____ 1. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?
a. The sale of store equipment.
b. The purchase of a new computer.
c. The appointment of a new CPA firm to perform an audit.
d. Payment of income taxes.
___ 2. Anderson Company purchased equipment for $2,400 cash. As a result of this event:
a. owner’s equity decreased by $2,400.
b. total assets remained unchanged.
c. total assets increased by $2,400.
d. Both a and b.
____ 3. Which of the following statements related to the adjusted trial balance is incorrect?
a. It is prepared before adjusting entries have been made.
b. It shows the balances of all accounts at the end of the accounting period.
c. It proves the equality of the total debit balances and the total credit balances in the
d. Financial statements can be prepared directly from the adjusted trial balance.
____ 4. Carson Supply bought equipment at a cost of $115,000 on January 1, 2010. It originally had an estimated life of five years and a salvage value of $12,000. Carson uses the straight-line depreciation method. On January 1, 2014, Carson decided the useful life likely would end on December 31, 2017, with a salvage value of $8,000. The depreciation expense recorded in 2014 should be:
____ 5. Dawson Company bought furniture on account. Their accountant debited Furniture and credited Accounts Receivable. An appropriate correcting entry is:
a. debit Accounts Receivable and credit Accounts Payable.
b. debit Furniture and credit Accounts Payable.
c. debit Miscellaneous Expense and credit Accounts Payable.
d. No correcting entry is needed.
____ 6. Income Summary has a credit balance of $29,000 for K. Eagle Co. after closing revenues and expenses. The entry to close Income Summary is:
a. credit Income Summary $29,000, debit Owner’s Capital $29,000.
b. credit Income Summary $29,000, debit Owner’s Drawing $29,000.
c. debit Income Summary $29,000, credit Owner’s Capital $29,000.
d. debit Income Summary $29,000, credit Owner’s Drawing $29,000.
____ 7. Bloom Company exchanged old equipment for new equipment. The old equipment had a cost of $80,000, accumulated depreciation of $46,000, and a fair market value of $30,000. The exchange had commercial substance. Bloom paid an additional $16,000 in cash. The new equipment should be recorded at:
____ 8.Left Company purchased Right Company on September 1, 2010, for $22,000,000. On that date the book value of Right’s net assets was $13,000,000; the fair market value of the net assets was $19,000,000. The entry to record the purchase of Right Company should include Goodwill of:
____ 9.A contingent liability should be recorded in the accounts if it is:
b. reasonably possible.
c. probable and reasonably estimable.
d. Both (a) and (b) above.
____ 10. In a period of rising prices, the inventory method that results in the lowest income tax
c. average cost.
d. specific identification.
____ 11. On June 30, Gaston Company issued a $9,000, 8%, 6-month note to National Bank. The entry on Gaston’s books to record the payment of the note at maturity will include a credit to Cash for:
____ 12. The following information is available for McDaniel Company:
Beginning Inventory $ 80,000
Cost of Goods Sold 360,000
Ending Inventory 60,000
Net Sales 600,000
Inventory turnover for the year is:
a. 4.5 times.
b. 5.1 times.
c. 10.0 times.
d. 6.0 times.
____ 13. Sister Sue Corporation’s unadjusted trial balance includes the following balances
(assume normal balances):
Accounts Receivable $247,000
Allowance for Doubtful Accounts 4,400
Bad debts are estimated to be 4% of outstanding receivables. What amount of bad debts expense will the company record?
____ 14. The following information is available for Aikman Company:
Sales $210,000 Freight-in $7,000
Ending Inventory 18,000 Purchase Returns and Allowances 3,000
Purchases 120,000 Beginning Inventory 22,000
Aikman’s cost of goods sold is:
____ 15. If ending inventory is understated, net income and assets will be:
Net Income Assets
a. Overstated Overstated
b. Understated Understated
c. Understated Unaffected
d. None of the above.
____ 16. A company purchased land for $60,000 cash. Real estate brokers’ commission was $6,500 and $10,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at:
____ 17. Which of the following errors will cause a trial balance to be out of balance? The entryto record a payment on account was:
a. posted as a debit to Cash and a debit to Accounts Payable.
b. posted as a debit to Cash and a credit to Accounts Payable.
c. posted as a debit to Accounts Receivable and a credit to Cash.
d. not posted at all.
____ 18. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the:
a. economic entity assumption.
b. monetary unit assumption.
c. going concern assumption.
d. time period assumption.
____ 19. All of the following are intangible assets except:
d. oil deposits.
____ 20. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
a. Documentation procedures.
b. Independent internal verification.
c. Establishment of responsibility.
d. Segregation of duties.
