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WorksheetsAccounting Final Review
Total questions: 128
Worksheet time: 32hrs 0mins
Which of the following is the most appropriate definition of accounting?
The information system that identifies, records, and communicates the economic events of an organization to interested users.
A means of collecting information.
The interconnected network of subsystems necessary to operate a business.
Electronic collection, organization, and communication of vast amounts of information.
Which of the following is the best definition of an internal user of accounting information
Investors who use accounting information to decide whether to buy or sell stock
Creditors, such as banks, that use accounting information to evaluate the risk of lending money
Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits
Managers who use accounting information to plan, organize, and run a business
Which of the following is not an advantage of the corporate form of business organization?
No personal liability
Easy to transfer ownership
Favorable tax treatment
Easy to raise funds
Which of the following is not a principal type of business activity?
Operating
Investing
Financing
Delivering
Borrowing money is an example of a(n)
delivering activity.
financing activity
operating activity
investing activity
Which activities involve acquiring the resources to run the business?
Delivering
Financing
Investing
Operating
To show how successfully your business performed during a period of time, you would report its revenues and expenses in the
balance sheet.
income statement.
statement of cash flows.
retained earnings statement
Which of the following financial statements is concerned with the company at a point in time?
Balance sheet
Income statement
Retained earnings statement
Statement of cash flows
The retained earnings statement shows all of the following except:
the amounts of changes in retained earnings during the period.
the causes of changes in retained earnings during the period.
the time period following the one shown for the income statement.
beginning retained earnings on the first line of the statement.
The right to receive money in the future is called a(n)
account payable.
account receivable.
liability.
revenue.
Buying and selling products are examples of:
operating activities.
investing activities
financing activities.
delivering activities.
The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)
account payable.
account receivable.
revenue
expense.
The best definition of assets is the
cash owned by the company.
collections of resources belonging to the company and the claims on these resources
owners’ investment in the business.
resources belonging to a company that have future benefit to the company.
Generally accepted accounting principles
are accounting rules formulated by the Internal Revenue Service
are sound in theory but rarely used in real life.
are accounting rules that are recognized as a general guide for financial reporting.
have eliminated all errors in accounting
What is the order in which assets are generally listed on a classified balance sheet?
Current assets and long-term
current assets; property, plant and equipment; long-term investments; intangibles
current assets; property, plant and equipment; intangibles; long-term investments
current assets; long-term investments; property, plant and equipment, intangibles
What organization issues U.S. accounting standards?
Securities and Exchange Commission
International Accounting Standards Committee
International Auditing Standards Committee
Financial Accounting Standards Board
The assumption that requires that only those things that can be expressed in money are included in the accounting records is the
economic entity assumption
monetary unit assumption
going concern assumption.
periodicity assumption
What is the total amount of property, plant, and equipment that will appear on the balance sheet?
$2,250,000
$1,950,000
$2,700,000
$1,725,000
The relationship between current assets and current liabilities is important in evaluating a company's
liquidity
profitability.
market value
solvency.
N3 Corporation has assets of $4,200,000, common stock of $1,092,000, and retained earnings of $665,000. What are the creditors’ claims on their assets (liabilities)?
$3,773,000
$1,757,000
$2,443,000
$4,627,000
The agency of the United States Government that oversees the U.S. financial markets is the
Internal Revenue Service
Security Exchange Commission.
Financial Accounting Standards Board.
International Auditing Standards Committee.
The two fundamental qualities of useful information are
relevance and faithful representation
verifiability and timeliness
comparability and flexibility.
understandability and consistency
Ratios that measure the income or operating success of a company for a given period of time are
profitability ratios
solvency ratios.
liquidity ratios.
trending ratios.
The accounting concept that indicates assets should be reported at the price that would be received to sell an asset is the
economic entity assumption.
monetary unit assumption.
fair value principle.
historical cost principle.
