Question 1: Why is it necessary to make adjusting entries?
a. The accountant has made errors in recording external transactions.
b. Certain facts about the affairs of the business are not included in the ledger as built up from external transactions.
c. The accountant wants to show the largest possible net income for the period.
d. The accountant wants to show the net cash flow for the year.
Question 2: Notes to financial statements should not be used to
a. describe the nature and effect of a change in accounting principles.
b. identify substantial differences between book and tax income.
c. correct an improper financial statement presentation.
d. indicate basis for asset valuation.
Question 3: The characteristic of consistency is best demonstrated when
a. expenses are reported as charges against the period in which incurred.
b. the effect of changes in accounting procedure is properly disclosed.
c. extraordinary gains and losses are not reported on the income statement.
d. accounting procedures are adopted which give a consistent rate of net income.
Question 4: The current assets section of a balance sheet should never include
a. a receivable from a customer not collectible for over one year.
b. the premium paid on short-term bond investment.
c. goodwill arising from the purchase of a going business.
d. customers' accounts with credit balances.
Question 5: When should the loss on an uncollectible account receivable be recorded as an expense for accrual accounting purposes?
a. When it is determined that an account cannot be collected.
b. In the same period in which the sale on account occurs.
c. When the balance is past due for more than 3 months.
d. When a lawyer indicates that collection efforts would cost more than the account is worth.
Question 6: How should unearned discounts, finance charges, and interest included in the face amount of installment accounts receivable be presented in the balance sheet?
a. As a current liability.
b. As a deduction from the related installment accounts receivable.
c. Within the net amount of installment accounts receivable.
d. As an addition to the related installment accounts receivable.
Question 7: Oswald Company's account balances at December 31 for Accounts Receivable and the related Allowance for Doubtful Accounts are $750,000 and $20,000, respectively. From an analysis of accounts receivable, it is estimated that $42,000 of the December 31 receivables will be uncollectible. After adjustment for the above facts, the net realizable value of accounts receivable would be
a. $750,000.
b. $730,000.
c. $688,000.
d. $708,000.
Question 8: Which group of items listed below should be included in the cash account?
a. Silver coins, postage stamps, demand deposits, personal checks.
b. Promissory notes, demand deposits, money orders, silver coins.
c. Money orders, postdated checks, personal checks, time deposits.
d. Silver coins, money orders, demand deposits, personal checks.
Question 9: Which of the following methods of accounting for uncollectible accounts does not properly match costs with revenues?
a. Percentage of sales
b. Percentage of receivables
c. Direct write-off
d. Aging schedule
Certain information relative to the 2004 operations of Ross Co. follows:
Accounts receivable, January 1, 2004 $20,000
Accounts receivable collected during 2004 39,000
Cash sales during 2004 12,000
Inventory, January 1, 2004 18,000
Inventory, December 31, 2004 16,500
Purchases of inventory during 2004 33,000
Gross margin on sales 13,500
What is Ross's accounts receivable balance at December 31, 2004?
a. $14,000.
b. $17,000.
c. $20,000.
d. $29,000.
Question 10: Pine Company estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available:
Inventory, March 1 $1,160,000
Purchases during March 500,000
Purchase returns 26,000
Sales during March 1,000,000
The estimate of the cost of inventory at March 31 would be
a. $750,000.
b. $800,000.
c. $834,000.
d. $884,000.
Question 11: Most methods of pricing inventories are in accord with generally accepted accounting principles and generally are permissible for income tax purposes. One method that does not fall into this category is
a. moving average.
b. weighted average.
c. LIFO.
d. variable costing.
Question 12: A company has been using the FIFO cost method of inventory valuation since it was started 10 years ago. Its 2004 ending inventory was $120,000, but it would have been $95,000 if LIFO had been used. Thus, if LIFO had been used, this company's income before taxes would have been
a. $25,000 less in 2004.
b. $25,000 less over the 10-year period.
c. $25,000 greater over the 10-year period.
d. $25,000 greater in 2004.
Question 13: Under the variable costing procedures
a. an increase in inventory decreases marginal income.
b. fixed costs are treated as period costs.
c. no overhead costs are charged to the product.
d. inventory values tend to be overstated.
Question 14: On December 31, 2004, Dorr Company, which sells only one product, adopted the periodic last-in, first-out method of inventory valuation. The inventory was valued at $40,000 on the December 31, 2004 balance sheet. The number of items in its inventory remained constant during 2005. The December 31, 2005 inventory valuation would be
a. less than $40,000 if prices were steadily decreasing.
b. less than $40,000 if prices were steadily increasing.
c. greater than $40,000 if prices were steadily increasing.
d. $40,000 regardless of any price changes.
Jorden Company values its inventory by using the retail method (LIFO basis, stable prices). The following information is available for the year 2004.
Cost Retail
Beginning inventory $ 78,000 $140,000
Purchases 368,000 628,000
Freight-in 16,000
Markups (net) - 18,000
Markdowns (net) - 6,000
Sales 610,000
Question 15: At what amount would Jorden Company report its ending inventory?
a. $95,700.
b. $96,000.
c. $100,300.
d. $102,000.
Question 16: When the sum-of-the-years'-digits method is used, depreciation expense for a given asset will
a. decline by a constant amount each year.
b. be the same each year.
c. decrease rapidly and then slowly over the life of the asset.
d. vary from year to year in relation to changes in output.
Question 17: Maris Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $165,000. At the time of acquisition Maris paid $15,000 to have the assets appraised. The appraisal disclosed the following values:
Land $96,000
Buildings 76,800
Equipment 19,200
What cost should be assigned to the land, buildings, and equipment, respectively?
a. $120,000, $96,000, and $24,000.
b. $82,500, $66,000, and $16,500.
c. $90,000, $72,000, and $18,000.
d. $60,000, $60,000, and $60,000.