Question 1. "Generally accepted" in the phrase generally accepted accounting principles means that the principles
a. are proven theories of accounting.
b. have substantial authoritative support.
c. have been approved by the Internal Revenue Service.
d. have been approved for use by the managements of business firms.
Question 2. Which one of the following is not an objective of financial reporting according to the conceptual framework?
a. to provide information that will increase the value of the company.
b. To provide information in assessing future cash flows.
c. To provide information that is useful for making investment and credit decisions.
d. To provide information that identifies economic resources, the claims to those resources and the changes in those resources and claims.
Question 3. The going concern assumption assumes that the business
a. will be liquidated in the near future.
b. will be purchased by another business.
c is in a growth industry.
d. will continue in operation long enough to carry out objectives and commitments.
Question 4. It is assumed that the activities of Chrysler Corporation can be distinguished from those of General Motors because of the
a. going concern assumption.
b. economic entity assumption .
c. monetary unit assumption.
d. time period assumption.
Question 5. The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is
a. collected.
b. earned.
c. most likely to be collected.
d. earned and collected.
Question 6. The cost principle requires that when assets are acquired, they be recorded at
a. appraisal value.
b. exchange price paid.
c. selling price .
d. list price.
Question 7. A basic assumption of accounting assumes that the dollar is
a. unrelated to business transactions.
b. a poor measure of economic activities.
c. the common unit of measure for all business transactions
d. useless in measuring an economic event.
Question 8. The left side of an account is
a. blank.
b. a description of the account.
c. the debit side.
d. the balance of the account.
Question 9. T-account is
a. a way of depicting the basic form of an account.
b. what the computer uses to organize bytes of information.
c. a special account used instead of a trial balance.
d. used for accounts that have both a debit and credit balance.
Question 10. A debit is not the normal balance for which account listed below?
a. Dividends.
b. Cash.
c. Accounts Receivable.
d. Service Fees Earned.
Question 11. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?
a. A debit balance in the Dividends account.
b. A credit balance in an expense account.
c. A credit balance in a liabilities account.
d. A credit balance in a revenue account.
Question 12. A journal is not useful for
a. disclosing in one place the complete effect of a transaction.
b. preparing financial statements .
c. providing a record of transactions.
d. locating and preventing errors.
Question 13. Which of the following is not a common time period chosen by businesses as their accounting period?
a. Daily.
b. Monthly.
c. Quarterly.
d. Annually.
Question 14. Jim's Tune-up Shop follows the revenue recognition principle. Jim services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Jim on August 5. Jim receives the check in the mail on August 6. When should Jim show that the revenue was earned?
a. July 31
b. August 1
c. August 5
d. August 6
Question 15. An asset--expense relationship exists with
a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.
Question 16. A law firm received $2,000 cash for legal services to be rendered in the future.
The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
Question 17. The matching principle matches
a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.
Question 18. If the total debit column exceeds the total credit column of the income statement columns on a work sheet, then the company has
a. earned net income for the period.
b: an error because debits do not equal credits.
c. suffered a net loss for the period.
d. to make an adjusting entry.
Question 19. Closing entries are made
a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and stockholders' equity accounts will have zero balances when the next accounting period starts.
c. in order to transfer net income (or loss) and dividends to the Retained Earnings account.
d. so that financial statements can be prepared.
Question 20. In preparing closing entries
a. each revenue account will be credited.
b.each expense account will be credited.
c. the Retained Earnings account will be debited if there is net income for the period.
d. the Dividends account will be debited.
Question 21. The closing entry process consists of closing
a. all asset and liability accounts.
b. out the Retained Earnings account.
c. all permanent accounts.
d. all temporary accounts .
Question 22. An enterprise that sells goods to customers is known as a
a. proprietorship.
b. corporation.
c. retailer.
d. service firm.
Question 23. Sales revenue less cost of goods sold is called
a. gross profit.
b. net profit.
c. net income.
d. marginal income.
Question 24. After gross profit is calculated, operating expenses are deducted to determine
a. gross margin.
b. net income .
c. gross profit on sales.
d. net margin.
Question 25. Gross profit does not appear
a. on a multiple-step income statement.
b. on a single-step income statement.
c. to be relevant in analyzing the operation of a merchandising company.
d. on the income statement if the periodic inventory system is used because it cannot be calculated.
