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TEST 2

1. If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of
goods sold is:
A. $420,000
B. $390,000
C. $370,000
D. $330,000
2. Some argue that the use of FIFO in a period of inflation enables a company to avoid reporting paper (phantom) profit
as economic gain.
A. true
B. false
3. Sales revenue less cost of goods sold is called net profit.
A. true
B. false
4. In a perpetual inventory system, which of the following would be debited when goods are purchased with the intent of
being resold?
A. Purchases
B. Accounts Payable
C. Cost of Goods Sold
D. Merchandise Inventory
5. Income from operations appears on:
A. both a multiple-step and a single-step income statement.
B. a multiple-step income statement only.
C. neither a multiple-step nor a single-step income statement.
D. a single-step income statement only.
6. Which of these would cause the inventory turnover ratio to increase the most?
A. keeping the amount of inventory on hand constant but increasing sales
B. decreasing the amount of inventory on hand and increasing sales
C. keeping the amount of inventory on hand constant but decreasing sales
D. increasing the amount of inventory on hand
7. The control features of a bank account do not include:
A. safeguarding cash by using a bank as a depository
B. minimizing the amount of cash that must be kept on hand
C. having bank auditors verify the correctness of the bank balance per books
D. providing a double record of all bank transactions
8. Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual
inventory system?
A. Freight-in
B. Purchases
C. Purchase Discounts
D. Cost of Goods Sold
9. The following amounts relate to Amato Company for the current year: Beginning Inventory, $20,000; Ending
Inventory, $28,000; Purchases, $166,000; Purchase Returns, $4800; and Freight-Out, $6,000. The amount of Cost of
Goods Sold for the period is
A. $169,200
B. $153,200
C. $159,200
D. $162,800
10. The steps in the accounting cycle for a merchandising company are the same as those in a service company except:
A. a mutiple-step income statement is required for a merchandising company.
B. closing journal entries are not required for a merchandising company.
C. a post-closing trial balance is not required for a merchandising company.
D. an additional journal entry for inventory may be needed in a merchandising company.
11. A bank issues a debit memorandum when it collects a note receivable for a depositor.
A. true
B. false
12. There are more steps involved in preparing a worksheet for a merchandising company than for a service company.
A. true
B. false
13. Goods in transit should be included in the inventory of the buyer when the:
A. goods reach the buyer
B. terms of sale are FOB destination
C. public carrier accepts the goods from the seller
D. terms of sale are FOB shipping point
14. Making payments from a petty cash fund requires:
A. no accounting entry to record a payment when it is made from petty cash
B. a credit to cash
C. a debit to various expense accounts
D. a credit to petty cash
15. The income statement for retailers contains one expense catergory just like the income statement of a service
company.
A. true
B. false
16. In a period of inflatino, which cost flow method produces the highest net income?
A. Average cost method
B. LIFO method
C. FIFO method
D. Gross profit method
17. In a periodic inventory system the entry to record the credit sale of merchandise affects which of the following
accounts?
A. Cost of Goods Sold
B. Merchandise Inventory
C. Sales
D. Purchases
18. Gross profit will result if:
A. sales revenue are greater than cost of goods sold.
B. operating expenses are greater than cost of goods sold.
C. operating expenses are less than net income.
D. sales revenue are greater than operating expenses
19. When preparing a worksheet for a merchandising company, which of the following accounts should not be reported
in the Income Statement columns?
A. Dividends
B. Sales Discounts
C. Depreciation Expense
D. Cost of Goods Sold
20. Which of the following was not a result of the Sarbanes-Oxley Act?
Corporate executives and board of directors must ensure that controls are reliable and effective, and they can
A.
be fined or imprisoned for failure to do so.
B. Companies must file financial statements with Internal Revenue Service.
C. All publicly traded companies must maintain adequate internal controls.
The Public Company Accounting Oversight Board was created to establish auditing standards and regulate
D.
auditor activity.
21. In determining cost of goods sold:
A. freight-in added to net purchases.
B. freight-out is added to net purchases.
C. purchases returns and allowances are deducted from net purchases.
D. purchase discounts are deducted from net purchases.
22. Cost of goods available for sale consists of two elements: beginning inventory and:
A. ending inventory
B. cost of goods purchased
C. cost of goods sold
D. all of the above
23. In a worksheet, Merchandise Inventory is shown in the following columns:
A. Income statement credit and balance sheet debit.
B. Income statement credit and adjusted trial balance debit.
C. Adjusted trial balance debit and balance sheet debit.
D. Income statement debit and balance sheet debit.
24. Few internal control systems provide for independent internal verification
A. true
B. false
25. The principles of internal control do not include:
A. documentation procedures
B. establishment of responsibility
C. management responsibility
D. independent internal verification
26. An organization uses internal control to enhance the accuracy and reliability of its accounting records and to:
A. safeguard its assets
B. prevent fraud
C. produce correct financial statements
D. deter employee dishonesty
27. FOB shipping point means that the:
A. goods are placed free on board to the buyer's place of business.
B. buyer pays the freight.
C. seller pays the freight.
D. common carrier pays the freight.
28. The cost flow method that often parallels the actual physical flow of merchandise is the:
A. FIFO method
B. LIFO method
C. average cost method
D. gross profit method
29. A voucher system is an example of:
A. documentation procedures
B. human resource controls
C. segregation of duties
D. physical controls
30. Net sales is sales less:
A. sales returns and allowances
B. sales discounts
C. sales returns & allowances and sales discounts
D. cost of goods sold
31. Which of the following appears on both a single-step and a multiple-step income statement?
A. income from operations
B. merchandising inventory
C. gross profit
D. cost of goods sold
32. In a perpetual inventory system, a company determines the cost of goods sold each time a sale occurs.
A. true
B. false
33. A company has the following account balances: Sales, $1,000,000; Sales Returns and Allowances, $180,000; Sales
Discounts, $20,000; and Cost of Goods Sold, $600,000. What is the company's gross profit rate?
A. 25%
B. 60%
C. 50%
D. 75%
34. The sales accounts that normally have a debit balance are:
A. Sales Returns and Allowances.
B. neither Sales Discounts nor Sales Returns and Allowances.
C. both Sales Discounts and Sales Returns and Allowances.
D. Sales Discounts.
35. Atlantis Company's ending inventory is understated $4,000. The effects of this error on the current year's cost of
goods sold and net income, respectively, are:
A. overstated, overstated
B. understated, overstated
C. overstated, understated
D. understated, understated
36. In a multiple-step income statement, which of the following would not be reported in the operating expenses section?
A. Advertising expense
B. Interest expense
C. Freight-out
D. All of the above are operating expenses
37. In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting:
A. Merchandise Inventory
B. Purchases
C. Purchase Discounts
D. Purchase Returns and Allowances
38. A multiple-step income statement distinguishes between operating and non-operating activities.
A. true
B. false
39. Companies using a periodic inventory system take a physical inventory for each of the following purposes except to
determine the:
A. cost of goods for the period
B. inventory on hand at the balance sheet date
C. amount of inventory lost due to shoplifting or employee theft
D. all of the above are correct
40. All of the following would involve a debit memorandum except:
A. a bank service charge
B. an NSF check
C. the cost of printing checks
D. interest earned
41. Of the following persons, the best choice for preparing the monthly bank reconciliations would be:
A. Randy, an assistant cashier, who also takes the daily deposits to the bank.
B. Norman, the assistant treasurer, who also invests excess cash in short-term interest bearing securities.
C. Cindy, the chief cashier, who also supervises Randy and Angela.
D. Angela, an assistant cashier, who also prepares all the checks.
42. The account Sales Discounts is a:
A. revenue account
B. expense account
C. contra revenue account
D. liability account
43. Under the lower of cost or market basis, market is defined as current replacement cost.
A. true
B. false
44. The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:
A. bank service charges
B. a bank error
C. outstanding checks
D. deposit in transit
45. Days in inventory measures the average number of days inventory is held.
A. true
B. false
46. The FIFO method assumes that the earlies goods purchased are the first to be sold.
A. true
B. false
47. A merchandiser using a perpetual system will require one additional adjusting entry to make the record agree with the
actual inventory on hand.
