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1. The basic accounting equation may be expressed as
a. Assets = Equities.
b. a, c & d.
c. Assets = Liabilities + Owner's Equity.
d. Assets - Liabilities = Owner's Equity.
e. Curt + Holman = Curt Holman.
f. a & d.
g. c & d.
2. If total liabilities increased by $6,000, then
a. assets and owner's equity each increased by $3,000.
b. assets must have increased by $6,000, or owner's equity must have decreased by $6,000.
c. owner's equity must have increased by $6,000.
d. assets must have decreased by $6,000.
e. nothing changes unless there is a full moon.
3. Collection of a $1,500 Accounts Receivable
a. decreases an asset $1,500; decreases a liability $1,500.
b. decreases a liability $1,500; increases owner's equity $1,500.
c. increases an asset $1,500; decreases a liability $1,500.
d. increases an asset $1,500; decreases an asset $1,500.
e. means a salary increase.
f. means you have collected everything owed you.
g. means the Net Income will increase $1,500.
Holman’s Helpers began the year with $30,000 in total assets and $40,000 of total liabilities. They reported $100,000 in service income and $40,000 in expenses, and Mr. Kiner withdrew $10,000.
4. Holman’s had how much net income for the year?
a. $10,000.
b. $60,000.
c. $50,000.
d. $80,000.
e. not enough
f. too much
5. How much did Holman’s Capital balance change from the beginning of the year?
a. $10,000.
b. $60,000.
c. $50,000.
d. $80,000.
e. not enough
f. impossible to tell
6. Holman Computer Repair Company. Holman repairs Jim Nstees’ computer on May 1st. Jim picks up the computer on June 1st and mails a payment to Holman on June 15th Holman (receives it the next day). When should Holman show revenue was earned?
a. May 1
b. June 1
c. June 15
d. June 16
e. Never
f. any time he feels like it
7. After a cash transaction has been journalized it is transferred to the
a. book of original entry.
b. ledger.
c. income statement.
d. trial balance.
e. balance sheet
f. cash flow statement
g. eithor cash receipts or cash payments journal
8. Which of the following is not a justification (reason) for making an adjusting entry?
a. An adjustment is necessary according to GAAP.
b. An adjustment is necessary to meet budget goals.
c. Adjustments are necessary to follow the matching principle.
d. Your boss asks you to make an adjusting entry.
e. You will go to jail if you do not make the adjustment.
9. Nukelheds Company had an Office Supplies balance of $5,000 before purchasing another $10,000 of office supplies. If an inventory taken at the end of the period showed the balance should be $7,000, what should the adjusting entry be?
a. Debit Office Supplies, $5,000; Credit Office Supplies Expense, $5,000.
b. Debit Office Supplies Expense, $5,000; Credit Office Supplies, $5,000.
c. Debit Office Supplies, $10,000; Credit Office Supplies Expense, $10,000.
d. Debit Office Supplies Expense, $10,000; Credit Office Supplies, $10,000.
e. Debit Office Supplies, $7,000; Credit Office Supplies Expense, $7,000.
f. Debit Office Supplies Expense, $7,000; Credit Office Supplies, $7,000.
g. Debit Office Supplies, $15,000; Credit Office Supplies Expense, $15,000.
h. Debit Office Supplies Expense, $15,000; Credit Office Supplies, $15,000.
i. You don’t know accounting if you think one of the above answers is correct.
10. Nonthng Accounting Services received $5,000 cash (debit to Cash and credit to Unearned Income) in advance for setting up the books of Nocrdt Company the following month. If by the end of the period all services had been performed and Nonthng made no adjusting entries, then
a. revenue would be understated.
b. revenue would be overstated.
c. expenses would be overstated.
d expenses would be understated.
e. net income would be overstated.
f. liabilities would be understated.
11. Accrued revenues are
a. earned and already received and recorded.
b. recorded as liabilities before they are earned.
c. recorded as liabilities before they are received.
d. earned but not yet received.
