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Exam

Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Which of the following is a correct accounting equation? 1)
A) Assets +Revenue =Liabilities +Expenses
B) Assets +Revenue =Owner's equity
C) Assets =Liabilities +Owner's equity
D) Assets +Liabilities =Owner's equity
2) Owner's equity is $150, 000 and total liabilities are $90, 000. What would total assets be? 2)
A) $240, 000 B) $180, 000 C) $60, 000 D) $300, 000
3) Assets are $150, 000 and total liabilities are $90, 000. What would total owner's equity be? 3)
A) $240, 000 B) $180, 000 C) $60, 000 D) $300, 000
4) Assets are $270, 000 and owner's equity is $90, 000. What would liabilities be? 4)
A) $180, 000 B) $360, 000 C) $60, 000 D) $270, 000
5) Services are performed. Payment is expected next month. How does this affect the accounting
equation?
5)
A) Assets increase; owner's equity increases
B) Assets increase; owner's equity decreases
C) Assets decrease; owner's equity decrease
D) Liabilities increase; owner's equity decreases
6) A bill is received for services rendered this month. It will be paid next month. How does receiving
this bill affect the accounting equation?
6)
A) assets decrease; owner's equity decreases
B) assets increase; liabilities increase
C) liabilities increase; owner's equity decreases
D) liabilities increase; owner's equity increases
7) A liability is paid with cash. How does paying this liability affect the accounting equation? 7)
A) Assets increase; liabilities decrease
B) Liabilities decrease; owner's equity increases
C) Assets decrease; liabilities decrease
D) Assets increase; liabilities increase
8) The owner withdraws cash from the business. How does this withdrawal affect the accounting
equation?
8)
A) Assets decrease; owner's equity increases
B) Assets decrease; owner's equity decreases
C) No effect on the assets, liabilities, or owner's equity
D) Assets increase; liabilities decrease
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9) Equipment is purchased by signing a promissory note. How does this purchase affect the
accounting equation?
9)
A) assets increase; liabilities decrease B) assets increase; assets decrease
C) assets increase; liabilities increase D) assets increase; owner's equity increases
10) Cash is collected from a customer who was previously put on account. How does the collection of
the cash affect the accounting equation?
10)
A) assets decrease; owner's equity decreases B) assets increase; assets decrease
C) assets increase; owner's equity increases D) assets increase; liabilities increase
11) Total liabilities increase by $7, 000. How is the accounting equation affected? 11)
A) Assets must have increased by $7000 or owner's equity must have decreased by $7000.
B) Assets must have decreased by $7, 000.
C) Owner's equity must have increased by $7, 000.
D) Assets and owner's equity must have each decreased by $3, 500.
12) The primary objective of financial reporting is to provide information useful for making investment
and lending decisions. To be useful, information must possess certain characteristics. Which of the
following is NOT one of the basic characteristics that accounting information must possess to be
useful.
12)
A) reliability B) comparability
C) an owner's equity section D) relevance
13) Which of the following concepts (or principles) would be most likely to require that a person with
three different businesses keep three different checking accounts?
13)
A) entity concept B) going- concern concept
C) reliability concept D) cost principle
14) Which of the following concepts (or principles) would be most likely to require that data be
verifiable; that is, can be confirmed by an independent observer?
14)
A) entity concept B) cost principle
C) reliability concept D) going- concern concept
15) Which of the following concepts (principles) would be most likely to require that an item be
recorded at the amount actually paid?
15)
A) entity concept B) reliability concept
C) going- concern concept D) cost principle
16) Which of the following concepts (principles) would be most likely to require an assumption that
the entity will remain in operation for the foreseeable future?
16)
A) cost principle B) going- concern concept
C) entity concept D) reliability concept
17) Which of the following groups of accounts have a normal debit balance? 17)
A) Assets and liabilities B) Liabilities and owner's equity
C) Revenues and expenses D) Assets and expenses
18) Which of the following accounts increase due to a credit? 18)
A) Cash B) Owner's Capital
C) Accounts Receivable D) Both A and B increase when credited.
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19) Which of the following accounts decrease due to a credit? 19)
A) Cash B) Owner's Capital
C) Accounts Payable D) Both A and B decrease when credited.
20) Which of the following accounts increase due to a debit? 20)
A) Cash B) Interest Payable
C) Prepaid Insurance D) Both A and C increase when debited.
21) Which of the following accounts decrease due to a debit? 21)
A) Prepaid Insurance B) Interest Payable
C) Cash D) Both A and B decrease when debited.
22) An owner invests $20,000 in her business by depositing the cash in the business's checking account.
Which of the following occurs?
22)
A) Cash is credited for $20,000. B) Cash is debited for $20,000.
C) Owner's capital is debited for $20,000. D) Both B and C.
23) A business purchases equipment for cash of $8,000. Which of the following occurs? 23)
A) Cash is credited for $8,000. B) Cash is debited for $8,000.
C) Equipment is debited for $8,000. D) Both A and C.
24) A business makes a cash payment of $12, 000 to a creditor. Which of the following occurs? 24)
A) Cash is credited for $12, 000. B) Cash is debited for $12, 000.
C) Accounts payable is credited for $12, 000. D) Both A and C.
25) A business pays $500 cash for supplies. Which of the following occurs? 25)
A) Cash is debited for $500. B) Accounts payable is credited for $500.
C) Supplies is debited for $500. D) Both B and C.
26) A business completes services for $16,000 on account. Which of the following occurs? 26)
A) Cash is debited for $16,000.
B) Accounts receivable is debited for $16,000.
C) Service revenue is credited for $16,000.
D) Both B and C.
27) A business receives cash in payment of accounts receivable. Which of the following occurs? 27)
A) An asset is credited and a liability is debited.
B) A liability is debited and a liability is credited.
C) An asset is debited and an asset is credited.
D) An asset is debited and a liability is credited.
28) An owner withdraws cash from his business. The cash will be used for personal purposes. Which of
the following occurs?
28)
A) An asset is debited and an owner's equity account is credited.
B) An asset is credited and a liability is debited.
C) An asset is debited and a liability is credited.
D) An asset is credited and an owner's equity account is debited.
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29) A business makes a cash payment of rent. Which of the following occurs? 29)
A) A liability is debited and an expense is credited.
B) An asset is credited and an expense is debited.
C) An asset is credited and a liability is debited.
D) An asset is debited and a liability is credited.
30) A business makes a payment of $1,200 on a note payable, consisting of a $200 interest payment and
a $1,000 principal payment. Which of the following journal entries would be recorded?
30)
A) Cash is credited for $1,000, Interest Expense is credited for $200, and Notes Payable is debited
for $1,200.
B) Cash is credited for $1,200, Notes Payable is debited for $1,000, and Interest Expense is
debited for $200.
C) Notes Payable is credited for $1,200, Cash is debited for $1,000, and interest expense is
debited for $200.
D) Notes Payable is credited for $1,000, Cash is credited for $200, and Interest Expense is debited
for $1,200.
31) A business purchases equipment by paying cash of $8,000 and issuing a note payable of $12,000.
Which of the following occurs?
31)
A) Cash is credited for $8,000, Equipment is debited for $20,000 and Notes Payable is credited for
$12,000.
B) Cash is credited for $8,000, Equipment is credited for $20,000 and Notes Payable is debited for
$12,000.
C) Cash is credited for $8,000, Equipment is credited for $12,000 and Notes Payable is debited for
$4,000.
D) Cash is debited for $8,000, Equipment is debited for $12,000 and Notes Payable is credited for
$20,000.
