1. Creditors’ claims on the assets of a company are called: 

Net losses

Expenses

Revenues

Equity

Liabilities

 

2. Which of the following elements are found on the Balance Sheet? 

Service Revenue

Net Income

Operating Activities

Utilities Expense

Retained Earnings

 

3. Assets created by selling goods and services on credit are: 

Accounts payable

Accounts receivable

Liabilities

Expenses

 

4. The description of the relation between a company’s assets, liabilities and equity, which is expressed as Assets = Liabilities + Equity is known as the: 

Income statement equation

Accounting equation

Business equation

Return on equity ratio

Net income

 

5. An example of an operating activity is: 

Paying wages

Purchasing office equipment

Borrowing money from a bank

Selling stock

Paying off a loan

 

6. Of the following accounts, the one that normally has a credit balance is: 

Cash

Office Equipment

Sales Salaries Payable

Dividends

Sales Salaries Expense

 

7. Reebok had income of $150 million and average assets of $1,800 million. Its return on assets is: 

8.33% 

83.3%

12.0%

120%

 

8. If Beginning Retained Earnings was $184,300, the company distributed $46,000 in dividends and Ending Retained Earnings was $345,000, what was the net income for the period? 

$154,700

$206,700

$114,700

$575,300

$160,700

 

9. Ethical behavior requires: 

That an auditors’ pay not depend on the figures in the client’s reports

Auditors to invest in businesses they audit

Analysts to report information favorable to their companies

Managers to use accounting information to benefit themselves

That an auditor provides a favorable opinion

 

10. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser’s books at: 

$95,000

$137,000

$138,500

$140,000

$150,000

 

11. Prepaid expenses are: 

Payments made for products and services that do not ever expire

Classified as liabilities on the balance sheet

Decreases in retained earnings

Assets that represent prepayments of future expenses

 

12. Apatha Company has assets of $600,000, liabilities of $250,000 and equity of $350,000. It buys office equipment on credit for $75,000. The effects of this transaction include: 

Assets increase by $75,000 and expenses increase by $75,000

Assets increase by $75,000 and expenses decrease by $75,000

Liabilities increase by $75,000 and expenses decrease by $75,000

Assets decrease by $75,000 and expenses decrease by $75,000

Assets increase by $75,000 and liabilities increase by $75,000

 

13. Which of the following accounting principles dictates when expenses are recognized? 

Revenue recognition principle

Monetary unit principle

Business entity principle

Matching principle

Full disclosure principle

 

14. Which of the following is the primary purpose of accounting? 

To establish a business

To identify, record and communicate business transactions

To deceive stockholders

To keep from paying taxes

To establish credit for a company

 

15. If assets are $99,000 and liabilities are $32,000, then equity equals: 

$32,000

$67,000 

$99,000

$131,000

$198,000

 

16. Financial statements are typically prepared in the following order: 

Balance sheet, statement of retained earnings, income statement

Statement of retained earnings, balance sheet, income statement

Income statement, balance sheet, statement of retained earnings

Income statement, statement of retained earnings, balance sheet

 

17. Unearned revenue is reported on the financial statements as: 

A revenue on the balance sheet

A liability on the balance sheet

An unearned revenue on the income statement

An asset on the balance sheet

An operating activity on the statement of cash flows

 

18. The accrual basis of accounting: 

Is generally accepted for external reporting since it is more useful for most business decisions

Is flawed because it gives complete information about cash flows

Recognizes revenues when received in cash

Recognizes expenses when paid in cash

Eliminates the need for adjusting entries at the end of each period

 

19. On January 1, Able Company purchased equipment costing $135,000 with an estimated salvage value of $10,500, and an estimated useful life of five years. What is the amount that should be recorded as depreciation on December 31? 

$27,000

$24,900 

$29,100

$135,000

 

20. A 10-column spreadsheet used to draft a company’s unadjusted trial balance, adjusting entries, adjusted trial balance and financial statements and which is an optional tool in the accounting process is a(n): 

Adjusted trial balance

Work sheet

Post-closing trial balance

Unadjusted trial balance

General ledger

 

21. Which of the following identifies the proper order of the accounting cycle? 

Analyze, Journalize, Unadjusted Trial Balance

Analyze, Post, Unadjusted Trial Balance

Journalize, Post, Adjusted Trial Balance

Unadjusted Trial Balance, Adjusted Trial Balance, Close

Adjusted Trial Balance, Adjustments, Financial Statements

 

22. The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the: 

Income Summary account

Closing account

Balance column account

Contra account

 

23. A trial balance prepared after adjustments have been recorded is called a(n): 

Balance sheet

Adjusted trial balance

Unadjusted trial balance

Classified balance sheet

Unclassified balance sheet

 

24. If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include: 

A debit to Cash and a credit to Salaries Payable

A debit to Cash and a credit to Prepaid Salaries

A debit to Salaries Payable and a credit to Cash

A debit to Salaries Payable and a credit to Salaries Expense

No entry would be necessary on January 5

 

25. Based on the following information, determine the current assets, assuming all accounts have a normal balance? 

Cash $ 6,754 Dividends $ 2,000

Accounts receivable $ 13,733 Consulting fees earned $ 13,718

Office supplies $ 2,625 Rent expense $ 3,673

Land $ 37,153 Salaries expense $ 6,642

Office equipment $ 14,535 Telephone expense $ 560

Accounts payable $ 6,463 Miscellaneous expense $ 280

Common stock $ 54,490 Retained Earnings ?

