity. (T/F)
7. Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold. (T/F)
8. Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership (T/F)
9. A machine is purchased for $5,000 plus additional freight costs of $500. Major modification and installation costs will be $1,200. What is the amount of the cost basis for this asset?
A.) $5,000
B.) $6,700
C.) $6,200
D.) $5,500
10. The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2007, contained the following accounts.
5-year Bonds Payable 8% $1,000,000
Bond Interest Payable 50,000
Premium on Bonds Payable 100,000
Notes Payable (3 mo.) 40,000
Notes Payable (5 yr.) 165,000
Mortgage Payable ($15,000 due currently) 200,000
Salaries Payable 18,000
Taxes Payable (due 3/15 of next yr) 25,000
The total long-term liabilities reported on the balance sheet are:
A.) $1,365,000
B.) $1,350,000
C.) $1,465,000
D.) $1,450,000
11. Which of the following is not true of a corporation?
A.) It may buy, own, and sell property.
B.) It may sue and be sued.
C.) The acts of its owners bind the corporation.
D.) It may enter into binding legal contracts in its own name.
12. Janway sells softball equipment. On November 14, they shipped $1,000 worth of softball uniforms to Chris Middle School, terms 2/10, n/30. On November 21, they received an order from Douglas High School for $600 worth of custom printed bats to be produced in December. On November 30, Chris Middle School returned $100 of defective merchandise. Janway has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the Balance Sheet as of November 30?
A.) $1,600
B.) $1,500
C.) $1,000
D.) $ 900
13. Which of the following is NOT a benefit of budgeting?
A.) Budgeting enhances management responsibility.
B.) Budgeting assigns decision-making responsibilities.
C.) Budgeting prevents net losses from occurring.
D.) Budgeting coordinates activities among subunits of the organization
.
14. Small repairs made to keep a truck running over its useful life have been debited to the Vehicles account. As a result of this, which of the following occurred?
A.) The balance in the Vehicles account was correctly stated.
B.) The balance in the Vehicles account was overstated.
C.) The expenses for the period were overstated.
D.) The net income for the period was understated.
15. Sales Taxes collected by a retailer are reported as
A.) contingent liabilities.
B.) revenues.
C.) expenses.
D.) current liabilities.
16. Which one of the following would be classified as an extraordinary item?
A.) Expropriation of property by a foreign government
B.) Losses attributed to a labor strike
C.) Write-down of inventories
D.) Gains or losses from sales of equipment
17. Internal auditors
A.) are hired by CPA firms to audit business firms.
B.) are employees of the IRS who evaluate the internal controls of companies filing tax returns.
C.) evaluate the system of internal controls for the companies that employ them.
D.) cannot evaluate the system of internal controls of the company that employs them because they are not independent.
18. The return on common stockholders equity is computed by dividing net income
A.) by ending common stockholders equity.
B.) by average common stockholders equity.
C.) less preferred dividends by ending common stockholders equity.
D.) less preferred dividends by average common stockholders equity
19. In a small business, the lack of certain separations of duties can best be overcome by
A.) bonding the employees.
B.) getting the owner actively involved.
C.) hiring only honest employees.
D.) holding one person responsible for a given set of transactions.
20. In a recent year Dillon Corporation had net income of $130,000, interest expense of $20,000, and tax expense of $30,000. What was Dillon Corporation s times interest earned ratio for the year?
A.) 6.50
B.) 7.50
C.) 8.00
D.) 9.00
21. A company has an average inventory on hand of $60,000 and its average days in inventory is 29.2 days. What is the cost of goods sold?
A.) $750,000
B.) $1,752,000
C.) $1,680,000
D.) $876,000
22. On April 5 Sally s Boutique accepted a VISA card for a $400 purchase. VISA charges a 2% service fee. The entry to record this transaction would include a
A.) credit to Cash of $392.
B.) debit to Cash of $400.
C.) debit to Service Charge Expense of $8.
D.) credit to Service Charge Expense of $8.
23. The following selected amounts are available for Sanders Company.
Retained earnings (beginning) $1,000
Net loss 100
Cash dividends declared 100
Stock dividends declared 50
What is its ending retained earnings balance?
A.) $850
B.) $900
C.) $750
D.) $800
24. Under the allowance method, Bad Debt Expense is recorded
A.) when an individual account is written off.
B.) when the loss is known.
C.) for an amount the company estimates it will not collect
D.) several times during the accounting period.
25. The principle of internal control that prevents one individual from being responsible for all the related activities of a given task is ______________.
26. Most publicly held corporations are required to make extensive disclosure of their financial affairs to the ______.
27. For analysis of the financial statements, ratios can be classified into three types: (1)________ ratios, (2)___ ratios, and (3)_____ ratios.
28. The two methods used in accounting for uncollectible accounts are the
____ method and the _____ method.
29. Obligations in written form are called ____ and usually require the borrower to pay interest.
30. The two criteria necessary for an item to be classified as an extraordinary item are that the transaction or event must be (1) and (2)