The operating cycle of a company is the average time that is required to go from cash to
inventory in producing revenues
cash in producing revenues.
accounts receivable in producing revenues.
sales in producing revenues.
A liquidity ratio measures the
percentage of total financing provided by creditors.
ability of a company to survive over a long period of time.
short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.
income or operating success of a company over a period of time
Which of the following is a constraint in accounting
Comparability
Cost
Consistency
Relevance
Which statement about an account is true?
The left side of an account is the credit or decrease side.
There are separate account for specific assets and liabilities but only one account for stockholders’ equity items
An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders’ equity items.
In its simplest form, an account consists of two parts.
An accounting record that includes a list of accounts and their balances at a given time is called a
chart of accounts.
general ledger.
trial balance.
general journal.
The payment of a liability:
decreases assets and increases liabilities.
increases assets and decreases liabilities.
decreases assets and liabilities.
decreases assets and stockholders' equity.
The normal balance of any account is the
right side.
left side.
side which increases that account.
side which decreases that account.
The usual sequence of steps in the transaction recording process is
journalize, analyze, post to the ledger.
journalize, post to the ledger, analyze.
analyze, journalize, post to the ledger.
post to the ledger, journalize, analyze.
Comstock Company provided consulting services and billed the client $2,500. As a result of this event,
assets increased by $2,500.
Both assets (Accts Rec.) and equity (Revenue) increased by $2,500.
total assets remained unchanged.
equity increased by $2,500
For the basic accounting equation to stay in balance, each transaction recorded must
affect the same number of asset and liability accounts
affect two or less accounts.
always affect exactly two accounts.
affect two or more accounts.
Debits
decrease both assets and liabilities.
increase assets and decrease liabilities
increase both assets and liabilities.
decrease assets and increase liabilities.
In recording an accounting transaction in a double-entry system,
there must always be entries made on both sides of the accounting equation.
the number of debit accounts must equal the number of credit accounts.
there must only be two accounts affected by any transaction.
the amount of the debits must equal the amount of the credits.
The purpose of the ledger is to
keep in one place all information about changes in specific account balances.
make sure that all assets, liabilities, etc., have normal balances at all times.
record chronologically the day's transactions.
keep a record of documentation to support each transaction.
If a company buys a $700 machine on account, this transaction will affect the
income statement and retained earnings statement only.
balance sheet only.
income statement, retained earnings statement, and balance sheet.
income statement only.
Collection of a $600 Accounts Receivable
increases an asset $600; decreases an asset $600.
decreases a liability $600; increases stockholders’ equity $600.
increases an asset $600; decreases a liability $600.
decreases an asset $600; decreases a liability $600.
A trial balance would only help in detecting which one of the following errors?Hint: Limitations of Trial Balance
Offsetting errors made in recording the transaction
A journal entry that is posted twice
A transaction that is not journalized
A transposition error when transferring the debit side of journal entry to the ledger
An investment by the stockholders in a business increases
assets only.
assets and liabilities.
assets and stockholders’ equity.
liabilities and stockholders’ equity.
Courtney Company purchased equipment for $1,800 cash. As a result of this event,
total assets remained unchanged.
assets increased by $1,800.
Both assets and equity decreased by $1,800
equity decreased by $1,800.
A ledger
contains only asset and liability accounts.
should show accounts in alphabetical order.
is a collection of the entire group of accounts (and the changes in their balances) maintained by a company.
provides a chronological record of transactions.
Posting is performed by transferring information from the
ledger to the journal.
journal to the ledger.
source documents to the journal.
source documents to the ledger.
A journal
provides a chronological record of transactions.
should show accounts in alphabetical order.
contains only asset and liability accounts.
is a collection of the entire group of accounts maintained by a company.
The primary purpose of the trial balance is to
make sure a journal entry is not posted twice.
transfer journal entries to the ledger accounts.
disclose the complete effect of a transaction in one place.
prove the equality of the debit and credit amounts after posting.
