Consider the following accounts and identify each as an asset (A), liability (L), or
equity (E).
A company that uses a perpetual inventory system purchased inventory on account and
later returned goods worth $100 to the vendor. Which of the following would be the
correct journal entry to record these returns?
A)
B)
C)
D)
Get Away Vacations signed a 14%, 10-year note for $157,000. The company paid an
installment of $2100 for the first month. What portion of the first monthly payment is
interest expense? (Do not round any intermediate calculations, and round your final
answer to the nearest dollar.)
A) $268
B) $35,063
C) $15,183
D) $1832
A check for which a maker’s bank account has inadequate money to pay the check is
known as a(n) ________.
A) nonsufficient funds check
B) outstanding check
C) restrictive check
D) canceled check
The employees of Leichester Services, Inc. worked the last two weeks of December,
2016. They received their paychecks on January 2, 2017. Which of the following
accounts should appear on the income statement for the year ended December 31,
2016?
A) Salaries Expense
B) Prepaid Expense
C) Salaries Payable
D) Unearned Revenue
Phillips, Inc. had the following financial data for the year ended December 31, 2019.
What is the cash ratio as of December 31, 2019, for Phillips, Inc.? (Round your answer to
two decimal
places.)
A) 0.30
B) 0.38
C) 0.49
D) 0.85
Which of the following inventory valuation methods minimizes income tax expense
during a period of rising inventory costs?
A) first-in, first-out
B) last-in, first-out
C) weighted-average
D) specific identification
________ are professional accountants who serve the general public, not one particular
company.
A) Certified public accountants
B) Financial managers
C) Internal auditors
D) Controllers
Which of the following items are reconciling items on the book side of the
reconciliation?
A) outstanding checks and correction of book error
B) deposit in transit and NSF check
C) bank service charge and outstanding checks
D) bank service charge and correction of book error
The ________ is a set of programs or instructions that drive the computer to perform
the work desired.
A) network
B) hardware
C) software
D) router
Which of the following statements regarding income from continuing operations is
incorrect?
A) Income from continuing operations represents the part of the business that should
continue from period to period.
B) Income from continuing operations helps investors make predictions about future
earnings.
C) Income tax expense is subtracted to arrive at income from continuing operations.
D) A gain on sale of equipment is outside the business’s core business and is not part of
other income.
Which of the following should be included in the cost of land?
A) cost to build sidewalks on the land
B) cost to clear the land of old buildings
C) cost of installing signage
D) cost of installing fences
For a merchandiser, the term “inventory” refers to ________.
A) raw materials that are used for production
B) equipment that are used in production process
C) the cost of goods sold
D) goods held for sale to customers
The goal of reporting realistic figures and never overstating assets or net income applies
to the ________.
A) conservatism principle
B) materiality concept
C) disclosure principle
D) consistency principle
Revenues and expenses may be transferred to the ________ account before their final
transfer into the Retained Earnings account.
A) Net Income
B) Income Summary
C) Dividends
D) Assets
Which of the following is NOT a reason for which a company may purchase treasury
stock?
A) to avoid a takeover by an outside party by increasing the number of outstanding
shares that have voting rights
B) to increase net assets by buying low and selling high
C) to support the company’s stock price
D) to reward valued employees with stock
Which of the following is true of the Fair Value Adjustment – Trading account for
trading debt investments?
A) It will always have a credit balance.
B) It will always have a debit balance.
C) It is considered as an adjunct account if it has a credit balance.
D) It is considered as an adjunct account if it has a debit balance.
All Things Digital, Inc. starts the year with a credit balance of $3500 in its Estimated
Warranty Payable account. During the year, there were $224,000 in sales and $4800 in
warranty repair payments. All Things Digital estimates warranty expense at 2% of sales.
At the end of the year, what is the balance in the Estimated Warranty Payable account?
A) $4480 debit
B) $4800 credit
C) $3500 debit
D) $3180 credit
A company purchased 400 units for $50 each on January 31. It purchased 200 units for
$35 each on February 28. It sold a total of 250 units for $50 each from March 1 through
December 31. If the company uses the weighted-average inventory costing method,
calculate the cost of ending inventory on December 31. (Assume that the company uses
a perpetual inventory system. Round any intermediate calculations two decimal places,
and your final answer to the nearest dollar.)
A) $27,000
B) $15,750
C) $11,250
D) $14,875
Regarding the Cost of Goods Sold account, which of the following statements is
incorrect?
A) In a perpetual inventory system, the Cost of Goods Sold account keeps a current
balance throughout the period.
B) Cost of Goods sold is a contra revenue account.
C) Cost of Goods Sold is based on the company’s cost, not the retail price.
D) Cost of Goods Sold represents the cost of inventory that has been sold to customers.
On July 1, 2019, Montana Company has bonds with balances as shown below.
Bonds Payable
Discount on Bonds Payable
If the company retires the bonds for $71,150, what will be the effect on the income
statement?
A) loss on retirement of $4750
B) gain on retirement of $4750
C) sales revenue of $66,400
D) no effect on net income
Boston Recyclers Company uses the indirect method to prepare its statement of cash
flows. Refer to the following information for 2019:
1. Retained Earnings, beginning balance, $139,000
2. Retained Earnings, ending balance, $120,000
3. There is a net loss of $15,000 for the year.
What is the amount of dividends declared during the year?
A) $34,000
B) $5000
C) $4000
D) $14,000
A company may invest in debt or equity securities of other companies to ________.
A) further enhance a business relationship with a key vendor
B) invest borrowed money in an effort to decrease the company’s net income
C) weaken the relationship between the investing company and one of its vendors
D) allow the company to use investment income to decrease its annual dividend
In a lock-box system ________.
A) customers send their checks directly to a post office box that belongs to the company
B) there is a delay in getting the cash into the company’s bank account
C) a bank employee empties the box daily and records the deposits into the company’s
bank account
D) a bank employee records the journal entry
The net income of Hendley, Inc. for the year is $35,000. The dividends declared during
the year were $43,000. Which of the following statements is true?
A) Retained Earnings account decreases by $35,000.
B) Retained Earnings account decreases by $8,000.
C) Retained Earnings account increases by $43,000.
D) Retained Earnings will remain the same.
Land Corporation reported the following:
Which of the following is included in the entry to record the corporation’s purchase of
40,000 shares of its common stock for $12.00 per share?
A) Treasury Stock—Common is debited for $480,000.
B) Paid-In Capital from Treasury Stock Transactions is credited for $135,000.
C) Retained Earnings is debited for $480,000.
D) Common Stock—$5 Par Value is credited for $200,000.
Which of the following securities typically pay interest?
A) equity securities
B) preferred stocks
C) corporate bonds
D) significant interest investment
Following is a list of account balances of Lincoln Lawn Services as of December 31,
after the first year of operations.
Calculate the net income.
A) $16,700
B) $31,100
C) $17,900
D) $49,000
Unearned Revenue is classified as a(n) ________ account.
A) liability
B) asset
C) revenue
D) equity
Which of the following is a cash inflow from an operating activity on a statement of
cash flows prepared using the direct method?
A) sold treasury stock for cash
B) issued common stock
C) received interest revenue in cash
D) borrowed money on a long-term note
Which of the following is the correct journal entry for freight paid on goods purchased
by a merchandiser using the periodic inventory system?
A)
B)
C)
D)
Which of the following statements is true if the income statement debit column exceeds
the income statement credit column of a worksheet?
A) The company incurred a net loss.
B) The retained earnings account increased during the period.
C) The company made a net profit.
D) An error was made.
A business makes a payment of $1,400 on a note payable. Which of the following
journal entries would be recorded?
A) Cash is credited and Notes Payable is debited for $1,400.
B) Notes Payable is credited and Cash is debited for $1,400.
C) Cash is credited and Financing Expense is debited for $1,400.
D) Cash is debited and Financing Revenue is credited for $1,400.