1. If a company purchases equipment for $65,000 by issuing a note payable:
A. Total assets will increase by $65,000.
B. Total assets will decrease by $65,000.
C. Total assets will remain the same.
D. The company's total owners' equity will decrease.
2. Which of the following is not a generally accepted accounting principle relating to the valuation of assets?
A. The cost principle - in general, assets are valued at cost, rather than at estimated market values.
B. The objectivity principle - accountants prefer to use objective, rather than subjective, information as the basis for accounting information.
C. The safety principle - assets are valued at no more than the value for which they are insured.
D. The going-concern assumption - one reason for valuing assets such as buildings and equipment at cost rather than at their current market values is the assumption that the business will use these assets rather than sell them.
3. Decreases in owners' equity are caused by:
A. Purchases of assets and payment of liabilities.
B. Purchases of assets and incurrence of liabilities.
C. Payment of liabilities and unprofitable operations.
D. Distributions of assets to the owner and unprofitable operations.
4. A trial balance consists of:
A. A two-column schedule of all debit and credit entries posted to ledger accounts.
B. A two-column financial statement intended for distribution to interested parties outside the business.
C. A two-column schedule showing the totals of all debits and of all credits made in journal entries.
D. A two-column schedule listing names and balances of all ledger accounts.
5. In February of each year, the Carlton Hotel holds a very popular wine tasting event. Tickets must be ordered and paid for in advance, and are typically sold out by November of the preceding year. The realization principle indicates that the revenue from these ticket sales should be recognized in the period in which the:
A. Order is placed.
B. Wine tasting is held.
C. Payments are received.
D. Expenses associated with the wine tasting are paid in full.
6. On June 18, Baltic Arena paid $6,600 to Marvin Maintenance, Inc. for cleaning the arena following a monster truck show held on June 9th. This transaction:
A. Is recorded by debiting the Retained Earnings account.
B. Is recorded by debiting Cash and crediting Cleaning Expense.
C. Causes a decrease in owners' equity by increasing expenses for June.
D. May not be recorded until all revenue generated from the monster truck show has been collected in cash.
7. Which of the following businesses is likely to have the shortest operating cycle?
A. A food store.
B. A department store.
C. An art store.
D. A car store.
8. Gross profit is the difference between:
A. Net sales and the cost of goods sold.
B. The cost of merchandise purchased and the cost of merchandise sold.
C. Net sales and net income.
D. Net sales and all expenses.
9. Hicksville's Department Store uses a perpetual inventory system. At year-end, the balance in the Inventory controlling account is $1,200,000. Assuming that the inventory records have been maintained properly, a year-end physical inventory:
A. Is unnecessary.
B. Is needed to establish the ending inventory, as the $1,200,000 balance in the Inventory controlling account represents the beginning inventory.
C. Probably will indicate more than $1,200,000 in merchandise on hand.
D. Probably will indicate less than $1,200,000 in merchandise on hand.
10. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the depositor's records are:
A. To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.
B. To reconcile items that explain the difference between the balance per the books and the balance per the bank statement.
C. To record outstanding checks and bank service charges.
D. To record items that explain the difference between the balance per the accounting records and the adjusted cash balance.
11. The purpose of establishing a petty cash fund is to:
A. Achieve internal control over small cash disbursements not made by check.
B. Keep track of expenditures paid out of cash receipts from customers prior to deposit.
C. Ensure that the amount of cash in the bank does not become excessive.
D. Keep enough cash on hand in the office to cover all normal operating expenses of the business for a period of time.
12. The valuation principle of "mark-to-market" applied to investments classified as available for sale securities:
A. Affects the current period income statement, but not the balance sheet.
B. Enhances usefulness of the balance sheet in evaluating solvency of a business.
C. Applies to marketable securities and inventories.
D. Requires a corporation to adjust its capital stock account to reflect current market value of its outstanding capital stock.
13. During periods of inflation, when comparing LIFO with FIFO:
A. LIFO inventory and cost of sales would be higher.
B. LIFO inventory and cost of sales would be lower.
C. LIFO inventory would be lower and cost of sales would be higher.
D. LIFO inventory would be higher and cost of sales would be lower.
14. Which of the following will cause net income to be overstated for the following year?
A. Current year's ending inventory is understated.
B. Current year's ending inventory is overstated.
C. Next year's beginning inventory is overstated.
D. Next year's ending inventory is understated.
15. The lower-of-cost-or-market rule:
A. Is used in conjunction with the other inventory cost flow assumptions.
B. Cannot be used if LIFO or FIFO are also used.
C. Can be used in conjunction with LIFO but not FIFO.
D. Can only be used with the specific identification cost flow assumption.
16. Tomassi Company paid $450,000 to acquire a piece of real estate consisting of land and an office building with a parking lot. In this situation:
A. The purchase price should be apportioned among the Land, Land Improvement, and Building accounts.
B. The entire purchase price should be debited to the Plant and Equipment account.
C. Land, Land Improvement, and Building accounts should each be debited for the respective appraisal value of each item.
D. Allocation of the entire $450,000 to Land results in an understatement of net income in the current and future accounting periods.
17. Which of the following statements about MACRS is not correct?
A. MACRS is the only accelerated depreciation method that may be used on newly acquired assets for federal income tax purposes.
B. The method permits "depreciating" the asset to a tax basis of $0 over a specified recovery period.
C. If a company uses MACRS in its income tax returns, it also must use MACRS in its financial statements.
D. Most businesses would benefit from using MACRS rather than straight-line depreciation in their income tax returns.
18. Harvard Company purchased equipment having an invoice price of $11,500. The terms of sale were 2/10, n/30, and Harvard paid within the discount period. In addition, Harvard paid a $160 delivery charge, $185 installation charge, and $931 sales tax. The amount recorded as the cost of this equipment is:
19. Ultimate Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is expected to continue for several years, and no reasonable estimate can be made at this time of Ultimate Company's ultimate financial responsibility. This situation is an example of:
A. Off-balance-sheet financing.
B. A loss contingency which should be disclosed in notes to Ultimate Company's financial statements.
C. An estimated liability which must appear in Ultimate Company's balance sheet.
D. A loss in purchasing power caused by inflation.
20. On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)
A. Debit Interest Expense $550 and credit Notes Payable $550.
B. Debit Interest Expense $550 and credit Interest Payable $550.
C. Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
D. Debit Interest Expense $550 and credit Cash $550.
21. Stone Corporation has 25 employees and incurs total wages and salaries expense of $900,000 per year. The following table shows various payroll amounts as a percentage of this annual wage and salaries expense:
In addition, Stone provides group health insurance for its entire workforce. The cost of this insurance is $350 per month for each employee.
Refer to the above data. The company's annual payroll-related expenses amount to approximately:
D. Some other amount.
22. Coronet Corp. has total stockholders' equity of $7,400,000. The company's outstanding capital stock includes 100,000 shares of $10 par value common stock and 20,000 shares of 6%, $100 par value preferred stock. (No dividends are in arrears.) The book value per share of common stock is:
23. On September 1, 2009, Maryland Corporation's common stock was selling at a market price of $200 per share. On that date, Maryland announced a 3 for 2 stock split. At what price would you expect the stock to trade immediately after the split goes into effect?
24. The following two items are disclosed in the stockholders' equity section of Riverside Corporation's December 31, 2009, balance sheet:
If the company had reacquired 700 shares of treasury stock in February of 2009, then for what amount was the other treasury stock sold for during 2009?
A. $2 per share above its par value.
B. $2 per share.
C. $2 per share above its cost.
D. $22 per share above its cost.
25. The gross profit rate represents:
A. Total sales revenue.
B. The percentage change in net sales from the prior period.
C. The percentage of sales revenue remaining after providing for the cost of the merchandise sold.
D. Net income stated as a percentage of total sales revenue.
26. If a company has a current ratio of 2 to 1, and purchases inventory on credit, what will this do to its current ratio?
A. Increase the current ratio.
B. Decrease the current ratio.
C. Does not change the current ratio.
D. Cannot be determined.
Various Accounting Questions and Solutions