Accounting Packet BMultiple ChoiceIdentify the choice that best completes the statement or answers the question.____1. The communication stage of accounting is accomplished bya. storing data.b. reporting to decision makers.

Accounting Packet B
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____

1. The communication stage of accounting is accomplished by
a. storing data.
b. reporting to decision makers.
c. processing data.
d. recording data.

____

2. Which of the following transactions does not involve an exchange of value?
a. Payment of a debt
b. Purchase of a building on credit
c. Borrowing money
d. Loss from theft

____

3. Which of the following forms of organization are considered to be separate entities by accountants?
a. Partnerships only
b. Sole proprietorships only
c. Corporations only
d. Sole proprietorships, partnerships, and corporations

____

4. Standards for state and local governments are established by the
a. IRS.
b. IASB.
c. GASB.
d. AICPA.

____

5. An auditor maintains no direct financial interest in the company he or she is auditing. The principle being
followed is
a. independence.
b. integrity.
c. objectivity.
d. due care.

____

6. When a business reports an asset at an inflated dollar amount, it has violated the measurement issue of
a. recognition.
b. valuation.
c. classification.
d. realization.

____

7. A purchase is recognized in the accounting records when
a. payment is made for the item purchased.
b. the purchase requisition is sent to the purchasing department.
c. title transfers from the seller to the buyer.
d. the buyer receives the seller's bill.

____

8. The withdrawal of cash by the owner will
a. decrease net income..
b. increase liabilities.
c. not affect total assets

d. decrease owner's equity.
____

9. Which of the following gives the correct sequence of accounting procedures?
a. Financial statements, trial balance, ledger, journal
b. Financial statements, journal, ledger, trial balance
c. Journal, ledger, trial balance, financial statements
d. Ledger, trial balance, journal, financial statements

____ 10. The general journal does not have a column titled
a. Description.
b. Account Balance.
c. Date.
d. Post. Ref.
____ 11. Which of the following terms does not mean the same as the others?
a. Footing
b. Folio
c. LP
d. Post. Ref.
____ 12. The Post. Ref. column in the general journal is used to show that an amount has been posted to the ledger
when which of the following is placed in it?
a. An X
b. Journal number
c. Journal page number
d. Account number
____ 13. Which of the following accounts probably would be listed before the others in a chart of accounts?
a. Insurance Expense
b. Grace Peterson, Withdrawals
c. Notes Payable
d. Accumulated Depreciation, Buildings
____ 14. When a credit sale takes place,
a. a revenue account will increase.
b. liabilities will increase.
c. one asset account will increase and another will decrease.
d. assets will be unaffected.
____ 15. Retailers often end their fiscal years .
a. during the slack season
b. during the peak of the busy season.
c. at different times each year, depending on the tax consequences.
d. on June 30.
____ 16. Which of the following is an application of accrual accounting?
a. Depreciating a building as quickly as allowed by income tax regulations
b. Recording utilities expense in the accounting period covered by the monthly bill
c. Expensing a machine in its entirety when purchased
d. Recording revenue at the time payment is received
____ 17. Which of the following is a condition required by the SEC for the recognition of revenue?
a. Completion of goods manufactured

b. Execution of a promissory note
c. Price in excess of $100
d. Reasonable assurance of collection
____ 18. Use this information to answer the following question.
The trial balance for Sanchez Company appears as follows:
Sanchez Company
Trial Balance
December 31, 2010
Cash
Accounts Receivable
Prepaid Insurance
Supplies
Office Equipment
Accumulated DepreciationOffice Equipment
Accounts Payable
Maria Sanchez, Capital
Service Revenue
Salaries Expense
Rent Expense

$ 200
500
50
150
400
$ 200
300
600
500
100
200
$1,600

______
$1,600

If on December 31, 2010, the insurance still unexpired amounted to $20, the adjusting entry would contain a
a.
b.
c.
d.

debit to Prepaid Insurance for $30.
credit to Prepaid Insurance for $30
debit to Insurance Expense for $20.
credit to Prepaid Insurance for $20.

