# Financial accounting multiple choice | Accounting homework help

1) Preparing a bank reconciliation enables a company to ________.

A) locate any errors, whether made by the bank or by the company

B) make adjustments for transactions that have already been recorded in the accounting records

C) make adjustments in the cash accounts

D) update the bank statements

2) Which of the following is NOT correct when preparing a bank reconciliation?

A) Outstanding checks are added to the balance per books.

B) Deposits in transit are added to the balance per bank statement.

C) Bank service charges are deducted from the balance per books.

D) NSF checks are deducted from the balance per books.

3) Goldilocks is the bookkeeper for Three Bears Company. She prepared the company’s bank reconciliation at the end of the year and found only two reconciling items: deposits in transit of \$2,850 and outstanding checks of \$3,500. She then made an adjusting entry to decrease the company’s cash balance for the deposits in transit and increase the company’s cash balance for the outstanding checks. Now the company’s cash balance is exactly the same as the bank statement balance. As a result of the adjusting entry, the cash shown on Three Bears Company’s year-end balance sheet will be ________.

A) too high

B) too low

C) just right

D) The answer cannot be determined from the information given.

4) X Company used the following items to complete its bank reconciliation for the month of October:

∙ Deposits in transit were \$2,500

∙ Outstanding checks totaled \$1,100

∙ Bank service charges were \$10

∙ The company correctly wrote a check for \$192, but mistakenly recorded the  check as \$129 on its books. The bank cashed the check correctly for \$192.

∙ A customer’s check for \$50 was returned by the bank, NSF

According to the bank statement, the cash balance was \$10,000. How much cash should X Company show on its October 31 balance sheet?

A) \$10,000

B) \$11,350

C) \$11,400

D) \$12,50

5) Which of the following methods of accounting for uncollectible accounts matches sales with bad debts expense?

A) direct write-off method

B) allowance method

C) contra-asset method

D) reconciliation method

6) Which of the following statements is FALSE?

A) The allowance method is a GAAP method.

B) The direct write-off method violates the matching principle.

C) Under the direct write-off method, accounts are expensed when they are identified as uncollectible.

D) Under the allowance method, amounts written off are recorded as bad debts expense.

7) In the allowance method, the adjustment used to write off an uncollectible account ________.

A) decreases net income

B) has no effect on net income

C) reduces total assets

D) decreases liabilities

8) In preparing the financial statements for January, the accountant for Team Shirts has compiled the following information: accounts receivable are \$5,000; the amount estimated to be uncollectible is 3% of sales for the month; sales for the month were \$43,000; and the balance in the allowance for uncollectible accounts is a positive \$1,000. Using the sales method, the amount of bad debts expense for January is ________.

A) \$290

B) \$1,000

C) \$1,290

D) \$2,290

9) Team Shirts had an unadjusted balance in its Allowance for uncollectible accounts of \$(875) on August 31. This amount was “left over” at the end of August because not as many accounts were written off as previously anticipated. An aging of accounts receivable at August 31 revealed an estimate of \$1,000 for uncollectible accounts. Using the accounts receivable allowance method, bad debts expense for August should be:

A) \$125.

B) \$275

C) \$1,000.

D) \$1,875.

10) When Y Company later records the write-off of a specific customer’s account receivable, its total assets will ________.

A) increase

B) decrease

C) remain the same

D) The answer cannot be determined from the information given.

11) Z Company obtained the following balances from its computerized accounting information system at the end of the year before adjustments:

Accounts receivable                                     \$  50,000

Allowance for uncollectible accounts             (1,000)

Net sales                                                        200,000

The company estimates that 2% of net sales will be uncollectible. After the correct adjusting entry has been made, bad debts expense for the year will be:

A) \$4,000.

B) \$1,000.

C) \$3,000.

D) \$5,000.

12) Y Company obtained the following balances from its computerized accounting information system at the end of the year before adjustments:

Accounts receivable                                     \$  27,000

Allowance for uncollectible accounts                   300         this is a positive number

Net sales                                                        100,000

The company estimates that 20% of accounts receivable will be uncollectible. After the correct adjusting entry has been made, the allowance for uncollectible accounts will be:

A) \$(2,400).

