Deck 1: Accounting

Question 1

When capital is increased in the double-entry method of accounting, the result is:

A)A credit
B)A debit
C)It is dependent on the situation
D)There is not enough information to determine the answer.
E)None of the above

Answer 1

A credit

Question 2

Retained earnings are revenue of a corporation that is:

A)Not paid out in dividends
B)Paid to shareholders
C)Considered gross profit
D)Shown in a trial balance
E)Issued in stock

Answer 2

Not paid out in dividends

Question 3

If Jenny's Bakery purchased an insurance policy, assuming the accrual accounting method is still being used, when would the company report the cost of the policy as an expense?

A)When Jenny signs the policy
B)When payment is made
C)When the bakery receives the benefits of the policy
D)When the bakery receives payments from the insurance company
E)When the invoice is received

Answer 3

When the bakery receives the benefits of the policy

Question 4

The accounting equation of the double-entry accounting method is:

A)Capital = Income -? Expenses
B)Assets = Liabilities + Owner's Equity
C)Net Income = Revenue ? Expenses
D)Owner's Equity = Assets + Liabilities
E)Profit = Revenue ? COGS

Question 5

Jenny owns a bakery that makes hot cross buns. She purchased a delivery van to deliver her buns to local restaurants. She pays $300 each month for her loan payment on the van. This payment is an example of:

A)Increasing a liability
B)Annualizing a debt
C)Highway robbery
D)Amortization
E)Depreciation

Question 6

If an owner decides to withdraw money from the company, which of the following would be the result?

A)A debit to the owner's equity account
B)A credit to the cash account
C)A credit to the owner's equity account
D)Both A and B
E)None of the above

Question 7

One purpose of GAAP is to provide _________ between accounting periods.

A)Relativity
B)Compression
C)Contention
D)Collaboration
E)Comparability

Question 8

Money owed to others for goods or services are known as:

A)Accounts receivable
B)Assets
C)Accounts payable
D)Receipts
E)Equity

Question 9

The first entry of a transaction takes place in which of the following:

A)The journal
B)The chart of accounts
C)The general ledger
D)The trial balance
E)The balance sheet

Question 10

Gross profit will appear on all income statements. Is this true or false?

A)True-gross profit is always noted on an income statement.
B)False-gross profit is only noted on income statements with a single-step format.
C)False-gross profit is only noted on income statements with a multiple-step format.
D)False-gross profit is noted on balance sheets.
E)False-gross profit is noted on statement of cash flows.

Question 11

Jenny's Bakery recently delivered a bad batch of cakes to a local restaurant. Jenny quickly refunded the cost of the cakes to the restaurant. Her accountant made a __________ to her Refunds of Sales account for this transaction:

A)note
B)debit
C)credit
D)cost adjustment
E)deposit

Question 12

In a corporation, when expenses are greater than revenues in a given period and there are no other gains or losses, ­­­_________________

A)stockholders' equity will not be impacted.
B)stockholders' equity will be increased.
C)stockholders' equity will be decreased.
D)the impact cannot be determined without further information.
E)stockholder's equity is not recognized for corporations.

Question 13

Common stock has a ________ balance and is a/an ______ to the Corporation.

A)debit; liability
B)credit; liability
C)debit; asset
D)credit; asset
E)credit; equity

Question 14

Jenny's Bakery was paid $500 in July to bake a wedding cake in August. Assuming Jenny's Bakery operates on a normal monthly accounting cycle and on an accrual basis, in July her accountant will record the $500 payment as:

A)Accounts receivable
B)Accounts payable
C)Revenue payable
D)Unearned revenue
E)Earned revenue

Question 15

The purpose of the trial balance is to:

A)Check the solvency of the company
B)Identify credits and debits
C)Analyze the accounting period
D)Verify that credits equal debits
E)Find misclassified transactions

Question 16

Which financial statement is prepared last out of the following three: balance sheet, statement of cash flows, and the income statement?

