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1Determine a firm's total asset turnover (TAT) if its net profit margin (NPM) is 5 percent, total assets are $8 million, and ROI is 8 percent.
1.60
2.05
2.50
4.00
2. Felton Farm Supplies, Inc., has an 8 percent return on total assets of $300,000 and a net profit margin of 5 percent. What are its sales?
$3,750,000
$480,000
$300,000
$1,500,000
3. Which of the following would NOT improve the current ratio?
Borrow short term to finance additional fixed assets.
Issue long-term debt to buy inventory.
Sell common stock to reduce current liabilities.
Sell fixed assets to reduce accounts payable.
4. The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if
cost of goods sold increased relative to sales.
sales increased relative to expenses.
the U.S. Congress increased the tax rate.
dividends were decreased.
5. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company
will not experience any difficulty with its creditors.
has less liquidity than other firms in the industry.
will be viewed as having high creditworthiness.
has greater than average financial risk when compared to other firms in its industry.
6. Kanji Company had sales last year of $265 million, including cash sales of $25 million. If its average collection period was 36 days, its ending accounts receivable balance is closest to . (Assume a 365-day year.)
$26.1 million
$23.7 million
$7.4 million
$18.7 million
7. A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
Borrow more.
Shift short-term to long-term debt.
Shift long-term to short-term debt.
Sell common stock.
8. Which of the following statements (in general) is correct?
A low receivables turnover is desirable.
The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
An increase in net profit margin with no change in sales or assets means a poor ROI.
The higher the tax rate for a firm, the lower the interest coverage ratio.
9. Retained earnings for the "base year" equals 100.0 percent. You must be looking at
a common-size balance sheet.
a common-size income statement.
an indexed balance sheet.
an indexed income statement.
10. Krisle and Kringle's debt-to-total assets (D/TA) ratio is .4. What is its debt-to-equity (D/E) ratio?
.2
.6
.667
.333
11. A firm's operating cycle is equal to its inventory turnover in days (ITD)
plus its receivable turnover in days (RTD).
minus its RTD.
plus its RTD minus its payable turnover in days (PTD).
minus its RTD minus its PTD.
12. When doing an "index analysis," we should expect that changes in a number of the firm's current asset and liabilities accounts (e.g., cash, accounts receivable, and accounts payable) would move roughly together with for a normal, well-run company.
net sales
cost of goods sold
earnings before interest and taxes (EBIT)
earnings before taxes (EBT)
Evaluating financial statement information can be divided into broad categories including
horizontal analysis (compares financial statement amounts to amounts from previous years in terms of the percentage of change)vertical analysis (shows the relationship between numbers on a financial statement for one year)ratio analysis (expresses the relationship of one number to another number)
all of the above
Use the following information and horizontal analysis to compute the percentage increase in sales: 2007 sales were $200,000 and 2008 sales were $250,000.
sales increased by 20%
sales increased by 125%
sales increased by 80%
sales increased by 25%
2006 sales were $200,000, 2007 sales were $220,000, 2008 sales were $240,000, and 2009 sales were $300,000. 2006 is the base year. Using the previous information and your knowledge of trend analysis, select the statement that is false.
The trend analysis % for 2006 is 100%.
The trend analysis % for 2009 is 125%.
Amounts are always compared to, or divided by, the base year amount.
Trend analysis is a type of horizontal analysis.
2007 net sales $200,000; 2007 Cost of Goods Sold $130,000; 2001 operating expenses $50,000; and 2007 net income $20,000. Use this information and your knowledge of vertical analysis to select the statement that is false.
The vertical analysis % for Cost of Goods Sold is 65%.
Vertical analysis shows the relative importance of each income statement item.
On the balance sheet, all amounts are compared to, or divided by, total liabilities.
On the income statement, all amounts are usually compared to, or divided by, net sales.
2007 current assets $100,000; 2007 long-term assets $300,000; 2007 total liabilities $150,000; and 2007 total shareholders' equity $250,000. Using the previous information and your knowledge of common-sized statements, select the statement that is false.
The common-size % for current assets is 33.3%.
Common-size statements are a type of vertical analysis.
The common-size % for total liabilities is 37.5%.
Common-size statements allow companies of different sizes to be more easily compared.
All of the following are true regarding benchmarking exceptif the industry average for cost of goods sold (COGS) is 50% and your company average is 60%, this would be considered favourablebenchmarking includes comparing one company with a key competitor
if the industry average for gross profit is 35% and your company average is 40%, this would be considered favourablebenchmarking includes comparing one company with the industry average
Ratio analysis expresses the relationship of one number to another number. To add meaning to a ratio it can be compared to
ratios of prior years or accounting periods
industry averages
budgeted ratios
all of the above
All of the following statements are true regarding ratios that measure a company's ability to pay current liabilities except
inventory and prepaid expense are included in the numerator of the current ratio, but not in the numerator of the acid-test ratioworking capital = current assets - current liabilities
in most industries, a current ratio of 2.0 is considered adequate
a higher current ratio is always preferred to a lower current ratio
All of the following statements are true regarding ratios that measure a company's ability to sell inventory and collect receivables except
an increased inventory turnover ratio indicates a company is selling merchandise more quickly than in previous accounting periods; in general, this translates into more merchandise being sold and higher profitabilitya decreased days' sales in receivables ratio indicates the company is collecting cash from credit customers more quickly. In general, this results in greater cash inflows
an increased accounts receivable turnover ratio indicates an increased ability to collect cash from credit customersthe formula for the inventory turnover ratio is sales/average inventory
All of the following statements are true regarding ratios that measure a company's ability to pay short-term and long-term debt except
a high times-interest-earned ratio indicates a company can pay interest expense with relative easea debt ratio of 60% indicates 60% of assets are financed with debt
the average debt ratio is between 0.57 and 0.67 according to Robert Morris Associatesa debt ratio of 90% indicates lower financial risk than a debt ratio of 60%; in general, lower financial risk results in lower interest rates
All of the following statements are true regarding ratios that measure a company's profitability except
return on assets (ROA) is usually greater than return on equity (ROE) because creditors demand a higher return than shareholdersearnings per share is the only ratio that must appear on the face of the income statementcompanies strive for a high return on sales
return on assets includes interest expense plus net income in the numerator because these are the returns to the two groups that have financed company assets
All of the following statements are true regarding ratios that analyze a stock investment except
shareholders who invest primarily to receive dividends pay special attention to the dividend yield ratioin general, an increased price/earnings ratio indicates increased investor confidence in the future of the companytwo ways for shareholders to earn a return on a share investment are receiving dividends and selling the stock investment at a gainmany experts argue that book value is the most useful ratio for investment analysis
Given the following information: Cash 29,000, Accounts Receivable $114,000, Inventory $113,000, Prepaid Expenses $6,000, Total capital assets $525,000, Total current liabilities $142,000, Long-term debt $289,000, Total shareholders' equity $356,000' Net sales $858,000, Cost of goods sold $513,000, Gross Margin $345,000, Net income $48,000. The acid test ratio is:
75%
1.01
1.85
55%
Given the following information: Cash 29,000, Accounts Receivable $114,000, Inventory $113,000, Prepaid Expenses $6,000, Total capital assets $525,000, Total current liabilities $142,000, Long-term debt $289,000, Total shareholders' equity $356,000' Net sales $858,000, Cost of goods sold $513,000, Gross Margin $345,000, Net income $48,000. The debt ratio is:
101%
185%
55%
75%
5.56
8.62
4.54
7.52
A company makes a profit of £5,000 before tax and after all interest totaling £1,200 has been charged. The capital of the company is made up of £35,000 ordinary shares, £35,000 preference shares, £25,000 debentures and £30,000 reserves. The return on capital employed for this company before tax is:
6.2%
4.96%
4.0%
6.5%
Return on capital employed for a company will increase if:sales volume decreases and margins decrease.
sales volume doesn't change but margins decrease.
sales volume increases with no change in margins.
sales volume decreases with no change in margins.
