Accounting and Finance Practice Questions
- TRUE
- $23,000
Net Income and Financial Statements
Net income (loss) appears in which two financial statements?
Income Statement and Statement of Stockholders’ Equity
Financial Statement Over Company’s Life
The financial statement that represents activity over the entire life of a company is:
Balance Sheet
Capital Expenditure Example
Adding a refrigeration unit to a delivery truck that previously did not have this capability is an example of:
Additions
Land Purchase Cost Calculation
Cowboy Development incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building:
- Sale price of land: $400,000
- Sale of salvaged parts on land: $20,000
- Demolition of the old building: $30,000
- Ground breaking ceremony: $1,500
- Land prep: $7,500
What amount should be recorded for the purchase of land?
$417,500
Activity-Based Depreciation
During the first two years, Supplies, Inc. drove the company truck 15,000 and 22,000 miles, respectively, to deliver merchandise to its customers. The company originally purchased the truck for $175,000. If the truck has an estimated life of 10 years or 300,000 miles, with an estimated residual value of $25,000, what amount of depreciation expense should Supplies, Inc. record in the second year using the activity-based method?
$11,000
Patent Carrying Value
Berry Co. purchases a patent on January 1, 2018, for $40,000 and the patent has an expected useful life of five years with no residual value. Assuming Berry Co. uses the straight-line method, what is the carrying value of the patent on December 31, 2019?
$24,000
Depreciation Factors
The factors used to compute depreciation expense are an asset’s:
Cost, residual value, and service life
Current Portion of Long-Term Debt
The current portion of long-term debt is:
The amount that will be paid within the next year
Equipment Depreciation Calculation
Kansas Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years.
$14,400
Balance Sheet Liability Classification
Region Jet has a $50 million liability at December 31, 2018, of which $10 million is payable in 2019. In its December 31, 2018 balance sheet, the company reports the $50 million debt as:
$10 million current liability and a $40 million long-term liability on the balance sheet
Liquidity Measures
Which of the following measures of liquidity does not control for the relative size of the company?
They all control for the relative size of the company
- 2.98
- $5,000 interest payable
- Debit Interest Expense, $2,000
- TRUE
Note Payable Journal Entries
On January 1, 2018, Julee Enterprises borrows $30,000 to purchase a new Toyota Highlander by agreeing to a 6%, 4-year note with the bank. Payments of $704.55 are due at the end of the month with the first installment due on January 31, 2018. Record the issuance of the note payable and the first two monthly payments.
- JAN 1
- CASH – Debit 30,000
- NOTES PAYABLE – CREDIT 30,000
- JAN 31
- INTEREST EXPENSE – DEBIT 150
- NOTES PAYABLE – DEBIT 554.55
- CASH – CREDIT 704.55
- FEB 28
- INTEREST EXPENSE – DEBIT 147.23
- NOTES PAYABLE – DEBIT 557.32
- CASH – CREDIT 704.55
- JAN 1
Common Stock Issuance
If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of the following accounts would be credited?
Additional Paid-in Capital
Stock Dividends and Stock Splits
Large stock dividends and stock splits are issues primarily to:
Lower the trading price of the stock per share
Treasury Stock Reporting
Treasury Stock is normally reported as:
A reduction of total stockholders’ equity
Common Stock Issuance Journal Entry
When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include:
A credit to Paid-in Capital for $225,000
Preferred Stock Issuance
A company issues 1,00 shares of $1 par value preferred stock for $5 per share. What is true about the journal entry to record the issuance?
Credit Additional Paid-in Capital $4,000
- Match by letter the following terms with their definitions
Treasury Stock Acquisition Effect
When treasury stock is acquired, what is the effect on assets and stockholders’ equity?
Assets and stockholder’s equity decrease
Financing Activities Definition
Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities.
FALSE
Angel Investors Focus
Angel investors are investors that focus on companies at or near bankruptcy.
FALSE
Preferred Stock Preferences
Preferred stock is called preferred because it usually has two preferences over common stock. These preferences related to:
Dividends and distribution of assets if the corporation is dissolved.
Indirect Method for Cash Flows
Using the indirect method, we begin with net income and list adjustments to net income in order to arrive at operating cash flows.
TRUE
Balance Sheet and Cash Flow Relationships
All classifications on the Balance Sheet have a general relationship with sections identified on the Statement of Cash Flows. Indicate which relationships are correctly identified in the table below.
IV, V
Statement of Cash Flows Accuracy
Which of the following is not correct about the statement of cash flows?
Cash dividends paid are classified as cash flows from operating activities.
Net Operating Cash Flows Calculation
Assuming Net income for the year is $115,000, what is the net operating cash flows given the following information?
$112,000
Investing Activities Exclusions
Cash flows from investing activities do not include:
Proceeds from the issuance of common stock
Cash Flow Calculation
Bad Brads BBQ had cash flows for the year as follows ($ in millions):
$100
Indirect Method and Accounts Payable
Under the indirect method, an increase in accounts payable is added to net income to arrive at net cash flows from operating activities.
TRUE
Cash Flow Transactions
Listed below are several transactions. For each transaction, indicate by letter whether the cash effect of each transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F), or noncash (NC) activity. Also, indicate whether the transaction is a cash inflow (CI), cash outflow (CO), or no effect on cash (NE).
Cash Dividends and Investing Activities
We report the payment of cash dividends as cash outflow from investing activities.
FALSE
Ratio Analysis
We can use ratios to help evaluate a firm’s performance and financial position.
TRUE
Debt-to-Equity Ratio and Bankruptcy Risk
Other things being equal, the higher the debt-to-equity ratio, the higher the risk of bankruptcy.
TRUE
External Transactions Definition
External transactions are transactions the firm conducts with a separate economic entity, such as selling products to a customer, purchasing supplies from a vendor, paying salaries to an employee, and borrowing money from a bank.
TRUE
Service for Cash and Stockholders’ Equity
Providing service to customers for cash causes stockholders’ equity to increase.
TRUE
Common Stock Transaction
A company sells common stock for $20,000 cash. Record the transaction.
- CASH – DEBIT 20,000
- COMMON STOCK – CREDIT 20,000
Account Balance After Closing Entries
Which one of the following accounts would NOT have a balance after closing entries?
Dividends
Cash T-Account
Below is the company’s cash T-account:
- Beg. 1,200
- 5,200
- 3,100
- End 3,300
Payment for salaries
Adjusted Trial Balance
An adjusted trial balance:
Is a list of all accounts and their balances after adjusting entries?
Gross Profit Calculation
Given the information in the table below, what is the company’s gross profit?
- Sale revenue $350,000
- Accounts receivable $280,000
- Ending inventory $230,000
- Cost of goods sold $180,000
- Sales returns $50,000
- Sales discount $20,000
$100,000
Sarbanes-Oxley Act
In response to corporate accounting scandals and to public outrage over seemingly widespread unethical behavior of top executives, Congress passed the Sarbanes-Oxley Act.
TRUE
Cash Equivalents
Common examples of cash equivalents include all of the following except:
Accounts receivable
Nonoperating Revenues and Expenses
Which of the following items may be classified as nonoperating revenues and expenses?
All of the other answers are classified as nonoperating revenues and expenses
Inventory Classification
Inventory is usually reported as a long-term asset in the balance sheet.
FALSE