A firm's financial position at a specific point in time is reported in the:

A firm's financial position at a specific point in time is reported in the:

a. Balance sheet
b. Income statement
c. Cash flow statement
d. Financial statement reports

Answer: A

Number of Times Interest Is Earned. This ratio measures the burden a company's interest payments represent. Which statement below is true?

Number of Times Interest Is Earned. This ratio measures the burden a company's interest payments represent. Which statement below is true?

a. The numerator of this ratio uses earnings before interest and taxes to compare with interest expense
b The numerator of this ratio uses earnings after interest and taxes to compare with interest expense
c. The numerator of this ratio uses earnings before interest to compare with interest expense
d. None of these to compare with interest expense

Answer: A

Which ratio is used to analyze a company's long-term debt-paying ability and its financing structure?

Which ratio is used to analyze a company's long-term debt-paying ability and its financing structure?

a. Profitability ratio.
b Solvency ratios.
c. Market price ratios.
d. Liquidity ratio.

Answer: B

Users of financial statement information include:

Users of financial statement information include:

a. managers
b creditors
c. stockholders
d. all of these

Answer: D

Which ratio shows how best the fixed assets are being utilised in the business concern?

Which ratio shows how best the fixed assets are being utilised in the business concern?

a. Fixed asset turnover
b Asset turnover
c. Return on assets
d. None of these

Answer: A

Total long term debt includes:

Total long term debt includes:

a. Wage payable
b Long term loans from banks and financial institutions.
c. Tax payable
d. All of these

Answer: B

Which ratio indicates the proportion between total long term debt and shareholders' funds:

Which ratio indicates the proportion between total long term debt and shareholders' funds:

a. Debt Ratio.
b Liquidity ratio.
c. Profitability ratio.
d. Market - price ratio.

Answer: A

Limitations of Financial Statement Analysis:

Limitations of Financial Statement Analysis:

a. It analyses what has happened till date and does not reflect the future.
b Financial analysis takes into consideration only monetary matters, qualitative aspects are ignored.
c. The conclusion of the analysis is based on the correctness of the financial statements.
d. All of these

Answer: D

Significance of Financial Statement Analysis:

Significance of Financial Statement Analysis:

a. Judging the earning capacity or profitability of a business concern.
b Analyzing the short term and long term solvency of the business concern.
c. Helps in making comparative studies between various firms.
d. All of these.

Answer: D

Which is a measure of what the firm would have earned but have not yet paid obligations to tax authorities?

Which is a measure of what the firm would have earned but have not yet paid obligations to tax authorities?

a. Net Sales
b Earnings Before Interest and Taxes
c. Net Income
d. Earnings after Interest and Taxes

Answer: B

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years:

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years: 

a. Sales/total assets
b Debt/total assets
c. Debt/equity
d. Retained earnings/total assets

Answer: D

FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm:

FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm:

a. utilizes assets effectively
b has too much equity in the capital structure
c. has relatively high current liabilities
d. has a relatively low dividend payout ratio

Answer: C

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes:

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes:

a. higher inventory turnover
b higher incomes taxes
c. lower ending inventory
d. Higher sales

Answer: B

A measure of asset utilization is?

A measure of asset utilization is?

a. sales divided by working capital
b return on total assets
c. return on equity
d. operating profit divided by sales

Answer: B

Of Which report, the profitability of the firm over a period of time such as a year?

Of Which report, the profitability of the firm over a period of time such as a year?

a. The audit report
b The balance sheet
c. The statement of cash flows
d. The income statement

Answer: D

A firm has a lower asset turnover ratio than the industry average, which implies:

A firm has a lower asset turnover ratio than the industry average, which implies:

a. The firm has a higher P/E ratio than other firms in the industry.
b The firm is more profitable than other firms in the industry.
c. The firm is utilizing assets less efficiently than other firms in the industry.
d. The firm has higher spending on new fixed assets than other firms in the industry.

Answer: C

A firm has a higher asset turnover ratio than the industry average, which implies :

A firm has a higher asset turnover ratio than the industry average, which implies :

a. The firm has a higher P/E ratio than other firms in the industry.
b The firm is more profitable than other firms in the industry.
c. The firm is utilizing assets more efficiently than other firms in the industry.
d. The firm has higher spending on new fixed assets than other firms in the industry.

Answer: C

In which report, the cash flow generated by the firm's operations, investments and financial activities?

In which report, the cash flow generated by the firm's operations, investments and financial activities?

a. The balance sheet is a report
b The income statement is a report
c. The statement of cash flows is a report
d. The auditor's statement of financial condition

Answer: C

Treasury stock is:

Treasury stock is:

a. Common stock issued by the U.S. government.
b Preferred stock issued by the U.S. government.
c. Common stock that has been repurchased and is being held by the issuing company.
d. A corporation's common stock outstanding.

Answer: C

Retained earnings are:

Retained earnings are:

a. An indication of a company's liquidity.
b The same as cash in the bank.
c. Not important when determining dividends.
d. The cumulative earnings of the company after dividends.

Answer: D

EBT is usually call:

EBT is usually call:

a. funds provided by operations.
b earnings before taxes.
c. net income.
d. operating profit.

Answer: B

EBIT is usually call:

EBIT is usually call:

a. funds provided by operations.
b earnings before taxes.
c. net income.
d. operating profit.

Answer: D

Marketable securities are primarily:

Marketable securities are primarily:

a. short-term debt instruments.
b short-term equity securities.
c. long-term debt instruments.
d. long-term equity securities.

Answer: A

According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "operating" activity?

According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "operating" activity?

a. cash outflow to the government for taxes.
b. cash outflow to shareholders as dividends.
c. cash outflow to purchase new equipment.
d. cash outflow to purchase bonds issued by another company.

Answer: A

According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "operating " activity?

According to the Financial Accounting Standards Board (FASB), which of the following is a cash flow from a "operating " activity?

a. cash outflow to purchase new equipment.
b. cash outflow to shareholders as dividends.
c. cash outflow to lenders as interest.
d. cash outflow to purchase bonds issued by another company.

Answer: C

A company can improve (lower) its debt-to-total assets ratio by doing which of the following?

A company can improve (lower) its debt-to-total assets ratio by doing which of the following?

a. Borrow more.
b. Shift short-term to long-term debt.
c Shift long-term to short-term debt.
d. Sell common stock.







Answer: D

Which of the following would reduce the current ratio?

Which of the following would reduce the current ratio?

a. Borrow short term to finance additional fixed assets.
b. Issue long-term debt to buy inventory.
c. Sell common stock to reduce current liabilities.
d. Sell fixed assets to reduce accounts payable.

Answer: A

Which of the following is likely to be the most informative source if you were interested in a company's business plan or strategy?

Which of the following is likely to be the most informative source if you were interested in a company's business plan or strategy? 

a. The auditor's opinion
b. Financial statement notes
c. Management discussion and analysis
d. Annual report




Answer: C

Dividend income is example of:

Dividend income is example of:

a. Gain
b. Losses
c. Investment income
d. None of these

Answer: C

Interest income is example of:

Interest income is example of:

a. Gain
b. Sales
c. Investment income
d. None of these

Answer: C

Net income that has not distributed as dividends is call:

Net income that has not distributed as dividends is call:

a. Capital
b. Retained earning
c. Profit before tax
d. Additional paid-in capital

Answer: B

Information about accounting estimates, assumptions and methods chosen for reporting is most likely found in:

Information about accounting estimates, assumptions and methods chosen for reporting is most likely found in:

a. The auditor's opinion
b. Financial statement notes
c. Management discussion and analysis
d. Annual report



Answer: B

Financial statement analysis framework consists of which steps?

Financial statement analysis framework consists of which steps?

a. State the objective and context, Gather data, Analyze and interpret the data, Report the conclusion and recommendation
b. State the objective and context, Gather data, Analyze and interpret the data, Report the conclusion and recommendation, Update the analysis
c. State the objective and context, Gather data, Analyze and interpret the data, Update the analysis, Report the conclusion and recommendation,
d. Gather data, Analyze and interpret the data, State the objective and context, Report the conclusion and recommendation,

Answer: B

Which report provides an assessment of the financial performance and condition of a company from perspective of its management?

Which report provides an assessment of the financial performance and condition of a company from perspective of its management? 

a. Financial statement notes
b. Management's discussion and analysis
c. Financial statements report
d. Annual report



Answer: B

Which report provides information about the accounting methods, assumptions and estimates used by the management?

Which report provides information about the accounting methods, assumptions and estimates used by the management?

a. Financial statement notes
b. Statement of change in equity
c. Financial statements report
d. Annual report




Answer: A

Which report includes disclosures that provide further details about the information summarized in the financial statement?

Which report includes disclosures that provide further details about the information summarized in the financial statement?

a. Financial statement notes
b. Statement of change in equity
c. Financial statements report
d. Annual report

Answer: A

Which of the following is not an equity valuation model?

Which of the following is not an equity valuation model? 

A. Residual income model
B. Dividend discount model
C. Free cash flow to equity model
D. Terminal value model

Answer: D

Which of the following, if increased by 10%, results in a 10% higher stock price?

Which of the following, if increased by 10%, results in a 10% higher stock price? 

A. Dividend yield
B. Earnings yield
C. Net profit margin
D. None of the above

Answer: D

As of December 31, 2005, two otherwise identical companies in the same industry, East Co. and West Co., have dividend payouts of 20% and 40%, respectively. Looking forward one year, which outcomes are least likely?

As of December 31, 2005, two otherwise identical companies in the same industry, East Co. and West Co., have dividend payouts of 20% and 40%, respectively. Looking forward one year, which outcomes are least likely? 

I. East Co. requires debt financing.
II. West Co. increases its dividend payout.
III. West Co.'s share price is twice that of East Co.
IV. East Co. repurchases outstanding shares.


A. I and II
B. II and IV
C. I, II and III
D. II, III and IV

Answer: C

You wish to compare the performance of two companies. Which of the following statements is most likely to be incorrect?

You wish to compare the performance of two companies. Which of the following statements is most likely to be incorrect? 

A. If the companies operate in different industries, this will hinder comparability.
B. The use of different accounting methods will hinder comparability.
C. If the companies are of significantly different sizes, this will hinder comparability.
D. If companies have different auditors, this will hinder comparability.

Answer: D

A company issues 12%, 10-year $1,000 bonds paying interest semi-annually. Required return for bonds of this risk is 15%. At what price will the bond be sold (pick closest answer)?

A company issues 12%, 10-year $1,000 bonds paying interest semi-annually. Required return for bonds of this risk is 15%. At what price will the bond be sold (pick closest answer)? 