A. true
B. false
48. Songbird Company has sales of $150,000 and cost of goods available for sale of $135,000. If the gross profit rate is
30%, the estimated cost of the ending inventory under the gross profit method is:
A. $45,000
B. $30,000
C. $75,000
D. $15,000
49. International accounting standards do not allow the use of:
A. LIFO
B. FIFO
C. Average cost method
D. All of these are permitted
50. Which of the following is not an element of the fraud triangle?
A. segregation of duties
B. rationalization
C. financial pressure
D. opportunity
51. Villa Sales Company had the following amounts related to its business: Beginning Inventory, $12,000; Purchases,
$42,000; Net Sales, $50,000; and Gross Profit, $15,000. The amount of the ending inventory is
A. $35,000
B. $19,000
C. $54,000
D. $77,000
52. An error in the ending inventory of the current period will have no effect on net income of the next accounting
period.
A. true
B. false
53. Gross profit is:
A. sales revenue less operating expenses.
B. net income less operating expenses.
C. sales revenue less cost of goods sold.
D. net income less cost of goods sold.
54. A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $3 in cash.
In recording the check, the company should:
A. debit petty cash for $94
B. credit cash for $94
C. credit petty cash for $3
D. debit cash over and short for $3
55. Factors that affect the selection of an inventory costing method do not include:
A. tax effects
B. perpetual vs. periodic inventory system
C. income statement effects
D. balance sheet effects
56. There is an accounting requirement that the cost flow assumption be consistent with the physical movement of the
goods.
A. true
B. false
57. A company determines the cost of goods sold each time a sale occurs in:
A. neither a periodic nor perpetual inventory system.
B. both a periodic and perpetual inventory system.
C. periodic inventory system only.
D. a perpetual inventory system only.
58. In a periodic inventory system, companies keep detailed inventory records of the goods on hand throughout the
period.
A. true
B. false
59. Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a
current replacement cost of $80 each. The ending inventory under lower of cost or market is:
A. $80,000
B. $16,000
C. $18,200
D. $91,000
60. Income from operations is:
A. gross profit less operating expenses.
B. gross profit less other expenses and losses.
C. net sales less cost of goods sold.
D. net sales less operating expenses.
61. Under a periodic system, the company uses seperate accounts to record freight costs, returns, and discounts.
A. true
B. false
62. A credit sale of $750 is made on June 13, term 2/10, net/30. A return of $50 is granted on June 16. The amount
received as payment in full on June 23 is:
A. $700
B. $650
C. $686
D. $685
63. To record the sale of goods for cash in a perpetual inventory system:
two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the
A.
cost of goods and reduction of inventory.
B. only one journal entry is necessary to record the reciept of cash and the sales revenue.
two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to
C.
record the cost of goods sold and sales revenue.
D. only one journal entry is necessary to record cost of goods sold and reduction of inventory.
64. The inventory turnover ratio is computed by dividing cost of goods sold by:
A. beginning inventory
B. ending inventory
C. average inventory
D. 365 days
65. Which of the following is not part of the journal entries made when merchandise is sold on credit?
A. Debit the Accounts Receivable account
B. Credit the Cost of Goods Sold account
C. Credit the Sales account
D. Credit the Merchandise Inventory account
66. When goods are purchased for resale by a company using a periodic inventory system:
A. purchases on account are debited to Purchases.
B. freight costs are debited to Purchases.
C. purchase returns are debited to Purchase Returns and Allowances.
D. purchases on account are debited to Merchandise Inventory.
67. In a bank reconciliation, deposits in transit are:
A. deducted from the book balance
B. added to the bank balance
C. added to the book balance
D. deducted from the bank balance
68. Which of the following is shown for both merchandising and service companies?
A. Operating expenses
B. Sales returns and allowances
C. Gross profit
D. Cost of goods sold
69. All of the following are classified as cash except:
A. checks
B. money orders
C. money on hand
D. restricted cash
70. The use of prenumbered checks in disbursing cash is an application of the principle of:
A. physical controls
B. establishment of responsibility
C. documentation procedures
D. segreagation of duties
71. Which of the following should not be included in the physical inventory of a company?
A. goods held on consignment from another company
B. goods shipped on consignment to another company
C. goods in transit from another company shipped FOB shipping point
D. None of the above
72. On a bank reconciliation, collection of a note receivable by the bank is:
A. added to the bank balance
B. deducted from the bank balance
C. added to the book balance
D. deducted from the book balance
73. When the terms of sale are FOB shipping point, ownership of the goods remains with the seller until the goods reach
the buyer.
A. true
B. false
74. All of the following would be classified as inventory except:
A. raw materials
B. supplies
C. merchandise inventory
D. work in process
75. FOB destination means that the seller places the goods free on board the common carrier and the buyer pays the
freight costs.
