Question 1 of 38

Which of the following transactions is entered in the sales journal?

 

A sale of merchandise for cash

The return of merchandise purchased on account

A sale of merchandise on account

The return of merchandise purchased for cash

 

Question 2 of 38

Which of the following is NOT true of an effective accounting system?

 

The system must accommodate changes in the business over time.

The system must provide minimal benefits at whatever cost is necessary.

The system must work smoothly with your personnel and organizational structure.

The system has internal controls to help the owner(s) control the business.

 

Question 3 of 38

Which of the following accounts is debited for the total of the Cash column in the Cash Receipts Journal?

 

The sales revenue account

The cash account

The inventory account

The accounts receivable control account

 

Question 4 of 38

A check was written by a business for $329, but recorded in the cash payments journal as $239. How would this error be included on the bank reconciliation?

 

A deduction on the book side

An addition on the book side

An addition on the bank side

A deduction on the bank side

 

Question 5 of 38

Which of the following describes the internal control procedure “separation of duties?”

 

Cashiers must not have access to accounting records.

The information system is critical.

External auditors will monitor internal controls.

Pre-number invoices and other documents.

 

Question 6 of 38

Table 9.1 

The following information is from the 2008 records of Armadillo Camera Shop: 

Accounts Receivable, December 31, 2008 $20,000 (debit) 

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment 600 (debit) 

Net credit sales for 2008 95,000 

Accounts written off as uncollectible during 2008 7,000 

Cash sales during 2008 27,000 

Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method. Management estimates that 3% of net credit sales will be uncollectible. Which of the following will be the amount of net accounts receivable after adjustment?

 

$17,150

$16,550 

$17,750 

$13,000

 

Question 7 of 38

Table 9.1 

The following information is from the 2008 records of Armadillo Camera Shop: 

Accounts Receivable, December 31, 2008 $20,000 (debit) 

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment 600 (debit) 

Net credit sales for 2008 95,000 

Accounts written off as uncollectible during 2008 7,000 

Cash sales during 2008 27,000 

Refer to Table 9.1. Uncollectible accounts expense is estimated by the aging-of-accounts-receivable method. Management estimates that $2,850 of accounts receivable will be uncollectible. Which of the following will be the amount of Allowance for Uncollectible Accounts after adjustment?

 

$3,450

$2,850

$7,000

$2,250

 

Question 8 of 38

A note receivable was NOT paid at maturity. Which of the following will be included in the journal entry to record this event?

 

A debit to uncollectible-account expense

A debit to interest expense

A debit to cash

A credit to interest revenue

 

Question 9 of 38

Which of the following are acceptable methods of computing depreciation?

 

Declining-balance

Straight-line

Units-of-production

All of the above

 

Question 10 of 38

Goodwill of $20,000 was recorded upon the purchase of Smith Repair Parts. The company has been very successful and has increased in value during its first year of operation under its new management. How much amortization should be recorded for the first year?

 

$-0-

$2,000

$4,000

$1,000

 

Question 11 of 38

Which of the following is the proper accounting treatment for research and development costs?

 

Research and development costs must be expensed.

Research and development costs must be capitalized and expensed each year to the extent that their value has declined.

Research and development costs must be capitalized and amortized over 70 years or less.

Research and development costs must be capitalized and amortized over 20 years or less.

 

Question 12 of 38

In which of the following periods should the expense for warranty costs be recorded?

 

The period when the product is repaired or replaced

The period when cash is collected for the sale of the product

The period when cash is paid to repair or replace the product

The period when the product is sold

 

Question 13 of 38

How much cash will be received if a corporation issues $6,000,000 of 10% bonds at 102?

 

$6,012,000

$6,000,000

$6,120,000

$5,880,000

 

Question 14 of 38

Which of the following is TRUE of the statement of cash flows?

 

The statement of cash flows shows where cash came from and how cash was spent.

The statement of cash flows covers a span of time and is dated “Year Ended Month Day, Year”.

The statement of cash flows reports why cash increased or decreased during the period.

All of the above are true of the statement of cash flows.

 

Question 15 of 38

Which of the following statements about the information included on a statement of cash flows is TRUE?

 

The statement of cash flows contains information about the business’s percentage change in each item of revenue and expense.

The statement of cash flows contains information about the differences between net income and additions to retained earnings.

The statement of cash flows contains information about stock splits and stock dividends distributed by the company.

The statement of cash flows contains information about the business’s ability to generate positive cash flows in future periods.

 

Question 16 of 38

A company sold equipment with a book value of $9,000 at a gain of $2,500. How much will be reported in the investing activities section of the statement of cash flows as cash received upon the sale of the equipment?

 

The cash received upon the sale of the equipment was $13,000.

The cash received upon the sale of the equipment was $2,500.

The cash received upon the sale of the equipment was $11,500.

The cash received upon the sale of the equipment was $6,500.

 

Question 17 of 38

A company purchases land using its common stock. Where would this transaction appear if the company prepares the statement of cash flows using the indirect method or the direct method?

 

The purchase of land would be presented in the financing activities section as a cash payment under both methods.

The purchase of land would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash payment under the direct method.

The purchase of land would be presented in the investing activities section as a cash payment under both methods.

The purchase of land would be presented in the non-cash investing and financing activities section under both methods.

 

Question 18 of 38

Which of the following is generally the base amount when performing vertical analysis of a balance sheet?

 

A net asset is generally the base amount when performing vertical analysis of a balance sheet.

Stockholders’ equity is generally the base amount when performing vertical analysis of a balance sheet.

Total liabilities is generally the base amount when performing vertical analysis of a balance sheet.

Total assets is generally the base amount when performing vertical analysis of a balance sheet.

 

Question 19 of 38

Which of the following ratios is a measure of a company’s ability to pay liabilities with current assets?

 

The day’s sales in receivables is a measure of a company’s ability to pay liabilities with current assets.

The inventory turnover ratio is a measure of a company’s ability to pay liabilities with current assets.

The current ratio is a measure of a company’s ability to pay liabilities with current assets.

The acid-test ratio is a measure of a company’s ability to pay liabilities with current assets.

 

Question 20 of 38

A company received a bank statement with a balance of $5,350. Reconciling items included a bookkeeper error of $200 (a $300 check recorded as $500), two outstanding checks totaling $720, a service charge of $15, a deposit in transit of $180, and interest revenue of $21. What is the adjusted balance?

 

$5,016

$4,610

$4,810 

$4,636

 

Question 21 of 38

Table 9.2 

The following information is from the 2009 records of Rawhide Leather Products. 

Accounts Receivable, December 31, 2009 $330,000 (debit) 

Allowance for uncollectible accounts, December 31, 2009, prior to adjustment 4,500 (credit) 

Net credit sales for 2009 1,500,000 

Accounts written off as uncollectible during 2009 25,500 

Cash sales during 2009 270,000 

Refer to Table 9.2. Uncollectible accounts expense is determined by the direct write-off method. Which of the following will be the amount of uncollectible accounts expense?

 

$25,500

$34,500

$30,000

$30,500

 

Question 22 of 38

What is the principal amount of a 60-day, 12% note for $11,000?

 

$10,780

$ 220

$11,220

$11,000

 

Question 23 of 38

Which of the following depreciation methods is used by MOST companies for their tax returns?

 

Units-of-production

Straight-line

Declining-balance

All of the above methods are used about equally.

 

Question 24 of 38

Which of the following is the type of account that represents taxes withheld from employees’ gross pay?

 

Asset

Expense

Contra asset

Liability

 

Question 25 of 38

Which of the following is the correct order of the sections on a statement of cash flows?

 

The correct order is operating, financing, investing.

The correct order is investing, operating, financing.

The correct order is operating, investing, financing.

The correct order is financing, investing, operating.

 

Question 26 of 38

In which journal would a return of merchandise purchased on account be recorded?

 

The sales journal

The cash payments journal

The cash receipts journal

The purchases journal

The general journal

 

Question 27 of 38

Which of the following would be a legal consequence of violating the Sarbanes-Oxley Act?

 

An executive of the company that is convicted of making false sworn statements could be sentenced to 20 years in prison.

Internal control staff convicted of lack of independence could be sentenced to 25 years in prison.

A company’s internal control system could be dismantled and replaced by the Public Company Oversight Board.

The Public Company Oversight Board could require that the external auditor replace the internal control staff of a company for 3 to 5 years.

 

Question 28 of 38

Case 16.1 

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007, financial statements. 

December 31, 2006 December 31, 2007

Accounts receivable $100,000 $110,000

Cost of goods sold 560,000

Sales revenue 830,000

Accounts payable* 67,000 75,000

Inventory 105,000 86,000

Salary payable 10,000 13,000

Salary expense 45,000 49,000

*Relates solely to the acquisition of inventory 

Refer to Case 16.1. What will appear in the operating activities section related to accounts payable?

 

The increase of $8,000 will be added to net income. 

The increase of $8,000 will be subtracted from cost of goods sold.

The increase of $8,000 will be added to cost of goods sold.

The increase of $8,000 will be subtracted from net income.

 

Question 29 of 38

Current liabilities are obligations due within:

 

one month or within the company’s normal operating cycle, if it is shorter than one month.

one month or within the company’s normal operating cycle, if it is longer than one month.

one year or within the company’s normal operating cycle, if it is shorter than one year.

one year or within the company’s normal operating cycle, if it is longer than one year.

 

Question 30 of 38

Failure to record an accrued liability causes a company to:

 

understate owners’ equity.

understate liabilities.

overstate expenses.

overstate assets.

 

Question 31 of 38

Warranty expense should be recorded in the period:

 

the product is sold.

the product is paid for by the customer.

immediately following the period in which the product is sold.

the product sold is repaired or replaced.

 

Question 32 of 38

Potential liabilities that depend on future events arising out of past events are called:

 

estimated liabilities.

contingent liabilities.

actual liabilities.

long-term liabilities.

 

Question 33 of 38

Which is the preferred method to use when amortizing a bond discount or premium?

 

Both straight-line and market-interest rate methods of amortization are equally preferable.

Straight-line method of amortization

Market-interest rate method of amortization

Effective interest method of amortization

 

Question 34 of 38

Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond was issued at:

 

face value.

a premium.

a discount.

par value.

 

Question 35 of 38

Bonds with an 8% interest rate were issued when the market rate of interest was 9%. The quoted bond price will be:

 

greater than 100.

less than 100.

100.

The price cannot be determined.

 

Question 36 of 38

The carrying value of a bond immediately after the bond was issued was $121,250. The bond price was 97. The face value of the bond was:

 

$123,750.

$125,000. 

$121,250.

$121,250.

 

Question 37 of 38

Which of the following is not an advantage of forming a corporation, as opposed to organizing as a partnership or proprietorship?

 

A corporation is a separate legal entity distinct from its owners.

Ease of transferring ownership

Limited liability of stockholders

Limited taxation

 

Question 38 of 38

Double taxation means that the:

 

corporation pays income tax and unemployment taxes.

corporation pays tax on its earnings and the shareholders pay tax on dividends.

earnings of a corporation are subject to state and federal income taxes.

shareholders’ tax rate is twice the amount of the corporate tax rate.