1. How does the purchase of supplies on account affect the accounting equation?
assets increase; owner’s equity decreases
assets increase; liabilities increase
assets increase; liabilities decrease
liabilities increase; owner’s equity decreases
2. Which of the following is not a true statement about the accounting equation and its elements?
The accounting equation is Assets = Liabilities – Owners’ Equity.
Assets are the resources a business possesses.
Liabilities represent debts of a business.
Examples of assets are cash, land, buildings, and equipment.
Owners’ equity are the rights of the owners.
3. For accounting purposes, the business entity should be considered separate from its owners if the entity is
a corporation
a proprietorship
a partnership
all of the above
4. Which of the following are guidelines for behaving ethically?
I. Identify the consequences of a decision and its effect on others.
II. Consider your obligations and responsibilities to those affected by the decision.
III. Identify your decision based on personal standards of honesty and fairness.
I and II.
II and III.
I and III.
I, II, and III.
5. The payment for the monthly rent will require the following entry
Debit Cash and Debit Rent Expense
Credit Cash and Credit Rent Expense
Debit Rent Expense and Credit Cash
Credit Rent Expense and Debit Cash
6. Randomly listed below are the steps for preparing a trial balance:
(1.) Verify that the total of the Debit column equals the total of the Credit column.
(2.) List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance.
(3.) List the name of the company, the title of the trial balance, and the date the trial balance is prepared.
(4.) Total the Debit and Credit columns of the trial balance.
(3), (2), (4), (1)
(2), (3), (4), (1)
(3), (2), (1), (4)
(4), (3), (2), (1)
7. Prairie Clinic purchased X-ray equipment for $4,000, paid $1,275 down, with the remainder to be paid later. The correct entry would be
Equipment 1,275
Cash 1,275
Cash 1,275
Accounts Payable 2,725
Equipment 4,000
Equipment Expense 4,000
Accounts Payable 1,275
Cash 2,725
Equipment 4,000
Accounts Payable 2,725
Cash 1,275
8. A credit balance in which of the following accounts would indicate a likely error?
Fees Earned
Salary Expense
Janet James, Capital
Accounts Payable
9. Which of the following is not a characteristic of accrual basis of accounting?
Revenues and expenses are reported in the period in which cash is received or paid
Revenues are reported in the income statement in the period in which they are earned
Supports the matching concept
All are correct.
10. The net income reported on the income statement is $85,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $800. Net income, as corrected, is
$84,200
$85,000
$82,800
$82,000
11. The matching concept
addresses the relationship between the journal and the balance sheet
determines whether the normal balance of an account is a debit or credit
requires that the dollar amount of debits equal the dollar amount of credits on a trial balance
determines that expenses related to revenue be reported at the same time the revenue is reported
12. The entry to adjust for the cost of supplies used during the accounting period is
Supplies Expense, debit; Supplies, credit
James Smith, Capital, debit; Supplies, credit
Accounts Payable, debit; Supplies, credit
Supplies, debit; credit James Smith, Capital
13. Which of the accounts below would be closed by posting a debit to the account?
Unearned Revenue
Fees Earned
Josh Morton, Drawing
Rent Expense
14. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance?
The Adjusted Trial Balance will show the net income (loss) as an additional account.
Both will need to be in balance in order to continue with the end-of-period processing
The Adjusted Trial Balance includes the postings of the adjustments for the period in the balance of the accounts.
The Unadjusted Trial Balance will be used to record the adjustments for the period.
15. The Statement of Owner’s Equity should be prepared
before the income statement and after the balance sheet
before the income statement and balance sheet
after the income statement and balanace sheet
after the income statement and before the balance sheet
16. A summary of selected ledger accounts appear below for Alberto’s Plumbing Services for the 2009 calendar year end.
Alberto, Capital
31-Dec DEBIT 8,500
1-Jan CREDIT 6,500
31-Dec CREDIT 18,500
Alberto, Drawing
30-Jun DEBIT 3,500
31-Dec CREDIT 8,500
30-Nov DEBIT 5,000
Income Summary
31-Dec DEBIT 15,000
31-Dec CREDIT 33,500
31-Dec DEBIT 18,500
Net income for the period is
$16,500
$33,500
$18,500
$15,000
17. After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the debit and credit columns are $77,500 and $85,300, respectively. What is the amount of the net income or net loss for the period?
