1.

d. Owner's Equity at the end of the year was

The difference between the balance of a fixed asset account

and the related accumulated depreciation account is termed

a. historical cost

understated
7.

a. debit column of the balance sheet columns

b. contra asset

b. debit column of the adjustments columns

c. book value

c. debit column of the income statement

d. market value
2.

columns

Depreciation expense and accumulated depreciation are

classified, respectively, as

a. Expense, Contra Asset

d. credit column of the income statement columns

8.

b. Asset, Contra Liability

c. Revenue, Asset
d. Contra Asset, Expense
3.

c. $4,000

b. debit Depreciation Expense; credit

d. $750

Depreciation Expense

d. debit Equipment; credit Depreciation Expense

The type of account and normal balance of Accumulated
Depreciation is

a. Asset, Credit
b. Asset, Debit

9.

Accumulated Depreciation appears on the

a. Balance sheet in the current assets section

b. Balance sheet in the fixed asset section
c. Balance sheet in the long-term liabilities
d. Income statement as an operating expense
10. Which one of the fixed asset accounts listed below will not
have a related contra asset account

c. Contra Asset, Credit

a. Office Equipment

d. Contra Asset, Debit

b. Land

At the end of the fiscal year the usual adjusting entry to

prepaid insurance to record expired insurance was omitted.
Which of the following statements is true?

a. Total Assets at the end of the year will be

understated

b. Owner's Equity at the end of the year will be

understated

6.

b. $4,750

a. debit Depreciation Expense; credit Equipment

c. debit Accumulated Depreciation; credit

5.

The worksheet at the end of September has $4,000 in the

balance sheet credit column for accumulated depreciation.
The worksheet at the end of October has $4,750 in the
balance sheet credit column for accumulated depreciation.
What was the amount of the depreciation expense
adjustment for the month of October?

a. amount can not be determined

The adjusting entry to record the depreciation of equipment

for the fiscal period is

Accumulated Depreciation

4.

Net Income appears on the worksheet in the

c. Delivery equipment
d. Building
11. On which financial statement will Income Summary be
shown?

a. Statement of Owner's Equity

b. Balance Sheet

c. Net income for the year will be overstated

c. Income Statement

d. Insurance expense will be overstated

d. No Financial Statement

At the end of the fiscal year the usual adjusting entry for
accrued salaries paid to employees was omitted. Which of
the following statements is true?

12. The ability of a company to pay its debts is called

a. Working Capital

a. Salary expense for the year was understated

b. Current Ratio

b. The total of the liabilities at the end of the year

c. Return on Investment

was overstated

c. Net income for the year was understated

d. Solvency
13. Which of the following below is NOT an element of
internal control?

a. risk assessment

a. gross profit

b. monitoring

b. ncome from operations

c. information and communication

c. net income

d. behavior analysis

d. gross sales

14. When a company uses internal auditors, it is adhering

to which of the following internal control elements

20. The inventory system employing accounting records that

continuously disclose the amount of inventory is called

a. risk assessment

a. retail

b. monitoring

b. periodic

c.

c. physical

proofs and securities

d. separating responsibilities for related

operations
15. The objectives of internal controls are to

a. control the internal organization of the accounting

department personnel and equipment

b. provide reasonable assurance that operations

are managed to achieve goals, financial
reports are accurate, and laws and regulations
are complied with

c. prevent fraud, and promote the social interests of

the company

d. provide control over "internal-use only" reports and

employee internal conduct
16. Which one of the following below reflects a weak
internal control system?
a. all employees are well supervised
b. a single employee is responsible for
comparing a receiving report to an invoice
c.

all employees must take their vacations

d. a single employee is responsible for

collecting and recording cash
17. The purchase of supplies for cash is recorded in the

a. revenue journal

d. perpetual
21. When the perpetual inventory system is used, the inventory
sold is shown on the income statement as

a. cost of merchandise sold

b. puchases
c. purchase returns and allowances
d. net purchases
22. When comparing a retail business with a service business,
the financial statement that changes the most is

a. Balance Sheet
b. Income statement
c. Statement of Owners Equity
d. Statement of Cash flows
23. Using a perpetual inventory system, the entry to record the
sale of merchandise on account includes a

a. debit to sales
b. debit to merchandise inventory
c. credit to merchandise inventory
d. credit to accounts receivable
24. In the credit terms of l/10,n/30, the "1" represents the

b. purchase journal

a. number of days in the discount period

c. cash receipts journal

b. full amount of the invoice

d. cash payments journal

c. number of days when the full amount is due

18. Generally, the revenue account for a merchandising

business is entitled

a. Sales

d. percent of the cash discount

25. The entry to record the return of merchandise from a
customer would include

b. Net Sales

a. debit to sales

c. Gross Sales

b. credit to sales

d. Gross Profit

c. debit to sales returns and allowances

19. What is the term applies to the excess of net revenue

from sales over the cost of merchandise sold?

