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1. Jones Dairy purchased a new milking machine for $40,000 cash. To record the transaction on Jones' books, you would:

a. debit an asset account and credit an asset account.

b. debit an asset account and credit a liability account.

c. debit an asset account and debit a liability account.

d. debit an asset account and credit owner's equity.

a. debit an asset account and credit an asset account.

2. Rent Expense typically would have:

a. a debit balance.

b. a credit balance.

c. a zero balance.

d. no entries since expenses don't go on the balance sheet.

a. a debit balance.

3. If the beginning balance in the Machinery account is $35,000, and if the ending balance in the Machinery account is $57,000, then:

a. $22,000 of machinery was sold.

b. $22,000 of machinery was purchased.

c. the market value of machinery was $57,000 at year-end.

d. purchases and sales of machinery cannot be determined from the information given.

d. purchases and sales of machinery cannot be determined from the information given.

4. A double-entry system of accounting requires that each transaction or event be recorded:

a. as an increase or decrease to stockholders' equity.

b. in at least two different financial statements.

c. in at least two different accounts.

d. in two different types of accounts (e.g., an asset and a liability; an asset and a revenue, etc.).

c. in at least two different accounts.

5. After the adjusting entries have been posted to the unadjusted trial balance, the adjusted trial balance is then used to:

a. Make the journal entries.

b. Post the journal entries.

c. Prepare the financial statements.

d. Make the adjusting journal entries.

c. Prepare the financial statements.

6. At the end of an accounting period when accounts are ready to be closed, which of the following activities must be performed?

a. Make adjusting entries

b. Make closing entries

c. Prepare post closing trial balance

d. (b) and (c)

d. (b) and (c)

7. The Prepaid Insurance account has an account balance of $3,000. At the end of an accounting period, the controller has decided that $2,000 of the balance has expired. Which of the following adjusting entries should be made?

a. Prepaid Insurance 2,000
Insurance Expense 2,000

b. Insurance Expense 2,000
Prepaid Insurance 2,000

c. Prepaid Insurance 1,000
Insurance Expense 1,000

d. Insurance Expense 1,000
Prepaid Insurance 1,000

b. Insurance Expense 2,000
Prepaid Insurance 2,000

8. Gross profit is calculated by:

a. subtracting total expenses from total revenues.

b. subtracting cost of goods sold from net sales.

c. subtracting the ending inventory from cost of goods sold.

d. adding cost of goods sold to net sales.

b. subtracting cost of goods sold from net sales.

9. The Income Statement is the ___________ financial statement prepared:

a. first

b. second

c. third

d. fourth

a. first

10. Cramer Corp. reported the following for 2012: total assets, $90,000; total liabilities, $35,000; common stock, $40,000. Therefore, retained earnings was:

a. $5,000

b. $40,000

c. $20,000

d. $15,000

d. $15,000

11. Which of the following would not be considered a current asset?

a. Inventories

b. Prepaid expenses

c. Long-term Investments

d. Accounts receivable due in 6 months

c. Long-term Investments

12. In a Classified Balance Sheet, the current assets are listed

a. in alphabetical order

b. in descending order by amount

c. in any order

d. according to how readily each asset can be converted into cash

d. according to how readily each asset can be converted into cash

13. Assume that Jones Company purchased $100 of inventory on credit. If Jones Company uses the Periodic Inventory system the journal entry to record this purchase would be:

a. Purchases 100
Accounts Payable 100

b. Purchases 100
Cash 100

c. Inventory 100
Accounts Payable 100

d. Inventory 100
Cash 100

a. Purchases 100
Accounts Payable 100

14. Jones Company began the year with $100 of merchandise inventory. During the year Jones purchased inventory that cost $200 and also paid $15 of freight costs on the purchased inventory. At the end of the year Jones Company determined that the cost of its ending inventory was $50. Given these facts Jones should report cost of goods sold totaling:

a. $50

b. $200

c. $215

d. $265

d. $265

15. A financial statement that reports accounting data at a specific date is the

a. balance sheet.

b. retained earnings statement.

c. income statement.

d. statement of cash flows.

a. balance sheet.

16. GAAP refers to

a. General Accounting and Auditing Principles.

b. Guidelines for American Accounting Procedures.

c. General Association of Accounting Practitioners.

d. Generally Accepted Accounting Principles.

d. Generally Accepted Accounting Principles.

17. If total liabilities decreased by $30,000 during a period of time and owners equity increased by $35,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a:

a. $65,000 increase.

b. $5,000 increase.

c. $5,000 decrease.

d. $65,000 decrease.

b. $5,000 increase.

18. Current assets are listed

a. alphabetically.

b. by importance.

c. by longevity.

d. by liquidity (how readily they can be converted to cash).

d. by liquidity (how readily they can be converted to cash).

19. The Retained Earnings account had a beginning balance of $60,000 and an ending balance of $70,000. If $20,000 of dividends were declared and paid during the period, net income must have been

a. $20,000.

b. $30,000.

c. $10,000.

d. $50,000.

b. $30,000.

20. The Accumulated Depreciation account is a(n)

a. contra asset.

b. liability.

c. asset.

d. operating expense.

a. contra asset.

21. For which of the following types of adjusting entries are liabilities overstated and revenues understated before the adjusting entry is made?

a. Unearned Revenues

b. Accrued Revenues

c. Prepaid Expenses

d. Accrued Expenses

a. Unearned Revenues

22. A credit will reduce ________, but increase ________.

a. accounts receivable; accounts payable

b. expenses; accounts receivable

c. accounts payable; common stock

d. common stock; prepaid insurance

a. accounts receivable; accounts payable

23. The book value of a depreciable asset is defined as the asset's

a. cost less accumulated depreciation.

b. current market value.

c. replacement cost.

d. cost.

a. cost less accumulated depreciation.

24. A business pays weekly salaries of $15,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Thursday is:

a. debit Salaries Payable, $12,000; credit Cash $12,000.

b. debit Salaries Expense, $12,000; credit Cash $12,000.

c. debit Salaries Expense, $12,000; credit Accounts Payable $12,000.

d. debit Salaries Expense, $12,000; credit Salaries Payable $12,000.

d. debit Salaries Expense, $12,000; credit Salaries Payable $12,000.

25. A company received $10,000 for services the company will perform in the future. At the time the cash is received, the company records the following journal entry:

a. Cash 10,000
Service Revenue 10,000

b. Cash 10,000
Accounts Receivable 10,000

c. Cash 10,000
Unearned Revenue 10,000

d. Accounts Receivable 10,000
Service Revenue 10,000

c. Cash 10,000
Unearned Revenue 10,000

26. Credit terms of 3/10, n/30 mean that a(n)

a. 10% cash discount may be taken if payment is made immediately; a 3% discount if paid within 30 days.

b. 3% cash discount may be taken if payment is made within 10 days of the invoice date; otherwise the full amount is due within 30 days.

c. 3% cash discount may be taken if payment is made within 10 days of the invoice date; otherwise the full amount is due at the end of the month.

d. additional amount equal to 3% of the invoice price must be paid if payment is not received within 10 days; the account is overdue after 30 days.

b. 3% cash discount may be taken if payment is made within 10 days of the invoice date; otherwise the full amount is due within 30 days.

27. A periodic inventory system

a. allows for the determination of cost of goods sold after each sale.

b. requires a physical inventory count to determine the cost of goods on hand.

c. maintains a current balance of the cost of goods on hand at all times

d. requires the use of a cost of goods sold account.

b. requires a physical inventory count to determine the cost of goods on
hand.

28. In accordance with the revenue recognition principle, sales revenues are recorded when

a. earned, which typically occurs when services have been performed, or the goods have been transferred from the seller to the buyer.

b. cash is received from the customer for items already delivered.

c. an order is received from a customer with delivery of the product expected to take place within the next 30 days.

d. the accountant determines which period's income statement "needs" more revenue.

a. earned, which typically occurs when services have been performed, or the goods have been transferred from the seller to the buyer.

29. Freight-in is included _______________?

a. In the cost of inventory

b. in selling expenses

c. Property, Plant and Equipment

d. in administrative expenses

a. In the cost of inventory

30. Freight terms of FOB destination point mean that the

a. buyer must bear the freight costs.

b. seller must bear the freight costs.

c. goods are placed free on board at the buyer's place of business.

d. it is not decided who will pay the freight costs.

b. seller must bear the freight costs.

31. Freight-out, the cost of shipping sold goods to the customer, is treated as a(an):

a. inventoriable cost.

b. selling expense.

c. cost of goods sold.

d. insignificant cost not worth recording.

b. selling expense.

32. The Sales Returns and Allowances account

a. normally has a credit balance.

b. should not be closed at the end of the period.

c. is a contra account to Accounts Receivable.

d. is a contra Sales account.

d. is a contra Sales account.

33. A company prepares its adjusting journal entries at the end of the accounting period. All of the following could be true concerning these entries except

a. An Unearned Revenue gave rise to one of the adjusting journal entries.

b. A Prepaid Expense gave rise to one of the adjusting journal entries.

c. Some of the adjusting journal entries have a debit or credit to Cash.

d. Accrued Expenses gave rise to one of the adjusting journal entries.

c. Some of the adjusting journal entries have a debit or credit to Cash.

34. On 6/1/2010, ABC Co. pays $12,000 for Prepaid Insurance to insure its delivery trucks for the next 10 months. For June 2010, which of the following adjusting journal entries should be made?

a. Prepaid Insurance 2,000
Insurance Expense 2,000

b. Insurance Expense 2,000
Prepaid Insurance 2,000

c. Prepaid Insurance 1,200
Insurance Expense 1,200

d. Insurance Expense 1,200
Prepaid Insurance 1,200

d. Insurance Expense 1,200
Prepaid Insurance 1,200

35. Diner Company's ending inventory is understated by $3,000. The effect of this error on the current year's cost of goods sold and net income, respectively, are:

a. overstated and understated.

b. overstated and overstated.

c. understated and overstated.

d. understated and understated.

a. overstated and understated.

36. Given the following information, compute the amount of cash finally remitted by the customer.
Feb. 22—Sale on credit, terms of 2/10, n/30—$3,000
Feb. 27—Allowance of $400 granted due to some items being
damaged
Feb. 28—Payment in full received from customer—$?

a. $2,600

b. $2,940

c. $2,548

d. $2,522

c. $2,548 A:(3,000 - 400 = 2,600; 2,600 * .02 = 52; 2,600 - 52 = 2,548)

37. Which of the following is the most appropriate and modern definition of accounting?

a. The information system that identifies, records, and communicates the economic events of an organization to interested users

b. A means of collecting information

c. The interconnected network of subsystems necessary to operate a business

d. Electronic collection, organization, and communication of vast amounts of information.

a. The information system that identifies, records, and communicates the economic events of an organization to interested users

38. The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)

a. account payable.

b. account receivable.

c. revenue.

d. expense.

a. account payable.

39. The right to receive money in the future is called a(n)

a. account payable.

b. account receivable.

c. liability.

d. revenue.

b. account receivable.

40. The common characteristic possessed by all assets is

a. long life.

b. great monetary value.

c. tangible nature.

d. future economic benefit.

d. future economic benefit.

