Chapter 15 Objective Questions 2015
True/False
Indicate whether the statement is true or false.
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1. Each unit of ownership in a corporation is known as a stock dividend.
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2. A stockholder is an owner of one or more shares of a corporation.
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3. Owners' equity accounts for a corporation normally are listed under a major chart of accounts division titled
Operating Expenses.
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4. An amount earned by a corporation and not yet distributed to stockholders is called retained earnings.
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5. Dividends are earnings retained by the corporation.
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6. The dividends account has a normal debit balance and is increased by a debit.
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7. A corporation's board of directors is elected by the stockholders.
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8. A board of directors distributes earnings of a corporation to its stockholders by declaring a dividend.
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9. A declared dividend is classified as an expense.
____ 10. When a declared dividend is paid, Dividends Payable is credited.
____ 11. A work sheet is used to plan adjustments and summarize the information necessary to prepare financial
statements.
____ 12. The steps for preparing a work sheet are very different for proprietorships and corporations.
____ 13. General ledger account balances are changed when adjustments are entered on the work sheet.
____ 14. The adjustment for merchandise inventory is common for all businesses.
____ 15. The supplies--store account must be adjusted to show the expense of the supplies that are purchased during
the year.
____ 16. The prepaid insurance account is adjusted to show the value of insurance that has been prepaid.
____ 17. During a fiscal period, the amount of merchandise on hand remains unchanged.
____ 18. Most accounts needing adjustment at the end of a fiscal period have a related temporary account.
____ 19. The risk of uncollectible accounts should be recorded as an expense in the same accounting period that the
revenue is earned.
____ 20. Accounts Receivable is a contra account to its related asset account, Allowance for Uncollectible Accounts.
____ 21. Many businesses use a percentage of total sales to estimate uncollectible accounts expense.
____ 22. Assets that will be used for a number of years in the operation of a business are called plant assets.
____ 23. Accumulated depreciation is the depreciation expense that has been recorded since the purchase of a current
asset.
____ 24. Federal income tax is an expense of a corporation.
____ 25. When a corporation makes the quarterly payment of estimated federal income tax, the cash account is debited.
____ 26. The amount of federal income tax expense a corporation must pay is calculated using a tax rate table
furnished by the Internal Revenue Service.
____ 27. Depreciation accumulates each year of a plant asset's useful life.
____ 28. The difference between an asset's account balance and its related contra account balance is called par value.
____ 29. Merchandise Inventory is an asset account with a normal credit balance.
____ 30. In order to make adjustments to federal income tax, you must first determine the net income before federal
income tax expense.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 31. A business prepares a summary of financial information at least once each fiscal period because financial
information ____.
a. is needed to make management decisions
b. shows whether a profit is being made or a loss is being incurred
c. is needed to prepare tax reports
d. all of the above
____ 32. The distribution of dividends only by formal action of a corporation's board of directors is an application of
the accounting concept ____.
a. Accounting Period Cycle
c. Business Entity
b. Adequate Disclosure
d. Historical Cost
____ 33. The amount of goods on hand for sale to customers is ____.
a. a merchandise inventory
c. a schedule of goods on hand
b. an inventory
d. a purchases inventory
____ 34. The general ledger account in which merchandise inventory is recorded is titled ____.
a. Merchandise Inventory
c. Purchases
b. Inventory
d. Purchases Inventory
____ 35. The entry to journalize the adjustment for merchandise inventory at the end of a fiscal period when ending
merchandise inventory is smaller than the beginning is ____.
a. debit Merchandise Inventory; credit Income Summary
b. debit Income Summary; credit Merchandise Inventory
c. debit Merchandise Inventory; credit capital account
d. debit capital account; credit Merchandise Inventory
____ 36. The entry to journalize the adjustment for merchandise inventory at the end of a fiscal period when the ending
merchandise inventory is larger than beginning merchandise inventory is ____.
a. debit Merchandise Inventory; credit Income Summary
b. debit Income Summary; credit Merchandise Inventory
c. debit Merchandise Inventory; credit capital account
d. debit capital account; credit Merchandise Inventory
____ 37. The entry to journalize the adjustment for merchandise inventory when beginning Merchandise Inventory is
$125,000.00 and ending Merchandise Inventory is $115,000.00 is ____.
a. debit Merchandise Inventory, $10,000.00; credit Income Summary, $10,000.00
b. debit Income Summary, $10,000.00; credit Merchandise Inventory, $10,000.00
c. debit Merchandise Inventory $115,000.00; credit Income Summary, $115,000.00
d. debit Income Summary, $115,000.00; credit Merchandise Inventory, $115,000.00
____ 38. The entry to journalize the adjustment for office supplies at the end of a fiscal period is ____.
a. debit Supplies--Office; credit Supplies Inventory
____ 39.
____ 40.
____ 41.
____ 42.
____ 43.
____ 44.
____ 45.
____ 46.
____ 47.
b. debit Supplies Inventory; credit Supplies--Office
c. debit Supplies--Office; credit Supplies Expense--Office
d. debit Supplies Expense--Office; credit Supplies--Office
The entry to journalize the adjustment for office supplies at the end of a fiscal period when the balance of the
office supplies account is $5,100.00 and the office supplies inventory is $3,900.00 is ____.
a. debit Supplies Expense--Office, $1,200.00; credit Supplies--Office, $1,200.00
b. debit Supplies Expense--Office, $3,900.00; credit Supplies--Office, $3,900.00
c. debit Supplies--Office, $1,200.00; credit Supplies Inventory, $1,200.00
d. debit Supplies Expense--Office, $3,900.00; credit Supplies Inventory, $3,900.00
The entry to journalize the adjustment for prepaid insurance at the end of a fiscal period is ____.
a. debit Prepaid Insurance; credit Cash
b. debit Cash; credit Prepaid Insurance
c. debit Insurance Expense; credit Prepaid Insurance
d. debit Prepaid Insurance; credit Insurance Expense
The entry to adjust prepaid insurance at the end of a fiscal period when the balance of the prepaid insurance
account is $3,600.00 and the value of the prepaid insurance is $1,600.00 is ____.
a. debit Insurance Expense, $1,600.00; credit Prepaid Insurance, $1,600.00
b. debit Insurance Expense, $2,000.00; credit Prepaid Insurance, $2,000.00
c. debit Prepaid Insurance, $1,600.00; credit Insurance Expense, $1,600.00
d. debit Prepaid Insurance, $2,000.00; credit Insurance Expense, $2,000.00
A work sheet is used to ____.
a. plan adjustments
b. summarize information necessary to prepare financial statements
c. both A and B
d. neither A nor B
What is the formula for calculating book value?
a. Original Cost  Accumulated Depreciation = Ending Book Value
b. Original Cost  Accumulated Depreciation = Ending Book Value
c. Original Cost  Accumulated Depreciation = Ending Book Value
d. Original Cost  Accumulated Depreciation = Ending Book Value
The Supplies--Office amount in a work sheet's Trial Balance Debit column represents the value of supplies
____.
a. bought during a fiscal period
b. at the beginning of a fiscal period
c. used during a fiscal period
d. at the beginning of a fiscal period plus office supplies bought during the fiscal period
The portion of the insurance premiums that has expired during a fiscal period is classified as ____.
a. capital
c. a liability
b. an expense
d. an asset
The Merchandise Inventory amount in a work sheet's Trial Balance Debit column represents the merchandise
inventory ____.
a. at the beginning of a fiscal period
c. purchased during a fiscal period
b. at the end of a fiscal period
d. available during a fiscal period
The two accounts used to record the adjustment for federal income tax are ____.
a. Federal Income Tax Expense and Federal Income Tax Adjustments
b. Federal Income Tax Expense and Allowance for Federal Tax Expense
c. Federal Income Tax Expense and Taxes Payable
d. Federal Income Tax Payable and Federal Income Tax Expense
____ 48. Recording expenses in the accounting period in which the expenses contribute to earning revenue is an
application of the accounting concept ____.
a. Adequate Disclosure
c. Matching Expenses with Revenue
b. Historical Cost
d. Consistent Reporting
____ 49. The Income Summary amount in a work sheet's Adjustments Debit column represents the ____.
a. decrease in Merchandise Inventory
c. beginning Merchandise Inventory
b. increase in Merchandise Inventory
d. ending Merchandise Inventory
____ 50. The two accounts used to adjust the uncollectible accounts are ____.
a. Accounts Receivable and Uncollectible Accounts Expense
b. Accounts Receivable and Allowance for Uncollectible Accounts
c. Uncollectible Accounts Expense and Allowance for Uncollectible Accounts
d. Accounts Receivable and Accounts Receivable Expense
____ 51. In calculating the annual amount of depreciation expense for a plant asset, you must consider ____.
a. original cost
c. estimated useful life
b. estimated salvage value
d. all of the above
____ 52. The useful life of a plant asset is affected by ____.
a. functional depreciation
c. both A and B
b. physical depreciation
d. neither A nor B
____ 53. Computers, sales display cases, furniture, and cash registers are examples of ____.
a. current assets
c. both A and B
b. plant assets
d. neither A nor B
____ 54. Which account is used for the investment of all owners of a corporation?
a. Owners' Equity
c. Retained Earnings
b. Dividends
d. Capital Stock
____ 55. Businesses may have three major types of plant assets: ____.
a. equipment, buildings, and land
c. equipment, cash, and land
b. cash, buildings, and land
d. cash, buildings, and equipment
Chapter 14 Objective Questions
Answer Section
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MULTIPLE CHOICE
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