____ 19. Use this information pertaining to Salvino Company to answer the following question.
1.The corporation's Store Supplies account showed a beginning debit balance of $200 and supplies purchased
of $800. There were $300 of supplies on hand at year end.
2.Depreciation on a building is estimated to be $5,000.
3.A one-year insurance policy was purchased for $2,000. Three months have passed since the purchase.
4.Accrued interest on a note receivable amounted to $100.
5.The company received a $3,600 advance payment during the year on services to be performed. By the end
of the year, one-fourth of the services had been performed.
The adjusting entry for depreciation on the building is
a. Depreciation Expense – Building
5,000
Accumulated Depreciation – Building
5,000
b. Accumulated Depreciation – Building 5,000
Depreciation Expense – Building
5,000
c. Building,
5,000
Depreciation Expense – Building
5,000
d. Accumulated Depreciation – Building 5,000
Building
5,000
____ 20. Which of the following accounts is not closed during the closing process?
a. Owner's Capital

b. Commissions Earned
c. Income Summary.
d. Withdrawals
____ 21. After all closing entries have been posted, which of the following accounts is most likely to have a nonzero
balance?
a. Interest Expense
b. Wages Payable
c. Service Revenue
d. Income Summary
____ 22. The owner's Capital, Withdrawals, and Income Summary accounts for Laurel Repair Company for the
accounting period are presented below in T account form after the recording and posting of closing entries:

12/31

12/31
12/31

Fran Laurel, Capital
200
1/1
12/31

Fran Laurel Summary
500
12/31
400

2,000
400

3/1
6/1
9/1
12/31

Fran Laurel, Withdrawals
50
12/31
50
50
50

200

900

The total amount of expenses for the period is
a. $200.
b. $400.
c. $900.
d. $500.
____ 23. In preparing closing entries, which of the following columns of the work sheet are the most helpful?
a. Adjusted Trial Balance columns
b. Income Statement columns
c. Adjustments columns
d. Balance Sheet columns
____ 24. The post-closing trial balance contains
a. neither real accounts nor nominal accounts.
b. nominal accounts only.
c. real accounts only.
d. both real accounts and nominal accounts.
____ 25. Which of the following accounts might appear in the adjusted trial balance but not in the post-closing trial
balance?
a. Depreciation ExpenseEquipment
b. Owner's Capital

c. Unearned Revenue
d. Income Summary
____ 26. An amount would not appear opposite the Withdrawals account in which of the following work sheet
columns?
a. Trial Balance
b. Income Statement
c. Balance Sheet
d. Adjusted Trial Balance
____ 27. All the following are standards of accounting information except
a. flexibility.
b. reliability.
c. understandability.
d. relevance.
____ 28. The Securities and Exchange Commission instituted rules requiring the chief executive officers and chief
financial officers of all publicly traded companies to certify that, to their knowledge, the quarterly and annual
statements that their companies file with the SEC are
a. 100 percent accurate and contain no misstatements, errors, or mistakes.
b. accurate and complete.
c. subject to interpretation due to the many accounting rules and regulations.
d. not to be used except by individuals working for the company.
____ 29. Which of the following accounting conventions would an accountant most likely apply when facing major
uncertainties?
a. Full disclosure
b. Conservatism
c. Materiality
d. Consistency
____ 30. Which accounting convention requires a note to the financial statements explaining the company's method of
revenue recognition?
a. Comparability and consistency
b. Materiality
c. Conservatism
d. Full disclosure
____ 31. Goodwill would appear in which balance sheet section?
a. Investments
b. Property, plant, and equipment
c. Current assets
d. Intangible assets
____ 32. Interest expense on a mortgage would be classified on a multistep income statement under the heading
a. general and administrative expenses.
b. selling expenses.
c. cost of goods sold.
d. other revenues and expenses.
____ 33. The debt to equity ratio equals
a. owner's equity divided by total liabilities.
b. owner's equity divided by long-term liabilities.

