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Intro to Financial Accounting > 2020 CLEP Prep > Flashcards

2020 CLEP Prep Flashcards

1
Q

Which of the following will always increase when net income increases?

A. Liabilities
B. Cash
C. Merchandise
D. Sales
E. Equity
A

E. Equity

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2
Q

Assume there are 365 days in a year. What is the number of days’ inventory on hand for a firm with cost of goods sold of $750,000 and average inventory of $150,000?

A. 5
B. 8
C. 20
D. 43
E. 73
A

E. 73

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3
Q

During the current year, accounts receivable increased from $27,000 to $41,000, and sales were $225,000. Based on this information, how much cash did the company collect from its customers during the year?

A. $225,000
B. $239,000
C. $211,000
D. $252,000
E. $266,000
A

C. $211,000

$225,000 sales - $14,000 o/s AR ($41,000 - $27,000) = $211,000

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4
Q

Accounts receivable turnover helps determine

A. the balance of accounts payable
B. the customers who have recently paid their bills
C. how quickly a firm collects cash on its credit sales
D. when to write off delinquent accounts
E. credit sales

A

C. how quickly a firm collects cash on its credit sales

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5
Q

The income statement is designed to measure

A. whether a firm is able to pay its bills
B. how solvent a company has been
C. how much cash flow a firm is likely to generate
D. the financial position of a firm
E. the results of business operations

A

E. the results of business operations

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6
Q

A company prepares a bank reconciliation in order to

A. determine the correct amount of the cash balance
B. satisfy banking regulations
C. determine deposits not yet recorded by the bank
D. double-check the amount of petty cash
E. record all check disbursements

A

A. determine the correct amount of the cash balance

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7
Q

An inventory valuation method such as FIFO or LIFO affects

A. the cost of goods sold but not the balance sheet
B. the balance sheet but not the cost of goods sold
C. both the income statement and the balance sheet
D. neither the income statement nor the balance sheet
E. the cost of goods sold but not the income statement

A

C. both the income statement and the balance sheet

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8
Q

A liability for dividends is recorded on which of the following?

A. The declaration date
B. The record date
C. The payment date
D. The collection date
E. The statement date
A

A. The declaration date

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9
Q

Assets are classified as intangible under which of the following conditions?

A. They are converted into cash within one year.
B. The have no physical substance.
C. The are acquired in a merger.
D. They are held for resale.
E. They are short term and used in operations.

A

B. The have no physical substance.

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10
Q

Return on assets helps users of financial statements evaluate which of the following?

A. Profitability
B. Liquidity
C. Solvency
D. Cash flow
E. Reliability
A

A. Profitability

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11
Q

What impact does collecting a receivable have?

A. Total assets increase.
B. Total assets decrease.
C. Net income increases.
D. Net income decreases.
E. Total assets and net income are not affected.
A

E. Total assets and net income are not affected.

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12
Q

The financial statement that includes classifications for operating, financing, and investing activities of a business entity for a period of time is called the

A. Income statement
B. Statement of Retained Earnings
C. Balance sheet
D. Statement of Changes in Owners' Equity
E. Statement of Cash Flows
A

E. Statement of Cash Flows

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13
Q

In a period of rising prices, which of the following inventory methods results in the highest cost of goods sold?

A. FIFO
B. LIFO
C. Average cost
D. Periodic inventory
E. Perpetual inventory
A

B. LIFO

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14
Q

Dividends paid is shown on which of the following financial statements?

A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of cost of goods manufactured
E. Statement of comprehensive income
A

C. Statement of cash flows

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15
Q

Equipment with a cost of $50,000 has an estimated residual value of $2,000 and an estimated life of ten years or 8,000 machine hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation for the third year, during which the machine was used 1,000 machine hours?

A. $2,000
B. $3,000
C. $4,800
D. $5,000
E. $6,000
A

E. $6,000

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16
Q

How is deprecation on equipment recorded?

A. Equipment Expense XXXX
Equipment XXXX
B. Depreciation Expense (equipment) XXXX
Accumulated Depreciation XXXX
C. Equipment Expense XXXX
Accumulated Equipment Expense XXXX
D. Depreciation Expense XXXX
Equipment XXXX
E. Accumulated Depreciation XXXX
Depreciation Expense XXXX

A

B. Depreciation Expense (equipment) XXXX

Accumulated Depreciation XXXX

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17
Q

A company had net sales of $27,900 in April. Beginning inventory was $5,000. Net inventory purchases were $15,000. Ending inventory was $7,000. Total operating expenses were $6,500. How much net income did the company earn in April?