B) \$(4,800).

C) \$(5,400).

D) \$(20,000).

13) What is the effect of the adjusting entry for bad debts expense on the Balance sheet?

A) an increase in Total shareholders’ equity

B) an increase in Total assets

C) a decrease in Total liabilities

D) a decrease in Total assets

14) What is the effect of the adjusting entry for bad debts expense on the Income statement?

A) a decrease in Total shareholders’ equity

B) an increase in Total assets

C) a decrease in Retained earnings

D) a decrease in Net income

15) Team Shirts’ receivables turnover was 12 times per year. The retail industry average for receivables turnover is 13 times per year.

A) Team Shirts should improve its turnover to meet the industry standard.

B) Team Shirts’ turnover is better than the industry standard.

C) Team Shirts is able to turn its receivables into cash more quickly than its competitors in the industry.

D) Team Shirts’ average days to collect the receivables were greater than the retail industry average.

16) The bookkeeper opens the mail, deposits any checks received in the bank, and updates the company’s accounts receivable. This is an internal control ________.

A) strength

B) weakness

C) regulation

D) suggestion

17) Up-a-Creek Company had ending inventory of \$60,000, purchases of \$200,000, beginning accounts payable of \$100,000, ending accounts payable of \$80,000 and cost of goods sold of \$150,000. What was the amount of beginning inventory?

A) \$90,000

B) \$10,000

C) \$30,000

D) \$150,000

18) A vendor offers terms of 3/10, n/30. What is the ANNUAL interest rate the vendor is charging a buyer who does not pay within 10 days? (Assume there are 360 days in the year.

A) 3%

B) 36%

C) 54%

D) 108%

19) On November 27, Acme, Inc. ordered merchandise from Zenith Company. Zenith shipped the merchandise to Acme on November 29, FOB shipping point. The merchandise arrived at Acme’s warehouse on December 1. Acme paid for the merchandise on January 2. When should Zenith recognize revenue?

A) November 27

B) November 29

C) December 1

D) January 2

20) Rigby Company buys merchandise from Shoshone Company with an invoice cost of \$100,000 and shipping terms of FOB shipping point. The freight costs amount to \$1,000. Which of the following statements is TRUE?

A) Rigby Company will record freight-in costs of \$1,000.

B) Shoshone Company will record freight-out costs of \$1,000.

C) Shoshone Company will record freight-in costs of \$1,000.

D) Rigby Company will have inventory cost of \$10,000.

21) Which of the following costs are included in the inventory account when inventory is purchased FOB shipping point?

A) purchase returns

B) warranty costs

C) freight costs

D) allowance for uncollectible accounts

22) Which of the following is an advantage of a perpetual inventory system over a periodic system?

A) Cost of goods sold will be less.

B) Sales will be greater.

C) Inventory shrinkage is separately identified.

D) Sales returns will be less.

23) How does a perpetual inventory system differ from a periodic system?

A) Sales are increased only at the end of the accounting period in a perpetual system.

B) Cost of goods sold is increased only after an inventory count in a perpetual system.

C) Inventory is reduced after each sale in a perpetual system.

D) Inventory is increased after each sale in a periodic system.

24) A company would choose to use LIFO so that it can ________.

A) report inventory that best reflects current costs on its balance sheet

B) report lower cost of goods sold and higher income

C) pay less income tax

D) pay less for its purchases of inventory

25) Vango, Inc. sells part number 86Z to auto parts stores around the world. Information about part number 86Z is contained in the table below. Vango uses a FIFO periodic inventory system.

 Number of Units Unit Cost Total Cost Beginning inventory 2,000 \$8.00 \$16,000 Purchase 3,000 \$8.20 \$24,600 Purchase 5,000 \$8.60 \$43,000 Totals 10,000 \$83,600

Determine the cost of goods sold and ending inventory value of part 86Z, if 4,000 units remain unsold in inventory at the end of the accounting period.

A) Cost of goods sold is \$49,200 and ending inventory is \$34,400.

B) Cost of goods sold is \$34,400 and ending inventory is \$49,200.

