3100
Sample Accounting test questions
Chapters 1-4
Name _________________________
1. Listed below are ten terms followed by a list of phrases that describe or characterize ten of the
terms. Match each phrase with the correct term by placing the letter designating the best term in
the space provided by the phrase. (10 points)
Terms:
A. Comprehensive income
B. Distribution to owners
C. Confirmatory value
D. Gain
E. Materiality
F. Predictive value
G. Relevance
H. Faithful representation
I. Understandability
J. Timeliness
Phrases:
1. __f__Information is useful in projecting cash flows.
2. __g__Pertinent to the decision at hand.
3. __j__Information is available prior to the decision.
4. __b__Decrease in equity due to transfers to owners.
5. __c__Information confirms earlier expectations.
6. __i__Having users be able to use the information for informed decisions.
7. __d__Results if an asset is sold for more than book value.
8 __h__Agreement between a measure and what it purports to represent.
9. __a__The change in equity from nonowner transactions.
10. _e___Concerns the decision making impact of both the amount and nature of an item.
2. Listed below are ten terms followed by a list of phrases that describe or characterize ten of the
terms. Match each phrase with the correct term by placing the letter designating the best term in
the space provided by the phrase. (10 points)
Terms:
A. Accounting Principles Board
B. AICPA
C. Cost Effectiveness/Conservatism
D. Financial Accounting Standards Board
E. Full-disclosure principle
F. Historical cost principle
G. Matching principle
H. Materiality
I. Realization principle
J. Securities and Exchange Commission
Phrases:
1. _f___Basis of measurement for fixed assets.
2. __i__Recognition of revenue only after certain criteria are satisfied.
3. _g___Guides us how expenses should be matched.
4. __e__Reporting of all information that could affect decisions.
5. __h__Application of GAAP sometimes allows alternatives under this constraint.
6. __c__It is a practical justification for choosing among alternative accounting methods.
7. __a__Its pronouncements are still GAAP unless superseded by the FASB.
8. __d__Its Statements of Financial Accounting Standards are considered part of GAAP.
9. __j__It has the authority to set U.S. accounting standards, but usually serves as a watchdog.
10. __b__It is the national organization for CPAs in the U.S.
Multiple Choice. (28 points)
3.
A)
B)
C)
D)
Revenue should not be recognized until:
The earnings process is complete and collection is reasonably assured. ***
Contracts have been signed and payment has been received.
Work has been performed and customer has been billed.
Collection has been made and warrantees have expired.
4.
A)
B)
C)
D)
The matching principle is:
A valuation method.
An accrual accounting principle. ***
A cash basis reporting principle.
An asset classification procedure.
5.
A)
B)
C)
D)
A cause-and-effect relationship between revenue and expense is best exemplified by:
Straight-line depreciation expense.
Double-declining balance depreciation expense.
Units-of-production depreciation expense.***
Amortization of insurance expense.
6. The expense that least fits a cause-and-effect relationship for matching revenues and expenses
would be:
A) Cost of goods sold.
B) Units-of-production depreciation.
C) Advertising expense. ***
D) Sales commissions.
11. Bland Foods purchased a two-year fire and extended coverage insurance policy on August 1,
2003, and charged the $4,200 premium to Insurance expense. At its December 31, 2003, yearend, Bland Foods would record which of the following adjusting entries?
A)
Insurance expense
Prepaid insurance
875
875
B)
Prepaid insurance
Insurance expense
875
875
C)
Insurance expense
Prepaid insurance
Insurance payable
875
3,325
4,200
D)***
Prepaid insurance
Insurance expense
3,325
3,325
12. The employees of Neat Clothes work Monday through Friday. Every other Friday the
company issues payroll checks totaling $32,000. The current pay period ends on Friday, July 3.
Neat Clothes is now preparing quarterly financial statements for the three months ended June 30.
What is the adjusting entry to record accrued salaries at the end of June?
A)
Salaries expense
Prepaid salaries
Salaries payable
22,400
9,600
32,000
B)
Salaries expense
Salaries payable
6,400
6,400
C)
Prepaid salaries
Salaries payable
9,600
9,600
D) ***
Salaries expense
Salaries payable
22,400
22,400
13. On September 1, 2003, Time Magazine sold 600 one-year subscriptions for $81 each. The
total amount received was credited to Unearned subscriptions revenue. What would be the
required adjusting entry at December 31, 2003?
A)
Unearned subscriptions revenue
Subscriptions revenue
Prepaid subscriptions
48,600
16,200
32,400
B)
Unearned subscriptions revenue
Subscriptions revenue
16,200
***
16,200
C)
Unearned subscriptions revenue
Subscriptions payable
16,200
16,200
D)
Unearned subscriptions revenue
Subscriptions revenue
32,400
32,400
14. Papa's Pastry Shoppe borrowed $8,000 at 9% interest on May 1, 2003, with principal and
interest due on October 31, 2003. The company's fiscal year ends June 30, 2003. What adjusting
entry would the company record on June 30, 2003?
A) No entry.
B)
Interest expense
Interest payable
240
240
C) ***
Interest expense
Interest payable
120
120
D)
Prepaid interest
Interest payable
120
120
15. On September 15, 2003, Oliver's Mortuary received a $6,000, nine-month note bearing
interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver's has
a December 31 year-end. What adjusting entry would the company record on December 31,
2003?
A) ***
Interest receivable
Interest revenue
175
175
B)
Interest receivable
Interest receivable
Notes revenue
230
230
C)
Interest receivable
175
175
D)
Interest receivable
Interest revenue
Cash
600
175
425
16. New Oaks Winery requires two months to make wine, two years to age it, one month to
bottle it, two months to sell it, and one month to collect the receivable. Its operating cycle is:
A) Twelve months.
B) Thirty months. ***
C) Six months.
D) Three months
17.
A)
B)
C)
D)
Assets do not include:
Property, plant, and equipment.
Investments and funds.
Paid-in capital. ***
Unexpired insurance.
18. Assets that are expected to provide economic benefits beyond one year or the operating
cycle are called:
A) Intangible assets.
B) Noncurrent assets. ***
C) Capital assets.
D) Capital.
Problems.
19. Stood-Rite Shoes was involved in the transactions described below.
Required: Prepare the appropriate journal entry for each transaction. If an entry is not required,
state "No Entry." (10 points)
(a.) Purchased $8,200 of inventory on account.
Inventory 8,200
Accounts Payable. 8,200
(b.) Paid weekly salaries, $1,000.
Salaries Expense
Cash
1,000
1,000
(c.) Recorded $12,000 sales for the first week, $7,000 for cash and $5,000 on account.
Cash
Accts Receivable
Sales
7,000
5,000
12,000
(d.) Paid for inventory purchased in event (a).
Accounts Payable
Cash
8,200
8,200
(e.) Placed an order for $6,200 of inventory with a supplier, to be delivered sometime next month.
No Entry
20. The adjusted trial balance for Chai Tea Company at December 31, 2003 is presented below:
Debit
10,500
150,000
Cash
Accounts receivable
Allowance for uncollectible accounts
Prepaid rent
Inventory
Equipment
Accumulated depreciation - equipment
Accounts payable
Notes payable - due in three months
Salaries payable
Interest payable
Capital stock
Retained earnings
Sales revenue
Costs of goods sold
Salaries expense
Rent expense
Depreciation expense
Interest expense
Bad debt expense
Totals
Credit
10,000
5,000
25,000
300,000
125,000
20,000
30,000
4,000
1,000
200,000
50,000
400,000
180,000
120,000
15,000
30,000
2,000
2,500
840,000
_______
840,000
Prepare the closing entries for Chai Tea Company for the year ended December 31, 2003.
(9 points)
Sales Revenue
Retained Earnings
400,000
400,000
Retained Earnings
Cost of Goods Sold
Salaries Expense
Rent Expense
Depr. Expense
Interest Expense
Bad Debts Expense
349,500
180,000
120,000
15,000
30,000
2,000
2,500
21. The Nifty Company has the following accounts in its general ledger as of December 31, 2006.
You are to classify these accounts as to which section of the balance sheet they would be
presented as of December 31. The sections of the balance sheet that Nifty uses are as follows:
A. Current Assets
B. Investments
C. Property, Plant and Equipment
D. Intangible Assets
E. Other Assets
F. Current Liabilities
G. Long-Term Liabilities
H. Paid-in Capital
I. Retained Earnings
Please put the correct letter for the above balance sheet sections on the line preceding the
following balance sheet accounts for the Nifty Company. (17 points)
__e___ 1. Equipment, excess, unused, but currently not for sale.
___c__2. Land
__a___3. Cash equivalents
___f__ 4. Unearned rent representing rent to be earned over the next 6 months.
__f___ 5. Wages Payable
__g___ 6. Bonds Payable, due in six months.
__b___ 7. Notes Receivable, due in three years, from an affiliated company.
__h___ 8. Preferred Stock.
___d__ 9. Copyrights.
__a___10. Stock investments, held for immediate sale.
___b__11. Bond sinking fund, to retire the bonds in (6) above.
___g__ 12. Debt that matures in three months, but which the company has the intent and ability
to
refinance for another two years.
___a__13. Inventories.
___c__ 14. Accumulated Depreciation Equipment.
___f__ 15. Current maturities of long-term debt.
__i____16. Past undistributed earnings of a corporation.
__a___ 17. Prepaid Rent.
5.
The principal benefit of separately reporting discontinued operations and
extraordinary items is to enhance:
a. predictive ability ***
b. consistency in reporting
c. intraperiod continuity
d. comprehensive reporting
6.
a.
b.
c.
An extraordinary event for financial reporting purposes is both:
unusual and material
infrequent and significant
material and infrequent
d. unusual and infrequent ***
7.
a.
b.
c.
d.
The Maytag Companys income statement includes income from continuing
operations, a loss from discontinued operations, and extraordinary items.
Earnings per share information would be provided for:
net income only
income from continuing operations and net income only
income from continuing operations, loss from discontinued operations, and net
income only
income from continuing operations, loss from discontinued operations,
extraordinary items, and net income. ***
8. Comprehensive income is the change in equity from:
a. owner transactions
b. nonowner transactions ***
c. owner and nonowner transactions
d. capital transactions.
9. Sprite Company reports income of $300,000 from continuing operations before
income taxes and a before-tax extraordinary loss of $80,000. All income is
subject to a 30% tax rate. In the years income statement, Sprite Company would
show the following line-item amounts for income tax expense and net income:
a. $66,000 and $210,000
b. $90,000 and $154,000 ***
c. $90,000 and $276,000
d. $66,000 and $220,000
The following information related to questions 10 and11.
Misty Company reported the following before-tax items during the current year:
Sales
Operating expenses
Restructuring costs
Extraordinary loss
Effective tax rate
$660
310
20
50
40%
10. What would be Mistys income before extraordinary items?
a. $198 ***
b. $210
c. $330
d. $360
11. What would be Mistys net income for the current year?
a. $148
b. $168 ***
c. $112
d. $142