1. The long-term liability for deferred income taxes arises because:
a. some book income will never be subject to income tax.
b. some expenses are deducted for tax purposes before they are deducted for book purposes.
c. income tax rates change from year to year.
d. the company has not paid income taxes currently due.
2. The term preemptive right pertains to which of the following?
a. The Board of Directors rights in liquidation.
b. Present shareholders right to purchase shares from any additional share issuances.
c. Present shareholders right to purchase treasury shares when reissued.
d. Preferred stockholders right to dividends.
3. Fred Jones owns 56 shares of the Robust Corporation’s stock. Robust announces a 3 for 2 stock split. How many shares will Fred have after this split?
a. 178 shares.
b. 112 shares.
c. 84 shares.
d. 56 shares.
4. Braco has 40,000 shares of $100 par value common stock outstanding, and 10,000 shares in the treasury. The number of additional shares that would be issued in a 5% stock dividend is:
5. When a stock dividend is declared and issued:
a. total paid-in capital does not change.
b. total owners’ equity does not change.
c. retained earnings is decreased by the par value of the shares issued in the dividend.
d. total paid-in capital is decreased by the market value of the shares issued in the dividend.
6. When a company splits its common stock 3 for 1:
a. total paid-in capital increases by a factor of 3.
b. retained earnings is decreased by the market value of the shares issued.
c. the market value of the company’s stock falls by two-thirds.
d. the shareholders are assured of receiving larger cash dividends.
7. If a firm sells treasury stock for more than its cost:
a. a gain is recognized in the income statement.
b. retained earnings is increased.
c. additional paid-in capital is increased
. d. total owners’ equity does not change.
8. The concept of matching revenue and expense refers to the fact that:
a. expenses for a period equal the revenues for the period.
b. all costs incurred in the process of earning revenue during a period are recorded as an expense in that period.
c. all cash disbursements during a period are subtracted from all cash receipts during the period. d. costs incurred in the process of earning revenue during a period are deferred and expensed in a future period.
9. Most entities satisfy the accounting criteria for recognizing revenue when:
a. an order is received from a customer.
b. cash is received from a customer.
c. an unearned revenue account is credited.
d. a product is delivered or a service is provided.
10. When the periodic inventory system is used:
a. operating profit from the sale of an item from inventory is known when the item is sold.
b. gross profit from the sale of an item from inventory is known when the item is sold.
c. cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and purchases.
d. a physical inventory must be taken in order to estimate the cost of goods sold.
2. An item that cost $90 is sold for $120. The gross profit ratio for this item is:
13. The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?
a. The investing activities and financing activities sections.
b. The investing activities section only.
c. The operating activities and financing activities sections. d. The operating activities section only.
14. In the statement of cash flows, the amount of depreciation and amortization expense is added back to net income because:
a. these expenses do not affect cash, but were subtracted in the determination of net income.
b. these expenses affect investing activities, not operating activities.
c. the cash disbursements for these accrued expenses will be made in a future period.
d. these expenses are recognized for accounting purposes, but they do not represent economic costs.
15. In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:
a. be added to net income because this represents earned revenues that have not been collected. b. be subtracted from net income because this represents earned revenue provided by operating earnings.
c. be added to net income because this means that revenues were less than cash collected.
d. be subtracted from net income because this means that revenues were more than cash collected.