Principles Of Accounting II

Question 1:

_____ are restrictions of retained earnings that are recorded by formal journal entries.

Answer: a. Appropriations

Question 2:

A potential obligation that depends on future events arising out of past transaction or event is said
to be ______________.

Answer: a. contingent liability

Question 3:

A stock subscription is a contract that does not obligate an investor to purchase the corporation’s
stock at a later date.

Answer: b. False

Question 4:

BOB company has purchased a machine whose acquisition cost is birr 90,000. It has an estimated
useful life of 4 years and the residual value of 10,000 birr. Thus, the annual depreciation expense of
the machine is ______.

Answer: a. birr 40,000

Question 5:

Capital expenditure may fall in all of the following categories, except _________.

Answer: a. Exchange of goods

Question 6:

Cash and cash equivalent given out to purchase a plant asset is called___________.

Answer: a. acquisition cost

Question 7:

Dividend payable is recorded when the after the cash dividend is declared.
Answer: a. False

Question 8:

In revenue realization principle, at which point should the revenue be recorded?

Answer: d. When it is earned

Question 9:

In the declaration of a common stock dividend, which one is the appropriate journal entry?

Answer: c. Debiting common stock and crediting retained earnings.

Question 10:

In the period of inflation, FIFO reports the lowest income whereas LIFO reports the highest income.

Answer: b. False

Question 11:

Reliability principle is the underlying basis for the cost principle.

Answer: b. False

Question 12:

Sole proprietorship is more advantageous than partnership because it combines talent, capital, and
experience of two or more people.

Answer: b. False

Question 13:

The acquisition cost of a plant asset has no effect on the calculation of depreciation expense for that
asset.

Answer: b. True

Question 14:

The amount of money that the company expects to recover on the date of a plant asset sold at the
end of its benefit period is called __________.

Answer: c. residual value

Question 15:

The assignment of costs of goods sold and inventory using FIFO is the same for both the perpetual
and periodic inventory system.

Answer: b. True

Question 16:

The liabilities due within one year or the company’s operating cycle are called _____.

Answer: c. current liability

Question 17:

The reason that a business needs to estimate its product warranty expense is that the exact amount
of warranty expense cannot be known with certainty.

Answer: a. True

Question 18:

To pay dividends to common stockholder, first, the dividend should be pay to _______.

Answer: d. preferred stockholders

Question 19:

Trade names and trademarks are examples of an intangible asset.

Answer: b. True

Question 20:

Under which accounting concept is it stated that the life of the business will continue for an
indefinite period in the future?

Answer: b. Going-concern concept

Question 21:

What is the appropriate journal entry to record the closing of the drawing account?

Answer: b. Debit drawing and credit capital

Question 22:

When information is not useful for decision making, it is not comparable from period to period.

Answer: a. False

Question 23:

Which concept ensures that the accounting information is reported at regular intervals?

Answer: c. Time-period concept

Question 24:

Which method assumes that inventory items are sold in the order in which they are acquired?

Answer: a. FIFO

Question 25:

Which of the following is not the feature of a corporation?

Answer: a. Mutual agency.

Question 26:

Which one is not the major component of useful information?

Answer: d. Ambiguity

Question 27:

Which one of the following is the major deduction from an employee’s earnings?

Answer: d. Payroll taxes

Question 28:

Among the given alternatives, which one is not the major right for stockholders?

Answer: d. The right to taking money without any legal basis for their personal uses.

Question 29:

Revenue, expense, gains, and losses are the elements of __________.

Answer: b. income statement

Question 30:

Which one is not the cause that may lead to the liquidation of a partnership?

Answer: b. When the partner is linked with another partner by their resources