1. The primary objective of financial accounting is:
To serve the decision-making needs of internal users
To provide financial statements to help external users analyze and interpret an organization’s activities
To monitor and control company activities
To provide information on both the costs and benefits of managing products and services
To know what, when and how much to produce
2. 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:
Assets increase by $75,000 and expenses increase by $75,000
Assets increase by $75,000 and expenses decrease by $75,000
Liabilities increase by $75,000 and expenses decrease by $75,000
Assets decrease by $75,000 and expenses decrease by $75,000
Assets increase by $75,000 and liabilities increase by $75,000
3. Source documents include all of the following except:
4. Ethical behavior requires:
That an auditors’ pay not depend on the figures in the client’s reports
Auditors to invest in businesses they audit
Analysts to report information favorable to their companies
Managers to use accounting information to benefit themselves
That an auditor provides a favorable opinion
5. 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:
6. An asset created by prepayment of an expense is:
Recorded as a debit to an unearned revenue account
Recorded as a debit to a prepaid expense account
Recorded as a credit to an unearned revenue account
Recorded as a credit to a prepaid expense account
Not recorded in the accounting records until the earnings process is complete
7. Which of the following accounting principles dictates when expenses are recognized?
Revenue recognition principle
Monetary unit principle
Business entity principle
Full disclosure principle
8. Risk is:
Net income divided by average total assets
The reward for investment
The uncertainty about the expected return that will be earned from an investment
Unrelated to expected return
9. Fast-Forward had cash inflows from operations of $62,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:
10. If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:
11. Net Income:
Represents the amount of assets owners put into a business
Equals assets minus liabilities
Is the excess of revenues over expenses
Represents the owners’ claims against assets
12. Assets created by selling goods and services on credit are:
13. Of the following accounts, the one that normally has a credit balance is:
Sales Salaries Payable
Sales Salaries Expense
14. Prepaid expenses are:
Payments made for products and services that do not ever expire
Classified as liabilities on the balance sheet
Decreases in retained earnings
Assets that represent prepayments of future expenses
15. Generally Accepted Accounting Principles:
Focus on the review of a situation
Does not require financial statements
Intend to make information on the financial statements relevant, reliable and comparable
Oversees Security and Exchange Commission
16. A company purchased a new truck at a cost of $42,000 on July 1, 2011. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. How much depreciation expense will be recorded for the truck for the year ended December 31, 2011?
17. 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?
18. The Retained Earnings account has a credit balance of $17,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800 and dividends are $9,000, what is the ending balance in the Retained Earnings account after all closing entries are made?
19. The length of time covered by a set of periodic financial statements is referred to as the:
Natural business year
20. A classified balance sheet:
Measures a company’s ability to pay its bills on time
Organizes assets and liabilities into important subgroups
Presents revenues, expenses and net income
Reports operating, investing and financing activities
21. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:
Cash basis accounting
The matching principle
The time period principle
Accrual basis accounting
Revenue basis accounting
22. The adjusted trial balance contains information pertaining to:
Asset accounts only
Balance sheet accounts only
Income statement accounts only
All general ledger accounts
Revenue accounts only
23. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:
24. A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?
25. Unearned revenue is reported on the financial statements as:
A revenue on the balance sheet
A liability on the balance sheet
An unearned revenue on the income statement
An asset on the balance sheet
An operating activity on the statement of cash flows
26. An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n):
27. On April 30, 2011, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company’s income statement for the year ended December 31, 2011?
28. On June 30, 2011, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31, 2011 for Apricot would include:
A debit to an expense for $1,250
A debit to a prepaid expense for $1,250
A credit to an expense for $3,750
A debit to a prepaid expense for $3,750
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?
30. A trial balance prepared after adjustments have been recorded is called a(n):
Adjusted trial balance
Unadjusted trial balance
Classified balance sheet
Unclassified balance sheet
31. The conservatism principle:
Requires that when there are more than one equally likely estimate of amounts expected to be received or paid in the future, then the less optimistic amount should be used
Requires that a company use the same accounting methods period after period
Requires that revenues and expenses be reported in the period in which they are earned or incurred
Requires that all items of a material nature be included in financial statements
Requires that all inventory items be reported at full cost
32. Merchandise inventory includes:
All goods owned by a company and held for sale
All goods in transit
All goods on consignment
Only damaged goods
Only items that are on the shelf
33. A merchandising company:
Earns net income by buying and selling merchandise
Receives fees only in exchange for services
Earns profit from commissions only
Earns profit from fares only
Buys products from consumers
34. 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?
35. During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:
Specific identification method
Average cost method
36. A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that were sold?
37. Which of the following is the most serious limitation of internal controls?
Human fraud or human error
38. The inventory valuation method that tends to smooth out erratic changes in costs is:
39. A company had sales of $375,000 and its gross profit was $157,500. Its cost of goods sold equal:
40. The quick assets are defined as:
Cash, short-term investments and inventory
Cash, short-term investments and current receivables
Cash, inventory and current receivables
Cash, noncurrent receivables and prepaid expenses
Accounts receivable, inventory and prepaid expenses
41. Cost of goods sold:
Is another term for merchandise sales
Is the term used for the cost of buying and preparing merchandise for sale
Is another term for revenue
Is also called gross margin
Is a term only used by service firms
42. 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:
43. Which of the following procedures would weaken the control over cash receipts that arrive through the mail?
After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender’s name, the amount and an explanation of why the money is sent
The bank reconciliation is prepared by a person who does not handle cash or record cash receipts
For safety, only one person should open the mail and that person should immediately deposit the cash received in the bank
The cashier should not also be the record keeper who records the amounts received in the accounting records
All of the above are good internal control procedures over cash receipts that arrive through the mail
44. The full disclosure principle:
Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made and its effect on net income
Requires that companies use the same accounting method for inventory valuation period after period
Is not subject to the materiality principle
Is only applied to retailers
Is also called the consistency principle
45. J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092 million and its net income was $997 million. Its gross margin ratio equals:
46. A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company’s current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of this company’s inventory at the lower of cost or market.
47. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 4239 for November’s rent was correctly written and drawn for $7,390, but was erroneously entered in the accounting records as $3,790. When preparing the November bank statement, the company should:
Deduct $3,600 from the book balance of cash
Add $3,600 to the bank statement balance
Add $7,390 to the book balance of cash
Deduct $3,600 from the bank statement balance
Add $3,600 to the book balance of cash
48. Cash equivalents:
Are short-term, highly liquid investments
Include 6-month CDs
Include checking accounts
Are recorded in petty cash
Include money orders
49. 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?
50. Given the following information:
Petty cash balance $ 450.00 Courier receipt $ 82.50
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?
no cash over or short would be recorded
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