1. TOPIC 1
1 What items on the balance sheet are considered to be sources for financing economic resources (assets)?
A) liabilities and contributed capital, only
B) liabilities only
C) contributed capital and retained earnings, only
D) liabilities and stockholders' equity
2 Which of the following items would be shown as part of the Stockholder's Equity on the balance sheet?
A) Cash
B) Notes Payable
C) Retained Earnings
D) Accounts Receivable
3 Assets total $450,000, liabilities total $120,000, and contributed capital totals $200,000. What is the dollar amount of retained earnings?
A) $80,000
B) $330,000
C) $320,000
D) $130,000
4 A company sold $400,000 of merchandise for cash and $120,000 of merchandise to credit customers who will pay for the merchandise in a
later time period. How much revenue should be reported on the income statement of the current time period?
A) $280,000
B) $520,000
C) $400,000
D) $120,000
5 The beginning balance of retained earnings was $7,500. The dividends paid to stockholders' were $1,500. The ending balance of retained
earnings is $5,000. What was the net income or net loss for the accounting period?
A) net loss of $1,000
B) net income of $1,000
C) net loss of $2,000
D) net income of $2,500
6 Which cash flow activity is related to borrowing money on a long-term basis?
A) operating activities
B) investing activities
C) financing activities
D) investing and financing activities
7 Which of the following transactions would be considered an investing activity on a Statement of Cash Flows?
A) Purchased equipment for cash
B) Sold stock for cash to stockholders
C) Borrowed $200,000 on a long-term note
D) Paid $45,000 for inventory for resale
8 Liabilities are listed on the balance sheet in
A) order of their relative dollar size.
B) order of their maturity or due date.
C) no particular order
D) alphabetical order
9 Which organization has primary responsibility for developing United States generally accepted accounting principles (GAAP)?
A) American Institute of Certified Public Accountants (AICPA)
B) Financial Accounting Standards Board (FASB)
C) Securities and Exchange Commission (SEC)
D) Internal Revenue Service (IRS)
10 The primary purpose of an audit (examination) of the financial reports of a company is to
A) uncover fraud.
B) determine who is guilty of malpractice.
C) determine whether the financial reports conform to GAAP.
D) examine every document and transaction to verify it was accurately reported.
TOPIC 2
1 The major objective of financial reporting is to provide:
A) essential information to internal users of financial reports.
B) useful economic information about the business to help external parties make sound financial decisions.
C) information to internal users about the cash position of the business.
D) information to the IRS and the Securities Exchange Commission (SEC).
2 German companies prepare their financial reports in terms of euros whereas Japanese companies report results in yen. This practice is an
example of the:
A) Historical cost principle
B) Materiality constraint

2. C) Full disclosure principle
D) Unit-of-Measure Assumption
3 A company purchased a computer, office furniture, and office supplies by issuing a check for $5,000 and a note payable for $19,500. The
market value of the items was $26,300. The total recorded value of the items is
A) $26,300
B) $19,500
C) $24,500
D) $31,300
4 Unearned Revenue is classified as which type of account?
A) asset
B) liability
C) stockholders' equity
D) revenue
5 Cost of Goods Sold is classified as which type of account?
A) asset
B) liability
C) revenue
D) expense
6 Retained Earnings is classified as which type of account?
A) asset
B) liability
C) stockholders' equity
D) expense
7 A company purchased office supplies on credit. What two accounts are affected by the transaction?
A) Supplies and Cash
B) Supplies and Accounts Payable
C) Equipment and Accounts Payable
D) Stockholders' Equity and Accounts Payable
8 A company sold 10,000 shares of its common stock for a total of $45,000. What two accounts are affected by the transaction?
A) Cash and Retained Earnings
B) Cash and Revenue
C) Cash and Contributed Capital
D) Cash and Accounts Receivable
9 A company purchased office equipment by issuing a short-term note payable. What two accounts were affected by the transaction?
A) Equipment and Cash
B) Equipment and Accounts Payable
C) Equipment and Notes Payable
D) Equipment and Stockholders' Equity
10 A company declares a cash dividend to be paid to its stockholders next month. The effect of the transaction is to:
A) Decrease assets and liabilities.
B) Increase assets and stockholders' equity.
C) Decrease assets and stockholders' equity.
D) Increase liabilities and decrease stockholders' equity.
TOPIC 3
1 Although income is earned continuously, companies measure income for a specific period of time. Accountants refer to this practice as:
A) unit of measure assumption.
B) time period assumption.
C) matching principle.
D) continuity assumption.
2 Consider the following totals:
Revenues $100,000
Cost and expenses 45,000
Other revenues 5,000
Income taxes 18,000
Net income $42,000
What was the total of operating income?
A) $42,000
B) $55,000
C) $60,000
D) $37,000
3 Which of the following is a peripheral transaction?
A) income tax expense

