Accounting 240

Which of the following accounts would not appear in a closing journal entry?
A) Interest Revenue
B) Accumulated Depreciation
C) Retained Earnings
D) Salary Expense

B) Accumulated Depreciation

Which account is least likely to appear in an adjusting journal entry?
A) Cash
B) Interest Receivable
C) Income Tax Expense
D) Salaries Payable

A) Cash

When a concert promotions company collects cash for ticket sales two months in advance of their show date, which of the following accounts is recorded?
A) Accrued Liability
B) Accounts Receivable
C) Prepaid Expense
D) Unearned Revenue

D) Unearned Revenue

On December 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How many accounts will be in this adjusting journal entry?
A) None
B) One
C) Two
D) Three

C) Two

An adjusting journal entry to recognize accrued salaries payable would cause which of the following?
A) A decrease in assets and stockholders equity
B) A decrease in assets and liabilities
C) An increase in expenses, liabilities, and stockholders equity
D

D) An increase in expenses and liabilities and a decrease in stockholders equity

An adjusted trial balance
A) shows the ending balances in a debit and credit format before posting the adjusting journal entries
B) Is prepared after closing entries have been posted.
C) Is a tool used by financial analysts to review the performance of pu

D) Shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format

Company A has owned a building for several years. Which of the following statements regarding depreciation is false from an accounting perspective?
A) Depreciation Expense for the year will equal Accumulated Depreciation
B) Depreciation is an estimated ex

A) Depreciation Expense for the year will equal Accumulated Depreciation

Which of the following trial balances is used as a source for preparing the income statement?
A) Unadjusted Trial balance
B) Pre-Adjusted Trial balance
C) Adjusted Trial Balance
D) Post-Closing trial balance

C) Adjusted Trial Balance

Assume the balance in Prepaid Insurance is $2,500 but it should be $1,500. The adjusting journal entry should include which of the following?
A) Debit to prepaid insurance for $1,000
B) Credit to Insurance Expense for $1,000
C) Debit to Insurance Expense

C) Debit insurance expense for $1,000

Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is not yet recorded at the end of the year, what will the adjusting journal entry include?
A) Debit to Advertising Expense of $10,000
B) Credit to Adve

A) Debit to advertising expense of $10,000

Mountain Gear Inc., buys bikes, tents, and climbing supplies from Rugged Rock corporation for sale to consumers. What type of company is Mountain Gear, Inc.?
A) Service
B) Retail Merchandiser
C) Wholesale Merchandiser
D) Manufacturer

B) Retail Merchandiser

Which of the following does not enhance internal control?
A) Assigning different duties to different employees
B) Ensuring adequate documentation is maintained
C) Allowing access only when required to complete assigned duties
D) None of the above--all enh

D) None of the above--all enhance internal control

Which of the following internal control principles underlies the requirement that all customers be given a sales receipt?
A) Segregate Duties
B) Establish Responsibility
C) Restrict Access
D) Document Procedures

D) Document Procedures

Upon review of your company's bank statement, you discover that you recently deposited a check from a customer that was rejected by your bank as NSF. Which of the following describes the actions to be taken when preparing your company's bank reconciliatio

C) No Change Decrease

Upon review of your company's bank statement, you discover that a check was made out to your supplier for $76 but was recorded in your Cash and Accounts Payable Accounts as $67. Which of the following describes the actions to be taken when preparing your

C) No change Decrease

Which of the following is false regarding a perpetual inventory system?
A) Physical counts are never needed because records are maintained on a transaction-by-transaction basis.
B) The inventory records are updated with each inventory purchase, sale, or r

A) Physical counts are never needed because records are maintained on a transaction-by-transaction basis

Sales discounts with terms 2/10, n/30 mean
A) 10% discount for payment received within 30 days of sale
B) 2% discount for payment received within 10 days or the full amount (less returns) is due within 30 days
C) 2/10 of a percent discount for payment rec

B) 2% discount for payment received within 10 days or the full amount (less returns) is due within 30 days

Which of the following is not a component of net sales?
A) Sales returns and allowances
B) Sales discounts
C) Cost of goods sold
D) Sales Revenue

C) cost of goods sold

A $1,000 sale is made on May 1 with terms 2/10, n/30. Items with a $100 selling price are returned on May 3. What amount, if received on May 9 will be considered payment in full?
A) $700
B) $800
C) $882
D) $900

C) $882

This year your company has purchased less expensive merchandise inventory but has not changed its selling prices. What effect will this change have on the company's gross profit percentage this year, in comparison to last year?
A) The ratio will not chang

B) The ratio will increase

Which of the following statements is true regarding the Cost of Goods Sold?
(i) Cost of goods sold represents the cost that a company incurred to purchase or produce inventory in the current period
(ii) cost of goods sold is an expense on the income state

