ACCOUNTING – STUDY TEST

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ing – Packet B

 

Multiple Choice

Identify the choice that best completes the statement or answers the question.

 

____    1.   The communication stage of accounting is accomplished by

a.storing data.
b.reporting to decision makers.
c.processing data.
d.recording data.

 

 

____    2.   Which of the following transactions does not involve an exchange of value?

a.Payment of a debt
b.Purchase of a building on credit
c.Borrowing money
d.Loss from theft

 

 

____    3.   Which of the following forms of organization are considered to be separate entities by accountants?

a.Partnerships only
b.Sole proprietorships only
c.Corporations only
d.Sole proprietorships, partnerships, and corporations

 

 

____    4.   Standards for state and local governments are established by the

a.IRS.
b.IASB.
c.GASB.
d.AICPA.

 

 

____    5.   An auditor maintains no direct financial interest in the company he or she is auditing. The principle being followed is

a.independence.
b.integrity.
c.objectivity.
d.due care.

 

 

____    6.   When a business reports an asset at an inflated dollar amount, it has violated the measurement issue of

a.recognition.
b.valuation.
c.classification.
d.realization.

 

 

____    7.   A purchase is recognized in the accounting records when

a.payment is made for the item purchased.
b.the purchase requisition is sent to the purchasing department.
c.title transfers from the seller to the buyer.
d.the buyer receives the seller’s bill.

 

 

____    8.   The withdrawal of cash by the owner will

a.decrease net income..
b.increase liabilities.
c.not affect total assets
d.decrease owner’s equity.

 

 

____    9.   Which of the following gives the correct sequence of accounting procedures?

a.Financial statements, trial balance, ledger, journal
b.Financial statements, journal, ledger, trial balance
c.Journal, ledger, trial balance, financial statements
d.Ledger, trial balance, journal, financial statements

 

 

____   10.   The general journal does not have a column titled

a.Description.
b.Account Balance.
c.Date.
d.Post. Ref.

 

 

____   11.   Which of the following terms does not mean the same as the others?

a.Footing
b.Folio
c.LP
d.Post. Ref.

 

 

____   12.   The Post. Ref. column in the general journal is used to show that an amount has been posted to the ledger when which of the following is placed in it?

a.An X
b.Journal number
c.Journal page number
d.Account number

 

 

____   13.   Which of the following accounts probably would be listed before the others in a chart of accounts?

a.Insurance Expense
b.Grace Peterson, Withdrawals
c.Notes Payable
d.Accumulated Depreciation, Buildings

 

 

____   14.   When a credit sale takes place,

a.a revenue account will increase.
b.liabilities will increase.
c.one asset account will increase and another will decrease.
d.assets will be unaffected.

 

 

____   15.   Retailers often end their fiscal years .

a.during the slack season
b.during the peak of the busy season.
c.at different times each year, depending on the tax consequences.
d.on June 30.

 

 

____   16.   Which of the following is an application of accrual accounting?

a.Depreciating a building as quickly as allowed by income tax regulations
b.Recording utilities expense in the accounting period covered by the monthly bill
c.Expensing a machine in its entirety when purchased
d.Recording revenue at the time payment is received

 

 

____   17.   Which of the following is a condition required by the SEC for the recognition of revenue?

a.Completion of goods manufactured
b.Execution of a promissory note
c.Price in excess of $100
d.Reasonable assurance of collection

 

 

____   18.   Use this information to answer the following question.

 

The trial balance for Sanchez Company appears as follows:

 

Sanchez Company

Trial Balance

December 31, 2010

Cash$  200 
Accounts Receivable500 
Prepaid Insurance50 
Supplies150 
Office Equipment400 
Accumulated Depreciation–Office Equipment $  200
Accounts Payable 300
Maria Sanchez, Capital 600
Service Revenue 500
Salaries Expense100 
Rent Expense     200______
 $1,600$1,600

 

If on December 31, 2010, the insurance still unexpired amounted to $20, the adjusting entry would contain a

 

a.debit to Prepaid Insurance for $30.
b.credit to Prepaid Insurance for $30
c.debit to Insurance Expense for $20.
d.credit to Prepaid Insurance for $20.

