50 multiple choice questions

Question 1

If a firm had sales of $50,000 during a period and sales returns and allowances of $4,000, its net sales were

a. $4,000.

b. $46,000.

c. $54,000.

d. $50,000.

Question 2

On December 31, prior to adjustment, Allowance for Doubtful Accounts has a credit balance of $200. An age analysis of the accounts receivable produces an estimate of $1,000 of probable losses from uncollectible accounts. The adjusting entry needed to record the estimated losses from uncollectible accounts is made for

a. $1,000.

b. $1,200.

c. $800.

d. $200.

Question 3

Which of the following budgets allow for adjustments in activity levels?

a. Continuous Budget

b. Flexible Budget

c. Static Budget

d. Zero-Based Budget

Question 4

The adjusting entry to record accrued interest on a note payable requires

a. a debit to Interest Payable and a credit to Interest Expense.

b. a debit to Interest Expense and a credit to Interest Payable.

c. a debit to Interest Expense and a credit to Cash.

d. a debit to Interest Income and a credit to Notes Payable.

Question 5

When a company issues a promissory note, the accountant records an entry that includes a credit to Note Payable for

a. the face value less the interest that will accrue.

b. the maturity value of the note.

c. the face value of the note plus the interest that will accrue.

d. the face value of the note.

Question 6

The balance sheet shows

a. the amount of net income or loss.

b. all revenues and expenses.

c. the results of business operations.

d. the financial position of a business at a given time.

Question 7

The first budget customarily prepared as part of an entity's master budget is the:

a. sales budget

b. cash budget

c. production budget

d. direct materials purchases

Question 8

Examples of assets are

a. cash and rent expense

b. investments by the owner and revenue

c. cash and accounts receivable.

d. cash and revenue.

Question 9

A net loss results

a. when expenses are greater than revenue.

b. when revenue is greater than expenses

c. when expenses are greater than assets.

d. when assets are greater than liabilities.

Question 10

The income statement shows

a. the total value of the business.

b. the financial position of a business on a specific date.

c. the results of operations for a period of time.

d. revenue and stockholders' equity.

Question 11

If liabilities are $4,000 and stockholders' equity is $15,000, assets are

a. $15,000.

b. $19,000

c. $4,000

d. $9,000.

Question 12

Credits are used to record

a. decreases in assets, liabilities, and stockholders' equity.

b. decreases in liabilities and increases in assets and stockholders' equity.

c. increases in liabilities and stockholders' equity.

d. decreases in assets and stockholders' equity and increases in liabilities.

Question 13

Debits are used to record increases in

a. assets and revenue.

b. assets and liabilities.

c. assets and expenses.

d. revenue and stockholders' equity.

Question 14

Henry and Thomas share gains and losses in the ratio of 2:1. After selling all assets for cash and paying all liabilities, the cash account has $12,000 in it. The capital accounts were as follows:

Henry $10,000; Thomas $2,000. How much of the $12,000 cash would Henry receive?

@ Henry receives cash to equal her capital balance

a. $12,000

b. $2,000

c. $10,000

d. $8,000

Question 15

The journal entry to record the payment of the current month utility bill would include

a. a debit to Utilities Expense and a credit to Accounts Payable.

b. a debit to stockholders' equity and a credit to Cash.

c. a debit to Utilities Expense and a credit to Stock.

d. a debit to Utilities Expense and a credit to Cash.

Question 16

The journal entry to record the payment of dividends for the month is:

a. a debit to retained earnings and a credit to Cash.

b. a debit to cash and a credit to dividends.

c. a debit to dividends and a credit to common stock.

d. a debit to Common Stock and a credit to Cash.

Question 17

If the prepaid expenses are not adjusted, assets on the balance sheet

a. will be understated.

b. will be overstated.

c. may be either overstated or understated.

d. will not be affected.

Question 18

On May 1, 20XX, a firm purchased a 1-year insurance policy for $1,800 and paid the full premium in advance. The insurance expense associated with this policy for 20XX is

a. $1,050.

b. $1,800.

c. $600.

d. $1,200.

Question 19

The entry to record a purchase of merchandise on credit using a perpetual inventory system includes

a. a debit to Merchandise Inventory and a credit to Accounts Payable.

b. a credit to Merchandise Inventory and a debit to Accounts Payable.

c. a debit to Accounts Payable and a credit to Purchases.

d. a debit to Purchases (COGS) and a credit to Accounts Payable.

Question 20

Which of the following is allowed under generally accepted accounting principles?

a. The Equipment ledger account shows a balance of $55,000. This amount represents the original cost of $75,000 less the accumulated depreciation of $20,000.

b. An owner lists the full cost of his or her personal automobile, which is occasionally used for business purposes, on the company's balance sheet.

c. A company was offered $60,000 for land that it had purchased for $15,000. The company did not sell the land but increased the Land account to $60,000.

d. A large company recorded the $20 cost of a tool as an expense, although the item is expected to be used for 3 years.

Question 21

An accountant who records revenue when a credit sale is made rather than waiting for the receipt of cash from the customer is

a. following the consistency principle.

b. following the conservatism convention.

c. following the accrual principle.

d. violating generally accepted accounting principles.

Question 22

Depreciating equipment over its useful life is an example of

a. following the objectivity assumption.

b. applying the realization principle.

c. applying the matching principle.

d. applying the conservatism convention.

Question 23

The method of depreciation that results in the same amount of depreciation expense each year is the

a. declining-balance method.

b. straight-line method.

c. sum-of-the-years'-digits method.

d. units-of-output method.

Question 24

The book value of an asset is

a. the acquisition cost shown in the asset account less the estimated salvage value.

b. the portion of the asset's cost that has not yet been charged to expense.

c. the market value of the asset.

d. the replacement cost of the asset.

