1.

Maso Company recorded journal entries for the issuance of common stock for $40,000, the payment of $13,000 on accounts payable, and the payment of salaries expense of $21,000. What net effect do these entries have on owners' equity? Student Response A. Increase of $19,000. B. Increase of $40,000. C. Increase of $27,000. D. Increase of $6,000. Correct Answer

2.
Mune Company recorded journal entries for the payment of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000. What net effect do these entries have on owners' equity? Student Response A. Decrease of $39,000. B. Increase of $11,000. C. Decrease of $18,000. D. Decrease of $71,000. Correct Answer

3.
Unearned revenue on the books of one company is likely to be Student Response A. a prepaid expense on the books of the company that made the advance payment. B. an accrued revenue on the books of the company that made the advance payment. C. an accrued expense on the books of the company that made the advance payment. D. an unearned revenue on the books of the company that made the advance Correct Answer

payment.

4.
On April 15, 2007, Bauer Company received one year's rental payment on a sublease. On December 31, 2007 (the end of the fiscal year), Bauer recorded an adjusting entry that had a credit to a real account for $24,500. What was the original entry for Bauer on April 15, 2007? Student Response A. debit Cash, credit Rent Revenue B. debit Cash, credit Unearned Rent C. debit Rent Revenue, credit Cash D. debit Unearned Rent, credit Cash E. debit Cash, credit Rent Expense Correct Answer

5.
On April 15, 2007, Bauer Company received one year's rental payment on a sublease. On December 31, 2007 (the end of the fiscal year), Bauer recorded an adjusting entry that had a credit to a real account for $24,500. What amount would be both debited and credited in Bauer's original entry on April 15, 2007? Student Response A. $84,000 B. $77,000 C. $24,500 D. $59,500 E. $21,000 Correct Answer

6.
On January 1, 2008, Bauer, Inc.'s Unearned Revenue account had a balance of $14,500. During the year, the company received $36,300 for services to be performed in the future. After adjusting entries were made, the balance in Unearned Revenue on December 31, 2008 was $6,200. Accounts

Receivable at the beginning of the year was $8,300. Billings for services performed on account were $26,900 during the year. After adjusting entries were made, the balance in Accounts Receivable on December 31, 2008 was $3,700. Services performed with immediate cash collection during 2008 are $7,500. What is the total Service Revenue for 2008? Student Response A. $71,500 B. $44,600 C. $79,000 D. $83,600 Correct Answer

7.
BMF Corporation had revenues of $200,000, expenses of $120,000, and dividends of $30,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a Student Response A. credit of $80,000. B. debit of $50,000. C. credit of $50,000. D. debit of $80,000. Correct Answer

8.
Bauer, Inc. has total assets of $1,234,500 and total liabilities of $823,000 on January 1, 2008. For 2008, net income is $93,000, and the company distributed dividends in the amount of $37,000. During 2008, the company has also issued 4,000 common stock at par (Par value is $5). Stockholders' equity at January 1, 2009 is: Student Response A. $667,500 B. $411,500 C. $487,500 D. $504,500 Correct Answer

9.
Which of the following would not be a correct form for an adjusting entry? Student Response A. A debit to an expense and a credit to a liability B. A debit to an asset and a credit to a liability C. A debit to a liability and a credit to a revenue D. A debit to a revenue and a credit to a liability Correct Answer

10.
Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries? Student Response A. Depreciation of fixed assets B. All of these C. Expiration of prepaid insurance D. Accrued wages payable Correct Answer

11.
Which of the following is an argument against using historical cost in accounting? Student Response A. Historical costs are based on an exchange transaction. B. Historical costs are reliable. C. Fair values are more relevant. D. Fair values are subjective. Correct Answer

12.

What is the general approach as to when product costs are recognized as expenses? Student Response A. In the period when the vendor invoice is received. B. In the period when the expenses are paid. C. In the period when the related revenue is recognized. D. In the period when the expenses are incurred. Correct Answer

13.
Jose Iniesta, M.D., keeps his accounting records on the cash basis. During 2011, Dr. Iniesta collected $360,000 from his patients. At December 31, 2010, Dr. Iniesta had accounts receivable of $50,000. At December 31, 2011, Dr. Iniesta had accounts receivable of $70,000 and unearned revenue of $10,000. On the accrual basis, how much was Dr. Iniesta's patient service revenue for 2011? Student Response A. $370,000. B. $380,000. C. $350,000. D. $390,000. Correct Answer

14.
A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle? Student Response A. Revenue recognition. B. Going concern. C. Monetary unit. D. Historical cost. Correct Answer

15.

On July 1, 2010, Hector Cuper signed an agreement to operate as a franchisee of AC Milan, Inc., for an initial franchise fee of $180,000. Of this amount, $60,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $30,000 beginning July 1, 2011. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Cuper's credit rating indicates that he can borrow money at 14% for a loan of this type. Cuper should record the acquisition cost of the franchise on July 1, 2010 at Student Response A. $130,800. B. $147,300. C. $180,000. D. $202,800. Correct Answer

16.
What is the relationship between the present value factor of an ordinary annuity and the present value factor of an annuity due for the same interest rate? Student Response A. The ordinary annuity factor equals one plus the annuity due factor for n+1 periods. B. The annuity due factor equals the ordinary annuity factor for n+1 periods minus one. C. The ordinary annuity factor is not related to the annuity due factor. D. The annuity due factor equals one plus the ordinary annuity factor for n?1 periods. Correct Answer