C) Cost of goods sold is \$50,160 and ending inventory is \$33,440.

D) Cost of goods sold is \$51,200 and ending inventory is \$32,400.

26) Vango, Inc. sells part number 86Z to auto parts stores around the world. Information about part number 86Z is contained in the table below. Vango uses a weighted average cost periodic inventory system.

 Number of Units Unit Cost Total Cost Beginning inventory 2,000 \$8.00 \$16,000 Purchase 3,000 \$8.20 \$24,600 Purchase 5,000 \$8.60 \$43,000 Totals 10,000 \$83,600

Determine the cost of goods sold and ending inventory value of part 86Z, if 4,000 units remain unsold in inventory at the end of the accounting period.

A) Cost of goods sold is \$49,200 and ending inventory is \$34,400.

B) Cost of goods sold is \$34,400 and ending inventory is \$49,200.

C) Cost of goods sold is \$50,160 and ending inventory is \$33,440.

D) Cost of goods sold is \$51,200 and ending inventory is \$32,400.

27) Niteco Company ended its fiscal year with inventory recorded at its cost of \$10,000. Niteco believes it will be able to sell the inventory for approximately \$12,000.  Due to changes in the market, Niteco would be able to replace this inventory for \$9,000.  How much should Niteco show for inventory on its year-end balance sheet?

A) \$10,000

B) \$12,000

C) \$9,000

D) \$2,000

28) In times of rising prices, ________ will be more apt to result in a lower-of-cost-or-market write down.

A) the LIFO method

B) the FIFO method

C) the Weighted average cost method

D) Each method is as likely to result in a lower-of-cost-or-market write down as the others are.

29) The main objective of the lower-of-cost-or-market rule is to ________.

A) not overstate revenues

B) report a conservative inventory balance

C) not overstate cost of goods sold

D) report a conservative gross profit

30) Lito & Sons Woodworks has a beginning inventory of \$60,000 and ending inventory of \$84,000 for the current period. The company had sales of \$340,000 and cost of goods sold of \$200,000 during the period. What was the inventory turnover?

A) 4.72 times

B) 3.66 times

C) 2.78 times

D) 1.55 times

31) Assume Tyler, Inc. had a gross profit ratio of 30%, 25%, and 20% over the most recent three years. Which statement below is the best interpretation of the data?

A) The company is selling more inventory than in previous years.

B) The company is decreasing its selling price per unit or having its inventory costs per unit increase.

C) The company’s managers are doing a good job of controlling inventory costs and selling price.

D) The company is not selling as much inventory as in previous years.

32) Which financial statement(s) do you need to calculate a company’s inventory turnover ratio?

A) only the income statement

B) only the balance sheet

C) both the income statement and the balance sheet

D) both the balance sheet and the statement of cash flows

33) Depreciation is ________.

A) the loss in market value of an asset

B) the allocation of a long-term asset’s cost to an expense account over the asset’s life

C) an increase in an asset’s value over time or usage

D) the revenue earned by a long-term asset over its useful life

34) When a company uses cash to purchase a machine, recording the purchase will ________.

A)   decrease shareholders’ equity

B)   increase expenses

C)   exchange one asset for another

D)   increase assets, depreciation expense, and liabilities

35) All of the following costs would be included in the Land account when land is purchased EXCEPT ________.

A) the costs associated with paving a parking lot on the land

B) the realtor’s fee

C) costs to prepare the land for use such as removing a tree stump

D) the fee paid to transfer title to the land

36) Cost is ________.

A)  only the amount of cash paid to buy an asset

B) the amount of an asset consumed during a period

C) the cash plus cash equivalent amount paid to buy an asset

D) the decreases in shareholders’ equity when an asset is purchased

37) Cranberry Company purchased two pieces of equipment from a Canadian vendor for \$400,000. If the assets had been purchased separately, the company would have paid \$90,000 for the first piece of equipment and \$360,000 for the second piece of equipment. What amount should be recorded for the first piece of equipment?

