Financial Accounting – All Questions

Question 1
Comparing actual outcomes with budget outcomes, then following up, is an example of a.
a. planning activities
b. operating activities
c. controlling activities
d. accounting activities
e. staffing activities

Question 2
Which of the following is typically a starting point for the budget process?
a. a summary cash budget
b. a sales budget
c. a budget balance sheet
d. a production budget
e. a materials purchase budget

Question 3
Tax accounting is generally most used by:
a. Share holder
b. Manager
c. Creditors
d. Internal revenue service
e. Decision makers

Question 4
Management accountant place more emphases on which of the following :
a. certified financial statement
b. future activities
c. historial cost information
d. cash flow
e. annual tax returns

Question 5
Which of the following organization would be most likely to accept a process costing system?
a. customer homebuilder
b. law office
c. paper manufacture
d. dental office
e. TV sale and services organization

Question 6
The discount rate for use in capital budgeting decision is also referred to as
a. a cost of capital
b. the cost of capital
c. the hurdle rate
d. the minimum required rate of return
e. all none

Question 7
What is breakeven point in units?
Sale price $7.50 per unit
Variable cost $2.25 per unit
Fixed cost $10,000
Units sold 20,000

a. 1333
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 b. 1905 BP: Fixed Cost / (Price – VC) BP: 10,000 / (7.50 - 2.25) = 1905
c. 10000
d. 20000
e. some number other than these 4

Question 8
A balance sheet shows
a. revenues, liabilities, and stockholders’ equity.
b. expenses, dividends, and stockholders’ equity.
c. revenues, expenses, and dividends.
d. assets, liabilities, and stockholders’ equity.
e. none of the options listed

Question 9
The excess of expenses over revenues for a period is:
a. Net assets.
b. Equity.
c. Net loss.
d. Net income.
e. A liability.

Question 10
Liabilities
a. are future economic benefits.
b. are debts and obligations.
c. possess service potential.
d. are things of value owned by a business. Incorrect. Please review Top Ten Concept # 2.
e. none of the options listed

Question 11
The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
e. None of the options listed.

Question 12
Which of the following is not an accounting assumption?
a. Integrity
b. Going concern
c. Time period
d. Economic entity
e. None of the options listed

Question 13
Treasury stock is classified as:
a. An asset account.
b. A contra asset account. Incorrect. Please review Top Ten Concept # 4.
c. A revenue account.
d. A contra equity account.
e. A liability account.

Question 14
Olsen Company prepares its statement of cash flows using the indirect method. Indicate whether the item would be
added to net income (increase), deducted from net income (decrease), or has no effect on net income to determine net
cash flows from operating activities. A decrease in the value from the beginning of the year to the end of the year for
Inventory, which is a current asset.
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a. Increase Incorrect. Please review Top Ten Concept # 5.
b. Decrease
c. No effect
d. None of the options listed
e. All of the options listed

Question 8
An Accounts Receivable previously written off as uncollectable is finally collected. The amount collected was
500.Whichofthefollowingjournalentriesiscorrect (assuming the all owance method is used)?

a. Cash 500
Accounts Receivable 500

b. Uncollectible Accounts (Bad Debt) Expense 500

Cash 500

c. Accounts Receivable 500

Uncollectible Accounts (Bad Debt) Expense 500
Cash 500
Accounts Receivable 500 Incorrect. Please review Top Ten Concept # 6.

d. Accounts Receivable $500

Allowance for Uncollectible Accounts $500
Cash 500
Accounts Receivable 500

e. None of the options listed

Question 9
A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the
current year, management estimated that 15,750 of the accounts receivable balance would be uncollectible. Prior to any
year-end adjustments, the Allowance for Doubt full Accounts had a debit balance of 175. What adjusting entry should the
company make at the end of the current year to record its estimated bad debts expense?

a. Bad Debts Expense...................................................... 15,750

Allowance for Doubtful Accounts............................. 15,750 Incorrect. Please review Top Ten Concept # 6.

b. Bad Debts Expense...................................................... 15,575

Allowance for Doubtful Accounts............................. 15,575
Incorrect. Please review Top Ten Concept # 6.

c. Bad Debts Expense...................................................... 15,925 (15,750 + 175)

Allowance for Doubtful Accounts............................. 15,925

d. Accounts Receivable.................................................... 15,750

Bad Debts Expense...................................................... 175
Sales........................................................................ 15,750

e. Accounts Receivable...................................................... 15,925