____ 21. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a:
a. debit to an expense account.
b. credit to an expense account.
c. debit to the allowance account.
d. credit to the allowance account.
____ 22. Shipping terms of FOB destination mean that the:
a. shipping charges are debited to Freight-Out.
b. purchaser is responsible for the shipping charges.
c. items should be in the purchaser’s inventory account at year-end if the items are in
d. Both (a) and (b) above.
____ 23. FICA taxes do not provide workers with:
a. supplemental retirement.
b. life insurance.
c. employment disability.
d. medical benefits.
____ 24. A petty cash fund:
a. results in expense accounts being charged when cash is disbursed.
b. should be replenished when the fund is low and at the end of the period.
c. results in expense accounts being charged when the fund is replenished.
d. Both (b) and (c) above.
___ 25. If merchandise is sold for $14,000 subject to credit terms of 1/15, n/30, the entry to
record collection in full within the discount period would include a:
a. credit to Sales Discounts for $140.
b. credit to Accounts Receivable for $13,860.
c. credit to Accounts Receivable for $140.
d. None of the above.
____ 26. Barley Company’s records show the following for the month of March:
Total Owner’s Equity at March 1 ……………………………………….. $140,000
Total Owner’s Equity at March 31 ……………………………………… 210,000
Total Revenues ……………………………………………………………… 530,000
Total Withdrawals by Owner …………………………………………….. 25,000
There were no investments made during March. Total expenses for March were:
____ 27. Fordham Company’s financial information is presented below.
Sales $ ???? Purchase Returns and Allowances $ 20,000
Sales Returns and Allowances 30,000 Ending Inventory 60,000
Net Sales 1,010,000 Cost of Goods Sold 410,000
Beginning Inventory ???? Gross Profit ????
The missing amounts above are:
Sales Beginning Inventory Gross Profit
a. $1,040,000 $40,000 $600,000
b. $980,000 $20,000 $630,000
c. $1,040,000 $20,000 $600,000
d. $980,000 $40,000 $630,000
____ 28. The preparation of closing entries:
a. is an optional step in the accounting cycle.
b. results in zero balances in all accounts at the end of the period so that they are
ready for the following period’s transactions.
c. results in transferring the balances in all nominal accounts to owner’s capital.
d. is necessary before financial statements can be prepared.
____ 29. Allowance for Doubtful Accounts is reported in the:
a. balance sheet as a contra liability account.
b. balance sheet as a contra asset.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.
____ 30. Two categories of expenses for merchandising companies are:
a. cost of goods sold and operating expenses.
b. operating expenses and financing expenses.
c. cost of goods sold and financing expenses.
d. sales and cost of goods sold.
PART II — MATCHING
Instructions: Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once.
A. Additions and improvements N. Debit
B. Natural resources O. Declining-balance method
C. Allowance method P. Depletion
D. Amortization Q. Depreciable cost
E. Periodic inventory system R. Direct write-off method
F. Book value S. Economic entity assumption
G. Nominal accounts T. First-in, first-out method
H. Closing entries U. Inventoriable costs
I. Comparability V. Going-concern assumption
J. Permanent accounts W. Internal control
K. Consistency X. Time period assumption
L. Contra asset Y. Last-in, first out method
M. Cost principle Z. Retail inventory method
___ 1. Use of the same accounting principles and methods from period to period by the same
___ 2. The total amount subject to depreciation.
___ 3. An assumption that the economic life of a business can be divided into artificial time
periods. – X. Time period assumption
___ 4. The cost of an asset less its accumulated depreciation.
___ 5. The left side of an account.
___ 6. The periodic write-off of an intangible asset.
___ 7. A depreciation method that produces decreasing periodic depreciation by applying a constant rate to the book value of the asset.
___ 8. An inventory method that records the earliest goods purchased as cost of goods sold.
___ 9. This method of accounting for uncollectible accounts is required when bad debts are
significant in size.
___ 10. Accumulated depreciation is an example of this term.
___ 11. An assumption that requires that the activities of a company be kept separate and distinct from the activities of its owner.
___ 12. All accounts appearing on the post-closing trial balance.
___ 13. An inventory costing method which assumes that the latest units purchased are the first to be allocated to cost of goods sold.
___ 14. An accounting principle that requires assets be recorded at their historical cost.
___ 15. Revenue, expense, and drawing accounts whose balances are transferred to owner’s capital at the end of an accounting period.
___ 16. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.
___ 17. Assets such as timber, oil, coal, and mineral deposits.
___ 18. Entries at the end of an accounting period to transfer the balances of temporary accounts to permanent owner’s equity accounts.
___ 19. The pool of costs that consist of the cost of the beginning inventory and the cost of goods purchased.
___ 20. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.