Which of the following is not a reason that a business needs an effective internal control
system?
A) Ensure that work is completed efficiently and effectively
B) Produce reliable and timely accounting information for use by people external to the
organization
C) Protect assets by reducing the risk of fraud
D) Identify ways to circumvent applicable laws and regulations
On October 1, a company lends $10,000 to an employee who signs a 9%, 6-month
promissory note. The company is preparing its year-end financial statements on
December 31. No adjusting entries have been recorded in connection with this note.
What adjusting entry should be recorded before the financial statements are prepared?
A) Debit Interest Revenue and credit Interest Receivable for $225
B) Debit Interest Receivable and credit Interest Revenue for $450
C) Debit Interest Revenue and credit Interest Receivable for $450
D) Debit Interest Receivable and credit Interest Revenue for $225
During November 2015, Asler Inc. performs consulting services. The client does not
pay Asler until January, 2016.
A) Using the accrual basis of accounting, the revenue is reported in January 2016.
B) Using the cash basis of accounting, the revenue is reported in November 2015.
C) Using the accrual basis of accounting, the revenue is reported in November 2015.
D) Using the accrual basis of accounting, the revenue is reported when Asler’s expenses
are paid.
After adjusting entries are prepared and posted, but before closing entries are prepared
and posted, the balance in Retained Earnings is equal to:
A) zero.
B) the difference between total assets and total liabilities.
C) the amount that is to be reported in the current year’s balance sheet.
D) the amount that was reported on the previous year’s balance sheet.
A one-year, $15,000, 12% note is signed on April 1. If the note is repaid on September 1
of the same year, how much interest expense is incurred?
A) $1,800
B) $900
C) $750
D) $600
Which of the following is not an operating activity?
A) Paying off a loan to the bank
B) Receiving cash from customers for services rendered
C) Paying employees for work completed
D) Billing customers for services rendered but not yet paid for
When a company sells equipment for cash on a date other than the last day of the
accounting period, it must:
A) record Depreciation Expense for the entire accounting period during which the
equipment is sold.
B) record the disposal by reducing the Equipment account and increasing a revenue
account; a gain or loss is reported if the decrease and increase are not equal.
C) first record Depreciation Expense for the period up to the date of sale, and then
record the disposal by increasing Cash and decreasing both Equipment and
Accumulated Depreciation; a gain or loss is reported if the proceeds from the sale do
not equal the asset’s book value.
D) record Accumulated Depreciation for the entire current accounting period.
Wrangler Inc. uses the percentage of credit sales method to estimate Bad Debt Expense.
At the end of the year, the company’s unadjusted trial balance includes the following:
Wrangler has experienced bad debt losses of 0.5% of credit sales in prior periods. What
is the Bad Debt Expense to be recorded for the year?
A) $4,500
B) $4,300
C) $4,700
D) $45,000
Which of the following is a profitability measure?
A) Net income / Revenues
B) Total assets / Total stockholders’ equity
C) Total liabilities / Total stockholders’ equity
D) Cost of goods sold / Average inventory
Financing that individuals or institutions have provided to a corporation is:
A) always classified as a liability.
B) classified as a liability when provided by creditors and as stockholders’ equity when
provided by owners.
C) always classified as equity.
D) classified as a stockholders’ equity when provided by creditors and a liability when
provided by owners.
During the current accounting period, revenue from credit sales is $671,000. The
Accounts Receivable balance is $51,480 at the beginning of the period and $52,200 at
the end of the period. Which of the following statements is correct?
A) The receivables turnover ratio is 12.9.
B) On average, it takes 12.9 days to collect payment from credit customers.
C) The receivables turnover ratio is 28.3.
D) On average, the company sells its inventory every 28.3 days.
If an apartment leasing company receives the rent for January 2016 from a tenant in
December 2015, this will be reported by the leasing company as:
A) revenue in 2015
B) an expense in 2015
C) a liability in 2015
D) stockholders’ equity in 2015
A company had 300,000 shares of $10 par value common stock outstanding. The
amount of additional paid-in capital is $1,500,000, and Retained Earnings is
$450,000.The company issues a 2-for-1 stock split. The market price of the stock is
$13. What is the balance in the Common Stock account after this issuance?
A) $6,000,000
B) $6,900,000
C) $3,000,000
D) $4,500,000