Allowance for Doubtful Accounts............................. 15,925

Question 10
In present value calculations, the process of determining the present value is called
a. allocating.
b. pricing.
c. negotiating. Incorrect. Please review Top Ten Concept # 7.
d. discounting the future amount
e. none of the options listed
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Question 11
Present value is based on
a. the dollar amount to be received.
b. the length of time until the amount is received. Incorrect. Please review Top Ten Concept # 7.
c. the interest rate.
d. all of the options listed
e. none of the options listed

Question 12
Accrued revenue has:
a. not been earned nor received
b. been earned but not received
c. not been earned but has been received Incorrect. Please review Top Ten Concept # 8.
d. been earned and received
e. none of the options listed

Question 13
What is the formula to calculate the current ratio?
a. Assets ÷ Liabilities
b. Cash + Accounts Receivables ÷ Current Liabilities
c. Current Assets ÷ Current Liabilities
d. Net Income ÷ Current Liabilities
e. None of the options listed

Question 14
For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is:
a. Raises the current ratio.
b. Lowers the current ratio. Incorrect. Please review Top Ten Concept # 9.
c. Doesn’t affect the current ratio.
d. Depends on the amount paid. Incorrect. Please review Top Ten Concept # 9.
e. Not determinable based on the facts given.

Question 15
Obsolescence:
a. Occurs when an asset is at the end of its useful life.
b. Refers to a condition where a plant asset is no longer useful in producing goods and services.
c. Refers to a condition where the capacity of a company's plant assets is too small to meet the company's productive
demands. Incorrect. Please review Top Ten Concept # 10.
d. Occurs when an asset's salvage value is less than its replacement cost.
e. Does not affect plant assets.

Question 16
On January 1, 20X1, Williams Corporation acquired a machine costing 45,000. The estimated life is five years and the
salvage value is 3,000. Determine the depreciation expense for the first two years using the straight-line method.
a. 8,400; 8,400 Annual Dep. Exp: (Cost – Salvage Value) / Useful Life
b. 9,000; 9,000 (45,000 - 3,000) / 5 = 8,400
c. 9,600; 9,600
d. 9,000; 8,500
e. None of the options listed

Question 17
Which financial statement would best indicate the proportion of debt and equity that a company uses to finance its
assets?
a. Statement of Cash Flows
b. Retained Earnings Statement
c. Income Statement Incorrect. Please review Top Ten Concept # 1.
d. Balance Sheet
e. None of the options listed
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Question 18
If owner's equity is 30,000 and liabilities are 73,000, then assets equal:
a. 30,000.
b. 73,000.
c. 103,000. A = L + SE
d. 43,000.
e. 60,000.

Question 19
The relevant measure of value of the assets of a company that is going out of business is their:
a. current market value
b. book value
c. historical cost
d. higher of historical cost or current market value
e. none of the options listed

Question 20
The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result
of the expenses is the:
a. Recognition principle. Incorrect. Please review Top Ten Concept # 3.
b. Cost principle.
c. Cash basis of accounting.
d. Matching principle.
e. Time period principle.

Question 21
Which of the following journal entries is correct for an issuance of 2,000 shares of 20 par value preferred stock in
exchange for land valued at 45,000?
a. Cash 45,000
Preferred Stock 40,000
Premium on Preferred Stock 5,000
Land 45,000
Cash 45,000 Incorrect. Please review Top Ten Concept # 4.

b. Cash 45,000
Preferred Stock 45,000
Land 45,000
Cash 45,000

c. Land 45,000
Preferred Stock 40,000
Premium on Preferred Stock 5,000

d. Land 45,000
Preferred Stock 45,000

e. None of the options listed

Question 22
The Village Laundry Company purchased 6,500 worth of laundry supplies on June 2 and recorded the purchase as an
asset. On June 30, an inventory of the laundry supplies in dictated only 3,000 on hand. The adjusting entry that should be
made by the company on June 30 is
a. Debit Laundry Supplies Expense, 3,000; Credit Laundry Supplies, 3,000.
b. Debit Laundry Supplies Expense, 3,500;CreditLaundrySupplies,3,000. Incorrect. Please review Top Ten Concept #
6.
c. Debit Laundry Supplies, 3,500; Credit Laundry Supplies Expense, 3,500.
d. Debit Laundry Supplies Expense, 3,500; Credit Laundry Supplies, 3,500. 6,500 - 3,000 = 3,500
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e. None of the options listed

Question 23
Under the accrual basis of accounting
a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company's financial statements are recognized in the period they occur rather than in the
period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared
under generally accepted accounting principles.
e. none of the options listed

Question 24
A company had a market price of 37.50 per share, earnings per share of 1.25, and dividends per share of 0.40. This
implies its price- earnings ratio equals:
a. 3.1. Incorrect. Please review Top Ten Concept # 9.
b. 30.0. Price- Earnings Ratio: Stock Price per Share / Earnings per Share
c. 93.8. 37.50 / 1.25 = 30
d. 32.0.
e. 3.3.