41. The best definition of assets is the

a. cash owned by the company.

b. collections of resources belonging to the company and the claims on these resources.

c. Owners' investment in the business.

d. resources belonging to a company have future benefit to the company.

d. resources belonging to a company have future benefit to the company.

42. Dividends are reported on the

a. Income Statement

b. Statement of Retained Earnings

c. Balance Sheet

d. None of the above

b. Statement of Retained Earnings

43. The financial statement that summarizes the changes in retained earnings for a specific period of time is the

a. balance sheet.

b. income statement.

c. statement of cash flows.

d. Statement of Retained Earnings

d. Statement of Retained Earnings

44. To show how successfully your business performed (performance) during a period of time, you would report its revenues and expense in the

a. balance sheet.

b. income statement.

c. statement of cash flows.

d. retained earnings statement.

b. income statement.

45. Retained earnings at the end of the period is equal to

a. retained earnings at the beginning of the period plus net income minus liabilities.

b. retained earnings at the beginning of the period plus net income minus dividends.

c. net income.

d. assets plus liabilities.

b. retained earnings at the beginning of the period plus net income minus dividends.

46. An income statement

a. summarizes the changes in retained earnings for a specific period of time.

b. reports the changes in assets, liabilities, and stockholders' equity over a period of time.

c. reports the assets, liabilities, and stockholders' equity at a specific date.

d. presents the revenues and expenses for a specific period of time.

d. presents the revenues and expenses for a specific period of time.

47. If the retained earnings account increases from the beginning of the year to the end of the year, then

a. net income is less than dividends.

b. a net loss is less than dividends.

c. additional investments are less than net losses.

d. net income is greater than dividends.

d. net income is greater than dividends.

48. Which financial statement is prepared first?

a. Balance sheet

b. Income statement

c. Retained earnings statement

d. Statement of cash flows

b. Income statement

49. An income statement shows

a. revenues, liabilities, and stockholders' equity.

b. expenses, dividends, and stockholders' equity.

c. revenues, expenses, and net income.

d. assets, liabilities, and stockholders' equity.

c. revenues, expenses, and net income.

50. In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement?

a. I've been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets.

b. You are right. Revenues and expenses are shown on the income statement. Dividends are a cost of generating revenues and that makes them an expense.

c. Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement.

d. Dividends are deducted from retained earnings on the balance sheet.

c. Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement.

51. Benson Company began the year with retained earnings of $175,000. During the year, the company recorded revenues of $250,000, expenses of $190,000, and paid dividends of $20,000. What was Benson's retained earnings at the end of the year?

a. $255,000

b. $215,000

c. $405,000

d. $235,000

b. $215,000

52. Which of the following is not a satisfactory statement of the accounting equation?

a. Assets = Stockholders' Equity - Liabilities.

b. Assets = Liabilities + Stockholders' Equity.

c. Assets - Liabilities = Stockholders' Equity.

d. Assets - Stockholders' Equity = Liabilities.

a. Assets = Stockholders' Equity - Liabilities.

Benny's Repair Shop started the year with total assets of $100,000 and total liabilities of $80,000. During the year the business recorded $210,000 in revenues, $110,000 in expenses, and dividends of $20,000.

53. Stockholders' equity at the end of the year was

a. $120,000.

b. $100,000.

c. $80,000.

d. $90,000.

b. $100,000.

Benny's Repair Shop started the year with total assets of $100,000 and total liabilities of $80,000. During the year the business recorded $210,000 in revenues, $110,000 in expenses, and dividends of $20,000.

54. The net income reported by Benny's Repair Shop for the year was

a. $80,000.

b. $100,000.

c. $60,000.

d. $190,000.

b. $100,000.

55. If total liabilities decreased by $15,000 and stockholders' equity decreased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period?

a. $20,000 increase

b. $10,000 decrease

c. $20,000 decrease

d. $10,000 decrease

c. $20,000 decrease

56. The balance sheet

a. summarizes the changes in retained earnings for a specific period of time.

b. reports the changes in assets, liabilities, and stockholders' equity over a period of time.

c. reports the assets, liabilities, and stockholders' equity at a specific date
(financial position).

d. presents the revenues and expenses for a specific period of time.

c. reports the assets, liabilities, and stockholders' equity at a specific date (financial position).

57. Common stock is reported on the

a. statement of cash flows.

b. retained earnings statement.

c. income statement.

d. balance sheet.

d. balance sheet.

58. Stockholders' equity is comprised of

a. common stock and dividends.

b. common stock and retained earnings.

c. dividends and retained earnings.

d. net income and retained earnings.

b. common stock and retained earnings.

59. Retained earnings is

a. the stockholders' claim on total assets.

b. equal to cash.

c. equal to revenues.

d. the amount of net income kept in the corporation for future use.

d. the amount of net income kept in the corporation for future use.

