All ACC 1

Multiple Choice Questions

95. Accounting is an information and measurement system that:
A. Identifies business activities.
B. Records business activities.
C. Communicates business activities.
D. Helps people make better decisions.
E. All of these.
96. Technology
A. Has replaced accounting.
B. Has not changed the work that accountants do.
C. Has closely linked accounting with consulting, planning, and other financial services.
D. In accounting has replaced the need for decision makers.
E. In accounting is only available to large corporations.
97. The primary objective (mục tiêu) of financial accounting is:

A. To serve the decision-making needs of internal users.
B. To provide financial statements to help external users analyze an organization's activities.
C. To monitor and control company activities.
D. To provide information on both the costs and benefits of looking after products and services.
E. To know what, when, and how much to produce.

98. Internal users of accounting information include:

A. Shareholders.
B. Managers.
C. Lenders.
D. Suppliers.
E. Customers.
99. Thearea of accounting aimed at serving the decision making needs of internal users is:
A. Financial accounting.
B. Managerial accounting.
C. External auditing.
D. SEC reporting.
E. Bookkeeping.

AICPA BB: Industry

AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C2

100. The operating functions of a business include:
A. Research and development.
B. Purchasing.
C. Marketing.
D. Distribution.
E. All of these.
AICPA BB: Industry

AICPA FN: Reporting
Difficulty: Medium

101. External users of accounting information include:

A. Shareholders.
B. Customers.
C. Creditors.
D. Government regulators.
E. All of these.
AICPA BB: Industry

AICPA FN: Reporting
Difficulty: Easy

102. Career opportunities in accounting include:
A. Auditing.
B. Management consulting.
C. Tax accounting.
D. Cost accounting.
E. All of these.
AICPA BB: Industry

AICPA FN: Decision Making
Difficulty: Easy

103. Career opportunities in accounting include:

A. Budgeting (ngân sách).
B. Auditing (kiểm toán).
C. Cost accounting.
D. Internal Auditing.
E. All of these.
AICPA BB: Industry

Difficulty: Medium

104. Accounting certifications (chứng chỉ) include the:

A. Certified Public Accountant.
B. Certified Management Accountant.
C. Certified Internal Auditor.
D. Personal Financial Specialist (chuyên gia)
E. All of these.
AICPA BB: Industry

Difficulty: Medium

105. A Certified Public Accountant
A. Must meet education and experience requirements
B. Must pass an examination
C. Must exhibit ethical character
D. May also be a Certified Management Accountant.
E. All of these.
AICPA BB: Industry

Difficulty: Medium

106. Ethical behavior requires:

A. That auditors' pay not depend on the figures in the client's (khách hàng) reports.
B. Auditors to invest in businesses they audit.
C. Analysts to report information favorable to their companies.
D. Managers to use accounting information to benefit themselves.
E. All of these.
AACSB: Ethics
AICPA BB: Legal
Difficulty: Easy

107. Social responsibility:
A. Is a concern for the impact of our actions on society.
B. Is a code that helps in dealing with confidential information.
C. Is required by the SEC.
D. Requires that all businesses conduct social audits.
E. All of these.
AACSB: Ethics
AICPA BB: Industry
Difficulty: Medium

108. Ethics:
A. Are beliefs that separate right from wrong.
B. And law often coincide.
C. Help to prevent conflicts of interest.
D. Are critical in accounting.
E. All of these.
AACSB: Ethics
AICPA BB: Industry
Difficulty: Hard

109. The accounting guideline that requires financial statement information to be supported by

independent, unbiased evidence other than someone's belief or opinion is the:
A. Business entity principle.
B. Monetary unit principle.
C. Going-concern principle. (ntac quan tâm)
D. Cost principle.
E. Objectivity principle. (ntac khách quan)
AICPA BB: Legal

AICPA FN: Measurement
Difficulty: Easy

110. Businesses can take the following form(s):

A. Sole proprietorship.( quyền sở hữu duy nhất)
B. Common stock.
C. Partnership. (quyền đối tác)
D. A and C only.
E. All of these.
AICPA BB: Legal

Difficulty: Medium

111. A corporation:
A. Is a business legally separate from its owners.
B. Is controlled by the FASB.
C. Has shareholders who have unlimited liability for the acts of the corporation.
D. Is the same as a limited liability partnership.
E. All of these.
AICPA BB: Legal

Difficulty: Medium

112. The rules adopted by the accounting profession as guides in preparing financial statements
are:
A. Comprised of both general and specific principles.
B. Known as generally accepted accounting principles.
C. Abbreviated as GAAP.
D. Intended to make information in financial statements relevant, reliable, and comparable.
E. All of these.
AICPA BB: Industry

Difficulty: Medium

113. The committee( ủy ban) that attempts to create more harmony (hài hòa) among the
accounting practices of different countries by identifying preferred practices and encouraging
their worldwide acceptance is the:
A. AICPA.
B. FASB.
C. CAP.
D. SEC.
E. IASB.
AICPA BB: Global

AICPA FN: Reporting
Difficulty: Medium

114. The private group that currently has the authority(thẩm quyền) to establish generally
accepted accounting principles is the:
A. APB.
B. FASB.
C. AAA.
D. AICPA.
E. SEC.
115. The accounting assumption (giả định) that requires every business to be accounted for
separately(riêng biệt) from other business entities, including its owner or owners is known as
the:
A. Objectivity principle.
B. Business entity (thực thể) assumption.
C. Going-concern assumption.
D. Revenue recognition principle.
E. Cost principle.
116. The rule that requires financial statements to reflect (p/a’) the assumption that the business
will continue operating instead of being closed or sold, unless evidence shows that it will not
continue, is the:
A. Going-concern principle.
B. Business entity principle.
C. Objectivity principle.
D. Cost Principle.
E. Monetary unit principle.
117. Rules adopted by the accounting profession as guides in measuring, recording, and

reporting the financial condition and activities of a business:
A. Are comprised of both general and specific principles.
B. Are known as generally accepted accounting principles.
C. Are abbreviated as GAAP.
D. Arise from both long-used practices and from rulings of authoritative groups.
E. All of these.
118. If a parcel of land that was originally acquired for $85,000 is offered for sale at $150,000, is
assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth
$140,000, and is sold for $137,000, the land should be recorded in the purchaser's books at:
A. $95,000.
B. $137,000.
C. $138,500.
D. $140,000.
E. $150,000.

119. To include the personal assets and transactions(giao dịch) of a business's owner in the
records and reports of the business would be in conflict with the:
A. Objectivity principle.
B. Realization principle.
C. Business entity principle.
D. Going-concern principle.
E. Revenue recognition principle.
AICPA BB: Legal

AICPA FN: Reporting
Difficulty: Medium

120. The accounting principle that requires accounting information to be based on actual cost
and requires assets and services to be recorded initially at the cash or cash-equivalent amount
given in exchange, is the:
A. Accounting equation.
B. Cost principle.
C. Going-concern principle.
D. Realization principle.
E. Business entity principle.
AICPA BB: Legal

AICPA FN: Reporting
Difficulty: Medium

121. Generally accepted accounting principles:

A. Are based on long used accounting practices.
B. Are basic assumptions, concepts, and guidelines in preparing financial statements.
C. Are detailed rules used in reporting on business transactions and events.
D. Arise from the rulings of authoritative bodies.
E. All of these.
AICPA BB: Legal

AICPA FN: Reporting
Difficulty: Medium

122. The objectivity principle:
A. Means that information is supported by independent, unbiased evidence (không thiên vị).
B. Means that information can be based on what the preparer thinks is true.
C. Means that financial statements should contain information that is optimistic.
D. Means that a business may not reorganize revenue until cash is received.
E. All of these.
AICPA BB: Legal

AICPA FN: Reporting
Difficulty: Medium

123. The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the
inflow of assets associated with revenue to be in a form other than cash, and (3) measures the
amount of revenue as the cash plus the cash equivalent value of any noncash assets received
from customers in exchange for goods or services, is called the:
B. Cost principle.
C. Revenue recognition principle.
D. Objectivity principle.
E. Business entity principle
AICPA BB: Legal

AICPA FN: Reporting
Difficulty: Medium

124. The question of when revenue should be recognized on the income statement (according to
GAAP) is addressed by the:
A. Revenue recognition principle.
B. Going-concern principle.
D. Business entity principle.
E. Cost principle.

125. The International Accounting Standards Board (IASB)
A. Hopes to create harmony among accounting practices of different countries
B. Is the government group that establishes reporting requirements for companies that issue stock
to the public.
C. Has the authority to impose its standards on companies.
D. Is the only source of generally accepted accounting principles (GAAP).
E. Only applies to companies that are members of the European Union.
126. The Maximum Experience Company acquired a building for $500,000. Maximum
Experience had the building appraised, and found that the building was easily worth $575,000.
The seller had paid $300,000 for the building 6 years ago. Which accounting principle would
require Maximum Experience use to record the building on its records at $500,000?
A. Monetary unit principle
B. Going-concern principle
C. Cost principle
D. Business entity principle
E. Revenue recognition principle
127. On December 15, 2007, Myers Legal Services signed a $50,000 contract with a client to
provide legal services to the client in 2008. Which accounting principle would require Myers
Legal Services to record the legal fees revenue in 2008 and not 2007?
C. Cost principle
E. Revenue recognition principle
128. Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle
requires Marian to keep her personal financial information separate(tách biệt) from the financial
information of Mosely Accounting Services?
C. Cost principle
E. None of these. Since Marian is a sole proprietor, she is not required to separate her personal
financial information from the financial information of Mosely Accounting Services.

129. A limited partnership:

A. Includes a general partner with unlimited liability.
B. Is subject to double taxation.
C. Has owners called stockholders.
D. Is the same as a corporation.
E. May only have two partners.
130. A partnership:
A. Is also called a sole proprietorship.
B. Has unlimited liability.
C. Has to have a written agreement in order to be legal.
D. Is a legal organization separate from its owners.
E. Has owners called shareholders.

131. According to generally accepted accounting principles, a company's balance sheet should
show the company's assets at:
A. The cash equivalent(tương đương) value of what was given up or received.
B. The current market value of the asset received in all cases.
C. The cash paid only, even if something other than cash was given in the exchange.
D. The best estimate of a certified internal auditor.
E. The objective value to external users.
132. If a business is not being sold or closed, the amounts reported in the accounts for assets used
in operations are based on costs. This practice is best justified by the:
A. Cost principle.
B. Going-concern principle.
E. Both A and B.
133. Which of the following accounting principles would require that all goods and services
purchased be recorded at cost?
B. Continuing-concern principle.
C. Cost principle.
E. Consideration principle.
134. Revenue is proper 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.
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.

135. If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000,
is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth
$140,000, and is sold for $137,000, the land account transaction amount to handle the sale of the
land in the seller's books is:
A. $85,000 increase
B. $85,000 decrease
C. $137,000 increase
D. $137,000 decrease
E. None of these

$140,000, and is sold for $137,000. What is the effect of the sale on the accounting equation for
the seller?
A. Assets increase $52,000; owner's equity increases $52,000
B. Assets increase $85,000; owner's equity increases $85,000
C. Assets increase $137,000; owner's equity increases $137,000
D. Assets increase $140,000; owner's equity increases $140,000
E. None of these
$137,000 - $85,000 = $52,000
$140,000, and is sold for $137,000. At the time of the sale, assume that the seller still owed
$30,000 to TrustOne Bank on the land that was purchased for $85,000. Immediately after the
sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale and the payoff of
the loan on the accounting equation?
A. Assets increase $52,000; owner's equity increases $22,000; liabilities decrease $30,000
B. Assets increase $52,000; owner's equity increases $30,000; liabilities decrease $30,000
C. Assets increase $22,000; owner's equity increases $52,000; liabilities decrease $30,000
D. Assets decrease $30,000; owner's equity decreases $30,000; liabilities decrease $30,000
E. Assets decrease $55,000; owner's equity decreases $55,000; liabilities decrease $30,000
$137,000 - $85,000 - 30,000 = 22,000
138. An example of a financing activity is:

A. Buying office supplies.
B. Obtaining a long-term loan.( có một khoản vay dài hạn)
C. Buying office equipment.
D. Selling inventory.
E. Buying land.
139. An example of an operating activity is:

A. Paying wages (lương).
B. Purchasing office equipment.
C. Borrowing money from a bank.
D. Selling stock.
E. Paying off a loan.
140. Planning activities:
A. Are the means organizations use to pay for resources.
B. Involve the acquiring and disposing of resources that an organization uses to acquire and sell
its products or services.
C. Involve defining the ideas, goals, and actions of an organization.
D. Are the carrying out of an organization's plans.
E. Involve using resources to research, develop, purchase, produce, and market products and
services.
141. Operating activities:
A. Are the means organizations use to pay for resources like land, buildings and equipment.
B. Involve using resources to research, develop, purchase, produce, distribute and market
products and services.
C. Involve acquiring and disposing of resources that a business uses to acquire and sell its
products or services.
D. Are also called asset management.
E. Are also called strategic management.

142. The major activities of a business include:

A. Operating.
B. Financing.
C. Investing.
D. All of these.
143. An example of an investing activity is:

A. Paying wages of employees.
B. Withdrawals by the owner.
C. Purchase of land.
D. Selling inventory.
E. Contribution from owner.

144. Net Income:
A. Decreases equity.
B. Represents the amount of assets owners put into a business.
C. Equals assets minus liabilities.
D. Is the excess(phần vượt quá) of revenues over expenses (chi phí).
E. Represents owners' claims against assets.
145. If equity is $300,000 and liabilities are $192,000, then assets equal:
A. $108,000.
B. $192,000.
C. $300,000.
D. $492,000.
E. $792,000.
Assets = $192,000 + $300,000 = $492,000
146. Resources owned or controlled by a company that are expected to yield future benefits are:
A. Assets.
B. Revenues.
C. Liabilities.
D. Owner's Equity.
E. Expenses.
147. Gross increases in equity from a company's earnings activities are:

A. Assets.
B. Revenues.
C. Liabilities.
D. Owner's Equity.
E. Expenses.
148. Net income is:

A. Assets minus liabilities.
B. The excess of revenues over expenses.
C. An asset.
D. The same as revenue.
E. The excess of expenses over equity.
149. The difference between a company's assets and its liabilities (nợ phải trả), or net assets is:
A. Net income.
B. Expense.
C. Equity.
D. Revenue.
E. Net loss.

150. Creditors' claims on the assets of a company are called:

A. Net losses.
B. Expenses.
C. Revenues.
D. Equity.
E. Liabilities.
151. Decreases in equity that represent costs of assets or services used to earn revenues are
called:
A. Liabilities.
B. Equity.
C. Withdrawals.
D. Expenses.
E. Owner's Investment.
152. The description of the relation between a company's assets, liabilities, and equity, which is
expressed as Assets = Liabilities + Equity, is known as the:
A. Income statement equation.
B. Accounting equation.
C. Business equation.
D. Return on equity ratio.
E. Net income.
153. Assets = Liabilities + Equity is known as the:

A. Income statement equation.
B. Cost principle.
D. Accounting equation.
E. Transaction principle.
154. Expenses:
A. Increase equity.
B. Are gross increases in equity from a company's earning activity.
C. Are the costs of assets or services used to earn revenues.
D. Occur when equity exceeds revenue.
E. Are creditors claims on assets.
155. Net income:
A. Occurs when revenues exceed expenses.
B. Is the same as revenue.
C. Equals resources owned or controlled by a company.
D. Occurs when expenses exceed assets.
E. Represents assets taken from a company for an owner's personal use.
156. Revenues are:
A. The same as net income.
B. The excess of expenses over assets.
C. Resources owned or controlled by a company
D. The gross increase in equity from a company's earning activities.
E. The costs of assets or services used.
157. Accounting
A. Is an information and measurement system.
B. Identifies, records, and communicates information about business activities
C. Helps people make better decisions
D. Involves interpreting information and designing information systems to provide useful reports
that monitor and control a company's activities.
E. All of these
158. If assets are $99,000 and liabilities are $32,000, then equity equals:
A. $32,000.
B. $67,000.
C. $99,000.
D. $131,000.
E. $198,000.
Equity = $99,000 - $32,000 = $67,000
159. Another name for equity is:

A. Net income.
B. Expenses.
C. Net assets.
D. Revenue.
E. Net loss.

160. The excess (vượt quá) of expenses over revenues for a period is:
A. Net assets.
B. Equity.
C. Net loss.
D. Net income.
E. A liability.
161. Which of the following statements is true about assets?

A. They are economic resources owned or controlled by the business.
B. They are expected to provide future benefits to the business.
C. They appear on the balance sheet.
D. Claims on them can be shared between creditors and owners.
E. All of these.

162. A payment to an owner is called a(n): (một khoản thanh toán cho chủ sở hữu)
A. Liability.
B. Withdrawal. (rút tiền)
C. Expense.
D. Contribution.
E. Investment.
163. Distributions by a business to its owners are called:

A. Withdrawals.
B. Expenses.
C. Assets.
D. Retained earnings.
E. Net Income.
164. The balance sheet equation is:

A. Revenues minus expenses equals net income.
B. Debits equal credits.
C. The bookkeeping phase of accounting.
D. Another name for the accounting equation.
E. Assets minus liabilities and equity.
165. The assets of a company total $700,000; the liabilities, $200,000. What are the claims of
the owners?
A. $900,000.
B. $700,000.
C. $500,000.
D. $200,000.
E. It is impossible to determine unless the amount of this owners' investment is known.
$700,000 - $200,000 = $500,000
166. On June 30 of the current year, the assets and liabilities of Phoenix Phildell are as follows:
Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts
Payable, $9,300. What is the amount of owner's equity as of July 1 of the current year?
A. $8,300
B. $13,050
C. $20,500
D. $31,100
E. $40,400
$20,500 + $7,250 + $650 + $12,000 - $9,300 = $31,100

167. Assets created by selling goods and services on credit are:
A. Accounts payable.
B. Accounts receivable.(các khoản phải thu)
C. Liabilities.
D. Expenses.
E. Equity.
168. An exchange of value between two entities is called:

A. The accounting equation.
B. Recordkeeping or bookkeeping.
C. A business transaction.(giao dịch)
D. An asset.
E. Net Income.
169. Photometer Company paid off $30,000 of its accounts payable in cash. What would be the
effects of this transaction on the accounting equation?
A. Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.
B. Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.
C. Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.
D. Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.
E. Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.
170. How would the accounting equation of Boston Company be affected by the billing of a
client for $10,000 of consulting work completed?
A. +$10,000 accounts receivable, -$10,000 accounts payable.
B. +$10,000 accounts receivable, +$10,000 accounts payable.
C. +$10,000 accounts receivable, +$10,000 cash.
D. +$10,000 accounts receivable, +$10,000 revenue.
E. +$10,000 accounts receivable, -$10,000 revenue.
171. Zion Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It
buys office equipment on credit for $75,000. What would be the effects of this transaction on the
accounting equation?
A. Assets increase by $75,000 and expenses increase by $75,000.
B. Assets increase by $75,000 and expenses decrease by $75,000.
C. Liabilities increase by $75,000 and expenses decrease by $75,000.
D. Assets decrease by $75,000 and expenses decrease by $75,000.
E. Assets increase by $75,000 and liabilities increase by $75,000.
172. Viscount Company collected $42,000 cash on its accounts receivable. The effects of this
transaction as reflected in the accounting equation are:
A. Total assets decrease and equity increases.
B. Both total assets and total liabilities decrease.
C. Total assets, total liabilities, and equity are unchanged.
D. Both total assets and equity are unchanged and liabilities increase.
E. Total assets increase and equity decreases.
173. Ifthe liabilities of a business increased $75,000 during a period of time and the owner's
equity in the business decreased $30,000 during the same period, the assets of the business must
have:
A. Decreased $105,000.
B. Decreased $45,000.
C. Increased $30,000.
D. Increased $45,000.
E. Increased $105,000.
Change in Assets = Change in Liabilities + Change in Owner's Equity

Change in Assets = $75,000 + (-$30,000) = +$45,000
174. If the assets of a business increased $89,000 during a period of time and its liabilities
increased $67,000 during the same period, equity in the business must have:
A. Increased $22,000.
B. Decreased $22,000.
C. Increased $89,000.
D. Decreased $156,000.
E. Increased $156,000.
Change in Assets = Change in Liabilities + Change in Equity

Change in Owner's equity = + $89,000 - $67,000 = +$22,000
175. If the liabilities of a company increased $74,000 during a period of time and equity in the
company decreased $19,000 during the same period, what was the effect on the assets?
A. Assets would have increased $55,000.
B. Assets would have decreased $55,000.
C. Assets would have increased $19,000.
D. Assets would have decreased $19,000.
E. None of these.
Assets = Liabilities + Equity

Assets = $74,000 + (-$19,000) = $55,000
176. If a company paid $38,000 of its accounts payable in cash, what was the effect on the
assets, liabilities, and equity?
A. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would
decrease $38,000.
B. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would increase
$38,000.
C. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would not
change.
D. There would be no effect on the accounts because the accounts are affected by the same
amount.
E. None of these.
177. 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.
Liabilities = $365,000 - $120,000 = $245,000
178. Return on assets is:

A. Also called return on investment.
B. ROA.
C. Computed by dividing net income by average total assets.
D. Used in helping evaluate management.
E. All of these.
179. Reebok had income of $150 million and average invested assets of $1,800 million. Its return
on assets is:
A. 8.3%.
B. 83.3%.
C. 12%.
D. 120%.
E. 16.7%.
$150 million/$1,800 million = 8.3%

180. Nike had income of $350 million and average invested assets of $2,000 million. Its ROA
is:
A. 1.8%.
B. 35%.
C. 17.5%.
D. 5.7%.
E. 3.5%.
$350 million/$2,000 million = 17.5%
181. FastForward has net income of $18,955, and assets at the beginning of the year of $200,000.
Assets at the end of the year total $246,000. Compute its return on assets.
A. 7.7%.
B. 8.5%.
C. 9.5%.
D. 11.8%.
E. 13.0%.
$18,955/[($200,000 +$246,000)/2] = $18,955/$223,000 = 8.5%
182. Harris Co. has a net income of $43,000, assets at the beginning of the year are $250,000 and
assets at the end of the year are $300,000. Compute its return on assets.
A. 8.4%
B. 17.2%
C. 14.3%
D. 15.6%
E. 1.5%
$43,000/(($250,000 + $300,000)/2) = 15.6%
183. U. S. government bonds(trái phiếu) are:

A. High-risk and high-return investments.
B. Low-risk (rủi ro thấp) and low-return (lợi nhuận thấp) investments.
C. High-risk and low-return investments.
D. Low-risk and high-return investments.
E. High risk and no-return investments.
184. Risk is:
A. Net income divided by average total assets.
B. The reward for investment.
C. The uncertainty about the expected return to be earned.
D. Unrelated to expected return.
E. Derived from the idea of getting something back from an investment.
185. The statement of cash flows reports on cash flows for:
A. Operating activities.
B. Investing activities.
C. Financing activities.
D. Planning activities.
E. A, B and C only.
186. The basic financial statements include the:

A. Balance Sheet.
B. Income Statement.
C. Statement of Owner's Equity.
D. Statement of Cash Flows.
E. All of these.
187. The statement of cash flows reports information on:

A. Revenue activities.
B. Operating activities.
C. Financing activities.
D. Investing activities.
E. B, C, and D.

188. The statement of owner's equity:

A. Reports how equity changes at a point in time.
B. Reports how equity changes over a period of time.
C. Reports on cash flows for operating, financing, and investing activities over a period of time.
D. Reports on cash flows for operating, financing, and investing activities at a point in time.
E. Reports on amounts for assets, liabilities, and equity at a point in time.
189. The financial statement that reports whether the business earned a profit and also lists the
types and amounts of the revenues and expenses is called:
A. A Balance sheet.
B. A Statement of owner's equity.
C. A Statement of cash flows.
D. An Income statement.
E. A Statement of financial position.

190. 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 as of a specific date.
D. The inflows and outflows of cash during the period.
E. The assets and liabilities of a company but not the owner's equity.
191. A financial statement providing information that helps users understand a company's
financial status, and which lists the types and amounts of assets, liabilities, and equity as of a
specific date, is called a(n):
A. Balance sheet.
B. Income statement.
C. Statement of cash flows.
D. Statement of owner's equity.
E. Financial Status Statement.
192. The financial statement that describes where a company's cash came from and where it went
during the period is the:
A. Statement of financial position.
B. Statement of cash flows. (lưu chuyển tiền tệ)
C. Balance sheet.
D. Income statement.
E. Statement of changes in owner's equity.
193. The financial statement that shows the beginning balance of owner's equity; the changes in
equity that resulted from new investments by the owner, net income (or net loss); withdrawals;
and the ending balance, is the:
A. Statement of financial position.
B. Statement of cash flows.
C. Balance sheet.
D. Income statement.
E. Statement of owner's equity.

194. Cash investments by owners are listed on which of the following statements?
A. Balance sheet.
C. Statement of owner's equity.
D. Statement of cash flows.
E. Both C and D.
195. Accounts payable (phải trả) appear on which of the following statements?

A. Balance sheet.
E. Transaction statement.
196. The income statement reports all of the following except:

A. Revenues earned by a business.
B. Expenses incurred by a business.
C. Assets owned by a business.
D. Net income or loss earned by a business.
E. The time period over which the earnings occurred.
197. Use the following information as of December 31 to determine equity.

A. $57,000.
B. $141,000.
C. $297,000.
D. $438,000.
E. $579,000.
Assets = $57,000 + $206,000 + $175,000 = $438,000

Equity = $438,000 - $141,000 = $297,000

198. Determine the net income of a company for which the following information is available for
the month of May.

A. $190,000.
B. $210,000.
C. $230,000.
D. $400,000.
E. $610,000.
Expenses: $180,000 + $10,000 + $20,000 = $210,000

Net income = $400,000 - $210,000 = $190,000
199. A company acquires equipment for $75,000 cash. This represents a(n)
A. Operating activity.
B. Investing activity.
C. Financing activity.
D. Revenue activity.
E. Expense activity.
200. A company borrows $125,000 from the Eastside Bank and receives the loan proceeds in
cash. This represents a(n):
A. Revenue activity.
B. Operating activity.
C. Expense activity.
D. Investing activity.
E. Financing activity.
201. Flash had cash inflows from operations $62,500; cash outflows from investing activities of
$47,000; and cash inflows from financing of $25,000. The net change in cash was:
A. $40,500 increase.
B. $40,500 decrease.
C. $134,500 decrease.
D. $134,000 increase.
E. $9,500 increase.
$62,500 - $47,000 + $25,000 = $40,500 increase

202. Flash has beginning equity of $257,000, net income of $51,000, withdrawals of $40,000 and
investments by owners of $6,000. Its ending equity is:
A. $223,000.
B. $240,000.
C. $268,000.
D. $274,000.
E. $208,000.
$257,000 + $51,000 - $40,000 + $6,000 = $274,000
203. Rent expense that is paid with cash appears on which of the following statements?
A. Balance sheet.
E. Both B and D.
204. Fees earned (but not yet received in cash) by a business in exchange for services it provided
appear on which of the following statements?
A. Balance sheet.
E. Both A and B.
205. A company's balance sheet shows: cash $22,000, accounts receivable $16,000, office
equipment $50,000, and accounts payable $17,000. What is the amount of owner's equity?
A. $17,000.
B. $29,000.
C. $71,000.
D. $88,000.
E. $105,000.
Assets = $22,000 + $16,000 + $50,000 = $88,000

Liabilities = $17,000
Owner's Equity = $88,000 - $17,000 = $71,000
206. A company reported total equity of $145,000 on its December 31, 2008 balance sheet. The
following information is available for the year ended December 31, 2009:

What are the total assets of the company at December 31, 2009?
A. $45,000.
B. $92,000.
C. $98,000.
D. $210,000.
E. $282,000.
Net income = $210,000 - $165,000 = $45,000

2008 equity = $145,000 + $45,000 = $190,000
2008 assets = $190,000 + $92,000 = $282,000


60. The accounting process begins with:

A. Analysis of business transactions and source documents.
B. Preparing financial statements and other reports.
C. Summarizing the recorded effect of business transactions.
D. Presentation of financial information to decision-makers.
E. Preparation of the trial balance.
AACSB: Communications
AICPA BB: Industry
Difficulty: Easy

61. A sales invoice: =bill
A. Is a type of source document.
B. Is used by sellers to record the sale.
C. Is used by buyers to record purchases.
D. Gives rise to an entry in the accounting process.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

62. Source documents include all of the following except:

A. Sales tickets.
B. Ledgers. (sổ cái)
C. Checks.
D. Purchase orders.
E. Bank statements.
AICPA BB: Industry
Difficulty: Medium

63. Source documents:
A. Include the ledger.
B. Are the sources of accounting information.
C. Must be in electronic form.
D. Are based on accounting entries.
E. Include the chart of accounts.
AICPA BB: Industry
Difficulty: Medium

64. Various types of documents and other papers that companies use when they conduct their
business:
A. Are called source documents.
B. Can include sales tickets.
C. Are the source of information for recording accounting entries.
D. Can be in electronic form.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

65. A record of the increases and decreases in a specific asset, liability, equity, revenue, or
expense is a(n):
A. Journal.
B. Posting.
C. Trial balance.
D. Account.
E. Chart of accounts.
AICPA BB: Industry
Difficulty: Easy

66. An account used to record the owner's investments in the business is called a(n):
A. Withdrawals account.
B. Capital account.
C. Revenue account.
D. Expense account.
E. Liability account.
AICPA BB: Industry
Difficulty: Medium

67. The account used to record the transfers of assets from a business to its owner is:
A. A revenue account.
B. The owner's withdrawals(rút tiền) account.
C. The owner's capital account.
D. An expense account.
E. A liability account.
AICPA BB: Industry
Difficulty: Medium

68. Which of the following statements is correct?

A. When a future expense is paid in advance, the payment is normally recorded in a liability
account called Prepaid Expense.
B. Promises of future payment are called accounts receivable.
C. Increases and decreases in cash are always recorded in the owner's capital account.
D. An account called Land is commonly used to record increases and decreases in both the land
and buildings owned by a business.
E. Accrued liabilities include accounts receivable.
AICPA BB: Industry
Difficulty: Medium

69. Unearned revenues are:
A. Revenues that have been earned and received in cash.
B. Revenues that have been earned but not yet collected in cash.
C. Liabilities created when a customer pays in advance for products or services before the
revenue is earned.
D. Recorded as an asset in the accounting records.
E. Increases to owners' capital.
AICPA BB: Industry
Difficulty: Medium

70. Prepaid (trả trước) expenses are:

A. Payments made for products and services that do not ever expire.
B. Classified as liabilities on the balance sheet.
C. Decreases in equity.
D. Assets that represent prepayments of future expenses.
E. Promises of payments by customers.
AICPA BB: Industry
Difficulty: Medium

71. A written promise to pay a definite sum of money on a specified future date is a(n):
A. Unearned revenue.
B. Prepaid expense.
C. Credit account.
D. Note payable.(phải trả)
E. Account receivable.
AICPA BB: Industry
Difficulty: Medium

72. A collection of all accounts and their balances used by a business is called a:
A. Journal.
B. Book of original entry.
C. General Journal.
D. Balance column journal.
E. Ledger.
AICPA BB: Industry
Difficulty: Medium

73. A ledger is:

A. A record containing increases and decreases in a specific asset, liability, equity, revenue, or
expense item.
B. A journal in which transactions are first recorded.
C. A collection of documents that describe transactions and events entering the accounting
process.
D. A list of all accounts with their debit balances at a point in time.
E. A record containing all accounts and their balances used by a company.
AICPA BB: Industry
Difficulty: Medium

74. A list of all accounts and the identification number assigned to each account used by a
company is called a:
A. Source document.
B. Journal.
C. Trial balance.
D. Chart of accounts.
E. General Journal.
AICPA BB: Industry
Difficulty: Medium

75. The numbering system used in a company's chart of accounts:
A. Is the same for all companies.
B. Is determined by generally accepted accounting principles.
C. Depends on the source documents used in the accounting process.
D. Typically begins with balance sheet accounts.
E. Typically begins with income statement accounts.
AICPA BB: Industry
Difficulty: Medium

76. A debit is:

A. An increase in an account.
B. The right-hand side of a T-account.
C. A decrease in an account.
D. The left-hand side of a T-account.
E. An increase to a liability account.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

77. The right side of a T-account is a(n):

A. Debit.
B. Increase.
C. Credit.
D. Decrease.
E. Account balance.
AICPA BB: Industry
Difficulty: Easy

78. Which of the following statements is incorrect?
A. The normal balance of accounts receivable is a debit.
B. The normal balance of owner's withdrawals is a debit.
C. The normal balance of unearned revenues is a credit.
D. The normal balance of an expense account is a credit.
E. The normal balance of the owner's capital account is a credit.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

79. A credit is used to record:

A. A decrease in an expense account.
B. A decrease in an asset account.
C. An increase in an unearned revenue account.
D. An increase in a revenue account.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

80. A simple account form widely used in accounting as a tool to understand how debits and
credits affect an account balance is called a:
A. Withdrawals account.
B. Capital account.
C. Drawing account.
D. T-account.
E. Balance column sheet.
AICPA BB: Industry
Difficulty: Easy