The PE ratio is calculated as follows:profit of the company attributable to ordinary shareholders divided by the total earnings for the year.price of ordinary share on the market divided by earnings per share.
profit of the company divided by sales earnings.
price of ordinary share on the market divided by total earnings of the company.
The interest cover for the company referred to in question 1 is:5.17 times
5.17%
4.17 times
4.17%
If a company revalues its non-current assets upwards from historical cost, then its sales to capital employed ratio will:
stay the same.
decrease.
increase.
A debtor collection ratio of 12:1 means that:the average debtor takes about one month to pay.
debtors are about twelve times as big as creditors.
in any given month, twelve debtors are expected to pay in full.
one-twelfth of debtors will turn out to be bad debts.
Given inventory of £24,000, other current assets of £12,000 and current liabilities of £20,000, the acid test (quick ratio) will be:
1.8
1.6
0.6
1.2
Common stock is recorded where on the financial statements?
A.In stockholders’ equity.
B.In accounts payable.
C.In accounts receivable.
D.In other expense.
Answer: A
Hint: Common stock is a component of stockholders’ equity; it is the investment in shares made by stockholders.
Q2. Which of the following is the CORRECT way to record an unrealized holding gain on a trading investment? An unrealized holding gain is recorded as:
A.a receivable on the balance sheet.
B.an increase to current liabilities.
C.a gain on the income statement.
D.an adjustment to stockholder’s equity.
Answer: C
Hint: An unrealized holding gain on a trading investment is recorded as a gain on the income statement. On the balance sheet, the investment is written up to its fair market value.
Q3. To record a loss on an available-for-sale investment a company would need to:
A.credit stockholder’s equity.
B.debit a fair value adjustment account.
C.debit stockholders’ equity.
D.credit current assets.
Answer: C
Hint: If management classifies a short-term investment as an available-for-sale (AFS) investment, then the investment is reported on the balance sheet at its fair market value. Any unrealized holding gains or losses due to the appreciation or depreciation of the investment must be listed as an adjustment to stockholders' equity. A debit to stockholders’ equity is required when recording a loss on an available-for-sale investment; the offsetting credit would be to a fair value adjustment account.
Q4. How is an available-for-sale investment recorded on the financial statements?
A.As accounts payable on the balance sheet.
B.At cost plus any acquisition costs on the balance sheet.
C.As an expense on the income statement.
D.At fair market value on the balance sheet.
Answer: D
Hint: An available-for-sale investment is recorded at fair market value as a current asset on the balance sheet.
Q5. Allowance for doubtful accounts decreases the balance in what account to obtain the net realized value?
A.Cash.
B.Accounts payable.
C.Bad debt expense.
D.Accounts receivable.
Answer: D
Hint: Accounts receivable is decreased by the allowance for doubtful accounts to obtain the net realized value of accounts receivable.
Multiple Choice Questions StrategiesNews Recommended Books Recommended Links Multiple Choice Questions Exam Strategies Cheating
This guide is written with the explicit aim to help my students to do their best on exams in my computer science classes. At the same time most of the ideas are generic enough and can be useful in a wider context. Booklet contains additional information about "grey areas" (using/abusing breaks, prevention of burnout and fatigue, etc.)
Dr. Nikolai Bezroukov
When students took SAT the first time they usually have a limited experience with multiple choice questions and anticipate that a multiple choice exam is a simple matter of recognizing true statements. This is wrong. Multiple choice questions require fine distinctions between correct and nearly-correct statements. Often these distinctions require only memory and recognition, but involve the analysis and guesswork. These higher-order processes can help even when at first glance the content of a question is unrecognizable.
Read every question carefully but quickly two times. If you can anticipate the correct alternative before actually looking at the alternatives answer this question immediately. Put a "?" on those that need more thought. Underline qualifying words (without that you can answer a wrong question, for example positive instead of negative; this is a very common mistake):
o Note negatives. If a negative such as "none", "not", "never", or "neither" occurs, know that the correct
alternative must be a fact or absolute and that the other alternatives could be true statements, but not the correct answer.
o Note superlatives. Words such as "every", "all", "none", "always", and "only" are superlatives that indicate the correct answer must be an undisputed fact.
o Note qualifying words. "Usually", "often", "generally", "may", and "seldom" are qualifiers that could help to indicate a true statement.
Underline the directions carefully. The directions usually indicate that some alternatives may be partly correct or correct statements in themselves, but not for this particular question. The directions may say: "choose the most correct answer" or "mark the one best answer." Sometimes you may be asked to "mark all correct answers."
Always cover up the possible responses with a piece of paper or with your hand while you read the stem, or body, of the question.
Try to anticipate the correct response before you are distracted by seeing the options provided. Then, uncover the responses.
Plan your time carefully. Some questions, of course, will take you only a few seconds, while others will require more time for thought. Plan to progress through the exam in three ways:
Three rounds answering strategy
Round 1: Review. Read each question covering answers with the sheet of write paper. Answer only questions that you know answers without looking into provided multiple choices. Do not spend more that a few seconds on the question, just mark it with "?" at the end (but not at the beginning). That pass should take no more more that 20% of your time. At this point you read all questions and has more or less complete picture of the exam.
Shut your eyes, stretch and take some deep breaths and relax for 30 seconds. Periodically clearing your head in this way can help you stay fresh during the exam session.
Round 2: Then, examine/study the questions not yet answered. Eliminate the obviously incorrect alternatives by crossing them on the sheet. If you are able to eliminate all obviously wrong answers but two, you've greatly improved your odds of answering the question correctly.
Try taking a few breaks during the exam by stopping for a moment, shutting your eyes, and taking some deep breaths. Periodically clearing your head in this way can help you stay fresh during the exam session. Remember, you get no points for being the first person to finish the exam, so don't feel like you have to race through all the items -- even two or three 30-second breaks can be very helpful.
Erase the "?" at the end Change answers to previous questions as you progress. Often the second question that you encounter after the first provides additional information about the correct answer to the prev. question.
If you cannot come to a decision by reasoning, guess. Do not erase the "?", you may be able to do something wth them during the final review. There is no penalty for the wrong answers, and a guess is better than a blank. If you managed to eliminate all but two
alternative you chances are close to 50%. Consider some of the following strategies to eliminate responses that are probably wrong.
1. Responses that use absolute words, such as "always" or "never" are less likely to be correct than ones that use conditional words like "usually" or "probably."
2. "All of the above" is often a correct response. If you can verify that more than one of the other responses is probably correct, then choose "all of the above."
3. "None of the above" is usually an incorrect response, but this is less reliable than the "all of the above" rule. Be very careful not to be trapped by double negatives.
4. Look for grammatical clues. If the stem ends with the indefinite article "an," for example, then the correct response probably begins with a vowel.
5. The longest response is often the correct one, because the instructor tends to load it with qualifying adjectives or phrases.
6. Look for verbal associations. A response that repeats key words that are in the stem is likely to be correct.
7. If all else fails, choose response that caught you eye. There is some evidence that "gut" reactions can help improve your score.
Leave 10% of your time on the final review. You might discover blunders and eliminate a couple of wrong answers because now you have a full picture of the exam.
Make sure that you have filled the appropriate bubbles carefully in pencil!. if you fail to fill in bubbles completely or if you make stray marks, only the computer will notice, and you will be penalized. Erase any accidental marks completely.
Home Student Resources Chapter 2: Accounting rules and regulations Multiple Choice Questions
Multiple Choice Questions
This activity contains 8 questions.
In preparing accounting statements accountants adopt a number of basic rules. These rules can be classified into three broad categories: boundary, measurement and ethical. Which one of the following is not a measurement rule?
Matching
http://w ps.pearso /ema_uk_he_dys 9533945
false false
Dual aspect
Historic cost
Comparability
Which accounting rule requires that a degree of caution should be applied when preparing financial statements under conditions of uncertainty? should be applied?
Matching
Going concern
Reliability
Consistency
The realisation concept states that revenue should only be recognised when it has been realised. A manufacturing business which sells goods on credit would normally recognise revenue when:
The goods are delivered to the customer
The goods are produced
The cash is received from the customer
An order is received from a customer
The restrictions relating to the formation and running of companies are included in:
The Companies Act 2006
International accounting standards
There are no legal requirements
UK accounting standards
In the UK accounting standards are formulated and issued by the:Financial Accounting Standards Board
Financial Reporting Council
Accounting Standards Board
Accounting Standards Committee
In the UK newly issued accounting standards are called:Statements of Recommended Accounting Practice
Statements of Standard Accounting Practice
Financial Reporting Standards
Financial Accounting Standards
Which of the following statements is false?UK accounting standards are not recognised in UK company law
Financial statements should be prepared so that they represent a true and fair view
The Companies Act 2006 lays down the minimum amount of information that must be supplied to company shareholdersUK publicly listed group companies must publish financial statements that comply with international accounting standards
Which of the following statement is true?UK limited liability companies are not bound by any type of accounting standardUK limited liability companies must use UK accounting standards
UK limited liability companies may use international accounting standards
UK limited liability companies are bound by European accounting standards
Answer choices in this exercise appear in a different order each time the page is loaded.
Copyright © 1995-2010 Pearson Education. All rights reserved.Legal and Privacy Notice
intimate
1. The business entity principle refers to:
Keeping ownership limited to one person.
Using company cheques instead of personal cheques.
1
Listing assets at the price that they were obtained.
Keeping personal and business financial data separated.
2. The calculation of financial position is determined by:
The value of the assets of a company
The amount of liabilities for a company
Revenue for the year
Total value of items owned minus total owed to creditors
3. The accounting equation is:
Only used when the balance sheet does not balance
Assets = Liabilities + Owner's Equity
Owner's Equity = Assets + Liabilities + debts
Liabilities = Assets + Owner's Equity
4. What is the correct order for the balance sheet preparation:
Prepare statement heading, list assets, list liabilities, show equity
Prepare statement heading, show equity, list liabilities, list assets , show equity
Prepare statement heading, show equity, list assets, list liabilities
Prepare statement heading, list liabilities, list assets, show equity
2
3
4
5. Liquidity order is:
the recording of assets at the actual cost to the business
the claims against the assets of a company
the order in which assets can be converted to cash
the order in which liabilities are listed
6. When assets are obtained they are recorded at the actual cost to the business. This is called the :
Purchase Principle
Cost Principle
Classification System
Maturity Date rule
7. The accounting period is always:
January 1st to December 31st
the last point in the balance sheet heading
the same for all companies
the period of time covered by financial statements
8. If you purchase $50 of office supplies on credit, then you would increase:
office supplies and cash
office supplies and liabilities
5
6
7
8
assets and owner's equity
accounts receivable and accounts payable
9. Computers are useful to accountants because they can:
analyze and summarize data
store data for later retrieval
perform complex mathematical tasks
all of the above
10. Standard accounting rules and guidelines are called:
Generally Accepted Accounting Principles
Chartered Accountant Rules
Canadian Institute of Acconting Rules
Guiding Principles of Accounting
CLEP Financial Accounting Practice Questions
1. What is the basic accounting equation?
A: assets = equity + capitalB: assets = capital + profitsC: assets = capital - depreciation D: assets = liabilities + capitalE: assets = capital + liquidity
2. Which financial statement presents a summary of the assets, liabilities, and owners' equity of a firm?
A: general ledgerB: work sheetC: balance sheetD: spreadsheetE: cash flow statement
9
10
3. Who is in charge of setting the generally accepted accounting principles?
A: Federal ReserveB: Financial Accounting Standards BoardC: United States Securities and Exchange CommissionD: Governmental Accounting Standards BoardE: Institute of Chartered Accountants
4. Which kind of organization has no more than 35 stockholders and pays no income tax as a firm, though owners must pay income tax on profits?
A: associationB: limited partnershipC: C corporationsD: full partnershipE: S corporation
5. Subtracting expenses from revenues yields _____.
A: net incomeB: net profitsC: carrying valueD: long-term assetsE: net liabilities
6. Which type of inventory system requires updating the inventory balance at the end of the accounting period?
A: periodic inventory systemB: contingency inventory systemC: LIFOD: perpetual inventory systemE: FIFO
7. Which accounting document keeps track of the cash receipts and cash payments of a business during a specific period?
A: balance sheetB: income statementC: financial reportD: network statementE: cash flow statement
8. Total liabilities divided by total shareholders' equity yields the _____.
A: deferred-tax-liability ratioB: interest-coverage ratioC: debt-to-equity ratioD: debt-to-total-assets ratioE: long-term-debt-to-total-capital ratio
9. Which is the most popular method of accelerated depreciation?
A: straight-line depreciationB: double-declining-balance depreciationC: acquisition cost depreciation
D: declining-balance depreciationE: unit depreciation
10. What is the name of the process of identifying each posting and journal entry?
A: balance calculationB: network retrievalC: inventory manipulation D: cross-referencingE: balance sheet organization
CLEP Financial Accounting Answer Key
1. D. Capital is also known as owners' equity.2. C. A balance sheet contains three sections: assets, liabilities, and equity. 3. B. The FASB is an independent group consisting of seven recognized experts in accounting.4. E. Shareholders in an S corporation are required to declare their share of profits on an income tax statement even if they do not receive a distribution.5. A. Net income is also known as net earnings.6. A. A periodic inventory system is much less costly to operate than a perpetual inventory system.7. E. The cash flow statement is simply a detailed account of the changes in one section of the balance sheet account.8. C. The ratio of borrowing to equity indicates the degree of risk involved in loaning money to a given firm.9. B. Double-declining-balance depreciation entails doubling the straight-line rate and then multiplying the resulting rate by the beginning book value.10. D. Accountants cross-reference in order to organize their books.
This is a Multiple Choice Test that goes over Chapters 1-5 in College Accounting: A practical Approach, tenth Edition with new statements added by: Jeffrey Slater
1.Carr Hardware has total assets of $75,000. What are the total assets if new baking equipment is purchased for $10,000 cash?
A. $85,000 B. $65,000 C. $10,000 D. $75,000
2.Which of the following sequence of actions describes the proper order in the accounting cycle?
A. Journalize, post, close, prepare financial statements, adjust, and analyze transactions. B. Prepare financial statements, journalize, post, adjust, analyze transactions, close. C. Analyze transactions, journalize, post, adjust, prepare financial statements, and close. D. Post, close, prepare financial statements, adjust, analyze transactions, and journalize.
3.Items owned by the business such as land, supplies, and equipment are its:
A. assets. B. liabilities. C. owner's equity. D. revenue.
4.The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed:
A. liability. B. contra asset. C. book value. D. market value.
5.Ellen's Bakery collects $3,500 of its account receivables. The expanded accounting equation changes include:
A. Cash and Ellen, Capital increases, $3,500 B. Cash and Revenue increases, $3,500 C. Cash increases and Accounts Receivable decreases, $3,500 D. Accounts Receivable decreases and Ellen, Capital increases, $3,500
6. A $600 check written for supplies was journalized as $60. The entry to correct this error is:
A. debit Supplies, $540; credit Cash, $540 B. debit Cash, $540; credit Supplies, $540 C. debit Supplies, $60; credit Cash, $60 D. debit Cash, $60; credit Cash, $60
7.On which financial statement would you find Salaries Expense?
