1. 1. Which of the following is not a step in the accounting process?
A. Identification
B. Recording
C. Verification
D. Communication
2. 2. Which of the following statements about users of accounting
information is incorrect?
A. Management is an internal user
B. Taxing authorities are external users
C. Present creditors are external users
D. Regulatory authorities are internal users
3. 3. The cost principle states that:
A. Assets should be initially recorded at cost and adjusted when the
fair value changes
B. Activities of an entity are to be kept separate and distinct from its
owner
C. Assets should be recorded at their cost
D. Only transaction data capable of being expressed in terms of money
be included in the accounting records
4. 4. Net income will result during a time period when:
A. Assets exceed liabilities
B. Assets exceed revenues
C. Expenses exceed revenues
D. Revenues exceed expenses
5. 5. As of December 31, 2020, S Company has assets of $3,500 and
owner’s equity of $2,000. What are the liabilities for S Company as of
December 31, 2020?
A. $1,500
B. $1,000
C. $2,500
D. $2,000
6. 6. Which of the following events is not recorded in the accounting
records?
A. Equipment is purchased on account
B. An employee is terminated
C. A cash investment is made into the business
D. The owner withdraws cash for personal use
7. 7. On the last day of the period, T Company buys a $900 machine on
credit. This transaction will affect the:
A. Income statement only
B. Balance sheet only
C. Income statement and owner’s equity statement only
D. Income statement, owner’s equity statement, and balance sheet
8. 8. During 2020, R Company’s assets decreased $100,000 and its
liabilities decreased $80,000. Its owner’s equity therefore:
A. Increased $20,000
B. Decreased $20,000
C. Decreased $180,000
D. Increased $180,000
9. 9. During 2020, R Company’s assets decreased $50,000 and its liabilities
decreased $70,000. Its owner’s equity therefore:
A. Increased $20,000
B. Decreased $20,000
C. Decreased $120,000
D. Increased $120,000
10. 10. Payment of an account payable affects the components of the
accounting equation in the following way
A. Decreases owner’s equity and decreases liabilities
B. Increases assets and decreases liabilities
C. Decreases assets and increases owner’s equity
D. Decreases assets and decreases liabilities
11. 11. The financial statement that reports assets, liabilities, and owner’s
equity is the:
A. Income statement
B. Owner’s equity statement
C. Balance sheet
D. Statement of cash flows
12. 12. Which of the following statements is false?
A. A statement of cash flows summarizes information about the cash
inflows (receipts) and outflows (payments) for a specific period of
time
B. A balance sheet reports the assets, liabilities, and owner’s equity at
a specific date
C. An income statement presents the revenues, expenses, changes in
owner’s equity, and resulting net income or net loss for a specific
period of time
D. An owner’s equity statement summarizes the changes in owner’s
equity for a specific period of time
13. 13. Eve Agency purchased land for $90,000 cash on December 10, 2019.
At December 31, 2019, the land’s value has increased to $100,000.
What amount should be reported for land on Eve’s balance sheet at
December 31, 2019:
A. $90,000
B. $100,000
C. $190,000
D. $10,000
14. 14. Indicate in the Income Statement which of the following items would
appear:
A. Service revenue
B. Accounts receivable
C. Equipment
D. Owner’s capital
15. 15. Which of the following items are liabilities of Kajay Stores?
A. Cash
B. Accounts receivable
C. Accounts payable
D. Supplies
1. 16. Debits:
A. increase both assets and liabilities
B. decrease both assets and liabilities
C. increase assets and decrease liabilities
D. decrease assets and increase liabilities
2. 17. A revenue account:
