Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following is a correct accounting equation? 1)A) Assets + Revenue = Liabilities + ExpensesB) Assets + Revenue = Owner's equityC) Assets = Liabilities + Owner's equityD) Assets + Liabilities = Owner's equity

2) Owner's equity is $150, 000 and total liabilities are $90, 000. What would total assets be? 2)A) $240, 000 B) $180, 000 C) $60, 000 D) $300, 000

3) Assets are $150, 000 and total liabilities are $90, 000. What would total owner's equity be? 3)A) $240, 000 B) $180, 000 C) $60, 000 D) $300, 000

4) Assets are $270, 000 and owner's equity is $90, 000. What would liabilities be? 4)A) $180, 000 B) $360, 000 C) $60, 000 D) $270, 000

5) Services are performed. Payment is expected next month. How does this affect the accountingequation?

5)

A) Assets increase; owner's equity increasesB) Assets increase; owner's equity decreasesC) Assets decrease; owner's equity decreaseD) Liabilities increase; owner's equity decreases

6) A bill is received for services rendered this month. It will be paid next month. How does receivingthis bill affect the accounting equation?

6)

A) assets decrease; owner's equity decreasesB) assets increase; liabilities increaseC) liabilities increase; owner's equity decreasesD) liabilities increase; owner's equity increases

7) A liability is paid with cash. How does paying this liability affect the accounting equation? 7)A) Assets increase; liabilities decreaseB) Liabilities decrease; owner's equity increasesC) Assets decrease; liabilities decreaseD) Assets increase; liabilities increase

8) The owner withdraws cash from the business. How does this withdrawal affect the accountingequation?

8)

A) Assets decrease; owner's equity increasesB) Assets decrease; owner's equity decreasesC) No effect on the assets, liabilities, or owner's equityD) Assets increase; liabilities decrease

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9) Equipment is purchased by signing a promissory note. How does this purchase affect theaccounting equation?

9)

A) assets increase; liabilities decrease B) assets increase; assets decreaseC) assets increase; liabilities increase D) assets increase; owner's equity increases

10) Cash is collected from a customer who was previously put on account. How does the collection ofthe cash affect the accounting equation?

10)

A) assets decrease; owner's equity decreases B) assets increase; assets decreaseC) assets increase; owner's equity increases D) assets increase; liabilities increase

11) Total liabilities increase by $7, 000. How is the accounting equation affected? 11)A) Assets must have increased by $7000 or owner's equity must have decreased by $7000.B) Assets must have decreased by $7, 000.C) Owner's equity must have increased by $7, 000.D) Assets and owner's equity must have each decreased by $3, 500.

12) The primary objective of financial reporting is to provide information useful for making investmentand lending decisions. To be useful, information must possess certain characteristics. Which of thefollowing is NOT one of the basic characteristics that accounting information must possess to beuseful.

12)

A) reliability B) comparabilityC) an owner's equity section D) relevance

13) Which of the following concepts (or principles) would be most likely to require that a person withthree different businesses keep three different checking accounts?

13)

A) entity concept B) going-concern conceptC) reliability concept D) cost principle

14) Which of the following concepts (or principles) would be most likely to require that data beverifiable; that is, can be confirmed by an independent observer?

14)

A) entity concept B) cost principleC) reliability concept D) going-concern concept

15) Which of the following concepts (principles) would be most likely to require that an item berecorded at the amount actually paid?

15)

A) entity concept B) reliability conceptC) going-concern concept D) cost principle

16) Which of the following concepts (principles) would be most likely to require an assumption thatthe entity will remain in operation for the foreseeable future?

16)

A) cost principle B) going-concern conceptC) entity concept D) reliability concept

17) Which of the following groups of accounts have a normal debit balance? 17)A) Assets and liabilities B) Liabilities and owner's equityC) Revenues and expenses D) Assets and expenses

18) Which of the following accounts increase due to a credit? 18)A) Cash B) Owner's CapitalC) Accounts Receivable D) Both A and B increase when credited.

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19) Which of the following accounts decrease due to a credit? 19)A) Cash B) Owner's CapitalC) Accounts Payable D) Both A and B decrease when credited.

20) Which of the following accounts increase due to a debit? 20)A) Cash B) Interest PayableC) Prepaid Insurance D) Both A and C increase when debited.

21) Which of the following accounts decrease due to a debit? 21)A) Prepaid Insurance B) Interest PayableC) Cash D) Both A and B decrease when debited.

22) An owner invests $20,000 in her business by depositing the cash in the business's checking account.Which of the following occurs?

22)

A) Cash is credited for $20,000. B) Cash is debited for $20,000.C) Owner's capital is debited for $20,000. D) Both B and C.

23) A business purchases equipment for cash of $8,000. Which of the following occurs? 23)A) Cash is credited for $8,000. B) Cash is debited for $8,000.C) Equipment is debited for $8,000. D) Both A and C.

24) A business makes a cash payment of $12, 000 to a creditor. Which of the following occurs? 24)A) Cash is credited for $12, 000. B) Cash is debited for $12, 000.C) Accounts payable is credited for $12, 000. D) Both A and C.

25) A business pays $500 cash for supplies. Which of the following occurs? 25)A) Cash is debited for $500. B) Accounts payable is credited for $500.C) Supplies is debited for $500. D) Both B and C.

26) A business completes services for $16,000 on account. Which of the following occurs? 26)A) Cash is debited for $16,000.B) Accounts receivable is debited for $16,000.C) Service revenue is credited for $16,000.D) Both B and C.

27) A business receives cash in payment of accounts receivable. Which of the following occurs? 27)A) An asset is credited and a liability is debited.B) A liability is debited and a liability is credited.C) An asset is debited and an asset is credited.D) An asset is debited and a liability is credited.

28) An owner withdraws cash from his business. The cash will be used for personal purposes. Which ofthe following occurs?

28)

A) An asset is debited and an owner's equity account is credited.B) An asset is credited and a liability is debited.C) An asset is debited and a liability is credited.D) An asset is credited and an owner's equity account is debited.

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29) A business makes a cash payment of rent. Which of the following occurs? 29)A) A liability is debited and an expense is credited.B) An asset is credited and an expense is debited.C) An asset is credited and a liability is debited.D) An asset is debited and a liability is credited.

30) A business makes a payment of $1,200 on a note payable, consisting of a $200 interest payment anda $1,000 principal payment. Which of the following journal entries would be recorded?

30)

A) Cash is credited for $1,000, Interest Expense is credited for $200, and Notes Payable is debitedfor $1,200.

B) Cash is credited for $1,200, Notes Payable is debited for $1,000, and Interest Expense isdebited for $200.

C) Notes Payable is credited for $1,200, Cash is debited for $1,000, and interest expense isdebited for $200.

D) Notes Payable is credited for $1,000, Cash is credited for $200, and Interest Expense is debitedfor $1,200.

31) A business purchases equipment by paying cash of $8,000 and issuing a note payable of $12,000.Which of the following occurs?

31)

A) Cash is credited for $8,000, Equipment is debited for $20,000 and Notes Payable is credited for$12,000.

B) Cash is credited for $8,000, Equipment is credited for $20,000 and Notes Payable is debited for$12,000.

C) Cash is credited for $8,000, Equipment is credited for $12,000 and Notes Payable is debited for$4,000.

D) Cash is debited for $8,000, Equipment is debited for $12,000 and Notes Payable is credited for$20,000.