C) (ii) and (iii)

The inventory costing method selected by a company can affect
A) The balance sheet
B) The income statement
C) The statement of retained earnings
D) All of the above

D) All of the above

Which of the following is not a name for a specific type of inventory?
A) Finished goods
B) Merchandise Inventory
C) Raw Materials
D) Goods Available for Sale

D) Goods available for sale

Each period, the cost of goods available for sale is allocated between
A) Assets and liabilities
B) Assets and expenses
C) Assets and revenues
D) Expenses and Liabilities

B) Assets and Expenses

A New York bridal dress designer that makes high-end custom wedding dresses and needs to know the exact cost of each dress most likely uses which inventory costing method?
A) FIFO
B) LIFO
C) Weighted Average
D) Specific Identification

D) Specific Identification

If costs are rising, which of the following will be true?
A) The cost of goods sold will be greater if LIFO is used rather than weighted average
B) The cost of ending inventory will be greater if FIFO is used rather than LIFO
C) The gross profit will be g

D) All of the above are true

Which inventory method provides a better matching of current costs with sales revenue on the income statement but also results in older values being reported for inventory on the balance sheet?
A) FIFO
B) Weighted Average
C) LIFO
D) Specific Identificatio

C) LIFO

Which of the following regarding the lower of cost or market rule for inventory are true?
(i) The lower of cost or market rule is an example of the historical cost principle
(ii) When the replacement cost of inventory drops below the original cost of inve

C) (ii) and (iii)

An increasing inventory turnover ratio
A) Indicates a longer time span between the ordering and receiving of inventory
B) Indicates a shorter time span between the ordering and receiving of inventory
C) Indicates a shorter time span between the purchase a

C) Indicates a shorter time span between the purchase and sale of inventory

A company that purchases inventory costing $10,000 on terms 2/10, n/30, but first returns one-half of those goods, will receive a discount of what amount if it pays on the last day of the discount period?
A) $0
B) $100
C) $200
D) $5,000

B) $100

When a company using the allowance method writes off a specific customer's account receivable from the accounting system, how many of the following are true?
-Stockholders Equity Remains the same
-Total assets remain the same
-Total expenses remain the sa

D) Three

When using the allowance method, as Bad Debt Expense is recorded,
A) Total assets remain the same and stockholders equity remains the same
B) Total assets decrease and stockholders equity decreases
C) Total assets increase and stockholders equity decrease

B) Total assets decrease and stockholders equity decreases

For many years, Carefree Company has estimated Bad Debt Expense using the aging of accounts receivable method. Assuming Carefree has no write-offs or recoveries, its estimate of uncollectible receivables resulting from the aging analysis equals
A) Bad Deb

B) The ending balance in the Allowance for Doubtful Accounts for the period

Which of the following best describes the proper presentation of accounts receivable in the financial statements?
A) Accounts Receivable plus the allowance for doubtful accounts in the asset section of the balance sheet
B) Accounts Receivable in the asset

D) Accounts receivable less the allowance for doubtful accounts in the asset section of the balance sheet

If the Allowance for Doubtful Accounts opened with a $10,000 credit balance, had write-offs of $5,000 (with no recoveries) during the period, and had a desired ending balance of $20,000 based on an aging analysis, what was the amount of bad debt expense?

C) 15,000

When an account receivable is "recovered"
A) Total assets increase
B) Total assets decrease
C) Stockholders Equity increases
D) None of the above

D) None of the above

If a 10% note receivable for $10,000 is created on January 1, 2012 and it has a maturity date of December 31, 2016,
A) No interest revenue will be recorded in 2012
B) The note receivable will be classified as a current asset
C) Interest revenue of $1,000

C) Interest Revenue of $1,000 will be recorded in 2012

If the receivables turnover ratio decreased during the year,
A) The days to collect also decreased
B) Receivables collections slowed down
C) Sales Revenues increased at a faster rate than Accounts receivable increased
D) None of the above

B) Receivbables collections slowed down

In 2010, Coca-Cola Enterprises had a receivables turnover ratio of 7.9. Which of the following actions could Coca-Cola take to cause the ratio to increase?
A) Pursue collections more aggressively
B) Increase the percentages used to estimate bad debts
C) F

D) All of the above

All else equal, if VFC incurs a 3% fee to factor $10,000 of its Accounts Receivable, its net income will
A) Increase by $10,000
B) Increase by $9,700
C) Increase by $300
D) Decrease by $300

D) Decrease by $300

Which of the following should be capitalized when a piece of production equipment is acquired for a factory?
A) Sales Tax
B) Transportation Costs
C) Installation Costs
D) All of the above

