(B) Base Year Is Negative. Not Possible to Compute

Name: Michael T. Ryan Date: May 24, 2010

1. / An income statement would not include
A) / other revenue and gains.
B) / extraordinary items.
C) / discontinued operations.
D) / dividends paid.
2. / The reconciliation of the cash register tape with the cash in the register is an example of
A) / other controls.
B) / independent internal verification.
C) / establishment of responsibility.
D) / segregation of duties.
3. / The direct write-off method of accounting for uncollectible accounts
A) / emphasizes the matching of expenses with revenues.
B) / emphasizes balance sheet relationships.
C) / emphasizes cash realizable value.
D) / is not generally accepted as a basis for estimating bad debts.
4. / The receivable that is usually evidenced by a formal instrument of credit is a(n)
A) / trade receivable.
B) / note receivable.
C) / accounts receivable.
D) / income tax receivable.
5. / A dishonored note receivable
A) / Is no longer negotiable.
B) / Must be written off by the lender.
C) / Creates a claim against the maker for the amount of principal only.
D) / Is one that is not paid in full within 10 days of maturity.
6. / Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $19,000. If the balance of the Allowance for Doubtful Accounts is $6,000 debit before adjustment what is the amount of bad debt expense for that period?
A) / $19,000
B) / $ 6,000
C) / $25,000
D) / $13,000
7. / Selling the bonds at a premium has the effect of
A) / causing the total cost of borrowing to be higher than the bond interest paid.
B) / causing the total cost of borrowing to be lower than the bond interest paid.
C) / raising the effective interest rate above the state interest rate.
D) / increasing the amount of cash paid for interest each 6 months.
8. / Which one of the following is not an objective of a system of internal controls?
A) / Safeguard company assets
B) / Enhance the accuracy and reliability of accounting records
C) / Fairness of the financial statements.
D) / Reduce the risks of errors
9. / A retailer that collects sales taxes is acting as an agent for the
A) / wholesaler.
B) / customer.
C) / taxing authority.
D) / chamber of commerce.
10. / The present value of a bond is also known as its
A) / face value.
B) / market price.
C) / future value.
D) / deferred value.
11. / The current portion of long-term debt should
A) / be paid immediately.
B) / be reclassified as a current liability.
C) / be classified as a long-term liability.
D) / not be separated from the long-term portion of debt.
12. / The matching principle
A) / requires that all credit losses be recorded when an individual customer cannot pay.
B) / necessitates the recording of an estimated amount for bad debts.
C) / results in the recording of a known amount for bad debt losses.
D) / is not involved in the decision of when to expense a credit loss.
13. / The ability of a corporation to obtain capital is
A) / enhanced because of limited liability and ease of share transferability.
B) / less than a partnership.
C) / restricted because of the limited life of the corporation.
D) / about the same as a partnership.
14. / Receivables are
A) / One of the most liquid assets and thus are always considered current assets.
B) / Claims that are expected to be collected in cash.
C) / Shown on the Income Statement at cash realizable value.
D) / Always the result of revenue recognition.
15. / Comparative balance sheets are usually prepared for
A) / one year.
B) / two years.
C) / three years.
D) / four years.
16. / A bank statement
A) / lets a depositor know the financial position of the bank as of a certain date.
B) / is a credit reference letter written by the depositor's bank.
C) / is a bill from the bank for services rendered.
D) / shows the activities that increased or decreased the depositor's account balance.
17. / Secured bonds are bonds that
A) / are in the possession of a bank.
B) / can be converted into common stock.
C) / have specific assets of the issuer pledged as collateral.
D) / mature in installments.
18. / A cash register tape shows cash sales of $3,000 and sales taxes of $150. The journal entry to record this information is
A) / Cash / 3,000
Sales / 3,000
B) / Cash / 3,150
Sales Tax Revenue / 150
Sales / 3,000
C) / Cash / 3,000
Sales Tax Expense / 150
Sales / 3,150
D) / Cash / 3,150
Sales / 3,000
Sales Taxes Payable / 150
19. / A disadvantage of the corporate form of organization is
A) / professional management.
B) / tax treatment.
C) / ease of transfer of ownership.
D) / lack of mutual agency.
20. / A system of internal control
A) / is infallible.
B) / can be rendered ineffective by employee collusion.
C) / invariably will have costs exceeding benefits.
D) / is premised on the concept of absolute assurance.
21. / If bonds are issued at a premium, the stated interest rate is
A) / higher than the market rate of interest.
B) / lower than the market rate of interest.
C) / too low to attract investors.
D) / adjusted to a higher rate of interest.
22. / Which one of the following is not an ownership right of a stockholder in a corporation?
A) / To vote in the election of directors
B) / To declare dividends on the common stock
C) / To share in assets upon liquidation
D) / To share in corporate earnings
23. / Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry:
A) / Accounts Receivable
Cash
B) / Cash
Accounts Receivable
C) / Miscellaneous Expense
Accounts Receivable
D) / No adjusting entry is necessary.
24. / Horizontal analysis is a technique for evaluating financial statement data
A) / within a period of time.
B) / over a period of time.
C) / on a certain date.
D) / as it may appear in the future.
25. / When a company receives an interest-bearing note receivable, it will
A) / debit Notes Receivable for the maturity value of the note.
B) / credit Notes Receivable for the maturity value of the note.
C) / debit Notes Receivable for the face value of the note.
D) / credit Notes Receivable for the face value of the note.
26. / Internal auditors
A) / are hired by CPA firms to audit business firms.
B) / are employees of the IRS who evaluate the internal controls of companies filing tax returns.
C) / evaluate the system of internal controls for the companies that employ them.
D) / cannot evaluate the system of internal controls of the company that employs them because they are not independent.
27. / An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of
A) / establishment of responsibility is violated.
B) / independent internal verification is violated.
C) / documentation procedures is violated.
D) / separation of duties is violated.
28. / Which of the following is not a limitation of internal control?
A) / Cost of establishing control procedures should not exceed their benefit
B) / The human element
C) / Collusion
D) / The size of the company
29. / Bonds that may be exchanged for common stock at the option of the bondholders are called
A) / options.
B) / stock bonds.
C) / convertible bonds.
D) / callable bonds.
30. / Net credit sales for the month are $600,000. The accounts receivable balance is $120,000. The allowance is calculated as 5% of the receivables balance using the percentage of receivables basis. If the Allowance for Doubtful Accounts has a credit balance of $4,000 before adjustment, what is the balance after adjustment?
A) / $ 6,000
B) / $ 2,000
C) / $10,000
D) / $ 5,800
31. / Comparative information taken from the Fogerty Company financial statements is shown below:
2007 / 2006
(a) / Accounts receivable / 175,000 / 140,000
(b) / Retained earnings / 30,000 / (40,000)
(c) / Sales / 855,000 / 750,000
(d) / Operating expenses / 170,000 / 200,000
(e) / Income taxes payable / 22,000 / 20,000
Instructions
Using horizontal analysis, show the percentage change from 2006 to 2007 with 2006 as the base year.

(a) $35,000 ÷ $140,000 = 25% increase

(b) Base year is negative. Not possible to compute.

(c) $105,000 ÷ $750,000 = 14% increase

(d) $30,000 ÷ $200,000 = 15% decrease

(e) $2,000 ÷ $20,000 = 10% increase

32. / On April 1, Nolton Company borrows $80,000 from West Bank by signing a 6-month, 6%, interest-bearing note.
Instructions
Prepare the necessary entries below associated with the note payable on the books of Nolton Company.
(a) / Prepare the entry on April 1 when the note was issued.
(b) / Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made.

(a) April 1 Cash ...... 80,000

Notes Payable ...... 80,000

(b) June 30 Interest Expense ...... 1,200

Interest Payable...... 1,200

($80,000 × 6% × (3 ÷ 12))

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