32) If a company is using the accrual method of accounting, when is revenue recorded? 32)A) When services are rendered, even though cash may be received at a later date.B) When cash is received, even though services may be rendered at a later date.C) Only when cash is received at the completion of the services.D) Only when cash is received after the completion of the services.

33) Under which of the following methods of accounting is revenue recorded when it is earned,regardless of when cash is received?

33)

A) Accrual B) Cash C) Receivable D) Deferral

34) Under which of the following methods of accounting is revenue recorded ONLY when cash isreceived?

34)

A) Deferral B) Cash C) Accrual D) Receivable

35) Under which of the following methods of accounting is an expense recorded when it is incurred,regardless of when cash is paid?

35)

A) Cash B) Deferral C) Accrual D) Receivable

36) Generally accepted accounting principles require the use of which of the following methods ofaccounting?

36)

A) Accrual B) Receivable C) Cash D) Deferral

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37) Which of the following entries would be recorded ONLY if a company is using the accrual methodof accounting?

37)

A) Cash 1,000Accounts Receivable 1,000

B) Salary Expense 1,000Cash 1,000

C) Cash 1,000Service Revenue 1,000

D) Both A and C

38) Which of the following are differences in the accrual method and cash-basis method of accounting? 38)A) Accrual accounting records expenses when incurred. Cash-basis accounting records expenses

when cash is paid.B) Accrual accounting is required by generally accepted accounting principles because it

provides more information than cash-basis accounting.C) Accrual accounting records revenue when services are rendered. Cash-basis accounting

records revenue when cash is received.D) All of the above are true.

39) Which of the following is the revenue principle? 39)A) The principle that determines when to record revenue.B) The principle that ensures that information is reported at regular intervals.C) The principle that determines when to record expenses.D) None of the above.

40) Which of the following is the matching principle? 40)A) The principle that ensures that information is reported at regular intervals.B) The principle that determines when to record revenue.C) The principle that determines when to record expenses.D) None of the above.

41) Which of the following is the time-period concept? 41)A) The concept that ensures that information is reported at regular intervals.B) The concept that determines when to record expenses.C) The concept that determines when to record revenue.D) None of the above.

42) Robert Rogers, CPA, completed accounting services in December. A bill was mailed on December30. A check arrived in the mail and was deposited on January 5. The revenue principle wouldrequire that which of the following accounts appear on the balance sheet for December 31?

42)

A) Accounts Payable B) Service RevenueC) Accounting Expense D) Accounts Receivable

43) Robert Rogers, CPA, completed accounting services in December. A bill was mailed on December30. A check arrived in the mail and was deposited on January 5. The revenue principle wouldrequire that which of the following accounts appear on the income statement for the year endedDecember 31?

43)

A) Accounts Receivable B) Service RevenueC) Accounting Expense D) Accounts Payable

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44) What debit is required as part of the entry that will eventually require an adjusting entry todepreciation expense?

44)

A) A debit to a deferred revenue account B) A debit to an unearned expense accountC) A debit to a contra account D) A debit to an asset account

45) What credit is required as part of an adjusting entry when an accrued expense is initially recordedas an expense?

45)

A) A credit to a liability account B) A credit to an unearned revenue accountC) A credit to a contra liability D) A credit to a revenue account

46) What credit is required as part of an adjusting entry when an accrued revenue is initially recordedas revenue?

46)

A) A credit to an unearned revenue account B) A credit to a contra liabilityC) A credit to a liability account D) A credit to a revenue account

47) An accrued expense is which of the following? 47)A) An expense that the business has paid but not yet incurredB) An expense that has been paid and incurredC) An expense that the business has incurred but not yet paidD) An expense that will be incurred and paid in the future

48) A prepaid expense is which of the following? 48)A) An expense that the business has incurred but not yet paidB) An expense that the business has paid but not yet incurredC) An expense that has been paid and incurredD) An expense that will be incurred and paid in the future

49) Accrued revenue is which of the following? 49)A) Revenue that has been collected and earnedB) Revenue that the business has collected but not yet earnedC) Revenue that the business has earned but not collectedD) Revenue that will be collected and earned in the future

50) Unearned revenue is which of the following? 50)A) Revenue that will be collected and earned in the futureB) Revenue that the business has collected but not yet earnedC) Revenue that the business has earned but not collectedD) Revenue that has been collected and earned

51) Unearned rent is an example of which of the following? 51)A) A prepaid expense B) Unearned revenueC) Accrued revenue D) An accrued expense

52) Salaries payable is an example of which of the following? 52)A) An accrued expense B) A prepaid expenseC) Unearned revenue D) Accrued revenue

53) A Supplies account is an example of which of the following? 53)A) An accrued expense B) Unearned revenueC) A prepaid expense D) Accrued revenue

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54) Accounts receivable is an example of which of the following? 54)A) An accrued expense B) Unearned revenueC) A prepaid expense D) Accrued revenue

55) On August 1, 2011, Xcel Auto Repair paid $6,000 for six months rent. After adjusting entries aremade, what will be the balance of Prepaid Rent on December 31, 2011?

55)

A) $6,000 B) $1,000 C) $2,000 D) $4,000

56) On December 31, 2010, the balance in Pinnacle Exploration Company's Unearned Revenue is$4,200. In January, 2011 the company received an advance payment of $12,000 for services to beperformed. By May 31, adjustments had been made to recognize $8,500 of the revenue. What wouldbe the balance in Unearned Revenue on May 31, 2011?

56)

A) $8,500 B) $3,500 C) $7,700 D) $16,200

57) At the end of the current year, the accountant for Navistar Graphics failed to make an adjustingentry for wages due to the company's employees for the last week in December. The wages will bepaid in January. What is one of the effects of this error?

57)

A) Total assets are overstated. B) Total liabilities are overstated.C) Net income is overstated. D) Net income is understated.

58) The Supplies account for Vulcan Detail Company had a balance of $3,200 at the beginning of theyear. Additional supplies of $13,400 were purchased during the year. A physical count of theending inventory of supplies revealed that $5,900 of supplies were still on hand. What was totalsupplies expense for the year?

58)

A) $9,100 B) $10,700 C) $4,300 D) $16,400

59) What is the effect of the adjusting entry for depreciation expense? 59)A) The entry decreases total assets and increases total expenses.B) The entry increases total assets and increases total expenses.C) The entry increases total liabilities and increases total expenses.D) The entry decreases total liabilities and increases total expenses.

60) On January 1, 2012, Office Manor's Unearned Revenue account had a balance of $3,800. During theyear, the company received $22,300 for services to be performed in the future. After adjustingentries were made, the balance in Unearned Revenue on December 31, 2012 was $2,900. AccountsReceivable at the beginning of the year were $3,200. Billings for services performed on accountwere $31,200 during the year. After adjusting entries were made, the balance in AccountsReceivable on December 31, 2012 was $1,000. No services were performed with immediate cashcollection. What is the total Service Revenue?

60)

A) $56,600 B) $55,700 C) $53,500 D) $54,400

61) The adjusting entry to record depreciation expense accomplishes which of the following? 61)A) Increases a contra-asset and increases an expenseB) Decreases a liability and increases an expenseC) Increases an asset and increases an expenseD) Decreases a liability and increases a revenue

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62) The adjusting entry to record supplies expense accomplishes which of the following? 62)A) Decreases a liability and increases an expenseB) Increases an asset and increases an expenseC) Decreases a liability and increases a revenueD) Decreases an asset and increases an expense

63) The adjusting entry to record unearned revenue that has now been earned accomplishes which ofthe following?

