55 Mulitple choice- Accounting I basic transaction, journal, posting questions

3. If total liabilities decreased by $25,000 during a period of time and owner's equity increased by $30,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is ________. $65,000 increase
$5,000 decrease
$5,000 increase
$65,000 decrease

4. A business paid $9,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to ________.
increase one asset, decrease another asset
increase an asset, increase a liability
decrease an asset, decrease a liability
increase an asset, increase owner's equity

5. If total assets decreased by $47,000 during a period of time and owner's equity increased by $24,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities is ________.
$23,000 increase
$47,000 decrease
$71,000 decrease
$71,000 increase

6. The Kennedy Company sold land for $60,000 in cash. The land was originally purchased for $40,000, and at the time of the sale, $15,000 was still owed to First National Bank on that purchase. After the sale, The Kennedy Company paid off the loan to First National Bank. What is the effect of the sale and the payoff of the loan on the accounting equation?
assets increase $20,000; liabilities decrease $15,000; owner's equity increases $5,000
assets increase $5,000; liabilities decrease $15,000; owner's equity increases $20,000
assets increase $60,000; liabilities decrease $15,000; owner's equity increases $20,000
assets increase $20,000; liabilities decrease $15,000; owner's equity increases $35,000

7. On November 1 of the current year, the assets and liabilities of Jim Chu, M.D., are as follows: Cash, $10,000; Accounts Receivable, $8,200; Supplies, $1,050; Land, $25,000; Accounts Payable, $6,530. What is the amount of owner's equity (Jim Chu's capital) as of November 1 of the current year?
$37,720
$44,430
$21,500
$50,780

8. Rivers Computer Makeover Company purchased $15,000 of Computer and Office Equipment. The company paid $3,000 in cash at the time of the purchase and signed a promissory note for the remainder to be paid in six monthly installments. How will this transaction affect the accounting equation?
Increase Assets (Computer and Office Equipment $15,000) and decrease Liabilities (Accounts Payable $15,000)
Increase Total Assets by a net amount of $12,000 (increase Computer and Office Equipment $15,000 and decrease Cash $3,000) and increase Liabilities (Notes Payable $12,000)
Increase Total Assets by a net amount of $15,000 (increase Computer and Office Equipment $12,000 and increase Cash $3,000) and decrease Liabilities (Accounts Payable $15,000)
Increase Assets (Computer and Office Equipment $12,000) and increase Liabilities (Accounts Payable $12,000)

9. Which of the following applications of the rules of debit and credit is true?
decrease Prepaid Insurance with a credit and the normal balance is a credit
increase Accounts Payable with a credit and the normal balance is a debit
increase Supplies Expense with a debit and the normal balance is a debit
decrease Cash with a debit and the normal balance is a credit

10. Randomly listed below are the steps in the accounting cycle:
(1) prepare the financial statements
(2) post the journal entries to the ledger
(3) record journal entries
(4) prepare a trial balance

What is the proper order of these steps?
(3), (2), (4), (1)
(2), (3), (4), (1)
(3), (2), (1), (4)
(4), (3), (2), (1)

11. XYZ Hospital purchased X-ray equipment for $3,000, paid $750 down, with the remainder to be paid later. The correct entry would be __________.

Equipment 750
Cash 750

Cash 750
Accounts Payable 2,250
Equipment 3,000

Equipment Expense 3,000
Accounts Payable 750
Cash 2,250

Equipment 3,000
Accounts Payable 2,250
Cash 750

Cash 750
Equipment 750

12. June 23 Cash 6,000
Able, Capital 6,000
Invest cash in Able, Co.

The journal entry will _________.
Increase Capital and decrease Cash
Increase Cash and decrease Capital
Increase Cash and increase Capital
Decrease Cash and decrease Capital

13. July 14 Accounts Payable 1,000
Cash 1,000
Paid creditors on account

What effect does this journal have on the accounts? (Points: 4)
Decrease accounts payable, increase cash
Increase cash, decrease accounts payable
Increase accounts payable, increase cash
Decrease accounts payable, decrease cash

14. June 26 Equipment 14,000
Cash 4,000
Notes Payable 10,000
?????????

Which is the best explanation for this journal entry? (Points: 4)
Purchased equipment, paid cash of $4,000, with the remainder to be paid in payments
Purchased equipment, paid cash of $4,000, with the remainder to be received in the future
Purchased equipment, paid cash for the entire amount
Purchased equipment on credit

15. The accounts in the ledger of Mickeys Park Co. are listed below. All accounts have normal balances.

Accounts Payable 500 Fees Earned 2,000
Accounts Receivable 800 Insurance Expense 300
Common Stock 1,000 Land 2,000
Cash 1,600 Wages Expense 400
Withdrawals 200 Retained Earnings 1,800

The total of all the assets is:
4,400
5,300
5,200
4,700
5,700

16. The accounts in the ledger of Mickeys Park Co. are listed below. All accounts have normal balances.

Accounts Payable 500 Fees Earned 2,000
Accounts Receivable 800 Insurance Expense 300
Common Stock 1,000 Land 2,000
Cash 1,600 Wages Expense 400
Withdrawals 200 Retained Earnings 1,800

