Name:
Class:
Date:
Indicate whether the statement is true or false.
1. A disadvantage of issuing stock is that dividends must be paid to stockholders.
a.
True
b.
False
2. The source document for an electronic funds transfer is a memorandum.
a.
True
b.
False
3. Alpha Company’s target range for its total operating expense ratio is between 28.0% and 30.0%. A decline in its
operating expense ratio from 32.1% to 30.8% is a favorable trend.
a.
True
b.
False
4. A corporation has the legal rights of a person.
a.
True
b.
False
5. A line of credit does not have to be repaid as long as the business pays its monthly interest.
a.
True
b.
False
6. Preparing the general ledger for the next fiscal period is an application of the Business Entity accounting concept.
a.
True
b.
False
7. The column totals of an employee earnings record provide the debit and credit amounts needed to journalize a payroll.
a.
True
b.
False
8. A temporary account is closed by transferring its balance out of the account.
a.
True
b.
False
9. A balance sheet reports financial information for a period of time.
a.
True
b.
False
10. The payment of cash dividends is listed as an investing activity on the statement of cash flows.
a.
True
b.
False
11. The Assets and Liabilities sections of a balance sheet for a partnership are prepared in the same way as the Assets and
Liabilities sections of a balance sheet for a proprietorship.
a.
True
Name:
Class:
Date:
b.
False
12. A company having earnings per share of $14.50 is always more profitable than a company having earnings per share
of $3.25.
a.
True
b.
False
13. Adjusting entries must be posted to the general ledger accounts.
a.
True
b.
False
14. The steps in preparing a distribution of net income statement are different depending on how earnings are shared.
a.
True
b.
False
15. A trade acceptance is similar to a draft except a draft is generally paid by a bank and a trade acceptance is paid by the
buyer.
a.
True
b.
False
16. A seller generally has much more assurance of receiving payment from a buyer than from a bank.
a.
True
b.
False
17. The gross profit method makes it possible to prepare monthly income statements without taking a physical inventory.
a.
True
b.
False
18. Withdrawals could be recorded as debits to the partners’ capital accounts, but are normally recorded in separate
accounts so that the total amounts are easily determined.
a.
True
b.
False
19. Increasing operating revenue while keeping cost of merchandise sold the same will increase gross profit.
a.
True
b.
False
20. The closing entry for income statement accounts with debit balances closes only the expense accounts.
a.
True
b.
False
21. Investors are willing to pay a higher price-earnings ratio for growth stocks than for income stocks.
a.
True
b.
False
22. A corporation having a net income before federal income tax of $190,000.00 will pay a higher rate of tax than a
Name:
Class:
Date:
company having $40,000.00 of net income before federal income tax.
a.
True
b.
False
23. At any time, the accumulated depreciation for a plant asset owned by the company reflects next year’s estimated
depreciation expense.
a.
True
b.
False
24. If the previous account balance and the current entry posted to an account are both credits, the new account balance is
a credit.
a.
True
b.
False
25. The amount of dividends declared during the year is presented on the income statement.
a.
True
b.
False
26. Legally, a partnership agreement may be either written or oral.
a.
True
b.
False
27. A line of credit does not have to be repaid as long as the business pays its monthly interest.
a.
True
b.
False
28. The purpose of the post-closing trial balance is to prove the general ledger equality of debits and credits.
a.
True
b.
False
29. Temporary accounts are used to accumulate information until it is transferred to the owner’s capital account.
a.
True
b.
False
30. When liquidating a partnership, after all noncash assets are sold and all creditors are paid, any remaining cash is
distributed to the partners in the same proportions as the earnings are shared.
a.
True
b.
False
31. The transportation company sends the signed bill of lading to the buyer, so the seller does not know when the
merchandise has been shipped.
a.
True
b.
False
32. The statement of cash flows is prepared on a cash basis rather than an accrual basis.
a.
True
Name:
Class:
Date:
b.
False
b.
False
33. Interest income is recorded only if a note receivable is collected.
a.
True
b.
False
34. The adjusting entry for deferred rent expense incurred includes a credit to Prepaid Rent.
a.
True
b.
False
35. A transaction recorded in a journal is not considered a permanent record.
a.
True
b.
False
36. The formula for calculating net income is total revenue minus total expenses.
a.
True
b.
False
37. The declining-balance method of depreciation multiplies the book value by a constant depreciation rate to determine
annual depreciation.
a.
True
b.
False
38. The drawing account is a permanent account.
a.
True
b.
False
39. A transaction for the sale of goods or services results in a decrease in owner’s equity.
a.
