Practice Questions - Multiple Choice
Identify the choice that best completes the statement or answers the question.
Walker Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below:
Inventory (beginning) 16,000
Inventory (ending) 30,000
Operating Expenses 148,000
Income Tax Expense 10,000
Retained Earnings (beginning) 53,000
____ 1. Refer to the information for Walker Corp.
Calculate net income.
a. $289,000 c. $131,000
b. $141,000 d. $116,000
____ 2. The following is from Silver Inc.'s 2012 income statement.
Inventory, January 1, 2012 26,500
Inventory, December 31, 2012 28,800
Purchase Returns and Allowances 8,400
How much will Silver report as cost of goods purchased in its 2012 income statement?
a. $184,600 c. $201,400
b. $193,000 d. $211,100
____ 3. Which one of the following is correct?
a. Inventory losses can be identified and controlled better under the perpetual system.
b. Inventory can only be sold at the end of an accounting period under the periodic system.
c. There is no difference in cost to implement a perpetual as compared to a periodic system.
d. The perpetual system eliminates the need for an annual inventory count
____ 5. Which method of inventory costing is not acceptable for financial accounting purposes?
a. Specific Identification c. LIFO
b. FIFO d. Replacement Cost
____ 6. Which inventory costing method results in the lowest income tax expense during a period of decreasing prices?
a. FIFO c. Specific Identification
b. LIFO d. Weighted Average Cost
____ 7. County Corp. started business at the beginning of 2011. County selected the FIFO method for its inventory. In order to maximize its profits for 2011 under this method, prices must be
a. Increasing c. Stable
b. Decreasing d. Fluctuating up and down at the same amount consistently over the year
____ 8. If the amount assigned to ending inventory is incorrect,
a. The balance sheet is affected, but the income statement is not
b. The income statement is affected, but the balance sheet is not
c. The balance sheet is affected, but cost of goods sold is not
d. Both the balance sheet and the income statement are affected
____ 9. Lettermen Inc. uses a perpetual inventory system.
Jan. 1 On hand, 10 units at $2 each $ 20
4 Sold 8 units for $10 each 80
22 Purchased 50 units at $4 each 200
26 Sold 48 units for $10 each 480
If Lettermen uses the FIFO method, how much is cost of goods sold for the month of January?
a. $204 c. $212
b. $208 d. $560
__ 10.Which of these is not an acceptable inventory costing method under IFRS?
c. Specific Identification
d. Average cost
____ 11. Effective cash management and control includes all of the following except :
a. The use of a petty cash fund c. Short-term investments of excess cash
b. Bank reconciliations d. Purchase of stocks and bonds
____ 12. Which one of the following procedures is not part of preparing a bank reconciliation of a checking account
a. Tracing deposits listed on the bank statement to the books to identify deposits in transit
b. Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks
c. Identifying items added on the bank statement which have not been recorded as cash receipts by the company
d. Preparing adjustments to reverse the transactions recorded for checks that are still outstanding
____ 13. Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation?
a. Outstanding checks c. Service charges
b. Deposit in transit d. Interest on customer note
____ 14. Hardin Company accepted a check from Reyes Company as payment for services rendered by Hardin Company. Later Hardin's bank statement revealed that Reyes' check was an NSF check. Recognizing the NSF check on Hardin's books would act to:
a. Decrease total assets c. Both a. and b.
b. Decrease total owners' equity d. Have no effect on Total Assets
____ 15. Which of the following represents the board of directors subset that acts as a direct contact between stockholders and the independent accounting firm?
a. Audit committee c. External auditors
b. Internal audit staff d. Stockholders' representative
____ 16. Having only one person authorized to both prepare and sign checks is a violation of what internal control procedure?