 

$74,800

$37,647

$60,265

$23,112 

 

26. Which of the following accounts would not be on the post closing trial balance? 

Accounts Payable

Accounts Receivable

Common Stock

Dividends

 

27. A trial balance prepared after the closing entries have been journalized and posted is the: 

Unadjusted trial balance

Post-closing trial balance

General ledger

Adjusted trial balance

Work sheet

 

28. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account and the company records adjustments only at year-end, the adjusting entry at the end of the first year is: 

Debit Prepaid Insurance, $1,800; credit Cash, $1,800

Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440

Debit Prepaid Insurance, $360; credit Insurance Expense, $360

Debit Insurance Expense, $360; credit Prepaid Insurance, $360 

Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440

 

29. On April 1, 2011, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2011? 

$1,350

$450

$1,012.50

$337.50 

$37.50

 

30. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is: 

2%

20%

200%

500%

$8,000

 

31. A company has sales of $1,500,000, sales discounts of $102,000, sales returns and allowances of $123,000, shipping charges of $15,000, sales commissions of $34,000,net income totaled $263,500, and cost of goods sold of $420,000. What is the net sales amount for the period? 

$1,500,000

$1,275,000

$1,725,000

$1,521,000

$1,479,000

 

32. Given the following information: 

Petty cash balance $ 450.00 Courier receipt $ 82.50

Postage receipt $ 48.00 Office Supplies receipt $ 56.22

Business Meal receipt $ 102.34 Cash on hand at the end of the month $ 76.21

 

What is the amount of cash over and short? 

debit $84.73 

credit $84.73

debit $160.94

credit $160.94

no cash over or short would be recorded

 

33. A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current period. Its days’ sales uncollected is equal to: 

11.7 days

23.3 days

31.3 days 

42.5 days

46.6 days

 

34. Merchandise inventory: 

Is a long-term asset

Is a current asset

Includes supplies

Is classified with investments on the balance sheet

Must be sold within one month

 

35. A company had expenses other than cost of goods sold of $51,000. Determine sales and gross profit given cost of goods sold was $25,000 and net income was $60,000. 

Sales: $136,000; Gross Profit: $111,000 

Sales: $136,000; Gross Profit: $85,000

Sales: $85,000; Gross Profit: $136,000

Sales: $111,000; Gross Profit: $136,000

Sales: $60,000; Gross Profit: $25,000

 

36. A company had $43 missing from petty cash which was not accounted for by petty cash receipts. The correct procedure is to: 

Debit Cash Over and Short for $43

Credit Cash Over and Short for $43

Debit Petty Cash for $43

Credit Petty Cash for $43

Credit Cash for $43

 

37. Which of the following is the most serious limitation of internal controls? 

Computer error

Human fraud or human error

Cost-benefit principle

Cybercrime

Management fraud

 

38. Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses? 

FIFO

Weighted average

LIFO

Specific identification

First In Still Here

 

39. A company had sales of $695,000 and its cost of goods sold of $278,000. Its gross margin equals: 

$(417,000)

$695,000

$278,000

$417,000

 

40. Multiple-step income statements: 

Are required by the FASB

Contain more detail than a simple listing of revenues and expenses

Are required for the perpetual inventory system

List cost of goods sold as an operating expense

Can only be used in perpetual inventory systems

 

41. Goods on consignment: 

Are goods shipped by the owner to the consignee who sells the goods for the owner

Are reported in the consignee’s books as inventory

Are goods shipped to the consignor who sells the goods for the owner

Are not reported in the consignor’s inventory since they do not have possession of the inventory

 

42. A seller of goods or services, usually a manufacturer or wholesaler is known as a: 

Vendor

Payee

Vendee

Creditor

Debtor

 

43. Physical inventory counts: 

Are not necessary under the perpetual system

Are necessary to measure and adjust for inventory shrinkage

Must be taken at least once a month

Require the use of hand-held portable computers

 

44. A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is: 

$3,725.00

$3,925.00

$3,995.00

$4,000.50 

$4,075.00

 

45. The inventory valuation method that tends to smooth out erratic changes in costs is: 

FIFO

Weighted average

LIFO

Specific identification

WIFO

 

46. A remittance advice is: 

An explanation for a payment by check

A bank statement

A voucher

An EFT

A cancelled check

 

47. A merchandising company: 

Earns net income by buying and selling merchandise

Receives fees only in exchange for services

Earns profit from commissions only

Earns profit from fares only

Buys products from consumers

 

48. The understatement of the beginning inventory balance causes: 

Cost of goods sold to be understated and net income to be understated

Cost of goods sold to be understated and net income to be overstated

Cost of goods sold to be overstated and net income to be overstated

Cost of goods sold to be overstated and net income to be understated

Cost of goods sold to be overstated and net income to be correct

 

49. Alpha Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700 and sales discounts of $3,475. Alpha’s net sales for this period equal: 

$94,275

$172,550

$174,250

$176,025

$177,725

 

50. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 15 after the sale? 

$140

$160

$210 

$380

$590