1) Financial statements are prepared:

A) Only for publicly owned business organizations.

B) For corporations, but not for sole proprietorships or partnerships.
C) Primarily for the benefit of persons outside of the business organization.
D) In either monetary or no monetary terms, depending upon the need of the decision
maker.

2) 2
The basic purpose of an accounting system is to:
A) Develop financial statements in conformity with generally accepted accounting principles.
B) Provide as much useful information to decision makers as possible, regardless of cost.
C) Record changes in the financial position of an organization by applying the concepts of
double-entry accounting.
D) Meet an organization's need for accounting information as efficiently as possible.

3) 3
Information is cost effective when:
A) The information aids management in controlling costs.
B) The information is based upon historical costs, rather than upon estimated
market values.
C) The value of the information exceeds the cost of producing it.
D) The information is generated by a computer-based accounting system.

4) 4
Although accounting information is used by a wide variety of external parties,
financial reporting is primarily directed toward the information needs of:
A) Investors and creditors...
B) Government agencies such as the Internal Revenue Service.
C) Customers.
D) Trade associations and labor unions.

5) 5
A complete set of financial statements for Hartman Company, at December 31,
1999, would include each of the following, except:
A) Balance sheet as of December 31, 1999.
B) Income statement for the year ended December 31, 1999.
C) Statement of projected cash flows for 2000.
D) Notes containing additional information that is useful in interpreting the
financial statements.

6) 6
All of the following are characteristics of managerial accounting, except:
A) Reports are used primarily by insiders rather than by persons outside of the
business entity.
B) Its purpose is to assist managers in planning and controlling business
operations.
C) Information must be developed in conformity with generally accepted
accounting principles or with income tax regulations.
D) Information may be tailored to assist in specific managerial decisions.
 7) 7
In comparison with a financial statement prepared in conformity with generally
accepted accounting principles, a managerial accounting report is more likely to:
A) Be used by decision makers outside of the business organization.
B) Focus upon the operation results of the most recently completed accounting
period.
C) View the entire organization as the reporting entity.
D) Be tailored to the specific needs of an individual decision maker.

8) The nature of an asset is best described as:

A) Something with physical form that is valued at cost in the accounting records.
B) An economic resource owned by a business and expected to benefit future
operations.
C) An economic resource representing cash or the right to receive cash in the near
future.
D) Something owned by a business that has a ready market value.

9) 2
The balance sheet item that represents the resources invested by the owner is:
A) Accounts receivable.
B) Cash.
C) Note payable.
D) Owner's equity.

10) 3
The balance sheet of Bock Designs includes the following items:

Accounts Receivable Cach

Diane Bock, Capital Accounts Payable
Equipment Supplies
Notes Payable Notes Receivable
11)
This list includes:
A) Accounts Receivable Cash
B) Diane Bock, Capital Accounts Payable
C) Equipment Supplies
D) Notes Payable Notes Receivable

12) 4
Arguments that the cost principle is not a satisfactory basis for the valuation of
assets in financial statements are usually based on:
A) The lack of objective evidence to permit verification of cost data.
B) Increased availability and capacity of computers.
C) Stronger internal control structures.
D) Continued inflation.

13) 5
The amount of owner's equity in a business is not affected by:
 A) The percentage of total assets held in cash.
B) Investments made in the business by the owner.
C) The profitability of the business.
D) The amount of dividends paid to stockholders.

14) 6
An income statement communicates information regarding revenues and
expenses:
A) For a period of time.
B) At a given point in time.
C) For some point of time in the future.
D) At the beginning of the fiscal year.

15)The realization principle indicates that revenue usually should be recognized and
recorded in the accounting records:
A) When goods are sold or services are rendered
to customers.
B) When cash is collected from customers.
C) At the end of the accounting period.
D) Only when the revenue can be matched by an
equal dollar amount of expenses.

16) 2
The matching principle is best demonstrated by:
A) Using debits to record decreases in owner's equity
and credits to record increases.
B) The equation A = L + OE.
C) Allocating the cost of an asset to expense over
the periods during which benefits are derived from ownership of the asset.
D) Offsetting the cash receipts of the period with
the cash payments made during the period.

17) 3
The matching principle:
A) Applies only to situations in which a cash
payment occurs before an expense is recognized.
B) Applies only to situations in which a cash
receipt occurs before revenue is recognized.
C) Is used in accrual accounting to determine the
proper period in which to recognize revenue.
D) Is used in accrual accounting to determine the
proper period for recognition of expenses.

18) 4
The reason that both expenses and dividends are recorded by debit entries is that:
A) All dividend and expense transactions involve
offsetting credit entries to the Cash account.
B) Both expenses and dividends are offset
against revenue in the income statement.
C) Both expenses and dividends reduce owner's
equity.
 D) The statement is untrue-expenses are
recorded by debits, but withdrawals are recorded by credits to the owner's drawing account.

19)Elite Property Management adjusts its books each month but closes its books at the end of
the year. The trial balance at January 31 before adjustments is as follows:

1
Refer to Elite's unadjusted trial balance above to answer this question. According to property
management contracts, $2,400 of the Unearned Management Fees has been earned in February.
The amount of Management Fees Earned (revenue) to be reported in the January income
statement is:
A) $2,400.
B) $15,100.
C) $19,900.
D) $19,000.