All of the following are characteristics of every accounting information system except it is a system
that processes transaction data.
of data storage hardware for the chart of accounts.
that collects transaction data.
that communicates financial information to decision makers.
An adjusted trial balance:
proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made and is used in the preparation of financial statements.
is a required financial statement under generally accepted accounting principles.
is prepared after the financial statements are completed.
cannot be used to prepare financial statements.
The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is:
contra asset.
prepayment.
asset.
accrued.
The closing entry process consists of closing:
all permanent accounts.
all temporary accounts.
all asset and liability accounts.
out the Retained Earnings account.
The purpose of the post-closing trial balance is to:
prove the equality of the permanent account balances that are carried forward into the next accounting period.
list all the balance sheet accounts in alphabetical order for easy reference.
prove that no mistakes were made.
prove the equality of the temporary account balances that are carried forward into the next accounting period.
Why do generally accepted accounting principles require the application of the revenue recognition principle?
Failure to apply the revenue recognition principle could lead to a misstatement of revenue.
It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.
Recording revenue when cash is received is an objective application of the revenue recognition principle.
Accounting software has made the revenue recognition easy to apply.
Adjusting entries are made to ensure that:
expenses are recognized in the period in which they are incurred.
revenues are recorded in the period in which the performance obligation is satisfied.
balance sheet and income statement accounts have correct balances at the end of an accounting period.
All of these answer choices are correct.
Otto’s Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?
August 31
August 1
September 5
September 6
Choose the correct order of the accounting cycle:
Analyze, Journalize, Post to Ledger Accounts, Trial Balance, Adjusting Entries, Adjusted Trial Balance, Closing Entries, Financial Statements, Post Closing Trial Balance.
Analyze, Journalize, Post to Ledger Accounts, Trial Balance, Adjusting Entries, Adjusted Trial Balance, Financial Statements, Closing Entries, Post Closing Trial Balance.
Analyze, Journalize, Post to Ledger Accounts, Trial Balance, Adjusting Entries, Adjusted Trial Balance, Closing Entries, Post Closing Trial Balance, Financial Statements.
Journalize, Analyze, Post to Ledger Accounts, Trial Balance, Adjusting Entries, Adjusted Trial Balance, Closing Entries, Financial Statements, Post Closing Trial Balance.
Expenses are recognized when:
they contribute to the production of revenue.
they are paid
they are billed by the supplier.
the invoice is received.
La More Company had the following transactions during 2021:
Sales of $9,000 on account for services performed
Collected $4,000 for services to be performed in 2022
Paid $3,750 cash in salaries for 2021
Purchased airline tickets for $500 in December for a trip to take place in 2022
What is La More's 2021 net income using accrual accounting?
$5,750
$9,750
$9,250
$5,250
Each of the following companies is a merchandising company except a
wholesale parts company.
furniture store.
candy store.
moving company.
The operating cycle of a merchandising company is
ordinarily longer than that of a service company.
about the same as that of a service company.
ordinarily shorter than that of a service company
always one year in length.
Gross profit equals the difference between
net income and operating expenses.
sales revenue and cost of goods sold
sales revenue and cost of goods sold plus operating expenses.
sales revenue and operating expenses.
Which of the following expressions is incorrect?
Gross profit - Operating expenses = Net income
Sales revenue - Cost of goods sold - Operating expenses = Net income
Operating expenses - Cost of goods sold = Gross profit
Net income + Operating expenses = Gross profit
In a perpetual inventory system, cost of goods sold is recorded
on a monthly basis
on a daily basis.
on an annual basis
each time a sale occurs.
Inventory becomes part of cost of goods sold when a company
pays for the inventory.
receives payment from the customer.
sells the inventory.
purchases the inventory.
A company using a perpetual inventory system that returns goods previously purchased on credit would
debit Cash and credit Accounts Payable
debit Accounts Payable and credit Purchases.
debit Accounts Payable and credit Inventory.
debit Sales and credit Accounts Payable.