A) \$80,000

B) \$90,000

C) \$360,000

D) \$320,000

38) Cranberry Company purchased two pieces of equipment from a Canadian vendor for \$400,000. If the assets had been purchased separately, the company would have paid \$90,000 for the first piece of equipment and \$360,000 for the second piece of equipment. What amount should be recorded for the second piece of equipment?

A) \$80,000

B) \$90,000

C) \$360,000

D) \$320,000

39) On November 1, 2011, Frigate Shipping Company bought equipment that cost \$400,000, with an estimated useful life of 8 years and an estimated salvage value of \$28,000. The company uses the straight-line method of depreciation and has a fiscal year ending on October 31. For the year ended October 31, 2012, Frigate Company will report depreciation expense of ________.

A) \$50,000

B) \$33,333

C) \$46,500

D) \$31,000

40) Which statement about depreciation is true?

A) Depreciation means loss in economic value.

B) Depreciation means to capitalize a cost over several accounting periods.

C) Depreciation refers to an allocation of an asset’s cost to an expense account.

D) Depreciation means to increase net income by transferring balances from shareholders’ equity.

41) XYZ Company owns an asset with historical cost of \$75,000, estimated useful life of 10 years, and salvage value of \$5,000. As of December 31, 2011, the asset has accumulated depreciation of \$49,000 after adjustment. The company still owes \$20,000 in liabilities from the purchase of the asset years ago. What is the asset’s book value on December 31, 2011?

A) \$70,000

B) \$26,000

C) \$21,000

D) \$6,000

42) RET Company uses the activity (units-of-production) method to depreciate long-term assets. The company owns a truck that cost \$24,000. The truck is estimated to have a salvage value of \$2,000 and a useful life of 200,000 miles. How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?

A) \$6,500

B) \$6,000

C) \$5,500

D) \$5,000

43) Which of the following assets can NOT be depleted?

A) timber

B) coal

C) diamonds

44) A business will have depletion expense only if it has ________.

A) current assets that are consumed during the period

B) property, plant, and equipment that are used in operating activities

C) natural resources like timber and oil

45) Which depreciation method is most similar to the method that is used to calculate amortization of intangible assets?

A) straight-line

B) double-declining balance

C) activity

D) capitalization

46) Able Company bought a machine on January 1, 2008for \$80,000. At the time the machine was purchased it was estimated to have an 8-year useful life and a \$4,000 salvage value. Able uses straight-line depreciation. During 2014, before the adjusting entry for depreciation was made, Able revised the estimated useful life of the machine to a total of ten years, with an estimated salvage value of \$0. How much depreciation expense should the company report for the year ended December 31, 2014?

A) \$5,000

B) \$5,750

C) \$4,400

D) \$9,500

47) On January 1, 2011, Fred McGriff Company bought office computers that cost \$43,000, with an estimated useful life of 10 years and an estimated salvage value of \$3,000. The company uses the straight-line method of depreciation and has a calendar year end. For the year ended December 31, 2012, McGriff Company will report depreciation expense of ________ on the ________.

A) \$4,300; statement of cash flows

B) \$4,300; income statement

C) \$4,000; income statement

D) \$4,000; statement of cash flows

48) What is book value and on which financial statement is it reported?

A) Book value is the difference between accumulated depreciation and market value, and it is reported on the income statement.

B) Book value is the difference between historical cost and accumulated depreciation, and it is reported on the balance sheet.

C) Book value is the difference between depreciation expense and accumulated depreciation, and it is reported on the balance sheet.

D) Book value is the difference between historical cost and market value, and it is reported on the balance sheet.

49) Which depreciation method will maximizenet income reported to the shareholders in the early years of an asset’s life?

A) the straight-line method

B) the double-declining balance method

C) the capitalization method

D) the revenue matching method

50) On January 1, 2011, Handy Manufacturing Company paid \$50,000 for equipment with an estimated useful life of 5 years and \$3,000 expected salvage value. The company uses straight-line depreciation. If the adjustment for depreciation is NOT made, net income for the year ended December 31, 2011 will be ________.

A) understated by \$19,400

B) overstated by \$9,400

C) overstated by \$19,400

D) understated by \$9,400

51) Use the following selected information from ABC Corporation to determine the return on assets for the year.