A. is increased by debits.
B. is decreased by credits.
C. has a normal balance of a debit.
D. is increased by credits.
3. 18. Accounts that normally have debit balances are:
A. assets, expenses, and revenues
B. assets, expenses, and owner’s capital
C. assets, liabilities, and owner’s drawings
D. assets and owner’s drawings
4. 19. The purchase of supplies on account should result in:
A. a debit to Supplies Expense and a credit to Cash
B. a debit to Supplies Expense and a credit to Accounts Payable
C. a debit to Supplies and a credit to Accounts Payable
D. a debit to Supplies and a credit to Accounts Receivable
5. 20. The order of the accounts in the ledger is:
A. assets, revenues, expenses, liabilities, owner’s capital, owner’s
drawings
B. assets, liabilities, owner’s capital, owner’s drawings, revenues,
expenses
C. owner’s capital, assets, revenues, expenses, liabilities, owner’s
drawings
D. revenues, assets, expenses, liabilities, owner’s capital, owner’s
drawings
6. 21. Before posting a payment of $5,000, the Accounts Payable of Senator
Company had a normal balance of $16,000. The balance after posting
this transaction was:
A. $21,000
B. $11,000
C. $5,000
D. Cannot be determined
7. 22. The trial balance of Clooney Company had accounts with the
following normal balances: Cash $5,000, Service Revenue $85,000,
Salaries and Wages Payable $4,000, Salaries and Wages Expense
$40,000, Rent Expense $10,000, Owner’s Capital $42,000; Owner’s
Drawings $15,000; Equipment $61,000. In preparing a trial balance,
the total in the debit column is:
A. $131,000
B. $91,000
C. $216,000
D. $116,000
8. 23. The time period assumption states that:
A. revenue should be recognized in the accounting period in which it is
earned.
B. expenses should be matched with revenues.
C. the economic life of a business can be divided into artificial time
periods.
D. the fiscal year should correspond with the calendar year.
9. 24. Which of the following statements about the accrual basis of
accounting is false?
A. Events that change a company’s financial statements are recorded in
the periods in which the events occur.
B. Revenue is recognized in the period in which it is earned.
C. This basis is in accord with generally accepted account-ing
principles.
D. Revenue is recorded only when cash is received, and expense is
recorded only when cash is paid.
10. 25. Adjusting entries are made to ensure that:
A. expenses are recognized in the period in which they are incurred.
B. revenues are recorded in the period in which they are earned.
C. balance sheet and income statement accounts have correct balances
at the end of an accounting period.
D. All of the above.
11. 26. Each of the following is a major type (or category) of adjusting entries
except:
A. prepaid expenses
B. accrued revenues
C. accrued expenses
D. earned revenues
12. 27. Adjustments for prepaid expenses:
A. decrease assets and increase revenues
B. decrease expenses and increase assets
C. decrease assets and increase expenses
D. decrease revenues and increase assets
13. 28. Accumulated Depreciation is:
A. a contra asset account
B. an expense account
C. an owner’s equity account
D. a liability account
14. 29. Adjustments for unearned revenues:
A. decrease liabilities and increase revenues
B. have an assets and revenues account relationship
C. increase assets and increase revenues
D. decrease revenues and decrease assets
15. 30. Adjustments for accrued revenues:
A. have a liabilities and revenues account relationship
B. have an assets and revenues account relationship
C. decrease assets and revenues
D. decrease liabilities and increase revenues
1. 31. Cost of goods available for sale consist of two elements: beginning
inventory and
A. ending inventory
B. cost of goods purchased
C. cost of goods sold
D. All of the above
2. 32. Toto Company has the following:
Units Unit Cost
Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 12
Purchase, Nov. 8 5,000 13
If Toto has 9,000 units on hand at December 31, the cost of the
ending inventory under FIFO is:
A. $99,000 C. $113,000
B. $108,000 D. $117,000
3. 33. Rich Company purchased 1,000 widgets and has 200 widgets in its
ending inventory at a cost of $91 each and a current replacement cost
of $80 each. The ending inventory under lower-of-cost-or-market is:
A. $91,000 C. $18,200
B. $80,000 D. $16,000
4. 34. Receivables are frequently classified as:
A. accounts receivable, company receivables, and other receivables
B. accounts receivable, notes receivable, and employee receivables
C. accounts receivable and general receivables
D. accounts receivable, notes receivable, and other receivables
5. 35. B Company on June 15 sells merchandise on account to C company
for $1,000, terms 2/10, n/30. On June 20, C returns merchandise worth
$300 to B. On June 24, payment is received from C. for the balance
due. What is the amount of cash received?
A. $700
B. $686
C. $680
D. None of the above
6. 36. Net sales for the month are $800,000, and bad debts are expected to be
1.5% of net sales. The company uses the percentage-of-sales basis. If
Allowance for D Accounts has a credit balance of $15,000 before
adjustment, what is the balance after adjustment?
