1.

Bonds with a face value of 1,000,000 but sold for 980,000 are sold at a discount
True
False

2.The annual amount of deprecation expense is likely to change from year to year
when using the unit-of-production method of depreciation.
True
False

3.When ABC Company pays the liability for the payroll taxes owed, it would
debit cash and credit payroll taxes expense for all taxes owed.
True
False

4. A current ratio of 2.5 would indicate the company has enough current assets to
pay off it current debt.
True
False

5. Allowance for Doubtful Accounts has a debit balance of $500 at the end of the
year (before adjustment), and uncollectible accounts expense is estimated at 3%
of net sales. If net sales are $600,000, the amount of the adjusting entry to record
the provision for doubtful accounts is
$18,500
$17,500
$18,000
none of the above.

6.What section of the statement of cash flows will the payment of ordinary
operating expenses go under?
Financing Activities
Investing Activities
Operating Activities
None of the Above

7.Which depreciation method is most widely used for financial reporting?

MACRS
Double declining
Straight line
Sum of the years
 8. Fred and Ethel share income equally. During the current year the partnership
net income was $40,000. Fred made withdrawals of $12,000 and Ethel made
withdrawals of $17,000. At the beginning of the year, the capital account balances
were: Fred capital, $54,000; Ethel capital, $58,000. Fred's capital account balance
at the end of the year is
$76,500
$64,500
$62,000
$50,000

9. When shares of stock held as an investment are sold, the difference between the
proceeds and the carrying amount of the investment is recorded as a(n)
prior period adjustment
extraordinary gain or loss
paid-in capital addition
gain or loss

10.The entry to record the amortization of a premium on bonds payable is

debit Premium on Bonds Payable, credit Interest Expense
debit Interest Expense, credit Premium on Bond Payable
debit Interest Expense, debit Premium on Bonds Payable, credit Cash
debit Bonds Payable, credit Interest Expense

11. Land costing $78,000 was sold for $68,000 cash. The loss on the sale was reported on
the income statement as other expense. On the statement of cash flows, what amount
should be reported as an investing activity from the sale of land? (Points: 3)
$50,000
$78,000
$118,000
$68,000

12. What section of the statement of cash flows will the receipt of the initial investment
by the owner go under? (Points: 3)
Financing Activities
Investing Activities
Operating Activities
None of the Above
13. What is the Accounts Receivable Turnover if Net Sales on Account are $100,000 and
the Beginning Accounts Receivable is $40,000 and the Ending Accounts Receivable is
$60,000? (Points: 3)
1.8
1.5
3.0
2.0

14. What is the Gross Profit % for the year if the Gross Profits are $200,000 and the Net
Sales are $500,000? (Points: 3)
40%
4%
25%
20%

15. Which one of the following below should be added to net income in calculating net
cash flow from operating activities using the indirect method? (Points: 3)
a gain on the sale of land
a decrease in accounts payable
an increase in accrued liabilities
dividends paid on common stock

16. Which of the following below generally is the most useful in analyzing companies of
different sizes (Points: 3)
comparative statements
common-sized financial statements
price-level accounting
audit report

17. The percent of fixed assets to total assets is an example of (Points: 3)

vertical analysis
solvency analysis
profitability analysis
horizontal analysis
18. Assume the following sales data for a company:
2007 $1,134,000
2006 $945,000
What is the percentage increase in sales from 2006 to 2007?
(Points: 3)
120%
20%
95%
25%

19. When recording the weekly payroll entry, ABC company would debit the following
accounts (select all that apply) (Points: 3)
Cash
Sales salaries expense
Office salaries expense
Medicare tax payable
Salaries payable

20.
For each of the following, match whether it would be disclosed as an operating,
financing, or investing activity on the statement of cash flows under the indirect method.
(Points: 3)
Matching:
 Potential
Answer Matches
:

: Purchased treasury stock

 : Dispose of equipment 1:
Operating
2:
: Net income Financing
3:
Investing

Purchase of Treasury Stock Financing

Dispose of Equipment Investing

Net Income Operating

21. Calculate the net pay for Mark Smith if he is paid $10 per hour, worked 44 hour, and
has the following deductions: Health insurance $25, Retirement savings $10, Federal
income tax $80. The company pay all hours worked over 40 at time and a half and the
rates for FICA and Medicare are 7.65% FICA and 1.45% Medicare. Federal
unemployment is 4.5%. Show all work or you will not receive full credit for this problem.
(Points: 10)

Total wage payment (40 x $10)+ (4 x $10 x 1.5) $460

Net Pay = $460 –[($460 x 7.65%) + ($460 x 1.45%) + ($25 + $10 + $80) = $303.14

22. (a) Prepare the journal entry to issue $200,000 bonds which sold for $195,000.

Cash $195,000
Bond Discount $5,000
Bonds Payable $200,000

(b) Prepare the journal entry to issue $200,000 bonds which sold for $202,000. Clearly
label each answer.
(Points: 10)
Cash $202,000
Bond Payable $200,000
Bond Premium $2,000

23. Indicate the section (operating activities, investing activities, financing activities, or
none) in which each of the following would be reported on the statement of cash flows
prepared by the indirect method: Clearly label each answer.
(a) Gain on sale of fixed assets Operating
(b) Retirement of long-term debt Financing
(c) Operating income Operating
(d) Sale of capital stock Financing
(e) Payment of interest expense operating
(f) Payment of cash dividends Financing
(g) Purchase of fixed assets Investing
(h) Sale of fixed assets Investing
(i) Receipt of interest revenue operating
(j) Distribution of stock dividends Financing

(Points: 10)

24.
The Little Company reported net income of $100,000 for the current year. Depreciation
recorded on buildings and equipment amounted to $70,000 for the year. Balances of the
current asset and current liability accounts at the beginning and end of the year are as
follows:
End of Year Beginning of Year
Cash $20,000 $15,000
Accounts receivable 19,000 32,000
Inventories 50,000 65,000
Accounts payable 12,000 18,000
Instructions
Prepare the cash flows from the operating activities section of the statement of cash flows
using the indirect method.
(Points: 10)
Net income $100,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense 70,000
Decrease in accounts receivable 13,000
Decrease in inventories 15,000
Decrease in accounts payable (6,000)
Net cash provided by operating activities $192,000