Fall 2005
Multiple Choice (30 questions, 1.5 points each)
Identify the letter of the choice that best completes the statement or answers the question.
____
____
____
____
____
____
____
____
1. Which of the following are business stakeholders?
a. Stockholders
b. Suppliers
c. Customers
d. All of the above
2. Which statement is normally prepared first?
a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Retained earnings statement
3. The best definition of assets is __________.
a. Resources belonging to the company that are expected to benefit future operations
b. Amounts earned in operating the business
c. Cash owned by the company
d. Owners' investments in the business
4. Under the cash basis of accounting, a utility bill received in October and paid in November would be
recorded in __________.
a. October
b. Recorded when received
c. November
d. Not recorded at all
5. Declaring and paying cash dividends affects which financial statement elements?
a. Cash only
b. Stockholders' equity only
c. Cash and stockholders' equity
d. Cash and capital stock
6. Young Company has $16,000 in Retained Earnings, $27,000 in Assets, and $5,000 in Liabilities. How
much is in Common Stock?
a. $36,000.
b. $15,000.
c. $5,000.
d. $6,000.
7. __________ are created when a revenue or expense has NOT been recorded by the end of the accounting
period.
a. Prepaid advertising
b. Premiums received in advance
c. Unearned revenue
d. Accruals
8. Accumulated depreciation is what type of account?
a. Deferrals
b. Accruals
c. Contra asset
d. Revenue
Fall 2005
____
____
____
____
____
____
____
____
9. St. Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies
purchased of $800. There were $300 of supplies on hand at year-end. The year-end adjustment would
include an increase in Toy-Making Supplies Expense for __________.
a. $1,000
b. $800
c. $700
d. $300
10. What does a trial balance tell you?
a. The cash balance is correct
b. Assets = Liabilities + Stockholders' Equity
c. There are no errors in the accounts
d. Debits = Credits
11. Which statement cannot be prepared directly from the adjusted trial balance?
a. Balance sheet
b. Income statement
c. Statement of cash flows
d. All can be prepared directly from the adjusted trial balance
12. Closing entries are performed for all of the following except __________.
a. Dividends
b. Assets
c. Revenues
d. Expenses
13. West, Inc. had beginning inventory of $10,000, purchases of $25,000 and ending inventory of $5,000.
What is West's cost of merchandise sold?
a. $10,000
b. $25,000
c. $5,000
d. $30,000
14. Which of the following would NOT affect the operating activities section of the statement of cash flows,
using the indirect method?
a. Decrease in merchandise inventory
b. Payment on a note payable
c. Decrease in unearned rent
d. Depreciation expense
15. Which of the following is NOT a subsection in a multiple-step income statement?
a. Purchase discounts
b. Gross profit
c. Operating income
d. Income before taxes
16. In preparing a bank reconciliation, a customer's NSF check would be __________.
a. Added to the cash balance according to the bank statement
b. Deducted from the cash balance according to the bank statement
c. Added to the cash balance according to the depositor's records
d. Deducted from the cash balance according to the depositor's records
Fall 2005
____ 17. If the bank records a $2,300 deposit at $3,200, the error would be shown on the bank reconciliation as
__________.
a. An addition to the cash balance according to the bank statement
b. A deduction from the cash balance according to the bank statement
c. An addition to the cash balance according to the depositor's records
d. A deduction from the cash balance according to the depositor's records
____ 18. The allowance for doubtful accounts appears on the __________.
a. Balance sheet under current assets
b. Income statement under operating expenses
c. Balance sheet under current or noncurrent assets
d. Income statement under other expenses
____ 19. Accounts receivable has a balance of $850,000 and the allowance for doubtful accounts has a credit
balance of $7,400 at fiscal year end prior to adjustment. If the estimate of uncollectible accounts
determined by aging the receivables is $17,500, the amount of uncollectible accounts expense is
__________.
a. $17,500
b. $10,100
c. $24,900
d. $7,400
____ 20. If a company fails to estimate uncollectible accounts, then __________.
a. Net income is overstated and assets are understated
b. Net income and assets are overstated
c. Net income and assets are understated
d. Net income is understated and assets are overstated
____ 21. Which of the following statement is generally true during period of inflation?
a. LIFO produces higher taxable income than under FIFO
b. FIFO results in paying less taxes than under LIFO
c. LIFO will maximize income reported to shareholders
d. The use of LIFO will result in paying less taxes than under FIFO
____ 22. Use the following data to calculate the cost of ending inventory under FIFO.
September 1
September 10
September 20
September 30
Beginning Inventory
Purchases
Purchases
Ending Inventory
15 units @ $20
20 units @ $25
25 units @ $28
30 units
a. $750
b. $825
c. $675
d. $600
____ 23. Use the following data to calculate the cost of ending inventory under LIFO.
September 1
Beginning Inventory
15 units @ $20
September 10
Purchases
20 units @ $25
September 20
Purchases
25 units @ $28
September 30
Ending Inventory
30 units
a.
b.
c.
d.
$750
$825
$675
$600
Fall 2005
____ 24. On September 1, a machine with a useful life of 8 years and a residual value of $5,000 was purchased for
$47,000. What is depreciation expense in the year of purchase under straight-line depreciation assuming a
December 31 year end?
a. $5,250
b. $5,875
c. $1,750
d. $1,958
____ 25. A company sold office furniture costing $16,500 with accumulated depreciation of $14,000 for $3,200
cash. The journal entry to record the sale would include a __________.
a. Debit to a gain for $700
b. Debit to accumulated depreciation for $14,000
c. Credit to office furniture for $2,500
d. Credit to cash for $3,200
____ 26. Potential obligations that will result in liabilities if certain events occur in the future are termed
__________.
a. Current liabilities
b. Estimated liabilities
c. Contingent liabilities
d. Long-term liabilities
____ 27. The periodic interest rate to be paid on the bonds, which is identified in the bond indenture, is termed
__________.
a. Discount rate
b. Contract rate
c. Effective rate
d. Yield rate
____ 28. Which of the following dates are important in the announcement of dividends?
a. Date of declaration
b. Date of record
c. Date of payment
d. All three dates are important dates.
____ 29. A stock dividend changes the totals in which of the accounts below?
a. Assets
b. Liabilities
c. Stockholders' Equity
d. It does not change any of these account totals
____ 30. Assume a corporation is authorized to issue 100,000 shares of $2 par common stock, and 50,000 shares of
$10 par of preferred stock. If one-half of the Common stock is sold for $10/share instead of par, record
the journal entry for the common stock.
500,000
a. Cash
Common stock
b. Cash
c. Cash
500,000
500,000
Paid in capital in excess of par-common
500,000
500,000
Common stock
Paid in capital in excess of par-common
d. None of the above
100,000
400,000
Fall 2005
SOLUTIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
D
A
A
C
C
D
D
C
C
D
D
B
D
B
A
D
B
A
B
B
D
B
C
C
B
C
B
D
D
C