If a purchaser using a perpetual inventory system pays the transportation costs for goods purchased, then the
Inventory account is increased.
Freight-Out account is increased.
Delivery Expense account is increased.
Inventory account is not affected.
Freight costs incurred by a seller on merchandise sold to customers will cause an increase
in operating expenses for the seller
to the cost of goods sold of the seller.
to a contra-revenue account of the seller
in the selling expenses of the buyer.
Tony's Market recorded the following events involving a recent purchase of inventory:
Received goods for $80,000, terms 2/10, n/30.
Returned $1,600 of the shipment for credit.
Paid $400 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company's inventory
increased by $76,832
increased by $77,232
increased by $78,800.
increased by $77,224.
Of the following companies, which one would not likely employ the specific identification method for inventory costing?
Hardware store
Antique shop
Farm implement dealership
Music store specializing in organ sales
The situation that requires a departure from the cost basis of accounting to the lower-of- cost-or-net-realizable-value basis in valuing inventory is necessitated by
an increase in the value of the inventory.
a desire for more profit.
a decline in the value of the inventory.
an increase in selling price.
Which of the following should not be included in the physical inventory of a company?
Goods in transit from another company shipped FOB shipping point.
Goods held on consignment from another company.
All of these answer choices should be included.
Goods shipped on consignment to another company.
Cost of goods available for sale is equal to:
Ending inventory plus cost of goods sold
Beginning inventory plus purchases
Beginning inventory plus cost of goods sold
Ending inventory plus purchases
3 and 1
1 and 2
4 and 3
2 and 4
Tidwell Company's goods in transit at December 31 include sales made
(1) FOB destination
(2) FOB shipping point
and purchases made
(3) FOB destination
(4) FOB shipping point.
Which items should be included in Tidwell's inventory at December 31?
(2) and (3)
(1) and (4)
(1) and (3)
(2) and (4)
An assumption about cost flow is used
only when the flow of goods cannot be determined.
because prices usually change, and tracking which units have been sold is difficult
even when there is no change in the purchase price of inventory.
because it is required by the income tax regulation.
The selection of an appropriate inventory cost flow assumption for an individual company is made by
management.
the SEC.
the internal auditors.
the external auditors.
The LIFO inventory method assumes that the cost of the latest units purchased is
the first to be allocated to ending inventory.
the last to be allocated to cost of goods sold.
the first to be allocated to cost of goods sold.
not allocated to cost of goods sold or ending inventory.
When is a physical inventory usually taken?
When the company has its greatest amount of inventory.
At the end of the company’s fiscal year.
When goods are not being sold or received.
When the company has its greatest amount of inventory and at the end of the company's fiscal year.
Goods held on consignment are
kept for sale on the premises of the consignor.
included in the consignee's ending inventory.
never owned by the consignee.
included as part of no one's ending inventory.
Which of the following statements is correct with respect to inventories?
Under FIFO, the ending inventory is based on the latest units purchased.
FIFO seldom coincides with the actual physical flow of inventory.
It is generally good business management to sell the most recently acquired goods first.
The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
Which one of the following would not cause a bank to debit a depositor's account?
Wiring of funds to other locations
Collection of a note receivable
Bank service charge
Checks marked NSF
Which of the following is not a basic principle of cash management?
Delay payment of liabilities.
Increase the speed of collection on receivables
Keep inventory levels low
Maintain idle cash.
A company maintains the asset account, Cash in Bank, on its books, while the bank maintains a reciprocal account that is
a stockholders' equity account
a liability account
also an asset account
a contra asset account
Restricted cash should be reported
separately on the income statement
always as a noncurrent asset
separately on the balance sheet
always as a current asset
What causes the balance on the bank statement to differ from the cash balance in the general ledger?