A. true
B. false
76. A single-step income statement:
A. reports gross profit.
B. reports sales revenue and "Other revenues and gains" in the revenues section of the income statement.
C. reports operating income separately.
D. does not report cost of goods sold.
77. Permitting only designated personnel to handle cash receipts is an application of the principle of:
A. establishment of responsibility
B. human resource controls
C. segregation of duties
D. independent check
78. Which of the following is shown on both a multiple-step and a single-step income statement?
A. Other expenses and losses
B. Gross profit
C. Income from operations
D. Net sales
79. Which of the following is used to estimate the cost of ending inventory?
A. Net profit method
B. Wholesale inventory method
C. Perpetual inventory method
D. Retail inventory method
80. Overstating beginning inventory will overstate:
A. stockholders' equity
B. assets
C. cost of goods sold
D. net income
81. On a bank reconciliation, outstanding checks are:
A. deducted from the bank balance
B. added to the book balance
C. deducted from the book balance
D. added to the bank balance
82. The results under FIFO in a perpetual system are the same as in a periodic system.
A. true
B. false
83. All of the following items would be reported as other revenues and gains except:
A. sales revenue
B. rent revenue
C. gains on sale of equipment
D. interest revenue
84. Under a perpetual inventory system, when goods are purchased for resale by a company:
A. purchases on account are debited to Merchandise Inventory.
B. purchases on account are debited to Purchases
C. purchase returns are debited to Purchase Returns and Allowances
D. freight costs are debited to Freight-out
85. The multiple-step income statement for a merchandising company shows each of the following features except:
A. investing activities section.
B. gross profit.
C. a sales revenue section.
D. cost of goods sold.
86. In a perpetual inventory system,
A. LIFO cost of goods sold will be the same as in a periodic inventory system.
B. average costs are based entirely on unit cost averages.
C. a new average is computed under the average cost method after each sale.
D. FIFO cost of goods sold will be the same as in a periodic inventory system.
87. In periods of rising prices, LIFO will produce:
A. the same net income as FIFO.
B. higher net income than average costing.
C. lower net income than FIFO
D. higher net income than FIFO
88. Manufacturing companies usually classify inventory into three catagories.
A. true
B. false
89. Under LIFO, companies obtain the cost of the ending inventory by taking the cost of the latest goods available for the
sale and working backward until all the units have been costed.
A. true
B. false
90. If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000 the gross profit is:
A. $90,000
B. $340,000
C. $400,000
D. $30,000
91. Sales Returns and Allowances is a contra revenue account to Sales and has a normal debit balance.
A. true
B. false
92. Which of the following accounts is NOT closed to Income Summary?
A. Sales
B. Cost of Goods Sold
C. Sales Discounts
D. Merchandise Inventory
TEST 3
1. Recievables are frequently classified as:
A. accounts receivable, company receivables, and other receivables
B. accounts receivable and general receivables
C. accounts receivable, notes receivable, and other receivables
D. accounts receivable, notes receivable, and employee recievables
2. Which of the following approaches for bad debts is best described as a balance sheet method?
A. direct write-off method
B. both percentage-of-receivables basis and direct write-off method
C. percentage-of-sales basis
D. percentage-of-recievables basis
3. One of the following statements about promissory notes is incorrect. The incorrect statement is:
A. A promissory note is not a negotiable instrument
B. The party making the promise to pay is called the maker
C. A promissory note is often required from high-risk customers
D. The party to whom payment is to be made is called the payee
4. Which of the following statements about Visa credit card sales is incorrect?
A. Two parties are involved
B. The retailer recieves cash more quickly than it would from individual customers on account
C. The retailer is not involved in the collection process
D. The credit card issuer makes the credit investigation of the customer
5. Accounts and notes recievable are reported in the current assets section of the balance sheet at:
A. cash (net) realizable value
B. invoice cost
C. net book value
D. lower-of-cost-or-market value
6. Notes and accounts receivable that result from sales transactions are often called trade receivables.
A. True
B. False
7. The opportunity to receive a cash discount usually occurs when a retailer sells to customers.
A. True
B. False
8. Cash (net) realizable value is the net amount the company expects to recieve in cash.
A. True
B. False
9. The percentage-of-receivable basis results in a better matching of expenses with revenues than the percentage-of-sales
basis.