20) 2
Refer to Elite's unadjusted trial balance above to answer this question. On December 1 of
last year, Elite paid in advance for six months' advertising in the local newspaper. The
necessary adjusting entry at January 31 includes which of the following?
A) A credit to Prepaid Advertising for $360.
B) A credit to Prepaid Advertising for $1,500.
C) A debit to Advertising Expense for $300.
D) A debit to Prepaid Advertising for $1,440.

21) 3
Refer to Elite's unadjusted trial balance above to answer this question. At January 31, the
amount of supplies on hand is $410. What amount is reported in the January income
statement for supplies expense?
A) $410.
B) $1,160.
C) $750.
D) $340.
22) 4
Refer to Elite's unadjusted trial balance above to answer this question. The equipment had
an estimated useful life of six years. Compute the book value of the equipment at January
31, after the proper January adjustment is recorded.
A) $9,200.
B) $14,400.
C) $14,200.
D) $7,000.

23) 5
Refer to Elite's unadjusted trial balance above to answer this question. Employees are owed
$350 for services since the last payday in January, to be paid the first week in February.
The amount to be reported in the January income statement for salaries expense is:
A) $350.
B) $6,750.
C) $6,050.
D) $6,400.

24)Inventory is considered a current asset because it:

A) Often reflects the most current trends and styles.
B) Usually was purchased during the current year.
C) Will be converted into cash in the course of the company's operating cycle.
D) Can be returned to the supplier for a cash refund.

25) 2
The primary economic function of a wholesaler is to:
A) Supply merchandise to retailers.
B) Sell merchandise to the public at "factory-direct" prices.
C) Manufacture low-cost products.
D) Sell merchandise on a "cash-and-carry" basis.

26) 3
The income statement of Laurel Company shows a large gross profit. This means that
Laurel:
A) Is profitable.
B) Uses a perpetual inventory system.
C) Engages in retail sales.
D) Has sold merchandise at prices above its cost.

27) 4
In a perpetual inventory system, purchases of merchandise on account are recorded by
debiting:
A) Cost of Goods Sold.
B) Accounts Payable.
C) Purchases.
D) Inventory.

28) 5
Colby's General Store uses a periodic inventory system. At year-end, the balance in the
 Inventory account is $8,500. Assuming that the inventory records have been maintained
properly, a year-end physical inventory:
A) Is unnecessary.
B) Probably will indicate slightly less than $8,500 in merchandise on hand,
because of inventory shrinkage.
C) Probably will indicate slightly more than $8,500 in merchandise on hand,
because of inflation.
D) Is needed to establish the ending inventory, as the $8,500 balance in the
Inventory account represents the inventory at the beginning of the year.

29) 6
Ward Company discovered that merchandise purchased on account was defective and
returned this merchandise to the supplier. The entry to record this return will reduce
Ward's:
A) Sales revenue and the cost of goods sold.
B) Inventory and liabilities.
C) Inventory and cost of goods sold.
D) Sales revenue and liabilities.

30)Which of the following should not be included as part of cash on the balance sheet?
A) The amount of petty cash at year-end.
B) Outstanding checks at year-end.
C) Deposits in transit at year-end.
D) Checks received from customers.

31) 2
The financial statement which shows cash activity (receipts and disbursements) during the
accounting period is called a(n):
A) Bank statement.
B) Income statement.
C) Statement of cash flows.
D) Bank reconciliation.

32) 3
The principal purpose of a voucher system is to provide assurance that:
A) All cash receipts are deposited intact in the bank.
B) All cash disbursements are approved before a check is issued.
C) All cash receipts are recorded in the accounting records.
D) All credit sales will be collectible.

33) 4
When a voucher system is in use, the finance department has access to each of the
following except:
A) Perforated voucher and support.
B) Signed check.
C) Approved voucher and support.
D) Check register.
 34) 5
Which of the following is not disclosed in a bank reconciliation?
A) Error made by the depositor in recording the amount of a check
received from a customer.
B) Error made by the bank in recording the amount of cash disbursement.
C) Check received from a customer which proved to be uncollectible.
D) Amount stolen by a salesclerk who did not ring up several cash sales.

35) 6
During preparation of a bank reconciliation, interest earned on the average bank balance
during the month should be:
A) Deducted from the cash balance per accounting records.
B) Added to the cash balance per accounting records.
C) Deducted from the balance per bank statement.
D) Added to the balance per bank statement.

36) 7
A company which uses the direct write-off method recognizes uncollectible accounts
expense:
A) As a percentage of net sales during the period.
B) As a percentage of net credit sales during the period.
C) As indicated by aging the accounts receivable at the end of the period.
D) As specific accounts receivable are determined to be worthless.
37)Hearn Beverages sells a wide variety of soft drinks. Because of the way Hearn stores its
inventory of soda, the most recently purchased cases are usually the first sold. Given these
circumstances, what flow assumption must Hearn use?
A) LIFO.
B) FIFO.
C) Average cost
D) Any assumption its wishes.

38) 3
Wilson Motors maintains an inventory of sport utility vehicles. The vehicles are essentially
similar, but were purchased from a variety of sources at widely different prices. Which
method of accounting for inventory might provide misleading information regarding Wilson
Motors?
A) LIFO.
B) FIFO.
C) Average cost.
D) Specific identification.