32) If a company is using the accrual method of accounting, when is revenue recorded? 32)
A) When services are rendered, even though cash may be received at a later date.
B) When cash is received, even though services may be rendered at a later date.
C) Only when cash is received at the completion of the services.
D) Only when cash is received after the completion of the services.
33) Under which of the following methods of accounting is revenue recorded when it is earned,
regardless of when cash is received?
33)
A) Accrual B) Cash C) Receivable D) Deferral
34) Under which of the following methods of accounting is revenue recorded ONLY when cash is
received?
34)
A) Deferral B) Cash C) Accrual D) Receivable
35) Under which of the following methods of accounting is an expense recorded when it is incurred,
regardless of when cash is paid?
35)
A) Cash B) Deferral C) Accrual D) Receivable
36) Generally accepted accounting principles require the use of which of the following methods of
accounting?
36)
A) Accrual B) Receivable C) Cash D) Deferral
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37) Which of the following entries would be recorded ONLY if a company is using the accrual method
of accounting?
37)
A) Cash 1,000
Accounts Receivable 1,000
B) Salary Expense 1,000
Cash 1,000
C) Cash 1,000
Service Revenue 1,000
D) Both A and C
38) Which of the following are differences in the accrual method and cash- basis method of accounting? 38)
A) Accrual accounting records expenses when incurred. Cash- basis accounting records expenses
when cash is paid.
B) Accrual accounting is required by generally accepted accounting principles because it
provides more information than cash- basis accounting.
C) Accrual accounting records revenue when services are rendered. Cash- basis accounting
records revenue when cash is received.
D) All of the above are true.
39) Which of the following is the revenue principle? 39)
A) The principle that determines when to record revenue.
B) The principle that ensures that information is reported at regular intervals.
C) The principle that determines when to record expenses.
D) None of the above.
40) Which of the following is the matching principle? 40)
A) The principle that ensures that information is reported at regular intervals.
B) The principle that determines when to record revenue.
C) The principle that determines when to record expenses.
D) None of the above.
41) Which of the following is the time- period concept? 41)
A) The concept that ensures that information is reported at regular intervals.
B) The concept that determines when to record expenses.
C) The concept that determines when to record revenue.
D) None of the above.
42) Robert Rogers, CPA, completed accounting services in December. A bill was mailed on December
30. A check arrived in the mail and was deposited on January 5. The revenue principle would
require that which of the following accounts appear on the balance sheet for December 31?
42)
A) Accounts Payable B) Service Revenue
C) Accounting Expense D) Accounts Receivable
43) Robert Rogers, CPA, completed accounting services in December. A bill was mailed on December
30. A check arrived in the mail and was deposited on January 5. The revenue principle would
require that which of the following accounts appear on the income statement for the year ended
December 31?
43)
A) Accounts Receivable B) Service Revenue
C) Accounting Expense D) Accounts Payable
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44) What debit is required as part of the entry that will eventually require an adjusting entry to
depreciation expense?
44)
A) A debit to a deferred revenue account B) A debit to an unearned expense account
C) A debit to a contra account D) A debit to an asset account
45) What credit is required as part of an adjusting entry when an accrued expense is initially recorded
as an expense?
45)
A) A credit to a liability account B) A credit to an unearned revenue account
C) A credit to a contra liability D) A credit to a revenue account
46) What credit is required as part of an adjusting entry when an accrued revenue is initially recorded
as revenue?
46)
A) A credit to an unearned revenue account B) A credit to a contra liability
C) A credit to a liability account D) A credit to a revenue account
47) An accrued expense is which of the following? 47)
A) An expense that the business has paid but not yet incurred
B) An expense that has been paid and incurred
C) An expense that the business has incurred but not yet paid
D) An expense that will be incurred and paid in the future
48) A prepaid expense is which of the following? 48)
A) An expense that the business has incurred but not yet paid
B) An expense that the business has paid but not yet incurred
C) An expense that has been paid and incurred
D) An expense that will be incurred and paid in the future
49) Accrued revenue is which of the following? 49)
A) Revenue that has been collected and earned
B) Revenue that the business has collected but not yet earned
C) Revenue that the business has earned but not collected
D) Revenue that will be collected and earned in the future
50) Unearned revenue is which of the following? 50)
A) Revenue that will be collected and earned in the future
B) Revenue that the business has collected but not yet earned
C) Revenue that the business has earned but not collected
D) Revenue that has been collected and earned
51) Unearned rent is an example of which of the following? 51)
A) A prepaid expense B) Unearned revenue
C) Accrued revenue D) An accrued expense
52) Salaries payable is an example of which of the following? 52)
A) An accrued expense B) A prepaid expense
C) Unearned revenue D) Accrued revenue
53) A Supplies account is an example of which of the following? 53)
A) An accrued expense B) Unearned revenue
C) A prepaid expense D) Accrued revenue
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54) Accounts receivable is an example of which of the following? 54)
A) An accrued expense B) Unearned revenue
C) A prepaid expense D) Accrued revenue
55) On August 1, 2011, Xcel Auto Repair paid $6,000 for six months rent. After adjusting entries are
made, what will be the balance of Prepaid Rent on December 31, 2011?
55)
A) $6,000 B) $1,000 C) $2,000 D) $4,000
56) On December 31, 2010, the balance in Pinnacle Exploration Company's Unearned Revenue is
$4,200. In January, 2011 the company received an advance payment of $12,000 for services to be
performed. By May 31, adjustments had been made to recognize $8,500 of the revenue. What would
be the balance in Unearned Revenue on May 31, 2011?
56)
A) $8,500 B) $3,500 C) $7,700 D) $16,200
57) At the end of the current year, the accountant for Navistar Graphics failed to make an adjusting
entry for wages due to the company's employees for the last week in December. The wages will be
paid in January. What is one of the effects of this error?
57)
A) Total assets are overstated. B) Total liabilities are overstated.
C) Net income is overstated. D) Net income is understated.
58) The Supplies account for Vulcan Detail Company had a balance of $3,200 at the beginning of the
year. Additional supplies of $13,400 were purchased during the year. A physical count of the
ending inventory of supplies revealed that $5,900 of supplies were still on hand. What was total
supplies expense for the year?
58)
A) $9,100 B) $10,700 C) $4,300 D) $16,400
59) What is the effect of the adjusting entry for depreciation expense? 59)
A) The entry decreases total assets and increases total expenses.
B) The entry increases total assets and increases total expenses.
C) The entry increases total liabilities and increases total expenses.
D) The entry decreases total liabilities and increases total expenses.
60) On January 1, 2012, Office Manor's Unearned Revenue account had a balance of $3,800. During the
year, the company received $22,300 for services to be performed in the future. After adjusting
entries were made, the balance in Unearned Revenue on December 31, 2012 was $2,900. Accounts
Receivable at the beginning of the year were $3,200. Billings for services performed on account
were $31,200 during the year. After adjusting entries were made, the balance in Accounts
Receivable on December 31, 2012 was $1,000. No services were performed with immediate cash
collection. What is the total Service Revenue?
60)
A) $56,600 B) $55,700 C) $53,500 D) $54,400
61) The adjusting entry to record depreciation expense accomplishes which of the following? 61)
A) Increases a contra- asset and increases an expense
B) Decreases a liability and increases an expense
C) Increases an asset and increases an expense
D) Decreases a liability and increases a revenue
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62) The adjusting entry to record supplies expense accomplishes which of the following? 62)
A) Decreases a liability and increases an expense
B) Increases an asset and increases an expense
C) Decreases a liability and increases a revenue
D) Decreases an asset and increases an expense
63) The adjusting entry to record unearned revenue that has now been earned accomplishes which of
the following?