12. Prepaid expenses are
a. assets that have been used (or consumed) and paid for.
b. assets paid for and recorded in an asset account before they are used or consumed.
c. assets that are paid for and recorded in an asset account after they are used or consumed.
d. costs that have been incurred but not yet paid for
e. impossible to keep track of
f. do not exist in theory
13. Accrued expenses are
a. paid and recorded in an asset account after they are used or consumed.
b. incurred but not yet paid.
c. paid for and recorded in an asset account before they are used or consumed.
d. incurred and already paid or recorded.
e. are not important
f. none of the above answers is correct
g. none of the following answers is correct
h. there is no such thing
14. Unearned revenues are
a. earned and recorded as liabilities before they are received.
b. earned but not yet received or recorded.
c. received and recorded as liabilities before they are earned.
d. earned and already received and recorded.
e. both “a” and “d” are correct
15. On May 1st, Clear Paint Company had a GL Supplies balance of $2,000. The company purchased $8,000 of supplies on May 1st and recorded the purchase as an asset. On May 31st, a physical inventory of supplies indicated only $6,000 on hand. The adjusting entry on June 30 should be
a. Debit Supplies, $8,000; Credit Supplies Expense, $8,000.
b. Debit Supplies Expense, $8,000; Credit Supplies, $8,000.
c. Debit Supplies, $6,000; Credit Supplies Expense, $6,000.
d. Debit Supplies Expense, $6,000; Credit Supplies, $6,000.
e. Debit Supplies, $5,000; Credit Supplies Expense, $5,000.
f. Debit Supplies Expense, $5,000; Credit Supplies, $5,000.
g. Debit Supplies , $2,000; Credit Supplies Expense, $2,000.
h. Debit Supplies Expense, $2,000; Credit Supplies, $2,000.
i. Debit Supplies , $4,000; Credit Supplies Expense, $4,000.
j. Debit Supplies Expense, $4,000; Credit Supplies, $4,000.
16. On May 1st Hlmnsa Geeneeus Company paid $10,000 (debited Prepaid Rent) to Nwcums Baad Realty for 10 months rent beginning May 1st. The adjusting entry on May 31st should be:
a. Debit Prepaid Rent, $10,000; Credit Rent Expense, $10,000.
b. Debit Rent Expense, $10,000; Credit Prepaid Rent, $10,000.
c. Debit Rent Expense, $1,000; Credit Prepaid Rent, $1,000.
d. Debit Rent Expense, $9,000; Credit Prepaid Rent, $9,000.
e. no entry is required
17. Nwcums Baad Realty received $10,000 (credited Unearned Rent) on May 1st for a 10-month advance payment of rent from Hlmnsa Geeneeus Company. The adjusting entry for Nwcums Baad Realty on May 31st should be:
a. Debit Rental Revenue, $10,000; Credit Unearned Rent, $10,000.
b. Debit Unearned Rent, $10,000; Credit Rental Revenue, 10,000.
c. Debit Unearned Rent, $1,000; Credit Rental Revenue, $1,000.
d. Debit Cash, $9,000; Credit Rental Revenue, $9,000.
e. No entry is required
18. If your company does not adjust a Prepaid Rent to account for rent that has expired,
a. Assets will be overstated and net income and owner's equity will be understated.
b. Assets will be overstated and net income and owner's equity will be overstated.
c. Failure to make an adjustment does not affect the financial statements.
d. Expenses will be overstated and net income and owner's equity will be understated.
e. Net Income will be understated.
f. No one really cares.
19. Your year-end Insurance Expense account had a balance of $8,000; the Prepaid Insurance account had a balance of $3,000; and you determined that $1,000 of the Prepaid Insurance had expired. After making any needed adjustment, the balance for Insurance Expense would be
a. $8,000.
b. $5,000.
c. $3,000.
d. $2,000.
e. $9,000
f. $7,000
20. Which of the following would be unearned revenue?
a. Sale of one-year magazine subscriptions
b. Rent collected in advance
c. Services performed on account
d. Sale of season tickets to football games
e. None of the above
f. a, b, & d
g. a, b, & c
21. Unearned revenue is
a. an asset account.
b. a revenue account.
c. a liability.
d. a contra-revenue account.
e. a contra-liability.