Question 26. Income from operations appears on
a. both a multiple-step and a single-step income statement.
b. neither a multiple-step nor a single-step income statement.
c. a single-step income statement.
d. multiple-step income statement.
Question 27. If goods in transit are shipped FOB destination
a. the seller has legal title to the goods until they are delivered.
b. the buyer has legal title to the goods until they are delivered.
c. the transportation company has legal title to the goods while the goods are in transit.
d. no one has legal title to the goods until they are delivered.
Question 28: Wagner Company's goods in transit at December 31 include sales made
(1) FOB destination.
(2) FOB shipping point and purchases made FOB shipping point.
(3) FOB destination and purchases made FOB shipping point.
(4) FOB shipping point.
Which items should be included in Wagner's inventory at December 31?
a. (2) and (3).
b. (1) and (4).
c. (1) and (3).
d. ( 2 ) and ( 4 ).
Question 29. Net purchases plus freight-in determines
a. cost of goods sold.
b. cost of goods available for sale.
c. cost of goods purchased.
d. total goods available for sale.
Question 30. The LIFO inventory method assumes that the cost of the latest units purchased are
a. the last to be allocated to cost of goods sold.
b the first to be allocated to ending inventory.
c. the first to be allocated to cost of goods sold.
d. not allocated to cost of goods sold or ending inventory.
Question 31. The selection of an appropriate inventory cost flow assumption for an individual company is made by
a. the external auditors.
b. the SEC.
c. the internal auditors.
d. management .
Question 32. Which of the following is not a common cost flow assumption used in costing inventory?
a. First-in, first-out.
b. Middle-in, first-out.
c. Last-in, first-out.
d. Average cost.
Question 33. Which one of the following is not an objective of a system of internal controls?
a. safeguard company assets.
b. overstate liabilities in order to be conservative.
c. Enhance the accuracy and reliability of accounting records.
d. Reduce the risks of errors.
Question 34. Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit the explanation of the transactions.
1. Stockholders invest $25,000 in cash in starting a real estate office operating as a corporation.
2. Purchased $400 of office supplies on credit.
3. Purchased office equipment for $8,000, paying $2,500 in cash and signed a 30-day, $5,500, note payable.
4. Real estate commissions billed to clients amount to $4,000.
5. Paid $700 in cash for current month’s rent.
6. Paid $200 cash on account for office supplies purchased in transaction 2.
7. Received a bill for $500 for advertising for the current month.
8. Paid $2,200 cash for office salaries.
9. Paid $1,200 cash dividends to stockholders.
10. Received a check for $3,000 from a client in payment on account for commissions billed in transaction 4.
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Credit
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2
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Question 35. The work sheet for the Terry Rental Company appears at the end of the packet. Using the adjustment data below, complete the work sheet. Add any accounts that are necessary. You may use the work sheet itself or do this in Excel.
Adjustment data:
a. Prepaid rent expired during August, $3.
b. Depreciation expense on office equipment for the month of August, $8.
c. Supplies on hand on August 31 amounted to $4.
d. Salaries expense incurred at August 31 but not yet paid amounted to $12.
Question 36. The financial statement columns of the work sheet for Video Concepts at December 31, 2003 are as follows:
Accounts Debit Credit Debit Credit
Cash 14,000
Accounts Receivable 11,000
Supplies 4,000
Prepaid Insurance 6,000
Video Equipment 210,000
Acc. Depreciation - Equipment 26,000
Accounts Payable 24,000
Note Payable 60,000
Salaries Payable 3,000
Common Stock 90,000
Retained Earnings 22,000
Dividends 15,000
Video Rental Revenue 138,000
Advertising Expense 21,000
Depreciation Expense 12,000
Insurance Expense 3,000
Rent Expense 17,000
Salaries Expense 44,000 __________________________________
Supplies Expense 6,000
Totals 103,000 138,000 260,000 225,000 __
Net Income
35,000 35,000
138,000 138,000 260,000 260,000
INSTRUCTIONS:
a. Calculate the balance of Retained Earnings that would appear on a balance sheet at December 31, 2003. Show it below.
b. Prepare a classified balance sheet for Video Concepts at December 31, 2003 assuming the note payable is a long-term liability.