39) 4
During a period of steadily rising prices, which of the following methods of measuring the
cost of goods sold is likely to result in reporting the highest gross profit?
A) FIFO.
B) LIFO.
C) Specific identification.
D) Average cost.
 40) 5
Which of the following flow assumptions is not acceptable under generally accepted
accounting principles?
A) First-in, first-out.
B) Last-in, first-out.
C) Next-in, first-out.
D) Average cost.

41) 6
In a period of rising prices, a company is most likely to use the LIFO method of pricing
inventory if:
A) Each item in the inventory is unique.
B) Management wants the same unit cost assigned to items sold and
items remaining in inventory.
C) Management's primary objective is to minimize income taxes.
D) Management wants the company's income statement to indicate
the highest possible amounts of gross profit and net income.

42) 7
The primary disadvantage of a just-in-time inventory system is:
A) A reduction in the amount of money tied up in inventory.
B) The company must use the FIFO inventory method, and forgo the
income tax advantages of LIFO.
C) Smaller inventories may reduce the company's current ratio and
working capital.
D) The risk is increased of losing sales opportunities or having to
shut down manufacturing operations because of inventory shortages.

43)Each of the following should be classified as plant and equipment in the balance sheet of
Chin's Nursery except:
A) The office building.
B) Patents held on specific varieties of roses.
C) Land on which the nursery is located.
D) Plants held for resale to customers.

44) 2
An example of an error in distinguishing between revenue expenditures and capital
expenditures is:
A) Failure to consider residual salvage value in estimating depreciation.
B) Inclusion in the Building account of payments for property taxes.
C) Inclusion in the Delivery Truck account of state sales taxes paid on the
purchase of a truck.
D) Inclusion in Utilities Expense of the cost of electrical repairs made on the air-
conditioning.

45) 3
Carter Co. and Greer Corp. purchased identical plant assets, and both companies estimated
the useful life at 10 years with no salvage value. Carter uses straight-line depreciation in
its financial statements, whereas Greer uses an accelerated method.
 A) Over the life of the asset, Greer will recognize more depreciation expense than
Carter.
B) In the tenth year of ownership, Carter will recognize more depreciation expense
on this asset than Greer.
C) If the asset is sold after 4 years, Carter is more likely to report a gain than is
Greer.
D) In its income tax return, only Greer may depreciate this asset by the MACRS
method.

46) 4
The Modified Accelerated Cost Recovery System (MACRS) is used primarily to determine:
A) The minimum length of time to recover the after-tax cost of alternative
investment opportunities.
B) The fastest way to recover the cost of converting from a manual to a computer-
based accounting system.
C) Depreciation expense deductible for income tax purposes.
D) The estimated useful lives to be used in computing depreciation expense for
financial reporting purposes.

47) 5
The journal entry to record the sale or disposition of a depreciable plant asset always
includes:
A) Recognition of a gain.
B) A debit to the Accumulated Depreciation account for the related accumulated
depreciation.
C) Recognition of a loss.
D) A debit to the asset account for the book value of the asset.

48) 6
For financial statement purposes, Adel Corporation was depreciating a truck by the
straight-line method over five years. For income tax purposes, the truck was being
depreciated by an accelerated method over a life of only three years. After two years, the
truck was sold at a price above its book value for financial statement purposes. Adel
Corporation should report this sale as:
A) A gain in its income statement and an even larger gain in its income tax return.
B) A gain in its income statement, but as a smaller gain in its income tax return.
C) A gain in its income statement, but as a loss in its income tax return.
D) A gain of the same dollar amount in both its income statement and its income
tax return.

49) 7
Which item among the following is not an intangible asset?
A) A trademark.
B) An account receivable.
C) A patent.
D) Goodwill.

50)Which of the following is not an example of a current liability as of Dec. 31, 1999?
A) Management fees collected in advance in 1999, to be earned during 2000.
B) The portion of long-term debt due in 2000.
C) Warranty liability for products carrying a two-year warranty and sold during
1999.
 D) The interest due to creditors and bond holders for 2000, to be paid in 2000.

51) 2
At the end of 1999, Braddock Company failed to make an adjusting entry to record the
interest accrued on a note payable. As a result:
A) Braddock's current ratio is understated.
B) Braddock's working capital is overstated.
C) Braddock's current assets are overstated.
D) Braddock's owner's equity is understated.

52) 3
Employers do not make deductions from employees' paychecks for:
A) Federal income taxes.
B) Employee's share of health insurance premiums.
C) Federal unemployment taxes.
D) Social security taxes.

53) 4
Which of the following does not correctly describe a characteristic common to both capital
stock and bonds payable?
A) Issuance requires formal approval by the SEC if sold to the public.
B) Both may be traded on the organized securities exchange .
C) The market price fluctuates daily.
54) D) The issuing corporation is obligated to pay periodic cash payments to
investors who have purchased either capital stock or bonds.

55) 5
Suppose that as a result of a change in credit policy, the Federal Reserve reduces market
interest rates. How will the market prices of outstanding bonds payable be affected by this
reduction in market interest rates?
A) Existing bond prices will fall.
B) Existing bond prices will increase.
C) The impact on existing bond prices will be unpredictable.
D) Although the prices of new bonds issued will fall, existing bond prices will be
unaffected.

