1. Which of the following states that a company must perform strictly proper accounting ONLY for items that are significant to the business’s financial statements?
a. Accounting conservatism
b. Materiality concept
c. Disclosure principle d. Consistency principle
2. Under which of the following inventory costing methods is the Cost of goods sold based on the cost of the oldest purchases?
a. Specific-unit-cost b. Average-cost
c. Last-In, First-Out
d. First-In, First-Out
3. A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses average-cost inventory costing method, what is the amount of ending inventory on December 31?
b. $1,250 c. $2,250 d. $1,500
4. A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses the Last-In, First-Out inventory costing method, what is the amount of Cost of goods sold on the December 31 income statement?
b. $3,750 c. $6,750
5. Samson Company had the following balances and transactions during 2013. Beginning inventory is 10 units at $70. On March 10th 8 units are sold. On June 10th 20 units are purchased at $80. And, on October 30th 15 units are sold. What would the company’s Inventory amount be on the December 31, 2013 balance sheet if the perpetual First-In, First-Out costing method is used?
a. $490 b. $540
c. $560 d. $554
6. Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit. Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a perpetual inventory system, and applies FIFO. How much is the Cost of goods sold for the month?
a. $170 b. $150 c. $180 d. $165
7. Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit. Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a perpetual inventory system, and applies the average-costing method. How much is the Ending inventory balance?
a. $122 b. $126 c. $118 d. $109
8. The Cost of goods available for sale is equal to the _________.
a. Cost of goods sold minus the Ending inventory b. Sales revenue minus the Cost of goods sold c. Cost of goods sold plus the Ending inventory d. Ending inventory plus the Sales revenues
9. Reducing expense to increase operating profit is representative of _________.
a. safeguarding assets b. following company policies c. promoting operational efficiency d. ensuring accurate, reliable accounting records
10. Sarbanes-Oxley was passed in response to which of the following?
a. The stock market crash of 2002 b. The savings and loan bailout c. The accounting scandals of WorldCom and Enron d. The mounting government deficit
11. A pharmaceutical company testing drugs to determine possible side effects is a part of _________.
a. monitoring controls b. information systems c. control procedures d. risk assessment
12. Which of the following describes the control environment?
a. Internal auditors monitor company controls to safeguard assets, and external auditors monitor the controls to ensure that the accounting records are accurate. b. The control environment is the “tone at the top” of the business. c. The control environment is designed to ensure that the business’s goals are achieved. d. A company must identify its risks.
13. A malicious program that enters program code or destroys data without authorization is an example of _________.
a. a password b. phishing c. encryption d. a virus
14. Which of the following is a benefit of online banking?
a. The business can reconcile to the bank’s balance at any time. b. The bank reconciliation is not necessary. c. The business can reduce their internal controls over cash receipts. d. A company’s book balance will always equal the bank’s balance.
15. Check Number 6135 for $576 was incorrectly entered as $657. Which adjustment needs to be made?
a. Decrease the book balance. b. Decrease the bank statement balance. c. Increase the book balance. d. Increase the bank statement balance.
16. A company’s cash ledger shows an ending balance of $5,000. Reconciling items included a bookkeeper error of $200 (a $300 check recorded as $500), two outstanding checks totaling $720, a service charge of $15, a deposit in transit of $180, and interest revenue of $21. What is the adjusted book balance?
a. $5,194 b. $4,486 c. $5,206 d. $4,806
17. GAAP prefers companies to use the _________ to evaluate bad debts.
a. direct write-off method b. allowance method c. amortization method d. 360-day method
18. Which of the following are the two methods of estimating uncollectible receivables?
a. The allowance method and the amortization method b. The aging-of-accounts-receivable method and the percent-of-sales method c. The gross-up method and the direct write-off method d. The direct write-off method and the percent-of-completion method
19. The Allowance for uncollectible accounts currently has a credit balance of $200. The company’s management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are $115,000. What will be the balance of the Allowance for uncollectible accounts reported on the balance sheet?
