acg1 exam

Which of the following accounts is a temporary account

A) Accounts receivable.

B) Interest payable.

C) Accounts payable.

D) Cash.

E) Salaries expense.

Salaries expense.

The collection of all accounts and their balances is called a(n):

A) Journal.

B) Income Statement.

C) General Journal.

D) Balance column journal.

E) Ledger (or General Ledger).

Ledger (or General Ledger)

Hasham purchases inventory from overseas and incurs the following costs:

• Merchandise cost: $80,000 (terms 1/10, n/30)

• FOB shipping point freight charges: $2,500

• Insurance during transit: $300

• Import duties: $1,500

• A) $83,500 Net Purchase: $80,000−($80,000×0.01)=$79,200

• Add Costs: $79,200+$2,500+$300+$1,500=$83,500

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

E) Assets, net income, and equity overstated.

A company's internal control system

A) Eliminates the company's risk of loss.

B) Monitors company and employee performance.

C) Eliminates human error.

D) Eliminates the need for audits.

E) Eliminates the need for managers' certification of controls.

Monitors company and employee performance.

The difference between a company's assets and its liabilities, or net assets is:

A) Net income.

B) Expense.

C) Equity.

D) Revenue.

E) Net loss.

Equity

Which of the following is not a current asset

A) Automobiles.

• B) Prepaid expenses.

• C) Accounts receivable.

• D) Cash.

automobiles

Question: Which of the following assets is not depreciated?

• A) Vehicles.

• B) Computers.

• C) Land.

• D) Buildings.

• E) Equipment.

land

company discarded a computer system originally purchased for $9,000. The accumulated depreciation was $6,200. The company should recognize a (an):

A) $0 gain or loss.

B) $2,800 loss.

C) $2,800 gain.

D) $9,000 gain.

E) $6,200 loss.

2,800 loss

A credit:

A) Always decreases an account.

B) Is the right side of a T-account.

C) Always increases an account.

D) Is the left side of a T-account.

E) Always increases asset accounts.

Is the right side of a T-account

Which of the following is not an asset account:

• A) Cash

• B) Land

• C) Services Revenue

• D) Buildings

• E) Equipment

Services Revenue

Adjusting entries:

• A) Affect only income statement accounts.

• B) Affect only balance sheet accounts.

• C) Affect both income statement and balance sheet accounts.

• D) Affect cash accounts.

• E) Affect only equity accounts.

Affect both income statement and balance sheet accounts.

Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. Salvage value is $15,000 with a five-year life. Using double-declining-balance, the asset's book value on December 31, Year 2 will be:

• A) $18,360

• B) $27,540

• C) $90,000

• D) $54,000

• E) $21,600

D) $54,000

Question: A credit is used to record a decrease in which of the following accounts?

• A) Accounts Payable

• B) Service Revenue

• C) Unearned Revenue

• D) Accounts Receivable

• E) Owner's Capital

Accounts Receivable

Question: Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. Salvage value is $5,000, useful life is 8 years, and straight-line depreciation is used. If the equipment is sold on January 1, Year 5 for $22,500, the journal entry to record the sale will include a:

• A) Credit to cash for $22,500.

• B) Debit to accumulated depreciation for $20,000.

• C) Credit to loss on sale for $2,500.

• D) Debit to equipment for $45,000.

• E) Debit to gain on sale for $2,500.

Debit to accumulated depreciation for $20,000.

In its first year of operations, Grace Company reports: Revenue of $60,000 ($52,000 cash received); Expenses of $35,000 ($31,000 cash paid). Net income under the accrual basis of accounting is:

• A) $17,000.

• B) $21,000.

• C) $13,000.

• D) $25,000.

• E) None of the choices are correct.

$25,000.

Question: The straight-line depreciation method and the double-declining-balance depreciation method:

• A) Produce the same total depreciation over an asset's useful life.

• B) Produce the same depreciation expense each year.

• C) Produce the same book value each year.

• D) Are acceptable for tax purposes only.

• E) Are the only acceptable methods for financial reporting.

Produce the same total depreciation over an asset's useful life.

18. Question: An asset was purchased for $102,000 with a 10-year life and $10,000 salvage value. On Jan 1, Year 3, the Book Value is $83,600. Management then changes the salvage value to $5,000. What is the depreciation expense for Year 3?