Carter Company compiled the following financial information as of 12/31/2012:
Revenues $140,000
Common stock 30,000
Equipment 40,000
Expenses 125,000
Cash 35,000
Dividends 10,000
Supplies 5,000
Accounts payable 20,000
Accounts receivable 15,000
Retained earnings, 1/1/2012 75,000

60. Carter's assets on December 31, 2012 are:

a. $235,000

b. $170,000

c. $ 80,000

d. $ 95,000

d. $ 95,000

Carter Company compiled the following financial information as of 12/31/2012:
Revenues $140,000
Common stock 30,000
Equipment 40,000
Expenses 125,000
Cash 35,000
Dividends 10,000
Supplies 5,000
Accounts payable 20,000
Accounts receivable 15,000
Retained earnings, 1/1/2012 75,000

61. Carter's retained earnings on December 31, 2012 are:

a. $75,000

b. $90,000

c. $80,000

d. $ 5,000

c. $80,000

Carter Company compiled the following financial information as of 12/31/2012:
Revenues $140,000
Common stock 30,000
Equipment 40,000
Expenses 125,000
Cash 35,000
Dividends 10,000
Supplies 5,000
Accounts payable 20,000
Accounts receivable 15,000
Retained earnings, 1/1/2012 75,000

62. Carter's stockholders' equity on December 31, 2007 is:

a. $105,000

b. $110,000

c. $ 80,000

d. $120,000

b. $110,000

63. A company's annual Financial Statements include all of the following except

a. the "Management Discussion and Analysis" section (called "MDA").

b. notes to the financial statements.

c. the independent auditor's report.

d. a list of the names and salaries of every employee who works for the company.

d. a list of the names and salaries of every employee who works for the company.

64. Examples of Intangible Assets include all of the following except:

a. Trademarks

b. Copyrights

c. Unearned Revenues

d. Franchises

c. Unearned Revenues

65. In a classified balance sheet, assets are usually classified as:

a. current assets; long-term assets; property, plant, and equipment; and intangible assets.

b. current assets; long-term investments; property, plant, and equipment; and common stocks.

c. current assets; long-term investments; tangible assets; and intangible assets.

d. current assets; long-term investments; property, plant, and equipment; and intangible assets.

d. current assets; long-term investments; property, plant, and equipment; and intangible assets.

66. An intangible asset

a. derives its value from the rights and privileges it provides the owner.

b. is worthless because it has no physical substance.

c. is converted into a tangible asset during the operating cycle.

d. cannot be classified on the balance sheet because it lacks physical substance.

a. derives its value from the rights and privileges it provides the owner.

67. Which of the following is not considered an asset?

a. Equipment

b. Dividends

c. Accounts receivable

d. Inventory

b. Dividends

68. Trademarks would appear in which balance sheet section?

a. Intangible assets

b. Investments

c. Property, plant, and equipment

d. Current assets

a. Intangible assets

69. Liabilities are generally classified on a balance sheet as

a. small liabilities and large liabilities.

b. present liabilities and future liabilities.

c. tangible liabilities and intangible liabilities.

d. current liabilities and long-term liabilities.

d. current liabilities and long-term liabilities.

70. Which of the following is not a current liability?

a. Wages payable

b. Accounts payable

c. Taxes payable

d. Bonds payable

d. Bonds payable

71. On a classified balance sheet, companies usually list current assets

a. in alphabetical order.

b. with the largest dollar amounts first.

c. in the order in which they are expected to be converted into cash.

d. in the order of acquisition.

c. in the order in which they are expected to be converted into cash.

Benton Office Supplies
Balance Sheet
December 31, 2007

Cash $ 65,000 Accounts Payable $ 70,000
Prepaid Insurance 30,000 Salaries Payable 10,000
Accounts Receivable 50,000 Mortgage Payable 90,000
Inventory 70,000 Total Liabilities $160,000
Land held for investment 75,000
Land 90,000
Building $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000
Depreciation (20,000) 80,000 Total stockholders' equity $370,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders' Equity $530,000

72. The total dollar amount of assets to be classified as current assets is

a. $290,000.

b. $215,000.

c. $180,000.

d. $145,000.

b. $215,000.

Benton Office Supplies
Balance Sheet
December 31, 2007

Cash $ 65,000 Accounts Payable $ 70,000
Prepaid Insurance 30,000 Salaries Payable 10,000
Accounts Receivable 50,000 Mortgage Payable 90,000
Inventory 70,000 Total Liabilities $160,000
Land held for investment 75,000
Land 90,000
Building $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000
Depreciation (20,000) 80,000 Total stockholders' equity $370,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders' Equity $530,000

73. The total dollar amount of assets to be classified as property, plant, and equipment is

a. $320,000.

b. $170,000.

c. $245,000.

d. $190,000.

b. $170,000.

Benton Office Supplies
Balance Sheet
December 31, 2007

Cash $ 65,000 Accounts Payable $ 70,000
Prepaid Insurance 30,000 Salaries Payable 10,000
Accounts Receivable 50,000 Mortgage Payable 90,000
Inventory 70,000 Total Liabilities $160,000
Land held for investment 75,000
Land 90,000
Building $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000
Depreciation (20,000) 80,000 Total stockholders' equity $370,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders' Equity $530,000

74. The total dollar amount of assets to be classified as investments is

a. $0.

b. $150,000.

c. $75,000.

d. $180,000.

c. $75,000.

Benton Office Supplies
Balance Sheet
December 31, 2007

Cash $ 65,000 Accounts Payable $ 70,000
Prepaid Insurance 30,000 Salaries Payable 10,000
Accounts Receivable 50,000 Mortgage Payable 90,000
Inventory 70,000 Total Liabilities $160,000
Land held for investment 75,000
Land 90,000
Building $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000
Depreciation (20,000) 80,000 Total stockholders' equity $370,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders' Equity $530,000

75. Total Current Assets less total Current Liabilities equals:

a. $135,000.

b. $295,000.

c. $75,000.

d. $60,000.

a. $135,000.

76. ABC Corporation has total assets of $1.35 million, common stock of $351,000, and retained earnings of $214,000. What are the creditors' claims on total assets?

a. $1,213,000

b. $ 565,000

c. $ 785,000

d. $1,487,000

c. $ 785,000

Solution:(1,350,000 - 351,000 - 214,000)

77. Generally accepted accounting principles

a. are accounting rules formulated by the Internal Revenue Service.

b. are sound in theory but rarely used in real life.

c. are accounting rules that are recognized as a general guide for financial reporting.

d. have eliminated all errors in accounting.

c. are accounting rules that are recognized as a general guide for financial reporting.

78. The agency of the United States federal government with the ultimate power to oversee and regulate U.S. financial markets is the

a. Internal Revenue Service

b. Security Exchange Commission (SEC)

c. Financial Accounting Standards Board.

d. International Auditing Standards Committee.

b. Security Exchange Commission (SEC)

79. What organization works under the SEC and issues U.S. accounting standards, so long as the SEC approves?

a. Security Exchange Commission.

b. International Accounting Standards Committee.

c. International Auditing Standards Committee.

d. Financial Accounting Standards Board (FASB).

d. Financial Accounting Standards Board (FASB).

80. Adherence to the procedure of choosing the accounting method that will be least likely to overstate assets and income is an example of the constraint of

a. relevance.

b. reliability.

c. conservatism.

d. comparability.

c. conservatism.

81. Another constraint in accounting is the concept of Materiality. An item is considered material if

a. it doesn't costs a lot of money.

b. it is a tangible good.

c. it is likely to influence the decision of an investor or creditor.

d. the cost of reporting the item is greater than its benefits.

c. it is likely to influence the decision of an investor or creditor.

82. The writing down of inventory from its cost of $1,000 to its fair market value of $700 follows the constraint of

a. consistency.

b. materiality.

c. full disclosure.

d. conservatism.

d. conservatism.

83. The time period assumption states that the economic life of a business can be divided into

a. business segments.

b. departments.

c. artificial time periods.

d. hierarchies of management.

c. artificial time periods.

84. Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?

a. Monetary unit assumption

b. Economic entity assumption

c. Time period assumption

d. Going concern assumption

d. Going concern assumption

85. Which of the following is not an accounting assumption?

a. Integrity

b. Going concern

c. Time period

d. Economic entity

a. Integrity

86. The cost principle requires that when assets are acquired, they be recorded at

a. market value.

b. the amount paid for them.

c. selling price.

d. list price.

b. the amount paid for them.

87. Which of the following items has no effect on retained earnings?

a. Expense

b. Dividends

c. Land purchase

d. Revenue

c. Land purchase

88. With GAAP, are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?

a. Yes, they are treated as revenue at the time of receipt because the company has access to the cash

b. No, because of the Matching Principle

c. Yes, The intent of the company is to perform the work and the customer is confident that the services will be completed.

d. No, revenue cannot be recognized until the work is performed, in accordance with the Revenue Recognition Principle.

d. No, revenue cannot be recognized until the work is performed, in accordance with the Revenue Recognition Principle.

89. Is the purchase of equipment treated as an expense at the time of purchase? Why or why not?

a. No, GAAP requires that 10% of the cost be expensed each year. This minimizes attempts to mislead financial statement users.

b. Yes, the matching principle requires that the cost be expensed in the period of purchase.

c. No, the cost needs to be allocated to the future years of expected use using one of the methods for depreciating property plant and equipment (PPE) assets.

d. Yes, the actual life of the asset is not known, thus there is no acceptable way to allocate the cost.

c. No, the cost needs to be allocated to the future years of expected use using one of the methods for depreciating property plant and equipment (PPE) assets.

90. One T-account is prepared for each __________ and all of the T-accounts comprise the ____________.

a. Account Category; General Ledger

b. Debit Balance, Chart of Tangible Assets

c. Asset and Liability account only; General Ledger

d. Account; General Ledger

d. Account; General Ledger

91. A T-account is

a. a way of depicting the basic form of an account; it is used for all accounts.

b. a special account used instead of a journal.

c. a special account used instead of a trial balance.

d. used only for the permanent accounts.

a. a way of depicting the basic form of an account; it is used for all accounts.

92. Debits

a. increase both assets and liabilities.

b. decrease both assets and liabilities.

c. increase assets and decrease liabilities.

d. decrease assets and increase liabilities.

c. increase assets and decrease liabilities.

93. The normal balance of any account is the

a. left side.

b. right side.

c. side which increases that account.

d. side which decreases that account.

c. side which increases that account.

94. The double-entry system requires that each transaction must be recorded

a. in at least two different accounts.

b. in two sets of books.

c. in a journal and in a ledger.

d. first as a revenue and then as an expense.

a. in at least two different accounts.

95. Which of the following describes the classification and normal balance of the retained earnings account?

a. Asset, debit

b. Stockholders' equity, credit

c. Revenues, credit

d. Expense, debit

b. Stockholders' equity, credit

96. A revenue account

a. is increased by debits.

b. decreased by credits.

c. has a normal balance of a debit.

d. is increased by credits.

d. is increased by credits.

97. Which of the following correctly identifies normal balances of accounts?
a. Assets Debit
Liabilities Credit
Common Stock Credit
Revenues Debit
Expenses Credit

b. Assets Debit
Liabilities Credit
Common Stock Credit
Revenues Credit
Expenses Credit

c. Assets Credit
Liabilities Debit
Common Stock Debit
Revenues Credit
Expenses Debit

d. Assets Debit
Liabilities Credit
Common Stock Credit
Revenues Credit
Expenses Debit

d. Assets Debit
Liabilities Credit
Common Stock Credit
Revenues Credit
Expenses Debit

98. Which accounts normally have debit balances?

a. Assets, expenses, and revenues.

b. Assets, expense, and retained earnings.

c. Assets, liabilities, and dividends.

d. Assets, expenses, and dividends.

d. Assets, expenses, and dividends.

99. Which accounts normally have credit balances?

a. Revenues, liabilities, and dividends.

b. Revenues, liabilities, and assets.

c. Revenues, liabilities, and retained earnings.

d. Revenues, liabilities, and expenses.

c. Revenues, liabilities, and retained earnings.