Time lags, and errors by the bank or company
Errors by the company only
Time lags only
Errors by the bank only
All of the following are examples of internal control procedures except
insisting that employees take vacations
using prenumbered documents
customer satisfaction surveys
reconciling the bank statement
Which of the following is not one of the main factors that contribute to fraudulent activity?
Financial pressure.
Opportunity
Incompatible duties.
Rationalization
Which one of the following is not an objective of a system of internal controls?
Safeguard company assets
Overstate liabilities in order to be conservative
Reduce the risks of errors
Enhance the accuracy and reliability of accounting records
Which item is a current asset?
Cash equivalents
Cash that will be used to close a plant in eighteen months
Restricted cash that will not be used within the upcoming year
Cash – regardless of whether it has a positive or negative balance
Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?
Only one individual
An individual and his/her supervisor
Everyone in the organization
The CEO
Receivables are
claims that are expected to be collected in cash.
shown on the income statement at cash realizable value.
always the result of revenue recognition.
one of the most liquid assets and thus are always considered current assets.
Two methods of accounting for uncollectible accounts are the
direct write-off method and the allowance method
allowance method and the net realizable method.
direct write-off method and the accrual method
allowance method and the accrual method.
When an account becomes uncollectible and must be written off
Sales Revenue should be debited.
Bad Debt Expense should be credited.
Allowance for Doubtful Accounts should be credited.
Accounts Receivable should be credited.
The Allowance for Doubtful Accounts is necessary because
uncollectible accounts that are written off must be accumulated in a separate account.
management needs to accumulate all the credit losses over the years.
when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.
a liability results when a credit sale is made.
When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when
a sale is made.
management estimates the amount of uncollectible accounts.
an account becomes bad and is written off.
a customer's account becomes past due.
When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded
in the same year as the credit sale.
as each credit sale is made.
in the year after the credit sale is made.
when an account is written off as uncollectible.
The two key parties to a promissory note are the
maker and a bank.
debtor and the payee.
sender and the receiver.
maker and the payee.
To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a
debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
debit to Loss on Credit Sales and a credit to Accounts Receivable.
debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
A high accounts receivable turnover ratio indicates
the company's sales are increasing.
customers are making payments very quickly.
a large proportion of the company's sales are on credit.
customers are making payments slowly.
Which one of the following is not a principle of sound accounts receivable management?
Determine to whom to extend credit.
Monitor collections.
Delay cash receipts from receivables if necessary.
Determine a payment period.
All of the following statements are false regarding depreciation except
depreciation does not apply to land improvements
depreciation does not apply to land
recognizing depreciation results in the accumulation of cash for asset replacement
depreciation is an asset valuation process
Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?
Cost
Estimated useful life
Cash needed to replace the plant asset
Salvage value
The balance in the Accumulated Depreciation account represents the
amount charged to expense since the acquisition of the plant asset
cash fund to be used to replace plant assets.
amount to be deducted from the cost of the plant asset to arrive at its fair market value.
amount charged to expense in the current period.
Intangible assets are the rights and privileges that result from ownership of long-lived assets that
do not have physical substance.
have been exchanged at a gain.
are depreciated over their useful life.
must be generated internally.
Plant assets are ordinarily presented in the balance sheet
at replacement costs.
in a separate section along with intangible assets.
at current market values.
at cost less accumulated depreciation.
A loss on disposal of a plant asset is reported in the financial statements
in the Other Expenses and Losses section of the income statement.
in the Other Revenues and Gains section of the income statement.
as a direct increase to the capital account on the balance sheet
as a direct decrease to the capital account on the balance sheet
Cost allocation of an intangible asset is referred to as
amortization.
depreciation
capitalization
rationalization
The four subdivisions of plant assets are
land, land improvements, buildings, and equipment.
property, plant, equipment, and land
furnishings and fixtures, land, buildings, and equipment.
intangibles, land, buildings, and equipment.