c. total liabilities divided by owner's equity.
d. current liabilities divided by average owner's equity.
____ 34. Use this balance sheet and income statement to answer the following question. Use ending balances whenever
average balances are required for computing ratios.
Abner Systems
Balance Sheet
December 31, 2010
Assets
Current assets
Investments
Property, plant, and equipment
Intangible assets

$ 8,874
1,000
5,126
5,000

Total assets

$20,000

Liabilities
Current liabilities
Long-term liabilities
Total liabilities
Owner's Equity
Dale Abner, Capital
Total liabilities and
owner's equity

$ 4,000
1,000
$ 5,000
15,000
$20,000

Abner Systems
Income Statement
For the Year Ended December 31, 2010
Net sales
Cost of goods sold
Gross margin
Operating expenses
Net income

$24,000
8,000
$16,000
11,200
$ 4,800

The current ratio for Abner Systems is
a. 0.75.
b. 1.00.
c. 1.13.
d. 2.22.
____ 35. Use this balance sheet and income statement to answer the following question. Use ending balances whenever
average balances are required for computing ratios.
Abner Systems
Balance Sheet
December 31, 2010
Assets
Current assets
Investments
Property, plant, and equipment
Intangible assets

$ 6,000
1,000
8,000
5,000

Liabilities
Current liabilities
Long-term liabilities
Total liabilities
Owner's Equity
Dale Abner, Capital
Total liabilities and

$ 4,000
1,000
$ 5,000
15,000

Total assets

$20,000

owner's equity

$20,000

Abner Systems
Income Statement
For the Year Ended December 31, 2010
Net sales
Cost of goods sold
Gross margin
Operating expenses
Net income

$24,000
8,000
$16,000
11,200
$ 4,800

The return on assets for Abner Systems is
a. 30 percent.
b. 150 percent.
c. 33-1/3 percent.
d. 24 percent.
____ 36. Which of the following does not include net income in its computation?
a. Debt to equity ratio
b. Return on assets
c. Return on equity
d. Profit margin
____ 37. Which of the following does not represent a sale?
a. Merchandise placed aside for a customer who plans to come in next week and pay with
cash
b. Purchase of merchandise by a customer who pays cash
c. Sale of merchandise to a customer who uses a credit card
d. Purchase of merchandise by a customer who uses a debit card
____ 38. Which of the following companies would be most likely to use a computerized perpetual inventory system?
a. Fur dealer
b. Car dealership
c. Auto parts store
d. Boat dealership
____ 39. Which of the following goods would not be included in merchandise inventory for a purchasing company?
a. Goods in transit shipped FOB shipping point
b. Goods on hand in the showroom
c. Goods in transit shipped FOB destination
d. Goods ordered and received from the supplier
____ 40. The entry to record a $750 sale with terms of 2/10, n/30 would include a(n)
a. decrease to Accounts Receivable for $750.
b. increase to Sales for $750.
c. increase to Sales Discounts for $15.
d. decrease to Sales for $735.
____ 41. Goods totaling $7,000 purchased February 2 on terms of 2/10, n/30 and on which returns of $1,000 were
made on February 10 would be subject to which of the following discounts if paid for on February 12?

a.
b.
c.
d.

$120
$140
$160
$20

____ 42. Under the perpetual inventory system, which of the following accounts would not be used?
a. Cost of Goods Sold
b. Merchandise Inventory
c. Sales
d. Purchases
____ 43. The amount of cost of goods available for sale during the year depends on the amounts of
a. beginning merchandise inventory, net cost of purchases, and ending merchandise
inventory.
b. beginning merchandise inventory and cost of goods sold.
c. beginning merchandise inventory, cost of goods sold, and ending merchandise inventory.
d. beginning merchandise inventory and net cost of purchases.
____ 44. Which of the following is not considered in computing net cost of purchases?
a. Freight-out expenses
b. Purchases
c. Freight paid on purchased goods
d. Purchases returns and allowances
____ 45. Use this information to answer the following question.
Account Name
Sales
Sales Returns and Allowances
Purchases
Purchases Returns and Allowances
Freight-In
Selling Expenses
General and Administrative Expenses