 Total revenues \$100,000 Total operating expenses \$65,000 Interest \$6,000 Beginning total assets \$500,000 Ending total assets \$440,000 Ending retained earnings \$300,000

A) 21.3%

B) 6.17%

C) 16. 7%

D) 7.45%

52) Which statement below best describes the meaning of return on assets (ROA)?

A) It answers the question: “How much profit does the company have for each dollar of revenues?”

B) It is the percentage of profit earned from collecting accounts receivable.

C) It indicates how well management uses a company’s assets to generate net income.

D) It measures the leverage during a period.

53) Current liabilities are liabilities that ________.

A) must be satisfied within two years

B) must be paid from revenues

C) must be of a definite amount

D) are to be settled within one year

54) ABC Company borrows \$15,000 from a local bank for six months at 9% annual interest. Which statement below is TRUE?

A) It is a definitely determinable liability.

B) It is a long-term liability.

C) It is an estimated liability.

D) Interest expense of \$225 will be recorded each month the loan is outstanding.

55) Beau Brentley earned \$60,000 in 2011 from his job at Bridgestone Tires. He had 15% of his gross pay withheld for federal income taxes, 6.2% withheld for FICA Social Security taxes, and 1.45% withheld for Medicare taxes. What amount will Bridgestone Tires report as payroll tax expense when it pays these taxes?

A) \$13,590

B) \$4,590

C) \$27,180

D) \$9,160

56) In December 2011, Homer Simpson worked for Springfield Power and earned \$5,000. Federal income tax withholding is 15%. The FICA rate is 6.2% and the Medicare tax is 1.45%. How much payroll tax expense will Springfield Power record when it pays these taxes?

A) \$750

B) \$382.50

C) \$1,132.50

D) \$765

57) In December 2011, B. Rich worked for Payless, Inc. and earned \$10,000. Federal income tax withholding is 20%. The FICA rate is 6.2% and the Medicare tax is 1.45%. How much cash will Payless pay the government for Medicare tax because of B. Rich’s December earnings?

A) \$765

B) \$145

C) \$290

D) \$1,530

58) Brooke’s Bike Company sold \$3,780 worth of mountain bikes in June. Warranty expense is estimated to be 2% of sales. During June, Brooke’s Bikes replaced two faulty parts under warranty. The parts cost a total of \$100. The warranty expense for June was ________.

A) \$65.60

B) \$75.60

C) \$100

D) \$175.60

59) Warranty expense is recognized when products are sold. This is required by the ________.

A) revenue recognition principle

B) matching principle

C) full disclosure principle

D) going concern principle

60) On January 1, 2011, Ajax Corporation signed a \$1,000,000, 7%, 10-year mortgage note to buy a new warehouse. The note will be repaid in 10 equal annual installments of \$142,378. Over the 10-year period, as each installment payment is made, the portion of the payment that is interest expense will ________.

A) increase

B) decrease

C) stay the same

D) The answer cannot be determined from the information given.

61) On January 1, 2011, Alpha Enterprise signed a \$100,000, 6%, 20-year mortgage note to buy a new warehouse. The mortgage will be repaid in a series of twenty equal annual installment payments. Over the 20-year period, as each installment payment is made, the portion of the payment that is used to reduce the principal will ________.

A) increase

B) decrease

C) stay the same

D) The answer cannot be determined from the information given.

62) B. Row, Inc. needed some long-term financing and arranged for a 10-year, \$100,000, 7% mortgage loan on January 1, 2010. Annual payments of \$14,238 will be made on December 31 each year. What effect will the payments have on the accounting equation?

A) Total assets, liabilities and shareholders’ equity will all decrease.

B) Only total assets and total liabilities will decrease.

C) Only total assets and total shareholders’ equity will decrease.

D) Total liabilities will increase and total shareholders’ equity will decrease.

63) When a bond sells for par value, its stated interest rate is ________.

A) equal to the market rate of interest

B) greater than the market rate of interest

C) less than the market rate of interest

D) irrelevant to investors

64) When a bond sells at a premium, its stated interest rate is ________.

