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Harvard Financial Accounting Pretest

Q1. Hampton Industries began December with $17.5 million in accounts receivables. During the month it collected $3.5 million from customers who had previously purchased on credit and it sold $5 million in merchandise on credit. What is Hampton’s accounts receivables balance at the end of the month?

  • $9 million
  • $16 million
  • $19 million
  • $26 million

Q2. Accounting practices in the United States are governed by a set of accounting rules referred to as:

  • The International Financial Reporting Standards (IFRS)
  • The Financial Accounting Standards
  • The Accounting Principles
  • Generally Accepted Accounting Principles (GAAP)

Q3. Choose the option to correctly complete the following sentence. Costs that are not associated with products and services or with future period revenues but are recognized in the period in which they are incurred is known as the

  • realization concept
  • conservatism concept.
  • matching concept.
  • materiality concept.

Q4. Choose the option to correctly complete the sentence

Operating income or EBIT is calculated _________

  • before cost of goods sold is deducted
  • before operating expenses are deducted
  • before interest and taxes are deducted
  • before depreciation expenses are deducted

Q5. On January 1, 2019, Cumberland Electric’s retained earnings balance was $63,000. In 2019, Cumberland produced net income of $55,000 and their ending retained earnings balance on December 31 was $85,000. How much did Cumberland pay in dividends in 2019?

  • $22,000
  • $30,000
  • $33,000
  • $77,000

Q6. In 2016, Gates Industries purchased William Industries for $1 billion. The book value of William Industries at the time was $200 million. Where should the excess amount of $800,000 that Gates is paying be recorded in the financial statements?

  • Tangible asset – excess value of company purchased
  • Intangible asset – goodwill
  • Tangible asset – patents and copyrights
  • Intangible asset – excess value of company purchased

Q7. Choose the option to correctly complete the sentence. Uncle Joe’s Pizza reported net income of $60,000 for 2019. However, the company’s income tax return excluded a revenue item of $4,000 (reported on the income statement) because under the tax laws the $4,000 would not be reported for tax purposes until 2020. Assuming a 20% income tax rate, this situation would cause a 2019 deferred tax amount of

  • $4000 liability
  • $4000 asset
  • $800 liability
  • $800 asset

Q8. Quogue Sporting Goods purchased a new screen-printing machine for $50,000. It cost $1,000 to deliver the machine and $5,000 to install it. The machine has a useful life of 8 years and an estimated salvage value of $8,000. What would the depreciation be for the first year using the double declining method?

  • $6,000
  • $7,000
  • $12,000
  • $14,000

Q9. Bellingham’s Restaurant sells $3,000 in gift certificates during the holiday season. How should the sale of the gift certificates be treated in the financial statements?

  • Debit cash, credit sales
  • Debit cash; credit accounts payable
  • Debit cash, credit deferred revenue
  • Debit cash; credit prepaid expenses

Q10. During 2019, Southampton Corp. had a net financing cash outflow of $12 million; a net operating cash inflow of $20 million; and a net decrease in the cash balance of $5 million. What was their net cash flow from investing?

  • A net inflow of $3 million
  • A net inflow of $8 million
  • A net outflow of $13 million
  • Anet outflow of $25 million

Q11. The next question deals with the December 31, 2019 Balance Sheet of Horan Industries

Harvard Financial Accounting Pretest

In 2019, Horan produced net income of $10,000. Also during 2019, $5,000 in dividends were declared and paid. What was Horan’s retained earnings balance one year earlier on December 31, 2018?

  • $30,000
  • $35,000
  • $40,000
  • $45,000

Q12. The December 31, 2019 Income Statement of Jackson Industries is shown below.

Harvard Financial Accounting Pretest

Jackson began 2019 with a taxes payable account balance of $5 million. During the year, it made a cash payment of $3 million to the tax authorities. On December 31, 2019, what is its taxes payable account balance?