A) $9,825.00

B) $9,200.00

C) $10,450.00

D) $8,360.00

E) $7,860.00

A) $9,825.00

Question: Two clerks sharing the same cash register is a violation of which internal control principle?

• A) Establish responsibilities.

• B) Maintain adequate records.

• C) Insure assets.

• D) Bond key employees.

• E) Apply technological controls.

A) Establish responsibilities.

Accrual basis accounting:

• A) Increases the comparability of financial statements from period to period.

• B) Is flawed because it gives complete information about cash flows.

• C) Recognizes revenues when received in cash.

• D) Recognizes expenses when paid in cash.

• E) Eliminates the need for adjusting entries at the end of each period.

A) Increases the comparability of financial statements from period to period.

Net Income:

• A) Decreases equity.

• B) Represents the amount of assets owners put into a business.

• C) Equals assets minus liabilities.

• D) Occurs when revenues exceed expenses.

• E) Represents creditor claims against assets

D) Occurs when revenues exceed expenses.

22

E

Which of the following statements about Allowance for Doubtful Accounts is false?

• A) It is a contra asset account.

• B) It is used instead of reducing accounts receivable directly.

• C) It is debited when uncollectible accounts are written off.

• D) It is a liability account.

• E) It is credited when bad debts expense is estimated and recorded.

• D) It is a liability account.

Land improvements are:

A) Additions that increase the usefulness of land and are not depreciated.

B) Additions to land that have limited useful lives.

C) Included in the cost of the land account.

D) Expensed in the period incurred.

E) Also called basket purchases.

B) Additions to land that have limited useful lives.

The difference between the cost of an asset and the accumulated depreciation for that asset is called:

• A) Depreciation Expense.

• B) Market Value.

• C) Prepaid Depreciation.

• D) Depreciation Value.

• E) Book Value.

) Book Value.

The expense recognition principle, as applied to bad debts:

• A) Requires that expenses be ignored if their effect on the financial statements is unimportant to users' business decisions.

• B) Favors the use of the direct write-off method for bad debts.

• C) Favors the use of the allowance method of accounting for bad debts.

• D) Requires that bad debts be disclosed in the financial statements.

• E) Requires that bad debts not be written off.

Favors the use of the allowance method of accounting for bad debts.

27

e

The cost of land would not include:

• A) Purchase price.

• B) Cost of parking lot lighting.

• C) Costs of removing existing structures.

• D) Title insurance fees.

• E) Government assessments.

B) Cost of parking lot lighting.

Question: MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit card. Regional Bank charges a 4% fee. The journal entry to record this transaction would be:

• A) Debit Cash $180 / Credit Sales $180.

• B) Debit Cash $180 / Credit Accounts Receivable—Regional $180.

• C) Debit Accounts Receivable—Regional $172.80; Debit Credit Card Expense $7.20 / Credit Sales $180.

• D) Debit Cash $172.80; Debit Credit Card Expense $7.20 / Credit Sales $180.

• E) Debit Cash $172.80 / Credit Sales $172.80.

D Debit Cash $172.80; Debit Credit Card Expense $7.20 / Credit Sales $180.

Question: If assets are $369,000 and equity is $122,000, then liabilities are:

• A) $122,000.

• B) $247,000.

• C) $369,000.

• D) $491,000.

• E) $616,000.

B) $247,000.

The inventory costing method that best matches current costs with current revenues is the:

• A) Specific identification method.

• B) FIFO method.

• C) LIFO method.

• D) Weighted average method.

• E) Net method.

C) LIFO method.

salvage value is:

• A) Not a factor relevant to determining depletion.

• B) A factor relevant to amortizing an intangible asset with an indefinite life.

• C) An estimate of an asset’s value at the end of its useful life.

• D) A factor relevant to determining depreciation under MACRS.

• E) A factor relevant to determining an asset’s useful life.

C) An estimate of an asset’s value at the end of its useful life.

On February 1, a customer's account balance of $3,700 was deemed to be uncollectible. What entry should be recorded on February 1 to record the write-off assuming the company uses the allowance method?

• A) Debit Allowance for Doubtful Accounts $3,700; credit Bad Debts Expense $3,700.

• B) Debit Bad Debts Expense $3,700; credit Allowance for Doubtful Accounts $3,700.

