Question 1.1 The matching principle requires: That expenses be ignored if their effect on the

Question 1.1  The matching principle requires: 

        That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user

        The use of the direct write-off method for bad debts

        The use of the allowance method of accounting for bad debts

        That bad debts be disclosed in the financial statements

        That bad debts not be written off

Question 2.2. Many companies use accelerated depreciation in computing taxable income because: 

        It is required by the tax rules

        It is required by financial reporting rules

        It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due

        Using it causes a company to use higher income in the early years of the asset's useful life

        The results are identical to straight-line depreciation

Question 3.3. A contingent liability: 

        Is always of a specific amount

        Is a potential obligation that depends on a future event arising out of a past transaction or event

        Is an obligation not requiring future payment

        Is an obligation arising from the purchase of goods or services on credit

        Is an obligation arising from a future event

Question 4.4. Advance ticket sales totaling $6,000,000 cash would be recognized as follows: 

        Debit Sales, credit Unearned Revenue

        Debit Unearned Revenue, credit Sales

        Debit Cash, credit Unearned Revenue

        Debit Unearned Revenue, credit Cash

Question 5.5. Revenue expenditures: 

        Are additional costs of plant assets that do not materially increase the asset's life or its productive capabilities

        Are known as balance sheet expenditures

        Extend the asset's useful life

        Substantially benefit future periods

        Are debited to asset accounts

Question 6.6. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: 

        $0.75

        $0.625    

        $0.875

        $6.00

        $8.00

Question 7.7. Obligations due to be paid within one year or within the company's operating cycle, whichever is longer, are:

        Current assets

        Current liabilities

        Earned revenues

        Operating cycle liabilities

        Bills

Question 8.8. The interest accrued on $3,600 at 7% for 60 days is: 

        $36

        $42     

        $252

        $180

        $420

Question 9.9. A company had a fixed interest expense of $6,000, its income before interest expense and any income taxes was $18,000 and its net income was $8,400. The company's times interest earned ratio is equals to 

        0.33

        0.71

        1.40

        3.00      

        12,000

Question 10.10. In the accounting records of a defendant, lawsuits: 

        Are estimated liabilities

        Should always be recorded

        Should always be disclosed

        Should be recorded if payment for damages is probable and the amount can be reasonably estimated

Question 11.11. Depletion: 

        Is the process of allocating the cost of natural resources to periods in which they are consumed

        Is also called depreciation

        Is also called amortization

        Is an unrealized expense reported in equity

        Is the process of allocating the cost of intangibles to periods in which they are used

Question 12.12. A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the: 

        Direct write-off method

        Aging of accounts receivable method

        Percentage of sales method

        Aging of investments method

        Percent of accounts receivable method

Question 13.13. Pepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coke's turnover was 9.3 for this year and 9.3 for last year. These results imply that: 

        Coke has the better turnover for both years

        Pepsi has the better turnover for both years

        Coke's turnover is improving

        Coke's credit policies are too loose

        Coke is collecting its receivables more quickly than Pepsi in both years

Question 14.14. A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining:

        2 years

        5 years

        7 years    

        8 years

        10 years

Question 15.15. FICA taxes include:

        Social Security taxes

        Charitable giving

        Employee income taxes

        Unemployment taxes

Question 16.16. Which of the following statements is true? 

        Interest on bonds is tax deductible

        Interest on bonds is not tax deductible

        Dividends to stockholders are tax deductible

        Bonds do not have to be repaid

Question 17.17. The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:  

        Preemptive right

        Proxy right

        Right to call

        Financial leverage

Question 18.18. A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a: 

        Stock dividend

        Stock subscription

        Premium on stock

        Discount on stock

        Treasury stock

Question 19.19. A bond sells at a discount when the: 

        Contract rate is above the market rate

        Contract rate is equal to the market rate

        Contract rate is below the market rate

        Bond has a short-term life

        Bond pays interest only once a year

Question 20.20. When a bond sells at a premium: 

        The contract rate is above the market rate

        The contract rate is equal to the market rate

        The contract rate is below the market rate

        It means that the bond is a zero coupon bond

        The bond pays no interest

Question 21.21. Secured bonds: 

        Are also referred to as debentures

        Have specific assets of the issuing company pledged as collateral

        Are backed by the issuer's bank

        Are subordinated to those of other unsecured liabilities

        Are the same as sinking fund bonds

Question 22.22. To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by: 

        Safe deposit boxes

        Mortgages

        Equity

        The FASB

        Debentures

Question 23.23. What is the debt to equity ratio for a company who has $700,000 in total liabilities and $3,500,000 in total equity? 

        20%         

        5

        $2,100,000

        2%

        .5

Question 24.24. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: 

        Debentures

        Discounted notes

        Installment notes

        Indentures

        Investment notes

Question 25.25. A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value factor for an annuity for 7 years at 9% is 5.0330. The present value of the loan is: 

        $9,000

        $5,033

        $63,000

        $57,330

        $45,297     

Question 26. 26. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is. 

        $0

        $33,750    

        $67,500

        $750,000

        $1,550,000

Question 27. 27. Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called: 

        Coupon bonds

        Callable bonds

        Serial bonds

        Convertible bonds

Question 28.28. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: 

        $75,137

        $94,013

        $300,000    

        $375,685

Question 29. 29. A bondholder that owns a $1,000, 10%, 10-year bond has: 

        Ownership rights

        The right to receive $10 per year until maturity

        The right to receive $1,000 at maturity

        The right to receive $10,000 at maturity

Question 30. 30. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is called:  

        Noncumulative preferred stock

        Participating preferred stock

        Callable preferred stock

        Cumulative preferred stock

        Convertible preferred stock

Question 31. 31. A company has a profit margin of 12%. If net income is equal to $450,000 and average total asset is equal to $600,500, how much are sales? 

        $1,050,500

        $126,060

        $72,060

        $54,000

        $3,750,000   

Question 32.32. An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n): 

        Short-term marketable equity security

        Operating activity

        Common stock

        Cash equivalent

        Financing activity

Question 33.33. The statement of cash flows reports: 

        Assets, liabilities and equity

        Revenues, gains, expenses and losses

        Cash inflows and outflows for an accounting period

        Equity, net income and dividends

        Changes in equity

Question 34.34. The average number of times a company's inventory is sold during an accounting period, calculated by dividing cost of goods sold by the average inventory balance is equal to the: 

        Accounts receivable turnover

        Inventory turnover

        Days' sales uncollected

        Current ratio

Question 35.35. Wessen Company reports net income of $180,000 for the year ended December 31, 2010. It also reports $45,800 depreciation expense, $21,410 amortization expense and a $15,000 gain on the sale of machinery. Its comparative balance sheets reveal a $28,300 increase in accounts receivable, $20,400 decrease in accounts payable, $10,470 increase in prepaid expenses, and $33,140 decrease in wages payable. What is the net cash flows provided (used) by operating activities using the indirect method? 

        ($140,200)

        $133,490

        $139,900    

        ($133,490)

        $78,300

Question 36.36. A company's transactions with its creditors to borrow money and/or to repay the principal amounts of loans are reported as cash flows from: 

        Operating activities

        Investing activities

        Financing activities

        Direct activities

        Indirect activities

Question 37.37. One of several ratios that reflects solvency includes the: 

        Acid-test ratio

        Current ratio

        Times interest earned ratio

        Total asset turnover

        Days' sales in inventory

Question 38.38. The ability to provide financial rewards sufficient to attract and retain financing is called:

        Liquidity and efficiency

        Solvency

        Profitability

        Market prospects

        Creditworthiness

Question 39.39. A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales is equal to the: 

        Acid-test ratio

        Merchandise turnover

        Price earnings ratio

        Accounts receivable turnover

        Profit margin ratio

Question 40.40. Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as: 

        Financing activities

        Investing activities

        Operating activities

        Direct activities

        Indirect activities

Question 41.41. Net sales divided by average accounts receivable is equal to the: 

        Days' sales uncollected

        Average accounts receivable ratio

        Current ratio

        Profit margin

        Accounts receivable turnover ratio

Question 42.42. Net income divided by net sales is equal to the: 

        Return on total assets

        Profit margin

        Current ratio

        Total asset turnover

        Days' sales in inventory

Question 43.43. A company had a market price of $83.12 per share, earnings per share of $4.87 and dividends per share of $5.40. Its price-earnings ratio is equal to:

        .056

        .065

        8.09

        15.39

        17.07     

Question 44.44. Financial reporting refers to: 

        The application of analytical tools to general-purpose financial statements

        The communication of relevant financial information to decision makers

        Financial statements only

        Ratio analysis

        Profitability

Question 45.45. Dividing ending inventory by cost of goods sold and multiplying the result by 365 is equal to the: 

        Inventory turnover ratio

        Profit margin

        Days' sales in inventory

        Current ratio

        Total asset turnover

Question 46.46. Selected information from Doodle Company's for 2010 is below (in millions):

Inventory decreased   $6.0 

Accounts Payable increased by   $7.0 

Cost of goods sold   $36.50 

Salaries Expense   $24.0 

Salaries Payable decreased   $6.0 

Accounts Receivable increased by   $10.0 

Sales   $56.4

What is the amount of cash paid for salaries by Doodle during 2010? 

        $4.0

        $6.0

        $24.0

        $30.0    

        $18.0

Question 47.47. Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in dollar amounts and percents, are referred to as: 

        Period-to-period statements

        Controlling statements

        Successive statements

        Comparative statements

        Serial statements

Question 48.48. External users of financial information: 

        Are those individuals involved in managing and operating the company

        Include internal auditors and consultants

        Are not directly involved in operating the company

        Make strategic decisions for a company

        Make operating decisions for a company

Question 49.49. Trend analysis is also called: 

        Financial analysis

        Ratio analysis

        Index number trend analysis

        Industry analysis

Question 50.50. Which of the following items is not likely to be considered an extraordinary item?

        Loss from an unexpected union strike

        Condemnation of property by the city government

        Loss of use of property due to a new and unexpected environmental regulation

        Loss due to an earthquake in Florida

        Expropriation of property by a foreign government