Question

Q1. Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year, and an analysis of accounts in the customers ledger indicates doubtful accounts of $15,000. Which of the following records the proper provision for doubtful accounts?

a. Increase Uncollectible Accounts Expense, $14,500; increase Allowance for Doubtful Accounts, $14,500

b. Increase Uncollectible Accounts Expense, $15,000; increase Allowance for Doubtful Accounts, $15,000

c. Increase Uncollectible Accounts Expense, $14,000; increase Allowance for Doubtful Accounts, $14,000

d. Increase Uncollectible Accounts Expense, $15,500; increase Allowance for Doubtful Accounts, $15,500

Q2. The FIFO method of costing inventory is based on the assumption that costs should be charged against revenues in the reverse order in which they were incurred.

a. true

b. false

Q3. The two methods of accounting for uncollectible receivables are the allowance method and the

a. equity method.

b. direct write-off method.

c. interest method.

d. cost method.

Q4. The due date of a 60-day note dated July 10 is September 9.

a. true

b. false

Q5. The party promising to pay a note at maturity is the payee.

a. true

b. false

Q6. Merchandise Inventory is presented on the balance sheet in the current assets section.

a. true

b. false

Q7. A note receivable due in 90 days is listed on the balance sheet under

a. long-term liabilities.

b. fixed assets.

c. current liabilities.

d. current assets.

Q8. Of the three widely used inventory costing methods (FIFO, LIFO, and average), the FIFO method of costing inventory is based on the assumption that costs are charged against revenues in the order in which they were incurred.

a. true

b. false

Q9. Use the following data to calculate the cost of ending inventory under the FIFO method.

September 1 Beginning Inventory 15 units @ $20

September 10 Purchases 20 units @ $25

September 20 Purchases 25 units @ $28

September 30 Ending Inventory 30 units

a. $825

b. $750

c. $675

d. $840

Q10. Receivables are usually a significant portion of

a. total current liabilities.

b. total liabilities.

c. total current assets.

d. total assets.

Q11. Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales. If net sales are $300,000, the amount of the adjustment to record the provision for doubtful accounts is

a. $400.

b. $3,400.

c. $3,000.

d. $2,600.

Q12. When the estimate based on analysis of receivables is used, income is reduced when a specific receivable is written off.

a. true

b. false

Q13. The inventory data for an item for November are:

Nov. 1 Inventory 25 units at $20

10 Purchased 30 units at $21

30 Purchased 10 units at $22

Sold 35 units

Using the last-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30?

a. $640

b. $623

c. $600

d. $605

Q14. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $430,000 and Allowance for Doubtful Accounts has a balance of $30,000. What is the net realizable value of the accounts receivable?

a. $30,000

b. $460,000

c. $430,000

d. $400,000

Q15. Other receivables do NOT include

a. accounts receivable.

b. interest receivable.

c. taxes receivable.

d. receivables from employees or officers.

Q16. The interest on a 6%, 60-day note for $5,000 is $50.

a. true

b. false

Q17. Use the following data to calculate cost of merchandise sold under FIFO method.

September 1 Beginning Inventory 15 units @ $20

September 10 Purchases 20 units @ $25

September 20 Purchases 25 units @ $28

September 30 Ending Inventory 30 units

a. $825

b. $750

c. $675

d. $600

Q18. After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $500,000 and Allowance for Doubtful Accounts has a balance of $25,000. What is the net realizable value of the accounts receivable?

a. $25,000

b. $525,000

c. $500,000

d. $475,000

Q19. The inventory method that considers the inventory to be composed of the units of merchandise acquired earliest is called

a. first-in, first-out.

b. retail method.

c. average cost.

d. last-in, first-out.

Q20. Under which method of cost flows is the inventory assumed to be composed of the most recent costs?

a. Average cost

b. Last-in, first-out

c. First-in, last-out

d. First-in, first-out

Q21. Calculate the cost of ending inventory using FIFO inventory cost method.

1/1 Beginning inventory 10 units @ $10 per unit

2/28 Purchases 40 units @ $12 per unit

5/10 Purchases 50 units @ $14 per unit

9/20 Purchases 30 units @ $16 per unit

12/31 Ending inventory 50 units

a. $800

b. $760

c. $580

d. $500

Q22. A 60-day, 12% note for $15,000 dated May 1 is received from a customer on account. The maturity value of the note is

a. $15,300.

b. $15,000.

c. $14,700.

d. $16,800.

Q23. One of the weaknesses of the direct write-off method is that it

a. understates accounts receivable on the balance sheet.

b. violates the matching principle.

c. is too difficult to use for many companies.

d. is based on estimates.

Q24. Inventories of merchandising and manufacturing businesses are reported as current assets on the balance sheet.

a. true

b. false

Q25. The use of the lower of cost or market method of inventory valuation increases the gross profit for the period in which the inventory replacement price declined.

a. true

b. false

Q26. Intangible assets are used in operations but

a. cannot be specifically identified.

b. cannot be sold.

c. lack physical substance.

d. cannot be long-lived.

Q27. Depletion is the process of transferring the cost of intangible assets to an expense account.

a. true

b. false

Q28. Fixed assets may be shown at book value on the balance sheet.

a. true

b. false

Q29. The acquisition costs of property, plant, and equipment should include all normal, reasonable, and necessary costs to get the asset in place and ready for use.

a. true

b. false

Q30. Expenditures for research and development are generally recorded as

a. current operating expenses.

b. assets and amortized over their estimated useful life.

c. assets and amortized over 40 years.

d. current assets.

Q31. A capital expenditure would appear on the

a. income statement under operating expenses.

b. balance sheet under fixed assets.

c. balance sheet under current assets.

d. income statement under other expenses.

Q32. Accelerated depreciation is primarily used for

a. the financial statements of large companies.

b. the financial statements of small companies.

c. income tax purposes.

d. both financial reporting and income taxes by most companies.

Q33. Companies usually compute depletion by using the double-declining-balance method.

a. true

b. false

Q34. Goodwill is

a. amortized similar to other intangibles.

b. only written down if an impairment in value occurs.

c. charged to expense immediately.

d. amortized over 40 years or its economic life, whichever is shorter.

Q35. The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called

a. depletion.

b. deferral.

c. amortization.

d. depreciation.

Q36. If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must

a. recognize a loss on the income statement under other expenses.

b. recognize a loss on the income statement under operating expenses.

c. recognize a gain on the income statement under other revenues.

d. Gains and losses are not to be recognized upon the sell of fixed assets.

Q37. A fully depreciated asset must be

a. removed from the books.

b. kept on the books until sold or discarded.

c. disclosed only in the notes to the financial statements.

d. recognized on the income statement as a loss.

Q38. An estimate of the amount that an asset can be sold for at the end of its useful life is called book value.

a. true

b. false

Q39. The Drilling Company purchased a mining site for $500,000 on July 1, 2010. The company expects to mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. The estimated residual value of the property is $80,000. During 2010 the company extracted 6,500 tons of ore. The depletion expense for 2010 is

a. $37,700.

b. $42,000.

c. $32,500.

d. $27,300.

Q40. The Accumulated Depreciation account is deducted from the cost of fixed assets on the balance sheet.

a. true

b. false

Q41. A patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 12-year economic life. The entry to record amortization would include

a. an increase in amortization expense for $33,500.

b. an increase in research and development expense for $670,000.

c. a decrease in patent for $55,833.

d. an increase in accumulated amortization for $670,000.

Q42. All amounts paid to get an asset in place and ready for use are referred to as

a. capital expenditures.

b. revenue expenditures.

c. residual value.

d. cost of an asset.

Q43. The removal of an old building to make the land ready for its intended use is charged to

a. land.

b. land improvements.

c. buildings.

d. operating expenses.

Q44. An intangible asset is one that has a physical existence.

a. true

b. false

Q45. Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets.

a. true

b. false

Q46. Fixed assets are ordinarily presented in the balance sheet

a. at current market values.

b. at replacement costs.

c. at cost less accumulated depreciation.

d. in a separate section along with intangible assets.

Q47. Physical depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended.

a. true

b. false

Q48. A company sold a delivery truck for $18,000 cash. The truck cost $47,500 and had accumulated depreciation of $36,000 as of the date of sale. The entry to record the sale would include

a. an increase in accumulated depreciation for $36,000.

b. a decrease in delivery truck for $11,500.

c. a loss for $6,500.

d. a gain for $6,500.

Q49. Amortization refers to the systematic transfer of fixed assets to expense accounts.

a. true

b. false

Q50. A company sold office furniture costing $16,500 with accumulated depreciation of $14,000 for $1,800 cash. The entry to record the sale would include

a. a loss for $700.

b. an increase in accumulated depreciation for $14,000.

c. a decrease in office furniture for $2,500.

d. a decrease in cash for $1,800.

Q51. A company sold 200 shares of common stock with a par vale of $5 at a price of $12 per share. Which section of the statement of cash flows will contain this transaction?

a. Operating activities

b. Investing activities

c. Financing activities

d. Sale of stock will not appear on the statement of cash flows.

Q52. Cash dividends are not paid on shares of treasury stock.

a. true

b. false

Q53. The total earnings of an employee for a payroll period are referred to as

a. take-home pay.

b. pay net of taxes.

c. net pay.

d. gross pay.

Q54. The total earnings of an employee for a payroll period is referred to as gross pay.

a. true

b. false

Q55. The primary purpose of a stock split is to

a. increase paid-in capital.

b. reduce the market price of the stock per share.

c. increase the market price of the stock per share.

d. increase retained earnings.

Q56. When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at

a. a premium.

b. their face value.

c. a discount.

d. a discount or a premium.

Q57. Treasury stock is a contra-equity account.

a. true

b. false

Q58. For accounting purposes, stated value is treated the same way as par value.

a. true

b. false

Q59. FICA tax is a payroll tax that is paid by both the employee and the employer.

a. true

b. false

Q60. A corporation has 10,000 shares of $100 par value stock outstanding that has a current market value of $160. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $32.

a. true

b. false

Q61. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?

a. 5,000

b. 35,000

c. 45,000

d. 55,000

Q62. Obligations that depend on past events and that are based on future transactions are contingent liabilities.

a. true

b. false

Q63. If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 35,000.

a. true

b. false

Q64. The liability for a dividend is recorded on which of the following dates?

a. The date of record

b. The date of payment

c. The date of announcement

d. The date of declaration

Q65. The cost of a product warranty should be included as an expense in the

a. period the cash is collected for a product sold on account.

b. future period when the cost of repairing the product is paid.

c. period of the sale of the product.

d. future period when the product is repaired or replaced.

Q66. Most employers are required to withhold from employees for

a. both federal and state unemployment compensation.

b. only federal unemployment compensation tax.

c. only federal income tax.

d. only state unemployment compensation tax.

Q67. The market interest rate related to a bond is also called the

a. stated interest rate.

b. effective interest rate.

c. contract interest rate.

d. straight-line rate.

Q68. Bonds are sold at face value when the contract rate is equal to the market rate of interest.

a. true

b. false

Q69. A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be 40,000.

a. true

b. false

Q70. What options does a business have when financing operations?

a. Debt financing

b. Equity financing

c. Asset financing

d. Both debt financing and equity financing

Q71. When the market rate of interest is less than the contract rate for a bond, the bond will sell for a discount.

a. true

b. false

Q72. If a corporation issues only one class of stock, it is called

a. common stock.

b. treasury stock.

c. no-par stock.

d. preferred stock.

Q73. If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $13,500.

a. true

b. false

Q74. Based on the following information, what is earnings per share?

Common shares outstanding 115,000

Preferred stock dividend declared and paid $40,000

Net income $350,000

a. $3.39

b. $3.04

c. $2.96

d. $2.70

Q75. Which one of the following is usually NOT necessary in order for a corporation to pay a cash dividend?

a. Sufficient cash

b. Formal action of the board of directors

c. Declared dividends

d. Sufficient retained earnings

Q76. In a voucher system, paid vouchers are transferred to a paid voucher file.

a. true

b. false

Q77. Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item would require an adjusting entry including a

a. debit to Accounts Receivable.

b. debit to Cash.

c. debit to Accounts Payable.

d. credit to Accouts Payable.

Q78. Which of the following would be deducted from the balance per books on a bank reconciliation?

a. Service charges

b. Outstanding checks

c. Deposits in transit

d. Notes collected by the bank

Q79. The framework that has become widely accepted as the standard by which companies design, analyze, and evaluate internal controls is the

a. Internal Control Integrated Framework by the Committee of Sponsoring Organizations.

b. Internal Control Integrated Framework by the Congress of Special Offerings.

c. Internal Control Localized Structure by the Committee of Sponsoring Organizations.

d. Internal Control Localized Structure by the Congress of Special Offerings.

Q80. Adding a review of operations by an internal audit staff strengthens internal control.

a. true

b. false

Q81. Money market accounts, commercial paper, and U.S. Treasury Bills are examples of cash equivalents.

a. true

b. false

Q82. Requiring employees to take annual vacations is part of which element of internal control?

a. The control environment

b. Risk assessment

c. Control procedures

d. Monitoring

Q83. For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.

a. true

b. false

Q84. A business that requires that all cash payments be made by check CANNOT use a petty cash system.

a. true

b. false

Q85. The objectives of internal control are to

a. control the internal organization of the accounting department personnel and equipment.

b. provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with.

c. prevent fraud and promote the social interest of the company.

d. provide control over ‘internal-use only’ reports and employee internal conduct.

Q86. When a firm uses internal auditors, it is adhering to which of the following internal control elements?

a. Risk assessment

b. Proofs and security measures

c. Monitoring

d. Separating responsibilities for related operations

Q87. There are two internal control objectives: to ensure accurate financial reports, and to ensure compliance with applicable laws.

a. true

b. false

Q88. A minimum cash balance maintained in a bank account is called a line of credit.

a. true

b. false

Q89. A voucher is a form where pertinent data about a liability and the particulars of its payment are recorded.

a. true

b. false

Q90. A check for $456 was erroneously charged by the bank as $654. In order for the bank reconciliation to balance, you must deduct $198 from the bank statement balance.

a. true

b. false

Q91. If a business has several bank accounts, it has a separate record for each of them.

a. true

b. false

Q92. Which of the following reflects a weak internal control system?

a. All employees are well supervised.

b. A single employee is responsible for comparing a receiving report to an invoice.

c. All employees must take their vacations.

d. A single employee is responsible for the collecting and recording of cash.

Q93. An element of internal control is

a. generally accepted accounting principles.

b. control procedures.

c. concepts.

d. principles.

Q94. A credit memorandum received with a bank statement means the bank account has been increased.

a. true

b. false

Q95. Employee fraud is the intentional act of deceiving an employer for personal gain.

a. true

b. false

Q96. Separating the custody of assets from accounting for assets is a part of which element of internal control?

a. Information and communication

b. Monitoring

c. The control environment

d. Control procedures

Q97. For efficiency of operations and better control over cash, a company should maintain only one bank account.

a. true

b. false

Q98. The Sarbanes-Oxley Act of 2002 requires companies to maintain strong and effective internal controls over recording transactions and preparing financial statements.

a. true

b. false

Q99. The amount of the ‘adjusted balance’ appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date after all adjusting entries have been entered.

a. true

b. false

Q100. A special cash fund used to make small payments that occur frequently is called a(n)

a. operating expenses fund.

b. change fund.

c. market fund.

d. petty cash fund.