1. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
2. If total liabilities increased by $15,000 and stockholders' equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period?
a. $20,000 decrease
b. $20,000 increase
c. $25,000 increase
d. $30,000 increase
3. Collection of a $500 Accounts Receivable
a. increases an asset $500; decreases an asset $500.
b. increases an asset $500; decreases a liability $500.
c. decreases a liability $500; increases stockholders' equity $500.
d. decreases an asset $500; decreases a liability $500.
4. If expenses are paid in cash, then
a. assets will increase.
b. liabilities will decrease.
c. stockholders' equity will increase.
d. assets will decrease.
5. Internal users of accounting information include all of the following except
a. company officers.
b. investors.
c. marketing managers.
d. production supervisors.
6. 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.
7. A 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.
8. Which of the following correctly identifies normal balances of accounts?
a. Assets Debit
Liabilities Credit
Stockholders' Equity Credit
Revenues Debit
Expenses Credit
b. Assets Debit
Liabilities Credit
Stockholders' Equity Credit
Revenues Credit
Expenses Credit
c. Assets Credit
Liabilities Debit
Stockholders' Equity Debit
Revenues Credit
Expenses Debit
d. Assets Debit
Liabilities Credit
Stockholders' Equity Credit
Revenues Credit
Expenses Debit
9. An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit an stockholders’ equity account for $500.
c. Debit another asset account for $500.
d. Credit a different asset account for $500.
10. Dawson’s Delivery Service purchased equipment for $2,500. The Company paid $500 in cash and signed a note for the balance. Dawson debited the Equipment account, credited Cash and
a. nothing further must be done.
b. debited the Dawson, Common stock account for $2,000.
c. credited another asset account for $500.
d. credited a liability account for $2,000.
11. On January 14, Franco Industries purchased supplies of $500 on account. The entry to record the purchase will include
a. a debit to Supplies and a credit to Accounts Payable.
b. a debit to Supplies Expense and a credit to Accounts Receivable.
c. a debit to Supplies and a credit to Cash.
d. a debit to Accounts Receivable and a credit to Supplies.
12. In the first month of operations for Pocket Industries, the total of the debit entries to the cash account amounted to $8,000 ($4,000 investment by the owner and revenues of $4,000). The total of the credit entries to the cash account amounted to $5,000 (purchase of equipment $2,000 and payment of expenses $3,000). At the end of the month, the cash account has a(n)
a. $2,000 credit balance.
b. $2,000 debit balance.
c. $3,000 debit balance.
d. $3,000 credit balance.
13. The usual sequence of steps in the transaction recording process is:
a. journal à analyze à ledger.
b. analyze à journal à ledger.
c. journal à ledger à analyze.
d. ledger à journal à analyze.
14. The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
a. assets should be matched with liabilities.
b. efforts should be matched with accomplishments.
c. dividends to stockholders should be matched with stockholders' investments.
d. cash payments should be matched with cash receipts.
15. Adjusting entries are required
a. yearly.
b. quarterly.
c. monthly.
d. every time financial statements are prepared.
16. Which statement is correct?
a. As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
b. The use of the cash basis of accounting violates both the revenue recognition and matching principles.
c. The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
d. As long as management is ethical, there are no problems with using the cash basis of accounting.
Use the following information for questions 17–18.
Sheepskin Company had the following transactions during 2008.
<!--[if !supportLists]-->· <!--[endif]-->Sales of $4,500 on account
<!--[if !supportLists]-->· <!--[endif]-->Collected $2,000 for services to be performed in 2009
<!--[if !supportLists]-->· <!--[endif]-->Paid $625 cash in salaries
<!--[if !supportLists]-->· <!--[endif]-->Purchased airline tickets for $250 in December for a trip to take place in 2009
17. What is Sheepskin’s 2008 net income using accrual accounting?
a. $3,875
b. $5,875
c. $5,625
d. $3,625
18. What is Sheepskin’s 2008 net income using cash basis accounting?
a. $5,875
b. $1,375
c. $5,625
d. $1,125
19. Expenses incurred but not yet paid or recorded are called
a. prepaid expenses.
b. accrued expenses.
c. interim expenses.
d. unearned expenses.
20. Hardy Company purchased a computer for $4,800 on December 1. It is estimated that annual depreciation on the computer will be $960. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:
a. Debit Depreciation Expense, $960; Credit Accumulated Depreciation, $960.
b. Debit Depreciation Expense, $80; Credit Accumulated Depreciation, $80.
c. Debit Depreciation Expense, $3,840; Credit Accumulated Depreciation, $3,840.
d. Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800.
21. At December 31, 2008, before any year-end adjustments, Karr Company's Insurance Expense account had a balance of $1,450 and its Prepaid Insurance account had a balance of $3,800. It was determined that $3,000 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be
a. $3,000.
b. $1,450.
c. $4,450.
d. $2,250.
22. Southeastern Louisiana University sold season tickets for the 2008 football season for $160,000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Revenue at October 31 is
a. $0.
b. $40,000.
c. $60,000.
d. $100,000.
23. If an adjusting entry is not made for an accrued revenue,
a. assets will be overstated.
b. expenses will be understated.
c. stockholders' equity will be understated.
d. revenues will be overstated.
24. The adjustments entered in the adjustments columns of a worksheet are
a. not journalized.
b. posted to the ledger but not journalized.
c. not journalized until after the financial statements are prepared.
d. journalized before the worksheet is completed.
