1. The portion of a corporation’s net income retained in the business is called (Points : 3)
income statement.
balance sheet.
statement of cash flows.
retained earnings.

2. What is the primary objective of most businesses? (Points : 3)
To maximize profits
To pay dividends to stockholders
To provide a benefit to society
To manufacture a quality product

3. The “rules” of accounting are called (Points : 3)
income tax regulations.
SEC regulations.
Internet rules.
Generally Accepted Accounting Principles.

4. Capital market stakeholders have an interest in the company because (Points : 3)
they provide incentives for the company to market their products
they are part of the Marketing Department that is responsible for promoting the products or services to increase the business
they help market their products to customers or find vendors to supply needed inputs.
they provide major financing for the business

5. Johnson, Inc. paid rent expense of $3,500 for the month of October. How are the accounts affected due to this
transaction? (Points : 3)
Increase in cash $3,500 and increase in retained earnings $3,500
Increase in cash $3,500 and decrease in retained earnings $3,500
Decrease in cash $3,500 and decrease in retained earnings $3,500
Decrease in cash $3,500 and increase in retained earnings $3,500

6. For EFG Co., the transaction "Payment of dividends" would (Points : 3)
increase total assets.
decrease total assets.
have no effect on total assets.
increase stockholders’ equity.

7. Hodges, Inc. had the following assets and liabilities as of September 30, 2011:



What is the stockholders’ equity of Hodges as of September 30, 2011? (Points : 3)
Cannot be determined with this information

8. Stockholders’ Equity will be reduced by all of the following accounts EXCEPT: (Points : 3)
All of the above reduce Stockholders’ Equity.

9. Accrued expenses are ordinarily reported on the balance sheet as (Points : 3)
fixed assets.
prepaid expenses.

10. As time passes, fixed assets, other than land, lose their capacity to provide useful services. To account for this decrease
in usefulness, the cost of fixed assets is systematically allocated to expense through a process called (Points : 3)
equipment allocation.

11. The __________ is prepared with various sections, subsections, and captions that aid in its interpretation and analysis.
(Points : 3)
accounting equation
retained earnings statement
intangible asset section
classified balance sheet

12. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M’s accounts?
(Points : 3)
Increase accounts receivable and cash by $1,000,000 each
Increase accounts receivable and revenues by $1,000,000 each
Increase accounts receivable and unearned revenues by $1,000,000 each
No effect at this time

13. If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as (Points : 3)
FOB shipping point.
FOB destination.

FOB n/30.
FOB buyer.

14. Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet? (Points : 3)
As a revenue
As the cost of merchandise sold
It does not appear on the Balance Sheet
As a current asset

15. Which expenses are subtracted from gross profit to arrive at income from operations? (Points : 3)
All expenses
Cost of merchandise sold
Operating expenses
Sales expenses

16. Dig, Inc. had the following merchandise transactions in October:

Purchase returns
Purchase discounts
Transportation in

$ 4,000
$ 1,000
$ 2,000

What is the total cost of merchandise purchased for Dig, Inc.? (Points : 3)

17. The purpose of the Sarbanes­Oxley Act of 2002 is to (Points : 3)
restore public confidence and trust in the financial statements of publicly held companies.
require all companies to prepare financial statements.
protect companies from demands of investors, stockholders, and creditors.
do all of these.

18. Which of the following reflects a weak internal control system? (Points : 3)
All employees are well supervised.
A single employee is responsible for comparing a receiving report to an invoice.
All employees must take their vacations.
A single employee is responsible for the collecting and recording of cash

19. An element of internal control is (Points : 3)
risk assessment.
subsidiary ledgers.
controlling accounts.

20. When a firm uses internal auditors, it is adhering to which of the following internal control elements? (Points : 3)
Risk assessment
Proofs and security measures
Separating responsibilities for related operations

21. The two methods of accounting for uncollectible receivables are the allowance method and the (Points : 3)
equity method.
direct write­off method.
interest method.
cost method.

22. The amount of the promissory note plus the interest earned on the due date is called the (Points : 3)
realizable value.
maturity value.
face value.
net realizable value.

23. Merchandise inventory is reported on the balance sheet in the section entitled (Points : 3)
current assets.
fixed assets.
current liabilities.
stockholders’ equity.

24. The inventory method that assigns the most recent costs to cost of goods sold is (Points : 3)
average cost.
specific identification.

25. Fixed assets are ordinarily presented in the balance sheet (Points : 3)
at current market values.
at replacement costs.
at cost less accumulated depreciation.
in a separate section along with intangible assets.

26. Which of the following is NOT an intangible asset? (Points : 3)
Long­term receivable

27. To measure depreciation, all of the following must be known EXCEPT (Points : 3)
market value.
residual value.
historical cost.
estimated life.

28. If a fixed asset is sold and the book value is less than cash received, the company must (Points : 3)
recognize a loss on the income statement under other expenses.
recognize a loss on the income statement under operating expenses.
recognize a gain on the income statement under other revenues.
Gains and losses are not to be recognized upon the sell of fixed assets.

29. In which section of the balance sheet would treasury stock be reported? (Points : 3)
Fixed assets
Long­term liabilities
Stockholders’ equity
Intangible assets

30. Stockholders’ equity (Points : 3)
is usually equal to cash on hand.
includes paid­in capital and liabilities.
includes retained earnings and paid­in capital.
is shown on the income statement.

31. Which statement below is NOT a reason for a corporation to buy back its own stock? (Points : 3)
Resale to employees
Bonus to employees
For supporting the market price of the stock
To increase the shares outstanding

32. The par value per share of common stock represents (Points : 3)
the minimum selling price of the stock established by the articles of incorporation.
the minimum amount the stockholder will receive when the corporation is liquidated.
the monetary amount assigned to each share of stock in the articles of incorporation.
the amount of dividends per share to be received each year.

33. A bond indenture is (Points : 3)
a contract between the corporation issuing the bonds and the underwriters selling
the bonds.
the amount due at the maturity date of the bonds.
a contract between the corporation issuing the bonds and the bondholders.
the amount for which the corporation can buy back the bonds prior to the maturity date.

34. A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4­for­1 stock split, the
number of shares outstanding after the split will be (Points : 3)

35. An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during a week.
Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings
for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5%
on all earnings. What is the net pay for the employee? (Points : 3)