A. $8,400
B. $12,400
C. $13,000
D. $14,900
E. $21,400
A

A. $8,400

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18
Q

Green Corporation with assets of $5,000,000 and liabilities of $2,000,000 has 6,000 shares of capital stock outstanding (par value $300). What is the book value per share?

A. $200
B. $300
C. $500
D. $833
E. $1,167
A

C. $500

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19
Q

Cost of goods sold is determined by which of the following?

A. Beginning inventory plus net purchases minus ending inventory
B. Beginning inventory plus purchases plus purchase returns minus ending inventory
C. Beginning inventory minus net purchases plus ending inventory
D. Purchases minus transportation-in plus beginning inventory minus ending inventory
E. Net sales minus ending inventory

A

A. Beginning inventory plus net purchases minus ending inventory

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20
Q

The owner’s equity in a business increases from which of the following?

I. Excess of revenue over expenses
II. Investments by the owner
III. Decrease in accounts payable

A. I only
B. II only
C. III only
D. I and II only
E. I, II, and III
A

D. I and II only

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21
Q

The Accumulated Depreciation account should be shown in the financial statements as

A. an operating expense
B. an extraordinary loos
C. a liability
D. stockholders' equity
E. a contra (deduction) to an asset account
A

E. a contra (deduction) to an asset account

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22
Q

If an individual borrows $95,000 in July of the current year from Community Bank by signing a $95,000, 9 percent, one-year note, what is the accrued interest as of December 31 of the current year?

A. $0
B. $2,138
C. $4,275
D. $6,413
E. $8,550
A

C. $4,275

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23
Q

Net purchases for the year amounted to $80,000. The merchandise inventory at the beginning of the year was $19,000. On sales of $120,000, a 30 percent gross profit on the selling price was realized. The inventory at the end of the year was

A. $13,000
B. $15,000
C. $17,000
D. $25,000
E. $63,000
A

B. $15,000

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24
Q

Which of the following investing activities appears on the statement of cash flows?

A. Selling a building
B. Buying Treasury stock
C. Selling Treasury stock
D. Paying dividends
E. Receiving interest income on a Note Receivable
A

A. Selling a building

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25
Q

In a limited partnership, limited partners are at risk for

A. the amount of their investment in the partnership
B. their share of nonrecourse debt
C. the total debts of the partnership
D. their percentage of debts
E. no amount
A

A. the amount of their investment in the partnership

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26
Q

All of the following expenditures should be charged to an asset account rather than to an expense account of the current period EXCPET the cost of

A. overhauling a delivery truck, which extends its useful life by two years
B. purchasing a new component for a machine, which services to increase the productive capacity of the machine
C. constructing a parking lot for a leased building
D. installing a new assembly line
E. replacing worn-out tires of delivery truck

A

E. replacing worn-out tires of delivery truck

27
Q

The balance sheet of Harold Company shows current assets of $200,000 and current liabilities of $100,000. The company uses cash to acquire merchandise inventory. As a result of this transaction, which of the following is true of working capital and the current ratio?

A. Both are unchanged.
B. Working capital is unchanged; the current ratio increases.
C. Both decrease.
D. Working capital decreases, the current ratio increases.
E. Working capital decreases; the current ratio is unchanged.

A

A. Both are unchanged.

28
Q

Which of the following correctly indicates how retained earnings can be affected?

A. Increased by net income, increased by dividends, and unaffected by realized losses
B. Increased by net income, increased by dividends, and increased by realized gains
C. Increased by net income, decreased by dividends, and decreased by realized losses
D. Decreased by net income, decreased by dividends, and decreased by realized losses
E. Decreased by net income, increased by dividends, and unaffected by realized gains

A

C. Increased by net income, decreased by dividends, and decreased by realized losses

29
Q

On December 31, before making year-end adjusting entries, Accounts Receivable had a debit balance of $80,000, and the Allowance for Uncollectible Accounts had a credit balance of $3,500. Credit sales for the year were $600,000. If credit losses are estimated at 1/2 percent of credit sales, which of the following is true?

A. The balance of the Allowance for Uncollectible Accounts will be $500 after adjustment.
B. The balance of the allowance for Uncollectible Accounts will be $3,500 after adjustment.
C. The balance of the Allowance for Uncollectible Accounts will be $6,500 after adjustment.
D. The Uncollectible Accounts Expense for the year will be $500.
E. The Uncollectible Accounts Expense for the year will be $6,500.

A

C. The balance of the Allowance for Uncollectible Accounts will be $6,500 after adjustment.

30
Q

A company bought a patent at a cost of $180,000. The patent had an original legal life of 17 years. The remaining legal life is 10 years, but the company expects its useful life will only be 6 years. When should the cost of the patent be charged to expenses?

A. Immediately
B. Over the next 6 years
C. Over the next 10 years
D. Over the next 17 years
E. Over the next 40 years
A

B. Over the next 6 years

31
Q

How is treasury stock reported on the balance sheet?

A. As an increase in liabilities
B. As an increase in assets
C. As a decrease in assets
D. As an increase in stockholders' equity
E. As a decrease in stockholders' equity
A

E. As a decrease in stockholders’ equity

32
Q 
Cash: $40,000
Accounts receivable: $120,000
Inventory: $300,000
Prepaid Rent: $2,000
Accounts payable: $150,000
Salaries payable: 7,000
Long-term bonds payable: $200,000

The selected accounts above are from TJ Supply’s balance sheet. What is TJ Supply’s working capital?

A. $40,000
B. $105,000
C. $160,000
D. $305,000
E. $462,000
A

D. $305,000

33
Q

A machine with a useful life of eight years was purchased for $600,000 on January 1. The estimated salvage value is $50,000. What is the first year’s depreciation by using the double-declining-balance method?

A. $50,000
B. $68,000
C. $75,000
D. $137,500
E. $150,000
A

E. $150,000

34
Q

Newman Corporation uses the allowance method for accounting for its accounts receivable. The company currently has a $100,000 balance in accounts receivable and a $5,000 balance in its allowance for uncollectible accounts. The company decides wo write of $4,000 of its accounts receivable. What would be the balance in its net accounts receivable before and after the write off?

Before/After
A. $95,000/$91,000
B. $95,000/$95,000
C. $100,000/$96,000
D. $105,000/$101,000
E. $105,000/$105,000
A

B. $95,000/$95,000

35
Q

Trading securities must be reported on the balance sheet at

A. historical cost
B. cost plus earning minus dividends
C. book value
D. fair market value
E. net present value
A

D. fair market value

36
Q

Which of the following will be credited when recording an accrued expense?

A. A liability account
B. A revenue account
C. A prepaid expense account
D. An unearned revenue account
E. A contra owner's equity account
A

A. A liability account

37
Q 
The L Company purchased new machinery and incurred the following costs: 
Invoice price: $30,000
Freight (F.O.B. shipping point): $2,000
Foundation for machinery: $1,000
Installation costs: $900
Annual maintenance of machinery: $600

The recorded cost of the machinery is

A. $30,000
B. $31,900
C. $32,000
D. $33,900
E. $34,500
A

D. $33,900

38
Q

ABC Company issued $5,000,000 of bonds on January 1 receiving cash of $5,300,000. Which of the following is true about the bonds?

A. The bonds were issued as a discount.
B. The bonds are not interest bearing.
C. The market value of the bonds on the date of issue was $5,100,000.
D. The market quote for the bonds was 108.
E. The amount of annual interest expense will be less than the amount of interest paid annually in cash.

A

E. The amount of annual interest expense will be less than the amount of interest paid annually in cash.

39
Q

Brock Company purchased a patent for $72,000 from Carter Company. The patent has a remaining legal life of 6 years, with an expected useful life of 4 years. The first year’s amortization is

A. $0
B. $6,000
C. $12,000
D. $18,000
E. $24,000
A

D. $18,000

40
Q

Which of the following is true of annual depreciation expense?

A. It represents the amount required for annual maintenance of a long-term asset.
B. It represents the annual revenue earned by an asset.
C. It allocates the cost of use of a long-term asset to the revenue that it generates.
D. It is required to fulfill the economic entity assumption.
E. It reduces cash.

A

C. It allocates the cost of use of a long-term asset to the revenue that it generates.

41
Q

Information in Covington Corporation’s accounting records concerning its common stock shows that there are 100,000 shares authorized, 80,000 shares issued, and 5,000 shares held as treasury stock. If a $3,000-per-share dividend is declared by the board of directors, the total amount of the cash dividend would be

A. $15,000
B. $225,000
C. $240,000
D. $300,000
E. $315,000
A

B. $225,000

42
Q

The matching concept matches

A. customers with businesses
B. expenses with revenues
C. assets with liabilities
D. creditors with businesses
E. debits with credits
A

B. expenses with revenues

43
Q

Cindy Company is preparing a bank reconciliation. Which of the following should be subtracted from the balance per bank statement to arrive at the adjusted cash balance?

A. Deposits in transit
B. Bank service charges
C. Interested credited to the account
D. Outstanding checks
E. Customer check returned for insufficient funds
A

D. Outstanding checks

44
Q

Which of the following equals the net assets of a company?

A. Current assets minus current liabilities
B. Total assets minus current liabilities
C. Retained earnings
D. Long-term assets minus accumulated depreciation
E. Stockholders’ equity

A

E. Stockholders’ equity

45
Q

New World, Inc. purchased $30,000 in goods on account that in turn were sold on account for $35,000. If New World uses accrual accounting, how much should they record in expenses and revenue?

A. $25,000 in revenue, but no expenses.
B. $30,000 in expenses, but no revenue
C. $35,000 in revenue, $30,000 in expenses
D. $30,000 in revenue and $30,000 in expenses
E. $5,000 in revenue, but no expenses

A

C. $35,000 in revenue, $30,000 in expenses

46
Q

Sonny Corporation has a simple capital structure of 100,000 shares of $1 par common stock and 20,000 shares of 5 percent preferred stock, $50 par. Both classes of stock were outstanding for the entire year. During the year, the company reported net income of $550,000 and declared dividends of $75,000 and $50,000 on the common stock and the preferred stock, respectively. Sonny’s earnings per share for the year were

A. $4.25
B. $4.58
C. $4.75
D. $5.00
E. $5.50
A

D. $5.00

47
Q

A machine that cost $25,000 three years ago is sold in the current year for $6,000. The accumulated depreciation taken on the machine was $20,0000. This sale would be reported in the current year’s statement of cash flows as

A. $25,000 outflow in t he cash from investing activities section
B. $6,000 inflow in the cash from investing section section
C. $1,000 inflow in the cash from investing activities section
D. $1,000 inflow in the cash from operations sections
E. $1,000 inflow in the cash from financing activities section

A

B. $6,000 inflow in the cash from investing section section

48
Q

Intangible assets include which of the following?

A. Unearned revenue
B. Works of art
C. Treasury bills
D. Land improvements
E. Patents
A

E. Patents

49
Q

During the past year, a company reported net income of $230,000. Depreciation expense was $22,000. In December the company received $7,000 representing rent for the next year on a vacant warehouse. What is the amount of cash provided by operating activities that should appear on a statement of cash flows?

A. $215,000
B. $237,000
C. $245,000
D. $252,000
E. $259,000
A

E. $259,000

50
Q

Ling is an accountant at a publicly traded corporation. She recently discovered in the account records a material error that affected last year’s financial statements and will affect this year’s statements. If the error is not corrected, it will reverse itself this year and probably no one will discover it. Even though last year’s net income was materially overstated and this year’s net income will be materially understated, the overall effect on the two years combined net incomes is that the overstatement and the understatement will completely offset each other. Which the following is the best action that Ling should take?

A. Do nothing, since no one will be harmed because of the offset
B. Immediately inform the local law enforcement agency
C. Place a phone call to the local newspaper to inform the public about the error
D. Immediately contact the Securities and Exchange Commission, since she is not sure what action her supervisor will take
E. Inform her immediate supervisor and help correct last year’s statement

A

E. Inform her immediate supervisor and help correct last year’s statement

51
Q

Which of the following identifies the income statement items in their proper order as found in a correctly prepared income statement?

A. Gross profit, net income, cost of goods sold, operating expenses, sales
B. Sales, operating expenses, cost of goods sold, gross profit, net income
C. Sales, cost of goods sold, operating expenses, gross profit, net income
D. Sales, cost of goods sold, gross profit, operating expenses, net income
E. Gross profit, costs of goods sold, sales, operating expenses, net income

A

D. Sales, cost of goods sold, gross profit, operating expenses, net income

52
Q

Magoo Wholesaler finds that 30 percent of its customers pay cash for their purchases. The rest buy on credit, 60 percent of which is collected in the month of purchase, and the rest in the month after purchase. If sales in January are $120,000, what is the balance of accounts receivable on January 31?