56) 6
Based upon the concept of present value, a bond that paid a "below market" rate of
interest (say 3%), would sell at:
A) A price above its maturity value.
B) A price equal to its maturity value.
C) A price below its maturity value.
D) None of the above. The bond might sell above or below its maturity value,
depending upon the creditworthiness of the issuer.

57) 7
A company's quick ratio:
A) Can never be larger than its current ratio at the same date.
B) Indicates the length of time the company takes to pay its short-term creditors.
 c) Indicates how quickly the company converts its current assets to cash.
D) Is computed by dividing current assets by current liabilities, excluding accounts
payable for inventory purchases.

58)The cost principle states that the activities of an entity should be kept separate from those
of its owner.
A) True
B) False

59) 2
The accounting equation may be stated as "assets plus liabilities equals stockholder's
equity."
A) True
B) False

60) 3
The payment of a liability causes an increase in stockholder's equity
A) True
B) False

61) 4
The income statement reports on the financial performance of a company in terms of
earning revenue and incurring expenses at a point in time.
A) True
B) False
62)
If the number of debit entries in an account is greater than the number of credit entries,
the account will have a debit balance.
A) True
B) False

63) 2
If ledger accounts are maintained in three-column, running balance form, the journal
should be maintained in the same format.
A) True
B) False

64) 3
The unit of organization for the journal is the transaction, and the unit of organization for
the ledger is the account
A) True
B) False

65) 4
A trial balance that balances provides proof that all transactions were correctly journalized
and posted to the ledger.
 A) True
B) False

66) 5
A trial balance proves that equal amounts of debits and credits were posted to the ledger
and that the arithmetical calculation of account balances was accurate.
A) True
B) False

67) 6
Net income for a given period will be the same whether determined on the accrual basis or
the cash basis of accounting.
A) True
B) False
68)If no errors are made in the daily recording of transactions, adjusting entries are
unnecessary at the end of the period.
A) True
B) False

69) 2
An adjusting entry to recognize wages payable at year-end causes a decrease in total
assets
A) True
B) False

70) 3
An adjusting entry to recognize that an advance payment from a customer has now been
earned will cause an increase in assets.
A) True
B) False

71) 4
The Accumulated Depreciation account has a credit balance and is increased by the year-
end adjusting entry for depreciation.
A) True
B) False

72) 5
Adjusting entries to accrue unrecorded expenses such as salaries and interest expense
cause an increase in expenses and a corresponding decrease in assets.
A) True
B) False
73)The specific identification method of inventory valuation would be more appropriate for a
car dealer than for a hardware store.
A) True
B) False
74) 2
If a retailer purchased 500 units of merchandise inventory at $8 per unit, and 800 units of
inventory at $10 per unit, the average cost of the merchandise is $9 per unit.
A) True
B) False

75) 3
Under the FIFO method of inventory valuation, the assignment of costs to merchandise sold
is in the same order in which the merchandise was purchased.
A) True
B) False

76) 4
The FIFO method of inventory valuation is based on an assumption that the most recent
costs incurred should be charged against current-year revenues.
A) True
B) False

77) 5
The FIFO method of inventory valuation is based on the assumption that costs should be
charged against revenues in the same order in which the costs were incurred.
A) True
B) False

78) 6
LIFO is considered the most conservative inventory pricing method.
A) True
B) False

79) 7
Under the LIFO method of inventory valuation, the ending merchandise inventory would be
valued at the purchase price of the most recent purchases.
A) True
B) False

80) 8
During extended periods of rising prices, the FIFO method of inventory valuation will yield a
higher cost of goods sold and a lower ending merchandise inventory, when compared to
the LIFO method of inventory valuation.
A) True
B) False

81) 9
The accounting principle of consistency prohibits any changes in the method of inventory
valuation.
A) True
 B) False

82) 10
JIT means just in time and is an inventory method where the raw materials for production
are purchased in smaller quantities after orders have been taken for the manufactured
products.
A) True
B) False

83) 11
Just-in-time inventory requires that a large inventory be maintained to avoid, if possible,
any out-of-stock situations.
A) True
B) False

84) 12
A perpetual inventory should be checked periodically against a physical inventory count.
A) True
B) False

85) 13
The perpetually maintained inventory total is $50,000 but the physically counted value of
the same inventory totals $49,800. The $200 is called a shortage.
A) True
B) False

86) 14
Shrinkage losses are usually debited to the Inventory account when a perpetual inventory
system is used.
A) True
B) False

87) 15
If one hundred units of merchandise were purchased at $15 per unit and the end-of-period
replacement cost of the merchandise is $8 per unit, the merchandise will be reported at $8
per unit.
A) True
B) False

88) 16
Goods in transit that were purchased under freight terms of FOB Shipping Point should be
included in the inventory of the buyer.
A) True
B) False
89) 17
Goods shipped FOB destination are the property of the seller until the goods are removed
from the carrier and placed on the buyer's receiving dock.
A) True
B) False

90) 18
Goods in transit that were shipped under freight terms of 'FOB Shipping Point' should be
included in the seller's inventory.
A) True
B) False

91) 19
Merchandise shipped FOB destination is actually owned by the seller until the goods reach
the receiving dock of the buyer.
A) True
B) False

92) 20
If the ending inventory of the business is understated, the net income for the period will be
understated and the retained earnings for the period will be overstated.
A) True
B) False

93) 21
If the ending inventory of the business is overstated, the net income for the period will be
overstated and the net income for the following period will also be overstated.
A) True
B) False

94) 22
When the value of ending merchandise inventory is overstated, the net income of the
subsequent year will be understated by the amount of the overstatement.
A) True
B) False

95) 23
Should an error that understates the ending merchandise inventory not be discovered, the
Retained Earnings account will be overstated at the end of the subsequent year.
A) True
B) False

96) 24
When merchandise inventory is destroyed (by fire, theft, or other causes) it is not possible
to determine the value of that merchandise inventory.
A) True
 B) False

97) 25
The ratio of goods available for sale at cost to the same goods available for sale at retail
prices is called the retail method cost ratio.
A) True
B) False

98) 26
The gross profit is 45% of net sales. The cost of goods sold then must be 55% of the net
sales.
A) True
B) False

99) 27
If the cost of goods sold increases by 1% during the period, the gross profit and net
income will decrease by 1% because of this increase.
A) True
B) False

100) 28
The average inventory totals $20,000 and the cost of goods sold totals $200,000. The
inventory turnover rate is 15.0.
A) True
B) False

101) 29
If the company averages 85 days to sell a machine, and it averages 45 days to collect the
receivable for the machine, the operating cycle is about 40 days.
A) True
B) False

102) 30
Under which cost flow assumption is the ending inventory composed of the most recently
purchased merchandise?
A) FIFO
B) LIFO
C) Average Cost
D) Specific Identification
E) None of the above

103) 31
Under which cost flow assumption is the ending inventory composed of the earliest
purchased merchandise?
A) FIFO
B) LIFO
C) Average Cost
 D) Specific Identification
E) Retail Method

104) Consider the following activity schedule:

Cost
Date Quantity Per Unit Total Cost
Jan 1, Beginning Inventory 100 $18.00 $ 1,800.00
Mar 4, Purchase 400 19.00 7,600.00
Apr 1, Sold (50)

105)
106) 32
In a perpetual inventory system, what is the average cost per unit after the March 4
purchase?
A) $18.00
B) $19.00
C) $18.80
D) $18.20
E) $18.50

107) Cost
Date Quantity Per Unit Total Cost
Jan 1, Beginning Inventory 100 $18.00 $ 1,800.00
Mar 4, Purchase 400 19.00 7,600.00
Apr 1, SOLD 50 UNITS
May 2, Purchase 100 20.00 2,000.00

108)
109) 33
In a perpetual system, what is the average cost per unit after the May 2 purchase?
A) $18.00
B) $19.02
C) $18.80
D) $18.20
E) $18.00

110) 34
Which journal entry indicates that a perpetual inventory system is being used?
A) Accounts Receivable, debit, 500; Sales, credit, 500
B) Inventory, debit, 45,000; Income Summary, credit, 45,000
C) Cost of Goods Sold, debit, 30,000; Inventory, credit, 30,000
D) Income Summary, debit, 24,000; Inventory, credit, 24,000
E) Purchases, debit, $34,000; Accounts payable, credit, $34,000
111) Beginning inventory 10 units @ $10 per unit
First purchase 35 units @ $11 per unit
First sale 20 units
Second purchase 40 units @ $12 per unit
Second sale 35 units
Third purchase 15 units @ $13 per unit

112)
113) 35
What is the value of the ending inventory, using a perpetual inventory system and LIFO
cost flow assumption?
A) $485
B) $555
C) $500
D) $540
E) $520

114) Beginning inventory 10 units @ $5 per unit

First sale 4 units
First purchase 10 units @ $6 per unit
Second purchase 12 units @ $7 per unit
Second Sale 20 units

115)
116) 36
What is the value of the ending inventory, using a perpetual inventory system and a FIFO
cost flow assumption?
A) $46
B) $56
C) $36
D) $26
E) $84

117) 37
Which principle of accounting requires the use of a single inventory method and also
assumes that a change to another inventory method should be made only after careful
analysis and evaluation?
118) A) Materiality
B) Realism
C) Consistency
D) Realization
E) Full-disclosure

119) 38
An item of inventory with an invoice price of $80, on which 50% is added as markup, has a
current replacement cost of $82. Under LCM, which amount should be used to determine
the value of this item of inventory?
A) $120
 B) $123
C) $ 80
D) $ 82
E) None of the above

120) Cost
Date Quantity Per Unit Total Cost
Jan 1, Beginning Inventory 100 $18.00 $ 1,800.00
Mar 4, Purchase 400 19.00 7,600.00
May 8, Purchase 800 18.25 14,600.00
Nov 3, Purchase 500 20.40 10,200.00
Merchandise Available 1,800 34,200.00

121)
122) 39
Five hundred units are unsold. Using the average cost method under a periodic inventory
system, how much is the cost assigned to the ending merchandise inventory?
A) $10,200
B) $ 9,400
C) $ 9,800
D) $ 9,500
E) $ 9,000