Prepare a trial balance. The total of the debits is _________. $5,300
$10,600
$4,100
$10,400
$4,700

17. Using accrual accounting, revenue is recorded and reported only ________.
when cash is received without regard to when the services are rendered
when the services are rendered without regard to when cash is received
when cash is received at the time services are rendered
if cash is received after the services are rendered

18. The balance in the prepaid rent account before adjustment at the end of the year is $15,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 is _______.
debit Rent Expense, $5,000; credit Prepaid Rent, $5,000
debit Prepaid Rent, $10,000; credit Rent Expense, $5,000
debit Rent Expense, $10,000; credit Prepaid Rent, $5,000
debit Prepaid Rent, $5,000; credit Rent Expense, $5,000

19. The balance in the office supplies account on June 1 was $5,200, supplies purchased during June were $2,500, and the supplies on hand at June 30 were $2,000. The amount to be used for the appropriate adjusting entry is _________.
$4,500
$2,500
$9,700
$5,700

20. What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,500, and unexpired amounts per analysis of policies, $4,500?
debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500
debit Insurance Expense, $15,500; credit Prepaid Insurance, $15,500
debit Prepaid Insurance, $11,500; credit Insurance Expense, $11,500
debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000

21. If the prepaid rent account before adjustment at the end of the month has a debit balance of $1,600, representing a payment made on the first day of the month, and if the monthly rent was $800, the amount of prepaid rent that would appear on the balance sheet at the end of the month, after adjustment, is ________.
$800
$400
$2,400
$1,600

22. How will the following adjusting journal entry affect the accounting equation?

Unearned Subscriptions
12,000

Subscriptions earned

12,000

Increase assets, increase revenues
Increase liabilities, increase revenues
Decrease liabilities, increase revenues
Decrease liabilities, decrease revenues

23. The net income reported on the income statement is $90,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,700 and accrued salaries of $1,300. Net income, as corrected, is ________.
$87,300
$90,000
$88,700
$86,000

24. When is the adjusted trial balance prepared?
Before adjusting journal entries are posted
After adjusting journal entries are posted
After the adjusting journal entries are journalized
Before the adjusting journal entries are journalized

25. During the end-of-period processing which of the following best describes the logical order of this process?
Preparation of adjustments, adjusted trial balance, financial statements
Preparation of Income Statement, adjusted trial balance, Balance Sheet
Preparation of adjusted trial balance, cross-referencing, journalizing
Preparation of adjustments, adjusted trial balance, posting

26. Once the adjusting entries are posted, the Adjusted Trial Balance will prepared to ________.
verify that the debits and credits are in balance
verify that all of the adjustments were posted in the correct accounts
verify that the net income (loss) is correct for the period
verify the correct flow of accounts into the financial statements

27. The income statement should be prepared _________.
before the statement of owner's equity and balance sheet
after the statement of owner's equity and before the balance sheet
after the statement of owner's equity and balance sheet
after the balance sheet and before the statement of owner's equity

28. Long-term liabilities are those liabilities that ________.
will be paid in less than one year
are due to paid in 5 to 10 years
are due to be paid in more than one year
are liabilities owed to the owner and will never be paid

29. There are four closing entries. The first one is to close ____, the second one is to close ____, the third one is to close ____, and the last one is to close ____.
Revenues, expenses, income summary, drawing account
Expenses, assets, income summary, capital account
Capital account, drawing account, income summary, assets
Drawing account, income summary, expenses, revenues

30. Red Rock Stone purchased a one-year liability insurance policy on January 1st of this year for $3,600 and recorded it as a prepaid expense. From the selections of a. through d., select the value that would be utilized in the closing entry for insurance expense and prepaid insurance during the closing process at the end of the first fiscal period on January 31st.
$3,600
$360
$300
$380

31. The proper sequence for the steps in the accounting cycle is a follows: ________.
analyze and record transactions, post transaction to the ledger, prepare a trial balance, prepare financial statements, journalize closing entries, analyze adjustment data and prepare adjusting entries
prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries and post to the ledger, analyze and record transactions, post transactions to the ledger
analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries and post to the ledger
prepare financial statements, journalize closing entries and post to the ledger, analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare adjusting entries

32. The following are steps in the accounting cycle. Of the following, which would be prepared last?
An adjusted trial balance is prepared.
Transactions are posted to the ledger.
An unadjusted trial balance is prepared.
Adjusting entries are journalized and posted to the ledger.

33. The accounting cycle requires three trial balances be done. In what order should they be prepared?
Post-closing, unadjusted, adjusted
Unadjusted, post-closing, adjusted
Unadjusted, adjusted, post-closing
Post-closing, adjusted, unadjusted

34. The fiscal year selected by companies _________.
is the same as the calendar year
begins with the first day of the month and ends on the last day of the twelfth month
must always begin on January 1
will change each year

35. The natural business year _______.
is a fiscal year that ends when business activities are at its lowest point
is a calendar year that ends when business activities are at its lowest point
is a fiscal year that ends when business activities are at its highest point
is a calendar year that ends when business activities are at its highest point

36. The term "inventory" indicates ________.
merchandise held for sale in the normal course of business
materials in the process of production or held for production
supplies
both (a) and (b)

37. A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $4,000; Transportation-In, $450; Purchases, $12,000; Purchases Returns and Allowances, $2,300; Purchases Discounts, $220. The cost of merchandise purchased is equal to _______.
$13,930
$9,930
$9,489
$14,520

38. A company, using the periodic inventory system, has merchandise inventory costing $140 on hand at the beginning of the period. During the period, merchandise costing $400 is purchased. At year-end, merchandise inventory costing $180 is on hand. The cost of merchandise sold for the year is _______.
$720
$550
$360
$140

39. Using the following information, what is the amount of gross profit?

Purchases
$28,000

Purchases discounts
$800

Merchandise inventory April 1
6,500

Merchandise inventory
April 30
7,800

Sales returns and allowances
750

Sales
57,000

Purchases returns and allowances
1,000

Transportation In
880

31,970
30,470
25,780
56,250

40. Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the entry is made in the buyer's accounts on November 18. The credit period begins with what date?
November 12
November 15
November 17
November 18

41. A retailer purchases merchandise with a catalog list price of $10,000. The retailer receives a 25% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account?
$7,500
$10,000
$9,800
$7,350

42. If the seller is to pay the transportation costs of delivering merchandise, the delivery terms are stated as _______.
FOB shipping point
FOB destination
FOB n/30
FOB seller

43. Merchandise with an invoice price of $4,000 is purchased on June 2 subject to terms of 2/10, n/30, FOB destination. Transportation costs paid by the seller totaled $150. What is the cost of the merchandise if paid on June 12, assuming the discount is taken?
$4,150
$4,070
$4,067
$3,920

44. Which account will be included in both service and merchandising companies closing entries?
Sales
Cost of Merchandise Sold
Sales Discounts
Sales Returns and Allowances

45. Taking a physical count of inventory ________.
is not necessary when a periodic inventory system is used
is a detective control
has no internal control relevance
is not necessary when a perpetual inventory system is used

46. Which of the following is not true about taking physical inventories? (Points: 4)
Large variances may require investigations and implementation of corrective actions.
Physical inventories are taken when inventory levels are at their lowest.
Physical inventories deter employee thefts and inventory misuses.
Physical inventories are taken when inventory levels are at their highest.

47. Inventory costing methods place primary emphasis on assumptions about _______.
flow of goods
flow of costs
flow of goods or costs depending on the method
flow of values

48. Beginning inventory, purchases and sales data for tennis rackets are as follows:

Feb 3
Inventory

12 units
@
$15

11
Purchase

13 units
@
$17

14
Sale

18 units

21
Purchase

9 units
@
$20

25
Sale

10 units

Assuming the business maintains a perpetual inventory system, calculate the cost of merchandise sold and ending inventory under First-in, first-out: _______.
cost of merchandise sold 491; ending inventory 90
cost of merchandise sold 120; ending inventory 461
cost of merchandise sold 461; ending inventory 120
cost of merchandise sold 90; ending inventory 491

49. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
10 units at $60

First purchase
25 units at $63

Second purchase
30 units at $64

Third purchase
15 units at $70

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the last-in, first-out method?
$1,230
$1,220
$1,240
$1,340

50. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
10 units at $61

First purchase
25 units at $63

Second purchase
30 units at $64

Third purchase
15 units at $73

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the average cost method?
$1,300
$1,305
$1,415
$1,236

51. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
10 units at $60

First purchase
25 units at $63

Second purchase
30 units at $64

Third purchase
15 units at $70

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the lower of cost or market, using the first-in, first-out method, if the current replacement cost is $64 a unit?
$1,200
$1,230
$1,280
$1,370

52. During times of rising prices, which of the following is not an accurate statement?
Average costing will yield results that are between those of FIFO and LIFO
LIFO will result in a higher cost of goods sold than FIFO
FIFO will result in a higher net income than LIFO
LIFO will result in higher income taxes than FIFO

53. If the cost of an item of inventory is $60 and the current replacement cost is $65, the amount included in inventory according to the lower of cost or market is ________.
$5
$60
$65
$125

54. If, while taking a physical inventory, the company counts their inventory figures more than the actual amount. How will the error affect their bottom line?
No change to net income
Net income will be overstated
Net income will be understated
Only gross profit will be affected

55. If the estimated rate of gross profit is 40%, what is the estimated cost of the merchandise inventory on June 30, based on the following data?

June 1
Merchandise inventory
$ 75,000

June 1-30
Purchases (net)
150,000

June 1-30
Sales (net)
135,000

$144,000
$140,000
$ 81,000
$ 54,500