A. $66
B. $849
C. $ 847
D. $ 894

Answer: C

Which of the following statements is most correct?

Which of the following statements is most correct? 

A. Technical analysis concerns itself with determining the intrinsic value of a stock.
B. Active investing is defined as buying and selling stock within six months.
C. Fundamental analysis attempts to value a company by examining the past prices patterns of a company's stock.
D. Individuals who engage in technical analysis by definition do not subscribe to the weak form of the efficient market hypothesis.

Answer: D

On January 1, 2005, Systil Corporation issues $50M 10 year bonds with a coupon rate of 10%. Interest is payable annually at the end of the year. If the required return on bonds of similar risk at January 1, 2006 is 8%, what will be the price of the bonds be at this date?

On January 1, 2005, Systil Corporation issues $50M 10 year bonds with a coupon rate of 10%. Interest is payable annually at the end of the year. If the required return on bonds of similar risk at January 1, 2006 is 8%, what will be the price of the bonds be at this date? 

A. $56.71M
B. $56.25M
C. $44.24M
D. $43.86M

Answer: A

Two otherwise equal companies have significantly different dividend payout ratios. Which of the following statements is most likely to be correct? The company with higher the dividend payout ratio:

Two otherwise equal companies have significantly different dividend payout ratios. Which of the following statements is most likely to be correct? The company with higher the dividend payout ratio: 

A. will have a higher inventory turnover ratio.
B. will have a lower inventory turnover ratio.
C. will have higher earnings growth.
D. will have lower earnings growth.

Answer: D

Which of the following statements regarding the intrinsic value of a company is correct?

Which of the following statements regarding the intrinsic value of a company is correct? 

A. It can be calculated as book value plus the present value of future expected dividends, discounted at the cost of equity capital.
B. It can be calculated as present value of future expected dividends, discounted at the cost of debt.
C. It can be calculated as present value of future expected residual income, discounted at the cost of equity capital.
D. It can be calculated as book value plus the present value of future expected residual income, discounted at the cost of equity capital

Answer: D

Fluno Corporation has 1 million shares outstanding at the end of fiscal 2005. Its stock is trading at $15 per share. It issued $0.6 million in dividends, and had net income of $1million in fiscal 2005. At the end of 2005, its total assets, liabilities and retained earnings were $25 million, $15 million and $7.5 million, respectively. Fluno's price to book ratio and dividend yield ratios for 2005 are: Price to Book and Dividend Yield

Fluno Corporation has 1 million shares outstanding at the end of fiscal 2005. Its stock is trading at $15 per share. It issued $0.6 million in dividends, and had net income of $1million in fiscal 2005. At the end of 2005, its total assets, liabilities and retained earnings were $25 million, $15 million and $7.5 million, respectively. Fluno's price to book ratio and dividend yield ratios for 2005 are:
Price to Book and Dividend Yield

A) 2 - 60%
B) 11.5 - 60%
C) 1.5 - 4%
D) 2 - 4%


A. Option A
B. Option B
C. Option C
D. Option D

Answer: C

How much would you be prepared to pay for a $500 bond which comes due in 5 years and pays $80 interest annually assuming your required rate of return is 8% (pick closest answer)?

How much would you be prepared to pay for a $500 bond which comes due in 5 years and pays $80 interest annually assuming your required rate of return is 8% (pick closest answer)? 

A. $740
B. $660
C. $608
D. $500

Answer: B

Which of the following ratios would be considered useful in assessing operating profitability?

Which of the following ratios would be considered useful in assessing operating profitability? 

A. Debt/Equity ratio
B. Acid test ratio
C. Gross profit margin
D. Return on equity

Answer: C

Which of the following statements is incorrect?

Which of the following statements is incorrect? 

A. It is possible for some markets to be more efficient than others.
B. It is possible for markets to be efficient with respect to some information and inefficient with respect to other information.
C. The market is likely to be more efficient with respect to companies where there is greater analyst following.
D. The market is totally efficient with respect to companies providing regular dividends to investors.

Answer: D

The semistrong efficiency of market implies that:

The semistrong efficiency of market implies that: 

A. stock prices fully reflect all inside information.
B. stock prices do not reflect information contained in past trading volume.
C. stock prices fully reflect all information found in 10-K filing.
D. stock prices fully reflect all information about future price changes.

Answer: C

Which of the following ratios does not relate to market price of a company under analysis?

Which of the following ratios does not relate to market price of a company under analysis? 

A. Price-to-earnings
B. Earnings yield
C. Price-to-book
D. Return on common equity

Answer: D

Which of the following statistics would be the most useful in determining the efficiency of a car rental company?

Which of the following statistics would be the most useful in determining the efficiency of a car rental company? 

A. Inventory turnover
B. Number of employees per car rental
C. Average length of car rental
D. Number of days cars are rented as a percentage of number of days available for rent

Answer: D

Which of the following statements is correct?

Which of the following statements is correct? 

A. The more efficiently a company utilizes its assets, the greater its return on investment, all other things being equal.
B. If return on equity increases, the return on assets must have also increased.
C. If the number of days inventory is held increases, the return on assets will increase, all other things being equal.
D. If the gross margin decreases, the inventory turnover must have increased, all other things being equal.

