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MCQ _ Chapter one 1.

The accounting profession can be divided into three major categories; specifically, the practice of public accounting, private accounting, and governmental accounting. A somewhat unique and important service of public accountants is: a. Financial accounting. b. Managerial accounting. c. Auditing. d. Cost accounting. Answer 2. The primary private sector agency that oversees external financial reporting standards is the: a. Financial Accounting Standards Board. b. Federal Bureau of Investigation. c. General Accounting Office. d. Internal Revenue Service. Answer 3. Which of the following equations properly represents a derivation of the fundamental accounting equation? a. Assets + liabilities = owner's equity. b. Assets = owner's equity. c. Cash = assets. d. Assets - liabilities = owner's equity. Answer 4. Wilson Company owns land that cost $100,000. If a "quick sale" of the land was necessary to generate cash, the company feels it would receive only $80,000. The company continues to report the asset on the balance sheet at $100,000. This is justified under which of the following concepts? a. The historical-cost principle. b. The value is tied to objective and verifiable past transactions. c. Neither of the above. d. Both "a" and "b". Answer 5. Retained earnings will change over time because of several factors. Which of the following factors would explain an increase in retained earnings? a. Net loss. b. Net income. c. Dividends. d. Investments by stockholders Answer

6. Which of these items would be accounted for as an expense? a. Repayment of a bank loan. b. Dividends to stockholders. c. The purchase of land. d. Payment of the current period's rent. Answer 7. Which of the following transactions would have no impact on stockholders' equity? a. Purchase of land from the proceeds of a bank loan. b. Dividends to stockholders. c. Net loss. d. Investments of cash by stockholders. Answer 8. Which of the following would not be included on a balance sheet? a. Accounts receivable. b. Accounts payable. c. Sales. d. Cash. Answer 9. Remington provided the following information about its balance sheet:

Based on the information provided, how much are Remington's liabilities? a. $200. b. $900. c. $1,200. d. $1,700. Answer 10. Gerald had beginning total stockholders' equity of $160,000. During the year, total assets increased by $240,000 and total liabilities increased by $120,000. Gerald's net income was $180,000. No additional investments were made; however, dividends did occur during the year. How much were the dividends? a. $20,000.

b. $60,000. c. $140,000. d. $220,000. Answer Multiple Choice: Chapter Two 1. Of the following account types, which would be increased by a debit? a. Liabilities and expenses. b. Assets and equity. c. Assets and expenses. d. Equity and revenues. Answer 2. The following comments all relate to the recording process. Which of these statements is correct? a. The general ledger is a chronological record of transactions. b. The general ledger is posted from transactions recorded in the general journal. c. The trial balance provides the primary source document for recording transactions into the general journal. d. Transposition is the transfer of information from the general journal to the general ledger. Answer 3. The following comments each relate to the recording of journal entries. Which statement is true? a. For any given journal entry, debits must exceed credits. b. It is customary to record credits on the left and debits on the right. c. The chart of accounts reveals the amount to debit and credit to the affected accounts. d. Journalization is the process of converting transactions and events into debit/credit format. Answer 4. Failure to record the receipt of a utility bill for services already received will result in: a. An overstatement of assets. b. An overstatement of liabilities. c. An overstatement of equity. d. An understatement of assets. Answer 5. The proper journal entry to record Ransom Company's billing of clients for $500 of services rendered is: a. Cash 500 Accounts Receivable 500

b. Accounts Receivable Capital Stock

500 500

c. Accounts Receivable Service Revenue

500 500

d. Cash Service Revenue Answer

500 500

6. The proper journal entry to record $1,000 of Dividends paid by Myer's Corporation is: a. Dividends 1,000 Cash 1,000

b.Accounts Payable Cash

1,000 1,000

c. Dividends Expense Cash

1,000 1,000

d.Dividends Expense Service Revenue Answer

1,000 1,000

7. Lynn Lipincott invested land valued at $5,000 in her business. This transaction would be recorded by: a. Cash 5,000 Capital Stock 5,000