True
b.
False
40. If cash is received for revenue that has not been earned, a liability is increased.
a.
True
b.
False
41. Sales taxes are normally paid only on sales to the final consumer.
a.
True
b.
False
42. The gross profit method makes it possible to prepare monthly income statements without taking a physical inventory.
a.
True
b.
False
43. The lack of uniform commercial laws among countries makes international sales simpler than domestic sales.
a.
True
Name:
Class:
Date:
44. Income stocks typically have a higher dividend yield than growth stocks.
a.
True
b.
False
45. The LIFO method is used to determine the quantity of each type of merchandise on hand.
a.
True
b.
False
46. The book value of accounts receivable at year end is an estimate of the amount of accounts receivable the business
expects to collect during the next fiscal year.
a.
True
b.
False
47. The LIFO method is used to determine the quantity of each type of merchandise on hand.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
48. Paying cash for merchandise inventory would be listed on the statement of cash flows as
a.
an operating activity.
b.
an investing activity.
c.
a financing activity.
d.
none of these.
49. The amount of prepaid insurance not expired during a fiscal period represents
a.
an asset.
b.
a liability.
c.
revenue.
d.
an expense.
50. The entry to establish a $200.00 petty cash fund is
a.
debit Petty Cash, $200.00; credit Cash, $200.00.
b.
debit Petty Cash, $200.00; credit Miscellaneous Expense, $200.00.
c.
debit Miscellaneous Expense, $200.00; credit Cash, $200.00.
d.
debit Cash, $200.00; credit Petty Cash, $200.00.
51. The entry to journalize the receipt of cash for the value of a time draft includes a
a.
debit to Time Drafts Receivable and a credit to Cash.
b.
debit to Cash and a credit to Time Drafts Receivable.
c.
debit to Cash and a credit to Sales.
d.
debit to Sales and a credit to Cash.
52. Asset accounts include Cash, Prepaid Insurance, and
a.
Accounts Payable.
b.
Accounts Receivable.
c.
Sales.
d.
Utilities Expense.
53. Assets taken out of a business for the personal use of the owner are called
a.
net income.
b.
net loss.
Name:
Class:
Date:
c.
investments.
d.
withdrawals.
54. The formula for calculating the net income ratio is
a.
net income divided by total sales.
b.
total sales divided by total expenses.
c.
total sales minus total expenses divided by net income.
d.
none of these.
55. To close the Sales account,
a.
debit Sales; credit Cash.
b.
debit Sales; credit Income Summary.
c.
debit Income Summary; credit Sales.
d.
debit Cash; credit Sales.
56. A system provided by the federal government for making federal tax deposits is the
a.
Employment Deposit System (EDS).
b.
Federal Tax Deposit System.
c.
Electronic Federal Tax Payment System (EFTPS).
d.
none of these.
57. The documents that must be presented to a seller’s bank in order for the seller to collect payment for an international
cash sale are
a.
a bill of lading, a commercial invoice, and a draft.
b.
an invoice and a shipping document.
c.
a bill of lading and a draft.
d.
a commercial invoice, a bill of lading, and a sales tax invoice.
58. The par value of common stock is reported on the
a.
income statement.
b.
balance sheet.
c.
statement of stockholders’ equity.
d.
none of these.
59. The adjusting entry for deferred rent revenue that is now earned includes a
a.
debit to Cash.
b.
debit to Rent Expense.
c.
credit to Unearned Rent Income.
d.
credit to Rent Income.
60. If an error is recorded in a journal entry,
a.
cancel the error by drawing a neat line through the error.
b.
correct the entry by writing the correct item above the canceled error.
c.
do not erase the incorrect item.
d.
all of these.
61. A qualified retirement plan that allows tax-free withdrawal from the account is the
a.
401(k).
b.
individual retirement account.
c.
Roth individual retirement account.
d.
403(b).
62. When there is a net loss, the closing entry for the Income Summary account includes a debit to
a.
Income Summary.
b.
Retained Earnings.
Name:
Class:
Date:
c.
each expense account.
d.
each revenue account.
63. The entry to journalize an international cash sale includes a
a.
debit to Time Drafts Receivable and a credit to International Sales.
b.
debit to International Sales and a credit to Time Drafts Receivable.
c.
debit to Sales and a credit to Cash.
d.
debit to Cash and a credit to Sales.
64. The journal entry to record an international cash sale would be recorded in a
a.
cash payments journal.
b.
cash receipts journal.
c.
general journal.
d.
purchases journal.
65. The depreciation adjusting entry includes a debit to Depreciation Expense—Office Equipment and a credit to
a.
Income Summary.
b.
Office Equipment.
c.
Retained Earnings.
d.
Accumulated Depreciation—Office Equipment.
66. The journal entry to record the receipt of a time draft for an international sale would be recorded in a
a.
cash payments journal.
b.
cash receipts journal.
c.
general journal.
d.
purchases journal.
67. The journal entry to close Income Summary when there is a net income is
a.
debit Sales; credit Income Summary.
b.
debit owner’s capital; credit Income Summary.
c.
debit Income Summary; credit Sales.
d.
debit Income Summary; credit owner’s capital.
68. Accounts receivable increased from $40,000 to $50,000 during the fiscal year.
The horizontal analysis ratio for accounts receivable is
a.
a $10,000 increase.
b.
20%.
c.
25%.
d.
0.25.
69. When a plant asset is sold and a loss is recorded,
a.
cash received equals the book value of the asset.
b.
cash received is less than the book value of the asset.
c.
cash received is more than the book value of the asset.
d.
none of these.
70. Expensing the cost of an asset over the asset’s useful life is an application of the concept
a.
Going Concern.
b.
Historical Cost.
c.
Matching Expenses with Revenue.
d.
Objective Evidence.
71. When cash is paid for insurance,
a.
Prepaid Insurance is decreased.
b.
Prepaid Insurance is credited.
Name:
Class:
Date:
c.
Prepaid Insurance is increased.
d.
none of these.
72. The two types of journal entries needed to change general ledger account balances at the end of the fiscal period are
a.
adjusting and correcting entries.
b.
closing and correcting entries.
c.
adjusting and closing entries.
d.
none of these.
73. Reporting changes in financial information for a specific period of time in the form of financial statements is an
application of the accounting concept
a.
Matching Expenses with Revenue.
b.
Accounting Period Cycle.
c.
Consistent Reporting.
d.
Going Concern.
74. Information needed to prepare an income statement’s Revenue section is obtained from a work sheet’s Account Title
column and
a.
Income Statement Debit column.
b.
Income Statement Credit column.
c.
Balance Sheet Debit column.
d.
Balance Sheet Credit column.
75. The FIFO method is based on the assumption that the merchandise purchased first is the merchandise
a.
sold first.
b.
sold last.
c.
in ending inventory.
d.
none of these.
76. After closing entries have been posted, the accounts that remain open are the
a.
asset, liability, capital stock, and retained earnings accounts.
b.
asset, liability, and cost accounts.
c.
asset, liability, and dividends accounts.
d.
asset, liability, and expense accounts.
77. The total of the schedule of accounts receivable should equal
a.
the Accounts Receivable account balance in the general ledger.
b.
the Cash account.
c.
the debit and credit proof.
d.
none of these.
78. Recording expenses in the fiscal period in which the expenses contribute to earning revenue is an application of the
accounting concept
a.
Accounting Period Cycle.
b.
Adequate Disclosure.
c.
Matching Expenses with Revenue.
d.
Historical Cost.
79. Obtaining capital by issuing stock in a corporation is called
a.
equity financing.
b.
debt financing.
c.
a capital expenditure.
d.
a revenue expenditure.
80. The journal entry to record the receipt of cash for the value of a time draft would be recorded in a
a.
cash payments journal.
b.
cash receipts journal.
c.
general journal.
d.
sales journal.
81. Some businesses deposit employee net pay directly to each employee’s bank account by using
Name:
Class:
Date:
a.
payroll checks.
b.
payroll registers.
c.
EFT.
d.
none of these.
82. A business has an $8,000 note receivable outstanding. The 60-day, 10% note is dated December 6. On December 31,
the business would record an adjusting entry to
a.
credit Interest Income for $55.56.
b.
debit Interest Income for $55.56.
c.
credit Interest Receivable for $66.67.
d.
debit Interest Receivable for $66.67.
83. A company estimates that $4,000 of its $50,000 accounts receivable will become uncollectible. The current balance in
Allowance for Uncollectible Accounts is a $300 debit. The adjusting entry will include a
a.
$4,300 credit to Uncollectible Accounts Expense.
b.
$4,300 debit to Uncollectible Accounts Expense.
c.
$3,700 debit to Allowance for Uncollectible Accounts.
d.
$3,700 debit to Uncollectible Accounts Expense.
84. The first step in the posting procedure is writing the
a.
entry date in the Date column of the account.
b.
journal page number in the Post. Ref. column of the journal.
c.
account number in the Post. Ref. column of the account.
d.
entry amount in the Debit or Credit column of the account.
