1. Creditors’ claims on the assets of a company are called: 

A. Net losses

B. Expenses

C. Revenues

D. Equity

E. Liabilities

Answer: Liabilities

2. Which of the following elements are found on the Balance Sheet? 

A. Service Revenue

B. Net Income

C. Operating Activities

D. Utilities Expense

E. Retained Earnings

Answer: Retained Earnings

3. Assets created by selling goods and services on credit are: 

A. Accounts payable

B. Accounts receivable

C. Liabilities

D. Expenses

Answer: Accounts receivable

4. The description of the relation between a company’s assets, liabilities and equity, which is expressed as Assets = Liabilities + Equity is known as the: 

A. Income statement equation

B. Accounting equation

C. Business equation

D. Return on equity ratio

E. Net income

Answer: Accounting equation

5. An example of an operating activity is: 

A. Paying wages

B. Purchasing office equipment

C. Borrowing money from a bank

D. Selling stock

E. Paying off a loan

Answer: Paying wages

6. Of the following accounts, the one that normally has a credit balance is: 

A. Cash

B. Office Equipment

C. Sales Salaries Payable

D. Dividends

E. Sales Salaries Expense

Answer: Sales Salaries Payable

7. Reebok had income of $150 million and average assets of $1,800 million. Its return on assets is: 

8.33% 

83.3%

12.0%

120%

Answer: 8.33%

8. If Beginning Retained Earnings was $184,300, the company distributed $46,000 in dividends and Ending Retained Earnings was $345,000, what was the net income for the period? 

$154,700

$206,700

$114,700

$575,300

$160,700

Answer: $206,700

9. Ethical behavior requires: 

A. That an auditors’ pay not depend on the figures in the client’s reports

B. Auditors to invest in businesses they audit

C. Analysts to report information favorable to their companies

D. Managers to use accounting information to benefit themselves

E. That an auditor provides a favorable opinion

Answer: That an auditors’ pay not depend on the figures in the client’s reports

10. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser’s books at: 

$95,000

$137,000

$138,500

$140,000

$150,000

Answer: $137,000

11. Prepaid expenses are: 

A. Payments made for products and services that do not ever expire

B. Classified as liabilities on the balance sheet

C. Decreases in retained earnings

D. Assets that represent prepayments of future expenses

Answer: Assets that represent prepayments of future expenses

12. Apatha Company has assets of $600,000, liabilities of $250,000 and equity of $350,000. It buys office equipment on credit for $75,000. The effects of this transaction include: 

A. Assets increase by $75,000 and expenses increase by $75,000

B. Assets increase by $75,000 and expenses decrease by $75,000

C. Liabilities increase by $75,000 and expenses decrease by $75,000

D. Assets decrease by $75,000 and expenses decrease by $75,000

E. Assets increase by $75,000 and liabilities increase by $75,000

Answer: E. Assets increase by $75,000 and liabilities increase by $75,000

13. Which of the following accounting principles dictates when expenses are recognized? 

A. Revenue recognition principle

B. Monetary unit principle

C. Business entity principle

D. Matching principle

E. Full disclosure principle

Answer: Matching principle

14. Which of the following is the primary purpose of accounting? 

A. To establish a business

B. To identify, record and communicate business transactions

C. To deceive stockholders

D. To keep from paying taxes

E. To establish credit for a company

Answer: To identify, record and communicate business transactions

15. If assets are $99,000 and liabilities are $32,000, then equity equals: 

$32,000

$67,000 

$99,000

$131,000

$198,000

Answer: $67,000

16. Financial statements are typically prepared in the following order: 

A. Balance sheet, statement of retained earnings, income statement

B. Statement of retained earnings, balance sheet, income statement

C. Income statement, balance sheet, statement of retained earnings

D. Income statement, statement of retained earnings, balance sheet

Answer: Income statement, statement of retained earnings, balance sheet

17. Unearned revenue is reported on the financial statements as: 

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

Answer: A liability on the balance sheet

18. The accrual basis of accounting: 

A. Is generally accepted for external reporting since it is more useful for most business decisions

B. Is flawed because it gives complete information about cash flows

C. Recognizes revenues when received in cash

D. Recognizes expenses when paid in cash

E. Eliminates the need for adjusting entries at the end of each period

Answer: Recognizes revenues when received in cash

19. On January 1, Able Company purchased equipment costing $135,000 with an estimated salvage value of $10,500, and an estimated useful life of five years. What is the amount that should be recorded as depreciation on December 31? 

$27,000

$24,900 

$29,100

$135,000

Answer: $24,900 

20. A 10-column spreadsheet used to draft a company’s unadjusted trial balance, adjusting entries, adjusted trial balance and financial statements and which is an optional tool in the accounting process is a(n): 

A. Adjusted trial balance

B. Work sheet

C. Post-closing trial balance

D. Unadjusted trial balance

E. General ledger

Answer: Work sheet

21. Which of the following identifies the proper order of the accounting cycle? 

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

Answer: Journalize, Post, Adjusted Trial Balance

22. The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the: 

A. Income Summary account

B. Closing account

C. Balance column account

D. Contra account

Answer: Income Summary account

23. A trial balance prepared after adjustments have been recorded is called a(n): 

A. Balance sheet

B. Adjusted trial balance

C. Unadjusted trial balance

D. Classified balance sheet

E. Unclassified balance sheet

Answer: Adjusted trial balance

24. If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include: 

A. A debit to Cash and a credit to Salaries Payable

B. A debit to Cash and a credit to Prepaid Salaries

C. A debit to Salaries Payable and a credit to Cash

D. A debit to Salaries Payable and a credit to Salaries Expense

E. No entry would be necessary on January 5

Answer: A debit to Salaries Payable and a credit to Cash

25. Based on the following information, determine the current assets, assuming all accounts have a normal balance? 

Cash $ 6,754 Dividends $ 2,000

Accounts receivable $ 13,733 Consulting fees earned $ 13,718

Office supplies $ 2,625 Rent expense $ 3,673

Land $ 37,153 Salaries expense $ 6,642

Office equipment $ 14,535 Telephone expense $ 560

Accounts payable $ 6,463 Miscellaneous expense $ 280

Common stock $ 54,490 Retained Earnings ?

$74,800

$37,647

$60,265

$23,112 

Answer: $23,112 

26. Which of the following accounts would not be on the post closing trial balance? 

A. Accounts Payable

B. Accounts Receivable

C. Common Stock

D. Dividends

Answer: Dividends

27. A trial balance prepared after the closing entries have been journalized and posted is the: 

A. Unadjusted trial balance

B. Post-closing trial balance

C. General ledger

D. Adjusted trial balance

E. Work sheet

Answer: Post-closing trial balance

28. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account and the company records adjustments only at year-end, the adjusting entry at the end of the first year is: 

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360

D. Debit Insurance Expense, $360; credit Prepaid Insurance, $360 

E. Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440

Answer: Debit Insurance Expense, $360; credit Prepaid Insurance, $360.

29. On April 1, 2011, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2011? 

$1,350

$450

$1,012.50

$337.50 

$37.50

Answer: $337.50 

30. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is: 

2%

20%

200%

500%

$8,000

Answer: 20%

31. A company has sales of $1,500,000, sales discounts of $102,000, sales returns and allowances of $123,000, shipping charges of $15,000, sales commissions of $34,000,net income totaled $263,500, and cost of goods sold of $420,000. What is the net sales amount for the period? 

$1,500,000

$1,275,000

$1,725,000

$1,521,000

$1,479,000

Answer: $1,275,000

Petty cash balance $ 450.00 Courier receipt $ 82.50

32. Given the following information: 

Postage receipt $ 48.00 Office Supplies receipt $ 56.22

Business Meal receipt $ 102.34 Cash on hand at the end of the month $ 76.21

What is the amount of cash over and short? 

A. debit $84.73 

B. credit $84.73

C. debit $160.94

D. credit $160.94

E. no cash over or short would be recorded

Answer:

33. A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current period. Its days’ sales uncollected is equal to: 

A. 11.7 days

B. 23.3 days

C. 31.3 days 

D. 42.5 days

E. 46.6 days

Answer: 11.7 days

34. Merchandise inventory: 

A. Is a long-term asset

B. Is a current asset

C. Includes supplies

D. Is classified with investments on the balance sheet

E. Must be sold within one month

Answer: Is a current asset

35. A company had expenses other than cost of goods sold of $51,000. Determine sales and gross profit given cost of goods sold was $25,000 and net income was $60,000. 

A. Sales: $136,000; Gross Profit: $111,000 

B. Sales: $136,000; Gross Profit: $85,000

C. Sales: $85,000; Gross Profit: $136,000

D. Sales: $111,000; Gross Profit: $136,000

E. Sales: $60,000; Gross Profit: $25,000

Answer: Sales: $136,000; Gross Profit: $111,000 

36. A company had $43 missing from petty cash which was not accounted for by petty cash receipts. The correct procedure is to: 

A. Debit Cash Over and Short for $43

B. Credit Cash Over and Short for $43

C. Debit Petty Cash for $43

D. Credit Petty Cash for $43

E. Credit Cash for $43

Answer: Debit Cash Over and Short for $43

37. Which of the following is the most serious limitation of internal controls? 

A. Computer error

B. Human fraud or human error

C. Cost-benefit principle

D. Cybercrime

E. Management fraud

Answer: Human fraud or human error

38. Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses? 

A. FIFO

B. Weighted average

C. LIFO

D. Specific identification

E. First In Still Here

Answer: FIFO

39. A company had sales of $695,000 and its cost of goods sold of $278,000. Its gross margin equals: 

$(417,000)

$695,000

$278,000

$417,000

Answer: $417,000

40. Multiple-step income statements: 

A. Are required by the FASB

B. Contain more detail than a simple listing of revenues and expenses

C. Are required for the perpetual inventory system

D. List cost of goods sold as an operating expense

E. Can only be used in perpetual inventory systems

Answer: Contain more detail than a simple listing of revenues and expenses

41. Goods on consignment: 

A. Are goods shipped by the owner to the consignee who sells the goods for the owner

B. Are reported in the consignee’s books as inventory

C. Are goods shipped to the consignor who sells the goods for the owner

D. Are not reported in the consignor’s inventory since they do not have possession of the inventory

Answer: Are goods shipped by the owner to the consignee who sells the goods for the owner

42. A seller of goods or services, usually a manufacturer or wholesaler is known as a: 

A. Vendor

B. Payee

C. Vendee

D. Creditor

E. Debtor

Answer: Vendor

43. Physical inventory counts: 

A. Are not necessary under the perpetual system

B. Are necessary to measure and adjust for inventory shrinkage

C. Must be taken at least once a month

D. Require the use of hand-held portable computers

Answer: Are necessary to measure and adjust for inventory shrinkage

44. A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is: 

$3,725.00

$3,925.00

$3,995.00

$4,000.50 

$4,075.00

Answer: $3,995.00

45. The inventory valuation method that tends to smooth out erratic changes in costs is: 

A. FIFO

B. Weighted average

C. LIFO

D. Specific identification

E. WIFO

Answer: Weighted average

46. A remittance advice is: 

A. An explanation for a payment by check

B. A bank statement

C. A voucher

D. An EFT

E. A cancelled check

Answer: An explanation for a payment by check

47. A merchandising company: 

A. Earns net income by buying and selling merchandise

B. Receives fees only in exchange for services

C. Earns profit from commissions only

D. Earns profit from fares only

E. Buys products from consumers

Answer: Earns net income by buying and selling merchandise

48. The understatement of the beginning inventory balance causes: 

A. Cost of goods sold to be understated and net income to be understated

B. Cost of goods sold to be understated and net income to be overstated

C. Cost of goods sold to be overstated and net income to be overstated

D. Cost of goods sold to be overstated and net income to be understated

E. Cost of goods sold to be overstated and net income to be correct

Answer: Cost of goods sold to be understated and net income to be overstate

49. Alpha Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700 and sales discounts of $3,475. Alpha’s net sales for this period equal: 

$94,275

$172,550

$174,250

$176,025

$177,725

Answer: $94,275

50. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 15 after the sale? 

$140

$160

$210 

$380

$590

Answer: $210 

Phil 201 Quiz 12345678complete Solutions

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