QUESTION 1

On January 1, 2021, a firm issues bonds with a face amount of $1,500,000. The stated rate is 10%, the market rate is 12%, the term is three years and payments are made twice a year, on June 30 and Dec. 31. What is the present value of the bond that the firm records on its books on the issue date?

1. $1,426,240
2. $1,500,000
3. $1,576,135
4. $1,795,039
5. $2,188,195

QUESTION 2

On January 1, 2021, a firm issues bonds with a face amount of $1,500,000. The stated rate is 10%, the market rate is 12%, the term is three years and payments are made twice a year, on June 30 and Dec. 31. What is the interest expense that the firm records on its books when making the first cash payment to investors on June 30, 2021?

1. $75,000
2. $85,574
3. $90,000
4. $107,702
5. $150,000

QUESTION 3

Which of the following describes one of the relationships between Income Statement and Shareholders' Equity?

1. There is no direct relationship between Income Statement and Shareholders' Equity
2. If the sum of Income Statement results in a negative amount, this is added to Common Stock at the end of the firm's year
3. If the sum of Income Statement results in a positive amount, this is subtracted from Retained Earnings at the end of the firm's year
4. If the sum of Income Statement results in a negative amount, this is subtracted from Additional Paid-In Capital at the end of the firm's year
5. If the sum of Income Statement results in a positive amount, this is added to Retained Earnings at the end of the firm's year

QUESTION 4

Gamestop Corp. said the following about its gift card sales in its most recent (2019) annual report:

"We establish a liability upon the issuance of merchandise credits and the sale of gift cards. Revenue is subsequently recognized when the credits and gift cards are redeemed." When Gamestop sells a gift card to a customer, what is the impact on Gamestop's financial statements?

1. Cash increases and the Income Statement increases
2. Cash increases and Inventory decreases
3. Cash increases and Liabilities increase
4. Cash decreases and the Income Statement decreases
5. No effect because the customer has not yet used the gift card

QUESTION 5

Gamestop Corp. said the following about its gift card sales in its most recent (2019) annual report:

"We establish a liability upon the issuance of merchandise credits and the sale of gift cards. Revenue is subsequently recognized when the credits and gift cards are redeemed."

When Gamestop sells merchandise to a customer who is using a Gamestop gift card to purchase the merchandise, what is the impact on Gamestop's financial statements? (Ignore any inventory effects)

1. Liabilities decrease and cash decreases
2. Liabilities increase and the Income Statement decreases
3. Liabilities decrease and the Income Statement increases
4. Liabilities decrease and cash decreases
5. No effect because the transaction was already booked when the customer purchased the gift card

QUESTION 6

Which of the following best describes the difference between financial accounting and tax accounting?

1. Financial accounting is what managers use for internal, decision making purposes while tax accounting is used for creditors, investors, and the general public.
2. They are both used for income tax reporting purposes, and they are both required by the SEC to be issued and made public so that they can be used by creditors, investors, and the general public
3. Financial accounting is used for income tax reporting purposes and tax accounting is used by managers for internal, decision making purposes.
4. Financial accounting is used by creditors, investors, and the general public, while tax accounting is used for income tax reporting purposes
5. None of these answers is correct.

QUESTION 7

A wholesale merchandising company uses the FIFO cost flow assumption. The beginning inventory balance was zero. Below is a worksheet showing inventory transactions for December 2020.

Date Transaction type Number of units Unit price

Dec. 2 Purchase 125 $75

Dec. 15 Purchase 200 $74

Dec. 16 Purchase 375 $70

Dec. 29 Sale 650 $130

What is the balance in the company's inventory asset account on December 31, 2020?

1. $3,306
2. $3,425
3. $3,500
4. $3,602
5. $3,750

QUESTION 8

A wholesale merchandising company uses the FIFO cost flow assumption. The beginning inventory balance was zero. Below is a worksheet showing inventory transactions for December 2020.