25. After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the
a. adjusted trial balance.
b. post-closing trial balance.
c. the general journal.
d. adjustments columns of the worksheet.
26. Closing entries are necessary for
a. permanent accounts only.
b. temporary accounts only.
c. both permanent and temporary accounts.
d. permanent or real accounts only.
27. If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a
a. debit to the retained earnings account.
b. debit to the owner’s dividends account.
c. credit to the retained earnings account.
d. credit to the owner’s dividends account.
28. An error has occurred in the closing entry process if
a. revenue and expense accounts have zero balances.
b. the retained earnings account is credited for the amount of net income.
c. the dividends account is closed to the retained earnings account.
d. the balance sheet accounts have zero balances.
Use the following information for questions 29–33.
The income statement for the month of June, 2008 of Delgado Enterprises contains the following information:
Revenues $7,000
Expenses:
Wages Expense $2,000
Rent Expense 1,000
Supplies Expense 300
Advertising Expense 200
Insurance Expense 100
Total expenses 3,600
Net income $3,400
29. The entry to close the revenue account includes a
a. debit to Income Summary for $3,400.
b. credit to Income Summary for $3,400.
c. debit to Income Summary for $7,000.
d. credit to Income Summary for $7,000.
30. The entry to close the expense accounts includes a
a. debit to Income Summary for $3,400.
b. credit to Rent Expense for $1,000,
c. credit to Income Summary for $3,600.
d. debit to Wages Expense for $2,000.
31. After the revenue and expense accounts have been closed, the balance in Income Summary will be
a. $0.
b. a debit balance of $3,400.
c. a credit balance of $3,400.
d. a credit balance of $7,000.
32. The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenue for $7,000.
b. credits to Expenses totalling $3,600.
c. a credit to Income Summary for $3,400
d. a credit to Retained Earnings for $3,400.
33. At June 1, 2008, Delgado reported retained earnings of $35,000. The company had no dividends during June. At June 30, 2008, the company will report retained earnings of
a. $35,000.
b. $42,000.
c. $38,400.
d. $31,600.
34. A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. an asset that a company expects to convert to cash or use up within one year.
35. The assumption that states that the activities of each company be kept separate from the activities of its owners and all other companies is the
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. time period assumption.
36. The time period assumption states that the economic life of a business can be divided into
a. equal time periods.
b. cyclical time periods.
c. artificial time periods.
d. perpetual time periods.
37. Constraints in accounting include each of the following except
a. conservatism.
b. matching.
c. materiality.
d. All of these are constraints.
38. A classified income statement typically includes all of the following except:
a. sales revenue section.
b. cost of goods sold.
c. capital investments.
d. other revenues and gains.
39. Checks received through the mail should
a. immediately be endorsed "For Deposit Only."
b. be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customer's account.
c. be cashed at the bank as soon as possible.
d. be "rung up" on a cash register immediately.
40. Allowing only designated personnel to handle cash receipts is an example of
a. establishment of responsibility.
b. segregation of duties.
c. documentation procedures.
d. independent internal verification.
41. A $100 petty cash fund has cash of $18 and receipts of $86. The journal entry to replenish the account would include a
a. debit to Cash for $86.
b. credit to Petty Cash for $86.
c. credit to Cash Over and Short for $4.
d. credit to Cash for $86.
42. In the month of November, Joles Company Inc. wrote checks in the amount of $9,250. In December, checks in the amount of $12,658 were written. In November, $8,468 of these checks were presented to the bank for payment, and $10,883 were presented in December. What is the amount of outstanding checks at the end of November?
a. $1,775
b. $782
c. $2,557
d. $3,550
43. Short-term creditors are usually most interested in evaluating
a. solvency.
b. liquidity.
c. marketability.
d. profitability.
44. Assume the following sales data for a company:
2010 $1,000,000
2009 900,000
2008 750,000
2007 600,000
If 2007 is the base year, what is the percentage increase in sales from 2007 to 2009?
a. 100%
b. 150%
c. 50%
d. 66.7%
45. In performing a vertical analysis, the base for sales revenues on the income statement is
a. net sales.
b. sales.
c. net income.
d. cost of goods available for sale.
46. Walker Clothing Store had a balance in the Accounts Receivable account of $780,000 at the beginning of the year and a balance of $820,000 at the end of the year. Net credit sales during the year amounted to $8,000,000. The average collection period of the receivables in terms of days was
a. 30 days.
b. 365 days.
c. 10 days.
d. 37 days.
Use the following information for questions 47–48.
Risen Company had $250,000 of current assets and $90,000 of current liabilities before borrowing $50,000 from the bank with a 3-month note payable.
47. What effect did the borrowing transaction have on the amount of Risen Company's working capital?
a. No effect
b. $50,000 increase
c. $90,000 increase
d. $50,000 decrease
48. What effect did the borrowing transaction have on Risen Company's current ratio?
a. The ratio remained unchanged.
b. The change in the current ratio cannot be determined.
c. The ratio decreased.
d. The ratio increased.
49. Kandy Kane Corporation has income before taxes of $400,000 and an extraordinary gain of $100,000. If the income tax rate is 25% on all items, the income statement should show income before irregular items and extraordinary items, respectively, of
a. $325,000 and $100,000.
b. $325,000 and $75,000.
c. $300,000 and $100,000.
d. $300,000 and $75,000.
50. The discontinued operations section of the income statement refers to
a. discontinuance of a product line.
b. the income or loss on products that have been completed and sold.
c. obsolete equipment and discontinued inventory items.
d. the disposal of a significant segment of a business.