b. Land Capital Stock

5,000 5,000

c. Land Service Revenue

5,000 5,000

d. Capital Stock Land Answer

5,000 5,000

8. The trial balance: a. Is a formal financial statement. b. Is used to prove that there are no errors in the journal or ledger. c. Provides a listing of every account in the chart of accounts. d. Provides a listing of the balance of each account in active use. Answer 9. Which of the following errors will be disclosed in the preparation of a trial balance? a. Recording transactions in the wrong account. b. Duplication of a transaction in the accounting records. c. Posting only the debit portion of a particular journal entry. d. Recording the wrong amount for a transaction to both the account debited and the account credited. Answer 10. The basic sequence in the accounting process can best be described as: a. Transaction, journal entry, source document, ledger account, trial balance. b. Source document, transaction, ledger account, journal entry, trial balance. c. Transaction, source document, journal entry, trial balance, ledger account. d. Transaction, source document, journal entry, ledger account, trial balance. Answer Multiple Choice: Chapter Three 1. For purposes of measuring business income, the life of a business is: a. divided into specific points in time. b. divided into irregular cycles. c. divided into discrete accounting periods. d. considered to be a continuous cycle. Answer 2. Adjusting entries at the end of an accounting period would not be required for which of the following a. Multiperiod costs that must be split among two or more accounting periods. b. Multiperiod revenues that must be split among two or more accounting periods. c. Expenses that have been incurred in a given period but not as yet recorded in the accounts. d. Revenue that has been earned and recorded in the accounting records. Answer

3. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday? a. Salary Expense 10,000 Salary 10,000 Payable

b.Salary Expense Cash

10,000 10,000

c. Salary Payable Cash

10,000 10,000

d.Salary Payable Salary Expense Answer

10,000 10,000

4. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. What journal entry would be recorded (on Wednesday) if the end of the accounting period occurred on a Wednesday? a. Salary Expense 6,000 Salary Payable 6,000

b.Salary Expense Cash

6,000 6,000

c. Salary Payable Cash

6,000 6,000

d.Salary Payable 6,000 Salary Expense 6,000 Answer 5. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Blankenship's year-end occurred on Wednesday, at which time a correct adjusting entry was recorded. On the following Friday, which of the following payroll journal entries should be recorded?

a. Salary Expense Cash

10,000 10,000

b. Salary Expense Salary Payable Cash

4,000 6,000 10,000

c. Salary Expense Salary Payable Cash

6,000 4,000 10,000

d. Salary Payable Cash Answer

10,000 10,000

6. The appropriate journal entry to record equipment depreciation expense would consist of a debit to Depreciation Expense and a credit to which of the following accounts? a. Equipment b. Accumulated Depreciation: Equipment c. Retained Earnings d. Cash Answer 7. At the end of the current accounting period, Johnson Company failed to record utilities consumed during the period. Johnson will be billed for the utilities during the next accounting period. As a result, current period assets, liabilities, equity, and income, respectively, are: a. Overstated, overstated, correct, correct b. Correct, understated, overstated, overstated c. Overstated, understated, overstated, overstated d. Overstated, understated, correct, correct Answer 8. On November 1, 20X1, Limit Company purchased a one-year insurance policy for $12,000. Limit Company debited Cash and credited Prepaid Insurance for $12,000. At the end of December, 20X1, $2,000 of insurance had expired. The journal entry to properly state all accounts involved on December 31, 20X1, would be: a. Insurance Expense 2,000 Prepaid Insurance 22,000 Cash 24,000

b.Insurance Expense Prepaid Insurance

2,000 2,000

c. Insurance Expense Cash

2,000 2,000

d.Prepaid Insurance Insurance Expense Answer

2,000 2,000

9. Under the the income statement approach to adjusting entries, the receipt of $5,000 of unearned revenue would be recorded by debiting Cash. What account should be credited? a. Cash b. Revenue c. Unearned Revenue d. Prepaid Revenue Answer 10. Simmons Company received and recorded a $5,000 payment for services to be rendered in the future. If the income statement approach to adjusting entries is used, the appropriate adjusting entry at the end of the accounting period for $3,000 of revenue not yet earned would be: a. Service Revenue 3,000 Unearned Service Revenue 3,000

b.Service Revenue 2,000 Unearned Service Revenue 2,000

c. Accounts Receivable 3,000 Unearned Service Revenue 3,000

d.No entry would be needed. Answer

Multiple Choice: Chapter Four 1. The accountant's worksheet: a. lays the groundwork for formal financial statement preparation. b. is a fundamental financial statement. c. provides details necessary for full disclosure and the preparation of footnotes. d. is prepared at the end of each operating cycle. Answer 2. In preparing a worksheet, a net loss would be computed and entered in the: a. debit column of the income statement columns of the worksheet. b. credit column of the income statement columns of the worksheet. c. in the debit column of the adjusted trial balance. d. in the credit column of the balance sheet columns of the worksheet. Answer 3. Which of the following accounts would not be closed at the end of an accounting period? a. Income Summary b. Dividends c. Revenue d. Capital Stock Answer 4. After closing all revenue and expense accounts, Norris Company had a debit balance in its Income Summary account of $10,000. The proper entry to record the closing of the Income Summary account would be: a. Revenue 10,000 Income Summary 10,000

