Do you know how to account for the issuance of stock?
1. On February 1, Secret Gardens Inc. sells 3,000 shares of its $1 par value common stock for $13 per
share. The journal entry on February 1 will include a:
a. Debit to Cash of $3,000
b. Debit to Cash of $36,000
c. Credit to Common Stock of $39,000
d. Credit to Paid-In Capital in Excess of Par $36,000
e. Credit to Common Stock $36,000
Answer D
2. On December 1, Chocolate Inc. sells 2,000 shares of its $1 par value common stock for $16 per share.
The journal entry on December 1 will include a debit to Cash of $32,000.
a. True
b. False
Answer: True
3. A corporation issues 5,000 shares of its $6 par value, 10%, cumulative preferred stock on November
20 for $45 per share. Calculate the increase to Paid-In Capital in Excess of Par on the issue date.
Answer: $195,000
Do you know how to account for dividends?
4. On the declaration date of cash dividends, which account is debited?
a. Dividends Payable
b. Retained Earnings
c. Cash
d. Treasury Stock
Answer: B
5. On the payment date of cash dividends, which account is credited?
a. Dividends Payable
b. Retained Earnings
c. Cash
d. Treasury Stock
Answer: C
6. A company has 3,500 shares outstanding of its $8 par value, 10%, cumulative preferred stock. On
October 9, 2020, the company declares a $12,000 cash dividend. Assume the company did not pay
dividends in 2018 or 2019. Calculate the amount of the dividend allocated to common shareholders.
Answer: $3,600
Dividends to preferred shareholders include amounts for 2018, 2019 and 2020.
Do you know how to account for treasury stock?
7. Almond Corporation had the following transactions:
April 1: Purchased 7,000 shares of its $1 par value common stock paying $9 per share.
May 10: Sold 2,000 shares of the stock purchased on April 1 for $9 per share.
June 20: Sold 3,000 shares of the stock purchased on April 1 for $14 per share.
What is the journal entry for the April 1 transaction?
a. Dr. Treasury Stock $63,000; Cr. Cash $63,000
b. Dr. Cash $63,000; Cr. Common Stock $63,000
c. Dr. Treasury Stock $7,000; Cr. Cash $7,000
d. Dr. Cash $63,000; Cr. Treasury Stock $63,000
e. Dr. Common Stock $7,000; Cr. Cash $7,000
Answer: A
8. Book Corporation had the following transactions:
April 1: Purchased 7,000 shares of its $1 par value common stock paying $9 per share.
May 10: Sold 2,000 shares of the stock purchased on April 1 for $9 per share.
June 20: Sold 3,000 shares of the stock purchased on April 1 for $14 per share.
The journal entry on June 20 includes:
a. A debit to Treasury Stock for $27,000
b. A credit to Cash for $27,000
c. A credit to Treasury Stock for $42,000
d. A credit to Paid-In Capital – Treasury Stock for $42,000
e. A credit to Paid-In Capital – Treasury Stock for $15,000
Answer: E
Can you classify and calculate cash flows?
9. Purchasing treasury stock is considered:
a. A financing cash inflow
b. A financing cash outflow
c. An investing cash inflow
d. An investing cash outflow
e. An operating cash outflow
Answer: B
10. Selling a building for cash is considered:
a. A financing cash inflow
b. A financing cash outflow
c. An investing cash inflow
d. An investing cash outflow
e. An operating cash outflow
Answer: C
11. Borrowing cash through an issuance of long-term debt is considered:
a. A financing cash inflow
b. A financing cash outflow
c. An investing cash inflow
d. An investing cash outflow
e. An operating cash outflow
Answer: A
12. A decrease in Accounts Payable is reported as:
a. A negative adjustment to net income in the operating section
b. A positive adjustment to net income in the operating section
c. A positive adjustment to the investing section
d. A negative adjustment to the investing section
Answer: A
13. Which of the following is a positive adjustment to net income in the operating section of the
statement of cash flows?
a. An increase in inventory
b. A decrease in accounts receivable
c. A decrease in salaries payable
d. An increase in long-term notes payable
Answer: B
14. Which of the following is a negative adjustment to net income in the operating section of the
statement of cash flows?
a. A decrease in inventory
b. A decrease in accounts receivable
c. An increase in accounts payable
d. A decrease in salaries payable
e. An increase in equipment
Answer: D
15. Below is information for Leah Co.
Increase in Accounts Receivable: $2,000
Decrease in Inventory: $1,000
Increase in Accounts Payable: $500
Increase in Salaries Payable: $800
Increase in Equipment: $5,000
Decrease in Buildings: $10,000
Net Income: $33,000
Depreciation Expense: $6,000
Calculate cash provided (used) by operating activities:
Answer: $39,300
$33,000 + $6,000 + $800 + $500 + $1,000 – $2,000 = $39,300
Ratio Analysis
Company A Company B
2019 2018 2019 2018
Inventory Turnover 4.3 5.5 8.2 8.3
A/R Turnover 12.6 11.5 9.1 7.5
16. Which of the following is true when comparing Company A and Company B?
a. Company A is more efficient at selling their average inventory balance.
b. Company B takes longer to collect from their average accounts receivable.
c. Company A is having issues collecting cash from credit sales.
