ACC 231 Exam 3 Practice Test
1. Which of the following is not a current liability?
a. Short term loans repayable within one year from the date of the balance sheet
b. Unearned revenue (contract will end in 7 months)
c. Accounts payable
d. Notes payable due in 6 months,
e. None of the above
2. Green Company has a note payable for $80,000, which requires 4 equal annual
payments of principal plus interest. In the first year of the note, Green will report this
liability as a:
a. current liability of $20,000 and a long-term liability of $60,000.
b. current liability of $80,000.
c. long-term liability of $80,000.
d. current liability of $60,000 and a long-term liability of $20,000.
3. Cooper’s Company wants to determine their accrued warranty payable for December 31,
2018. As of January 1, 2018, the accrued warranty payable was $5,500. Warranty
expense for the year was $8,000. Cooper’s Company paid $7,000 in warranties in 2018.
What is the amount of the warranty payable on December 31, 2018.
a. $4,500
b. $6,500
c. $9,500
d. $20,500
4. Company XYZ has a lawsuit against them with their lawyers indicating that the possibility
of being settled in favor of the plaintiff is remote. What should the company do?
a. Prepare a note within their financial statements
b. Make a disclosure in their financial statement footnote
c. Prepare a journal entry
d. Nothing
5. Stockholders equity consists of two parts. They are:
a. Retained earnings and common stock
b. Common stock, revenues, and expenses
c. Paid in capital and common stock
d. Retained earnings and paid in capital
6. Company ABC issues shares of no par common stock for a specified dollar amount.
What accounts are debited and credited?
a. Dr - Cash Cr - Common stock
b. Dr - Common stock Cr - Cash
c. Dr - Cash Cr - Paid-in Capital in Excess of Par
d. Dr - Cash Cr - Retained earnings
7. Wanda Company reports the following information at the current fiscal year end of
December 31:
Common Stock, $0.10 par value per share
$62 million
Paid-in Capital in Excess of Par-Common
$500 million
Retained Earnings
$700 million
Total Stockholders' Equity
$1,288 million
What is the total paid-in capital for this company at December 31 of the current year?
a. $ 562 million
b. $ 1,200 million
c. $ 62 million
d. $ 762 million
8. Grace Law Offices paid $72,000 to buy back 18,000 shares of its $1 par value common
stock. The stock was sold later at a selling price of $11 per share. The journal entry to
record the sale would include a: (Do not round intermediate calculations.)
a. credit to Paid-in Capital from Treasury Stock Transactions $72,000.
b. credit to Paid-in Capital from Treasury Stock Transactions $126,000.
c. credit to Common Stock $126,000.
d. debit to Common Stock $72,000.
9. Linda Corporation purchases 65,000 shares of its own $10 par value common stock for
$70 per share. What will be the effect on stockholders' equity?
a. increase $650,000
b. decrease $650,000
c. decrease $4,550,000
d. increase $4,550,000
10. Company XYZ had 40,000 issued shares and repurchased 1,000 shares of its common
stock. It later reissued 500 of these repurchased shares, how many shares are
outstanding?
a. 41,500
b. 39,500
c. 39,000
d. 40,500
11. What is the difference between cash dividends and stock dividends?
a. Cash dividends decreases liabilities
b. Stock dividends decreases total stockholders equity
c. Cash dividends decreases assets and decreases stockholders equity
12. The distribution of stock dividends decreases stockholder equity
a. True
b. False
13. The journal entry on the date of record for cash dividends is to debit dividends and credit
cash
a. True
b. False
14. What is the normal balance of treasury stock?
a. Debit
b. Credit
15. What does the journal entry look like on the date of declaration for a cash dividend (D
denotes debit and C denotes credit)?
a. Dr - Dividends Cr - Cash
b. Dr - Dividends Cr - Dividends Payable
c. Dr - Dividends Payable Cr - Dividends
d. Dr - Dividends Cr - Retained earnings
16. What is the account to be debited in a journal entry needed to record a 2-for-1 stock
split.
a. Common Stock
b. Cash
c. Additional paid in Capital
d. No entry needed
17. Company XYZ has the following data: Retained earnings for December 31, 2018 were
$30,000,000. The net loss for the fiscal year ended 2019 was $6,000,000. Retained
earnings December 31, 2019 was $18,000,000. What was the amount of dividends
declared and paid for the fiscal year ending 2019?
a. $6,000,000
b. $18,000,000
c. $42,000,000
d. Not enough information
18. The statement of cash flows does not report
a. Noncash investing and financing activities in the current year
b. revenues and expenses for the current year
c. cash receipts in the current year
d. cash payments in the current year
19. On the statement of cash flows, a company should be most focused on and concerned
about
a. Operating activities
b. Financing activities
c. Investing activities
d. Noncash investing activities
20. What is the journal entry for the repurchase of common stock?
a. Dr - Common Stock Cr - Cash
b. Dr - Cash Cr - Common Stock
c. Dr - Common Stock Cr - Retained earnings
d. Dr - Treasury Stock Cr - Cash
21. Company ZYX is thinking about declaring a distributing a 35% common stock dividend
with 100,00 shares of $20 par common stock outstanding. Company ZYX should record
the entry at par value, true or false?