  • $2 million
  • $8 million
  • $9 million
  • $12 million

Q13. The following question is based on the cash T-account for XYZ Industries as of December 31, 2019.

Harvard Financial Accounting Pretest

What is XYZ’s 2019 cash flow from operations?

  • A net outflow of $20 million
  • A net outflow of $50 million
  • A net outflow of $90 million
  • A net outflow of $150 million

Q14. Choose the option to correctly complete the sentence. The funding portion of the balance sheet, which captures the capital that is supplied consists of ________ and _________.

  • assets and liabilities
  • assets and owner’s equity
  • liabilities and owner’s equity
  • none of the above

Q15. Choose the option to correctly complete the sentence. While loyal employees add to the value of a business, the __________ concept says that the employee’s value to the business should not be placed on the balance sheet.

  • materiality
  • consistency
  • money measurement
  • entity

Q16. Which of the following transactions would not be recorded as a liability in July, based on the three requirements for a liability, for Company DEF?

  • The CEO of DEF gets a speeding ticket in July while driving to an important meeting for DEF that he is late for.
  • Employees for DEF work overtime in July and will be paid in August.
  • DEF purchases and takes delivery for inventory in July, but will not pay until August
  • DEF borrows $500,000 in July from their local bank. The money will be paid back in 3 months.

Q17. The next question deals with the December 31, 2019 Balance Sheet of Horan Industries.

Harvard Financial Accounting Pretest

Horan began 2019 with the following non-current asset balances: Plant and equipment (net) $185,000; Patents $27,000. No long-term assets were purchased or sold during the year. How much amortization and depreciation expense did Horan record during 2019?

  • $10,000
  • $11,000
  • $12,000
  • It cannot be determined with the information given

Q18. Bay Industries receives payment from a customer for money that is owed to them from a sale a month ago. What is the correct way to journal the transaction?

  • Debit cash; credit sales
  • Debit accounts receivables; credit accounts payable
  • Debit cash, credit accounts receivables
  • Debit accounts payables, credit accounts receivables

Q19. Lincoln Fences receives a shipment of goods from its supplier. It pays $40,000 at the time of delivery and promises to pay the remaining $200,000 within the next 40 days. What is the appropriate journal entry for this transaction?

  • Debit cost of goods sold $240,000; credit cash $40,000; credit accounts payable $200,000
  • Debit inventory $240,000; credit cash $40,000; credit accounts payable $200,000
  • Debit accounts payable $200,000; debit cash $40,000; credit inventory $240,000
  • Debit inventory $40,000; credit cash $40,000

Q20. Under GAAP, which of the following would not qualify a lease arrangement as a capital lease?

  • The lessee has an option to purchase the leased asset at fair market value
  • Ownership of the leased asset is transferred to the lessee at the end of the lease term.
  • The term of the lease is 75 percent or more of the leased asset’s economic life (i.e., its productive life)
  • The present value of the lease payments discounted by the lessee’s borrowing cost is 90 percent or more of the fair value of the property.

Q21. ABC Industries estimates its tax expense for 2019 to be $20,000. ABC makes a cash payment for $15,000 to the tax authorities on December 31, 2019. Their taxes payable account was $22,000 at the beginning of 2019. What is the balance of that account at the end of 2019?

  • $17,000
  • $27,000
  • $37,000
  • $42,000

Q22. If the first line of the statement of cash flows is positive net income, which of the following is true?

  • The cash flow statement has been presented using the direct method
  • The cash flow statement has been presented using the indirect method.
  • The cash flow from operations must be positive.
  • The cash flow from operations must be negative

Q23. The following question is based on the cash T-account for XYZ Industries as of December 31, 2019

Harvard Financial Accounting Pretest

What is XYZ’s 2019 cash flow from financing activities?

  • A net inflow of $30 million
  • A net inflow of $40 million
  • A net inflow of $50 million
  • A net inflow of $130 million

Q24. On January 1, 2018, Schmidt Industries purchased a new paint sprayer for $400,000. The salvage value after 5 years is estimated to be $100,000. If the sprayer is depreciated by straight line depreciation for 5 years, what is the annual depreciation expense?