A. True
B. False
10. Under the percentage-of-receivables basis, the amount of bad debt expense is the difference between the required
balance in the allowance account.
A. True
B. False
11. Retailers consider sales from the use of bank credit cards as credit sales.
A. True
B. False
12. In a promissory note, the party making the promise to pay is called the maker.
A. True
B. False
13. To determine the maturity date of a note, you need to include the date the note is issued but omit the due date.
A. True
B. False
14. Companies report short-term notes receivable at their cash (net) realizable value.
A. True
B. False
15. A dishonored note receivable is no longer negotiable and the payee has no claim against the maker of the note.
A. True
B. False
16. Accounting issues associated with accounts receivable include all of the following except:
A. analyzing accounts receivable
B. recognizing accounts receivable
C. disposing of accounts receivable
D. valuing accounts receivable
17. Allowance for Doubtful Account is:
A. closed at the end of the fiscal year
B. an operating expense
C. a contra asset account
D. added to Accounts Receivable on the balance sheet
18. Under the allowance method, estimated uncollectible receivables are credited to:
A. Accounts Receivable
B. Allowance for Doubtful Accounts
C. Uncollectible Accounts Expense
D. Bad Debts Expense
19. Writing off an uncollectible account under the allowance method requires a debit to:
A. Accounts Receivable
B. Bad Debts Expense
C. Allowance for Doubtful Accounts
D. Uncollectible Accounts Expense
20. The percentage-of-sales basis of estimating uncollectibles:
A. emphasizes balance sheet relationships
B. considers the existing balance in Allowance for Doubtful Accounts
C. results in a better matching of expenses with revenues
D. produces a better estimate of cash realizable value
21. The percentage-of-receivables basis of estimating uncollectibles:
A. emphasizes income statement relationships
B. produces a better estimate of cash realizable value
C. results in a better matching of expenses with revenues
D. ignores the existing balance in Allowance for Doubtful Accounts
22. The direct write-off method:
A. shows only actual losses from uncollectible accounts
B. is acceptable for financial reporting purposes
C. estimate bad debt losses
D. debits Allowance for Doubtful Accounts to record write-offs of accounts
23. In recording the sale of accounts receivalbe, the commission charged by a factor is recorded as:
A. Loss on Sale of Receivables
B. Service Charge Expense
C. Bad Debts Expense
D. Commission Expense
24. Sales resulting from the use of Visa and MasterCard credit cards are considered:
A. card sales
B. credit card sales
C. cash sales
D. credit sales
25. The maturity date of a 60-day note dated April 12 is:
A. June 13
B. June 11
C. June 12
D. June 10
26. The interest rate specified in a note is for a:
A. day
B. year
C. month
D. week
27. For an interest-bearing note, the amount due at maturity is the:
A. face value of the note plus interest
B. cash (net) realizable value
C. maturity value plus interest
D. face value of the note
28. The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit
to:
A. Allowance for Doubtful Accounts
B. Accounts Receivable
C. Notes Receivable
D. Cash
29. The accounts receivable turnover ratio is computed by dividing:
A. net credit sales by ending net accounts receivable
B. total sales by ending net accounts receivable
C. total sales by average net accounts receivable
D. net credit sales by average net accounts receivable
30. The average collection period in terms of days is calculated:
A. by dividing 365 into the turnover ratio
B. by dividing the turnover ratio by 365
C. by dividing the turnover ratio into 365 days
D. without regard to the allowance for doubtful accounts
31. Depreciation is a process of:
A. cost allocation
B. cash accumulation
C. appraisal
D. valuation
32. When there is a change in estimated depreciation:
A. previous depreciation should be corrected
B. current and future years depreciation should be revised
C. only future years depreciation should be revised
D. none of the above
33. Additions to plant assets are:
A. debited to a Repair Expense account
B. revenue expenditures
C. debited to a Purchase account
D. capital expenditures
34. Which of the following statements is false?
A. The amortization period of an intangible asset can exceed 20 years
B. Goodwill is recorded only when a business is purchased
C. If an intangible asset has a finite life, it should be amortized
Research and development costs are expensed when incurred, except when the research and developement
D.
expenditures result in a successful patent.
35. Indicate which of the following statements is true.
Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the note to the
A.
financial statements.
B. Intangible assets are typically combined with plant assets and natural resources and shown in the property, plant,
and equipment section.
Since intangible assets lack physical substance, they need be disclosed only in the notes to the financial
C.
statements.
D. Goodwill should be reported as a contra-account in the owner's equity section.
36. In exchange of assets in which the exchange has commercial substance:
A. gains, but not losses, are recognized immediately
B. losses, but not gains, are recognized immediately
C. neither gains nor losses are recognized immediately
D. both gains and losses are recognized immediately
37. The cost of land includes closing costs such as title and attorney's fees.
A. True
B. False
38. The cost of equipment consists of the cash purchase price, freight charges, motor vehicle licenses and accident
insurance on company vehicle.
A. True
B. False
39. Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset.
A. True
B. False
40. The units-of-activity method can be used for airplanes, buildings, and furniture.
A. True
B. False
41. The declining-balance method is considered an accelerated-depreciation method.
A. True
B. False
42. The Internal Revenue Service (IRS) requires the taxpayer to use the same depreciation method on the tax return that
is used in preparing financial statements.
A. True
B. False
43. To determine the revised depreciation expense, the company computes the asset's depreciable cost at the time of the
revision and divides it by the asset's remaining useful life.
A. True
B. False
44. Companies generally use the units-of-activity method to compute depletion.
A. True
B. False
45. Goodwill is the excess of cost over the fair market value of the net assets acquired.
A. True
B. False
46. The gain or loss on exchange of plant assets is the differance between the fair market value and the cost of the asset
given up.
A. True
B. False
47. Plant assets decline in service potential over their useful lives except for:
A. land
B. equipment
C. land improvements
D. buildings
48. The cost of land includes all of the following except:
A. accrued property taxes
B. parking lots
C. real estate brokers commissions
D. closing costs
49. Factors that affect the computation of depreciation include all of the following except:
A. useful life
B. salvage value
C. current market value
D. cost
50. Depreciable cost is the:
A. book value of an asset
B. book value of an asset less its salvage value
C. cost of an asset less its salvage value
D. cost of an asset less accumulated depreciation
51. The depreciation method that produces a decreasing annual depreciation expense over an asset's useful life is the:
A. straight-line method
B. units-of-activity method
C. declining-balance method
D. None of these options
52. The method that ignores salvage value in determining the amount of depreciation is the:
A. straight-line method
B. units-of-activity method
C. declining-balance method
D. None of these options
53. When a change in estimated useful life is required, the company makes the change in:
A. current and prior years
B. current year only
C. current and future years
D. prior years only
54. Ordinary repairs expenditures to maintain the operating efficiency of a plant asset and are referred to as:
A. improvements
B. expense expenditures
C. revenue expenditures
D. capital expenditures
55. A gain on sale of a plant asset occurs when the proceeds of the sale exceed the:
A. book value of the asset sold
B. accumulated depreciation on the asset sold
C. market value of the asset sold
D. salvage value of the asset sold
56. Natural resources include all of the following except:
A. land improvements
B. oil and gas deposits
C. mineral deposits
D. standing timber
57. Companies amortize the cost of a patent over its:
A. legal life or its useful life, whichever is shorter
B. useful life
C. legal life
D. legal life or its useful life, whichever is longer
58. All of the following are intangible assets except:
A. research and development costs
B. copyrights
C. goodwill
D. patents
59. The asset turnover ratio is computed by dividing:
A. net sales by ending total assets
B. net income by ending total assets
C. net income by average total assets
D. net sales by average total assets
60. In exchanges of plant assets that have commercial substance:
A. losses are recognized but not gains
B. neither gains nor losses are recognized
C. both gains and losses are recognized
D. gains are recognized but not losses
61. In an exchange of plant assets that has commercial substance, a gain on disposal is:
A. recognized immediately
B. ignored completely
C. offset against the cost of the old asset
D. deducted from the cost of the new asset
62. The time period for classifying a liablility as current is one year or the operating cycle, whichever is:
A. longer
B. possible
C. shorter
D. probable
63. To be classified as a current liability, a debt must be expected to be paid:
A. out of existing current assets
B. by creating other current liabilities
C. within 2 years
D. both (a) and (b)
64. Employer payroll taxes do not include:
A. FICA taxes
B. federal unemployment taxes
C. state unemployment taxes
D. federal income taxes
65. The term used for bonds that are unsecured is:
A. callable bonds
B. bearer bonds
C. indenture
D. debenture bonds
66. Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this
indicates that:
A. the market interest rate exceeds the contractual interest rate
B. the contractual interest rate and the market interest rate are the same
C. the contractual interest rate exceeds the market interest rate
D. no relationship exists between the two rates
67. Howard Corporation issued a 20-year mortgage note payable on January 1, 2011. At December 31, 2011, the unpaid
principal balance will be reported as:
A. interest payable
B. a long-term liability
C. a current liability
D. part current and part long-term liability
68. The market price of a bond is dependent on:
A. the payments amounts
B. the length of time until the amounts are paid
C. the interest rate
D. all of the above
69. A current liability is a debt that the company reasonably expects to pay from existing current assets or through the
creating of other current liabilities within on year or the operating cycle, whichever is longer
A. True
B. False
70. Notes payable due for payment within one year of the balance sheet date are usually classified as current liabilities.