Question 25
Depreciation is the process of
a. valuing an asset at its fair market value.
b. increasing the value of an asset over its useful life in a rational and systematic manner.
c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
d. writing down an asset to its real value each accounting period.
e. none of the options listed

Question 26
Intangible assets are the rights and privileges that result from ownership of long-lived assets that
a. must be generated internally.
b. are depreciated over their useful life.
c. have been exchanged at a gain. Incorrect. Please review Top Ten Concept # 10.
d. do not have physical substance.
e. none of the options listed

Question 27
Net income results when
a. Assets > Liabilities
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues

Question 29
The accounting equation is:
a. Assets = Liabilities + Equity.
b. Assets + Liabilities = Equity.
c. Assets = Liabilities - Equity.
d. Assets - Liabilities = Equity.
e. Both A and D.

Question 30
The balance sheet
a. summarizes the changes in retained earnings for a specific period of time.
b. reports the changes in assets, liabilities, and stockholders’ equity over a period of time.
c. reports the assets, liabilities, and stockholders’ equity at a specific date.
d. presents the revenues and expenses for a specific period of time.
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e. none of the options listed

Question 31
An audit provides the following benefit(s) to users of financial statements:
a. To help assure users that financial statements include relevant, reliable, and comparable information. Incorrect.
Please review Top Ten Concept # 2.
b. Insures that users can safely invest in, or loan money to, a business.
c. It tells users that the statements are prepared using accepted accounting principles.
d. All of the above.
e. A and C only.

Question 32
Revenue is properly recognized:
a. When the customer's order is received.
b. Only if the transaction creates an account receivable.
c. At the end of the accounting period. Incorrect. Please review Top Ten Concept # 2.
d. Upon completion of the sale or when services have been performed and the business obtains the right to collect
the sales price.
e. When cash from a sale is received.

Question 33
In order for accounting information to be relevant, it must
a. have very little cost.
b. help predict future events or confirm prior expectations.
c. not be reported to the public.
d. be used by a lot of different firms.
e. none of the options listed

Question 34
A $20,000 machine is purchased by paying $5,000 cash and signing a note payable for the remainder. The journal entry
should include a
a. credit to note payable.
b. debit to cash.
c. credit to notes receivable.
d. credit to machinery.
e. none of the options listed

Question 35
What type of activity is the following - “Exchanged 10,000 shares of common stock for 15-year bonds?”. a. Operating
Activity
b. Financing Activity
c. Investing Activity
d. Noncash Transaction
e. None of the options listed

Question 36
The inventory of product Y at January 1 consisted of 15,000 units valued at a cost of $112,500. Purchases during the year
were:
(Mar 5) 20,500 units @ $7.75 per unit = $158,875
(May 12) 33,000 units @ $8.00 per unit = $264,000
(Sep 15) 23,000 units @ $8.30 per unit = $190,900
(Nov 28) 8,500 units @ $8.44 per unit = $71,740

On December 31, there were 30,000 units on hand.

Compute the December 31 inventory using the first-in, first-out method.

a. $250,190 December 30,000 - 8,500 = 21,500
b. $228,750 21,500 * $8.30 = 178,450
178,450 + 71,740 = 250,190
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c. $235,150
d. $246,370
e. None of the options listed

Question 37
Which statement is false regarding the lower of cost or market (LCM) method of inventory?
a. Market is defined as current replacement cost, not selling price.
b. LCM is an example of an accounting concept of conservatism.
c. Inventory is written down to its market value in the period in which the price decline occurs.
d. All of the options listed are true regarding LCM.
e. None of the options listed are true regarding LCM.

Question 38
In a service-type business, revenue is considered earned
a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.
e. none of the options listed

Question 39
Based on the following data, what is the amount of working capital?

Accounts payable……………………………………………………….. $31,000

Accounts receivable…………………………………………………… ....57,000
Cash…………………………………………………………………… …15,000
Intangible assets………………………………………………………… 50,000
Inventory……………………………………………………… ………….69,000
Long-term investments………………………………………………… ....80,000
Long-liabilities…………………………………… ………………………100,000
Marketable securities…………………………………………………… ...40,000
Notes payable (short-term)……………………………………………… ..28,000
Land, building, and equipment………………………………......... ..........670,000
Prepaid expenses………………………………………………………. .....1,000

a. $123,000 (Total Current Asset – Total Current Liability) CA: 57,000+15,000+69,000+40,000+1,000 =

182,000
b. $151,000 CL: 31,000+28,000 = 59,000
c. $203,000 182,000 - 59,000 = 123,000
d. $53,000
e. None of the options listed

Question 40
Use the following information for Smart Company.

