____ 16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a:
a. debit to an expense account.
b. credit to an expense account.
c. credit to the Allowance account.
d. debit to the Allowance account.
____ 17. Shipping terms of FOB destination mean that the:
a. purchaser is responsible for the shipping charges.
b. shipping charges are debited to Freight-Out.
c. items should be in the purchaser’s inventory account at year-end if the items are in transit.
d. Both (a) and (c) above.
____ 18. Helix Company has a $280,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Helix uses a percentage-of-receivables basis (at 10%)?
____ 19. The constraint of conservatism is best expressed as:
a. the cost of applying an accounting principle should not exceed its benefit.
b. only material items should be recorded and reported.
c. when in doubt, choose the method that will least likely overstate assets and net income.
d. the lower-of-cost-or-market method should be used for inventories.
____ 20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a:
a. debit to Sales Discounts for $40.
b. credit to Cash for $1,960.
c. credit to Accounts Receivable for $40.
d. None of the above.
____ 21. Barken Company’s records show the following for the month of January:
Total Retained Earnings at January 1 $600,000
Total Retained Earnings at January 31 750,000
Total Revenues 1,005,000
Total Dividends Declared 60,000
Total expenses for January were:
22. Stetson Company’s financial information is presented below.
Sales $ ???? Purchase Returns and Allowances $ 30,000
Sales Returns and Allowances 60,000 Ending Merchandise Inventory 70,000
Net Sales 500,000 Cost of Goods Sold 360,000
Beginning Merchandise Inventory ???? Gross Profit ????
The missing amounts above are:
Sales Beginning Inventory Gross Profit
a. $560,000 $90,000 $140,000
b. $440,000 $90,000 $200,000
c. $560,000 $120,000 $140,000
d. $440,000 $120,000 $200,000
____ 23. The preparation of closing entries:
a. is an optional step in the accounting cycle.
b. results in zero balances in all accounts at the end of the period so that they are ready for the following period’s transactions.
c. is necessary before financial statements can be prepared.
d. results in transferring the balances in all temporary accounts to Retained Earnings.
____ 24. Allowance for Doubtful Accounts is reported in the:
a. balance sheet as a contra asset.
b. balance sheet as a contra liability account.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.
____ 25. Current liabilities are obligations that are reasonably expected to be paid from:
Existing Creation of Other
Current Assets Current Liabilities
a. No No
b. Yes Yes
c. Yes No
d. No Yes
____ 26. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was:
a. not posted at all.
b. posted as a debit to Cash and a credit to Accounts Payable.
c. posted as a debit to Cash and a debit to Accounts Payable.
d. posted as a debit to Accounts Receivable and a credit to Cash.
____ 27. The primary accounting standard-setting body in the United States is the:
a. Securities and Exchange Commission.
b. Accounting Principles Board.
c. Financial Accounting Standards Board.
d. Internal Revenue Service.
____ 28. Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the:
a. direct method.
b. indirect method.
c. working capital method.
d. cost-benefit method.
____ 29. Which of the following would not be included in the operating activities section of a statement of cash flows?
a. Cash inflows from returns on loans (i.e., interest).
b. Cash inflows from returns on equity securities (i.e., dividends).
c. Cash outflows to governments for taxes.
d. Cash outflows to reacquire treasury stock.
____ 30. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
Liquidity Profitability Solvency
a. Inventory turnover Inventory turnover Times interest earned
b. Current ratio Inventory turnover Debt to total assets
c. Receivable turnover Return on assets Times interest earned
d. Average days collection Payout ratio Return on assets
____ 31. Carne Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $15 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to:
____ 36. Bison Corp. purchased 25,000 shares of its $2 par common stock at a cost of $12 per share on April 30, 2012. The stock was originally issued at $10 per share. The entry to record the purchase of the stock should include a debit to: