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Accounting Multiple Choice

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1.) Which of the following costs typically include both fixed and variable components?

(a) Direct materials
(b) Direct labor
(c) Factory overhead
(d) None of the above

2.) Mitchell Company has total current assets of $45,000 including inventory of $10,000, and current liabilities of $21,000. The company's working capital ratio is:

(a) 0.4
(b) 0.5
(c) 2.1
(d) 2.6

3.) Which of the following transactions would affect cash flows?

(a) A write-off of an uncollectible account
(b) Issuance of a stock dividend
(c) Payment of dividends declared in a previous year
(d) Recognition of depreciation expense

4.) On September 1, 2006, the Lily Company purchased equipment making a down payment of $4,500 cash and signing a one-year Note Payable for the $11,500 balance. The note carried an interest rate of 7%, and all interest was to be paid on the maturity date. Which of the following correctly shows the combined effect of the purchase and the accrual of interest on December 31, 2006?

Cash Flows from
Net Operating Investing Financing
Income Activites Activites Activities
A (16,000) (268) (4,500) NA
B NA (268) NA 16,000
C (11,500) NA (11,500) NA
D (268) NA (4,500) NA

(a) A above
(b) B above
(c) C above
(d) D above

5.) Elke Co. issued bonds with a face value of $50,000 and a stated interest rate of 8%. The bonds have a life of four years and were sold at 96. If Elke amortizes discounts and premiums using the straight-line method the amount of interest expense each year would be:

(a) $4,000
(b) $4,500
(c) $5,000
(d) $6,000

6.) On January 1, 2005 Elfund Company purchased an asset that had cost $26,000. The asset had a 6-year useful life and an estimated salvage value of $2,000. Elfund depreciates its assets on the straight-line basis. On January 1, 2009 the company spent $12,000 to improve the quality of the asset. Based on this information the recognition of depreciation expense in 2009 would act to:

(a) Increase total assets by $12,000
(b) Reduce total equity by $10,000
(c) Reduce total assets by $12,000
(d) Increase total equity by $10,000

7.) Generally accepted accounting principles require that companies disclose:

(a) The net realizable value of accounts receivable
(b) The amount of the Allowance for Doubtful Accounts
(c) Both (a) and (b)
(d) Neither (a) nor (b)

8. ) At the end of the 2006 accounting period Vellenga Company determined that the market value of its inventory was $35,900. The historical cost of this inventory was $41,500. Vellenga uses the perpetual inventory method. The entry necessary to reduce the inventory to the lower of cost or market will act to:

(a) Increase assets and increase liabilities
(b) Decrease assets and increase net income
(c) Increase assets and increase net income
(d) Decrease assets and decrease net income

9.) KMR Company provided repair service of $2,800 to a customer who paid $1,300 and promised to pay the remainder next month. Which of the following journal entries correctly records this transaction?

A Cash 1,300
Accounts Payable 1,500
Revenue 2,800

B Cash 1,300
Accounts Receivable 1,500
Revenue 1,500
Accounts Payable 1,300

C Cash 1,300
Revenue 1,300

D Accounts Receivable 1,500
Cash 1,300
Revenue 2,800

(a) A above
(b) B above
(c) C above
(d) D above

10.) Dent Company purchased land costing $2,400 by paying cash. The company earned $2,000 revenue on account and incurred $1,100 of operating expenses on account. As a result of these transactions:

(a) Total assets increased by $2,400
(b) Liabilities increased by $1,100
(c) Total assets increased by $5,400
(d) Both (a) and (b)

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1.) Which of the following costs typically include both fixed and variable components?

(a) Direct materials
(b) Direct labor
(c) Factory overhead
(d) None of the above

Factory overhead will include both fixed and variable components. Depreciation is fixed while indirect material would be variable

2.) Mitchell Company has total current assets of $45,000 including inventory of $10,000, and current liabilities of $21,000. The company's working capital ratio is:

(a) 0.4
(b) 0.5
(c) 2.1
(d) 2.6

Working Capital ratio = current assets/current liabilities = 45,000/21,000=2.1

3.) Which of the following transactions would affect cash flows?

(a) A write-off of an uncollectible account
(b) Issuance of a stock dividend
(c) Payment of dividends declared in a previous year
(d) Recognition of depreciation expense

(c) Payment of dividends would be a cash outflow
Rest are all non cash transactions

4.) On September 1, 2006, the Lily Company purchased equipment making a down payment of $4,500 cash and signing a one-year Note Payable for the $11,500 balance. The note carried an interest rate of 7%, and all interest was to be paid on the maturity date. Which of the following correctly shows the combined effect of the purchase and the accrual of interest on December 31, 2006?

Cash Flows from
Net Operating Investing Financing
Income Activites ...

Solution Summary

The solution explains various multiple choice questions relating to accounting

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Random Accounting Questions

See attached file for clarity.

1. All of the following are true regarding journal entries except:
A. Journal entries show the effects of transactions.
B. Journal entries provide account balances.
C. The debited account titles are listed first.
D. Each journal entry should begin with a date.

2. Marvin's Art Inc. purchases paints, canvases and art supplies from Magic Art Co. for sale to consumers. What type of company is Marvin's Art Inc.?
A. Service
B. Wholesaler
C. Retail merchandiser
D. Manufacturer

3. A company purchased $2,000 of merchandise on November 2 with terms 2/10, n130. On November 8, it returned $500 worth of merchandise. On November 10, it paid the invoice. The amount paid on November 10 equals.
A. $1,470.
B. $1,960.
C. $2,000.
D.$1,500.

4. Sales returns refer to:
A. Merchandise that customers return to the seller after the sale.
B. Reductions in the selling price of merchandise sold to customers.
C. Cash discounts taken by customers.
D. Merchandise inventory that is marked down.

5. Which of the following accounts is not increased with a debit?
A. Sales Discounts.
B. Sales Returns and Allowances.
C. Sales Revenue.
D. Cost of goods sold

7. A _________is a list of individual accounts, usually in financial statement order, prepared as a check on the accounting system.
A. Trial balance
B.General ledger
C. Balance sheet
D. Financial statement

8. Which of the following is not true regarding the use of special journals?
A. Special journals are used to record repetitive, frequent transactions.
B. The use of the General Journal is eliminated by the use of special journals.
C. The Purchases Journal is used to record purchases or expenses on account.
D. The Revenue Journal is used only for recording revenues earned on account.

9. FOB destination means that title to goods purchases is transferred when the:
A. Goods leave the seller's shipping department.
B. Seller sends the invoice.
C. Goods reach the buyers place of business.
D. Buyer records the receipt of inventory.

10. Transactions involving customer payments are often recorded in a:
A. General Journal.
B. Cash Receipts Journal.
C. T-account.
D. Revenue Journal.

57. A debit to Sales Returns and Allowances and a credit to Accounts Receivable:
A. Is recorded when a customer pays within the discount period.
B. Recognizes that a customer returned merchandise or received an allowance.
C. Reflects an increase in the amount due from a customer.
D. Reflects a direct decrease in total sales revenue.

58. Mandy's Ice Cream Shoppe purchased $500 worth of supplies on account from ICEE Inc. In which special journal should this transaction be recorded?
A. Revenue Journal
B. Purchases Journal
C. Cash receipts Journal
D. Cash payments Journal

59. Expenses are:
A. Incurred only when cash is paid.
B. Costs incurred to generate revenues.
C. Increases to owner's equity.
D. Recorded as credits in journal entries.

60. The term "FOB Shipping Point" means
A. The buyer records transportation expense.
B. The seller pays the shipping cost.
C. The buyer pays the shipping cost.
D. The buyer does not assume ownership until the goods are received.

66. The unadjusted trial balance contains which type of accounts?
A. Income statement accounts
B. Balance sheet accounts
C. Both income statement and balance sheet accounts.
D. The final balances for all accounts.

67. The amount recorded in merchandise inventory includes all of the following except:
A. Purchase discounts
B. Freight costs paid by the buyer. C. Freight costs paid by the seller.
D. Purchase returns and allowances.

68. Terms for the left and right side of an account are known as:
A. Increase/Decrease.
B. Debit/Credit.
C. Up/Down.
D. Positive/Negative.

Use the following account numbers and corresponding account titles to answer the next two questions.
Account
No. Account Title
(1) Cash
(2) Inventory
(3) Cost of goods sold
(4) Transportation-
(5) out
(6) Dividends
(7) Common stock
(8) Selling expense

70. Which accounts would appear on the income statement?
A. Account numbers 3, 4, and 7.
B. Account numbers 2, 4, and 5.
C. Account numbers 1, 3, and 7.
D. Account numbers 2, 5, and 7.

71. Which accounts would appear on the balance sheet?
A. Account numbers 2, 4, and 5.
B. Account numbers 1, 3, and 7.
C. Account numbers 1, 2, and 6.
D. Account numbers 3, 4, and 7.
Account No.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

Account Title Cash
Service Revenue Accounts Receivable Salaries Expense Dividends
Common Stock Salaries Payable Retained Earnings

Service Revenue Accounts Receivable Salaries Expense Dividends
Common Stock Salaries Payable Retained Earnings

73. Select the true statement (note: an answer may be true even if it does not identify all accounts that appear on a articular statement).
Account numbers 1, 3, and 7 will appear on the balance sheet.
B. Account numbers 2, 4, and 5 will appear on the income statement.
C. Account numbers 2, 5, and 8 will appear on the statement of cash flows.
D. Account numbers 4, 5, and 6 will appear on the statement of changes in equity.

74. Select the true statement (note: an answer may be true even if it does not identify all accounts that have debit balances).
Account numbers 2, 4, and 5 normally have debit balances. B Account numbers 1, 3, and 5 normally have debit balances.
C. Account numbers 2, 5, and 8 normally have debit balances.
D. Account numbers 4, 5, and 6 normally have debit balances.

Assume the perpetual inventory method is used.
1) The company purchased $10,000 of merchandise on account under terms 2/10, n/30.
2) The company returned $1,200 of merchandise to the supplier before payment was made
3) The liability was paid within the discount period.
4) All of the merchandise purchased was sold for $13,000 cash.

75. The amount of gross margin from the four transactions is:
A. $4,376.
B. $4,258.40.
C. $8.,800.
D. $8,624.

SECTION B
1. Below are listed several transactions that a business may enter into.
Provide services to customers on account
Purchase land by paying cash
Purchase a fire insurance policy that will provide coverage for a two-year period Acquire cash by issuing common stock
Recognize expense for amount of office supplies that had been used during the period Receive payment from a customer for services that will be provided over the next six months

Required:

a) In the table below, indicate the accounts that would be debited and credited for each of the preceding transactions.

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