Response to the following multiple choice questions:
1. A company's liabilities increased by $60,000 and stockholders' equity increased by $25,000. What would be the change in this company's assets? (Hint: Use the accounting equation to solve this problem).
$112,000 increase
$35,000 increase
$85,000 increase
$103,000 increase
2. Which of the following statements about revenues and expenses is correct?
Revenue is the same as cash.
Both revenues and expenses typically have credit balances.
Revenues and expenses are considered assets and liabilities, respectively
Expenses decrease the amount of stockholders' equity
3. Which account would be decreased with a credit?
Sales
Accounts Receivable
Notes Payable
Common Stock
4. A company incurred $5,000 in wages for employees for the year. Of these wages, $4,500 was paid by the end of the year. Which of the following statements is correct?
Salaries and Wages Expense on the income statement will be $500.
Salaries and Wages Expense on the balance sheet will be $5,000.
Salaries and Wages Payable on the balance sheet will be $500.
Salaries and Wages Payable on the income statement will be $4,500
5. If merchandise costing $500 is sold on account for $620, how is this transaction recorded when using a perpetual inventory system?
Debit Cash and credit Sales Revenue for $620; debit Cost of Goods Sold and credit Inventory for $500
Debit Accounts Receivable and credit Sales Revenue for $620
Debit Accounts Receivable and credit Sales Revenue for $620; debit Inventory and credit Cost of Goods Sold for $500
Debit Accounts Receivable, credit Sales Revenue for $620; debit Cost of Goods Sold, and credit Inventory for $500
6. What is the effect on the balance sheet if a company purchases equipment using cash?
No effect on total assets; Decrease total liabilities; Increase total stockholders' equity
No effect on total assets; No effect on total liabilities; No effect on total stockholders' equity
Decrease total assets; No effect on total liabilities; Increase total stockholders' equity
Increase total assets; Increase total liabilities; Increase total stockholders' equity
7. When a perpetual system is in used and transportation cost is incurred to obtain inventory, the transportation cost is:
reported as a contra-account that is subtracted from sales revenue when determining net sales.
deducted from the Cost of Goods Sold when determining gross profit.
reported as Selling, General & Administrative Expense on the income statement.
8. Cassidy Company uses a perpetual inventory system. On October 1, Cassidy Company sold inventory in the amount of $6,500 to Gelman Company, terms 2/10, n/30. The items cost Cassidy $4,200. On October 4, Gelman returns some of the inventory. This inventory had a selling price of $500 and a cost of $200. On October 8, Gelman Company paid Cassidy Company the amount due on that date. What journal entry will be prepared by Cassidy Company on October 8 to record the receipt of payment from Gelman?
Debit Cash for $5,880, debit Sales Discount for $120, and credit Accounts Receivable for $6,000
Debit Cash for $6,370, debit Sales Discount for $130, and credit Accounts Receivable for $6,500
Debit Cash for $6,300, debit Sales Returns & Allowances for $200, and credit Accounts Receivable for $6,500
Debit Cash and credit Accounts Receivable for $6,500
9. Mulder's Spy Shop purchased goods on credit costing $50,000 with terms of 3/10 n/30. Payment is made to the seller 7 days after the purchase. How would the payment be recorded?
Debit Accounts Payable and credit Cash for $50,000
Debit Accounts Payable for $50,000, credit Cash for $48,500, and credit Cost of Goods Sold for $1,500
Debit Inventory for $1,500, debit Cash for $48,500, and credit Accounts Payable for $50,000
Debit Accounts Payable for $50,000 credit Cash for $48,500, and credit Inventory for $1,500
10. A company purchased land costing $27,000 by paying cash of $6,750 and signing a 90-day note for the balance. The entry to record this transaction would:
decrease total liabilities.
decrease Common Stock.
increase total assets.
increase total assets and decrease total liabilities
11. Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of:
independently verifying.
establishing responsibility.
segregating duties.
bonding employees
12. The separate entity assumption requires that:
financial reports of a business are assumed to include the results of only that business's activities.
the results of business activities are reported in an appropriate monetary unit.
financial information can be compared across businesses because similar accounting methods have been applied.
financial information depicts the economic substance of the business activities.