 

 

____   19.   Use this information pertaining to Salvino Company to answer the following question.

1.The corporation’s Store Supplies account showed a beginning debit balance of $200 and supplies purchased of $800. There were $300 of supplies on hand at year end.

2.Depreciation on a building is estimated to be $5,000.

3.A one-year insurance policy was purchased for $2,000. Three months have passed since the purchase.

4.Accrued interest on a note receivable amounted to $100.

5.The company received a $3,600 advance payment during the year on services to be performed. By the end of the year, one-fourth of the services had been performed.

The adjusting entry for depreciation on the building is

a.Depreciation Expense – Building          5,000

Accumulated Depreciation – Building          5,000

b.Accumulated Depreciation – Building   5,000

Depreciation Expense – Building                 5,000

c.Building,                                             5,000

Depreciation Expense – Building                 5,000

d.Accumulated Depreciation – Building   5,000

Building                                                      5,000

 

 

____   20.   Which of the following accounts is not closed during the closing process?

a.Owner’s Capital
b.Commissions Earned
c.Income Summary.
d.Withdrawals

 

 

____   21.   After all closing entries have been posted, which of the following accounts is most likely to have a nonzero balance?

a.Interest Expense
b.Wages Payable
c.Service Revenue
d.Income Summary

 

 

____   22.   The owner’s Capital, Withdrawals, and Income Summary accounts for Laurel Repair Company for the accounting period are presented below in T account form after the recording and posting of closing entries:

 

                 
 Fran Laurel, Capital Fran Laurel, Withdrawals 
 12/31200 1/12,000 3/1 50 12/31200 
     12/31400 6/1 50     
         9/1 50     
         12/3150     
                 
 Fran Laurel Summary         
 12/31500 12/31900         
 12/31400             
                 
                 

 

The total amount of expenses for the period is

a.$200.
b.$400.
c.$900.
d.$500.

 

 

____   23.   In preparing closing entries, which of the following columns of the work sheet are the most helpful?

a.Adjusted Trial Balance columns
b.Income Statement columns
c.Adjustments columns
d.Balance Sheet columns

 

 

____   24.   The post-closing trial balance contains

a.neither real accounts nor nominal accounts.
b.nominal accounts only.
c.real accounts only.
d.both real accounts and nominal accounts.

 

 

____   25.   Which of the following accounts might appear in the adjusted trial balance but not in the post-closing trial balance?

a.Depreciation Expense–Equipment
b.Owner’s Capital
c.Unearned Revenue
d.Income Summary

 

 

____   26.   An amount would not appear opposite the Withdrawals account in which of the following work sheet columns?

a.Trial Balance
b.Income Statement
c.Balance Sheet
d.Adjusted Trial Balance

 

 

____   27.   All the following are standards of accounting information except

a.flexibility.
b.reliability.
c.understandability.
d.relevance.

 

 

____   28.   The Securities and Exchange Commission instituted rules requiring the chief executive officers and chief financial officers of all publicly traded companies to certify that, to their knowledge, the quarterly and annual statements that their companies file with the SEC are

a.100 percent accurate and contain no misstatements, errors, or mistakes.
b.accurate and complete.
c.subject to interpretation due to the many accounting rules and regulations.
d.not to be used except by individuals working for the company.

 

 

____   29.   Which of the following accounting conventions would an accountant most likely apply when facing major uncertainties?

a.Full disclosure
b.Conservatism
c.Materiality
d.Consistency

 

 

____   30.   Which accounting convention requires a note to the financial statements explaining the company’s method of revenue recognition?

a.Comparability and consistency
b.Materiality
c.Conservatism
d.Full disclosure

 

 

____   31.   Goodwill would appear in which balance sheet section?

a.Investments
b.Property, plant, and equipment
c.Current assets
d.Intangible assets

 

 

____   32.   Interest expense on a mortgage would be classified on a multistep income statement under the heading

a.general and administrative expenses.
b.selling expenses.
c.cost of goods sold.
d.other revenues and expenses.

 

 

____   33.   The debt to equity ratio equals

a.owner’s equity divided by total liabilities.
b.owner’s equity divided by long-term liabilities.
c.total liabilities divided by owner’s equity.
d.current liabilities divided by average owner’s equity.

 

 

____   34.   Use this balance sheet and income statement to answer the following question. Use ending balances whenever average balances are required for computing ratios.

 

Abner Systems
Balance Sheet
December 31, 2010
AssetsLiabilities
Current assets$ 8,874 Current liabilities$ 4,000
Investments1,000 Long-term liabilities   1,000
Property, plant, and equipment5,126 Total liabilities $ 5,000
Intangible assets   5,000   
  Owner’s Equity
   Dale Abner, Capital 15,000
     
   Total liabilities and 
Total assets$20,000 owner’s equity$20,000
      

 

Abner Systems
Income Statement
For the Year Ended December 31, 2010
Net sales$24,000
Cost of goods sold    8,000
Gross margin$16,000
Operating expenses   11,200
Net income$  4,800
  
  

 

The current ratio for Abner Systems is

a.0.75.
b.1.00.
c.1.13.
d.2.22.

 

 

____   35.   Use this balance sheet and income statement to answer the following question. Use ending balances whenever average balances are required for computing ratios.

 

Abner Systems
Balance Sheet
December 31, 2010
AssetsLiabilities
Current assets$ 6,000 Current liabilities$ 4,000
Investments1,000 Long-term liabilities   1,000
Property, plant, and equipment8,000 Total liabilities$ 5,000
Intangible assets   5,000   
  Owner’s Equity
   Dale Abner, Capital 15,000
     
   Total liabilities and 
Total assets$20,000 owner’s equity$20,000
      

 

 

Abner Systems
Income Statement
For the Year Ended December 31, 2010
Net sales$24,000
Cost of goods sold    8,000
Gross margin$16,000
Operating expenses   11,200
Net income$  4,800
  

 

The return on assets for Abner Systems is

a.30 percent.
b.150 percent.
c.33-1/3 percent.
d.24 percent.

 

 

____   36.   Which of the following does not include net income in its computation?

a.Debt to equity ratio
b.Return on assets
c.Return on equity
d.Profit margin

 

 

____   37.   Which of the following does not represent a sale?

a.Merchandise placed aside for a customer who plans to come in next week and pay with cash
b.Purchase of merchandise by a customer who pays cash
c.Sale of merchandise to a customer who uses a credit card
d.Purchase of merchandise by a customer who uses a debit card

 

 

____   38.   Which of the following companies would be most likely to use a computerized perpetual inventory system?

a.Fur dealer
b.Car dealership
c.Auto parts store
d.Boat dealership

 

 

____   39.   Which of the following goods would not be included in merchandise inventory for a purchasing company?

a.Goods in transit shipped FOB shipping point
b.Goods on hand in the showroom
c.Goods in transit shipped FOB destination
d.Goods ordered and received from the supplier

 

 

____   40.   The entry to record a $750 sale with terms of 2/10, n/30 would include a(n)

a.decrease to Accounts Receivable for $750.
b.increase to Sales for $750.
c.increase to Sales Discounts for $15.
d.decrease to Sales for $735.

 

 

____   41.   Goods totaling $7,000 purchased February 2 on terms of 2/10, n/30 and on which returns of $1,000 were made on February 10 would be subject to which of the following discounts if paid for on February 12?

a.$120
b.$140
c.$160
d.$20

 

 

____   42.   Under the perpetual inventory system, which of the following accounts would not be used?

a.Cost of Goods Sold
b.Merchandise Inventory
c.Sales
d.Purchases

 

 

____   43.   The amount of cost of goods available for sale during the year depends on the amounts of

a.beginning merchandise inventory, net cost of purchases, and ending merchandise inventory.
b.beginning merchandise inventory and cost of goods sold.
c.beginning merchandise inventory, cost of goods sold, and ending merchandise inventory.
d.beginning merchandise inventory and net cost of purchases.

 

 

____   44.   Which of the following is not considered in computing net cost of purchases?

a.Freight-out expenses
b.Purchases
c.Freight paid on purchased goods
d.Purchases returns and allowances

 

 

____   45.   Use this information to answer the following question.

 

Account NameDebitCredit
Sales 293,000
Sales Returns and Allowances10,000 
Purchases68,000 
Purchases Returns and Allowances 8,000
Freight-In12,000 
Selling Expenses30,000 
General and Administrative Expenses110,000 

 

In addition, beginning merchandise inventory was $22,000 and ending merchandise inventory was $14,000.

