.

Sources of increases to owner's equity are

additional investments by owners.

2. A small neighborhood barber shop that is operated by its owner would likely be organized as a
proprietorship.

An account consists of

a title, a debit side, and a credit side.

A numbering system for a chart of accounts

usually starts with balance sheet accounts.

The ledger should be arranged in
financial statement order.
A debit to an asset account indicates

an increase in the asset.

Chapter 3
Unearned revenue is classified as
a liability.
Which of the following are in accordance with generally accepted accounting principles?

Accrual basis accounting

At December 31, 2010, before any year-end adjustments, Cable Car Company's Insurance Expense account had a balance of
$1,450 and its Prepaid Insurance account had a balance of $3,800. It was determined that $3,000 of the Prepaid Insurance had
expired. The adjusted balance for Insurance Expense for the year would be
$4,450.
Accumulated Depreciation is

a contra asset account.

Chapter 4

It is not true that current assets are assets that a company expects to
use up within one year.
acquire within one year.
realize in cash within one year.
sell within one year.
After closing entries are posted, the balance in the owner's capital account in the ledger will be equal to
the beginning owner's capital reported on the owner's equity statement.
the amount of the owner's capital reported on the balance sheet.
zero.
the net income for the period.
When using a worksheet, adjusting entries are journalized

before the adjustments are entered on to the worksheet.

after the worksheet is completed and after financial statements have been prepared.
before the adjusted trial balance is extended to the proper financial statement columns.
after the worksheet is completed and before financial statements are prepared.
Liabilities are generally classified on a balance sheet as
small liabilities and large liabilities.
tangible liabilities and intangible liabilities.
present liabilities and future liabilities.
current liabilities and long-term liabilities.
Chapter 5
At the beginning of the year, Hinz Company had an inventory of $400,000. During the year, the company
purchased goods costing $1,600,000. If Hinz Company reported ending inventory of $600,000
and sales of $2,000,000, the company's cost of goods sold and gross profit rate must be
$1,000,000 and 50%.
$1,400,000 and 70%.
$1,000,000 and 30%.
$1,400,000 and 30%.
The Merchandise Inventory account is used in each of the following except the entry to record
the return of goods purchased.

payment of freight on goods sold.

payment within the discount period.
goods purchased on account.
On a classified balance sheet, merchandise inventory is classified as
property, plant, and equipment.
an intangible asset.
a current asset.
a long-term investment.
The Sales Returns and Allowances account does not provide information to management about
errors in overbilling customers.
inefficiencies in filling orders.
possible inferior merchandise.
the percentage of credit sales versus cash sales.
Chapter 6

Merchandise inventory is
generally valued at the price for which the goods can be sold.
reported under the classification of Property, Plant, and Equipment on the balance sheet.
often reported as a miscellaneous expense on the income statement.
reported as a current asset on the balance sheet.
Lee Industries had the following inventory transactions occur during 2010:

2/1/10
3/14/10
5/1/10

Purchase
Purchase
Purchase

Units
18
31
22

Cost/unit
$45
$47
$49

The company sold 51 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory
system is used, what is the company's gross profit using LIFO? (rounded to whole dollars)
$848
$2,441
$772
$2,365

Shandy Shutters has the following inventory information.

Nov.

1
8
17
25

Inventory
Purchase
Purchase
Purchase

15 units @
60 units @
30 units @
45 units @

$8.00
$8.60
$8.40
$8.80

A physical count of merchandise inventory on November 30 reveals that there are 50 units on hand.
Assume a periodic inventory system is used. Ending inventory under FIFO is
$846.
$863.
$438.
$421.
During July, the following purchases and sales were made by James Company. There was no beginning inventory. James Company uses a perpetual
inventory system.
Purchases
20 units @ $12
20 units @ $13
10 units @ $15

July 3
11
20

July 13
22

Sales
25 units
10 units

Under the FIFO method, the cost of goods sold for each sale is:

July 13

July 22

375

150

$300

$120

325

130

305

130

Chapter 7

The one characteristic that all entries recorded in a multi-column purchases journal have in common is a
credit to the Cash account.

debit to the Accounts Payable account.

debit to the Cash account.
credit to the Accounts Payable account.
The individual amounts in the Accounts Payable column in the cash payments journal are posted to
the subsidiary ledger
weekly.
daily.
yearly.
monthly.
The individual amounts in the sales journal are posted to the accounts receivable subsidiary ledger
yearly.
daily.
weekly.
monthly.
In which journal would a cash purchase of merchandise inventory be recorded?
Purchase journal
General journal
Cash payments journal
None of these.
Chapter 8

In large companies, the independent internal verification procedure is often assigned to

management.
computer operators.
outside CPAs.
internal auditors.
Which of the following would not be reported on the balance sheet as a cash equivalent?
Sixty-day certificate of deposit
Money market savings certificate
Six-month Treasury bill
Money market fund
If a petty cash fund is established in the amount of $250, and contains $150 in cash and $95 in receipts
for disbursements when it is replenished, the journal entry to record replenishment should include credits
to the following accounts
Petty Cash, $95.
Petty Cash, $100.
Cash, $100.
Cash, $95; Cash Over and Short, $5.