A) equal to the market rate of interest

B) greater than the market rate of interest

C) less than the market rate of interest

D) irrelevant to investors

65) When a bond sells for 100, the bond is selling at ________.

A) a discount

C) par

D) the stated rate

66) Buzz Corporation issued \$50,000 worth of 10-year, 8% bonds for \$48,359.66. The 8% is the ________.

A) face value

B) market rate

C) future rate

D) stated rate

67) On January 1, 2011, Dew Drop Inn borrowed \$80,000 at 8% interest. The loan will be repaid with equal annual installment payments of \$8,900 made on the last day of each year, which is the companys yearend. Compared to the prior year’s interest expense on this note, interest expense for the year ended December 31, 2012 (2nd year) is ________.

A)  more because the note payable balance at January 1, 2012 is less

B) less because the note payable balance at January 1, 2012 is less

C)  more because the note payable balance at January 1, 2012 is more

D)  the same

68) Which stock offers shareholders preference in receiving dividends?

A) common stock

B) preferred stock

C) treasury stock

D) callable stock

69) Preferred stock offers shareholders the right to ________.

B) receive, in the event of bankruptcy, a share of the assets before common shareholders

C) pre-emptive rights

D) voting rights

70) Contributed capital includes ________.

A) only capital stock

C) both capital stock and retained earnings

D) both capital stock and additional paid-in capital

71) In exchange for stock, corporations may receive ________.

A) earnings

B) cash or other assets

C) income

D) treasury stock

72) The number of shares of stock a corporation may issue when a corporation is formed is called ________ shares.

A) authorized

B) issued

C) outstanding

D) treasury

73) ________ is the stock sold to the public.

A) Authorized stock

B) Issued stock

C) Outstanding stock

D) Treasury stock

74) Stock in the hands of shareholders is called ________ stock.

A) authorized

B) par value

C) outstanding

D) treasury

75) Stock that has been sold and then repurchased by the issuing corporation is called ________ stock.

A) authorized

B) issued

C) outstanding

D) treasury

76) The owners of common stock do NOT have the specific right to ________.

A) vote for members of the board of directors

B) share in the corporation’s earning

C) acquire more shares when a corporation issues more stock

D) receive dividends automatically each year

77) A monetary value assigned to and printed on each share of stock is called ________.

B) paid-in capital

C) par value

D) retained earnings

78) The state charter of Vest Corporation allows the corporation to sell 500,000 shares. Vest has issued 425,000 shares of stock. There are 15,000 shares of treasury stock. The number of outstanding shares is ________ shares.

A) 15,000

B) 410,000

C) 425,000

D) 500,000

79) Cartier, Inc.’s corporate charter allows it to sell 1 million shares of \$0.50 par value common stock. As of December 31, 2011, the company had sold 500,000 shares for \$4 each. Cartier has 20,000 shares of treasury stock that cost \$100,000. On the December 31, 2011 balance sheet, the number of shares authorized is ________ shares.

A) 1,000,000

B) 500,000

C) 480,000

D) 400,000

80) Team Shirts issued 20,000 shares of stock for \$20 per share. The par value of the stock was \$1 per share. Calculate the value of capital stock and additional paid-in capital.

A) capital stock \$400,000; additional paid-in capital \$0

B) capital stock \$380,000; additional paid-in capital \$20,000

C) capital stock \$20,000; additional paid-in capital \$380,000

D) capital stock \$0; additional paid-in capital \$400,000

81) The date on which the board of directors of a corporation decides that earnings are sufficient to pay a dividend is the ________.

A) declaration date

B) date of record

C) date of payment

D) dividend date

82) Cumulative preferred stock means that ________.

A) the fixed dividend amount accumulates from year to year. The entire amount of all past unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to common shareholders

B) the preferred dividend rate will increase each year the shares are outstanding

C) preferred dividends accumulate as earnings accumulate

D) the balance in the Preferred stock account is increased by any additional shares that are sold during the year

83) A company has 2,000 shares of \$100 par, 6%, noncumulative preferred stock outstanding. If the board of directors declares a dividend this year, how much will the preferred shareholders receive?