  • $0, as the sprayer is not depreciable
  • $60,000
  • $80,000
  • $400,000, as the sprayer can be fully depreciated in year 1

Q25. Watermill Pools enters into a 5-year agreement to lease equipment from Southampton Pool Supply. The equipment has a useful life of 6 years. Which of the following is true?

  • The lease should be treated as an operating lease as the term of the lease is less than 100% of the economic life of the equipment.
  • The lease should be treated as an operating lease as the term of the lease is greater than 75% of the economic life of the equipment.
  • The lease should be treated as a capital lease as the term of the lease is less than 100% of the economic life of the equipment.
  • The lease should be treated as a capital lease as the term of the lease is greater than 75% of the economic life of the equipment.

Q26. F&G Sporting Goods sells baseball equipment to a customer for which F&G had paid $10,000. Which one of the following choices describes the most appropriate accounting for the transaction?

  • Debit inventory $10,000; credit cost of goods sold $10,000
  • Debit inventory $10,000; credit accounts payable $10,000
  • Debit cost of goods sold $10,000; credit inventory $10,000
  • Debit cost of good sold $10,000; credit cash $10,000

Q27. A company purchases $10,000 in inventory that will be paid for in 60 days. Which of the following best describes the journal entry to record this transaction?

  • Debit cash $10,000; credit inventory $10,000
  • Debit inventory $10,000; credit cash $10,000
  • Debit accounts payable $10,000; credit inventory $10,000
  • Debit inventory $10,000; credit accounts payable $10,000

Q28. The December 31, 2019 Income Statement of Jackson Industries is shown below

Harvard Financial Accounting Pretest

Jackson began 2019 with a retained earnings account balance of $80 million. During 2019, it declared and paid dividends totaling $10 million. What is its December 31, 2019 retained earnings account balance?

  • $70 million
  • $90 million
  • $98 million
  • $108 million

Q29. Which of the following is not one of the three conditions necessary for revenue to be recognized as earned?

  • The goods and services have been delivered
  • The customer has agreed to buy the goods and services
  • Payment has been received.
  • The seller has performed substantially all of its obligation to the buyer.

Q30. Horan Industries purchased a parcel of land next to their existing plant for $700,000, in order to expand operations. The seller was reluctant to sell initially so to persuade them, Horan offered a price that was twice the market value of the land. According to the historic cost concept, how should the purchase be recorded on the balance sheet?

  • It should be reported at the purchase price of $700,000
  • It should be reported at its fair market value of $350,000
  • It should be reported at the value provided by an independent appraiser
  • It should be reported at $700,000 and immediately report a loss of $350,000

Q31. Hampton Auto purchased a piece of equipment on January 1, 2019 for $100,000. The equipment will be depreciated using straight line depreciation for five years and is expected to have no salvage value. What is the impact on the balance sheet for the recognition of the first year’s depreciation?

  • Both assets and shareholder’s equity will increase by $20,000
  • Both assets and shareholder’s equity will decrease by $20,000.
  • Assets will decrease by $20,000 and shareholder’s equity is unaffected
  • Shareholder’s equity will decrease by $20,000 and assets are unaffected.

Q32. The December 31, 2019 Income Statement of Jackson Industries is shown below

Harvard Financial Accounting Pretest

Jackson began 2019 with an interest payable account balance of $16 million. On December 31, 2019, its interest payable account balance is $17 million. How much interest was paid during 2019?

  • $4 million
  • $5 million
  • $6 million
  • $7 million

Q33. Elton Industries makes the following purchases during 2019 (in the order given and each for one unit) of $100, $120, and $150. Their beginning inventory for the year consisted of one unit that they purchased for $110 in 2018. If they utilize the FIFO inventory valuation approach, which of the following will be true if they sell 2 units in 2019?

