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Accounting multiple choice questions

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1) Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

A. To aid management in cash-flow analysis
B. To match the costs of production with revenues as earned
C. To reduce the federal income tax liability
D. To adhere to the accounting constraint of conservatism

2) An accrued expense can best be described as an amount

A. paid and not currently matched with earnings.
B. paid and currently matched with earnings.
C. not paid and not currently matched with earnings.
D. not paid and currently matched with earnings.

3) If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

A. an asset or contra asset account and an expense account.
B. a liability account and an asset account.
C. a liability account and an expense account.
D. a receivable account and a revenue account.

4) A common set of accounting standards and procedures are called

A. generally accepted accounting principles.
B. financial accounting standards.
C. objectives of financial reporting.
D. statements of financial accounting concepts.

5) Which of the following statements is not an objective of financial reporting?

A. Provide information about enterprise resources, claims to those resources, and changes to them.
B. Provide information that is useful in investment and credit decisions.
C. Provide information on the liquidation value of an enterprise.
D. Provide information that is useful in assessing cash flow prospects.

6) The information provided by financial reporting pertains to

A. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.
B. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
C. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.
D. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

7) The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

A. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
B. the FASB issues exposure drafts of proposed standards.
C. all members of the FASB possess extensive experience in financial reporting.
D. a majority of the members of the FASB are CPAs drawn from public practice.

8) The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the

A. AICPA.
B. FASB.
C. SEC.
D. APB.

9) The Financial Accounting Standards Board

A. was the forerunner of the current Accounting Principles Board.
B. has issued a series of pronouncements entitled Statements on Auditing Standards.
C. is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.
D. is appointed by the Financial Accounting Foundation.

10) Which of the following is not a generally practiced method of presenting the income statement?

A. The single-step income statement
B. Including prior period adjustments in determining net income
C. The consolidated statement of income
D. Including gains and losses from discontinued operations of a component of a business in determining net income

11) Which of the following would represent the least likely use of an income statement prepared for a business enterprise?

A. Use by labor unions to examine earnings closely as a basis for salary discussions.
B. Use by customers to determine a company's ability to provide needed goods and services.
C. Use by government agencies to formulate tax and economic policy.
D. Use by investors interested in the financial position of the entity.

12) Limitations of the income statement include all of the following except

A. only actual amounts are reported in determining net income.
B. items that cannot be measured reliably are not reported.
C. income measurement involves judgment.
D. income numbers are affected by the accounting methods employed.

13) The process of formally recording or incorporating an item in the financial statements of an entity is

A. articulation.
B. allocation.
C. realization.
D. recognition.

14) Which of the following is not an accurate representation concerning revenue recognition?

A. Revenue from services rendered is recognized when cash is received or when services have been performed.
B. Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers.
C. Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used.
D. Revenue from disposing of assets other than products is recognized at the date of sale.

15) Which of the following is not a reason why revenue is recognized at time of sale?

A. The sale is the critical event.
B. All of these are reasons to recognize revenue at time of sale.
C. Title legally passes from seller to buyer.
D. Realization has occurred.

16) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as

A. financial flexibility.
B. exchangeability.
C. liquidity.
D. solvency.

17) The balance sheet is useful for analyzing all of the following except

A. solvency.
B. financial flexibility.
C. profitability.
D. liquidity.

18) The correct order to present current assets is

A. Cash, accounts receivable, inventories, prepaid items.
B. Cash, inventories, prepaid items, accounts receivable.
C. Cash, inventories, accounts receivable, prepaid items.
D. Cash, accounts receivable, prepaid items, inventories.

19) If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the

A. nature of any future transactions planned between the parties and the terms involved.
B. amounts due from or to related parties as of the date of each balance sheet presented.
C. dollar amount of the transactions for each of the periods for which an income state-ment is presented.
D. nature of the relationship between the parties to the transactions.

20) Which of the following should be disclosed in a Summary of Significant Accounting Policies?

A. Amount for cumulative effect of change in accounting principle
B. Depreciation method followed
C. Claims of equity holders
D. Types of executory contracts

21) Events that occur after the December 31, 2008 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be

A. disclosed only in the Notes to the Financial Statements.
B. used to record an adjustment directly to the Retained Earnings account
C. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008.
D. discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report.

22) The required approach for handling extraordinary items in interim reports is to

A. prorate them over the current and remaining quarters.
B. disclose them only in the notes.
C. charge or credit the loss or gain in the quarter that it occurs.
D. prorate them over all four quarters.

23) A financial forecast per professional pronouncements presents to the best of the responsible party's knowledge and belief,

A. an assessment of the company's ability to be successful in the future.
B. an assessment of the company's ability to be successful in the future under a number of different assumptions.
C. given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows.
D. an entity's expected financial position, results of operations, and cash flows.