A. $15,000
B. $27,000
c. $23,000
D. $31,000
7. 37. X accepts a $1,000, 3-month, 6% promissory note in settlement of an
account with Y. The entry to record this transaction is as follows:
A. D Notes Receivable: 1,015/ C Accounts Receivable: 1,015
B. D Notes Receivable: 1,000/ C Accounts Receivable: 1,000
C. D Notes Receivable: 1,000/ C Sales Revenue: 1,000
D. D Notes Receivable: 1,030/ C Accounts Receivable: 1,030
8. 38. Ginter Co. holds Kolar Inc.’s $10,000, 120-day, 9% note. The entry
made by Ginter Co. when the note is collected, assuming no interest
has been previously accrued, is:
A. D Cash: 10,300 /C Notes Receivable: 10,300
B. D Cash: 10,000/ C Notes Receivable: 10,000
C. D Accounts Receivable: 10,300/ C Notes Receivable: 10,000/ C
Interest Revenue: 300
D. Cash: 10,300/ C Notes Receivable: 10,000/ C Interest Revenue: 300
9. 39. Mic Company purchased equipment on January 1, 202x, at a total
invoice cost of $400,000. The equipment has an estimated salvage
value of $10,000 and an estimated useful life of 5 years. The amount of
accumulated depreciation at December 31, 202x+1, if the straight-line
method of depreciation is used, is:
A. $80,000
B. $160,000
C. $78,000
D. $156,000
10. 40. Jeff Company purchased a piece of equipment on January 1, 202x. The
equipment cost $60,000 and has an estimated life of 8 years and a
salvage value of $8,000. What was the depreciation expense for the
asset for 202x+1 under the double-declining-balance method?
A. $6,500
B. $15,000
C. $11,250
D. $6,562
11. 41. Ben Company has decided to sell one of its old manufacturing
machines on June 30, 2021. The machine was purchased for $80,000
on January 1, 2017, and was depreciated on a straight-line basis for 10
years assuming no salvage value. If the machine was sold for $26,000,
what was the amount of the gain or loss recorded at the time of the
sale?
A. $18,000
B. $22,000
C. $54,000
D. $46,000
12. 42. At the beginning of the month, the accounts receivable subsidiary
ledger showed balances for Apple Company $5,000 and Berry
Company $7,000. During the month, credit sales were made to Apple
$6,000, Berry $4,500, and Cantaloupe $8,500. Cash was collected on
account from Berry $11,500 and Cantaloupe $3,000. At the end of the
month, the control account Accounts Receivable in the
general ledger should have a balance of:
A. $11,000
B. $12,000
C. $16,500
D. $31,000
13. 43. A single-step income statement:
A. reports gross profit
B. does not report cost of goods sold
C. reports sales revenues and “Other revenues and gains” in the
revenues section of the income statement
D. reports operating income separately
14. 44. Pepsi Co. accepts a $5,000, 3-month, 6% promissory note in settlement
of an account with Ball Co. The entry to record this transaction is as
follows:
A. D Notes Receivable: 300/ C Accounts Receivable: 300
B. D Notes Receivable: 5,000/ C Sales Revenue: 5,000
C. D Notes Receivable: 5,000/ C Accounts Receivable: 5,000
D.D Notes Receivable: 300/ C Accounts Receivable: 300
15. 45. The entry to record interest on notes payable:
A. D Notes Receivable/ C Interest Payable
B. D Notes Payable/ C Interest Payable
C. D Account Payable/ C Interest Payable
D. D Interest Expense/ C Interest Payable
16. 46. To record the sale of goods for cash in a perpetual inventory system:
A. only one journal entry is necessary to record cost of goods sold and
reduction of inventory
B. only one journal entry is necessary to record the receipt of cash and
the sales revenue
C. two journal entries are necessary: one to record the receipt of cash
and sales revenue, and one to record the cost of goods sold and
reduction of inventory
D. two journal entries are necessary: one to record the receipt of cash
and reduction of inventory, and one to record the cost of goods sold
and sales revenue
17. 47. Able Company purchased a tow truck for $60,000 on January 1, 202x,
It was depreciated on a straight-line basis over 10 years. What was the
depreciation expense for 202x?
A. $6,000
B. $15,000
C. $4,800
D. $12,100
18. 48. Able Company purchased a tow truck for $60,000 on January 1, 202x,
It was depreciated on a straight-line basis over 10 years. What was the
accumulated depreciation for the beginning of 6th year?
