Practice Final Exam
Supplemental Instruction
Iowa State University
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1) Which of the following is an audited report filed annually with the SEC?
a. 10Q
b. 10K
c. 8K
d. 5K
2) Cyclone Corporation began the month with $950 of supplies. No supplies were purchased during
the month. At the end of the month, supplies on hand totaled $150, No adjustments have been
recorded relating to this account. What is the required adjusting entry at the end of the month?
a. Debit supplies $150, credit supplies expense $150
b. Debit supplies expense $150, credit supplies $150
c. Debit supplies $800, credit supplies expense $800
d. Debit supplies expense $800, credit supplies $800
3) At the end of the year, Wildcat Company understated its ending inventory by $15,000. This will
cause:
a. Cost of goods sold to be understated
b. Net income to be understated
c. Stockholder’s equity to be overstated
d. Next year’s ending inventory to be overstated
4) Tiger Company uses the aging of accounts receivable method for estimated bad debts. Based on
the aging, it was determined that the estimated bad debts amounted to $1,500. The Allowance for
Doubtful Accounts has a $400 debit balance prior to recording the adjusting journal entry. What
will the adjusting entry to record estimated bad debts show?
a. A debit to bad debt expense of $1,900
b. A debit to bad debt expense of $1,500
c. A credit to bad debt expense of $400
d. Cannot be determined from the information given.
5) One of Jayhawk Company’s customers who owed $3,000 declared bankruptcy. When the
customer’s account is written off:
a. Income before taxes will decrease by $3,000
b. Net accounts receivable will decrease by $3,000
c. Bad debt expense will increase by $3,000
d. There will be no effect on income or net accounts receivable.
6) Selected information for Buffalo Corporation follows.
January 1
April 13
August 31
December 28
Beginning Inventory is comprised of 7 units at $20 each
Purchased 8 units at $22 each
Purchased 25 units at $25 each
Sold 30 units
What is cost of goods sold using the LIFO costing method?
a. $250
b. $691
c. $735
d. $941
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7) Which of the following can be classified as a capital expenditure?
a. Ordinary repairs and maintenance
b. Extraordinary repairs, replacements, and additions
c. Purchase of property, plant, and equipment
d. All of the above can be classified as capital expenditures.
8) Longhorn, Inc. sold a piece of equipment for $3,000,000. The equipment was originally
purchased for $20,000,000 and had accumulated depreciation of $16,000,000 on the date of
sale. Which of the following statements regarding the sale is true?
a. Longhorn, Inc. should record a loss on disposal of $17,000,000.
b. The journal entry to record the disposal of the equipment should include a debit to
Equipment for $20,000,000.
c. The journal entry to record the disposal of the equipment should include a debit to
Accumulated Depreciation for $16,000,000.
d. Longhorn, Inc. should record a loss on disposal of $1,000,000.
9) Aggie Corporation purchased a piece of equipment for $50,000 on January 1, 2010. It estimates
the equipment will have an estimated useful life of 8 years and a $4,000 residual value. The
equipment is expected to produce 200,000 units during its useful life. The actual number of units
produced were 20,000 during 2010, 33,000 during 2011, 18,000 during 2012, and 28,000 during
2013. Using the straight-line method of depreciation, what is the equipment’s book value at
December 31, 2012?
a. $17,250
b. $18,750
c. $28,750
d. $32,750
10) Sooner Company used a promissory note to borrow $800,000 on October 1, 2010, at an 8%
interest rate. The note is to be repaid in annual installments of $160,000, plus accrued interest,
every September 30, until the note is paid in full on September 31, 2015. Sooner Company
issues financial statements on December 31 of every year. What journal entry should be recorded
on December 31, 2010?
a. A debit to interest payable and a credit to interest expense, $64,000
b. A debit to interest expense and a credit to interest payable, $64,000
c. A debit to interest payable and a credit to interest expense, $16,000
d. A debit to interest expense and a credit to interest payable, $16,000
11) Cornhusker Corporation is currently involved in a lawsuit. The company’s attorney has advised
the accounting department that it is probable that the company will lose the lawsuit and will be
required to pay money, but has said he can’t currently estimate the amount of the required
payment. How should the company record this issue on the financial statements?
a. The company should not mention the lawsuit in its financial statements because the
amount cannot be estimated.
b. Since the company is required to report the lawsuit on its financial statements, the
company should come up with an amount and record the liability and loss.
c. The company should describe the situation in the notes to its financial statements.
d. The company should include an explanatory paragraph at the end of its audit report
detailing the lawsuit and its potential implications.
12) Which of the following items is not used to determine cash payments on a bond?
a. Face value
b. Market interest rate
c. Stated interest rate
d. All of the above are used to determine cash payments on a bond.
13) Red Raider Company issued a $10,000 bond at 102. How was the bond issued?
a. The bond was issued at a discount.
b. The bond was issued at a premium.
c. The bond was issued at face value.
d. Cannot be determined from the information given.
14) Bear Corporation plans to issue a $500,000, five year, 8% bond on January 1, 2012 that will
mature on December 31, 2016. Interest is payable annually on December 31. Bear uses the
effective-interest method for amortization purposes. The market rate is 10% and the company
receives $462,092.13 from the issuance of the bonds. What is interest expense for the second
year (2013)?
a. $46,209.21
b. $40,000.00
c. $46,830.13
d. $44,626.20
15) The annual dividend of a company’s preferred stock (if declared) amounts to $100,000. Dividends
of $80,000 are declared during year 1 and dividends of $300,000 are declared in year 2.
Assuming the preferred stock has a cumulative dividend preference, how much will be paid to
common stockholders in year 2?
a. $0
b. $20,000
c. $180,000
d. $280,000
16) A stock split causes:
a. The market value per share to increase
b. A change in the par value per share
c. A decrease in the number of shares outstanding
d. A journal entry is made to record the changes made to stockholders’ equity
17) Which of the following statements regarding stock dividends is not correct?
a. Small stock dividends are accounted for at the market value of the stock.
b. A company must have positive balances in both retained earnings and cash to declare a
stock dividend.
c. A stock dividend by itself has no economic value.
d. Each stockholder receives additional shares of stock equal to the percentage of shares
held.
18) A company purchased treasury stock costing $55,000, and later reissued the stock for $60,000.
The journal entry to record this transaction includes a:
a. Debit to treasury stock for $55,000
b. Credit to gain on sale of investment for $5,000
c. Credit to cash for $60,000
d. Credit to additional paid-in capital for $5,000
19) Cash flows from operating activities include all of the following except:
a. Cash provided by dividends and interest on investments
b. Cash used for paying dividends to owners
c. Cash used for interest on liabilities
d. Cash used for income taxes
20) The following is selected financial information for Cowboy Corporation.
Net income
Decrease in accounts payable
Decrease in inventory
Depreciation expense
Increase in accounts receivable
$54,000
3,000
6,000
9,000
15,000
What is the amount of cash flows provided by operating activities under the indirect method?
a. $51,000
b. $57,000
c. $81,000
d. $87,000