B. Portion Earned As Revenue, and Reduces the Balance of a Liability Account
1. In the past period, customers paid for operas that were performed in the current period. The required adjusting entry recognizes the A. revenue earned but not yet received, and records a receivable B. portion earned as revenue, and reduces the balance of a liability account C. portion of the asset consumed or expensed, and reduces the balance of an asset account D. expense incurred, and records a liability for future payment
Answer:
B. portion earned as revenue, and reduces the balance of a liability account
2. Which of the following most likely explains why a corporation's stock trades at a very high price-earnings ratio? A. The corporation is large with very low risk B. The corporation has several classes of stock outstanding C. Investors expect the corporation to have higher earnings in the future D. The corporation has very little long-term debt.
Answer:
C. Investors expect the corporation to have higher earnings in the future
3. A bond with a face value of $1,000 is quoted at 105-1/2. The bond is selling for A. $1055.00 B. $1,000.00 C. $1050.50 D. $1105.50
Answer:
A. $1055.00
Explanation: Bonds are quoted at a percentage of their face value (or maturity value). In this case, each bond is selling for $1,055.00 (=$1,000 × 1.055).
4. Liabilities are usually listed on the balance sheet A. in the order of smallest to largest. B. in the order in which they were incurred. C. in the order in which they are expected to be repaid. D. in alphabetical order
Answer:
C. in the order in which they are expected to be repaid.
5. When a retailer purchases inventory under credit terms of 2/10, n/30, the retailer A. can deduct 2% from the invoice price by paying within 10 days of the invoice date B. can deduct 2% from the invoice price by paying on the 10th day of the month following the month of the invoice. C. can deduct 2% from the invoice price by paying within 30 days of the invoice date D. can deduct 10% from the invoice price by paying within 2 days of the invoice date.
Answer:
A. can deduct 2% from the invoice price by paying within 10 days of the invoice date
6. Consider the following: 8% cumulative preferred stock, $100 par value, authorized 50,000 shares, issued 20,000 shares-----$2,000,000 Additional paid-in capital, preferred stock---$500,000 Common stock, $1 par value, authorized 10 million shares, issued 5 million shares---$5,000,000 Additional paid-in capital, common stock---$1,200,000Retained earnings---$3,200,000 Calculate the total paid-in capital of the corporation. A. $4,900,000 B. $11,900,000 C. $8,700,000 D. $1,700,000
Answer:
C. $8,700,000
Explanation: Total paid-in capital includes the par value of both classes of stock plus any additional paid-in capital from both classes of stock. The total paid-in capital is $8,700,000 (= $2,000,000 + $500,000 + $5,000,000 + $1,200,000).
7. Which of the following is NOT true about net income? A. The company can have a cash shortage and still have net income. B. Net income represents an increase in owners' equity. C. Net income is an asset. D. Net income is the result of revenues exceeding expenses.
Answer:
C. Net income is an asset.
8. After closing entries are posted, which of these accounts will have a balance? A. Salary Expense B. Revenue C. Retained Earnings D. Income Summary
Answer:
C. Retained Earnings
Explanation: The Retained Earnings account will have a balance. After closing, all of the temporary accounts of revenue, expense, dividends, and income summary will have zero balances
9. Which of the following is NOT a government agency? A. General Accounting Office (GAO) B. American Accounting Association (AAA) C. Internal Revenue Service (IRS) D. Security and Exchange Commission (SEC)
Answer:
B. American Accounting Association (AAA)
10. A company has 100,000 shares of $10 par value common shares outstanding. The company declares a 4-for1 stock split. As a result, which of the following will occur? A. Par value will become $2.50 and shares outstanding will be 400,000. B. Par value will become $40.00 and shares outstanding will be 25,000. C. Par value will remain unchanged and shares outstanding will be 400,000. D. Par value will become $2.50 and shares outstanding will not change.
Answer:
A. Par value will become $2.50 and shares outstanding will be 400,000.
Explanation: A stock split will proportionately reduce the par value of the stock and increase the number of shares outstanding. In this case, the par value is reduced to $2.50 (=$10/4), and the number of shares outstanding is increased to 400,000 (=100,000 × 4).