a. Segregation of duties c. Independent verifications
b. Independent review and appraisal d. Proper authorizations
____ 17. Which one of the following documents is used in the control of cash disbursements?
a. Income Statement c. Receiving reports
b. Bank deposit slips d. Cash register tapes
____ 18. Which one of the following is a sound internal control procedure for cash disbursements?
a. Making copies of purchase orders for the receiving department so they know how many items to be expected upon delivery
b. Using presigned checks to facilitate payment within the cash discount period
c. Comparing purchase requisitions, purchase orders, receiving reports, and invoices
d. Requiring the signature of the purchasing department supervisor on checks
____ 19. Which one of the following situations reflects a weak internal control system?
a. all employees are well supervised
b. a single employee is responsible for comparing a receiving report to an invoice
c. all employees must take their vacations
d. a single employee is responsible for collecting and recording of cash
____ 20. If receipts from cash sales of $7,500 were recorded incorrectly as $5,700 in the company's books, then this item would be included on the bank reconciliation as a(n)
a. deduction from the balance per company's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per company's records
____ 21. For what reason would a company buy 10% of the common stock of a second company?
a. The company has idle cash and wishes to have a higher return than that
available from temporary money market investments.
b. The company wishes to insure a steady source of goods from the 2nd company.
c. The company wishes to prepare consolidated financial statements.
d. More than one of the above is correct.
____ 25. The entry to recognize the write-off of the specific uncollectible accounts will act to:
a. Increase total assets and total equity
b. Increase total assets and decrease total equity
c. Decrease total assets and total equity
d. Not affect total assets or total equity
____ 26. Friese Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Friese will receive at maturity is
a. $6,300 c. $525
b. $2,100 d. $1,890
Angel, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500
hours of operation. The crane was purchased on January 1, 2011 and was used 2,700 hours in 2011 and 2,600 hours in 2012.
____ 27. Refer to the information for Angel, Inc,
Based on this information, what method of depreciation will produce the maximum depreciation expense in 2012?
d. All methods produce the same expense in 2012.
____ 28. At the end of 2011, Global Productions determined that one of its copyrights was worthless. The copyright had a cost of $320,000. The copyright had been amortized for 8 years of its estimated 25-year legal life. Which of the following statements is the justification for removing the remaining cost of the copyright from the accounting records?
a. The copyright no longer represents a future benefit to the company.
b. The federal government does not allow copyrights to be recorded as assets once they are deemed worthless.
c. The cost of the copyright represents an obligation to return capital contributions to the stockholders.
d. The cost of the copyright has usefulness that will impact the net income of future accounting periods.
____ 29. Interest is capitalized when incurred in connection with the construction of plant assets because
a. interest is considered a part of the acquisition cost of related plant asset.
b. the decision to purchase a plant asset is a business decision separate from the financing decision.
c. many plant assets last longer than 20 years.
d. interest is considered an expense of the period.
____ 31. Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for
a. financial reporting purposes and a different method for tax purposes.
b. financial reporting purposes because depreciation is not allowed for tax purposes.
c. tax purposes because it results in a larger net income in the early years of a plant asset's life
d. tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.
On January 1, 2011, Donovan's Transport Company purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.
____ 32. What was the depreciation expense for Donovan's Transport for the year ended December 31, 2011?
a. $ -0- c. $390,000
b. $195,000 d. $400,000
____ 33. What was the depreciation expense for Donovan's Transport for the year ended December 31, 2012?
a. $ -0- c. $320,000
b. $160,000 d. $400,000
____ 34. All of the following are included in the acquisition cost of property, plant, and equipment except:
a. transportation costs
b. taxes on the purchase
c. installation costs
d. maintenance costs
____ 35. Which of the following below is an example of a capital expenditure?
a. cleaning the carpet in the front room
b. tune-up for a company truck
c. replacing an engine in a company car
d. replacing all burned-out light bulbs in the factory
____ 36. The payment of accounts payable results in a(n)
a. decrease in liabilities and a decrease in assets.
b. decrease in liabilities and an increase in assets.
c. increase in liabilities and a decrease in owners' equity.
d. decrease in liabilities and an increase in owners' equity.
____ 37. If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays April 2, then the amount p aid to the seller would be
a. $3,136 c. $3,168
b. $3,150 d. $3,200
____ 39. A company's balance sheet shows the account, Notes Payable. This resulted from a loan made by the company's bank. If the end-of-year balance in the notes payable account exceeds the beginning-of-year balance by $5,000, this is shown on the cash flow statement as an
a. inflow of cash of $5,000 in the operating activities category.
b. outflow of cash of $5,000 in the operating activities category.
c. inflow of cash of $5,000 in the financing activities category.
d. outflow of cash of $5,000 in the financing activities category.
____ 40. In 2012, Salem, Inc. sold 1,000 carpets for $50 each. The carpets carry a 2-year warranty for repairs. Salem estimates that repair costs will average 2% of the total selling price. What is the amount that would be recorded in the warranty liability account as a result of selling the carpets during 2012?
b. $ 500
c. $ 20
d. No liability should be recorded until the carpets are returned for repairs.
The solution answers 40 multiple choice questions related to balance sheet, income statement, perpetual invenotyr system, periodic inventory system, bank reconciliation etc.
Principles of Accounting: Practice Exam Questions.
1. The usual presentation of the statement of owner's equity is (1) Beginning capital, (2) Net income or loss, (3) Drawing, (4) Owner's contributions, (5) Ending capital.
2. At the end of the fiscal period, prepaid expenses are reported on the Income Statement as expenses.
3. After the account balances have been extended from the Adjusted Trial Balance columns on the work sheet, the difference between the initial totals of the Balance Sheet debit and credit columns is Net Income or Net Loss.
4. If the totals of the Income Statement debit and credit columns of a work sheet are $27,000 and $29,000, respectively, after all account balances have been extended, the amount of the net loss is $2,000.
5. During the end-of-period processing which of the following best describes the logical order of this process:????
Preparation of adjustments, adjusted trial balance, financial statements.
Preparation of Income Statement, adjusted trial balance, Balance Sheet.
Preparation of adjusted trial balance, cross-referencing, journalizing.
Preparation of adjustments, adjusted trial balance, posting.
6. Which of the following is not true about closing entries??
There are four closing entries that update the owner's equity account.
After the second closing entry, the income summary account is equal to the net income or (loss) for the period.
All real accounts are closed at the end of the period.
By closing nominal accounts at the end of the period to zero, it is possible to isolate next period's information correctly.
7. Amir Designs purchased a one-year liability insurance policy on March 1st of this year for $5,400 and recorded it as a prepaid expense. Which of the following amounts would be recorded for insurance expense and prepaid insurance during the closing process at the end of Amir's first month of operations on March 31st??
8. The proper sequence for the steps in the accounting cycle is a follows:?
analyze and record transactions, post transaction to the ledger, prepare a trial balance, prepare financial statements, journalize closing entries, analyze adjustment data and prepare adjusting entries.
prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries and post to the ledger, analyze and record transactions, post transactions to the ledger.
analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries and post to the ledger.
9. Which of the statements below indicates that a company earned a net income for the period??
The sum of the credits exceeds the sum of the debits in the Balance Sheet columns on the work sheet.
The sum of the credits exceeds the sum of the debits in the Income Statement columns on the work sheet.
The sum of the debits exceeds the sum of the credits in the Income Statement columns on the work sheet.
The sum of the debits exceeds the sum of the credits in the Income Statement columns on the work sheet.
Cash inflows exceeded cash outflows.
10. The work sheet at the end of July has $5,350 in the Balance Sheet credit column for Accumulated Depreciation. The work sheet at the end of August has $6,700 in the Balance Sheet credit column for Accumulated Depreciation. What was the amount of the depreciation expense adjustment for the month of August??
amount can not be determined
11. The income statement columns in the worksheet show that debits are equal to $55,800 and credits are $62,705. What does this information mean to the accountant??
Net income of $6,905
Net loss of $6,905
The accounts are out of balance, indicating an error has been made.
The accounts have not been updated.