f. both “b” and “d” are correct
g. both “c” and “e” are correct
h. none of the above
22. Jons Construction Company debits Supplies Expense for all supplies purchased. Jons purchased $5,000 of supplies in May and his May 31st physical inventory shows $1,000 of remaining supplies. The adjusting entry on May 31st should be:
a. Debit Supplies Expense 5,000; credit Supplies 5,000
b. Debit Supplies Expense 6,000; credit Cash 6,000
c. Debit Supplies Expense 1,000; credit Supplies 1,000
d. Debit Supplies 1,000; credit Supplies Expense 1,000
23. John Lawyer requires his clients to pay him in advance of legal services. John credits Legal Service Income when his clients pay him in advance. In January, John collected $1,000 in advance but only completed 75% of the work. The adjusting entry January 31st should be:
a. Debit Cash 1,000; credit Legal Service Revenue 1,000
b. Nothing, no one trusts a lawyers books anyway
c. Debit Legal Service Income 250; Credit Unearned Revenue 250
d. Debit Unearned Revenue 1,000;Credit Legal Service Income 1,000
e. Debit Legal Service Income 1,000; Credit Cash 1,000
f. Debit Unearned Revenue 750; Credit Legal Service Revenue 750
24. On 7/1/02, your company purchased a $4,800 insurance policy for coverage from 7/1/02 – 6/30/03 by charging $4,800 to Insurance Expense and $4,800 to Cash. The 7/31/02 adjusting entry should be:
a. Debit Insurance Expense 4,800; Credit Cash 4,800
b. Debit Cash 4,800;Credit Insurance Expense 4,800
c. Debit Insurance Expense 400;Credit Prepaid Insurance 400
d. Debit Insurance Expense 4,100;Credit Prepaid Insurance 4,100
e. Debit Prepaid Insurance 400; Credit Insurance Expense 400
f. Debit Prepaid Insurance 4,400; Credit Insurance Expense 4,400
25. When closing the the books of a sole proprietorship,
a. expenses are closed to Expense Summary.
b. the doors must be locked.
c. only revenues are closed to the Income Summary account.
d. revenues and expenses are closed to the Income Summary account.
e. only expenses are closed to the Income Summary account.
f. revenues, expenses, and the owner's drawing account are closed to the Income Summary account.
26. To close the drawing account,
a. you should debit the owner's capital account.
b. you should debit the income summary account
c. you should credit the income summary account.
d. no closing entries are required
e. you should debit the drawing account.
f. you should credit the owner's capital account.
27. To prepare closing entries,
a. revenue accounts should be credited.
b. the owner's capital account should be debited if there is net income.
c. expense accounts should be debited.
d. expense accounts should be credited.
e. the owner's drawing account should be debited.
28. The final closing entry is typically to close the
a. revenue accounts.
b. liability accounts.
c. owner's capital account
d. owner's drawing account.
e. expense accounts.
f. temporary asset accounts.
29. If the closing process was done correctly, the post-closing trial balance will show
a. the amount of net income (or loss) for the period.
b. only temporary account balances.
c. zero balances for all accounts.
d. only the drawing account balances.
e. only permanent account balances.
30. If Brown Inc. paid $900 to a creditor by debiting Cash for $900 and crediting Accounts Receivable for $900, the correcting should be:
a. Debit Accounts Receivable 900; Debit Accounts Payable 900; Credit Cash 1800;
b. Debit Accounts Receivable 900; Credit Accounts Payable 900
c. Debit Accounts Receivable 1800; Credit Accounts Payable 900; Credit Cash 900
d. Debit Accounts Payable 900; Credit Cash 900
e. No correction necessary
f. None of the above are correct
32. If Newcome collected $9,000 of legal fees in advance by debiting Cash for $900 and crediting Accounts Receivable for $900, the correcting entry is
a. Debit Cash 8,100; Credit Accounts Receivable 8,100
b. Debit Cash 8,100; Debit Accounts Receivable 900; Credit Unearned Revenue 9,000
c. Debit Cash 9,000; Credit Service Revenue 9,000
d. Debit Cash 9,000; Credit Accounts Receivable 8,100; credit Unearned Revenue 900
e. No correcting entry is required because lawyers can do whatever they want.
33. Two categories of expenses in merchandising companies are
a. sales and cost of goods sold.
b. operating expenses and financing expenses.
c. cost of goods sold and financing expenses.
d. cost of goods sold and operating expenses.
e. investing and operating expenses.
f. legal and illegal expenses.
34. Net sales less cost of goods sold is called:
a. marginal income.
b. net profit.
c. gross profit.
d. net income.
e. marginal income.
35. Which of the following expressions is incorrect?
a. Net Sales - cost of goods sold = gross profit
b. Net Sales - cost of goods sold - operating expenses = net income
c. Gross profit - operating expenses = net income
d. Net income + operating expenses = gross profit
e. Net income + cost of goods sold = gross profit
36. In a perpetual inventory system, cost of goods sold is recorded
a. with each sale.
b. monthly.
c. daily.
d. annually.
e. weekly.
37. Using perpetual inventory, the purchase of merchandise is debited to:
a. Cost of Goods Sold.
b. Purchases.
c. Merchandise Inventory.
d. Supplies.
e. None of the above.
38. Freight charges (FOB shipping point) for a purchaser using a perpetual system?
a. carrier will pay the freight cost.
b. Merchandise Inventory account will not be affected.
c. Merchandise Inventory account will be increased.
d. Merchandise Inventory account will be decreased.
e. seller will pay the freight cost.
f. none of the above makes any sense.
g. this is an impossible situation.
39. Sales revenues are earned when
a. when you make an adjusting entry.
b. an order is received.
c. cash is received from credit sales.
d. goods have been transferred from the seller to the buyer.
e. only when there is profit.
40. Sales revenue
a. is only recorded after cash is collected.
b. always equals cash collections.
c. may be recorded three months before cash is collected.
d. only results from credit sales.
e. none of the above is correct.
41. Sales Returns and Allowances is:
a. a contra revenue account.
b. a contra asset account.
c. a contra expense account.
d. an asset account.
e. an expense account.
f. only used in a perpetual system.
g. only used in a periodic system.
42. If goods from a prior cash sale are returned, then you should:
a. credit Sales Returns and Allowances.
b. credit Sales.
c. credit Merchandise Inventory.
d. credit the cash account.
e. none of the above.
43. Gross profit
a. is not useful.
b. is important when analyzing the operation of a merchandising company.
c. is not used when using a periodic inventory system.
d. is not used when using a perpetual inventory system.
e. is calculated on a single-step income statement.
f. none of the above.
44. The journal entry, using a periodic inventory system, to record a return of $100 of merchandise purchased on account should be
a. Debit Purchases 100; credit Accounts Payable 100
b. Debit Inventory 100; credit Accounts Payable 100
c. Debit Purchase Returns and Allowances 100; credit Accounts Payable 100
d. Debit Accounts Payable 100; Credit Inventory 100
e. Debit Accounts Payable 100; Credit Purchase Returns and Allowances 100
45. A current liability is a debt expected to be paid
a. between 12 months and 18 months.
b. as soon as possible.
c. within 12 months.
d. within 30 days.
e. between 6 months and 18 months.
f. anytime.
46. The relationship of current assets to current liabilities is used to evaluate a company's
a. revenue-producing ability.
b. long-range debt paying ability.
c. profits.
d. short-term debt paying ability.
e. moods.
f. auditors.
47. Working capital is
a. long term assets less current assets.
b. current assets multiplied by current liabilities.
c. current assets plus current liabilities.
d. current assets divided by current liabilities.
e. current assets minus current liabilities.
f. used for construction purposes.
48. The current ratio is
a. long term assets less current assets.
b. current assets multiplied by current liabilities.
c. current assets plus current liabilities.
d. current assets divided by current liabilities.
e. current assets minus current liabilities.
f. used for calculating gambling odds.
49. Which one of the following is not a tool in financial statement analysis?
a. Revolving analysis
b. Ratio analysis
c. Horizontal analysis
d. Circular analysis
e. Vertical analysis
f. Psychological analysis
g. a, d & f
h. b, c & e
i. all the above are financial tools
| Question | Answer | Question | Answer | Question | Answer | Question | Answer | Question | Answer |
| 1 | b | 11 | d | 21 | c | 31 | a | 41 | a |
| 2 | b | 12 | b | 22 | d | 32 | b | 42 | e |
| 3 | d | 13 | b | 23 | c | 33 | d | 43 | b |
| 4 | b | 14 | c | 24 | f | 34 | c | 44 | e |
| 5 | c | 15 | j | 25 | d | 35 | e | 45 | c |
| 6 | a | 16 | c | 26 | a | 36 | a | 46 | d |
| 7 | b | 17 | c | 27 | d | 37 | c | 47 | e |
| 8 | b | 18 | b | 28 | d | 38 | c | 48 | d |
| 9 | i | 19 | e | 29 | e | 39 | d | 49 | g |
| 10 | a | 20 | f | 30 | a | 40 | c | 50 |