Questions -
Q1. Which statement is correct?
A) As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
B) The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
C) The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
D) As long as management is ethical, there are no problems with using the cash basis of accounting.
Q2. The following information is available for Sheldon Leonard Company:
Operating expenses - $ 85,000
Cost of goods sold - 200,000
Sales revenue - 325,000
Sales returns and allowances - 16,000
Instructions - Compute each of the following:
(a) Net sales
(b) Gross profit
(c) Income from operations
Q3. An accounting record where transactions are initially recorded in chronological order is called a _____.
Q4. Gross profit is obtained by _______ subtracting _______ from.
Q5. Two categories of expenses for merchandising companies are
A) cost of goods sold and financing expenses.
B) operating expenses and financing expenses.
C) cost of goods sold and operating expenses.
D) sales and cost of goods sold.
Q6. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.
A) True
B) False
Q7. If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income.
A) True
B) False
Q8. The normal balance of any account is the
A) left side.
B) right side.
C) side which increases that account.
D) side which decreases that account.
Q9. The double-entry system requires that each transaction must be recorded
A) in at least two different accounts.
B) in two sets of books.
C) in a journal and in a ledger.
D) first as a revenue and then as an expense.
Q10. Income from operations is determined by subtracting total operating expenses from _______.
Q11. Maggie's Market recorded the following events involving a recent purchase of merchandise:
Received goods for $50,000, terms 2/10, n/30.
Returned $1,500 of the shipment for credit.
Paid $400 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company's inventory increased by
A) $48,192.
B) $49,400.
C) $47,930.
D) $48,900.
Q12. A debit to an asset account indicates
A) an error.
B) a credit was made to a liability account.
C) a decrease in the asset.
D) an increase in the asset.
Q13. The income statement for the year 2016 of Bugati Co. contains the following information:
Revenues - $73,000
Expenses:
Salaries and Wages Expense - $43,000
Rent Expense - 12,000
Advertising Expense - 11,000
Supplies Expense - 6,000
Utilities Expense - 3,500
Insurance Expense - 4,000
Total expenses - 79,500
Net income (loss) - $(6.500)
After the revenue and expense accounts have been closed, the balance in Income Summary will be
A) $0.
B) a debit balance of $6,500.
C) a credit balance of $6,500.
D) a credit balance of $73,000.
Q14. In a perpetual inventory system, cost of goods sold is recorded
A) on a daily basis.
B) on a monthly basis.
C) on an annual basis.
D) with each sale.
Q15. A post-closing trial balance is prepared
A) after closing entries have been journalized and posted.
B) before closing entries have been journalized and posted.
C) after closing entries have been journalized but before the entries are posted.
D) before closing entries have been journalized but after the entries are posted.
Q16. Orange County Shop follows the revenue recognition principle. Orange County services a bicycle on July 31. The customer picks up the bike on August 1 and mails the payment to Orange County on August 5. Orange County receives the check in the mail on August 6. When should Orange County show that the revenue was recognized?
A) July 31
B) August 1
C) August 5
D) August 6
Q17. The historical cost principle requires that when assets are acquired, they be recorded at
A) appraisal value.
B) cost.
C) market price.
0) book value.
Q18. After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to
A) the company's bank.
B) owner's equity.
C) ledger accounts.
D) financial statements.
Q19. The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.
A) True
B) False
Q20. Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.
A) True
B) False
Q21. A two column list of all accounts and their balances at a given time is a _______.
Q22. Which one of the following could represent the expanded basic accounting equation?
A) Assets = Liabilities + Owner's Capital + Owner's Drawings - Revenue - Expenses.
B) Assets + Owner's Drawings + Expenses = Liabilities + Owner's Capital + Revenues.
C) Assets - Liabilities - Owner's Drawings = Owner's Capital + Revenues - Expenses.
D) Assets = Revenues + Expenses - Liabilities.
Q23. A new account is opened for each transaction entered into by a business firm.
A) True
B) False
Q24. Financial statements are the major means of communicating accounting information to interested parties.
A) True
B) False
Q25. Eli's Electronic Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $400,000 in electronic repair revenues, $300,000 in expenses, and Eli withdrew $50,000. Eli's Owner's Capital balance at the end of the year was
A) $200,000.
B) $100,000.
C) $150,000.
D) $350,000.
Q26. If a company determines cost of goods sold each time a sale occurs, it
A) must have a computer accounting system.
B) uses a combination of the perpetual and periodic inventory systems.
C) uses a periodic inventory system.
D) uses a perpetual inventory system.
Q27. If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the
A) Inventory account will be increased.
B) Inventory account will not be affected.
C) seller will bear the freight cost.
D) carrier will bear the freight cost.
Q28. Howard Company purchased merchandise inventory with an invoice price of $7,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Howard Company pays within the discount period?
A) $6,300
B) $6,440
C) $6,860
D) $7,000
Q29. The income statement for the year 2016 of Bugati Co. contains the following information:
Revenues - $73,000
Expenses:
Salaries and Wages Expense - $43,000
Rent Expense - 12,000
Advertising Expense - 11,000
Supplies Expense - 6,000
Utilities Expense - 3,500
Insurance Expense - 4,000
Total expenses - 79,500
Net income (loss) $(6,500)
The entry to close the revenue account includes a
A) debit to Income Summary for $6,500.
B) credit to Income Summary for $6,500.
C) debit to Revenues for $73,000.
D) credit to Revenues for $73,000.
Q30. Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.
A) True
B) False
Q31. If a company has overdrawn its bank balance, then
A) its cash account will show a debit balance.
B) its cash account will show a credit balance.
C) the cash account debits will exceed the cash account credits.
D) it cannot be detected by observing the balance of the cash account.
Q32. The income statement for the year 2016 of Bugati Co. contains the following information:
Revenues - $73,000
Expenses:
Salaries and Wages Expense - $43,000
Rent Expense - 12,000
Advertising Expense - 11,000
Supplies Expense - 6,000
Utilities Expense - 3,500
Insurance Expense - 4,000
Total expenses - 79,500
Net income (loss) - $(6,500)
The entry to close the expense accounts includes a
A) debit to Income Summary for $6,500.
B) credit to Income Summary for $6,500.
C) debit to Income Summary for $79,500.
D) debit to Utilities Expense for $3,500.
Q33. The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.
A) True
B) False
Q34. An accountant has debited an asset account for $1,400 and credited a liability account for $500. What can be done to complete the recording of the transaction?
A) Nothing further must be done.
B) Debit an owner's equity account for $900.
C) Debit another asset account for $900.
D) Credit a different asset account for $900.
Q35. The entire group of accounts and their balances maintained by a company is called the ______.
Q36. Under accrual-basis accounting
A) cash must be received before revenue is recognized.
B) net income is calculated by matching cash outflows against cash inflows.
C) events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
D) the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.