A. True
B. False
71. Companies report any balance in an unearned revenue account as a current liability in the balance sheet.
A. True
B. False
72. Current liabilities are usually listed in the order of maturity on the balance sheet.
A. True
B. False
73. Solvency refers to the ability to pay maturing obligations and meet unexpected needs for cash.
A. True
B. False
74. When a company remits sales taxes to the taxing agency, it debits Sales Taxes Expense and credits Cash.
A. True
B. False
75. Every employer incurs liabilities relating to employees' salaries and wages.
A. True
B. False
76. Both bond interest and dividends on stock are deductible for tax purposes.
A. True
B. False
77. Bonds that mature at a single specified future date are referred to as term bonds.
A. True
B. False
78. Bond interest payable is classified as a long-term liability on the balance sheet.
A. True
B. False
79. A current liability is a debt the company reasonably expects to pay from existing current assets within:
A. one year or the operating cycle, whichever is longer
B. the operating cycle
C. one year or the operating cycle, whichever is shorter
D. one year
80. The amount of sales tax collected by a retailer is recorded as:
A. sales
B. sales taxes revenue
C. sales taxes payable
D. sales taxes expense
81. All of the following are current liabilities except:
A. sales taxes payable
B. unearned rental revenue
C. current maturities of long-term debt
D. all of these options are current liabilities
82. Companies report current liabilities on the balance sheet in:
A. random order
B. alphabetical order
C. order of magnitude
D. order of maturity
83. Payroll taxes imposed on the employer include:
A. employees income taxes
B. sales taxes
C. FICA taxes
D. property taxes
84. The entry to record the payroll includes a:
A. debit to FICA Taxes Payable
B. credit to FICA Taxes Payable
C. debit to Cash
D. debit to Federal Unemployment Taxes Payable
85. Payroll deductions include all of the following except:
A. unemployment taxes
B. FICA taxes
C. federal income taxes
D. health insurance
86. If Unearned Revenue is credited in a journal entry, the debit must have been to the:
A. Accounts Payable account
B. Cash account
C. Bonds Payable account
D. Accounts Receivable account
87. The sum of the individual checks the employmees will receive is recorded as:
A. FICA Taxes Payable
B. State Income Taxes Payable
C. Salaries and Wages Expense
D. Salaries and Wages Payable
88. Employer payroll taxes include all of the following except:
A. federal income taxes
B. federal unemployment taxes
C. state unemployment taxes
D. FICA taxes
89. Bonds that mature in installments are referred to as:
A. convertible bonds
B. callable bonds
C. serial bonds
D. term bonds
90. Amortizing a discount on bonds payable serves to:
A. decrease bond interest expense
B. increase bond interest expense
C. decrease the face value of the bonds
D. decrease the carrying value of the bonds
91. When using the effective-interest method of bond discount amortization, bond interest expense:
A. will increase with each succeeding period
B. will remain the same each period
C. will decrease with each succeeding period
D. may increase or decrease period
92. When a company retires bonds before maturity, the gain or loss on redemption is the difference between the cash
paid and the:
A. carrying value of the bonds
B. face value of the bonds
C. original selling price of the bonds
D. maturity value of the bonds
93. The account Discount on Bonds Payable:
A. has a credit balance
B. is a contra account
C. is added to bonds payable on the balance sheet
D. increases over the term of the bonds

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