$7,800 net income
$7,800 net loss
$85,300 net income
$77,500 net loss
18. The following are steps to the accounting cycle. Of the following, which step should be done first?
Closing entries are journalized and posted to the ledger.
Transactions are posted to the ledger.
Adjusting entries are journalized and posted to the ledger.
Financial statements are prepared.
19. A work sheet includes columns for
adjusting entries
closing entries
reversing entries
adjusting and closing entries
20. Net income appears on the work sheet in the
debit column of the Balance Sheet columns
debit column of the Adjustments columns
debit column of the Income Statement columns
credit column of the Income Statement columns
21. A company, using the periodic inventory system, has merchandise inventory costing $175 on hand at the beginning of the period. During the period, merchandise costing $635 is purchased. At year-end, merchandise inventory costing $160 is on hand. The cost of merchandise sold for the year is
$970
$650
$300
$620
22. When merchandise is returned under the perpetual inventory system, the buyer would credit
Merchandise Inventory
Purchases Returns and Allowances
Accounts Payable
depending on the inventory system used.
23. Multiple-step income statements show
gross profit but not income from operations
neither gross profit nor income from operations
both gross profit and income from operations
income from operations but not gross profit
24. The primary difference between a periodic and perpetual inventory system is that a
periodic system determines the inventory on hand only at the end of the accounting period
periodic system keeps a record showing the inventory on hand at all times
periodic system provides an easy means to determine inventory shrinkage
periodic system records the cost of the sale on the date the sale is made
25. Beginning inventory, purchases and sales data for tennis rackets are as follows:
Apr 3 Inventory 12 units @ $45
11 Purchase 13 units @$47
14 Sale 18 units
21 Purchase 9 units @ $60
25 Sale 10 units
Assuming the business maintains a perpetual inventory system, calculate the cost of merchandise sold and ending inventory under First-in, first-out:
cost of merchandise sold $1,151; ending inventory $180
cost of merchandise sold $180; ending inventory $1,151
cost of merchandise sold $1,331; ending inventory $360
cost of merchandise sold $360; ending inventory $1,331
26. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May.
DateProduct ZUnitsCost
May 3Purchase5$30
May 10Sale3
May 17Purchase10$34
May 20Sale6
May 23Sale3
May 30Purchase10$40
Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the FIFO inventory cost method.
$264
$502
$400
$790
27. The inventory system employing accounting records that continuously disclose the amount of inventory is called
Retail
Periodic
Physical
Perpetual
28. When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory method is called
first-in, last-out
last-in, first-out
first-in, first-out
average cost
29. The following lots of a particular commodity were available for sale during the year:
Beginning inventory5 units @ $61
First purchase15 units @ $63
Second purchase10 units @ $74
Third purchase10 units @ $77
The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the average cost method?
$1,380
$1,375
$1,510
$1,220
30. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 by the retail method?
Cost Retail
May 1Merchandise Inventory$125,000 $166,667
May 1-31Purchases (net) 235,000 313,333
May 1-31Sales (net) 230,000
$250,000
$360,000
$172,500
$187,500
31. Inventory turnover
is computed by dividing average inventory by cost of merchandise sold
measures the relationship between the volume of goods sold and amount of inventory carried
increases the risk of loss from damaged merchandise
is computed by dividing the beginning inventory plus the ending inventory by two
32. Garrison Company uses the retail method of inventory costing. They started the year with an inventory that had a retail cost of $45,000. During the year they purchased an inventory with a retail cost of $300,000. After performing a physical inventory, they calculated their inventory at $80,000. The mark up is 100% of cost. Determine the ending inventory at its estimated cost.
$160,000
$80,000
$40,000
33. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?
No change to net income.
Net income will be overstated
Net income will be understated.
Only gross profit will be affected.
34. Too much inventory on hand
reduces solvency
increases the cost to safeguard the assets
increases the losses due to price declines
all of the above
35. Under a periodic inventory system
accounting records continuously disclose the amount of inventory
a separate account for each type of merchandise is maintained in a subsidiary ledger
a physical inventory is taken at the end of the period
merchandise inventory is debited when goods are returned to vendors