11. Taxpayers can use a depreciation method that conforms to generally accepted accounting principles but is based on a declining-balance method. What is the name of this accelerated depreciation method? A. Modified Accelerated Cost Recovery System B. Accelerated Cost Recovery System C. Asset Cost Recovery Statement D. Asset Cost Recognition System
Answer: A. Modified Accelerated Cost Recovery System
12. The bookkeeper recorded a payment by check for store supplies as $1,340.56. The bank recorded the check at its correct amount of $3,140.56. If no adjusting entries are made and the error is not detected through the bank reconciliation, which of the following will occur? A. The trial balance will not balance. B. The checking account might become overdrawn C. Accounts payable will be understated D. The checkbook Cash account will be understated
Answer: B. The checking account might become overdrawn
13. On November 1, a building with an estimated life of 15 years and no estimated salvage value was purchased for $180,000. The adjusting entry on November 30 will include A. a credit to Depreciation Expense for $1,000. B. a debit to Depreciation Expense for $1,000 C. a debit to Depreciation Expense for $12,000. D. a credit to Accumulated Depreciation: Building for $12,000.
Answer: B. a debit to Depreciation Expense for $1,000
Explanation: The monthly depreciation is $1,000 (=$180,000/(15 × 12)).
14. Consider the following: Cash------$10,000; Receivables-----20,000; Inventory-----$45,000; Accounts payable-----$12,000; Wages payable-----$3,000 Calculate the working capital, the current ratio, and the quick ratio. A. $60,000, 5,and 2 respectively B. $15,000, 5, and 2 respectively C. $60,000, 2, and 5 respectively D. $60,000, 5 and 1 respectively
Answer:A. $60,000, 5,and 2 respectively
15. Calculate the interest on a $4,000, 6% note receivable dated April 10 and due on July 9. A. $18 B. $60 C. $24 D. $240
Answer: B. $60
Explanation: First, determine the days in the note. The days in the note are 90 (April = 20 days; May = 31 days; June = 30 days; July needs 9 days). The interest is $60 (=$4,000 x 0.06 x 90/360)
16. Which is more likely to appear in the financial statements of a closely held corporation but not in a large, publicly owned corporation? A. treasury stock. B. cash dividends C. prior period adjustments D. stock dividends
Answer: C. prior period adjustments
17. Office equipment was purchased by issuing a check for $5,000 and a note payable for the balance of $45,000. What effect did this transaction have on the financial position of the company? A. Assets--decrease, Liabilities--increase--Owners' Equity--no change. B. Assets--no change, Liabilities--no change, Owners' Equity--no change. C. Assets-- decrease, Liabilities--no change, Owners' Equity--decrease D. Assets--increase, Liabilities--increase, Owners' Equity--no change.
Answer: D. Assets--increase, Liabilities--increase, Owners' Equity--no change.
Explanation: The asset Cash was decreased by $5,000. The asset Equipment was increased by $50,000. The net change in assets was $45,000. Liabilities increased by the amount of the note payable ($45,000). Note that the net change on both sides of the accounting equation was equal.
18. The transferable shares of corporate ownership are known as A. treasury stock B. public stock. C. capital stock. D. private stock.
Answer: C. capital stock
19. Assume that the sales tax rate in the county in which you reside is 8%. You've made a purchase of merchandise and charged the full amount, including sales tax, to your VISA card for $346.00. The retailer will recognize Sales Tax Payable of A. $27.86 B. $25.63 C. $32.03 D. $24.33
Answer: B. $25.63
Explanation: The sales tax is $25.63 (=$346.00 – ($346.00/1.08)). The sales price was $320.37 ($346.00 - $25.63. Proof: $320.37 × 0.08 = $25.63
20. The collection of an account receivable A. has no affect on total assets B. increases owners' equity. C. increases total assets. D. increases revenues
Answer: A. has no affect on total assets