QUESTION 1
A non-classified balance sheet typically does not have a distinction between which of the following items?
assets and liabilities
current and noncurrent items
liabilities and stockholders’ equity
Resources invested by the owners and amounts borrowed from creditors.
3 points
QUESTION 2
Which of the following would appear on an income statement?
unearned revenue
cost of sales
retained earnings
dividends
3 points
QUESTION 3
Which of the following is an assumption made in the preparation of the financial statements?
Financial statements are prepared for a specific entity that is distinct from the entity’s owners.
The current market value is assumed to be more relevant than the original cost paid.
The preparation of financial statements for a specific time period assumes that the balance sheet covers a designated period of
time.
Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit.
3 points
QUESTION 4
The principle of conservatism is concerned with
the avoidance of overstating assets or income in the preparation of financial statements.
the minimization of costs associated with providing financial information.
the company’s ability to carry out its existing commitments.
the company’s procedures for recording activities at their initial exchange price.
3 points
QUESTION 5
Canterbury Cycles sells Harleys and pays each salesperson a commission of $800 for each cycle sold. During the month of December, a
salesperson sold 3 cycles. The company pays commissions on the 5th day of the month following the sale. Which of the following
statements is true?
The salesperson will recognize commission revenue earned in the amount of $2,400 in December.
The company will recognize commission expense in the amount of $2,400 in December.
The salesperson will recognize commission expense in the amount of $2,400 in January.
The salesperson will recognize revenue in the same month that the cycle dealer recognizes expense.
3 points
QUESTION 6
Which statement presents financial information not based on accrual accounting?
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Retained Earnings
3 points
QUESTION 7
Having one employee prepare company checks and sign those checks relates to which internal control activity?
a violation of proper segregation of duties
a violation of adequate documents and records
a good example of checks on recorded amounts
a good example of clearly defined authority and responsibility
3 points
QUESTION 8
Which of the following is a transposition error?
writing $89 as $98
writing $10 as $100
debiting or crediting an amount to the wrong account
debiting or crediting the right account with the wrong amount
3 points
QUESTION 9
Which one of the following is an accurate description of the Allowance for Doubtful Accounts?
Contra Account
Liability Account
Revenue Account
Expense Account
3 points
QUESTION 10
Which allowance method approach is considered to be an income statement approach to estimating bad debts?
The percentage of accounts receivable approach
The percentage of accounts written off approach
The percentage of net credit sales approach
The direct write off method
3 points
QUESTION 11
Cost of goods sold is equal to
the total amount of merchandise purchased during the year.
the cost of merchandise purchased plus transportation costs less ending inventory.
the cost of merchandise purchased plus transportation costs plus beginning inventory minus purchase returns and allowances and
purchased discounts minus ending inventory.
the cost of merchandise purchased plus transportation costs plus beginning inventory minus purchase returns and allowances and
purchase discounts.
3 points
QUESTION 12
The amount recognized on the balance sheet as the cost of inventory will ultimately be recognized as
sales revenue.
cost of goods sold.
operating expenses.
administrative expenses.
3 points
QUESTION 13
The effect of recording depreciation for the year is a(n)
decrease in assets and a decrease in net income.
decrease in assets but no change in owners’ equity.
increase in assets and an increase in net income.
decrease in net income and no change in assets.
3 points
QUESTION 14
Which statement is true concerning operating assets?
Operating assets have no physical properties.
A company’s operating assets are important to its short-term liquidity.
Operating assets are used over two or more periods to generate revenues.
All operating assets are reported on the income statement
3 points
QUESTION 15
Which of the following statements regarding contingent liabilities is true?
If they are probable and estimable, then they must be recorded even before the outcome of the future event.
If they are probable and estimable, then they should be disclosed in the notes to the financial statements.
The accounting principle that determines whether a contingent liability is to be recorded is that of Historical Cost.
Contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable.
3 points
QUESTION 16
There are some liabilities, such as income taxes payable and the estimated warranty liability, for which the amounts must be estimated
so they can be recorded in the same period as the related revenues. Failure to record these amounts in the same period as the related
revenues is a violation of the
concept of historical cost.
going concern assumption.
limitation of materiality.
matching principle.
3 points
QUESTION 17
Which of the following lease conditions would result in a capital lease to the lessee?
The lessee will return the property to the lessor at the end of the lease term.
The lessee can purchase the property for $1 at the end of the lease term.
The fair market value of the property at the inception of the lease is $20,000; the present value of the lease payments is
$17,600.
The lease term is 70% of the property’s economic life.
3 points
QUESTION 18
Which of the following statements regarding amortization is true?
Amortization of the premium causes the premium on bonds payable account to increase.
Amortization of the premium causes the amount of interest expense to increase.
Cash interest payments on bonds equals interest expense on the income statement when there is amortization of bond premium.
Amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero.
3 points
QUESTION 19
Which of the following statements is true with regard to 7% cumulative, participating preferred stock?
Stockholders who hold this type of stock are guaranteed a dividend each year.
The issue price of this stock is reported in the preferred stock account on the balance sheet.
If the corporation pays a per share dividend in excess of 7% of the preferred stock’s par value and there are no dividends in
arrears, the preferred shares will receive a share of the amounts available for distribution as dividends to other classes of stock.
If dividends are not declared, they accumulate and a liability must be reported on the balance sheet for any amount in arrears
that is owed to the preferred stockholders.
3 points
QUESTION 20
A corporation began operations on October 1, 2014, with 3,000 shares of $2 par common stock authorized. The company issued common stock
on several occasions during 2014 and 2015. On December 31, 2015, the company repurchased 1,000 shares of its outstanding shares and
then reissued 500 of these shares on March 1, 2016. On June 1, 2016, the company’s board of directors declared a 2-for-1 stock split.
As a result of this stock split, which of the following is true?
Assets decreased.
The number of shares issued decreased.
Total liabilities decreased.
Total stockholders’ equity remained the same.
3 points
QUESTION 21
The primary objective of financial accounting is:
10 points
QUESTION 22
Explain why adjusting entries are needed at the end of the accounting cycle.
10 points
QUESTION 23
For this question, review the journal entry and explain what the probable transaction would be requiring the entry, and how this entry
is impacting the financial statements. Explaining that account ‘ x’ is a debit/credit etc… is not an acceptable answer. Explanation
should cover the actual transaction that occurred.
Example Question:
Utilities Expense 700
Cash 700
An acceptable answer would be: Client paid current month’s utility bill, asset is decreasing, and net worth is decreasing.
Question:
Cash 100,000 debit
Office Equipment 24,000 debit
Common Stock 124,000 credit
10 points
QUESTION 24
For this question, review the journal entry and explain what the probable transaction would be requiring the entry, and how this entry
is impacting the financial statements. Explaining that account ‘ x’ is a debit/credit etc… is not an acceptable answer. Explanation
should cover the actual transaction that occurred.
Example Question:
Utilities Expense 700
Cash 700
An acceptable answer would be: Client paid current month’s utility bill, asset is decreasing, and net worth is decreasing.
____________________________________________________________
Question:
Accounts Receivable 8,000 debit
Services Revenue 8,000 credit
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