A gain or loss on disposal of a plant asset is determined by comparing the
book value of the asset with the proceeds received from its sale.
original cost of the asset with the proceeds received from its sale.
book value of the asset with the asset's original cost
replacement cost of the asset with the asset's original cost.
The book value of an asset is equal to the
asset's cost less accumulated depreciation
replacement cost of the asset.
asset's fair value less its historical cost.
blue book value relied on by secondary markets.
As interest is recorded on an interest-bearing note, the Interest Expense account is
increased; the Notes Payable account is increased
increased; the Interest Payable account is increased
increased; the Notes Payable account is decreased
decreased; the Interest Payable account is increased
Liquidity ratios measure a company's
operating cycle.
short-term debt paying ability.
long-range solvency.
revenue-producing ability.
A current liability is a debt that can reasonably be expected to be paid
within one year, or the operating cycle, whichever is longer
out of currently recognized revenues
out of cash currently on hand.
between 6 months and 18 months
The current portion of long-term debt should
be reclassified as a current liability
not be separated from the long-term portion of debt.
be paid immediately
be classified as a long-term liability
A measure of a company's solvency is the
asset turnover ratio.
current ratio
acid-test ratio.
debt to asset ratio
Unearned Rent Revenue is
debited when rent is received in advance
a revenue account.
reported as a current liability.
a contra account to Rent Revenue.
Failure to record a liability will probably
have no effect on net income
result in overstated total assets
result in overstated total liabilities and owner's equity
result in an overstated net income
A retailer that collects sales taxes is acting as an agent for the
taxing authority.
customer.
wholesaler.
chamber of commerce.
Interest expense on an interest-bearing note is
always equal to zero
only recorded at maturity when the note is paid
only recorded at the time the note is issued.
accrued over the life of the note
The amount of sales tax collected by a retail store when making sales is
a current liability.
recorded as an operating expense.
a miscellaneous revenue for the store.
not recorded because it is a tax paid by the customer.
Par value
represents the original selling price for a share of stock.
is the value assigned per share in the corporate charter.
is established for a share of stock after it is issued.
represents what a share of stock is worth
The net effects on the corporation of the declaration and payment of a cash dividend are to
increase stockholders' equity and decrease liabilities.
decrease assets and decrease stockholders' equity.
decrease liabilities and decrease stockholders' equity.
increase assets and increase stockholders' equity.
Which of the following is not a right or preference associated with preferred stock?
Preference to corporate assets in case of liquidation.
To receive dividends in arrears before common stockholders receive dividends.
First claim to dividends.
The right to vote.
Alt Corp. issues 5,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:
Common Stock $50,000 and Paid-in Capital in Excess of Stated Value $20,000.
Common Stock $70,000.
Common Stock $50,000 and Retained Earnings $20,000.
Common Stock $50,000 and Paid-in Capital in Excess of Par Value $20,000.
Treasury stock is
stock purchased by a corporation and held as an investment in its treasury.
stock issued by the U.S. Treasury Department.
a corporation's own stock, which has been reacquired and held for future use
corporate stock issued by the treasurer of a company.
The date on which a cash dividend becomes a binding legal obligation is on the
last day of the fiscal year-end
payment date.
declaration date.
date of record.
The amount of stock that may be issued according to the corporation's charter is referred to as the
issued stock.
unissued stock.
authorized stock.
outstanding stock.
Which of the following statements about treasury stock is true?
Companies acquire treasury stock to decrease earnings per share
Few corporations have treasury stock.
Companies acquire treasury stock to increase the number of shares outstanding.
Purchasing treasury stock is done to eliminate hostile shareholder buyouts.
A corporation purchases 20,000 shares of its own common stock for $35 per share. What will be the effect on total stockholders' equity?
Decrease by $400,000.
Decrease by $300,000.
Decrease by $700,000.
Increase by $700,000.
On the dividend record date,
Dividends Payable is debited
a dividend becomes a current obligation.
an entry may be required if it is a stock dividend.
no entry is required.
