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Multiple Choice - Financial Accounting

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Multiple Choice
Circle the one best answer.

1. A corporation with total stockholders' equity of $85,000 paid a $10,000 business debt. As a result of this transaction, total stockholders' equity
a. did not change.
b. increased by $10,000.
c. decreased by $10,000.
d. increased to $95,000.

2. Posting is the process of
a. preparing a chart of accounts.
b. adding a column of figures.
c. transferring journal entries to ledger accounts.
d. recording entries in a journal.

3. The purpose of recording depreciation on productive assets is to
a. reflect the decline in the market value of the assets each period.
b. reduce income when the company has an exceptionally profitable year.
c. be in conformity with the revenue recognition principle.
d. allocate the original cost of a productive asset to expense over its useful life.

4. Newell Company debited Prepaid Insurance for $720 on July 1, 2000 for a one-year fire insurance policy. If the company prepares monthly financial statements, failure to make an adjusting entry on July 31, for the amount of insurance that has expired would cause
a. assets to be overstated by $720 and expenses to be understated by $720.
b. expenses to be overstated by $60 and assets to be understated by $60.
c. assets to be overstated by $60 and expenses to be understated by $60.
d. expenses to be overstated by $720 and assets to be understated by $720.

5. Which one of the following accounts is not closed at the end of an accounting period?
a. Retained Earnings account
b. Dividends account
c. Service Revenue account
d. Insurance Expense account

6. The second set of debit and credit columns on a work sheet is generally used for
a. closing entries.
b. the trial balance.
c. the balance sheet figures.
d. the adjustments.

7. Gross profit is calculated by
a. subtracting total expenses from total revenues.
b. subtracting cost of goods sold from net sales.
c. subtracting the ending inventory from cost of goods sold.
d. adding cost of goods sold to net sales.

8. The basis of estimating expected uncollectible accounts that emphasizes the matching of expenses with revenues is the
a. percentage of receivables basis.
b. percentage of sales basis.
c. lower of cost or market basis.
d. direct write-off method.

9. A company just starting business purchased three merchandise inventory items at the following prices: first purchase $880; second purchase $840; third purchase $800. If two items were sold during the period and the company used the LIFO costing method, the gross profit for the period would be how much greater or less than if the FIFO costing method had been used?

a. Gross profit would be $80 greater.
b. Gross profit would be $80 less.
c. Gross profit would be the same.
d. Gross profit would be $40 greater.

10. In a period of rising prices, the inventory method that will show the highest net income is
a. Average Cost.
b. FIFO.
c. LIFO.
d. Moving Average.

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Multiple Choice
Circle the one best answer.

1. A corporation with total stockholders' equity of $85,000 paid a $10,000 business debt. As a result of this transaction, total stockholders' equity
a. did not change.
b. increased by $10,000.
c. decreased by $10,000.
d. increased to $95,000.

Answer
a. did not change

Stockholder's equity consists of common stock and retained earnings none of which changes when debt is paid off.

2. Posting is the process of
a. preparing a chart of accounts.
b. adding a column of figures.
c. transferring journal entries to ledger accounts.
d. recording entries in a journal.

Answer
c. transferring journal entries to ledger accounts.

3. The purpose of recording depreciation on productive assets is to
a. reflect the decline in the market value of the assets each period.
b. reduce income when the company has an exceptionally profitable year.
c. be in conformity with the revenue ...

Solution Summary

The solution discusses 10 multiple choice questions in financial accounting dealing with topics like stockholders' equity, posting, depreciation, prepaid insurance, inventory, depreciation on productive assets, accounting period, expected uncollectible accounts, inventory method, FIFO, LIFO.

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Financial Accounting Multiple Choice Questions

1. The requirement that only transaction data capable of being expressed in terms of money be included in the accounting records relates to the
a. cost principle.
b. monetary unit assumption.
c. economic entity assumption.
d. both a and b above.

2. A financial statement that reports accounting data at a specific date is the
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.

3. Which of the following presents key aspects of the process of accounting in the correct chronological order?
a. Communicating, recording, and identifying
b. Recording, identifying, and communicating
c. Recording, totaling, and identifying
d. Identifying, recording, and communicating

4. The process of transferring transaction effects into the appropriate accounts is referred to as
a. closing.
b. journalizing.
c. recording.
d. posting.

5. Transactions are initially recorded in the
a. general ledger.
b. trial balance.
c. general journal.
d. balance sheet.

6. For which of the following accounts is the normal balance a debit?
a. Rent Payable
b. Unearned Rent Revenue
c. Rent Revenue
d. Prepaid Rent

7. Which of the following is false with regard to a general journal?
a. It tracks the increases and decreases in an individual account.
b. It provides a chronological record of transactions.
c. It discloses in one place the complete effect of a transaction.
d. It helps to prevent errors since the debit and credit amounts in an individual entry can be readily compared.

8. Financial statements combining the operations of Sears and J. C. Penney would violate the
a. monetary unit assumption.
b. economic entity assumption.
c. cost principle.
d. both a and c above.

9. A debit will reduce _______________, but increase ______________.
a. accounts receivable; accounts payable
b. revenues; accounts payable
c. accounts payable; common stock
d. common stock; prepaid insurance

10. Which of the following entries made to record the payment of $200 on account will cause the trial balance to be out of balance?
a. No entry is recorded.
b. Cash is debited for $200 and Service Revenue is credited for $200.
c. Cash is debited for $20 and Accounts Payable is credited for $20.
d. Both Cash and Accounts Payable are credited for $200.

11. Although a separate legal entity, the transactions of the following still must be kept separate from the personal activities of the owners for accounting purposes:
a. Proprietorship.
b. Partnership.
c. Corporation.
d. Both a and b above.

12. The Retained Earnings column had a beginning total of $30,000 and an ending total of $50,000. If $10,000 of dividends were paid during the period, net income must have been
a. $20,000.
b. $40,000.
c. $10,000.
d. $30,000.

13. The matching principle states that
a. revenues should be matched with assets when they are recorded.
b. revenues should be matched with the periods when cash is collected from customers.
c. recorded values of assets should match their purchase prices.
d. none of the above.

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