a. True
b. False
22. Zach’s Farming Corp has the following financial information:
Net income $180,000
Average assets for the year $700,000
Total common stockholders' equity at the beginning of the year $415,000
Total common stockholders' equity at the end of the year $345,000
What is return on equity?
a. 47.37%
b. 43.37%
c. 52.17%
d. 2.11%
23. Zach’s Farming Corp has the following financial information:
Net income $180,000
Average assets for the year $700,000
Total common stockholders' equity at the beginning of the year $415,000
Total common stockholders' equity at the end of the year $345,000
What is return on assets?
a. 47.37%
b. 25.71%
c. 52.17%
d. 102.6%
24. Zach’s Farming Corp has the following financial information:
Net income $180,000
Average assets for the year $700,000
Total common stockholders' equity at the beginning of the year $415,000
Total common stockholders' equity at the end of the year $345,000
What is the leverage ratio?
a. 1.69
b. 2.03
c. 3.89
d. 1.84
25. Under the direct method of preparing the operating section of the statement of cash
flows, net cash provided by financing activities is $760,000. If the indirect method of
preparing the statement of cash flows was used:
a. net cash provided by financing activities would be more than $760,000.
b. net cash provided by operating activities would equal $760,000.
c. net cash provided by financing activities would be the same, $760,000.
d. net cash provided by financing activities would be less than $760,000.
26. If the indirect method is used, which of the following items appears on a statement of
cash flows?
a. Cash receipt of interest revenue
b. Depreciation expense
c. Collections from customers
d. Payments to suppliers
27. Examples of financing activities on a statement of cash flows includes declaring stock
dividends.
a. True
b. False
28. During the year, XYZ Corporation's Treasury Stock account increased $52,000 due to a
cash purchase, cash dividends of $39,000 were paid and the company reported net
income of $150,000. On the statement of cash flows (indirect method), Net cash used by
financing activities is:
a. (91,000)
b. (111,000)
c. (98,000)
d. (115,000)
29. On January 1, 2018, the Notes Receivable account has a balance of $15,000. On
December 31, 2018, the Notes Receivable account has a balance of $140,000. No
collections on notes receivable occurred in 2018. What is the amount of long-term notes
that were made in 2018?
a. $150,000
b. $140,000
c. $125,000
d. $15,000
30. Johnny’s Sandwich shop had net income for the year ending December 31, 2018 at
$150,000. They have the following data:
December 31, 2017
December 31, 2018
Current Assets
Cash
$93,000
$61,500
Accounts Receivable
$76,000
$117,000
Total Current Assets
$169,000
$178,500
Current Liabilities
Accounts Payable
$45,500
$82,000
Rent Payable
$65,000
$62,000
Total Current Liabilities
$110,500
$144,000
What is the net cash provided by operating activities using the indirect method for 2018.
a. $114,000
b. $142,500
c. $148,500
d. $193,000
31. The asset turnover ratio measures what?
a. How well a company is using their assets to generate revenue
b. How many years assets were in use compared to their revenue generated
c. The likelihood that the asset will pay back its cost over its estimated lifetime
32. Nike has an inventory turnover rate of 3.79 (96 days). Under Armour has an inventory
turnover rate of 3.04 (120 days). Nike has a _______ rate of inventory turnover, making
it _______ profitable than Under Armour.
a. Lower, more
b. Higher, less
c. Higher, more
d. Lower, less
33. If a company has a leverage ratio higher than 1.0 this means the company
a. has no debt
b. Has more assets than stockholders equity
c. Relies less on borrowed capital
34. What are the advantages of a corporation?
a. Ease of raising capital
b. Overall control over decision making by the owners
c. Owners pay income taxes
d. Double taxation
35. Company XYZ declared a stock dividend of 15% on its outstanding 40,000 shares (par
value $1). On the date of declaration, the market price of the shares was $20 per share.
What was the journal entry to record this transaction?
a. Dr. Stock dividends 120,000; Cr. Common Stock 120,000
b. Dr. Stock dividends 40,000; Cr. Common Stock 40,000
c. Dr.Stock dividends 120,000; Cr. Common Stock 6,000, Cr. APIC 114,000
d. Dr. Stock dividends 6,000; Cr. Common Stock 6,000
36. Company XYZ declared a stock dividend of 25% on its outstanding 40,000 shares (par
value $1). On the date of declaration, the market price of the shares was $20 per share.
What was the journal entry to record this transaction?
a. Dr. Stock dividends 10,000; Cr. Common Stock 10,000
b. Dr. Stock dividends 40,000; Cr. Common Stock 40,000
c. Dr.Stock dividends 200,000; Cr. Common Stock 10,000, Cr. APIC 190,000
d. Dr. Stock dividends 200,000; Cr. Common Stock 200,000
37. Company XYZ declared a stock dividend of 15% on its outstanding 40,000 shares (par
value $1). On the date of declaration, the market price of the shares was $20 per share.
How many shares were issued as a dividend?
6,000