 

Net income for the period was

a.$173,000.
b.$93,000.
c.$63,000.
d.$203,000.

 

 

____   46.   Feathertouch Company sold merchandize worth $800 on credit, terms n/15. The merchandize sold had cost $550. What is the required journal entry to record the transaction and to transfer the cost of merchandize inventory to cost of goods sold under the periodic inventory system?

a.Accounts Receivables                                      800

Sales                                                                          800

No entry for transfer to cost of goods sold.

 

b.Sales                                                               800

Accounts Receivables                                                 800

Merchandize Inventory                         550

Cost of Goods Sold                                                      550

 

c.Accounts Receivables                                      800

Merchandize Inventory                                               800

Cost of Goods Sold                                          250

Merchandize Inventory                                               250

 

d.Merchandize Inventory                         800

Sales                                                                         800

Cost of Goods Sold                                                      550

Merchandize Inventory                                                550

 

 

____   47.   The consistency convention requires that

a.a company use the same independent auditors year after year.
b.all companies operating in the same industry use the same accounting methods.
c.the selection of a company’s accounting policies be disclosed in its financial statements.
d.a company use the same accounting procedures year after year.

 

 

____   48.   Which of the following should be reported net of the related income tax effect on the income statement?

a.Loss due to a discontinued segment of a business
b.Sale of a temporary investment at a loss
c.Loss due to shoplifting
d.Sale of an inventory item at a loss

 

 

____   49.   The purpose of a statement of stockholders’ equity is to

a.disclose the computation of book value per share of stock.
b.budget the transactions expected to occur during the forthcoming period.
c.replace the statement of retained earnings.
d.summarize the changes in the components of stockholders’ equity for a period of time.

 

 

____   50.   At the beginning of 2010, Helms Corporation had 34,000 shares of $10 par value common stock issued and outstanding. During January 2010, Helms declared and distributed a 10 percent stock dividend. The market value of Helms’s stock was $24 throughout the month of January. The entry to be recorded for the declaration of stock dividend is

 

a.Stock Dividends                                               81,600

Common Stock Distributable                                     34,000

Additional Paid-in Capital                              47,600

 

b.Common Stock Distributable                             81,600

Common Stock                                                         81,600

 

c.Common Stock Distributable                             81,600

Common Stock                                                         34,000

Retained Earnings                                         47,600

 

d.Stock Dividends                                               68,000

Cash                                                                         68,000

 

 

____   51.   A small stock dividend should be recorded on the basis of

a.par or stated value.
b.original issue price.
c.market value.
d.cost.

 

 

____   52.   Royer Corporation engaged in this transaction:

 

Converted loans payable to stock.

 

Indicate which section, if any,  the above transaction would appear in, or relate to, on a statement of cash flows.

a.Financing activities section
b.Schedule of noncash investing and financing transactions
c.Investing activities section
d.Operating activities section

 

 

____   53.   Royer Corporation engaged in this transaction:

 

Purchased 30-day U.S. Treasury bill.

 

Indicate which section, if any,  the above transaction would appear in, or relate to, on a statement of cash flows.

a.Does not represent a cash flow
b.Operating activities section
c.Investing activities section
d.Financing activities section

 

 

____   54.   Royer Corporation engaged in this transaction:

 

Purchased 60-day commercial paper.

 

Indicate which section, if any,  the above transaction would appear in, or relate to, on a statement of cash flows.

a.Does not represent a cash flow
b.Operating activities section
c.Financing activities section
d.Investing activities section

 

 

____   55.   Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements—Loss on Sale of Investment—indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

a.Add to net income to arrive at net cash flows from operating activities
b.Subtract from net income to arrive at net cash flows from operating activities
c.Not used to adjust net income to calculate net cash flows from operating activities

 

 

____   56.   Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements—Gain on Disposal of Equipment—indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

a.Add to net income to arrive at net cash flows from operating activities
b.Subtract from net income to arrive at net cash flows from operating activities
c.Not used to adjust net income to calculate net cash flows from operating activities

 

 

____   57.   Which of the following items would not be included in a statement of cash flows prepared using the indirect method?

a.Net income
b.Cash paid for dividends
c.Sale of a plant asset
d.Cash paid for wages

 

 

