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Financial Accounting Multiple Choice Questions

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Question 1

Which of the following is shown on both a multiple-step and a single-step income statement?

a. Gross profit.
b. Net sales.
c. Income from operations.
d. Other expenses and losses.
e. None of the above

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Question 2

The records for Uptown Pet Shop showed the following:Sales $225,000 Beginning merchandise inventory $ 30,000
Purchases 135,000 Cost of goods sold 150,000
What was the ending merchandise inventory?

a. $120,000
b. $ 75,000
c. $ 45,000
d. $ 15,000
e. None of the above

Question 3

Under a perpetual inventory system merchandise is purchased for cash. Which is the correct journal entry to record this purchase?

a. Debit to Purchases and a credit to Cash
b. Debit to Merchandise Inventory and a credit to Accounts Payable
c. Debit to Merchandise Inventory and a credit to Cash
d. Debit to Purchases Returns and Allowances and a credit to Cost of Goods Sold
e. None of the above

Question 4

An item of merchandise with a list price of $200 was purchased with a trade discount of 40% and credit terms of 3/10, n/30. The vendor was paid within the discount period. Which is the correct journal entry to record the payment?

a. Accounts Payable, debit, $200.00; Purchases Discount, credit, $86.00; Cash, credit, $114.00
b. Accounts Payable, debit, $80.00; Merchandise Inventory, credit, $2.40; Cash, credit, $77.60
c. Accounts Payable, debit, $120.00; Merchandise Inventory, credit, $3.60; Cash, credit, $116.40
d. Purchases, debit, $200.00; Purchase Discount, credit, $86.00; Cash, credit, $114.00
e. None of the above

Question 5

The buyer received an invoice from the seller for merchandise with a list price of $400 and credit terms of 2/10, n/60. The term 'n/60' in the credit terms is which of the following?

a. Credit period
b. Trade discount
c. Cash discount allowed for early payment of the invoice
d. Discount period
e. None of the above

Question 6

Part of the merchandise purchased for cash at an earlier time is now being returned. Which of the following is the correct journal entry for this return, assuming the seller grants cash refunds and a perpetual inventory system is used?

a. A debit to Cash and a credit to Purchases
b. A debit to Cash and a credit to Merchandise Inventory
c. A debit to Purchases Returns and Allowances and a credit to Cost of Goods Sold
d. A debit to Merchandise Inventory and a credit to Cash
e. None of the above

Question 7

Net sales is Sales less

a. Sales returns.
b. Sales discounts.
c. Sales returns and allowances.
d. Sales returns and allowances and sales discounts.
e. None of the above

Question 8

Office supplies are purchased on account. The company uses a perpetual inventory system. What is the correct journal entry for this purchase of office supplies?

a. A debit to Purchases and a credit to Cash
b. A debit to Merchandise Inventory and a credit to Cost of Goods Sold
c. A debit to Office Supplies and credit Accounts Payable
d. A debit to Merchandise Inventory and a credit to Accounts Payable
e. A debit to Office Supplies and a credit to Cash

Question 9

Gross margin (gross profit) from sales is the difference between which of the following?

a. Net sales and the cost of goods sold plus all the expenses
b. Net sales and operating expenses
c. Gross sales less the sales discounts and sales returns and allowances
d. Net sales and the cost of goods sold
e. None of the above

Question 10

A retailer who uses a perpetual inventory system purchased $8,000 of merchandise on credit. The credit terms were 2/10, n/30, FOB destination. The freight costs were $130. What was the journal entry to record the purchase?

a. Merchandise Inventory, debit, $8,000; Freight-In, debit, $130; Accounts Payable, credit, $8,130
b. Merchandise Inventory, debit, $8,130; Accounts Payable, credit, $8,130
c. Merchandise Inventory, debit, $8,000; Accounts Payable, credit, $8,000
d. Merchandise Inventory, debit, $7,870; Freight-In, debit, $130; Accounts Payable, credit, $8,000
e. None of the above

Question 11

Overland purchased $3,000 of merchandise from Overseas. The credit terms were 2/10, n/30. The freight terms were FOB shipping point. Freight costs of $60 were included in the invoice. What journal entry should Overland record, assuming Overland uses a perpetual inventory system?

a. Merchandise Inventory, debit, $3,000; Freight-In, debit, $60; Accounts Payable, credit, $3,060
b. Merchandise Inventory, debit, $3,000; Accounts Payable, credit, $3,000
c. Merchandise Inventory, debit, $2,940; Accounts Payable, credit, $2,940
d. Merchandise Inventory, debit, $2998.80; Accounts Payable, credit, $2,998.80
e. Merchandise Inventory, debit, $3,060; and Accounts Payable, credit, $3,060.

Question 12

In a perpetual inventory system, which of the following would be debited when inventory is sold on account?

a. Cost of goods sold.
b. Merchandise inventory
c. Sales
d. Accounts receivable
e. A & D

Question 13

FOB Shipping Point means that the

a. Good are placed free on board to the buyer's place of business
b. Buyer pays the freight
c. Seller pays the freight
d. The trucking company pays the freight
e. None of the above

Question 14

In a perpetual inventory system. A return of defective merchandise is recorded by crediting

a. Purchases
b. Purchase Returns
c. Purchase Allowance
d. Merchandise Inventory
e. None of the above

Question 15

In a perpetual inventory system, which of the following is not part of the series of journal entries made when merchandise is sold on credit?

a. Credit the Cost of Goods Sold account
b. Credit the Sales account
c. Credit the Merchandise Inventory account
d. Debit the Accounts Receivable account
e. None of the above

Question 16

The records for Roberta's Bridal Shoppe showed the following:Cash $115,000 Current Liabilities $ 45,000
Net Receivables 27,000 Revenues 170,000
Merchandise Inventory 95,000 Operating Expenses 119,000
Short-term Investments 20,000
What is the acid-test ratio?

a. 3.16:1
b. 3.60:1
c. 5.71:1
d. 2.56:1
e. None of the above

Question 17

The net sales of the business totals $200,000 and the Cost of Goods Sold for the same period totals $146,000. What is the gross margin ratio?

a. 0.22
b. 0.25
c. 0.27
d. 0.33
e. None of the above

Question 18

Under the periodic inventory system, which of the following is the Purchases account not used to record?

a. Cash purchases of merchandise inventory
b. Purchases of any asset on account or note payable
c. Purchases of merchandise inventory on account
d. A and C
e. None of the above

Question 19

Under the periodic inventory system, which of the following is a correct closing entry?

a. Income Summary, debit; Sales, credit
b. Income Summary, credit; Purchase Returns and Allowances, debit
c. Income Summary, debit; Merchandise Inventory (ending balance), credit
d. Purchases, debit; Income Summary, credit
e. All of the entries shown are correct closing entries

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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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