The two types of accounting are:
a) profit and nonprofit
b) financial and managerial
c) internal and external
d) bookkeeping and decision-orientented
financial and managerial
The acronym GAAP stands for:
a) generally acceptable authorized pronouncements
b) government authorized accountant principles
c) generally accepted accounting principles
d) government audited accounting procnouncements
generally accepted accounting principles
To be useful, accounting information must have the fundamental qualitative characteristics of:
a) comparability and relevance
b) relevance and faithful representation
c) materiality and understandibility
d) faithful representation and timeliness
relevance and faithful representation
The accounting equation can be stated as:
a) assets + equity = liabilities
b) assets - liabilities = equity
c) assets = liabilities - equity
d) assets - equity + liabilities = 0
assets - liabilities = equity
Net income is computed as:
a) revenues - expenses - dividends
b) revenues + expenses
c) revenues - expenses
d) revenues - expenses + dividends
revenues - expenses
If an investor wants to know how much cash the company generated and spent during the year, the main financial statement they should look at is the:
a) balance sheet
b) statement of retained earnings
c) income statement
d) statement of cash flows
statement of cash flows
Which of the following transactions will increase Stockholders' equity?
a) The company pays a dividend to its shareholders
b) The company issues common stock to new shareholders
c) The president of the company buys a new personal automobile
d) The company
The company issues common stock to new shareholders
Goods purchased on account for future use in the business, such as store supplies, are called:
a) accrued liabilities
b) expenses
c) revenues
d) prepaid expenses
prepaid expenses
When services are performed on account for a customer:
a) cash is increased
b) revenue will not be recorded until the cash is received from the customer
c) accounts receivable is increased
d) accounts payable is increased
accounts receivable is increased
When a business purchases land on account:
a) both assets and stockholders' equity are increased
b) assets are decreased and stockholders' equity is increased
c) both assets and liabilities are increased
d) assets are increased and liabilities are decreas
both assets and liabilities are increased
Company Z sells land for the same amount it paid for it three years ago. When the company records this transaction:
a) assets and stockholders' equity are increased
b) one asset is increased and another asset is decreased
c) one liability is increased and
one asset is increased and another asset is decreased
When a company borrows cash from the bank:
a) total assets remain the same
b) total liabilities remain the same
c) retained earnings is decreased
d) liabilities are increased
liabilities are increased
An important fact to remember when analyzing the transactions of a company is that:
a) the income statement data appears under common stock
b) the balance sheet data includes the ending balances of the asset, liabilities and revenues of the company
c) the
the income statement includes revenues and expenses
A company paid cash for an amount owed to a creditor. This transaction decreased cash and:
a) decreased revenues
b) decreased liabilities
c) decreased expenses
d) increased expenses
decreased liabilities
An important rule to remember when analyzing the impact of business transactions on accounts is:
a) net income increases stockholders' equity
b) if expenses exceed revenues, the company will have a net income
c) a net loss does not affect stockholders' eq
net income increases stockholders' equity
Company A received cash and issued stock to a new stockholder. In recording this transaction:
a) cash would be debited
b) common stock would be debited
c) cash would be credited
d) retained earnings woud be credited
cash would be debited
Every transaction:
a) must increase at least one account and decrease at least one account
b) must debit at least one account and credit at least one account
c) is recorded in either the journal or the ledger
d) affects both an income statement account an
must debit at least one account and credit at least one account
A transaction that includes a debit to an expense and a credit to liability indicates that:
a) revenues increased
b) expenses increased
c) liabilities decreased
d) cash decreased
expenses increased
On December 15, 2012, a company receives and order from a customer for services to be performed on December 28, 2012. Due to a backlog of orders, the company does not perform the services until January 3, 2013. The customer pays for the services on Januar
January 3, 2013
Which of the following is a correct statement about the methods of accounting?
