TRUE/FALSE QUESTIONS 5 POINTS
TRUE/FALSE QUESTIONS 5 POINTS
1. A liability is classified as a current liability if it is to be paid within the coming year.
True False
2. The main difference between intangible assets and property, plant and equipment is the length of the asset’s life.
True False
3. GAAP stands for generally accepted accounting procedures.
True False
4. If a building is offered for sale at $100,000 and the buyer pays $95,000 cash for it, the buyer would record the building at $100,000.
True False
5. The economic entity assumption states that assets should be recorded at their cost.
True False
6. The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is earned.
True False
7. Applying accrual accounting results in a more accurate measurement of net income for the period than does cash basis accounting.
True False
8. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.
True False
9. The cash basis of accounting is not in accordance with generally accepted accounting principles.
True False
10. Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.
True False
MULTIPLE CHOICE QUESTIONS 10 POINTS
1. One of the two constraints in accounting is
a. comparability.
b. materiality.
c. reliability.
d. relevance.
2. 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. going concern assumption.
c. monetary unit assumption.
d. time period assumption.
3. All of the following are intangible assets except
a. patents.
b. land improvements.
c. goodwill.
d. franchises.
4. 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. Segregation of duties
c. Establishment of responsibility
d. Independent internal verification
5. Larken Company's records show the following for the month of January:
Total Retained Earnings at January 1 $400,000
Total Retained Earnings at January 31 500,000
Total Revenues 670,000
Total Dividends Declared 40,000
Total expenses for January were
a. $740,000.
b. $770,000.
c. $570,000.
d. $530,000.
6. Petson Company's financial information is presented below.
Sales $ ???? Purchase Returns and Allowances $ 15,000
Sales Returns and Allowances 30,000 Ending Merchandise Inventory 35,000
Net Sales 250,000 Cost of Goods Sold 180,000
Beginning Merchandise Inventory ???? Gross Profit ????
Purchases 170,000
The missing amounts above are:
Sales Beginning Inventory Gross Profit
a. $280,000 $45,000 $70,000
b. $220,000 $45,000 $100,000
c. $280,000 $60,000 $70,000
d. $220,000 $60,000 $100,000
7. The primary accounting standard-setting body in the United States is the
a. Securities and Exchange Commission.
b. Accounting Principles Board.
c. Financial Accounting Standards Board.
d. Internal Revenue Service.
8. Which of the following would not be included in the operating activities section of a statement of cash flows?
a. Cash inflows from returns on loans (i.e., interest)
b. Cash inflows from returns on equity securities (i.e., dividends)
c. Cash outflows to governments for taxes
d. Cash outflows to reacquire treasury stock
9. Which of the following should be classified as an extraordinary item?
a. Effects of major casualties not infrequent in the area
b. Write-off of a significant amount of receivables
c. Loss from the expropriation of facilities by a foreign government
d. Losses due to a bitter, lengthy labor strike
10. The revenue recognition principle dictates that revenue should be recognized in the accounting records
a. when cash is received.
b. when it is earned.
c. at the end of the month.
d. in the period that income taxes are paid.
11. Javier’s Tune-Up Shop follows the revenue recognition principle. Javier services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Javier on September 5. Javier receives the check in the mail on September 6. When should Javier show that the revenue was earned?
a. August 31
b. August 1
c. September 5
d. September 6
12. A company spends $20 million dollars for an office building. Over what period should the cost be written off?
a. When the $20 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $20 million in revenue is earned
13. The following is selected information from J Corporation for the fiscal year ending October 31, 2007.
Cash received from customers $300,000
Revenue earned 350,000
Cash paid for expenses 170,000
Cash paid for computers on November 1, 2006 that will be used for 3 years
48,000
Expenses incurred, not including any depreciation 200,000
Proceeds from a bank loan, part of which was used to pay for the computers
100,000
Based on the accrual basis of accounting, what is J Corporation’s net income for the year ending October 31, 2007?
a. $114,000
b. $134,000
c. $82,000
d. $150,000
Use the following information to answer questions 14 and 15.
Renfro Company had the following transactions during 2006.
• Sales of $5,400 on account
• Collected $2,400 for services to be performed in 2007
• Paid $750 cash in salaries
• Purchased airline tickets for $300 in December for a trip to take place in 2007
14. What is Renfro’s 2006 net income using accrual accounting?
a. $4,650
b. $7,050
c. $6,750
d. $4,350
15. What is Renfro’s 2006 net income using cash basis accounting?
a. $7,050
b. $1,650
c. $6,750
d. $1,350
Use the following information to answer questions 16–20:
Cain Auto Supplies
Balance Sheet
December 31, 2007
Cash $ 50,000 Accounts Payable $ 55,000
Prepaid Insurance 30,000 Salaries Payable 10,000
Accounts Receivable 40,000 Mortgage Payable 90,000
Inventory 70,000 Total Liabilities $155,000
Land held for investment 80,000
Land 75,000
Building $110,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000
Depreciation (20,000) 90,000 Total stockholders’ equity $370,000
Trademark 70,000 Total Liabilities and
Total Assets $525,000 Stockholders’ Equity $525,000
16. The total dollar amount of assets to be classified as current assets is
a. $270,000.
b. $120,000.
c. $190,000.
d. $130,000.
17. The total dollar amount of assets to be classified as property, plant, and equipment is
a. $335,000.
b. $255,000.
c. $205,000.
d. $165,000.
18. The total dollar amount of assets to be classified as investments is
a. $0.
b. $155,000.
c. $80,000.
d. $185,000.
19. The total amount of working capital is
a. $205,000.
b. $125,000.
c. $50,000.
d. $80,000.
20. The current ratio is
a. 1.85 : 1.
b. 2.92 : 1.
c. 4.15 : 1.
d. 1.07 : 1.
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