Reference no: EM132474299

Question 1 - If a company purchases equipment for $70,000 and pays in cash:

a. Total assets will increase by $70,000.

b. Total assets will decrease by $70,000.

c. Total assets will remain the same.

d. The company's total owners'

Question 2 - The bookkeeper prepared a check for $58 but accidentally recorded it as $85. When preparing the bank reconciliation, this should be corrected by:

a. Depositing $27 into the bank account.

b. Withdrawing $27 from the bank account.

c. Adding $27 to the book balance. correct

d. Subtracting $27 from the book balance.

Question 3 - Which of the following items would not appear on the income statement?

a. Net income.

b. Total revenue.

c. Dividends.

d. Cost of goods sold.

Question 4 - Gross profit is the difference between:

a. Net sales and the cost of goods sold.

b. The cost of merchandise purchased and the cost of merchandise sold.

c. Net sales and net income.

d. Net sales and all expenses.

Question 5 - To appear in a balance sheet of a business entity, an asset need not:

a. Have an economic value.

b. Have a ready market value.

c. Be expected to benefit future operations.

d. Be owned by the business.

Question 6 - Efficient management of cash includes which of the following concepts?

a. Pay each bill as soon as the invoice is received.

b. Reconcile cash accounts to bank statements only at the end of the year.

c. Prepare monthly cash budgets (forecasts) up to a year in advance.

d. Pay suppliers in cash out of cash sales receipts before depositing them in the bank.

Question 7 - It is the function of management accounting to perform the following activities, except:

a. Preparing budgets

b. Cost accounting

c. Internal audits

d. Audited financial statements

Question 8 - Which of the following is not a basic function of an accounting system?

a. To interpret and record the effects of business transactions.

b. To classify the effects of similar transactions in a manner that permits determination of various totals and subtotals useful to management.

c. To ensure that a business organization will be managed profitably.

d. To summarize and communicate information to decision makers.

Question 9 - Which of the following credit terms is the most advantageous to the purchaser of merchandise?

a. 1/10, n/30.

b. 5/10, n/60.

c. 2/10, n/30.

d. 5/10, n/20.

Question 10 - Shop -N-Go Systems purchased cash registers on April 1 for $6,000. If this asset has an estimated useful life of four years, what is the netbook value of the cash registers on May 31 if the company uses the straight-line method of depreciation?

a. $125.

b. $1,500.

c. $6,000.

d. $5,750.

Question 11 - The journal entry to record a particular business transaction includes a credit to the Cash account. This transaction is most likely also to include:

a. Issuance of new capital stock.

b. The purchase of an asset on account.

c. Payment of an outstanding note payable.

d. A credit to Accounts Receivable.

Question 12 - Each year the accountant for Northeast Real Estate Company adjusts the recorded value of each asset to its market value. Using these market value figures on the balance sheet violates:

a. The accounting equation.

b. The stable-dollar assumption.

c. The business entity concept.

d. The cost principle.

Question 13 - In a ledger, debit entries cause:

a. Increases in owners' equity, decreases in liabilities, and increases in assets.

b. Decreases in liabilities, increases in assets, and decreases in owners' equity.

c. Decreases in assets, decreases in liabilities, and increases in owners' equity.

d. Decreases in assets, increases in liabilities, and increases in owners' equity.

Question 14 - The purpose of making closing entries is to:

a. Reset the temporary accounts and update retained earnings.

b. Enable the accountant to prepare financial statements at the end of the accounting period.

c. Establish new balances in the balance sheet accounts.

d. Reduce the number of expense accounts.

Question 15 - If total assets equal $180,000 and total liabilities equal $135,000, the total owners' equity must equal:

a. $ 315,000.

b. $45,000.

c. Cannot be determined from the information given.

d. Some other amount.

Question 16 - The historical cost principle is used to:

a. Aid management in controlling costs.

b. Record transactions and events at fair market value.

c. Record transactions and events at their original cost.

d. Calculate cost of goods sold.

Question 17 - Before any month-end adjustments are made, the net income of Russell Company is $66,000. However, the following adjustments are necessary: office supplies used, $2,160; services performed for clients but not yet recorded or collected, $2,640; interest accrued on note payable to bank, $2,040. After adjusting entries are made for the items listed above, Russell Company's net income would be:

a. $72,840.

b. $67,560.

c. $64,440.

d. Some other amount.

