Use the following information for questions 1-2.

The income statement and balance sheet columns of Pine Company's work sheet reflects the following
totals:

Income Statement Balance Sheet

Dr. Cr. Dr. Cr.
Totals $58,000 $50,000 $34,000 $42,000

1. The net income (or loss) for the period is

a. $50,000 income.
b. $8,000 loss.
c. $8,000 income.
d. not determinable.

2. To enter the net income (or loss) for the period into the above work sheet requires an entry to the
a. income statement debit column and the balance sheet credit column.
b. income statement debit column and the income statement credit column.
c. balance sheet debit column and to the balance sheet credit column.
d. income statement credit column and to the balance sheet debit column.

3. Closing entries are made

a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and owner's capital accounts will have zero balances when the next
accounting period starts.
c. in order to transfer net income (or loss) and owner's drawing to the owner's capital account.
d. so that financial statements can be prepared.

4. If Income Summary has a credit balance after revenues and expenses have been closed into it, the
closing entry for Income Summary will include a
a. credit to the owner's capital account.
b. debit to the owner's capital account.
c. debit to the owner's drawing account.
d. credit to the owner's drawing account.

5. Closing entries
a. are prepared before the financial statements.
b. reduce the number of permanent accounts.
c. summarize the activity in every account.
d. cause the revenue and expense accounts to have zero balances.

6. Which of the following is a true statement about closing the books of a proprietorship?
a. Revenues and expenses are closed to the Income Summary account.
 b. Expenses are closed to the Expense Summary account.
c. Only revenues are closed to the Income Summary account.
d. Revenues, expenses, and the owner's drawing account are closed to the Income Summary
account.

7. The most efficient way to accomplish closing entries is to

a. debit the income summary account for each expense account balance.
b. credit the owner's drawing balance directly to the income summary account.
c. credit the income summary account for total revenues and debit the income summary account
for total expenses.
d. credit the income summary account for each revenue account balance.

8. An error has occurred in the closing entry process if

a. revenue and expense accounts have zero balances.
b. the owner's drawing account is closed to the owner's capital account.
c. the balance sheet accounts have zero balances.
d. the owner's capital account is credited for the amount of net income.

9. The Income Summary account is an important account that is used

a. annually in preparing closing entries.
b. annually in preparing correcting entries.
c. during interim periods.
d. in preparing adjusting entries.

10. The balance in the income summary account before it is closed will be equal to
a. the beginning balance in the owner's capital account.
b. the ending balance in the owner's capital account.
c. the net income or loss on the income statement.
d. zero.

11. A post-closing trial balance will show

a. only permanent account balances.
b. only temporary account balances.
c. zero balances for all accounts.
d. the amount of net income (or loss) for the period.

12. A post-closing trial balance should be prepared

a. before closing entries are posted to the ledger accounts.
b. after closing entries are posted to the ledger accounts.
c. before adjusting entries are posted to the ledger accounts.
d. only if an error in the accounts is detected.

13. A post-closing trial balance will show

a. zero balances for all accounts.
b. zero balances for balance sheet accounts.
c. only balance sheet accounts.
 d. only income statement accounts.

14. The purpose of the post-closing trial balance is to

a. prove that no mistakes were made.
b. prove the equality of the balance sheet account balances that are carried forward into the next
accounting period.
c. prove the equality of the income statement account balances that are carried forward into the
next accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.

15. The balances that appear on the post-closing trial balance will match the
a. income statement account balances after adjustments.
b. balance sheet account balances after closing entries.
c. income statement account balances after closing entries.
d. balance sheet account balances after adjustments.

16. A double rule applied to accounts in the ledger during the closing process implies that
a. the account is an income statement account.
b. the account is a balance sheet account.
c. the account balance is not zero.
d. a mistake has been made, since double ruling is prescribed.

17. The heading for a post-closing trial balance has a date line that is similar to the one found on
a. a balance sheet.
b. an income statement.
c. an owner's equity statement.
d. the work sheet.