81. Which of the following statements is correct?
A. The left side of a T-account is the credit side.
B. Debits decrease asset and expense accounts, and increase liability, equity, and revenue
accounts.
C. The left side of a T-account is the debit side.
D. Credits increase asset and expense accounts, and decrease liability, equity, and revenue
accounts.
E. In certain circumstances the total amount debited need not equal the total amount credited for
a particular transaction.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

82. An account balance is:

A. The total of the credit side of the account.
B. The total of the debit side of the account.
C. The difference between the total debits and total credits for an account including the
beginning balance.
D. Assets = liabilities + equity.
E. Always a credit.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

83. Of the following accounts, the one that normally has a credit balance is:
A. Cash.
B. Office Equipment.
C. Sales Salaries Payable.
D. Owner, Withdrawals.
E. Sales Salaries Expense.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

84. A debit is used to record:
A. A decrease in an asset account.
B. A decrease in an expense account.
C. An increase in a revenue account.
D. An increase in the balance of an owner's capital account.
E. An increase in the balance of the owner's withdrawals account.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

85. A credit entry:

A. Increases asset and expense accounts, and decreases liability, owner's capital, and revenue
accounts.
B. Is always a decrease in an account.
C. Decreases asset and expense accounts, and increases liability, owner's capital, and revenue
accounts.
D. Is recorded on the left side of a T-account.
E. Is always an increase in an account.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

86. Double-entry accounting is an accounting system:

A. That records each transaction twice.
B. That records the effects of transactions and other events in at least two accounts with equal
debits and credits.
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 may only be used if T-accounts are used.
E. That insures that errors never occur.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

87. Rocky Industries received its telephone bill in the amount of $300, and immediately paid it.
Rocky's general journal entry to record this transaction will include a
A. Debit to Telephone Expense for $300.
B. Credit to Accounts Payable for $300.
C. Debit to Cash for $300.
D. Credit to Telephone Expense for $300.
E. Debit to Accounts Payable for $300.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
Learning Objective: A1

88. Management Services, Inc. provides services to clients. On May 1, a client prepaid

Management Services $60,000 for 6-months services in advance. Management Services' general
journal entry to record this transaction will include a
A. Debit to Unearned Management Fees for $60,000.
B. Credit to Management Fees Earned for $60,000.
C. Credit to Cash for $60,000.
D. Credit to Unearned Management Fees for $60,000.
E. Debit to Management Fees Earned for $60,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

89. Wisconsin Rentals purchased office supplies on credit. The general journal entry made by
Wisconsin Rentals will include a:
A. Debit to Accounts Payable.
B. Debit to Accounts Receivable.
C. Credit to Cash.
D. Credit to Accounts Payable (phải trả).
E. Credit to Wisconsin Rentals, Capital.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

90. An asset created by prepayment(trả trước) of an expense is:
A. Recorded as a debit to an unearned revenue account.
B. Recorded as a debit to a prepaid expense account.
C. Recorded as a credit to an unearned revenue account.
D. Recorded as a credit to a prepaid expense account.
E. Not recorded in the accounting records until the earnings process is complete.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

91. Robert Haddon contributed $70,000 in cash and land worth $130,000 to open a new business,
RH Consulting. Which of the following general journal entries will RH Consulting make to
record this transaction?
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

92. A liability created by the receipt of cash from customers in payment for products or services
that have not yet been delivered to the customers is:
A. Recorded as a debit to an unearned revenue account.
B. Recorded as a debit to a prepaid expense account.
C. Recorded as a credit to an unearned revenue account.
D. Recorded as a credit to a prepaid expense account.
E. Not recorded in the accounting records until the earnings process is complete.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

93. On September 30, the Cash account of Value Company had a normal balance of $5,000.
During September, the account was debited for a total of $12,200 and credited for a total of
$11,500. What was the balance in the Cash account at the beginning of September?
A. A $0 balance.
B. A $4,300 debit balance.
C. A $4,300 credit balance.
D. A $5,700 debit balance.
E. A $5,700 credit balance.
Beg. Bal. + $12,200 - $11,500 = $5,000

Beg. Bal. $4,300 debit
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

94. On April 30, Holden Company had an Accounts Receivable balance of $18,000. During the
month of May, total credits to Accounts Receivable were $52,000 from customer payments. The
May 31 Accounts Receivable balance was $13,000. What was the amount of credit sales during
May?
A. $ 5,000.
B. $47,000.
C. $52,000.
D. $57,000.
E. $32,000.
$18,000 + Credit Sales - $52,000 = $13,000

Credit Sales = $47,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

95. During the month of February, Hoffer Company had cash receipts of $7,500 and cash
disbursements of $8,600. The February 28 cash balance was $1,800. What was the January 31
beginning cash balance?
A. $700.
B. $1,100.
C. $2,900.
D. $0.
E. $4,300.
Beg. Bal. + $7,500 - $8,600 = $1,800

Beg. Bal. = $2,900
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

96. The following transactions occurred during July:
1. Received $900 cash for services provided to a customer during July.
2. Received $2,200 cash investment from Barbara Hanson, the owner of the business.
3. Received $750 from a customer in partial payment of his account receivable which arose
from sales in June.
4. Provided services to a customer on credit, $375.
5. Borrowed $6,000 from the bank by signing a promissory note.
6. Received $1,250 cash from a customer for services to be rendered next year.
What was the amount of revenue for July?

A. $ 900.
B. $ 1,275.
C. $ 2,525.
D. $ 3,275.
E. $11,100.
Revenues = $900 (1) + $375 (4) = $1,275
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

97. If Tim Jones, the owner of Jones Hardware proprietorship, uses cash of the business to
purchase a family automobile, the business should record this use of cash with an entry to:
A. Debit Salary Expense and credit Cash.
B. Debit Tim Jones, Salary and credit Cash.
C. Debit Cash and credit Tim Jones, Withdrawals.
D. Debit Tim Jones, Withdrawals and credit Cash.
E. Debit Automobiles and credit Cash.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

98. Zed Bennett opened an art gallery and as a dealer completed these transactions:
1. Started the gallery, Artery, by investing $40,000 cash and equipment valued at $18,000.
2. Purchased $70 of office supplies on credit.
3. Paid $1,200 cash for the receptionist's salary.
4. Sold a painting for an artist and collected a $4,500 cash commission on the sale.
5. Completed an art appraisal and billed the client $200.
What was the balance of the cash account after these transactions were posted?
A. $12,230.
B. $12,430.
C. $43,300.
D. $43,430.
E. $61,430.
$40,000 (1) - $1,200 (3) + $4,500 (4) = $43,300
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

99. At the beginning of January of the current year, Thomas Law Center's ledger reflected a
normal balance of $52,000 for accounts receivable. During January, the company collected
$14,800 from customers on account and provided additional services to customers on account
totaling $12,500. Additionally, during January one customer paid Thomas $5,000 for services to
be provided in the future. At the end of January, the balance in the accounts receivable account
should be:
A. $54,700.
B. $49,700.
C. $2,300.
D. $54,300.
E. $49,300.
$52,000 beginning balance - $14,800 of collections + $12,500 of additional services on credit =

$49,700.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

100. During the month of March, Cooley Computer Services made purchases on account totaling
$43,500. Also during the month of March, Cooley was paid $8,000 by a customer for services to
be provided in the future and paid $36,900 of cash on its accounts payable balance. If the balance
in the accounts payable account at the beginning of March was $77,300, what is the balance in
accounts payable at the end of March?
A. $83,900.
B. $91,900.
C. $6,600.
D. $75,900.
E. $4,900.
Beginning balance of $77,300 + $43,500 of purchases on account - $36,900 of payments on

account = $83,900.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

101. On January 1 of the current year, Bob's Lawn Care Service reported owner's capital totaling
$122,500. During the current year, total revenues were $96,000 while total expenses were
$85,500. Also, during the current year Bob withdrew $20,000 from the company. No other
changes in equity occurred during the year. If, on December 31 of the current year, total assets
are $196,000, the change in owner's capital during the year was:
A. A decrease of $9,500.
B. An increase of $9,500.
C. An increase of $30,500.
D. A decrease of $30,500
E. Impossible to determine from the information provided.
During the year, revenues were $96,000 while expenses were $85,500 and withdrawals were
$20,000. Since there were no other changes in equity, equity must have decreased by $9,500.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

102. Andrea Conaway opened Wonderland Photography on January 1 of the current year.
During January, the following transactions occurred and were recorded in the company's books:
1. Conaway invested $13,500 cash in the business.
2. Conaway contributed $20,000 of photography equipment to the business.
3. The company paid $2,100 cash for an insurance policy covering the next 24 months.
4. The company received $5,700 cash for services provided during January.
5. The company purchased $6,200 of office equipment on credit.
6. The company provided $2,750 of services to customers on account.
7. The company paid cash of $1,500 for monthly rent.
8. The company paid $3,100 on the office equipment purchased in transaction #5 above.
9. Paid $275 cash for January utilities.
Based on this information, the balance in the cash account at the end of January would be:
A. $41,450.
B. $12,225
C. $18,700.
D. $15,250.
E. $13,500.
(1) $13,500 - (3) $2,100 + (4) 5,700 - (7) $1,500 - (8) $3,100 - (9) $275 = $12,225
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

103. Based on the information included in Question #102, the balance in the Andrea Conaway,
Capital account reported on the Statement of Owner's Equity at the end of the month would be:
A. $31,400.
B. $39,200.
C. $31,150.
D. $40,175.
E. $30,875.
(1) $13,500 + (2) $20,000 + (4) $5,700 + (6) $2,750 - (7) $1,500 - (9) $275 = $40,175.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

104. The debt ratio is used:
A. To measure the relation of equity to expenses.
B. To reflect the risk associated with a company's debts.
C. Only by banks when a business applies for a loan.
D. To determine how much debt a firm should pay off.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

105. Which of the following is the formula used to calculate the debt ratio?
A. Total Equity/Total Liabilities.
B. Total Liabilities/Total Equity.
C. Total Liabilities/Total Assets.
D. Total Assets/Total Liabilities.
E. Total Equity/Total Assets.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium


A. Higher financial leverage involves higher risk.
B. Risk is higher if a company has more liabilities.
C. Risk is higher if a company has higher assets.
D. The debt ratio is one measure of financial risk.
E. Lower financial leverage involves lower risk.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

107. Stride Rite has total assets of $425 million. Its total liabilities are $110 million. Its equity is
$315 million. Calculate the debt ratio.
A. 38.6%.
B. 13.4%.
C. 34.9%.
D. 25.9%.
E. 14.9%.
$110 million/$425 million = 25.9%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

108. Stride Rite has total assets of $385 million. Its total liabilities are $100 million and its equity
is $285 million. Calculate its debt ratio.
A. 35.1%.
B. 26.0%.
C. 38.5%.
D. 28.5%.
E. 58.8%.
$100 million/$385 million = 26.0%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

109. Which of the following statements describing the debt ratio is false?
A. It is of use to both internal and external users of accounting information.
B. A relatively high ratio is always desirable.
C. The dividing line for a high and low ratio varies from industry to industry.
D. Many factors such as a company's age, stability, profitability and cash flow influence the
determination of what would be interpreted as a high versus a low ratio.
E. The ratio might be used to help determine if a company is capable of increasing its income by
obtaining further debt.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

110. At the end of the current year, Norman Company reported total liabilities of $300,000 and
total equity of $100,000. The company's debt ratio on the last year-end was:
A. 300%.
B. 33.3%
C. 75.0%.
D. $400,000.
E. Cannot be determined from the information provided.
On the last year-end, total liabilities were $300,000 and total equity was $100,000. That means
total assets were $400,000. Therefore, the debt to assets ratio was $300,000 / $400,000 or 75.0%.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

111. At the beginning of the current year, Taunton Company's total assets were $248,000 and its
total liabilities were $175,000. During the year, the company reported total revenues of $93,000,
total expenses of $76,000 and owner withdrawals of $5,000. There were no other changes in
owner's capital during the year and total assets at the end of the year were $260,000. Taunton
Company's debt ratio at the end of the current year is:
A. 70.6%.
B. 67.3%.
C. 32.7%.
D. 48.6%.
E. Cannot be determined from the information provided.
If total assets were $248,000 and total liabilities were $175,000, total equity was $73,000 at the
beginning of the period. Add to that figure $93,000 of revenues during the year and subtract
$76,000 of expenses and $5,000 of withdrawals during the year and equity obviously ended the
year at $85,000. If total assets at the end of the year were $260,000 and total equity was $85,000,
total liabilities were $175,000. Thus, the debt ratio was $175,000 / $260,000 = 67.3%.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

112. The process of transferring general journal information to the ledger is:

A. Double-entry accounting.
B. Posting.
C. Balancing an account.
D. Journalizing.
E. Not required unless debits do not equal credits.
AICPA BB: Industry
Difficulty: Easy
Learning Objective: P1

113. A column in journals and ledger accounts used to cross reference journal and ledger entries
is the:
A. Account balance column.
B. Debit column.
C. Posting reference column.
D. Credit column.
E. Description column.
AICPA BB: Industry
Difficulty: Easy

114. The record in which transactions are first recorded is the:

A. Account balance.
B. Ledger.
C. Journal.
D. Trial balance.
E. Cash account.
AICPA BB: Industry
Difficulty: Easy

115. The general journal provides a place for recording:

A. The transaction date.
B. The names of the accounts involved.
C. The amount of each debit and credit.
D. An explanation of the transaction.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

116. A balance column ledger account is:
A. An account entered on the balance sheet.
B. An account with debit and credit columns for posting entries and another column for showing
the balance of the account after each entry is posted.
C. Another name for the withdrawals account.
D. An account used to record the transfers of assets from a business to its owner.
E. A simple form of account that is widely used in accounting to illustrate the debits and credits
required in recording a transaction.
AICPA BB: Industry
Difficulty: Medium

117. A general journal is:

A. A ledger in which amounts are posted from a balance column account.
B. Not required if T-accounts are used.
C. A complete record of any transaction and the place from which transaction amounts are
posted to the ledger accounts.
D. Not necessary in electronic accounting systems.
E. A book of final entry because financial statements are prepared from it.
AICPA BB: Industry
Difficulty: Medium

118. A record in which the effects of transactions are first recorded and from which transaction
amounts are posted to the ledger is a(n):
A. Account.
B. Trial balance.
C. Journal.
D. T-account.
E. Balance column account.
AICPA BB: Industry
Difficulty: Medium

119. A company had the following accounts and balances year-end:

If all of the accounts have normal balances, what are the totals for the trial balance?
A. $ 45,200.
B. $ 67,000.
C. $104,800.
D. $209,600.
E. $186,600.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

120. An accountant has debited an account for $3,500 and credited a liability account for $2,000.
Which of the following would be an incorrect way to complete the recording of this transaction:
A. Credit another asset account for $1,500.
B. Credit another liability account for $1,500.
C. Credit an expense account for $1,500.
D. Credit the owner's capital account for $1,500.
E. Debit another asset account for $1,500.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

121. A report that lists accounts and their balances (số dư), in which the total debit (nợ) balances
should equal the total credit(tính dụng) balances, is called a(n):
A. Account balance.
B. Trial balance.
C. Ledger.
D. Chart of accounts.
E. General Journal.
AICPA BB: Industry
Difficulty: Easy

122. Which of the following statements is true?

A. If the trial balance is in balance, it proves that no errors have been made in recording and
posting transactions.
B. The trial balance is a book of original entry.
C. Another name for the trial balance is the chart of accounts.
D. The trial balance is a list of all accounts from the ledger (sổ cái) with their balances at a point
in time.
E. The trial balance is another name for the balance sheet as long as debits balance with credits.
AICPA BB: Industry
Difficulty: Easy

123. While in the process of posting from the journal to the ledger a company failed to post a $50
debit to the Office Supplies account. The effect of this error will be that:
A. The Office Supplies account balance will be overstated.
B. The trial balance will not balance.
C. The error will overstate the debits listed in the journal.
D. The total debits in the trial balance will be larger than the total credits.
E. All of these effects will be caused by the error.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

124. A $15 credit to Sales was posted as a $150 credit. By what amount is Sales in error?
A. $150 understated.
B. $135 overstated.
C. $150 overstated.
D. $15 understated.
E. $135 understated.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

125. A trial balance taken at year-end showed total credits exceed total debits by $4,950. This
discrepancy could have been caused by:
A. An error in the general journal where a $4,950 increase in Accounts Receivable was recorded
as an increase in Cash.
B. A net income of $4,950.
C. The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950.
D. The balance of $5,500 in the Office Equipment account being entered on the trial balance as a
debit of $550.
E. An error in the general journal where a $4,950 increase in Accounts Payable was recorded as
a decrease in Accounts Payable.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

126. In which of the following situations would the trial balance not balance?
A. A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts
Receivable and a credit to Cash.
B. The purchase of office supplies on account for $3,250 was erroneously recorded in the journal
as $2,350 debit to Office Supplies and credit to Accounts Payable.
C. A $50 cash receipt for the performance of a service was not recorded at all.
D. The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and a
credit to Cash for $1,200.
E. The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a
debit to Cash for $750.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

127. The credit purchase of a delivery truck for $4,700 was posted to Delivery Trucks as a
$4,700 debit and to Accounts Payable as a $4,700 debit. What effect would this error have on the
trial balance?
A. The total of the Debit column of the trial balance will exceed the total of the Credit column by
$4,700.
B. The total of the Credit column of the trial balance will exceed the total of the Debit column by
$4,700.
C. The total of the Debit column of the trial balance will exceed the total of the Credit column by
$9,400.
D. The total of the Credit column of the trial balance will exceed the total of the Debit column by
$9,400.
E. The total of the Debit column of the trial balance will equal the total of the Credit column.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

128. If the Debit and Credit column totals of a trial balance are equal, then:
A. All transactions have been recorded correctly.
B. All entries from the journal have been posted to the ledger correctly.
C. All ledger account balances are correct.
D. The total debit entries and total credit entries are equal.
E. The balance sheet would be correct.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

129. Of the following errors, which one by itself will cause the trial balance to be out of
balance?
A. A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries
Expense.
B. A $100 cash receipt from a customer in payment of his account posted as a $100 debit to Cash
and a $10 credit to Accounts Receivable.
C. A $75 cash receipt from a customer in payment of his account posted as a $75 debit to Cash
and a $75 credit to Cash.
D. A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50
credit to Cash.
E. An $800 prepayment from a customer for services to be rendered in the future was posted as
an $800 debit to Unearned Revenue and an $800 credit to Cash.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

130. 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.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

131. Which of the following groups of accounts are not balance sheet accounts?
A. Assets.
B. Liabilities.
C. Revenues.
D. Equity accounts.
E. All of these are balance sheet accounts.
AICPA BB: Industry
Difficulty: Medium


69. The time period principle assumes that an organization's activities can be divided into
specific time periods including:
A. Months.
B. Quarters.
C. Fiscal years.
D. Calendar years.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

70. A broad principle that requires identifying the activities of a business with specific time
periods such as months, quarters, or years is the:
A. Operating cycle of a business.
B. Time period principle.
C. Going-concern principle.
D. Matching principle.
E. Accrual basis of accounting.
AICPA BB: Industry
Difficulty: Medium

71. Interim (tạm thời) financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three, or six-month periods.
B. That are prepared before any adjustments have been recorded.
C. That show the assets above the liabilities and the liabilities above the equity.
D. Where revenues are reported on the income statement when cash is received and expenses are
reported when cash is paid.
E. Where the adjustment process is used to assign revenues to the periods in which they are
earned and to match expenses with revenues.
AICPA BB: Industry
Difficulty: Medium

72. The 12-month period that ends when a company's activities are at their lowest point is called
the:
A. Fiscal year.
B. Calendar year.
C. Natural business year.
D. Accounting period.
E. Interim period.
AICPA BB: Industry
Difficulty: Medium

73. The length of time covered by a set of periodic financial statements is referred to as the:
A. Fiscal cycle.
B. Natural business year.
C. Accounting period.
D. Business cycle.
E. Operating cycle.
AICPA BB: Industry
Difficulty: Medium

74. The accounting principle that requires revenue to be reported when earned is the:
A. Matching principle.
B. Revenue recognition principle.
C. Time period principle.
D. Accrual reporting principle.
E. Going-concern principle.
AICPA BB: Industry
Difficulty: Easy

75. 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 only cash flow statement accounts.
E. Affect only equity accounts.
AICPA BB: Industry
Difficulty: Easy

76. The main purpose of adjusting (điều chỉnh) entries is to:
A. Record external transactions and events.
B. Record internal(nội bộ) transactions and events.
C. Recognize assets purchased during the period.
D. Recognize debts paid during the period.
E. Correct errors.
AICPA BB: Industry
Difficulty: Medium

77. 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.
B. Cost principle.
C. Cash basis of accounting.
D. Matching(phù hợp) principle.
E. Time period principle.
AICPA BB: Industry
Difficulty: Medium

78. The system of preparing financial statements based on recognizing revenues when the cash is
received and reporting expenses when the cash is paid is called:
A. Accrual basis accounting.
B. Operating cycle accounting.
C. Cash basis accounting.
D. Revenue recognition accounting.
E. Current basis accounting.
AICPA BB: Industry
Difficulty: Medium

79. Adjusting entries are journal entries made at the end of an accounting period for the purpose
of:
A. Updating liability and asset accounts to their proper balances.
B. Assigning revenues to the periods in which they are earned.
C. Assigning expenses to the periods in which they are incurred.
D. Assuring that financial statements reflect the revenues earned and the expenses incurred.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

80. The approach to preparing financial statements based on recognizing revenues when they are
earned and matching expenses to those revenues is:
A. Cash basis accounting.
B. The matching principle.
C. The time period principle.
D. Accrual (tích lũy) basis accounting.
E. Revenue basis accounting.
AICPA BB: Industry
Difficulty: Medium

81. Prepaid expenses, depreciation (khấu hao), 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.
D. Asset accounts.
E. Income statement accounts.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

82. The accrual basis of accounting:
A. Is generally accepted for external reporting because it is more useful than cash basis for most
business decisions.
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.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


A. Adjustments to prepaid expenses, depreciation, and unearned revenues involve previously
recorded assets and liabilities.
B. Accrued expenses and accrued revenues involve assets and liabilities that had not previously
been recorded.
C. Adjusting entries can be used to record both accrued expenses and accrued revenues.
D. Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to
record the effects of the passage of time.
E. Adjusting entries affect the cash account.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

84. An adjusting entry could be made for each of the following except:
A. Prepaid expenses.
B. Depreciation.
C. Owner withdrawals.
D. Unearned revenues.
E. Accrued revenues.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

85. A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on
December 31. This oversight would:
A. Understate net income by $28,000.
B. Overstate net income by $28,000.
C. Have no effect on net income.
D. Overstate assets by $28,000.
E. Understate assets by $28,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

86. 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:
A. Assets overstated and equity understated.
B. Assets and equity both understated.
C. Assets overstated, net income understated, and equity overstated.
D. Assets, net income, and equity understated.
E. Assets, net income, and equity overstated.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

87. If a company failed to make the end-of-period adjustment to remove from the Unearned
Management Fees account the amount of management fees that were earned, this omission
would cause:
A. An overstatement of net income.
B. An overstatement of assets.
C. An overstatement of liabilities. .(trách nhiệm)
D. An overstatement of equity.
E. An understatement of liabilities
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

88. A company records the fees for legal services paid in advance by its clients in an account
called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to
record the portion of these fees that has been earned, one effect will be:
A. An overstatement of equity.
B. An understatement of equity.
C. An understatement of assets.
D. An understatement of liabilities.
E. An overstatement of assets.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

89. Profit margin is defined as:

A. Revenues divided by net sales.
B. Net sales divided by assets.
C. Net income divided by net sales.
D. Net income divided by assets.
E. Net sales divided by net income.
AICPA BB: Industry
Difficulty: Easy

90. A company earned $2,000 in net income for October. Its net sales for October were $10,000.
Its profit margin is:
A. 2%.
B. 20%.
C. 200%.
D. 500%.
E. $8,000.
$2,000/$10,000 = 20%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

91. The profit margin:

A. Reflects the percent of profit in each dollar of revenue.
B. Is also called return on sales.
C. Can be used to compare a firm's performance to its competitors.
D. Is calculated by dividing net income by net sales.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

92. A company had $9,000,000 in net income for the year. Its net sales were $13,200,000 for the
same period. Calculate its profit margin.
A. 17.5%.
B. 28.0%.
C. 62.5%.
D. 160.0%.
E. 68.2%
$9,000,000/$13,200,000 = 68.2%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

On June 30, 2009, Apricot Co. paid $7,500 cash for management services to be performed over
a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at
the time of cash payment.
93. On June 30, 2009 Apricot should record:

A. A credit to an expense for $7,500.
B. A debit to an expense for $7,500.
C. A debit to a prepaid expense for $7,500.
D. A credit to a prepaid expense for $7,500.
E. A debit to Cash for $7,500.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

94. The adjusting entry on December 31, 2009 for Apricot would include:
A. A debit to an expense for $5,625.
B. A debit to a prepaid expense for $5,625.
C. A debit to an expense for $1,875.
D. A debit to a prepaid expense for $1,875.
E. A credit to a liability for $1,875.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

95. Accrued revenues:
A. At the end of one accounting period often result in cash receipts from customers in the next
period.
B. At the end of one accounting period often result in cash payments in the next period.
C. Are also called unearned revenues.
D. Are listed on the balance sheet as liabilities.
E. Are recorded at the end of an accounting period because cash has already been received for
revenues earned.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

96. An account linked with another account that has an opposite normal balance and that 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.
AICPA BB: Industry
Difficulty: Medium

97. The total amount of depreciation recorded against an asset or group of assets during the
entire time the asset or assets have been owned:
A. Is referred to as depreciation expense.
B. Is referred to as accumulated (dồn lại) depreciation.
C. Is shown on the income statement of the final period.
D. Is only recorded when the asset is disposed of.
E. Is referred to as an accrued asset.
AICPA BB: Industry
Difficulty: Medium

98. The periodic expense created by allocating the cost of plant and equipment to the periods in
which they are used, representing the expense of using the assets, is called:
A. Accumulated depreciation.
B. A contra account.
C. The matching principle.
D. Depreciation expense.
E. An accrued account.
AICPA BB: Industry
Difficulty: Medium

99. Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A
physical count of the supplies showed $105 of unused supplies available. The required adjusting
entry is:
A. Debit Office Supplies $105 and credit Office Supplies Expense $105.
B. Debit Office Supplies Expense $105 and credit Office Supplies $105.
C. Debit Office Supplies Expense $254 and credit Office Supplies $254.
D. Debit Office Supplies $254 and credit Office Supplies Expense $254.
E. Debit Office Supplies $105 and credit Supplies Expense $254.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

100. 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.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

101. On April 1, 2009, a company paid the $1,350 premium on a three-year insurance policy
with benefits beginning on that date. What will be the insurance expense on the annual income
statement for the year ended December 31, 2009?
A. $1,350.
B. $450.
C. $1,012.50.
D. $337.50.
E. $37.50.
$1,350 x 9/36 = $337.50
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

102. A company had no office supplies available at the beginning of the year. During the year,
the company purchased $250 worth of office supplies. On December 31, $75 worth of office
supplies remained. How much should the company report as office supplies expense for the
year?
A. $75.
B. $125.
C. $175.
D. $250.
E. $325.
$250 - $75 = $175
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

103. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage
starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the
company records adjustments only at year-end, the adjusting entry at the end of the first year is:
A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
B. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.
C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
D. Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
E. Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

104. 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. An operating activity on the statement of cash flows.
AICPA BB: Industry
Difficulty: Medium

105. Which of the following assets is not depreciated (khấu hao)?

A. Store fixtures.
B. Computers.
C. Land.
D. Buildings.
E. All of these are depreciated.
AICPA BB: Industry
Difficulty: Medium

106. Which of the following does not require an adjusting entry at year-end?

A. Accrued interest on notes payable.
B. Supplies used during the period.
C. Cash invested by owner.
D. Accrued wages.
E. Expired portion of prepaid insurance.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

107. On April 30, 2009, a three-year insurance policy was purchased for $18,000 with coverage
to begin immediately. What is the amount of insurance expense that would appear on the
company's income statement for the year ended December 31, 2009?
A. $500.
B. $4,000.
C. $6,000.
D. $14,000.
E. $18,000.
$18,000 x 8/36 = $4,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

108. PPW Co. leased a portion of its store to another company for eight months beginning on
October 1, 2009, at a monthly rate of $800. This other company paid the entire $6,400 cash on
October 1, which PPW Co. recorded as unearned revenue. The journal entry made by PPW Co.
at year- end on December 31, 2009 would include:
A. A debit to Rent Earned for $2,400.
B. A credit to Unearned Rent for $2,400.
C. A debit to Cash for $6,400.
D. A credit to Rent Earned for $2,400.
E. A debit to Unearned Rent for $4,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

109. On May 1, 2009 Giltus Advertising Company received $1,500 from Julie Bee for
advertising services to be completed April 30, 2010. The Cash receipt was recorded as unearned
fees and at December 31, 2009, $1,000 of the fees had been earned. The adjusting entry on
December 31 Year 1 should include:
A. A debit to Unearned Fees for $500.
B. A credit to Unearned Fees for $500.
C. A credit to Earned Fees for $1,000.
D. A debit to Earned Fees for $1,000.
E. A debit to Earned Fees for $500.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

110. Incurred(chi phí phát sinh) but unpaid expenses that are recorded during the adjusting
process with a debit to an expense and a credit to a liability are:
A. Intangible expenses.
B. Prepaid expenses.
C. Unearned expenses.
D. Net expenses.
E. Accrued expenses.
AICPA BB: Industry
Difficulty: Medium

111. The adjusting entry to record the earned but unpaid salaries of employees at the end of an
accounting period is:
A. Debit Unpaid Salaries and credit Salaries Payable.
B. Debit Salaries Payable and credit Salaries Expense.
C. Debit Salaries Expense and credit Cash.
D. Debit Salaries Expense and credit Salaries Payable.
E. Debit Cash and credit Salaries Expense.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

112. A company pays each of its two office employees each Friday at the rate of $100 per day
for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday
and the employees worked on both Monday and Tuesday, the month-end adjusting entry to
record the salaries earned but unpaid is:
A. Debit Unpaid Salaries $600 and credit Salaries Payable $600.
B. Debit Salaries Expense $400 and credit Salaries Payable $400.
C. Debit Salaries Expense $600 and credit Salaries Payable $600.
D. Debit Salaries Payable $400 and credit Salaries Expense $400.
E. Debit Salaries Expense $400 and credit Cash $400.
2 employees x 2 days x $100/employee/day = $400
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

113. On January 1, Southwest College received $1,200,000 in Unearned Tuition Revenue from
its students for the spring semester, which spans four months beginning on January 2. What
amount of tuition revenue should the college recognize on January 31?
A. $300,000.
B. $600,000.
C. $800,000.
D. $900,000.
E. $1,200,000.
$1,200,000/4 = $300,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

114. An adjusting entry was made on December 31, 2009 to accrue salary expense of $1,200.
Which of the following entries would be prepared to record the next payment of salaries, on
January, 2010 in the amount of $3,000?
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

115. The difference between the cost of an asset and the accumulated depreciation for that asset
is called
A. Depreciation Expense.
B. Unearned Depreciation.
C. Prepaid Depreciation.
D. Depreciation Value.
E. Book Value.
AICPA BB: Industry
Difficulty: Medium

116. A company purchased a new truck at a cost of $42,000 on July 1, 2009. The truck is
estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the
straight-line method of depreciation. How much depreciation expense will be recorded for the
truck for the year ended December 31, 2009?
A. $3,250.
B. $3,500.
C. $4,000.
D. $6,500.
E. $7,000.
[$42,000 - $3,000/6] x 1/2 = $3,250
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

117. A company's Office Supplies account shows a beginning balance of $600 and an ending
balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies
was purchased during the period?
A. $2,700.
B. $2,900.
C. $3,300.
D. $3,500.
E. $3,700.
$600 + Supplies Purchased - $3,100 = $400

Supplies Purchased = $2,900
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

118. If a company records prepayment of expenses in an asset account, the adjusting entry
would:
A. Result in a debit to an expense and a credit to an asset account.
B. Cause an adjustment to prior expense to be overstated and assets to be understated.
C. Cause an accrued liability account to exist.
D. Result in a debit to a liability and a credit to an asset account.
E. Decrease cash.
AICPA BB: Industry
Difficulty: Hard

119. A company recorded 2 days of accrued salaries of $1,400 for its employees on January 31.
On February 9, it paid its employees $7,000 for these accrued salaries and for other salaries
earned through February 9. The January 31 and February 9 journal entries are:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

120. If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the
entry to record payment of these wages on the following January 5 would include:
A. A debit to Cash and a credit to Salaries Payable.
B. A debit to Cash and a credit to Prepaid Salaries.
C. A debit to Salaries Payable and a credit to Cash.
D. A debit to Salaries Payable and a credit to Salaries Expense.
E. No entry would be necessary on January 5.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

