FADM SAMPLE QUIZ (2)

MULTIPLE CHOICE QUESTIONS – choose the best answer.

1. Which type of account is credited when a company records a loan received?

a. expense
b. retained earnings
c. liability
d. asset
(c)

2. Which of the following statements regarding accounts is false?

a. An asset is increased by a debit and decreased by a credit.
b. Cash are increased by credits and decreased by debits.
c. A liability is decreased by a debit and increased by a credit.
d. Revenue is increased by a credit and an expense is increased by a debit.
( b)

3. The purchase of an automobile with a cash down payment and a promise to pay
the balance in the future would include a:
a. credit to Cash and a credit to Note Payable
b. debit to Cash and a credit to Automobile
c. debit to Note Payable and a credit to Cash
d. debit to Cash and a debit to Note Payable
(a)

4. Receiving a check from a customer on account would include a:

a. debit to Accounts Receivable and a credit to Cash
b. debit to Cash and a credit to Accounts Payable
c. debit to Accounts Payable and a credit to Cash
d. debit to Cash and a credit to Accounts Receivable
( d)

5. The entry to record the purchase of office supplies for $100 cash would be:
a. Office Supplies 100
Cash 100
b. Accounts Payable 100
Cash 100
c. Office Supplies 100
Accounts Payable 100
d. Cash 100
Office Supplies Expense 100
(a)

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 FADM SAMPLE QUIZ (2)

6. Chuck’s Upholstery acquired 60 chairs from a manufacturer at a cost of $100 per

chair and purchased the chairs on account. The effect of
this transaction on Chuck’s Upholstery would be to:
a. increase inventory by $6,000, and increase capital by $6,000
b. increase inventory by $6,000, and decrease capital by $6,000
c. increase inventory by $6,000 and decrease cash by $6,000
d. increase inventory by $6,000, and increase accounts payable by $6,000
e. increase inventory by $6,000, and decrease accounts payable by $6,000
(d)

7. Stever Heating acquired equipment costing $3,000 on account. The effect of this
transaction on Stever Heating would be to:
a. increase equipment by $3,000 and decrease capital by $3,000
b. increase equipment by $3,000 and increase capital by $3,000
c. increase equipment by $3,000 and increase accounts payable by $3,000
d. increase equipment by $3,000 and decrease accounts payable by $3,000
e. No transaction is recorded since no cash has been paid.
(c)

8. Stockholders' equity at the beginning and end of the period amount to $16,000 and
$18,000, respectively. Assets at the beginning and end of the period amount to $26,000
and $21,000, respectively. Liabilities at the beginning of the period were $10,000.
Liabilities at the end of the period amount to:
a. $8,000
b. $6,000
c. $2,000
d. $5,000
e. $3,000
(e)

9. If assets increase $120,000 during a given period and liabilities decrease $25,000 during
the same period, owners’ equity must:
a. increase $95,000
b. decrease $145,000
c. decrease $95,000
d. increase $145,000
(d)

10. Phillips Tool and Die Company bought $72,000 of equipment with an estimated service life of 4
years. The equipment will be worthless at the end of its life. The annual amount of depreciation
on this equipment is:
a. $18,000
b. $36,000
c. $72,000
d. $0
( a)

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 FADM SAMPLE QUIZ (2)

11. Alexander & Hitch Company began operations and purchased $15,900 of supplies. By year end,
$8,800 of supplies were still on hand. The adjusting entry at year end would include a:
a. debit to Supplies for $8,800
b. credit to Supplies Expense for $7,100
c. credit to Supplies Expense for $8,800
d. debit to Supplies Expense for $7,100
(, d)

12. The accounting concept which maintains that each organization or section of an organization
stands apart from other organizations and individuals is known as the:
a. reliability principle
b. going-concern concept
c. entity concept
d. monetary unit concept
(, b)

13. The principle which states that assets acquired by the business should be recorded at their actual
price is the:
a. objectivity principle
b. stable dollar principle
c. cost principle
d. reliability principle
(, c)

14. Which of the following is an example of an investing activity?

a. Purchasing a building
b. Obtaining a bank loan
c. Paying taxes to the government
d. Producing goods and services
ANS: A

15. Which of the following is an example of a financing activity?

a. Employing workers
b. Selling equipment
c. Paying off a long term loan
d. Purchasing land
ANS: C

16. Flores Realty Corporation had the following balance sheet accounts and balances:

Accounts Payable $6,000 Common Stock ?

Accounts Receivable 1,000 Equipment $7,000
Building ? Land 7,000
Cash 3,000 Retained Earnings 2,000

If the balance of the Building account were $26,500, what would be the total of liabilities and
stockholders' equity?
a. $26,500
b. $44,500

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c. $41,500
d. $36,500
ANS: B

[QUESTION 17]
. When a company sells goods, it removes their cost from the balance sheet and reports the cost
on the income statement as:
A) Selling Expenses.
B) Cost of Goods Sold.
C) Finished Goods Inventory.
D) Inventory.

Answer: B

[QUESTION 18]
23. Which of the following statements about a corporation is not correct?
A) A corporation is a separate legal entity.
B) A corporation has easy transferability of ownership.
C) A corporation may have the ability to raise large amounts of capital.
D) A corporation’s owners have unlimited liability.

Answer: D

[QUESTION 19]
22. Advantages of the corporate form include all of the following except:
A) easy to raise capital.
B) shares can be purchased in small amounts.
C) ownership interests are transferrable.
D) legal liability of its owners is unlimited.

Answer: D

20. What type of audit report indicates that the financial statements present fairly the financial
position, results of operations and the cash flows for the accounting period?
a. A disclaimer of opinion.
b. An unqualified report.
c. A qualified report.
d. An adverse opinion.

ANSWER ( b)