A $100 petty cash fund has cash of $15 and receipts of $80. The journal entry to replenish the account
would include a credit to

Cash for $85.

Petty Cash for $85.
Cash Over and Short for $5.
Cash for $80.
Chapter 9

The maturity value of a $30,000, 8%, 3-month note receivable is

$30,600.
$30,200.
$30,240.
$32,400.
The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record
estimated uncollectible accounts
is relevant to both bases of adjusting for uncollectible accounts.
is relevant when using the percentage of receivables basis.
will never show a debit balance at this stage in the accounting cycle.
is relevant when using the percentage of sales basis.
The percentage of receivables basis for estimating uncollectible accounts emphasizes
the relationship between sales and accounts receivable.
income statement relationships.
cash realizable value.

the relationship between accounts receivable and bad debts expense.

A note receivable is a negotiable instrument which
can only be collected by a bank.
eliminates the need for a bad debts allowance.
takes the place of checks in a business firm.
can be transferred to another party by endorsement.

Chapter 10

Depreciable cost is the

cost of an asset less its salvage value.
cost of an asset less accumulated depreciation.
book value of an asset.
book value of an asset less its salvage value.
Mather Company purchased equipment on January 1, 2010 at a total invoice cost of $224,000;
additional costs of $4,000 for freight and $20,000 for installation were incurred.
The equipment has an estimated salvage value of $8,000 and an estimated useful life of five years.
The amount of accumulated depreciation at December 31, 2011 if the straight-line method of depreciation is used is:
$96,000.
$86,400.
$99,200.

$88,000.
Hull Company acquires land for $86,000 cash. Additional costs are as follows:
Removal of shed
Filling and grading
Salvage value of lumber of shed
Broker commission
Paving of parking lot
Closing costs

$300
1,500
120
1,130
10,000
560

Hull will record the acquisition cost of the land as

$89,370.
$87,690.
$89,610.
$86,000.
The factor that is not relevant in computing depreciation is
salvage value.
useful life.
replacement value.
cost.
Chapter 11
Lincoln Company sells 600 units of a product that has a one-year warranty on parts.
The average cost of honoring one warranty contract is $50. During the year 30 contracts are honored

at a cost of $1,500. It is estimated that 60 contracts will be honored in the following year. The adjusting
entry at the end of the current year will include a
debit to Warranty Expense for $4,500.
credit to Estimated Warranty Liability for $3,000.
credit to Estimated Warranty Liability for $4,500.
debit to Warranty Expense for $1,500.
The paid absence that is most commonly accrued is
voting leave.
vacation time.
maternity leave.
disability leave.
Most companies pay current liabilities
by issuing stock.
by creating long-term liabilities.
out of current assets.
by issuing interest-bearing notes payable.
The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's
cash realizable value.
maturity value.

market value.
face value.
Chapter 12
Which one of the following would not be considered an expense of a partnership in determining income
for the period?
Freight-out
Salary allowance to partners
Supplies used
Expired insurance
Finney is admitted to a partnership with a 25% capital interest by a cash investment of $90,000.
If total capital of the partnership is $390,000 before admitting Finney, the bonus to Finney is
$30,000.
$15,000.
$60,000.
$45,000.
Mary Janane's capital statement reveals that her drawings during the year were $50,000.
She made an additional capital investment of $25,000 and her share of the net loss for
the year was $10,000. Her ending capital balance was $200,000. What was Mary Janane's beginning capital balance?
$225,000.

$260,000.
$185,000.
$235,000.
The most appropriate basis for dividing partnership net income when the partners do not plan to take
an active role in daily operations is
salaries to the partners and the remainder on a fixed ratio.
interest on capital balances and salaries to the partners.
on a ratio based average capital balances.
on a fixed ratio.
Chapter 13
The following data is available for BOX Corporation at December 31, 2010:
Common stock, par $10 (authorized 15,000 shares)

$100,000

Treasury Stock (at cost $15 per share)

600

Based on the data, how many shares of common stock are outstanding?
15,000
10,000
14,960
9,960
When stock is issued for legal services, the transaction is recorded by debiting Organization Expense

for the
stated value of the stock.
book value of the stock.
market value of the stock.
par value of the stock.
The two ways that a corporation can be classified by ownership are
publicly held and privately held.
majority and minority.
stock and non-stock.
inside and outside.
On January 2, 2007, Pacer Corporation issued 30,000 shares of 6% cumulative preferred stock
at $100 par value. On December 31, 2010, Pacer Corporation declared and paid its first
dividend. What dividends are the preferred stockholders entitled to receive in the current year before any distribution is made to common
stockholders?
$720,000
$0
$180,000
$540,000