A. $6,000
B. $30,000
C. $60,000
D. $12,000
19. 49. Able Company purchased a tow truck for $60,000 on January 1, 202x,
It was depreciated on a straight-line basis over 10 years. What was the
accumulated depreciation for the ending of 6th year?
A. $6,000
B. $30,000
C. $60,000
D. $36,000
20. 50. Bony Company on June 15 sells merchandise on account to Cozy Co.
for $5,000, terms 2/10, n/30. On June 25, payment is received from
Cozy Co. for the balance due. What is the amount of cash received?
A. $4,500
B. $4,410
C. $4,900
D. None of the above
1. 51. Which of the following accounts will normally appear in the ledger of
a merchandising company that uses a perpetual inventory system?
A. Purchases
B. Cost of Goods Sold
C. Freight-in
D. Purchase Discounts
2. 52. Which of the following appears on both a single-step and a multiple-
step income statement?
A. inventory
B. gross profit
C. income from operations
D. cost of goods sold
3. 53. A Balance sheet reports:
A. the assets, liabilities and owner’s equity at a specific date
B. the revenues and expenses and resulting net income or net loss for a
specific period of time
C. summarizes information about the cash inflows and outflows for a
specific period of time
D. All of the above
4. 54. A Income statement reports:
A. the assets, liabilities and owner’s equity at a specific date
B. the revenues and expenses and resulting net income or net loss for a
specific period of time
C. summarizes information about the cash inflows and outflows for a
specific period of time
D. All of the above
5. 55. A Statement of cash flows reports:
A. the assets, liabilities and owner’s equity at a specific date
B. the revenues and expenses and resulting net income or net loss for a
specific period of time
C. summarizes information about the cash inflows and outflows for a
specific period of time
D. All of the above
6. 56. Gross profit will result if:
A. operating expenses are less than net income
B. sales revenues are greater than operating expenses
C. sales revenues are greater than cost of goods sold
D. operating expenses are greater than cost of goods sold
7. 57. The following information relates to Lala Co. for the year 202x:
Owner’s capital, January 1, 202x: $48,000; Advertising expense: $
1,800; Owner’s drawings during 202x: $6,000; Rent expense: $10,400;
Service revenue: $63,600; Utilities expense: $3,100; Salaries and
wages expense: $29,500. Determine the net income:
A. $48,300
B. $18,800
C. $20,600
D. $17,500
1. 58. Which of the following costs are classified as a period cost?
A. Wages paid to a factory custodian
B. Wages paid to a production department supervisor
C. Wages paid to a cost accounting department supervisor
D. Wages paid to an assembly worker
2. 59. The formula to determine the cost of goods manufactured is:
A. Beginning raw materials inventory + Total manufacturing costs -
Ending work in process inventory
B. Beginning work in process inventory + Total manufacturing costs -
Ending finished goods inventory
C. Beginning finished good inventory + Total manufacturing costs -
Ending finished goods inventory
D. Beginning work in process inventory + Total manufacturing costs -
Ending work in process inventory
3. 60. Which is the Differences between financial and managerial
accounting:
A. Content of Reports
B. Purpose of Reports
C. Primary Users of Reports
D. All of the above
61. Module 3. Chapter 2
4. 62. When comparing a traditional income statement to a CVP income
statement:
A. net income will always be greater on the traditional statement
B. net income will always be less on the traditional statement
C. net income will always be identical on both
D. net income will be greater or less depending on the sales volume
5. 63. On a CVP income statement:
A. Sales - Cost of goods sold = Contribution margin
B. Sales - Variable costs - Fixed costs = Contribution margin
C. Sales - Variable costs = Contribution margin
D. Sales - Fixed costs = Contribution margin
6. 64. Coconut Company sells 100,000 wrenches for $12 a unit. Fixed costs
are $300,000, and net income is $200,000. What should be reported as
variable expenses in the CVP income statement?
A. $700,000
B. $500,000
C. $1,200,000
D. $300,000
7. 65. Lucy Company sells 250,000 units for $10 per unit. Fixed costs are
$800,000, and net income is $500,000. What should be reported as
variable expenses in the CVP income statement?
A. $1,300,000
B. $500,000
C. $1,200,000
D. $2,500,000
8. 66. Poca Company sells 250,000 units for $10 per unit. Fixed costs are
$800,000, and variable expenses are $1,000,000. What should be
reported as net income in the CVP income statement?
A. $1,500,000
B. $700,000
C. $1,200,000
D. $2,500,000