Net Sales $300,000

Cost of Goods Sold 230,000
Gross Profit $ 70,000
Operating Expenses 25,000

Net Income $ 45,000

=======
What is the return on sales for Smart Company?
a. 13%
b. 15% (Net Income / Sales = 45,000 / 300,000 =15%)
c. 64%
d. 35%
e. None of the options listed

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Question 41
Noncurrent, intangible assets such as leasehold improvements and patents are all subject to:
a. depreciation
b. amortization
c. depletion
d. consolidation
e. recognition

Question 42
The book value of a plant asset is the difference between the
a. replacement cost of the asset and its historical cost.
b. cost of the asset and the amount of depreciation expense for the year.
c. cost of the asset and the accumulated depreciation to date.
d. proceeds received from the sale of the asset and its original cost.
e. none of the options listed

Question 43
NiKe has beginning equity of $4,350 million, net income of $490 million, dividends (withdrawals) of $100 million, and
an increase in equity due to other items of $50 million. Its ending equity is:
a. $3,810 million. Incorrect. Please review Top Ten Concept # 1.
b. $4,690 million.
c. $4,790 million. 4,350 + 490 – 100 + 50 = 4,790
d. $4,990 million.
e. $3,710 million

Question 44
An income statement
a. summarizes the changes in retained earnings for a specific period of time.
b. reports the changes in assets, liabilities, and stockholders’ equity over a period of time.
c. reports the assets, liabilities, and stockholders’ equity at a specific date.
d. presents the revenues and expenses for a specific period of time.
e. none of the options listed

Question 45
Accounting information should be neutral in order to enhance
a. reliability.
b. consistency.
c. comparability.
d. relevance. Incorrect. Please review Top Ten Concept # 3.
e. none of the options listed

Question 46
Par value of a stock refers to the:
a. Issue price of the stock.
b. Value assigned to a share of stock by the corporate charter.
c. Market value of the stock on the date of the financial statements.
d. Maximum selling price of the stock.
e. Dividend value of the stock.

Question 47
Retained earnings is:
a. decreased by net income
b. increased by expenses
c. decreased by revenues
d. increased by dividends declared
e. increased by gains

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Question 48
If you are able to earn an 8% rate of return, what amount would you need to invest to have $2,000 one year from now?
(Round to the nearest dollar.)

8%, 1 year annually Factor

Present value of $1 0.926
Future value of $1 1.080
Present value of an annuity 0.926
Future value of an annuity 1.000

a. $2160
b. $1,852 PV: FV / (1 + r)^n PV: 2000 / (1+ 8%) = 1,852
c. $2000
d. $1,980
e. None of the options listed

Question 49
An individual is planning to set-up an education fund for her children. She plans to invest $10,000 annually at the end of
each year. She expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of
8%. What will be the total value of the fund at the end of 10 years? (Round to the nearest dollar)

8%, 10 years annually Factor

Present value of $1 0.463
Future value of $1 2.159
Present value of an annuity 6.710
Future value of an annuity 14.487

a. $ 46,320.
b. $ 67,107.
c. $100,000.
d. $144,870. 10,000 * (1 + 8%)^10 10,000 * 14.487 = 144,870
e. $215,890.

Question 50
A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the
liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period
and no adjusting entry is made, this would cause
a. expenses to be overstated.
b. net income to be overstated. Incorrect. Please review Top Ten Concept # 8.
c. liabilities to be understated.
d. revenues to be understated.
e. none of the options listed

Question 51
Charles Corporation reports the following information for 20X1.

Accounts Receivable – 1/1 $100,000

Accounts Receivable – 12/31 150,000
Inventory – 1/1 40,000
Inventory – 12/31 55,000
Net Credit Sales 800,000
Cost of Goods Sold 450,000
Accumulated Depreciation 15,000

What is the average age of inventory for Charles Corporation?

a. 32.4 days
b. 39.9 days
c. 44.6 days
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d. 38.5 days
e. None of the options listed

Question 52
A truck costing $12,000 and on which $9,000 of accumulated depreciation has been recorded was discarded as having no
value. The entry to record this event would include a
a. gain of $3,000.
b. loss of $3,000.
c. credit to accumulated depreciation for $9,000.
d. credit to accumulated depreciation for $12,000.
e. none of the options listed

Question 53
Accountants do not attempt to measure the change in a plant asset's market value during ownership because
a. of the historical cost assumption.
b. plant assets cannot be sold.
c. losses would have to be recognized. Incorrect. Please review Top Ten Concept # 10.
d. it is management's responsibility to determine fair values.
e. none of the options listed

Question 54
Liabilities of a company are owed to
a. debtors.
b. owners.
c. creditors. Correct.
d. stockholders.
e. none of the options listed

Question 55
Stockholders’ equity can be described as claims of
a. creditors on total assets. Incorrect. Please review Top Ten Concept # 1.
b. owners on total assets.
c. customers on total assets.
d. debtors on total assets.
e. none of the options listed

Question 56
Retained earnings is
a. the stockholders’ claim on total assets.
b. equal to cash. Incorrect. Please review Top Ten Concept # 2.
c. equal to revenues.
d. the cumulative amount of net income kept in the corporation for future use.
e. none of the options listed

Question 57
The necessity of making adjusting entries relates mostly to the
a. economic entity assumption.
b. time period assumption.
c. going concern assumption.
d. monetary unit assumption. Incorrect. Please review Top Ten Concept # 3.
e. none of the options listed

Question 58
Johnny’s Car Repair Shop started the year with total assets of $60,000 and total liabilities of $40,000. During the year the
business recorded $100,000 in car repair revenues, $55,000 in expenses, and dividends of $10,000.
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 Stockholders’ equity at the end of the year was ?
a. $45,000
b. $65,000
c. $55,000 Correct.
d. $35,000
e. None of the options listed

Question 59
What type of activity is the following - “Sold 2,000 shares of a company’s own common stock for cash?”
a. Operating Activity
b. Financing Activity
c. Investing Activity
d. Noncash Transaction Incorrect. Please review Top Ten Concept # 5.
e. None of the options listed

Question 60
Based on the following data, what is the amount of current assets?
Accounts payable………………………………………………………..$31,000
Accounts receivable…………………………………………………….. 57,000
Cash………………………………………………………………………. 15,000
Intangible assets………………………………………………………… 50,000
Inventory…………………………………………………………………. 69,000
Long-term investments…………………………………………………. 80,000
Long-liabilities…………………………………………………………….100,000
Marketable securities……………………………………………………. 40,000
Notes payable……………………………………………………………. 28,000
Plant assets………………………………………………………………670,000
Prepaid expenses (assets)…………………………………………........…..1,000
a. $142,000
b. 182,000 57,000+15,000+69,000+40,000+1,000 = 182,000
c. $113,000 Incorrect.
d. $112,000
e. None of the options listed

Question 61
If Susanna Metro invests $7,009.87 now and she will receive $20,000 at the end of 11 years, what annual rate of interest
will she be earning on her investment?
Future value of $1 Factor
20,000 / 2.1057%, 11 years annually
= 9,501 2.105
20,000 / 2.3328%,
= 8,576
11 years annually 2.332
20,000 / 2.5809%,
= 7,752
11 years annually 2.580
20,000 / 2.85310%,
= 7,010 this amount
11 years annually is close to 7,009.87
2.853

a. 8%
b. 7%
c. 9%
d. 10%
e. None of the options listed

Question 62
If the single amount of $900 is to be received in 3 years and discounted at 6%, its present value is: (Round to the nearest
dollar.)
6%, 3 years annually Factor
Present value of $1 0.840
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Future value of $1 1.191
Present value of an annuity 2.673
Future value of an annuity 3.184

a. $756. 900 * 0.840 = 756 Correct.

b. $849.
c. $780.
d. $846.
e. None of the options listed

Question 63
At December 31, 2001, before any year-end adjustments, Brant Company's Prepaid Insurance account had a balance of
$1,900. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Prepaid Insurance
for the year would be
a. $1,500.
b. $400. 1,900 – 1,500 = 400 Correct.
c. $2,225.
d. $1,125.
e. None of the options listed

Question 66
Which financial statement is prepared first?
a. Balance sheet
b. Income statement
c. Retained earnings statement
d. Statement of cash flows
e. None of the options listed

Question 67
Resources owned by a business are referred to as
a. stockholders’ equity.
b. liabilities.
c. assets.
d. revenues.
e. none of the options listed