a) cash-basis accounting records revenues when they are earned
b) cash-basis accounting records expenses only at the end of the month
c) GAAP requires accrual accounting
d) acc
GAAP requires accrual accounting
Adjusting entries are:
a) not needed under the accrual basis of accounting
b) prepared at the option of the accountant
c) prepared at the beginning of the accounting period to update all accounts
d) prepared at the end of the accounting period to update c
prepared at the end of the accounting period to update certain accounts
The net book value of a plant asset is the:
a) accumulated depreciation less the cost of the asset
b) cost of the asset less the accumulated depreciation
c) balance in the accumulated depreciation account
d) cost of the asset
cost of the asset less the accumulated depreciation
A liability that is recorded for an expense that has not yet been paid is a(n):
a) unearned expense
b) prepaid expense
c) accrued liability
d) accrued revenue
accrued liability
The Accumulated Depreciation account:
a) is a contra asset account
b) represents the original cost of the cost
c) is another term for depreciation expense
d) has a normal balance which is the same as its companion account
is a contra asset account
At the end of an accounting cycle all of the following accounts will be closed to Retained Earnings except for:
a) cash
b) service revenue
c) dividends
d) utilities expense
cash
The cost of merchandise that is still on hand has not been sold to customers is called:
a) cost of goods sold, an expense that appears on the income statement
b) inventory, a current asset that appears on the income statement
c) inventory, a current asset
inventory, a current asset that appears on the balance sheet
Which is the correct order for items to appear on the income statement?
a) sales revenue, operating expenses, gross profit, net income
b) sales revenue, gross profit, net income, operating expenses
c) sales revenue, gross profit, cost of goods sold, opera
sales revenue, cost of goods sold, gross profit, net income
The inventory system that uses computer software to keep a running record of inventory on hand is the:
a) cost of goods sold inventory system
b) periodic inventory system
c) perpetual inventory system
d) hybrid inventory system
perpetual inventory system
How do purchase returns and allowances and purchase discounts affect gross purchases?
a) both are added to purchases
b) both are subtracted from purchases
c) purchase returns and allowances are added to purchases; purchase discounts are subtracted from pu
both are subtracted from purchases
A company purchased inventory for $800 per unit. The company later sold the inventory for $1,000 per unit. The entries to record the sale for cash and cost of goods sold would include debits to which of the following accounts?
a) sales, $1,000; Inventory,
cash, $1,000; cost of goods sold, $800
To determine cost of goods sold under the FIFO method:
a) the first costs into the inventory are the first costs assigned to cost of goods sold
b) the last costs into the inventory are the first costs assigned to cost of goods sold
c) the average cost of
the first costs into the inventory are the first costs assigned to cost of goods sold
When inventory prices are increasing, the FIFO costing method will generally yield a cost of goods sold that is:
a) higher than cost of goods sold under the LIFO method
b) lower than cost of goods sold under the LIFO method
c) equal to the gross profit un
lower than cost of goods sold under the LIFO method
The two most common types of fraud impacting financial statements are:
a) fraudulent financial reporting and e-commerce fraud
b) misappropriation of assets and embezzlement
c) fraudulent financial accounting and misappropriation of assets
d) cooking the b
fraudulent financial accounting and misappropriation of assets
With a lock-box system which of the following is true?
a) customers send their checks by mail directly to a post office box controlled by the company
b) the bank posts the deposits to the company 's accounts receivable accounts
c) it takes more time for t
company personnel never touch the incoming cash
Which of the following is an incorrect statement regarding short-term investments?
a) short-term investments are also called marketable securities
b) short-term investments are easily convertible to cash
c) short-term investments must be held for less tha
short-term investments must be held for less than three months
Stock investments that are to be sold in the near future with the intent of generating profits on the sale are:
a) investments
b) trading securities
c) available-for-sale securities
d) debt securities
trading securities
ABC Company purchases a trading security for $12,000. The entry to record this transaction will include a:
a) debit to the investment account
b) credit to the investment account
c) debit to the unrealized gain account
d) credit to the dividend revenue acc
credit to the investment account
An unrealized gain:
a) is recorded when a trading security is sold for more than its cost
b) is recorded when a trading security is sold for less than its cost
c) is recorded at the end of an accounting period when the fair value of the trading security i
is recorded at the end of an accounting period when the fair value of the trading security is more than its cost
When goods are shipped FOB destination, revenue is recognized:
a) when the goods leave the shipping dock
b) after any returns are received by the seller
c) only after cash payment is received
d) when the goods are received by the customer
when the goods are received by the customer
When a company sells a trading investment, the gain or loss on the sale is reported on the:
a) revenues section of the income statement
b) short-term investments section of the balance sheets
c) other revenue, gains, and losses section of the balance shee
other revenue, gains, and losses section of the income statement
The net realizable value of accounts receivable is the difference between accounts receivable and:
a) allowance for uncollectible accounts
b) net revenue
c) uncollectible-account expense
d) sales discount
allowance for uncollectible accounts
The entry to write off a specific account under the allowance method for estimating uncollectible accounts:
a) reduces total assets
b) reduces net income
c) has no effect on total assets or net income
d) increases net income
has no effect on total assets or net income
The journal entry to record accrued interest on a short-term note payable must include a debit to:
a) interest payable and a credit to cash
b) interest expense and a credit to cash
c) interset expense and a credit to interest payable
d) interest payable a
interest expense and a credit to interest payable
Potential liabilities that depend on the future events arising out of past events are called:
a) long-term liabilities
b) estimated liabilities
c) contingent liabilities
d) current liabilities
contingent liabilities
Curtis Corporation issued $200,000 of 10% bonds on January 1. The bonds pay interest semiannually on January 1 and July 1. The company has a fiscal year end of May 31. On May 31, the Curtis Corporation will:
a) make a journal entry to accrue interest expe
make a journal entry to accrue interest expense from January 1 through May 31
At the end of the year, a company makes a journal entry to accrue the interest expense on a short-term note payable. As a result of this transaction:
a) current liabilities increase and current assets increase
b) current liabilities increase and equity in
current liabilities increase and equity drecreases
Failure to record an accrued liability causes a company to:
a) overstate income
b) overstate assets
c) understate liabilities
d) understate owners' equity
understate liabilities
Double taxation means that the:
a) corporation's income tax is allocated to the shareholders based on ownership percentage
b) corporate earnings are subject to state the federal income tax
c) corporation pays tax on its earnings and the shareholders pay t
corporation pays tax on its earnings and the shareholder's pay tax on dividends
Dividends are declared by:
a) Chief Accounting Officer
b) Board of Directors
c) President
d) Chief Financial Officer
Board of Directors
The difference between the issue price of the stock and the par value of the stock is:
a) market value
b) par value
c) additional paid-in capital
d) preferred stock
additional paid-in capital
Treasury stock has a:
a) debit balance, the opposite of other equity accounts
b) credit balance, the same as other equity accounts
c) credit balance, the opposite of other equity accounts
d) debit balance, the same as other equity accounts
debit balance, the opposite of other equity accounts
Company A purchased a used piece of equipment. All of the following costs should be included in the cost of the equipment EXCEPT for:
a) insurance while in transit
b) sales tax paid
c) installation costs
d) maintenance costs after the equipment is up and
maintenance costs after the equipment is up and running
Which of the following should be included in the cost of land?
a) construction cost of a parking lot
b) landscaping
c) real estate brokerage commission
d) lighting
real estate brokerage commission
The lump-sum purchase of assets:
a) uses the market values of the assets to determine the cost of each individual asset
b) requires the company to divide the total cost among the assets according to their historical cost
c) requires the company to record
uses the market value of the assets to determine the cost of each individual asset
The process of depreciating an asset over its useful life is an application of the ___ principle.
a) full disclosure
b) revenue recognition
c) historical cost
d) matching
matching
If an asset is scrapped before being fully depreciated:
a) the company will incur a loss on the disposal
b) the equipment account will be credited
c) the accumulated depreciation account will be debited
d) all of the above will occur
all of the above will occur
The main purpose of the statement of cash flows is to:
a) provide information about the cash receipts and cash payments during a period
b) provide information about the investing and financing activities during a period
c) prove that revenues exceed expen
provide information about the cash receipts and cash payments during a period
Creditors analyze the statement of cash flows to determine:
a) total interest earned during the period
b) the quality of the company's earnings
c) whether or not the company can pay interest on debt
d) if management was overpaid
whether or not the company can pay interest on debt
Which of the following is considered to be a cash equivalent?
a) investments in short-term U.S Government securities
b) accounts receivable
c) notes receivable
d) trading securities
investments in short-term U.S Government securities
Financing activities involve:
a) issuing debt
b) acquiring long-term assets
c) lending money
d) acquiring investments
issuing debt
Which of the three types of activities reported on the statement of cash flows is the most critical?
a) investing activities
b) financing activities
c) operating activities
d) investing and financing activities
operating activities
Increases and decreases in the long-term assets available to a company are reported on the statement of cash flows as:
a) operating activities
b) investing activities
c) financing activities
d) noncash activities
investing activities
Salem Inc. uses the indirect method to prepare its statement of cash flows. Salem's accumulated depreciation trucks account increased during the period. Salem did not purchase or sell equipment during the period. The increase in accumulated depreciation t
added to net income to determine net cash provided by operating activities
On a statement of cash flows prepared using the indirect method, an increase in Accounts Payable during the period is:
a) added to net income to determine net cash provided by operating activities
b) deducted from net income to determine net cash provided
added to net income to determine net cash provided by operating activities
When preparing the statement of cash flows using the indirect method, which statement is NOT true?
a) gains on the sale of long-term assets are subtracted from net income
b) losses on the sale of long-term assets are subtracted from net income
c) deprecia
losses on the sale of long-term assets are subtracted from net income
Which of the following would be reported on a statement of cash flows as a financing activity?
a) sale of equipment
b) amortization expense
c) purchase of treasury stock
d) collection of notes receivable
purchase of treasury stock
Steadily decreasing cost of goods sold as a percentage of net sales is a sign of:
a) increasing earnings quality
b) decreasing earnings quality
c) lower sales
d) higher sales
increasing earnings quality
Ongoing expenses incurred by a retailer, other than direct expenses for merchandise and other costs directly related to sales are called:
a) other expenses
b) operating expenses
c) costs of goods sold
d) extraordinary items
operating expenses
The operating expense section of an income statement would NOT include:
a) interest expense
b) utilities expense
c) supplies expense
d) salaries expense
interest expense
There will be an income from operations if:
a) revenues are greater than cost of goods sold
b) revenues are greater than operating expenses
c) gross profit is higher than operating expenses
d) cost of goods sold is greater than operating expenses
gross profit is higher than operating expenses
The formula to determine income tax expense is:
a) taxable income( from the income tax return ) multiplied by the income tax rate
b) taxable income( from the income statement ) multiplied by the income tax rate
c) income before income tax expense ( from t
income before income tax expense ( from the income statement ) multiplied by the income tax rate
The gain or loss on the disposal of a business segment is shown on the income statement as:
a) an extraordinary item
b) part of discontinued operations
c) part of income from operations
d) other gains or losses
part of discontinued operations
Which of the following statements is true?
a) the income tax return is prepared by the GAAP
b) the income tax return is prepared using rules set by the SEC
c) the income tax return is prepared using rules set by the IRS
d) the income tax return and the fi
the income tax return is prepared using rules set by the IRS
Which of the following would be considered as an extraordinary item?
a) losses from a labor dispute
b) losses from a natural disaster
c) writing-down inventory to lower-of-cost or market
d) losses from the sale of property
losses from a natural disaster
Changes in accounting estimates:
a) are not allowed under GAAP
b) are a prior period adjustment
c) are reported for the current and future periods on a new basis
d) require prior financial statements to be restated
are reported for the current and future periods on a new basis
The amount of a company's net income per share of its outstanding common stock is:
a) earnings per share
b) gross profit per share
c) net income per share
d) taxable income per share
earnings per share
Earnings per share (EPS) is calculated as:
a) the number of shares of common stock outstanding at the end of the year divided by net income
b) net income divided by the number of shares of common stock outstanding at the end of the year
c) net income divi
net income divided by the average number of shares of common stock outstanding throughout the year
Components of earnings quality include all of the following except:
a) low operating expenses
b) high and improving gross margin
c) a low gross profit
d) proper revenue and expense recognition
a low gross profit
A extraordinary item is:
a) both infrequent and unusual for the company
b) unusual for the company
c) infrequent for the company
d) material with respect to the business and infrequent
both infrequent and unusual for the company