Reference no: EM131288237

TRUE OR FALSE

1. The primary objective of financial accounting is to provide general-purpose financial statements to help external users analyze and interpret an organization's activities.

2. The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners.

3. Financial statements include: the balance sheet, income statement, and statement of cash flows.

4. A balance sheet covers a period of time, such as a month or year.

5. The income statement shows the financial position of a business on a specific date.

6. An account is a record of increases and decreases in a specific asset, liability, equity, revenue or expense item.

7. Debit means the right-hand side of any account.

8. In a double-entry accounting system, total amount debited must always equal total amount credited.

9. A debit entry is always favorable.

10. Posting is the transfer of the information from each journal entry to the ledger.

11. The principles of internal control include: establish responsibilities, maintain adequate records, insure assets, separate recordkeeping from custody of assets and perform regular and independent reviews.

12. Cash equivalents are short-term highly liquid investment assets that are easily converted to cash.

13. Liquidity refers to a company's ability to pay its short-term obligations.

14. A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.

15. A promissory note is a written promise to pay a specified amount of money either on
demand or at a definite future date.

16. The matching principle requires use of the direct write-off method of accounting for bad debts.

17. The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) the percent uncollectible from the total accounts receivable or (2) aging accounts receivable.

18. The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection.

19. In accounting, depreciation measures the actual decline in market value of an asset.

20. Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced.

21. An assets' cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

22. An ore deposit costing $800,000 is expected to produce 1,600,000 tons of ore. A total of 70,000 tons are mined and sold in the current year. The depletion expense for the current year is $35,000.

23. Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset.

24. Notes and accounts receivable that result from sales transactions are often called trade receivables.

25. Cash (net) realizable value is the net amount the company expects to receive in cash from collecting its accounts receivable.

26. Retailers consider sales from the use of VISA credit cards as credit sales.

27. Goodwill is the amount by which a company's value exceeds the value of its individual assets and liabilities.

28. Current liabilities are obligations due within one year or the company's operating cycle, whichever is longer.

29. A company can have a liability even if the amount of the obligation is unknown.

30. When companies pay the government collected sales tax, sales taxes payable is credited and cash is debited.

31. The Chicago Bulls received $6 million cash in advance season ticket sales. Prior to the beginning of the basketball season, these sales are recorded as a credit to unearned season ticket revenue.

32. When making a mortgage payment, the interest on a mortgage note decreases each period, while the portion applied to the loan principal increases.

33. Gross pay is also called take-home pay.

34. Employers must pay FICA taxes that are equal to amount being withheld from their employees.

35. Payroll tax expense for businesses consists of FICA tax, federal unemployment tax, and state unemployment tax.

36. A disadvantage of bond financing is that issuing bonds dilutes (reduces) owners' equity.

37. A bond's par value is not necessarily the same as its market value.

38. A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

39. A corporation is a separate legal entity from its owners.

40. In a corporation, authorized stock is the total number of shares outstanding.

41. Common stock always carries a preference for receiving dividends over preferred stock.

42. A privately held corporation usually has only a few stockholders, and does not offer its stock for sale to the general public.

43. Earnings per share is calculated by dividing the total number of common shares outstanding by net income.

44. The financial term "P & E" refers to a share of stocks profit-to-earnings ratio.

45. The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings, dividends and economic opportunities.

46. When a company declares of cash dividends retained earnings is reduced.

47. Authorized stock is the total number of shares outstanding.

48. The asset turnover ratio measures how efficiently a company uses its assets to generate sales.

49. The acid-test ratio is a measure of a company's immediate short-term liquidity.

50. Pro forma income usually excludes items that the company thinks are unusual or nonrecurring.

MULTIPLE CHOICE

51. Which of the following accounting principles dictates when expenses are recognized?
A. Revenue recognition principle
B. Business entity principle
C. Matching principle
D. Full disclosure principle

52. 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:
A. $95,000 C. $137,000
B. $140,000 D. $150,000

53. Revenues are:
A. The same as net income
B. Resources owned or controlled by a company
C. Increases in retained earnings from a company's earning activities
D. The costs of assets or services used

54. A record of the increases and decreases in a specific asset, liability, equity, revenue or expense is a(n):
A. Journal C. Posting
B. Trial balance D. Account

55. An accounting ledger is a:
A. record containing increases and decreases in a specific asset, liability, equity,
revenue or expense item
B. journal in which transactions are first recorded
C. collection of documents that describe transactions and events during the
accounting process
D. list of all accounts with their debit balances at a point in time