A. Income Statement B. Balance Sheet C. Statement of owner's equity D. It does not appear on a financial statement.
8.Residual value is the:
A. value of the asset when it is purchased. B. value of the asset at the end of its useful life. C. cost of the asset. D. allocation of the cost.
9.An acceptable variation of the accounting equation is:
A. Assets - Liabilities = Owner's Equity. B. Assets + Owner's Equity = Liabilities. C. Assets = Liabilities - Owner's Equity. D. All of the above.
10. Which type of account would not be reported on the income statement?
A. Revenue B. Expenses C. Withdrawals D. None of the above.
11. In the normal accounting cycle the:
A. financial statements are prepared after the adjusting entries are posted. B. financial statements are prepared before the adjusting entries are posted. C. adjusting and closing entries are journalized before the financial statements are prepared. D. post-closing trial balance is prepared before the closing entries are posted.
12. Which of the following is most likely to result in an adjusting entry at the end of the period?
A. Payment of two months' insurance in advance. B. Payment of one month's rent. C. Owner's withdrawals. D. Payment for routine maintenance on the company van.
13. Which of the following columns of the worksheet are referred to when preparing closing entries to the Income Summary?
A. Adjusted Trail Balance columns. B. Balance Sheet columns. C. Adjustments columns. D. Income Statement columns.
14.Motel 10 received and paid a utility bill for $550 for the month of November. This transaction will:
A. increase cash $550 and increase Utility Expense $550. B. decrease Cash $550 and increase Utility Expense $550. C. increase Cash $550 and decrease Utility Expense $550. D. increase expenses and decrease withdrawal.
15. Amy flew to Philadelphia on a business trip. The purchase price of the ticket was $400 on account. The entry to record the transaction is:
A. debit Accounts Payable, $400; credit Travel Expense, $400. B. debit Travel Expense, $400; credit Accounts Payable, $400. C. debit Capital, $400; credit Accounts Payable, $400. D. debit Travel Expense, $400; credit Cash, $400.
16. C. Miller service purchased a microscope for $1,500. It has an expected life of 30 months and no residual value. The adjusting journal entry for the month is:
A. debit Depreciation Expense $50, credit Accumulated Depreciation $50. B. debit Depreciation Expense $500, credit Accumulated Depreciation $500. C. debit Accumulated Depreciation $50, credit Depreciation Expense $50. D. debit Accumulated Depreciation $500, credit Equipment $500.
17.A contra asset is:
A. in reality a liability. B. an asset with a debit balance. C. an asset account with a credit balance. D. an account that increases the asset.
18. Which of the following accounting cycle steps comes after the others?
A. Preparing the financial statements. B. Journalizing and posting closing entries. C. Preparing the worksheet. D. Journalizing and posting adjusting entries.
19.Which is an advantage of a sole proprietorship form of business?
A. Limited personal risk. B. Can continue indefinitely. C. Owner makes all the decisions. D. All of the above.
20. Susan Mitchell Law Firm purchases $1,000 worth of office equipment on account. This causes:
A. Cash and Mitchell, Capital to decrease by $1,000. B. Office Equipment and Accounts Payable to increase by $1,000. C. Office Equipment to decrease and Accounts Payable to increase by $1,000. D. Accounts Payable to increase and Mitchell, Capital to decrease by $1,000.
21.The Income Statement credit column of the worksheet showed the following revenues: Catering Fees $900 and Cleaning Fees $850. The journal entry to close the revenue accounts is:
A. debit Income Summary $1,750; credit Catering fees $900 and Cleaning Fees $850. B. debit Catering Fees $900 and Cleaning Feels $850; credit Income Summary $1,750. C. debit all Revenues $1,750; credit Income Summary $1,750. D. none of the above.
22.A debit may signify a(n):
A. decrease in asset accounts. B. decrease in liability accounts. C. increase in the capital account. D. decrease in expense accounts.
23.Which of the following is prepared first?
A. Balance Sheet. B. Income Statement. C. Statement of Owner's Equity.
D. Trial Balance.
24. Carmen's catered a reception. The total price was $1,200. The customer paid $200 cash and charged the remainder. The journal entry to record this transaction is:
A. debit Cash $200 and Accounts Receivable $1,000; credit Catering Service Fees $1,200. B. debit Cash $200; credit Accounts Receivable $200. C. debit Cash $1,000 and Accounts Receivable $200; credit Catering Service Fees $1,200. D. debit Accounts Receivable $1,200; credit Cash $200 and Catering Service Fees $1,000.
25.The left column of a financial statement is often used to:
A. show debits. B. show credits. C. show totals. D. subtotal numbers.
26. An account is said to have a debit balance if:
A. the amount of the debits exceeds the amount of the credits. B. there are more entries on the debit side than on the credit side. C. its normal balance is debit without regard to the amounts or number of entries on the debit side. D. the last entry of the accounting period was posted on the debit side.
27. Sun Glow Glass estimated depreciation for office equipment is $100. The adjusting entry would include:
A. a credit to Accumulated Depreciation for $100. B. a credit to Depreciation Expense for $100. C. a debit to Accumulated Depreciation for $100 D. a credit to Office Equipment for $100.
28. Adjusting journal entries are prepared from:
A. source documents. B. the balance sheet. C. the income statement. D. the adjustment columns of the worksheet.
29.When the balance of the Income Summary account is a credit, the entry to close this account is:
A. debit Capital, credit Income Summary. B. debit Income Summary, credit Revenue. C. debit Income Summary, credit Capital. D. debit Revenue, credit Income Summary.
30.Which of the following accounts would be considered a temporary account?
A. Revenue.
B. Assets. C. Liabilities. D. Owner's Equity.
31.A corporation is a business which is:
A. easy to form. B. ends with the death of a stockholder. C. owned by stockholders. D. none of the above.
32. The entry to record the payment of office salaries would be:
A. debit to Cash, credit to Accounts Receivable. B. debit to Cash, credit to Salaries Expense. C. debit to Salaries Expense, credit to Accounts Payable. D. debit to Salaries Expense, credit to Cash.
33. On a worksheet, the Balance Sheet debit column total is $25,000 and the credit column total is $15,000. Which of the following statements is correct?
A. The company had a net income of $3,000. B. The company had a net income of $10,000. C. The company's expenses were greater than revenues. D. None of the above are correct statements.
41. Hemingway Corporation had net book income of $1,000,000 for the current year. In preparing its Schedule M-1 reconciliation for the year, the corporation's tax account noted that Hemingway had the following: Federal tax expense=$250,000; Net capital losses=$50,000; Excess of tax depreciation [MACRS] over book depreciation = $150,000; interest income on U.S. Treasury securities = $90,000. What is Hemingway's taxable income for the year? A. $1,060,000 B. $1,150,000 C. $1,250,000 D. $1,450,000
42. An S corporation that used to be a C corporation is subject to the "built-in gains tax" for what length of time after conversion to S corporation status? A. 20 years B. 10 years C. Six months D. 5 years
43. Which of the following is a true statement concerning an affiliated group? A. The parent must directly own at least 80 percent of the stock in one subsidiary B. The stock ownership test for affiliated groups is based on both the total voting power and the total value of a corporation's stock. C. A life insurance company is NOT an includible corporation. D. Only domestic subsidiaries can be included in the parent's consolidated tax return.
