1. Creditors’ claims on the assets of a company are called:
2. Which of the following elements are found on the Balance Sheet?
3. Assets created by selling goods and services on credit are:
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
Return on equity ratio
5. An example of an operating activity is:
Purchasing office equipment
Borrowing money from a bank
Paying off a loan
6. Of the following accounts, the one that normally has a credit balance is:
Sales Salaries Payable
Sales Salaries Expense
7. Reebok had income of $150 million and average assets of $1,800 million. Its return on assets is:
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?
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:
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
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:
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?
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
Post-closing trial balance
Unadjusted trial balance
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
Balance column account
23. A trial balance prepared after adjustments have been recorded is called a(n):
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 ?
26. Which of the following accounts would not be on the post closing trial balance?
27. A trial balance prepared after the closing entries have been journalized and posted is the:
Unadjusted trial balance
Post-closing trial balance
Adjusted trial balance
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?
30. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:
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?
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?
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:
34. Merchandise inventory:
Is a long-term asset
Is a current asset
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?
Human fraud or human error
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?
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:
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:
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:
45. The inventory valuation method that tends to smooth out erratic changes in costs is:
46. A remittance advice is:
An explanation for a payment by check
A bank statement
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:
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?
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