b. Retained Earnings Income Summary

10,000 10,000

c. Income Summary Retained Earnings

10,000 10,000

d. Income Summary Expenses

10,000 10,000

Answer 5. The following statements all pertain to the accounting cycle. Which of these statements is wrong? a. A post-closing trial balance is prepared prior to closing temporary accounts. b. Formal financial statements may be produced from the worksheet. c. Adjusting entries are recorded in the journal and posted to the ledger. d. The post-closing trial balance is prepared by examining ledger balances subsequent to the closing of accounts. Answer 6. Which of the following statements about reversing entries is true? a. Identical account balances are achieved in the subsequent accounting period whether reversing entries are utilized or not. b. Reversing entries may not be used with accrued revenues. c. Reversals are generally applied to those adjusting items that do not involve future cash flow. d. Reversing entries would not be prepared if a company also utilized closing entries. Answer 7. Shipman Company had accrued salaries of $300 on December 31. The company recorded reversing entries on the following January 1. On the next payday, January 7, the appropriate entry to record the payment of $1,000 in salaries should include: a. a debit to Salaries Expense of $1,000. b. a debit to Salaries Expense of $700. c. a debit to Salaries Expense of $1,300. d. a debit to Salaries Payable for $300. Answer 8. Current assets are those assets which management intends to convert into cash or consume within: a. The operating cycle b. One year c. The longer of (a) or (b) d. The shorter of (a) or (b) Answer 9. On a classified balance sheet, the appropriate ordering of specific classifications is: a. Current assets; long-term investments; property, plant, and equipment; intangible assets; other assets. b. Current assets; property, plant, and equipment; long-term investments; intangible assets; other assets. c. Current assets; intangible assets; property, plant, and equipment; long-term investments; other assets.

d. Current assets; other assets; long-term investments; intangible assets; property, plant, and equipment. Answer 10. If a company had a current ratio of 0.5, then which of the following statements regarding that company's working capital would be true? a. The company's working capital would be positive. b. The company's working capital would be zero. c. The company's working capital would be negative. d. The company's working capital would be 2:1. Answer Multiple Choice: Chapter Ten 1. Which of the following items should be expensed as incurred? a. Broker's fees on the purchase of a long-lived asset. b. Repair of damage occurring during installation of new equipment. c. Freight charges on the purchase of equipment. d. Normal installation fees on the purchase of equipment. Answer 2. Lancer Corporation purchased a parcel of land as a factory site for $150,000. Construction began immediately on a new building. Costs incurred are as follows: Architect's fees 25,000 Legal fees for land purchase contract 2,000 Construction costs 250,000 Lancer should record the cost of the new land and building, respectively, at: a. $150,000 and $275,000 b. $152,000 and $275,000 c. $150,000 and $250,000 d. $152,000 and $250,000 Answer 3. Reno Acquisitions Company recently bought a furnished hotel for a lump-sum purchase price of $15,000,000. Separately, the land was valued at $6,000,000, the building at $12,000,000, and the furniture and equipment at $2,000,000. How much cost should Reno assign to the land? a. $1,000,000 b. $4,500,000 c. $6,000,000 d. $8,000,000 Answer 4. The appropriate journal entry to record machinery depreciation of $1,000 is: a. Depreciation Expense 1,000

Accumulated Depreciation

1,000

b.Depreciation Expense Machine

1,000 1,000

c. Accumulated Depreciation 1,000 Depreciation Expense 1,000

d.Accumulated Depreciation Machine Answer

1,000 1,000

5. Omni Corporation purchased a new vehicle on January 1, 20X1. The vehicle cost $100,000, has a five-year life, and a $20,000 residual value. Omni has a December 31 year-end. If Omni depreciates the truck by the double-declining balance method, how much should be recorded as depreciation expense during 20X4? a. $0 b. $1,600 c. $8,640 d. $40,000 Answer 6. Realistic Company purchased a new truck on January 1, 20X1. The truck cost $20,000, has a four-year life, and a $4,000 residual value. The company has a December 31 yearend. If Realistic Company depreciates the truck by the straight-line method, how much should Realistic report as the book value of the truck at the end of 20X3? a. $1,600 b. $4,000 c. $8,000 d. $16,000 Answer 7. On July 1, 20X1, Clem Company purchased factory equipment for $50,000. Residual value was estimated to be $2,000. The equipment will be depreciated over ten years using the double-declining-balance depreciation method. Clem has a December 31 yearend, and during 20X1, one-half of a year's depreciation expense was recorded. How much depreciation expense should be recorded for 20X2? (round computations to the nearest dollar) a. $4,320 b. $5,000

c. $8,640 d. $9,000 Answer 8. A graph is set up with "depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the lines for straight-line and double-declining-balance depreciation expense, respectively, be drawn on this graph? a. Vertically and sloping down to the right. b. Vertically and sloping up to the right. c. Horizontally and sloping down to the right. d. Horizontally and sloping up to the right. Answer 9. On July 1, 20X1, Robinson Company purchased a new machine for $200,000. The machine is estimated to have a service-life of 10 years with an estimated residual value of $5,000. Robinson uses straight-line depreciation. During 20X5, it became apparent that the machine would not be efficient to operate after December 31, 20X7. Furthermore, the machine would have no scrap value. How much should be charged to depreciation expense in 20X5 under generally accepted accounting principles? (round computations to the nearest dollar) a. $19,500 b. $42,250 c. $43,917 d. $65,000 Answer 10. Assume that the modified accelerated cost recovery system is used to account for a depreciable asset for tax purposes. In general, which of the following observations is correct? a. Depreciation amounts will be the same for financial reporting purposes. b. In the early years of an asset's life, depreciation will be greater for tax than for financial reporting purposes. c. In the early years of an asset's life, depreciation will be less for tax than for financial reporting purposes. d. The tax life will exceed the financial reporting life. Answer Multiple Choice: Chapter Seven 1. Trade accounts receivable: a. arise from the sale of a company's products or services. b. are reported in the noncurrent asset section of the balance sheet. c. include deposits with utilities. d. generally comprise the minority of the total receivables balance. Answer

2. Lundstrom Company began making sales on credit during 20X1. The company used the direct write-off method for uncollectible accounts. A material amount of uncollectible accounts resulting from sales made during 20X1 were written off during 20X2. What was the effect of this write-off on net income for 20X1 and 20X2? 20X1 20X2 a. Overstate b. Overstate c. Understate d. Understate Answer Overstate Understate Overstate Understate

3. Taylor Company uses the direct write-off method of recording uncollectible accounts receivable. Recently, a customer informed Taylor that he would be unable to pay $300 owed to Taylor. Taylor's proper journal entry to reflect this event would be: a. Uncollectible Accounts Expense 300 Allow. for Uncollectible 300 Accounts

b.Allow. for Uncollectible Accounts Accounts Receivable

300 300

c. Uncollectible Accounts Expense Accounts Receivable

300 300

d.Sales Accounts Receivable Answer

300 300

4. Malcom's financial statements revealed uncollectible accounts expense of $8,000, accounts receivable of $140,000, and allowance for uncollectible accounts of $12,000. The net realizable value of Malcom's accounts receivable is: a. $128,000 b. $132,000 c. $136,000 d. $152,000 Answer

5. Branz Company had credit sales during the current year which amounted to $700,000. Historically, 3% of credit sales are uncollectible. If Branz uses the allowance method of recording uncollectible accounts, a proper journal entry for the year would be: a. Accounts Receivable 21,000 Allow. for Uncollectible 21,000 Accounts

b.Uncollectible Accounts Expense Accounts Receivable

21,000 21,000

c. Uncollectible Accounts Expense Allow. for Uncollectible Accounts

21,000 21,000

d.Allow. for Uncollectible Accounts Accounts Receivable Answer

21,000 21,000

6. Lindy Company uses an allowance method to account for bad debts. Lindy estimates that 5% of the outstanding accounts receivable will be uncollectible. At the end of the year, Lindy has outstanding accounts receivable of $750,000, and a debit balance in the Allowance for Uncollectible Accounts of $9,000. Lindy should record uncollectible accounts expense of: a. $28,500 b. $37,500 c. $46,500 d. $55,500 Answer 7. Flynn Company uses an allowance method for recording uncollectibles. Flynn determined that $4,000 due from Mitchell will not be collected. The entry Flynn should record to write off the Mitchell account is: a. Uncollectible Accounts Expense 4,000 Accounts Receivable 4,000

b.Sales Accounts Receivable

4,000 4,000

c. Uncollectible Accounts Expense Allow. for Uncollectible Accounts

4,000 4,000

d.Allow. for Uncollectible Accounts Accounts Receivable Answer

4,000 4,000

8. John Company uses an allowance method for recording uncollectible receivables. John was notified by Paul that payment on a $1,000 receivable would be forthcoming. John had previously written off the receivable from Paul. The proper journal entry for John to record to reinstate the receivable into the accounts is: a. Accounts Receivable 1,000 Allow. for Uncollectible 1,000 Accounts

b.Allow. for Uncollectible Accounts Sales

1,000 1,000

c. Accounts Receivable Sales

1,000 1,000

d.Accounts Receivable 1,000 Uncollectible Accounts Expense 1,000 Answer 9. Interest on a loan may be computed by which of the following formulas? a. (principal x rate)/time b. (principal x rate x time) c. (principal x time)/rate d. (principal x time)/time Answer 10. Vivian Howell is the payee of $10,000, 180-day, 8% note. At maturity, the maker failed to pay. How much interest income should Vivian recognize on the dishonored note? a. $0 b. $400 c. $800

d. $10,800 Answer Multiple Choice: Chapter Eight 1. Inventory accounts should be classified in which section of a balance sheet? a. Current assets b. Investments c. Property, plant, and equipment d. Intangible assets Answer 2. Ritz Company agreed to purchase certain inventory items from Hostess Corporation. Hostess shipped the goods F.O.B. destination. On December 31, Ritz's accounting yearend, Ritz was aware that the goods had been shipped and would be received any day. a. Ritz should include the goods in its inventory calculated on December 31. b. Ritz should include the goods in its inventory calculated on December 31, but should not record the obligation to pay for them. c. Ritz should not include the goods in its inventory calculated on December 31, but should include the related payable on its balance sheet at December 31. d. Ritz should not include the goods in its inventory calculated on December 31, and should not include the related payable on its balance sheet at December 31. Answer 3. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year. January 2 Beginning Inventory 500 units at $3.00 April 7 Purchased 1,100 units at $3.20 June 30 Purchased 400 units at $4.00 December 7 Purchased 1,600 units at $4.40

Sales during the year were 2,700 units at $5.00. If Hefty used the first-in, first-out method, ending inventory would be: a. $2,780 b. $3,960 c. $9,700 d. $10,880 Answer 4. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year. January 2 Beginning Inventory 500 units at $3.00

April 7 June 30 December 7

Purchased Purchased Purchased

1,100 units at $3.20 400 units at $4.00 1,600 units at $4.40

Sales during the year were 2,700 units at $5.00. If Hefty used the periodic LIFO method, cost of goods sold would be: a. $2,780 b. $3,960 c. $9,700 d. $10,880 Answer 5. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year. January 2 Beginning Inventory 500 units at $3.00 April 7 Purchased 1,100 units at $3.20 June 30 Purchased 400 units at $4.00 December 7 Purchased 1,600 units at $4.40 Sales during the year were 2,700 units at $5.00. If Hefty used the weighted-average method, gross profit would be: a. $3,255 b. $3,415 c. $10,245 d. $13,500 Answer 6. Which of the following inventory methods will always produce the same results under both a periodic and perpetual system? a. FIFO b. LIFO c. Average d. All of these Answer 7. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is: a. FIFO b. LIFO c. Retail d. Weighted-average Answer

8. Wonder Corporation failed to record the purchase of merchandise on account. The merchandise and related accounts payable should have been recorded but were not. What is the effect of these errors on assets, liabilities, retained earnings, and net income, respectively? a. Understated, understated, no effect, no effect b. Understated, understated, understated, understated c. Understated, overstated, overstated, understated d. Overstated, overstated, understated, overstated Answer 9. Bernstein Corporation recently experienced a fire which destroyed all of its inventory. The following data have been reconstructed from partial accounting information, and pertain to the year up to the date of the fire. Beginning inventory $20,000 Net purchases $45,000 Sales $80,000 Gross profit rate 40%

Using the gross profit method, estimate the dollar amount of inventory which was destroyed in the fire. a. $17,000 b. $33,000 c. $48,000 d. 65,000 Answer 10. Gerber Department Store utilizes the retail inventory method. Gerber's beginning inventory cost $140,000 and retailed for $280,000. Purchases for the period amounted to $390,000 and were priced to sell at twice that amount. Sales for the period, all at normal retail, were $600,000. How much is the cost of Gerber's estimated ending inventory? a. $115,000 b. $150,000 c. $230,000 d. $300,000 Answer