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Multiple Choice - Financial Accounting

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.

Solution Preview

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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