Question 18 - The relationship between the income statement and the balance sheet may be described as follows:

a. The income statement explains part of the change in owner's equity between two balance sheet dates

b. The balance sheet summarizes the change in net income occurring between successive income statements.

c. The income statement summarizes the changes in cash occurring between two balance sheet dates.

d. The assets shown in a balance sheet include all the revenue shown in the income statement.

Question 19 - The Allowance for Doubtful Accounts represents:

a. Cash set aside to make up for bad debt losses.

b. The amount of uncollectible accounts previously written off.

c. The difference between total credit sales and cash sales.

d. The difference between the face value of accounts receivable and the net realizable value of accounts receivable.

Question 20 - An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is:

a. FIFO (first-in, first-out)

b. LIFO (last-in, first-out)

c. Retail

d. Weighted-average

Question 21 - The valuation of assets in the balance sheet is based primarily upon:

a. What it would cost to replace the assets.

b. Cost, because cost is usually factual and verifiable.

c. Current fair market value as established by independent appraisers.

d. Cost, because in the event of liquidation, the assets would be sold at an amount equal to their original cost.

Question 22 - The accrual of interest on a note payable will

a. Reduce total liabilities.

b. Increase total liabilities.

c. Have no effect upon total liabilities.

d. Will have no effect upon the income statement but will affect the balance sheet.

Question 23 - Generally accepted accounting principles

a. Are established by the International Accounting Standards Board

b. May change over time

c. Both A & B

d. Neither A nor B

Question 24 - Net income is best described as:

a. Cash receipts less cash payments made during a given accounting period.

b. Revenue earned during an accounting period, less expenses incurred during the period.

c. The increase in total assets over a given accounting period.

d. Revenue earned during an accounting period, less any cash payments made during the period.

Question 25 - Assets are listed on the:

a. Balance sheet.

b. Income statement.

c. Statement of Retained Earnings.

d. Statement of cash flows.

Question 26 - The Retained Earnings statement is based upon which of the following relationships?

a. Retained Earnings - Net Income - Dividends

b. Retained Earnings - Net Income + Dividends

c. Retained Earnings + Net Income + Dividends

d. Retained Earnings + Net Income - Dividends

Question 27 - Which of the following errors would be disclosed by preparation of a trial balance?

a. The collection of an account receivable was recorded by a debit to the Land account rather than to the Cash account.

b. The collection of an account receivable for $319 was recorded by a $391 debit to Cash and a $391 credit to Accounts Receivable.

c. The collection of a $375 account receivable was not recorded at all.

d. The collection of a $225 account receivable was recorded by a $225 debit to Cash and a $255 debit to Accounts Receivable.

Question 28 - 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 the 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.

Question 29 - Financial statements are prepared:

a. Only for publicly owned business organizations.

b. For corporations, but not for sole proprietorships or partnerships.

c. For the benefit of both business managers and persons outside of the business organization.

d. In either monetary or nonmonetary terms, depending upon the need of the decision maker.

Question 30 - When preparing a bank reconciliation, differences between the depositor's records and the bank statement can result from:

a. Deposits in transit.

b. Bank service charges.

c. Items incorrectly recorded in the cash receipts journal.

d. All of the above.

Question 31 - If a company purchases equipment for $65,000 by issuing a note payable:

a. Total assets will increase by $65,000.

b. Total assets will decrease by $65,000.

c. Total assets will remain the same.

d. The company's total owners' equity will decrease.

Question 32 - Ben Dryden, president of Jet Glass, Inc, noticed a $8,000 debit to Accounts Payable in the company's general ledger. This debit could correspond to:

a. A $8,000 sale to a customer.

b. A purchase of equipment costing $8,000 on credit.

c. A payment of $8,000 to a supplier to settle a balance due.

d. The failure to pay this month's $8,000 utility bill on time.

Question 33 - The manager of Belle Home Improvements purchased several cash registers for the business on June 10 but does not remember whether he paid cash for the full price or still owes a balance to the vendor. Where is the best place for the manager to get the information about this transaction?

a. A trial balance prepared at the end of June.

b. The general journal.

c. A balance sheet prepared at the end of June.

d. The ledger account for equipment.

Question 34 - Sidney Smart had expenses of $900 in June which she paid in July. She declared these expenses on her June income statement. By doing this she is following the accounting principle of:

a. Revenue realization

b. Adequate disclosure

c. Matching

d. Conservatism

Question 35 - 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. Recording the cost of a sale in the same period as the reven ue.

d. Offsetting the cash receipts of the period with the cash payments made during the period.

Question 36 - Investments held for re-sale in expectation of making a profit are:

a. Long term assets.

b. Trading securities.

c. Not to be recorded in the book balance.

d. Non-current assets.

Question 37 - From an accounting viewpoint, when is a business considered an entity separate from its owner(s)?

a. Only when organized as a sole proprietorship.

b. Only when organized as a partnership.

c. Only when organized as a corporation.

d. In each of the above situations, the business is an accounting entity separate from the activities of the owner(s).

Question 38 - Merchandising companies that are small and do not use a perpetual inventory system may elect to use:

a. A physical inventory system

b. A periodic inventory system

c. An inventory shrinkage method

d. An inventory subsidiary ledger system.

Question 39 - A balance sheet:

a. Provides owners, investors, and other interested parties with all the financial information they need to evaluate the financial strength, profitability, and future prospects of a given business entity.

b. Shows the current market value of the owners' equity in the business at the balance sheet date.

c. Assists creditors in evaluating the debt-paying ability of a business by showing the assets and liabilities of the business combined with those of its owner (or owners).

d. Shows the assets, liabilities, and owners' equity of a business entity, valued in conformity with generally accepted accounting principles.

Question 40 - Accounts receivable

a. Are usually converted into cash in 30 to 60 days

b. Are relatively liquid assets

c. Usually appear after short-term investments in marketable securities

d. All of the above

Question 41 - Net income from the Income Statement appears on:

a. The Balance Sheet

b. The Retained Earnings Statement.

c. Neither the Balance Sheet nor the Retained Earnings Statement.

d. Both the Balance Sheet and the Retained Earnings Statement.

Question 42 - The matching principle is best demonstrated by:

a. Using debits to record decreases in owners' equity and credits to record increases.

b. The equation A = L + OE.

c. Recording the cost of goods sold in the same period as the sale.

d. Offsetting the cash receipts of the period with the cash payments made during the period.

Question 43 - Which of the followingis not characteristic of financial accounting?

a. Information used in financial statements is prepared in conformity with generally accepted accounting principles.

b. The information is confidential and is intended for use only by company management.

c. The information is used in a wide variety of business decisions

d. The information is developed according to well defined standards.

Question 44 - Hefty Company wants to know the effect of different inventory methods on financial statements. The information provided below relates to beginning inventory and purchases for the current year:

January 2 Beginning Inventory 500 units at $3.00 per unit

April 7 Purchased 1,100 units at $3.20 per unit

June 30 Purchased 400 units at $4.00 per unit

December 7 Purchases 1,600 units at $4.40 per unit

Sales during the year were 2,700 units at $5.00. If Hefty used the first-in first-out method, ending inventory would be:

a. $2,780.

b. $3,960.

c. $9,700.

d. $10,880.

Question 45 - Which of the following would not be considered a user of financial information?

a. A large pension fund

b. A real estate investor

c. Company management

d. All the above are considered interested in financial information.

Question 46 - The accountant for the McCarthy Company forgot to make an adjusting entry to record depreciation for the current year. The effect of this error could be:

a. An overstatement of net income and an understatement of assets.

b. An overstatement of assets offset by an understatement of owner's equity.

c. An overstatement of assets, net income, and owner's equity.

d. An overstatement of assets and of net income and an understatement of owner's equity.

Question 47 - Closing entries would be prepared:

a. After financial statements are prepared

b. Before the post-closing trial balance

c. After an adjusted trial balance

d. Before adjusting entries

Question 48 - In February of each year, the Ritz Hotel holds a very popular wine tasting. Tickets must be ordered and paid for in advance, and are typically sold out by November of the preceding year. The realization principle indicates that the revenue from these ticket sales should be recognized in the period in which the:

a. Order is placed.

b. Wine tasting is held.

c. Payments are received.

d. Expenses associated with the wine tasting are paid in full.

Question 49 - The income summary account has expenses of $65,000 and revenues of $55,000. The company had which of the following:

a. Net income of $10,000

b. Net income of $120,000

c. Net loss of $10,000

d. Net loss of $120,000

Question 50 - The cost of delivering merchandise to the customer is:

a. Part of cost of goods sold.

b. Used in the calculation of sales revenue.

c. An operating expense.

d. A reduction of gross profit.