63)

A) Decreases an asset and increases an expenseB) Decreases a liability and increases an expenseC) Increases an asset and increases an expenseD) Decreases a liability and increases a revenue

64) The adjusting entry to record prepaid insurance that has now been used accomplishes which of thefollowing?

64)

A) Decreases a liability and increases an expenseB) Decreases a liability and increases a revenueC) Decreases an asset and increases an expenseD) Increases an asset and increases an expense

65) A business acquires equipment for $140,000 on January 1. The equipment has a life of seven years.Which of the following is the adjusting entry required on December 31, 2008?

65)

A) Debit $140,000 to Depreciation Expense, credit $140,000 to Accumulated DepreciationB) Debit $20,000 to Depreciation Expense, credit $20,000 to Accumulated DepreciationC) Debit $140,000 to Equipment, credit $140,000 to CashD) Debit $20,000 to Depreciation Expense, credit $20,000 to Equipment

66) Plant assets are long-lived tangible assets used in the operation of a business. The allocation of aplant asset's cost to expense is which of the following?

66)

A) Depreciation B) Historical costC) The revenue principle D) Revenue allocation

67) What type of account is Accumulated Depreciation and what is its normal balance? 67)A) Contra asset, credit B) Revenue, debitC) Liability, credit D) Expense, debit

68) What type of account is Unearned Revenue and what is its normal balance? 68)A) Asset, debit B) Liability, credit C) Asset, credit D) Revenue, debit

69) The accountant for Duman Legal Services failed to make an adjusting entry for supplies inventorythat had been used for the year. Which of the following is true?

69)

A) Total liabilities are overstated. B) Total liabilities are understated.C) Total assets are overstated. D) Total assets are understated.

70) The accountant for Hobson Electrical Repair Company failed to make an adjusting entry to record$5,000 of unpaid salaries for the last two weeks of the year. Which of the following is true?

70)

A) Total revenue is overstated. B) Total revenue is understated.C) Total expenses are overstated. D) Total expenses are understated.

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71) How do the adjusting entries differ from other journal entries? 71)A) Adjusting entries debit or credit at least one income statement account and at least one

balance sheet account.B) Adjusting entries never affect cash.C) Adjusting entries are made only at the end of the period.D) All of the above.

72) Which of the following accounts would most likely appear on the adjusted trial balance (have anaccount balance) but NOT appear on the unadjusted trial balance (account balance would be zero)?

72)

A) Unearned Revenue B) Depreciation ExpenseC) Accumulated Depreciation D) Service Revenue

73) Which of the following is TRUE of plant asset accounts and their related accumulated depreciationaccounts?

73)

A) Accounting for plant assets is the same as for a prepaid expense.B) Accumulated depreciation is a contra-asset account which has a normal balance of a credit

amount.C) The allocation of a plant asset's cost to expenses is called depreciation.D) All of the above are true.

74) Which of the following statements is a TRUE statement concerning the trial balance work sheet? 74)A) The work sheet is a journal.B) The work sheet is a ledger.C) The work sheet is a financial statement.D) The work sheet is a document used to summarize data to prepare the financial statements.

75) Which of the following is the correct order of the steps of preparing the work sheet?I. Compute each account's adjusted balance by combining the trial balance and adjustmentfigures. Enter each account's adjusted amount in the Adjusted Trail Balance columns.II. Enter the account titles and their unadjusted balances in the Trial Balance columns of thework sheet and total the columns.III. Extend (copy) the asset, liability, and owner's equity amounts from the Adjusted TrialBalance to the Balance Sheet columns. Copy the revenue and expense amounts to the IncomeStatement columns. Total the statement columns.IV. Enter the adjusting entries in the Adjustments columns, and total the amounts.V. On the income statement column, compute net income. Enter net income as the balancingamount on the income statement and balance sheet columns. Total the income statement andbalance sheet columns.

75)

A) IV, I, III, V, II B) II, IV, I, III, V C) III, V, IV, I, II D) I, II, III, IV, V

76) Which of the following statements is a TRUE statement about the work sheet? 76)A) Net income appears in the Income Statement debit column.B) Net income appears in the Adjusted Trial Balance debit column.C) Net income appears in the Income Statement credit column.D) Net income appears in the Balance Sheet debit column.

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77) Which of the following is TRUE of a completed work sheet? 77)A) The total debits in the Balance Sheet column equal the total credits in the Balance Sheet

column.B) The total debits in the Adjustments column equal the total credits in the Adjustments column.C) The total debits in the Income Statement column equal the total credits in the Income

Statement column.D) The total debits in the Trial Balance column equal the total credits in the Adjusted Trial

Balance column.

78) Which of the following is the last step of preparing the work sheet? 78)A) Extend (copy) the asset, liability, and owner's equity amounts from the Adjusted Trial Balance

to the Balance Sheet columns. Copy the revenue and expense amounts to the IncomeStatement columns. Total the statement columns.

B) Enter the account titles and their unadjusted balances in the Trial Balance columns of thework sheet and total the columns.

C) Compute each account's adjusted balance by combining the trial balance and adjustmentfigures. Enter each account's adjusted amount in the Adjusted Trail Balance columns.

D) Enter the adjusting entries in the Adjustments columns, and total the amounts.E) On the income statement column, compute net income. Enter net income as the balancing

amount on the income statement and balance sheet columns. Total the income statement andbalance sheet columns.

79) Where does net income appear on a work sheet? 79)A) Net income appears in the Balance Sheet credit column and in the Income Statement debit

column.B) Net income appears only in the Income Statement debit column.C) Net income appears only in the Balance Sheet credit column.D) Net income appears in the Income Statement credit column and in the Balance Sheet debit

column.

80) Interest expense in the work sheet's Trial Balance column is $3,000. Interest expense in the IncomeStatement column is $7,000. Which of the following entries would have caused this difference?

80)

A) A $4,000 entry to interest expense in the work sheet's Adjustments credit columnB) A $7,000 entry to interest expense in the work sheet's Adjustments credit columnC) A $4,000 entry to interest expense in the work sheet's Adjustments debit columnD) A $4,000 entry to interest payable in the work sheet's Adjustments credit column

81) In which of the columns of the worksheet would the unearned fees account be found? 81)A) In the Trial Balance credit column, the Adjusted Trial Balance credit column and the Balance

Sheet credit columnB) In the Balance Sheet credit column and the Income Statement debit columnC) In the Balance Sheet debit column and the Income Statement credit columnD) In the Trial Balance debit column, the Adjusted Trial Balance debit column and the Balance

Sheet debit column

82) Which of the following does NOT appear on the work sheet? 82)A) The adjusted trial balance B) Adjusting entriesC) Closing entries D) The trial balance

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83) Which of the following situations would indicate that an error has been made? 83)A) The total of the debit column of Adjustments does not equal the total of the credit column of

Adjustments.B) The total of the debit column of the Balance Sheet does not equal the total of the debit column

of the Income Statement.C) The total of the debit column of the Trial Balance does not equal the total of the debit column

of the Adjusted Trial Balance.D) All of these situations are the result of an error.

84) Where can closing entries be found? 84)A) On a company's balance sheetB) In a company's general journalC) On a company's work sheetD) On a company's statement of owner's equity

85) Which of the following accounts will be closed by crediting the Income Summary? 85)A) Depreciation Expense B) Accumulated DepreciationC) Service Revenue D) Accounts Payable

86) Which of the following accounts has a remaining non-zero balance after the closing process iscompleted.

