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Accounting Multiple Choice

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)

Solution Preview

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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