Accounting Principles
1) Failure to record a liability will probably:
a. have no effect on net income
b. result in an overstated net income
c. result in overstated owner's equity
d. result in overstated liabilities
Competency: Accounts payable and receivable
2) Which one of the following is a contingent liability?
a. disputed additional tax assessment
b. sales tax liability
c. note payable
d. account payable
Competency: Accounts payable and receivable
3) Which one of the following accounts has a normal credit balance?
a. Notes Receivable
b. Supplies Expense
c. Owner's Capital
d. Owner's Withdrawals
Competency: Basic concepts, principles, and terminology
4) A $5,000 machine is purchased by paying $500 cash and issuing a promissory note for the
remainder. What should the journal entry include?
a. Credit to Notes Payable
b. Debit to Notes Receivable
c. Debit to Cash
d. Credit to Machinery
Competency: Basic concepts, principles, and terminology
5) Gross margin is the difference between net sales and:
a. cost of goods sold minus operating expenses
b. operating expenses
c. cost of goods sold plus operating expenses
d. cost of goods sold
Competency: Measurement, valuation, realization, and presentation of assets
6) Which one of the following financial statements is the most future-directed?
a. balance sheet
b. statement of cash flows
c. statement of retained earnings
d. income statement
Competency: Other financial statements-cash flow, owner's equity, etc.
7) Which one of the following is a disadvantage of the corporate form of business?
a. continuous existence
b. tax treatment
c. transferable ownership rights
d. centralized authority
Competency: Ownership structure
8) Who created the Public Company Accounting Oversight Board?
a. SOX
b. FASB
c. GASB
d. IASB
Competency: Professional ethics and standards
9) What are the steps in the accounting cycle that could be completed with the aid of the
worksheet?
a. adjust, allocate, reverse
b. analyze, appropriate, post
c. close, allocate, reverse
d. adjust, prepare, close
Competency: Worksheet
10) Which one of the following accounts would not appear as an asset on a manufacturer's
balance sheet?
a. Work in Process
b. Raw Materials
c. Factory Overhead
d. Completed Goods
Competency: Financial statements
ANSWER KEY
1. b
2. a
3. c
4. a
5. d
6. b
7. b
8. a
9. d
10. c