86)

A) The Accumulated Depreciation account has a non-zero balance.B) The Depreciation Expense account has a non-zero balance.C) The Owner's Withdrawals account has a non-zero balance.D) The Service Revenue account has a non-zero balance.

87) Which of the following is the measure of how quickly an item can be converted to cash? 87)A) Debt ratio B) Current ratioC) Accounting cycle D) Liquidity

88) Which of the following is an asset that is expected to be converted to cash, sold, or consumedduring the next year (or normal operating cycle if longer)?

88)

A) Quick asset B) Current assetC) Long-term asset D) Liquid asset

89) Which of the following is the time span during which cash is paid for goods and services, which arethen sold to customers from whom the business then collects cash?

89)

A) Liquidity B) Current ratioC) Long-term asset D) Operating cycle

90) The steps of the operating cycle are listed below. What is the correct order of the steps?I. Goods and services are sold to customers.II. The business collects cash from customers.III. Cash is used to acquire goods and services.

90)

A) III, II, I B) III, I, II C) I, II, III D) II, III, I

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Table 4.1Greene Landscaping

Balance SheetDecember 31, 2008

Assets Liabilities

Cash $15,000 Accounts payable $ 22,000Accounts Receivable 30,000 Salaries payable 12,000Supplies 4,000 Unearned service revenue

25,000Prepaid insurance 8,000 Total liabilities 59,000Equipment $85,000

Less: Accumulated Owner's Equity depreciation 10,000 75,000

Seth Greene, capital 73,000Total liabilities and

Total assets $132,000 owner's equity $132,000

91) The Balance Sheet for Green Landscaping is presented above in Table 4.1. Which of the following isthe current ratio?

91)

A) .25 B) .97 C) .68 D) 1.27

92) The Balance Sheet for Green Landscaping is presented above in Table 4.1. Which of the following isthe debt ratio?

92)

A) 1.04 B) .45 C) 39 D) .79

93) Which of the following is considered a rule-of-thumb strong current ratio for businesses? 93)A) .8 B) 1.5 C) 1.0 D) .6

94) Which of the following is considered a rule-of-thumb safe debt ratio for businesses? 94)A) .6 B) 1.5 C) 1.0 D) .8

95) Adkins Company has a current ratio of 1.0 and a debt ratio of .7. Wilson Company has a currentratio of 1.4 and a debt ratio of .5. Which of the following statements is true.

95)

A) The two companies' debt ratios and current ratios vary in different directions and theseresults do not make sense.

B) Adkins appears to be in better financial shape than Wilson.C) Wilson appears to be in better financial shape than Adkins.D) The two companies' debt ratios and current ratios vary in different directions and the

companies appear to be in similar financial shape.

96) Which of the following does the current ratio measure? 96)A) The current ratio measures the company's overall ability to pay liabilities.B) The current ratio measures the company's ability to pay current liabilities with current assets.C) The current ratio measures the proportion of the company's assets that are financed with debt.D) Both B and C are true.

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97) Which of the following statements is an accurate interpretation of a current ratio of 2.5? 97)A) The company has $2.50 of current assets for every $1.00 of current liabilities.B) The company has $2.00 of current assets for every $.50 of liabilities.C) The company has $2.50 of current assets for every $1.00 of liabilities.D) The company has $2.00 of current assets for every $.50 of current liabilities.

98) Which of the following statements is an accurate interpretation of a debt ration of .60? 98)A) The company has $.60 of liabilities for every $1.00 of assets.B) The company has $.60 of current liabilities for every $1.00 of current assets.C) The company has $.60 of current assets for every $1.00 of current liabilities.D) The company has $.60 of assets for every $1.00 of liabilities.

99) A company uses the perpetual inventory method. Which of the following entries would be made torecord a purchase of inventory on account?

99)

A) The accounting entry would be a debit to Accounts Payable and a credit to Inventory.B) The accounting entry would be a debit to Purchases and a credit to Accounts Payable.C) The accounting entry would be a debit to Inventory and a credit to Accounts Payable.D) The accounting entry would be a debit to Accounts Payable and a credit to Purchases.

100) A company that uses the perpetual inventory method purchases inventory of $1,000 on accountwith terms of 2/10 net/30. Which of the following entries would be made to record the payment forthe inventory if the payment is made within 10 days?

100)

A) The accounting entry would be a $1,000 debit to Accounts Payable and a $1,000 credit toCash.

B) The accounting entry would be a $20 debit to Inventory, a $1,000 debit to Accounts Payableand a $1,020 credit to Cash.

C) The accounting entry would be a $1,000 debit to Accounts Payable, a $20 credit to Inventoryand a $980 credit to Cash.

D) The accounting entry would be a $980 debit to Accounts Payable, a $20 debit to Inventory anda $1,000 credit to Cash.

101) A company that uses the perpetual inventory method purchases inventory of $1,000 on accountwith terms of 2/10 net/30. Which of the following entries would be made to record the payment forthe inventory if the payment is made 20 days later?

101)

A) The accounting entry would be a $1,000 debit to Accounts Payable, a $20 credit to Inventoryand a $980 credit to Cash.

B) The accounting entry would be a $980 debit to Accounts Payable, a $20 debit to Inventory anda $1,000 credit to Cash.

C) The accounting entry would be a $20 debit to Inventory, a $1,000 debit to Accounts Payableand a $1,020 credit to Cash.

D) The accounting entry would be a $1,000 debit to Accounts Payable and a $1,000 credit toCash.

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102) A company uses the perpetual inventory method. Which of the following entries would be made torecord a return of $200 of inventory purchased on account?

102)

A) The accounting entry would be a $200 debit to Inventory and a $200 credit to AccountsPayable.

B) The accounting entry would be a $200 debit to Accounts Payable and a $200 credit toPurchases.

C) The accounting entry would be a $200 debit to Purchases and a $200 credit to AccountsPayable.

D) The accounting entry would be a $200 debit to Accounts Payable and a $200 credit toInventory.

103) A company that uses the perpetual inventory method purchases inventory of $1,000 on accountwith terms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of thefollowing entries would be made to record the payment for the inventory if the payment is madewithin 10 days?

103)

A) The accounting entry would be a $784 debit to Accounts Payable, a $16 debit to Inventory anda $800 credit to Cash.

B) The accounting entry would be an $800 debit to Accounts Payable and an $800 credit to Cash.C) The accounting entry would be an $800 debit to Accounts Payable, a $16 credit to Inventory

and a $784 credit to Cash.D) The accounting entry would be a $16 debit to Inventory, a $800 debit to Accounts Payable and

a $816 credit to Cash.

104) Which of the following does "FOB Shipping Point" mean? 104)A) The seller pays the transportation costs. B) The buyer pays the transportation costs.C) Both A and B are true D) Neither A nor B are true.

105) Which of the following does "FOB Destination" mean? 105)A) The seller pays the transportation costs. B) The buyer pays the transportation costs.C) Both A and B are true D) Neither A nor B are true.

106) Which of the following is generally a merchandiser's major cost? 106)A) Buildings B) Salary expenseC) Advertising D) Cost of goods sold

107) Which of the following describes Freight Out? 107)A) Freight Out is part of Merchandise Inventory.B) Freight Out is an operating expense.C) Both A and B are correct.D) None of the above.

