1. Creditors’ claims on the assets of a company are called: (Points : 2)
Net losses
Expenses
Revenues
Equity
Liabilities
2. The primary objective of financial accounting is: (Points : 2)
To serve the decision-making needs of internal users
To provide financial statements to help external users analyze and interpret an organization’s activities
To monitor and control company activities
To provide information on both the costs and benefits of managing products and services
To know what, when and how much to produce
3. Assets created by selling goods and services on credit are: (Points : 2)
Accounts payable
Accounts receivable
Liabilities
Expenses
4. The debt ratio is used: (Points : 2)
To measure the amount of equity relative to the expenses
To reflect the risk associated with a company’s debts
Only by banks when a business applies for a loan
To determine how much debt a firm should pay off
5. Net Income: (Points : 2)
Decreases equity
Represents the amount of assets owners put into a business
Equals assets minus liabilities
Is the excess of revenues over expenses
Represents the owners’ claims against assets
6. Internal users of accounting information include: (Points : 2)
Shareholders
Customers
Creditors
Government regulators
Line Supervisor
7. The principle that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash and (3) measures the amount of revenue as the cash plus the cash equivalent value of any non-cash assets received from customers in exchange for goods or services is called the: (Points : 2)
Going-concern principle
Cost principle
Revenue recognition principle
Objectivity principle
Business entity principle
8. Risk is: (Points : 2)
Net income divided by average total assets
The reward for investment
The uncertainty about the expected return that will be earned from an investment
Unrelated to expected return
9. Source documents include all of the following except: (Points : 2)
Sales tickets
Ledgers
Checks
Purchase orders
Bank statements
10. An example of an operating activity is: (Points : 2)
Paying wages
Purchasing office equipment
Borrowing money from a bank
Selling stock
Paying off a loan
11. Which accounting assumption assumes that all accounting information is reported monthly or yearly? (Points : 2)
Business entity assumption
Monetary unit assumption
Value assumption
Cost assumption
Time period assumption
12. Distributions of assets by a business to its stockholders are called: (Points : 2)
Dividends
Expenses
Assets
Retained earnings
Net Income
13. Which of the following elements are found on the income statement? (Points : 2)
Cash
Accounts Receivable
Common Stock
Retained Earnings
Salaries Expense
14. 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? (Points : 2)
$154,700
$206,700
$114,700
$575,300
$160,700
15. The financial statement that shows: beginning and ending retained earnings balances and the effects of net income (loss) and a dividend for the period is the: (Points : 2)
Statement of financial position
Statement of cash flows
Balance sheet
Income statement
Statement of retained earnings
16. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: (Points : 2)
Cash basis accounting
The matching principle
The time period principle
Accrual basis accounting
Revenue basis accounting
17. Which of the following accounts would not be on the post closing trial balance? (Points : 2)
Accounts Payable
Accounts Receivable
Common Stock
Dividends
18. Financial statements are typically prepared in the following order: (Points : 2)
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
19. 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: (Points : 2)
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
20. The accrual basis of accounting: (Points : 2)
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
21. Unearned revenue is reported on the financial statements as: (Points : 2)
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
22. A trial balance prepared after the closing entries have been journalized and posted is the: (Points : 2)
Unadjusted trial balance
Post-closing trial balance
General ledger
Adjusted trial balance
Work sheet
23. 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? (Points : 2)
$1,350
$450
$1,012.50
$337.50
$37.50
24. 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: (Points : 2)
Income Summary account
Closing account
Balance column account
Contra account
25. On June 30, 2011, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31, 2011 for Apricot would include: (Points : 2)
A debit to an expense for $1,250
A debit to a prepaid expense for $1,250
A credit to an expense for $3,750
A debit to a prepaid expense for $3,750
26. An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n): (Points : 2)
Accrued expense
Contra account
Accrued revenue
Intangible asset
Adjunct account
27. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is: (Points : 2)
2%
20%
200%
500%
$8,000
28. On April 30, 2011, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company’s income statement for the year ended December 31, 2011? (Points : 2)
$500
$4,000
$6,000
$14,000
$18,000
29. The Retained Earnings account has a credit balance of $17,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800 and dividends are $9,000, what is the ending balance in the Retained Earnings account after all closing entries are made? (Points : 2)
$8,000
$15,400
$23,400
$17,000
$32,400
30. 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? (Points : 2)
$27,000
$24,900
$29,100
$135,000
31. A company had $43 missing from petty cash which was not accounted for by petty cash receipts. The correct procedure is to: (Points : 2)
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
32. Physical inventory counts: (Points : 2)
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
33. The full disclosure principle: (Points : 2)
Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made and its effect on net income
Requires that companies use the same accounting method for inventory valuation period after period
Is not subject to the materiality principle
Is only applied to retailers
Is also called the consistency principle
34. Acme-Jones Corporation uses a LIFO perpetual inventory system.
August 2, 25 units were purchased at $12 per unit.
August 5, 10 units were purchased at $13 per unit
August 15, 12 units were sold at $25 per unit.
August 18, 15 units were purchased at $14 per unit.
What was the amount of the ending inventory for the month of August? (Points : 2)
$496.00
$486.00
$492.57
$300.00
$510.00
35. Days’ sales in inventory: (Points : 2)
Is also called days’ stock on hand
Focuses on average inventory rather than ending inventory
Is used to measure solvency
Is calculated by dividing cost of goods sold by ending inventory
Is a substitute for the acid-test ratio
36. Which of the following procedures would weaken the control over cash receipts that arrive through the mail? (Points : 2)
After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender’s name, the amount and an explanation of why the money is sent
The bank reconciliation is prepared by a person who does not handle cash or record cash receipts
For safety, only one person should open the mail and that person should immediately deposit the cash received in the bank
The cashier should not also be the record keeper who records the amounts received in the accounting records
All of the above are good internal control procedures over cash receipts that arrive through the mail
37. Given the following information, determine the cost of goods sold at December 31 using the LIFO periodic inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit
December 15: 20 units were purchased at $10.15 per unit
December 22: 18 units were sold at $35 per unit (Points : 2)
$284.70
$332.10
$281.25
$290.70
$297.00
38. Which of the following is the most serious limitation of internal controls? (Points : 2)
Computer error
Human fraud or human error
Cost-benefit principle
Cybercrime
Management fraud
39. A company had sales of $375,000 and its gross profit was $157,500. Its cost of goods sold equal: (Points : 2)
$(217,000)
$375,000
$157,500
$217,500
40. Toys “R” Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million and average inventory of $1,965 million. Its days’ sales in inventory equals: (Points : 2)
0.21
4.51
4.79
76.1 days
80.9 days
41. A company had sales of $695,000 and its cost of goods sold of $278,000. Its gross margin equals: (Points : 2)
$(417,000)
$695,000
$278,000
$417,000
42. The impact of technology on internal controls includes which of the following: (Points : 2)
Reduced processing errors
Elimination of the need for regular audits
Elimination of the need to bond employees
More efficient separation of duties
Elimination of fraud
43. The inventory valuation method that tends to smooth out erratic changes in costs is: (Points : 2)
FIFO
Weighted average
LIFO
Specific identification
WIFO
44. 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. (Points : 2)
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
45. 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? (Points : 2)
FIFO
Weighted average
LIFO
Specific identification
First In Still Here
46. ABC Corporation had total quick assets $5,888,000, current assets $11,700,000 and current liabilities $8,000,000. Its acid-test ratio equals: (Points : 2)
0.50
0.68
0.74
1.50
2.20
47. The credit terms 2/10, n/30 are interpreted as: (Points : 2)
2% cash discount if the amount is paid within 10 days, with the balance due in 30 days
10% cash discount if the amount is paid within 2 days, with balance due in 30 days
30% discount if paid within 2 days
30% discount if paid within 10 days
2% discount if paid within 30 days
48. Goods on consignment: (Points : 2)
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
49. Merchandise inventory includes: (Points : 2)
All goods owned by a company and held for sale
All goods in transit
All goods on consignment
Only damaged goods
Only items that are on the shelf
50. The conservatism principle: (Points : 2)
Requires that when there are more than one equally likely estimate of amounts expected to be received or paid in the future, then the less optimistic amount should be used
Requires that a company use the same accounting methods period after period
Requires that revenues and expenses be reported in the period in which they are earned or incurred
Requires that all items of a material nature be included in financial statements
Requires that all inventory items be reported at full cost