Chapter 1 – 6, 8-9

1. Generally accepted accounting principles are

a. income tax regulations of the Internal Revenue Service.
b. standards that indicate how to report economic events.
c. theories that are based on physical laws of the universe.
d. principles that have been proven correct by academic researchers.

2. The Dulce Company has five plants nationwide that cost a total of $200 million. The current
fair value of the plants is $600 million. The plants will be recorded and reported as assets
at
a. $200 million.
b. $600 million.
c. $400 million.
d. $800 million.

3. The economic entity assumption requires that the activities

a. of different entities can be combined if all the entities are corporations.
b. must be reported to the Securities and Exchange Commission.
c. of a sole proprietorship cannot be distinguished from the personal economic events
of its owners.
d. of an entity be kept separate from the activities of its owner.

4. If total liabilities decreased by $40,000 and owner’s equity increased by $30,000 during a
period of time, then total assets must change by what amount and direction during that
same period?
a. $50,000 decrease
b. $10,000 decrease
c. $10,000 increase
d. $50,000 increase

5. The accounting equation for Cineo Enterprises is as follows:

Assets Liabilities Owner’s Equity

$120,000 = $60,000 + $60,000

If Cineo purchases office equipment on account for $15,000, the accounting equation
will change to
Assets Liabilities Owner’s Equity
a. $120,000 = $60,000 + $60,000

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 b. $135,000 = $60,000 + $75,000
c. $135,000 = $67,500 + $67,500
d. $135,000 = $75,000 + $60,000

6. As of June 30, 2016, Little Giantz Company has assets of $100,000 and owner’s equity of
$60,000. What are the liabilities for Little Giantz Company as of June 30, 2016?
a. $40,000
b. $60,000
c. $100,000
d. $160,000

7. In the first month of operations, the total of the debit entries to the cash account amounted
to $1,400 and the total of the credit entries to the cash account amounted to $800. The
cash account has a(n)
a. $800 credit balance.
b. $1,400 debit balance.
c. $600 debit balance.
d. $600 credit balance.

8. On June 1, 2016, Barcelona Inc. reported a cash balance of $11,000. During June,
Barcelona made deposits of $3,000 and made disbursements totalling $9,000. What is
the cash balance at the end of June?
a. $5,000 debit balance
b. $14,000 debit balance
c. $5,000 credit balance
d. $4,000 credit balance

9. Qwik Company showed the following balances at the end of its first year:

Cash $ 8,700
Prepaid insurance 9,400
Accounts receivable 7,000
Accounts payable 5,800
Notes payable 9,400
Owner’s Capital 2,300
Owner’s Drawings 1,400
Revenues 44,000
Expenses 35,000

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 What did Qwik Company show as total credits on its trial balance?
a. $52,400
b. $61,500
c. $62,900
d. $70,900

10. Which of the following journal entries is recorded correctly and in the standard format?
a. Salaries and Wages Expense ........................................... 500
Cash ........................................................................... 2,500
Advertising Expense . ......................................................... 2,000

b. Salaries and Wages Expense . ........................................... 500

Advertising Expense . ......................................................... 2,000
Cash ........................................................................... 2,500

c. Cash ................................................................................. 2,500

Salaries and Wages Expense ..................................... 500
Advertising Expense ................................................... 2,000

d. Salaries and Wages Expense ........................................... 500

Advertising Expense ......................................................... 2,000
Cash ............................................................................. 2,500

11. Which of the following is a true statement about inventory systems?

a. Periodic inventory systems require more detailed inventory records.
b. Perpetual inventory systems require more detailed inventory records.
c. A periodic system requires cost of goods sold be determined after each sale.
d. A perpetual system determines cost of goods sold only at the end of the accounting
period.

12. In a perpetual inventory system, cost of goods sold is recorded

a. on a daily basis.
b. on a monthly basis.
c. on an annual basis.
d. with each sale

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13. Howard Company purchased merchandise inventory with an invoice price of $7,000 and
credit terms of 2/10, n/30. What is the net cost of the goods if Howard Company pays
within the discount period?
a. $6,300
b. $6,440
c. $6,860
d. $7,000

14. Sales revenues are usually considered earned when

a. cash is received from credit sales.
b. an order is received.
c. goods have been transferred from the seller to the buyer.
d. adjusting entries are made.

15. Company P sells $3,000 of merchandise on account to Company Q with credit terms of
2/10, n/30. If Company Q remits a check taking advantage of the discount offered, what
is the amount of Company Q’s check?
a. $2,100
b. $2,400
c. $2,700
d. $2,940

16. Chen Company’s financial information is presented below.

Sales Revenue $ ???? Cost of Goods Sold 510,000

Sales Returns and Allowances 40,000 Gross Profit ????
Net Sales 850,000

The missing amounts above are:

Sales Revenue Gross Profit

a. $890,000 $340,000
b. $810,000 $340,000
c. $890,000 $300,000
d. $810,000 $380,000

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17. Martin Company reported the following balances at June 30, 2016:

Sales Revenue $16,500

Sales Returns and Allowances 800
Sales Discounts 200
Cost of Goods Sold 7,100

Net sales for the month is

a. $7,300
b. $15,500.
c. $15,700.
d. $16,500.

18. If a company has net sales of $600,000 and cost of goods sold of $372,000, the gross
profit percentage is
a. 22%.
b. 38%.
c. 62%.
d. 100%.

19. If goods in transit are shipped FOB destination

a. the seller has legal title to the goods until they are delivered.
b. the buyer has legal title to the goods until they are delivered.
c. the transportation company has legal title to the goods while the goods are in
transit.
d. no one has legal title to the goods until they are delivered.

20. Freight terms of FOB shipping point mean that the

a. seller must debit freight out.
b. buyer must bear the freight costs.
c. goods are placed free on board at the buyer's place of business.
d. seller must bear the freight costs.

21. For companies that use a perpetual inventory system, all of the following are purposes for
taking a physical inventory except
a. to check the accuracy of the records.
b. to determine the amount of wasted raw materials.
c. to determine losses due to employee theft.
d. to determine ownership of the goods.

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22. Under a consignment arrangement, the
a. consignor has ownership until goods are sold to a customer.
b. consignor has ownership until goods are shipped to the consignee.
c. consignee has ownership when the goods are in the consignee's possession.
d. consigned goods are included in the inventory of the consignee.

23. The managers of Venice Company receive performance bonuses based on the net income
of the firm. Which inventory costing method are they likely to favor in periods of declining
prices?
a. LIFO
b. Average Cost
c. FIFO
d. Physical inventory method

24. Barley Company developed the following information about its inventories in applying the
lower-of-cost-or-market (LCM) basis in valuing inventories:
Product Cost Market
A $115,000 $120,000
B 80,000 73,000
C 158,000 162,000
If Barley applies the LCM basis, the value of the inventory reported on the balance
sheet would be
a. $346,000.
b. $353,000.
c. $355,000.
d. $362,000.

25. The following information is available for Miguel Company at December 31, 2016:
beginning inventory $160,000; ending inventory $240,000; cost of goods sold
$1,050,000; and sales $1,800,000. Everett’s inventory turnover in 2016 is
a. 4.38 times.
b. 5.25 times.
c. 6.56 times.
d. 9 times.

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26. The net amount expected to be received in cash from receivables is termed the
a. cash realizable value.
b. cash-good value.
c. gross cash value.
d. cash-equivalent value.

27. Bad Debt Expense is considered

a. an avoidable cost in doing business on a credit basis.
b. an internal control weakness.
c. a necessary risk of doing business on a credit basis.
d. avoidable unless there is a recession.

28. Allowance for Doubtful Accounts on the balance sheet

a. is offset against total current assets.
b. increases the cash realizable value of accounts receivable.
c. appears under the heading "Other Assets."
d. is offset against accounts receivable.

29. Under the allowance method, writing off an uncollectible account

a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.

30. Which one of the following would not cause a bank to debit a depositor's account?
a. Bank service charge
b. Collection of a note receivable
c. Wiring of funds to other locations
d. Checks marked NSF

31. A deposit made by a company will appear on the bank statement as a

a. debit.
b. credit.
c. debit memorandum.
d. credit memorandum.

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32. A bank reconciliation should be prepared
a. whenever the bank refuses to lend the company money.
b. when an employee is suspected of fraud.
c. to explain any difference between the depositor's balance per books and the
balance per bank.
d. by the person who is authorized to sign checks.

33. Notification by the bank that a deposited customer check was returned NSF requires that
the company make the following adjusting entry:
a. Accounts Receivable
Cash
b. Cash
Accounts Receivable
c. Miscellaneous Expense
Accounts Receivable
d. No adjusting entry is necessary.

34. Bank errors

a. occur because of time lags.
b. must be corrected by debits.
c. are infrequent in occurrence.
d. are corrected by making an adjusting entry on the depositor's books.

35. An adjusting entry is not required for

a. outstanding checks.
b. collection of a note by the bank.
c. NSF checks.
d. bank service charges.

36. Financial statements are prepared directly from the

a. general journal.
b. ledger.
c. trial balance.
d. adjusted trial balance.

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37. The revenue recognition principle dictates that revenue be recognized in the accounting
period
a. before it is earned.
b. after it is earned.
c. in which the performance obligation is satisfied.
d. in which it is collected.

38. 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.

39. 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.

40. After closing entries are posted, the balance in the owner’s capital account in the ledger
will be equal to
a. the beginning owner’s capital reported on the owner’s equity statement.
b. the amount of the owner’s capital reported on the balance sheet.
c. zero.
d. the net income for the period.