17.
Mourinho Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Mourinho accrues salaries expense only at its December 31 year end. Data relating to salaries earned in December 2010 are as follows: -Last payroll was paid on 12/26/10, for the 2-week period ended 12/26/10. -Overtime pay earned in the 2-week period ended 12/26/10 was $10,000. -Remaining work days in 2010 were December 29, 30, 31, on which days there was no overtime. -The recurring biweekly salaries total $180,000. Assuming a five-day work week, Mourinho should record a liability at December 31, 2010 for accrued

salaries of Student Response A. $64,000. B. $118,000. C. $108,000. D. $54,000. Correct Answer

18.
Olsen Company paid $10,400 as insurance premium during 2010. The Prepaid Insurance balances were $1,500 on December 31, 2009 and $1,200 on December 31, 2010. The insurance expense on the income statement for 2010 was Student Response A. $10,700. B. $7,700. C. $13,100. D. $10,100. Correct Answer

19.
Olsen Company collected $33,900 as interest during 2010. The Interest Receivable balances were $2,900 on December 31, 2009 and $3,700 on December 31, 2010. The interest revenue on the income statement for 2010 was Student Response A. $34,700. B. $33,100. C. $27,300. D. $40,500. Correct Answer

20.

Olsen Company paid $120,200 as salaries during 2010. The Salaries Payable balances were $10,600 on December 31, 2009 and $12,300 on December 31, 2010. The salary expense on the income statement for 2010 was Student Response A. $97,300. B. $143,100. C. $118,500. D. $121,900. Correct Answer

21.
Bauer Advertising received cash on May 10, 2010 from Houston Oil, Inc. for advertising services, beginning May 10, 2010. If Bauer skips the adjusting entry on December 31 for this transaction, its net income would be overstated by $12,675. The income tax rate for Bauer Advertising is 35%. What is the entry made by Bauer on May 10, 2010? Student Response A. DR Cash35,100 CR Advertising Revenue35,100 B. DR Cash35,100 CR Unearned Advertising Revenue35,100 C. DR Cash54,000 CR Advertising Revenue54,000 D. DR Cash54,000 CR Unearned Advertising Revenue54,000 Correct Answer

22.
ABC Company paid $72,000 on October 15, 2010 for a one-year insurance policy, beginning October 15, 2010. The entry made on October 15, 2010 includes a debit to a real account. The income tax rate for ABC Company is 30%. The effect of skipping the adjusting entry on December 31, 2010 would be: Student Response A. Overstatement of Net Income by $10,500. B. Overstatement of Taxable Income by $10,500 Correct Answer

C. Understatement of Net Income by $10,500. D. Overstatement of Net Income by $15,000. E. Understatement of Taxable Income by $15,000.

23.
What amount should be recorded as the cost of a machine purchased December 31, 2006, which is to be financed by making 8 annual payments of $6,000 each beginning December 31, 2007? The applicable interest rate is 8%. Student Response A. $42,000 B. $63,820 C. $37,481 D. $34,480 Correct Answer

24.
Foley Company financed the purchase of a machine by making payments of $18,000 at the end of each of five years. The appropriate rate of interest was 8%. What was the cost of the machine to Foley? Student Response A. $90,000 B. $71,869 C. $26,448 D. $105,600 Correct Answer

25.
An income statement shows "income before income taxes and extraordinary items" in the amount of $2,055,000. The income taxes payable for the year are $1,080,000, including $360,000 that is applicable to an extraordinary gain. Thus, the "income before extraordinary items" is

Student Response A. $675,000. B. $1,335,000. C. $1,395,000. D. $615,000.

Correct Answer

26.
Which of the following is not a basic assumption underlying the financial accounting structure? Student Response A. Economic entity assumption. B. Periodicity assumption. C. Historical cost assumption. D. Going concern assumption. Correct Answer

27.
Which basic assumption may not be followed when a firm in bankruptcy reports financial results? Student Response A. Periodicity assumption. B. Economic entity assumption. C. Going concern assumption. D. Monetary unit assumption. Correct Answer

28.
On January 1, 2010, Bauer Co. borrows money from Melcher, Inc. by signing a 3-year noninterestbearing note in the amount of $300,000. The prevailing interest rate for notes of this type is 6%. Under the effective interest amortization method, Bauer should make the following entry on January 1, 2010: Student Response Correct Answer

A. DR Cash.237,627 DR Discount on N/P62,373 CR Notes Payable.300,000 B. DR Cash.251,886 CR Notes Payable.251,886 C. DR Cash.251,886 DR Discount on N/P48,114 CR Notes Payable..300,000 D. DR Cash300,000 CR Notes Payable.300,000

29.
On January 4, 2007, Czech Co. leased a building to Prague Corp. for a ten-year term at an annual rental of $75,000. At inception of the lease, Czech received $300,000 covering the first two years' rent of $150,000 and a security deposit of $150,000. This deposit will not be returned to Prague upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $300,000 should be shown as a current and long-term liability in Czech's December 31, 2007 balance sheet? Student Response A. Current Liability: $0;Long-term Liability: $300,000 B. Current Liability: $150,000; Long-term Liability: $75,000 C. Current Liability: $75,000; Long-term Liability: $150,000 D. Current Liability: $150,000; Long-term Liability: $150,000 Correct Answer

30.
Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence? Student Response A. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. B. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. Correct Answer

C. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. D. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.