1. An examination of the financial statements of a business to ensure that they conform with generally
accepted accounting principles is called?
A. A certification
B. An audit
C. A verification
D. A validation
2. Morrow Corp. makes a credit sales (i.e., sale on account) to a customer. The effect of this transaction on the
accounting equation is that?
A. Assets increase and liabilities increase
B. Assets increase and stockholder’s equity increases
C. Liabilities increase and stockholder’s equity decreases
D. Liabilities decrease and stockholder’s equity increases
3. On January 1, 2005, Thomas Company paid $1000 for a two-year insurance policy on the building. The
accounting period ends December 31. At the end of 2005, the financial statement should report?
A. Prepaid Insurance $500; Insurance Expense $500
B. Prepaid Insurance $0; Insurance Expense $1000
C. Prepaid Insurance $1000; Insurance Expense $0
D. Prepaid Insurance $250; Insurance Expense $250
4. Retained earnings refers to?
A. The amount reported as “the bottom line” on the income statement
B. The accumulated amount of past earnings of a corporation that has not been distributed to shareholders
as dividends
C. The total amount of stockholder’s equity for a corporation
D. The amount that shareholders have invested by purchasing a corporation’s stock
5. The amount of rent expense reported on the income statement is?
A. The amount of cash paid for rent in the current period
B. The amount of cash paid for rent in the current period less any unpaid rent at the end of the period
C. The amount of rent used up (incurred) in the current period to help generate revenue
D. An increase in net income
6. The advantages of incorporation include all of the following except?
A. Ability to raise capital
B. Tax deductibility of dividends
C. Ease of transfer of ownership
D. Limited liability of owners
7. A cash inflow from financing activities includes?
A. Proceeds from selling investments in equity securities of another company
B. Proceeds from selling equipment
C. Proceeds from issuance of bonds payable
D. Receipt of interest payments
8. Under accrual basis accounting, revenues are?
A.
B.
C.
D.
Recognized when they are earned
Recognized when cash is received
Recognized when they are incurred
Recognized when cash is paid
9. Which financial statement shows the financial position of a business as of a given date?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
10. The accounts payable account has a beginning balance of $1000 and we purchased $3000 of inventory on
credit during the month. The ending balance was $800. How much did we pay our creditors during the
month?
A. $2800
B. $3000
C. $3200
D. $3800
11. Adjusting entries never include?
A. Prepaid expenses
B. Interest payable
C. Unearned revenue
D. Cash
12. If you wanted to know what accounting rules a company follows related to its inventory, where would you
look?
A. The notes to the financial statements
B. The income statement
C. The balance sheet
D. The headings to the financial statements
13. At the end of December, the owner of an apartment complex realized that the December rent had not been
collected from one of the tenants amounting to $500. On December 31, the owner would show which of the
following on its financial statements?
A. Unearned rent revenue of $500
B. Rent Receivable of $500
C. Rent Payable of $500
D. Rent Expense of $500
14. Which of the following accounts is increased by credit entries and decreased by debit entries?
A. Cash
B. Advertising Expense
C. Equipment
D. Accounts payable
15. The primary objective of financial information is to?
A. Provide information to detect fraud in the preparation of financial statements
B. Provide information about the taxable income of the company
C. Provide managers with information about the efficiency and effectiveness of the production process
D. Provide useful economic information about a business to help external parties make sound financial
decisions
16. Which of the following is the private body responsible for establishing generally accepted accounting
principles (GAAP)?
A. PCAOB
B. SEC
C. FASB
D. APB
17. Failure to make an adjusting entry to recognize accrued utilities payable would cause an?
A. Understatement of expenses and liabilities and an overstatement of stockholder’s equity
B. Overstatement of expenses and liabilities and an understatement of stockholder’s equity
C. Understatement of expenses, liabilities, and stockholder’s equity
D. Overstatement of assets, expenses, and stockholder’s equity
18. Which of the following accounts would not be closed at the end of the accounting period?
A. Dividends
B. Sales revenue
C. Cost of goods sold
D. Inventory
19. Which accounting principle states that expenses incurred in generating revenue should be recorded in the
same period in which the revenue is recognized?
A. Historical cost principle
B. Going concern principle
C. Matching principle
D. Revenue recognition principle
20. Abrahams Corporation reported the following amounts at the end of the first year of operations, December
31, 2009: contributed capital $100,000; sales revenue $400,000; total assets $300,000; $5,000 dividends;
and total liabilities $180,000. Retained earnings would be?
A. $20,000
B. $30,000
C. $70,000
D. $80,000
21. Which of the following direct effects on the fundamental accounting model is not possible as a result of
transaction analysis?
A. Increase a liability and increase an asset
B. Decrease stockholder’s equity and increase an asset
C. Increase an asset and decrease an asset
D. Decrease stockholder’s equity and decrease an asset
22. On January 1, 2009, the ledger of Global Corporation correctly showed supplies inventory of $500. During
2009, supplies purchases amounted to $1200. A count (inventory) of supplies on hand at December 31,
2009, showed $600. The 2009 income statement should report supplies expense amounting to?
A. $1200
B. $1100
C. $800
D. $600
23. Assets are?
A. Probable debts or obligations of an entity as a result of past transactions which will be paid with assets
or services
B. Stockholders’ equity minus liabilities
C. Probable future economic benefits owned by an entity as a result of past transactions
D. The financing provided by the owners and the operations of a business
24. Which of the following is most often included in current assets?
A. Prepaid expenses
B. Property, plant, and equipment
C. Intangible assets
D. Unearned revenue
25. Which characteristic states that accounting information is unbiased and verifiable?
A. Consistency
B. Comparability
C. Relevance
D. Reliability
26. On January 1, 2009, the balance in Retained Earnings for Conlon Company was $125,000. During 2009,
the company declared and paid cash dividends of $20,000, reported net income of $65,000, sold additional
common stock for $10,000. What was the balance of Retained Earnings on December 31, 2009?
A. $210,000
B. $190,000
C. $180,000
D. $170,000
27. When a company pays back an amount due to a supplier for a prior purchase?
A. Assets decrease and liabilities decrease
B. Assets increase and stockholder’s equity increases
C. Liabilities increase and stockholder’s equity decreases
D. Assets increase and liabilities decrease
28. The two categories of stockholder’s equity usually found on the balance sheet of a corporation are?
A. Contributed capital and long-term liabilities
B. Contributed capital and property, plant, and equipment
C. Retained earnings and notes payable
D. Contributed capital and retained earnings
29. Anna Inc. had the following items reported on its most recent financial statements:
Total revenues……………..$500,000
Dividends………………$10,000
Total Assets……………..$425,000
Total Liabilities…………$125,000
Total contributed capital….$140,000
What total expenses were reported by Anna for the year?
A. $155,000
B. $275,000
C. $310,000
D. $430,000
30. Surfing Magazine receives $50,000 from customers on April 1, 2009, for one-year magazine subscriptions.
On December 31, 2009, Surfing Magazine should?
A. Report unearned revenue of $55,000
B. Report sales revenue of $50,000
C. Report sales revenue of $37,500
D. Report unearned revenue of $37,500
31. Investing activities?
A. Involve day to day events like selling goods and services, which occur when running a business
B. Involve the buying or selling of land, buildings, equipment, and other long-term investments
C. Only involve financial exchanges
D. All of these
32. Accumulated depreciation?
A. Is an expense account
B. Is a liability account
C. Is a regular asset account
D. Is an asset contra-account
33. Cy’s Bar and Grill has $10,000 in utilities expense during the year. At the beginning of the year, Cy’s had
utilities payable amounting to $520. At the end of the year, utilities payable totaled $470. What amount of
cash did Cy’s pay for utilities during the year?
A. $9950
B. $10,000
C. $10,050
D. $10,990
34. At the end of the month, the adjusting journal entry to record the use of supplies would include?
A. An increase to supplies and an increase to expenses
B. A decrease to supplies and an increase to expense
C. An increase to supplies and an increase to revenue
D. A decrease to supplies and a decrease to cash
35. Primary responsibility for the information in a corporation’s financial statements rests with?
A. The shareholders of the corporation
B. The managers of the corporation
C. The Securities and Exchange Commission
D. The certified public accountant who audited the financial statements