63)
A) Decreases an asset and increases an expense
B) Decreases a liability and increases an expense
C) Increases an asset and increases an expense
D) Decreases a liability and increases a revenue
64) The adjusting entry to record prepaid insurance that has now been used accomplishes which of the
following?
64)
A) Decreases a liability and increases an expense
B) Decreases a liability and increases a revenue
C) Decreases an asset and increases an expense
D) Increases an asset and increases an expense
65) A business acquires equipment for $140,000 on January 1. The equipment has a life of seven years.
Which of the following is the adjusting entry required on December 31, 2008?
65)
A) Debit $140,000 to Depreciation Expense, credit $140,000 to Accumulated Depreciation
B) Debit $20,000 to Depreciation Expense, credit $20,000 to Accumulated Depreciation
C) Debit $140,000 to Equipment, credit $140,000 to Cash
D) Debit $20,000 to Depreciation Expense, credit $20,000 to Equipment
66) Plant assets are long- lived tangible assets used in the operation of a business. The allocation of a
plant asset's cost to expense is which of the following?
66)
A) Depreciation B) Historical cost
C) The revenue principle D) Revenue allocation
67) What type of account is Accumulated Depreciation and what is its normal balance? 67)
A) Contra asset, credit B) Revenue, debit
C) Liability, credit D) Expense, debit
68) What type of account is Unearned Revenue and what is its normal balance? 68)
A) Asset, debit B) Liability, credit C) Asset, credit D) Revenue, debit
69) The accountant for Duman Legal Services failed to make an adjusting entry for supplies inventory
that had been used for the year. Which of the following is true?
69)
A) Total liabilities are overstated. B) Total liabilities are understated.
C) Total assets are overstated. D) Total assets are understated.
70) The accountant for Hobson Electrical Repair Company failed to make an adjusting entry to record
$5,000 of unpaid salaries for the last two weeks of the year. Which of the following is true?
70)
A) Total revenue is overstated. B) Total revenue is understated.
C) Total expenses are overstated. D) Total expenses are understated.
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71) How do the adjusting entries differ from other journal entries? 71)
A) Adjusting entries debit or credit at least one income statement account and at least one
balance sheet account.
B) Adjusting entries never affect cash.
C) Adjusting entries are made only at the end of the period.
D) All of the above.
72) Which of the following accounts would most likely appear on the adjusted trial balance (have an
account balance) but NOT appear on the unadjusted trial balance (account balance would be zero)?
72)
A) Unearned Revenue B) Depreciation Expense
C) Accumulated Depreciation D) Service Revenue
73) Which of the following is TRUE of plant asset accounts and their related accumulated depreciation
accounts?
73)
A) Accounting for plant assets is the same as for a prepaid expense.
B) Accumulated depreciation is a contra- asset account which has a normal balance of a credit
amount.
C) The allocation of a plant asset's cost to expenses is called depreciation.
D) All of the above are true.
74) Which of the following statements is a TRUE statement concerning the trial balance work sheet? 74)
A) The work sheet is a journal.
B) The work sheet is a ledger.
C) The work sheet is a financial statement.
D) The work sheet is a document used to summarize data to prepare the financial statements.
75) Which of the following is the correct order of the steps of preparing the work sheet?
I. Compute each account's adjusted balance by combining the trial balance and adjustment
figures. Enter each account's adjusted amount in the Adjusted Trail Balance columns.
II. Enter the account titles and their unadjusted balances in the Trial Balance columns of the
work sheet and total the columns.
III. Extend (copy) the asset, liability, and owner's equity amounts from the Adjusted Trial
Balance to the Balance Sheet columns. Copy the revenue and expense amounts to the Income
Statement columns. Total the statement columns.
IV. Enter the adjusting entries in the Adjustments columns, and total the amounts.
V. On the income statement column, compute net income. Enter net income as the balancing
amount on the income statement and balance sheet columns. Total the income statement and
balance sheet columns.
75)
A) IV, I, III, V, II B) II, IV, I, III, V C) III, V, IV, I, II D) I, II, III, IV, V
76) Which of the following statements is a TRUE statement about the work sheet? 76)
A) Net income appears in the Income Statement debit column.
B) Net income appears in the Adjusted Trial Balance debit column.
C) Net income appears in the Income Statement credit column.
D) Net income appears in the Balance Sheet debit column.
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77) Which of the following is TRUE of a completed work sheet? 77)
A) The total debits in the Balance Sheet column equal the total credits in the Balance Sheet
column.
B) The total debits in the Adjustments column equal the total credits in the Adjustments column.
C) The total debits in the Income Statement column equal the total credits in the Income
Statement column.
D) The total debits in the Trial Balance column equal the total credits in the Adjusted Trial
Balance column.
78) Which of the following is the last step of preparing the work sheet? 78)
A) Extend (copy) the asset, liability, and owner's equity amounts from the Adjusted Trial Balance
to the Balance Sheet columns. Copy the revenue and expense amounts to the Income
Statement columns. Total the statement columns.
B) Enter the account titles and their unadjusted balances in the Trial Balance columns of the
work sheet and total the columns.
C) Compute each account's adjusted balance by combining the trial balance and adjustment
figures. Enter each account's adjusted amount in the Adjusted Trail Balance columns.
D) Enter the adjusting entries in the Adjustments columns, and total the amounts.
E) On the income statement column, compute net income. Enter net income as the balancing
amount on the income statement and balance sheet columns. Total the income statement and
balance sheet columns.
79) Where does net income appear on a work sheet? 79)
A) Net income appears in the Balance Sheet credit column and in the Income Statement debit
column.
B) Net income appears only in the Income Statement debit column.
C) Net income appears only in the Balance Sheet credit column.
D) Net income appears in the Income Statement credit column and in the Balance Sheet debit
column.
80) Interest expense in the work sheet's Trial Balance column is $3,000. Interest expense in the Income
Statement column is $7,000. Which of the following entries would have caused this difference?
80)
A) A $4,000 entry to interest expense in the work sheet's Adjustments credit column
B) A $7,000 entry to interest expense in the work sheet's Adjustments credit column
C) A $4,000 entry to interest expense in the work sheet's Adjustments debit column
D) A $4,000 entry to interest payable in the work sheet's Adjustments credit column
81) In which of the columns of the worksheet would the unearned fees account be found? 81)
A) In the Trial Balance credit column, the Adjusted Trial Balance credit column and the Balance
Sheet credit column
B) In the Balance Sheet credit column and the Income Statement debit column
C) In the Balance Sheet debit column and the Income Statement credit column
D) In the Trial Balance debit column, the Adjusted Trial Balance debit column and the Balance
Sheet debit column
82) Which of the following does NOT appear on the work sheet? 82)
A) The adjusted trial balance B) Adjusting entries
C) Closing entries D) The trial balance
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83) Which of the following situations would indicate that an error has been made? 83)
A) The total of the debit column of Adjustments does not equal the total of the credit column of
Adjustments.
B) The total of the debit column of the Balance Sheet does not equal the total of the debit column
of the Income Statement.
C) The total of the debit column of the Trial Balance does not equal the total of the debit column
of the Adjusted Trial Balance.
D) All of these situations are the result of an error.
84) Where can closing entries be found? 84)
A) On a company's balance sheet
B) In a company's general journal
C) On a company's work sheet
D) On a company's statement of owner's equity
85) Which of the following accounts will be closed by crediting the Income Summary? 85)
A) Depreciation Expense B) Accumulated Depreciation
C) Service Revenue D) Accounts Payable
86) Which of the following accounts has a remaining non- zero balance after the closing process is
completed.