• C) Debit Accounts Receivable $3,700; credit Allowance for Doubtful Accounts $3,700.

• D) Debit Allowance for Doubtful Accounts $3,700; credit Accounts Receivable $3,700.

• E) Debit Bad Debts Expense $3,700; credit Accounts Receivable $3,700.

Debit Allowance for Doubtful Accounts $3,700; credit Accounts Receivable $3,700.

Unearned revenue is reported in the financial statements as:

• A) A revenue on the balance sheet.

• B) A liability on the balance sheet.

• C) An unearned revenue on the Income statement.

• D) An asset on the balance sheet.

• E) A financing activity on the statement of cash flows.

A liability on the balance sheet.

A double-entry accounting system is an accounting system:

• A) That records each transaction twice.

• B) That records the effect of each transaction in at least two accounts, with at least one debit and one credit.

• C) In which each transaction affects and is recorded in two or more accounts but that could include two debits and no credits.

• D) That allows total credits to be greater than total debits.

• E) That allows total debits to be greater than total credits.

That records the effect of each transaction in at least two accounts, with at least one debit and one credit.

Revenues are:

• A) The same as net income.

• B) The excess of expenses over assets.

• C) Resources owned or controlled by a company.

• D) Increases in equity from a company’s sales of products and services.

• E) The costs of assets or services used.

D) Increases in equity from a company’s sales of products and services.

The materiality constraint, as applied to bad debts:

• A) Permits the use of the direct write-off method when its results approximate those of the allowance method.

• B) Requires use of the pledge method for bad debts.

• C) Requires use of the direct write-off method.

• D) Requires that bad debts not be written off.

• E) Requires that expenses be reported when paid in cash.

Permits the use of the direct write-off method when its results approximate those of the allowance method.

B. Lopez Company reports net sales of $200,000 and cost of goods sold of $50,000. Using these numbers, B. Lopez Company’s gross profit is:

• A) $200,000.

• B) $50,000.

• C) $250,000.

• D) $100,000.

• E) $150,000.

e

An asset’s book value is $19,800 on December 31, Year 5. If the asset is sold on that same day for $13,200, the company should record:

• A) A gain on sale of $6,600.

• B) A loss on sale of $6,600.

• C) A gain on sale of $12,600.

• D) A loss on sale of $12,600.

• E) Neither a gain nor a loss.

B

A company has net sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

• A) $237,000.

• B) $695,000.

• C) $278,000.

• D) $417,000.

• E) $973,000.

D

Using the allowance method for bad debts, the end-of-period adjusting entry for estimated bad debts is:

• A) Debit Bad Debts Expense and credit Accounts Receivable.

• B) Debit Allowance for Doubtful Accounts and credit Accounts Receivable.

• C) Debit Accounts Receivable and credit Allowance for Doubtful Accounts.

• D) Debit Allowance for Doubtful Accounts and credit Bad Debts Expense.

• E) Debit Bad Debts Expense and credit Allowance for Doubtful Accounts

e

A credit is used to record an increase in which of the following accounts?

• A) Supplies

• B) Cash

• C) Accounts Payable

• D) Owner Withdrawals

• E) Prepaid Insurance

C

Using the allowance method for bad debts expense, the Allowance for Doubtful Accounts is decreased:

• A) When the estimate of bad debts is expensed.

• B) When a specific customer account is written off.

• C) When a specific customer account is collected.

• D) When a sale to a credit customer is made.

• E) When all supplier accounts are considered collectible.

B) When a specific customer account is written off

Prepaid expenses, depreciation expense, accrued expenses, unearned revenues, and accrued revenues are all examples of:

• A) Items that require contra accounts.

• B) Items that require adjusting entries.

• C) Asset and equity accounts.

• D) Asset accounts.

• E) Income statement accounts.

b) Items that require adjusting entries.

A company’s list of all ledger accounts with an identification number assigned to each account is called a:

A) Source document.

• B) Journal.

• C) Trial balance.

• D) Chart of accounts.

• E) General Journal.

D) Chart of accounts.

A company recorded the following entry: Debit Accounts Payable $2,500 / Credit Merchandise Inventory $50 & Credit Cash $2,450. This entry reflects a:

• A) Purchase of merchandise on credit.

• B) Return of merchandise.

• C) Sale of merchandise on credit.

• D) Payment of the account payable less a 2% cash discount taken.

• E) Payment of the account payable less a 1% cash discount taken.

D) Payment of the account payable less a 2% cash discount taken.

Which of the following is not a relevant factor in computing depreciation?

• A) Cost.

• B) Salvage value.

• C) Useful life.

• D) Depreciation method.

• E) Market value.

e

Which of the following is classified as a plant asset?

• A) Equipment.

• B) Accounts receivable.

• C) Cash.

• D) Supplies.

• E) Merchandise inventory.

a

When closing entries are made:

• A) All ledger accounts are closed to start the new accounting period.

• B) All temporary accounts are closed but permanent accounts are not closed.

• C) All asset accounts are closed but liability accounts are not closed.

• D) All permanent accounts are closed but temporary accounts are not closed.

• E) All balance sheet accounts are closed.

b

Plant assets are defined as:

• A) Tangible assets used in a company's operations that have a useful life of more than one accounting period.

• B) Current assets.

• C) Assets that are physically consumed when used.

• D) Intangible assets used in the operations of a business that have a useful life of more than one accounting period.

• E) Tangible assets used in the operation of business that have a useful life of less than one accounting period.

a

A balance sheet lists:

• A) The types and amounts of the revenues and expenses of a business.

• B) Only the information about what happened to equity during a time period.

• C) The types and amounts of assets, liabilities, and equity of a business at a point in time.

• D) The inflows and outflows of cash during the period.

• E) The assets and liabilities of a company but not the owner's equity.

c

Identify the statement below that is correct:

• A) The left side of a T-account is the credit side.

• B) Debits decrease asset and expense accounts.

• C) The left side of a T-account is the debit side.

• D) Credits increase asset and expense accounts.

• E) The total amount debited need not equal the total amount credited.

c

The credit terms 2/10, n/30 are interpreted as

• A) 2% cash discount if the amount is paid within 10 days, or the full balance due in 30 days.

• B) 10% cash discount if the amount is paid within 2 days.

• C) 30% discount if paid within 2 days.

a

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count showed $105 of unused supplies available. The required adjusting entry is:

• A) Debit Office Supplies $105; credit Office Supplies Expense $105.

• B) Debit Office Supplies Expense $105; credit Office Supplies $105.

• C) Debit Office Supplies Expense $254; credit Office Supplies $254.

• D) Debit Office Supplies $254; credit Office Supplies Expense $254.

c

the expense of allocating the cost of equipment to the periods in which it is used is called:

• A) An accrued expense.

• B) Cash basis accounting.

• C) A deferred revenue.

• D) Depreciation expense.

d

The usual order for the asset subgroups of a classified balance sheet is:

• A) Current assets, prepaid liabilities, long-term investments, intangible assets.

• B) Long-term investments, current assets, plant assets, intangible assets.

• C) Current assets, long-term investments, plant assets, intangible assets.

• D) Intangible assets, current assets, long-term investments, plant assets.

E) Plant assets, intangible assets, long-term investments, current assets.

c

Which of the following is classified as a current asset?

• A) Equipment.

• B) Buildings.

• C) Unearned revenue.

• D) Accounts receivable.

• E) Land.

d

A debit:

• A) Always increases an account.

• B) Is the right side of a T-account.

• C) Always decreases an account.

• D) Is the left side of a T-account.

• E) Always increases liability accounts.

d

Which of the following procedures would weaken control over cash receipts that arrive through the mail?

• A) After mail is opened, a list (in triplicate) of money received is prepared.

• B) The bank reconciliation is prepared by a person who does not handle cash.

• C) For safety, only one person should open the mail, and that person should deposit the cash received in the bank at the end of each month.

• D) The cashier deposits money in the bank and the recordkeeper records the amounts.

• E) The employees handling the cash receipts are bonded.

c

A company had no office supplies available at the beginning of the year. During the year, the company purchased $350 worth of office supplies. On December 31, $115 worth of office supplies remained. How much should the company report as office supplies expense for the year?

• A) $115.

• B) $215.

• C) $235.

• D) $350.

• E) $465.

c

Cost of goods sold:

• A) Is another term for merchandise sales.

• B) Is the term used for the expense of buying and preparing merchandise for sale.

• C) Is another term for revenue.

• D) Is also called gross margin.

• E) Is a term only used by service firms.

b

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $151,000. The machine's useful life is estimated to be 4 years, or 130,000 units of product, with a $2,000 salvage value. During its second year, the machine produces 26,000 units of product. Determine the machine's second year depreciation under the straight-line method.

• A) $29,800.

• B) $37,250.

• C) $37,750.

• D) $30,200.

• E) $38,250.

b

Merchandise inventory:

• A) Is a long-term asset.

• B) Is a current asset.

• C) Includes supplies the company will use in future periods.

• D) Is classified with investments on the balance sheet.

• E) Must be sold within one month.

b

Internal control systems are:

• A) Developed by the SEC for public companies.

• B) Developed by the SBA for non-public companies.

• D) Required by Sarbanes-Oxley (SOX) to be documented and verified for public companies.

d

Using LIFO Periodic, what is the Cost of Goods Sold (COGS) if 900 units were sold?

A) $17,680

B) $18,080

C) $20,640

D) $15,040

c

Which of the following is incorrect?

• A) Permanent account is another name for revenue accounts.

• B) Temporary accounts carry a zero balance at the start of a period.

• C) Income Summary is a temporary account.

• D) Closing process applies only to temporary accounts.

A

Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record this sale transaction would be:

• A) Debit Cash $625 and credit Sales $625.

• B) Debit Cash $625 and credit Accounts Receivable $625.

• C) Debit Accounts Receivable $625 and credit Sales $625.

• D) Debit Accounts Receivable $625 and credit Cash $625.

• E) Debit Sales $625 and credit Accounts Receivable $625.

c

A merchandiser:

• A) Earns net income by buying and selling merchandise.

• B) Receives fees only in exchange for services.

• C) Earns profit from commissions only.

• D) Earns profit from fares only.

• E) Buys products from consumers.

a

Which of the following is the usual final step in the accounting cycle?

• A) Journalizing transactions.

• B) Preparing an adjusted trial balance.

• C) Preparing a post-closing trial balance.

• D) Preparing the financial statements.

• E) Preparing a work sheet.

c

Goods in transit are included in a purchaser's inventory:

• A) At any time during transit.

• B) When the goods are shipped FOB shipping point.

• C) When the supplier is responsible for freight charges.

• D) If the goods are shipped FOB destination.

• E) After the half-way point between the buyer and seller.

b

On April 1, a company paid a $3,450 premium on a three-year insurance policy. What amount of insurance expense will be reported on the annual income statement for the year ended December 31?

• A) $3,450.00.

• B) $1,150.00.

• C) $2,587.50.

• D) $862.50.

• E) $95.83.

d

Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record:

• A) A gain on sale of $2,000.

• B) A loss on sale of $2,000.

• C) A loss on sale of $5,000.

• D) A gain on sale of $5,000.

• E) A loss on sale of $45,000.

c

An asset is said to be fully depreciated when:

• A) It is unable to meet its productive demands.

• B) It is outdated and no longer used.

• C) Amortization is nearly complete.

• D) Accumulated depreciation is less than the asset's cost.

• E) Accumulated depreciation equals the asset's cost.

e

which of the following is not part of the cost of equipment?

• A) Assembling cost.

• B) Invoice cost.

• C) Testing cost.

• D) Repair costs due to damage from unpacking.

• E) Installing cost.

d

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

• A) Accrued expense.

• B) Contra account.

• C) Accrued revenue.

• D) Intangible asset.

• E) Adjunct account.

b

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Depreciation is:

• A) Measures the decline in market value of an asset.

• B) Measures physical deterioration of an asset.

• C) Is the process of allocating the cost of a plant asset to expense while it is in use.

• D) Is an outflow of cash from the use of a plant asset.

• E) Is applied to land.

c

urchasing insurance against theft by employees who frequently handle cash follows which principle of internal control?

• A) Establish responsibilities.

• B) Maintain adequate records.

• C) Insure assets and bond key employees.

• D) Separate recordkeeping from custody of assets.

• E) Apply technological controls

c

If assets are $365,000 and equity is $120,000, then liabilities are:

• A) $120,000.

• B) $245,000.

• C) $365,000.

• D) $485,000.

• E) $610,000. Correct Answer: B

b

Resources a company owns or controls that are expected to yield future benefits are:

• A) Assets.

• B) Revenues.

• C) Liabilities.

• D) Payables.

• E) Expenses.

a