56. A debit is:
A. An increase in an account
B. The right-hand side of a T-account
C. A decrease in an account
D. The left-hand side of a T-account

57. An account balance is:
A. The total of the credit side of the account
B. The total of the debit side of the account
C. The difference between the total debits and total credits for an account
including the beginning balance
D. Always a credit

58. The INN is a very popular destination for tourists. The INN requires guests to make reservations at least two months in advance of their stay. A twenty percent down payment is required at the time the reservation is made. When should the INN recognize room rental revenue?
A. On the date the reservation is received
B. On the date the money for the reservation is received
C. On the date the guests stay in the inn
D. Once all cash has been received

59. Businesses can take all of the following forms except:
A. Sole proprietorship C. Common stock
B. Partnership D. Corporation

60. FOB shipping point means that the
A. goods are placed free on board to the buyer's place of business.
B. buyer pays the freight.
C. seller pays the freight.
D. common carrier pays the freight.

61. Company A purchases $1,200 of merchandise from Company B on July 1 with credit terms 2/10, n/30. Company A returns $200 of the merchandise on July 5. On July 11, Company B received full payment from Company A. The amount of the payment on July 11 is
A. $980. C. $1,176.
B. $20. D. $1,000.

62. Income from operations is
A. Net sales less Cost of goods sold.
B. Net sales less Operating expenses.
C. Gross profit less Other expenses and losses.
D. Gross profit less Operating expenses.

63. The cost flow method that often parallels the actual physical flow of inventory is the:
A. FIFO method. C. Average-Cost method.
B. LIFO method. D. Gross Profit method.

64. Under the LCM approach market value is defined as
A. FIFO cost. C. current replacement cost.
B. LIFO cost. D. selling price.

65. The entry necessary to establish a petty cash fund should include:
A. A debit to Cash and a credit to Petty Cash
B. A debit to Cash and a credit to Cash Over and Short
C. A debit to Petty Cash and a credit to Cash
D. A debit to Petty Cash and a credit to Accounts Receivable

66. The entry to record reimbursement of the petty cash fund for postage expense should
include:
A. A debit to Postage Expense
B. A debit to Petty Cash
C. A debit to Cash
D. A debit to Cash Short and Over

67. When completing a bank reconciliation, what action should you take regarding "Outstanding Checks".
A. Add the item to the Bank's side
B. Subtract the item from the Bank's side.
C. Add the item to the company Book's balance
D. Subtract the item from the company's Book balance.

68. When completing a bank reconciliation, what action should you take regarding
"Deposits-In-Transit".
A. Add the item to the Bank's side
B. Subtract the item from the Bank's side.
C. Add the item to the company Book's balance
D. Subtract the item from the company's Book balance.

69. A promissory note:
A. Is a short-term investment for the maker
B. Is a written promise to pay a specified amount of money at a certain date
C. Is a liability to the payee
D. Is another name for an installment receivable

70. A company receives a 10%, 90-day note for $1,500. The total interest due upon the
maturity date is:
A. $37.50 C. $150.00
B. $75.00 D. $50.00

71. The quality of receivables refers to:
A. The creditworthiness of sellers
B. The speed of collection
C. The likelihood of collection without loss
D. Sales turnover

72. The matching principle requires:
A. That expenses be ignored if their effect on the financial statements are less
important than revenues to the financial statement user
B. The use of the direct write-off method for bad debts
C. The use of the allowance method of accounting for bad debts
D. That bad debts be disclosed in the financial statements

73. Companies report accounts receivable on the balance sheet at
A. cost.
B. cash (net) realizable value.
C. gross realizable value.
D. face value.

74. The materiality principle:
A. States that an amount can be ignored if its effect on financial statements is
unimportant to the user's business decisions
B. Requires use of the allowance method for bad debts
C. Requires use of the direct write-off method
D. States that bad debts not be written off

75. A method of estimating bad debts expense that involves a detailed examination of
outstanding accounts and their length of time past due is the:
A. Direct write-off method
B. Aging of accounts receivable method
C. Percentage of sales method
D. Aging of investments method

76. The sale of receivables by a business
A. indicates that the business is in financial difficulty.
B. is generally the major revenue item on its income statement.
C. is an indication that the business is owned by a factor.
D. can be a quick way to generate cash for operating needs.

Use this data to answer questions below:

JAN  '11    Beg. Inv	20  units  @  $ 200  each  =	$   4,000
MAR '11   Purchase	40  units  @  $ 225  each  =	$   9,000
MAY '11   Purchase	30  units  @  $ 250  each  =	$   7,500
NOV '11    Purchase	20  units  @  $ 275  each  =	$   5,500
TOTAL	110 units	$  26,000

Company SOLD 80 units. Ending Inventory is 30 units.

77. Calculate the Cost of Goods Sold using the FIFO method.

78. Calculate the Cost of Goods Sold using the LIFO method.

79. Calculate the Ending Inventory using the FIFO method.

80. Calculate the Ending Inventory using the LIFO method.

81. Depreciation:
A. Measures the decline in market value of an asset
B. Measures physical deterioration of an asset
C. Is the process of allocating to expense the cost of a plant asset
D. Is applied to land

82. Obsolescence:
A. Occurs when an asset is at the end of its useful life
B. Refers to a plant asset that is no longer useful in producing goods and services
C. Refers to the insufficient capacity of a company's plant assets to meet the
company's productive demands
D. Occurs when an asset's salvage value is less than its replacement cost

83. A change in an accounting estimate is:
A. Reflected in past financial statements
B. Reflected in future financial statements and also requires modification of past statements
C. A change in a calculated amount that is part of financial statements that results from new information or subsequent developments and from better insight or improved judgment
D. Not allowed under current accounting rules

84. Total asset turnover is used to evaluate:
A. The efficiency of management's use of assets to generate sales
B. The need for asset replacement
C. The cash flows used to acquire assets
D. The relation between asset cost and book value

85. Extraordinary repairs:
A. Extend an asset's useful life beyond its original estimate
B. Are credited to accumulated depreciation
C. Are additional costs of plant assets that do not materially increase the asset's life
D. Are expensed as incurred

86. Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as
A. capital expenditures. C. expense expenditures.
B. ordinary repairs. D. revenue expenditures.

87. A company sold a machine that originally cost $100,000 for $60,000 cash. The accumulated depreciation on the machine was $40,000. The company should recognize a:
A. $0 gain or loss C. $20,000 gain
B. $20,000 loss D. $40,000 loss

88. Amortization:
A. Is the systematic allocation of the cost of an intangible asset to expense over its estimated useful life
B. Is the process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use
C. Is the process of allocating the cost of natural resources to periods when they are consumed
D. Is an accelerated form of expensing an asset's cost

89. The relationship between current liabilities and current assets is
A. useful in determining income.
B. useful in evaluating a company's liquidity.
C. called the matching principle.
D. useful in determining the amount of a company's long-term debt.

90. Obligations due to be paid within one year or within the company's operating cycle, whichever is longer, are:
A. Current assets C. Current liabilities
D. Earned revenues D. Operating cycle liabilities

91. Andy Manion earns $14 per hour for a 40-hour week and $21 per hour for any overtime work. If Manion works 45 hours in a week, gross earnings are:
A. $560. C. $650.
B. $630. D. $665.

92. The difference between the amount received from issuing a note payable and the amount repaid is referred to as:
A. Interest C. Principle
B. Face Value D. Cash

93. On Dec 1, Martin Company signed a $5,000 3-month 6% note payable, with the principle plus interest due on March 1 of the following year. What amount of interest expense is accrued at Dec 31 on the note?
A. $25 C. $50
B. $75 D. $300

94. An estimated liability:
A. Is an unknown liability of a certain amount
B. Is a known obligation of an uncertain amount that can be reasonably estimated
C. Is a liability that may occur if a future event occurs
D. Is not recorded until the amount is known for certain

95. A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should:
A. Consider the warranty expense a remote liability since the rate is only 2%
B. Recognize warranty expense at the time the warranty work is performed
C. Consider the warranty expense a contingent liability
D. Recognize warranty liability when the company sells the trampolines

96. The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties is called a(n):
A. Bond indenture C. Mortgage
B. Installment note D. Mortgage contract

97. Bonds that give the issuer an option of retiring them prior to the date of maturity are:
A. Debentures C. Serial bonds
B. Registered bonds D. Callable bonds

98. A proxy is:
A. A legal document that gives a designated agent of a stockholder the power to vote the stock
B. A contractual commitment by an investor to purchase unissued shares of stock
C. An amount of assets defined by state law that stockholders must invest and leave
invested in a corporation
D. The right of common stockholders to protect their investment in a corporation by having the first opportunity to purchase additional shares of "new" stock.

99. The board of directors of a corporation:
A. Are responsible for day-to-day operations of the business
B. Do not have the power to bind the corporation to contracts, due to lack of mutual agency.
C. May not also be executive officers of the corporation, due to the separate entity principle.
D. Are responsible for and have final authority for managing corporate activities

100. Par value of a stock refers to the:
A. Issue price of the stock
B. Value assigned to a share of stock by the corporate charter
C. Market value of the stock on the date of the financial statements
D. Dividend value of the stock

101. When all of the authorized shares have the same rights and characteristics, the stock is called:
A. Preferred stock C. Common stock
B. Par value stock D. Stated value stock

102. Stockholders' equity consists of:
A. Long-term assets
B. Contributed capital and retained earnings
C. Contributed capital and par value
D. Retained earnings and cash

103. In the stockholders' equity section of a balance sheet, the classification of capital stock consists of
A. additional paid-in capital and common stock.
B. common stock and treasury stock.
C. common stock, preferred stock, and treasury stock.
D. common stock and preferred stock.

104. Changes in accounting estimates are:
A. Considered accounting errors
B. Reported as prior period adjustments
C. Accounted for with a cumulative "catch-up" adjustment
D. Accounted for in current and future periods

105. The amount of income earned per share of a company's common stock is known as:
A. Restricted retained earnings per share
B. Earnings per share
C. Dividends per share
D. Book value per share

106. Liquidity indicates a
A. borrower's ability to pay obligations when they come due.
B. amount of cash held in the bank by the borrower.
C. borrower's solvency.
D. borrower's growth potential.

107. A ratio can be expressed in terms of a
A. percentage. C. simple proportion.
B. rate. D. all of these options.

Data for the 2 questions below

Sales	$100,000	Cost of Goods Sold	55,000
Sales Discounts	$5,000	Admin & General Expenses	10,000
Sales Returns & Allowances	$10,000

108. Use any amount needed (from above) to calculate "Gross Profit".

109. Use any amount needed (from above) to calculate "Net Profit".

Journal Entries

110. A customer pays for his $100 meal in your restaurant using a VISA card. VISA charges you 4% fee. (VISA pays you the cash immediately).

111. Corp. owes $1,400 for merchandise it bought last month. Terms of the purchase are 2/10/n30. Corp pays within the discount period. Prepare Corp.s entry to pay this invoice.

112. Bob signs a $10,000, 8%, 90 day promissory note to you in payment of a past due account.

113. You collect a $10,000, 8%, 90 day note in full (on the due date) Note - you did not do any entries to accrue interest. Prepare the entry honoring the note.

114. BeeCorp bought a machine paying $120,000. Estimated life is 60 months. Using straight-line depreciation prepare the journal entry to record ONE MONTH'S depreciation.

115. JayCo is disposing of a machine fully depreciated machine with an original cost of $25,000. Prepare the entry to dispose of the machine.

116. WalMart sold a TV collecting $600 PLUS 8% sales tax. Prepare WalMarts entry recording this transaction.

117. BobCo sends a check to pay off his $1,000, 12%, 6 month note. Prepare BobCo's entry to pay off the note he owes. (He did not accrue interest each month)

118. JCo sells $50,000 worth of machines in MAY. JCo expects 8% warranty claims for these machines. Prepare JCo's MAY journal entry for the expected warranty costs.

119. Bob is a customer of JCo who owes $1,000. JCo has decided the write off the Bob account using the Direct Write-Off method. Prepare the entry.

120. Company issued $1,000,000 of 6% bonds at par. Prepare the entry to issue the bonds.

121. Company issued $1,000,000 of 6% bonds at par. Prepare the entry to pay the first semi-annual interest payment.

122. DCorp issued 10,000 shares of $10 par stock at $17. Prepare the entry to issue the stock

123. ZeeCo declares a $100,000 cash dividend to its shareholders. Prepare the entry, on the date of declaration date, for the dividend. (Note: the dividend will actually be paid out next month).

124. MCo sells $100,000 worth of machine in JAN. MCo anticipates 5% warranty claims for these machines. Which of these statement is NOT true regarding the warranty?

125. How do you increase these accounts - with a debit or a credit (1/2 point each)

Cash                                    Depreciation Expense                         Revenue                                 

Phone Expense                   Account Payable                                 Accum Depre             

Sales Returns                      Notes Payable                                     Sales               

Unearned Revenue             Rent Expense                                      Retained Earnings

Account Receivable           Common Stock                                   Building         

Withdrawal

126. On which financial statement do the following accounts, titles or dates appear ?

(IS (income statement) ... BS (balance sheet) ... or BOTH (1/2 point each)

Fees Earned                        Retained Earnings                   Cost of Goods Sold     

Depreciation Expense         Accumulated Depreciation     Paid in Capital in Excess of Par

Unearned Revenues           Commissions Earned              "For the month of June, 2012"

Sales Returns & Allowance                                                "As of June 30, 2012"