Which of the following statements is true of a sole proprietorship?
A) A sole proprietorship joins two or more individuals as co-owners.
B) The sole proprietor is personally liable for the liabilities of the business.
C) A sole proprietorship is taxed separately from the owner.
D) A sole proprietorship has to pay business income taxes.
An internal document that helps summarize data for the preparation of financial
statements is called a ________.
A) journal
B) ledger
C) worksheet
D) chart of accounts
The accountant of Residential Architectural Services failed to make an adjusting entry
to record $7,000 of depreciation expense. Which of the following statements is true?
A) The total liabilities will be overstated.
B) The equity will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
Which of the following items are reconciling items on the bank side of the
reconciliation?
A) outstanding checks and correction of book error
B) deposit in transit and NSF check
C) deposit in transit and outstanding checks
D) bank service charge and correction of book error
Jason Ford has been the sole owner of a bicycle sales and repair shop for several years.
Which of the following business types would limit Jason’s personal liability exposure to
the entity’s debts?
A) partnership
B) limited-liability company
C) sole proprietorship
D) Any of the above.
When does a company account for revenue if it uses cash basis accounting?
A) when services are performed, even though cash may be received at a later date
B) before services are performed
C) when the services are being performed
D) when cash is received, either prior to, at the time of, or after the services are
performed
A petty cash fund was established with a $400 balance. It currently has cash of $41 and
petty cash tickets totaling $359. Which of the following would be included in the entry
to replenish the fund?
A) a credit to Petty Cash for $359
B) a debit to Petty Cash for $41
C) a credit to Cash for $41
D) a credit to Cash for $359
Which of the following corporate characteristics is a disadvantage of a corporation?
A) Stockholders have limited liability.
B) A corporation has a continuous life.
C) There is no mutual agency between the stockholders and the corporation.
D) Earnings of a corporation may be subject to double taxation.
Which of the following accounts is credited by the seller when tax is collected on retail
sales?
A) Accounts Payable
B) Payroll Tax
C) Sales Tax Payable
D) Unearned Revenue
The net income of Thomas Corporation was $71,000 for this year. The beginning
balance of stockholders’ equity was $33,000 and the ending balance was $72,000. The
company issued no common stock during the year. What was the amount of dividends
distributed during the year?
A) $72,000
B) $32,000
C) $143,000
D) $33,000
A balance sheet that lists the assets above the liabilities and stockholders’ equity
sections is a(n) ________ balance sheet.
A) report form
B) unclassified form
C) account form
D) audited form
The vertical analysis of the income statement of Settler, Inc. is as shown below:
Settler, Inc.
Comparative Income Statement
Years Ended December 31, 2019 and 2018
The 20% shown for net income in 2019 signifies that net income ________.
A) is 20% of net sales revenues
B) increased by 20% over the previous year
C) is 20% of gross profit
D) equals 20 times of the income before income tax
Greene Corporation pays $500,000 to acquire 40% of the voting stock of Universal
Technologies, Inc. on May 5, 2019. This investment will be classified as a(n) ________.
A) trading equity investment
B) available-for-sale equity investment
C) significant influence equity investment
D) held-to-maturity equity investment
A company has net credit sales of $1,200,000, beginning net accounts receivable of
$290,000, and ending net accounts receivable of $201,000. What is the days’ sales in
accounts receivable? (Round any intermediate calculations to two decimal places, and
your final answer to the nearest whole day.)
A) 75 days
B) 149 days
C) 61 days
D) 88 days
Ocean Corporation sells a product for $500 on account to Great Atlantic Sales. This
transaction will be recorded in the ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) purchase journal
Which of the following is representative of safeguarding assets?
A) attaching electronic sensors to merchandise inventory
B) reducing expenses to increase operating profit
C) increasing operating profit to increase net income
D) allowing company accountants to handle cash
Which of the following is assessed using the debt ratio?
A) profitability
B) revenues
C) risk of default
D) net income
Merchandise inventory accounting systems can be broadly categorized into two types.
They are ________.
A) FIFO and LIFO
B) perpetual and periodic
C) wholesale and retail
D) manufacturer and producer
In a perpetual inventory system, when cash sales are recorded, ________.
A) merchandise inventory decreases and cost of goods sold decreases
B) sales revenue increases and cash decreases
C) sales revenue increases and cost of goods sold decreases
D) merchandise inventory decreases and cost of goods sold increases
Murphy & Murphy Enterprises expects the following for 2018:
The business plans to spend $110,000 to purchase equipment.
What is the expected amount of free cash flow for 2018?
A) $96,000
B) $116,000
C) $62,000
D) $42,000
With cash receipts by mail, the person who is responsible for comparing the cash debit
from the accounting department and the bank deposit amount is the ________.
A) CEO
B) CFO
C) controller
D) treasurer
The accountant for Watson Electrical Repair, Inc. failed to make an adjusting entry to
record $5,000 of unpaid salaries for the last two weeks of the year. Which of the
following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
The accountant for Diamond Jewelry Repair Services, Inc. forgot to make an adjusting
entry for Depreciation Expense for the current year. Which of the following is an effect
of this error?
A) Revenues are understated.
B) Total assets are understated.
C) Net income is overstated.
D) Total liabilities are understated.
Compute the present value of $46,000, invested for six years at 8%.
Present value of $1:
A) $36,647
B) $25,300
C) $32,660
D) $28,980
Which of the following is an attribute of the internal control component—monitoring of
controls?
A) Internal auditors monitor company controls to safeguard assets, and external
auditors evaluate the controls to ensure that the accounting records are accurate.
B) Monitoring of controls is the “tone at the top” of the business.
C) Monitoring of controls is designed to ensure that the business’s goals are achieved.
D) Monitoring of controls deals with identification and assessment of business risks.
An effective accounting information system that provides relevant information
________.
A) increases the likelihood of fraud and errors
B) reduces the cost of employing an accounting information system
C) improves decision making and reduces uncertainty
D) improves the accuracy of data entry when manual
Allstate Moving Company reported the following amounts on its balance sheet as of
December 31, 2019 and December 31, 2018:
For the vertical analysis, what is the percentage of current assets as of December 31, 2019?
(Round your answer to two decimal places.)
A) 23.36%
B) 35.75%
C) 55.63%
D) 30.49%
Newcastle Enterprises had net income for 2018 of $103,000. Newcastle had 39,000
shares of common stock outstanding at the beginning of the year and 43,000 shares of
common stock outstanding at the end of the year. There were 6000 shares of preferred
stock outstanding all year. During 2018, Newcastle declared and paid preferred
dividends of $29,000. What is Newcastle’s earnings per share? (Round the answer to
two decimal places.)
A) $2.51
B) $2.40
C) $1.80
D) $1.72
Delaware Retail, Inc. had the following balances and transactions during 2019.
The company maintains its records of inventory on a perpetual basis using the last-in,
first-out inventory costing method. Calculate the amount of ending Merchandise Inventory
at December 31, 2019 using the lower-of-cost-or-market rule.
A) $2,520
B) $2,560
C) $1,920
D) $3,840
John, an employee of Smith Electric, Inc., has gross salary for March of $4,000. The
entire amount is under the OASDI limit of $118,500 and thus subject to FICA. He is
also subject to federal income tax at a rate of 18%. John has a deduction of $320 for
health insurance and $80 for United Way. Provide the journal entry to record salaries
expense and payroll withholdings. (Assume a FICA—OASDI Tax of 6.2% and FICA—
Medicare Tax of 1.45%.) Salaries will be paid at a later date. Omit explanation.
If a bond’s stated interest rate is lower than the market rate, which of the following is
true?
A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount higher than the maturity value.
The balance of stockholders’ equity at the beginning of the year and the end of the year
was $50,000 and $60,000, respectively. The company issued no common stock during
the year. Dividends were $24,000. What was the net income or loss for the year?
A) Net income of $84,000
B) Net loss of $84,000
C) Net loss of $34,000
D) Net income of $34,000
Smithville Furniture sold 15 desks, with a cost of $6,500, for $11,250 on account.
Smithville uses the periodic inventory system. Which of the following is the correct
way to record this transaction?
A)
B)
C)
D)
Regarding a periodic inventory system, which of the following statements is incorrect?
A) The periodic inventory system is normally used for relatively expensive goods.
B) Restaurants and small retail stores normally use the periodic inventory system.
C) Periodic inventory systems are becoming less and less popular.
D) The physical count of inventory is required in order to determine the quantities on
hand.