E. All of these are true statements.
44. Jimbo Corporation acquires all of the net assets of Sabo Corporation in a tax-deferred merger. Heather was one of the shareholders of Sabo. As part of the merger, she exchanged all of her Sabo shares for shares in Jimbo Corporation. At the time of the exchange, her shares in Sabo had a tax basis of $10,000 and a FMV of $90,000, which was also the FMV of the Jimbo stock. What is Heather's tax basis in her Jimbo stock? A. 0 B. $80,000 C. $10,000 D. $90,000
45. Little Rock, Inc. distributed $1,750,000 in a year in which its current E&P was $800,000 and it accumulated E&P was $450,000. How much of this distribution was a dividend to Little Rock's shareholders? A. $ 800,000 B. $ 650,000 C. $1,750,000 D. $1,250,000
46. Oliver and Wendell formed the Holmes Partnership. Each contributed $50,000 in cash for an equal partnership interest. During the year the partnership had a $44,000 loss from operations. On December 21, each partner received $20,000 in cash. Which of the following is a true statement? A. Basis is reduced by the loss before distributions are considered. B. Each partner will recognize ordinary income on the receipt of cash from the partnership C. Each partner will have a $8,000 basis in the partnership after these items are considered. D. More than one of these is a true statement.
47. End-Run, Inc. had the following results for its first two years of operation
2003 2004 Regular Tax $292,000 $320,000 Alternative Minimum Tax $275,000 $370,000
Which of the following is a true statement? A. If the AMT tax liability in 2004 is caused by preferences there is an AMT credit carryback to 2003. B. If the AMT tax liability in 2004 is caused by adjustments there is an AMT credit carryback to 2003. C. If the AMT tax liability in 2004 is caused by basic exemption there is an AMT credit carryback to 2003. D. There is never an AMT credit carryback
48. Which of the following items must be computed on a consolidated basis? A. Capital gain net income. B. Charitable contributions deduction. C. Net operating loss (NOL) deduction. D. Dividend-received deduction E. All of these must be computed on a consolidated basis.
49. Melodious Corporation is having cash flow problems, although it is not insolvent nor in bankruptcy proceedings. One of its suppliers decides to accept a $100,000 cash payment from Melodius in full settlement of a $140,000 debt. What is Melodious Corporation's gross income, if any, from the debt settlement? A. 0 B. $140,000 C. $40,000 D. $100,000
50. Shirley received $40,000 cash and investment land (FMV $75,000, tax basis $60,000) in a liquidating distribution from her partnership when her outside basis was $120,000. Based on this information, what is Shirley's tax basis in the land? A. 0 B. $60,000 C. $120,000 D. $80,000
51. London Inc. is the common parent of a calendar year consolidated group. Fox-Hound, its wholly owned subsidiary, generated $800,000 taxable income that was included in the group's CTI. Fox-Hound had no tax-exempt income or nondeductible expenses and paid a $200,000 dividend to London. Before these items were considered, London's basis in Fox-Hound was $1,000,000. After these items are considered, its basis is A. $1,000,000 B. $1,800,000 C. $1,600,000 D. $ 800,000
52. Chowder Corporation operates in three states - Vermont, Maine and New Hampshire. It has state taxable income to be apportioned totaling $1,000,000. For the purposes of this question, assume that each state has adopted the 3-factor UDITPA formula, without modification. Using the information in the following chart, determine the amount of income apportioned to Vermont.
Maine Vermont New Hampshire Total Gross Receipts/Sales $270,000 $190,000 $ 40,000 $ 500,000 Payroll Expense 120,000 40,000 20,000 180,000
Property Costs 500,000 70,000 130,000 700,000 Total $890,000 $300,000 $190,000 $1,380,000
A. $640,000 B. $500,000 C. $750,000 D. $234,000
53. Which of the following is a true statement concerning tax treaties? A. Many countries enter into tax treaties. B. U. S person and an Italian doing business in France will be bound by different tax treaties. C. Tax treaties mitigate double taxation by decreasing the withholding rate on some types of income. D. Tax treaties mitigate double taxation through reciprocal tax exemptions. E. All of these are true statements.
54. All of Sundown Inc.'s taxable income of is from foreign sources. It paid foreign taxes of $250,000 on $750,000 of income. Sundown Inc. had no AMT adjustments or preferences. Which of these is a true statement? A. Sundown Inc. will be able to use the full tax paid as a foreign tax credit. B. Sundown Inc.'s foreign tax credit is $250,000. C. Sundown Inc.'s final U.S. tax will be $5,000. D. All of these statements are true.
55. This year, Bonnie sold 1,000 shares of Armor stock for $30 per share. She purchased her shares of stock in the following transactions:
January 13, 1999: 1,800 shares at $18 per share October 8, 2001: 4,000 shares at $25 per share
If Bonnie does not specifically identify any of the shares sold, what is her realized gain? A. $23,000 B. $5,000 C. $12,000 D. $8,000
56. Jim and his best friend Michael each own 50 of the 100 shares of The Buddy Corporation. Jim decides to retire and has the corporation redeem all of his stock for $500,000. Jim's basis in his stock was $50,000 and the corporation had E&P of $2,000,000 at the time of the redemption. How much of the redemption proceeds are treated as dividend income. A. $500,000 B. $450,000 C. 0 D. $50,000
57. On January 1, 2004, Bender Inc. paid $25,000,000 cash to the shareholders of Groeing Corporation to acquire control. Bender also paid $300,000 of investment banking fees directly relating to this acquisition. How much of the $300,000 can be deducted by Bender in its 2004 tax return? A. $300,000 B. $ 20,000 C. 0 D. $ 7,500
58. On January 1, 2004, Van Winkle Inc. paid $30 million to purchase the assets of a retail business. The FMV of the target's assets was $24 million with a tax basis of $18 million . What is the amount of the goodwill deduction in Van Winkle's 2004 tax return? A. $ 6 million B. $800,000 C. $400,000 D. 0
59. Schwartz Inc. acquired the business operated by Music Inc. in a qualifying Type A reorganization. At the acquisition date, Music had $418,000 accumulated E&P and a $68,000 foreign tax credit (FTC) carryforward. Based on this information, which of the following is a true statement? A. Schwartz must increase its E&P by $418,000. B. Schwartz can use the FTC in the first tax return filed after the merger. C. Both of these are true statements. D. Neither of these is a true statement.
60. Baskerville Inc. distributed all of its stock in River Inc. to its shareholders in a tax-free Type D split-off. Judy owns 15,000 shares of Baskerville stock ($180,000 basis; FMV $500,000 at the date of this split-off). Pursuant to the split-off, Judy received River stock with a $500,000 FMV and redeemed all of her Baskerville stock in the exchange. Based on this information, Judy's basis in the River stock is A. $180,000 B. $ 90,000 C. $ 30,000 D. $500,000
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1. The cash disbursements journal also is called the a) Voucher register. b) Purchases journal. c) Check register. d) Accounts payable subsidiary ledger.
2. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? a) Completeness. b) Existence or occurrence. c) Valuation or allocation. d) Rights and obligations.
3. An important purpose of the auditor's review of the client's procurement system should be to determine the effectiveness of the procedures to protect against a) Improper materials handling. b) Unauthorized persons issuing purchase orders. c) Mispostings of purchase returns. d) Excessive shrinkage or spoilage.
4. A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner? a) Footing the purchases journal. b) Reconciling vendors' monthly statements with subsidiary payable ledger accounts. c) Tracing totals from the purchases journal to the ledger accounts. d) Sending written quarterly confirmation to all vendors.
5. Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries? a) Personnel. b) Treasurer. c) Controller. d) Payroll.
6. Possible misstatements related to the validity internal control objective for payroll transactions include all of the following except a) Payments to fictitious employees. b) Payments to terminated employees. c) Payments to valid employees who have not worked. d) Payment to valid employees at a rate in excess of the authorized amount.