d. credit to sales returns and allowances

26. When purchases of merchandise are made for cash, the

transaction may be
recorded with the following entry

a. debit Cash; credit Merchandise Inventory

b. debit Merchandise Inventory; credit Cash
c. debit Merchandise Inventory; credit Cash
Discounts

d. debit Merchandise Inventory; credit Purchases

27. In recording the cost of merchandise sold for cash, based
on data available from perpetual inventory records, the
journal entry is

a. debit Cost of Merchandise Sold; credit Sales

b. debit Cost of Merchandise Sold; credit
Merchandise Inventory

c. debit Merchandise Inventory; credit Cost of

Merchandise Sold

d. debit Accounts Receivable; credit Merchandise

Inventory
28. Merchandise is sold for cash. The selling price of the
merchandise is $2,000 and the sale is subject to a 5%
state sales tax. The journal entry to record the sale
would include

a. a debit to Cash for $2,000

b. a credit to sales for $2,100

b. deducted from the balance per bank statement

c. added to the balance per bank statement
d. added to the balance per depositor's
records
32. The check drawn by a depositor for $180 in payment of a
liability was recorded in the journal as $810. This item would
be included on the bank reconciliation as

a. addition to the balance per depositor's records

b. addition to the balance per the bank statement
c. deduction from the balance per bank statement
d. deduction from the balance per the depositor's
records
33. Accompanying the bank statement was a debit
memorandum for bank service charges. On the bank
reconciliation, the item is

a. a deduction from the balances per depositor's

records

b. an addition to the balance per bank statement

c. a deduction from the balance per bank statement
d. an addition to the balance per depositor's records
34. A bank reconciliation should be prepared periodically
because

a. the depositor's records and the bank's records are

in agreement

c. a credit to Sales Tax Payable for $ 100

d. None of the above
29. The debit balance in the Cash Short and Over account at
the end of an accounting period is reported as

b. the bank has not recorded all of its transactions

c. any difference between the depositor's
records and the bank's records should be
determined, and any errors made by either
party should be discovered and corrected

a. an expense on the income statement

b. income on the income statement

d. the bank must make sure that its records are

correct

c. an asset on the balance sheet

d. a liability on the balance sheet
30. Which of the following should NOT be considered cash by
an accountant?

35. The amount of deposits in transit is included on the bank

statement as a(n)

a. deduction from the balance per the depositor's

books

a. money orders

b. deduction from the balance per bank statement

b. bank checking accounts

c. addition to the balance per bank statement

c. postage stamps

d. addition to the balance per depositor books

d. traveler's checks
31. Following the completion of the bank reconciliation, an
adjusting entry was made that debited Cash and credited
Interest Revenue. Therefore the bank reconciliation must
have included an item that was

a. deducted from the balance per depositor's

records

36. The amount of the outstanding checks is included on the

bank reconciliation as a(n)

a. deduction from the balance per depositor's

records

b.

addition to the balance per bank statement

c. deduction from the balance per bank statement

d. addition to the balance per depositor's records

If the current balance of Accounts Receivable for WebSavvy
37. On January 1, 2006, Essex Company exchanged a

used machine and $80,000 cash for a new machine.

The old machine originally cost $60,000, had up-todate accumulated depreciation of $55,000, and a
trade-in allowance of $6,000. What is the cost basis of
the new machine for financial reporting purpose?
a. $75,000
b. $79,000
c. $86,000
d. $80,000
38. Patents are reported on the balance sheet in the

a.
b.
c.
d.

current assets section

intangible assets section
fixed assets section
investment section

39. The retail inventory method is based on the

assumption that the

a. final inventory and the total of goods available
for sale contain the same proportion of highcost and low-cost ratio goods.
b. ratio of gross margin to sales is approximately
the same each period.
c. ratio of cost to retail changes at a constant
rate.
d. proportions of markups and markdowns to
selling price are the same.
40. The credit balance that arises when a net loss

on a purchase commitment is recognized should

be
a. presented as a current liability.
b. subtracted from ending inventory.
c. presented as an appropriation of retained
earnings.
d. presented in the income statement.
41. An inventory method which is designed to

approximate inventory valuation at the lower of

cost or market is
a. last-in, first-out.
b. first-in, first-out.
c. conventional retail method.
d. specific identification
42. The charter of a corporation provides for the issuance

of $100,000 shares of common stock. Assume that

20,000 shares were originally issued and 2,500 shares
were subsequently reacquired. What is the number of
share outstanding?
a. 22,500
b. 17,500
c. 20,000
d. 82,000

43. To reduce the par of common stock, the corporation

issues a proportionate number of additional shares.

This is termed:
a. stock repurchase
b. stock split
c. cash dividend
d. stock dividend
44. An example of cash flows from financing activities is

a. receipt of cash from the sale of land

b. receipt of cash received from the sale of
bonds
c. addition of Depreciation
d. deduction for increase in Account Receivables
45. Which of the following performance measures would

be the most direct interest to shareholders?

a. stock turnover
b. dividend yield
c. return on net assets
d. return on equity
46. To earn a high rating from the bond rating agencies, a

firm should have

a. a low times interest earned ratio
b. a low debt-to-equity ratio
c. a high quick ratio
d. none of the above
47. Which of the following does not impact the calculation

of the cash interest payments to be made to the

bondholders?
a. par value of the bond
b. coupon rate (stated rate) of interest
c. market rate of interest
d. the frequency of payments
48. Which of the following is false when a bond is issued at

the premium?
a. the bond will issued for an amount above its
par value
b. Bond payables will be credited for the par
value of the bond
c. Interest expense will exceed the cash interest
payments
d. All of the above are false
49. The entry to record the declaration of a common stock

dividend could include a debit to

a. cash
b. account receivable
c. stock dividends
d. common stock