·         1. (TCO A) Which of the following is an advantage of the sole proprietorship relative to the corporate form of business organization? (Points: 5)
Limited liability of investor. 
Transferability of ownership. 
Simple to establish. 
Unlimited life. 

2. (TCO A) Which of the following activities involves the issuance of common stock? (Points: 5)
Investing 
Delivering 
Operating 
Financing 

3. (TCO A) Tucker Industries reported Net Income of $45,000 for 2010. Net Sales were $375,000. The average common shares outstanding were 10,000. No preferred dividends were paid. What was the 2010 Earnings per Share (EPS)? (Points: 5)
$4.50 
$0.13 
$30.00 
$5.25 

4. (TCO C) Free cash flow can be utilized to (Points: 5)
retire stock or debt. 
acquire new assets. 
pay additional dividends. 
All of the above are correct. 

5. (TCO C) The payment of cash dividends will (Points: 5)
Increase the operating section of the statement of cash flows. 
Decrease the operating section of the statement of cash flows. 
Increase the financing section of the statement of cash flows. 
Decrease the financing section of the statement of cash flows. 

6. (TCO A, B) Landon Company showed the following balances at the end of its first year:
Cash $10,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 1,400
Dividends 700
Revenues 21,000
Expenses 17,500 
What did Landon Company show as total debits on its trial balance? (Points: 5)
$32,400 
$29,400 
$34,500 
$35,200 

7. (TCO B, E) Under the accrual basis of accounting, which of the following statements is correct? (Points: 5)
Cash must be paid before expense is recognized. 
Since the depreciation expense is a non-cash item, it is not shown in the Income Statement. 
The Cash Basis is preferred by GAAP since the Cash Basis is simpler than the Accrual Basis. 
Expenses should match with revenue and adjusting entries are needed to bring the accounts up to date. 

8. (TCO A, B) The KPMM Accounting firm purchased 10 laser toner cartridges for $60 each for a total of $600 on June 1 and recorded the purchase as an asset. On June 30, an inventory of the toner cartridges indicated only 2 on hand. The adjusting entry that should be made by the firm on June 30 is (Points: 5)
Debit Office Supplies Expense, $600; Credit Office Supplies, $600. 
Debit Office Supplies Expense, $480; Credit Office Supplies, $480. 
Debit Office Supplies, $120; Credit Office Supplies Expense, $120. 
Debit Office Supplies Expense, $120; Credit Office Supplies, $120. 

9. (TCO E) A credit purchase of $2,000 is made on May 25, terms 2/10, net/30, on which a return of $250 is made on May 28. What amount is paid as payment in full on June 2? (Points: 5)
$2,000 
$1,750 
$1,715 
$1,700 

10. (TCO B) At the beginning of the year, Eastside Auto had an inventory of $500,000. During the year, the company purchased goods costing $1,500,000. If Eastside Auto reported ending inventory of $400,000 and sales of $2,000,000, their cost of goods sold and gross profit rate must be (Points: 5)
$1,100,000 and 20% 
$1,600,000 and 30% 
$1,100,000 and 45% 
$1,600,000 and 20% 

11. (TCO D) Partial financial statement information for 2009 and 2010 is shown below for Carnival Company. Calculate the inventory turnover ratio for 2010. 
2010 2009
Sales $1,385,000 $1,599,000
Cost of Goods Sold 689,000 804,000
Ending Inventory 74,000 66,000
(Points: 5)
8.9 times 
9.8 times 
17.9 times 
19.8 times 

12. (TCO D) Inventory turnover reflects on (Points: 5)
Low profit margin. 
The efficiency of inventory management. 
High profit margin. 
The relevance of available inventory. 

13. (TCO D) The internal audit function can best be classified as an example of which control principle (Points: 5)
Establishment of responsibility. 
Independent internal verification. 
Documentation procedures. 
Separation of duties is violated. 

14. (TCO D) Which of the following is not a documentation procedure over cash receipts? (Points: 5)
Conduct background checks. 
Use remittance advices. 
Use deposit slips. 
Use cash register tapes. 

1. (TCO A, B, D) Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $33,000 at the end of the year. If the balance of the Allowance for Doubtful Accounts is $12,000 debit before adjustment; what is the amount of bad debt expense

$33,000 
$12,000 
$45,000 
$21,000