  • Cost of goods sold will be $270
  • Cost of goods sold will be $240
  • Cost of goods sold will be $220
  • Cost of goods sold will be $210

Q34. Quogue Sporting Goods purchased a new screen-printing machine for $50,000. It cost $1,000 to deliver the machine and $5,000 to install it. The machine has a useful life of 8 years and an estimated salvage value of $8,000. What would the book value for the machine be after 2 years if it was depreciated using the straight-line method?

  • $36,000
  • $42,000
  • $44,000
  • $50,000

Q35. The statement of financial position that shows a snapshot of the company at a specific point in time is referred to as the ___________.

  • income statement
  • statement of cash flows
  • balance sheet
  • statement of retained earnings

Q36. On January 1, 2018, Schmidt Industries purchased a new paint sprayer for $400,000. The salvage value after 5 years is estimated to be $100,000. The sprayer is depreciated by straight line depreciation for 5 years. On December 31, 2022, the sprayer is sold for $100,000. The cash inflow from the sale of the sprayer will be included in what section or sections of the statement of cash flows?

  • Operating only
  • Investing only
  • Financing
  • Operating and Investing

Q37. Teflon Corporation expenses stock options as required by GAAP. On January 1, 2018, Teflon granted 500 options to executive management. Each option entitled the option holder to purchase one share of Teflon common stock at $10 per share. The options will vest on December 31, 2020

On the grant date, January 1, 2018, the stock was quoted on the stock exchange at $15 per share. The fair value of the options on grant date was estimated to be $6 per option. What is the amount of compensation expense Teflon should recognize with respect to the options during 2018, 2019, and 2020, respectively?

  • $0, $0, $2500
  • $0, $0, $3000
  • $833.33, $833.33, $833.33
  • $1000, $1000, $1000

Q38. Which of the following is not a user of a company’s financial statements?

  • Creditors
  • Auditors
  • Management
  • Investors

Q39. In the statement of cash flows, which of the following is considered an investing activity?

  • Purchase of machinery
  • Purchase of a new coffee maker for the office
  • Purchase of inventory
  • Purchase of insurance for the vehicle fleet

Q40. An increase in which of the following balance sheet item will likely cause an increase in owner’s equity?

  • Accounts payable
  • Long-term debt
  • Notes payable
  • Retained earnings

Q41. The next question deals with the December 31, 2019 Balance Sheet of Horan Industries

Harvard Financial Accounting Pretest

 

Horan’s December 31, 2018 notes payable was $30,000. They paid off $10,000 of notes during 2019. How much additional notes payable did they issue during the year?

  • $15,000
  • $25,000
  • $35,000
  • $45,000

Q42. Hogan Industries began 2019 with $20,000 in inventory. In 2019, its inventory purchases amounted to $40,000. They ended the year with $35,000 in inventory. What was their cost of goods sold for the year?

  • $15,000
  • $20,000
  • $25,000
  • $30,000

Q43. When there is a trade-off to be made between relevance and reliability, such as in recording the purchase price of property that has a higher value than the price purchased, financial accounting tends to favor

  • reliability, which leads to recording the asset at market value.
  • reliability, which leads to recording the asset at purchase price.
  • relevance, which leads to recording the asset at market value.
  • relevance, which leads to recording the asset at purchase price

Q44. Jackson Toys made its monthly delivery to the ABC Toy store on November 1st. ABC declared bankruptcy on November 15th and did not pay Jackson for the delivery. Which of the following is true regarding this transaction and the revenue recognition concept as it relates to Jackson Toys?

  • Revenue has been earned and realized.
  • Revenue has been earned but not realized
  • Revenue has not been earned but it has been realized
  • Revenue has not been earned or realized.

Q45. The concept that all its resources should be valued at their current worth to potential buyers is referred to as the:

  • Entity Concept
  • Market Value Concept
  • Materiality Concept
  • Consistency Concept

Q46. Snark Inc. ended the year with $100,000 in salaries payable. During the year they paid $75,000 in cash salaries and recorded $85,000 in salary expenses. What was their beginning year’s balance for salaries payable?

  • $110,000
  • $100,000
  • $90,000
  • $85,000

Q47. Which of the following is not one of the four requirements for an asset to be recognized on the balance sheet?

  • Asset acquired at a measurable cost
  • Asset must be easily converted into cash
  • Asset expected to produce a future economic benefit
  • Asset is obtained or controlled by the entity

Q48. On January 1, 2018, Schmidt Industries purchased a new paint sprayer for $400,000. The salvage value after 5 years is estimated to be $100,000. If the sprayer is depreciated by straight line depreciation for 5 years, what would the net book value for the sprayer be on December 31, 2019?

  • $120,000
  • $180,000
  • $240,000
  • $280,000

Q49. According to the realization concept, which of the following would appear on the income statement?

I. A $5,000 sale and delivery of merchandise that is paid for in cash immediately

II. A $5,000 sale and delivery of merchandise that is paid for with credit, due in 30 days.

III. A $5,000 sale for a customized product that will take 60 days to make, and is paid for in cash.

  • I only
  • II only
  • I and II, but not III
  • I, II, and III

Q50. The following question is based on the cash T-account for XYZ Industries as of December 31, 2019.

Harvard Financial Accounting Pretest

What is XYZ’s 2019 cash flow from investing activities?

  • A net inflow of $100 million
  • A net inflow of $180 million
  • A net inflow of $190 million
  • A net inflow of $400 million

Q51. On January 1, 2017, ABC purchased DEF Industries for $150 million. At the time of purchase, DEF’s book value was measured at $100 million. On December 31, 2018, ABC recognized a $50 million impairment for the purchase. How would ABC’s asset side of the balance sheet be impacted?

  • Fixed Assets would be debited $50 million
  • Fixed Assets would be credited $50 million
  • Goodwill would be debited $50 million
  • Goodwill would be credited $50 million

Q52. In a period of rising prices, which of the following is true if a firm chooses FIFO versus LIFO for their inventory valuation approach?

  • Cost of goods sold will be less using FIFO, which will result in higher net income
  • Cost of goods sold will be greater using FIFO, which will result in lower net income
  • Ending inventory will be greater with FIFO, which will result in higher cost of goods sold.
  • Ending inventory will be less using FIFO, which will result in lower cost of goods sold

Q53. Parker Associates purchased a patent in 2018 for $200,000. The patent will be amortized over 20 years. How would Parker adjust for the annual amortization for the patent on the balance sheet?

  • Credit accumulated amortization $10,000
  • Credit prepaid assets $10,000
  • Credit patents $10,000
  • Credit patent amortization $10,000

Q54. On January 1, 2018, Schmidt Industries purchased a new paint sprayer for $400,000. The salvage value after 5 years is estimated to be $100,000. The sprayer is depreciated by straight line depreciation for 5 years. On December 31, 2020, the sprayer is sold for $200,000. Which of the following is correct regarding the disposal of the sprayer?

  • It results in a taxable gain of $100,000
  • It results in a taxable gain of $20,000.
  • It results in a tax loss of $20,000.
  • It results in a tax loss of $100,000.

Q55. On December 31st, 2018, Henry Inc. had total liabilities of $5 million and total shareholder’s equity of $10 million. Based on that information, what was the total amount of assets as of that date?

  • $5 million
  • $10 million
  • $15 million
  • None of the above

Q56. F&G Sporting Goods sells baseball equipment to a customer for $15,000. The customer pays $5,000 in cash and agrees to pay the balance in 40 days. Which one of the following choices describes the most appropriate accounting for the transaction?

