Practice problems

On January 30, Tensing Company purchased supplies of $2,000. The supplies were all consumed in February. Which of the following statements is true regarding the accounting for these supplies.

A)
The supplies should be recorded as an asset in January and no adjusting entry is needed until the supplies are used in February.

B)
The supplies should be charged to Supplies Expense in January and no adjusting entry is needed until the supplies are used in February.

C)
The supplies should not be recorded in the accounting records until used in February.

D)
The adjusting journal entry at the end of January will include a debit to Supplies Expense and a credit to Supplies for $2,000.

2.
Under a periodic inventory system, acquisition of merchandise is debited to the

A)
Merchandise Inventory account.

B)
Cost of Goods Sold account.

C)
Purchases account.

D)
Accounts Payable account.

3.
In applying the operating guidelines within the conceptual framework, an item is considered material if

A)
it costs a lot of money.

B)
it is of a tangible nature.

C)
it is likely to influence the decision of a reasonably prudent investor or creditor.

D)
the cost of reporting the item is greater than its benefits.

4.
Quirk Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

A)
Debit Office Supplies Expense, $1,600; Credit Office Supplies, $1,600.

B)
Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400.

C)
Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400.

D)
Debit Office Supplies, $1,600; Credit Office Supplies Expense, $1,600.

5.
Two individuals at a retail store work the same cash register. You evaluate this situation as

A)
a violation of establishment of responsibility.

B)
a violation of separation of duties.

C)
supporting the establishment of responsibility.

D)
supporting internal independent verification.

6.
Fairway Enterprises had beginning inventory of $5,000 at May 1, 2006. During the month, the company made purchases of $20,000. The inventory at the end of the month is $7,500. What is cost of goods available for sale for the month of May?

A)
$5,000

B)
$7,500

C)
$25,000

D)
$27,500

7.
Related selling activities include all of the following except

A)
making a sale.

B)
billing the customer.

C)
ordering the merchandise.

D)
shipping the goods.

8.
Preparing tax returns and engaging in tax planning is performed by

A)
public accountants only.

B)
private accountants only.

C)
both public and private accountants.

D)
IRS accountants only.

Use the following to answer question 9:

Use the following information from the Income Statement for the year 2006 of NOLA Inc. to answer the question(s) below.

[img src="@4353083"]

9.
After the revenue and expense accounts have been closed, the balance in Income Summary will be

A)
$0.

B)
a debit balance of $3,500.

C)
a credit balance of $3,500.

D)
a credit balance of $70,000.

10.
The ledger accounts should be arranged in

A)
chronological order.

B)
alphabetical order.

C)
financial statement order.

D)
order of appearance in the journal.

11.
The revenue recognition principle

A)
states that revenue should be recognized in the period when received.

B)
states that expense recognition is tied to revenue recognition.

C)
requires that revenue be recognized in the accounting period when it is earned.

D)
requires that events which make a difference to financial statement users be disclosed.

12.
Ample Company has total assets of $100,000 and total liabilities of $60,000. The company's stockholders' equity is

A)
$40,000.

B)
$60,000.

C)
$100,000.

D)
$160,000.

13.
Isaac Company developed the following information about its inventories in applying the lower of cost or market (LCM) basis in valuing inventories:

[img src="@4353084"]

If Isaac applies the LCM basis, the value of the inventory reported on the balance sheet would be

A)
$175,000.

B)
$171,000.

C)
$173,000.

D)
$181,000.

14.
An accounting record of the balances of all assets, liabilities, and stockholders' equity accounts is called a

A)
compound entry.

B)
general journal.

C)
general ledger.

D)
chart of accounts.

15.
An account is an individual accounting record of increases and decreases in specific

A)
liabilities.

B)
assets.

C)
expenses.

D)
assets, liabilities, and , stockholders' equity items.

16.
The fiscal year of a business is usually determined by

A)
the IRS.

B)
a lottery.

C)
the business.

D)
the SEC.

17.
Fifth Dimension Inc. reported a balance in Retained Earnings of $45,000 on its post-closing trial balance at 12/31/2006. The company earned net income of $30,000 and paid dividends of $5,000 during the year. The 12/31/2006 balance sheet will report Retained Earnings of

A)
$40,000

B)
$45,000

C)
$70,000

D)
$75,000

18.
Flynn Company purchased merchandise inventory with an invoice price of $3,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Flynn Company pays within the discount period?

A)
$3,000.

B)
$2,940.

C)
$2,700.

D)
$2,760.

19.
Related buying activities include

A)
ordering, receiving, paying.

B)
ordering, selling, paying.

C)
ordering, shipping, billing.

D)
selling, shipping, paying.

20.
Which of the following would not be considered internal users of accounting data for a company?

A)
The president of a company

B)
The controller of a company

C)
Creditors of a company

D)
Salesmen of the company

21.
The private sector organization involved in developing financial accounting principles is the

A)
Securities Exchange Commission.

B)
Internal Revenue Service.

C)
Financial Accounting Standards Board.

D)
Accounting Principles Board.

22.
The summary of significant accounting policies footnoted in the financial statements would not normally discuss

A)
depreciation methods.

B)
board of directors salaries.

C)
method of inventory costing.

D)
amortization of intangible assets.

23.
It is assumed that the activities of John and Mary Pool can be distinguished from those of Pool Enterprises because of the

A)
Cost principle

B)
Economic Entity assumption

C)
Periodicity assumption

D)
Going concern assumption

24.
Credits

A)
decrease both assets and liabilities.

B)
decrease assets and increase liabilities.

C)
increase both assets and liabilities.

D)
increase assets and decrease liabilities.

25.
The manager of Wyatt Company is given a bonus based on income before income taxes. Net income, after taxes, is $4,200 for FIFO and $3,780 for LIFO. The tax rate is 30%. The bonus rate is 20%. How much higher is the manager's bonus if FIFO is adopted instead of LIFO?

A)
$150.

B)
$200.

C)
$120.

D)
$420.

26.
The selection of an appropriate inventory cost flow assumption for an individual company is made by

A)
the external auditors.

B)
the SEC.

C)
the internal auditors.

D)
management.

27.
Using pre-numbered checks and accounting for them in sequence is an example of

A)
establishment of responsibility.

B)
documentation procedures.

C)
independent internal verification.

D)
segregation of duties.

28.
The use of reversing entries

A)
is a required step in the accounting cycle.

B)
changes the amounts reported in the financial statements.

C)
simplifies the recording of subsequent transactions.

D)
is required for all adjusting entries.

29.
Which one of the following statements concerning the accounting cycle is incorrect?

A)
The accounting cycle includes journalizing transactions and posting to ledger accounts.

B)
The accounting cycle includes only one optional step.

C)
The steps in the accounting cycle are performed in sequence.

D)
The steps in the accounting cycle are repeated in each accounting period.

Use the following to answer question 30:

On July 3, 2006, Elton Company sold goods on account to Radar Enterprises with terms of 2/10, n/30. The goods had a cost of $360 and a selling price of $720. On July 7, Radar returned $100 of goods because they did not meet specifications. On July 29, Radar Company paid the account in full. Both Elton and Radar use a perpetual inventory system.

30.
The entry made by Elton to record the return of merchandise will include:

A)
a debit to Merchandise Inventory for $100.

B)
a credit to Accounts Receivable for $100.

C)
a debit to Sales Revenue for $100.

D)
a debit to Accounts Payable for $100.

31.
The respective normal account balances of Sales, Sales Returns and Allowances, and Sales Discounts are

A)
credit, credit, credit.

B)
debit, credit, debit.

C)
credit, debit, debit.

D)
credit, debit, credit.

32.
Which of the following time periods would not be referred to as an interim period?

A)
Monthly

B)
Quarterly

C)
Semi-annually

D)
Annually