3. B) interest expense
C) general and administrative expenses
D) depreciation expense
4 Current year sales revenues total $1,250,000. The total assets at the end of the previous year totaled $900,000. Total assets at the end of
the current year totaled $980,000. What is the asset turnover ratio?
A) 1.330
B) 1.389
C) 1.276
D) 1.156
5 When delivery of goods and services for $25,000 results in a cash receipt of $15,000 and the balance of $10,000 on account, the reported
revenues for the time period are
A) $15,000
B) $25,000
C) $10,000
D) $5,000
6 Which of the following accounts would be increased with a debit?
A) Contributed Capital
B) Retained Earnings
C) Revenues
D) Expenses
7 Langhurst Company sold hardware for $12,000 cash and $18,000 of hardware to credit customers. Which of the following is the correct
journal entry to record this transaction?
A) Cash, debit, $12,000; Accounts Receivable, credit, $18,000; Unearned Revenues, credit, $30,000
B) Cash, debit, $12,000; Accounts Receivable, debit, $18,000, Hardware Revenues, credit, $30,000
C) Cash, debit, $12,000; Unearned Revenues, debit, $18,000; Hardware Revenues, $30,000
D) Cash, debit, $30,000; Hardware Revenues, credit, $30,000
8 At the beginning of January, Langhurst Company paid $6,000 for insurance for the next four months beginning January 1, $3,000 for
advertising to be run from February 1 to March 15, and $8,000 for rent over the next two months beginning January 1. What is the correct
journal entry for recording a summary of these transactions?
A) General and Administrative Expenses 17,000
Cash 17,000
B) General and Administrative Expenses 17,000
Accounts Payable 17,000
C) Prepaid Expenses 17,000
Cash 17,000
D) Prepaid Expenses 14,000
Advertising Expense 3,000
Cash 17,000
9 In January, Langhurst Company paid $9,000 for utilities, repairs, and maintenance of delivery vehicles. Which of the following is the correct
journal entry for recording this transaction?
A) Other Expenses and Losses 9,000
Cash 9,000
B) General and Administrative Expenses 9,000
Accounts Payable 9,000
C) General and Administrative Expenses 9,000
Cash 9,000
D) Prepaid Expenses 9,000
Cash 9,000
10 Consider the following information provided in no particular order:
Lumber Revenues $120,000
General and Administrative Expenses 45,000
Rent Expense 6,000
Depreciation Expense 3,000
Loss on Sale of Land 2,000
Hardware Revenues 85,000
Interest Expense 4,000
Income Taxes 11,000
Cost of sales 115,000
What is the dollar amount of the operating income?
A) $36,000
B) $15,000
C) $17,000
D) $205,000

4. TOPIC 13
1 A cash equivalent is a short-term, highly liquid investment with an original maturity date of less than
A) six months.
B) five months.
C) four months.
D) three months.
2 The statement of cash flows prepared under the indirect method starts with
A) cash receipts and cash expenditures to compute net cash inflow or outflow from operating activities.
B) the net income determined using the accrual method of accounting and adjusts it to the cash flow from operating activities.
C) the net income determined using the cash basis of accounting and adjusts it to an accrual basis.
D) cash receipts and cash expenditures to compute net cash inflow or outflow from investing activities.
3 Which of the following is reported as an investing activity on the statement of cash flows?
A) sale of common stock
B) purchase of office equipment
C) collection of accounts receivable
D) purchase of treasury stock
4 Consider the following:
Activity Amount
Purchased production equipment $150,000
Sold common stock, at par $250,000
Sold office equipment at book value $12,000
Sold merchandise on accounts receivable $560,000
Paid cash dividends $45,000
What was the net cash inflow (outflow) from investing activities?
A) ($138,000)
B) ($12,000)
C) ($183,000)
D) $103,000
5 Consider the following:
Net cash inflows from operating activities $450,000
Net cash outflows from investing activities ($230,000)
Net cash inflows from financing activities$200,000
What was the net increase or decrease in cash during the period?
A) The cash increase or decrease for the period cannot be determined.
B) $880,000
C) $420,000
D) $220,000
6 Equipment with an original cost of $140,000 and accumulated depreciation of $130,000 was sold for $12,000 cash . What amount of this
transaction will be reported as an investing activity on the statement of cash flows?
A) $10,000
B) $12,000
C) $2,000
D) $128,000
7 When property, plant, or equipment are sold at price that is in excess of book value, the sales should be reported as an inflow of cash from
an investing activity equal to the
A) book value of the asset.
B) cash selling price of the asset.
C) cash selling price of the asset minus any gain on the asset.
D) cash selling price of the asset minus the book value.
8 Consider the following transactions:
Cash purchase of second hand delivery van $40,000
Cash sale of an investment $12,000
Paid cash dividends $120,000
Retired bonds prior to maturity $450,000
Sold used equipment for cash $13,000
What was the net cash flow from investing activities?
A) $27,000 inflow
B) $330,000 outflow
C) $15,000 outflow
D) $585,000 outflow
9 Consider the following transactions:
Paid interest with cash $4,000
Paid cash dividends $45,000
Sold common stock for cash $1,200,000
Purchased treasury stock for cash $360,000
Sold bonds for cash $800,000
What was the net cash inflow from financing activities?