123) Beginning inventory 10 units @ $10 per unit

First purchase 35 units @ $11 per unit
Second purchase 40 units @ $12 per unit
Third purchase 15 units @ $13 per unit

124)
125) 40
If 83 units are sold, what is the value of the ending inventory under a periodic inventory
system and a FIFO cost flow assumption?
A) $219
B) $905
C) $177
D) $204
E) $200

126) Cost
Date Quantity Per Unit Cost
Jan 1, Beginning Inventory 100 $18.00 $ 1,800.00
Mar 4, Purchase 400 19.00 7,600.00
May 8, Purchase 800 20.00 16,000.00
Nov 3, Purchase 500 21.00 10,500.00
Total Cost
Merchandise Available 1,800 units $35,900.00
127)
128) 41
Five hundred and seventy units are unsold. What is the value of the ending inventory under
a periodic inventory system and a FIFO cost flow assumption?
A) $10,800
B) $11,900
C) $11,970
D) $11,368
E) $11,580

129) Cost
Date Quantity per Unit Cost
Jan 1, Beginning Inventory 100 $18.00 $ 1,800.00
Mar 4, Purchase 400 19.00 7,600.00
May 8, Purchase 800 20.00 16,000.00
Nov 3, Purchase 500 21.00 10,500.00
Total Cost
Merchandise Available 1,800 units $35,900.00

130)
131) 42
Five hundred and twenty units are unsold. What is the value of the ending inventory under
a periodic inventory system and a LIFO cost flow assumption?
A) $10,900
B) $11,368
C) $ 9,800
D) $ 9,360
E) None of the above

132) 43
During a period of steadily falling prices, which method of assigning costs to inventory
offers the best tax advantage?
A) Straight-line
B) FIFO
C) LIFO
D) Weighted-average
E) None of the above

133) 44
Inventory at the end of the current period was erroneously understated. Which of the
following is true as a result of the understatement not being corrected?
A) Net income for the current year is overstated.
B) The cost of goods sold for the current year is understated.
C) Capital at the end of the current year is overstated.
D) Net income at the end of the following year will be overstated.
E) Capital at the end of the following year will be overstated.

134) Consider the following conditions of ending inventory and the stated results:
Ending Cost of
 Inventory Goods Sold Net Income
A. Overstated Overstated Overstated
B. Understated Understated Understated
C. Overstated Understated Understated
D. Understated Overstated Understated
E. Understated Overstated Overstated

135) 45
Which condition is true with regard to the ending inventory?
A) Condition A
B) Condition B
C) Condition C
D) Condition D
E) Condition E

136) Consider the following conditions of beginning inventory and the stated results:
Beginning Cost of
Inventory Goods Sold Net Income
A. Overstated Overstated Overstated
B. Understated Understated Understated
C. Overstated Overstated Understated
D. Understated Overstated Understated
E. Understated Understated Overstated

137) 46
Which condition is true with regard to the beginning inventory?
138) A) Condition A
B) Condition B
C) Condition C
D) Condition D
E) Condition E

139) Consider the following conditions of beginning inventory and the stated results:
Beginning Cost of
Inventory Goods Sold Net Income
A. Overstated Overstated Overstated
B. Understated Understated Overstated
C. Overstated Understated Understated
D. Understated Overstated Understated
E. Overstated Understated Understated

140) 47
Which condition is true with regard to the beginning inventory?
A) Condition A
 B) Condition B
C) Condition C
D) Condition D
E) Condition E

141) 48
Ending inventory is overstated in Period A. Which of the following occurred as a result of
this error?
A) Income of Period A is understated.
B) Income of Period B is overstated.
C) Retained Earnings at the end of Period A is understated.
D) Retained Earnings at the end of Period B is overstated.
E) Retained Earnings at the end of Period B is correct.

142) 49
Beginning inventory of $40,000 plus purchases of $30,000 equals which of the following?
A) Goods available for sale of $10,000
B) Cost of goods sold of $10,000
C) Net income of $70,000
D) Goods available for sale of $70,000
E) Gross profit of $70,000

143) 50
Net sales for the business totals $70,000, and goods available for sale totals $50,000. If
gross profit for the business runs 40% of net sales, what is the cost of goods sold?
A) $30,000
B) $32,000
C) $42,000
D) $28,000
E) $ 8,000

144) 51
Every-Day Clothing had a November 1 merchandise inventory balance of $45,000. It made
purchases of $80,000 and recorded sales of $130,000, during November. Its estimated
gross profit on sales was 25%. On November 30, the store was destroyed by fire. What
was the value of the merchandise inventory loss?
A) $ 27,500
B) $125,000
C) $ 97,500
D) $ 25,000
E) None of the above

145) 52
The goods available for sale, at retail prices, total $200,000. If the cost ratio for the period
totals 60%, and the net sales at retail for the period total $120,000, what is the ending
inventory at cost?
A) $ 48,000
B) $ 24,000
C) $ 72,000
D) $100,000
 E) None of the above

146) Cost Retail

Beginning merchandise inventory $ 40,000 $ 60,000
Purchases for November 100,000 150,000
Sales in November 180,000

147)
148) 53
Use the retail method for estimating the value of ending inventory and determine the
estimated cost of the ending merchandise inventory.
A) $ 30,000
B) $180,000
C) $ 20,000
D) $ 40,000
) $ 36,000

149) 54
Which one of the following is the formula for the inventory turnover rate?
A) Net sales divided by cost of goods sold.
B) Average inventory divided by 365 days.
C) Cost of goods sold divided ending Inventory.
D) Average inventory divided by cost of goods sold.
E) None of the above

150) 55
With an inventory turnover rate of 10.0, over how many days does the inventory turn
over?
A) 10 days
B) 20 days
C) 36.5 days
D) 365 days
E) None of the above

151) The primary purpose of accounting is to determine whether the business entity
is profitable or unprofitable in its operations.
A) True B) False
152)
Costs, prices, sales volume, profits, and return on investment are all accounting
measurements. A) True B) False
153)
The types of accounting information are limited.
A) Tru eB) False
154)
Accountants use the term financial position to describe an entity's activities during the
year. A) True B) False
 155)
Financial accounting information is designed primarily to assist investors and creditors
in deciding where to place their scarce investment resources. A) True B) False
156)
Management accounting involves the development and interpretation of accounting
information intended specifically to aid management in acquiring investment
resources. A) True B) False
157)
The most challenging aspect of tax accounting is in the preparation of the many forms
required for an entity's tax return. A) True B) Fase
158)
An accounting system consists of personnel, procedures, devices, and records used by
an organization to develop accounting information and to communicate this
information to decision makers. A) True B) False