24) If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statement as a whole, the opinion is said to be

A. qualified.
B. exceptional.
C. adverse.
D. unqualified.

25) Which of the following ratios measures long-term solvency?

A. Receivables turnover
B. Current ratio
C. Debt to total assets
D. Acid-test ratio

26) The payout ratio is calculated by dividing

A. cash dividends by net income plus preferred dividends.
B. cash dividends by net income less preferred dividends.
C. cash dividends by market price per share.
D. dividends per share by earnings per share.

27) Theoretically, in computing the receivables turnover, the numerator should include

A. net credit sales.
B. sales.
C. credit sales.
D. net sales.

28) Of the following questions, which one would not be answered by the statement of cash flows?

A. What was the cash used for during the period?
B. Were all the cash expenditures of benefit to the company during the period?
C. What was the change in the cash balance during the period?
D. Where did the cash come from during the period?

29) The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements?

A. Balance sheets
B. Income statements
C. Statements of retained earnings
D. Statements of cash flows

30) To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by

A. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.
B. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
C. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.
D. re-recording all income statement transactions that directly affect cash in a separate cash flow journal.

31) Which of the following would be classified as a financing activity on a statement of cash flows?

A. Deposit to a bond sinking fund
B. Sale of a loan receivable
C. Payment of interest to a creditor
D. Declaration and distribution of a stock dividend

32) The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)

A. deduction from net income.
B. investing activity.
C. financing activity.
D. addition to net income.

33) In determining net cash flow from operating activities, a decrease in accounts payable during a period

A. requires an addition adjustment to net income under the indirect method.
B. requires an increase adjustment to cost of goods sold under the direct method.
C. requires a decrease adjustment to cost of goods sold under the direct method.
D. means that income on an accrual basis is less than income on a cash basis.

34) Which of the following tables would show the smallest factor for an interest rate of 10% for six periods?

A. Present value of an ordinary annuity of 1
B. Future value of an annuity due of 1
C. Present value of an annuity due of 1
D. Future value of an ordinary annuity of 1

35) Which table has a factor of 1.00000 for 1 period at every interest rate?

A. Present value of 1
B. Future value of an ordinary annuity of 1
C. Present value of an ordinary annuity of 1
D. Future value of 1

36) Which table would show the largest factor for an interest rate of 8% for five periods?

A. Present value of an ordinary annuity of 1
B. Future value of an annuity due of 1
C. Present value of an annuity due of 1
D. Future value of an ordinary annuity of 1

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Solution Preview

1) Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

B. To match the costs of production with revenues as earned
(For Matching Principle)

2) An accrued expense can best be described as an amount

D. not paid and currently matched with earnings.

3) If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

C. a liability account and an expense account.

For example rent outstanding.

4) A common set of accounting standards and procedures are called

A. generally accepted accounting principles.

5) Which of the following statements is not an objective of financial reporting?

C. Provide information on the liquidation value of an enterprise.

6) The information provided by financial reporting pertains to

B. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

7) The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

A. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.

8) The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the

C. SEC.

9) The Financial Accounting Standards Board

D. is appointed by the Financial Accounting Foundation.
http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176154526495

10) Which of the ...

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Accounting multiple choice questions

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Random Accounting Questions

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1. All of the following are true regarding journal entries except:
A. Journal entries show the effects of transactions.
B. Journal entries provide account balances.
C. The debited account titles are listed first.
D. Each journal entry should begin with a date.

2. Marvin's Art Inc. purchases paints, canvases and art supplies from Magic Art Co. for sale to consumers. What type of company is Marvin's Art Inc.?
A. Service
B. Wholesaler
C. Retail merchandiser
D. Manufacturer

3. A company purchased $2,000 of merchandise on November 2 with terms 2/10, n130. On November 8, it returned $500 worth of merchandise. On November 10, it paid the invoice. The amount paid on November 10 equals.
A. $1,470.
B. $1,960.
C. $2,000.
D.$1,500.

4. Sales returns refer to:
A. Merchandise that customers return to the seller after the sale.
B. Reductions in the selling price of merchandise sold to customers.
C. Cash discounts taken by customers.
D. Merchandise inventory that is marked down.

5. Which of the following accounts is not increased with a debit?
A. Sales Discounts.
B. Sales Returns and Allowances.
C. Sales Revenue.
D. Cost of goods sold

7. A _________is a list of individual accounts, usually in financial statement order, prepared as a check on the accounting system.
A. Trial balance
B.General ledger
C. Balance sheet
D. Financial statement

8. Which of the following is not true regarding the use of special journals?
A. Special journals are used to record repetitive, frequent transactions.
B. The use of the General Journal is eliminated by the use of special journals.
C. The Purchases Journal is used to record purchases or expenses on account.
D. The Revenue Journal is used only for recording revenues earned on account.

9. FOB destination means that title to goods purchases is transferred when the:
A. Goods leave the seller's shipping department.
B. Seller sends the invoice.
C. Goods reach the buyers place of business.
D. Buyer records the receipt of inventory.

10. Transactions involving customer payments are often recorded in a:
A. General Journal.
B. Cash Receipts Journal.
C. T-account.
D. Revenue Journal.

57. A debit to Sales Returns and Allowances and a credit to Accounts Receivable:
A. Is recorded when a customer pays within the discount period.
B. Recognizes that a customer returned merchandise or received an allowance.
C. Reflects an increase in the amount due from a customer.
D. Reflects a direct decrease in total sales revenue.

58. Mandy's Ice Cream Shoppe purchased $500 worth of supplies on account from ICEE Inc. In which special journal should this transaction be recorded?
A. Revenue Journal
B. Purchases Journal
C. Cash receipts Journal
D. Cash payments Journal

59. Expenses are:
A. Incurred only when cash is paid.
B. Costs incurred to generate revenues.
C. Increases to owner's equity.
D. Recorded as credits in journal entries.

60. The term "FOB Shipping Point" means
A. The buyer records transportation expense.
B. The seller pays the shipping cost.
C. The buyer pays the shipping cost.
D. The buyer does not assume ownership until the goods are received.

66. The unadjusted trial balance contains which type of accounts?
A. Income statement accounts
B. Balance sheet accounts
C. Both income statement and balance sheet accounts.
D. The final balances for all accounts.

67. The amount recorded in merchandise inventory includes all of the following except:
A. Purchase discounts
B. Freight costs paid by the buyer. C. Freight costs paid by the seller.
D. Purchase returns and allowances.

68. Terms for the left and right side of an account are known as:
A. Increase/Decrease.
B. Debit/Credit.
C. Up/Down.
D. Positive/Negative.

Use the following account numbers and corresponding account titles to answer the next two questions.
Account
No. Account Title
(1) Cash
(2) Inventory
(3) Cost of goods sold
(4) Transportation-
(5) out
(6) Dividends
(7) Common stock
(8) Selling expense

70. Which accounts would appear on the income statement?
A. Account numbers 3, 4, and 7.
B. Account numbers 2, 4, and 5.
C. Account numbers 1, 3, and 7.
D. Account numbers 2, 5, and 7.

71. Which accounts would appear on the balance sheet?
A. Account numbers 2, 4, and 5.
B. Account numbers 1, 3, and 7.
C. Account numbers 1, 2, and 6.
D. Account numbers 3, 4, and 7.
Account No.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

Account Title Cash
Service Revenue Accounts Receivable Salaries Expense Dividends
Common Stock Salaries Payable Retained Earnings

Service Revenue Accounts Receivable Salaries Expense Dividends
Common Stock Salaries Payable Retained Earnings

73. Select the true statement (note: an answer may be true even if it does not identify all accounts that appear on a articular statement).
Account numbers 1, 3, and 7 will appear on the balance sheet.
B. Account numbers 2, 4, and 5 will appear on the income statement.
C. Account numbers 2, 5, and 8 will appear on the statement of cash flows.
D. Account numbers 4, 5, and 6 will appear on the statement of changes in equity.

74. Select the true statement (note: an answer may be true even if it does not identify all accounts that have debit balances).
Account numbers 2, 4, and 5 normally have debit balances. B Account numbers 1, 3, and 5 normally have debit balances.
C. Account numbers 2, 5, and 8 normally have debit balances.
D. Account numbers 4, 5, and 6 normally have debit balances.

Assume the perpetual inventory method is used.
1) The company purchased $10,000 of merchandise on account under terms 2/10, n/30.
2) The company returned $1,200 of merchandise to the supplier before payment was made
3) The liability was paid within the discount period.
4) All of the merchandise purchased was sold for $13,000 cash.

75. The amount of gross margin from the four transactions is:
A. $4,376.
B. $4,258.40.
C. $8.,800.
D. $8,624.

SECTION B
1. Below are listed several transactions that a business may enter into.
Provide services to customers on account
Purchase land by paying cash
Purchase a fire insurance policy that will provide coverage for a two-year period Acquire cash by issuing common stock
Recognize expense for amount of office supplies that had been used during the period Receive payment from a customer for services that will be provided over the next six months

Required:

a) In the table below, indicate the accounts that would be debited and credited for each of the preceding transactions.

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