121. On May 1, 2009, Carter Advertising Company received $3,600 from Kaitlyn Breanna for
advertising services to be completed April 30, 2010. The Cash receipt was recorded as unearned
fees. The adjusting entry on December 31, 2010 should include:
A. a debit to Earned Fees for $3,600.
B. a debit to Unearned Fees for $1,200.
C. a credit to Unearned Fees for $1,200.
D. a debit to Earned Fees for $2,400.
E. a credit Earned Fees for $2,400.
Year 2009 = $3,600/12 = $300 per month x 8 = $2,400

Year 2010 = $3,600 - $2,400 = $1,200.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

122. The balance in the prepaid insurance account before adjustment at the end of the year is
$4,800, which represents the insurance premiums for four months. The premiums were paid on
November 1. The adjusting entry required on December 31 is:
A. Debit Insurance Expense, $2,400; credit Prepaid Insurance, $2,400.
B. Debit Prepaid Insurance, $2,400; credit Insurance Expense, $2,400.
C. Debit Insurance Expense, $1,200; credit Prepaid Insurance, $1,200.
D. Debit Prepaid Insurance, $1,200; credit Insurance Expense, $1,200
E. Debit Cash, $4,800; Credit Prepaid Insurance, $4,800.
$4,800/4 = $1,200 x 2 = $2,400
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

123. What is the proper adjusting entry at December 31, the end of the accounting period, if the
balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount
per analysis of policies is, $3,250?
A. Debit Insurance Expense, $3,250; credit Prepaid Insurance, $3,250.
B. Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.
C. Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500.
D. Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750.
E. Debit Cash, $7,750; Credit Prepaid Insurance, $7,750.
$7,750 - $3,250 = $4,500
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

124. On March 31, 2009, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year
subscription for five different magazines. The subscriptions started immediately. What is the
amount of revenue that should be recorded by Melanie Publishing Company for each year of the
subscription?
A. 2009, $15,480; 2010, $0; 2011, $0; 2010, $0.
B. 2009, $5,160; 2010, $5,160; 2011, $5,160.
C. 2009, $3,870; 2010, $5,160; 2011, $5,160; 2012, $1,290.
D. 2009, $0; 2010, $0; 2011, $0; 2012, $15,480.
E. The answer cannot be determined based on the information given.
$15,480/36 = $430
2009 $430 x 9 = $3,870
2010 $430 x 12 = $5,160
2011 $430 x 12 = $5,160
2012 $430 x 3 = $1,290
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

subscription for five different magazines. The subscriptions started immediately. What is the
adjusting entry that should be recorded by Melanie Publishing Company on December 31, 2009
if the credit to record the collection was made to Unearned Fees?
A. debit Unearned Fees, $15,480; credit Fees Earned, $15,480.
B. debit Unearned Fees, $5,160; credit Fees Earned, $5,160.
C. debit Unearned Fees, $11,610; credit Fees Earned, $11,610
D. debit Unearned Fees, $1,290; credit Fees Earned, $1,290
E. debit Unearned Fees, $3,870; credit Fees Earned, $3,870
$15,480/36 = $430 x 9 = $3,870
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

subscription for five different magazines. The subscriptions started immediately. What amount
should appear in the Prepaid Subscription account for Phoenix Company after adjustments on
December 31 each year?
A. 2009, $15,480; 2010, $11,610; 2011, $6,540; 2012, $1,290.
B. 2009, $3,870; 2010, $5,160; 2011, $5,160; 2012, $1,290.
C. 2009, $5,160; 2010, $5,160; 2011, $5,160.
D. 2009, $11,610; 2010, $6,450; 2011, $1,290; 2012, $0.
E. The answer cannot be determined based on the information given.
$15,480/36 = $430 per month

2009 = $15,480 - 430 x 9 = $11,610
2010 = $11,610 - $430 x 12 = $6,450
2011 = $6,450 - $430 x 12 = $1,290
2012 = $430 x 0 = $-0-
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

127. A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on
December 31. Which of the following statements is true?
A. It will have no effect on income.
B. It will overstate assets and liabilities by $9,000
C. It will understate net income by $9,000.
D. It will understate assets by $9,000.
E. It will understate expenses and overstate net income by $9,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

128. A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on
December 31. The entry to record the adjusting entry should have been:
A. debit Salary Expense, $9,000; credit Cash, $9,000
B. debit Salary Expense, $9,000; credit Fees Earned, $9,000
C. debit Salary Expense, $9,000; credit Prepaid Salary, $9,000
D. debit Salary Expense, $9,000; credit Salaries Payable, $9,000
E. debit Salaries Payable, $9,000; credit Salary Expense
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

129. A company purchased new computers at a cost of $14,000 on September 30, 2010. The
computers are estimated to have a useful life of 4 years and a salvage value of $2,000. The
company uses the straight-line method of depreciation. How much depreciation expense will be
recorded for the computers for the year ended December 31, 2010?
A. $250
B. $750
C. $875
D. $1,000
E. $3,000
$14,000 - $2,000 = $12,000/48 = $250 x 3 = $750
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

130. The balance in Tee Tax Services' office supplies account on February 1 and February 28
was $1,200 and $375, respectively. If the office supplies expense for the month is $1,900, what
amount of office supplies was purchased during February?
A. $1,075
B. $1,500
C. $1,525
D. $2,325
E. $3,100
$1,200 + Supplies Purchased - $1,900 = $375

Supplies Purchased = $1,075
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


A. An income statement reports revenues earned less expenses incurred.
B. An unadjusted trial balance shows the account balances after they have been revised to reflect
the effects of end-of-period adjustments.
C. Interim financial reports can be based on one-month or three-month accounting periods.
D. The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual
accounting period.
E. Property, plant, and equipment are referred to as plant assets.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

132. A trial balance prepared after adjustments have been recorded is called a(n) :
A. Balance sheet.
B. Adjusted(điều chỉnh) trial balance.
C. Unadjusted trial balance.
D. Classified balance sheet.
E. Unclassified balance sheet.
AICPA BB: Industry
Difficulty: Easy

133. A trial balance prepared before any adjustments have been recorded is:
A. An adjusted trial balance.
B. Used to prepare financial statements.
C. An unadjusted trial balance.
D. Correct with respect to proper balance sheet and income statement amounts.
E. Only prepared once a year.
AICPA BB: Industry
Difficulty: Medium

134. The adjusted trial balance contains information pertaining to:

A. Asset accounts only.
B. Balance sheet accounts only.
C. Income statement accounts only.
D. All general ledger accounts.
E. Revenue accounts only.
AICPA BB: Industry
Difficulty: Medium

135. Financial statements are typically prepared in the following order:
A. Balance sheet, statement of owner's equity, income statement.
B. Statement of owner's equity, balance sheet, income statement.
C. Income statement, balance sheet, statement of owner's equity.
D. Income statement, statement of owner's equity, balance sheet.
E. Balance sheet, income statement, statement of owner's equity.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

136. A balance sheet that places the assets above the liabilities and equity is called a(n):
A. Report form balance sheet.
B. Account form balance sheet.
C. Classified balance sheet.
D. Unadjusted balance sheet.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

137. A balance sheet that places the liabilities and equity to the right of the assets is a(n):
A. Account form balance sheet.
B. Report form balance sheet.
C. Interim balance sheet.
D. Classified balance sheet.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

138. Under the alternative method for accounting for unearned revenue, which of the following
pairs of journal entry formats is correct?

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

139. Under the alternative method for recording prepaid expenses, which is the correct set of
journal entries?

A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium


64. Another name for temporary accounts is:
A. Real accounts.
B. Contra accounts.
C. Accrued accounts.
D. Balance column accounts.
E. Nominal accounts.
AICPA BB: Industry
Difficulty: Easy

65. When closing entries are made:

A. All ledger accounts are closed to start the new accounting period.
B. All temporary accounts are closed but not the permanent accounts.
C. All real accounts are closed but not the nominal accounts.
D. All permanent accounts are closed but not the nominal accounts.
E. All balance sheet accounts are closed.
AICPA BB: Industry
Difficulty: Easy

66. Revenues, expenses, and withdrawals accounts, which are closed at the end of each
accounting period are:
A. Real accounts.
B. Temporary accounts.
C. Closing accounts.
D. Permanent accounts.
E. Balance sheet accounts.
AICPA BB: Industry
Difficulty: Medium

A. Permanent accounts is another name for nominal accounts.
B. Temporary accounts carry a zero balance at the beginning of each accounting period.
C. The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the
accounts continue in existence.
E. The closing process applies only to temporary accounts.
AICPA BB: Industry
Difficulty: Medium

68. Assets, liabilities, and equity accounts are not closed; these accounts are called:
A. Nominal accounts.
B. Temporary accounts.
C. Permanent accounts.
D. Contra accounts.
E. Accrued accounts.
AICPA BB: Industry
Difficulty: Medium

69. Closing the temporary accounts at the end of each accounting period:

A. Serves to transfer the effects of these accounts to the owner's capital account on the balance
sheet.
B. Prepares the withdrawals account for use in the next period.
C. Gives the revenue and expense accounts zero balances.
D. Causes owner's capital to reflect increases from revenues and decreases from expenses and
withdrawals.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

70. Journal entries recorded at the end of each accounting period to prepare the revenue, expense,
and withdrawals accounts for the upcoming period and to update the owner's capital account for
the events of the period just finished are referred to as:
A. Adjusting entries.
B. Closing entries.
C. Final entries.
D. Work sheet entries.
E. Updating entries.
AICPA BB: Industry
Difficulty: Medium

71. The closing process is necessary in order to:

A. calculate net income or net loss for an accounting period.
B. ensure that all permanent accounts are closed to zero at the end of each accounting period.
C. ensure that the company complies with state laws.
D. ensure that net income or net loss and owner withdrawals for the period are closed into the
owner's capital account.
E. ensure that management is aware of how well the company is operating.
AICPA BB: Industry
Difficulty: Medium

72. Closing entries are required:

A. if management has decided to cease operating the business.
B. only if the company adheres to the accrual method of accounting.
C. if a company's bookkeeper forgets to prepare reversing entries.
D. if the temporary accounts are to reflect correct amounts for each accounting period.
E. in order to satisfy the Internal Revenue Service.
AICPA BB: Industry
Difficulty: Medium

73. The recurring steps performed each reporting period, starting with analyzing and recording
transactions in the journal and continuing through the post-closing trial balance, is referred to as
the:
A. Accounting period.
B. Operating cycle.
C. Accounting cycle.
D. Closing cycle.
E. Natural business year.
AICPA BB: Industry
Difficulty: Medium

74. 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.
AICPA BB: Industry
Difficulty: Medium

75. A classified balance sheet:

A. Measures a company's ability to pay its bills on time.
B. Organizes assets and liabilities into important subgroups.
C. Presents revenues, expenses, and net income.
D. Reports operating, investing, and financing activities.
E. Reports the effect of profit and withdrawals on owner's capital.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

76. The assets section of a classified balance sheet usually includes:
A. Current assets, long-term investments, plant assets, and intangible assets.
B. Current assets, long-term assets, revenues, and intangible assets.
C. Current assets, long-term investments, plant assets, and equity.
D. Current liabilities, long-term investments, plant assets, and intangible assets.
E. Current assets, liabilities, plant assets, and intangible assets.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

77. The usual order for the asset section of a classified balance sheet is:
A. Current assets, prepaid expenses, 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.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

78. A classified balance sheet differs from an unclassified balance sheet in that
A. a unclassified balance sheet is never used by large companies.
B. a classified balance sheet normally includes only three subgroups.
C. a classified balance sheet presents information in a manner that makes it easier to calculate a
company's current ratio.
D. a classified balance sheet will include more accounts than an unclassified balance sheet for
the same company on the same date.
E. a classified balance sheet cannot be provided to outside parties.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

79. Two common subgroups for liabilities on a classified balance sheet are:
A. current liabilities and intangible liabilities.
B. present liabilities and operating liabilities.
C. general liabilities and specific liabilities.
D. intangible liabilities and long-term liabilities.
E. current liabilities and long-term liabilities.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

80. The current ratio:

A. Is used to measure a company's profitability.
B. Is used to measure the relation between assets and long-term debt.
C. Measures the effect of operating income on profit.
D. Is used to help evaluate a company's ability to pay its debts in the near future.
E. Is calculated by dividing current assets by equity.
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: Medium

81. The current ratio:

A. Is calculated by dividing current assets by current liabilities.
B. Helps to assess a company's ability to pay its debts in the near future.
C. Can reveal problems in a company if it is less than 1.
D. Can affect a creditor's decision about whether to lend money to a company.
E. All of these.
AICPA BB: Industry
Difficulty: Hard

82. The Unadjusted Trial Balance columns of a company's work sheet show the balance in the
Office Supplies account as $750. The Adjustments columns show that $425 of these supplies
were used during the period. The amount shown as Office Supplies in the Balance Sheet columns
of the work sheet is:
A. $325 debit.
B. $325 credit.
C. $425 debit.
D. $750 debit.
E. $750 credit.
AACSB: Technology
AICPA BB: Industry
AICPA FN: Leveraging Technology
Difficulty: Easy

83. A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting
entries, adjusted trial balance, and financial statements, and which is an optional tool in the
accounting process is a(n) :
A. Adjusted trial balance.
B. Work sheet.
C. Post-closing trial balance.
D. Unadjusted trial balance.
E. General ledger.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium

84. Accumulated Depreciation, Accounts Receivable, and Service Fees Earned would be sorted
to which respective columns in completing a work sheet?
A. Balance Sheet or Statement of Owner's Equity-Credit; Balance Sheet or Statement of Owner's
Equity Debit; and Income Statement-Credit.
B. Balance Sheet or Statement of Owner's Equity-Debit; Balance Sheet or Statement of Owner's
Equity-Credit; and Income Statement-Credit.
C. Income Statement-Debit; Balance Sheet or Statement of Owner's Equity-Debit; and Income
Statement-Credit.
D. Income Statement-Debit; Income Statement-Debit; and Balance Sheet or Statement of
Owner's Equity-Credit.
E. Balance Sheet or Statement of Owner's Equity-Credit; Income Statement-Debit; and Income
Statement-Credit.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium


A. Working papers are useful aids in the accounting process.
B. On the work sheet, the effects of the accounting adjustments are shown on the account
balances.
C. After the work sheet is completed, it can be used to help prepare the financial statements.
D. On the work sheet, the adjusted amounts are sorted into columns according to whether the
accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.
E. A worksheet is not a substitute for financial statements.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium

86. A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance
columns of the work sheet. The Adjustments columns show expired insurance of $200. This
adjusting entry results in:
A. $200 decrease in net income.
B. $200 increase in net income.
C. $200 difference between the debit and credit columns of the Unadjusted Trial Balance.
D. $200 of prepaid insurance.
E. An error in the financial statements.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium

87. Statements that show the effects of proposed transactions as if the transactions had already
occurred are called:
A. Pro forma statements.
B. Professional statements.
C. Simplified statements.
D. Temporary statements.
E. Interim statements.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium

88. If in preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the
wrong work sheet column. The Balance Sheet columns will balance on completing the work
sheet but with the wrong net income, if the amount sorted in error is:
A. An expense amount placed in the Balance Sheet Credit column.
B. A revenue amount placed in the Balance Sheet Debit column.
C. A liability amount placed in the Income Statement Credit column.
D. An asset amount placed in the Balance Sheet Credit column.
E. A liability amount placed in the Balance Sheet Debit column.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium

89. If the Balance Sheet and Statement of Owner's Equity columns of a work sheet fail to balance
when the amount of the net income is added to the Balance Sheet and Statement of Owner's
Equity Credit column, the cause could be:
A. An expense amount entered in the Balance Sheet and Statement of Owner's Equity Debit
column.
B. A revenue amount entered in the Balance Sheet and Statement of Owner's Equity Credit
column.
C. An asset amount entered in the Income Statement and Statement of Owner's Equity Debit
column.
D. A liability amount entered in the Income Statement and Statement of Owner's Equity Credit
column.
E. An expense amount entered in the Balance Sheet and Statement of Owner's Equity Credit
column.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

90. The following items appeared on a company's December 31 work sheet for the current
period. Based on the following information, what is net income for the current period?

A. $1,400.
B. $1,855.
C. $1,905.
D. $2,060.
E. $4,670.

AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

91. Which of the following errors would cause the Balance Sheet and Statement of Owner's
Equity columns of a work sheet to be out of balance?
A. Entering an asset amount in the Income Statement Debit column.
B. Entering a liability amount in the Income Statement Credit column.
C. Entering an expense amount in the Balance Sheet and Statement of Owner's Equity Debit
column.
D. Entering a revenue amount in the Balance Sheet and Statement of Owner's Equity Debit
column.
E. Entering a liability amount in the Balance Sheet and Statement of Owner's Equity Credit
column.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

92. The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments
columns contain entries for the following:
1. Office supplies used during the period, $1,200.
2. Expiration of prepaid rent, $700.
3. Accrued salaries expense, $500.
4. Depreciation expense, $800.
5. Accrued service fees receivable, $400.
The Adjusted Trial Balance columns total is:
A. $80,400.
B. $84,000.
C. $85,700.
D. $85,900.
E. $87,600.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

93. The balances in the unadjusted columns of a work sheet will agree with:
A. the balances reflected in the company's financial statements.
B. the balances reflected in the company's unadjusted trial balance.
C. whatever balances management has decided to report.
D. the balances in the company's post-closing trial balance.
E. the balances management budgeted for the accounting period.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

94. In the process of completing a work sheet, you determine that the Income Statement debit
column totals $83,000, while the Income Statement credit column totals $65,000. To enter net
income (or net loss) for the period into the work sheet would require an entry to
A. the Adjustments debit column and the Adjustments credit column.
B. the Unadjusted Trial Balance debit column and the Adjustments credit column.
C. it is not practical to enter Net Income (or Net Loss) on the work sheet.
D. the Balance Sheet & Statement of Owner's Equity debit column and the Income Statement
credit column.
E. the Income Statement debit column and the Balance Sheet & Statement of Owner's Equity
credit column.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

95. The special account used only in the closing process to temporarily hold the amounts of
revenues and expenses before the net difference is added to (or subtracted from) the owner's
capital account is the:
A. Income Summary account.
B. Closing account.
C. Balance column account.
D. Contra account.
E. Nominal account.
AICPA BB: Industry
Difficulty: Medium

96. J. Awn, the proprietor of Awn Services, withdrew $8,700 from the business during the
current year. The entry to close the withdrawals account at the end of the year, is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

97. A company had revenues of $75,000 and expenses of $62,000 for the accounting period.
Which of the following entries could not be a closing entry?
A.
B.
C.
D.
E. All of these are possible closing entries.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

98. The following information is available for the Travis Travel Agency. After these closing
entries what will be the balance in the Jay Travis, Capital account?

A. $ 65,000.
B. $ 80,000.
C. $130,000.
D. $145,000.
E. $280,000.
$80,000 + $125,000 - $60,000 - $15,000 = $130,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

99. The J. Godfrey, Capital account has a credit balance of $17,000 before closing entries are
made. If total revenues for the period are $55,200, total expenses are $39,800, and withdrawals
are $9,000, what is the ending balance in the J. Godfrey, Capital account after all closing entries
are made?
A. $ 8,000.
B. $15,400.
C. $23,400.
D. $17,000.
E. $32,400.
$17,000 + $55,200 - $39,800 - $9,000 = $23,400
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

100. The Income Summary account is used:

A. To adjust and update asset and liability accounts.
B. To close the revenue and expense accounts.
C. To determine the appropriate withdrawal amount.
D. To replace the income statement under certain circumstances.
E. To replace the capital account in some businesses.
AICPA BB: Industry
Difficulty: Medium

101. Dina Kader withdrew a total of $35,000 from her business during the current year. The
entry needed to close the withdrawals account is:
A. Debit Income Summary and credit Cash for $35,000.
B. Debit Dina Kader, Withdrawals and credit Cash for $35,000.
C. Debit Income Summary and credit Dina Kader, Withdrawals for $35,000.
D. Debit Dina Kader, Capital and credit Dina Kader, Withdrawals for $35,000.
E. Debit Dina Kader, Withdrawals and credit Dina Kader, Capital for $35,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

102. A company's ledger accounts and their end-of-period balances before closing entries are
posted are shown below. What amount will be posted to Tricia DeBarre, Capital in the process of
closing the Income Summary account? (Assume all accounts have normal balances.)

A. $16,780 debit.
B. $ 7,180 credit.
C. $16,780 credit.
D. $18,280 credit.
E. $23,780 credit.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

103. It is obvious that an error occurred in the preparation and/or posting of closing entries if:
A. all revenue and expense accounts have zero balances.
B. the owner's capital account is debited for the amount of the net loss for the period.
C. the income summary account is debited for the amount of net income for the period.
D. all balance sheet accounts have zero balances.
E. only permanent accounts appear on the post-closing trial balance.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

104. At the beginning of 2009, a company's balance sheet reported the following balances: Total
Assets = $125,000; Total Liabilities = $75,000; and Owner's Capital = $50,000. During 2009, the
company reported revenues of $46,000 and expenses of $30,000. In addition, owner's
withdrawals for the year totaled $20,000. Assuming no other changes to owner's capital, the
balance in the owner's capital account at the end of 2009 would be:
A. $66,000.
B. $86,000.
C. $(4,000).
D. $46,000.
E. cannot be determined from the information provided.
Owner's Capital = $50,000 at beginning of 2009. Add revenues of $46,000 during 2009, subtract
expenses of $30,000 during 2009 and subtract owner withdrawals of $20,000 during 2009. The
ending balance in the owner's capital account at the end of 2009 would be $46,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

105. At the beginning of 2009, Beta Company's balance sheet reported Total Assets of $195,000
and Total Liabilities of $75,000. During 2009, the company reported total revenues of $226,000
and expenses of $175,000. Also, owner withdrawals during 2009 totaled $48,000. Assuming no
other changes to owner's capital, the balance in the owner's capital account at the end of 2009
would be:
A. $174,000.
B. $78,000.
C. cannot be determined from the information provided.
D. $120,000.
E. $123,000.
Owner's Capital at the beginning of 2009 is $120,000 (Total Assets of $195,000 - Total
Liabilities of $75,000). Add revenues of $226,000 during 2009, subtract expenses of $175,000
and subtract owner withdrawals of $48,000 and ending owner's capital at the end of 2009 would
be $123,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

106. After preparing and posting the closing entries to close revenues (and gains) and expenses
(and losses) into the income summary, the income summary account has a debit balance of
$33,000. The entry to close the income summary account will include:
A. a debit of $33,000 to owner withdrawals.
B. a credit of $33,000 to owner withdrawals.
C. a debit of $33,000 to income summary.
D. a debit of $33,000 to owner capital.
E. a credit of $33,000 to owner capital.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

107. A trial balance prepared after the closing entries have been journalized and posted is the:
A. Unadjusted trial balance.
B. Post-closing trial balance.
C. General ledger.
D. Adjusted trial balance.
E. Work sheet.
AICPA BB: Industry
Difficulty: Medium

108. An error is indicated if the following account has a balance appearing on the post-closing
trial balance:
A. Office Equipment.
B. Accumulated Depreciation-Office Equipment.
C. Depreciation Expense-Office Equipment.
D. Ted Nash, Capital.
E. Salaries Payable.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

109. A post-closing trial balance reports:

A. All ledger accounts with balances, none of which can be temporary accounts.
B. All ledger accounts with balances, none of which can be permanent accounts.
C. All ledger accounts with balances, which include some temporary and some permanent
accounts.
D. Only revenue and expense accounts.
E. Only asset accounts.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

A. Owner's capital must be closed each accounting period.
B. A post-closing trial balance should include only permanent accounts.
C. Information on the work sheet can be used in place of preparing financial statements.
D. By using a work sheet to prepare adjusting entries you need not post these entries to the
ledger accounts.
E. Closing entries are only necessary if errors have been made.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

111. Reversing entries:
A. Are optional.
B. Are mandatory.
C. Correct errors in journal entries.
D. Are required by GAAP.
E. Are prepared on the worksheet.
AICPA BB: Industry
Difficulty: Medium

A. Are optional.
B. Are linked to accrued assets and liabilities that were created by adjusting entries at the end of
the previous accounting period.
C. Are used to simplify a company's recordkeeping.
D. Are dated the first day of the new accounting period.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

A. are necessary when journal entries have been incorrectly recorded.
B. are a required step in the accounting cycle.
C. will often result in abnormal account balances in some accounts.
D. are required only if the company uses accounting software to record journal entries.
E. must be made before preparing the post-closing trial balance.
AICPA BB: Industry
Difficulty: Medium

114. The purpose of reversing entries is to:

A. simplify the recording of certain journal entries in the future.
B. correct an error made in a previous journal entry.
C. ensure that closing entries have been properly posted to the ledger accounts.
D. make certain that only permanent accounts are carried forward into the next accounting
period.
E. complete a required step in the accounting cycle.
AICPA BB: Industry
Difficulty: Medium


75. A merchandising company:

A. Earns net income by buying and selling merchandise.
B. Can buy products from manufacturers and sell to retailers.
C. Can buy products from manufacturers and sell them to consumers.
D. Can be a wholesaler or a retailer.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

76. A merchandising company:
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.
AICPA BB: Industry
Difficulty: Easy

77. Cost of goods sold:

A. Is another term for merchandise sales.
B. Is the term used for the cost 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.
AICPA BB: Industry
Difficulty: Medium

78. A company had sales of $695,000 and cost of goods sold of $278,000. Its gross margin
equals:
A. $(417,000).
B. $695,000.
C. $278,000.
D. $417,000.
E. $973,000.
$695,000 - $278,000 = $417,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

79. A company had sales of $375,000 and its gross profit was $157,500. Its cost of goods sold
equals:
A. $(217,000).
B. $375,000.
C. $157,500.
D. $217,500.
E. $532,500.
$375,000 - $157,500 = $217,500
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

80. Gross profit:
A. Is also called gross margin.
B. Less other operating expenses equals income from operations.
C. Equals net sales less cost of goods sold.
D. Must cover all operating expenses to yield a return for the owner of the business.
E. All of these.
AICPA BB: Industry
Difficulty: Hard

81. Merchandise inventory:
A. Is reported on the balance sheet as a current asset.
B. Refers to products a company owns and intends to sell.
C. Can include the cost of shipping the goods to the store and making them ready for sale.
D. Does not appear on the balance sheet of a service company.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

82. The operating cycle of a merchandising company:

A. Begins with the purchase of merchandise.
B. Ends with the collection of cash from the sale of merchandise.
C. Can vary in length among different merchandising companies.
D. Sometimes involves accounts receivable.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

83. Merchandise inventory:
A. Is a long-term asset.
B. Is a current asset.
C. Includes supplies.
D. Is classified with investments on the balance sheet.
E. Must be sold within one month.
AICPA BB: Industry
Difficulty: Medium

84. The operating cycle for a merchandiser that sells only for cash moves from:
A. Purchases of merchandise to inventory to cash sales.
B. Purchases of merchandise to inventory to accounts receivable to cash sales.
C. Inventory to purchases of merchandise to cash sales.
D. Accounts receivable to purchases of merchandise to inventory to cash sales.
E. Accounts receivable to inventory to cash sales.
AICPA BB: Industry
Difficulty: Hard

85. The current period's ending inventory is:

A. The next period's beginning inventory.
B. The current period's cost of goods sold.
C. The prior period's beginning inventory.
D. The current period's net purchases.
E. The current period's beginning inventory.
AICPA BB: Industry
Difficulty: Medium

86. Beginning inventory plus net purchases is:
A. Cost of goods sold.
B. Merchandise available for sale.
C. Ending inventory.
D. Sales.
E. Shown on the balance sheet.
AICPA BB: Industry
Difficulty: Medium

87. The acid-test ratio:

A. Is also called the quick ratio.
B. Measures profitability.
C. Measures inventory turnover.
D. Is generally greater than the current ratio.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

88. The quick assets are defined as:

A. Cash, short-term investments, and inventory.
B. Cash, short-term investments, and current receivables.
C. Cash, inventory, and current receivables.
D. Cash, noncurrent receivables, and prepaid expenses.
E. Accounts receivable, inventory, and prepaid expenses.
AICPA BB: Industry
Difficulty: Easy

89. ABC Corporation's total quick assets were $5,888,000, its current assets were $11,700,000
and its current liabilities were $8,000,000. Its acid-test ratio equals:
A. 0.50.
B. 0.68.
C. 0.74.
D. 1.50.
E. 2.20.
$5,888,000/$8,000,000 = 0.74
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

90. A company's current assets were $17,980, its quick assets were $11,420 and its current
liabilities were $12,190. Its quick ratio equals:
A. 0.94.
B. 1.07.
C. 1.48.
D. 1.57.
E. 2.40.
$11,420/$12,190 = 0.94
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

91. Liquidity problems are likely to exist when a company's acid-test ratio:
A. Is less than the current ratio.
B. Is 1 to 1.
C. Is higher than 1 to 1.
D. Is substantially lower than 1 to 1.
E. Is higher than the current ratio.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

92. The acid-test ratio differs from the current ratio in that:

A. Liabilities are divided by current assets.
B. Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.
C. The acid-test ratio measures profitability and the current ratio does not.
D. The acid-test ratio excludes short-term investments from the calculation.
E. The acid-test ratio is a measure of liquidity but the current ratio is not.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

Breanna Boutique reported the following year-end information:

93. The current ratio and acid-test ratio for the boutique are _________ and ________,
respectively:
A. 1.8 and 1
B. 1.97 and 1.52
C. 2.73 and 1.52
D. 3.50 and 0.90
E. None of these
Current ratio = $460,500/$131,500 = 3.50

Acid-test ratio = $118,000/$131,500 = 0.90
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

94. Based on the ratios and analysis of the account balances for Breanna Boutique, the company
is:
A. likely to face near-term liquidity problems.
B. unlikely to face near-term liquidity problems.
C. likely raising liquidity concerns unless cash can be generated from inventory sales.
D. unlikely raising liquidity concerns.
E. Both A and C.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

95. The gross margin ratio:
A. Is also called the net profit ratio.
B. Measures a merchandising firm's ability to earn a profit from the sale of inventory.
C. Is also called the profit margin.
D. Is a measure of liquidity.
E. Should be greater than 1.
AICPA BB: Industry
Difficulty: Easy

96. A company's gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio
equals:
A. 4.2%.
B. 24.1%.
C. 75.9%.
D. $83,750.
E. $264,050.
$83,750/$347,800 = 24.1%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

97. A company's net sales were $676,600, its cost of good sold was $236,810 and its net income
was $33,750. Its gross margin ratio equals:
A. 5%.
B. 9.6%.
C. 35%.
D. 65%.
E. 285.7%.
($676,600 - $236,810)/$676,600 = 65%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

98. A company had net sales and cost of goods sold of $752,000 and $543,000, respectively. Its
net income was $17,530. The company's gross margin ratio equals:
A. 18.9%
B. 24.5%
C. 27.8%
D. 34.7%
E. 35.2%
($752,000 - $543,000)/$752,000 = 27.8%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

99. J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092 million, and
its net income was $997 million. Its gross margin ratio equals:
A. 3.5%.
B. 5.2%.
C. 33%.
D. 67%.
E. 149.3%.
($28,496 - $19,092)/$28,496 = 33%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

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

A. 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
B. 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
C. 30% discount if paid within 2 days.
D. 30% discount if paid within 10 days.
E. 2% discount if paid within 30 days.
AICPA BB: Industry
Difficulty: Easy

101. A trade discount is:
A. A term used by a purchaser to describe a cash discount given to customers for prompt
payment.
B. A reduction in price below the list price.
C. A term used by a seller to describe a cash discount granted to customers for prompt payment.
D. A reduction in price for prompt payment.
E. Also called a rebate.
AICPA BB: Industry
Difficulty: Easy

102. The amount recorded for merchandise inventory includes:

A. Any purchase discounts.
B. Any returns and allowances.
C. Any necessary freight costs.
D. Any trade discounts.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

103. A company uses the perpetual inventory system and recorded the following entry:

This entry reflects a:

A. Purchase.
B. Return.
C. Sale.
D. Payment of the account payable and recognition of a cash discount taken.
E. Purchase and recognition of a cash discount taken.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

104. A debit memorandum is:

A. Required whenever a journal entry is recorded.
B. The source document for the purchase of merchandise inventory.
C. Required when a purchase discount is granted.
D. The document a buyer issues to inform the seller of a debit made to the seller's account in the
buyer's records.
E. Not necessary in a perpetual inventory system.
AICPA BB: Industry
Difficulty: Medium

105. A company purchased $1,800 of merchandise on December 5. On December 7, it returned
$200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount.
The amount of the cash paid on December 8 equals:
A. $200.
B. $1,564.
C. $1,568.
D. $1,600.
E. $1,800.
($1,800 - $200) x .98 = $1,568
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

106. A company purchased $4,000 worth of merchandise. Transportation costs were an

additional $350. The company later returned $275 worth of merchandise and paid the invoice
within the 2% cash discount period. The total amount paid for this merchandise is:
A. $3,725.00.
B. $3,925.00.
C. $3,995.00.
D. $4,000.50.
E. $4,075.00.
[($4,000 - $275) x .98] + $350 = $4,000.50
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

107. A buyer failed to take advantage of the vendor's credit terms of 2/15, n/45, but instead paid
the invoice in full at the end of 60 days. By not taking advantage of the cash discount, the buyer
lost the equivalent of ____________ annual interest on the amount of the purchase.
A. 12.2%
B. 16.2%
C. 18.9%
D. 24.3%
E. 24.5%
(365 / [45-15]) x .02 = 24.3%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

108. Merchandising companies must account for:

A. Sales.
B. Sales discounts.
C. Sales returns and allowances.
D. Cost of merchandise sold.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

109. Sales returns:
A. Refer to merchandise that customers return to the seller after the sale.
B. Refer to reductions in the selling price of merchandise sold to customers.
C. Represent cash discounts.
D. Represent trade discounts.
E. Are not recorded under the perpetual inventory system until the end of each accounting
period.
AICPA BB: Industry
Difficulty: Easy

110. Sales returns and allowances:

A. Can provide useful information about dissatisfied customers and the possibility of lost future
sales.
B. Are recorded in a separate contra-revenue account.
C. Are rarely disclosed in published financial statements.
D. Are closed to the Income Summary account.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

111. A debit to Sales Returns and Allowances and a credit to Accounts Receivable:
A. Reflects an increase in amount due from a customer.
B. Recognizes that a customer returned merchandise and/or received an allowance.
C. Requires a debit memorandum to recognize the customer's return.
D. Is recorded when a customer takes a discount.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

112. Sales less sales discounts less sales returns and allowances equals:
A. Net purchases.
B. Cost of goods sold.
C. Net sales.
D. Gross profit.
E. Net income.
AICPA BB: Industry
Difficulty: Medium

113. Herald Company had sales of $135,000, sales discounts of $2,000, and sales returns of
$3,200. Herald Company's net sales equals:
A. $5,200.
B. $129,800.
C. $133,000.
D. $135,000.
E. $140,200.
$135,000 - $2,000 - $3,200 = $129,800
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

114. On October 1, Robinson Company sold merchandise in the amount of $5,800 to Rosser,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robinson uses the perpetual
inventory system. The journal entry or entries that Robinson will make on October 1 is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

115. On October 1, Whaley Company sold merchandise in the amount of $5,800 to Lee
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Whaley uses the
perpetual inventory system. Lee pays the invoice on October 8, and takes the appropriate
discount. The journal entry that Whaley makes on October 8 is:
A.
B.
C.
D.
E.
$5,800 x .02 = $116

$5,800 - $116 = $5,684
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

116. On October 1, Mutch Company sold merchandise in the amount of $5,800 to Carr
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Mutch uses the
perpetual inventory system. On October 4, Carr returns some of the merchandise. The selling
price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or
entries that Mutch must make on October 4 is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

117. A company records the following journal entry: debit Cash $1,470, debit Sales Discounts
$30, and credit Accounts Receivable $1,500. This means that a customer has taken a ___ cash
discount for early payment.
A. 1%
B. 2%
C. 5%
D. 10%
E. 15%
$30/$1,500 = 2% discount
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

118. Inventory shrinkage:
A. Refers to the loss of inventory.
B. Is determined by comparing a physical count of inventory with recorded inventory amounts.
C. Is recognized by debiting Cost of Goods Sold.
D. Can be caused by theft or deterioration.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

119. Which of the following accounts would be closed with a credit?
A. Sales Discounts.
B. Sales Returns and Allowances.
C. Cost of Goods Sold.
D. Operating Expenses.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

120. An income statement that includes cost of goods sold as another expense and shows only
one subtotal for total expenses is a:
A. Balanced income statement.
B. Single-step income statement.
C. Multiple-step income statement.
D. Combined income statement.
E. Simplified income statement.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

121. Expenses that support the overall operations of a business and include the expenses relating
to accounting, human resource management, and financial management are called:
B. Selling expenses.
C. Purchasing expenses.
D. General and administrative expenses.
E. Nonoperating activities.
AICPA BB: Industry
Difficulty: Easy

122. Benson Company had cash sales of $94,275, credit sales of $83,450, sales returns and
allowances of $1,700, and sales discounts of $3,475. Benson's net sales for this period equal:
A. $94,275.
B. $172,550.
C. $174,250.
D. $176,025.
E. $177,725.
$94,275 + $83,450 - $1,700 - $3,475 = $172,550
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

123. Multiple-step income statements:

A. Are required by the FASB.
B. Contain more detail than a simple listing of revenues and expenses.
C. Are required for the perpetual inventory system.
D. List cost of goods sold as an operating expense.
E. Can only be used in perpetual inventory systems.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

124. Expenses of promoting sales by displaying and advertising merchandise, making sales, and
delivering goods to customers are:
A. General and administrative expenses.
B. Cost of goods sold.
C. Selling expenses.
D. Purchasing expenses.
E. Nonoperating activities.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

125. A company has net sales and cost of goods sold of $752,000 and $543,000, respectively. Its
net income is $17,530. The company's gross margin and operating expenses are ________ and
____________, respectively.
A. $209,000; $191,470
B. $191,470; $209,000
C. $525,470; $227,000
D. $227,000; $525,470
E. $734,000; $191,470
$752,000 - $543,000 = $209,000; $209,000 - $17,530 = $191,470
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

126. An account used in the periodic inventory system that is not used in the perpetual inventory
system is
A. Merchandise Inventory
B. Sales
C. Sales Returns and Allowances
D. Accounts Payable
E. Purchases
AICPA BB: Industry
Difficulty: Easy

127. When preparing an unadjusted trial balance using a periodic inventory system, the amount
shown for Merchandise Inventory is:
A. The ending inventory amount.
B. The beginning inventory amount.
C. Equal to the cost of goods sold.
D. Equal to the cost of goods purchased.
E. Equal to the gross profit.
AICPA BB: Industry
Difficulty: Medium

128. On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses
the periodic inventory system. The journal entry or entries that Courtland will make on October 1
is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

the periodic inventory system. Carter pays the invoice on October 8, and takes the appropriate
discount. The journal entry that Courtland makes on October 8 is:
A.
B.
C.
D.
E.
$5,800 x .02 = $116

$5,800 - $116 = $5,684
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

the periodic inventory system. On October 4, Carter returns some of the merchandise. The
selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The
entry or entries that Courtland must make on October 4 is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

the periodic inventory system. On October 4, Carter returns some of the merchandise. The
selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Carter
pays the invoice on October 8, and takes the appropriate discount. The journal entry that
Courtland makes on October 8 is:
A.
B.
C.
D.
E.
$5,800 - $500 = $5,300 x .02 = $106

$5,300 - $106 = $5,194
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


67. Damaged and obsolete goods:
A. Are never counted as inventory.
B. Are included in inventory at their full cost.
C. Are included in inventory at their net realizable value.
D. Should be disposed of immediately.
E. Are assigned a value of zero.
AICPA BB: Industry
Difficulty: Easy

68. Merchandise inventory includes:

A. All goods owned by a company and held for sale.
B. All goods in transit.
C. All goods on consignment.
D. Only damaged goods.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

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

A. At any time during transit.
B. When the purchaser is responsible for paying freight charges.
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.
AICPA BB: Industry
Difficulty: Medium

70. Goods on consignment:
A. Are goods shipped by the owner to the consignee who sells the goods for the owner.
B. Are reported in the consignee's books as inventory.
C. Are goods shipped to the consignor who sells the goods for the owner.
D. Are not reported in the consignor's inventory since they do not have possession of the
inventory.
E. Are always paid for by the consignee when they take possession.
AICPA BB: Industry
Difficulty: Hard

71. Regardless of the inventory costing system used, cost of goods available for sale must be
allocated between
A. beginning inventory and net purchases during the period.
B. ending inventory and beginning inventory.
C. net purchases during the period and ending inventory.
D. ending inventory and cost of goods sold.
E. beginning inventory and cost of goods sold.
AICPA BB: Industry
Difficulty: Medium

72. On December 31 of the current year, Hewett Company reported an ending inventory balance
of $215,000. The following additional information is also available:
· Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped the
goods on that date with shipping terms of FOB shipping point. The goods were not included in
the ending inventory amount of $215,000 because they were not in Hewett's warehouse.
· Hewett purchased goods costing $44,000 on December 29. The goods were shipped FOB
destination and were received by Hewett on January 2 of the following year. The shipment was a
rush order that was supposed to arrive by December 31. These goods were included in the ending
inventory balance of $215,000.
· Hewett's ending inventory balance of $215,000 included $15,000 of goods being held on
consignment from Rumsfeld Company. (Hewett Company is the consignee.)
· Hewett's ending inventory balance of $215,000 did not include goods costing $95,000 that were
shipped to Hewett on December 27 with shipping terms of FOB destination and were still in
transit at year-end.
Based on the above information, the correct balance for ending inventory on December 31 is:
A. $194,000
B. $209,000
C. $200,000
D. $171,000
E. $156,000
Start with beginning inventory of $215,000. The information in the first bullet point was handled
correctly, although the explanation for why is incorrect. No adjustment. For the second bullet
point, the $44,000 of goods should not have been included in ending inventory since the goods
were shipped FOB destination. Subtract $44,000. For the third bullet point, ending inventory
should not include goods held on consignment from another company. Subtract $15,000. The
information in the fourth bullet point was handled correctly.
No adjustment. $215,000 - $44,000 - $15,000 = $156,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

73. Gotham Company reported a December 31 ending inventory balance of $412,000. The
following additional information is also available:
· The ending inventory balance of $412,000 included $72,000 of consigned inventory for which
Gotham was the consignor.
· The ending inventory balance of $412,000 included $22,000 of office supplies that were stored
in the warehouse and were to be used by the company's supervisors and managers during the
coming year.
· The ending inventory balance of $412,000 did not include goods costing $48,000 that were
purchased by Gotham on December 28 and shipped FOB destination on that date. Gotham did
not receive the goods until January 2 of the following year.
· The ending inventory balance of $412,000 included damaged goods at their original cost of
$38,000. The net realizable value of the damaged goods was $10,000.
· The ending inventory balance of $412,000 included $43,000 of consigned inventory for which
Gotham was the consignee.
Based on this information, the correct balance for ending inventory on December 31 is:
A. $247,000
B. $341,000
C. $362,000
D. $309,000
E. $319,000
Start with beginning inventory of $412,000. The information in the first bullet point was handled
correctly since inventory should include consigned goods for which the subject company is the
consignor. No adjustment. With respect to the second bullet point, inventory should not include
office supplies held for use. Subtract $22,000. The information in the third bullet point was
handled correctly since inventory should not include goods shipped FOB destination that have
not yet been received by the buyer. With respect to the fourth bullet point, damaged goods
should not be included in inventory at their original cost if the net realizable value is materially
below cost. Subtract $28,000 ($38,000 - $10,000). With respect to the fifth bullet point,
inventory should not include the value of consigned inventory for which the subject company is
the consignee. Subtract $43,000. Thus, ending inventory should be $412,000 - $22,000 - $28,000
- $43,000 = $319,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

74. Costs included in the Merchandise Inventory account can include:
A. Invoice price minus any discount.
B. Transportation-in.
C. Storage.
D. Insurance.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

75. Internal controls that should be applied when a business takes a physical count of inventory
should include
A. Prenumbered inventory tickets.
B. Counters of inventory should not be those who are responsible for the inventory.
C. Counters must confirm the validity of inventory existence, amounts, and quality.
D. Second counts by a different counter.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

76. Physical counts of inventory:

A. Are not necessary under the perpetual system.
B. Are necessary to measure and adjust for inventory shrinkage.
C. Must be taken at least once a month.
D. Requires the use of hand-held portable computers.
E. Are not necessary under the cost-to benefit constraint.
AICPA BB: Industry
Difficulty: Medium

77. Incidental and necessary costs of inventory:
A. Can be assigned to each inventory unit.
B. May be immaterial.
C. Can be allocated to cost of goods sold.
D. Are subject to the cost-to-benefit constraint when deciding how to account for them.
E. All of these.
AICPA BB: Industry
Difficulty: Hard

78. During a period of steadily rising costs, the inventory valuation method that yields the lowest
reported net income is:
A. Specific identification method.
B. Average cost method.
C. Weighted-average method.
D. FIFO method.
E. LIFO method.
AICPA BB: Industry
Difficulty: Easy

79. The inventory valuation method that tends to smooth out erratic changes in costs is:
A. FIFO.
B. Weighted average.
C. LIFO.
D. Specific identification.
E. WIFO
AICPA BB: Industry
Difficulty: Easy

80. The inventory valuation method that has the advantages of assigning an amount to inventory
on the balance sheet that approximates its current cost, and also mimics the actual flow of goods
for most businesses is:
A. FIFO.
B. Weighted average.
C. LIFO.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

81. The inventory valuation method that results in the lowest taxable income in a period of
inflation is:
A. LIFO method.
B. FIFO method.
C. Weighted-average cost method.
D. Specific identification method.
E. Gross profit method.
AICPA BB: Industry
Difficulty: Medium

82. The consistency concept:
A. Requires a company to consistently apply the same accounting method of inventory valuation,
an exception being when a change from one method to another will improve its financial
reporting.
B. Requires a company to use one method of inventory valuation exclusively.
C. Requires that all companies in the same industry use the same accounting methods of
inventory valuation.
D. Is also called the full disclosure principle.
E. Is also called the matching principle.
AICPA BB: Industry
Difficulty: Medium

83. The full disclosure principle:

A. Requires that when a change in inventory valuation method is made, the notes to the
statements report the type of change, its justification and its effect on net income.
B. Requires that companies use the same accounting method for inventory valuation period after
period.
C. Is not subject to the materiality principle.
D. Is only applied to retailers.
E. Is also called the consistency principle.
AICPA BB: Industry
Difficulty: Hard

84. Which of the following inventory costing methods will always result in the same values for
ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory
system is used?
A. FIFO and LIFO
B. LIFO and weighted-average cost
C. Specific identification and FIFO
D. FIFO and weighted-average cost
E. LIFO and specific identification
AICPA BB: Industry
Difficulty: Hard

85. If a period-end inventory amount is reported in error, it can cause a misstatement in:
B. Gross profit.
C. Net income.
D. Current assets.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

86. An error in the period-end inventory causes an offsetting error in the next period and
therefore:
A. Managers can ignore the error.
B. It is sometimes said to be self-correcting.
C. It affects only income statement accounts.
D. If affects only balance sheet accounts.
E. Is immaterial for managerial decision making.
AICPA BB: Industry
Difficulty: Medium

87. The understatement of the ending inventory balance causes:
A. Cost of goods sold to be overstated and net income to be understated.
B. Cost of goods sold to be overstated and net income to be overstated.
C. Cost of goods sold to be understated and net income to be understated.
D. Cost of goods sold to be understated and net income to be overstated.
E. Cost of goods sold to be overstated and net income to be correct.
AICPA BB: Industry
Difficulty: Hard

88. The understatement of the beginning inventory balance causes:

A. Cost of goods sold to be understated and net income to be understated.
B. Cost of goods sold to be understated and net income to be overstated.
C. Cost of goods sold to be overstated and net income to be overstated.
D. Cost of goods sold to be overstated and net income to be understated.
E. Cost of goods sold to be overstated and net income to be correct.
AICPA BB: Industry
Difficulty: Hard

89. Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows:

Thelma Company made two errors: 1) ending inventory at the end of Year 1 was understated by
$15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this
information, the correct cost of goods sold figure for Year 2 would be:
A. $291,000
B. $276,000
C. $264,000
D. $285,000
E. $249,000
If ending inventory for Year 1 was reported at $130,000 but was understated by $15,000, the
correct ending inventory figure for Year 1 was $145,000. That amount becomes the beginning
inventory for Year 2. Add to that amount the $275,000 of cost of goods purchased in Year 2 and
you get cost of goods available for sale of $420,000. Finally, the reported ending inventory
figure for Year 2 of $135,000 was overstated by $6,000. Thus, the correct ending inventory
figure for Year 2 was $129,000. Subtracting ending inventory of $129,000 from cost of goods
available for sale of $420,000 yields cost of goods sold of $291,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

90. Louise Company reported the following income statement information for Year 1 and Year
2:

The beginning inventory balance for Year 1 is correct. The ending inventory balance for Year 2
is also correct. However, the ending inventory figure for Year 1 was overstated by $20,000.
Given this information, the correct gross profit figures for Year 1 and Year 2 would be:
A. $129,000 for Year 1 and $256,000 for Year 2.
B. $281,000 for Year 1 and $274,000 for Year 2.
C. $129,000 for Year 1 and $276,000 for Year 2.
D. $169,000 for Year 1 and $236,000 for Year 2.
E. $169,000 for Year 1 and $276,000 for Year 2.
If ending inventory of $144,000 for Year 1 were overstated by $20,000, the correct amount of
ending inventory was $124,000. As a result, cost of goods sold for Year 1 was not $261,000 as
reported, but rather $281,000. Thus, gross profit for Year 1 was $129,000 (Sales of $410,000 -
Cost of Goods Sold of $281,000). The adjusted ending inventory balance for Year 1 ($124,000)
becomes the beginning inventory balance for Year 2. Adding to that figure the $302,000 of
purchases during the year and you get cost of goods available for sale of $426,000. If we then
subtract the $152,000 of ending inventory for Year 2, we get cost of goods sold in Year 2 of
$274,000. Accordingly, gross profit for Year 2 is $276,000 (Sales of $550,000 - Cost of Goods
Sold of $274,000).
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

91. An overstatement of ending inventory will cause
A. An overstatement of assets and equity on the balance sheet.
B. An understatement of assets and equity on the balance sheet.
C. An overstatement of assets and an understatement of equity on the balance sheet.
D. An understatement of assets and an overstatement of equity on the balance sheet.
E. No effect on the balance sheet.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

92. The inventory turnover ratio:

A. Is used to analyze profitability.
B. Is used to measure solvency.
C. Reveals how many times a company turns over (sells) its merchandise inventory.
D. Validates the acid-test ratio.
E. Calculation depends on the company's inventory valuation method.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

93. Days' sales in inventory:

A. Is also called days' stock on hand.
B. Focuses on average inventory rather than ending inventory.
C. Is used to measure solvency.
D. Is calculated by dividing cost of goods sold by ending inventory.
E. Is a substitute for the acid-test ratio.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

94. The inventory turnover ratio is calculated as:
A. Cost of goods sold divided by average merchandise inventory.
B. Sales divided by cost of goods sold.
C. Ending inventory divided by cost of goods sold.
D. Cost of goods sold divided by ending inventory.
E. Cost of goods sold divided by ending inventory times 365.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

95. Days' sales in inventory is calculated as:

A. Ending inventory divided by cost of goods sold.
B. Cost of goods sold divided by ending inventory.
C. Ending inventory divided by cost of goods sold times 365.
D. Cost of goods sold divided by ending inventory times 365.
E. Ending inventory times cost of goods sold.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

96. Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million,
and average inventory of $1,965 million. Its inventory turnover equals:
A. 0.21.
B. 4.51
C. 4.79.
D. 76.1 days.
E. 80.9 days.
9,421/1,965 = 4.79 times
AACSB: Analytic
AICPA BB: Industry
Difficulty: Med

97. Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million,
and average inventory turnover of $1,965 million. Its days' sales in inventory equals:
A. 0.21.
B. 4.51.
C. 4.79.
D. 76.1 days.
E. 80.9.days.
2,089//9,421 * 365 = 80.9 days
AACSB: Analytic
AICPA BB: Industry
Difficulty: Med

98. Acceptable inventory methods include:

A. LIFO method.
B. FIFO method.
C. Specific identification method.
D. Weighted average method.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

99. Management must confront which of the following considerations when accounting for
inventory:
A. Costing (valuation) method.
B. Inventory system (perpetual or periodic).
C. Items to be included and their cost.
D. Use of lower of cost or market or other estimate.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

100. The inventory valuation method that identifies each item in ending inventory with a specific
purchase and invoice is the:
A. Weighted average inventory method.
B. First-in, first-out method.
C. Last-in, first-out method.
D. Specific identification method
E. Retail inventory method.
AICPA BB: Industry
Difficulty: Medium

101. A company had the following purchases during the current year:

On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of
2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using
the specific identification method, what is the cost of the ending inventory?
A. $3,500.
B. $3,800.
C. $3,960.
D. $3,280.
E. $3,640.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

102. A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2,
they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On
November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what
was the value of the inventory on November 8 after the sale?
A. $304
B. $296
C. $288
D. $280
E. $276
Units available = 5 + 10 + 6 = 21 units

Units in inventory = 21 - 8 units = 13 units
Cost of inventory = (5 x $20) + (8 x $22) = $276
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

103. Acme-Jones Corporation uses a weighted-average perpetual inventory system.

August 2, 10 units were purchased at $12 per unit.
August 29, 12 units were sold.
What was the amount of the cost of goods sold for this sale?
A. $148.00.
B. $150.50.
C. $158.40.
D. $210.00.
E. $330.00.
Average cost = [(10 x $12) + (15 x $14)]/25 units = $13.20/unit

Cost of sale = 12 units x $13.20/unit = $158.40
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

104. A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it
purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory
method, what is the cost of the 12 units that were sold?
A. $120.
B. $124.
C. $128.
D. $130.
E. $140.
(10 units x $10) + ($2 x $12) = $124
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

105. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it
purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit. On
August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the value of the
inventory at August 12 after the sale?
A. $140.
B. $160.
C. $210.
D. $380.
E. $590.
Units available for sale = 15 + 10 + 20 = 45 units

Units in inventory = 45 - 30 = 15 units
Cost of inventory = 15 x $14 each = $210
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

106. A company had inventory of 5 units at a cost of $20 each on November 1. On November 2,
it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On
November 8, it sold 18 units for $54 each. Using the LIFO perpetual inventory method, what
was the cost of the 18 units sold?
A. $395.
B. $410.
C. $450.
D. $510.
E. $520.
(6 x $25) + (10 x $22) + (2 x $20) = $410
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

107. A company sells a climbing kit and uses the perpetual inventory system to account for its
merchandise. The beginning balance of the inventory and its transactions during January were as
follows:

If the ending inventory is reported at $276, what inventory method was used?
A. LIFO method.
B. FIFO method.
C. Weighted-average method.
D. Specific identification method.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

108. Acme-Jones Company uses a weighted-average perpetual inventory system.
August 29, 20 units were sold.
What is the per-unit value of ending inventory on August 31?
A. $12.00.
B. $13.80.
C. $15.42.
D. $16.00.
E. $17.74.
* $345/25 units = $13.80/unit

**$293/19 units = $15.42/unit
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

109. Given the following information, determine the cost of the inventory at June 30 using the
LIFO perpetual inventory method.

The cost of the ending inventory is

A. $200.
B. $220.
C. $380.
D. $275.
E. $300.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

110. In applying the lower of cost or market method to inventory valuation, market is defined
as:
A. Historical cost.
B. Current replacement cost.
C. Current sales price.
D. FIFO.
E. LIFO.
AICPA BB: Industry
Difficulty: Easy

111. Generally accepted accounting principles require that the inventory of a company be
reported at:
A. Market value.
B. Historical cost.
C. Lower of cost or market.
D. Replacement cost.
E. Retail value.
AICPA BB: Industry
Difficulty: Easy

112. The conservatism constraint:

A. Requires that when multiple estimates of amounts to be received or paid in the future are
equally likely, then the least optimistic amount should be used.
B. Requires that a company use the same accounting methods period after period.
C. Requires that revenues and expenses be reported in the period in which they are earned or
incurred.
D. Requires that all items of a material nature be included in financial statements.
E. Requires that all inventory items be reported at full cost.
AICPA BB: Industry
Difficulty: Medium

113. A company normally sells its product for $20 per unit. However, the selling price has fallen
to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit.
Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory
at the lower of cost or market.
A. $2,550.
B. $2,600.
C. $2,700.
D. $3,000.
E. $3,200.
200 units @ $13 per unit = $2,600
AICPA BB: Industry
Difficulty: Medium

114. A company has the following per unit original costs and replacement costs for its inventory:
Part A: 50 units with a cost of $5, and replacement cost of $4.50

Part B: 75 units with a cost of $6, and replacement cost of $6.50
Part C: 160 units with a cost of $3, and replacement cost of $2.50
Under the lower of cost or market method, the total value of this company's ending inventory is:
A. $1,180.00.
B. $1,075.00.
C. $1,075.00 or $1,112.50, depending upon whether LCM is applied to individual items or the
inventory as a whole.
D. $1,112.50.
E. $1180.00 or $1075.00, depending upon whether LCM is applied to individual items or to the
inventory as a whole.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

115. A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it
purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO periodic inventory
method, what is the cost of the 12 units that were sold?
A. $120.
B. $124.
C. $128.
D. $130.
E. $140.
(10 units x $10) + ($2 x $12) = $124
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

116. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it
purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit. On
August 15, it sold 30 units. Using the FIFO periodic inventory method, what is the value of the
inventory at August 15 after the sale?
A. $140.
B. $160.
C. $210.
D. $380.
E. $590.
Units available for sale = 15 + 10 + 20 = 45 units

Units in inventory = 45 - 30 = 15 units
Cost of inventory = 15 x $14 each = $210
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

117. A company had inventory of 10 units at a cost of $20 each on November 1. On November
2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On
November 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was
the cost of the 22 units sold?
A. $470.
B. $490.
C. $450.
D. $570.
E. $520.
(10 x $20) + (10 x $22) + (2 x $25) = $470
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

118. A company uses the periodic inventory system and had the following activity during the
current monthly period.

In a periodic inventory system, using the weighted-average inventory method, the company's
ending inventory would be:
A. $2,000.
B. $2,200.
C. $2,250.
D. $2,400.
E. $4,400.
Weighted average cost per unit: $6,600/300 units = $22

Ending inventory: (300 units - 200 units) x $22 = $2,200
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

119. A company sells a climbing kit and uses the periodic inventory system to account for its
merchandise. The beginning balance of the inventory and its transactions during January were as
follows:

If the ending inventory is reported at $357, what inventory method was used?
A. LIFO.
B. FIFO.
C. Weighted average.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

120. A company's warehouse was destroyed by a tornado on March 15. The following
information was the only information that was salvaged:

The company's average gross profit ratio is 35%. What is the estimated cost of the lost
inventory?
A. $ 9,705.
B. $25,995.
C. $29,250.
D. $44,000.
E. $45,000.
COGS = ($55,000 - $700) x 65% = $35,295

Goods available for sale = $28,000 + $17,000 = $45,000
EI = $45,000 - $35,295 = $9,705
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

121. A company reported the following information regarding its inventory.
Beginning inventory: cost is $70,000; retail is $130,000

Net purchases: cost is $65,000; retail is $120,000
Sales at retail: $145,000
The year-end inventory showed $105,000 worth of merchandise available at retail prices. What
is the cost of the ending inventory?
A. $ 48,300.
B. $ 56,700.
C. $ 56,441.
D. $ 78,300.
E. $105,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

122. On September 30 a company needed to estimate its ending inventory to prepare its third
quarter financial statements. The following information is available:
Beginning inventory, July 1: $4,000
Net sales: $40,000
Net purchases: $41,000
The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold
would be:
A. $ 4,000.
B. $ 5,000.
C. $21,000.
D. $25,000.
E. $34,000.
85% x $40,000 = $34,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

123. A company that has operated with a 30% average gross profit ratio for a number of years
had $100,000 in sales during the first quarter of this year. If it began the quarter with $18,000 of
inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending
inventory by the gross profit method is:
A. $30,000.
B. $21,000.
C. $20,000.
D. $18,000.
E. $27,000.
COGS = $100,000 x 70% = $70,000

Costs available for sale = $18,000 + $72,000 = $90,000
EI = $90,000 - $70,000 = $20,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

124. On December 31, a company needed to estimate its ending inventory to prepare its fourth
quarter financial statements. The following information is currently available:
Inventory as of October 1: $12,500

Net sales for fourth quarter: $40,000
Net purchases for fourth quarter: $27,500
This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross
profit method would be:
A. $ 4,000.
B. $ 6,000.
C. $10,000.
D. $16,000.
E. $34,000.
COGS = $40,000 x 85% = $34,000

Costs available for sale = $12,500 + $27,500 = $40,000
EI = $40,000 - $34,000 = $6,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

125. Interim statements:
A. Are required by the Congress.
B. Are necessary to achieve full disclosure about a business's operations.
C. Are usually monthly or quarterly statements prepared for periods less than the traditional,
annual statements.
D. Require the use of the perpetual method for inventories.
E. Cannot be prepared if the company follows the conservatism principle.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

126. The Jackson Company has sales of $300,000 and cost of goods available for sale of
$270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory
under the gross profit method would be:
A. $60,000
B. $180,000
C. $30,000
D. $90,000
If sales for the period were $300,000 and the company's typical gross profit ratio is 30%, gross
profit would be approximately $90,000. That means that cost of goods sold must have been
$210,000. Subtracting cost of goods sold of $210,000 from the $270,000 of cost of goods
available for sale yields ending inventory of $60,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

127. The Georgia Peach Company reported net sales in June of the current year of $1,000,000.
At the beginning of June, the company reported beginning inventory of $368,000. Cost of goods
purchased during June amounted to $217,500. The company reported ending inventory at the end
of June of $226,750.
The company's gross profit rate for June of the current year was:
A. 35.9%
B. 18.8%
C. 81.2%
D. 64.1%
Combining beginning inventory of $368,000 with purchases for the period of $217,500 yields
cost of goods available for sale of $585,500. If we then subtract the ending inventory of
$226,750, we get cost of goods sold of $358,750. Subtracting cost of goods sold ($358,750) from
sales ($1,000,000) yields gross profit of $641,250. Dividing gross profit of $641,250 by sales of
$1,000,000 yields a gross profit percentage of 64.125% or 64.1% rounded.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

128. On July 24 of the current year, The Georgia Peach Company experienced a natural disaster
that destroyed the company's entire inventory. At the beginning of July, the company reported
beginning inventory of $226,750. Inventory purchased during July (until the date of the disaster)
was $197,800. Sales for the month of July through July 24 were $642,500. Assuming the
company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the
natural disaster.
A. $212,275
B. $103,300
C. $217,950
D. $321,250
E. $157,788
Beginning inventory on July 1 was $226,750. Purchases for the month of July amounted to
$197,800, yielding cost of goods available for sale of $424,550. If the company's typical gross
profit ratio is 50% and if sales for the month of July were $642,500, then the cost of goods sold
during July was $321,250. Subtracting that amount from the cost of goods available for sale
yields ending inventory of $103,300.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


55. Accounting information systems:

A. Collect and process data from transactions and events.
B. Organize data in useful forms.
C. Communicate information to business decision makers.
D. Are crucial to effective decision making.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

56. Internal control procedures include:
A. Procedures to ensure reliable financial reports.
B. Safeguards to protect company assets.
C. Policies to direct operations toward common goals.
D. Methods to achieve compliance with laws and regulation.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

57. The control principle for accounting information systems requires that the:
A. Benefits from an activity outweigh the costs of the activity.
B. System report useful, understandable, timely, and pertinent information for effective decision
making.
C. System must have internal controls.
D. System adapt to changes in the company, business environment, and needs of decision
makers.
E. System conform with a company's activities, personnel, and structure.
AICPA BB: Industry
Difficulty: Medium

58. The flexibility principle of accounting information systems requires that the:
A. Benefits from an activity outweigh the costs of the activity.
B. System report useful, understandable, timely, and pertinent information for effective decision
making.
C. System aid managers in controlling and monitoring business activities.
D. System be able to adapt to changes in the company, business environment, and needs of
decision makers.
E. System conform with a company's activities, personnel, and structure.
AICPA BB: Industry
Difficulty: Medium

59. The accounting principle that requires an accounting information system to report useful,
understandable, timely, and pertinent information for effective decision-making is the:
A. Control principle.
B. Compatibility principle.
C. Relevance principle.
D. Flexibility principle.
E. Cost-Benefit principle.
AICPA BB: Industry
Difficulty: Medium

60. The five fundamental principles of accounting information systems are:

A. Control, accountability, relevance, compatibility, and flexibility.
B. Historical cost, relevance, compatibility, flexibility, and cost-benefit.
C. Control, relevance, compatibility, flexibility, and safety.
D. Control, relevance, compatibility, timeliness, and cost-benefit.
E. Control, relevance, compatibility, flexibility, and cost-benefit.
AICPA BB: Industry
Difficulty: Hard

61. Accounting information systems consist of:
A. People.
B. Records.
C. Methods.
D. Equipment.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

62. The basic components of an accounting information system include:

A. Source documents.
B. Input devices.
C. Information processors.
D. Information storage.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

63. Source documents:
A. Are input devices.
B. Provide the basic information processed by an accounting system.
C. Cannot be electronic files.
D. Store processed information for future use.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

64. Input devices include:
A. Bar-code readers.
B. Printers.
C. Software.
D. Ledgers.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

65. Information storage:
A. Eliminates the need for professional judgment.
B. Keeps data in a form accessible to information processors.
C. Provides the basic information processed by an accounting system.
D. Captures information from source documents.
E. Includes all of these.
AICPA BB: Industry
Difficulty: Medium

66. Output devices include:

A. Printers.
B. Monitors.
C. LCD projectors.
D. Web communications.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

67. Information processors:
A. Include information storage.
B. Interpret, transform, and summarize information for use in analysis and reporting.
C. Are components of an accounting system that keep data in accessible form.
D. Are the means to take information out of an accounting system and make it available to users.
E. Include scanners.
AICPA BB: Industry
Difficulty: Hard

68. The special journals of many accounting systems include the:

A. Sales journal.
B. Purchases journal.
C. Cash receipts journal.
D. Cash disbursements journal.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

69. The sales journal is used for recording:

A. Credit purchases.
B. Credit sales.
C. Cash sales.
D. Cash purchases.
E. Cash receipts.
AICPA BB: Industry
Difficulty: Easy

70. The purchases journal is used for recording:
A. Credit purchases.
B. Credit sales.
C. Cash sales.
D. Cash purchases.
E. Cash disbursements.
AICPA BB: Industry
Difficulty: Easy

71. A book of original entry that is used to record and post transactions of a similar type is a:
A. Schedule.
B. Columnar ledger.
C. Special journal.
D. General journal.
E. Subsidiary ledger.
AICPA BB: Industry
Difficulty: Easy

72. When a company uses special journals, the general journal is used for selected transactions
and events including:
A. Recording adjusting transactions.
B. Posting transactions to special journals.
C. Accumulating debits and credits.
D. Collecting detailed listings of amounts.
E. Recording cash receipts.
AICPA BB: Industry
Difficulty: Hard

73. A record that contains all accounts (with amounts) of a company is the:
A. General ledger.
B. General journal.
C. Special ledger.
D. Special journal.
E. Column balance ledger.
AICPA BB: Industry
Difficulty: Easy

74. A subsidiary ledger:

A. Includes transactions not covered by special journals.
B. Is a listing of all of the accounts of a business.
C. Is a listing of individual accounts and amounts with a common characteristic.
D. Is also called a general ledger.
E. Is also called a special journal.
AICPA BB: Industry
Difficulty: Easy

75. A subsidiary ledger that contains a separate account for each supplier (creditor) to the
company is a(n):
A. Controlling account.
B. Accounts receivable ledger.
C. Accounts payable ledger.
D. General ledger.
E. Special journal.
AICPA BB: Industry
Difficulty: Easy

76. An accounts payable ledger is:
A. A subsidiary ledger that contains an account for each supplier (creditor).
B. A list of the balances of all the accounts in the accounts receivable ledger that is added to
show the total amount of accounts receivable outstanding.
C. A book of original entry that is designed and used for recording only a specific type of
transaction.
D. The ledger that contains the financial statement accounts of a business.
E. A subsidiary ledger that contains a separate account for each party that grants both short-term
and long-term credit on account to the company.
AICPA BB: Industry
Difficulty: Easy

77. Assume that a company uses a sales journal, a purchases journal, a cash receipts journal, a
cash disbursements journal, and a general journal. A sales return for credit on account would be
recorded in the:
A. Sales journal.
B. General journal.
C. Cash receipts journal.
D. Accounts receivable ledger.
E. Cash disbursements journal.
AICPA BB: Industry
Difficulty: Medium

78. An accounts receivable ledger is:
A. A subsidiary ledger that contains an account for each credit customer.
B. A list of the balances of selected accounts in the accounts receivable ledger that is added to
show the total amount of the significant accounts receivable outstanding.
C. A book of original entry that is designed and used for recording only a specified type of
transaction.
D. The ledger that contains the financial statement accounts of a business.
E. A subsidiary ledger that contains a separate account for each creditor (supplier) to the
company.
AICPA BB: Industry
Difficulty: Medium

79. The use of an Accounts Payable controlling account:

A. Reduces the number of accounts in the subsidiary ledger.
B. Reduces the total number of accounts maintained.
C. Reduces the number of entries in the general journals.
D. Reduces the number of accounts in the general ledger.
E. Increases the number of columns in the journals.
AICPA BB: Industry
Difficulty: Medium

80. Subsidiary ledgers:
A. Remove excessive detail from the general ledger.
B. Provide up-to-date information on customer or other specific account balances.
C. Aid in error identification for individual accounts.
D. Help with division of labor (recordkeeping tasks).
E. All of these.
AICPA BB: Industry
Difficulty: Medium

81. The accounts receivable ledger:
A. Is for storing transaction data for customers.
B. Is for storing transaction data for individual customers.
C. Is for storing transaction data for individual creditors.
D. Is for storing transaction date for creditors.
E. Is also the controlling account.
AICPA BB: Industry
Difficulty: Medium

82. Enterprise-resource planning software:

A. Refers to programs that help manage a company's vital operations.
B. Is another name for spreadsheet programs.
C. Uses batch processing of business information.
D. Is substantially declining in use.
E. Is another name for database programs.
AACSB: Technology
AICPA BB: Leveraging Technology
Difficulty: Easy

83. An approach that enters and processes data as soon as source documents are available is
called:
A. Date storage.
B. Batch processing.
C. Online processing.
D. Computer programming
E. Web communications.
AACSB: Technology
Difficulty: Medium

84. Enterprise resource planning software:
A. Refers to programs that help manage a company's vital operations.
B. Can include programs that extend from order taking to manufacturing to accounting.
C. Can speed up business decision making and help reduce costs.
D. Can be designed to link every part of a company's operations.
E. All of these.
AACSB: Technology
Difficulty: Medium

85. A business segment:

A. Requires only internal reporting.
B. Is a part of a company that is separately identified by its products, services, or geographic
market.
C. Requires special journals.
D. Requires subsidiary ledgers.
E. Cannot report its results separately.
AICPA BB: Industry
Difficulty: Easy

86. Coca-Cola's Latin American segment had revenues of $2,089 million, operating income of
$1,033 million, and average assets of $1,443 millions. The Latin American segment return on
assets is:
A. 49.4%
B. 69.0%
C. 71.6%
D. 139.7%
E. 144.8%
$1,033/$1,443 = 71.6%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

87. The segment return on assets:

A. Can only be determined for international companies.
B. Reflects the profitability of a segment.
C. Is difficult to calculate because companies with traded stock are not required to report
segment information.
D. Is calculated as segment average assets divided by segment operating income.
E. Is calculated as segment sales divided by segment average assets.
AICPA BB: Industry
Difficulty: Medium

88. When the sales journal's column for accounts receivable and sales is totaled at the end of the
month, its total is:
A. Debited to Sales and credited to Accounts Receivable.
B. Debited to Accounts Receivable and credited to Cash.
C. Debited to Cash and credited to Accounts Receivable.
D. Debited to Accounts Receivable and credited to Sales.
E. Debited to Cash and credited to Sales.
AICPA BB: Industry
Difficulty: Medium

89. A list of all the accounts in the accounts receivable ledger with their balances and the total is
a(n):
A. Schedule of accounts.
B. Controlling account.
C. Schedule of accounts receivable.
D. Subsidiary ledger.
E. Special journal.
AICPA BB: Industry
Difficulty: Easy

90. The Accounts Payable account in the general ledger is:

A. A controlling account for the subsidiary accounts payable ledger.
B. The account that controls the purchases journal.
C. The subsidiary account to the purchases journal.
D. Part of a special journal.
E. Part of a subsidiary ledger.
AICPA BB: Industry
Difficulty: Medium

91. After posting is completed, there may be an error if:
A. The sum of the customer account balances does not equal the total in the sales journal.
B. The sum of the accounts receivable ledger does not equal the balance in the Sales account.
C. The sum of the customer account balances does not equal the general ledger Accounts
Receivable controlling account balance.
D. The balance in the sales journal does not equal the Accounts Receivable account balance.
E. The sum of the accounts receivable ledger does not equal the balance in the sales journal.
AICPA BB: Industry
Difficulty: Hard

92. Assume that a company using a purchases journal made an error in totaling the journal's
columns. The error should be discovered:
A. When the purchases journal is posted to the general ledger.
B. When the trial balance is prepared.
C. When the total of the schedule of accounts payable is compared with the balance of the
Accounts Payable account.
D. When the creditors receive their payments.
E. When the financial statements are prepared.
AICPA BB: Industry
Difficulty: Hard

93. The main difference in the sales journal under the perpetual and periodic inventory system
is:
A. The column to record cost of goods sold and inventory amounts sold that is used under the
perpetual system but not the periodic.
B. The sales tax receivable column that is used under the perpetual system but not the periodic.
C. The sales tax payable column that is used under the perpetual system but not the periodic.
D. The accounts receivable column that is used under the perpetual system but not the periodic.
E. The column for recording cash that is used under the perpetual system but not the periodic.
AICPA BB: Industry
Difficulty: Medium


80. An internal control system consists of the policies and procedures managers use to:
A. Protect assets.
B. Ensure reliable accounting.
C. Promote efficient operations.
D. Urge adherence to company policies.
E. All of these.
AACSB: Technology
AICPA BB: Industry, Leveraging Technology
Difficulty: Easy

81. Managers place a high priority on internal control systems because the systems assist
managers in the:
A. Prevention of avoidable losses.
B. Planning of operations.
C. Monitoring of company performance.
D. Monitoring of employee performance.
E. All of these.
AACSB: Technology
Difficulty: Easy

82. The principles of internal control include:

A. Establish responsibilities.
B. Maintain minimal records.
C. Use only computerized systems.
D. Bond all employees.
E. Require automated sales systems.
AACSB: Technology
Difficulty: Easy

83. Principles of internal control include:
A. Apply technological controls.
B. Divide responsibilities for related transactions.
C. Perform regular and independent reviews.
D. Separate recordkeeping from custody of assets.
E. All of these.
AACSB: Technology
Difficulty: Easy

84. A properly designed internal control system:

A. Lowers the company's risk of loss.
B. Insures profitable operations.
C. Eliminates the need for an audit.
D. Requires the use of non-computerized systems.
E. Is not necessary if the company uses a computerized system.
AACSB: Technology
Difficulty: Medium

85. 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. All of these.
AACSB: Technology
Difficulty: Medium

86. When two clerks share the same cash register it 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.
AACSB: Technology
Difficulty: Medium

87. Prenumbered printed checks are an example of which internal control principle?

A. Technological controls.
B. Maintain adequate records.
C. Perform regular and independent reviews.
D. Establish responsibilities.
E. Divide responsibility for related transactions.
AACSB: Technology
Difficulty: Medium

88. The impact of technology on internal controls includes:

A. Reduced processing errors.
B. Elimination of the need for regular audits.
C. Elimination of the need to bond employees.
D. Elimination of separation of duties.
E. Elimination of fraud.
AACSB: Technology
Difficulty: Hard

89. Internal control policies and procedures have limitations including:
A. Human error.
B. Human fraud.
C. Cost-benefit principle.
D. Collusion.
E. All of these.
AACSB: Technology
Difficulty: Medium

90. Internal control systems are:

A. Developed by the Securities and Exchange Commission for public companies.
B. Developed by the Small Business Administration for non-public companies.
C. Developed by the Internal Revenue Service for all U.S. companies.
D. Required by Sarbanes-Oxley (SOX) to be documented and certified if the company's stock is
traded on an exchange.
E. Required only if a company plans to engage in interstate commerce.
AACSB: Technology
Difficulty: Medium

91. Cash, not including cash equivalents, includes:

A. Postage stamps.
B. Coins, currency, and checking accounts.
C. IOUs.
D. Two-year certificates of deposit.
E. Money market funds.
AICPA BB: Industry
Difficulty: Easy

92. Cash equivalents:
A. Are short-term, highly liquid investment assets.
B. Include 6-month CDs.
C. Include checking accounts.
D. Are recorded in petty cash.
E. Include money orders.
AICPA BB: Industry
Difficulty: Easy

A. Include savings accounts.
B. Include checking accounts.
C. Are short-term investments sufficiently close to their maturity date that their value is not
sensitive to interest rate changes.
D. Include time deposits.
E. Have no immediate value.
AICPA BB: Industry
Difficulty: Medium

A. Are readily convertible to a known cash amount.
B. Include short-term investments purchased within 3 months of their maturity dates.
C. Have a market value that is not sensitive to interest rate changes.
D. Include short-term U.S. treasury bills.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

95. The following information is available for Holland Company at December 31:

Based on this information, Holland Company should report Cash and Cash Equivalents on
December 31 of:
A. $35,421
B. $50,421
C. $37,546
D. $36,246
E. $40,439
Add $2,790 in money market fund + $22,431 of cash in bank + $200 of cash in petty cash fund +
$10,000 of U.S. Treasury bill with maturity of less than three months on date of purchase =
$35,421.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

96. The following information is available for Johnson Manufacturing Company at June 30:

Based on this information, Johnson Manufacturing Company should report Cash and Cash
Equivalents on June 30 of:
A. $15,062
B. $20,146
C. $20,072
D. $19,205
E. $19,462
Add $6,455 of cash in bank + $12,400 of money market fund, $350 of petty cash balance + $257
of money orders = $19,462.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

97. Banking activities include:

A. Bank accounts.
B. Bank deposits.
C. Checking.
D. Electronic funds transfer.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

98. A check involves three parties:
A. The writer, the cashier, and the bank.
B. The maker, the payee, and the bank.
C. The maker, the manager, and the payee.
D. The bookkeeper, the payee, and the bank.
E. The signer, the cashier, and the company.
AICPA BB: Industry
Difficulty: Easy

99. A remittance advice is:

A. An explanation for a payment by check.
B. A bank statement.
C. A voucher.
D. An EFT.
E. A cancelled check.
AICPA BB: Industry
Difficulty: Medium

100. A bank statement includes:

A. A list of outstanding checks.
B. A list of petty cash amounts.
C. The beginning and the ending balance of the depositor's account.
D. A listing of deposits in transit.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

101. For which item does a bank NOT issue a debit memorandum?
A. To notify a depositor of all withdrawals through an ATM.
B. To notify a depositor of a fee assessed to the depositor's account.
C. To notify a depositor of a uncollectible check.
D. To notify a depositor of periodic payments arranged in advance, by a depositor.
E. To notify a depositor of a deposit to their account.
AICPA BB: Industry
Difficulty: Hard

102. Preparing a bank reconciliation on a monthly basis is an example of:

A. Establishing responsibility.
B. Separation of duties.
C. Protecting assets by proving accuracy of cash records.
D. A technological control.
E. Poor internal control.
AICPA BB: Industry
Difficulty: Hard

103. The number of days' sales uncollected:

A. Is used to evaluate the liquidity of receivables.
B. Is calculated by dividing accounts receivable by sales.
C. Measures a company's ability to pay its bills on time.
D. Measures a company's debt to income.
E. Is calculated by dividing sales by accounts receivable.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

104. The days' sales uncollected ratio is used to:
A. Measure how many days of sales remain until the end of the year.
B. Determine the number of days that have passed without collecting on accounts receivable.
C. Identify the likelihood of collecting sales on account.
D. Estimate how much time is likely to pass before the amount of accounts receivable is received
in cash.
E. Measure the amount of layaway sales for a period.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

105. The number of days' sales uncollected is calculated by:

A. Dividing accounts receivable by net sales.
B. Dividing accounts receivable by net sales and multiplying by 365.
C. Dividing net sales by accounts receivable.
D. Dividing net sales by accounts receivable and multiplying by 365.
E. Multiplying net sales by accounts receivable and dividing by 365.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

106. The number of days' sales uncollected:

A. Measures how much time is likely to pass before the current amount of accounts receivable is
received in cash.
B. Can be used for comparisons to other companies in the same industry.
C. Can be used for comparisons between current and prior periods.
D. Reflects the liquidity of receivables.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

107. A company had net sales of $31,500 and ending accounts receivable of $2,700 for the
current period. Its days' sales uncollected equals:
A. 11.7 days.
B. 23.3 days.
C. 31.3 days.
D. 42.5 days.
E. 46.6 days.
($2,700/$31,500) x 365 = 31.3 days
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

108. Mattel had net sales of $4,235 million and ending accounts receivable of $775 million. Its
days' sales uncollected equals:
A. 298 days.
B. 66.8 days.
C. 19.4 days.
D. 81.8 days.
E. 65.2 days.
($775/$4,235) x 365 = 66.8 days
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

109. The following information is taken from Hogan Company's December 31 balance sheet:

If net credit sales and cost of goods sold for the current year were $612,000 and $367,200,
respectively, the firm's days' sales uncollected for the year is:
A. 60 days
B. 85 days
C. 42 days
D. 154 days
E. 70 days
($70,422/$612,000) x 365 = 42 days
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

110. An income statement account that is used to record cash overages and cash shortages arising
from petty cash transactions or from errors in making change is titled:
A. Cash Lost.
B. Bank Reconciliation.
C. Petty Cash.
D. Cash Over and Short.
E. Cash Receivable.
AICPA BB: Industry
Difficulty: Easy

111. A set of procedures and approvals designed to control cash disbursements and the
acceptance of obligations is referred to as a(n):
A. Internal cash system.
B. Petty cash system.
C. Cash disbursement system.
D. Voucher system.
E. Cash control system.
AACSB: Technology
Difficulty: Easy

112. Internal control procedures for cash receipts require that:

A. Custody over cash is kept separate from its recordkeeping.
B. Cash sales should be recorded on a cash register at the time of each sale.
C. Clerks having access to cash in a cash register should not have access to the register tape or
file.
D. An employee (with no access to cash receipts) should compare the total cash recorded by the
register with the record of cash receipts reported by the cashier.
E. All of these.
AACSB: Technology
Difficulty: Medium

113. The Cash Over and Short account:
A. Is used to record a credit balance in the cash account.
B. Is an income statement account used for recording the income effects of cash overages and
cash shortages from errors in making change and/or from errors in processing petty cash
transactions.
C. Is not necessary in a computerized accounting system.
D. Can never have a debit balance.
E. Can never have a credit balance.
AICPA BB: Industry
Difficulty: Medium

114. The voucher system of control:

A. Is a set of procedures and approvals designed to control cash receipts and the acceptance of
obligations.
B. Establishes procedures for verifying, approving, and recording obligations for eventual cash
disbursement.
C. Establishes procedures for receiving checks for the sale of verified, approved, and recorded
activities.
D. Applies only when multiple purchases are made from the same supplier.
E. All of these.
AACSB: Technology
Difficulty: Medium

115. A voucher is an internal file:
A. Prepared after an invoice is received.
B. Used as a substitute for an invoice.
C. Used to accumulate information needed to control cash disbursements and to ensure that
transactions are properly recorded.
D. Takes the place of a bank check.
E. Prepared before the company orders goods.
AACSB: Technology
Difficulty: Medium

116. Which of the following procedures would weaken control over cash receipts that arrive
through the mail?
A. After the mail is opened, a list (in triplicate) of the money received is prepared with a record
of the sender's name, the amount, and an explanation of why the money is sent.
B. The bank reconciliation is prepared by a person who does not handle cash or record cash
receipts.
C. For safety, only one person should open the mail, and that person should immediately deposit
the cash received in the bank.
D. The cashier should not also be the record keeper who records the amounts received in the
accounting records.
E. All of these are good internal control procedures over cash receipts that arrive through the
mail.
AACSB: Technology
Difficulty: Medium

117. At the end of the day, the cash register's record shows $1,250, but the count of cash in the
cash register is $1,245. The correct entry to record the cash sales is
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

118. At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash
in the register is $1,035. The proper entry to account for this excess includes a:
A. Credit to Cash for $35.
B. Debit to Cash for $35.
C. Credit to Cash Over and Short for $35.
D. Debit to Cash Over and Short for $35.
E. Debit to Petty Cash for $35.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

119. A key factor in a voucher system is:
A. Only approved departments and individuals are authorized to incur an obligation that will
result in the payment of cash.
B. Procedures for purchasing, receiving and paying for merchandise are divided among several
departments.
C. The system limits the individuals that can incur cash payment obligations for a company.
D. It should be extended to all expenses.
E. All of these.
AACSB: Technology
Difficulty: Hard

120. The entry necessary to establish a petty cash fund should include:

A. A debit to Cash and a credit to Petty Cash.
B. A debit to Cash and a credit to Cash Over and Short.
C. A debit to Petty Cash and a credit to Cash.
D. A debit to Petty Cash and a credit to Accounts Receivable.
E. A debit to Cash and a credit to Petty Cash Over and Short.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

121. The entry to record reimbursement of the petty cash fund for postage expense should
include:
A. A debit to Postage Expense.
B. A debit to Petty Cash.
C. A debit to Cash.
D. A debit to Cash Short and Over.
E. A debit to Supplies.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

122. When a petty cash fund is in use:
A. Expenses paid with petty cash are recorded when the fund is replenished.
B. Petty Cash is debited when funds are replenished.
C. Petty Cash is credited when funds are replenished.
D. Expenses are not recorded.
E. Cash is debited when funds are replenished.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

123. In reimbursing the petty cash fund:

A. Cash is debited.
B. Petty Cash is credited.
C. Petty Cash is debited.
D. Appropriate expense accounts are debited.
E. No expenses are recorded.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

124. Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus
$382.50 in receipts at the end of the month. The entry to replenish the petty cash fund will
include:
A. A debit to Cash for $377.50.
B. A credit to Cash Over and Short for $5.00.
C. A debit to Petty Cash for $382.50.
D. A credit to Cash for $387.50.
E. A debit to Cash for $387.50.
$450 - 62.50 - 382.50 = $5.00 cash shortage

$382.50 + 5.00 = $387.50 reimbursement and credit to cash
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

125. A company plans to decrease a $200 petty cash fund to $75. The current balance in the
account includes $45 petty cash payment in receipts and $165 in currency. The entry to reduce
the fund will include a:
A. Debit to Cash Short and Over for $10.
B. Debit to Cash for $90.
C. Debit to Miscellaneous Expenses for $35.
D. Credit to Petty Cash for $165.
E. Credit to Cash for $90.
$200.00 - 165.00 - 45.00 = $-10.00 cash overage

$125.00 - 45.00 + 10.00 = $90.00 debit to cash
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

126. A company had $43 missing from petty cash that was not accounted for by petty cash
receipts. The correct procedure is to:
A. Debit Cash Over and Short for $43.
B. Credit Cash Over and Short for $43.
C. Debit Petty Cash for $43.
D. Credit Petty Cash for $43.
E. Credit Cash for $43.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

127. Martha Company has an established petty cash fund in the amount of $500. The fund was
last reimbursed on November 30. At the end of December, the fund contained the following
petty cash receipts:

If, in addition to these receipts, the petty cash fund contains $301 of cash, the journal entry to
reimburse the fund on December 31 will include:
A. A debit to Transportation-In of $73.
B. A debit to Transportation-Out of $73.
C. A credit to Office Supplies of $66.
D. A credit to Cash Over and Short of $10.
E. A debit to Cash Over and Short of $10.
Opening cash balance of $500. Subtract the $189 of disbursements from the petty cash fund
during December (as evidenced by the petty cash receipts). This yields an expected cash balance
of $311. Since there is only $301 of cash in the fund, the journal entry to reimburse the fund will
include a $10 debit to Cash Over and Short.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

128. An analysis that explains any differences between the checking account balance according
to the depositor's records and the balance reported on the bank statement is a(n):
A. Internal audit.
B. Bank reconciliation.
C. Bank audit.
D. Trial reconciliation.
E. Analysis of debits and credits.
AICPA BB: Industry
Difficulty: Easy

129. On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
A. Noted as a memorandum only.
B. Added to the book balance of cash.
C. Deducted from the book balance of cash.
D. Added to the bank balance of cash.
E. Deducted from the bank balance of cash.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

130. Outstanding checks refer to checks that have been:

A. Written, recorded, sent to payees, and received and paid by the bank.
B. Written and not yet recorded in the company books.
C. Held as blank checks.
D. Written, recorded on the company books, sent to the customer, but have not yet been paid by
the bank.
E. Issued by the bank.
AICPA BB: Industry
Difficulty: Medium

131. On a bank reconciliation, the amount of an unrecorded bank service charge should be:
A. Added to the book balance of cash.
B. Deducted from the book balance of cash.
C. Added to the bank balance of cash.
D. Deducted from the bank balance of cash.
E. Noted in memorandum form only.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

132. A check that was outstanding on last period's bank reconciliation was not among the
cancelled checks returned by the bank this period. As a result, in preparing this period's
reconciliation, the amount of this check should be:
A. Added to the book balance of cash.
B. Deducted from the book balance of cash.
C. Added to the bank balance of cash.
D. Deducted from the bank balance of cash.
E. Ignored in preparing the period's bank reconciliation.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

133. A company made a bank deposit on September 30 that did not appear on the bank statement
dated as of September 30. In preparing the September 30 bank reconciliation, the company
should:
A. Deduct the deposit from the bank statement balance.
B. Send the bank a debit memorandum.
C. Deduct the deposit from the September 30 book balance and add it to the October 1 book
balance.
D. Add the deposit to the book balance of cash.
E. Add the deposit to the bank statement balance.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

134. If a check correctly written and paid by the bank for $794 is incorrectly recorded in the
company's books for $749, how should this error be treated on the bank reconciliation?
A. Subtract $45 from the bank's balance.
B. Add $45 to the bank's balance.
C. Subtract $45 from the book balance.
D. Add $45 to the book balance.
E. Subtract $45 from the bank's balance and add $45 to the book's balance.
$794 - 749 = $45
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

135. During the month of September, Norris Industries issued a check in the amount of $845 to a
supplier on account. The check cleared the bank during September. The disbursement was
recorded incorrectly as $854. The journal entry to correct this mistake when discovered will
include:
A. A debit to Accounts Payable for $854.
B. A credit to Cash for $854.
C. A credit to Cash for $9.
D. A credit to Accounts Payable for $9.
E. A debit to Cash for $49.
$854 - 845 = $9
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

136. In the process of reconciling Marks Enterprises' bank statement for September, Mr. Marks
compiles the following information:

The adjusted cash balance per the books on September 30 is:

A. $ 6,900
B. $ 8,160
C. $ 4,600
D. $ 6,520
E. $ 5,840
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

137. Which of the following events would cause a bank to debit a depositor's account?
A. The depositor authorizes the bank to charge the depositor's account $50 for new checks.
B. The bank collects a note receivable and related interest on the depositor's behalf.
C. The depositor determines there are outstanding checks drawn on the account at month-end.
D. The depositor determines there are deposits in transit on the account at month-end.
E. The bank determines it incorrectly charged the depositor's account twice for the monthly
service charge in a previous month.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

138. A seller of goods or services, usually a manufacturer or wholesaler, is known as a:

A. Vendor.
B. Payee.
C. Vendee.
D. Creditor.
E. Debtor.
AICPA BB: Industry
Difficulty: Easy

139. The internal document prepared by a department manager that informs the purchasing
department of its needs that lists the merchandise needed and requests that it be purchased is the
A. Purchase requisition.
B. Purchase order.
C. Invoice.
D. Receiving report.
E. Invoice approval.
AACSB: Technology
Difficulty: Medium

140. The document that the purchasing department prepares and sends to the vendor to place an
order is the
B. Purchase order.
C. Invoice.
E. Invoice approval.
AACSB: Technology
Difficulty: Medium

141. The document that is an itemized statement of goods prepared by a vendor listing the
customer's name, items sold, sales prices, and terms of the sale is the
B. Purchase order.
C. Invoice.
E. Invoice approval
AACSB: Technology
Difficulty: Medium

142. The internal document that is prepared to notify the appropriate persons that ordered goods
have been received and describes the quantities and condition of the goods is the
B. Purchase order.
C. Invoice.
E. Invoice approval
AACSB: Technology
Difficulty: Medium

143. The document, also known as the check authorization, that is a checklist of steps necessary
for approving an invoice for recording and payment is the
B. Purchase order.
C. Invoice.
E. Invoice approval
AACSB: Technology
Difficulty: Medium

144. A voucher system is a series of prescribed control procedures:

A. Designed to eliminate the need for subsidiary ledgers.
B. Designed to determine if the company is operating profitably.
C. Used almost exclusively by small companies.
D. Used to ensure that the company sells on credit only to creditworthy customers.
E. Designed to control cash disbursements and the acceptance of obligations.
AACSB: Technology
Difficulty: Medium

145. The gross method of recording purchases refers to the method of recording:

A. Purchases at the invoice price less any cash discounts.
B. Specified amounts and timing of payments that a buyer agrees to make in return for being
granted credit.
C. Purchases at the full invoice price, without deducting any cash discounts.
D. Inventory at its selling price.
E. Inventory at the lower of cost or market.
AICPA BB: Industry
Difficulty: Easy

146. An expense resulting from failing to take advantage of cash discounts on purchases is
called:
A. Sales discounts.
B. Trade discounts.
C. Purchases discounts.
D. Discounts lost.
E. Discounts earned.
AICPA BB: Industry
Difficulty: Easy

147. A company using the net method of recording purchases failed to take advantage of a
discount available. When they pay the full (gross) amount of an invoice at the end of the credit
period the journal entry will include a debit to:
A. Merchandise Inventory.
B. Sales Discounts.
C. Discounts Lost.
D. Cash.
E. Accounts Receivable.
AICPA BB: Industry
Difficulty: Medium

148. A company that uses the net method of recording invoices made a purchase of $400 with
terms of 2/10, n/30. The entry to record the purchase would include:
A. A debit to Merchandise Inventory for $392.
B. A credit to Discounts Lost for $8.
C. A credit to Cash for $392.
D. A debit to Discounts Lost for $8.
E. A debit to Cash for $392.
$400 x .98 = $392
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

149. Merchandise with an invoice price of $2,000 was purchased on October 3, terms 1/15, n/60.
The company uses the net method to record purchases. The entry to record the cash payment of
this purchase obligation on October 17 is:
A.
B.
C.
D.
E.
$2,000 x .99 = $1,980
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

150. A company records purchases using the net method. On February 1, they purchased
merchandise inventory on account for $8,300 with terms of 1/10, n/30. The February 1 journal
entry to record this transaction would include a:
A. Debit to Merchandise Inventory of $8,300.
B. Debit to Merchandise Inventory of $8,217.
C. Debit to Merchandise Inventory of $83.
D. Credit to Merchandise Inventory of $83.
E. Credit to Accounts Payable of $8,300.
$8,300 x .99 = $8,217
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


56. Accounts receivable information for specific customers is important because it reveals:

A. How much each customer has purchased on credit.
B. How much each customer has paid.
C. How much each customer still owes.
D. The basis for sending bills to customers.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

57. A credit sale of $3,275 to a customer would result in:
A. A debit to the Accounts Receivable account in the general ledger and a debit to the customer's
account in the accounts receivable subsidiary ledger.
B. A credit to the Accounts Receivable account in the general ledger and a credit to the
customer's account in the accounts receivable subsidiary ledger.
C. A debit to the Accounts Receivable account in the general ledger and a credit to the
D. A credit to the Accounts Receivable account in the general ledger and a debit to the
E. A credit to Sales and a credit to the customer's account in the accounts receivable subsidiary
ledger.
AICPA BB: Industry
Difficulty: Medium

58. Sellers allow customers to use credit cards:

A. To avoid having to evaluate a customer's credit standing for each sale.
B. To lessen the risk of extending credit to customers who cannot pay.
C. To speed up receipt of cash from the credit sale.
D. To increase total sales volume.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

59. Credit card expense may be classified as:
A. A "discount" deducted from sales to get net sales.
B. A selling expense.
C. An administrative expense.
D. All of these.
E. Only A and B.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard

60. A promissory note received from a customer in exchange for an account receivable:
A. Is a cash equivalent for the recipient.
B. Is an account receivable for the recipient.
C. Is a note receivable for the recipient.
D. Is a short-term investment for the recipient.
E. Is a note payable for the recipient.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

61. The person who signs a note receivable and promises to pay the principal and interest is the:
A. Maker.
B. Payee.
C. Holder.
D. Receiver.
E. Owner.
AICPA BB: Industry
Difficulty: Easy

62. The accounting principle that requires financial statements (including notes) to report all
relevant information about the operations and financial condition of a company is called:
A. Relevance.
B. Full disclosure.
C. Evaluation.
D. Materiality.
E. Matching.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

63. A promissory note:

A. Is a short-term investment for the maker.
B. Is a written promise to pay a specified amount of money at a certain date.
C. Is a liability to the payee.
D. Is another name for an installment receivable.
E. Cannot be used in payment of an account receivable.
AICPA BB: Industry
Difficulty: Medium

64. The maturity date of a note receivable:

A. Is the day of the credit sale.
B. Is the day the note was signed.
C. Is the day the note is due to be paid.
D. Is the date of the first payment.
E. Is the last day of the month.
AICPA BB: Legal
Difficulty: Medium

65. The interest accrued on $6,500 at 6% for 60 days is:
A. $ 36.
B. $ 42.
C. $ 65.
D. $180.
E. $420.
$6,500 x 0.06 x 60/360 = $65
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

66. A 90-day note issued on April 10 matures on:

A. July 9.
B. July 10.
C. July 11.
D. July 12.
E. July 13.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

67. A company receives a 10%, 90-day note for $1,500. The total interest due on the maturity
date is:
A. $ 50.00
B. $150.00.
C. $ 75.00.
D. $ 37.50.
E. $ 87.50.
$1,500 x 0.10 x 90/360 = $37.50
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

68. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The total
interest due on the maturity date is.
A. $50
B. $275
C. $550
D. $825
E. $1,100
$10,000 x 0.11 x 1/2 = $550
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

69. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The maturity
value of the note is:
A. $12,050
B. $12,275
C. $10,550
D. $12,825
E. $13,100
$10,000 + ($10,000 x 0.11 x 180/360) = $10,550
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

70. The buyer who purchases and takes ownership of another company's accounts receivable is
called a:
A. Payer.
B. Pledgor.
C. Factor.
D. Payee.
E. Pledgee.
AICPA BB: Industry
Difficulty: Easy

71. Pledging receivables:
A. Allows firms to raise cash.
B. Allows a firm to retain ownership of its receivables.
C. Does not transfer risk of bad debts to the lender.
D. Should be disclosed in the financial statements.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

72. A company factored $45,000 of its accounts receivable and was charged a 3% factoring fee.
The journal entry to record this transaction would include a:
A. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,350, and credit to Accounts
Receivable of $43,650.
B. Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.
C. Debit to Cash of $43,650, a debit to Factoring Fee Expense of $1,350, and a credit to
Accounts Receivable of $45,000.
D. Debit to Cash of $46,350 and a credit to Accounts Receivable of $46,350.
E. Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.
$45,000 x .03 = $1,350

$45,000 - $1,350 = $43,650
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

73. The quality of receivables refers to:

A. The creditworthiness of sellers.
B. The speed of collection.
C. The likelihood of collection without loss.
D. Sales turnover.
E. The interest rate.
AICPA BB: Industry
Difficulty: Easy

74. The account receivable turnover measures:
A. How long it takes to sell accounts receivable to a factor.
B. How often, on average, receivables are received and collected during the period.
C. The relation of cash sales to credit sales.
D. How long it takes to sell merchandise inventory.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

75. The accounts receivable turnover is calculated by:

A. Dividing net sales by average accounts receivable.
B. Dividing net sales by average accounts receivable and multiplying by 365.
C. Dividing average accounts receivable by net sales.
D. Dividing average accounts receivable by net sales and multiplying by 365.
E. Dividing net income by average accounts receivable.
AICPA BB: Industry
Difficulty: Medium

76. A company has net sales of $900,000 and average accounts receivable of $300,000. What is
its accounts receivable turnover for the period?
A. 0.20.
B. 5.00
C. 20.0
D. 73.0
E. 3.0
$900,000/$300,000 = 3.0
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

77. Dell reported net sales of $8,739 million and average accounts receivable of $864 million. Its
accounts receivable turnover is:
A. 0.90.
B. 10.1.
C. 36.1.
D. 50.0.
E. 3,686.
$8,739/$864 = 10.1
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

78. Pepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coke's
turnover was 9.3 for this year and 9.3 for last year. These results imply that:
A. Coke has the better turnover for both years.
B. Pepsi has the better turnover for both years.
C. Coke's turnover is improving.
D. Coke's credit policies are too loose
E. Coke is collecting its receivables more quickly than Pepsi in both years.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

79. A company had net sales of $600,000, total sales of $750,000, and an average accounts
receivable of $75,000. Its accounts receivable turnover equals:
A. .13
B. .80
C. 7.75
D. 8.00
E. 10.00
$600,000/$75,000 = 8.00
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

80. The matching principle requires:

A. That expenses be ignored if their effect on the financial statements is unimportant to users'
business decisions.
B. The use of the direct write-off method for bad debts.
C. The use of the allowance method of accounting for bad debts.
D. That bad debts be disclosed in the financial statements.
E. That bad debts not be written off.
AICPA BB: Industry
Difficulty: Medium

81. The materiality principle:
A. States that an amount can be ignored if its effect on financial statements is unimportant to
user's business decisions.
B. Requires use of the allowance method for bad debts.
C. Requires use of the direct write-off method.
D. States that bad debts not be written off.
E. Requires that expenses be reported in the same period as the sales they helped produce.
AICPA BB: Industry
Difficulty: Medium

82. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of
a bad debt being written off, the entry to record the write-off against the allowance account
results in:
A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

83. On October 29 of the current year, a company concluded that a customer's $4,400 account
receivable was uncollectible and that the account should be written off. What effect will this
write-off have on this company's net income and total assets assuming the allowance method is
used to account for bad debts?
A. Decrease in 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.
E. No effect on net income; decrease in total assets.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

84. Newton Company uses the allowance method of accounting for uncollectible accounts. On
May 3, the Newton Company wrote off the $3,000 uncollectible account of its customer, P. Best.
On July 10, Newton received a check for the full amount of $3,000 from Best. On July 10, the
entry or entries Newton makes to record the recovery of the bad debt is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

85. The amount of bad debt expense can be estimated by:

A. The percent of sales method.
B. The percent of accounts receivable method.
C. The aging of accounts receivable method.
D. All of these.
E. Only B and C.
AICPA BB: Industry
Difficulty: Easy

86. 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.
AICPA BB: Industry
Difficulty: Easy

87. An accounting procedure that (1) estimates and reports bad debts expense from credit sales
during the period the sales are recorded, and (2) reports accounts receivable at the estimated
amount of cash to be collected is the:
A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.
AICPA BB: Industry
Difficulty: Medium

88. On December 31 of the current year, a company's unadjusted trial balance included the
following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts,
credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of
outstanding accounts receivable at the end of the current year will be uncollectible?
A. $ 951.
B. $3,992.
C. $4,884.
D. $5,835.
E. $6,786.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

89. 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
Doubtful 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.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

90. A company used the percent of sales method to determine its bad debts expense. At the end
of the current year, the company's unadjusted trial balance reported the following selected
amounts:

All sales are made on credit. Based on past experience, the company estimates 0.6% of credit
sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-
end adjusting entry is prepared?
A. $1,275
B. $1,775
C. $4,500
D. $4,800
E. $5,500
$800,000 x .006 = $4,800
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

91. A company used the percent of sales method to determine its bad debts expense. At the end
of the current year, the company's unadjusted trial balance reported the following selected
amounts:

All sales are made on credit. Based on past experience, the company estimates 0.6% of credit
sales to be uncollectible. What adjusting entry should the company make at the end of the current
year to record its estimated bad debts expense?
A.
B.
C.
D.
E.
$800,000 x .006 = $4,800
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

92. A company has $90,000 in outstanding accounts receivable and it uses the allowance method
to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are
uncollectible. The current debit balance (before adjustments) in the allowance for doubtful
accounts is $800. The journal entry to record the adjustment to the allowance account includes a
debit to Bad Debts Expense for:
A. $4,600
B. $5,400
C. $6,200
D. $6,800
E. None of these
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

93. Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom's
entry to record the transaction should include a:
A. Debit to Notes Receivable for $75,000.
B. Debit to Accounts Receivable for $75,000.
C. Credit to Notes Receivable for $75,000.
D. Debit Notes Payable for $75,000.
E. Credit to Sales for $75,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

94. The amount due on the maturity date of a $6,000, 60-day 8%, note receivable is:
A. $6,000.
B. $6,480.
C. $5,520.
D. $6,080.
E. $5,920.
Interest: $6,000 x .08 x 60/360 = $80

Maturity value: $6,000 + $80 = $6,080
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

95. Paoli Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day, 10%
promissory note for the $5,000. TechCom's journal entry to record the sales portion of the
transaction is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

96. MixRecording Studios purchased $7,800 in electronic components from TechCom.
MixRecording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's journal
entry to record the sales portion of the transaction is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

97. When the maker of a note honors a note this indicates that the note is:
A. Signed.
B. Paid in full.
C. Guaranteed.
D. Notarized.
E. Cosigned.
AICPA BB: Industry
Difficulty: Easy

98. Failure by a promissory note's maker to pay the amount due at maturity is known as:
A. Protesting a note.
B. Closing a note.
C. Dishonoring a note.
D. Discounting a note.
E. Depreciating a note.
AICPA BB: Industry
Difficulty: Easy

99. Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on
January 15 of the next year when the note is paid?
A.
B.
C.
D.
E.
Interest accrued at December 31: $4,800 x .10 x 75/360 = $100

Interest earned during January: $4,800 x .10 x 15/360 = $20
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on
December 31, to record the accrued interest on the note?
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

TechCom accepted Teller's $4,800, 90-day, 10% note. If the note is dishonored, what entry
should TechCom make on January 15 of the next year?
A.
B.
C.
D.
E.

Interest earned during January: $4,800 x .10 x 15/360 =$20
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

102. MixRecording Studios purchased $7,800 in electronic components from TechCom.
MixRecording Studios signed a 60-day, 10% promissory note for $7,800. If the note is
dishonored, what is the amount due on the note?
A. $130
B. $7,800
C. $7,930
D. $8,050
E. $8,130
$7,800 x .10 x 60/360 = $130 + $7,800 = $7,930
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


66. Plant assets are:

A. Tangible assets used in the operation of a business that have a useful life of more than one
accounting period.
B. Current assets.
C. Held for sale.
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.
AACSB: Reflective Thinking

AICPA BB: Industry
Difficulty: Easy

67. A main accounting issue for plant assets is:
A. Computing the cost of the plant assets.
B. Matching the costs of plant assets against revenues for the periods they benefit.
C. Accounting for repairs and improvements to plant assets.
D. The disposal of plant assets.
E. All of these.

AICPA BB: Industry
Difficulty: Easy

68. Plant assets are:
A. Current assets.
B. Used in operations.
C. Natural resources.
D. Long-term investments.
E. Intangible.

AICPA BB: Industry
Difficulty: Medium

69. The relevant factor(s) in computing depreciation include:

A. Cost.
B. Salvage value.
C. Useful life.
D. Depreciation method.
E. All of these.

AICPA BB: Industry
Difficulty: Easy

70. Salvage value is:

A. Also called residual value.
B. Also called scrap value.
C. An estimate of the asset's value at the end of its benefit period.
D. A factor relevant to determining depreciation.
E. All of these.

AICPA BB: Industry
Difficulty: Easy

71. Depreciation:
A. Measures the decline in market value of an asset.
B. Measures physical deterioration of an asset.
C. Is the process of allocating to expense the cost of a plant asset.
D. Is an outflow of cash from the use of a plant asset.
E. Is applied to land.

AICPA BB: Industry
Difficulty: Medium

72. The useful life of a plant asset is:

A. The length of time it is productively used in a company's operations.
B. Never related to its physical life.
C. Its productive life, but not to exceed one year.
D. Determined by the FASB.
E. Determined by law.

AICPA BB: Industry
Difficulty: Medium

73. Inadequacy refers to:

A. The insufficient capacity of a company's plant assets to meet the company's growing
production demands.
B. An asset that is worn out.
C. An asset that is no longer useful in producing goods and services.
D. The condition where the salvage value is too small to replace the asset.
E. The condition where the asset's salvage value is less than its cost.

AICPA BB: Industry
Difficulty: Hard

74. Obsolescence:
A. Occurs when an asset is at the end of its useful life.
B. Refers to a plant asset that is no longer useful in producing goods and services.
C. Refers to the insufficient capacity of a company's plant assets to meet the company's
productive demands.
D. Occurs when an asset's salvage value is less than its replacement cost.
E. Does not affect plant assets.

AICPA BB: Industry
Difficulty: Hard

75. Once the estimated depreciation expense for an asset is calculated:

A. It cannot be changed due to the historical cost principle.
B. It may be revised based on new information.
C. Any changes are accumulated and recognized when the asset is sold.
D. The estimate itself cannot be changed; however, new information should be disclosed in
financial statement footnotes.
E. It cannot be changed due to the consistency principle.

AICPA BB: Industry
Difficulty: Easy

76. A machine originally had an estimated useful life of 5 years, but after 3 complete years, it
was decided that the original estimate of useful life should have been 10 years. At that point the
remaining cost to be depreciated should be allocated over the remaining:
A. 2 years.
B. 5 years.
C. 7 years.
D. 8 years.
E. 10 years.
10 year revised life - 3 years depreciated = 7 remaining
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

77. A change in an accounting estimate is:

A. Reflected in past financial statements.
B. Reflected in future financial statements and also requires modification of past statements.
C. A change in a calculated amount that is included in current and future years' financial
statements as a result of new information or subsequent developments and from better insight or
improved judgment.
D. Not allowed under current accounting rules.
E. Considered an error in the financial statements.

AICPA BB: Industry
Difficulty: Hard

78. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost
$23,000 and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the
asset's total estimated useful life was revised from 8 years to 6 years and there was no change in
the estimated salvage value. The depreciation expense in year 5 equals:
A. $ 5,375.00.
B. $ 2,687.50.
C. $ 5,543.75.
D. $10,750.00.
E. $ 2,856.25.
Accumulated depreciation, end of year 4: [($23,000 - $1,500)/8 years] x 4 years = $10,750

Depreciation, year 5: ($23,000 - $10,750 - $1,500)/2 years = $5,375
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

79. A company used straight-line depreciation for an item of equipment that cost $12,000, had a
salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three
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 charged against the machine
during each of the remaining years of its useful life:
A. $1,000.
B. $1,800.
C. $1,467.
D. $1,600.
E. $2,160.
Accumulated depreciation, end of year 3: [($12,000 - $2,000)/5 years] x 3 years = $6,000

Depreciation, years 4 through 6: ($12,000 - $6,000 - $1,200)/3 years = $1,600
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

80. Nelson Company purchased equipment on July 1 for $27,500 and decided to depreciate the
equipment on the straight-line method over its useful life of five years. Assuming the
equipment's salvage value is $3,500, the amount of monthly depreciation expense Nelson should
recognize is:
A. $2,400
B. $ 200
C. $4,800
D. $ 400
E. $ 450
(27,500 - 3,500) / 60 months = $400
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

81. Thomas Enterprises purchased a depreciable asset on October 1, 2008 at a cost of $100,000.
The asset is expected to have a salvage value of $15,000 at the end of its five-year useful life. If
the asset is depreciated on the double-declining-balance method, the asset's book value on
December 31, 2010 will be:
A. $27,540
B. $21,600
C. $32,400
D. $18,360
E. $90,000
Accordingly, the asset's book value at the end of 2010 would be $32,400.
BOY BV = Beginning of Year Book Value
DB Rate = Declining Balance Rate of Depreciation (100%/5 x 2)
EOY BV = End of Year Book Value
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

82. Based on the information provided in question #81, Thomas Enterprises should recognize
what amount of depreciation expense in 2012?
A. $4,440
B. $6,610
C. $1,524
D. $5,520
E. $2,000
See the solution to question #81. Based on that information, depreciation expense for 2012
would be $4,440.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

83. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, 2008. The asset
will be depreciated using the straight-line method over its four-year useful life. Assuming the
asset's salvage value is $2,000, what will be the amount of accumulated depreciation on this asset
on December 31, 2011?
A. $5,000.00
B. $4,166.67
C. $16,666.68
D. $20,000.00
E. $19,166.67
[(22,000 - 2,000) / 4] x 10/12 = $4,166.67 of accumulated depreciation at the end of 2008. Since
annual depreciation expense is $5,000 [(22,000 - 2,000) / 4], accumulated depreciation on
December 31, 2011 would be $19,166.67 ($5,000 per year for three years + $4,166.67 in the
partial year of 2008).
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

84. Based on the information provided in question # 83, Lomax Enterprises should recognize
depreciation expense in 2011 in the amount of:
A. $19,166.67
B. $5,000.00
C. $5,500.00
D. $20,000.00
E. $4,166.67
(22,000 - 2,000) / 4 years = 5,000 of depreciation expense per full year
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

85. The following information is available on a depreciable asset owned by First Bank & Trust:

The asset's book value is $70,000 on October 1, 2010. On that date, management determines that
the asset's salvage value should be $5,000 rather than the original estimate of $10,000. Based on
this information, the amount of depreciation expense the company should recognize during the
last three months of 2010 would be:
A. $2,187.50
B. $1,718.75
C. $2,031.25
D. $2,321.43
E. $1,964.29
The asset's book value is $70,000 after having been depreciated for two full years. To calculate
the new rate of depreciation, subtract the revised salvage value of $5,000 from the current book
value of $70,000, yielding $65,000 of revised remaining depreciable cost. Since that amount is to
be recognized over the remaining eight years of useful life, depreciation expense for the last
quarter of 2010 would be $2,031.25 [(65,000/8) x 3/12 = $2,031.25].
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

86. Many companies use an accelerated depreciation method because:
A. It is required by the tax code.
B. It is required by financial reporting rules.
C. It yields larger depreciation expense in the early years of an asset's life.
D. It yields a higher income in the early years of the asset's useful life.
E. The results are identical to straight-line depreciation.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

87. The modified accelerated cost recovery system (MACRS):

A. Is included in the U.S. federal income tax rules for depreciating assets.
B. Is an out-dated system that is no longer used by companies.
C. Is required for financial reporting.
D. Is identical to units of production depreciation.
E. All of these.
AICPA BB: Industry, Legal
Difficulty: Hard

88. 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 of depreciation for financial reporting.
AICPA BB: Industry
Difficulty: Hard

89. Total asset turnover is used to evaluate:
A. The efficiency of management's use of assets to generate sales.
B. The necessity for asset replacement.
C. The number of times operating assets were sold during the year.
D. The cash flows used to acquire assets.
E. The relation between asset cost and book value.
AICPA BB: Industry
Difficulty: Medium

90. A total asset turnover ratio of 3.5 indicates that:

A. For every $1 in sales, the firm acquired $3.50 in assets during the period.
B. For every $1 in assets, the firm produced $3.50 in net sales during the period.
C. For every $1 in assets, the firm earned gross profit of $3.50 during the period.
D. For every $1 in assets, the firm earned $3.50 in net income.
E. For every $1 in assets, the firm paid $3.50 in expenses during the period.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

91. Total asset turnover is calculated by dividing:

A. Gross profit by average total assets.
B. Average total assets by gross profit.
C. Net sales by average total assets.
D. Average total assets by net sales.
E. Net assets by total assets.
AICPA BB: Industry
Difficulty: Medium

92. A company had average total assets of $897,000. Its gross sales were $1,090,000 and its net
sales were $1,000,000. The company's total asset turnover equals:
A. 0.82.
B. 0.90.
C. 1.09.
D. 1.11.
E. 1.26.
$1,000,000/$897,000 = 1.11
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

93. Dell had net sales of $35,404 million. Its average total assets for the period were $14,502
million. Dell's total asset turnover equals:
A. 0.40.
B. 0.35.
C. 1.45.
D. 2.44.
E. 3.50.
$35,404/$14,502 = 2.44
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

94. Land improvements are:
A. Assets that increase the usefulness of land, and like land, are not depreciated.
B. Assets that increase the usefulness of land, but that have a limited useful life and are subject to
depreciation.
C. Included in the cost of the land account.
D. Expensed in the period incurred.
E. Also called basket purchases.
AICPA BB: Industry
Difficulty: Easy

95. Plant assets include:

A. Land.
B. Land improvements.
C. Buildings.
D. Machinery and equipment.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

96. The cost of land can include:

A. Purchase price.
B. Assessments by local governments.
C. Costs of removing existing structures.
D. Fees for insuring the title.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

97. A company paid $150,000, plus a 6% commission and $4,000 in closing costs for a property.
The property included land appraised at $87,500, land improvements appraised at $35,000, and a
building appraised at $52,500. What should be the allocation of this property's costs in the
company's accounting records?
A. Land $75,000; Land Improvements, $30,000; Building, $45,000.
B. Land $75,000; Land Improvements, $30,800; Building, $46,200.
C. Land $81,500; Land Improvements, $32,600; Building, $48,900.
D. Land $79,500; Land Improvements, $32,600; Building, $47,700.
E. Land $87,500; Land Improvements; $35,000; Building; $52,500.
Total cost to allocate = $150,000 + 9,000 + 4,000 = $163,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

98. A company purchased property for a building site. The costs associated with the property
were:

What portion of these costs should be allocated to the cost of the land and what portion should be
allocated to the cost of the new building?
A. $175,800 to Land; $18,800 to Building.
B. $190,000 to Land; $3,800 to Building.
C. $190,800 to Land; $1,000 to Building.
D. $192,800 to Land; $0 to Building.
E. $193,800 to Land; $0 to Building.
Total cost = $175,000 + $15,000 + $800 + $2,000 + $1,000 = $193,800

The entire amount of the cost should be allocated to the land, since the new building is not yet
constructed.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

99. A company purchased property for $100,000. The property included a building, a parking lot,
and land. The building was appraised at $62,000; the land at $45,000, and the parking lot at
$18,000. Land should be recorded in the accounting records with an allocated cost of:
A. $ 0.
B. $ 36,000.
C. $ 42,000.
D. $ 45,000.
E. $100,000.
$100,000 x $45,000/($62,000 + $45,000 + $18,000) = $36,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

100. The formula for computing annual straight-line depreciation is:

A. Depreciable cost divided by useful life in units.
B. Cost plus salvage value divided by the useful life in years.
C. Cost less salvage value divided by the useful life in years.
D. Cost multiplied by useful life in years.
E. Cost divided by useful life in units.
AICPA BB: Industry
Difficulty: Easy

101. The total cost of an asset less its accumulated depreciation is called:

A. Historical cost.
B. Book value.
C. Present value.
D. Current (market) value.
E. Replacement cost.
AICPA BB: Industry
Difficulty: Easy

102. A method that charges the same amount of expense to each period of the asset's useful life
is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.
AICPA BB: Industry
Difficulty: Easy

103. A method that allocates an equal portion of the total depreciable cost for a plant asset to
each unit produced is called:
A. Accelerated depreciation.
AICPA BB: Industry
Difficulty: Medium

104. A depreciation method in which a plant asset's depreciation expense for a period is
determined by applying a constant depreciation rate to the asset's beginning-of-period book value
is called:
A. Book value depreciation.
AICPA BB: Industry
Difficulty: Medium

105. A depreciation method that produces larger depreciation expense during the early years of
an asset's life and smaller expense in the later years is a (an):
A. Accelerated depreciation method.
B. Book value depreciation method.
C. Straight-line depreciation method.
D. Units-of-production depreciation method.
E. Unrealized depreciation method.
AICPA BB: Industry
Difficulty: Medium

106. A company purchased a delivery van for $23,000 with a salvage value of $3,000 on
September 1, 2008. It has an estimated useful life of 5 years. Using the straight-line method, how
much depreciation expense should the company recognize on December 31, 2008?
A. $1,000.
B. $1,333.
C. $1,533.
D. $4,000.
E. $4,600.
($23,000 - $3,000)/5 x 4/12 = $1,333
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

107. A company purchased a cash register on January 1 for $5,400. This register has a useful life
of 10 years and a salvage value of $400. What would be the depreciation expense for the second-
year of its useful life using the double-declining-balance method?
A. $ 500.
B. $ 800.
C. $ 864.
D. $1,000.
E. $1,080.
Year 1: $5,400 x 2 x 10% = $1,080

Year 2: ($5,400 - $1,080) x 2 x 10% = $864
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

108. A company purchased a rope braiding machine for $190,000. The machine has a useful life
of 8 years and a residual value of $10,000. It is estimated that the machine could produce
750,000 units of climbing rope over its useful life. In the first year, 105,000 units were produced.
In the second year, production increased to 109,000 units. Using the units-of-production method,
what is the amount of depreciation that should be recorded for the second year?
A. $25,200.
B. $26,160.
C. $26,660.
D. $27,613.
E. $53,160.
109,000 units x [($190,000 - $10,000)/750,000 units] = $26,160
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

109. Revenue expenditures:
A. Are additional costs of plant assets that do not materially increase the asset's life or its
productive capabilities.
B. Are known as balance sheet expenditures.
C. Extend the asset's useful life.
D. Substantially benefit future periods.
E. Are debited to asset accounts.
AICPA BB: Industry
Difficulty: Easy

110. Another name for a capital expenditure is:

A. Revenue expenditure.
B. Asset expenditure.
C. Long-term expenditure.
D. Contributed capital expenditure.
E. Balance sheet expenditure.
AICPA BB: Industry
Difficulty: Easy

111. Extraordinary repairs:
A. Are revenue expenditures.
B. Extend an asset's useful life beyond its original estimate.
C. Are credited to accumulated depreciation.
D. Are additional costs of plants assets that do not materially increase the asset's life.
E. Are expensed as incurred.
AICPA BB: Industry
Difficulty: Medium

112. Ordinary repairs:
A. Are expenditures to keep an asset in normal operating condition.
B. Are necessary if an asset is to perform to expectations over its useful life.
C. Are treated as expenses.
D. Include cleaning, lubricating, and normal adjusting.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

113. Betterments:
A. Are expenditures making a plant asset more efficient or productive.
B. Are also called improvements.
C. Do not always increase an asset's life.
D. Are capital expenditures.
E. All of these.
AICPA BB: Industry
Difficulty: Hard

114. An asset's book value is $18,000 on June 30, 2008. The asset is being depreciated at an
annual rate of $3,000 on the straight-line method. Assuming the asset is sold on December 31,
2009 for $15,000, the company should record:
A. A loss on sale of $1,500.
B. A gain on sale of $1,500.
C. Neither a gain nor a loss is recognized on this type of transaction.
D. A gain on sale of $3,000.
E. A loss on sale of $3,000.
If the asset's book value is $18,000 on June 30, 2008 and is being depreciated at a rate of $3,000
per year, an additional $4,500 of depreciation expense would be recognized by December 31,
2009. Thus, the asset's book value on that date would be $13,500. If the asset is sold for $15,000,
a gain on sale of $1,500 should be recognized.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

115. An asset's book value is $36,000 on January 1, 2008. The asset is being depreciated $500
per month using the straight-line method. Assuming the asset is sold on July 1, 2009 for $25,000,
the company should record:
A. Neither a gain or loss is recognized on this type of transaction.
B. A gain on sale of $2,000.
C. A loss on sale of $1,000.
D. A gain on sale of $1,000.
E. A loss on sale of $2,000.
If the asset's book value is $36,000 on January 1, 2008 and is being depreciated $500 per month,
$9,000 (18 x $500) of additional depreciation expense would be recognized by July 1, 2009.
Thus, the asset's book value on that date would be $27,000. If the asset is sold for $25,000, a loss
on sale of $2,000 should be recognized.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

116. Information on a depreciable asset owned by Wilson Engineering is as follows:

If the asset is sold on July 1, 2012 for $20,000, the journal entry to record the sale will include:
A. A credit to cash for $20,000.
B. A debit to accumulated depreciation for $22,500.
C. A debit to loss on sale for $10,000.
D. A credit to loss on sale for $10,000.
E. A debit to gain on sale for $2,500.
Annual depreciation is $5,000 [(45,000 - 5,000) / 8 years]. On July 1, 2012, the asset will have
been depreciated for 4.5 years for a total of $22,500. The resulting book value on that date will
be $22,500. The journal entry to record the sale of the asset would be as follows:
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

117. Information on a depreciable asset is as follows:
If the asset is sold on January 1, 2011 for $13,000, the journal entry to record the sale will
include:
A. A credit to gain on sale for $8,000.
B. A debit to loss on sale for $2,625.
C. A credit to accumulated depreciation for $59,375.
D. A debit to loss on sale for $3,042.
E. A credit to gain on sale for $4,979.
Therefore, the journal entry to record the sale of the asset would be as follows:
BOY BV = Beginning of the year book value

DB Rate = Declining-balance rate of depreciation (100%/4) x 2
EOY BV = End of the year book value
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

118. An asset can be disposed of by:
A. Discarding it.
B. Selling it.
C. Exchanging it for another asset.
D. Donating it to charity.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

119. A company sold a machine that originally cost $100,000 for $60,000 cash. The accumulated
depreciation on the machine was $40,000. The company should recognize a:
A. $0 gain or loss.
B. $20,000 gain.
C. $20,000 loss.
D. $40,000 loss.
E. $60,000 gain.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

120. A company discarded a display case originally purchased for $8,000. The accumulated
depreciation was $7,200. The company should recognize a (an):
A. $0 gain or loss.
B. $800 loss.
C. $800 gain.
D. $8,000 loss.
E. $7,200 loss.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

121. A company had a bulldozer destroyed by fire. The bulldozer originally cost $125,000 with
accumulated depreciation of $60,000. The proceeds from the insurance company were $90,000.
The company should recognize:
A. A loss of $25,000.
B. A gain of $25,000.
C. A loss of $65,000.
D. A gain of $65,000.
E. A gain of $90,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

122. Natural resources:
A. Include standing timber, mineral deposits, and oil and gas fields.
B. Are also called wasting assets.
C. Are long-term assets.
D. Are depleted.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

123. Depletion:
A. Is the process of allocating the cost of natural resources to periods in which they are
consumed.
B. Is also called depreciation.
C. Is also called amortization.
D. Is an unrealized expense reported in equity.
E. Is the process of allocating the cost of intangibles to periods in which they are used.
AICPA BB: Industry
Difficulty: Easy

124. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It
expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to
be $250,000. The depletion expense per ton of ore is:
A. $0.75.
B. $0.625.
C. $0.875.
D. $6.00.
E. $8.00.
($1,500,000 - $250,000)/2,000,000 tons = $0.625 per ton
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

125. A company purchased a mineral deposit for $800,000. It expects this property to produce
1,200,000 tons of ore and to have a salvage value of $50,000. In the current year, the company
mined and sold 90,000 tons of ore. Its depletion expense for the current period equals:
A. $ 15,000.
B. $ 60,000.
C. $150,000.
D. $ 56,250.
E. $139,500.
$90,000 tons x ($800,000 - $50,000/1,200,000) = $56,250
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

126. Intangible assets include:
A. Patents.
B. Copyrights.
C. Trademarks.
D. Goodwill.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

127. Amortization:
A. Is the systematic allocation of the cost of an intangible asset to expense over its estimated
useful life.
B. Is the process of allocating to expense the cost of a plant asset to the accounting periods
benefiting from its use.
C. Is the process of allocating the cost of natural resources to periods when they are consumed.
D. Is an accelerated form of expensing an asset's cost.
E. Is also called depletion.
AICPA BB: Industry
Difficulty: Medium

128. A patent:
A. Gives its owner the exclusive right to publish and sell a musical or literary work during the
life of the creator plus 70 years.
B. Gives its owner an exclusive right to manufacture and sell a patented item or to use a process
for 20 years.
C. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50
years.
D. Is the amount by which the value of a company exceeds the fair market value of a company's
net assets if purchased separately.
E. Gives its owner the exclusive right to publish and sell a musical or literary work during the
AICPA BB: Industry
Difficulty: Medium

129. A copyright:
A. Gives its owner the exclusive right to publish and sell a musical or literary work during the
B. Gives its owner an exclusive right to manufacture and sell a patented item or to use a process
for 20 years.
C. Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50
years.
D. Is the amount by which the value of a company exceeds the fair market value of a company's
net assets if purchased separately.
E. Gives its owner the exclusive right to publish and sell a musical or literary work during the
AICPA BB: Industry
Difficulty: Medium

130. A leasehold:
A. Is a short-term rental agreement.
B. Is the same as a patent.
C. Are the rights granted to the lessee by the lessor of a lease.
D. Is recorded as revenue expenditure when paid.
E. Is an investment asset.
AICPA BB: Industry
Difficulty: Medium

131. Goodwill:
A. Is not amortized, but is tested annually for impairment.
B. Is amortized using the straight-line method.
C. Is amortized using the units-of-production method.
D. May be amortized using either the straight-line or units-of-production method.
E. Is never amortized or tested for impairment.
AICPA BB: Industry
Difficulty: Medium

132. A company's old machine that cost $40,000 and had accumulated depreciation of $30,000
was traded in on a new machine having an estimated 20-year life with an invoice price of
$50,000. The company also paid $43,000 cash, along with its old machine to acquire the new
machine. If this transaction has commercial substance, the new machine should be recorded at:
A. $40,000.
B. $47,000.
C. $50,000.
D. $53,000.
E. $10,000.
Therefore the loss on the exchange is recognized and the new machine should be recorded at its
price of $50,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

133. Endor Fishing Company exchanged an old boat for a new one. The old boat had a cost of
$260,000 and accumulated depreciation of $200,000. The new boat had an invoice price of
$400,000. Endor received a trade in allowance of $100,000 on the old boat, which meant the
company paid $300,000 in addition to the old boat to acquire the new boat. If this transaction
lacks commercial substance, what amount of gain or loss should be recorded on this exchange?
A. $0 gain or loss.
B. $40,000 gain.
C. $40,000 loss.
D. $60,000 loss
E. $100,000 loss.
As this transaction lacks commercial substance, the $40,000 gain should not be recognized.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

134. Huffington Company traded in an old delivery truck for a new one. The old truck had a cost
of $75,000 and accumulated depreciation of $60,000. The new truck had an invoice price of
$125,000. Huffington was given a $12,000 trade-in allowance on the old truck, which meant they
paid $113,000 in addition to the old truck to acquire the new truck. If this transaction has
commercial substance, what is the recorded value of the new truck?
A. $15,000
B. $75,000
C. $113,000
D. $125,000
E. $128,000
As the transaction has commercial substance and there is a loss on the exchange, the new asset is
recorded at its market value.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

135. A company bought a new display case for $42,000 and was given a trade-in of $2,000 on an
old display case, so the company paid $40,000 cash with the trade-in. The old case had an
original cost of $37,000 and accumulated depreciation of $34,000. If the transaction has
commercial substance, the company should record the new display case at:
A. $ 2,000.
B. $ 3,000.
C. $40,000.
D. $42,000.
E. $43,000.
Since the transaction has commercial substance, the loss on exchange is recognized and the new
display case should be recorded at its $42,000 price.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

136. A company purchased a machine valued at $66,000. It traded in an old machine for a
$9,000 trade-in allowance and the company paid $57,000 cash with the trade-in. The old
machine cost $44,000 and had accumulated depreciation of $36,000. This transaction has
commercial substance. What is the recorded value of the new machine?
A. $ 8,000.
B. $ 9,000.
C. $57,000.
D. $65,000.
E. $66,000.
Since the transaction has commercial substance, the $1,000 gain is recognized and the new
machine is recorded at its market value of $66,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


58. The characteristics of a liability include:

A. A past transaction or event.
B. A present obligation.
C. A future payment of assets or services.
D. Both (a) and (b).
E. All of these.
AICPA BB: Industry
Difficulty: Easy

59. Obligations due to be paid within one year or the company's operating cycle, whichever is
longer, are:
A. Current assets.
B. Current liabilities.
C. Earned revenues.
D. Operating cycle liabilities.
E. Bills.
AICPA BB: Industry
Difficulty: Easy

60. Obligations not expected to be paid within the longer of one year or the company's operating
cycle are reported as:
A. Current assets.
B. Current liabilities.
C. Long-term liabilities.
D. Operating cycle liabilities.
E. Bills.
AICPA BB: Industry
Difficulty: Medium

61. Liabilities involve addressing issues of:

A. When to pay.
B. Whom to pay.
C. How much to pay.
D. All of these.
E. Both (A) and (C) only.
AICPA BB: Industry
Difficulty: Medium

62. Liabilities:
A. Must be certain.
B. Must sometimes be estimated.
C. Must be for a specific amount.
D. Must always have a definite date for payment.
E. Must involve an outflow of cash.
AICPA BB: Industry
Difficulty: Hard

63. Known liabilities:
A. Include accounts payable, notes payable, and payroll.
B. Are obligations set by agreements, contracts, or laws.
C. Are measurable.
D. Are definitely determinable.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

64. Accounts payable:
A. Are amounts owed to suppliers for products and/or services purchased on credit.
B. Are long-term liabilities.
C. Are estimated liabilities.
D. Do not include specific due dates.
E. Must be paid within 30 days.
AICPA BB: Industry
Difficulty: Easy

65. Amounts received in advance from customers for future products or services:

A. Are revenues.
B. Increase income.
C. Are liabilities.
D. Are not allowed under GAAP.
E. Require an outlay of cash in the future.
AICPA BB: Industry
Difficulty: Medium

66. Sales taxes payable:
A. Is an estimated liability.
B. Is a contingent liability.
C. Is a current liability for retailers.
D. Is a business expense.
E. Is a long-term liability.
AICPA BB: Industry
Difficulty: Medium

67. Unearned revenues are:

A. Also called deferred revenues.
B. Amounts received in advance from customers for future delivery of products or services.
C. Also called collections in advance.
D. Also called prepayments.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

68. Unearned revenue is initially recognized with a:

A. Credit to unearned revenue.
B. Credit to revenue.
C. Debit to revenue payable.
D. Debit to revenue.
E. Debit to unearned revenue.
AICPA BB: Industry
Difficulty: Medium

69. Advance ticket sales totaling $6,000,000 cash would be recognized as follows:
A. Debit Sales, credit Unearned Revenue.
B. Debit Unearned Revenue, credit Sales.
C. Debit Cash, credit Unearned Revenue.
D. Debit Unearned Revenue, credit Cash.
E. Debit Cash, credit Revenue Payable.
AICPA BB: Industry
Difficulty: Medium

70. A contingent liability:

A. Is always of a specific amount.
B. Is a potential obligation that depends on a future event arising from a past transaction or
event.
C. Is an obligation not requiring future payment.
D. Is an obligation arising from the purchase of goods or services on credit.
E. Is an obligation arising from a future event.
AICPA BB: Industry
Difficulty: Medium

71. Contingent liabilities can be:

A. Probable.
B. Remote.
C. Reasonably possible.
D. Estimable.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

72. Contingent liabilities must be recorded if:
A. The future event is probable and the amount owed can be reasonably estimated.
B. The future event is remote.
C. The future event is reasonably possible.
D. The amount owed cannot be reasonably estimated.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

73. Debt guarantees:
A. Are never disclosed in the financial statements.
B. Are considered to be a contingent liability.
C. Are a bad business practice.
D. Are recorded as a liability even though it is highly unlikely that the original debtor will
default.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

74. In the accounting records of a defendant, lawsuits:

A. Are estimated liabilities.
B. Should always be recorded.
C. Should always be disclosed.
D. Should be recorded if payment for damages is probable and the amount can be reasonably
estimated.
E. Should never be recorded.
AICPA BB: Industry
Difficulty: Hard

75. Uncertainties such as natural disasters:
A. Are not contingent liabilities because they are future events not arising from past transactions
or events.
B. Are contingent liabilities because they are future events arising from past transactions or
events.
C. Should be disclosed because of their usefulness to financial statements.
D. Are estimated liabilities because the amounts are uncertain.
E. Arise out of transactions such as debt guarantees.
AICPA BB: Industry
Difficulty: Hard

76. The times interest earned ratio reflects:

A. A company's ability to pay its operating expenses on time.
B. A company's ability to pay interest even if sales decline.
C. A company's profitability.
D. The relation between income and debt.
E. The relation between assets and liabilities.
AICPA BB: Industry
Difficulty: Easy

77. Fixed expenses:
A. Create risk.
B. Can be an advantage when a company is growing.
C. Include interest expense.
D. Do not fluctuate with changes in sales.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

78. Times interest earned is calculated by:
A. Multiplying interest expense times income.
B. Dividing interest expense by income before interest expense.
C. Dividing income before interest expense and income taxes by interest expense.
D. Multiplying interest expense by income before interest expense.
E. Dividing income before interest expense by interest expense and income taxes.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

79. If the times interest ratio:

A. Increases, then risk increases.
B. Increases, then risk decreases.
C. Is greater than 1.5, then the company is in default.
D. Is less than 1.5, the company is carrying too little debt.
E. Is greater than 1.5, the company is likely carrying too much debt.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

80. A company's had fixed interest expense of $6,000, its income before interest expense and any
income taxes is $18,000, and its net income is $8,400. The company's times interest earned ratio
equals:
A. 0.33.
B. 0.71.
C. 1.40.
D. 3.00.
E. 12,000.
$18,000/$6,000 = 3.0 times
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

81. The times interest earned computation is:
A. (Net income + Interest expense + Income taxes)/Interest expense.
B. (Net income + Interest expense - Income taxes)/Interest expense.
C. (Net income - Interest expense - Income taxes)/Interest expense.
D. (Net income - Interest expense + Income taxes)/Interest expense.
E. Interest expense/(Net income + Interest expense + Income taxes expense).
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

82. A company's income before interest expense and taxes is $250,000 and its interest expense is
$100,000. Its times interest earned ratio is:
A. 0.40
B. 2.50
C. 1:2.5
D. 2.5:1
E. 0.50
$250,000/$100,000 = 2.5
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

83. A company's fixed interest expense is $8,000, its income before interest expense and income
taxes is $32,000. Its net income is $9,600. The company's times interest earned ratio equals:
A. 0.25.
B. 0.30.
C. 0.83.
D. 3.33.
E. 4.0.
$32,000/$8,000 = 4.0 times
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

84. The difference between the amount received from issuing a note payable and the amount
repaid is referred to as:
A. Interest.
B. Principle.
C. Face Value.
D. Cash.
E. Accounts Payable.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

85. A short-term note payable:
A. Is a written promise to pay a specified amount on a definite future date within one year or the
company's operating cycle, whichever is longer.
C. Is an estimated liability.
D. Is not a liability until the due date.
E. Cannot be used to extend the payment period for an account payable.
AICPA BB: Industry
Difficulty: Easy

86. Short-term notes payable:

A. Can replace an account payable.
B. Can be issued in return for money borrowed from a bank.
C. Are negotiable.
D. Are an unconditional promise to pay.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

87. On December 1, Martin Company signed a 90-day, 6% note payable, with a face value of
$5,000. What amount of interest expense is accrued at December 31 on the note?
A. $0
B. $25
C. $50
D. $75
E. $300
$5,000 x 0.06 x 30/360 = $25
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

88. On November 1, Carter Company signed a 120-day, 10% note payable, with a face value of
$9,000. What is the adjusting entry for the accrued interest at December 31 on the note?
A. Debit interest expense, $0; credit interest payable, $0.
B. Debit interest expense, $100; credit interest payable, $100.
C. Debit interest expense, $150; credit interest payable, $150.
D. Debit interest expense, $200; credit interest payable, $200.
E. Debit interest expense, $300; credit interest payable, $300.
$9,000 x .10 x 60/360 = $150
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

$9,000. What is the maturity value of the note on March 1?
A. $9,000
B. $9,100
C. $9,150
D. $9,200
E. $9,300
$9,000 x .10 x 120/360 = $300 + $9,000 = $9,300
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

$9,000. Carter made the appropriate year-end accrual. What is the journal entry as of March 1 to
record the payment of the note?
A.
B.
C.
D.
E.
Interest accrued: $9,000 x .10 x 60/360 = $150

Interest earned during next year: $9,000 x .10 x 60/360 =$150
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

91. Most employees and employers are required to pay:

A. Local payroll taxes.
B. State payroll taxes.
C. Federal payroll taxes.
D. Both b and c only.
E. All of these.
Difficulty: Easy

92. Employers' responsibilities for payroll include:
A. Providing each employee with an annual report of his or her wages subject to FICA and
federal income taxes along with the amount of these taxes withheld.
B. Filing Form 941, the Employer's Quarterly Federal Tax Return.
C. Filing Form 940, the Annual Federal Unemployment Tax Return.
D. Individual earnings records for each employee.
E. All of these.
Difficulty: Easy

93. Gross pay is:

A. Take-home pay.
B. Total compensation earned by an employee before any deductions.
C. Salaries after taxes are deducted.
D. Deductions withheld by an employer.
E. The amount of the paycheck.
AICPA BB: Industry
Difficulty: Easy

94. The employer should record payroll deductions as:

A. Employee receivables.
B. Payroll taxes.
C. Current liabilities.
D. Wages payable.
E. Employee payables.
AICPA BB: Industry
Difficulty: Easy

95. FICA taxes include:
A. Social Security taxes.
B. Charitable giving.
C. Employee income taxes.
D. Unemployment taxes.
E. All of these.
Difficulty: Medium

96. The amount of federal income taxes withheld from an employee's paycheck is determined
by:
A. The employee's annual earnings rate and number of withholding allowances.
B. The employer's merit rating.
C. The amount of social security taxes.
D. Multiplying the gross pay by 6.2%.
E. All of these.
Difficulty: Medium

97. Recording employee expenses for employers may involve:

A. Liabilities to individual employees.
B. Liabilities to federal and state governments.
C. Liabilities to insurance companies.
D. Liabilities to labor unions.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

98. The Federal Insurance Contributions Act (FICA) requires that each employer file a:
A. W-4.
B. Form 941.
C. Form 1040.
D. Form 1099.
E. All of these.
AICPA FN: Reporting
Difficulty: Medium

99. An employee earned $47,000 during the year working for an employer. The FICA tax rate
for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's annual
FICA taxes amount is:
A. $ 681.50.
B. $2,914.00.
C. $3,595.50.
D. $7,191.00.
E. Zero, since the employee's pay exceeds the FICA limit.
$47,000 x (.062 + .0145) = $3,595.50
AACSB: Analytic
Difficulty: Medium

100. Phildell Phoenix is paid monthly. For the month of January of the current year, he earned a
total of $8,288. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is
1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes
are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld
from his earnings was $1,375.17. His net pay for the month is:
A. $5,190.83
B. $5,844.79
C. $6,278.79
D. $6,566.00
E. $6,792.64
AACSB: Analytic
Difficulty: Hard

101. Phildell Phoenix is paid monthly. For the month of January of the current year, he earned a
total of $8,288. The FICA tax rate for social security is 6.2% and the FICA tax rate for Medicare
is 1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes
are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld
from his earnings was $1,375.17. What is the total amount of taxes withheld from the Phoenix's
earnings?
A. $3,097.17
B. $2,443.21
C. $2,009.21
D. $1,722.00
E. $1,495.36
AACSB: Analytic
Difficulty: Hard

102. The annual Federal Unemployment Tax Return is:

A. Form 940.
B. Form 1099.
C. Form 104.
D. Form W-2.
E. Form W-4.
AICPA FN: Reporting
Difficulty: Easy

103. The Wage and Tax Statement is:
A. Form 940.
B. Form 941.
C. Form 1040
D. Form W-2.
E. Form W-4.
AICPA FN: Reporting
Difficulty: Medium

104. A bank that is authorized to accept deposits of amounts payable to the federal government is
a:
A. Credit union.
B. FDIC insured bank.
C. Federal depository bank.
D. National bank.
E. Federal Reserve Bank.
Difficulty: Medium

105. An employer's federal unemployment taxes (FUTA) are reported:

A. Annually.
B. Semiannually.
C. Quarterly.
D. Monthly.
E. Weekly.
AICPA FN: Reporting
Difficulty: Medium

106. A merit rating:
A. Is assigned by the state.
B. Reflects a company's stability or instability in employing workers.
C. Adjusts the employer's SUTA tax rate.
D. Affects state unemployment taxes paid by an employer.
E. All of these.
Difficulty: Easy

107. Employer payroll taxes:

A. Are an added expense beyond the wages and salaries earned by employees.
B. Represent the federal taxes withheld from employees.
C. Represent the social security taxes withheld from employees.
D. Are paid by the employee.
E. All of these.
Difficulty: Easy

108. Employers:
A. Pay FICA taxes equal to the amount of FICA taxes withheld from the employees.
B. Withhold employees' FICA taxes.
C. Pay unemployment taxes to the federal government.
D. Pay unemployment taxes to both the state and federal governments.
E. All of these.
Difficulty: Medium

109. FUTA taxes are:
A. Social Security taxes.
B. Medicare taxes.
C. Employee income taxes.
D. Unemployment taxes.
E. Employee deductions.
Difficulty: Medium

110. The unemployment insurance program:

A. Is a joint federal-state program.
B. Is administered by each state.
C. Provides unemployment benefits to qualified workers.
D. Adjusts rates paid by employers based on their merit rating.
E. All of these.
Difficulty: Medium

111. The current FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both taxes are applied
to the first $7,000 of an employee's pay. Assume that an employee earned $8,900. What is the
amount of total unemployment taxes the employer must pay on this employee's wages?
A. $322.00.
B. $434.00.
C. $480.60.
D. $551.80.
E. Zero, since the employee's wages exceed the maximum of $7,000.
$7,000 x (.054 + .008) = $434.00
AACSB: Analytic
Difficulty: Hard

112. An employee earned $4,300 working for an employer. The current rate for FICA social
security is 6.2% and the rate for FICA Medicare 1.45%. The employer's total FICA payroll tax
for this employee is:
A. $ 62.35.
B. $266.60.
C. $328.95.
D. $657.90.
E. Zero, since the FICA tax is a deduction from an employee's pay, and not an employer tax.
$4,300 x (.062 + .0145) = $328.95
AACSB: Analytic
Difficulty: Hard

113. An employee earned $62,500 during the year working for an employer. The FICA tax rate
for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current FUTA tax
rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first
$7,000 of an employee's pay. What is the amount of total unemployment taxes the employee
must pay?
A. $101.50
B. $56.00
C. $378.00
D. $434.00
E. $0.00
AACSB: Analytic
Difficulty: Hard

114. Phildell Phoenix is paid on a monthly basis. For the month of January of the current year, he
earned a total of $8,288. FICA tax for social security is 6.2% and the FICA tax for Medicare is
1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes
are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld
from his earnings was $1,375.17. What is the amount of the employer's annual payroll taxes
expenses for this employee?
A. $56.00
B. $120.18
C. $378.00
D. $513.86
E. $1,068.04
AACSB: Analytic
Difficulty: Hard

115. An estimated liability:
A. Is an unknown liability of a certain amount.
B. Is a known obligation of an uncertain amount that can be reasonably estimated.
C. Is a liability that may occur if a future event occurs.
D. Can be the result of a lawsuit.
E. Is not recorded until the amount is known for certain.
AICPA BB: Industry
Difficulty: Easy

116. Estimated liabilities commonly arise from:

A. Warranties.
B. Vacation benefits.
C. Income taxes.
D. Employee benefits.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

117. Employees earn vacation pay at the rate of one day per month. During July, 25 employees
qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount
of vacation benefit expense for the month of July?
A. $25
B. $100
C. $1,200
D. $2,500
E. $30,000
25 employees x $100/day x 1 day vacation earned = $2,500
AICPA BB: Industry
Difficulty: Easy

118. Employee vacation benefits:
A. Are estimated liabilities.
B. Are contingent liabilities.
C. Are recorded as an expense when the employee takes a vacation.
D. Are recorded as an expense when the employee retires.
E. Increase net income.
AICPA BB: Industry
Difficulty: Medium

119. A company sold $12,000 worth of trampolines with an extended warranty. It estimates that
2% of these sales will result in warranty work. The company should:
A. Consider the warranty expense a remote liability since the rate is only 2%.
B. Recognize warranty expense at the time the warranty work is performed.
C. Recognize warranty expense and liability in the year of the sale.
D. Consider the warranty expense a contingent liability.
E. Recognize warranty liability when the company purchases the trampolines.
AICPA BB: Industry
Difficulty: Medium

120. The deferred income tax liability:

A. Represents income tax payments that are deferred until future years because of temporary
differences between GAAP rules and tax accounting rules.
C. Can result in a deferred income tax asset.
D. Is never recorded.
E. Is recorded whether or not the difference between taxable income and financial accounting
income is permanent or temporary.
Difficulty: Hard

121. A company estimates that warranty expense will be 4% of sales. The company's sales for
the current period are $185,000. The current period's entry to record the warranty expense is:
A.
B.
C.
D.
E. No entry is recorded until the items are returned for warranty repairs.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

122. A company sells computers at a selling price of $1,800 each. Each computer has a 2 year
warranty that covers replacement of defective parts. It is estimated that 2% of all computers sold
will be returned under the warranty at an average cost of $150 each. During November, the
company sold 30,000 computers, and 400 computers were serviced under the warranty at a total
cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was
$29,000. What is the company's warranty expense for the month of November?
A. $26,000
B. $45,000
C. $55,000
D. $60,000
E. $90,000
$30,000 x .02 x $150 = $90,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

123. Maryland Company offers a bonus plan to its employees equal to 3% of net income.
Maryland's net income is expected to be $960,000. The amount of the employee bonus expense
is estimated to be
A. $27,961
B. $28,800
C. $29,000
D. $29,691
E. $30,000
B = 0.03($960,000 - B)
B = $28,800 - 0.03B
1.03 B = $28,800
B = $27,961
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

124. A payroll register includes:

A. Pay period dates.
B. Hours worked.
C. Gross pay and net pay.
D. Deductions.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

125. The wage bracket withholding table is used to:
A. Compute social security withholding.
B. Compute Medicare withholding.
C. Compute federal income tax withholding.
D. Prepare the W-4.
E. All of these.
Difficulty: Medium

126. The amount of federal income tax withheld from an employee's wages is based on:
A. Wages earned.
B. Number of withholding allowances.
C. Number of hours worked.
D. Both A and B.
E. Both B and C.
AICPA BB: Industry
Difficulty: Medium

127. A table that shows the amount of federal income tax to be withheld from an employee's pay
is the:
A. Form 941.
B. Tax table.
C. Wage bracket withholding table.
D. W-2.
E. W-4.
Difficulty: Medium

128. A special bank account used solely for the purpose of paying employees, by depositing in
the account each pay period an amount equal to the total employees' net pay and drawing the
employees' payroll checks on the account, is a(n):
A. Federal depository bank account.
B. Employee's Individual Earnings account.
C. Employees' bank account.
D. Payroll register account.
E. Payroll bank account.
AICPA BB: Industry
Difficulty: Medium

129. If a company uses a special payroll bank account:

A. The company does not need to issue paychecks.
B. The company draws one check for the entire payroll on the regular bank account and deposits
it in the payroll bank account.
C. The company must use a federal depository bank for the payroll bank account.
D. There is no need for a payroll register.
E. There is no need to issue W-2's.
AICPA BB: Industry
Difficulty: Medium


90. The costs of bringing a corporation into existence, including legal fees, promoter fees, and
amounts paid to obtain a charter are called:
A. Minimum legal capital.
B. Stock subscriptions.
C. Organization costs.
D. Cumulative costs.
E. Prepaid fees.
AICPA BB: Legal
Difficulty: Easy

91. 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:
A. Preemptive right.
B. Proxy right.
C. Right to call.
D. Financial leverage.
E. Voting right.
AICPA BB: Legal
Difficulty: Easy

92. Buying stock in a corporation is attractive to investors because:
A. Stockholders are not liable for the corporation's actions and debts.
B. Stock is easily transferred.
C. A corporation has unlimited life.
D. Shareholders are not agents of the corporation.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

93. A proxy is:

A. A legal document that gives a designated agent of a stockholder the power to vote the stock.
B. A contractual commitment by an investor to purchase unissued shares of stock.
C. An amount of assets defined by state law that stockholders must invest and leave invested in a
corporation.
D. The right of common stockholders to protect their proportionate interests in a corporation by
having the first opportunity to purchase additional shares of common stock issued by the
corporation.
E. An arbitrary amount assigned to no-par stock by the corporation's board of directors.
AICPA BB: Legal
Difficulty: Medium

94. The board of directors of a corporation:

A. Are elected by the corporate registrar.
B. Are responsible for day-to-day operations of the business.
C. Do not have the power to bind the corporation to contracts, due to lack of mutual agency.
D. May not also be executive officers of the corporation, due to the separate entity principle.
E. Are responsible for and have final authority for managing corporate activities.
AICPA BB: Legal
Difficulty: Medium

95. A corporation is authorized to issue 9,000 shares of $5 common stock, the corporation should
report paid-in capital from the issuance of common stock of:
A. $ 0.
B. $ 1,800.
C. $45,000.
D. B & C.
E. None of these.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard

96. The total amount of stock that a corporation's charter allows it to issue is referred to as:
A. Issued stock.
B. Outstanding stock.
C. Common stock.
D. Preferred stock.
E. Authorized Stock.
AICPA BB: Legal
Difficulty: Easy

97. 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.
AICPA BB: Legal
Difficulty: Easy

98. When all of the authorized shares have the same rights and characteristics, the stock is called
A. Preferred stock.
B. Common stock.
C. Par value stock.
D. Stated value stock.
E. No-par value stock.
AICPA BB: Legal
Difficulty: Easy

99. An amount of assets defined by state law that stockholders must invest and leave invested in
a corporation, which is intended to protect the creditors of the corporation, is called the:
A. Par value of preferred.
B. Minimum legal capital.
C. Premium capital.
D. Stated value.
E. Working capital.
AICPA BB: Legal
Difficulty: Medium

100. The total amount of cash and other assets received by a corporation from its stockholders in
exchange for common stock is:
A. Always equal to its par value.
B. Always equal to its stated value.
C. Referred to as paid-in capital.
D. Referred to as retained earnings.
E. Always below its stated value.
AICPA BB: Industry
Difficulty: Medium

101. Stated value of no-par stock is:
A. Another name for redemption value.
B. An amount assigned to par value stock by the state of incorporation.
C. The market value of the stock on the date of issuance.
D. The difference between the par value of stock and the amount below or above par value paid-
in by the stockholder.
E. An amount assigned to no-par stock by the corporation's board of directors.
AICPA BB: Industry
Difficulty: Medium

102. Stockholders' equity consists of:

A. Long-term assets.
B. Paid-in capital and retained earnings.
C. Paid-in capital and par value.
D. Retained earnings and cash.
E. Premiums and discounts.
AICPA BB: Industry
Difficulty: Medium

103. A class of stock that does not have a par value, and can usually be issued at any price
without creating a minimum legal capital deficiency, is called:
A. Convertible stock.
B. No-par stock.
C. Callable stock.
D. Noncumulative stock.
E. Discounted stock.
AICPA BB: Industry
Difficulty: Hard

104. A corporation's minimum legal capital is often defined to be the total par value of the
shares:
A. Issued.
B. Authorized.
C. Subscribed.
D. Outstanding.
E. In treasury.
AICPA BB: Legal
Difficulty: Hard

105. Owners of preferred stock often do not have:

A. Ownership rights to assets of the corporation.
B. Voting rights.
C. Preference to dividends.
D. The right to sell their stock on the open market.
E. Preference to assets at liquidation.
AICPA BB: Industry
Difficulty: Medium

106. Retained earnings:
A. Generally consists of a company's cumulative net income less any net losses and dividends
declared since its inception.
B. Can only be appropriated by setting aside a cash fund.
C. Represent an amount of cash available to pay shareholders.
D. Are never adjusted for anything other than net income or dividends.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

107. Prior period adjustments to financial statements can result from:
A. Changes in estimates.
B. Using unacceptable accounting principles.
C. Discontinued operations.
D. Changes in tax law.
E. Extraordinary items.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy

108. Prior period adjustments are reported in the:

A. Income statement.
B. Balance sheet.
C. Statement of retained earnings.
E. Notes to the financial statements.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

109. A common statutory restriction is reported on the:

A. Income statement.
B. Statement of stockholders' equity.
C. Balance sheet.
E. All of these.
AICPA BB: Legal
AICPA FN: Reporting
Difficulty: Medium

110. Changes in accounting estimates are:
A. Considered accounting errors.
B. Reported as prior period adjustments.
C. Accounted for with a cumulative "catch-up" adjustment.
D. Extraordinary items.
E. Accounted for in current and future periods.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

111. A company had a beginning balance in retained earnings of $43,000. It had net income of
$6,000 and paid out cash dividends of $5,625 in the current period. The ending balance in
retained earnings equals:
A. $108,625.
B. $(12,625).
C. $11,375.
D. $43,375.
E. $(11,375).
AICPA BB: Industry
Difficulty: Medium

112. The right to purchase common stock at a fixed price over a specified period is:
A. Preferred stock
B. Class B stock
C. Stock option
D. Stock restriction
E. No-par stock
AICPA BB: Industry
Difficulty: Medium

113. Companies report the cost of stock options on the:

A. Statement of Cash Flows
B. Balance Sheet.
C. Statement of Retained Earnings.
D. Income Statement.
E. C & D.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

114. The statement of retained earnings may be combined with the:

A. Statement of Cash Flows.
B. Balance Sheet.
C. Statement of Stockholders' Equity.
D. All of these.
E. None of these.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

115. Stock options are often used to encourage employees to:
A. Focus on company performance.
B. Take a long-run approach.
C. Remain with the company.
D. To help save for retirement by participation in profit-sharing plans.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

116. A company made an error in recording the 2009 purchase of machinery. This was
discovered in 2011. The item should be reported as a prior period adjustment:
A. on the 2009 statement of retained earnings.
B. on the 2009 income statement.
C. on the 2011 statement of retained earnings.
D. on the 2011 income statement.
E. accounted for with a cumulative "catch-up" adjustment.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard

117. The statement of changes in stockholders' equity:

A. Is part of the statement of retained earnings.
B. Shows only the ending balances in stockholders' equity.
C. Describes changes in paid-in capital and retained earnings subcategories.
D. Does not include changes in treasury stock.
E. Is reported by very few companies.
AICPA BB: Reporting
Difficulty: Hard

118. Retained earnings:
A. Generally consists of a company's cumulative net income less any net losses and dividends
declared since its inception.
B. Can be subject to a statutory restriction by a state.
C. Can be subject to restrictions due to loan agreements.
D. Can be subject to appropriation by a corporation's directors to limit dividends.
E. All of these.
AICPA BB: Industry
Difficulty: Hard

119. The amount of income earned per share of a company's common stock is known as:
A. Restricted retained earnings per share.
B. Earnings per share.
C. Continuing operations per share.
D. Dividends per share.
E. Book value per share.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

120. Shamrock Company had net income of $30,000. On January 1, the number of shares of
common stock outstanding were 8,000. There were no other stock transactions. The company's
earnings per share is:
A. $3.75.
B. $3.00.
C. $3.33.
D. $15.00.
E. $3.16.
{$30,000/8,000} = $3.75
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

121. Shamrock Company had net income of $30,000. On January 1, the number of shares of
common stock outstanding was 8,000. The company declared a $2,700 dividend on its
noncumulative, nonparticipating preferred stock. There were no other stock transactions. The
company's earnings per share is:
A. $2.87.
B. $2.73.
C. $3.41.
D. $3.16.
E. $3.75.
{($30,000 - $2,700)/8,000} = $3.41
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

122. The price-earnings ratio is calculated by dividing:
A. Market value per share by earnings per share.
B. Earnings per share by market value per share.
C. Dividends per share by earnings per share.
D. Dividends per share by market value per share.
E. Market value per share by dividends per share.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

123. A company has earnings per share of $9.60. Its dividend per share is $0.50, and its market
price per share is $120. Its price-earnings ratio equals:
A. 9.60
B. 12.4
C. 12.5
D. 19.2
E. 240
$120/$9.60 = 12.5
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

124. A company has a market value per share of $73.00. Its net income is $1,750,000 and the
weighted-average number of shares outstanding is 350,000. The company's price-earnings ratio
equals:
A. 20.9.
B. 4.2.
C. 14.6.
D. 20.0.
E. 6.8.
$73/($1,750,000/350,000 shares) = 14.6
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

125. A company has net income of $850,000. It has 125,000 weighted-average common shares
outstanding and a market value per share of $115. The company's price–earnings ratio equals:
A. 16.9.
B. 14.7.
C. 92.0.
D. 13.5.
E. 8.0.
$115/($850,000/125,000 shares) = 16.9
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

126. The annual amount of cash dividends distributed to common shareholders relative to the
common stock's market value is the:
A. Dividend payout ratio.
B. Dividend yield.
C. Price-earnings ratio.
D. Current yield.
E. Earnings per share.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

127. The dividend yield is computed by dividing:

A. Cash dividends per share by earnings per share.
B. Earnings per share by cash dividends per share.
C. Cash dividends per share by the market price per share.
D. Market price per share by cash dividends per share.
E. Cash dividends per share by retained earnings.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

128. Stocks that pay relatively large cash dividends on a regular basis are called:
A. Small capital stocks.
B. Mid capital stocks.
C. Growth stocks.
D. Large capital stocks.
E. Income stocks.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

129. Dividend yield is the percent of cash dividends paid to common shareholders relative to
the:
A. Common stock's market value.
B. Earnings per share.
C. Investors' purchase price of the stock.
D. Amount of retained earnings.
E. Amount of cash.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

130. A company paid $0.48 in cash dividends per share. Its earnings per share is $4.20 and its
market price per share is $30.00. Its dividend yield equals:
A. 1.60%.
B. 6.25%.
C. 8.75%.
D. 11.40%.
E. 14.00%.
$0.48/$30 = 1.6%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

131. A company paid $0.75 in cash dividends per share. Its earnings per share is $3.50, and its
market price per share is $37.50. Its dividend yield equals:
A. 11.7%.
B. 2.0%.
C. 10.9%.
D. 21.4%.
E. 46.7%.
$0.75/$37.50 = 2%
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

132. Book value per share:

A. Reflects the value per share if a company is liquidated at balance sheet amounts.
B. Is assets divided by equity.
C. Is assets divided by the number of common share outstanding.
D. Measures the worth of assets.
E. Is equal to par value per share.
AICPA BB: Industry
Difficulty: Easy

133. Book value per common share is computed by:
A. Multiplying the number of common shares outstanding times the market price per common
share.
B. Dividing total assets by the number of shares outstanding.
C. Dividing stockholders' equity applicable to common shares by the number of common shares
outstanding.
D. Multiplying the number of common shares outstanding by par value per share.
E. Dividing the number of common shares outstanding by stockholders' equity applicable to
common shares.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

134. A company has 40,000 shares of common stock outstanding. The stockholders' equity
applicable to common shares is $470,000, and the par value per common share is $10. The book
value per share is:
A. $ 0.09.
B. $ 1.75.
C. $10.00.
D. $11.75.
E. $47.50.
$470,000/40,000 shares = $11.75 per share
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

135. Book value per share is often used as a starting point for:
A. Stock valuation.
B. Merger negotiations.
C. Price setting for public utilities.
D. Loan contracts.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

136. A company has 1,000 shares of $100 par preferred stock. It also has 25,000 shares of
common stock outstanding, and its total stockholders' equity equals $500,000. The book value
per common share is:
A. $ 15.38.
B. $ 16.00.
C. $ 19.23.
D. $ 20.00.
E. $100.00.
Preferred stock = 1,000 shares x $100/share = $100,000

Book value per share = ($500,000 - $100,000)/25,000 shares = $16/share
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

137. A company has 500 shares of $50 par value preferred stock outstanding, and the call price
of its preferred stock is $60 per share. It also has 20,000 shares of common stock outstanding,
and the total value of its stockholders' equity is $680,000. The company's book value per
common share equals:
A. $31.71.
B. $32.50.
C. $32.75.
D. $33.17.
E. $60.00.
[$680,000 - (500 preferred shares x $60)]/20,000 common shares = $32.50/common share
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

138. The Discount on Common Stock account reflects:

A. The difference between the par value of stock and its issue price when it is issued at a price
below par value.
B. One share's portion of the issued corporation's net assets recorded in its accounts.
C. The difference between the par value of the stock and the amount paid-in by stockholders
when the amount paid-in is more than par value.
D. An amount of assets defined by state law that stockholders must invest and leave invested in a
corporation.
E. The amount a corporation must pay in addition to dividends in arrears if and when it exercises
its right to retire a share of callable preferred stock.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

139. A corporation was formed on January 1. The corporate charter authorized 100,000 shares of
$10 par value common stock. During the first month of operation, the corporation issued 300
shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation.
The entry to record this transaction would include:
A. A debit to Organization Expenses for $3,000.
B. A debit to Organization Expenses for $5,000.
C. A credit to Common Stock for $5,000.
D. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.
E. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

140. A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13
per share. The entry to record this transaction would include:
A. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $42,000.
B. A debit to Cash for $140,000.
C. A credit to Common Stock for $182,000.
D. A credit to Common Stock for $140,000.
E. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

141. A corporation issued 6,000 shares of its $10 par value common stock in exchange for land
that has a market value of $84,000. The entry to record this transaction would include:
A. A debit to Common Stock for $60,000.
B. A debit to Land for $60,000.
C. A credit to Land for $60,000.
D. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $24,000.
E. A credit to Common Stock for $84,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

142. A corporation issued 300 shares of its $5 par value common stock in payment of a $1,800
charge from its accountant for assistance in filing its charter with the state. The entry to record
this transaction will include:
A. A $1,800 credit to Common Stock.
B. A $1,500 debit to Organization Expenses.
C. A $300 credit to Paid-in Capital in Excess of Par Value, Common Stock.
D. A $1,800 debit to Legal Expenses.
E. A $1,800 credit to Cash.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

143. A company issued 60 shares of $100 par value stock for $7,000 cash. The total amount of
paid-in capital is:
A. $ 100.
B. $ 600.
C. $1,000.
D. $6,000.
E. $7,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

144. A company issued 60 shares of $100 par value stock for $7,000 cash. The total amount of
paid-in capital in excess of par is:
A. $ 100.
B. $ 600.
C. $1,000.
D. $6,000.
E. $7,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

145. A corporation issued 5,000 shares of $10 par value common stock in exchange for some
land with a market value of $60,000. The entry to record this exchange is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

146. A premium on common stock:
A. Is the amount paid in excess of par by purchasers of newly issued stock.
B. Is the difference between par value and issue price when the amount paid is below par.
C. Represents profit from issuing stock.
D. Represents capital gain on sale of stock.
E. Is prohibited in most states.
AICPA BB: Industry
Difficulty: Medium

147. The date a board of directors votes to pay a dividend is called the:

A. Date of stockholders' meeting.
B. Date of declaration.
C. Date of record.
D. Date of payment.
E. Liquidating date.
AICPA BB: Industry
Difficulty: Easy

148. A liquidating dividend is:

A. Only declared when a corporation closes down.
B. A return of a part of the original investment back to the stockholders.
C. Not allowed under federal law.
D. Only paid in assets other than cash.
E. Only paid in shares of stock.
AICPA BB: Industry
Difficulty: Medium

149. A liability for dividends exists:
A. When cumulative preferred stock is sold.
B. On the date of declaration.
C. On the date of record.
D. On the date of payment
E. When dividends in arrears accrue on cumulative preferred stock
AICPA BB: Industry
Difficulty: Medium

150. A company's board of directors votes to declare a cash dividend of 75¢ per share. The
company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total
amount of the cash dividend is:
A. $ 375.
B. $ 4,125.
C. $ 7,125.
D. $ 7,500.
E. $11,250.
$0.75 x 9,500 shares = $7,125
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

151. A company declared a $0.50 per share cash dividend. The company has 20,000 shares
authorized, 9,000 shares issued, and 8,000 shares of common stock outstanding. The journal
entry to record the dividend declaration is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

152. A corporation's distribution of additional shares of its own stock to its stockholders without
the receipt of any payment in return is called a:
A. Stock dividend.
B. Stock subscription.
C. Premium on stock.
D. Discount on stock.
E. Treasury stock.
AICPA BB: Industry
Difficulty: Easy

153. A stock dividend:
A. Is not a liability on the balance sheet.
B. Does not reduce a corporation's assets and stockholders' equity.
C. Transfers a portion of equity from retained earnings to paid-in capital.
D. Does not affect total equity, but does affect the components of equity.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

154. On September 1, a corporation had 50,000 shares of $5 par value common stock, and
$1,000,000 of retained earnings. On that date, when the market price of the stock is $15 per
share, the corporation issues a 2-for-1 stock split. The general journal entry to record this
transaction is:
A.
B.
C.
D.
E. No entry is made for this transaction.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

155. Companies can use stock dividends:
A. To keep the market price of the stock affordable.
B. To provide evidence of management's confidence that the company is doing well.
C. To increase total equity.
D. Both A and B.
E. All of these.
AICPA BB: Industry
Difficulty: Hard

156. A stock dividend transfers:

A. Paid-in capital to retained earnings.
B. Retained earnings to paid-in capital.
C. Retained earnings to assets.
D. Paid-in capital to assets.
E. Assets to paid-in capital.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

157. A corporation declared and issued a 15% stock dividend on November 1. The following up-
to-date data were available immediately prior to the dividend:

The amount that total stockholders' equity will increase (decrease) as a result of recording this
stock dividend is:
A. $45,000.
B. $135,000.
C. $(90,000).
D. $(135,000).
E. $0.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

158. A corporation had 50,000 shares of $20 par value common stock outstanding on July 1.
Later that day the board of directors declared a 10% stock dividend when the market value of
each share was $27. The entry to record this dividend is:
A.
B.
C.
D.
E. No entry is made until the stock is issued.
Retained earnings: 50,000 shares x 10% x $27 = $135,000

Common Stock Dividend Distributable: 50,000 shares x 10% x $20 = $100,000
Paid-in Capital in Excess of Par Value, Common Stock: 50,000 shares x 10% x $7 = $35,000
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard

159. A corporation had 10,000 shares of $10 par value common stock outstanding when the
board of directors declared a stock dividend of 3,000 shares. At the time of the stock dividend,
the market value per share was $12. The entry to record this dividend is:
A.
B.
C.
D.
E. Stock dividends do not require journal entries.
3,000/10,000 shares = large stock dividend of 30%. Large stock dividends are recorded at par
value (3,000 shares x $10)
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard

160. Preferred stock on which the right to receive dividends is forfeited for any year that the
dividends are not declared is called:
A. Noncumulative preferred stock.
B. Participating preferred stock.
C. Callable preferred stock.
D. Cumulative preferred stock.
E. Convertible preferred stock.
AICPA BB: Industry
Difficulty: Easy

161. Preferred stock that the issuing corporation at its option may retire by paying a specified
amount to the preferred stockholders plus any dividends in arrears is called:
A. Convertible preferred stock.
B. Callable preferred stock.
C. Premium stock.
D. Cumulative preferred stock.
E. Participating preferred stock.
AICPA BB: Industry
Difficulty: Medium

162. Achieving an increased return on common stock by paying dividends on preferred stock at a

rate that is less than the rate of return earned with the assets invested from the preferred stock
issuance is called:
A. Financial leverage.
B. Discount on stock.
C. Premium on stock.
D. Preemptive right.
E. Capital gain.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

163. Preferred stock is often issued:

A. To initiate or increase financial leverage.
B. To prevent dilution of common stock.
C. To appeal to investors who believe that common stock is too risky.
D. To boost the return earned by common shareholders.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

164. Preferred stock with a feature allowing preferred stockholders to share with common
shareholders in any dividends in excess of the percent or dollar amount stated on the preferred
stock is called:
A. Cumulative preferred stock.
C. Participating preferred stock.
D. Convertible preferred stock.
E. Preferential preferred stock.
AICPA BB: Industry
Difficulty: Medium

165. Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred stock

outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In the company's
first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash
dividends of $30,000. This dividend should be distributed as follows:
A. $8,000 preferred; $22,000 common.
B. $16,000 preferred; $14,000 common.
C. $7,500 preferred; $22,500 common.
D. $15,000 preferred; $15,000 common.
E. $0 preferred; $30,000 common.
Preferred stock dividend: $100,000 x 8% = $8,000

Common stock dividend: $30,000 - $8,000 = $22,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

166. A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating
preferred stock and 10,000 shares of $10 par value common stock outstanding. The company
paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be
paid to preferred stockholders in the second year before any dividend is paid to common
stockholders is:
A. $1,000.
B. $1,250.
C. $2,250.
D. $3,500.
E. $4,500.
Preferred stock dividend: 1,000 shares x $50/share x 4.5% = $2,250

Prior year: Dividend = $1,000; $1,250 in arrears
Current year: $1,250 in arrears + $2,250 current dividend = $3,500
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

167. Preferred stock on which the right to receive dividends is forfeited for any year that the
dividends are not declared is referred to as:
A. Participating preferred stock.
C. Cumulative preferred stock.
D. Convertible preferred stock.
E. Noncumulative preferred stock.
AICPA BB: Industry
Difficulty: Medium

168. A dividend preference for preferred stock means that:
A. Preferred stockholders are allocated their dividends before dividends are allocated to common
shareholders.
B. Preferred shareholders are guaranteed dividends.
C. Dividends are paid quarterly.
D. Preferred stockholders prefer dividends more than common stockholders.
E. Dividends must be declared on preferred stock.
AICPA BB: Industry
Difficulty: Medium

169. A company issued 7% preferred stock with a $100 par value. This means that:
A. Preferred shareholders have a guaranteed dividend.
B. The amount of the potential dividend is $7 per year per preferred share.
C. Preferred shareholders are entitled to 7% of the annual income.
D. The market price per share will approximate $100 per share.
E. Only 7% of the total paid-in capital can be preferred stock.
AICPA BB: Industry
Difficulty: Medium

170. Stock that was reacquired and is still held by the issuing corporation is called:
A. Capital stock.
B. Treasury stock.
C. Redeemed stock.
D. Preferred stock.
E. Callable stock.
AICPA BB: Industry
Difficulty: Easy

171. Treasury stock is classified as:
A. An asset account.
B. A contra asset account.
C. A revenue account.
D. A contra equity account.
E. A liability account.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

172. The following data were reported by a corporation:

The number of outstanding shares is:

A. 12,000.
B. 15,000.
C. 17,000.
D. 20,000.
E. 23,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

173. Corporations often buy back their own stock:
A. To avoid a hostile take-over.
B. To have shares available for a merger or acquisition.
C. To have shares available for employee compensation.
D. To maintain market value for the company stock.
E. All of these.
AICPA BB: Resource Management
Difficulty: Medium

174. The retirement of stock:

A. Reduces the number of issued shares.
B. Does not reduce the number of authorized shares.
C. Removes all paid-in capital amounts related to the retired shares.
D. Reduces retained earnings if the purchase price exceeds the net amount removed from paid-in
capital.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

175. The following data has been collected about a company's stockholders' equity accounts:

The treasury shares were all purchased at the same price.
The cost per share of the treasury stock is:

A. $1.15.
B. $1.28.
C. $11.50.
D. $10.50.
E. $10.00.
$11,500/1,000 = $11.50, the cost per share of treasury stock.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

176. Prior to June 1, a company has never had any treasury stock transactions. A company
repurchased 100 shares of its common stock on June 1 for $5,000. On July 1, it reissued 50 of
these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per
share. What is the balance in the Paid-in Capital, Treasury Stock account on August 2?
A. $5,050.
B. $2,600.
C. $100.
D. $50.
E. $0.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard


74. Sinking fund bonds:

A. Require the issuer to set aside assets to retire the bonds at maturity.
B. Require equal payments of both principal and interest over the life of the bond issue.
C. Decline in value over time.
D. Are registered bonds.
E. Are bearer bonds.
AICPA BB: Legal
Difficulty: Easy

75. Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount
prior to maturity are known as:
A. Convertible bonds.
B. Sinking fund bonds.
C. Callable bonds.
D. Serial bonds.
E. Junk bonds.
AICPA BB: Industry
Difficulty: Easy

76. A bond traded at 102½ means that:

A. The bond pays 2.5% interest.
B. The bond traded at $1,025 per $1,000 bond.
C. The market rate of interest is 2.5%.
D. The bonds were retired at $1,025 each.
E. The market rate of interest is 2 ½ % above the contract rate.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

77. Secured bonds:
A. Are called debentures.
B. Have specific assets of the issuing company pledged as collateral.
C. Are backed by the issuer's bank.
D. Are subordinated to those of other unsecured liabilities.
E. Are the same as sinking fund bonds.
AICPA BB: Industry
Difficulty: Easy

78. Bonds that have interest coupons attached to their certificates, which the bondholders detach
during each interest period and present to a bank for collection, are called:
A. Coupon bonds.
B. Callable bonds.
C. Serial bonds.
D. Convertible bonds.
E. Registered bonds.
AICPA BB: Industry
Difficulty: Easy

79. Bonds owned by investors whose names and addresses are recorded by the issuing company,
and for which interest payments are made with checks to the bondholders, are called:
A. Callable bonds.
B. Serial bonds.
C. Registered bonds.
D. Coupon bonds.
E. Bearer bonds.
AICPA BB: Industry
Difficulty: Easy

80. The contract between the bond issuer and the bondholders, which identifies the rights and
obligations of the parties, is called a(n):
A. Debenture.
B. Bond indenture.
C. Mortgage.
D. Installment note.
E. Mortgage contract.
AICPA BB: Legal
Difficulty: Medium

81. Bonds that mature at different dates with the result that the entire principal amount is repaid
gradually over a number of periods are known as:
A. Registered bonds.
B. Bearer bonds.
C. Callable bonds.
D. Sinking fund bonds.
E. Serial bonds.
AICPA BB: Industry
Difficulty: Medium

82. Bonds with a par value of less than $1,000 are known as:
A. Junk bonds.
B. Baby bonds.
C. Callable bonds.
D. Unsecured bonds.
E. Convertible bonds.
AICPA BB: Industry
Difficulty: Hard

83. To provide security to creditors and to reduce interest costs, bonds and notes payable can be
secured by:
A. Safe deposit boxes.
B. Mortgages.
C. Equity.
D. The FASB.
E. Debentures.
AICPA BB: Legal
Difficulty: Medium

84. Promissory notes that require the issuer to make a series of payments consisting of both
interest and principal are:
A. Debentures.
B. Discounted notes.
C. Installment notes.
D. Indentures.
E. Investment notes.
AICPA BB: Industry
Difficulty: Easy

85. The carrying value of a long-term note payable:
A. Is computed as the future value of all remaining future payments, using the market rate of
interest.
B. Is the face value of the long-term note less the total of all future interest payments.
C. Is computed as the present value of all remaining future payments, discounted using the
market rate of interest at the time of issuance.
D. Is computed as the present value of all remaining interest payments, discounted using the
note's rate of interest.
E. Decreases each time period the discount on the note is amortized.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

86. The carrying value of bonds at maturity is always equal to:

A. the amount of cash originally received in exchange for the bonds.
B. face value.
C. the amount of discount or premium.
D. the amount of cash originally received in exchange for the bonds plus any discount or less any
premium.
E. $0.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

87. The payment pattern for an installment note with equal total payments includes:
A. Increasing principal payments.
B. Decreasing accrued interest.
C. Constant cash payments.
D. Both A and B.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

88. A company must repay the bank $10,000 cash in 3 years for a loan it entered into. The loan is
at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The
present value of the loan is:
A. $10,000.
B. $12,400.
C. $ 7,938.
D. $ 9,200.
E. $ 7,600.
$10,000 x 0.7938 = $7,938
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

89. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note.
The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals
$75,137. The present value of the note is:
A. $ 75,137.
B. $ 94,013.
C. $ 300,000.
D. $ 375,685.
E. $1,197,810.
$75,137 x 3.9927 = $300,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

90. A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The
present value of an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal
$10,490. The present value of the loan is:
A. $ 10,490.
B. $ 11,004.
C. $ 50,000.
D. $ 52,450.
E. $238,325.
$10,490 x 4.7665 = $50,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

91. A company purchased equipment and signed a 7-year installment loan at 9% annual interest.
The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330.
The present value of the loan is:
A. $ 9,000.
B. $ 5,033.
C. $63,000.
D. $57,330.
E. $45,297.
$9,000 x 5.0330= $45,297
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

92. A pension plan
A. Is a contractual agreement between an employer and its employees in which the employer
provides benefits to employees after they retire.
B. Can be underfunded if the accumulated benefit obligation is more than the plan assets.
C. Can include a plan administrator who receives payments from the employer, invests them in
pension assets, and makes benefit payments to pension recipients.
D. Can be a defined benefit plan in which future benefits are set, but the employer's contributions
vary depending on assumptions about future pension assets and liabilities.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

93. Operating leases differ from capital leases in that

A. For a capital lease the lessee records the lease payments as rent expense, but for an operating
lease the lessee reports the lease payments as depreciation expense.
B. For an operating lease the lessee depreciates the asset acquired under lease, but for the capital
lease the lessee does not.
C. Operating leases create a long-term liability on the balance sheet, but capital leases do not.
D. Operating leases do not transfer ownership of the asset under the lease, but capital leases often
do.
E. Operating lease payments are generally greater than capital lease payments.
AICPA BB: Industry
Difficulty: Hard

94. An advantage of bond financing is:
A. Bonds do not affect owners' control.
B. Interest on bonds is tax deductible.
C. Bonds can increase return on equity.
D. It allows firms to trade on the equity.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

95. A disadvantage of bonds is:

A. Bonds require payment of periodic interest.
B. Bonds require payment of principal.
C. Bonds can decrease return on equity.
D. Bond payments can be burdensome when income and cash flow are low.
E. All of these.
AICPA BB: Industry
Difficulty: Easy


A. Interest on bonds is tax deductible.
B. Interest on bonds is not tax deductible.
C. Dividends to stockholders are tax deductible.
D. Bonds do not have to be repaid.
E. Bonds always decrease return on equity.
AICPA BB: Industry
Difficulty: Medium

97. A bondholder that owns a $1,000, 10%, 10-year bond has:
A. Ownership rights.
B. The right to receive $10 per year until maturity.
C. The right to receive $1,000 at maturity.
D. The right to receive $10,000 at maturity.
E. The right to receive dividends of $1,000 per year.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

98. The use of collateral for a note or bond:

A. Lowers the risk in comparison with unsecured debt.
B. Increases the risk in comparison with unsecured debt.
C. Has no effect on risk.
D. Reduces the issuer's assets.
E. Increases total cost for the borrower.
AICPA BB: Industry
Difficulty: Medium

99. The party that has the right to exercise the call option on callable bonds is(are):
A. The bondholders.
B. The bond issuer.
C. The bond indenture.
D. The bond trustee.
E. The bond underwriter.
AICPA BB: Industry
Difficulty: Medium

100. Which of the following accurately describes a debenture?
A. A legal contract between the bond issuer and the bondholders.
B. A type of bond issued in the names and addresses of the bondholders.
C. A type of bond which requires the bond issuer to create a sinking fund of assets set aside at
specified amounts and dates to repay the bonds.
D. A type of bond which is not collateralized but backed only by the issuer's general
creditstanding.
E. A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's
common stock.
AICPA BB: Industry
Difficulty: Medium

101. A company's total liabilities divided by its total stockholders' equity is called the:
A. Debt ratio.
B. Return on total assets ratio.
C. Pledged assets to secured liabilities ratio.
D. Debt-to-equity ratio.
E. Times secured liabilities earned ratio.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

102. The debt-to-equity ratio:

A. Is calculated by dividing book value of secured liabilities by book value of pledged assets.
B. Is a means of assessing the risk of a company's financing structure.
C. Is not relevant to secured creditors.
D. Can always be calculated from information provided in a company's income statement.
E. Must be calculated from the market values of assets and liabilities.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

103. Pitt Corporation's most recent balance sheet reports total assets of $35,000,000 and total
liabilities of $17,500,000. Management is considering issuing $5,000,000 of par value bonds (at
par) with a maturity date of ten years and a contract rate of 7%. What effect, if any, would
issuing the bonds have on the company's debt-to-equity ratio?
A. Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.
B. Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.
C. Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.
D. Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
E. Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

104. Tart Company's most recent balance sheet reports total assets of $42,000,000, total
liabilities of $16,000,000 and stockholders' equity of $26,000,000. Management is considering
using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any,
would prepaying the bonds have on the company's debt-to-equity ratio?
A. Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.
B. Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.
C. Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.
D. Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.
E. Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

105. The contract rate of interest is also called the:

A. Coupon rate.
B. Stated rate.
C. Nominal rate.
D. Market rate.
E. Each of A, B, and C.
AICPA BB: Industry
Difficulty: Easy

106. Bonds can be issued:
A. At par.
B. At a premium.
C. At a discount.
D. Between interest payment dates.
E. All of these.
AICPA BB: Industry
Difficulty: Medium

107. When a bond sells at a premium:

A. The contract rate is above the market rate.
B. The contract rate is equal to the market rate.
C. The contract rate is below the market rate.
D. It means that the bond is a zero coupon bond.
E. The bond pays no interest.
AICPA BB: Industry
Difficulty: Medium

108. A bond sells at a discount when the:

A. Contract rate is above the market rate.
B. Contract rate is equal to the market rate.
C. Contract rate is below the market rate.
D. Bond has a short-term life.
E. Bond pays interest only once a year.
AICPA BB: Industry
Difficulty: Medium

109. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate
is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is.
A. $ 0.
B. $ 33,750.
C. $ 67,500.
D. $ 750,000.
E. $1,550,000.
$750,000 x .09 x ½ year = $33,750
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

110. A company issued 8%, 15-year bonds with a par value of $550,000. The current market rate
is 8%. The journal entry to record each semiannual interest payment is:
A.
B.
C.
D.
E. No entry is needed, since no interest is paid until the bond is due.
$550,000 x .08 x 1/2 year = $22,000
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

111. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for
$3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of
interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or
discount is being amortized at a rate of $10,000 every six months.
The company's December 31, Year 1 balance sheet should reflect total liabilities associated with
the bond issue in the amount of:
A. $3,220,000.
B. $3,342,500.
C. $3,097,500.
D. $3,780,000.
E. $3,902,500.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard

discount is being amortized at a rate of $10,000 every six months.
The amount of interest expense recognized by Drum Line Airways on the bond issue in Year 1
would be:
A. $132,500.
B. $225,000.
C. $265,000.
D. $245,000.
E. $280,000.
Cash paid every six months = ($3,500,000 x 7% x 6/12) or $122,500.

Discount amortization every six months = $10,000.
($122,500 + $10,000) x 2 = $265,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Hard

discount is being amortized using the straight-line method at a rate of $10,000 every six months.
The life of these bonds is:
A. 15 years.
B. 30 years.
C. 26.5 years.
D. 32 years
E. 35 years.
Annual discount amortization = $20,000 ($10,000 x 2)

Bond discount = $3,500,000 - $3,200,000 = $300,000
Discount/Amortization = Life of bonds ($300,000/$20,000 = 15 years)
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

114. Amortizing a bond discount:

A. Allocates a part of the total discount to each interest period.
B. Increases the market value of the Bonds Payable.
C. Decreases the Bonds Payable account.
D. Decreases interest expense each period.
E. Increases cash flows from the bond.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy

115. The Discount on Bonds Payable account is:
A. A liability.
B. A contra liability.
C. An expense.
D. A contra expense.
E. A contra equity.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

116. A discount on bonds payable:

A. Occurs when a company issues bonds with a contract rate less than the market rate.
B. Occurs when a company issues bonds with a contract rate more than the market rate.
C. Increases the Bond Payable account.
D. Decreases the total bond interest expense.
E. Is not allowed in many states to protect creditors.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

117. On January 1, 2009, a company issued and sold a $400,000, 7%, 10-year bond payable, and
received proceeds of 396,000. Interest is payable each June 30 and December 31. The company
uses the straight-line method to amortize the discount. The journal entry to record the first
interest payment is:
A.
B.
C.
D.
E.
Cash = $400,000 x .07 x 1/2 = $14,000

Discount amortized = ($400,000 - $396,000)/20 = $200
Interest expense = $14,000 + $200 = $14,200
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

118. A company issued 5-year, 7% bonds with a par value of $100,000. The company received
$97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first
semiannual interest period is:
A. $3,294.70.
B. $3,500.00.
C. $3,705.30.
D. $7,000.00.
E. $7,410.60.
Cash interest paid: $100,000 x .07 x ½ year = $3,500

Discount amortization: ($100,000 - $97,947)/10 periods = $205.30
Interest expense = $3,500 + $205.30 = $3,705.30
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

119. The effective interest amortization method:

A. Allocates bond interest expense using a changing interest rate.
B. Allocates bond interest expense using a constant interest rate.
C. Allocates a decreasing amount of interest over the life of a discounted bond.
D. Allocates bond interest expense using the current market rate for each period.
E. Is not allowed by the FASB.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
Learning Objective: P2B

120. A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when
the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the
effective interest method, the amount of interest expense for the first semiannual interest period
is:
A. $3,500.00.
B. $3,673.01.
C. $3,705.30.
D. $7,000.00.
E. $7,346.03.
$97,947 x .075 x ½ year = $3,673.01
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

121. The market value of a bond is equal to:

A. The present value of all future cash payments provided by a bond.
B. The present value of all future interest payments provided by a bond.
C. The present value of the principal for an interest-bearing bond.
D. The future value of all future cash payments provided by a bond.
E. The future value of all future interest payments provided by a bond.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

122. The Premium on Bonds Payable account is a(n):
A. Revenue account.
B. Adjunct or accretion liability account.
C. Contra revenue account.
D. Asset account.
E. Contra expense account.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

123. Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid
semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash
proceeds. Which of the following statements is true?
A. Adidas must pay $200,000 at maturity and no interest payments.
B. Adidas must pay $206,948 at maturity and no interest payments.
C. Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each.
D. Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each.
E. Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

124. A company received cash proceeds of $206,948 on a bond issue with a par value of
$200,000. The difference between par value and issue price for this bond is recorded as a:
A. Credit to Interest Income.
B. Credit to Premium on Bonds Payable.
C. Credit to Discount on Bonds Payable.
D. Debit to Premium on Bonds Payable.
E. Debit to Discount on Bonds Payable.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

125. If an issuer sells a bond at a date other than an interest payment date:
A. This means the bond sells at a premium.
B. This means the bond sells at a discount.
C. The issuing company will report a loss on the sale of the bond.
D. The issuing company will report a gain on the sale of the bond.
E. The buyers normally pay the issuer the purchase price plus any interest accrued since the prior
interest payment date.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium

126. A company issues at par 9% bonds with a par value of $100,000 on April 1, which is 4
months after the most recent interest date. How much total cash interest is received on April 1 by
the bond issuer?
A. $ 750.
B. $5,250.
C. $1,500.
D. $3,000.
E. $6,000.
$100,000 x .09 x 4/12 year = $3,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

127. A company issues at par 9% bonds with a par value of $100,000 on April 1. The bonds pay
interest semi-annually on January 1 and July 1. How much total cash interest is received on July
1 by the bond holder?
A. $1,500.
B. $3,000.
C. $4,500.
D. $6,000.
E. $7,500.
$100,000 x .09 x 1/2 year = $4,500
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

128. A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when
straight-line method, the amount of recorded interest expense for the first semiannual interest
period is:
A. $3,386.30.
B. $3,500.00.
C. $3,613,70.
D. $6,633.70.
E. $7,000.00.
Cash interest paid: $100,000 x .07 x ½ year = $3,500

Premium amortized: ($101,137 - $100,000)/10 = $113.70
Interest expense: $3,500 - $113.70 = $3,386.30
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

129. A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when
effective interest method, the amount of recorded interest expense for the first semiannual
interest period is:
A. $3,500.00.
B. $7,000.00
C. $3,286.95.
D. $6,573.90
E. $1,750.00
$101,137 x 0.065 x ½ = $3,286.95
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

130. A company may retire bonds by:

A. Exercising a call option.
B. The holders converting them to stock.
C. Purchasing the bonds on the open market.
D. Paying them off at maturity.
E. All of these.
AICPA BB: Industry
Difficulty: Easy

131. Bonds that give the issuer an option of retiring them before they mature are:
A. Debentures.
B. Serial bonds.
C. Sinking fund bonds.
D. Registered bonds.
E. Callable bonds.
AICPA BB: Industry
Difficulty: Medium

132. A company has bonds outstanding with a par value of $100,000. The unamortized discount
on these bonds is $4,500. The company retired these bonds by buying them on the open market
at 97. What is the gain or loss on this retirement?
A. $0 gain or loss.
B. $1,500 gain.
C. $1,500 loss.
D. $3,000 gain.
E. $3,000 loss.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

133. A company has bonds outstanding with a par value of $100,000. The unamortized premium
on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss
on this retirement is:
A. $ 1,000 gain.
B. $ 1,000 loss.
C. $ 2,700 loss.
D. $ 2,700 gain.
E. $ 3,700 gain.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

134. A company retires its bonds at 105. The carrying value of the bonds at the retirement date is
$103,745. The issuer's journal entry to record the retirement will include a:
A. Debit to Premium on Bonds.
B. Credit to Premium on Bonds.
C. Debit to Discount on Bonds.
D. Credit to Gain on Bond Retirement.
E. Credit to Bonds Payable.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

135. A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000
premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the
premium had been written off, the corporation purchased the entire issue on the open market at
99 and retired it. The gain or loss on this retirement is:
A. $0.
B. $10,000 gain.
C. $10,000 loss.
D. $22,000 gain.
E. $22,000 loss.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

136. On October 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The
note requires that $10,000 of principal plus accrued interest be paid at the end of each year on
September 30. The issuer's journal entry to record the second annual interest payment would
include:
A. A debit to Interest Expense for $1,800.
B. A debit to Interest Expense for $1,200.
C. A credit to Cash for $11,800.
D. A credit to Cash for $10,000.
E. A debit to Notes Payable for $1,200.
Interest expense = ($30,000 - $10,000) x 6% = $1,200
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard

137. A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring
equal annual payments each December 31 of $32,136. What journal entry would the issuer
record for the first payment?
A.
B.
C.
D.
E.
Cash payment = $32,136

Interest expense = $125,000 x 9% = $11,250
Principal reduction = $32,136 - $11,250 = $20,886
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

138. On January 1, 2009, Merrill Company borrowed $100,000 on a 10-year, 7% installment
note payable. The terms of the note require Merrill to pay 10 equal payments of $14,238 each
December 31 for 10 years. The required general journal entry to record the first payment on the
note on December 31, 2009 is:
A.
B.
C.
D.
E.
Interest expense = $100,000 x 7% = $7,000

Principal payment = $14,238 - $7,000 = $7,238
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium

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Multiple Choice Questions

97. The primary objective (mục tiêu) of financial accounting is:

98. Internal users of accounting information include:

AICPA BB: Industry

AICPA BB: Industry

101. External users of accounting information include:

AICPA BB: Industry

AICPA BB: Industry

103. Career opportunities in accounting include:

AICPA BB: Industry

104. Accounting certifications (chứng chỉ) include the:

AICPA BB: Industry

AICPA BB: Industry

106. Ethical behavior requires:

109. The accounting guideline that requires financial statement information to be supported by

AICPA BB: Legal

110. Businesses can take the following form(s):

AICPA BB: Legal

AICPA BB: Legal

AICPA BB: Industry

AICPA BB: Global

117. Rules adopted by the accounting profession as guides in measuring, recording, and

AICPA BB: Legal

AICPA BB: Legal

121. Generally accepted accounting principles:

AICPA BB: Legal

AICPA BB: Legal

AICPA BB: Legal

129. A limited partnership:

134. Revenue is proper recognized:

$137,000 - $85,000 = $52,000

138. An example of a financing activity is:

139. An example of an operating activity is:

142. The major activities of a business include:

143. An example of an investing activity is:

147. Gross increases in equity from a company's earnings activities are:

148. Net income is:

150. Creditors' claims on the assets of a company are called:

153. Assets = Liabilities + Equity is known as the:

Equity = $99,000 - $32,000 = $67,000

159. Another name for equity is:

161. Which of the following statements is true about assets?

163. Distributions by a business to its owners are called:

164. The balance sheet equation is:

$700,000 - $200,000 = $500,000

$20,500 + $7,250 + $650 + $12,000 - $9,300 = $31,100

168. An exchange of value between two entities is called:

Change in Assets = Change in Liabilities + Change in Owner's Equity

Change in Assets = Change in Liabilities + Change in Equity

Assets = Liabilities + Equity

Liabilities = $365,000 - $120,000 = $245,000

178. Return on assets is:

$150 million/$1,800 million = 8.3%

$350 million/$2,000 million = 17.5%

$18,955/[($200,000 +$246,000)/2] = $18,955/$223,000 = 8.5%

$43,000/(($250,000 + $300,000)/2) = 15.6%

183. U. S. government bonds(trái phiếu) are:

186. The basic financial statements include the:

187. The statement of cash flows reports information on: