21. Which of the following is a difference between the direct and indirect methods or preparing a Statement of Cash Flows?

A. The direct method is acceptable under generally accepted accounting principles (GAAP) in the US and the indirect method is not

B. The direct method includes operating, investing and financing sections whereas the indirect method only includes operating and financing sections

C. The net change in cash differs depending on which method you use

D. None of the above answers is correct

22. The Pepper Company rents apartments to college students. On 6/1/19, they collected $100,000 in deposits from students for leases that begin on 9/1/19. They recorded this properly. On 8/31/19, the following adjusting entry should be made by the Pepper Company:

A. Debit Unearned Revenue $100,000; Credit Rent Revenue $100,000

B. Debit Cash $100,000; Credit Unearned Revenue $100,000

C. Debit Rent Revenue $100,000; Credit Unearned Revenue $100,000

D. No adjusting entry is needed at 8/31/19

23. Which of the following transactions would result in the recording of revenue?

A. Collecting an account receivable

B. The purchase of inventory

C. Receiving cash in advance of performing a service

D. None of the above would result in the recording of revenue

24. Which of the following is an example of an internal control that would be used for inventory?

A. Physical locks on the storage facility that the inventory is kept in

B. Cameras in the warehouse where the inventory is produced

C. Check the credit worthiness of customers

D. Only A and B above

25. The following is a disadvantage of issuing equity securities:

A. Requirement to pay dividends

B. Requirement to pay interest

C. Lose some ownership/control

D. You have to repay the stockholders at the end of the equity securities life

26. Assume that the David Corporation has the following initial balance and subsequent purchase of inventory:

UNITS TOTAL COST

Beginning inventory, 2019 .3,000 units @ $25 each $ 75,000

Inventory purchased in 20195,000 units @ $35 each $175,000

Cost of goods available for sale in 2019.......... 8,000 units $250,000

During 2019, David sold 4,000 units. Which of the following is incorrect?

A. FIFO cost of goods sold would be $110,000

B. FIFO ending inventory would be $140,000

C. LIFO ending inventory would be $110,000

D. LIFO cost of goods sold would be $100,000

27. Which of the following would be included in the cash flow from investing activities section of the statement of cash flows?

A. Payment of salaries

B. Purchase of land

C. Purchase of a building for a manufacturing facility

D. Both B and C above

28. On December 1, 2018, Toby Dog Toys, Inc. received $5,000 for 1,000 chew toys which are in Tobys, inventory at a cost of $3,000. The toys will be shipped on January 15, 2019. On Toby Dog Toys, Inc. 2018 financial statements, this will result in:

A. A liability of $5,000.

B. Revenue of $5,000

C. An expense of $3,000

D. Both B and C above

29. Select the correct information about unearned revenue:

(Account Classification, Normal Balance, Financial Statement)

A. Liability Credit Balance Sheet

B. Revenue Credit Income Statement

C. Liability Debit Balance Sheet

D. Revenue Debit Income Statement

30. The purpose of closing entries is to:

A. Ensure net income is properly calculated

B. Reset temporary accounts to zero

C. Update the retained earnings account

D. Only B and C above

31. Katelyn Corporation mistakenly forgot to record depreciation on its computer equipment at the end of it fiscal year. As a result:

A. Assets would be overstated and Retained Earnings would be understated

B. Assets and Retained earnings would be understated

C. Assets and Retained Earnings would be overstated

D. Assets would be understated and Retained Earnings would be overstated

32. Luke Enterprises has 2019 credit sales of $600,000. The balance in the Allowance for Doubtful Accounts is $10,000 (normal balance). Luke estimates that 4% of credit sales will be uncollectible. What would Luke record as the adjusting journal entry at the end of their 2019 fiscal year?

A. Debit Bad Debt Expense $14,000; Credit Allowance for Doubtful Accounts $14,000

B. Debit Bad Debt Expense $14,000; Credit Accounts Receivable $14,000

C. Debit Bad Debt Expense $24,000; Credit Allowance for Doubtful Accounts $24,000

D. Debit Bad Debt Expense $24,000; Credit Accounts Receivable $24,000

33. At January 1, 2019, the Leia Company, a manufacturer of gourmet pet food, had assets of $300,000 and liabilities of $120,000. During 2019, Leia made sales of $140,000 (half for cash and half on account), incurred and paid payroll for employees of $65,000, incurred and paid rent of $18,000 and paid for insurance for 2020 of $11,000. The total stockholders equity balance for Leia at December 31, 2019 is:

A. $57,000

B. $156,000

C. $226,000

D. $237,000

34. Petey Company (Petey) sells personalized hockey sticks to college hockey teams. Petey had the following transactions occur during the month of April 2019: Sold hockey sticks on account to Bentley University for $20,000; Sold hockey sticks for cash to UNH for $30,000; Incurred and paid travel costs for sales promotion of hockey stick sales of $8,000; Borrowed $4,000 from a bank; Incurred and paid April 2019 payroll for $12,000 and Incurred rent expense of $5,000. What was Peteys net income for April 2019?

A. $5,000

B. $21,000

C. $25,000

D. $30,000

35. At the end of the fiscal year, Ally, the accountant for Falcon Corporation, forgot to make an adjusting journal entry to the prepaid rent account to record rent expense that was incurred during the year. Which of the following statements would be correct about this situation?

A. Expenses would be overstated

B. Retained earnings would be overstated

C. Assets will be understated

D. None of the above

36. Whatleys Dental Supplies largest customer is experiencing cash flow problems and Whatley is concerned that the customer will not pay its currently due invoices for at least 90 days. If the customer does not pay Whatley on a timely basis, which of the following will be true about Whatleys financial ratios for the current month?

A. Whatleys current ratio will rise

B. Whatleys quick ratio will fall

C. Whatleys average payment period will increase

D. Whatleys accounts receivable turnover will decrease

37. For the year ended December 31, 2019, Weavers Comedy Store reported that its gross profit margin, operating profit margin and profit margin were 72%, 35% and 11% respectively. Weaver reported sales of $200,000 for the year. What were Weavers selling and administrative expenses for the year? Assume that all of Weavers operating expenses were comprised of selling and administrative expenses.

A. $70,000

B. $22,000

C. $56,000

D. $74,000

38. On May 31, 2019, Teri Corporation sold spring floral arrangements for $27,000 (on account). Teri paid $12,000 to acquire the flowers from a wholesaler. Which of the entries will be made on May 31, 2019?

A. Debit Cost of Goods Sold $12,000; Credit Inventory $12,000

B. Debit Cash $27,000; Credit Sales Revenue $27,000

C. Debit Accounts Receivable $27,000; Credit Unearned Revenue $27,000

D. Debit Cost of Goods Sold $12,000; Credit Revenue $27,000

39. Manny Corporation (Manny) has the following information from its financial statements and is trying to assess its business. What are the Days Sales in Inventory (DSI), Accounts Receivable Turnover (ART) and Accounts Payable Turnover (APT) ratios?

Revenue $450,000

Cost of Goods Sold $300,000

Operating Expenses $20,000

Cash $40,000

Accounts Receivable $90,000

Inventory $50,000

Accounts Payable $50,000

A. DSI = 0.17; ART = 6.0; APT = 5.0

B. DSI = 60.83; ART = 5.0; APT = 6.0

C. DSI = 60.83; ART = 9.0; APT 3.33

D. DSI = 6.083; ART = 9.0; APT = 6.0

40. The following are selected data from Braun Corporations year-end financial statements. What is the gross profit margin for Braun Corp.?

Net Income $300,000

Sales $900,000

Cost of Goods Sold $400,000

Operating Income $325,000

Total Liabilities $200,000

A. 33.33%

B. 28.33%

C. 36.11%

D. 55.56%