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Accounting: Multiple choice.

1. Which one of the following is an accounting equation?

a. Assets = Liabilities + Owners' Equity
b. Assets + Liabilities = Owners' Equity
c. Assets + Owners' Equity = Liabilities
d. Assets = Liabilities - Owners' Equity

2. Which one of the following is NOT an example of an asset?

a. Cash
b. Accounts Payable
c. Prepaid insurance
d. Equipment

3. Which one of the following is an example of a liability?

a. Prepaid insurance
b. Unearned revenue
c. Investment
d. Accounts receivable

4. Which one of the following is an example of owners' equity?

a. Prepaid insurance
b. Unearned revenue
c. Investment
d. Account receivable

5. Which one of the following financial statement should be prepared first before other statements can be prepared?

a. Balance Sheet
b. Income Statement
c. Statement of Cash Flow
d. Statement of Retained Earning

6. Which one of the statement is prepared at a point of time, for example at
December 31, 2007?

a. Balance Sheet
b. Income Statement
c. Statement of Cash Flow
d. Statement of Retained Earning

7. If ABC Company purchased a $40,000 vehicle (full price) and paid $40,000 cash in full settlement, ABC Company would report a liability of $40,000 in this transaction.

a. True
b. False

8. Which one of the following is NOT a form of business organization?

a. Sole Proprietorship
b. Partnership
c. Corporation
d. Subsidiary

9. Dividends are reported on the

a. Income statement
b. Retained earning statement
c. Balance sheet
d. Income statement and balance sheet

10. Retained earnings at the end of the period is equal to

a. Retained earnings at the beginning of the period plus net income minus liabilities
b. Retained earnings at the beginning of the period plus net income minus dividends
c. Net income
d. Assets plus liabilities

Use the data presented below to answer the following two (2) questions.

Kingman's Car Repair Shop started the year with total assets of $60,000 and total liabilities of $40,000. During the year the business recorded $100,000 in car repair revenues, $55,000 in expenses, and dividends of $10,000.

11. The net income reported by Kingman's Car Repair Shop for the year was

a. $35,000
b. $45,000
c. $20,000
d. $90,000

12. Retained earnings at the end of the year was

a. $55,000
b. $35,000
c. $65,000
d. $45,000

13. The cost principle requires that when assets are acquired, they be recorded at

a. Market value
b. The amount paid for them
c. Selling price
d. Suggested retail price

14. On a balance sheet, marketable securities are classified as

a. An intangible asset
b. Property, plant and equipment
c. A current asset
d. A long-term investment

15. A contra asset account is an account that is offset against an asset account on the balance sheet. Example of a contra asset account is Accumulated Depreciation - office equipment.

a. True
b. False

Use the data below to answer the following 3 questions.
The financial data of Bob Brown, DDS for the month of September is below:

Retained earnings (September 1) $12,000
Common stock 30,000
Accounts payable 7,000
Equipment 30,000
Service revenue 25,000
Dividends 6,000
Dental supplies expense 3,500
Cash 8,000
Utilities expense 700
Dental supplies 2,800
Salaries expense 7,000
Accounts receivable 14,000
Rent expense. 2,000

16 The amount of net income is

a. $ 5,800
b. $11,800
c. $15,300
d. $25,000

17. The amount of retained earnings on September 30 is

a. $12,000
b. $17,800
c. $23,800
d. $29,800

18. The amount of total assets is

a. $ 8,000
b. $24,800
c. $47,800
d. $54,800

19. Under what section of the balance sheet is "Unearned Revenue" located?

a. Current assets
b. Property, plant and equipment
c. Current liabilities
d. Stockholders' equity

20. Under what section of the balance sheet is "Prepaid Insurance" located?

a. Current assets
b. Property, plant and equipment
c. Current liabilities
d. Stockholders' equity

21. Collection of a $600 Accounts Receivable

a. Increases an asset $600; decreases an asset $600
b. Increases an asset $600; decreases a liability $600
c. Decreases a liability $600; increases stockholders' equity $600
d. Decreases an asset $600; decreases a liability $600

22. The double-entry system requires that each transaction must be recorded

a. In at least two different accounts
b. In two sets of book
c. In a journal and in a ledger
d. First as a revenue and then as an expense

23. Which account below is not a subdivision of stockholders' equity?

a. Dividends
b. Revenues
c. Expenses
d. Liabilities

24. The revenue recognition principle dictates that revenue should be recognized in the accounting records

a. When cash is received
b. When it is earned
c. At the end of the month
d. In the period that income tax are paid

25. The matching principle matches

a. Customers with business
b. Expenses with revenues
c. Assets with liabilities
d. Creditors with businesses

26. Under the accrual basis of accounting

a. Cash must be received before revenue is recognized
b. Net income is calculated by matching cash outflows against cash inflows
c. Events that change a company's financial statements are recognized in the period they
occur rather in the period in which cash is paid or received
d. The ledger accounts must be adjusted to reflect a cash basis of accounting before
financial statements are prepaid under generally accepted accounting principles

27. Reese Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

a. Debit Office Supplies Expense, $1,600; Credit Office Supplies $1,600
b. Debit Office Supplies, $2,400; Credit Office Supplies Expense $2,400
c. Debit Office Supplies Expense, $2,400; Credit Office Supplies $2,400
d. Debit Office Supplies, $1,600; Credit Office Supplies Expense $1,600

28. Accrued revenues are

a. Received and recorded as liabilities before they are earned
b. Earned and recorded as liabilities before they are recorded
c. Earned but not yet received or recorded
d. Earned and already received and recorded

29. Prepaid expenses are

a. Paid and recorded in an asset account before they are used or consumed
b. Paid and recorded in an asset account after they are used or consumed
c. Incurred but not yet paid or recorded
d. Incurred and already paid or recorded

30. The Harris Company purchased a microcomputer for $3,000 on December 1. It is estimated that annual depreciation on the computer will be $600. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

a. Debit depreciation Expense, $600; Credit Accumulated Depreciation $600
b. Debit depreciation Expense, $50; Credit Accumulated Depreciation $50
c. Debit depreciation Expense, $2,400; Credit Accumulate Depreciation $2,400
d. Debit depreciation Expense, $3,000; Credit Accumulated Depreciation $3,000

31. At December 31, 2007, before any year-end adjustment, Hart Company's Insurance Expense account had a balance of $725 and its Prepaid Insurance account had a balance of $1,900. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be

a. $1,500
b. $725
c. $2,225
d. $1,125

32. Which one of the following is NOT a temporary (nominal) account?

a. All revenue accounts
b. All expenses accounts
c. Dividends
d. Stockholders' equity

33. Which entry is made at the beginning of the next accounting period and is the exact opposite of the adjusting entry made in the previous period?

a. Incorrecting entry
b. Closing entry
c. Reversing entry
d. Correcting entry

34. GAAP in accounting stands for "Generally Accepted Accounting Practices".

a. True
b. False

35. Accrual basis accounting follows which one of the following principles and assumptions?

a. Revenue principle
b. Matching principle
c. Monetary unit assumption
d. Economic entity assumption

36. Which one of the following is NOT an example of a transaction?

a. A purchase of a cup of coffee from a coffee shop.
b. A receipt of cash by a borrow and the payment of cash by a lender
c. A recording of events and the creation of financial statements.

37. An account is a record in which transactions affecting individual assets, liabilities, stockholders' equity, revenues and expenses are recorded.

a. True
b. False

38. Which one of the following is NOT a financial statement?

a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Statement of transactions

39. The account "Accumulated depreciation" can be found in which financial statement?

a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Statement of transactions

40. ABC Transportation Inc. purchased a delivery truck, which has a final selling price of $100,000 by paying $60,000 cash, and signed a notes payable of $40,000.

The amount of stockholders' equity in this case is

a. $0
b. $40,000
c. $60,000
d. $100,000

41. Payment of dividend can be recorded as an expense because cash is paid to stockholders.

a. True
b. False

42. Is the following a correct presentation of the "Total current assets" portion of a balance sheet?

Cash $10
Accounts receivables 10
Merchandise inventory 10
Plant and equipment 10
Total current assets $40
====
a. Correct
b. Incorrect

43. Which one of the following is not a component of Statement of Changes in Owners' Equity?

a. Operating income
b. Paid-in capital
c. Retained earnings

44. Which one of the following is not a current asset account?

a. Cash.
b. Marketable (short-term) securities
c. Inventory
d. Equipment

45. Which one of the following is NOT a main purpose of internal control?

a. Safeguard a company's assets from employee theft and unauthorized use.
b. Enhance the accuracy and reliability of a company's accounting records.
c. Prevent insider trading

46. Which one of the following is NOT a reason for the lack of agreement between the balances per bank statement and cash balance per books?

a. Time lags
b. Errors by either the bank or the company
c. Segregation of duties

47. Bank reconciliation should be prepared

a. Whenever the bank refuses to lend the company money
b. When an employee is suspected of fraud
c. To explain any difference between the depositor's balance per books with the balance
per bank
d. By the person who is authorized to sign checks

48. Deposits in transit

a. Have been recorded on the company's books but not yet by the bank
b. Have been recorded by the bank but not yet by the company
c. Have not been recorded by the bank or the company
d. Are customers' checks that have not yet been received by the company

49. In preparing bank reconciliation, outstanding checks are

a. Added to the balance per bank
b. De ducted from the balance per books
c. Added to the balance per books
d. Deducted from the balance per bank

50. If a check correctly written and paid by the bank for $438 is incorrectly recorded on the company's books for $483, the appropriate treatment on the bank reconciliation would be

a. Add $45 to the bank's balance
b. Add $45 to the book's balance
c. Deduct $45 from the bank's balance
d. Deduct $438 from the book's balance

Solution Summary

The problem set deals with many issues in accounting.

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