108) Which one of the following is the basis for Cost of Goods Sold? 108)A) Cost of Goods Sold is based on the net realizable value of the merchandise.B) Cost of Goods Sold is based on the value of the merchandise when it is sold.C) Cost of Goods Sold is based on the selling price of the merchandise.D) Cost of Goods Sold is based on the entity's cost.

14

109) A company uses the perpetual inventory method. Which of the following entries would be made torecord a sale of merchandise on account?

109)

A) The accounting entry would be a debit to Accounts Receivable and a credit to Sales Revenue.B) The accounting entry would be a debit to Sales Revenue and a credit to Accounts Receivable.C) The accounting entry would be a debit to Cost of Goods Sold and a credit to Inventory.D) Both A and C would be necessary to record the sale.

Table 5.1Sales revenue $460,000Cost of goods sold 300,000Operating expenses 85,000Sales discounts 20,000Sales returns and allowances 15,000Interest Revenue 5,000

110) Refer to Table 5.1. What is net sales revenue? 110)A) $425,000 B) $415,000 C) $455,000 D) $400,000

111) Refer to Table 5.1. What is gross profit? 111)A) $140,000 B) $160,000 C) $125,000 D) $90,000

112) Refer to Table 5.1. What is operating income? 112)A) $160,000 B) $190,000 C) $40,000 D) $55,000

113) Refer to Table 5.1. What is net income? 113)A) $180,000 B) $60,000 C) $35,000 D) $45,000

114) Which of the following accounts are involved in the closing entries when a merchandisingcompany uses the perpetual inventory system?

114)

A) Operating Income and Cost of Goods SoldB) Gross Profit, Sales Returns and Allowances, and Sales DiscountsC) Cost of Goods Sold, Sales Returns and Allowances, and Sales DiscountsD) Operating Expenses, Sales Revenue, and Gross Profit

115) The Income Summary account has a $25,000 credit balance after the revenue and expenses accountshave been closed. To which account is this balance closed?

115)

A) The Owner's Capital account B) The Owner's Withdrawals accountC) The Cost of Goods Sold account D) The Sales Revenue account

116) Which of the following would NOT be included in Operating expenses? 116)A) Rent on the home office building B) Executive SalariesC) Office Employee Salaries D) Purchase Discounts

117) Which of the following financial statements would include cost of goods sold? 117)A) Classified balance sheet B) Single-step income statementC) Multiple-step income statement D) Both B and C

118) On which of the following does operating income appear? 118)A) Classified balance sheet B) Single-step income statementC) Multiple-step income statement D) Both B and C

15

119) Which of the following describes a single-step income statement? 119)A) Format that contains subtotals to highlight significant relationshipsB) Format that groups all revenues together and then lists and deducts all expenses together

without subtotalsC) Both of the aboveD) Neither of the above

120) Which of the following financial statements would include gross profit? 120)A) Classified balance sheet B) Single-step income statementC) Multiple-step income statement D) Both B and C

121) Which of the following is gross profit divided by net sales? 121)A) Rate of inventory turnover B) Debt ratioC) Gross profit percentage D) Current ratio

122) Which of the following is cost of goods sold divided by average inventory? 122)A) Current ratio B) Gross profit percentageC) Rate of inventory turnover D) Debt ratio

123) Which of the following is the gross profit percentage? 123)A) Gross profit divided by net sales revenue B) Gross profit times net sales revenueC) Gross profit minus net sales revenue D) Gross profit plus net sales revenue

124) Which of the following correctly describes the rate of inventory turnover? 124)A) The rate of inventory turnover indicates how quickly inventory is received from the supplier

after the order is placed.B) The rate of inventory turnover indicates how many days it takes from the time an order is

received to the day it is shipped.C) The rate of inventory turnover indicates how rapidly inventory is sold.D) The rate of inventory turnover indicates how many days it takes the inventory to travel

between the seller's warehouse and the buyer's warehouse.

125) A company's net sales revenues are $540,000. Its cost of goods sold is $360,000. Which of thefollowing is its gross profit percentage?

125)

A) 33.33% B) 300% C) 100% D) 66.67%

126) Which of the following correctly describes the gross profit percentage? 126)A) Merchandising companies strive to increase the gross profit percentage.B) The gross profit percentage is one of the most carefully watched measures of profitability.C) For most companies, the gross profit percentage changes little from year to year.D) All of the above are true.

127) A company's net sales revenues are $1,000,000. Its cost of goods sold is $400,000. Which of thefollowing is its gross profit percentage?

127)

A) 167% B) 60% C) 250% D) 40%

128) A company's cost of goods sold is $1,000,000. Its average inventory is $100,000. Which of thefollowing is its rate of inventory turnover?

128)

A) 10 B) .1 C) .01 D) 100

16

129) If a company uses the periodic inventory method, which of the following is subtracted from cost ofgoods available for sale to arrive at cost of goods sold?

129)

A) Purchase discounts and purchase returns and allowancesB) Ending inventoryC) Net purchasesD) Beginning inventory

130) If a company uses the periodic inventory method, which of the following is subtracted frompurchases to arrive at net purchases?

130)

A) Purchase discounts and purchase returns and allowancesB) Ending inventoryC) Beginning inventoryD) Cost of goods available for sale

131) If a company uses the periodic inventory method, which of the following is added to beginninginventory to arrive at cost of goods available for sale?

131)

A) Purchase discounts and purchase returns and allowancesB) Ending inventoryC) Net purchases and freight inD) Purchases

132) A company uses the periodic inventory method. Which of the following entries would be made torecord a $1,200 purchase of inventory on account?

132)

A) The accounting entry would be a $1,200 debit to Inventory and a $1,200 credit to AccountsPayable.

B) The accounting entry would be a $1,200 debit to Purchases and a $1,200 credit to AccountsPayable.

C) The accounting entry would be a $1,200 debit to Accounts Payable and a $1,200 credit toPurchases.

D) The accounting entry would be a $1,200 debit to Accounts Payable and a $1,200 credit toInventory.

133) A company that uses the periodic inventory method purchases inventory of $1,000 on account withterms of 2/10 net/30. Which of the following entries would be made to record the payment for theinventory if the payment is made 20 days later?

133)

A) The accounting entry would be a $980 debit to Accounts Payable, a $20 debit to PurchaseDiscounts and a $1,000 credit to Cash.

B) The accounting entry would be a $1,000 debit to Accounts Payable, a $20 credit to PurchaseDiscounts and a $980 credit to Cash.

C) The accounting entry would be a $20 debit to Purchase Discounts, a $1,000 debit to AccountsPayable and a $1,020 credit to Cash.

D) The accounting entry would be a $1,000 debit to Accounts Payable and a $1,000 credit toCash.

17

134) A company that uses the periodic inventory method purchases inventory of $1,000 on account withterms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of the followingentries would be made to record the payment for the inventory if the payment is made within 10days?

134)

A) The accounting entry would be an $800 debit to Accounts Payable and an $800 credit to Cash.B) The accounting entry would be an $800 debit to Accounts Payable, a $16 credit to Purchase

Discounts and a $784 credit to Cash.C) The accounting entry would be a $16 debit to Purchase Discounts, an $800 debit to Accounts

Payable and an $816 credit to Cash.D) The accounting entry would be a $784 debit to Accounts Payable, a $16 debit to Purchase

Discounts and a $800 credit to Cash.

135) A company uses the periodic inventory method. Which of the following will result in an increase ininventory?