A. $0
B. $12,000
C. $33,600
D. $48,000
E. \$\$50,400
A

C. $33,600

53
Q

If a company issues $10,000,000 of 6 percent bonds at 105 (1/2), the amount of cash received from the sale is

A. $10,000,000
B. $10,105,500
C. $10,512,000
D. $10,550,000
E. $10,600,000
A

D. $10,550,000

54
Q

On August 1, Carlos Company pays $3,600 for a two-year insurance policy covering the period beginning September 1. How much insurance expense should be recognized by Carlos this year if the company reports on a calendar-year basis?

A. $600
B. $750
C. $1,050
D. $1,800
E. $3,600
A

A. $600

55
Q

If a corporation has total assets of $1,568,000, current liabilities of $60,000, and long-term liabilities of $388,000, what is its approximate debt-to-equity ratio?

A. 0.15
B. 0.25
C. 0.29
D. 0.40
E. 0.43
A

D. 0.40

56
Q

The lower of cost or market (LCM) is an application of

A. materiality
B. conservatism
C. the matching concept
D. full disclosure
E. the going-concern assumption
A

B. conservatism

57
Q

Cash is reported

A. in net sales on the income statement
B. as cost of goods sold on the income statement
C. as a liability on the balance sheet
D. in the stockholders’ equity section of the balance sheet
E. as a current asset

A

E. as a current asset

58
Q

Before the football season begins, a college football team receives $12,000,000 from season-ticket holders for one year’s home games. The team will play three home games in September, one in October, and two in November. How much revenue is recognized in September?

A. $0
B. $2,000,000
C. $4,000,000
D. $6,000,000
E. $12,000,000
A

D. $6,000,000

59
Q

If net sales are $2,000,000, operating expenses are $300,000, and gross profit is $360,000, how much is the cost of goods sold?

A. $340,000
B. $660,000
C. $1,640,000
D. $1,700,000
E. $2,660,000
A

C. $1,640,000

60
Q

Stephanie Company reported net income of $52,000 for the year. The net income includes depreciation expense of $3,800 and a gain on sale of equipment of $6,900. On the statement of cash flows, how much cash will Stephanie Company report from operating activities?

A. $48,900
B. $52,000
C. $55,100
D. $55,800
E. $58,900
A

A. $48,900

61
Q

(1) Adjusted trial balance is prepared.
(2) Transactions are posted to ledgers.
(3) Transactions are recorded in a journal.
(4) Closing entries are made.
(5) Adjusting journal entries are made.
(6) Trial balance is prepared.
(7) Financial statements are prepared.

Each of the principal steps in the accounting cycle is identified above by number. Which responses lists the correct sequence of events in the accounting cycle?

A. 3, 2, 6, 5, 1, 7, 4
B. 3, 2, 1, 4, 5, 6, 7
C. 5, 1, 3, 4, 2, 7, 6
D. 5, 3, 2, 1, 4, 6, 7
E. 2, 3, 1, 6, 5, 4, 7
A

A. 3, 2, 6, 5, 1, 7, 4

62
Q

On November 1, Greenburg Partners pays $7,200 for a one-year insurance policy, effective the same date. How much insurance expense should Greenberg Partners report for the year ending December 31?

A. $0
B. $600
C. $1,200
D. $6,000
E. $7,200
A

C. $1,200

63
Q

Schreiber Industries estimates bad debts at 2% of sales. Schreiber began the year with $270,000 of accounts receivable and $38,600 of allowance for bad debts. During the year, Schreiber had sales of $920,000, wrote off bad debts of $26,000, and received cash on account of $905,000. What amount of accounts receivable, net of allowance for bad debts, should appear on the year-end balance sheet?

A. $213,000
B. $228,000
C. $254,000
D. $259,000
E. $266,000
A

B. $228,000

64
Q

Gross profit margin is useful for evaluating

A. solvency
B. liquidity
C. turnover
D. leverage
E. profitability
A

E. profitability

Intro to Financial Accounting (3 decks)

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