a. $3,275 b. $3,075 c. $2,675 d. $2,875
20. A newly created design business called Smart Art is just finishing up its first year of operations. During the year, there were credit sales of $40,000 and collections of $36,000. One account for $650 was written off. Smart Art uses the percent-of-sales method to account for uncollectible account expense, and has decided to use a factor of 2% for their year-end adjustment of uncollectible account expense. At the end of the year, what is the ending balance in Accounts receivable?
a. $4,000 b. $36,000 c. $3,350 d. $39,350
21. A company has significant uncollectible receivables. Why is the direct write-off method unacceptable?
a. Assets will be understated on the balance sheet. b. It violates the matching principle. c. Direct write-offs would be immaterial. d. It is not allowed for tax reasons.
22. Which of the following exists if the maker of a promissory note fails to pay the note on the due date?
a. A discounted note b. A depreciated note c. An amortized note d. A dishonored note
23. What is the total interest on a 3-month, 9% note for $32,000?
a. $720 b. $1,440 c. $2,880 d. $460
24. On December 1, 2014, Parsons Sales sold machinery to a customer for $2,000. The customer could not pay at the time of sale, but agreed to pay 9 months later, and signed a 9-month note at 12% interest. How much interest revenue was earned during the year 2015?
a. $180 b. $75 c. $160 d. $90
25. Which of the following is not a characteristic of a plant asset?
a. The asset is used in the production of income for the business. b. The asset is available for sale to customers in the ordinary course of business. c. The asset has physical form. d. The asset has future usefulness and value.
26. A company purchased a used machine for $80,000. The machine required installation costs of $8,000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?
a. $80,500 b. $88,500 c. $88,000 d. $80,000
27. Which of the following items should be depreciated?
a. Tangible property, plant, and equipment, other than land b. Intangible property c. Land d. Natural resources
28. Which of the following depreciation methods allocates a fixed amount of depreciation to miles driven, hours used, or some other measure of the asset’s utilization?
a. Straight-line b. Declining-balance c. Units-of-production d. Double-declining-balance
29. On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of six years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014. What is depreciation expense for 2014 if the company uses double-declining- balance depreciation?
a. $13,333 b. $8,889 c. $6,000 d. $10,000
30. On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014. What is depreciation expense for 2013 if the company uses straight-line depreciation?
a. $6,667 b. $13,333 c. $12,000 d. $6,000
31. On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of six years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 hours in 2014. What is depreciation expense for 2014 if the company uses units-of- production depreciation?
a. $6,000 b. $18,000 c. $10,000 d. $9,000
32. Avery Sales purchased telecom equipment for $5,000 on July 1, 2013. It has estimated residual value of $200, and an estimated life of 8 years. If Avery uses straight-line depreciation, how much expense will be recorded in 2013?
a. $312 b. $300 c. $600 d. $625
33. Which of the following occurs when a company records accrued interest expense on a note payable?
a. Interest expense is credited. b. Note payable is credited. c. Cash is debited. d. Interest payable is credited.
34. Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these sales?
a. A debit to Sales revenue for $215,000 b. A credit to Accounts receivable for $215,000 c. A debit to Sales tax payable for $15,050 d. A debit to Accounts receivable for $230,050
35. A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of accrued interest on December 31, 2015?
a. $200 b. $267 c. $133 d. $800
36. Joe signs a $5,000, 8%, 6-month note dated September 1, 2012. What is Joe’s 2013 interest expense for this note?
a. $133 b. $200 c. $400 d. $67
37. The journal entry for accrued interest on a note payable includes _______.
a. debiting Interest expense and crediting Cash b. debiting Interest expense and crediting Accrued interest payable c. debiting Accrued interest expense and crediting Cash d. crediting Accrued interest expense
38. Which of the following principles requires that warranty expense be recorded in the period that revenue is recorded?
a. Consistency principle b. Matching principle c. Revenue principle d. Materiality concept
39. Sue works 46 hours at her job during the week. She is paid $13.30 per hour and receives overtime at the rate of time-and-one-half for hours worked over 40. What is Sue’s gross pay for the week?
a. $611.80 b. $917.70 c. $651.70 d. Some other amount
40. Tom’s gross pay for the week is $800. Tom’s deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Tom’s yearly pay is under the limit for OASDI. What is the amount of Tom’s net pay?
a. $594.80 b. $738.80 c. $656.00 d. $533.60
41. On November 1, 2012, EZ Products borrowed $48,000 on a 5%, 10-year note with annual installment payments of $4,800 plus interest due on November 1 of each succeeding year. On November 1, the principal amount was initially recorded as Long-term notes payable, and then a second entry was made to reclassify the current portion. Which of the following is the proper reclassification entry?
a. Debit Long-term notes payable and Credit Current portion of long-term notes payable for $4,800 b. Debit Current portion of long-term notes payable and Credit Accounts payable for $4,800 c. Debit Long-term notes payable and Credit Accounts payable for $4,800 d. Debit Current portion of long-term notes payable and Credit Long-term notes payable for $4,800
42. On November 1, 2012, EZ Products borrowed $48,000 on a 5%, 10-year note with annual installment payments of $4,800 plus interest due on November 1 of each succeeding year. On December 31, 2013, what will the balance be in the account titled Current portion of long-term notes payable?
a. $400 b. $48,000 c. $43,200 d. $4,800
43. Paris Company buys a building on a plot of land for $100,000, paying $20,000 cash and signing a 20- year mortgage note for $80,000 at 6%. Monthly payments are $570. What portion of the first monthly payment is principal?
a. $170 b. $200 c. $570 d. $4,800
44. Which of the following occurs when a bond’s stated interest rate is higher than the market interest rate?
a. The bond will be issued at a premium. b. The bond will be issued at maturity value. c. The bond will be issued at a discount. d. The bond will be issued at par.
45. The interest rate on which cash payments to bondholders are based is the ________.
a. market rate b. discount rate c. stated rate d. amortization rate
46. Which of the following describes a secured bond?
a. A bond that repays principal in installments b. A bond that gives the bondholder a claim for specific assets if the issuer fails to pay c. A bond that matures at one specified time d. A bond that is not backed by specific assets
47. If bonds with a face value of $100,000 are sold at $102, the amount of cash proceeds is:
a. $108,800 b. $100,000 c. $99,898 d. $102,000
48. On January 1, 2012, Davie Services issued $20,000 of 8% bonds that mature in five years. They were sold at discount, for a total of $19,000. On January 1, 2017, when the bonds mature, Davie Services will make the final principal payment. That entry will be which of the following?
a. Debit Bond discount for $1,000 and credit Cash for $1,000. b. Debit Bonds payable for $19,000 and credit Cash for $1,000. c. Debit Bonds payable for $20,000 and credit Cash for $20,000. d. Debit Bonds payable for $19,000, debit Bond discount for $1,000 and credit Cash for $19,000.
49. On January 2, 2014, Mahoney Sales issued $10,000 in bonds for $10,900. They were 5-year bonds with a stated rate of 4%, and pay semiannual interest payments. Mahoney Sales uses the straight line method to amortize the bond premium. After the first interest payment on June 30, 2014, what was the bond carrying amount?
a. $9,100 b. $10,810 c. $9,810 d. $9,190
50. McDonald Sales prepared a bond issue of $20,000 dated January 1, 2013. The bonds have a stated rate of 3% and a term of 6 years. The bond issue was delayed, and the bonds were finally sold on March 1, 2013 at par. On June 30, 2013, the first semiannual interest payment is made. How much will be paid out to bondholders on June 30, 2013?
a. $100 b. $200 c. $300 d. $600