____   58.   Laguna’s Corporation sold investments for $102,000 cash that cost $90,000. The journal entry to record the increase in cash flow is:

a.Cash                                                   102,000

Investments                                                  90,000

Gain on Sale of Investments                          12,000

 

b.Cash                                                   90,000

Loss on Sale of Investments                 12,000

Investments                                                  102,000

 

c.Investments                                         102,000

Cash                                                            102,000

 

d.Cash                                                   90,000

Investments                                                  90,000

 

 

____   59.   Liquidity ratios are an indication of a company’s

a.ability to effectively employ its resources.
b.overall debt to equity position.
c.overall debt position.
d.ability to pay bills when they are due and to meet unexpected needs for cash.

 

 

____   60.   Which of the following describes the interest coverage ratio?

a.Income before income taxes plus interest expense divided by interest expense
b.Income after income taxes plus interest expense divided by interest expense
c.Income after income taxes divided by interest expense
d.Income before income taxes minus interest expense divided by interest expense

 

 

____   61.   How would the collection of an account receivable affect the current ratio and the quick ratio, respectively?

a.No effect on current ratio; increase in quick ratio
b.Increase in current ratio; increase in quick ratio
c.No effect on current ratio; no effect on quick ratio
d.Decrease in current ratio; decrease in quick ratio

 

 

____   62.   Assuming that the current ratio was 1.6 times and the quick ratio was 1.4 times before this transaction, the entry to record the payment of a previously declared and recorded cash dividend will

a.increase the current ratio and the quick ratio.
b.decrease the current ratio and the quick ratio.
c.increase the current ratio but have no effect on the quick ratio.
d.have no effect on the current ratio or the quick ratio.

 

 

____   63.   Days’ payable is a measure of

a.liquidity.
b.volatility.
c.long-term solvency.
d.profitability.

 

 

____   64.   Management accounting

a.deals primarily with people and organizations outside of the business entity.
b.requires only periodic reporting on a regular basis.
c.uses any type of useful measurement unit, including physical as well as monetary measures.
d.deals only with the double-entry recording system.

 

 

____   65.   The unit of measurement used in management accounting is

a.primarily the historical dollar.
b.usually current replacement cost.
c.any measurement unit that is useful in a particular situation.
d.the measurement unit used by competing companies.

 

 

____   66.   Which of the following is not part of the “perform” stage in the management process?

a.Matching human resources to the task to be performed
b.Hiring and training personnel
c.Identifying operating activities that minimize waste
d.Controlling operations

 

 

____   67.   Services that support the primary processes in the value chain are

a.human resources, legal services, information systems, and management accounting.
b.research and development, design, supply, production, marketing, distribution, and customer service.
c.research and development, marketing, supply, design, production, distribution, and information systems.
d.marketing, legal, and accounting services.

 

 

____   68.   Which of the following is not a result of adopting a just-in-time operating environment?

a.Reduced materials waste
b.Reduced production time
c.Reduced total labor hours
d.Reduced production costs

 

 

____   69.   Activity-based costing traces costs to a company’s activities related to

a.purchasing and setup.
b.production and nonproduction.
c.production only.
d.nonproduction only.

 

 

____   70.   Materials and supplies that cannot be traced conveniently to specific products are called

a.indirect materials.
b.raw materials.
c.minor materials.
d.direct materials.

 

 

____   71.   All manufacturing costs incurred and assigned to products that are being produced are classified as

a.variable costs.
b.allocated costs.
c.product costs.
d.overhead costs.

 

 

____   72.   Which of the following costs is considered overhead?

a.Indirect labor only
b.Indirect materials only
c.Indirect materials and indirect labor
d.None of these

 

 

____   73.   In a manufacturing environment, costs of materials initially flow

a.into the Work in Process Inventory account.
b.into the Materials Inventory account.
c.directly to Cost of Goods Sold.
d.into the Finished Goods Inventory account.

 

 

____   74.   Predetermined overhead rates generally are useful for all but which of the following?

a.Price determination
b.Estimating production levels
c.Inventory valuation
d.Product costing

 

 

____   75.   Which of the following accounts would be adjusted by the disposal of an immaterial amount of overapplied overhead?

 

a.Finished Goods Inventory
b.Materials Inventory
c.Work in Process Inventory
d.Cost of Goods Sold

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