A) \$100 per share

B) \$6 per share

C) \$200,000 in total

D) \$60 per share

84) A ________ is created when a corporation increases the number of shares and proportionately decreases the par value.

A) cash dividend

B) liquidating dividend

C) stock dividend

D) stock split

85) Return on equity is ________.

A) net income divided by average shareholders’ equity

B) total shareholders’ equity divided by the average number of outstanding common shares

C) net income divided by the average number of common shares outstanding

D) net income divided by sales

86) The statement of cash flows ________.

A) reports all of the cash a company has received and all of the cash a company has disbursed during an accounting period

B) reports all of the income, expenses, and profit or losses a company has earned or incurred during an accounting period

C) reports the amount of assets, liabilities, and shareholders’ equity of a business

D) reports all of the income, dividends, and retained earnings of a business

87) The statement of cash flows does NOT report cash flows from ________.

A) operating activities

B) investing activities

C) financing activities

D) budgeting activities

88) A cash budget ________.

A) reports cash inflows and outflows from operating, investing, and financing activities

B) is a detailed plan of a company’s estimated cash receipts and disbursements

C) is prepared using the indirect method

D) is prepared using the direct method

89) Cash budgets allow companies to plan for any cash shortage by ________.

A) securing a line of credit from a local bank

B) borrowing money

C) altering the timing of receipts or disbursements

D) all of these

90) Which method of preparing the statement of cash flows would show increases in accounts receivable being subtracted from net income?

A) the direct method

B) the indirect method

C) accrual basis method

D) No method shows increases in accounts receivable being subtracted from net income.

91) During its first year of business, Gnu, Inc. sold \$200,000 of merchandise to customers on account.  At the end of the year Gnu, Inc. had accounts receivable of \$40,000. How much cash did the company collect from credit customers during the year?

A) \$200,000

B) \$240,000

C) \$160,000

D) \$40,000

92) Clean Dirt, Inc. had \$8,000 of salaries payable at December 31, 2010. During 2011, Clean Dirt’s salary expense was \$60,000. At December 31, 2011, Clean Dirt’s statement of cash flows showed cash paid for salaries of \$(63,000). How much was Clean Dirt’s salaries payable balance on its December 31, 2011 balance sheet?

A) \$5,000

B) \$11,000

C) \$13,000

D) \$3,000

93) The indirect method for the preparation of the statement of cash flows starts ________.

A) with net income and makes adjustments for all the items that are not cash

B) by converting every number on the income statement to its cash amount

C) by estimating the sources of cash and the uses of cash

D) with cash collected from customers

94) To prepare the statement of cash flows using the indirect method ________.

A) net income is added to cash

B) depreciation expense is added to net income

C) an increase in accounts receivable is added to net income

D) net income is subtracted from cash

95) A source of cash from operating activities is ________.

A) proceeds from a loan

B) collection of an account receivable

C) cash received from the sale of used equipment

D) cash received from the sale of treasury stock

96) A source of cash from financing activities is ________.

A) issuing of a note receivable

B) collection of an account receivable

C) cash received from the sale of treasury stock

D) collection of a note receivable

97) Negative cash flow from investing activities on the statement of cash flows means that a company has ________.

A) paid a large cash dividend to shareholders

B) paid more for operating expenses than it collected from customers

C) sold additional shares of common stock

D) bought additional property, plant and equipment

98) Positive cash flow from operating activities on the statement of cash flows means that a company has ________.

A) paid a large cash dividend to shareholders

B) collected more from customers than it paid for operating expenses

C) sold additional shares of common stock

D) bought additional property, plant and equipment

99) Analysts use the statement of cash flows to measure ________.

A) the ability of a company to repay loans

B) the ability of a company to expand by investing in new equipment

C) the amount of excess cash generated by operating activities

D) all of these

100) During the year, Team Shirts, Inc. had net cash from operating activities of \$50,000; it paid \$10,000 in dividends; and it purchased long-term assets for \$30,000. Free cash flow for the year was ________.

A) \$90,000

B) \$40,000

C) \$20,000

D) \$10,000

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