Descriptive Questions-Basic Accounting Principle.

1. Advance payments from customers for future services are recorded as:
a.an expense
b.revenue
c.a liability
d.an asset

2. The current assets of most companies are usually made up o
a.assets that are currently used in the operations of the company
b.cash and assets expected to be converted to cash within a year
c.a very small proportion (less than 10%) of the total assets of the entity
d.cash, marketable securities, and accounts and notes payable

3.For which of the following reconciling items would an adjusting entry be necessary to the books of the company?
a.A deposit in transit
b.An error by the bank
c.Outstanding checks
d.A bank service charge

4.The allowance for collectable accounts is a(n):
a.asset
b.contra current asset
c.expense
d.contra revenue

5.When a firm uses the LIFO inventory cost flow assumption cost of goods sold will be the same as if FIFO were used
a.True
b.False

6.Expenditures capitalized as long-lived assets generally include those expenditures that:
a.are made for normal repairs to maintain the usefulness of the asset over a number of years
b.are for items that have a physical life of more than a year, regardless of their cost
c.are material and that have an economic benefit to the entity only in the current year
d.are material and that have an economic benefit to the entity that extends beyond the current year

7.The present value concept is widely applied in business because:
a.inflation erodes the purchasing power of money
b.money has value over time
c.accounting for operating leases requires its use
d.most obligations are settled within a year

8. Many companies use accelerated depreciation for tax purposes because:
a.it is easier to calculate than straight-line depreciation
b.it reflects the amount of cash used in depreciation
c.it results in lower taxable income than straight-line depreciation
d.it is used for determining net income reported to stockholders

9.The payment of a current liability will:
a.decrease net income
b.decrease working capital
c.increase working capital
d.not affect working capital

10.When borrowing money, the most important objective of the borrower should be to minimize monthly payments
a.True
b.False

11.The current expense for payroll represents the:

a.gross pay earned by employees
b.net pay earned by employees
c.employer's federal and state payroll tax obligation
d.employer's liability for various withholdings that taken out of the gross pay earned by employees

12.Which of the following is not an owner's equity account?
a.Common stock
b.Capital stock
c.Retained earnings
d.Minority interests

13.Retained earnings represent:
a.the present value of the dividends paid out for the last 2 years
b.the total net income of the firm since its beginning
c.net income that has been reinvested in the company
d.net income plus gains (or minus losses) on treasury stock transactions

14. The principal reason for a company having a common stock split is to:
a.increase the total cash dividends paid to stockholders
b.capitalize retained earnings
c.decrease total owners' equity
d.decrease the market value per share of common stock