Accounting Multiple Choice Practice

Oldest Costs

Using the LIFO method, ending inventory is valued at:

Continuous vs. end of period updates

What is the main difference between perpetual and periodic inventory systems?

Opportunity

What is the element in the fraud triangle that results from weak internal controls?

Accumulated Depreciation

The journal entry to record depreciation expense is to debit depreciation expense and credit:

False

Another way to state the accounting equation is Asset + Liabilities = Stockholders’ Equity.

Increases

The normal balance of an account is whatever _____ the balance.

Gross Profit

Sales revenue less cost of goods sold =

Cost - Accumulated Depreciation

Book value of a plant asset =

Revenues, Expenses, and Dividends

Which account types are CLOSED to retained earnings at the end of the period?

False

Dividends increase retaind earnings.

FIFO

Under which costing method is cost of goods sold based on the oldest purchases?

Cost, residual value, estimated life

What are the elements needed for depreciation?

True

To write off an uncollectible A/R using the allowance method, only the balance sheet is impacted.

True

Accounts receivable is reported on the balance sheet at it’s “net realizable value.”

Land

Which long term asset is NOT depreciated?

101,250

What is the maturity value of a 3 month, 5%, $100,000 note receivable?

Operating Income

EBIT refers to:

Straight Line

Cost less residual value divided by useful life is the formula for which depreciation method?

LIFO

Which inventory costing method is not allowed under IFRS standards?

False

Accounts Receivable - Bad Debt Expense = Net Realizable Value of A/R.

Permanent Accounts

Assets, liabilities, and stockholder’s equity are _____.

At the time of sale

When is warranty expense recorded?

True

Estimated warranty liability is debited when a product is returned for repair under warranty.

False

Remitting sales tax collected to the government is an expense of the corporation.

1,250

Company borrows $100,000 for 6 months at 5% on Oct. 1. Amount of interest to accrue on Dec. 31 =

50,500

$50,000, 6% note payable, 60 day term. Total amount to be paid on the due date =

Both in arrears and current, paid prior to common stock

Cumulative preferred stock has dividends:

Are still owed to preferred shareholders

“In arrears” means that dividends:

Cost

Treasury stock is recorded at:

800,000

The annual dividend for preferred stock - 4%, $100 par, 200,000 shares outstanding is:

False

Projects financed by issuing shares of stock always increase earnings per share.

Interest is tax deductible

One benefit of financing a project with debt is that:

Sales

A common size income statement restates all elements as a percentage of:

True

Common size statements are a form of vertical analysis.

Current Assets - Current Liabilities

The equation to calculate working capital is:

False

Days Sales Outstanding is a profitability ratio.

Net Income

The price earnings ratio tells us how much the market is willing to pay for a dollar of:

Income before taxes

To calculate tax expense, multiply the tax rate by:

Long-term Liability and Shareholder’s Equity

Financing cash flows for a company can be determined by analyzing the _____ accounts.

False

Investing activities are related to changes in current and long term assets.

Operating

The indirect method can be used to determine cash flow from which type of activities:

Subtracted from

Operating activities section of the cash flow statement - Indirect Method, gains on sale are _____ net income.

Added back to

Indirect method-Depreciation and Amortization are _____ from net income to get to cash flow from operating activities.

True

Increases in current liability accounts are added back to net income under the Indirect Method.

Subtract the increase from

Prepaid expenses increased from 2025 to 2026. _____ net income to compute operating cash flows.

Two components of stockholder’s equity

Paid in capital and retained earnings =

Temporary/Income Statement Account

What type of account is revenue?

Temporary/Contra Equity Account

What type of account is dividends?

A/R - the allowance

How do you calculate net realizable value of accounts receivable?