2000 Accounting IIPage 1
1. In accounting, the two types of equity are liabilities and owner's equity. / A. True / B. False2. When journalizing, you are advised to go from left to right. / A. True / B. False
3. Transportation charges need to be included in order to determine net purchases. / A. True / B. False
4. When using a special journal, the journalizing and posting processes are much more complicated than when using the general journal. / A. True / B. False
5. Both the double-declining balance method and the sum-of-the-y ears'-digits method of depreciation are examples of accelerated methods of depreciation. / A. True / B. False
6. When buying merchandise on account, the bookkeeper will debit purchases and credit cash. / A. True / B. False
7. To determine depreciation using the double-declining balance method, the salvage value of the asset is used in the calculation. / A. True / B. False
8. Merchandise Inventory will appear on the Balance Sheet but not the Income Statement. / A. True / B. False
9. A delivery truck bought on June 16 is counted for the full month when calculating depreciation. / A. True / B. False
10. To determine the cost of merchandise sold, include the ending inventory but not the beginning inventory in the calculation. / A. True / B. False
11. Reporting income on the basis of when it is earned is called the accrual basis of accounting. / A. True / B. False
12. If a business has a note payable, the amount is classified as a liability to the business. / A. True / B. False
13. Advertising costs for a manufacturing business are usually classified as manufacturing overhead. / A. True / B. False
14. The book value of an asset is not the same as the asset's trade-in-allowance. / A. True / B. False
15. The amount of depreciation for an asset depreciated using the straight-line method will be lower in the first year than when using other depreciation methods. / A. True / B. False
16. Self-generated income is an example of income for a not-for-profit organization. / A. True / B. False
17. Shipping costs incurred by a seller for merchandise sold should be considered an expense rather than an inventory cost. / A. True / B. False
18. Purchase discounts increase the cost of merchandise bought for resale to customers. / A. True / B. False
19. The cost of merchandise sold is deducted from sales, and the amount reported for merchandise inventory affects net income. / A. True / B. False
20. Retained Earnings is one stockholders' equity account; the other is Capital Stock. / A. True / B. False
21. When an uncollectible account is written off, the method the accountant uses is called the direct-write-off method. / A. True / B. False
22. A straight-line method of calculating depreciation for an asset assumes that higher amounts of depreciation are recorded in the early years rather than in the later years. / A. True / B. False
23. Purchase Returns and Allowances would normally have a credit balance. / A. True / B. False
24. Transportation In would normally have a debit balance. / A. True / B. False
25. In a partnership, only one partner needs to maintain a separate capital account and a separate withdrawal account in accordance with the standards of accounting principles. / A. True / B. False
26. The social security tax was established by the Fair Labor Standards Act. / A. True / B. False
27. Form W-2 summarizes the employer's earnings and taxes for a given year. / A. True / B. False
28. The gross earnings of an employee are debited to the Salary Expense account each pay period. / A. True / B. False
29. Supplies, accounts receivable, and equipment are examples of plant asset accounts. / A. True / B. False
30. On a note receivable, the interest plus the principal is called the face value. / A. True / B. False
31. Not counting extensions, the filing deadline for federal income tax returns for individuals is / A. January 15 / B. March 15 / C. April 15 / D. August 15
32. When current assets exceed current liabilities, payments to creditors on the last day of the month will / A. increase capital. / B. decrease current ratio. / C. increase current ratio. / D. have no effect.
33. Jones and Smith are partners with capital balances of $40,000 and $20,000. They share profit and loss in the ratio of 2:1, respectively. On December 31, 1998, Hunter invests $18,000 cash for a 20 interest in the capital and profit of the business. How much will be credited to Hunter's capital account on December 31, 1998? / A. $17,000 / B. $13,600 / C. $12,000 / D. $15,600
34. An asset with a useful life of four years and an estimated 10 salvage value was purchased on January 1, 1999. Would depreciation expense using the sum-of-the-years'-digits method of depreciation be higher or lower than depreciation expense using the double-declining balance method of depreciation in the first and second years? / A. First Year, Higher; Second Year, Higher / B. First Year, Lower; Second Year, Higher / C. First Year, Higher; Second Year, Lower / D. First Year, Lower; Second Year, Lower
35. Acme Company pays all employees on a biweekly basis. Overtime pay, however, is paid on the next biweekly period. The company accrues salaries expense only at year end. Data relating to salaries earned in December 1998 are as follows:
• Last payroll was paid on 12/24/98, for the 2-week period ended 12/25/98.
• Overtime pay earned in the same 2-week period was $4,200.
• Work days remaining in the year were December 28-31.
• The recurring biweekly salaries total $75,000.
Assuming a five-day workweek, the company should record a liability on December 31 for accrued salaries of / A. $22,500. / B. $49,200. / C. $45,000. / D. $26,700.
The same company had a checkbook balance of $ 15,000 on December 31. In addition, the company held the following items during December:
• Check payable for $2,000 dated January 4, 1999, for payment of a sale made in December.
• Check for $500 deposited December 24 and included in the December 31 checkbook balance, but returned on December 30 stamped "NSF." The check was redeposited on January 4, and cleared on January 8.
• Check for $300 payable to a creditor, dated and recorded on December 31 and mailed on January 4.
36. What amount should be shown as Cash on the balance sheet on December 31, 1998? / A. $14,800 / B. $14,700 / C $14.500 / D. $16,800
37. On June 1, 1999, Acme Company borrowed cash and signed a two-year interest-bearing note on which both the principal and interest are payable on June 1, 2001. On December 31,1999, the liability for accrued interest should be for / A. 24 months. / B. 6 months. / C. 12 months. / D. 7 months.
ITEMS 38 AND 39 ARE BASED ON THE FOLLOWING DATA:
In preparing its bank reconciliation for month ending May 31, 1999, Smith Corporation has available the following data:
Balance on bank statement, 5/28 $30,000
Deposit in transit, 5/29 $5,200
Outstanding checks $6,750
Bank service charges for month $25
38. Smith Corporation's adjusted checkbook balance after reconciliation should be / A. $23,225. / B. $28,475. / C. $28,450. / D. $28,425.
39. Given the information above, a debit to Miscellaneous Expense and a credit to Cash in Bank should be made for what amount? / A. $0 / B. $25 / C. $5,200 / D. $6,750
40. Individual taxpayers whose itemized deductions exceed their standard deduction must file which IRS Form in order to take advantage of itemizing? / A. 1040EZ / B. 1040A / C. 1040 / D. Both b and c
41. The effect of declaring a dividend for any given year is / A. a debit to Dividends Declared and a credit to Dividends Payable. / B. a debit to Dividends Declared and a credit to Retained Earnings. / C. a debit to Dividends Payable and a credit to Dividends Declared. / D. no transaction until the dividend is paid to stockholders.
42. If the maturity date of a 90 day note payable is August 3, what was the issue date? / A. June 4 / B. May 4 / C. May 3 / D. May 5
43. Jamie has not cashed his payroll check; therefore, the payroll bank account still shows a balance. What affect does this have on the Balance Sheet? / A. The amount will show as a current asset. / B. The amount will show as a current liability. / C. It's the Income Statement that is affected, not the Balance Sheet. / D. The balance will not show on either the Balance Sheet or the Income Statement.
44. Under the inventory costing method, items purchased at the end of the month are the first items sold at the beginning of the month. This is called / A. FIFO. / B. LIFO. / C. Perpetual Inventory. / D. Periodic Inventory.
45. Find the interest and maturity value for a 60 day note with principal of $1,500 and interest at 8 percent. / A. $ 120.00 interest; $ 1,620.00 maturity value / B. $32.88 interest; $1,532.88 maturity value / C. $3.29 interest; $1,503.29 maturity value / D. $19.74 interest; $1,519.74 maturity value
TravelWorks provided you with the following information for 1998:
Net Sales $100,000
Beginning Inventory $36,000
Purchases $42,000
Ending Inventory $16,000
46. What is TravelWorks's cost of good sold and its gross profit on sales? / A. $62,000 and $38,000 / B. $38,000 and $62,000 / C. $22,000 and $78,000 / D. None of the above.
47. A fiscal period may be / A. three months. / B. six months. / C. twelve months. / D. any of the above.
48. Which of the following is not a cost considered as factory overhead? / A. Raw materials / B. Indirect labor / C. Utilities / D. Supervisor's salary
49. An example of a business's variable cost would be / A. advertising. / B. rent expense. / C. direct labor. / D. All of the above
50. If a business installs a new and improved electrical system, the cost is considered a / A. revenue expense. / B. capital expense. / C. pre-paid expense. / D. liability.
51. In a manufacturing business, products that have not yet been fully completed are called / A. finished goods. / B. raw materials. / C. work in progress. / D. interim inventory.
52. A franchise is a / A. patent. / B. copyright. / C. charter. / D. right to conduct business under a contracted name.
53. When a business exchanges a plant asset for a similar plant asset, losses are / A. not recognized. / B. recognized. / C. recognized, but at book value. / D. recognized, but at market value.
54. When a corporation sells a bond issue to an investment firm, the firm is known as the / A. mortgagor. / B. mortgagee. / C. stockholder. / D. underwriter.
55. Which inventory cost method yields the smallest gross profit (and smallest tax obligation)? / A. FIFO / B. LIFO / C. Weighted average / D. Specific identification
56. When both a partnership and the partnership business end, this is called a / A. mutual understanding. / B. dissolution. / C. termination. / D. liquidation.
Space Company shows the following data for May, 1999:
• Beginning Inventory at cost: $210,000; at retail: $428,510
• Net Purchases at cost: $74,000; at retail: $129,667
• Sales totaled $194,000
57. If the gross profit percentage has been 28 on average, what is the estimated cost of the ending inventory using the gross profit method? / A. $144,320 / B. $139,680 / C. $229,680 / D. $199,987
58. The costing method used to determine the value of the ending inventory will / A. affect all of the adjusting entries. / B. affect the gross profit on sales for the period. / C. affect the market value of the inventory on hand. / D. affect the original cost of the merchandise purchased.
59. MACRS is a method to calculate depreciation. This statement is / A. true, and may be an advantage to a business for tax purposes. / B. true, but MACRS has no impact on a business's tax situation. / C. false, as MACRS is not a method to calculate depreciation. / D. None of the above are correct.
60. Generally, the accountant will prepare financial statements in a specific order. Which of the following is the best order to follow? / A. Balance Sheet, Income Statement, Statement of Owner's Equity / B. Statement of Owner's Equity, Income Statement, Balance Sheet / C. Income Statement, Statement of Owner's Equity, Balance Sheet / D. Income Statement, Balance Sheet, Statement of Owner's Equity
61. The ______is used to determine the liquidity ratio of a business. / A. Income Statement / B. Work Sheet / C. Statement of Owner's Equity / D. Balance Sheet
62. All of the information needed to journalize the closing entries is found in the / A. Balance Sheet section of the work sheet. / B. Income Statement section of the work sheet. / C. General Journal. / D. Trial Balance section of the work sheet.
63. The Jones Corporation issued 6,000 shares of $10 par common stock at $14.50 per share. What amount will be credited to the Paid-in Capital (excess of par) account? / A. $60,000 / B. $87,000 / C. $27,000 / D. $6,000
64. To evaluate a business's earning power, the accountant will determine / A. the quick ratio. / B. the current ratio. / C. the profitability ratio. / D. the portfolio ratio.
65. When a corporation accepts assets other than cash in exchange for its stock, the journal entry is / A. debit the assets at fair market value, credit stock. / B. debit the stock, credit the assets at fair market value. / C. debit the assets at book value, credit the stock. / D. Stock should never be issued for non-cash assets.
66. When a dividend is paid in cash, the accounts debited and credited are / A. Dividends Received and Dividends Payable. / B. Cash and Dividends Payable. / C. Dividends Payable and Cash. / D. Common Stock and Cash.
67. A method of estimating the uncollectible amount from customers' accounts is called / A. aging of accounts receivable. / B. bad debts allowance. / C. matching principle. / D. direct write-off.
68. Would stockholders' equity be affected by a stock dividend? A stock split? / A. Yes and Yes / B. Yes and No / C. No and Yes / D. No and No
69. When a corporation issues preferred stock to its stockholders, the result will be / A. a decrease of preferred stock outstanding. / B. an increase of preferred stock outstanding. / C. an increase of preferred stock authorized. / D. both an increase and decrease of preferred stock outstanding.
70. An example of direct labor is / A. wages paid to a person who works on a product. / B. wages paid to a person who supervises the production process. / C. wage paid to a security person who oversees the security of the production process. / D. wage paid to the payroll clerk.
71. The total of beginning inventory plus purchases represents the / A. gross profit on sales. / B. merchandise available for sale. / C. cost of goods sold. / D. book value of the accounts receivable.
QUESTIONS 72 THROUGH 80 ARE BASED ON ANALYZING WHETHER THE ACCOUNT WOULD NORMALLY HAVE A DEBIT OR CREDIT TRANSACTION. USE "A" FOR DEBIT AND "B" FOR CREDIT.
72. Certificates of Deposit / A. Debit / B. Credit
73. Grants Receivable / A. Debit / B. Credit
74. Wages Payable / A. Debit / B. Credit
75. Prepaid Rent / A. Debit / B. Credit
76. Purchase Returns and Allowances / A. Debit / B. Credit
77. Sales Returns and Allowances / A. Debit / B. Credit
78. Federal Income Tax Expense / A. Debit / B. Credit
79. Paid-in-capital from sale of treasury stock (at above cost) / A. Debit / B. Credit
80. Accumulated Depreciation / A. Debit / B. Credit
81. To write off a bond premium over the life of the bond, the accountant will / A. depreciate the bond premium. / B. underwrite the bond premium. / C. amortize the bond premium. / D. liquidate the bond premium.
82. The price-earnings ratio of a company's stock is calculated by. / A. dividing net income after taxes by the market price of the stock. / B. dividing the market price per share by the earnings per share. / C. determining the current ratio. / D. dividing the profitability ratio by the quick ratio.
83. If fixed costs increase profits will______/ A. increase / B. decrease
84. If the number of units produced increases, unit fixed costs will / A. increase / B. decrease
85. If the contribution margin increases, profits will______/ A. increase / B. decrease