3. In preparing a balance sheet, which of
the following statements is true?
a. Current liabilities are listed
b. Long-term liabilities are listed after
assets are listed in order of solvency.
Current assets are listed in order of their
4. What accounting characteristic, principle,
concept, or constraint allows a corporation to record the purchase of a $10
wastepaper basket that is estimated to last 5 years as an expense in the year
8. A company fails to recognize revenue it has
earned but not yet received. The accounts impacted by this error are:
a. assets and liabilities
b. liabilities and expenses
c. liabilities and revenues
d. assets and revenues
Under the perpetual inventory system, if a purchaser returns goods that
had been purchased on account, the purchaser would:
a. debit inventory and credit accounts
payable. b. debit
accounts payable and credit inventory. c. debit inventory and credit accounts
receivable. d. debit accounts receivable and credit
10. If sales revenues are $200,000, cost of goods sold is
$155,000, and operating expenses are $30,000, what is the gross profit?
11. In a periodic inventory system the quantity of ending
inventory is determined by:
a. subtracting units sold from units
purchased. b. taking a physical inventory count.
at the balance in the inventory account.
d. subtracting cost of goods sold from the
beginning inventory balance.
12. Which of the following statements is generally true when
prices are rising?
a. LIFO will result in less taxes than
b. FIFO reports a lower ending inventory
c. LIFO reports a higher net income than
d. FIFO produces a lower net income than
13. Given the following data, if a periodic inventory system is
used, what is the weighted-average cost of ending inventory rounded to the
nearest whole dollar?
units at $10 per unit
inventory 50 units at $ 8 per unit
Purchases 90 units at $9 per unit
14. Outstanding checks are checks:
a. not yet paid by the bank.
b. not yet deducted on the books.
c. not yet issued by the payee.
d. that have been paid by the bank.
15. The internal control principle related to having different
persons authorize the purchase of goods and pay for the goods is known as:
a. establishment of responsibility.
b. rotation of duties.
c. independent internal verification.
d. segregation of duties.
16. The balance sheet reports accounts
b. historical cost.
c. cash realizable value.
d. market value.
17. Orion Corp. lends Maxi Inc.
$20,000 on December 1, accepting a four-month, 6% note. Orion's annual accounting period ends on
December 31. Orion's adjusting entry
should include a
a. debit to Note Receivable for $300.
b. credit to Interest Revenue for $400.
c. debit to Interest Receivable for
d. credit to Interest Revenue for
18. A machine that had cost $35,000 has a book value of
$21,000. It is sold for $40,000. The entry to record the sale should include
a. gain of $19,000
b. gain of $26,000
c. loss of $19,000
d. loss of $5,000
19. Which depreciation method generally results in the largest
depreciation expense in the first full year of an asset's life?
d. either straight-line or double-declining-balance
20. A company borrows $5,000 on November 1,
2008 giving a 10%, 180-day note payable. The adjusting entry on December 31, 2008
would include a:
a. credit to Interest Payable for $83
b. credit to Interest Payable for $167
c. debit to Interest Expense for $250
d. credit to Cash for $83
21. If the market rate of interest is greater
than the contractual rate of interest, bonds will be issued at:
a. face value.
b. a discount.
c. a premium.
d. carrying value.
22. Net pay is equal to:
a. gross pay minus all deductions.
b. all deductions plus all withholdings.
c. take-home pay plus all deductions.
d. payroll tax expense.
24. On the payment date, the payment of cash
a. decrease stockholders' equity.
b. increase current liabilities.
c. decrease cash.
d. increase common stock.
25. The Balance Sheet would
disclose the interest owed
a. nowhere on the Balance Sheet.
b. in the Stockholder’s Section.
c. in the Asset section.
d. in the Liabilities section.
26. When an account becomes uncollectible and
must be written off,
a. Allowance for Doubtful Accounts should
be credited. b. Accounts
Receivable should be credited. c. Bad Debts Expense should be credited. d. Sales should be debited.
27. The collection of an account that had
been previously written off under the allowance method of accounting for
a. will increase income in the period it
is collected. b. will decrease income in the period
it is collected. c. requires a correcting entry for the
period in which the account was written
d. does not affect income in the period it
28. A debit balance in the Allowance for
a. is the normal balance for that account. b. indicates that actual bad debt
write-offs have exceeded previous provision
for bad debts.
c. indicates that actual bad debt
write-offs have been less than what was estimated.
d. cannot occur if the percentage of sales
method of estimating bad debts is used.
29. The sale of receivables by a business
a. indicates that the business is in
financial difficulty. b. is
generally the major revenue item on its income statement. c. is an indication that the business is
owned by a factor. d. can be a quick way to generate cash for
30. Retailers generally consider sales from
the use of national credit card sales such as VISA or Mastercard, as a
a. credit sale.
b. collection of an accounts receivable.
c. cash sale.
d. collection of a note receivable