13. If an apartment leasing company receives the rent for January 2016 from a tenant in December 2015, this will be reported by the leasing company as: (Assume the accrual basis is being used)
revenue in 2015.
stockholders' equity in 2015.
a liability in 2015.
an expense in 2015
14. A company incurred $5,000 in salaries and wages for employees for the year; $4,500 of these salaries and wages had been paid by the end of the year. Which of the following statements about this situation is correct?
Salaries and Wages Payable on the income statement will be $4,500.
Salaries and Wages Expense on the balance sheet will be $5,000.
Salaries and Wages Expense on the income statement will be $500.
Salaries and Wages Payable on the balance sheet will be $500.
15. When employees work for a company in June but are not paid until July, the June financial statements will include ______ on the:
Prepaid Salaries and Wages; income statement
Prepaid Salaries and Wages; balance sheet
Salaries and Wages Payable; income statement
Salaries and Wages Payable; balance sheet
16. Deferring a revenue or expense account in accounting means that the amount:
was reported as a revenue or an expense in a prior period.
will be reported as a revenue or an expense in the current period
will be reported as a revenue or an expense in a later period
will not be reported in the accounting records
17. Which of the following is a correct statement about the nature of equipment?
While equipment is an asset; its use is recorded as a revenue
While equipment is an asset, its use is recorded as a liability.
Equipment and its use both affect liabilities.
While equipment is an asset, its use is recorded as an expense.
18. Which of the following situations would cause the balance per bank to be more than the balance per books?
Deposits in transit
Outstanding checks
Checks from customers returned as NSF
Service charges
19. How do deferral adjustments for prepaid expenses-such as rent -that were initially recorded as assets affect assets on the balance sheet and expenses on the income statement?
Deferral adjustments decrease assets and increase expenses.
Deferral adjustments increase assets and decrease expenses.
Deferral adjustments decrease assets and decrease expenses.
Deferral adjustments increase assets and increase expenses.
20. If a cashier rang up sales totaling $5,096, but had $5,100 to deposit, which journal entry would be recorded?
A debit to Cash for $5,100, a credit to Cash Overage for $4, and a credit to Sales Revenue for $5,096.
A debit to Sales for $5,100, a debit to Cash Overage for $4, and a credit to Cash for $5,096.
A debit to Cash for $5,096, a debit to Cash Shortage for $4, and a credit to Sales Revenue for $5,100.
A debit to Cash for $5,096, a debit to Cash Shortage for $4, and a credit to Unearned Revenue for $5,100.
21. During May, Sea the World Cruises, Inc. collected $1,000 cash from a customer for services to be provided during June. Which of the following statements about this transaction is correct?
$500 of revenue should be recorded in May and $500 in June.
$1,000 of revenue should be recorded in June.
No revenue should be recorded for these events because they relate only to the balance sheet.
$1,000 of revenue should be recorded in May.
22. During its first year of operations, a company entered into the following transactions:
• Borrowed $5,000 from the bank by signing a promissory note.
• Issued stock to owners for $10,000.
• Purchased $1,000 of supplies on account.
• Paid $400 to suppliers as payment on account for the supplies purchased.
What is the amount of total liabilities at the end of the year?
$15,600.
$6,000.
$5,600.
$16,000.
23. If a company incorrectly records a payment as an asset instead of an expense, how will this error affect net income in the current period?
Net income will be too high.
Net income will be too low.
Net income will not be affected by this error in the current period, but will be too low in a later period
Net income will never be affected by this error because assets are reported on the balance sheet.
24. A system used to reimburse employees for expenditures they have made on behalf of the organization is referred to as a:
voucher system.
internal control system.
electronic funds transfer.
petty cash system.
25. A firm's beginning inventory is $35,000, goods purchased during the period cost $120,000, and the cost of goods sold for the period is $140,000. What is the amount of its ending inventory?
$25,000
$15,000
$20,000
$45,000
26. When a customer returns for credit a defective product it had purchased, the seller would record the transaction using which of the following accounts?
Purchase Returns & Allowances
Sales Returns & Allowances
Sales Discounts
Sales Revenue
27. West Co. returned $500 of merchandise that was purchased on account. As a result of this transaction, assets will:
stay the same and liabilities will decrease.
decreased and liabilities will decrease.
stay the same and net income will decrease.
decreased and net income will decrease.
28. Alpha sold $2,000 of services to Beta on credit. Beta promised to pay for it next month. Beta will report a $2,000:
Accounts Receivable.
Account Payable.
Decrease in Cash, since it plans to pay for sure next month.
Net income
29. Receiving cash from a customer to pay for a previously recorded account receivable will:
have no effect on total assets.
increase stockholder's equity.
decrease liabilities.
increase total assets.
30. Why is the balance in the Depreciation Expense account generally different from the balance in the Accumulated Depreciation account?
Depreciation expense only reflects the current period depreciation. Accumulated Depreciation contains depreciation since the asset was purchased.
The balances in the two accounts should be the same amount.
The Accumulated Depreciation account contains the value of the long-lived asset as well as the depreciation.
The adjusting entry contains a different amount for Depreciation Expense and Accumulated Depreciation.
31. Which of the following will result in an increase in revenue?
Stockholders investing $10,000 in a company
Selling concert tickets for $10,000 four months before the performance
Borrowing $10,000 from a bank
Selling $10,000 of groceries
32. Which inventory system records a change in the Inventory account every time goods are bought, sold or returned?
Periodic
FOB Shipping Point
Perpetual
FOB Destination
33. Le Fragrance Company borrowed $60,000 from the bank to be paid back in five years and used all of the money to purchase land for a new store. Le Fragrance's balance sheet would show this as:
$60,000 under Depreciation Expense and $60,000 under Notes Payable (long-term).
$60,000 under Other Assets and $60,000 under Other Liabilities.
$60,000 under Land and $60,000 under Notes Payable (long-term).
$60,000 under Land and $60,000 under Notes Receivable (long-term).
34. Lorenzo Company has sales of $60,000, beginning inventory of $7,000, purchases of $35,000, and ending inventory of $5,000. The cost of goods sold is:
$33,000
$37,000
$23,000
$42,000
35. The statement of cash flows shows the following information:
• Cash provided by operating activities of $16,500
• Cash used by investing activities of $8,400
• Cash used by financing activities of $2,900
The beginning cash was $14,000. What is the amount of cash at the end of the period?
$8,800.
$19,200.
$41,800.
$30,500.
36. Lochmann Corporation had outstanding checks totaling $5,400 on its June bank reconciliation. In July, Lochmann issued checks totaling $38,900. The July bank statement shows that $26,300 in checks cleared the bank in July. The amount of outstanding checks on Lochmann's July bank reconciliation should be:
$7,200.
$18,000.
$5,400.
$12,600
37. Which of the following statements regarding periodic and perpetual inventory systems is correct?
Periodic inventory systems require a greater investment in technology.
Perpetual inventory systems may assist in determining inventory lost due to shrinkage.
Periodic inventory systems allow sales personnel to provide more immediate information regarding availability of inventory.
Perpetual inventory systems are inferior for determining optimal times to reorder inventory.
38. Flynn Company uses a perpetual inventory system and reported $500,000 of inventory at the beginning of the month based on a physical count of inventory. During the month, the company bought $45,000 of inventory and sold inventory that had cost $30,000. At the end of the month, the physical count of inventory shows $510,000 on hand. How much shrinkage occurred during the month?
$10,000
$35,000
$25,000
$5,000
39. The adjusting entry to record services earned but not yet billed requires:
no entry since revenues should not be recorded until collected
a debit to Accounts Receivable and credit to Service Revenue
a debit to Service Revenue and credit to Accounts Receivable
a debit to Accounts Payable and credit to Service Revenue
40. Mauricio invested $30,000 in Pizza Aroma in exchange for its stock. As a result of this, Pizza Aroma now has:
retained earnings.
net income.
common stock.
an asset (investment)
a liability.
41. Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory and sold goods that cost $20,000. Ending inventory was:
$5,000
$50,000
$10,000
$0
42. The prepayment of rent for the next three months (not including this month):
increases expenses.
has no effect to total assets.
decreases stockholders' equity.
reduces total assets.
43. Accumulated Depreciation appears on the:
balance sheet in the stockholders' equity section.
balance sheet as a liability account.
balance sheet as a contra- asset account.
income statement as an expense.
44. When a deferral adjustment is made to an asset account, that asset becomes a(n):
revenue.
liability.
expense.
other asset.
45. Which of the following would be reported on the income statement for Year 2?
Dividends that were paid in Year 2.
Supplies that were purchased in Year 1, but used in Year 2.
Supplies that were purchased and used in Year 1 but paid for in Year 2.