Date Transaction type Number of units Unit price

Dec. 2 Purchase 125 $75

Dec. 15 Purchase 200 $74

Dec. 16 Purchase 375 $70

Dec. 29 Sale 650 $130

What is the company's gross profit for December 2020?

1. $37,381
2. $37,500
3. $37,575
4. $37,677
5. $37,825

QUESTION 9

A LIFO liquidation means which of the following:

1. The firm uses the LIFO cost flow assumption, and it is insolvent. It must liquidate all of its inventory.
2. The firm did not purchase enough inventory units in the current period to cover its sales for the current period. It must sell its older inventory units that were valued at a lower price. Thus, its gross profit will be higher than expected.
3. The firm did not purchase enough inventory units in the current period to cover its sales for the current period. It must sell its older inventory units that were valued at a lower price. Thus, its gross profit will be lower than expected.
4. The firm did not purchase enough inventory units in the current period to cover its sales for the current period. It must sell its older inventory units that were valued at a higher price. Thus, its gross profit will be higher than expected.
5. None of these answers is correct.

QUESTION 10

The new bookkeeper forgot to record the payment of an accounts payable to a supplier. What impact does this have on the company's books?

1. No effect
2. Cash is understated/the Income Statement is understated
3. Cash is overstated/the Income Statement is overstated
4. Cash is overstated/liabilities are understated
5. Cash is overstated/liabilities are overstated

QUESTION 11

The new bookkeeper forgot to record the sale of merchandise that was made to a customer on account with 20% profit. What impact does this have on the company's books?

1. Cash is understated/Accounts receivable is understated/Inventory is overstated/Income statement is understated
2. Accounts receivable is understated/Inventory is understated/Income statement is overstated
3. Cash is overstated/Inventory is understated/Income statement is overstated
4. Accounts receivable is understated/Inventory is overstated/Income statement is understated
5. Cash is understated/Accounts receivable is overstated/Income statement is understated

QUESTION 12

Common stock on the balance sheet is always valued at:

1. Paid-in Capital plus Retained Earnings
2. Paid-in Capital plus Retained Earnings minus Treasury Shares
3. Par value times shares issued
4. Par value times shares authorized
5. Par value times shares outstanding

QUESTION 13

What is the difference between dividends that are declared and dividends that are paid?

1. There is no difference
2. When they are declared they reduce Net Income and when they are paid they reduce cash
3. When they are declared they increase Net Income and when they are paid they reduce cash
4. When they are declared they reduce Common Stock and when they are paid they increase Dividends Payable
5. When they are declared they reduce Retained Earnings and when they are paid they reduce Dividends Payable

QUESTION 14

What does the term "net book value" mean?

1. The beginning balance that the firm uses when it disposes of an asset or liability
2. The ending balance of an asset or liability that is used for tax reporting purposes
3. The ending balance of an asset or liability after deducting the ending balance of its related contra account(s)
4. All of the above
5. None of the above

QUESTION 15

What is the difference between Bad Debt Expense and Receivable Write-off?

1. Bad Debt Expense reduces Accounts Receivable and Receivable Write-off reduces NI
2. Bad Debt Expense reduces NI and Receivable Write-off raises NI
3. Bad Debt Expense reduces the allowance account and Receivable Write-off does not change it
4. Bad Debt Expense raises the allowance account and Receivable Write-off reduces it
5. There is no difference

5 points

QUESTION 16

Which of the following is an asset?

1. Accounts receivable
2. Allowance for doubtful accounts
3. Accumulated depreciation
4. Patents
5. All of the above

QUESTION 17

What is the difference between the Income Statement and the Cash Flow Statement?

1. There is no difference. They both show cash coming in and out of the firm.
2. The Income Statement is for a single point in time and the Cash Flow Statement covers a specific period of time
3. The Income Statement shows accrual basis Net Income and the Cash Flow Statement shows why the cash balance on the Balance Sheet changed between two Balance Sheet dates.
4. All of the above
5. None of the above