3,000 3,000 2,910 2,910 3,000 3,000 2,940 2,940

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1 1. David Company uses the gross method to record its credit purchases, and it uses the periodic inventory system. On July 21, 20D, the company purchased goods that had an invoice price of $ with terms of 3/10, n/30. If payment in full is made on July 30, the journal entries to record the purchase and payment should be: A. July 21: Purchases Accounts Payable.. July 30: Accounts Payable... Cash... B. July 21: Inventory Accounts payable.. July 30: Accounts payable... Cash.. C. July 21: Purchases Accounts payable.. July 30: Accounts payable... Cash.. Purchase discount. D. July 21: Purchases Accounts payable.. July 30: Accounts payable... Cash.. 2,910 2,910 2,940 2,940 2,910 2,910 2, ,940 2,940 A) Entry A B) Entry B C) Entry C D) Entry D

2 2. Which one of the following statements concerning the periodic and perpetual inventory systems is true? A) The periodic system uses a purchases account. B) Inventory controls are only needed for the periodic inventory systems. C) None of the accounting entries vary between the two systems. D) Due to advances in computers, many businesses recently have begun to use the periodic inventory system. E) B and C are both true. 3. Upaway Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and ending inventory was overstated by $12,000. What would be the effect of this error in ending inventory? A) Income would be overstated. B) Income would be understated. C) Ending retained earnings would be understated. D) Cost of goods sold would be overstated. E) Two of the above are correct. 4. Toys R Us had cost of goods sold in 1999 of $8,191 million and $7,710 million in Their merchandise inventory in 1999 was $1,902 million and $2,464 million in How long was Toys R Us' average days to sell their inventory? A) 97.3 days B) days C) 84.7 days D) None of the above 5. Toys R Us had cost of goods sold in 1999 of $8,191 million and $7,710 million in Their merchandise inventory in 1999 was $1,902 million and $2,464 million in What was their inventory turnover in 1999? A) 4.31 B) 3.75 C) 3.64 D) None of the above

3 6. A $15,000 overstatement of the 20B ending inventory was discovered after the financial statements for 20B were prepared. The effect of the inventory error on the 20B financial statements was A) current assets were overstated and net income was understated. B) current assets were understated and net income was understated. C) current assets were overstated and net income was overstated. D) current assets were understated and net income was overstated. 7. Which of the following costs would be excluded from the acquisition cost of equipment purchased from a supplier? A) Cost to install the equipment. B) A purchases discount offered by the supplier. C) The cost to widen an entrance in the building to bring the equipment into the facilities. D) The cost of freight paid to get the equipment to our factory. 8. A machine, acquired for a cash cost of $6,000, is being depreciated on a straightline basis of $900 per year. The residual value was estimated to be 10% of cost. The estimated useful life is A) 3 years. B) 4 years. C) 5 years. D) 6 years. 9. A company that has a policy of trading in its fleet of delivery trucks every three years in comparison to another company with a policy of trading in their trucks every five years would most likely have A) a higher estimate of residual value at the beginning of their useful lives. B) a lower book value at the end of their useful lives. C) more in accumulated depreciation at the end of their useful lives. D) Both B and C. F) All of the above.

4 10. Walt Disney Company reports net income in 1999 of $1,300 million and depreciation expense of $851 million. They also report investment in new theme parks, resorts, and other property of $2,134 million for Which of the following disclosures would appear on their statement of cash flows? A) Depreciation of $851 million would be deducted from net income under operating activities and the $2,134 million would be added under investing activities B) Depreciation of $851 million would be added to net income under operating activities and the $2,134 million would be added under investing activities C) Depreciation of $851 million would be added to net income under operating activities and the $2,134 million would be deducted under I nvesting activities D) Depreciation of $851 million would be deducted from net income under operating activities and the $2,134 million would be deducted under investing activities 11. Which of the following would not be included in the acquisition cost of a building? A) An apportioned amount of the purchase cost when both the land and building are acquired in a basket purchase. B) The cost of putting new windows and doors in the building before it opens for operations. C) The cost of paving the parking lot and outdoor lighting in the lot. D) The cost of paying an architect to design the remodeling modifications of the building before the store opens. F) All of the above would be included in the acquisition cost of the building. 12. Johnson Company acquires land and building for $4,000,000 including all fees related to acquisition. The land is appraised at $2,700,000 and the building at $2,100,000. The building is then renovated at a cost of $750,000. What amount is capitalized to the building account? A) $2,500,000. B) $2,078,125. C) $2,375,000. D) None of the above 13. There is a reciprocal relationship between the A) present value of the annuity of $1 and the present value of $1. B) future value of $1 and the future value of an annuity. C) present value of $1 and the future value of $1. D) present value of the annuity of $1 and the future value of annuity of $1. E) Two of the above are correct.

5 14. Harrah's times interest earned ratio was 3.37 in 1996, 3.12 in 1997 and 2.51 in Which of the following statements about their ratio is correct? A) Their declining ratio indicates increasing levels of debt on which interest is incurred. B) Their declining ratio indicates their strategy of pursuing growth by investment in other companies has increased debt but their profits have not yet increased from those investments. C) Their ratio is very low and there is a likelihood they will default on their interest obligations. D) Both A and B are correct. F) All of the above are correct. 15. In 1998, PepsiCo reported net income of $1,933 million, interest expense of $395 million and income taxes of $270 million. In 1997, they reported net income of $2,142 million, interest expense of $478 million and income taxes of $818 million. Calculate the times interest earned ratio for 1999 and 1998, respectively. A) 5.05 and 4.48 times B) 6.58 and 7.19 times C) 5.73 and 6.19 times D) 6.05 and 5.48 times 16. Which of the following is a disadvantage to the corporation issuing bonds? A) The required interest payment must be met each period. B) The liquid nature of the bonds makes them attractive to investors who may not want to hold them to maturity. C) The large principal payment due at maturity. D) A and C are both disadvantages. E) All of the above are disadvantages. 17. Seal Company purchased bonds at a discount as a long-term investment and classified them as held-to-maturity securities. Which of the following is correct? A) The bonds will be recorded as a liability at cost. B) The discount will be amortized over the remaining life of the bonds. C) The discount will not be amortized because the bonds will be held to maturity. D) The bonds will be reported at fair value in the balance sheet with the unrealized gain or loss reported in the income statement. F) None of the above is correct.

6 18. Which of the following statements is true? A) Subordinated debt has a preferential claim against the liquidation of assets in relationship to other creditor claims. B) Redeemable bonds may be retired before maturity at the option of the issuer. C) Junk bonds are those with a low rating and because their rating is below investment grade level, they are considered high risk. D) Both B and C are true. E) All of the above are true. 19. Which of the following statements is correct? A) Bonds are always issued (sold) at their par value. B) Bonds issued at more than par value are said to be issued at a discount. C) Once bonds are issued, the bonds will trade in the bond market above or below par depending on changes in interest rates. D) Bondholders must hold their bonds to maturity to receive cash for their investment. F) None of the above is correct. 20. In 1998, PepsiCo reported an increase in accounts receivable of $303 million, and an increase in inventory of $284 million. They also experienced an increase in short-term borrowings of $3,921 million and an increase in accounts payable of $253 million. Calculate the net cash effect of these changes. A) $3,587 million decrease. B) $4,761 million increase. C) $3,587 million increase. D) $4,761 million decrease. 21. Present value can be defined as the A) future amount of a sum of money held now. B) value today of future cash inflow(s). C) maturity value of a debt. D) sum of cash inflows over a future period of time. E) amount of debts owed today.

7 22. If income tax expense reported on the income statement is $45,000 for 20A, and the tax return for 20A (the first year) shows an income tax liability of $42,000 the deferred income tax amount on the balance sheet at the end of 20A will be A) debit of $. B) credit of $. C) credit of $42,000. D) credit of $45,000. F) None of the above is correct. 23. In 1999, Toys "R" Us reported inventory of $1,902 million and accounts payable of $1,415 million. In 1998, the company reported inventory of $2,464 million and accounts payable of $1,280 million. What was the effect on the 1999 cash flow from operating activities? A) A decrease in cash of $697 million B) An increase in cash of $697 million C) A decrease in cash of $427 million D) An increase in cash of $427 million 24. On January 2, 20A, Muff Company borrowed $10,000 from Bank Two. The loan was to be repaid in equal principal installments of $2,000, payable on December 31 of each year, beginning on December 31, 20A. Disregarding interest, the amount of the $10,000 loan that should be considered a current liability on the company's 20A year-end balance sheet would be A) $8,000. B) $6,000. C) $4,000. D) $2,000. E) $ What is the difference between cumulative and noncumulative preferred stock? A) They both receive dividends in arrears. B) Cumulative's undeclared dividends accumulate each year until paid, while noncumulative's right to receive dividends is forfeited in any year that dividends are not declared. C) Cumulative does not receive dividends but noncumulative does. D) Cumulative preferred stock's right to receive dividends is forfeited in any year that dividends are not declared. However, noncumulative's undeclared dividends accumulate each year until paid. F) Cumulative is callable stock, while noncumulative is convertible stock.

8 26. In 1998, PepsiCo declared dividends totaling $.515 per common share when earnings per share were $1.31 and its market price was 40 7/16. In 1997, its dividends totaled $.46 per share, its earnings per share were $1.36 and its market price was 34 11/16. The computed dividend yield ratio for 1998 and 1997 respectively was A) 1.8% and 1.9% B) 1.3% and 1.3% C) 1.7% and 1.3% D) None of the above 27. Which of the following statements is true? A) A low dividend payout is usually indicative of a growth oriented company B) A high payout is usually indicative of companies that are not growing and are generating poor levels of profitability. C) A high payout ratio usually indicates a company is an attractive investment for investors who are looking for future increases in the market price due to increasing operating income. D) All the above are true. E) Only A and B are true. 28. Accounting entries associated with a cash dividend usually are made on the A) record date and payment date. B) payment date only. C) declaration date and record date. D) declaration date and payment date. F) None of the above is correct. 29. Which of the following is false? A) A low dividend yield is usually indicative of a growing company. B) The lower the dividend yield, the less a company has distributed to investors as an immediate return. C) Almost all investors want an immediate return on their investment through dividend distributions. D) None the above is false. E) All of the above are false.

9 30. Spot Corporation declared a cash dividend on December 30, 20A, payable on January 10, 20B. A journal entry for the dividend was not made in December 20A. The effects on the 20A financial statements were A) retained earnings and liabilities were understated. B) retained earnings and liabilities were overstated. C) expenses were understated. D) retained earnings was overstated and cash understated. E) retained earnings was overstated and liabilities understated. 31. Which of the following statements is incorrect? A) Goodwill is recorded when it is internally created instead of when a transaction takes place. B) For consolidated financial statements, certain elimination entries need to be made. C) When a company owns more than 20% but less than 50% of another company, it normally has significant influence and would account for the investment with the equity method. D) Dividends earned on available-for-sale securities are reported as investment revenue. E) None of the above. 32. Which of the following statements is false? A) When an investment in another company is purchased, it is a cash outflow under investing activities. B) When investment assets are sold, it is a cash inflow under investing activities. C) Any gains or losses in connection with investment assets are reported as an inflow or outflow of cash connected to operating activities. D) None of the above is false. E) All of the above are false. 33. Under the equity method, the investor's proportionate share of the income (or losses) of the other (investee) corporation impacts in the A) long-term investment account. B) investment revenue account. C) goodwill account. D) both A and B.

10 34. When accounting for investments in trading securities, any decline in market value below cost of the investments is reported on the A) income statement as a realized loss. B) income statement as an unrealized holding loss. C) balance sheet as a realized loss. D) balance sheet as an unrealized holding loss in the stockholders' equity section. 35. On January 1, 20A, Will, Inc., bought 40% of the outstanding shares of Abe Corporation at a cost of $137,000. The equity method of accounting for this investment is used. At the end of 20A, Abe Corporation reported $30,000 net income and paid $10,000 cash dividends. At the end of 20A, the shares had a market value of $150,000. This investment should be reported on the balance sheet of Will, Inc., on December 31, 20A, at A) $150,000. B) $158,000. C) $145,000 D) $148,000. E) None of the above is correct 36. When the equity method is used in accounting for long-term investments in equity securities, revenue from the investment should be recognized A) when the investee company reports income. B) when the investee company declares and pays a cash dividend. C) when the investee company declares and pays (or issues) either a cash dividend or a stock dividend. D) on the basis of stock market fluctuations.