Answer: B
Company A Company B
2019 2018 2019 2018
Debt Ratio 60% 55% 32% 35%
17. Which of the following is true when comparing Company A and Company B?
a. Company A is financed with more equity than debt.
b. Company A’s higher debt ratio is better.
c. Company B has less risk.
Answer: C
Company A Company B
2019 2018 2019 2018
Current Ratio 4.1 3.8 5.9 4.8
Quick Ratio 1.9 1.6 2.2 1.9
18. When comparing Company A and Company B, Company B has better liquidity than Company A.
a. True
b. False
Answer: True
Do you know your financial statements?
19. Accounts Payable and Common Stock are both reported on the:
a. Statement of Retained Earnings
b. Balance Sheet
c. Income Statement
d. Statement of Stockholders’ Equity
Answer B
20. Green Gardens Co. is getting ready to prepare its financial statements for the period. On which
financial statement will the company report Service Revenue of $8,700?
a. Statement of Retained Earnings
b. Balance Sheet
c. Statement of Financial Position
d. Income Statement
e. Statement of Stockholders’ Equity
Answer D
21. Accounts Receivable is reported on which financial statement?
a. Statement of Retained Earnings
b. Balance Sheet
c. Income Statement
d. Statement of Stockholders’ Equity
Answer B
Do you know your financial statement formulas?
22. Gracie Co. has current assets of $32,000, long-term assets of $58,000, current liabilities of $14,000,
and long-term liabilities of $20,000. Calculate Stockholders’ Equity.
Answer: $56,000
23. Gracie Co. has the following information:
Net Sales: $22,000
COGS: $12,000
Operating Expenses: $3,000
Interest Revenue: $800
Unearned Revenue: $1,100
Accounts Payable: $500
Accounts Receivable: $4,000
Calculate Net Income for Gracie Co.
Answer: $7,800
24. Gracie Co. has the following information:
Net Sales: $22,000
COGS: $12,000
Operating Expenses: $3,000
Interest Revenue: $800
Unearned Revenue: $1,100
Accounts Payable: $500
Accounts Receivable: $4,000
Calculate Gross Profit for Gracie Co.
Answer: $10,000
25. Gracie Co. has the following information:
Net Sales: $22,000
COGS: $12,000
Operating Expenses: $3,000
Interest Revenue: $800
Unearned Revenue: $1,100
Accounts Payable: $500
Accounts Receivable: $4,000
Beginning Retained Earnings: $45,000
Dividends: $6,000
Calculate the ending balance in Retained Earnings for Gracie Co.
Answer: $46,800
Do you know your account classifications?
26. Super Mario Corp. had the following account balances at the end of the period:
Accounts Receivable: $1,000
Unearned Revenue: $500
Accounts Payable: $300
Inventory: $600
Equipment: $5,000
Retained Earnings: $2,000
Cash: $1,200
Calculate the amount of current assets.
Answer $2,800
27. Under which category is Common Stock classified?
a. Assets
b. Liabilities
c. Retained Earnings
d. Stockholders’ Equity
Answer D
28. Notes Payable is classified as a(n):
a. Liability
b. Asset
c. Retained Earnings
d. Stockholders’ Equity
Answer A
Do you know your standard transactions and their journal entries?
29. On August 1, Fluffy Inc. purchased $1,200 of supplies on account. On August 15, Fluffy Inc. made a
$500 payment towards the August 1 transaction. What is the journal entry for the August 15
transaction?
a. Dr. Supplies 500 Cr. Accounts Payable 500
b. Dr. Supplies 1,200 Cr. Cash 1,200
c. Dr. Supplies 1,200 Cr. Accounts Payable 1,200
d. Dr. Cash 500 Cr. Accounts Payable 500
e. Dr. Accounts Payable 500 Cr. Cash 500
Answer E
Impact on Accounting Equation: Decrease liabilities and decrease assets
30. A collection of cash from accounts receivable will include:
a. A debit to Accounts Receivable
b. A credit to Cash
c. A credit to Accounts Receivable
d. A debit to Accounts Payable
e. A credit to Accounts Payable
Answer C
Impact on Accounting Equation: Increase assets and decrease assets
31. On February 3, Purple Co. performed services for cash of $4,000. On February 9, Purple Co.
performed $3,200 of services on account. The customer expects to pay the company in the following
month. What is the journal entry for the February 9 transaction?
a. Dr. Accounts Receivable 3,200 Cr. Service Revenue 3,200
b. Dr. Cash 4,000 Cr. Service Revenue 4,000
c. Dr. Cash 3,200 Cr. Service Revenue 3,200
d. Dr. Cash 3,200 Cr. Accounts Receivable 3,200
Answer A
Impact on Accounting Equation: Increase assets and increase stockholders’ equity
32. If Tom Co. purchases equipment on account, this transaction will include:
a. A debit to Accounts Payable
b. A debit to Accounts Receivable
c. A debit to Equipment
d. A credit to Cash
e. A debit to Cash
Answer C
Impact on Accounting Equation: Increase assets and increase liabilities
Do you understand the flow of standard transactions and how to calculate ending balances?