A)Balance sheet
B)Statement of cash flows
C)Income statement
D)All three are prepared at the same time
E)None of these are prepared until the statement of owner's equity is prepared

Question 17

The going concern concept is defined as:

A)An accountant showing due diligence throughout the accounting cycle.
B)An owner showing interest and concern for his business.
C)An accounting concept in which preparing financial statements on a regular basis ensures that the company is in good standing.
D)An accounting concept that assumes the business is not shutting down in the foreseeable future.
E)An accounting concept in which the business will have regular audits.

Question 18

Doug's Doohickeys sells hardware. His sales have finally reached $1,000,000 annually after years of hard work. Now his accountant has discovered a mistake-Doug misclassified a $2 expense several months ago. His accountant decides to ignore it. What accounting concept does he use to justify this?

A)The going concern concept
B)The materiality concept
C)The money measurement concept
D)The matching concept
E)The time is money concept

Question 19

What is the purpose of the balance sheet?

A)To show cash flow
B)To show solvency and income of the company in the current period
C)To provide information on revenue and expenses
D)To show the gross profit margin
E)To provide a snapshot of the company's financial condition

Question 20

Which form of ownership is considered the most advantageous for shorter-termed projects or business ventures?

A)Corporations
B)General partnerships
C)Sole proprietorships
D)Limited liability partnerships or corporations
E)Stock ownership

Question 21

Which is more important to a public accountant-the duty to the public or the duty to the client?

A)The client
B)The public
C)Neither. They have an obligation to hold their profession above all other duties
D)Their paycheck trumps their duty to both the public and the client
E)The duty to the SEC actually trumps any and all duties accountants may have

Question 22

Bart's Brewskies saw sales of $50,000 in December-primarily due to New Year's Eve celebrations. Bart determined that 30% of his sales are paid in cash, while the rest are billed for their brewskies. Of the money owed, 40% is paid December, while the remaining is paid the following month. What is the increase of Accounts Receivable on New Year's Eve?

A)$21,000
B)$14,000
C)$15,000
D)$35,000
E)$50,000

Question 23

Which financial statement does not include sales that are recorded as credit?

A)The balance sheet
B)The income statement
C)The statement of cash flows
D)All of the financial statements include credit sales.
E)None of these financial statements includes credit sales.

Question 24

Bart owns a brewery that specializes in a beer containing caffeine. He recently purchased a $20,000 coffee maker to help add a kick to his brew. He expects the coffee maker to have a useful life of ten years and have a salvage value of $2,000. If Bart's brewery, Bart's Brewskies, is using the double declining depreciation method, how much would he depreciate in the first year?

A)$5,000
B)$1,000
C)$2,500
D)$4,000
E)$3,500

Question 25

The first step in the accounting cycle is to:

A)Identify the transaction
B)Analyze the transaction
C)Record the transaction with journal entries
D)Produce a trial balance
E)Produce a balance sheet

Question 26

During 2009, Bart's Brewskies saw a jump in accounts receivables. It went from $10,000 at year end in 2008 to $20,000 at year end in 2009. With the introduction of his newest brewskie, chocolate beer, Bart saw his sales skyrocket. In 2009, his sales were $120,000. How much cash did Bart's Brewskies take in for 2009?

A)$105,000
B)$120,000
C)$130,000
D)$140,000
E)$110,000

Question 27

At year end, the accounts for Doug's Doohickeys show the following balances prior to adjusting entries:
Accounts Receivable: $10,000 debit balance
Allowance for Uncollectible Accounts: $3,500 credit balance
Sales were $1,000,000 and 40% of the sales were on credit.
If Doug deems that .4% of his accounts won't be collected, what is the balance of the Allowance for Uncollectible Accounts going to be?

A)$160,000
B)$5,100
C)$1,600
D)$1,900
E)$5,000

Question 28

Bart's Brewskies is considering firing their new accountant. Bart misclassified one of his expenses and even though Bart was the one who made the error, he says the accountant should have caught it when he prepared the trial balance. Is he correct?

A)No. He's wrong.
B)Yes. He's correct.
C)There's not enough information to answer the question.
D)It depends upon how much the expense was.
E)Bart was sampling the stock again and didn't know what he was talking about.