86)
A) The Accumulated Depreciation account has a non- zero balance.
B) The Depreciation Expense account has a non- zero balance.
C) The Owner's Withdrawals account has a non- zero balance.
D) The Service Revenue account has a non- zero balance.
87) Which of the following is the measure of how quickly an item can be converted to cash? 87)
A) Debt ratio B) Current ratio
C) Accounting cycle D) Liquidity
88) Which of the following is an asset that is expected to be converted to cash, sold, or consumed
during the next year (or normal operating cycle if longer)?
88)
A) Quick asset B) Current asset
C) Long- term asset D) Liquid asset
89) Which of the following is the time span during which cash is paid for goods and services, which are
then sold to customers from whom the business then collects cash?
89)
A) Liquidity B) Current ratio
C) Long- term asset D) Operating cycle
90) The steps of the operating cycle are listed below. What is the correct order of the steps?
I. Goods and services are sold to customers.
II. The business collects cash from customers.
III. Cash is used to acquire goods and services.
90)
A) III, II, I B) III, I, II C) I, II, III D) II, III, I
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Table 4.1
Greene Landscaping
Balance Sheet
December 31, 2008
Assets Liabilities
Cash $15,000 Accounts payable $ 22,000
Accounts Receivable 30,000 Salaries payable 12,000
Supplies 4,000 Unearned service revenue
25,000
Prepaid insurance 8,000 Total liabilities 59,000
Equipment $85,000
Less: Accumulated Owner's Equity
depreciation 10,000 75,000
Seth Greene, capital 73,000
Total liabilities and
Total assets $132,000 owner's equity $132,000
91) The Balance Sheet for Green Landscaping is presented above in Table 4.1. Which of the following is
the current ratio?
91)
A) .25 B) .97 C) .68 D) 1.27
92) The Balance Sheet for Green Landscaping is presented above in Table 4.1. Which of the following is
the debt ratio?
92)
A) 1.04 B) .45 C) 39 D) .79
93) Which of the following is considered a rule- of- thumb strong current ratio for businesses? 93)
A) .8 B) 1.5 C) 1.0 D) .6
94) Which of the following is considered a rule- of- thumb safe debt ratio for businesses? 94)
A) .6 B) 1.5 C) 1.0 D) .8
95) Adkins Company has a current ratio of 1.0 and a debt ratio of .7. Wilson Company has a current
ratio of 1.4 and a debt ratio of .5. Which of the following statements is true.
95)
A) The two companies' debt ratios and current ratios vary in different directions and these
results do not make sense.
B) Adkins appears to be in better financial shape than Wilson.
C) Wilson appears to be in better financial shape than Adkins.
D) The two companies' debt ratios and current ratios vary in different directions and the
companies appear to be in similar financial shape.
96) Which of the following does the current ratio measure? 96)
A) The current ratio measures the company's overall ability to pay liabilities.
B) The current ratio measures the company's ability to pay current liabilities with current assets.
C) The current ratio measures the proportion of the company's assets that are financed with debt.
D) Both B and C are true.
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97) Which of the following statements is an accurate interpretation of a current ratio of 2.5? 97)
A) The company has $2.50 of current assets for every $1.00 of current liabilities.
B) The company has $2.00 of current assets for every $.50 of liabilities.
C) The company has $2.50 of current assets for every $1.00 of liabilities.
D) The company has $2.00 of current assets for every $.50 of current liabilities.
98) Which of the following statements is an accurate interpretation of a debt ration of .60? 98)
A) The company has $.60 of liabilities for every $1.00 of assets.
B) The company has $.60 of current liabilities for every $1.00 of current assets.
C) The company has $.60 of current assets for every $1.00 of current liabilities.
D) The company has $.60 of assets for every $1.00 of liabilities.
99) A company uses the perpetual inventory method. Which of the following entries would be made to
record a purchase of inventory on account?
99)
A) The accounting entry would be a debit to Accounts Payable and a credit to Inventory.
B) The accounting entry would be a debit to Purchases and a credit to Accounts Payable.
C) The accounting entry would be a debit to Inventory and a credit to Accounts Payable.
D) The accounting entry would be a debit to Accounts Payable and a credit to Purchases.
100) A company that uses the perpetual inventory method purchases inventory of $1,000 on account
with terms of 2/10 net/30. Which of the following entries would be made to record the payment for
the inventory if the payment is made within 10 days?
100)
A) The accounting entry would be a $1,000 debit to Accounts Payable and a $1,000 credit to
Cash.
B) The accounting entry would be a $20 debit to Inventory, a $1,000 debit to Accounts Payable
and a $1,020 credit to Cash.
C) The accounting entry would be a $1,000 debit to Accounts Payable, a $20 credit to Inventory
and a $980 credit to Cash.
D) The accounting entry would be a $980 debit to Accounts Payable, a $20 debit to Inventory and
a $1,000 credit to Cash.
101) A company that uses the perpetual inventory method purchases inventory of $1,000 on account
with terms of 2/10 net/30. Which of the following entries would be made to record the payment for
the inventory if the payment is made 20 days later?
101)
A) The accounting entry would be a $1,000 debit to Accounts Payable, a $20 credit to Inventory
and a $980 credit to Cash.
B) The accounting entry would be a $980 debit to Accounts Payable, a $20 debit to Inventory and
a $1,000 credit to Cash.
C) The accounting entry would be a $20 debit to Inventory, a $1,000 debit to Accounts Payable
and a $1,020 credit to Cash.
D) The accounting entry would be a $1,000 debit to Accounts Payable and a $1,000 credit to
Cash.
13
102) A company uses the perpetual inventory method. Which of the following entries would be made to
record a return of $200 of inventory purchased on account?
102)
A) The accounting entry would be a $200 debit to Inventory and a $200 credit to Accounts
Payable.
B) The accounting entry would be a $200 debit to Accounts Payable and a $200 credit to
Purchases.
C) The accounting entry would be a $200 debit to Purchases and a $200 credit to Accounts
Payable.
D) The accounting entry would be a $200 debit to Accounts Payable and a $200 credit to
Inventory.
103) A company that uses the perpetual inventory method purchases inventory of $1,000 on account
with terms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of the
following entries would be made to record the payment for the inventory if the payment is made
within 10 days?
103)
A) The accounting entry would be a $784 debit to Accounts Payable, a $16 debit to Inventory and
a $800 credit to Cash.
B) The accounting entry would be an $800 debit to Accounts Payable and an $800 credit to Cash.
C) The accounting entry would be an $800 debit to Accounts Payable, a $16 credit to Inventory
and a $784 credit to Cash.
D) The accounting entry would be a $16 debit to Inventory, a $800 debit to Accounts Payable and
a $816 credit to Cash.
104) Which of the following does "FOB Shipping Point" mean? 104)
A) The seller pays the transportation costs. B) The buyer pays the transportation costs.
C) Both A and B are true D) Neither A nor B are true.
105) Which of the following does "FOB Destination" mean? 105)
A) The seller pays the transportation costs. B) The buyer pays the transportation costs.
C) Both A and B are true D) Neither A nor B are true.
106) Which of the following is generally a merchandiser's major cost? 106)
A) Buildings B) Salary expense
C) Advertising D) Cost of goods sold
107) Which of the following describes Freight Out? 107)
A) Freight Out is part of Merchandise Inventory.
B) Freight Out is an operating expense.
