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Practice test for Accounting

1. On January 31, an entity's balance sheet showed total assets of $750 and liabilities of $250. Owners' equity at January 31 was:
A) $ 500
B) $1,000
C) $ 750
D) $ 250

Use the following to answer questions 2 - 3:
At the beginning of the fiscal year, the balance sheet showed assets of $1,200 and owners' equity of $800. During the year, assets increased $100 and liabilities decreased $50.

2. Owners' equity at the end of the year totaled:

A) $80036

B) $850

C) $950

D) $1,300

3. Liabilities at the end of the year totaled:

A) $350

B) $450

C) $950

D) $900

4. The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is:

A) consistency

B) matching revenue and expense

C) original cost

D) objectivity

Use the following to answer questions 5 - 6:

Martin & Associates borrowed $5,000 on April 1, 2003 at 8% interest with both principal and interest due on March 31, 2004.

5. Which of the following journal entries should the firm use to accrue interest at the end of each month?

A)

Interest Payable XXX

Cash XXX

B)

Interest Receivable XXX

Interest Payable XXX

C)

Interest Expense XXX

Interest Payable XXX

D)

No entry should be made.

6. How much should be in the firm's interest payable account at December 31, 2003?

A) $300

B) $400

C) $0

D) $333

7. When costs are rising over time:

A) LIFO results in higher profits that FIFO.

B) Cost of goods sold using the weighted average method will be greater than LIFO cost of goods sold.

C) balance sheet inventory balances will be greater under LIFO.

D) FIFO results in higher profits than LIFO.

8. Under most circumstances, in order to recognize revenue:

A) cash must have been received.

B) the entity must expect to receive cash in the future.

C) the entity must have paid for all expenses incurred in generating the revenue.

D) the revenue must be realized or realizable, and earned.

9. An item that cost $90 is sold for $120. The gross profit ratio for this item is:

A) 20%

B) 25%

C) 33.3%

D) 60%

10. In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:

A) be added to net income because this represents earned revenues that have not been collected.

B) be subtracted from net income because this represents earned revenue provided by operating earnings.

C) be added to net income because this means that revenues were less than cash collected.

D) be subtracted from net income because this means that revenues were more than cash collected.

11. An entity's current ratio will be influenced by:

A) the inventory cost flow assumption used.

B) writing off an overdue account receivable against the allowance for uncollectible accounts.

C) the depreciation method used.

D) issuance of a stock dividend.

12. A potential creditor's judgment about granting credit would be most influenced by the potential customer's:

A) current ratio at the end of the prior fiscal year.

B) most recent acid-test ratio.

C) trend of acid-test ratio over the past three years.

D) practice with respect to taking cash discounts offered by current suppliers.

13. If a firm's payment terms for sales made on account to its customers were 2/10, n30, the number of days' sales in accounts receivable would be expected to be:

A) less than 10.

B) between 10 and 25.

C) between 25 and 40.

D) over 40.

14. Asset turnover calculations:

A) are made by dividing the average asset balance during the year by the sales for the year.

B) are made by dividing sales for the year by the asset balance at the end of the year.

C) communicate information about how promptly the entity pays its bills.

D) should be evaluated by observing the turnover trend over a period of time.

15. A management that wanted to increase the financial leverage of its firm would:

A) raise additional capital by selling common stock.

B) use excess cash to purchase preferred stock for the treasury.

C) raise additional capital by selling fixed interest rate long-term bonds.

D) try to increase its ROI by increasing asset turnover.

16. For the fiscal year ended March 31, 2004, a company reported earnings per share of $3.25 and cash dividends per share of $0.50. During fiscal 2005, the company had a 3 for 2 stock split. In the annual report for the fiscal year ended March 31, 2005, earnings per share and cash dividends for fiscal 2004 would be reported, respectively, as:

A) $3.25 and $0.50

B) $4.85 and $0.75

C) $2.17 and $0.33

D) $1.09 and $0.17

17. What percentage of the contribution margin is profit on units sold in excess of the breakeven point?

A) It's 50% to the contribution margin ratio.

B) It's equal to the variable cost ratio.

C) It's equal of the gross profit ratio.

D) It's 100%.

18. An example of a product cost is:

A) advertising expense for the product.

B) a portion of the president's travel expenses.

C) interest expense on a loan to finance inventory.

D) production line maintenance costs.

19. The overhead component of product cost is:

A) the sum of the actual overhead costs incurred in the manufacture of the product.

B) likely to be the same amount for every product made by the company.

C) an estimated amount based on labor hours, machine hours, or some other activity.

D) determined at the end of the year when actual costs and actual production are known.

20. The key data element on which the entire budget is based is the:

A) sales/revenue forecast.

B) income statement budget.

C) cash budget.

D) balance sheet forecast.

21. The cash budget is especially important to a firm when:

A) there is not a lot of confidence in the sales forecast.

B) it has a relatively large amount of operating cash.

C) the P/E ratio has been trending downwards.

D) it may have to negotiate a short-term bank loan.

22. Which of the following costs are included in the cost classification that is based on the time frame perspective?

A) Variable cost and fixed cost.

B) Direct cost and indirect cost.

C) Product cost and period cost.

D) Committed cost and discretionary cost.

23. Fixed costs classified according to the time frame perspective are known as:

A) Direct cost and indirect cost.

B) Constant and inconsistent cost.

C) Committed cost and discretionary cost.

D) Product cost and period cost.

24. Standards are most appropriately used to:

A) reward workers and managers who meet them.

B) penalize workers and managers who do not meet them.

C) calculate the unit cost of a product or service.

D) support the planning and control processes of the firm.

25. Standards are likely to be most useful when expressed in:

A) dollars per unit of input to the manufacturing process.

B) quantities per unit of output from the process being evaluated.

C) total costs for the accounting period for the department being evaluated.

D) terms easily related to by the individual whose performance is being evaluated.

Solution Preview

1. On January 31, an entity's balance sheet showed total assets of $750 and liabilities of $250. Owners' equity at January 31 was:

A) $ 500

Use the following to answer questions 2 - 3:
At the beginning of the fiscal year, the balance sheet showed assets of $1,200 and owners' equity of $800. During the year, assets increased $100 and liabilities decreased $50.

2. Owners' equity at the end of the year totaled:
C) $950

3. Liabilities at the end of the year totaled:
A) $350

4. The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is:

B) matching revenue and expense

Use the following to answer questions 5 - 6:
Martin & Associates borrowed $5,000 on April 1, 2003 at 8% interest with both principal and interest due on March 31, 2004.

5. Which of the following journal entries should the firm use to accrue interest at the end of each month?
C)

Interest Expense ...

Solution Summary

This post is a good practice for accounting exam and answer 25 conceptual questions on various aspects of accounting.

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