Exam
249. Closing entries should be made:
Every year.
Only when an entity goes out of business.
Only if there is a profit.
Only if there is a loss.
Every day.
250. Which of the following accounts will be closed to Income Summary?
Depreciation Expense.
Unearned Revenue.
Dividends.
Prepaid Expenses.
Cash
251. If sales are $270,000, expenses are $220,000 and dividends are $30,000, