Principles of Accounting Final exam

The Matching principle in accounting requires the matching of:

A: Revenue earned with the expenses incurred to produce revenue

B: Revenue earned with the liabilities used to produce the revenue

C: Revenue earned with the assets used to produce the revenue

D: Revenue earned with the assets used less the liabilities incurred.

a

Which of the following best defines a fiscal year?

A: The final 12 month period in the life of a business

B: Any consecutive 12 month period that a business adopts as its accounting year

C: The first 12 month period in the life of a business

D: The 12 month period from January through December

B

Total revenues of 6,500, total expenses of 3,500 and dividends of 500 were recorded for the month. What as the net income for this time period?

A: 3,500

B: 3,000

C: 2,500

D: 6,000

B

Which of the following accounts does no to onto the income statement?

A: Sales Revenue

B: Rent expense

C: Insurance expense

D: unearned revenue

D

The unadjusted trial balance for a prepaid rent shows a 12,000 balance. At the end of this period, 7,000 rent has been used. The adjusted trial balance for prepaid rent shows what balance?

A: 7,000 Debit

B: 5,000 Debit

C: 5,000 credit

D: 7,000 Credit

B

A company bought a two year insurance policy on Aug. 1st for 150 per month. No adjustments have been made since then. What is the adjusting entry of Dec. 31 of this year?

A: Debit prepaid insurance 150, Credit insurance expense 150

B: Debit insurance expense 750, credit prepaid insurance 750

C: Debit insurance expense 150, credit prepaid insurance 150

D: debit prepaid insurance 750, credit insurance expense 750

B

On the unadjusted trial balance, which accounts should have have their balance listed in the debit column?

A: Liabilities, revenue, common stock

B: Assets, dividends, and expenses

C: Assets, revenues, and dividends

D: Liabilities, revenues, and dividends

B

Which of the following is a true statement regarding the unearned revenue account?

A: Unearned revenue is accrued as the business provides goods or services

B: unearned revenue is expensed as the business provides goods or services

C: Unearned revenue decreases as the business provides goods or services

D: unearned revenue increases as the business provides goods or services

C

The account cash had a beginning balance of zero and the following changes: increase of 250, decrease of 75, increase of 113, and a decrease of 35. The ending balance is a:

A: Credit balance of 253

B: Debit balance of 253

C: debit balance of 363

D: credit balance of 110

B

The general ledger is arranged in what order?

A: Chronological

B: normal credit balance accounts first

C: alphabetical order of the account names

D: account order

D

Jill invested 25,000 in her business. the journal entry (for the business) would include a:

A: credit cash for 25,000 and a debit to common stock for 25,000

B: Debit cash for 25,000 and a credit to dividends for 25,000

C: debit to cash for 25,000 and a credit to common stock for 25,000

D: credit to cash for 25,000 and a debit to dividends for 25,000

C

What is the basic account equation?

A: Revenue minus expenses equal net income

B: Debits equal credits

C: Assets equal liabilities plus owners equity

D: Beginning retained earnings plus net income minus dividends equals ending retained earnings

C

Respectively, cash, rent expense, and accounts payable are:

A: All permanent accounts

B: permanent, temporary, and temporary accounts

C: permanent, temporary, and permanent accounts

D: Temporary, permanent, and temporary accounts

C

Total revenues of 6,500, total expenses of 3,500, and dividends of 500 were recorded for the month. What was net income for this time period?

A: 6,000

B: 3,500

C: 3,000

D: 2,500

C

A T-account has a 759 credit balance. This account is most likely NOT:

A: Accounts payable

B: sales Revenue

C: accounts receivable

D: common stock

C

At the beginning of the period, the supplies account has a balance of 500. At the end of the period, the balance was 275. Assuming the company made no purchases, what is the adjusting entry?

A: Debit suppliers expense 225, credit supplies 225

B: debit supplies 225, credit supplies expense 225

C: debit supplies expense 275, credit supplies 275

D: debit supplies 275, credit supplies expense 275

A

A transaction is first recorded in which of the following accounting records?

A: general ledger

B: Trial balance

C: General journal

D: income statement

C

Expenses paid in advance such as rent and insurance are classified as prepaid expenses. Into what account category are they placed?

A: liabilities

B: assets

C: Expenses

D: Revenues

B

The order in which accounts appear in the chart of accounts is:

A: stockholders equity, expenses, revenue, liabilities, assets

B: assets, stockholders equity, revenues,expenses, liabilities

C: assets, liabilities, stockholders equity, revenues, expenses

D: liabilities, assets, revenues, stockholders equity, expenses

C

The difference between total debts and total credits of an account is called a:

A: ruling

B: Balance

C: sub-total

D: trial balance

B

Where is the best place for a company's accountant to find the information necessary to review the activity in the cash account?

A: General Journal

B: General Ledger

C: Trial Balance

D: Bank statement

B

All payables are listed as:

A: assets

B: liabilities

C: revenue

D: stockholders

B

which of the following types of organizations would produce goods?

A: Manufacturing operation

B: Service operation

C: Not for profit operation

D: Merchandising operation

A

Jeb owns a sporting goods store. In his initial accounting records he included his personal computer and all of his personal sporting gear. Jeb is violating what principle of accounting?

A: Reliability

B: Cost

C: Going concern

D: Entity

D

_______ issues pronouncements that are guidelines for accounting practice in the United States:

A: IFRS

B: FASB

C: GAAP

D: SEC

B

Which accounting concept or principle specifically states that we should record transactions that can be verified?

A: reliability principle

B: Going-concern

C: Entity concept

D: Cost principle

B

The guidelines that describe the rules of accounting in the United States are called:

A: GAAP

B: FASB

C: GAAS

D: SEC

A

Which type of entity is considered a legal entity separate and distinct from its owners?

A: Corporation

B: Sole Proprietorship

C: Partnership

D: All businesses entities are legal entities separate and distinct

A

A business which sells the goods that it has purchased from another entity is a:

A: Manufacturing business

B: not for profit business

C: service business

D: merchandising business

D

Trang lists her building at current replacement value, rather than the price she payed for the building. What accounting principle is Trang violating?

A: Cost

B: Entity

C: Going Concern

D: Reliability

A

Which of the following statements is NOT true? Adjusting entries:

A: Occur because the transactions which take one accounting period to complete

B: always affect at least one income statement account and at least one balance sheet account

C: Are prepared at the end of the accounting cycle

D: in appearance look just like any other journal entry

A

What is a normal account balance?

A: Debit

B: Credit

C: whichever one causes the account to go down

D: whichever one causes the account to go up

D

Which financial statement shows the results of business activity for a period of time?

A: Income statement

B: statement of retained earnings

C: balance sheet

D: all financial statements show the result of business activity for a period of time

A

Which of the following would NOT be considered a contingent liability?

A: pending legal action

B: Potential firms from a government agency

C: Mortgage payable

D: Changing a loan

C

A known obligation of an unknown amount is a(n):

A: contingent liability

B: estimated liability

C: Known liability

D: liability of a type other than already listed

B

which of the following are two basic concerns of internal control?

A: generally accepted accounting principles and separation of duties

B: safeguarding accounting records and separation of debits and credits

C: Separation assets and safeguarding duties

D: Safeguarding assets and separation of duties

D

A company had sales of 695,000, costs of goods sold of 278,000 and other operating expenses of 50,000. Gross margin for this company equals:

A: can not be determined

B: 695,000

C: 417,000

D: 367,000

C

What is collusion?

A: an employees lack of understanding about the company's internal control process

B: Two or more employees working together to commit fraud

C: desired result of a good internal control environment

D: A written code of ethics

B

Merchandise inventory:

A: would include the cars on the sales lot of a car dealer, but not the van used to provide rides to customers

B: refers to products a company purchased with the internet to sell to customers

C: can include the cost of shipping goods to the purchaser

D: All of the above

D

Acme company purchases 5,000 inventory with shipping terms, FOB Kalamazoo. Acme is based in detroit and the supplier is based in kalamazoo. The shipping costs are 460. What is acme total debt to inventory for these events?

A: 5,000

B: 5,460

C: either 5,000 or 5,650

D: not enough information given

B

According to GAAP, physical inventory counts must be done:

A: when using a periodic inventory method

B: when using a perpetual inventory method

C: regardless of what inventory method is used

D: when the replacement value of the inventory is lower than the cost

C

Inventory for a merchandising business is a(n):

A: revenue

B: asset

C: liability

D: part of stockholders equity

B

Which of the following would indicate poor internal control over accounts receivable?

A: the same person handling cash receipts also records the accounts receivables transactions

B: The person who handles accounts receivable would not write off accounts as uncollectible

C: The mailroom employee opens the mail and then gives the cash receipts to another employee

D: the person handling cash receipts passes the receipts to another employee who enters them into accounts receivable

A

Internal control is:

A: the preparation of fraudulent financial statements

B: the act of stealing assets from a business

C: the process that helps a business achieve its objectives, such as operating efficiently and effectively

D: the reconciliation of the bank's cash balance to the book's cash balance

C

Acme corporation uses a weighted average perpetual system. There was no beginning inventory

AUG 2, 10 units were purchased at 12 per unit

Aug 18, 15 units were purchased at 14 per unit

aug 19, 12 units were sold

what was cost of goods sold for this sale?

A:150.50

B: 158.40

C: 210.00

D: 330.00

B

A company purchased a computer system on March 1, 2014. Its cost was 35,000 and it had an estimated salvage value of 5,000. It was expected to have a useful life for four years. To the nearest dollar, the depreciation for 2014 using straight line depreciation will be:

A: 7,500

B: 5,625

C: 6,250

D:8,750

C

which of the following would NOT be considered part of the cost of machinery and equipment?

A: test runs

B: installation costs

C: Delivery charges

D: repairs and maintenance after start up

D

how is the book value of a depreciable asset calculated?

A: cost less salvage value

B: cost less accumulated depreciation

C: cost less both salvage value and less accumulated depreciation

D: Some other calculation

B

Which of the following best explains the meaning of Capitalize?

A: allocate the costs of a tangible asset to expense over its estimated useful life

B: record an expenditure as an expense

C: record an expenditure as a revenue

D: Record an expenditure as an asset

D

A company leased 10year 8% bonds with a par value of 200,000. Interest is to be paid semiannually. Market rate at the time these bonds were issued was 9%. What is the amount of the first semiannual cash interest payment?

A: 16,000

B: 9,000

C: 8,000

D: 18,000

C

Patents and trademarks are:

A: depreciated

B: never expensed

C: developed

D: amortized

D

Which of the following best explains the meaning of Collateral?

A: a guarantee that a product or service is free from defect

B: the principle portion of a long term liability that is payable within one year

C: assets pledged to secure repayment of a loan

D: a potential liability that depends on the outcome of a future event

C

when a company issues bonds, what are they doing?

A: selling part of the company

B: buying part of another company

C: borrowing money

D: lending money

C

which of the following best explains the meaning of: Residual Value?

A: cost less accumulated depreciation

B: cost less salvage value

C: the amount by which market value differs from book value

D: the amount the company expects to receive from selling the asset at the end of its useful life

D

Which of the following best explains the meaning of: Land Improvements?

A: assets which come from the earth

B: depreciable improvements to land

C: long term assets to which lack physical substance

D: long term assets which are actively used in the business

B

part of the journal entry to record the 28 cost of an item that was sold for 40 cash under the perpetual inventory method is:

A: debit cash 40, credit inventory 40

B: debit cost of goods sold 40, credit sales 40

C: debit cash 40, credit profit on sale 12, credit inventory 28

D: debit costs of goods sold 28, credit inventory 28

D

a method of valuing inventory based on the assumption that the oldest goods will be expensed first is called the:

A: FIFO method

B: average cost method

C: specific cost method

D: LIFO method

A

Under specific identification method, the flow of goods through the accounting records will:

A: be the opposite of the physical flow of goods through the business

B: closely math the physical flow of goods through a business

C: have no relationship to the physical flow of goods through a business

D: exactly match the physical flow of goods through a business

D

When companies extend credit to customers:

A: sales generally decrease

B: there is no effect on business activities

C: not collecting money owed on a customer account increases

D: not collecting money owed on a customer account decreases

C

Which of the following best describes a write off?

A: checks issued by the company and recorded in its books, but not yet paid by the bank

B: accounts receivable less the allowance for uncollectible accounts

C: the total amount paid for a given debit

D: removing an account receivable from the accounting records because it is considered uncollectible

D

freight charges on inventory purchases that are paid by the buyer are:

A: added to the cost of goods sold

B: subtracted from cost of goods sold

C: subtracted from inventory

D: added to inventory

D

Acme company purchased a vein of coal ore for 5,250,000. It is estimated that 32,000,000 tons of ore are available to be extracted. The estimated depletion expense for this years extraction of 2,780,000 tons of ore(rounded to the nearest dollar) is:

A: 456,094

B: 471,703

C: 5,250,000

D: 420,800

A

On which financial statement(s) are depreciable assets and long term liabilities reported?

A: depreciable assets and long term liabilities are both reported on balance sheet

B: both reported on the income statement

C: depreciable assets are found on the balance sheet, and long term are found on the income statement

D: depreciable assets are found on the income statement and long term liabilities are found on the income statement

A

A company signs a note payable for 4,500 at 11% for 60 days. How much interest will the company owe using a 360 day year?

A: 92

B: 83

C: 81

D: 49

B

if a bonds stated rate of interest is equal to the market rate of interest, the bond will be issued at:

A: a discount

B: par

C: a premium

D: none of the above

B

a 10,000 bond issued with a state rate of interest of 7% when the market rate of interest is 8% means the bond will be sold for:

A: 10,000

B: more than 10,000

C: less than 10,000

D: none of the above

C

if damaged goods are purchased by the merchandiser are kept with a reduction in price, the account to be credited for the price reduction in a perpetual inventory system (buyers books) is:

A: accounts payable

B: sales returns and allowance

C: inventory

D: sales discounts

C

uncollectible accounts are the same as:

A: notes receivable

B: interest expense

C: bad debts

D: net sales

C

The inventory account appears on the:

A: income statement

B: balance sheet

C: statement of retained earnings

D: post closing trial balance

B

the cost of goods sold account appears on the :

A: income statement

B: balance sheet

C: statement of retained earnings

D: post closing trial balance

A

an account balance was 4,000 credit. which of the following would change this balance to 250 credit?

A: credit 3,750

B: debit 1,000, then credit 5,250

C: debit 5,250 and then credit 1,000

D: debit 5,000 then credit 1,250

D

if the replacement cost of inventory is less than its historical cost, the company will:

A: reduce the inventory account

B: increase the inventory account

C: make no change to the account

D: add a footnote to the financial statement, but make no journal entry

A

ABC corporation pays an invoice for 350 in time to take a 3% discount. The journal entry to record the payment of this invoice is:

A: debit accounts payable 339.50, credit cash 339.50

B: debit accounts payable 339.50, debit inventory 10.50, credit cash for 350

C: debit accounts payable 350, credit cash 350

D: debit accounts payable 350, credit inventory 10.50, credit cash for 339.50

D

What is a perpetual inventory system?

A: a system that updates the inventory at the end of each month

B: a system that requires the purchaser to pay for the shipping costs

C: a system that requires the seller to pay for the shipping costs

D: a system that updates the inventory account after each purchase and sale of inventory

D

Changing from LIFO to FIFO over two accounting periods could be viewed as a violation of what accounting concept or principle?

A: conservatism

B: Entity

C: materiality

D: consistency

D

which of the following situation best describes a bad debt for acme company?

A: acme writes a check to a supplier which bounces. The supplier does not collect his money

B: Acmes customer writes a check to Acme that bounces. Acme does not collect this money

C: Acme writes a check to a customer and that check bounces. The money is not collected

D: acmes customer writes a check to the supplier and it bounces, the money is not collected

B

______ produces the highest cost of goods sold and the lowest gross profit when prices are increasing:

A: LIFO

B: Average Cost

C: FIFO

D: specific identification

A

a patent has amortization this year of 2,300. The journal entry to record this transaction would be:

A: debit amortization expense, credit accumulated amortization

B: debit amortization expense, credit patent

C: debit accumulated amortization, credit amortization expense

D: debit patent, credit amortization expense

B

Acme company built an additional bay onto their building which allows them to wash two cars at once. The building as it originally existed could only was one car. How should the cost of the bay be treated in the accounting records?

A: as an expense which reduces current period net income

B: as an asset which cannot be expensed

C: The company may chose to treat this cost as either an expense or as an asset

D: as an asset which is expensed over its useful life

D

What is an operating lease?

A: a rental agreement that allows the party paying for the lease to use an asset in exchange for regular payments

B: a situation whereby the company is raising a lot of money in small increments from a numbers of different investors

C: the purchase of intangible assets

D: a lease agreement that is treated as a financial purchase

A

acme company had a 30,000 note payable for eight months of 2014. The note had a 7% interest rate. How much interest expense did the company incur in 2014?

A: earned no interest expense, they earned interest revenue

B: 2,100

C: 1,400

D: 3,500

C

Contingent liabilities may be classified as:

A: current liabilities only

B: notes to the financial statements only

C: long term liabilities only

D: either current or long term liabilities

D

Which of the following would be considered a known liability?

A: warranties payable

B: accounts payable

C: pending litigation

D: possible contingency payable

B

an employee commits fraud thinking " i will pay this back" is an example of:

A: collusion

B: perceived pressure

C: rationalization

D: perceived opportunity

C

what interest rate on a bond determines the amount of semiannual interest payment?

A: stated Rate

B: effective rate

C: market rate

D: none of the above

A

Bonds issued at premium always have:

A: interest expense equal to interest payments

B: interest expense greater than interest payments

C: interest expense less than interest payments

D: none of the above

C

a company recognizes a lease as a capital lease when: A: the lease has no option to purchase the lease at the end of the term

B: the present value of the lease payments is less and 90% of the market value

C: the lease transfers title of the leased asset to the lessee at the end of the term

D: the lease term is less than 75% of the estimated useful life of the leased asset

C

cash is listed as the first current asset because it is the account:

A: that is first alphabetically

B: with the most value

C: that is most liquid

D: that is most used

C

which of the following indicated that a shipment is free on board and buyer pays all cost?

A: FOB shipping point

B: cash on delivery

C: FOB destination

D: 2/10, n3o

C

when a merchandiser sells on account which of the following accounts is not needed to record the transaction?

A: cash

B: accounts receivable

C: cost of goods sold

D: inventory

A

Net sales is computed by taking:

A: gross sales + sales returns and allowances + sales discounts

B: gross sales - sales returns and allowances + sales discounts

C: gross sales - sales returns and allowances - sales discounts

D: gross sales - cashed received for sales

C

Assets

economic resources that provide a future benefit for a business

revenues

increase in stockholders' equity from selling goods or services to customers

the entry to record the rent expense 1,500 would be which of the following:

A: cash 1,500, rent expense 1,500

B: rent expense 1,500, accounts payable 1,500

C: rent expense 1,500, cash 1,500

D: accounts payable 1,500, rent expense 1,500

C

Standards developed by FASB

Generally accepted accounting principles

cost principle

acquired assets and services should be recorded at their actual cost

Dividends

payments of cash to the owners of a corporation

transaction

any event that affects a firms financial position

which type of business is owned by its stockholders?

A: partnership

B: sole proprietorship

C: corporation

D: all of the above

C

which item(s) appear as a reconciling items to the bank in the bank reconciliation?

A: deposits in transit

B: Outstanding checks

C: A and B

D: none of the above

C