18. Which one of the following is an optional step in the accounting cycle of a business enterprise?
a. Analyze business transactions
b. Prepare a work sheet
c. Prepare a trial balance
d. Post to the ledger accounts

19. The final step in the accounting cycle is to prepare

a. closing entries.
b. financial statements.
c. a post-closing trial balance.
d. adjusting entries.

20. Which of the following steps in the accounting cycle would not generally be performed daily?
a. Journalize transactions
b. Post to ledger accounts
c. Prepare adjusting entries
d. Analyze business transactions
21. Which of the following depicts the proper sequence of steps in the accounting cycle?
a. Journalize the transactions, analyze business transactions, prepare a trial balance
b. Prepare a trial balance, prepare adjusting entries, prepare financial statements
c. Prepare a trial balance, prepare financial statements, prepare adjusting entries
d. Prepare a trial balance, post to ledger accounts, post adjusting entries

22. The two optional steps in the accounting cycle are preparing
a. reversing entries and a work sheet.
b. a post-closing trial balance and reversing entries.
c. a work sheet and post-closing trial balances.
d. an adjusted trial balance and a post-closing trial balance.

23. The first required step in the accounting cycle is

a. reversing entries.
b. journalizing transactions in the book of original entry.
c. posting transactions.
d. analyzing transactions.

24. Speedy Bike Company received a $640 check from a customer for the balance due. The transaction
was erroneously recorded as a debit to Cash $460 and a credit to Service Revenue $460. The
correcting entry is
a. Debit Cash, $640; Credit Accounts Receivable, $640.
b. Debit Cash, $180 and Service Revenue, $460; Credit Accounts Receivable, $640.
c. Debit Cash, $180 and Accounts Receivable, $460; Credit Service Revenue, $640.
d. Debit Accounts Receivable, $640; Credit Cash, $180 and Service Revenue, $460.

25. If errors occur in the recording process, they

a. should be corrected as adjustments at the end of the period.
b. should be corrected as soon as they are discovered.
c. should be corrected when preparing closing entries.
d. cannot be corrected until the next accounting period.

26. A correcting entry

a. must involve one balance sheet account and one income statement account.
b. is another name for a closing entry.
c. may involve any combination of accounts.
d. is a required step in the accounting cycle.

27. An unacceptable way to make a correcting entry is to

a. reverse the incorrect entry.
b. compare the incorrect entry with the correct entry and make a correcting entry to correct the
accounts.
c. correct it immediately upon discovery.
d. erase the incorrect entry.

28. Cole Company paid the weekly payroll on January 2 by debiting Wages Expense for $50,000. The
accountant preparing the payroll entry overlooked the fact that Wages Expense of $40,000 had
been accrued at year end on December 31. The correcting entry is
 a. Wages Payable ............................................................................... 40,000
Cash .................................................................................. 40,000
b. Wages Payable ............................................................................... 40,000
Wages Expense ................................................................. 40,000
c. Cash ........................................................................................... 10,000
Wages Expense ................................................................. 10,000
d. Cash ........................................................................................... 40,000
Wages Expense ................................................................. 40,000

29. Tyler Company paid $430 on account to a creditor. The transaction was erroneously recorded as
a debit to Cash of $340 and a credit to Accounts Receivable, $340. The correcting entry is

a. Accounts Receivable ...................................................................... 340

Accounts Payable ........................................................................... 430
Cash .................................................................................. 770
b. Accounts Payable ........................................................................... 430
Cash .................................................................................. 430
c. Accounts Receivable ...................................................................... 340
Cash .................................................................................. 340
d. Accounts Receivable ...................................................................... 340
Accounts Payable .............................................................. 340

30. A lawyer collected $950 of legal fees in advance. He erroneously debited Cash for $590 and
credited Accounts Receivable for $590. The correcting entry is

a. Cash .............................................................................................. 360

Accounts Receivable ...................................................................... 590
Unearned Revenue ........................................................... 950
b. Cash ............................................................................................ 360
Accounts Receivable ......................................................... 360
c. Cash ............................................................................................ 590
Accounts Receivable ...................................................................... 360
Unearned Revenue ........................................................... 950
d. Cash ............................................................................................ 950
Service Revenue ................................................................ 950

31. Office Equipment is classified in the balance sheet as

a. a current asset.
b. property, plant, and equipment.
c. an intangible asset.
d. a long-term investment.

32. A current asset is

a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
 d. expected to be realized in cash, sold or consumed within one year of the balance sheet or the
company's operating cycle, whichever is longer.

33. An intangible asset

a. is worthless because it has no physical substance.

b. is converted into a tangible asset during the operating cycle.
c. cannot be classified on the balance sheet because it lacks physical substance.
d. derives its value from the rights and privileges it provides the owner.

34. Liabilities are generally classified on a balance sheet as

a. small liabilities and large liabilities.
b. present liabilities and future liabilities.
c. tangible liabilities and intangible liabilities.
d. current liabilities and long-term liabilities.

35. Which of the following would not be classified a long-term liability?

a. Current maturities of long-term debt
b. Bonds payable
c. Mortgage payable
d. Lease liabilities

36. Which of the following liabilities are not related to the operating cycle?
a. Wages payable
b. Accounts payable
c. Utilities payable
d. Bonds payable

37. The report form of the balance sheet

a. is identical to the account form.
b. lists the asset section to the left and the liabilities and owner's equity sections to the right.
c. shows assets above liabilities and owner's equity.
d. lists assets to the left, liabilities in the middle, and owner's equity to the right.

38. It is not true that current assets are resources that are expected to be
a. realized in cash within one year.
b. sold within one year.
c. consumed within one year.
d. acquired within one year.

39. The operating cycle of a company is the average time that is required to go from cash to
a. sales in producing revenues.
b. cash in producing revenues.
c. inventory in producing revenues.
d. accounts receivable in producing revenues.
 40. The relationship between current assets and current liabilities is important in evaluating a
company's
a. profitability.
b. liquidity.
c. market value.
d. accounting cycle.

Items 41-46

A Corp. ordered 56,000 units of mouse pads to B Corp for their employees. Each mouse pad sells
for P 150.00 VAT Inclusive. Assuming A Corp and B Corp are vat registered companies and both are
subject to expanded withholding tax. Answer the following:

41. What is the invoice total that will appear on B Corp’s invoice Statement to A Corp?
a. 8,400,000
b. 8,325,000
c. 7,500,000
d. none of the above

42. What is the VAT Amount that will appear on B Corp’s invoice Statement to A Corp?
a. 900,000
b. 1,008,000
c. 850,000
d. none of the above

43. What is the total VATABLE SALES on the above transaction?

a. 8,400,000
b. 9,408,000
c. 7,500,000
d. none of the above

44. What is expanded withholding tax rate to be used on the above transaction?
a. 2%
b. 5%
c. 1%
d. 10%

45. What is the expanded withholding tax amount on the above transaction?
a. 75,000
b. 84,000
c. 150,000
d. none of the above

46. What is the check amount or cash outlay to be settled to the supplier on the above transaction?
a. 8,325,000
b. 8,400,000
c. 9,408,000
d. none of the above
Items 47-52

C Corp. engaged D Corp for payroll services. Every month they agreed to have a payroll fee of
60,000 VAT Exclusive. Assuming C Corp and D Corp are vat registered companies and both are
subject to expanded withholding tax. Answer the following:

47. What is the invoice total that will appear on D Corp’s billing Statement to C Corp for the month of
January?
a. 67,200.00
b. 60,000.00
c. 66,000.00
d. none of the above

48. What is the VAT Amount that will appear on D Corp’s billing Statement to C Corp for the month of
January?
a. 6,428.57
b. 7,200.00
c. 6,200.00
d. none of the above

49. What is the total VATABLE SALES on the above transaction (month of January)?
a. 67,200.00
b. 60,000.00
c. 66,000.00
d. none of the above

50. What is expanded withholding tax rate to be used on the above transaction?
a. 2%
b. 5%
c. 1%
d. 10%

51. What is the expanded withholding tax amount on the above transaction (month of January)?
a. 7,200.00
b. 1,200.00
c. 6,000.00
d. none of the above

52. What is the check amount or cash outlay to be settled to the supplier on the above transaction (month
of January)?
a. 67,200.00
b. 60,000.00
c. 66,000.00
d. none of the above

53. "Generally accepted" in the phrase generally accepted accounting principles means that the
principles
a. are proven theories of accounting.
 b. have substantial authoritative support.
c. have been approved by the Internal Revenue Service.
d. have been approved for use by the managements of business firms.

54. The conceptual framework does not include

a. objectives of financial reporting.
b. elements of financial statements.
c. operating guidelines.
d. quantitative characteristics of accounting information.

55. Which one of the following is not an objective of financial reporting according to the conceptual
framework?
a. To provide information that will increase the value of the company
b. To provide information in assessing future cash flows
c. To provide information that is useful for making investment and credit decisions
d. To provide information that identifies economic resources, the claims to those resources, and
the changes in those resources and claims

56. Information that relates to a firm's solvency is used to assess the firm's ability to
a. convert assets to cash.
b. pay its debts.
c. collect its receivables on time.
d. prepare income tax information.

57. If accounting information has feedback value, it

a. has been verified by external audit.
b. is prepared on an annual basis.
c. confirms or corrects prior expectations.
d. is neutral in its representations.

58. A company can change to a new method of accounting if management can justify that the new
method results in
a. more meaningful financial information.
b. a higher net income.
c. a lower net income for tax purposes.
d. less likelihood of clerical errors.

59. The going concern assumption assumes that the business

a. will be liquidated in the near future.
b. will be purchased by another business.
c. is in a growth industry.
d. will continue in operation long enough to carry out its existing objectives and commitments.

60.The revenue recognition principle dictates that revenue should be recognized in the accounting period
in which it is
a. collected.
b. earned.
c. most likely to be collected.
 d. earned and collected.
61.The summary of significant accounting policies footnoted in the financial statements would not normally
discuss
a. depreciation methods.
b. board of directors salaries.
c. method of inventory costing.
d. amortization of intangible assets.

62. A company will usually replace a manual accounting information system with an electronic system
as the operations increase in
a. efficiency.
b. complexity.
c. simplicity.
d. productivity.

63. An awareness of cost in developing an accounting system does not imply that
a. the benefits obtained from the system outweigh the costs.
b. an electronic system must be cheaper than the system it is replacing.
c. the system should be cost effective.
d. the value of an accounting report should be at least equal to the cost of producing it.

64. To be useful, the information outputs of a system should be

a. relevant, reliable, timely, and accurate.
b. reliable, flexible, understandable and timeless.
c. such that one report meets all different users needs.
d. distributed only to management personnel.

65. The accounting environment does not change as a result of

a. technological advances.
b. government regulation.
c. the double entry system.
d. organizational growth.

66. The principles of developing an accounting information system do not include

a. usefulness.
b. flexibility.
c. cost effectiveness.
d. elimination of human involvement.

67. The analysis phase of developing an accounting system

a. consists of installing new documents, procedures, reports, and processing equip-ment.
b. requires the design of new forms, documents, methods and procedures.
c. involves determining the information needs of internal and external users.
d. involves both efficiency and effectiveness.

68. The sequential phases of developing an accounting system are

a. design, analysis, follow-up, implementation.
b. design, analysis, implementation, follow-up.
 c. analysis, design, implementation, follow-up.
d. analysis, follow-up, design, implementation.
69. The design phase of developing an accounting system includes
a. training personnel.
b. the evaluation of weaknesses and breakdowns.
c. the integration of controls.
d. the identification of strengths.

70. The follow-up phase of developing an accounting system includes

a. identifying sources of information.
b. evaluating efficiency and effectiveness.
c. equipment selection.
d. revising documents, procedures, and reports.