7. When examining payroll transactions, an auditor is primarily concerned with the possibility of
a) Posting of gross payroll amounts to incorrect salary expense accounts. b) Overpayments and unauthorized payments. c) Misfootings of employee time records. d) Excess withholding of amounts required to be withheld.
8. An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that a) Payments to employees are computed at authorized rates. b) Internal controls relating to unclaimed payroll checks are operating effectively. c) Segregation of duties exist between the preparation and distribution of the payroll. d) Employees work the number of hours for which they are paid.
9. Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme? a) Payrolls checks are disbursed be the same employee each payday. b) There are significant unexplained variances between standard and actual labor cost. c) Employee time cards are approved by individual departmental supervisors. d) A separate payroll bank account is maintained on an imprest basis.
10. If preparation of a periodic scrap report is essential in order to maintain adequate control over the manufacturing process, the data for this report should be accumulated in the a) Production Department. b) Accounting Department. c) Warehousing Department. d) Budget Department.
11. Which of the following departments typically approves purchase requisitions? a) Raw materials stores. b) Cost accounting. c) IT. d) Inventory management.
12. Which of the following best describes the validity audit objectives for inventory? a) Purchase requisitions initiated by authorized personnel. b) Recorded inventory actually exists. c) Inventory properly accumulated from journals and ledgers. d) All inventory is recorded.
13. Auditors are most likely to ensure that no production activity is scheduled prior to a) Determining standard costs. b) Observing physical inventory. c) Completing the book to physical adjustment. d) Determining the amount of consigned inventory.
14. Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities? a) Inventory cutoff errors. b) Misapplication of LIFO. c) Unreported scrap or spoilage. d) Theft.
15. The auditor is most likely t seek information from the plant manager with respect to the a) Adequacy of the provision for uncollectible accounts. b) Appropriateness of physical inventory observation procedures. c) Existence of obsolete machinery. d) Deferral or procurement of certain necessary insurance coverage.
16. In the examination of property, plant, and equipment, the auditor tries to determine all of the following except the a) Adequacy of internal controls. b) Extent of property abandoned during the year. c) Adequacy of replacement funds. d) Reasonableness of the depreciation.
17. The auditor may conclude that depreciation charges are insufficient by noting a) Insured values greatly in excess of book values. b) Large amounts of fully depreciated assts. c) Continuous trade-in s of relatively new assets. d) Excessive recurring losses on assets retired.
18. Which of the following accounts should be reviewed by the auditor to gain reasonable assurance that additions to property, plant, and equipment are not understated? a) Depreciation expense. b) Accounts payable. c) Cash. d) Repairs and maintenance. 19. In auditing intangible assets, an auditor most likely would review or recomputed amortization and determine whether the amortization period is reasonable in support of management's financial statement assertion of a) Valuation or allocation. b) Existence or occurrence. c) Completeness. d) Rights and obligations.
20. Several years ago, Conway, Inc. secured a conventional real estate mortgage loan. Which of the following audit procedures would be least likely to be performed by an auditor examining the mortgage balance? a) Examine the current year's canceled checks. b) Review the mortgage amortization schedule. c) Inspect public records of lien balances. d) Re-compute mortgage interest expense.
21. An internal control that ensures that long-term borrowing is properly initiated by appropriate individuals addresses the internal control objective of a) Validity. b) Authorization. c) Completeness. d) Ownership.
22. The primary reason for preparing a reconciliation between interest-bearing obligations outstanding during the year and interest expense presented in the financial statements is to a) Evaluate internal control over securities. b) Determine the validity of prepaid interest expense. c) Ascertain the reasonableness of imputed interest. d) Detect unrecorded liabilities.
23. Valuation is most likely an issue for long-term debt if a) Bonds are sold on the open market. b) Bonds are issued at a discount or premium. c) The loans are from banks. d) The company has many short-term leases.
24. A substantive strategy is typically used to audit stockholders' equity because a) The number of transactions is small. b) Controls over stockholders' equity transactions typically are weak. c) A reliance strategy is most efficient. d) A substantive strategy likely was used in prior years.
25. The least crucial element of internal control over cash is a) Separation of cash record-keeping from custody of cash. b) Preparation of the monthly bank reconciliation. c) Batch processing of checks. d) Separation of cash receipts from cash disbursements.
26. Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting between inter-company banks?
a) Review the composition of authenticated deposit slips. b) Review subsequent bank statements received directly from the banks. c) Prepare a schedule of bank transfers. d) Prepare year-end bank reconciliations. 27. An unrecorded check issued during the last week of the year would most likely be discovered by the auditor when the a) Check register for the last month is reviewed. b) Cutoff bank statement is reconciled. c) Bank confirmation is reviewed. d) Search for unrecorded liabilities is preformed.
28. Which of the following audit procedures is the most appropriate when internal control over cash is weak or when a client requests an investigation of cash transactions? a) Proof of cash. b) Bank reconciliation. c) Cash confirmation. d) Evaluate ratio of cash to current liabilities.
29. Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees? a) A bank lockbox system. b) Pre-numbered remittance advices. c) Monthly bank reconciliation. d) Daily deposit of cash receipts. 30. When auditing contingent liabilities, which of the following procedures would be least effective? a) Reading the minutes of the board of directors. b) Reviewing the bank confirmation letter. c) Examining customer confirmation replies. d) Examining invoices for professional services.
31. The auditor's primary means of obtaining corroboration of management's information concerning litigation is a a) Letter of audit inquiry to the client's lawyer. b) Letter of corroboration from the auditor's lawyer upon review of the legal documentation. c) Confirmation of claims and assessments from the other parties to the litigation. d) Confirmation of claims and assessments from an officer of the court presiding over the litigation.
32. An auditor will ordinarily examine invoices from lawyers primarily in order to a) Substantiate accruals. b) Assess the legal ramifications of litigation in progress. c) Estimate the dollar amount of contingent liabilities. d) Identify possible unasserted litigation, claims, and assessments.
33. If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should a) Honor the confidentiality of the client-lawyer relationship. b) Consider the refusal to be tantamount to a scope limitation. c) Seek to obtain the corroborating information from management. d) Disclose this fact in a footnote to the financial statements.
34. Which of the following situations would require adjustment to or disclosure in the financial statements? a) a merger discussion. b) The application for a patent on a new production process. c) Discussions with a customer that could lead to a 40 percent increase in the client's sales. d) The bankruptcy of a customer who regularly purchased 30 of the company's output.
35. Which of the following parties is responsible for the fairness of the representations made in financial statements? a) Client's management.
b) Independent auditor. c) Audit committee. d) AICPA.
36. Which of the following situations will not result in modification of the auditor's report because of a scope limitation? a) Restriction imposed by the client. b) Reliance placed on the report of another auditor. c) Inability to obtain sufficient competent evidential matter. d) Inadequacy in the accounting records.
37. Management believes, and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If management does not make an accrual in the financial statements, the auditor should express a/an a) Qualified opinion due to a scope limitation. b) Qualified opinion due to a departure from GAAP. c) Unqualified opinion with an explanatory paragraph. d) Unqualified opinion in a standard auditor's report.
38. When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of contrary information concerning the entity's alternative means for maintaining adequate cash flow. An example of such a factor is the a) Possibility of purchasing certain assets rather than leasing them. b) Capability of extending the due dates of existing loans. c) Feasibility of operating at increased levels of production. d) Marketability of property and equipment that management plans to keep.
39. An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was a) Limited to include only events occurring up to the date of the last subsequent event referenced. b) Limited to the specific event referenced. c) Extended to subsequent events occurring through the date of issuance of the report. d) Extended to include all events occurring since the completion f fieldwork.
40. With respect to ethics, the theory of rights a) Suggests that auditors should always verify ownership of a client's material tangible assets. b) Is primarily concerned with equity and impartiality. c) Suggests that an individual's actions should not violate the liberties of any individual. d) Recognizes that decisions involve trade-offs between costs and benefits.
41. In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor f a brokerage firm a) Which owes the CPA audit fees for more than one year. b) In which the CPA has a large active margin account. c) In which the CPA's brother is the controller. d) Which owes the CPA audit fees for current year services and has just filed a petition for bankruptcy.
42. A CPA, while performing an audit, strives to achieve independence in appearance in order to a) Reduce risk and liability. b) Comply with the generally accepted standards of fieldwork. c) Become independent in face. d) Maintain public confidence in the profession.
43. Which of the following is not a principle of professional conduct as defined by the Code of Professional Conduct? a) Integrity. b) Due care. c) Reporting. d) Scope and nature of services.
44. According to the profession's standards, which of the following is not required of a CPA performing a
consulting engagement? a) Complying with Statements on Standards for Consulting Services. b) Obtaining an understanding of the nature, scope, and limitations of the engagement. c) Supervising staff who are assigned to the engagement. d) Maintaining independence from the client.
45. According to the ethical standards of the profession, which of the following acts is generally prohibited? a) Issuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client. b) Revealing confidential client information during a quality review of a professional practice by a team from the state CPA society. c) Accepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent. d) Retaining client records after an engagement is terminated prior to completion and the client has demanded their return.
46. An auditor, using the same degree of due care as other members of the profession, fails to create an adequate allowance for bad debts. This occurrence is an example of a) Negligence. b) Fraud. c) An error in judgment. d) Constructive negligence.
47. Which of the following is the best statement of the general standard of performance owed by an accountant in his or her professional work? a) To do the job correctly and discover all irregularities. b) To follow generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). c) To act as a professional and not commit fraud. d) To exercise the skill and care of the ordinarily prudent accountant in the same circumstances. 48. Which of the following is not within the class of foreseen users of an accountant's work product? a) A shareholder of the client. b) A lender bank when the accountant knows only that the client will use the financial statements to obtain a loan from an unspecified source. c) A bank when the accountant knows the client will rely on the financial statements as the basis for a loan from the bank. d) An investor if the accountant knows that the client is seeking capital from a select group of investors.
49. Which of the following statements is correct with respect to ownership, possession, or access to a CPA firm's audit work-papers? a) Work-papers are subject to the privileged communication rule, which, in most jurisdictions, prevents any third-party access to the work-papers. b) Work-papers may never be obtained by a third-party unless the client consents. c) Work-papers are the client's exclusive property. d) Work-papers are not transferable to a purchaser of a CPA practice unless the client consents.
50. At which point in an ordinary sales transaction of a wholesaling business would a lack of specific authorization be of least concern to the auditor? a) Granting of credit. b) Shipment f goods. c) Determination of discounts. d) Selling of goods for cash
Financial Accounting Multiple Choice Questions1. The requirement that only transaction data capable of being expressed in terms of money be included in the accounting records relates to the
a. cost principle. b. monetary unit assumption. c. economic entity assumption. d. both a and b above.
2. A financial statement that reports accounting data at a specific date is the a. income statement. b. retained earnings statement. c. balance sheet. d. statement of cash flows.
3. Which of the following presents key aspects of the process of accounting in the correct chronological order? a. Communicating, recording, and identifying b. Recording, identifying, and communicating c. Recording, totaling, and identifying d. Identifying, recording, and communicating
4. The process of transferring transaction effects into the appropriate accounts is referred to as a. closing. b. journalizing. c. recording. d. posting.
5. Transactions are initially recorded in the a. general ledger. b. trial balance. c. general journal. d. balance sheet.
6. For which of the following accounts is the normal balance a debit? a. Rent Payable b. Unearned Rent Revenue c. Rent Revenue d. Prepaid Rent
7. Which of the following is false with regard to a general journal? a. It tracks the increases and decreases in an individual account. b. It provides a chronological record of transactions. c. It discloses in one place the complete effect of a transaction. d. It helps to prevent errors since the debit and credit amounts in an individual entry can be readily compared.
8. Financial statements combining the operations of Sears and J. C. Penney would violate the a. monetary unit assumption. b. economic entity assumption.
c. cost principle. d. both a and c above.
9. A debit will reduce _______________, but increase ______________. a. accounts receivable; accounts payable b. revenues; accounts payable c. accounts payable; common stock d. common stock; prepaid insurance
10. Which of the following entries made to record the payment of $200 on account will cause the trial balance to be out of balance? a. No entry is recorded. b. Cash is debited for $200 and Service Revenue is credited for $200. c. Cash is debited for $20 and Accounts Payable is credited for $20. d. Both Cash and Accounts Payable are credited for $200.
11. Although a separate legal entity, the transactions of the following still must be kept separate from the personal activities of the owners for accounting purposes: a. Proprietorship. b. Partnership. c. Corporation. d. Both a and b above.
12. The Retained Earnings column had a beginning total of $30,000 and an ending total of $50,000. If $10,000 of dividends were paid during the period, net income must have been a. $20,000. b. $40,000. c. $10,000. d. $30,000.
13. The matching principle states that a. revenues should be matched with assets when they are recorded. b. revenues should be matched with the periods when cash is collected from customers. c. recorded values of assets should match their purchase prices. d. none of the above.
This solution is comprised of a detailed explanation to answer the financial accounting multiple choice questions.