  • Debit cash $5,000; debit accounts receivables $10,000; credit sales $15,000
  • Debit cash $5,000; debit accounts payable $10,000; credit sales $15,000
  • Debit sales $15,000; credit cash $5,000; credit accounts receivables $10,000
  • Debit cash $5,000; credit sales $5,000

Q57. Zebra Inc. produced net income of $100,000 in 2019. They paid out half their net income in dividends and the other half was reinvested back into the company. During the year, they incurred $10,000 in interest expense. How did these transactions impact Zebra’s income for 2019?

  • Income is reduced $10,000 for interest.
  • Income is reduced $50,000 for dividends
  • Income is reduced $60,000 for interest and dividends
  • Income is not impacted.

Q58. Which of the following items would not be categorized as other comprehensive income?

  • Foreign currency translation gains
  • Unrealized gains on securities available for sale
  • Unrealized gains on trading securities
  • Pension plan gains

Q59. The next question deals with the December 31, 2019 Balance Sheet of Horan Industries.

Harvard Financial Accounting Pretest

Horan Industries began 2019 with $30,000 in inventory. In 2019, its inventory purchases amounted to $50,000, and it had no inventory-related write-downs or losses. What amount did Horan record as their cost of goods sold expense in 2019?

  • $30,000
  • $40,000
  • $50,000
  • $60,000

Q60. Quogue Sporting Goods purchased a new screen-printing machine for $50,000. It cost $1,000 to deliver the machine and $5,000 to install it. What amount should Quogue record as the cost of the machine?

  • $50,000
  • $51,000
  • $55,000
  • $56,000

Q61. Common stock issued and dividends paid can be found under what section of the statement of cash flows?

  • Operating
  • Financing
  • Investing
  • Shareholder’s Equity

Q62. Which of the following is true regarding posting transactions into T-accounts in the ledger?

  • Credits are posted on the left; debits are posted on the right.
  • Debits are posted on the left; credits are posted on the right.
  • For asset accounts, credits are posted on the left.
  • For liability accounts, debits are posted on the right

Q63. On December 1, 2019 Zingo Inc. made a $100,000 payment to Big Boy Banking. The payment was for a $90,000 loan that Zingo received from Big Boy, 6 months ago. Which option below best represents the recording of this transaction for Zingo?

  • Debit cash $100,000; credit notes payable $100,000
  • Debit interest expense $10,000; debit notes payable $90,000; credit cash $100,000
  • Debit notes payable $100,000; credit cash $100,000
  • Debit interest expense $10,000; debit notes payable $100,000; credit cash $90,000

Q64. Interest paid on debt would be found under which section of the statement of cash flows according to the direct method?

  • Operating
  • Financing
  • Investing
  • Interest Payable

Q65. Which of the following balance sheet items is not considered a liability?

  • Short-term debt
  • Taxes Payable
  • Prepaid expenses
  • Advance from customers

Q66. The December 31, 2019 Income Statement of Jackson Industries is shown below.

Harvard Financial Accounting Pretest

Jackson began 2019 with an inventory T-account debit balance of $300 million. Inventory purchases during the year amounted to $150 million. There were no inventory-related write-downs or losses. What is its December 31, 2019 inventory account balance?

  • $245 million
  • $355 million
  • $450 million
  • $545 million

Q67. In the statement of cash flows, which of the following is not considered an operating activity?

  • Inventory purchased
  • Wages paid to employees
  • Taxes paid
  • Issuance of long-term debt

Q68. Sarah is opening up a lemonade stand. On June 1st she spends $300 on lemonade mix, $100 on cookie dough, $50 on cups and $50 on ice. She also pays her mom $10 for renting a table. Based on the matching concept, which of the following is true regarding the recording of costs as it relates to those items?

  • She should record the cost of all the items when they are paid for.
  • She should record the cost of the lemonade mix, cookie dough, cups and ice as it is paid for
  • She should record the cost of all the items each time she sells a cup of lemonade
  • She should record the cost of the lemonade mix, cookie dough, cups and ice each time she sells a cup of lemonade.

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