1) Starlight Associates, Inc. recorded salary expense of $100,000 in 2014. However,
additional salaries of $5,000 had been earned, but not paid or recorded at December 31,
2014. After the adjustments are recorded and posted at December 31, 2014, the
balances in the Salaries Expense and Salaries Payable accounts will be
Salaries Expense Salaries Payable
A.$ 105,000 $ 5,000
B.$ 100,000 $ -0-
C.$ 100,000 $ 5,000
D.$ 105,000 $ -0-
2) Several accounts from the financial statements of Madison Company are listed
below. In the two columns provided for answers, indicate the type of account and the
normal account balance. Use the following identification codes for your answers:
Type of Account NormalBalance
A) Prepaid Insurance _______ _______
B) Retained Earnings _______ _______
C) Dividends _______ _______
D) Capital Stock _______ _______
E) Accounts Payable _______ _______
F) Wages and Salaries Expense _______ _______
G) Interest Income _______ _______
H) Wages and Salaries Payable _______ _______
I) Investments _______ _______
J) Decorating Fees Earned _______ _______
3) Which one of the following is the last step in the accounting cycle?
A.Journalizing business transactions
B.Recording and posting adjustments
C.Closing the accounts
D.Preparing financial statements
4) Match the action with the category of internal control procedures
1>Proper authorization A. Specific authority is given by management for the
performance of activities.
2>Segregation of duties B. Accounting and cash collection is properly separated
3>Design and use of business documents C. One department should check on another
4>Safeguarding assets D. Blank checks are locked at all times when not in use
5>Independent verification E. Origination of initial entry into accounting system
5) Which of the following represents a group composed of key officers of a corporation
and outside members responsible for the general oversight of the affairs of the
company?
A.Board of Directors
B.Internal Audit Staff
C.External Auditors
D.Audit Committee
6) The total amount of interest calculated annually on a $7,000 promissory note payable
for 3 years at 12% that is not compounded is
A.$ 280
B.$ 840
C.$ 2,520
D.$ 8,260
7) What does the phrase, “Revenue is recognized at the point of sale” mean?
A.Revenue is recorded in the accounting records when the goods are received from a
supplier, and reported on the income statement when sold to the customer
B.Revenue is recorded in the accounting records and reported on the income statement
when the cash is received from the customer
C.Revenue is recorded in the accounting records when the goods are sold to a customer,
and reported on the income statement when the cash payment is received from the
customer
D.Revenue is recorded in the accounting records and reported on the income statement
when goods are sold and delivered to a customer
8) When the market value of inventory items has declined below its cost, which method
would be the most appropriate in complying with GAAP?
A.Gross Profit
B.LIFO
C.Lower of Cost or market
D.Retail
9) Greer Company purchased land for $256,000. Additional costs include a $15,300 fee
to a broker, a survey fee of $2,400, $1,750 to construct a fence and a legal fee of
$8,500. What is the cost of the land?
A.$256,000
B.$282,200
C.$284,600
D.$281,000
10) Which of the following terms best describes Cost of goods available for sale?
A.Cost of goods available for sale is an expense account
B.Cost of goods available for sale is added to beginning inventory to determine cost of
purchases during the period
C.Cost of goods available for sale is subtracted from net sales to arrive at the gross
margin
D.Cost of goods available for sale is allocated into cost of goods on hand and cost of
goods sold at the end of the fiscal year
11) Which of the following is the correct date format for the financial statement
heading?
A.Balance sheet for the year ended June 30, 2014
B.Income statement at December 31, 2014
C.Balance sheet at December 31, 2014
D.Statement of retained earnings at December 31, 2014
12) Payment is received from customers who were billed earlier for services provided
for them. For this transaction, identify the effect on the accounting equation
A.Assets increase and liabilities increase
B.Assets increase and stockholders equity increases
C.Liabilities increase and stockholders equity decreases
D.There is no effect on the accounting equation as one asset account increases while
another asset account decreases
13) Pinecrest Company
Use the selected data from Pinecrest Companys financial statements to answer the
following question.
Refer to the data for Pinecrest Company.
Competitors in Pinecrest Companys industry have an average inventory turnover of
20.8 times. Its inventory turnover for 2014
A.indicates that the company has too little inventory on hand at the end of 2014
B.indicates that the company is pricing its products too low.
C.is equal to the number of days’ sales in the company’s inventory.
D.indicates that the company may have a large amount of obsolete inventory or
problems in the sales department.
14) Which one of the following subtotals or totals would appear in a multiple-step, but
not a single-step income statement?
A.Income tax expense
B.Income from operations
C.Cost of goods sold
D.Net income
15) All of the following are different expressions for net income except:
A.Profits
B.Excess of revenues over expenses
C.Capital
D.Earnings
16) Back Company sold merchandise on credit. Its gross profit ratio is 23%. The effect
of this transaction is that the
A.earnings per share decreased
B.current ratio was unchanged
C.debt-to-equity ratio increased
D.earnings per share increased
17) Sunshine Farm Supply
Following are selected data from the financial statements of Sunshine Farm Supply:
Refer to the data for Sunshine Farm Supply.
Which of the following results would be found through a vertical analysis of the
balance sheet or the income statement of Sunshine Farm Supply?
A.Accounts receivable increased $22,000 during 2012
B.Total assets increased $70,000 during 2012
C.Cost of goods sold increased $50,000 or 23.8% during 2012
D.Gross profit is 57.9% of net sales for 2012
18) Which one of the following adjustments decreases net income for the period?
A.Recognition of depreciation on plant assets
B.Recognition of interest on a note receivable
C.Recognition of services that had been provided to customers but the cash has not yet
been received
D.Recognition of rent as earned that had been received in advance from customers