Accounts Receivable as of December 31, Year 2.
46. Which of the following would not represent a financing activity?
Paying dividends to stockholders.
Borrowing money from a bank to purchase new equipment.
An investment of capital by the owners.
Payment of interest on a loan
47. Which of the following statements about financial statement information is correct?
A company with liabilities of $80,000 and stockholders' equity of $50,000 will have Assets of $30,000.
A company with total stockholders' equity of $45,000 and total assets of $75,000 must have total liabilities of $120,000.
If a company has total revenues of $80,000, total expenses of $50,000 and dividends of $10,000, they will have net income of $20,000.
A company with total stockholders' equity of $120,000 and common stock of $75,000 must have total retained earnings of $45,000
48. A company has $26,000 in its Land account, $10,000 in its Inventory account, and $6,000 in its Notes Payable (short-term) account. If its only other account is Common Stock, what is the balance of that account?
• • $22,000.
• • $30,000.
• • $42,000
• • $10,000.
49. Which of the following statements about the cash basis of accounting is correct?
• It is used when cash is paid at the same time as the cost is incurred, but is not used when cash is paid before the expense is incurred.
• It is the only acceptable method for external reporting.
• It can lead to a distorted view of the company's financial performance.
• It reports revenues when earned and expenses when incurred.
50. The standard formatting for a journal entry lists the dollar amounts for:
debits underneath and to the right of the dollar amounts for credits.
credits underneath and to the right of the dollar amounts for debits.
debits and credits aligned equally to the right.
debits and credits aligned equally to the left.
51. Beginning inventory plus purchases minus ending inventory equals:
goods available for sale.
net purchases.
cost of goods sold.
net sales
52. At the beginning of its first year of operations, Henry Corp. purchased $5,000 of supplies, which were debited to the Supplies account. It did not purchase any other supplies during the year. At the end of the year, it has $1,000 of supplies left. The appropriate adjusting journal entry is:
Debit Supplies Expense $1,000 and credit Supplies $1,000
Debit Supplies $4,000 and credit Supplies Expense $4,000
Debit Supplies $1,000 and credit Supplies Expense $1,000
Debit Supplies Expense $4,000 and credit Supplies $4,000
53. In January, the All Irie Resort books and accepts a cash payment for $32,000 for vacation services to be provided during spring break in March. The journal entry recorded in January will include a debit to:
Accounts Receivable and a credit to Service Revenue.
Prepaid Expenses and a credit to Service Revenue.
Accounts Payable and a credit to Service Revenue.
Cash and a credit to Unearned Revenue
54. Your company contracted for a 30-second commercial (an advertisement) that aired during the Super Bowl at a cost of $1.2 million. It is legally obligated to pay for the commercial, but has not yet done so. How is your company's balance sheet affected on the day the commercial aired?
It increases both assets and liabilities by $1.2 million.
It increases assets and decreases stockholders' equity by $1.2 million each.
It increases liabilities and decreases stockholders' equity by $1.2 million each.
It does not affect the balance sheet.
55. All of the following are requirements of the Sarbanes-Oxley Act (SOX) except:
adoption of a code of ethics covering all employees.
evaluation and reporting on the effectiveness of internal control over financial reporting by management for all public companies.
establishment of an audit committee of independent directors to ensure the company's accounting, internal control, and audit functions are effective.
evaluation and reporting on the effectiveness of internal control over financial reporting by external auditors only for large public companies.
56. On Time Computer Repair uses accrual basis accounting. A computer was repaired on May 15. The customer picked up the computer on June 1 and mailed the payment on June 5. On Time Computer Repair received the check in the mail on June 10. The revenue should be recognized as earned on which date?
August 1
May 15
June 5
June 10
57. Which of the following statements regarding debits and credits is always correct?
Debits decrease accounts while credits increase them.
The normal balance for an account is the side on which it decreases.
The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger.
The total value of all debits to a particular account must equal the total value of all credits to that account.
58. Assets reported on the balance sheet include:
Accounts Receivable, Sales Revenue, and Cash.
Accounts Receivable, Equipment, and Cash.
Accounts Payable, Retained Earnings, and Cash.
Equipment, Supplies Expense, and Cash.
59. If a company hires an auditor to check that the work done by others within the company is supported by documentation, it is doing so under the principle of control activities referred to as:
restrict access.
segregation of duties.
independent verification.
document procedures.