85. On a work sheet, the balance of the owner’s drawing account is extended to the
a.
Income Statement Debit column.
b.
Income Statement Credit column.
c.
Balance Sheet Debit column.
d.
Balance Sheet Credit column.
86. The withholding allowances of an employee affect the amount of
a.
social security tax withheld.
b.
federal income tax withheld.
c.
federal unemployment tax owed.
d.
state unemployment tax owed.
87. A business has net income before federal income tax of $60,000. According to the tax rate schedule, the first $50,000
of taxable income is taxed at 15%. The next $25,000 of taxable income is taxed at 25%. The marginal tax rate that would
be applied to an additional dollar of taxable income would be
a.
15%.
b.
20%.
c.
25%.
d.
none of these.
88. A company has revenue of $350,000, gross profit of $175,000, and expenses of $70,000. The vertical analysis ratio for
net income is
a.
20.0%.
b.
30.0%.
c.
40.0%
d.
50.0%
89. The entry to journalize the receipt of a time draft for an international sale includes a
a.
debit to Sales and a credit to Cash.
b.
debit to Cash and a credit to Sales.
c.
debit to Sales and a credit to Time Drafts Receivable.
d.
debit to Time Drafts Receivable and a credit to Sales.
Name:
Class:
Date:
90. The reversing entry for accrued interest expense includes a debit to
a.
Interest Expense.
b.
Interest Payable.
c.
Cash.
d.
Interest Receivable.
91. Income Summary is a(n)
a.
asset account.
b.
liability account.
c.
temporary account.
d.
permanent account.
92. To rate the ability of a business to pay its current and long-term liabilities, investors use
a.
market ratios.
b.
profitability ratios.
c.
liquidity ratios.
d.
solvency ratios.
93. The journal entry to record an Internet credit card sale includes a
a.
debit to Cash and a credit to Sales.
b.
debit to Sales and a credit to Cash.
c.
debit to Accounts Receivable and a credit to Sales.
d.
debit to Sales and a credit to Accounts Receivable.
94. When the LIFO method is used, cost of merchandise sold is valued at
a.
the average cost.
b.
the earliest cost.
c.
the most recent cost.
d.
none of these.
95. The journal entry to record an Internet credit sale would be recorded in a
a.
cash payments journal.
b.
cash receipts journal.
c.
general journal.
d.
sales journal.
96. A company purchases office equipment for $2,500.00 having a 3-year useful life and a $100.00 salvage value. Using
the straight-line method of depreciation, depreciation expense in year 2 of the asset’s useful life will be
a.
$500.00.
b.
$600.00.
c.
$800.00.
d.
$833.33.
97. If an amount is recorded on the side of a T account opposite the normal balance side, the account balance is
a.
increased.
b.
decreased.
c.
unaffected.
d.
correct.
98. The normal balance side of any expense account is
a.
the debit side.
b.
the credit side.
c.
the right side.
d.
either the debit side or credit side.
99. The entry for drawing cash on a line of credit is
a.
debit Cash; credit Notes Payable.
b.
debit Line of Credit; credit Cash.
c.
debit Notes Payable; credit Cash.
d.
debit Cash; credit Line of Credit.
100. The first digit in the account number 410 means that the account is in the
a.
Assets division of the general ledger.
b.
Liabilities division of the general ledger.
Name:
Class:
Date:
c.
Revenue division of the general ledger.
d.
Expenses division of the general ledger.
101. A business with 10,000 shares of $2.00 par value common stock has earnings per share of $5.00, pays dividends of
$1.00 per share, and has a market value of $10.00 per share. The dividend ratio is
a.
5.0%.
b.
10.0%.
c.
20.0%.
d.
50.0%.
102. A draft that is payable at a fixed or determinable future time after it is accepted is called a
a.
sight draft.
b.
future draft.
c.
bill of lading draft.
d.
time draft.
Directions: Select the one term that best fits each definition. Print the letter identifying your choice on the line to the left
of the statement.
a.
bill of lading
b.
distribution of net income statement
c.
exports
d.
imports
e.
letter of credit
f.
liquidation of a partnership
g.
partnership agreement
h.
realization
i.
time draft
j.
trade acceptance
103. The process of paying a partnership’s liabilities and distributing remaining assets to the partners.
104. A form signed by a buyer at the time of a sale of merchandise in which the buyer promises to pay the seller a
specified sum of money, usually at a stated time in the future.
105. Cash received from the sale of assets during liquidation of a partnership.
106. A partnership financial statement showing net income or loss distribution to partners.
107. A draft that is payable at a fixed or determinable future time after it is accepted.
108. A written agreement setting forth the conditions under which a partnership is to operate.
109. A letter issued by a bank guaranteeing that a named individual or business will be paid a specified amount, provided
stated conditions are met.
110. Goods or services shipped into the buyer’s home country from another country.
111. Goods or services shipped out of a seller’s home country to another country.
112. A receipt signed by the authorized agent of a transportation company for merchandise received that also serves as a
Name:
Class:
Date:
contract for the delivery of the merchandise.
Directions: Select the one term that best fits each definition. Print the letter identifying your choice on the line to the left
of the statement.
a.
accounting system
b.
accrual basis of accounting
c.
adjusting entries
d.
balance sheet
e.
chart of accounts
f.
closing entries
g.
creditor
h.
expense
i.
posting
j.
income statement
k.
permanent accounts
l.
revenue
m.
T account
n.
temporary accounts
o.
trial balance
113. A list of accounts used by a business.
114. A financial statement that reports assets, liabilities, and owner’s equity on a specific date.
115. A person or business to whom a liability is owed.
116. Transferring information from a journal entry to a ledger account.
117. A proof of the equality of debits and credits in a general ledger.
118. An increase in equity resulting from the sale of goods or services.
119. A planned process designed to compile financial data and summarize the results in accounting records and reports.
120. An accounting device used to analyze transactions.
121. Accounts used to accumulate information until it is transferred to the owner’s capital account.
122. Accounts used to accumulate information from one fiscal period to the next.
123. Journal entries used to prepare temporary accounts for a new fiscal period.
124. The cost of goods or services used to operate a business.
125. Reporting income when earned and expenses when incurred.
126. A financial statement showing the revenue and expenses for a fiscal period.
Name:
Class:
Date:
127. Journal entries recorded to update general ledger accounts at the end of a fiscal period.
Directions: Select the one term that best fits each definition. Print the letter identifying your choice on the line to the left
of the statement.
a.
accounts payable ledger
b.
book value of accounts receivable
c.
controlling account
d.
cost of merchandise sold
e.
debt ratio
f.
gross profit
g.
Medicare tax
h.
horizontal analysis
i.
payroll register
j.
purchases allowance
k.
quick ratio
l.
subsidiary ledger
m.
supporting schedule
n.
withholding allowance
o.
working capital
128. The amount of total current assets less total current liabilities.
129. A federal tax paid for hospital insurance.
130. The subsidiary ledger containing vendor accounts.
131. The operating revenue remaining after cost of merchandise sold has been deducted.
132. An account in a general ledger that summarizes all accounts in a subsidiary ledger.
133. A ratio that measures the relationship of quick assets to current liabilities.
134. A comparison of one item on a financial statement with the same item on a previous period’s financial statement.
135. An accounting form that summarizes the earnings, deductions, and net pay of all employees for one pay period.
136. Total liabilities divided by total assets.
137. The original price of all merchandise sold during a fiscal period.
138. Credit allowed for part of the purchase price of merchandise that is not returned, resulting in a decrease in the
customer’s account payable to the vendor.
139. A deduction from total earnings for each person legally supported by a taxpayer, including the employee.
140. The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible
Accounts.
Name:
Class:
Date:
141. A report prepared to give details about an item on a principal financial statement.
142. A ledger that is summarized in a single general ledger account.
Directions: Select the one term that best fits each definition. Print the letter identifying your choice on the line to the left
of the statement.
a.
accrual
b.
amortization
c.
capital expenditures
d.
deferral
e.
financial activities
f.
first-in, first-out inventory costing method
g.
investing activities
h.
last-in, first-out inventory costing method
i.
real property
j.
stated interest rate
143. The spreading of the cost of an intangible asset over its useful life.
144. Cash receipts and payments involving debt or equity transactions.
145. The interest rate used to calculate periodic interest payments on a bond.
146. Land and anything attached to the land.
147. Using the cost of merchandise purchased first to calculate the cost of merchandise sold first.
148. Cash receipts and cash payments involving the sale or purchase of assets used to earn revenue over a period of time.
149. An entry recording revenue before the cash is received, or an expense before the cash is paid.
150. An entry recording the receipt of cash before the related revenue is earned, or payment of cash before the related
expense is incurred.
151. Using the cost of merchandise purchased last to calculate the cost of merchandise sold first.
152. Purchases of plant assets used in the operation of a business.
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date: