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Fundamentals of Accounting Review

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29. All of the following are purposes of internal control except to:
a) safeguard assets
b) promote operational inefficiency
c) encourage adherence to company policies
d) ensure accurate and reliable accounting records

30. Paying top salaries to attract top-quality employees is a part of which characteristic of internal control:
a) competent, reliable, and ethical personnel
b) assignment of responsibilities
c) proper authorization
d) separation of duties

31. The following data are available for Kim?s Boutique for October:

Book balance, October 31 $5,600
Outstanding checks 584
Deposits in transit 2,500
Service charges 75
Interest revenue 25

What is the adjusted book balance on October 31 for Kim?s Boutique based on the above data?
a) $5,500
b) $5,550
c) $7,466
d) $4,966

32. When sales revenue exceeds cash receipts, the difference is:
a) debited to cash short and over
b) credited to cash short and over
c) debited to cost of goods sold
d) credited to cost of goods sold

33. If the petty cash fund is not replenished on the balance sheet date:
a) assets will be overstated
b) income will be overstated
c) neither a nor b
d) both a and b

34. A cash budget includes estimated:
a) cash receipts, accounts receivable, and accounts payable balances
b) cash receipts and cash disbursements
c) cash disbursements, accounts receivable, and accounts payable balances
d) cash receipts, cash disbursements, and noncash expenses such as depreciation expense

35. Certified public accountants are expected to maintain higher standards than society in general:
a) because they are required to by federal law
b) only if they are certifying the financial statements of a company whose stock is listed on a national exchange
c) because their ability to attract business depends entirely upon their reputation
d) as long as they are working for themselves

36. All of the following duties should be performed by a credit department except:
a) handle cash receipts and disbursements
b) review applicant?s income and credit history
c) monitor customer payment records
d) evaluate customers who apply for credit

37. If the allowance method of accounting for uncollectible receivables is used, what account is credited in the entry to write off a customer?s account as uncollectible?
a) allowance for uncollectible accounts
b) accounts receivable
c) uncollectible-account expense
d) sales returns and allowances

38. Under the direct write-off method, the entry to write off an uncollectible account would include a:
a) credit to uncollectible-account expense
b) credit to allowance for uncollectible accounts
c) debit to allowance for uncollectible accounts
d) credit to the customer?s account receivable

39. Carolina Supply accepted an eight-month, $16,000 note receivable, with 8% interest, from Reading Corporation on August 1, 20X6. Carolina Supply?s year-end is December 31. The amount of interest to be accrued on December 31, 20X6 is:
a) $533
b) $1,280
c) $853
d) $320

40. Accounts receivable has a debit balance of $5,000, and the allowance for uncollectible accounts has a credit balance of $440. A specific account of $160 is written off. What is the amount of net receivables after the write-off?
a) $4,720
b) $4,400
c) $4,560
d) $5,000

41. The acid-test ratio would include in the numerator:
a) cash, short-term investments and prepaid expenses
b) inventory, cash and short-term investments
c) cash, short-term investments, and net current receivables
d) cash, inventory and prepaid expenses

42. Inventory is classified as a:
a) fixed asset on the balance sheet
b) current asset on the balance sheet
c) current liability on the balance sheet
d) as either an investment or a current asset on the balance sheet

43. Using the LIFO method, the earliest purchases of inventory are assumed to be contained:
a) on the balance sheet as part of ending inventory
b) on the income statement as part of cost of goods sold
c) equally split between the income statement and the balance sheet
d) impossible to determine from the given data

44. When prices are rising, the ending inventory balance reported on a LIFO basis is generally:
a) lower than on a FIFO basis
b) greater than on a FIFO basis
c) equal to ending inventory reported on a FIFO basis
d) equally likely to be higher or lower on a LIFO basis as opposed to a FIFO basis

45. Using the lower-of-cost-or-market rule of valuing inventory allows the accountant to attain:
a) consistency
b) conservatism
c) matching
d) full disclosure

46. Two separate errors affected Soccer City in 20X5. The beginning inventory was understated by $28,000 and the ending inventory was understated by $43,000. Net income in 20X6 will be:
a) overstated by $15,000
b) overstated by $43,000
c) understated by $43,000
d) understated by $71,000

47. Using the gross profit method, find the ending inventory value when purchases were $105,000, net sales revenue was $128,000, beginning inventory was $31,000 and cost of goods sold historically runs 58% of net sales revenue.
a) $82,240
b) $61,760
c) $23,000
d) $54,000

48. The cost of a building would include all of the following except:
a) architectural fees
b) clearing and grading the land prior to construction of the building
c) cost of repairs made to an old building to get it ready for occupancy
d) costs of construction

49. The depreciation method that applies a constant percentage to a declining book value each period
is termed:
a) units-of-production
b) double-declining balance
c) straight-line
d) modified accelerated cost recovery

50. Income before depreciation and taxes amounts to $100,000. Using straight-line depreciation, the current year?s depreciation expense will be $10,000. Using double-declining balance depreciation, the current year?s depreciation expense will be $17,000. Assuming a tax rate of 40%, what is net income if the straight-line depreciation method is used?
a) $49,800
b) $36,000
c) $54,000
d) $60,000

51. Westchester Enterprises sold some fully depreciated equipment for $2,700 cash. The equipment had been purchased for $26,500 and Westchester had estimated useful life at eight years and residual value at $3,500. The journal entry to record the sale of the equipment is:
a) Cash 2,700
Equipment 2,700
b) Cash 2,700
Accum. Depn.-Equipment 23,000
Loss on Sale of Equipment 800
Equipment 26,500
c) Cash 2,700
Loss on Sale of Equipment 800
Equipment 3,500
d) Cash 2,700
Accum. Depn.-Equipment 23,800
Equipment 26,500

52. Current liabilities:
a) are due within one year or one operating cycle, whichever is longer
b) must be of a known amount
c) must be of an estimated amount
d) are subtracted from long-term liabilities on the balance sheet

53. Warranty expense is debited:
a) in the period the product under warranty is repaired or replaced
b) in the period the revenue from selling the product was earned
c) either a or b at the option of the accountant
d) neither a nor b

54. There is a limit on the amount of tax paid per individual for all of the following except:
a) FICA taxes
b) state unemployment taxes
c) federal unemployment taxes
d) federal income taxes

55. Controls for safeguarding payroll disbursements include all of the following except:
a) using a formal timekeeping system
b) separate responsibilities for the personnel department employees and the accounting department employees
c) combined responsibilities for the personnel department employees and the payroll department employees
d) requiring a photo identification when distributing payroll checks

56. Current liabilities on the balance sheet would include all of the following except:
a) earned revenues
b) estimated liabilities
c) accrued expenses
d) unearned revenues

57. The characteristic of partnerships that states that every partner can bind the business to a contract within the scope of the partnership?s regular business operations is called:
a) limited life
b) mutual agency
c) unlimited liability
d) co-ownership of property

58. Investments of assets into a partnership are recorded at their:
a) original cost
b) book value
c) current market value
d) original cost plus a percentage adjustment to account for inflation

59. Assume the articles of partnership specify net income is to be divided as follows: salary of $30,000 to A and $40,000 to B with any remaining profit or loss divided equally between the partners. If net income for the current year is $65,000, A?s distributive share of net income would be:
a) $27,500
b) $37,500
c) $30,000
d) $40,000

60. Red, White, and Blue have capital balances immediately after closing entries of $80,000, $100,000, and $120,000, respectively. They have agreed to share all profits equally. Blue is selling his interest to Black for $135,000 cash. The entry on the books of the partnership to record this event includes a:
a) debit to cash for $135,000
b) debit to Black, capital for $120,000
c) credit to Black, capital for $135,000
d) credit to Black, capital for $120,000

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