D) All of the above

When recording depreciation, which of the following statements is true?
A) Total assets increase and stockholders equity increases
B) Total assets decrease and total liabilities increase
C) Total assets decrease and stockholders equity increases
D) None o

D) None of the above are true

Under what depreciation method(s) is an asset's book value used to calculate depreciation each year?
A) Straight-line method
B) Units-of-production method
C) Declining-balance method
D) All of the above

C) Declining-balance method

A company wishes to report the highest earnings possible according to GAAP. Therefore, when calculating depreciation for financial reporting purposes,
A) It will follow the MACRS depreciation rates prescribed by the IRS
B) It will estimate the shortest li

C) It will estimate the longest lives possible for its assets

Barber, Inc., depreciates its building on a straight-line basis. A building was purchased on January 1, 2013, and it had an estimated useful life of 20 years and a residual value of $20,000. The company's depreciation Expense for 2013 was $20,000. What wa

D) 420,000

Thornton Industries purchased a machine on July 1, 2013, for $45,000 and is depreciating it with the straight-line method over a life span of 10 years, using a residual value of 3,000. Depreciation expense for the machine for the year ended December 31, 2

A) 2100

ACME Inc uses straight-line depreciation for all of its depreciable assets. ACME sold a used piece of machinery on Dec 31, 2013 that it purchased on Jan 1 2012 for $10,000. The asset had a five-year life, zero residual value, and Accumulated Depreciation

D) Gain of 1500

What assets should be amortized using the straight-line method?
A) Land
B) Intangible assets with limited lives
C) Intangible assets with unlimited lives
D) All of the above

B) Intangible assets with limited lives

How many of the following statements regarding goodwill are true?
-Goodwill is not reported unless purchased in an exchange
-Goodwill must be reviewed annually for possible impairment
-Impairment of goodwill results in a decrease in net income
A) None
B)

D) Three

The Simon Company and the Allen Company each bought a new delivery truck on Jan 1, 2012. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of Dec 31, 2013, the book value of Simon's truck was less than the Allen Company

B) The Simon company estimated a lower residual value, but both estimated the same useful life and both elected straight-line depreciation

Which of the following best describes accrued liabilities?
A) Long-term liabilities
B) Current amounts owed to suppliers of inventory
C) Expenses incurred, but not paid at the end of the accounting period
D) Revenues that have been collected, but not earn

C) Expenses incurred but not paid at the end of the accounting period

A company deducted $612,000 from employees for FICA taxes. Which of the following is true?
A) FICA Taxes Payable should be $612,000
B) FICA Taxes Payable should be $1,224,000
C) Salaries and Wage Expense should be $8,000,000.
D) None of the above is true

B) FICA Taxes Payable should be $1,224,000

A company borrowed $100,000 from the bank to be repaid over the next five years, with principle payments beginning next month. Which of the following best describes the presentation of this debt in the balance sheet as of today?
A) $100,000 in the long te

C) A portion of the $100,000 in the current liability section, and the remainder of the principal in the long term liability section

Assume that Speedo International received $400,000 for long term promissory notes that were issued on Nov 1. The notes pay interest on April 30 and Oct 31 at the annual rate of 6%, which was comparable to other interest rates in the market at that time. W

A) dr Interest Expense 4000
cr Interest Payable 4000

Which of the following does not impact the calculation of the cash interest payments to be made to bondholders?
A) Face value of the bond
B) Stated interest rate
C) market interest rate
D) the length of time between payments

C) market interest rate

Which of the following is false when a bond is issued at a premium?
A) The bond will issue for an amount above its face value
B) Interest expense will exceed the cash interest payments
C) The market interest rate is lower than the stated interest rate
D)

B) Interest expense will exceed the cash interest payments

To determine if a bond will be issued at a premium, discount, or at face value, one must know which of the following pairs of information?
A) The face value and the stated interest rate on the date the bonds were issued
B) The face value and the market in

C) The state interest rate and the market interest rate on the date the bonds were issued

A bond is issued at a price of 103 and retired early at a price of 97. Which of the following is true?
A) A gain will be reported on the income statement when the bond is issued
B) A loss will be reported on the income statement when the bond is issued
C)

C) A gain will be reported on the income statement when the bond is retired

In a recent year, Land O'Lakes Inc, reported income from operations of $206, Net income of $160, Interest expense of $63, and Income Tax Expense of $15. What was this dairy company's times interest earned ratio (rounded) for the year?
A) 1.49
B) 2.53
C) 3

D) 3.78

It is possible but not probable that the company will have to pay a settlement of approximately $2,000,000 in the upcoming year. How would this fact be reported, if at all, in the financial statements prepared at the end of the current month using GAAP?
A