100. Which of the following statements is true?

a. Debits increase assets and increase liabilities.

b. Credits decrease assets and decrease liabilities.

c. Credits decrease assets and increase liabilities.

d. Debits increase liabilities and decrease assets.

c. Credits decrease assets and increase liabilities.

101. A company that receives money in advance of performing a service

a. debits cash and credits unearned revenue.

b. debits unearned fees and credits accounts payable

c. debits cash and credits prepaid fees.

d. debits cash and credits accounts receivable.

a. debits cash and credits unearned revenue.

102. Which of the following statements is not true?

a. Expenses increase stockholders' equity.

b. Expenses have normal debit balances.

c. Expenses decrease stockholders' equity.

d. Expenses are a negative factor in the computation of net income.

a. Expenses increase stockholders' equity.

103. Denton Company showed the following balances at the end of it's first year:
Cash $7,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 1,400
Dividends 700
Revenues 21,000
Expenses 17,500

What did Denton Company show as total credits on its trial balance?

a. $30,100

b. $29,400

c. $28,700

d. $30,800

b. $29,400

104. At December 1, 2007, Marco Company's accounts receivable balance was $1,200. During December, Marco had credit sales of $5,000 and collected accounts receivable of $4,000. At December 31, 2007, the accounts receivable balance is

a. $1,200 debit

b. $2,200 debit

c. $6,200 debit

d. $2,200 credit

b. $2,200 debit

Solution: (Use the T-account for Accounts Receivables to determined the answer (called "T-account analysis")

105. The usual sequence of steps in the transaction recording process is:

a. journalize / analyze / post to the ledger.

b. analyze / journalize / post to the ledger.

c. journalize / post to the ledger / analyze.

d. post to the ledger / journalize / analyze.

b. analyze / journalize / post to the ledger.

106. In recording accounting transactions, evidence that a transaction has taken place is obtained from

a. source documents.

b. the Internal Revenue Service.

c. the public relations department.

d. the SEC.

a. source documents.

107. After all of the business transactions for the period have been analyzed and entered as journal entries in the book of original entry, at the end of the period, the next step in the recording process is to transfer the information to _________ in a process called "posting."

a. the company's bank

b. stockholders' equity

c. the General Ledger accounts

d. the financial statements

c. the General Ledger accounts

108. Transactions in a journal are initially recorded in

a. account number order.

b. dollar amount order.

c. alphabetical order.

d. chronological order.

d. chronological order.

109. When a company receives a utility bill but will not pay it right away, it should

a. debit utilities expense and credit cash.

b. debit utilities expense and credit accounts payable.

c. debit accounts payable and credit utilities expense.

d. make no entry until the bill is paid.

b. debit utilities expense and credit accounts payable.

110. When a company receives a utility bill and pays it right away, it should

a. debit utilities expense and credit cash.

b. debit utilities expense and credit accounts payable.

c. debit accounts payable and credit utilities expense.

d. make no entry until the bill is paid.

a. debit utilities expense and credit cash.

111. Posting:

a. transfers journal entries to ledger accounts.

b. transfers ledger transaction data to the journal.

c. involves transferring all debits and credits on a journal page to the trial balance.

d. provides a chronological record of transactions.

a. transfers journal entries to ledger accounts.

112. On January 14, Franco industries purchased supplies of $500 on account. The entry to record the purchase will include.

a. a debit to Supplies and a credit to Accounts Payable.

b. a debit to Supplies expense and a credit to Accounts Receivable.

c. a debit to Supplies and a credit to Cash.

d. a debit to Accounts Receivable and a credit to Supplies.

a. a debit to Supplies and a credit to Accounts Payable.

113. A trial balance will not balance if

a. a correcting journal entry is posted twice.

b. a $50 cash dividend is debited to dividends for $500 and credited to cash for $50.

c. a $300 payment on accounts payable is debited to accounts payable for $30 and credited to cash for $30.

d. a transaction is not posted at all.

b. a $50 cash dividend is debited to dividends for $500 and credited to cash for $50.

114. An accounting time period that is one year in length is called

a. a fiscal year.

b. an interim period.

c. the time period assumption.

d. a reporting period.

a. a fiscal year.

115. The Revenue Recognition principle dictates that revenue should be recognized in the accounting records

a. when cash is received.

b. when the revenue has been earned.

c. at the end of the month.

d. in the period that income taxes are paid.

b. when the revenue has been earned.

116. The matching principle states that expenses should be matched with revenues for a given time period. Another way of stating the principle is to say that

a. assets should be matched with liabilities.

b. efforts should be matched with accomplishments.

c. dividends should be matched with stockholder investments.

d. cash payments should be matched with cash receipts.

b. efforts should be matched with accomplishments.

117. Why do generally accepted accounting principles require the application of the revenue recognition principle?

a. Failure to apply the revenue recognition principle could lead to an overstatement of revenue.

b. It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.

c. Recording revenue when cash is received is an objective application of the revenue recognition principle.

d. Accounting software has made the revenue recognition easy to apply.

a. Failure to apply the revenue recognition principle could lead to an overstatement of revenue.

118. Accrued expenses are one of four categories that gives rise to adjusting journal entries. For example, when wages accrue in the current period but will be paid in the next period, this situatio9n give rise to an adjusting journal entry made at the end of the current period that debits Wages Expense and credits ________.

a. Due from Employees

b. Due to Employer

c. Wages Payable

d. Unearned Revenue

c. Wages Payable

119. Each of the following pairs give rise to adjusting journal entries except:

a. earned expenses and prepaid expenses.

b. prepaid expenses and unearned revenues.

c. unearned revenues and accrued expenses.

d. accrued revenues and prepaid expenses.

a. earned expenses and prepaid expenses.