33. On September 1, Jerry Co. sold $2,000 of services for cash. On September 10, Jerry Co. sold $5,000
of services on account. On September 20, Jerry Co. collected $3,500 from accounts receivable.
Calculate the ending balance in the Cash account for September assuming no beginning balance.
Answer $5,500
34. On September 1, Jerry Co. sold $2,000 of services for cash. On September 10, Jerry Co. sold $5,000
of services on account. On September 20, Jerry Co. collected $3,500 from accounts receivable.
Calculate the ending balance in Accounts Receivable for September assuming no beginning balance.
Answer $1,500
35. On September 1, Jerry Co. sold $2,000 of services for cash. On September 10, Jerry Co. sold $5,000
of services on account. On September 20, Jerry Co. collected $3,500 from accounts receivable.
Calculate the ending balance in Service Revenue for September assuming no beginning balance.
Answer $7,000
Do you understand adjusting journal entries?
36. At the beginning of October, NC Inc. had a beginning balance in Supplies of $650. During the month,
the company purchased $800 of supplies on account. At the end of the month, the company
counted up the remaining supplies and determined there was $300 left. What amount should be
debited to Supplies Expense at the end of October?
Answer $1,150
37. Nick Co. is a firm that provides legal services. On September 15, a client pays $2,000 upfront To Nick
Co. for legal services to be performed over the next month. Nick Co. will start providing legal services
immediately. What is the journal entry on September 15?
a. Dr. Accounts Receivable 2,000 Cr. Cash 2,000
b. Dr. Cash 2,000 Cr. Service Revenue 2,000
c. Dr. Unearned Revenue 2,000 Cr. Cash 2,000
d. Dr. Cash 2,000 Cr. Unearned Revenue 2,000
e. Dr. Service Revenue 2,000 Cr. Unearned Revenue 2,000
Answer D
38. Nick Co. is a firm that provides legal services. On September 15, a client pays $2,000 upfront to Nick
Co. for legal services to be performed over the next month. Nick Co. will start providing legal services
immediately. What is the adjusting journal entry at the end of September?
a. Dr. Unearned Revenue 1,000 Cr. Service Revenue 1,000
b. Dr. Service Revenue 1,000 Cr. Unearned Revenue 1,000
c. Dr. Cash 1,000 Cr. Service Revenue 1,000
d. Dr. Accounts Receivable 1,000 Cr. Service Revenue 1,000
Answer A
39. Fancy Bags Co. prepaid 5 months of rent on April 1. Monthly rent costs $1,000. What is the adjusting
journal entry at the end of April related to rent?
a. Dr. Prepaid Rent 5,000 Cr. Cash 5,000
b. Dr. Prepaid Rent 1,000 Cr. Cash 1,000
c. Dr. Rent Expense 1,000 Cr. Prepaid Rent1,000
d. Dr. Rent Expense 1,000 Cr. Cash 1,000
e. Dr. Prepaid Rent 1,000 Cr. Rent Expense 1,000
Answer C
40. Fancy Bags Co. prepaid 5 months of rent on April 1. Monthly rent costs $1,000. What is the balance
in Prepaid Rent at the end of May after adjusting entries are recorded?
Answer $3,000
41. BB Co.’s employees earned salaries totaling $15,000 for the month of November. However, BB Co.
will not pay the salaries until the first of December. The adjusting entry at the end of November will
include a:
a. Debit to Salaries Payable
b. Debit to Salaries Expense
c. Debit to Cash
d. Credit to Cash
e. Debit to Accounts Receivable
Answer B
Do you know closing journal entries?
42. Deluxe Pastry Co. had the following amounts for the period ending December 31:
Revenues: $6,400
Expenses: $4,000
Dividends: $800
The closing entry for Expenses will include a:
a. Debit to Expenses of $4,000
b. Credit to Expenses of $4,000
c. Credit to Retained Earnings of $4,000
d. Credit to Expenses of $2,400
Answer B
43. Deluxe Pastry Co. had the following amounts for the period ending December 31:
Revenues: $6,400
Expenses: $4,000
Dividends: $800
What is the closing entry for Revenues?
a. Dr. Retained Earnings 6,400 Cr. Revenues 6,400
b. Dr. Revenues 2,400 Cr. Retained Earnings 2,400
c. Dr. Revenues 6,400 Cr. Retained Earnings 6,400
d. Dr. Retained Earnings 2,400 Cr. Revenue 2,400
Answer C