Debit

Credit
293,000

10,000
68,000
8,000
12,000
30,000
110,000

In addition, beginning merchandise inventory was $22,000 and ending merchandise inventory was $14,000.
Net income for the period was
a. $173,000.
b. $93,000.
c. $63,000.
d. $203,000.
____ 46. Feathertouch Company sold merchandize worth $800 on credit, terms n/15. The merchandize sold had cost
$550. What is the required journal entry to record the transaction and to transfer the cost of merchandize
inventory to cost of goods sold under the periodic inventory system?
a. Accounts Receivables
800
Sales
800
No entry for transfer to cost of goods sold.
b. Sales
Accounts Receivables

800
800

Merchandize Inventory
Cost of Goods Sold

550
550

c. Accounts Receivables
Merchandize Inventory
Cost of Goods Sold
Merchandize Inventory
d. Merchandize Inventory
Sales
Cost of Goods Sold
Merchandize Inventory

800
800
250
250
800
800
550
550

____ 47. The consistency convention requires that
a. a company use the same independent auditors year after year.
b. all companies operating in the same industry use the same accounting methods.
c. the selection of a company's accounting policies be disclosed in its financial statements.
d. a company use the same accounting procedures year after year.
____ 48. Which of the following should be reported net of the related income tax effect on the income statement?
a. Loss due to a discontinued segment of a business
b. Sale of a temporary investment at a loss
c. Loss due to shoplifting
d. Sale of an inventory item at a loss
____ 49. The purpose of a statement of stockholders' equity is to
a. disclose the computation of book value per share of stock.
b. budget the transactions expected to occur during the forthcoming period.
c. replace the statement of retained earnings.
d. summarize the changes in the components of stockholders' equity for a period of time.
____ 50. At the beginning of 2010, Helms Corporation had 34,000 shares of $10 par value common stock issued and
outstanding. During January 2010, Helms declared and distributed a 10 percent stock dividend. The market
value of Helms's stock was $24 throughout the month of January. The entry to be recorded for the declaration
of stock dividend is
a. Stock Dividends
Common Stock Distributable
Additional Paid-in Capital

81,600

b. Common Stock Distributable
Common Stock

81,600

c. Common Stock Distributable
Common Stock
Retained Earnings

81,600

d. Stock Dividends
Cash

68,000

34,000
47,600
81,600
34,000
47,600

____ 51. A small stock dividend should be recorded on the basis of
a. par or stated value.

68,000

b. original issue price.
c. market value.
d. cost.
____ 52. Royer Corporation engaged in this transaction:
Converted loans payable to stock.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash
flows.
a. Financing activities section
b. Schedule of noncash investing and financing transactions
c. Investing activities section
d. Operating activities section
____ 53. Royer Corporation engaged in this transaction:
Purchased 30-day U.S. Treasury bill.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash
flows.
a. Does not represent a cash flow
b. Operating activities section
c. Investing activities section
d. Financing activities section
____ 54. Royer Corporation engaged in this transaction:
Purchased 60-day commercial paper.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash
flows.
a. Does not represent a cash flow
b. Operating activities section
c. Financing activities section
d. Investing activities section
____ 55. Assume the indirect method is used to compute net cash flows from operating activities. For this item
extracted from the financial statementsLoss on Sale of Investmentindicate the effect on net income in
arriving at net cash flows from operating activities by choosing one of the following:
a. Add to net income to arrive at net cash flows from operating activities
b. Subtract from net income to arrive at net cash flows from operating activities
c. Not used to adjust net income to calculate net cash flows from operating activities
____ 56. Assume the indirect method is used to compute net cash flows from operating activities. For this item
extracted from the financial statementsGain on Disposal of Equipmentindicate the effect on net income
in arriving at net cash flows from operating activities by choosing one of the following:
a. Add to net income to arrive at net cash flows from operating activities
b. Subtract from net income to arrive at net cash flows from operating activities
c. Not used to adjust net income to calculate net cash flows from operating activities

