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Accounting CLEP Practice Test
1) According to FASB, ________ is the process of reporting a transaction in the financial statements.
A) Recognition
B) Journal Entry
C) Adjusting Entry
D) Realization
E) Allocation
2) The price of a bond depends upon
A) Coupon rate
B) Discount rate
C) Par Value
D) A,B,C
E) A,C
3) The matching principle is best characterized as:
A) Assets = Liabilities + Shareholder’s equity
B) Is used to determine the proper period for recognition of expenses
C) Is used to determine the proper period for recognition of revenue
D) Is used to offset the cash receipts of the period with the cash payments made during the period
E) None of the above
4) ABC Inc. had beginning shareholders’ equity of $160,000. During the year business operations resulted in an increase of assets by $240,000 and an increase of liabilities by $120,000. The net income for the year was computed as $180,000. If no additional investments were made, the dividends issued were
A) $20,000
B) $60,000
C) $140,000
D) $220,000
E) $280,000
5) Which of the following is false?
A) Goodwill is the difference between the price paid to purchase a particular company, and the fair value of the underlying identifiable assets received.
B) Goodwill should not be amortized, but be evaluated for impairment.
C) Goodwill is an intangible asset.
D) Goodwill may be recorded for a company whether it is internally generated or purchased.
E) Goodwill should be recorded only when it is purchased.
6) Which of the following is true for full cost accounting?
A) Accounting for costs rather than outlays
B) Accounting for hidden costs and externalities
C) Accounting for overhead and indirect costs
D) Accounting for past and future outlays
E) All of the above
7) Which of the following is true for Economic Value Added (EVA)?
A) EVA = After-tax operating income – (estimated cost of capital × Total capital employed)
B) EVA = After-tax operating income – (estimated percentage cost of capital × Total capital employed)
C) EVA = After-tax operating income – (actual percentage cost of capital × Total capital employed)
D) EVA = Before-tax operating income – (actual percentage cost of capital × Total capital employed)
E) EVA = Before-tax operating income – (estimated percentage cost of capital × Total capital employed)
8) How would stockholder’s equity be affected by the declaration of
stock dividend stock split
A) No effect Increase
B) Decrease Increase
C) Decrease Decrease
D) No effect No effect
E) Increase Increase
9) XYZ Inc. had a net increase of $80,000 in net fixed assets over the last period. The beginning and ending net fixed asset account balances were $100,000 and 180,000 respectively. If the firm purchased $200,000 in additional fixed assets and sold $100,000 of fixed assets at book value, what was the firm’s depreciation expense over the period?
A) $20,000
B) $80,000
C) $100,000
D) $180,000
E) $200,000
10) ABC Inc. paid $80,000 in dividends over the last period. The beginning and ending retained earnings account balances were $1,000,000 and $1,500,000 respectively. Assuming a 40% average tax rate, what was the firm’s net income?
A) $500,000
B) $420,000
C) $580,000
D) $80,000
E) $480,000

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CLEP Practice Test Answer Key
1. A:) Recognition.
2. D:) A,B,C.
3. B:) Is used to determine the proper period for recognition of expenses.
4. B:) $60,000.
5. D:) Goodwill may be recorded for a company whether it is internally generated or purchased.
6. E:) All of the above.
7. C:) EVA = After-tax operating income – (actual percentage cost of capital × Total capital employed).
8. D:) No effect, No effect.
9. A:) $20,000.
10. C:) $580,000.