Question 68
Which of the following journal entries is correct for an issuance of 1,000 shares of 10 par value common stock for 25 per
share?
a. Cash 25,000
Common Stock 25,000

b. Common Stock 25,000

Cash 25,000

c. Cash 25,000
Common Stock 10,000
Premium on Common Stock 15,000

d. Common Stock 10,000

Premium on Common Stock 15,000
Cash 15,000

e. None of the options listed

Question 69
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Westec Corporation has the following accounts on their financial statement. Calculate net income.
Professional Fee Income 31,000 RentExpense7,000
Advertising Expense 10,000 Insurance Expense 6,000
Accumulated Depreciation 1,000 Interest Expense 1,000
Commission Expense 4,000 Dividends 2,000
a. 9,000
b. 0
c. 1,000
d. 3,000 31,000 – (7,000+10,000+6,000+1,000+4,000) = 3,000
e. None of the options listed

Question 71
Which of the following would not result in unearned revenue?
a. Rent collected in advance from tenants Incorrect. Please review Top Ten Concept # 8.
b. Services performed on account
c. Sale of season tickets to football games
d. Sale of two-year magazine subscriptions
e. None of the options listed

Question 72
What is the formula to calculate the profit margin?
a. Gross Profit ÷ Sale
b. Net Income ÷ Sales
c. Gross Profit ÷ Net Income Incorrect.
d. Net Income ÷ Gross Profit
e. None of the options listed (Net Income / Revenue) or (Net Profit / Sales)

Question 73
What is the formula to calculate earnings per share?
a. Net Income ÷ Common Stock Outstanding
b. Market Price ÷ Common Stock Outstanding
c. Gross Profit ÷ Total Stock Outstanding
d. Market Price ÷ Total Stock Outstanding Incorrect. Please review Top Ten Concept # 9.
e. None of the options listed

Question 74
Which of the following methods will result in the highest depreciation in the first year?
a. Units-of-activity
b. Time valuation
c. Straight-line Incorrect. Please review Top Ten Concept # 10.
d. Declining-balance
e. None of the options listed

Question 75
An obligation of a business that represents the claims of others against the assets of the business is called:
a. An Asset.
b. An Expense.
c. A Revenue.
d. An Equity.
e. A Liability.

According to the FASB, the primary objective of financial reporting is to provide information:
a. to the Internal Revenue Service Incorrect. Please review Top Ten Concept # 1.
b. to the Securities and Exchange Commission
c. useful for making investing and lending decisions
d. regarding the revenues and expenses of a business
e. none of the options listed

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Question 76
An annual report includes all of the following except
a. management discussion and analysis section.
b. notes to the financial statements.
c. an auditor’s report.
d. salary information for the key executives.
e. none of the options listed

Question 77
The accounting equation may be expressed as:
a. Assets = Stockholders’ Equity – Liabilities.
b. Assets = Liabilities + Stockholders’ Equity.
c. Assets + Liabilities = Stockholders’ Equity.
d. Assets + Stockholders’ Equity = Liabilities.
e. None of the options listed

Question 78
If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called
Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:
a. Debit Cash and credit Legal Fees Earned.
b. Debit Cash and credit Unearned Legal Fees.
c. Debit Unearned Legal Fees and credit Legal Fees Earned.
d. Debit Legal Fees Earned and credit Unearned Legal Fees.
e. Debit Unearned Legal Fees and credit Accounts Receivable.

Question 79
Paula Bonner invests $7,103.00 now for a series of $1,000 annual returns beginning one year from now. Paula will earn
10% on the initial investment. How many annual payments will Paula receive?
Present value of an annuity
10% Factor
10 periods 6.145
12 periods 6.814
13 periods 7.103
14 periods 7.606

a. 10
b. 12
c. 13
d. 15
e. None of the options listed Incorrect. Please review Top Ten Concept # 7.

Question 80
If the single amount of $400 is to be received in 2 years and discounted at 12%, its present value is: (Round to the
nearest dollar.)

12%, 2 years annually Factor

Present value of $1 0.797
Future value of $1 1.254
Present value of an annuity 1.690
Future value of an annuity 2.120

a. $502.
b. $319.
c. $676.
d. $331.
e. None of the options listed

Question 81
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Jim's Tune-Up Shop follows the revenue recognition principle. Jim services a car on July 31. The customer picks up the
vehicle on August 1 and mails the payment to Jim on August 5. Jim receives the check in the mail on August 6. When
should Jim show that the revenue was earned?
a. July 31 Because he did the work.
b. August 1
c. August 5
d. August 6 Incorrect. Please review Top Ten Concept # 8.
e. None of the options listed

Question 82
A truck was purchased for $15,000 and it was estimated to have a $3,000 salvage value (residual value) at the end of its
useful life. The truck has a 4-year life. The annual depreciation expense using the straight-line method is
a. $4,000
b. $4,500
c. $3,750 Incorrect. Please review Top Ten Concept # 10.
d. $3,000
e. None of the options listed

Question 84
Expenses are incurred
A. Only one rare occasion (WA)
B. To produce asset (WA)
C. To produce liability (WA)
D. To generate revenue
E. None.

Question 92
Company A current liability equal 500,000, working capital 120,000. Company B same amount of working capital, but
total current liability of 30,000. The company with the better working capital position is?
A. They both has exact the same working capital
B. Company B (It is good when better working capital position decreases)
C. Company A
D. Don’t determined with the information given
E. None

Question 93
Company used Strait-Line depreciation for an item that cost 12,000 had a salvage value of 2,000 and a 5 year useful life
After depreciating the assets for 3 complete years, the salvage value was reduced to 1,200 and its total useful life was
increased from 5 years to 6 years. Determine the amount of depreciation to be changed against the machine during each
of the remaining years of its useful life.

A 1,000
B. 1,800
C. 1,467 (WA)
D. 1,600
E. 2,160

Question 94
The accumulated depreciation account is a (an)
A. Contra assets reduce
B. Liability
C. Assets (WA)
D. Operating expanse
E. none of the listed

Question 95
Operating cycle of a company is the average time that is require to go from cash to
A. Sales (WA)
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B. Cash in producing revenues
C. Inventory
D. Accounts Receivable
E. None

Question 97
In the annual report, where would a financial statement reader find out if the company’s financial statements give a fair
depiction of its financial position and operating results?
A. Management discussion and analysis section
B. Notes to the financial statements
C. An auditor report
D. Survey information for the key executive
E. None.

Question 98
Y during accounting period the asset increases by 5,000 equity increased by 1,000. How did liability damage?
A. Increase by 6,000 (WA)
B. Increase by 4,000
C. Decrease by 4,000
D. Decrease by 6,000
E. Decrease by 1,000

Question 99
If ending inventory is over stead what effect will there be on cost of good and net income?
A. CGS will overstated and Net income overstate
B. CGS will overstated and Net income understated (WA)
C. CGS will understated and Net income overstate
D. CGS will understated and Net income understate
E. None.

Question 105
The rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial affairs and
activities of a business are:
a. Both broad and specific principles.
b. Known as geberally accepted accounting principles.
c. Abbreviated as GAAP.
d. Both b and c.
e. All of the above.

Question 106
The primary objective of financial accounting is:
a. To help organizations keep track of financing activities
b. To provide financial statements to help users analyze an organization's activities
c. To help an organization define its ideas, goals, and actions.
d. To help an organization keep track of its buying and selling of resources.

Question 107
Which 1 of the following is not qualitative characteristic. =Relevance, reliability, comparability, consistency.
Answer: chaptism

Question 108
A 20,000 machine is purchased by paying 5000 cash and signing a note payable for the remainder
Answer: the journal entry should involve a CREDIT on note payable

Question 124
The cost principle requires that when assets are acquired, they be recorded at
a. market value.
b. the amount paid for them. Also called exchange price paid
c. selling price.
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d. list price.

Question 125
A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what amounts are the accounts under or
overstated as a result of this error?
A. Office Equipment, understated $130; Fees Earned, overstated $130
B. Office Equipment, understated $260; Fees Earned, overstated $130
C. Office Equipment, overstated $130; Fees Earned, overstated $130
D. Office Equipment, overstated $130; Fees Earned, understated $130
E. Office Equipment, overstated $260; Fees Earned, understated $130

Question 132
Which of the following accounts is used in the calculate of working capital
a. retained earnings—WRONG
b. sales
c. merchandize inventory
d. common stock
e. long term debt

Question 137
On October 29. Company concluded a cost’s 4,400 account receivable was uncollectible and that a acet should be written
off. What affect will this write off have on this company’s Net Income and Total Assets assuming the allowing method is
used to account for bad debts.
A. Decrease Net income, no effect on Total assets
B. No effect on Net income, no effect on Total assets
C. Decrease in Net income, decrease in Total assets.
D. Increase in Net income, no effect on Total Assets. (WA)
E. No effect on Net income, Decrease in Total Assets.

Question 140
Prime object of a business is to increase equity
Acquiring assets

Question 143
A financial statement that reports accounting data a specific date is the
Balance sheet

Question 144
The principle entry business to be accounted for separating distinction from it owner or owners what principle would it
be.
Business entry principle

Question 145
The going concern asset that the business
Will remain in operation for the section future

Question 147
A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length
of time past due is the:
a. Direct write-off method
b. Aging of accounts receivable method
c. Percentage of sales method
d. Aging of investments method
e. Percent of accounts receivable method

Question 149
Net sales 300,000
COGS 230,000
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 Gross Profit 70,000
Owner’s equity 25,000
Net Income 450,000

What is the gross profit margin?

23% (Net income / net sales) * 100

Question 150
A non-current intangible asset such as leasehold improvements and patents are all subject to:
a. Amortization b. depreciation c. depletion

Question 152
A corporation is investing on a expected return 350,000 in 4 yrs. Interest is 12%
12 % 4 years
Present value .636
Future value 1.574
Present value of annuity 3.037
Future value of annuity 4.780

265,764 (WA) 55,600 137,687 222,600 350,000

Question 153
85.20,000 semiannually 5 yrs. 12%

12% 5yrs 3.605

12% 10 yrs 5.650
6% 10yrs 7.360
6% 5 yrs 4.212

84,240 (WA) 72,100 113,000 147,200 200,000

Question 163
Define and articulate the three basic financial statements.
a. The balance (or statement of financial position) describes the financial position of a firm at a particular
point in time
b. The income statement or a company compares its revenues to its expenses
Revenues $20,000
Less Expenses $12,000
NET INCOME $ 8,000
c. The balance sheet and income statement are the traditional financial statements that have been parts of
annual reports of companies for many years

Question 164
Compute time value of money
d. I will give you $1000 in 5 years. How much money should you give me now to make it fair to me. You
think a good interest rate would be 6%
e. FV= PV ( 1 + i ) ^N
f. $1000 = PV ( 1 + .06) ^ 5
g. $1000 = PV (1.338)
h. $1000 / 1.338 = PV
i. $ 747.38 = PV

Question 165
A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a
check is received on December 10. The dress shop follows GAAP and applies the revenue recognition principle. When is
the $1,000 considered to be earned?
a. December 5
b. December 10
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 c. November 30
d. December 1

Question 167
An accounts receivable previously written off as uncollectable is finally collect. The amount collected was $500. which
of the following journal entries
a. accounts receivable 500
b. allowance for uncollectible 500
c. cash 500
d. accumulated 500

Question 168
Inventory of product Y at January 1 consisted of 15000 units valued at a cost of $1125000. purchases during the year
were
March 20 500 units at 7.74 per unit - $ 158875
November 28 8500 units at 8.44 per unit = $71740

Compute the December 31 inventory, using the last in, first out method

a. 250190 (WRONG)
b. 228750
c. 234875
d. 225550
e. none of the above

Question 170
The revenue recognition principle dictates that revenue should be recognized in the accounting records
e. when it is earned

Question 171
In the present value calculators, the process of determining the PV is called
f. discounting

Question 176
If $2,500 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded
annually, what will be the balance of the account at the end of 10 years? (Round to the nearest dollar)
5%, 10 years annually Factor
Present value of $1 0.614
Future value of $1 1.629
Present value of an annuity 7.722
Future value of an annuity 12.578

a. $4,073
b. $26,250
c. $31,445
d. $37,500 Incorrect. Please review Top Ten Concept # 7.
e. None of the options listed

Question 177
Tricorp Company is considering an investment that is expected to return $320,000 after four years. If Tricorp demands a
15% return, what is the most that it will be willing to pay for this investment?
15%, 4 years annually Factor
Present value of a $1 0.572
Future value of $1 1.749
Present value of an annuity 2.855
Future value of an annuity 4.993

a. $320,000
b. $177,696
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c. $183,040
d. $45,216
e. $278,272

Question 178
The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity
to buy additional (proportionate) shares of common stock issued by the corporation is called:
a. Preemptive right
b. Proxy right Incorrect. Review concept # 4
c. Right to call Incorrect. Review concept # 4
d. Financial leverage
e. Voting right

Question 179
Which of the following statements is incorrect?
a. The normal balance of the accounts receivable account is debit
b. The normal balance of the accounts payable is a credit
c. The normal balance of an unearned revenues account is credit
d. The normal balance of an expense account is credit
e. All of the above answers are correct Incorrect. Review concept # 6

Liquidity Ratios
Quick Ratio = Total Quick Assets (q1-q2)/ Total Current Liabilities
Current Ratio = Total Current Assets/ Total Current Liabilities
Debt to Equity Ratio = Total Liabilities / Owners Equity
Efficiency Ratios
Best Possible DSO = Current Receivables/Total Credit Sales X Number of Days
Inventory Turnover Ratio = Net Sales / Inventory
Profitability Ratios
Profit Margin = (Net Profit / Net Sales) x 100
Return on Assets = (Net Profit / Total Assets) x 100
Return on Equity = (Net Profit / Total Equity) x 100

Assets = Liabilities + Owners' Equity

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