C) Describe the potential liability in the notes to the financial statements

Which feature is not applicable to common stock ownership?
A) Right to receive dividends before preferred stock shareholders
B) Right to vote on appointment of external auditor
C) Right to receive residual assets of the company should it cease operations

A) Right to receive dividends before preferred stock shareholders

Which statement regarding treasury stock is false?
A) Treasury stock is considered to be issued but not outstanding
B) Treasury stock has no voting, dividend, or liquidation rights
C) Treasury stock reduces total stockholders' equity on the balance sheet

D) None of the above are false

Which of the following statements about stock dividends is true?
A) Stock dividends are reported on the income statement
B) Stock dividends increase total stockholders equity
C) Stock dividends decrease total stockholders equity
D) None of the above

D) None of the above

Which of the following is ordered from the largest number of shares to the smallest number of shares?
A) Shares authorized, shares issued, shares outstanding
B) Shares issued, shares outstanding, shares authorized
C) Shares outstanding, shares issued, sha

A) Shares authorized, shares issued, shares outstanding

Which of the following statements about the relative advantages of equity and debt financing is false?
A) An advantage of equity financing is that it does not have to be repaid
B) An advantage of equity financing is that dividends are optional
C) An advan

C) An advantage of equity financing is that new stockholders get to vote and share in the earnings of the company

A journal entry is not recorded on what date?
A) Date of declaration
B) Date of record
C) Date of payment
D) A journal entry is recorded on all of the above dates

B) Date of record

Which of the following transactions will increase the return on equity?
A) Declare and issue a stock dividend
B) Split the stock 2-for-1
C) Repurchase the company's stock
D) None of the above

C) Repurchase the company's stock

Which statement regarding dividends is false?
A) Dividends represent a sharing of corporate profits with owners
B) Both stock and cash dividends reduce retained earnings
C) Cash dividends paid to stockholders reduce net income
D) None of the above stateme

C) Cash dividends paid to stockholders reduce net income

When treasury stock is purchased with cash, what is the impact on the balance sheet equation?
A) No change--the reduction of the asset Cash is offset with the addition of the asset treasury stock
B) Assets decrease and stockholders' equity increases
C) As

D) Assets decrease and stockholders' equity decreases

In what situation does stockholders' equity decrease?
A) When a cash dividend is declared
B) When a stock dividend is declared
C) When a stock split is announced
D) None of the above

A) When a cash dividend is declared

Where is the overall change in cash shown in the statement of cash flows?
A) In the top part, before the operating activities section
B) In one of the operating, investing, or financing activities sections
C) In the bottom part, following the financing ac

C) In the bottom part, following the financing activities section

In what order do the three sections of the statement of cash flows appear when reading from top to bottom?
A) Financing, investing, operating
B) Investing, operating, financing
C) Operating, financing, investing
D) Operating, investing, financing

D) Operating, investing, financing

Total cash inflow in the operating section of the statement of cash flows should include which of the following?
A) Cash received from customers at the point of sale.
B) Cash collections from customer accounts receivable.
C) Cash received in advance of re

D) All of the above

If the balance in prepaid expenses increased during the year, what action should be taken on the statement of cash flows when following the indirect method, and why?
A) The change in the account balance should be subtracted from net income, because the ne

A) The change in the account balance should be subtracted from net income, because the net increase in Prepaid Expenses did not impact net income but did reduce the cash balance

Which of the following would not appear in the investing section of the statement of cash flows?
A) Purchase of inventory
B) Sale of investments
C) Purchase of land
D) All of the above would appear in the investing section of the statement of cash flows

A) Purchase of inventory

Which of the following items would not appear in the financing section of the statement of cash flows?
A) The issuance of the company's own stock
B) The repayment of debt
C) The repayment of dividends
D) All of the above would appear in the financing sect

D) All of the above would appear in the financing section of the statement of cash flows

Which of the following is not added when computing cash flows from operations using the indirect method?
A) The net increase in accounts payable
B) The net decrease in accounts receivable
C) The net decrease in inventory
D) All of the above should be adde

D) All of the above should be added

If a company engages in a material noncash transaction, which of the following is required?
A) The company must include an explanatory narrative or schedule accompanying the statement of cash flows
B) No disclosure is necessary
C) The company must include

A) The company must include an explanatory narrative or schedule accompanying the statement of cash flows

The total change in cash as shown near the bottom of the statement of cash flows for the year should agree with which of the following?
A) The difference in Retained Earnings when reviewing the comparative balance sheet
B) Net income or net loss as found

C) The difference in cash when reviewing the comparative balance sheet

If a company's current assets (such as accounts receivable and inventories) are allowed to grow out of control, which of the following would occur?
A) Cash flows from investing activities would be reduced
B) Cash flows from operating activities would be r

B) Cash flows from operating activities would be reduced