Answer: A

Liquidity of a company is generally defined as a measure of:

Liquidity of a company is generally defined as a measure of: 

A. the ability of a company to pay its employees in a timely manner.
B. the ability to pay interest and principal on all debt.
C. the ability to pay dividends.
D. the ability to pay current liabilities.

Answer: D

Which of the following ratios is not generally considered to be helpful in assessing short-term liquidity?

Which of the following ratios is not generally considered to be helpful in assessing short-term liquidity? 

A. Acid test ratio
B. Current ratio
C. Days to collect receivables
D. Days goodwill held

Answer: D

Which of the following statements concerning financial ratios is incorrect?

Which of the following statements concerning financial ratios is incorrect? 

A. Accounting principles and methods used by a company will not affect financial ratios.
B. The informational value of a ratio in isolation is limited.
C. A ratio is one number expressed as a percentage or fraction of another number.
D. Calculation of financial ratios is not sufficient for a complete financial analysis of a company.

Answer: A

While determining the most profitable company from the given number of companies, which of the following would be the best indicator of relative profitability?

While determining the most profitable company from the given number of companies, which of the following would be the best indicator of relative profitability? 

A. Highest net income
B. Highest retained earnings
C. Highest return on equity
D. Highest operating margin

Answer: C

Which of the following statements is incorrect?

Which of the following statements is incorrect? 

A. Net Income in 2006 increased by 28% compared to 2004.
B. XYZ's net income to sales (return on sales) increased in 2006 compared to 2004.
C. XYZ's net income to sales (return on sales) decreased in 2006 compared to 2004.
D. Assets have increased over time.

Answer: B

From the above information, you can infer that:

From the above information, you can infer that: 

A. rate of sales growth has decreased.
B. net income to sales (return on sales) is increasing over time.
C. asset turnover is decreasing over time.
D. None of the above

Answer: A

When conducting comparative analysis by reviewing consecutive balance sheets,

When conducting comparative analysis by reviewing consecutive balance sheets, 

A. all items on the balance sheet in Year t must be divided by their corresponding value in Year t-1 and subtract 1.
B. all items on the balance sheet in Year t-1 must be subtracted from their corresponding value in Year t.
C. all items on the balance sheet in Year t must be divided by net income in Year t-1.
D. Both A and B are correct.

Answer: D

A common size income statement would typically be prepared by dividing:

A common size income statement would typically be prepared by dividing: 

A. all items on income statement in Year t by their corresponding value in Year t-1.
B. all items on income statement in Year t by their corresponding balance sheet accounts in Year t.
C. all items on income statement in Year t by net income in Year t-1.
D. all items on income statement in Year t by sales in Year t.

Answer: D

Which of the following is not a common tool used in financial statement analysis?

Which of the following is not a common tool used in financial statement analysis? 

A. Random walk analysis
B. Ratio analysis
C. Common size statement analysis
D. Trend series analysis

Answer: A

What is your estimate of price using the residual income valuation model at 12/31/05?

What is your estimate of price using the residual income valuation model at 12/31/05? 

A. $20.62
B. $21.65
C. $23.56
D. $24.72

Answer: D

You are analyzing a large stable company. For the year ending 12/31/05 the company reported earnings of $58,900K and book value at the end of 2005 was $371,700K. You expect earnings to grow at 5% a year in perpetuity, and the dividend payout ratio of 70% to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000K shares outstanding. What is your estimate of price per share using the dividend discount model at 12/31/05?

You are analyzing a large stable company. For the year ending 12/31/05 the company reported earnings of $58,900K and book value at the end of 2005 was $371,700K. You expect earnings to grow at 5% a year in perpetuity, and the dividend payout ratio of 70% to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000K shares outstanding.
What is your estimate of price per share using the dividend discount model at 12/31/05? 

A. $20.62
B. $21.65
C. $23.56
D. $24.74

Answer: D

The Management Discussion and Analysis Section of the annual report:

The Management Discussion and Analysis Section of the annual report: 

A. is required by the SEC.
B. is optional but normally included in the annual report.
C. is required by the SEC only if the company has suffered from unfavorable trends or there are significant uncertainty concerning liquidity of the company.
D. is required by the SEC only if they have a qualified audit opinion.

Answer: A

If a company receives an unqualified audit opinion it means the auditors:

If a company receives an unqualified audit opinion it means the auditors: 

A. did not complete a full audit and therefore do not feel qualified to give an opinion on financial statements.
B. are providing assurance that the company will remain financially viable for at least the next year.
C. are providing assurance that the company's financial statements fairly present company's financial performance and position.
D. are providing assurance that the company's financial statements are free from misstatement, fraudulent accounting and fairly indicate future performance.

Answer: C

Wilco Company reports the following: Dividend payout ratio for 2005 was:

Wilco Company reports the following:
Dividend payout ratio for 2005 was: 

A. 27%
B. 12%
C. 22.2%
D. Not determinable

Answer: C

Which of the following would not be considered a source of financing?

Which of the following would not be considered a source of financing? 

A. Notes receivable
B. Common stockholders' equity
C. Retained earnings
D. Debentures

Answer: A

Which of the following is likely to be the most informative source if you were interested in a company's business plan or strategy?

Which of the following is likely to be the most informative source if you were interested in a company's business plan or strategy? 

A. Auditor's letter
B. Management discussion and analysis
C. Proxy statement
D. Footnotes

Answer: B

Realistic Company purchased a new truck on January 1, 20X1. The truck cost $20,000, has a four-year life, and a $4,000 residual value. The company has a December 31 year end. If Realistic Company depreciates the truck by the straight-line method, how much should Realistic report as the book value of the truck at the end of 20X3?

Realistic Company purchased a new truck on January 1, 20X1. The truck cost $20,000, has a four-year life, and a $4,000 residual value. The company has a December 31 year end. If Realistic Company depreciates the truck by the straight-line method, how much should Realistic report as the book value of the truck at the end of 20X3?

a. $1,600
b. $4,000
c. $8,000
d. $16,000
e. $15,000

Answer: C

The trial balance:

The trial balance:

a. Is a formal financial statement.
b. Is used to prove that there are no errors in the journal or ledger.
c. Provides a listing of every account in the chart of accounts.
d. Provides a listing of the balance of each ledger account.
e. None of these

Answer: D

The proper journal entry to record Ransom Company's billing of clients for $500 of services rendered is:

The proper journal entry to record Ransom Company's billing of clients for $500 of services rendered is:

a. Dr. Cash 500
Cr. Accounts Receivable 500
b. Dr. Accounts Receivable 500
Cr. capital Stock 500
c. Dr. Accounts Receivable 500
Cr. Service Revenue 500
d. Dr. Cash 500
Cr. Service Revenue 500
e. None of these

Answer: C

Of the following account types, which would be increased by a debit?

Of the following account types, which would be increased by a debit?

a. Liabilities and expenses.
b. Assets and equity.
c. Assets and expenses.
d. Equity and revenues.
e. None of these

Answer: C

Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.

Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.

January 2 Beginning Inventory: 500 units at $3.00
April 7 Purchased : 1,100 units at $3.20
June 30 Purchased : 400 units at $4.00
December 7 Purchased : 1,600 units at $4.40
Sales during the year were 2,700 units at $5.00. If Hefty used the periodic LIFO method,
cost of goods sold would be:


a. $2,780
b. $3,960
c. $9,700
d. $10,880
e. $10,000

Answer: D

Inventory accounts should be classified in which section of a balance sheet?

Inventory accounts should be classified in which section of a balance sheet?

a. Current assets
b. Investments
c. Intangible assets
d. Tangible assets
e. Non-current assets

Answer: A

Flynn Company uses an allowance method for recording uncollectible. At the due date of that account receivable, Flynn determined that $4,000 due from Mitchell will not be collected and should be write off. The entry Flynn should record to write off the Mitchell account is:

Flynn Company uses an allowance method for recording uncollectible. At the due date of that account receivable, Flynn determined that $4,000 due from Mitchell will not be collected and should be write off. The entry Flynn should record to write off the Mitchell account is:

a. Dr. Uncollectible Accounts Expense 4,000
Cr. Accounts Receivable 4,000
b. Dr. revenue 4,000
Cr. Accounts Receivable 4,000
c. Dr. Uncollectible Accounts Expense 4,000
Cr. Allow. for Uncollectible Accounts 4,000
d. Dr. Allow. for Uncollectible Accounts 4,000
Cr. Accounts Receivable 4,000
e. None of these

Answer: D

Branz Company had credit sales during the current year which amounted to $700,000. Historically, 3% of credit sales are uncollectible. If Branz uses the allowance method of recording uncollectible accounts, a proper journal entry for the year would be:

Branz Company had credit sales during the current year which amounted to $700,000. Historically, 3% of credit sales are uncollectible. If Branz uses the allowance method of recording uncollectible accounts, a proper journal entry for the year would be:

a. Dr. Accounts Receivable 21,000
Cr. Allow. for Uncollectible Accounts 21,000
b. Dr. Uncollectible Accounts Expense 21,000
Cr. Accounts Receivable 21,000
c. Dr. Uncollectible Accounts Expense 21,000
Cr. Allow. for Uncollectible Accounts 21,000
d. Dr. Allow. for Uncollectible Accounts 21,000
Cr. Accounts Receivable 21,000
e. None of these

Answer: C

Taylor Company uses the direct write-off method of recording uncollectible accounts receivable. Recently, a customer informed Taylor that he would be unable to pay $300 owed to Taylor. Taylor's proper journal entry to reflect this event would be:

Taylor Company uses the direct write-off method of recording uncollectible accounts receivable. Recently, a customer informed Taylor that he would be unable to pay $300 owed to Taylor. Taylor's proper journal entry to reflect this event would be:

a. Dr. Uncollectible Accounts Expense 300
Cr. Allowance. for Uncollectible Accounts 300
b. Dr. Allowance. for Uncollectible Accounts 300
Cr. Accounts Receivable 300
c. Dr. Uncollectible Accounts Expense 300
Cr. Accounts Receivable 300
d. Dr. revenue 300
Cr. Accounts Receivable 300
e. None of these

Answer: C

Adjusting depreciation expense of fixed asset at $8,000. Recording this transaction:

Adjusting depreciation expense of fixed asset at $8,000. Recording this transaction:

a. Debit depreciation $8,000 and credit accumulated depreciation expense $,8000
b. Debit depreciation expense $8,000 and credit accumulated depreciation expense $,8000
c. Debit depreciation expense $8,000 and credit fixed asset $,8000
d. Debit depreciation expense $8,000 and credit accumulated asset $,8000
e. None of these

Answer: B

Provide descriptions for this transaction: Debit unearned revenue $8,000 and credit revenue $8,000

Provide descriptions for this transaction:
Debit unearned revenue $8,000 and credit revenue $8,000

a. Received payment in advance from customers $8,000
b. Paid in advance for supplies by cash $8,000
c. Adjusting expense at the end of period $8,000
d. Adjusting unearned revenue at the end of period $8,000
e. None of these

Answer: D

Provide descriptions for this transaction: Debit unearned revenue $8,000 and credit revenue $,8000

Provide descriptions for this transaction:
Debit unearned revenue $8,000 and credit revenue $,8000

a. Received payment in advance from customers $8,000
b. Paid in advance for supplies by cash $8,000
c. Adjusting expense at the end of period $8,000
d. Adjusting unearned revenue at the end of period $8,000
e. None of these




Answer: D

Provide descriptions for this transaction: Debit Cash $8,000 and credit Unearned revenue $,8000

Provide descriptions for this transaction:
Debit Cash $8,000 and credit Unearned revenue $,8000

a. Received payment in advance from customers by cash $8,000
b. Paid in advance for supplies by cash $8,000
c. Adjusting expense at the end of period $8,000
d. Adjusting unearned revenue at the end of period $8,000
e. None of these

Answer: A

Provide descriptions for this transaction: Debit Cash $8,000 and credit Unearned revenue $,8000

Provide descriptions for this transaction: Debit Cash $8,000 and credit Unearned revenue $,8000

a. Received payment in advance from customers by cash $8,000
b. Paid in advance for supplies by cash $8,000
c. Adjusting revenue at the end of period $8,000
d. Adjusting unearned revenue at the end of period $8,000
e. None of these



Answer: A

Provide descriptions for this transaction: Debit insurance expense $8,000 and credit Insurance - prepaid expense $,8000

Provide descriptions for this transaction: Debit insurance expense $8,000 and credit Insurance - prepaid expense $,8000

a. Paid insurance fee by cash $8,000
b. Adjusting prepaid expense at the end of period $8,000
c. Arrange insurance contract on credit $8,000
d. Arrange inventory contract by cash $8,000
e. None of these

Answer: B

Provide descriptions for this transaction: Debit inventory $8,000 and credit cash $,8000

Provide descriptions for this transaction: Debit inventory $8,000 and credit cash $,8000

a. Buying inventory by cash $8,000
b. Buying inventory on credit $8,000
c. Arrange inventory contract on credit $8,000
d. Arrange inventory contract by cash $8,000
e. None of these

Answer: A

Provide descriptions for this transaction: Debit inventory $8,000 and credit liability $,8000

Provide descriptions for this transaction: Debit inventory $8,000 and credit liability $,8000

a. Buying inventory by cash $8,000
b. Buying inventory on credit $8,000
c. Arrange inventory contract on credit $8,000
d. Arrange inventory contract by cash $8,000
e. None of these

Answer: B

Provide descriptions for this transaction: Debit inventory $8,000 and credit liability $,8000

Provide descriptions for this transaction: Debit inventory $8,000 and credit liability $,8000

a. Buying inventory by cash $8,000
b. Buying inventory on credit $8,000
c. Arrange inventory contract on credit $8,000
d. Arrange inventory contract by cash $8,000
e. None of these

Answer: B

Provide descriptions for this transaction: Debit office supplies $8,000 and credit liability $,8000

Provide descriptions for this transaction: Debit office supplies $8,000 and credit liability $,8000

a. Buying office supplies by cash $8,000
b. Buying office supplies on credit $8,000
c. Arrange office supplies contract on credit $8,000
d. Arrange office supplies contract by cash $8,000
e. None of these




Answer: B

Provide descriptions for this transaction: Debit office supplies $2,000 and credit liability $,2000

Provide descriptions for this transaction: Debit office supplies $2,000 and credit liability $,2000

a. Buying office supplies by cash $2,000
b. Buying office supplies on credit $2,000
c. Arrange office supplies contract on credit $2,000
d. Arrange office supplies contract by cash $2,000
e. None of these

Answer: B

Provide descriptions for this transaction: Increase cash $1,000 and Increase equity $,1000

Provide descriptions for this transaction:
Increase cash $1,000 and Increase equity $,1000

a. Investment of cash in business by owner or performed services for cash
b. Investment of cash in business by owner
c. Performed services for cash
d. Collected cash from customers
e. None of these

Answer: A

A company might buy a service or product on credit. "On credit" implies that the cash payment will occur:

A company might buy a service or product on credit. "On credit" implies that the cash payment will occur:

a. On buying day
b. on a later date
c. on previous day
d. No due date
e. No obligation to pay

Answer: B

A company might provide a service or product on credit. "On credit" implies that the cash payment will occur:

A company might provide a service or product on credit. "On credit" implies that the cash payment will occur:

a. on a later date
b. on selling day
c. on previous day
d. No due date
e. No ability to collect




Answer: A

Moffat Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. What is the entry need to record when Moffat Company bill of a client for $25,000 of contract completed?

Moffat Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. What is the entry need to record when Moffat Company bill of a client for $25,000 of contract completed?

a. +$25,000 accounts receivable, -$25,000 accounts payable.
b. +$25,000 accounts receivable, +$25,000 accounts payable.
c. +$25,000 accounts receivable, +$25,000 cash.
d. +$25,000 accounts receivable, +$25,000 revenue.
e. +$25,000 accounts receivable, -$25,000 revenue.



Answer: D

John set up a new business and completed these transactions:

John set up a new business and completed these transactions:

1. Open new restaurant, by investing $30,000 cash and equipment valued at $10,000.
2. Purchased $1,000 of kitchen utility on credit.
3. Paid $1,500 cash for the staff's salary.
4. Service meals to customers and collected$4,000 cash


What was the balance of the cash account after these transactions were posted?



a. $46,500
b. $42,500
c. $45,500
d. $31,500
e. $32,500





Answer: E

The business completed these transactions:

The business completed these transactions:

1. Investing $20,000 cash and a building valued at $100,000.
2. Purchased $10,000 of a truck on credit.
3. Paid $20,000 cash for raw material.
4. Selling products and collected$40,000 cash.

What was the balance of the cash account after these transactions were posted?



a. $130,000
b. $30,000
c. $40,000
d. $140,000
e. $120,000

Answer: C

If Hussan, the owner of Hardware company, uses cash of the business to purchase a motorcycle for his travelling, the business should record this use of cash with an entry to:

If Hussan, the owner of Hardware company, uses cash of the business to purchase a motorcycle for his travelling, the business should record this use of cash with an entry to:

a. Debit Expense and credit Cash.
b. Credit Expense and Debit Cash.
c. Debit Cash and credit Withdrawals.
d. Debit Motorcycle and credit Cash.
e. Debit Withdrawals and credit Cash.




Answer: E

If Smith, the owner of a restaurant, uses cash of the business to pay for renting his house, the business should record this use of cash with an entry to:

If Smith, the owner of a restaurant, uses cash of the business to pay for renting his house, the business should record this use of cash with an entry to:

a. Debit Expense and credit Cash.
b. Credit Expense and Debit Cash.
c. Debit Cash and credit Withdrawals.
d. Debit Withdrawals and credit Cash.
e. Debit car and credit Cash.

Answer: D

If Jones, the owner of Hardware company, uses cash of the business to purchase a family car, the business should record this use of cash with an entry to:

If Jones, the owner of Hardware company, uses cash of the business to purchase a family car, the business should record this use of cash with an entry to:

a. Debit Expense and credit Cash.
b. Credit Expense and Debit Cash.
c. Debit Cash and credit Withdrawals.
d. Debit Withdrawals and credit Cash.
e. Debit car and credit Cash.

Answer: D

The account used to record the transfers of assets from a business to its owner (personal use) is:

The account used to record the transfers of assets from a business to its owner (personal use) is:

a. A revenue account.
b. The owner's withdrawals account.
c. The owner's capital account.
d. An expense account.
e. A liability account.

Answer: B

Selling products for cash $300 and $700 on credit. Show the general journal entry to record this transaction.

Selling products for cash $300 and $700 on credit. Show the general journal entry to record this transaction.

a. Debit Cash $ 300
Debit Account Receivable $700
Credit Revenue $1,000
b. Debit Cash $300
Debit Account Payable $700
Credit Revenue $1,000
c. Debit Account Receivable $700
Credit Unearned Revenue $700
d. Debit Unearned Revenue $700
Credit Account Receivable $700
e. Debit Cash $ 700
Credit Revenue $700

Answer: A

Textron Stores purchased a van that cost $35,000. The firm made a payment of $5,000 cash and the balance on credit. Show the general journal entry to record this transaction.

Textron Stores purchased a van that cost $35,000. The firm made a payment of $5,000 cash and the balance on credit. Show the general journal entry to record this transaction.

a. Debit Cash $5,000
Debit Account payable $30,000
Credit Van $35,000
b. Debit Cash $5,000
Debit Account payable $30,000
Credit van $ 35,000
c. Debit Van $ 5,000
Credit Cash $5,000
d. Debit Van $35,000
Credit Cash $5,000
Credit Account payable $30,000
e. Debit Van $30,000
Credit Account payable $30,000





Answer: D

On June 1, paid $200 cash for office supplies. Prepare journal entries to record the above transactions on June 1.

On June 1, paid $200 cash for office supplies. Prepare journal entries to record the above transactions on June 1.

a. Debit Cash $ 200
Credit office supplies $200
b. Debit office supplies expense $200
Credit Cash $ 200
c. Debit Cash $ 200
Credit office supplies expense $200
d. Debit equipment $200
Credit Cash $ 200
e. Debit office supplies $200
Credit Cash $ 200

Answer: C

On June 1, paid $200 cash for office supplies. Prepare journal entries to record the above transactions on June 1.

On June 1, paid $200 cash for office supplies. Prepare journal entries to record the above transactions on June 1.

a. Debit Cash $ 200
Credit office supplies $200
b. Debit office supplies expense $200
Credit Cash $ 200
c. Debit Cash $ 200
Credit office supplies expense $200
d. Debit equipment $200
Credit Cash $ 200
e. Debit office supplies $200
Credit Cash $ 200



Answer: B

Invested $10,000 cash, and $15,000 of computer equipment. Prepare journal entries to record the above transactions

Invested $10,000 cash, and $15,000 of computer equipment. Prepare journal entries to record the above transactions

a. Debit Cash $ 25,000
Credit Capital $25,000

b. Debit Cash $ 10,000
Debit Equipment $ 15,000
Credit Capital $25,000

c. Credit Cash $ 10,000
Credit Equipment $ 15,000

Provide descriptions for this transaction: Credit cash and debit owner equity

Provide descriptions for this transaction: Credit cash and debit owner equity

a. Investing by owner in cash
b. Paid expense of business
c. Withdrawal of cash from business by owner for personal use
d. Withdrawal of cash from business by owner for personal use or paid expense of business
e. None of these

Answer: D

Provide descriptions for this transaction: Credit supplies $ 2,000 and Debit expense $ 2,000

Provide descriptions for this transaction: Credit supplies $ 2,000 and Debit expense $ 2,000

a. None of these
b. Selling supplies on credit worth of $2,000
c. Buying supplies for cash worth of $ 2,000
d. Buying supplies on credit worth of $ 2,000
e. Used supplies in business worth of $ 2,000




Answer: E

Provide descriptions for this transaction: Debit cash $ 5,000 and Credit Account Receivable $5,000

Provide descriptions for this transaction: Debit cash $ 5,000 and Credit Account Receivable $5,000

a. Buying on credit.
b. Received cash for an account receivable.
c. Buying for cash.
d. Selling for cash.
e. Selling on credit.



Answer: B

Provide descriptions for this transaction: Credit cash $ 2,000 and Debit Account Payable $ 2,000

Provide descriptions for this transaction: Credit cash $ 2,000 and Debit Account Payable $ 2,000

a. Buying for cash.
b. Selling for cash.
c. Selling on credit.
d. Buying on credit.
e. Paid accounts payable.

Answer: E

Provide descriptions for this transaction: Debit supplies $1,000 and Credit Account Payable $1,000

Provide descriptions for this transaction: Debit supplies $1,000 and Credit Account Payable $1,000

a. Used supplies.
b. Purchased supplies.
c. Purchased supplies on credit.
d. Counted supplies.
e. Transfer supplies into inventory.

Answer: C

Provide descriptions for this transaction: Debit expense $2,000 and Credit supplies $2,000

Provide descriptions for this transaction: Debit expense $2,000 and Credit supplies $2,000

a. Purchased supplies by cash
b. Used supplies
c. Counted supplies
d. Purchased supplies on credit
e. None of these

Answer: B

A company purchased new computers at a cost of $28,000 on January 1, 2010. The computers are estimated to have a useful life of 5 years and have a salvage value of 3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the computers for the year ended December 31, 2010?

A company purchased new computers at a cost of $28,000 on January 1, 2010. The computers are estimated to have a useful life of 5 years and have a salvage value of 3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the computers for the year ended December 31, 2010?

a. $5,000
b. $6,000
c. $3,000
d. $5,600
e. $6,500




Answer: A

A company purchased new computers at a cost of $14,000 on October 1, 2010. The computers are estimated to have a useful life of 4 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the computers for the year ended December 31, 2010?

A company purchased new computers at a cost of $14,000 on October 1, 2010. The computers are estimated to have a useful life of 4 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the computers for the year ended December 31, 2010?

a. $250
b. $750
c. $875
d. $1,000
e. $3,000

Answer: B

Which statement is true about tangible asset?

Which statement is true about tangible asset?

a. Tangible assets are assets held for sale
b. Tangible assets are assets held for operating activity of the company
c. Tangible assets are assets acquired by loan
d. Tangible assets are assets never reduce value
e. Tangible assets are assets increase value over the time

Answer: B

Tangible assets include:

Tangible assets include:

a. Vehicle
b. Equipment.
c. Buildings.
d. Machinery.
e. All of these.

Answer: E

Nelson Company purchased equipment on July 1 for $27,500 and decided to depreciate the equipment on the straight-line method over its useful life of five years. Assuming the equipment's salvage value is $3,500, the amount of monthly depreciation expense Nelson should recognize is:

Nelson Company purchased equipment on July 1 for $27,500 and decided to depreciate the equipment on the straight-line method over its useful life of five years. Assuming the equipment's salvage value is $3,500, the amount of monthly depreciation expense Nelson should recognize is:

a. $2,400
b. $ 200
c. $4,800
d. $ 400
e. $ 450




Answer: D

The useful life of a fixed asset is:

The useful life of a fixed asset is:

a. The length of time it is productively used in a company's operations.
b. Never related to its physical life.
c. Its productive life, but not to exceed one year.
d. Don't need to be determined.
e. Determined by law.

Answer: A

A company has sales of $350,000, Account Receivable of 50,000 and estimates that 0.7% of its sales are uncollectible. The estimated amount of bad debts expense is

A company has sales of $350,000, Account Receivable of 50,000 and estimates that 0.7% of its sales are uncollectible. The estimated amount of bad debts expense is

a. $350
b. $2,450.
c. $3,450.
d. $300
e. $530




Answer: B

A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold?

A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold?

a. $395.
b. $410.
c. $450.
d. $510.
e. $520.





Answer: B

Which statement is true?

Which statement is true?

a. The cost of an inventory item includes its invoice cost plus any discount, and plus any added costs necessary to put it in a place and condition for sale.
b. The cost of an inventory item includes its invoice cost plus any discount, and minus any added costs necessary to put it in a place and condition for sale.
c. The cost of an inventory item includes its invoice cost minus any discount, and minus any added costs necessary to put it in a place and condition for sale.
d. The cost of an inventory item includes its invoice cost minus any discounts. The cost of an inventory item includes its invoice cost minus any discount, and plus any added costs necessary to put it in a place and condition for sale.

Answer: E