159) The cost of producing the types of accounting reports required by law is
always cost-effective. A) True B) False
160)
External users of financial accounting information are the same users of management
accounting information. A) True B) False
161)
Return of investment and return on investment refer to the same thing--the amount
returned at the end of the investment period. A) True B) False
162)
If you invest $50,000 and receive $52,500 at the end of the investment period, the
return on your investment is 5 percent.
A) True B) False
163)
The primary financial statements are an income statement and a balance sheet.
A) True B) False
164)
One financial statement that covers a specific period of time is the balance sheet.
A) True B) False
165)
Externally reported financial information and financial statements are primarily
historical in nature. A) True B) False
166)
Management accounting is the preparation and use of accounting information systems
to achieve the organization's objectives by supporting decision makers outside the
enterprise. A) True B) False
167)
Plant managers are internal users of accounting information systems. A) True B) False
168)
The management accounting information created and used primarily by internal users
is intended above all for planning and control decisions. A) True B) False
169)
One of the specific purposes of management accounting system is to provide
information useful to help the enterprise achieve its goals, objectives, and mission. A)
True B) False
170)
Standards adopted and used as a guide in measuring, recording, and reporting the
financial affairs and activities of a business are known as accounting concepts. A)
True B) False
171)
Today, the most authoritative source of generally accepted accounting principles is the
Financial Accounting Standards Board (FASB). A) True B) False
172)
The primary purpose of the conceptual framework for financial reporting is to provide
guidance to the FASB in developing new accounting standards. A) True B) False
173)
The Securities and Exchange Commission is a governmental agency with the legal
power to establish accounting principles and financial reporting requirements for
publicly owned corporations. A) True B) False
174)
The main purpose of the internal control structure is to detect fraud. A) True B) False
175)
Uncovering frauds is the primary purpose of an audit. A) True B) False
176)
The major purpose of an audit is to uncover theft and fraud so that the users of the
financial statements can have a high level of assurance that all money is accounted for
properly. A) True B) False
177)
The American Institute of Certified Public Accountants licenses certified public
accountants. A) True B) False
178)
Whichever career in accounting you choose, public, management, financial
forecasting, cost accounting, internal auditing, government accounting, or accounting
education, it is your obligation as a professional to serve the public's best interest, even
at the sacrifice of personal advantage. A) True B) False
179)
The American Institute of Certified Public Accountants issues the Certificate of
Management Accounting (CMA). A) True B) False
180)
The code of ethics of the Institute of Management Accountants (IMA) includes the
requirements of competency, confidentiality, integrity, and subjectivity. A) True B)
False
181)
Which of the following provides information about the financial resources,
obligations, and activities of an economic entity that is intended for use primarily by
external decision makers? A) Financial accounting B) Management accounting C) Tax
accounting D) Cost accounting E) Bookkeeping
182)
Which of the following provides information that is intended primarily for use by
internal management in decision making required to run the business? A) Financial
accounting B) Management accounting C) Tax accounting D) Cost accounting E)
Bookkeeping
183)
Which of the following involves the preparation of income tax returns and anticipating
the tax effects of business transactions and structuring them in such a way as to
minimize the income tax burden? A) Financial accounting B) Management accounting
C) Tax accounting D) Cost accounting E) Bookkeeping
184)
Which of the following involves determining the cost of certain business activities and
interpreting cost information? A) Financial accounting B) Management accounting C)
Tax accounting D) Cost accounting E) Bookkeeping
185)
Which of the following refers to recording the routine transactions and day-to-day
record keeping of an enterprise? A) Financial accounting B) Management accounting
C) Tax accounting D) Cost accounting E) Bookkeeping
186)
An accounting system is cost-effective when it does which of the following? A)
Produces useful information B) Produces reports required by law C) Uses computers
to replace manual activities D) All of the above E) None of the above
187)
The basic functions of an accounting system include which of the following? A)
Interpreting and recording the effects of business transactions B) Classifying the
effects of similar transactions C) Summarizing and communicating the information
contained in the system D) Only A and B E) A, B, and C
188)
Which of the following financial statements is also known as a statement of financial
position? A) Balance sheet B) Income statement C) Statement of cash flows D) Bank
statement E) None of the above
189)
The personnel, procedures, devices, and records used by an organization to develop
accounting information and communicate that information to decision makers are
called which of the following? A) Audits B) Accounting systems C) Personnel
systems D) Internal control structures E) None of the above
190)
The two things that make up cash flow prospects are which of the following? A)
Return of investment and return on investment B) Return on investment and timing of
investment C) Return of investment and timing of investment D) Periodic interest and
dividends E) None of the above
191)
Which of the following shows details and results of the company's profit-related
activities for a period of time? A) Balance sheet B) Income statement C) Statement of
cash flows D) Statement of financial position E) None of the above
192)
Which of the following shows the details of the company's activities involving cash
during a period of time? A) Income statement B) Statement of financial position C)
Balance sheet D) Revenue - Costs = Profits E) None of the above
193)
Which of the following would be considered an external user? A) Owner B) Store
manager C) Plant manager D) Board of directors E) All of the above
194)
You made a $10,000 loan to your cousin's company. At the end of one year, the
company returned to you $10,850. The $850 is called which one of the following? A)
Return of investment B) Return on investment C) An 8.5% return on investment D) B
and C E) A and C
195)
A characteristic of externally reported information is that it is which of the following?
A) Largely historical in nature B) May be inexact and contain approximations C) Is
general-purpose in nature D) Its usefulness is enhanced by explanation E) All of the
above
196)
Which of the following would be considered an internal user? A) Owner B) Creditor
C) Chief financial officer D) Labor union E) None of the above
197)
Which of the following is not a characteristic of management accounting information?
A) Timeliness is of importance B) Decision-making authority is identified C)
Historically oriented D) Measures efficiency and effectiveness E) A means to an end,
not an end in and of itself
198)
Which of the following provides the framework for determining what information is to
be included in financial statements and how that information is to be presented? A)
Generally accepted auditing standards B) Generally accepted amortization standards
C) Accounting standards and practices D) Securities and Exchange Commission E)
Generally accepted accounting principles
199)
Measures used by an organization to guard against errors, waste, and fraud; to assure
the reliability of accounting information; to promote compliance with management
policies; and to evaluate the level of performance of all divisions of the company, are
called which of the following? A) Audits B) Internal control structure C) Internal
auditing D) Integrity E) None of the above
200)
Which of the following enhances the integrity of accounting information? A)
Institutional features can add significantly to the integrity B) Professional accounting
organizations play a significant role C) Personal competence, judgment, and ethical
behavior play a role D) All of the above E) Only A and C
201)
Which of the following is a professional accounting organization that is dedicated to
the promotion and development of the practice of internal auditing? A) Institute of
Internal Auditors B) Institute of Management Accountants C) American Institute of
 CPAs D) Financial Accounting Standards Board (FASB) E) American Accounting
Association
202)
Which of the following is a professional accounting organization that intends to
influence the concepts and ethical practice of management accounting and financial
management? A) Institute of Internal Auditors B) Institute of Management
Accountants C) American Institute of CPAs D) Financial Accounting Standards Board
(FASB) E) American Accounting Association
203)
Which of the following is a professional accounting organization of certified public
accountants that engages in a variety of professional activities, including establishing
auditing standards, conducting research, and working closely with the FASB in
establishing financial reporting standards? A) Institute of Internal Auditors B) Institute
of Management Accountants C) American Institute of CPAs D) Financial Accounting
Standards Board (FASB) E) American Accounting Association
204)
The membership of which of the following consists primarily of accounting
educators? A) Institute of Internal Auditors B) Institute of Management Accountants
C) American Institute of CPAs D) Financial Accounting Standards Board (FASB) E)
American Accounting Association
205)
An investigation of financial statements designed to determine their fairness in relation
to generally accepted accounting principles is called which of the following? A)
Internal control structure B) External control structure C) Audit D) Bookkeeping E)
Management accounting
206)
Which of the following issues a Certificate in Internal Auditing? A) Institute of
Internal Auditors B) Institute of Management Accountants C) American Institute of
CPAs D) Financial Accounting Standards Board (FASB) E) American Accounting
Association
207)
Which of the following issues a Certificate in Management Accounting? A) Institute
of Internal Auditors B) Institute of Management Accountants C) American Institute of
CPAs D) Financial Accounting Standards Board (FASB) E) American Accounting
Association
208)
Which of the following issues licenses to practice as a Certified Public Accountant? A)
Institute of Management Accountants B) American Institute of CPAs C) Financial
Accounting Standards Board (FASB) D) American Accounting Association E) None
of the above
209)
Expectations of ethical conduct are important for accountants. For management
accountants, the code of ethics includes which of the following requirements? A)
Competence B) Confidentiality C) Integrity D) Objectivity E) All of the above
210)
Which of the following is not a government agency? A) Internal Revenue Service
(IRS) B) Security and Exchange Commission (SEC) C) General Accounting Office
(GAO) D) American Accounting Association (AAA) E) Federal Deposit Insurance
Corporation#