Question 25

An asset that cost $14,000 was sold for $9,000 cash. Accumulated depreciation on the asset was $7,000. The entry to record this transaction includes the recognition of

a. a gain of $2,000.

b. a loss of $2,000.

c. neither a gain nor a loss.

d. a loss of $5,000.

Question 26

A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the customer owe using a 365-day year?

a. $354.38

b. $ 3538.84

c. $ 38.84

d. $315.00

Question 27

Utilize the _____________ principle to estimate warranty liabilities.

a. relevance

b. objectivity

c. matching

d. entity

Question 28

Which of the following would NOT be considered a contingent liability?

a. Pending legal action

b. Cosigning a loan

c. Potential fines from the EPA

d. Mortgage payable

Question 29

If a $6,000, 10 percent, 10-year bond was issued at 104 on October 1, 2011, how much interest will accrue on December 31 if interest payments are made annually?

a. None

b. $144

c. $104

d. $500

Question 30

If the market rate of interest is greater than the bond's stated rate of interest, the bond will be issued at

a. maturity value.

b. par.

c. a discount.

d. a premium.

Question 31

The number of shares of stock that a corporation is given the right to sell is called

a. outstanding stock.

b. issued stock.

c. capital stock.

d. authorized stock.

Question 32

Which of the following is NOT an advantage of a corporation?

a. Unlimited liability

b. Ease of transfer ownership

c. Continuous life

d. Ease of raising capital

Question 33

Earnings that a stockholder receives from a corporation is an example of which stockholder right?

a. Dividends

b. Preemption

c. Liquidation

d. Vote

Question 34

Cherry Corporation's outstanding stock is 100 shares of $100 par, 11% cumulative preferred stock and 2,000 shares of $12 par common stock. Cherry paid $1,600 in cash dividends during the year. No dividends are in arrears. Common stockholders received

a. $2,500

b. $ 0.

c. $ 500.

d. $1,100.

Question 35

A stock dividend affects the debiting and crediting of the following accounts

a. credit retained earnings; debit common stock; credit paid-in capital in excess par.

b. credit retained earnings, credit common stock and credit paid-in capital in excess of par.

c. debit retained earnings, debit common stock; credit paid-in capital in excess of par.

d. debit retained earnings; credit common stock, credit paid-in capital in excess of par.

Question 36

The statement of cash flows reports the sources and uses of cash from all of the following EXCEPT

a. operating activities.

b. investing activities.

c. managerial activities.

d. financing activities.

Question 37

The accuracy of the statement of cash flows can be verified by computing the change in the balance of the

a. revenue accounts.

b. cash and cash equivalent accounts.

c. equity account.

d. asset and liability accounts.

Question 38

The purpose of the statement of cash flows is to show

a. the expenses that were paid.

b. how cash was received and used during the period.

c. the revenue earned.

d. the profits that were earned.

Question 39

Which of the following is NOT a part of operating activities?

a. Paying payables

b. Earnings revenue

c. Paying utilities

d. Paying dividends

Question 40

Which of the following is NOT a part of investing activities?

a. Collecting on a loan receivable

b. Buying a building

c. Borrowing money

d. Selling off equipment

Question 41

Which of the following activities is computed differently using the two methods of formatting a statement of cash flows?

a. Financing activities

b. Both operating activities and investing activities

c. Operating activities

d. Investing activities

Question 42

The debt ratio is the relationship between

a. current assets and current liabilities.

b. total assets and total liabilities.

c. current assets and total liabilities.

d. total assets and current liabilities.

Question 43

What is the purpose of the Statement of Cost of Goods Manufactured?

a. To determine the amounts transferred to finished goods

b. To determine the ending materials inventory

c. All of these are true

d. To determine the ending work in process inventory

Question 44

The cost of a manufactured product generally consists of which of the following costs?

a. Direct materials cost and factory overhead cost

b. Direct materials cost and direct labor cost

c. Direct labor cost and factory overhead cost

d. Direct labor cost, direct materials cost, and factory overhead cost

Question 45

Lee and stills are partners who share income in the ratio of 2:1 and who have capital balances of $65,000 and $35,000 respectively. If Mor, with the consent of Stills, acquired ½ of Lee's interest for $40,000 for what amount would Mor's capital account be credited?

a. $50,000

b. $40,000

c. $72,500

d. $32,500

Question 46

The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes

a. a debit to Sales Returns and Allowances and a credit to Accounts Receivable.

b. a debit to Sales and a credit to Accounts Receivable.

c. a debit to Accounts Receivable and a credit to Sales Returns and Allowances.

d. a debit to Sales and a credit to Sales Returns and Allowances.

Question 47

The entry to record a purchase of merchandise on credit using a periodic inventory system includes

a. a debit to Merchandise Inventory and a credit to Accounts Payable

b. a debit to Accounts Payable and a credit to Purchases

c. a debit to Purchases (COGS) and a credit to Accounts Payable

d. a credit to Merchandise Inventory and a debit to Accounts Payable

Question 48

As a part of the initial investment, a partner contributes office equipment that had a cost of $20,000 and accumulated depreciation of $12,500. If the partners agree on a valuation of $9,000 for the equipment, what amount should be debited to the office equipment account?

a. $7,500

b. $9,000

c. $20,000

d. $12,500

Question 49

When a company issues a promissory note, the accountant records an entry that includes a credit to Note Payable for

a. the maturity value of the note

b. the face value less the interest that will accrue

c. the face value of the note

d. the face value of the note plus the interest that will accrue

Question 50

A firm purchases an asset for $50,000 and estimates that it will have a useful life of five years and a salvage value of $5,000. Under the double-declining-balance method, the depreciation expense for the first year of the asset's useful life is

a. $9,000.

b. $18,000.

c. $20,000.

d. $10,000.