120. Which of the following accounts would not likely need to be adjusted at year end?

a. Office Supplies

b. Unearned Revenue

c. Prepaid Advertising

d. Land

d. Land

121. Prepaid expenses are

a. paid and recorded in an asset account before they are used up, expended or consumed.

b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. Land assets that never depreciates

a. paid and recorded in an asset account before they are used up, expended or consumed.

122. Accrued expenses such as Salary Expense and Interest Expense are

a. paid and recorded in an asset account before they are used or consumed.

b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. incurred and already paid or recorded.

c. incurred but not yet paid or recorded.

123. Unearned revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. earned and already received and recorded.

a. received and recorded as liabilities before they are earned.

124. The Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset (There were no supplies on hand before this purchase, and this was the only purchase of supplies). On June 30, an inventory of the laundry supplies indicated only $3,000 of supplies on hand. The adjusting journal entry that should be made by the company on June 30 is

a. Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000.

b. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,000.

c. Debit Laundry Supplies, $3,500; Credit Laundry Supplies Expense, $3,500.

d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500.

d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500.

125. On July 1 the Winter Shoe Store paid $12,000 to Ace Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Winter Shoe Store is

a. Debit Rent Expense, $12,000; Credit Prepaid Rent, $2,000.

b. Debit Prepaid Rent, $2,000; Credit Rent Expense, $2,000.

c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000.

d. Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000.

c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000.

126. As prepaid expenses expire with the passage of time, the correct adjusting journal entry will be a
a. debit to an asset account or contra asset account and a credit to an expense account.

b. debit to an expense account and a credit to an asset account or a credit to accumulated depreciation, which is a contra asset account.

c. debit to an asset account and a credit to an asset account or contra asset account.

d. debit to an expense account and a credit to an expense account.

b. debit to an expense account and a credit to an asset account or a credit to accumulated depreciation, which is a contra asset account.

127. If a company fails to make an adjusting entry to record supplies expense, then

a. stockholders' equity will be understated.

b. expense will be understated.

c. assets will be understated.

d. net income will be understated.

b. expense will be understated.

The UNADJUSTED trial balance for Houley Corporation appears as follows:

Houley Corporation
Trial Balance
December 31, 2007

Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Office Equipment 4,000
Accumulated Depreciation,
Office Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries Expense 1,000
Rent Expense 500
$6,500 $6,500

128. If on December 31, 2007, supplies on hand were $20, the adjusting entry would contain a

a. debit to Supplies for $20.

b. credit to Supplies for $20.

c. debit to Supplies Expense for $120.

d. credit to Supplies Expense for $120.

c. debit to Supplies Expense for $120.

The UNADJUSTED trial balance for Houley Corporation appears as follows:

Houley Corporation
Trial Balance
December 31, 2007

Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Office Equipment 4,000
Accumulated Depreciation,
Office Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries Expense 1,000
Rent Expense 500
$6,500 $6,500

129. If on December 31, 2007, the insurance still unexpired amounted to $10, the adjusting entry would contain a

a. debit to Prepaid Insurance for $50.

b. credit to Prepaid Insurance for $10.

c. debit to Insurance Expense for $50.

d. credit to Prepaid Insurance for $10.

c. debit to Insurance Expense for $50.

The UNADJUSTED trial balance for Houley Corporation appears as follows:

Houley Corporation
Trial Balance
December 31, 2007

Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Office Equipment 4,000
Accumulated Depreciation,
Office Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries Expense 1,000
Rent Expense 500
$6,500 $6,500

130. If the estimated depreciation for office equipment were $800, the adjusting entry would contain a

a. credit to Accumulated Depreciation, Office Equipment for $800.

b. credit to Depreciation Expense, Office Equipment for $800.

c. debit to Accumulated Depreciation, Office Equipment for $800.

d. credit to Office Equipment for $800.

a. credit to Accumulated Depreciation, Office Equipment for $800.

The UNADJUSTED trial balance for Houley Corporation appears as follows:

Houley Corporation
Trial Balance
December 31, 2007

Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Office Equipment 4,000
Accumulated Depreciation,
Office Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries Expense 1,000
Rent Expense 500
$6,500 $6,500

131. If as of December 31, 2007, rent of $100 for December had not been recorded or paid, the adjusting entry would include a

a. credit to Accumulated Rent for $100.

b. credit to Cash for $100.

c. debit to Rent Payable for $100

d. debit to Rent Expense for $100

d. debit to Rent Expense for $100

The UNADJUSTED trial balance for Houley Corporation appears as follows:

Houley Corporation
Trial Balance
December 31, 2007

Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Office Equipment 4,000
Accumulated Depreciation,
Office Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries Expense 1,000
Rent Expense 500
$6,500 $6,500

132. If service for $125 had been performed but not billed, the adjusting entry to record this would include a

a. debit to Service Revenue for $125.

b. credit to Unearned Service Revenue for $125.

c. credit for Service Revenue for $125.

d. debit to Unearned Revenue for $125.

c. credit for Service Revenue for $125.

