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General Accounting Questions

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Multiple choice questions used for study aid.

1. A private organization which establishes broad accounting principles as well as specific accounting rules is the
a. Securities and Exchange Commission.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Corporate Board of Directors.

2. Taco Hut pays the current month's rent, $600. This transaction
a. increases revenues by $600.
b. increases assets by $600.
c. decreases liabilities by $600.
d. decreases stockholders' equity by $600.

3. A corporation with total stockholders' equity of $85,000 paid a $5,000 business debt. As a result of this transaction, total stockholders' equity
a. did not change.
b. increased by $5,000.
c. decreased by $5,000.
d. increased to $90,000.

4. The right side of an account is always
a. the debit side.
b. the credit side.
c. the balance of that account.
d. carried forward to the next accounting period.

5. 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.

6. Warton Company depreciates its equipment at the rate of $500 per month. The January 31 entry to record depreciation expense would include
a. a debit to Equipment for $500.
b. a credit to Retained Earnings for $500.
c. a credit to Accumulated Depreciation for $500.
d. a credit to Depreciation Expense for $500.

7. Logan Company debited Prepaid Insurance for $960 on July 1, 2005 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 $960 and expenses to be understated by $960.
b. expenses to be overstated by $80 and assets to be understated by $80.
c. assets to be overstated by $80 and expenses to be understated by $80.
d. expenses to be overstated by $960 and assets to be understated by $960.

8. Which one of the following accounts is not closed at the end of an accounting period?
a. Common Stock
b. Dividends
c. Service Revenue
d. Insurance Expense

9. 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.

10. Geronimo Company had net sales of $400,000, cost of goods sold of $225,000 and other operating expenses of $100,000. The company's gross profit is
a. $225,000
b. $175,000
c. $125,000
d. $75,000

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1. c. Financial Accounting Standards Board, because 2 are government and the board of directors can't make rules for other companies to follow.

2. d. decreases stockholders' equity by $600 ultimately because assets have decreased by the amount of the payment. It is not a revenue and not a liability which explains why a. and c. aren't correct.

3. c. decreased by $5,000, but I should explain ...

Solution Summary

The solutions are given for 10 financial questions together with explanations of the answers. The questions include transaction effects to the balance sheet, effect of closing entries and other issues.

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Accounting Study Questions (25)

25 Accounting Study Questions

General Accounting Study Questions

.
1. If a company fails to record estimated bad debts expense,
A) cash realizable value is understated.
B) expenses are understated.
C) revenues are understated.
D) receivables are understated.

.
2. The method of accounting for uncollectible accounts that results in a better matching of expenses with revenues is the
A) aging accounts receivable method.
B) direct write-off method.
C) percentage of receivables method.
D) percentage of sales method.

.
3. Voight Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.), respectively. An aging of accounts receivable indicated that $128,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is
A) $128,000.
B) $58,000.
C) $198,000.
D) $70,000.

4. Bailey Company purchases a new delivery truck for $35,000. The sales taxes are $2,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Bailey record as the cost of the new truck?
A) $38,540.
B) $38,420.
C) $37,000.
D) $36,420.

Use the following to answer questions 5-6:

On October 1, 2006, Dole Company places a new asset into service. The cost of the asset is $40,000 with an estimated 5-year life and $10,000 salvage value at the end of its useful life.

.
5. What is the depreciation expense for 2006 if Dole Company uses the straight-line method of depreciation?
A) $1,500.
B) $8,000.
C) $2,000.
D) $4,000.

.
6. What is the book value of the plant asset on the December 31, 2006, balance sheet assuming that Dole Company uses the double-declining-balance method of depreciation?
A) $26,000.
B) $30,000.
C) $36,000.
D) $38,000.

.
7. A company would not likely use subsidiary ledgers for
A) inventory.
B) retained earnings.
C) equipment.
D) accounts receivable.

.
8. The relationship between current liabilities and current assets is
A) useful in determining income.
B) useful in evaluating a company's liquidity.
C) called the matching principle.
D) useful in determining the amount of a company's long-term debt.

6 points
9. Marsh Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $14,310. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes?
A) $858.60.
B) $810.00.
C) $807.08.
D) cannot be determined.

.
10. Santo Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 30,000 subscriptions in January at $15 each. What entry is made in January to record the sale of the subscriptions?

.
11. Bonds with a face amount of $1,000,000 and a contractual interest rate of 8% are sold to yield 7.5%. The annual interest expense recorded for the bonds will be
A) $5,000
B) $40,000
C) $75,000
D) $80,000.

.
12. On January 1, 2003, $1,000,000, 5-year, 10% bonds, were issued for $970,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is
A) $5,808.
B) $6,000.
C) $484.
D) $500.

.
13. The statement that "Bond prices vary inversely with changes in the market rate of interest" means that if the
A) market rate of interest increases, the contractual interest rate will decrease.
B) contractual interest rate increases, then bond prices will go down.
C) market rate of interest decreases, then bond prices will go up.
D) contractual interest rate increases, the market rate of interest will decrease.

.
14. Lisa Ball's regular rate of pay is $15 per hour with one and one-half times her regular rate for any hours which exceed 40 hours per week. She worked 48 hours last week. Therefore, her gross wages were
A) $720.
B) $600.
C) $780.
D) $1,080.

6 points
15. Assuming a FICA tax rate of 8% on the first $87,000 in wages, and a federal income tax rate of 20% on all wages, what would be an employee's net pay for the year if he earned $95,000?
A) $88,040
B) $68,400
C) $76,000
D) $69,040

.
16. A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a
A) corporation is organized for the purpose of making a profit.
B) corporation is subject to numerous federal and state government regulations.
C) corporation is an accounting economic entity.
D) corporation's temporary accounts are closed at the end of the accounting period.

.
17. Dividends are declared out of
A) Capital Stock.
B) Paid-in Capital in Excess of Par Value.
C) Retained Earnings.
D) Treasury Stock.

.
18. If Vickers Company issues 1,000 shares of $5 par value common stock for $70,000,
A) Common Stock will be credited for $70,000.
B) Paid-In Capital in Excess of Par Value will be credited for $5,000.
C) Paid-In Capital in Excess of Par Value will be credited for $65,000.
D) Cash will be debited for $65,000.

.
19. The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by
A) financing activities.
B) investing activities.
C) operating activities.
D) processing activities.

.
20. Meyer Company reported net income of $30,000 for the year. During the year, accounts receivable increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is
A) $25,000.
B) $45,000.
C) $29,000.
D) $30,000.

.
21. If a liability is dependent on a future event, it is called a
A) potential liability.
B) hypothetical liability.
C) probabilistic liability.
D) contingent liability.

Use the following to answer questions 22-23:

Waters Department Store had net credit sales of $8,000,000 and cost of goods sold of $6,000,000 for the year. The average inventory for the year amounted to $2,000,000.

.
22. Inventory turnover for the year is
A) 4 times.
B) 7 times.
C) 3 times.
D) 2 times.

23. The average number of days to sell the inventory during the year was
A) 183 days.
B) 122 days.
C) 91 days.
D) 52 days.

Use the following to answer questions 24-25:

Augusten Enterprises reported the following current asset account balances: Cash, $12,000; Accounts Receivable, $24,000; Prepaid Expenses, $2,000; and Inventory, $42,000. The company reported current liabilities of $20,000.

24. What is the company's current ratio?
A) .5:1
B) 1.8:1
C) 4:1
D) 2.1:1

25. What is the company's acid-test ratio?
A) .5:1
B) 1.8:1
C) 4:1
D) 2.1:1

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