135)

A) Net purchases exceed cost of goods sold.B) Net purchases is less than cost of goods available for sale.C) Cost of goods sold exceeds cost of goods available for sale.D) It is impossible to determine with this information.

136) Which of the following describes a multiple-step income statement? 136)A) Format that groups all revenues together and then lists and deducts all expenses together

without subtotalsB) Format that contains subtotals to highlight significant relationshipsC) Both of the aboveD) Neither of the above

137) Which of the following is the rate of inventory turnover? 137)A) Cost of goods sold divided by average inventoryB) Cost of goods sold times average inventoryC) Cost of goods sold divided by gross profitD) Cost of goods sold times gross profit

138) Which of the following is (are) inventory costing methods allowed by GAAP? 138)A) Average cost B) Last in first outC) Specific unit cost D) All of the above

139) Which of the following inventory costing methods is based on the actual cost of each particular unitof inventory?

139)

A) Specific unit cost B) Average costC) Last in first out D) First in first out

140) Under which of the following inventory costing methods is the cost of goods sold based on the costof the oldest purchases?

140)

A) Specific unit cost B) Average costC) Last in first out D) First in first out

141) Under which of the following inventory costing methods is the cost of goods sold based on theaverage cost of the purchases during the period?

141)

A) Specific unit cost B) Average costC) Last in first out D) First in first out

18

142) Which of the following inventory costing methods is the LEAST likely to mimic the actual physicalflow of inventory?

142)

A) Specific unit cost B) Average costC) Last in first out D) First in first out

143) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 onFebruary 28. It sold 150 units for $45 each from March 1 through December 31. If the company usesthe FIFO inventory costing method, which of the following amounts will be the amount ofinventory on the December 31 balance sheet?

143)

A) $1,500 B) $1,000 C) $2,250 D) $1,250

144) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 onFebruary 28. It sold 150 units for $45 each from March 1 through December 31. If the company usesthe average cost inventory costing method, which of the following amounts will be the amount ofinventory on the December 31 balance sheet?

144)

A) $1,000 B) $2,250 C) $1,500 D) $1,250

145) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 onFebruary 28. It sold 150 units for $45 each from March 1 through December 31. If the company usesthe average cost inventory costing method, which of the following amounts will be the amount ofcost of goods sold on the December 31 income statement?

145)

A) $4,000 B) $3,750 C) $6,750 D) $3,500

146) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 onFebruary 28. It sold 150 units for $45 each from March 1 through December 31. If the company usesthe LIFO inventory costing method, which of the following amounts will be the amount of cost ofgoods sold on the December 31 income statement?

146)

A) $6,750 B) $3,750 C) $3,500 D) $4,000

147) Which of the following states that a company must perform strictly proper accounting ONLY foritems that are significant to the business's financial statements?

147)

A) Accounting conservatism B) Materiality conceptC) Disclosure principle D) Consistency principle

148) Which of the following states that the business should use the same accounting methods fromperiod to period?

148)

A) Disclosure principle B) Materiality conceptC) Accounting conservatism D) Consistency principle

149) Which of the following assets is generally reported at the lower of cost or market? 149)A) Cash B) Accounts receivableC) Prepaid insurance D) Inventory

150) Which of the following is used for "market" when valuing inventory at lower of cost or market? 150)A) Cost plus the company's normal mark-up percentageB) Sales price less the company's normal mark-up percentageC) Sales priceD) Current replacement price

19

151) Which of the following financial statements are affected by the use of the lower-of-cost-or-marketrule?

151)

A) The income statementB) The balance sheetC) Both the balance sheet and the income statementD) Neither the balance sheet nor the income statement

152) The accountant for a company determines that the 20 units of inventory on hand at the end of theyear should be recorded at their cost of $5.00, each using FIFO. Current replacement cost is $4.50.What amount would be reported as inventory on the balance sheet?

152)

A) $4.50 B) $100.00 C) $90.00 D) $5.00

153) When a company uses the perpetual inventory method, which of the following would be the entryto adjust inventory to lower-of-cost-or-market?

153)

A) Debit Purchases and credit Inventory.B) Debit Cost of Goods Sold and credit Inventory.C) Debit Inventory and credit Cost of Goods Sold.D) Debit Inventory and Credit Purchases

154) Ending inventory for the current year is overstated by $20,000. What effect will this error have onthe following year's net income?

154)

A) The inventory overstatement will not affect net income.B) Net income will be understated by $40,000.C) Net income will be understated by $20,000.D) Net income will be overstated by $20,000.

155) Ending inventory for the current period is understated. What effect will this error have on owner'sequity?

155)

A) Owner's equity will be overstated at the end of the current period, but is will be correct at theend of the next period.

B) Owner's equity will be overstated at the end of the current period and overstated at the end ofthe next period.

C) Owner's equity will be overstated at the end of the current period and understated at the endof the next period.

D) Owner's equity will be understated at the end of the current period, but it will be correct atthe end of the next period.

156) An audit of Forever Young Cosmetics reveals that beginning inventory was overstated by $3,000.Which of the following will result from the correction of this error?

156)

A) Net income will be reduced by $3,000.B) Cost of goods sold will be reduced by $3,000.C) Gross profit will be increased by $3,000D) Both B and C.

157) Which of the following is TRUE of internal control? 157)A) Internal control procedures tend to diminish the importance of operational efficiency.B) Public companies generally had no internal control systems prior to the enactment of the

Sarbanes-Oxley Act.C) One of the major purposes of internal control is to ensure accurate, reliable accounting

records.D) A company's outside auditor is responsible for the company's internal control system.

20

158) Which of the following is a requirement of the Sarbanes-Oxley Act? 158)A) Public companies oversee the work of auditors of other public companies.B) Accounting firms may not both audit a public client and also provide certain consulting

services for the same client.C) The outside auditor must issue an internal control report for each public company, and the

Public Company Oversight Board evaluates the client's internal controls.D) The Public Company Oversight Board issues an internal control audit report for every

publicly held company.

159) Which of the following is NOT one of the components of internal control? 159)A) Control environment B) Control proceduresC) Theft management D) Risk assessment

160) Which of the following describes the internal control component "risk assessment"? 160)A) Risk assessment is the "tone at the top" of the business.B) A company must identify its risks.C) Risk assessment is designed to ensure that the business's goals are achieved.D) Internal auditors monitor company controls to safeguard assets, and external auditors

monitor the controls to ensure that the accounting records are accurate.

161) Which of the following describes the internal control component "control procedures"? 161)A) Control procedures are designed to ensure that the business's goals are achieved.B) Control procedures are the "tone at the top" of the business.C) Internal auditors monitor company controls to safeguard assets, and external auditors

monitor the controls to ensure that the accounting records are accurate.D) A company must identify its risks.

162) Which of the following describes the internal control procedure "competent, reliable and ethicalpersonnel"?

162)

A) A company must train and supervise high-quality employees.B) A company purchases burglar alarms.C) External auditors monitor internal controls.D) The information system is critical.

163) Which of the following describes the internal control procedure "assignment of responsibilities"? 163)A) To validate their accounting records, a company should have an audit by an external

accountant.B) External auditors monitor internal controls.C) With clearly assigned responsibilities, all important jobs get done.D) Separate the custody of assets from accounting.

164) Which of the following describes the internal control procedure "separation of duties"? 164)A) The information system is critical.B) Cashiers must not have access to accounting records.C) External auditors will monitor internal controls.D) Prenumber invoices and other documents.

21

165) Which of the following describes the internal control procedure "proper documents"? 165)A) Separate the custody of assets from accounting.B) A company should purchase a fireproof vault.C) Prenumber invoices and other documents.D) Mandatory vacations will improve internal control.

166) At the West Texas Clothing Store, a sales employee assists customers with finding the items theclient wishes to purchase, ringing up the purchase and collecting the cash. At the end of the day,this employee counts the cash and fills out a cash-count form. Which internal control procedure isbeing violated by West Texas Clothing Store?

166)

A) Job rotation improves internal control.B) Separation of duties is necessary.C) Competent, reliable, and ethical personnel should be hired.D) To validate their accounting records, a company should have an audit by an external

accountant.

167) Which of the following are internal control procedures commonly used by companies to protecttheir assets?

167)

A) The purchase of fidelity bonds on cashiersB) Mandatory vacations for employeesC) Both A and BD) Neither A nor B

168) Which of the following are particular problems that must be addressed in the internal controls fore-commerce?

168)

A) Trojans B) Phishing expeditionsC) Stolen credit-card numbers D) All of the above

169) Which of the following is a common tactic to overcome internal controls? 169)A) Separation of duties B) EncryptionC) Collusion D) Firewalls

170) Which of the following are reasons for very strict internal control of cash? 170)A) Cash is the most liquid asset because it is the medium of exchange.B) Cash is relatively easy to steal.C) Cash is easy to conceal.D) All of the above are true.

171) A check was written by a business for $205 but recorded in the cash payments journal as $502. Howwould this error be included on the bank reconciliation?

171)

A) A deduction on the bank side B) An addition on the bank sideC) An addition on the book side D) A deduction on the book side

172) Which of the following items will NOT appear on the books side of the reconciliation? 172)A) The bank recorded a $2,000 deposit as $200.B) The bank charged a service fee of $20.C) The bank collected a note receivable of $1,000.D) A nonsufficient funds check of $75 returned to the bank.

22

173) The bank recorded a $2,000 deposit as $200. How would this information be included on the bankreconciliation?

173)

A) An addition on the book side B) An addition on the bank sideC) A deduction on the book side D) A deduction on the bank side

174) The bank collected a note receivable of $1,000. How would this information be included on thebank reconciliation?

174)

A) A deduction on the book side B) An addition on the book sideC) A deduction on the bank side D) An addition on the bank side

175) A check of $75 deposited by a company was returned to the bank for nonsufficient funds. Howwould this information be included on the bank reconciliation?

175)

A) An addition on the book side B) A deduction on the book sideC) An addition on the bank side D) A deduction on the bank side

176) The bank charged a service fee of $20. How would this information be included on the bankreconciliation?

176)

A) An addition on the book side B) An addition on the bank sideC) A deduction on the book side D) A deduction on the bank side

177) Which of the following items found on a bank reconciliation does NOT require an adjusting entry? 177)A) A bank service charge B) A note collected by the bankC) Deposits in transit D) Interest earned

178) Which of the following is TRUE of a bank reconciliation? 178)A) A bank reconciliation should not be prepared by an employee who handles cash transactions.B) A bank reconciliation is part of a sound internal control system.C) A bank reconciliation is a formal financial statement.D) Both A and B are true statements.

179) Which of the following items does NOT cause a difference in the bank balance and the bookbalance on a bank reconciliation?

179)

A) Canceled checks B) Outstanding checksC) Nonsufficient funds checks D) Deposits in transit

180) The following information is available for Matts Unlimited Company for the current month. Whatis the adjusted book balance on the bank reconciliation?

Book balance end of the month $5,575Outstanding checks 584Deposits in transit 2,500Service charges 75Interest revenue 25

180)

A) $5,500 B) $5,525 C) $7,466 D) $5,550

181) A company received a bank statement showing a balance of $62,300. Reconciling items wereoutstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjustedbank balance?

181)

A) $69,350 B) $60,850 C) $72,250 D) $70,850

23

182) A company received a bank statement with a balance of $5,350. Reconciling items included abookkeeper error of $200 (a $300 check recorded as $500), two outstanding checks totaling $720, aservice charge of $15, a deposit in transit of $180, and interest revenue of $21. What is the adjustedbalance?

182)

A) $5,016 B) $4,636 C) $4,810 D) $4,610

183) Which of the following would be included in a journal to record an nsf check? 183)A) A debit to miscellaneous expense and a credit to cashB) A debit to cash and a credit to accounts receivableC) A debit to accounts payable and a credit to cashD) A debit to accounts receivable and a credit to cash

184) Which of the following is used by many companies to separate cash duties and establish controlover cash receipts?

184)

A) An encryption system B) An imprest systemC) A lock-box system D) A firewall system

185) Which of the following is the last step in the daily control over cash receipts by mail? 185)A) A mailroom clerk opens the mail and sends the remittance advices to the accounting

department.B) The controller compares the records of the day's bank deposit amount from the treasurer and

the debit to Cash from the accounting department.C) A mailroom employee sends all customer checks to the treasurer who has the cashier make

the bank deposit.D) The accounting department prepares journal entries to Cash and the customers' accounts.

186) Which of the following is the first step in the purchasing and payment process? 186)A) The purchaser sends a check to the supplier.B) The purchase receives the inventory and prepares a receiving report.C) The purchaser sends a purchase order to the supplier.D) The supplier ships the goods and sends an invoice to the purchaser.

187) Which of the following is the entry to establish a petty cash account? 187)A) Petty cash

Cash in BankB) Cash in Bank

Petty CashC) Miscellaneous Expense

Cash in BankD) Miscellaneous Expense

Petty Cash

188) Which of the following would be included in the entry to record the replenishment of a petty cashfund?

188)

A) A credit to petty cash B) A debit to cash in bankC) A credit to various expenses and assets D) A credit to cash in bank

189) A petty cash fund was established with a $250 balance. It currently has cash of $31 and petty cashtickets totaling $219. Which of the following would be included in the entry to replenish the fund?

189)

A) A credit to cash in bank for $250 B) A credit to petty cash for $219C) Debits to various expenses for $219 D) A debit to petty cash for $219

24

190) Which of the following is NOT a control over petty cash? 190)A) A specific amount of cash must be kept on hand.B) All petty cash payments must be supported by a petty cash ticket.C) Several employees must be designated as petty cash custodian.D) All of the above are controls over petty cash.

191) Which of the following signatures (or initials) should appear on a completed petty cash ticket? 191)A) The signatures of the petty cash custodian and the recipient of cashB) The signatures of the petty cash custodian and the controllerC) Only the signature of the petty cash custodianD) Only the signature of the recipient of cash

192) Petty cash is accounted for by maintaining a constant balance in the petty cash account, supportedby the fund (cash plus payment tickets) totaling the same amount. Which of the following is thistype of system?

192)

A) An imprest system B) A balanced systemC) A voucher system D) A control system

193) Which of the following are key issues in controlling and managing receivables? 193)A) Extend credit only to customers who are most likely to pay.B) Pursue collection from customers to maximize cash flow.C) Separate cash-handling, credit, and accounting duties to keep employees from stealing cash

collected from customers.D) All of the above are key issues in controlling and managing receivables.

194) Which of the following is a method of establishing control over collections of accounts receivable? 194)A) Set up a petty cash fund.B) Establish a bank lock-box system.C) Allow no one but the bookkeeper to handle cash.D) Designate an authorized check signer.

195) Which of the following are the two methods of accounting for uncollectible receivables? 195)A) The allowance method and the direct write-off methodB) The allowance method and the liability methodC) The asset method and the sales methodD) The direct write-off method and the liability method

196) Which of the following are the two methods of estimating uncollectible receivables? 196)A) The direct write-off method and the percent-of-sales methodB) The allowance method and the percent-of-sales methodC) The aging-of-accounts-receivable method and the percent-of-sales methodD) The allowance method and the direct write-off method

197) Which of the following is the income-statement approach to estimating bad debts? 197)A) The percent-of-sales methodB) The aging-of-accounts-receivable methodC) The direct write-off methodD) The allowance method

25

198) Which of the following is the balance-sheet approach to estimating bad debts? 198)A) The percent-of-sales methodB) The allowance methodC) The direct write-off methodD) The aging-of-accounts-receivable method

199) The allowance for uncollectible accounts currently has a credit balance of $200. The company'smanagement estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are$115,000. What will be the amount of uncollectible-account expense reported on the incomestatement?

199)

A) $3,275 B) $3,075 C) $2,675 D) $2,875

200) The allowance for uncollectible accounts currently has a credit balance of $200. The company'smanagement estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are$115,000. What will be the amount of allowance for uncollectible accounts reported on the balancesheet?

200)

A) $2,875 B) $2,675 C) $3,075 D) $3,275

201) The allowance for uncollectible accounts currently has a credit balance of $900. After analyzing theaccounts in the accounts receivable subsidiary ledger, the company's management estimates thatuncollectible accounts will be $15,000. What will be the amount of uncollectible-account expensereported on the income statement?

201)

A) $14,900 B) $14,100 C) $15,900 D) $15,000

Table 9.1The following information is from the 2008 records of Armadillo Camera Shop:

Accounts Receivable, December 31, 2008 $20,000 (debit)Allowance for uncollectible accounts, December 31, 2008

prior to adjustment 600 (debit)Net credit sales for 2008 95,000Accounts written off as uncollectible during 2008 7,000Cash sales during 2008 27,000

202) Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method.Management estimates that 3% of net credit sales will be uncollectible. Which of the following willbe the amount of Uncollectible Accounts Expense?

202)

A) $2,250 B) $7,000 C) $2,850 D) $3,450

203) Refer to Table 9.1. Uncollectible accounts expense is estimated by the aging-of-accounts-receivablemethod. Management estimates that $2,850 of accounts receivable will be uncollectible. Which ofthe following will be the amount of Uncollectible Accounts Expense?

203)

A) $2,850 B) $2,250 C) $3,450 D) $7,000

204) Refer to Table 9.1. Uncollectible accounts expense is determined by the direct write-off method.Which of the following will be the amount of Uncollectible Accounts Expense?

204)

A) $3,450 B) $7,000 C) $2,850 D) $2,250

26

205) Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method.Management estimates that 3% of net credit sales will be uncollectible. Which of the following willbe the amount of Allowance for Uncollectible Accounts after adjustment?

205)

A) $2,850 B) $3,450 C) $7,000 D) $2,250

206) Refer to Table 9.1. Uncollectible accounts expense is estimated by the aging-of-accounts-receivablemethod. Management estimates that $2,850 of accounts receivable will be uncollectible. Which ofthe following will be the amount of Allowance for Uncollectible Accounts after adjustment?

206)

A) $2,250 B) $7,000 C) $3,450 D) $2,850

207) Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method.Management estimates that 3% of net credit sales will be uncollectible. Which of the following willbe the amount of net accounts receivable after adjustment?

207)

A) $17,150 B) $13,000 C) $16,550 D) $17,750

208) Refer to Table 9.1. Uncollectible accounts expense is estimated by the aging-of-accounts-receivablemethod. Management estimates that $2,850 of accounts receivable will be uncollectible. Which ofthe following will be the amount of net accounts receivable after adjustment?

208)

A) $13,000 B) $17,150 C) $16,550 D) $17,750

209) Which of the following are included in the cost of land? 209)A) The cost of clearing the land B) The cost of pavingC) The cost of outdoor lighting D) The cost of fencing

210) Which of the following is included in the cost of a plant asset? 210)A) The taxes paidB) The purchase price of the plant assetC) Amounts paid to ready the asset for its intended useD) All of the above

211) Which of the following assets groups includes fencing? 211)A) Buildings B) Machinery and equipmentC) Land improvements D) Land

212) Which of the following assets groups includes the cost of clearing land and removing unwantedbuildings?

212)

A) Machinery and equipment B) LandC) Land improvements D) Buildings

213) Which of the following is NOT considered a plant asset? 213)A) Equipment B) Land C) Copyright D) Building

214) A company purchased a truck for $50,000 on July 1, 2009. The truck has an estimated useful life of 5years and will have no salvage value. It is estimated that the truck can be driven for 150,000 miles.The truck was driven for 18,000 miles during 2009. If the goal is to reduce taxable income to thelowest amount, which method should be elected and how much depreciation can be deducted in2009?

214)

A) Only straight-line can be elected B) Units-of-production, $6,000C) Double declining-balance, $10,000 D) Straight-line, $5,000

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215) Which of the following are acceptable methods of computing depreciation? 215)A) Declining-balance B) Straight-lineC) Units-of-production D) All of the above

216) Which of the following is the proper accounting treatment for research and development costs? 216)A) Research and development costs must be expensed.B) Research and development costs must be capitalized and expensed each year to the extent

that their value has declined.C) Research and development costs must be capitalized and amortized over 20 years or less.D) Research and development costs must be capitalized and amortized over 70 years or less.

217) Which of the following is the expense resulting from a decline in the utility of an intangible asset? 217)A) Depletion B) Amortization C) Depreciation D) Obsolescence

218) Which of the following accounting methods is the method used to compute amortization? 218)A) Units-of-production B) Straight-lineC) Declining-balance D) None of the above

219) Which of the following items should be amortized? 219)A) Tangible property, plant, and equipment other than landB) Natural resourcesC) LandD) Intangible property

Table 10.2Navajo Mining Company purchased a mine in 2011 for $3,400,000. It was estimated that the mine contained 200,000 tons ofore and that the mine would be worthless after all of the ore was extracted. The company extracted 25,000 tons of are in 2011and 30,000 tons of ore in 2012.

220) Refer to Table 10.2. What is depletion expense for 2011? 220)A) $680,000 B) $425,000 C) $340,000 D) $510,000

221) Refer to Table 10.2. What is depletion expense for 2012? 221)A) $340,000 B) $680,000 C) $510,000 D) $425,000

222) Which of the following accounting methods is the method used to compute depletion? 222)A) Units-of-production B) Straight-lineC) Declining-balance D) None of the above

223) Which of the following is the expense resulting from a decline in the utility of natural resource? 223)A) Depletion B) Depreciation C) Obsolescence D) Amortization

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224) Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulateddepreciation of $8,500. The company exchanges the equipment for new equipment worth $12,000.In addition to the old equipment, the company pays $10,000 for the new equipment. Which of thefollowing is the correct entry to record the transaction?

224)

A) Refrigeration equipment 12,000Accumulated depreciation 8,500Gain on exchange of equipment 500

Cash 10,000Refrigeration equipment 10,000

B) Refrigeration equipment 11,000Accumulated depreciation 8,500Loss on exchange of equipment 500

Cash 10,000Refrigeration equipment 10,000

C) Refrigeration equipment 11,500Accumulated depreciation 8,500

Cash 10,000Refrigeration equipment 10,000

D) None of the above

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