5. A) $1,685,000
B) $1,595,000
C) $1,560,000
D) $840,000
10 A building was acquired in exchange for 20,000 shares of the company's $10 par common stock. This transaction is reported on a statement
of cash flows as
A) a financing activity.
B) an operating activity.
C) a noncash investing and financing activity.
D) an investing activity.
TOPIC 14
1 Businesses can earn a high rate of return by following two fundamental strategies, which are
A) product differentiation and cost advantage.
B) product differentiation and cash management.
C) cost advantage and efficient markets.
D) cost advantage and industry factors.
2 Tests of profitability usually include which one of the following in the measurement?
A) owners' equity
B) average total assets
C) income
D) cash flows from operating activities
3 Consider the following information:
Net sales revenue $1,850,000
Income $180,000
Interest expense $12,000
Income tax expense $30,000
Beginning common shares outstanding 450,000
Ending common shares outstanding 470,000
Income before extraordinary items $340,000
Compute the earnings per share to the nearest cent.
A) $0.48
B) $0.39
C) $0.25
D) $0.74
4 The return on equity is 16.8%. The return on total assets is 12.5%. The earnings per share is $0.50. The profit margin is 6.8%. What is the
financial leverage percentage?
A) 10.0%
B) 4.3%
C) 5.7%
D) 1.5%
5 Consider the following information:
Cash $45,000
Cash equivalents $60,000
Cash flows from operating activities $970,000
Current assets $480,000
Current liabilities $230,000
Net credit sales $890,000
Average net receivables $62,000
Compute the cash ratio to the nearest hundredth.
A) 0.46 to 1
B) 0.19 to 1
C) 2.08 to 1
D) 1.73 to 1
6 Consider the following information:
Cash $15,000
Beginning net receivables $55,000
Ending net receivables $57,000
Net sales $640,000
Net credit sales $480,000
Cost of goods sold $390,000
Average inventory $62,000
Compute the receivable turnover to the nearest hundredth.
A) 11.43
B) 8.57
C) 11.23
D) 8.42
7 The equation of Cash + Cash Equivalents/Current Liabilities is used to compute which ratio?

6. A) quick (or acid test) ratio
B) cash ratio
C) current ratio
D) quality of income
8 Consider the following information:
Total current liabilities $120,000
Total long-term liabilities $890,000
Ending balance of owners' equity $1,500,000
Ending balance of retained earnings $420,000
Ending balance of fixed assets $1,560,000
Compute the debt-to-equity ratio to the nearest hundredth.
A) 0.53
B) 0.57
C) 0.46
D) 0.67
9 Consider the following information:
Income $130,000
Beginning shares outstanding 250,000
Ending shares outstanding 270,000
Current price per share $7.50
Dividend per share $1.20
Compute the market test of price/earnings ratio to the nearest tenth.
A) 6.3
B) 15.0
C) 17.3
D) 5.0
10 Consider the following information:
Income $130,000
Beginning shares outstanding 250,000
Ending shares outstanding 270,000
Current price per share $7.50
Dividend per share $1.20
Compute the market test of dividend yield to the nearest tenth.
A) 1.5%
B) 41.7%
C) 16.0%
D) 6.3%