60. What does a business typically receive when it issues stock to owners?
Accounts Receivable
Stock certificate
Promissory note
Cash
61. Internal users of financial data include:
regulatory authorities.
creditors.
management.
investors
62. During its first year of operations, a company entered into the following transactions:
• Borrowed $5,000 from the bank by signing a promissory note.
• Issued stock to owners for $10,000.
• Purchased $1,000 of supplies on account.
• Paid $400 to suppliers as payment on account for the supplies purchased.
What is the amount of total assets at the end of the year?
$15,600.
$5,600.
$16,000.
$15,000.
63. Which of the following is an accounting transaction?
A manager hires an employee
A manager agrees to deliver their product in three weeks
A manager signs a promissory note and receives cash
A manager orders supplies
64. The main purposes of internal controls include all of the following except:
providing more favorable financial information.
ensuring compliance with laws and regulations.
promotion of operational efficiency.
prevention of error, theft, and fraud
65. Which of the following situations would cause the balance per bank to be more than the balance per books?
add the amount of the outstanding checks to the balance per books.
deduct the amount of the outstanding checks from the balance per books.
deduct the amount of the outstanding checks from the balance per bank.
add the amount of the outstanding checks to the balance per bank.
66. In April, Homer Simpson hired a new employee at a rate of $1,000 per month to start work at the beginning of May. In April, Homer Simpson should record:
a $1,000 increase to Wage expense and a $1,000 decrease to Cash.
nothing, because an exchange of promises is not a transaction.
a $1,000 increase to Prepaid wages and a $1,000 decrease to Cash.
a $1,000 increase in Wages Payable and a $1,000 increase in Wages Expense
67. Which of the following items is reported on the income statement as an expense?
The purchase of land
The purchase of supplies
This month's utility bill
The payment of a cash dividend
68. Which line item would be found on a merchandiser's balance sheet and not on a service firm's?
Inventory
Supplies
Cash
Cost of Goods Sold
69. A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?
It would be deducted from the bank balance.
It would be added to the bank balance.
It would be deducted from the book balance.
It would be added to the book balance.
70. During the first year of operations, a company sold $100,000 of goods to customers and received $90,000 in cash from customers. The remainder is owed to the company at the end of the year. The company incurred $70,000 in expenses for the year and paid $65,000 in cash for these expenses. The remainder is owed by the company at the end of the year. Based on this information, what is the amount of net income for the year?
$20,000
$25,000
$35,000
$30,000
71. If a company pays back money borrowed from a bank, which of the following would be included in the journal entry to record this transaction?
Credit Notes Payable and debit Common Stock
Debit Cash and credit Common Stock
Debit Cash and credit Notes Payable
Credit Cash and debit Notes Payable
72. If an expense has been incurred but will be paid later, then:
a liability account is created or increased and an expense is recorded.
an asset account is decreased or eliminated and an expense is recorded.
a revenue and an expense are accrued.
nothing is recorded on the financial statements.
73. A prepayment is originally recorded as an asset. Later, at the end of the accounting period, an adjustment is recorded causing a(n) ______ in the asset account and a(n) ______ in the expense account.
decrease; decrease
decrease, increase
increase; increase
increase; decrease
74. In a deferral adjustment for revenues collected in advance that are now earned:
a liability is decreasing because cash is being paid for an expense incurred at the time of the adjustment
the liability recorded when cash was received is decreased by the adjustment for revenue being earned
the liability recorded when cash was received is increased by the adjustment for the revenue being earned
a liability is increasing because cash will be paid for an expense in the future
75. Universal Corp. has beginning Retained Earnings of $80,000, cash flows from operating activities during the current year of $35,000, dividends paid during the year of $5,000, net income for the current year of $50,000, and Common Stock at the end of the year of $15,000. What is the amount of its Retained Earnings at the end of the year? (Hint: Not all of these items will factor into the calculation of ending Retained Earnings).
$160,000
$175,000
$125,000
$140,000
76. In an accrual adjustment for expenses incurred but not yet paid:
a liability is increasing since cash will be paid in the future due to the expense incurred
a liability is decreasing since cash is being paid for an expense incurred at the time of the adjustment
the liability recorded when cash was received is decreasing as the expense is incurred
the liability recorded when cash was received is increasing as the expense is incurred