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Accounting 101 - 20 multiple choice questions1) Each cell in a spreadsheet is defined by: A) a row number and a label B) a formula and a column number C) formulas and labels D) a row number and a column letter
2) The __________ indicates a cell is active in a computerized spreadsheet. A) grid B) program C) module D) cursor
3) Posting the entries in the sales journal to the accounts receivable subsidiary ledger should be done: A) on a weekly basis B) only at the end of the accounting period C) on a daily basis D) at the end of each month
4) Customers' individual accounts are included in a subsidiary ledger referred to as the: A) general ledger B) controlling ledger C) accounts receivable ledger D) accounts payable ledger
5) Which of the following is recorded in the sales journal? A) sale of merchandise on account B) sale of merchandise for cash C) return of merchandise purchased for cash D) return of merchandise purchased on account
6) The total of the customer accounts receivable ledger at the end of the accounting period must equal the: A) total of the accounts receivable credit column in the cash receipts journal B) total of the accounts receivable account in the general ledger C) total of the creditors' accounts payable ledger D) total of the accounts payable account in the general ledger
7) Assuming the use of special journals, the sale of equipment in exchange for a promissory note would be recorded in the: A) cash receipts journal B) sales journal C) general journal D) cash payments journal Debit: notes receivable; credit: sales
8) Garner Enterprises received payment within the discount period from a customer who had purchased merchandise on account. The sales invoice was for $2,000, and credit terms were 3/15, n/30. In the cash receipts journal, $1,940 will appear under the: A) accounts receivable credit column B) sales revenue credit column C) cash debit column D) cash credit column Note: sales is still $2000
9) Jets Company records returns and allowances in the general journal. On August 16, Jets issued a $150 credit memo to Celtics Company for merchandise sold on credit on August 1. What entry does Jets make? A) no entry is required by Jets Company B) Sales Returns and Allowances 150 Accounts Receivable-Celtic Company 150 C) Accounts Receivable-Celtics Company 150 Sales Returns and Allowances 150 D) Accounts Payable-Celtics Company 150 Inventory 150
10) Ruby Company purchased inventory from Diamond Company, and received a credit memo from Diamond Company. Diamond Company had charged Ruby Company $3.85 rather than $3.58 for each of the 100 items ordered. What entry will Diamond Company make? A) Sales Returns and Allowances 27 Inventory 27
B) Inventory 27 Accounts Payable-Ruby Company 27 C) Accounts Payable-Ruby Company 27 Inventory 27 D) Sales Returns and Allowances 27 Accounts Receivable-Ruby Company 27
11) The following data are available for Wonder Boutique for October: Book balance, October 31 $5,575 Outstanding checks 584 Deposits in transit 2,500 Service charges 75 Interest revenue 25 What is the adjusted book balance on October 31 for Wonder Boutique based on the above data? A) $5,550 B) $5,525 C) $5,500 D) $7,466 = balance - service charge+ interest = 5575 -75+25
12) The following data are available for Cline Paper Company for March: Book balance, March 31 $3,620 Service charges 50 Interest revenue 35 Note collected by bank 1,500 Check returned marked NSF 700 What is Cline's adjusted book balance on March 31 from the above data? A) $2,905 B) $3,620 C) $4,505 D) $4,405 = balance - service charge+ interest -check returned = 3620-700-50+35
13) A check for the cash purchase of supplies for $329 was recorded on the books as $239. On a bank reconciliation, this will appear as a(n): A) addition to the bank balance B) deduction from the bank balance C) addition to the book balance D) deduction from the book balance
14) After preparing the bank reconciliation, journal entries must be prepared for: A) only for outstanding checks B) any errors made on the books revealed by the bank reconciliation C) all items on the bank's side D) any errors made by the bank revealed by the bank reconciliation
15) Internal control over cash receipts is demonstrated by: A) a mailroom employee sending all customer checks to the treasurer who makes the bank deposit B) a mailroom employee sending remittance advices to the treasurer C) a mailroom employee depositing all customer checks at the bank D) all the above
16) All of the following are controls over petty cash except:
A) supporting all fund disbursements with a petty cash ticket B) keeping an unlimited amount of cash on hand C) replenishing the fund through normal cash disbursement procedures D) designating one employee to administer the fund
17) Certified public accountants are expected to maintain higher standards than society in general: A) only if they are certifying the financial statements of a company whose stock is listed on a national exchange B) because they are required to by federal law C) as long as they are working for themselves D) because their ability to attract business depends entirely upon their reputation
18) Another dimension to most ethical issues is: A) external controls B) the possible consequences C) internal controls D) the individuals involved
19) Accountants who are members of the Institute of Management Accountants must abide by the: A) AICPA Code of Professional Conduct B) Standards of Ethical Conduct for Management Accountants C) both A and B D) neither A nor B
Certified Management Accountant is awarded by the Institute of Certified Management Accountants (ICMA) to management accountants who pass a four-part exam, meet certain work requirements, comply with the ICMA's Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management and who are members of the Institute of Management Accountants (IMA).
20) Banks may require customers to keep a(n) _____ on deposit in order to borrow from the bank. A) compensating balance B) accounts receivable C) cash equivalent D) note receivable
An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided
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acct 101.pdfExam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Each cell in a spreadsheet is defined by: 1)A) a row number and a label B) a formula and a column numberC) formulas and labels D) a row number and a column letter
2) The __________ indicates a cell is active in a computerized spreadsheet. 2)A) grid B) program C) module D) cursor
3) Posting the entries in the sales journal to the accounts receivable subsidiary ledger should be done: 3)A) on a weekly basis B) only at the end of the accounting periodC) on a daily basis D) at the end of each month
4) Customers' individual accounts are included in a subsidiary ledger referred to as the: 4)A) general ledger B) controlling ledgerC) accounts receivable ledger D) accounts payable ledger
5) Which of the following is recorded in the sales journal? 5)A) sale of merchandise on accountB) sale of merchandise for cashC) return of merchandise purchased for cashD) return of merchandise purchased on account
6) The total of the customer accounts receivable ledger at the end of the accounting period must equal 6)the:A) total of the accounts receivable credit column in the cash receipts journalB) total of the accounts receivable account in the general ledgerC) total of the creditors' accounts payable ledgerD) total of the accounts payable account in the general ledger
7) Assuming the use of special journals, the sale of equipment in exchange for a promissory note 7)would be recorded in the:A) cash receipts journal B) sales journalC) general journal D) cash payments journal
8) Garner Enterprises received payment within the discount period from a customer who had 8)purchased merchandise on account. The sales invoice was for $2,000, and credit terms were 3/15n/30. In the cash receipts journal, $1,940 will appear under the:A) accounts receivable credit column B) sales revenue credit columnC) cash debit column D) cash credit column
19) Jets Company records returns and allowances in the general journal. On August 16, Jets issued a 9)$150 credit memo to Celtics Company for merchandise sold on credit on August 1. What entry doesJets make?A) no entry is required by Jets CompanyB) Sales Returns and Allowances 150Accounts Receivable-Celtic Company 150C) Accounts Receivable-Celtics Company 150Sales Returns and Allowances 150D) Accounts Payable-Celtics Company 150Inventory 150
10) Ruby Company purchased inventory from Diamond Company, and received a credit memo from 10)Diamond Company. Diamond Company had charged Ruby Company $3.85 rather than $3.58 foreach of the 100 items ordered. What entry will Diamond Company make?A) Sales Returns and Allowances 27Inventory 27B) Inventory 27Accounts Payable-Ruby Company 27C) Accounts Payable-Ruby Company 27Inventory 27D) Sales Returns and Allowances 27Accounts Receivable-Ruby Company 27
11) The following data are available for Wonder Boutique for October: 11)
Book balance, October 31 $5,575Outstanding checks 584Deposits in transit 2,500Service charges 75Interest revenue 25
What is the adjusted book balance on October 31 for Wonder Boutique based on the above data?
A) $5,550 B) $5,525 C) $5,500 D) $7,466
12) The following data are available for Cline Paper Company for March: 12)
Book balance, March 31 $3,620Service charges 50Interest revenue 35Note collected by bank 1,500Check returned marked NSF 700
What is Cline's adjusted book balance on March 31 from the above data?A) $2,905 B) $3,620 C) $4,505 D) $4,405
13) A check for the cash purchase of supplies for $329 was recorded on the books as $239. On a bank 13)reconciliation, this will appear as a(n):A) addition to the bank balance B) deduction from the bank balanceC) addition to the book balance D) deduction from the book balance
214) After preparing the bank reconciliation, journal entries must be prepared for: 14)A) only for outstanding checksB) any errors made on the books revealed by the bank reconciliationC) all items on the bank's sideD) any errors made by the bank revealed by the bank reconciliation
15) Internal control over cash receipts is demonstrated by: 15)A) a mailroom employee sending all customer checks to the treasurer who makes the bankdepositB) a mailroom employee sending remittance advices to the treasurerC) a mailroom employee depositing all customer checks at the bankD) all the above
16) All of the following are controls over petty cash except: 16)A) supporting all fund disbursements with a petty cash ticketB) keeping an unlimited amount of cash on handC) replenishing the fund through normal cash disbursement proceduresD) designating one employee to administer the fund
17) Certified public accountants are expected to maintain higher standards than society in general: 17)A) only if they are certifying the financial statements of a company whose stock is listed on anational exchangeB) because they are required to by federal lawC) as long as they are working for themselvesD) because their ability to attract business depends entirely upon their reputation
18) Another dimension to most ethical issues is: 18)A) external controls B) the possible consequencesC) internal controls D) the individuals involved
19) Accountants who are members of the Institute of Management Accountants must abide by the: 19)A) AICPA Code of Professional ConductB) Standards of Ethical Conduct for Management AccountantsC) both A and BD) neither A nor B
20) Banks may require customers to keep a(n) ________ on deposit in order to borrow from the bank. 20)A) compensating balance B) accounts receivableC) cash equivalent D) note receivable