133. From an accounting standpoint, the acquisition of long-lived property plant and equipment (PPE) assets is essentially a(n) ___________. The difference is that whereas current prepaid assets such as Supplies are directly credited as they are used up or expended, the using up or expensing of PPE assets is credited to ___________.

a. accrual of expense; accumulated depreciation

b. accrual of revenue; directly to the asset.

c. accrual of unearned revenue; directly to the asset.

d. prepaid expense; accumulated depreciation

d. prepaid expense; accumulated depreciation

134. Meyer Realty Company received a check for $21,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $21,000. Financial statements will be prepared on July 31. Meyer Realty should make the following adjusting entry on July 31:

a. Debit Unearned Rent, $3,500; Credit Rental Revenue, $3,500.

b. Debit Rental Revenue, $3,500; Credit Unearned Rent, $3,500.

c. Debit Unearned Rent, $21,000; Credit Rental Revenue, $21,000.

d. Debit Cash, $21,000; Credit Rental Revenue, $21,000.

a. Debit Unearned Rent, $3,500; Credit Rental Revenue, $3,500.

135. The four categories that give rise to adjusting journal entries are:

a. Assets, Expenses, Liabilities, and Revenues.

b. Overstatements, Understatements, Equality and Inequality

c. Unearned Revenues, Prepaid Expenses, Accrued Expenses, and Accrued Revenues.

d. Revenues, Expenses, Retained Earnings and Stockholders' Equity

c. Unearned Revenues, Prepaid Expenses, Accrued Expenses, and Accrued Revenues.

136. An example of Accrued Revenue (better called Accrued Income) is

a. Interest Expense

b. Salary Payable

c. Interest Income

d. Wages Expense

c. Interest Income

137. Draxon Company borrowed $20,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be

a. Debit Interest Expense, $1,200; Credit Interest Payable, $1,200.

b. Debit Interest Expense, $100; Credit Interest Payable, $100.

c. Debit Note Payable, $1,200; Credit Cash, $1,200.

d. Debit Cash, $300; Credit Interest Payable, $300.

b. Debit Interest Expense, $100; Credit Interest Payable, $100.

Solution: (20,000 6/100 1/12)

138. Jane Richards has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Jane make?

a. Debit Cash and credit Unearned Revenue

b. Debit Accounts Receivable and credit Unearned Revenue

c. Debit Accounts Receivable and credit Service Revenue

d. Debit Unearned Revenue and credit Service Revenue

c. Debit Accounts Receivable and credit Service Revenue

139. A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $30,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
a. Interest Expense 300
Interest Payable 300
b. Interest Expense 450
Interest Payable 450
c. Interest Expense 300
Cash 300
d. Interest Expense 450
Note Payable 450

a. Interest Expense 300
Interest Payable 300

Solution: (30,000 .06 2/12)

140. Snell Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29-31). Employees work 5 days a week and the company pays $900 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

a. Wages Expense 900
Wages Payable 900
b. Wages Expense 4,500
Wages Payable 4,500
c. Wages Expense 2,700
Wages Payable 2,700
d. No adjusting entry is required.

c. Wages Expense 2,700
Wages Payable 2,700

141. Manning Corporation issued a one-year 9% $200,000 note on April 30, 2007. Interest expense for the year ended December 31, 2007 was?

a. $18,000

b. $13,500

c. $12,000

d. $10,500

c. $12,000

Solution: (200,000 9/100 8/12)

Given the following adjusted trial balance:
Debit Credit

Cash $1,562
Accounts receivable 2,098
Inventory 3,124
Prepaid rent 86
Property, plant & equipment 300
Accumulated depreciation 52
Accounts payable 82
Unearned revenue 172
Common stock 206
Retained earnings 6,610
Service revenue 218
Interest revenue 56
Salary expense 160
Travel expense 66
_____ _____
Total $7,396 $7,396

142. Net income for the year is:

a. $48

b. $220

c. $274

d. $446

a. $48

Given the following adjusted trial balance:
Debit Credit

Cash $1,562
Accounts receivable 2,098
Inventory 3,124
Prepaid rent 86
Property, plant & equipment 300
Accumulated depreciation 52
Accounts payable 82
Unearned revenue 172
Common stock 206
Retained earnings 6,610
Service revenue 218
Interest revenue 56
Salary expense 160
Travel expense 66
_____ _____
Total $7,396 $7,396

143. Ending Retained Earnings in the Statement of Retained Earnings:

a. $6,390

b. $6,562

c. $6,830

d. $6,658

d. $6,658

144. Closing entries

a. are prepared before the financial statements.

b. reduce the number of permanent accounts.

c. cause the revenue and expense accounts to have zero balances.

d. summarize the activity in every account.

c. cause the revenue and expense accounts to have zero balances.

145. Which of the following is a true statement about closing the books of a corporation?

a. Expenses are closed to the Expense Summary account.

b. Only revenues are closed to the Income Summary account.

c. Revenues and expenses are closed to the Income Summary account.

d. Revenues, expenses, and the Dividends account are closed to the Income Summary account.

c. Revenues and expenses are closed to the Income Summary account.

146. The closing entry process consists of closing

a. all asset and liability accounts.

b. out the Retained Earnings account.

c. all permanent accounts.

d. all temporary accounts.

d. all temporary accounts.

147. A post-closing trial balance will show nonzero balances for

a. zero balances for all accounts.

b. zero balances for balance sheet accounts.

c. only Permanent accounts (the balance sheet accounts).

d. only Temporary accounts (the income statement accounts).

c. only Permanent accounts (the balance sheet accounts).

148. Two categories of expenses in merchandising companies are

a. cost of goods sold and financing expenses.

b. operating expenses and financing expenses.

c. cost of goods sold and operating expenses.

d. sales and cost of goods sold.

c. cost of goods sold and operating expenses.

149. Select the correct statement about a perpetual inventory system

a. accounting records continuously disclose the amount of inventory.

b. increases in inventory resulting from purchases are debited to purchases.

c. a year-end physical count is needed to value ending inventory.

d. the account purchase returns and allowances is credited when goods are returned to vendors.

a. accounting records continuously disclose the amount of inventory.

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