Question 29

Between the balance sheet and the income statement, which financial statement(s) is/are impacted by depreciation?

A)The balance sheet
B)The income statement
C)Neither is impacted.
D)Both are impacted.
E)There is not enough information to determine the impact.

Question 30

Larry's Lobsters keeps its operating cash in an interest-bearing checking account and they earn $150 in interest during the year. Where is that interest shown?

A)In the non-operating income section of the income statement.
B)In the operating income of the income statement.
C)On the balance sheet.
D)As a note on the income statement.
E)On the statement of cash flows.

Question 31

Bart's Brewskies is reconciling the company's bank account. Assuming that all transactions flow through one account, which of the following transactions will Bart's subtract from their bank statement's ending balance to reconcile the accounts?

A)Bounced checks from customers
B)Checks that Bart wrote to purchase more hops that are not showing as cashed
C)Deposits in transit to the bank.
D)Cashed checks
E)Missing deposits

Question 32

Wages Payable represents a/an ____________ for the company.

A)liability
B)asset
C)future asset
D)increase to net income
E)profit

Question 33

Jim's Jeans makes stylish denim products for senior citizens. Jim's Jeans begins the year with $20,000 in inventory. Jim purchases his inventory from a supplier in Europe and during the year he purchased $85,000 in goods. With the success of his Granny Glam line, Jim was quite happy with $150,000 in sales for the year, and he sees a 50% gross profit on the selling price. What was the balance of his inventory account at year end?

A)$120,000
B)$10,000
C)$45,000
D)$30,000
E)$65,000

Question 34

In the statement of owner's equity, owner's equity or capital is calculated using:

A)Gross income
B)The positive or negative cash flow figure from the statement of cash flows
C)Assets
D)Total income from operating activities
E)Net income

Question 35

Larry the Lawyer is going to represent Bart's Brewskies in an upcoming litigation. Bart is being sued for representing his brewskies as being non-alcoholic, when in fact, they were 80-proof. Larry has asked Bart for a retainer of $1,000 before he'll even meet with Bart. Assuming the accrual basis of accounting is in play, that $1,000 is considered (for Larry):

A)Revenue and a receipt
B)An accounts receivable
C)A receipt
D)Revenue
E)An accounts payable

Question 36

Kimmey's Cookies sells gourmet dog biscuits. She uses the cash method of accounting. She purchased $5,000 in inventory on account on October 10th. That same day, she sold $2,500 in biscuits on account to the local pet shop. She will be billed for the inventory on October 12th and she expects payment for the sale on October 15th. Her revenue for October 10th is:

A)$7,500
B)0
C)$2,500
D)$5,000
E)$1,000

Question 37

Another name for an income statement is a:

A)Statement of cash flows
B)Balance sheet
C)Operating statement
D)Statement of owner's equity
E)Profit & loss statement

Question 38

If it's assumed that over a time period prices are rising, which inventory identification method would result in a lower tax bill for a company, assuming all other inputs are equal?

A)FIFO
B)LIFO
C)There would be no difference in the tax.
D)There is not enough information to make a determination.

Question 39

Jim's Jeans is being sued by a former employee for $100,000. The employee is claiming age discrimination. She is twenty-four and was terminated when Jim decided that he wanted all employees to be over the age of sixty-five. Jim's attorney has told him that the employee has a strong case and will probably win. How does this impact Jim's accounting records?

A)A note is made on the Balance Sheet regarding the lawsuit.
B)There is no impact on the financial statement unless the employee wins the suit.
C)A loss of $100,000 appears in the owner's equity section on the balance sheet.
D)An entry will appear on the statement of cash flows.
E)A contingent liability of $100,000 appears on the income statement as an expense.

Question 40

Which of the following appear on an income statement in the revenue section?
I. Revenue or income from the primary activity of the business
II. Revenue or income from any secondary activities of the business
III. Gains recognized by the business

A)I, II, and III
B)I
C)II
D)I, II
E)None will appear on the income statement.

Question 41

For February, Jim's Jeans recognized $40,000 in revenue, with a selling commission to its marketing personnel of 5%. The manager of the department is the only employee in this department with a salary, and he makes $48,000 per year. Jim had advertising expenses of $5,000, along with miscellaneous selling expenses of $2,000. What was the total selling/marketing expense for February?

A)$27,000
B)$57,000
C)$13,000
D)$11,000
E)$48,000

Question 42

Which of the following is subtracted from net sales to determine gross profit?

A)Cost of goods sold
B)Expenses
C)Both cost of goods sold and expenses
D)Cost of goods sold, expenses, and taxes
E)Taxes

Question 43

Jim's Jeans decided to shut down their Jimmy Jean Division. Where on the income statement would this closing be addressed?

A)Under extraordinary items at the bottom of the income statement.
B)As a note on the operating income section of the income statement.
C)Under discontinued operations at the bottom of the income statement.
D)As a deduction in the Net Profit section of the income statement.
E)An entry would be on the operating income section of the income statement.

Question 44

After the closure of the Jimmy Jean Division of Jim's Jeans, the Granny Glam Division was so upset that they decided to go on strike. As a result, Jim's Jeans suffered a loss of $20,000. Where was this noted on the Income Statement?

A)Under extraordinary items, at the bottom of the income statement.
B)Under discontinued operations, at the bottom of the income statement.
C)A note would be added at the bottom of the income statement.
D)It would not be noted on the income statement.
E)A separate line item, in the main portion of the income statement.

Question 45

Complete the following statement:
________ occur when money is earned; ________ occur when cash is received.

A)Receipts; revenues
B)Revenues; receipts
C)Accounts receivables; receipts
D)Both B & C are correct.
E)None is correct.

Question 46

Larry, who uses the accrual basis of accounting, hired an extra driver to help him make deliveries in December. The extra driver only works from December 1st through the 31st . Larry pays the driver on January 5th, but the expense is shown on the December income statement. Why?

A)Cost benefit analysis
B)Matching principle
C)Cost principle
D)Going concern principle
E)Gross profit margin analysis

Question 47

If Larry's Lobsters hires an accountant who decides to change their book depreciation method from the double-declining balance method to the straight-line method, how would this change be noted?

A)As a discontinued operation on the income statement.
B)As an extraordinary item on the income statement.
C)As a note on the balance sheet.
D)As a change in accounting principle on the income statement.
E)As an e-mail to Larry's Lobsters employees.

Question 48

GAAP refers to:

A)A store that sells casual clothing
B)General accounting assistance program
C)Generally accepted accounting principles
D)Generally acceptable account procedures
E)The theory that accounting and the general public look at financial statements differently

Question 49

If a company carries a mortgage that has a variable interest rate, which of the following financial statements will be affected if the interest rate rises?

A)The balance sheet
B)The income statement
C)The statement of retained earnings
D)The statement of cash flows
E)All of the above

Question 50

A marketing expense and an overhead expense are both part of the:

A)Direct expenses
B)Operating expenses
C)Indirect expenses
D)Total expenses
E)General expenses

Question 51

Larry's Lobsters sells a truck that is no longer used in the business and the amount they receive for the truck is more than the amount carried in the accounting books. What is reported on the income statement?

A)An expense
B)Revenue
C)Profit
D)Loss
E)A gain

Question 52

If Larry's Lobsters saw net sales of $100,000 and they had goods available for sale of $80,000, with an ending inventory of $40,000, what is the gross profit margin of Larry's Lobsters?

A)There is not enough information supplied.
B)40%
C)50%
D)60%
E)70%

Question 53

Expenses cannot be estimated on income statements.

Question 54

On January 1, Larry's Lobsters, which uses the accrual basis of accounting, borrowed $100,000 to purchase a new boat. The interest rate is 10%. Larry's Lobsters pays interest on a quarterly basis, with the first payment due on April 1. What will be the interest expense on the January income statement?

A)$833.33
B)$1,000
C)$10,000
D)$2,500
E)$4,000

Question 55

Jim's Jeans is located in Florida and hopes to tap into the spending of the state's retired population. Jim's Jeans pays a tax rate of 35% and their income before taxes and extraordinary items was $400,000. If Jim's Jeans suffered a tax-deductible extraordinary loss of $100,000, what is their net income?

A)$185,000
B)$105,000
C)$260,000
D)$300,000
E)$195,000

Question 56

Earnings per share is always shown on the income statement, except __________

A)when the company is publicly traded.
B)when the company issues stock.
C)when the shareholders vote to have it not shown.
D)when the accountant elects not to do so.
E)when the company is privately owned.

Question 57

Petey's Printing discards a copier that it purchased for $100,000. If the machine's accumulated depreciation is $99,000, what would the journal entry be to record the disposal?

A)Debit Accumulated Depreciation of Copier, $99,000; credit Copier, $100,000; credit Loss on Disposal of Copier, $1,000.
B)Debit Accumulated Depreciation of Copier, $99,000; credit Copier, $100,000; debit Loss on Disposal of Copier, $1,000.
C)Credit Accumulated Depreciation of Copier, $99,000; debit Copier, $100,000; debit Loss on Disposal of Copier, $1,000.
D)Debit Accumulated Depreciation of Copier, $99,000; debit Copier, $100,000; credit Loss on Disposal of Copier, $1,000.
E)Credit Accumulated Depreciation of Copier, $99,000; credit Copier, $100,000; debit Loss on Disposal of Copier, $1,000.

Question 58

If Petey's Printing is providing printing services on account, how is his balance sheet affected?

A)Assets decrease; owner's equity decreases
B)Assets increase; owner's equity increases
C)Liabilities increase; owner's equity decreases
D)Assets increase; owner's equity decreases
E)Liabilities decrease; assets increase

Question 59

If Larry was using a perpetual inventory system, how would he record the purchase of $20,000 of inventory on account?

A)A credit to sales
B)A debit to sales
C)A debit to merchandise inventory
D)A credit to merchandise inventory
E)A credit to purchases on account

Question 60

Which of the following is considered a contra account?

A)Ken Tyler, Capital
B)Cash
C)Wages payable
D)Wage expense
E)Accumulated depreciation

Question 61

A corporation issues $500,000 in 20-year cash bonds that have an 8% interest rate, payable annually. The current market rate is 7%. The corporation uses the straight-line method to amortize the bond discount or premium. Which of the following is true?

A)The carrying amount increases from its amount at issuance to $500,000 at maturity.
B)The carrying amount decreases from its amount at issuance to $500,000 at maturity.
C)The annual interest paid to the bondholders increases over the next 20 years.
D)The annual interest paid to the bondholders decreases as the bonds reach maturity.
E)The bonds were sold at a discount.

Question 62

Ken's Canaries shows the following balances in the books:
Common Stock $200,000
Paid in Capital
In Excess of Par $20,000
Retained Earnings $95,000
Treasury Stock $10,000
What is the total stockholder's equity?

A)$335,000
B)$220,000
C)$305,000
D)$295,000
E)$210,000

Question 63

Which of the following choices would appear first under the assets category in a balance sheet?

A)Cash
B)Accounts receivable
C)Vehicles
D)Land
E)It depends. Accounts are usually listed alphabetically.

Question 64

Equipment that was purchased for $30,000 has accumulated depreciation of $27,000. It is sold to the scrap yard for $3,500. What is the gain or loss on the disposal of this fixed asset?

A)Gain of $3,500
B)Loss of $3,500
C)Loss of $500
D)Gain of $500
E)Loss of $26,500

Question 65

Ken's Canaries shows current assets of $150,000 and current liabilities of $75,000. If Ken uses cash to purchase canaries that will be resold, which is true of his working capital and current ratio?

A)Current ratio increases; working capital does not change.
B)Both remain unchanged.
C)Current ratio increases; working capital decreases.
D)Current ratio does not change; working capital decreases.
E)Both will increase.

Question 66

Which of the following appears as a category in the balance sheet?

A)Expenses
B)Gains
C)Liabilities
D)Net profit
E)Cost of goods sold

Question 67

If Ken's Canaries, which is not publicly traded, issues common stock in exchange for a new delivery truck, how should the transaction be recorded?

A)At the par value of the common stock.
B)At the stated value of the common stock.
C)At the fair market value of the common stock.
D)At the fair market value of the delivery truck.
E)At the fair market value of the delivery truck or the fair market value of the common stock, whichever can be determined more objectively.

Question 68

If an 8% $200,000 bond with a date of March 1, 2010 is sold on March 31, 2010, the buyer of the bond will pay the seller how much in interest on the selling date?

A)$16,000
B)$1,333
C)$3,000
D)$4,000
E)$2,000

Question 69

The purchase of treasury stock would be shown under which section on the statement of cash flows?

A)Operating
B)Investing
C)Financing
D)Supplemental
E)It is not reported on the statement of cash flows.

Question 70

Which of the following is true regarding the difference between book value and shareholder's equity?

A)There is no difference; these terms are synonymous.
B)Book value excludes intangibles such as goodwill.
C)Shareholder's equity measures net assets.
D)Shareholder's equity is an asset; book value is a liability.
E)Book value is an asset; shareholder's equity is a liability.

Question 71

Which of the following entries would be made to close a dividends account?

A)Credit retained earnings
B)Debit retained earnings
C)Debit revenue
D)Debit depreciation expense
E)Debit cash

Question 72

If Aaron the Architect operates as a sole proprietor and he withdraws cash from his business to pay himself, how does this affect the balance sheet?

A)Assets decrease; owner's equity decreases
B)Assets Increase; liabilities decrease
C)Assets decrease; owner's equity increases
D)There is no effect on the assets, liabilities, or on the owner's equity.
E)Assets decrease; liabilities decrease

Question 73

A corporation purchased 20% of the outstanding shares of common stock of Ken's Canaries as an investment. Ken's Canaries had a banner year with profits and paid cash dividends. What would the corporation that holds the stock do to record the transaction?

A)Debit Cash; credit Dividend Revenue
B)Debit Investment, Ken's Canaries; credit cash
C)Debit Cash; credit Unearned Income
D)Debit Investment, Ken's Canaries; credit Income, Ken's Canaries
E)Debit Cash; Credit Investment, Ken's Canaries

Question 74

Unearned revenue is considered a/an:

A)Asset
B)Liability
C)Revenue
D)Owner's equity
E)Profit

Question 75

Big Bertha's Birds decided to purchase Ken's Canaries. Ken's Canaries has a book value of $550,000. Big Bertha paid $655,000 in stock and cash under the purchase method. How much goodwill would Big Bertha be required to put on its balance sheet?

A)$550,000
B)$655,000
C)$155,000
D)$105,000
E)$100,000

Question 76

Big Bertha's Birds purchased Finkel's Finches for $100,000 and the book value was $50,000. If Big Bertha's amortized the goodwill off its balance sheet for the maximum time period allowed, what would the annual charge against earnings be?

A)$50,000
B)$1,000
C)$1,500
D).8%
E)$1,250

Question 77

If Big Bertha's Birds purchases a family owned canary breeding farm for $150,000 and the family retained 12.21%, what is the minority interest that is put on the balance sheet?

A)$21,581
B)$18,315
C)$150,000
D)$131,685
E)$12,210

Question 78

The following widgets were available in inventory for sale during the year. As you can see, the cost was rising throughout the year:
Beginning Inventory: 5 units at $51
Purchase 1: 12 units at $53
Purchase 2: 15 units at $54
Purchase 3: 10 units at $63
The ending inventory was 10 units. Assuming the company uses the periodic system for inventory, what is the value of the inventory at year end using the average cost method?

A)$500
B)$510
C)$630
D)$540
E)$555

Question 79

With all her recent acquisitions, Big Bertha needs to take a good look at her debt to equity ratio. If she owes $100,000 in long term debt, $50,000 in short term loans, and has $1,000,000 in shareholder equity, what is her debt to equity ratio?

A).15
B).10
C).05
D).50
E).20

Question 80

If $5,000,000 in 7% bonds are issued at 104 ½, how much cash is generated from the sale?

A)$1,040,000
B)$1,000,000
C)$5,000,000
D)$5,225,000
E)$3,500,000