Financial Accounting Exam MCQ Solutions
1. The entry to record the cost of merchandise inventory sold involves a
- debit to Merchandise Inventory and a credit to Sales Revenue.
- debit to Cost of Goods Sold and a credit to Merchandise Inventory.
- debit to Merchandise Inventory and a credit to Cost of Goods Sold.
- debit to Cost of Goods Sold and a credit to Sales Revenue.
- debit to Merchandise Inventory and a credit to Accounts Receivable.
2. In contrast to long-lived tangible assets, U.S. GAAP does not require ________ for indefinite-life intangible assets.
- a fair value test
- a recover ability test
- a historical cost test
- a present value test
- a future value test
3. Those shares which have been issued and that are in the hands of shareholders are known as
- authorized shares.
- issued shares.
- treasury shares.
- outstanding shares.
- convertible shares.
4. By using ________, shareholders may express (vote) their preference without traveling to the site of the annual meeting.
- a preemptive right
- a stock split
- a stock option
- a corporate proxy
- a stock dividend
5. The method of accounting for trading securities and available-for-sale securities is known as the
- balance sheet method.
- market method.
- equity method.
- consolidated method.
- maturity method.
6. If the level of ownership changes such that the investor must change the accounting method to report the investment, the investor should
- continue to use the same method to abide by the consistency principle
- continue to use the same method, but change the book value of the investment going forward
- discontinue the old method and sell the investment
- discontinue the old method and adopt the new method going forward
- none of the above
7. Companies with divisions outside the United States
- prepare their Statement of Cash Flows with consolidated equipment purchases, but retain individual financial statements otherwise.
- confirm account balances on their Statement of Cash Flows using the throughput method.
- show the effect of exchange rate differences on their Statement of Cash Flows.
- indicate variances on material purchases on a separate coinciding schedule.
- label their Statement of Cash Flows by preceding the label with the term “International Operations.”
8. Which of the following transactions decrease cash?
Purchase inventory from cash
Pay trade accounts payable
Accruing operating expenses
Purchase stock in R&D partner with cash
A) 1, 2, and 5
B) 1, 2, and 4
C) 1, 2, 3, and 5
D) 1, 2, 3, and 4
E) 1, 2, 4, and 5
9. Simons Manufacturing acquired a $60,000 machine on January 1, 2009. The machine is estimated to have a useful life of 4 years, and a residual value of $10,000. For units-of-production depreciation purposes, the machine is expected to produce 500,000 units. Simons Manufacturing uses units-of-production depreciation and the company produces 80,000 units in 2009; 130,000 units in 2010; and 160,000 units in 2011. What is the depreciation expense in 2011?
- $ 8,000
10. Piston Company has 100,000 shares of common stock authorized, 10,000 shares issued and outstanding. On June 1, 20X3, the company declared a $5.00 per share dividend for those of record on July 1, 20X3, to be paid on August 1, 20X3. Which of the following journal entries would Piston Company make on July 1, 20X3?
- No journal entry is necessary.
- Retained Earnings 50,000 Dividends Payable 50,000
- Retained Earnings 50,000 Cash 50,000
- Dividends Payable 50,000 Cash 50,000
- Retained Earnings 300,000 Dividends Payable 300,000
11. Knicks Company buys Net Company for $11 million. Net Company has assets with a fair value of $9 million and liabilities with a fair value of $2 million. Net’s stockholders’ equity is recorded at $6 million. What goodwill should Knicks Company record?
- $10 million
- $4 million
- $8 million
- $6 million
- $0 million
12. State whether the following ratios are classified as
a. ratios that measure long-term solvency,
b. ratios that measure profitability,
c. ratios used to analyze the company’s stock as an investment, or
d. ratios that measure short-term liquidity.
1. ________ Return on sales
2. ________ Earnings per share
3. ________ Quick ratio
4. ________ Average collection period in days
5. ________ Total-debt-to-total-equity ratio
6. ________ Price-earnings ratio
13. For a magazine company, subscription revenues are recognized when cash is received from the customer before delivery of the magazine. True or False?
14. Double-declining-balance depreciation may be referred to as accelerated depreciation. True or False?
15. Franchises and licenses are legal contracts that grant the buyer the right to sell a product or service. True or False?
16. A line of credit is a written promise to repay the loan principal plus interest at a specific future date. True or False?
17. There are two types of leases: capital leases and financial leases. True or False?
18. Commercial paper is a debt contract issued by prominent companies that borrow directly from investors. True or False?
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