____ 57. Which of the following items would not be included in a statement of cash flows prepared using the indirect
method?
a. Net income
b. Cash paid for dividends
c. Sale of a plant asset
d. Cash paid for wages
____ 58. Lagunas Corporation sold investments for $102,000 cash that cost $90,000. The journal entry to record the
increase in cash flow is:
a. Cash
102,000
Investments
90,000
Gain on Sale of Investments
12,000
b. Cash
Loss on Sale of Investments
Investments

90,000
12,000

c. Investments
Cash

102,000

d. Cash
Investments

90,000

102,000
102,000
90,000

____ 59. Liquidity ratios are an indication of a company's
a. ability to effectively employ its resources.
b. overall debt to equity position.
c. overall debt position.
d. ability to pay bills when they are due and to meet unexpected needs for cash.
____ 60. Which of the following describes the interest coverage ratio?
a. Income before income taxes plus interest expense divided by interest expense
b. Income after income taxes plus interest expense divided by interest expense
c. Income after income taxes divided by interest expense
d. Income before income taxes minus interest expense divided by interest expense
____ 61. How would the collection of an account receivable affect the current ratio and the quick ratio, respectively?
a. No effect on current ratio; increase in quick ratio
b. Increase in current ratio; increase in quick ratio
c. No effect on current ratio; no effect on quick ratio
d. Decrease in current ratio; decrease in quick ratio
____ 62. Assuming that the current ratio was 1.6 times and the quick ratio was 1.4 times before this transaction, the
entry to record the payment of a previously declared and recorded cash dividend will
a. increase the current ratio and the quick ratio.
b. decrease the current ratio and the quick ratio.
c. increase the current ratio but have no effect on the quick ratio.
d. have no effect on the current ratio or the quick ratio.
____ 63. Days' payable is a measure of
a. liquidity.
b. volatility.
c. long-term solvency.

d. profitability.
____ 64. Management accounting
a. deals primarily with people and organizations outside of the business entity.
b. requires only periodic reporting on a regular basis.
c. uses any type of useful measurement unit, including physical as well as monetary
measures.
d. deals only with the double-entry recording system.
____ 65. The unit of measurement used in management accounting is
a. primarily the historical dollar.
b. usually current replacement cost.
c. any measurement unit that is useful in a particular situation.
d. the measurement unit used by competing companies.
____ 66. Which of the following is not part of the “perform” stage in the management process?
a. Matching human resources to the task to be performed
b. Hiring and training personnel
c. Identifying operating activities that minimize waste
d. Controlling operations
____ 67. Services that support the primary processes in the value chain are
a. human resources, legal services, information systems, and management accounting.
b. research and development, design, supply, production, marketing, distribution, and
customer service.
c. research and development, marketing, supply, design, production, distribution, and
information systems.
d. marketing, legal, and accounting services.
____ 68. Which of the following is not a result of adopting a just-in-time operating environment?
a. Reduced materials waste
b. Reduced production time
c. Reduced total labor hours
d. Reduced production costs
____ 69. Activity-based costing traces costs to a company's activities related to
a. purchasing and setup.
b. production and nonproduction.
c. production only.
d. nonproduction only.
____ 70. Materials and supplies that cannot be traced conveniently to specific products are called
a. indirect materials.
b. raw materials.
c. minor materials.
d. direct materials.
____ 71. All manufacturing costs incurred and assigned to products that are being produced are classified as
a. variable costs.
b. allocated costs.
c. product costs.
d. overhead costs.

____ 72. Which of the following costs is considered overhead?
a. Indirect labor only
b. Indirect materials only
c. Indirect materials and indirect labor
d. None of these
____ 73. In a manufacturing environment, costs of materials initially flow
a. into the Work in Process Inventory account.
b. into the Materials Inventory account.
c. directly to Cost of Goods Sold.
d. into the Finished Goods Inventory account.
____ 74. Predetermined overhead rates generally are useful for all but which of the following?
a. Price determination
b. Estimating production levels
c. Inventory valuation
d. Product costing
____ 75. Which of the following accounts would be adjusted by the disposal of an immaterial amount of overapplied
overhead?
a. Finished Goods Inventory
b. Materials Inventory
c. Work in Process Inventory
d. Cost of Goods Sold