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1 | |
A deferral transaction is defined as transaction in which (LO 1) |
| | A) | A revenue or expense is recognized before cash is collected or paid |
| | B) | A revenue or expense is recognized after cash is collected or paid |
| | C) | A revenue or expense is recognized at the time the cash is collected or paid |
| | D) | A revenue is recognized when the cash is collected and an expense is recognized after the cash is paid |
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2 | |
What type of account is Accumulated Depreciation? (LO 6) |
| | A) | Asset |
| | B) | Liability |
| | C) | Expense |
| | D) | Contra asset |
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3 | |
Hopper Company purchased a building for $200,000 that is now worth $220,000. The building has a related Accumulated Depreciation of $30,000. What is the book value of the building? |
| | A) | $170,000 |
| | B) | $190,000 |
| | C) | $200,000 |
| | D) | $220,000 |
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4 | |
Use the following information to answer questions 4, 5, and 6:
Sunset Company received $48,000 cash in advance for services to be performed from October 1, 2005 through September 30, 2006.
Use the horizontal model to determine which of the following statements does not correctly reflect the affect of this transaction on the day Sunset Company collects the cash? (LO 2) |
| | A) | Cash flow from operating activity is increased |
| | B) | Assets are increased |
| | C) | Revenue is increased |
| | D) | Liabilities are increased |
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5 | |
What amount of revenue will Sunset Company report on its 2005 and 2006 income statements assuming the work is performed evenly throughout the one-year contract period? (LO 6)| 2005 | 2006 | | $ 48,000 | $ -0- | | $ -0- | $48,000 | | $ 12,000 | $36,000 | | $ 24,000 | $ 24,000 |
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| | C) | | 2005 | 2006 | | $ 12,000 | $ 36,000 |
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| | D) | | 2005 | 2006 | | $ 24,000 | $ 24,000 |
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6 | |
Which of the following transaction types describes the adjusting entry to decrease the account Unearned Revenue and increase Service Revenue? (LO 6) |
| | A) | Asset use transaction |
| | B) | Asset source transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
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7 | |
Use the following information to answer questions 7, 8, and 9:
Bentley Corporation paid $6,600 cash for an insurance policy that provides coverage for the six-month period beginning on August 1, 2005. Use the horizontal model to determine which of the following statements correctly reflects the affect of this transaction on Bentley Company’s 2005 financial statements? (LO 3, 5, 6) |
| | A) | Cash flow for operating activity decreased |
| | B) | Total assets increased |
| | C) | Expenses increased |
| | D) | Retained earnings decreased |
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8 | |
What amount of expense will Bentley Company report on its 2005 and 2006 income statements assuming the insurance is used evenly throughout the six-month policy period? (LO 6)| 2005 | 2006 | | $ -0- | $ 6,600 | | $ 3,300 | $ 3,300 | | $ 5,500 | $1,100 | | $ 6,600 | $ -0- |
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| | A) | |
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| | C) | |
| | D) | |
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9 | |
Which of the following transaction types describes the adjusting entry to decrease the account Prepaid Insurance and increase the account Insurance Expense? (LO 7) |
| | A) | Asset use transaction |
| | B) | Asset source transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
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10 | |
Use the following information to answer questions 10 and 11:
On January 1, 2005 Kinsey Company purchased computer equipment for $22,000 cash. The equipment has an estimated useful life of four years and a $2,000 salvage value.
Kinsey Company uses the straight-line depreciation method. What amount of depreciation expense will the company record for 2005? (LO 6) |
| | A) | $ 5,000 |
| | B) | $ 5,500 |
| | C) | $ 6,000 |
| | D) | $22,000 |
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11 | |
How does the recording of depreciation expense affect the statement of cash flows? (LO 6) |
| | A) | As a cash flow for operating activities |
| | B) | As a cash flow for investing activities |
| | C) | As a cash flow for financing activities |
| | D) | This transaction does not affect the statement of cash flows |
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12 | |
Use the following information to answer questions 12 and 13:
In 2001 Gray Company purchased land for $60,000 to use as a future site for its new office building. At the end of 2004, the land was worth $72,000. The company decided not to build the new office and sold the land for $75,000 cash in 2005. How does Gray Company’s sale of the land affect the 2005 income statement? (LO 8) |
| | A) | Loss on the sale of land $ 3,000 |
| | B) | Loss on the sale of land $15,000 |
| | C) | Gain on the sale of land $ 3,000 |
| | D) | Gain on the sale of land $15,000 |
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13 | |
In which section of the statement of cash flows does Gray Company’s sale of the land appear? (LO 8) |
| | A) | Cash flow from operating activities |
| | B) | Cash flow from investing activities |
| | C) | Cash flow from financing activities |
| | D) | This sale does not affect the statement of cash flows |
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14 | |
Use the following information to answer questions 14 and 15:
At the beginning of 2005, Southern Company had a $900 balance in the Supplies account. During the year the company paid $3,000 cash for additional supplies. The physical count of supplies on hand at the end of 2005 was $600. What amount will Southern Company record as Supplies Expense for 2005? (LO 3, 5, 6, 7) |
| | A) | $3,000 |
| | B) | $3,300 |
| | C) | $3,900 |
| | D) | $4,500 |
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15 | |
Which of the following statements related to Southern Company’s 2005 transactions is incorrect? |
| | A) | The statement of cash flows for operating activities is decreased by $3,000 |
| | B) | The account Supplies is sometimes called a deferred expense |
| | C) | The account Supplies represents a liability on the balance sheet |
| | D) | None of the above (i.e., all of the statements are correct) |
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16 | |
Use the following information to answer questions 16,17, 18: | Company A | | Company B | | Company C | | Company D | Assets | $1,000,000 | | $1,500,000 | | $2,000,000 | | $3,000,000 | Liabilities | 600,000 | | 800,000 | | 1,400,000 | | 2,400,000 | Stock. Equity | 400,000 | | 700,000 | | 600,000 | | 600,000 | Net income | 50,000 | | 60,000 | | 90,000 | | 130,000 |
Which company had the highest return on its investment? (LO 9) |
| | A) | Company A |
| | B) | Company B |
| | C) | Company C |
| | D) | Company D |
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17 | |
Which company's investors had the lowest level of debt risk (debt to assets)? |
| | A) | Company A |
| | B) | Company B |
| | C) | Company C |
| | D) | Company D |
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18 | |
Which company displays the best use of financial leverage (return on stockholder's equity)? (LO 9) |
| | A) | Company A |
| | B) | Company B |
| | C) | Company C |
| | D) | Company D |
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19 | |
Hoffman Company purchased six staplers that they expect to use for three years. The company expensed the total $24.00 (6 @ $4.00) at the time of purchase? Which of the following concepts best describes the expensing of the staplers? |
| | A) | Historical cost |
| | B) | Matching concept |
| | C) | Materiality |
| | D) | GAAP |
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20 | |
Which of the following statements is incorrect? (LO 4, 7) |
| | A) | A cost that has been used in the process of earning revenue is an expense |
| | B) | A cost that will be used in the future to generate revenue is a liability |
| | C) | Depreciation expense is based on an estimate rather than an exact amount |
| | D) | A deferred expense causes the expense reported on the income statement to differ from the cash flow amount shown on statement of cash flows. |
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21 | |
The “matching concept” is applied in alternative ways to obtain the best fit. Which of the following is not a common matching practice? (LO 4) |
| | A) | Costs may be matched directly with the revenues they generate. |
| | B) | The costs of items with short or undeterminable useful lives are matched with the period in which they are incurred. |
| | C) | The costs of long-term assets with identifiable useful lives are systematically allocated over the assets’ useful lives. |
| | D) | The costs of long-term assets with identifiable useful lives are revalued every year to reflect the current market value of the asset. |
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22 | |
Canary Corporation experienced an accounting event that affected its financial statements as indicated below: | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | – | | n/a | | – | | n/a | | – | | – | | n/a | |
Which of the following accounting events could have caused these effects on Canary Corporation’s financial statements? (LO 2, 6) |
| | A) | Recorded depreciation on computer equipment |
| | B) | Paid cash for advertising expense |
| | C) | Purchased computer equipment on account |
| | D) | Purchased supplies on account |
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23 | |
On June 1, 2005, Flint Company paid $12,000 cash for an insurance policy that provided coverage for one year. On December 31, 2005, Flint recognized $7,000 of the cost of the insurance used during the accounting period. Which of the following answers accurately reflects how the December 31 adjusting entry would affect the company’s financial statements? (LO 3, 6) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | a. | | – | | n/a | | – | | n/a | | – | | – | | – O/A | | b. | | – | | n/a | | – | | n/a | | – | | – | | n/a | | c. | | – | | n/a | | – | | n/a | | n/a | | n/a | | n/a | | d. | | n/a | | – | | – | | n/a | | – | | – | | n/a | | | | | | | | | | | | | | | | | |
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| | A) | |
| | B) | |
| | C) | c. | | – | | n/a | | – | | n/a | | n/a | | n/a | | n/a | |
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| | D) | |
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