C) Both A and B are correct.
D) None of the above.
108) Which one of the following is the basis for Cost of Goods Sold? 108)
A) Cost of Goods Sold is based on the net realizable value of the merchandise.
B) Cost of Goods Sold is based on the value of the merchandise when it is sold.
C) Cost of Goods Sold is based on the selling price of the merchandise.
D) Cost of Goods Sold is based on the entity's cost.
14
109) A company uses the perpetual inventory method. Which of the following entries would be made to
record a sale of merchandise on account?
109)
A) The accounting entry would be a debit to Accounts Receivable and a credit to Sales Revenue.
B) The accounting entry would be a debit to Sales Revenue and a credit to Accounts Receivable.
C) The accounting entry would be a debit to Cost of Goods Sold and a credit to Inventory.
D) Both A and C would be necessary to record the sale.
Table 5.1
Sales revenue $460,000
Cost of goods sold 300,000
Operating expenses 85,000
Sales discounts 20,000
Sales returns and allowances 15,000
Interest Revenue 5,000
110) Refer to Table 5.1. What is net sales revenue? 110)
A) $425,000 B) $415,000 C) $455,000 D) $400,000
111) Refer to Table 5.1. What is gross profit? 111)
A) $140,000 B) $160,000 C) $125,000 D) $90,000
112) Refer to Table 5.1. What is operating income? 112)
A) $160,000 B) $190,000 C) $40,000 D) $55,000
113) Refer to Table 5.1. What is net income? 113)
A) $180,000 B) $60,000 C) $35,000 D) $45,000
114) Which of the following accounts are involved in the closing entries when a merchandising
company uses the perpetual inventory system?
114)
A) Operating Income and Cost of Goods Sold
B) Gross Profit, Sales Returns and Allowances, and Sales Discounts
C) Cost of Goods Sold, Sales Returns and Allowances, and Sales Discounts
D) Operating Expenses, Sales Revenue, and Gross Profit
115) The Income Summary account has a $25,000 credit balance after the revenue and expenses accounts
have been closed. To which account is this balance closed?
115)
A) The Owner's Capital account B) The Owner's Withdrawals account
C) The Cost of Goods Sold account D) The Sales Revenue account
116) Which of the following would NOT be included in Operating expenses? 116)
A) Rent on the home office building B) Executive Salaries
C) Office Employee Salaries D) Purchase Discounts
117) Which of the following financial statements would include cost of goods sold? 117)
A) Classified balance sheet B) Single- step income statement
C) Multiple- step income statement D) Both B and C
118) On which of the following does operating income appear? 118)
A) Classified balance sheet B) Single- step income statement
C) Multiple- step income statement D) Both B and C
15
119) Which of the following describes a single- step income statement? 119)
A) Format that contains subtotals to highlight significant relationships
B) Format that groups all revenues together and then lists and deducts all expenses together
without subtotals
C) Both of the above
D) Neither of the above
120) Which of the following financial statements would include gross profit? 120)
A) Classified balance sheet B) Single- step income statement
C) Multiple- step income statement D) Both B and C
121) Which of the following is gross profit divided by net sales? 121)
A) Rate of inventory turnover B) Debt ratio
C) Gross profit percentage D) Current ratio
122) Which of the following is cost of goods sold divided by average inventory? 122)
A) Current ratio B) Gross profit percentage
C) Rate of inventory turnover D) Debt ratio
123) Which of the following is the gross profit percentage? 123)
A) Gross profit divided by net sales revenue B) Gross profit times net sales revenue
C) Gross profit minus net sales revenue D) Gross profit plus net sales revenue
124) Which of the following correctly describes the rate of inventory turnover? 124)
A) The rate of inventory turnover indicates how quickly inventory is received from the supplier
after the order is placed.
B) The rate of inventory turnover indicates how many days it takes from the time an order is
received to the day it is shipped.
C) The rate of inventory turnover indicates how rapidly inventory is sold.
D) The rate of inventory turnover indicates how many days it takes the inventory to travel
between the seller's warehouse and the buyer's warehouse.
125) A company's net sales revenues are $540,000. Its cost of goods sold is $360,000. Which of the
following is its gross profit percentage?
125)
A) 33.33% B) 300% C) 100% D) 66.67%
126) Which of the following correctly describes the gross profit percentage? 126)
A) Merchandising companies strive to increase the gross profit percentage.
B) The gross profit percentage is one of the most carefully watched measures of profitability.
C) For most companies, the gross profit percentage changes little from year to year.
D) All of the above are true.
127) A company's net sales revenues are $1,000,000. Its cost of goods sold is $400,000. Which of the
following is its gross profit percentage?
127)
A) 167% B) 60% C) 250% D) 40%
128) A company's cost of goods sold is $1,000,000. Its average inventory is $100,000. Which of the
following is its rate of inventory turnover?
128)
A) 10 B) .1 C) .01 D) 100
16
129) If a company uses the periodic inventory method, which of the following is subtracted from cost of
goods available for sale to arrive at cost of goods sold?
129)
A) Purchase discounts and purchase returns and allowances
B) Ending inventory
C) Net purchases
D) Beginning inventory
130) If a company uses the periodic inventory method, which of the following is subtracted from
purchases to arrive at net purchases?
130)
A) Purchase discounts and purchase returns and allowances
B) Ending inventory
C) Beginning inventory
D) Cost of goods available for sale
131) If a company uses the periodic inventory method, which of the following is added to beginning
inventory to arrive at cost of goods available for sale?
131)
A) Purchase discounts and purchase returns and allowances
B) Ending inventory
C) Net purchases and freight in
D) Purchases
132) A company uses the periodic inventory method. Which of the following entries would be made to
record a $1,200 purchase of inventory on account?
132)
A) The accounting entry would be a $1,200 debit to Inventory and a $1,200 credit to Accounts
Payable.
B) The accounting entry would be a $1,200 debit to Purchases and a $1,200 credit to Accounts
Payable.
C) The accounting entry would be a $1,200 debit to Accounts Payable and a $1,200 credit to
Purchases.
D) The accounting entry would be a $1,200 debit to Accounts Payable and a $1,200 credit to
Inventory.
133) A company that uses the periodic inventory method purchases inventory of $1,000 on account with
terms of 2/10 net/30. Which of the following entries would be made to record the payment for the
inventory if the payment is made 20 days later?
133)
A) The accounting entry would be a $980 debit to Accounts Payable, a $20 debit to Purchase
Discounts and a $1,000 credit to Cash.
B) The accounting entry would be a $1,000 debit to Accounts Payable, a $20 credit to Purchase
Discounts and a $980 credit to Cash.
C) The accounting entry would be a $20 debit to Purchase Discounts, a $1,000 debit to Accounts
Payable and a $1,020 credit to Cash.
D) The accounting entry would be a $1,000 debit to Accounts Payable and a $1,000 credit to
Cash.
17
134) A company that uses the periodic inventory method purchases inventory of $1,000 on account with
terms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of the following
entries would be made to record the payment for the inventory if the payment is made within 10
days?
134)
A) The accounting entry would be an $800 debit to Accounts Payable and an $800 credit to Cash.
B) The accounting entry would be an $800 debit to Accounts Payable, a $16 credit to Purchase
Discounts and a $784 credit to Cash.
C) The accounting entry would be a $16 debit to Purchase Discounts, an $800 debit to Accounts
Payable and an $816 credit to Cash.
D) The accounting entry would be a $784 debit to Accounts Payable, a $16 debit to Purchase
Discounts and a $800 credit to Cash.
135) A company uses the periodic inventory method. Which of the following will result in an increase in
inventory?
135)
A) Net purchases exceed cost of goods sold.
B) Net purchases is less than cost of goods available for sale.
C) Cost of goods sold exceeds cost of goods available for sale.
D) It is impossible to determine with this information.
136) Which of the following describes a multiple- step income statement? 136)
A) Format that groups all revenues together and then lists and deducts all expenses together
without subtotals
B) Format that contains subtotals to highlight significant relationships
C) Both of the above
D) Neither of the above
137) Which of the following is the rate of inventory turnover? 137)
A) Cost of goods sold divided by average inventory
B) Cost of goods sold times average inventory
C) Cost of goods sold divided by gross profit
D) Cost of goods sold times gross profit
138) Which of the following is (are) inventory costing methods allowed by GAAP? 138)
A) Average cost B) Last in first out
C) Specific unit cost D) All of the above
139) Which of the following inventory costing methods is based on the actual cost of each particular unit
of inventory?
139)
A) Specific unit cost B) Average cost
C) Last in first out D) First in first out
140) Under which of the following inventory costing methods is the cost of goods sold based on the cost
of the oldest purchases?
140)
A) Specific unit cost B) Average cost
C) Last in first out D) First in first out
141) Under which of the following inventory costing methods is the cost of goods sold based on the
average cost of the purchases during the period?
141)
A) Specific unit cost B) Average cost
C) Last in first out D) First in first out
18
142) Which of the following inventory costing methods is the LEAST likely to mimic the actual physical
flow of inventory?
142)
A) Specific unit cost B) Average cost
C) Last in first out D) First in first out
143) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on
February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses
the FIFO inventory costing method, which of the following amounts will be the amount of
inventory on the December 31 balance sheet?
143)
A) $1,500 B) $1,000 C) $2,250 D) $1,250
144) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on
February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses
the average cost inventory costing method, which of the following amounts will be the amount of
inventory on the December 31 balance sheet?
144)
A) $1,000 B) $2,250 C) $1,500 D) $1,250
145) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on
February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses
the average cost inventory costing method, which of the following amounts will be the amount of
cost of goods sold on the December 31 income statement?
145)
A) $4,000 B) $3,750 C) $6,750 D) $3,500
146) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on
February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses
the LIFO inventory costing method, which of the following amounts will be the amount of cost of
goods sold on the December 31 income statement?
146)
A) $6,750 B) $3,750 C) $3,500 D) $4,000
147) Which of the following states that a company must perform strictly proper accounting ONLY for
items that are significant to the business's financial statements?
147)
A) Accounting conservatism B) Materiality concept
C) Disclosure principle D) Consistency principle
148) Which of the following states that the business should use the same accounting methods from
period to period?
148)
A) Disclosure principle B) Materiality concept
C) Accounting conservatism D) Consistency principle
149) Which of the following assets is generally reported at the lower of cost or market? 149)
A) Cash B) Accounts receivable
C) Prepaid insurance D) Inventory
150) Which of the following is used for "market" when valuing inventory at lower of cost or market? 150)
A) Cost plus the company's normal mark- up percentage
B) Sales price less the company's normal mark- up percentage
C) Sales price
D) Current replacement price
19
151) Which of the following financial statements are affected by the use of the lower- of- cost- or- market
rule?
151)
A) The income statement
B) The balance sheet
C) Both the balance sheet and the income statement
D) Neither the balance sheet nor the income statement
152) The accountant for a company determines that the 20 units of inventory on hand at the end of the
year should be recorded at their cost of $5.00, each using FIFO. Current replacement cost is $4.50.
What amount would be reported as inventory on the balance sheet?
152)
A) $4.50 B) $100.00 C) $90.00 D) $5.00
153) When a company uses the perpetual inventory method, which of the following would be the entry
to adjust inventory to lower- of- cost- or- market?
153)
A) Debit Purchases and credit Inventory.
B) Debit Cost of Goods Sold and credit Inventory.
C) Debit Inventory and credit Cost of Goods Sold.
D) Debit Inventory and Credit Purchases
154) Ending inventory for the current year is overstated by $20,000. What effect will this error have on
the following year's net income?
154)
A) The inventory overstatement will not affect net income.
B) Net income will be understated by $40,000.
C) Net income will be understated by $20,000.
D) Net income will be overstated by $20,000.
155) Ending inventory for the current period is understated. What effect will this error have on owner's
equity?
155)
A) Owner's equity will be overstated at the end of the current period, but is will be correct at the
end of the next period.
B) Owner's equity will be overstated at the end of the current period and overstated at the end of
the next period.
C) Owner's equity will be overstated at the end of the current period and understated at the end
of the next period.
D) Owner's equity will be understated at the end of the current period, but it will be correct at
the end of the next period.
156) An audit of Forever Young Cosmetics reveals that beginning inventory was overstated by $3,000.
Which of the following will result from the correction of this error?
156)
A) Net income will be reduced by $3,000.
B) Cost of goods sold will be reduced by $3,000.
C) Gross profit will be increased by $3,000
D) Both B and C.
157) Which of the following is TRUE of internal control? 157)
A) Internal control procedures tend to diminish the importance of operational efficiency.
B) Public companies generally had no internal control systems prior to the enactment of the
Sarbanes- Oxley Act.
C) One of the major purposes of internal control is to ensure accurate, reliable accounting
records.
D) A company's outside auditor is responsible for the company's internal control system.
20
158) Which of the following is a requirement of the Sarbanes- Oxley Act? 158)
A) Public companies oversee the work of auditors of other public companies.
B) Accounting firms may not both audit a public client and also provide certain consulting
services for the same client.
C) The outside auditor must issue an internal control report for each public company, and the
Public Company Oversight Board evaluates the client's internal controls.
D) The Public Company Oversight Board issues an internal control audit report for every
publicly held company.
159) Which of the following is NOT one of the components of internal control? 159)
A) Control environment B) Control procedures
C) Theft management D) Risk assessment
160) Which of the following describes the internal control component "risk assessment"? 160)
A) Risk assessment is the "tone at the top" of the business.
B) A company must identify its risks.
C) Risk assessment is designed to ensure that the business's goals are achieved.
D) Internal auditors monitor company controls to safeguard assets, and external auditors
monitor the controls to ensure that the accounting records are accurate.
161) Which of the following describes the internal control component "control procedures"? 161)
A) Control procedures are designed to ensure that the business's goals are achieved.
B) Control procedures are the "tone at the top" of the business.
C) Internal auditors monitor company controls to safeguard assets, and external auditors
monitor the controls to ensure that the accounting records are accurate.
D) A company must identify its risks.
162) Which of the following describes the internal control procedure "competent, reliable and ethical
personnel"?
162)
A) A company must train and supervise high- quality employees.
B) A company purchases burglar alarms.
C) External auditors monitor internal controls.
D) The information system is critical.
163) Which of the following describes the internal control procedure "assignment of responsibilities"? 163)
A) To validate their accounting records, a company should have an audit by an external
accountant.
B) External auditors monitor internal controls.
C) With clearly assigned responsibilities, all important jobs get done.
D) Separate the custody of assets from accounting.
164) Which of the following describes the internal control procedure "separation of duties"? 164)
A) The information system is critical.
B) Cashiers must not have access to accounting records.
C) External auditors will monitor internal controls.
D) Prenumber invoices and other documents.
21
165) Which of the following describes the internal control procedure "proper documents"? 165)
A) Separate the custody of assets from accounting.
B) A company should purchase a fireproof vault.
C) Prenumber invoices and other documents.
D) Mandatory vacations will improve internal control.
166) At the West Texas Clothing Store, a sales employee assists customers with finding the items the
client wishes to purchase, ringing up the purchase and collecting the cash. At the end of the day,
this employee counts the cash and fills out a cash- count form. Which internal control procedure is
being violated by West Texas Clothing Store?
166)
A) Job rotation improves internal control.
B) Separation of duties is necessary.
C) Competent, reliable, and ethical personnel should be hired.
D) To validate their accounting records, a company should have an audit by an external
accountant.
167) Which of the following are internal control procedures commonly used by companies to protect
their assets?
167)
A) The purchase of fidelity bonds on cashiers
B) Mandatory vacations for employees
C) Both A and B
D) Neither A nor B
168) Which of the following are particular problems that must be addressed in the internal controls for
e- commerce?
168)
A) Trojans B) Phishing expeditions
C) Stolen credit- card numbers D) All of the above
169) Which of the following is a common tactic to overcome internal controls? 169)
A) Separation of duties B) Encryption
C) Collusion D) Firewalls
170) Which of the following are reasons for very strict internal control of cash? 170)
A) Cash is the most liquid asset because it is the medium of exchange.
B) Cash is relatively easy to steal.
C) Cash is easy to conceal.
D) All of the above are true.
171) A check was written by a business for $205 but recorded in the cash payments journal as $502. How
would this error be included on the bank reconciliation?
171)
A) A deduction on the bank side B) An addition on the bank side
C) An addition on the book side D) A deduction on the book side
172) Which of the following items will NOT appear on the books side of the reconciliation? 172)
A) The bank recorded a $2,000 deposit as $200.
B) The bank charged a service fee of $20.
C) The bank collected a note receivable of $1,000.
D) A nonsufficient funds check of $75 returned to the bank.
22
173) The bank recorded a $2,000 deposit as $200. How would this information be included on the bank
reconciliation?
173)
A) An addition on the book side B) An addition on the bank side
C) A deduction on the book side D) A deduction on the bank side
174) The bank collected a note receivable of $1,000. How would this information be included on the
bank reconciliation?
174)
A) A deduction on the book side B) An addition on the book side
C) A deduction on the bank side D) An addition on the bank side
175) A check of $75 deposited by a company was returned to the bank for nonsufficient funds. How
would this information be included on the bank reconciliation?
175)
A) An addition on the book side B) A deduction on the book side
C) An addition on the bank side D) A deduction on the bank side
176) The bank charged a service fee of $20. How would this information be included on the bank
reconciliation?
176)
A) An addition on the book side B) An addition on the bank side
C) A deduction on the book side D) A deduction on the bank side
177) Which of the following items found on a bank reconciliation does NOT require an adjusting entry? 177)
A) A bank service charge B) A note collected by the bank
C) Deposits in transit D) Interest earned
178) Which of the following is TRUE of a bank reconciliation? 178)
A) A bank reconciliation should not be prepared by an employee who handles cash transactions.
B) A bank reconciliation is part of a sound internal control system.
C) A bank reconciliation is a formal financial statement.
D) Both A and B are true statements.
179) Which of the following items does NOT cause a difference in the bank balance and the book
balance on a bank reconciliation?
179)
A) Canceled checks B) Outstanding checks
C) Nonsufficient funds checks D) Deposits in transit
180) The following information is available for Matts Unlimited Company for the current month. What
is the adjusted book balance on the bank reconciliation?
Book balance end of the month $5,575
Outstanding checks 584
Deposits in transit 2,500
Service charges 75
Interest revenue 25
180)
A) $5,500 B) $5,525 C) $7,466 D) $5,550
181) A company received a bank statement showing a balance of $62,300. Reconciling items were
outstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjusted
bank balance?
181)
A) $69,350 B) $60,850 C) $72,250 D) $70,850
23
182) A company received a bank statement with a balance of $5,350. Reconciling items included a
bookkeeper error of $200 (a $300 check recorded as $500), two outstanding checks totaling $720, a
service charge of $15, a deposit in transit of $180, and interest revenue of $21. What is the adjusted
balance?
182)
A) $5,016 B) $4,636 C) $4,810 D) $4,610
183) Which of the following would be included in a journal to record an nsf check? 183)
A) A debit to miscellaneous expense and a credit to cash
B) A debit to cash and a credit to accounts receivable
C) A debit to accounts payable and a credit to cash
D) A debit to accounts receivable and a credit to cash
184) Which of the following is used by many companies to separate cash duties and establish control
over cash receipts?
184)
A) An encryption system B) An imprest system
C) A lock- box system D) A firewall system
185) Which of the following is the last step in the daily control over cash receipts by mail? 185)
A) A mailroom clerk opens the mail and sends the remittance advices to the accounting
department.
B) The controller compares the records of the day's bank deposit amount from the treasurer and
the debit to Cash from the accounting department.
C) A mailroom employee sends all customer checks to the treasurer who has the cashier make
the bank deposit.
D) The accounting department prepares journal entries to Cash and the customers' accounts.
186) Which of the following is the first step in the purchasing and payment process? 186)
A) The purchaser sends a check to the supplier.
B) The purchase receives the inventory and prepares a receiving report.
C) The purchaser sends a purchase order to the supplier.
D) The supplier ships the goods and sends an invoice to the purchaser.
187) Which of the following is the entry to establish a petty cash account? 187)
A) Petty cash
Cash in Bank
B) Cash in Bank
Petty Cash
C) Miscellaneous Expense
Cash in Bank
D) Miscellaneous Expense
Petty Cash
188) Which of the following would be included in the entry to record the replenishment of a petty cash
fund?
188)
A) A credit to petty cash B) A debit to cash in bank
C) A credit to various expenses and assets D) A credit to cash in bank
189) A petty cash fund was established with a $250 balance. It currently has cash of $31 and petty cash
tickets totaling $219. Which of the following would be included in the entry to replenish the fund?
189)
A) A credit to cash in bank for $250 B) A credit to petty cash for $219
C) Debits to various expenses for $219 D) A debit to petty cash for $219
24
190) Which of the following is NOT a control over petty cash? 190)
A) A specific amount of cash must be kept on hand.
B) All petty cash payments must be supported by a petty cash ticket.
C) Several employees must be designated as petty cash custodian.
D) All of the above are controls over petty cash.
191) Which of the following signatures (or initials) should appear on a completed petty cash ticket? 191)
A) The signatures of the petty cash custodian and the recipient of cash
B) The signatures of the petty cash custodian and the controller
C) Only the signature of the petty cash custodian
D) Only the signature of the recipient of cash
192) Petty cash is accounted for by maintaining a constant balance in the petty cash account, supported
by the fund (cash plus payment tickets) totaling the same amount. Which of the following is this
type of system?
192)
A) An imprest system B) A balanced system
C) A voucher system D) A control system
193) Which of the following are key issues in controlling and managing receivables? 193)
A) Extend credit only to customers who are most likely to pay.
B) Pursue collection from customers to maximize cash flow.
C) Separate cash- handling, credit, and accounting duties to keep employees from stealing cash
collected from customers.
D) All of the above are key issues in controlling and managing receivables.
194) Which of the following is a method of establishing control over collections of accounts receivable? 194)
A) Set up a petty cash fund.
B) Establish a bank lock- box system.
C) Allow no one but the bookkeeper to handle cash.
D) Designate an authorized check signer.
195) Which of the following are the two methods of accounting for uncollectible receivables? 195)
A) The allowance method and the direct write- off method
B) The allowance method and the liability method
C) The asset method and the sales method
D) The direct write- off method and the liability method
196) Which of the following are the two methods of estimating uncollectible receivables? 196)
A) The direct write- off method and the percent- of- sales method
B) The allowance method and the percent- of- sales method
C) The aging- of- accounts- receivable method and the percent- of- sales method
D) The allowance method and the direct write- off method
197) Which of the following is the income- statement approach to estimating bad debts? 197)
A) The percent- of- sales method
B) The aging- of- accounts- receivable method
C) The direct write- off method
D) The allowance method
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198) Which of the following is the balance- sheet approach to estimating bad debts? 198)
A) The percent- of- sales method
B) The allowance method
C) The direct write- off method
D) The aging- of- accounts- receivable method
199) The allowance for uncollectible accounts currently has a credit balance of $200. The company's
management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are
$115,000. What will be the amount of uncollectible- account expense reported on the income
statement?
199)
A) $3,275 B) $3,075 C) $2,675 D) $2,875
200) The allowance for uncollectible accounts currently has a credit balance of $200. The company's
management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are
$115,000. What will be the amount of allowance for uncollectible accounts reported on the balance
sheet?
200)
A) $2,875 B) $2,675 C) $3,075 D) $3,275
201) The allowance for uncollectible accounts currently has a credit balance of $900. After analyzing the
accounts in the accounts receivable subsidiary ledger, the company's management estimates that
uncollectible accounts will be $15,000. What will be the amount of uncollectible- account expense
reported on the income statement?
201)
A) $14,900 B) $14,100 C) $15,900 D) $15,000
Table 9.1
The following information is from the 2008 records of Armadillo Camera Shop:
Accounts Receivable, December 31, 2008 $20,000 (debit)
Allowance for uncollectible accounts, December 31, 2008
prior to adjustment 600 (debit)
Net credit sales for 2008 95,000
Accounts written off as uncollectible during 2008 7,000
Cash sales during 2008 27,000
202) Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent- of- sales method.
Management estimates that 3% of net credit sales will be uncollectible. Which of the following will
be the amount of Uncollectible Accounts Expense?
202)
A) $2,250 B) $7,000 C) $2,850 D) $3,450
203) Refer to Table 9.1. Uncollectible accounts expense is estimated by the aging- of- accounts- receivable
method. Management estimates that $2,850 of accounts receivable will be uncollectible. Which of
the following will be the amount of Uncollectible Accounts Expense?
203)
A) $2,850 B) $2,250 C) $3,450 D) $7,000
204) Refer to Table 9.1. Uncollectible accounts expense is determined by the direct write- off method.
Which of the following will be the amount of Uncollectible Accounts Expense?
204)
A) $3,450 B) $7,000 C) $2,850 D) $2,250
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205) Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent- of- sales method.
Management estimates that 3% of net credit sales will be uncollectible. Which of the following will
be the amount of Allowance for Uncollectible Accounts after adjustment?
205)
A) $2,850 B) $3,450 C) $7,000 D) $2,250
206) Refer to Table 9.1. Uncollectible accounts expense is estimated by the aging- of- accounts- receivable
method. Management estimates that $2,850 of accounts receivable will be uncollectible. Which of
the following will be the amount of Allowance for Uncollectible Accounts after adjustment?
206)
A) $2,250 B) $7,000 C) $3,450 D) $2,850
207) Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent- of- sales method.
Management estimates that 3% of net credit sales will be uncollectible. Which of the following will
be the amount of net accounts receivable after adjustment?
207)
A) $17,150 B) $13,000 C) $16,550 D) $17,750
208) Refer to Table 9.1. Uncollectible accounts expense is estimated by the aging- of- accounts- receivable
method. Management estimates that $2,850 of accounts receivable will be uncollectible. Which of
the following will be the amount of net accounts receivable after adjustment?
208)
A) $13,000 B) $17,150 C) $16,550 D) $17,750
209) Which of the following are included in the cost of land? 209)
A) The cost of clearing the land B) The cost of paving
C) The cost of outdoor lighting D) The cost of fencing
210) Which of the following is included in the cost of a plant asset? 210)
A) The taxes paid
B) The purchase price of the plant asset
C) Amounts paid to ready the asset for its intended use
D) All of the above
211) Which of the following assets groups includes fencing? 211)
A) Buildings B) Machinery and equipment
C) Land improvements D) Land
212) Which of the following assets groups includes the cost of clearing land and removing unwanted
buildings?
212)
A) Machinery and equipment B) Land
C) Land improvements D) Buildings
213) Which of the following is NOT considered a plant asset? 213)
A) Equipment B) Land C) Copyright D) Building
214) A company purchased a truck for $50,000 on July 1, 2009. The truck has an estimated useful life of 5
years and will have no salvage value. It is estimated that the truck can be driven for 150,000 miles.
The truck was driven for 18,000 miles during 2009. If the goal is to reduce taxable income to the
lowest amount, which method should be elected and how much depreciation can be deducted in
2009?
214)
A) Only straight- line can be elected B) Units- of- production, $6,000
C) Double declining- balance, $10,000 D) Straight- line, $5,000
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215) Which of the following are acceptable methods of computing depreciation? 215)
A) Declining- balance B) Straight- line
C) Units- of- production D) All of the above
216) Which of the following is the proper accounting treatment for research and development costs? 216)
A) Research and development costs must be expensed.
B) Research and development costs must be capitalized and expensed each year to the extent
that their value has declined.
C) Research and development costs must be capitalized and amortized over 20 years or less.
D) Research and development costs must be capitalized and amortized over 70 years or less.
217) Which of the following is the expense resulting from a decline in the utility of an intangible asset? 217)
A) Depletion B) Amortization C) Depreciation D) Obsolescence
218) Which of the following accounting methods is the method used to compute amortization? 218)
A) Units- of- production B) Straight- line
C) Declining- balance D) None of the above
219) Which of the following items should be amortized? 219)
A) Tangible property, plant, and equipment other than land
B) Natural resources
C) Land
D) Intangible property
Table 10.2
Navajo Mining Company purchased a mine in 2011 for $3,400,000. It was estimated that the mine contained 200,000 tons of
ore and that the mine would be worthless after all of the ore was extracted. The company extracted 25,000 tons of are in 2011
and 30,000 tons of ore in 2012.
220) Refer to Table 10.2. What is depletion expense for 2011? 220)
A) $680,000 B) $425,000 C) $340,000 D) $510,000
221) Refer to Table 10.2. What is depletion expense for 2012? 221)
A) $340,000 B) $680,000 C) $510,000 D) $425,000
222) Which of the following accounting methods is the method used to compute depletion? 222)
A) Units- of- production B) Straight- line
C) Declining- balance D) None of the above
223) Which of the following is the expense resulting from a decline in the utility of natural resource? 223)
A) Depletion B) Depreciation C) Obsolescence D) Amortization
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224) Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated
depreciation of $8,500. The company exchanges the equipment for new equipment worth $12,000.
In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the
following is the correct entry to record the transaction?
224)
A) Refrigeration equipment 12,000
Accumulated depreciation 8,500
Gain on exchange of equipment 500
Cash 10,000
Refrigeration equipment 10,000
B) Refrigeration equipment 11,000
Accumulated depreciation 8,500
Loss on exchange of equipment 500
Cash 10,000
Refrigeration equipment 10,000
C) Refrigeration equipment 11,500
Accumulated depreciation 8,500
Cash 10,000
Refrigeration equipment 10,000
D) None of the above
29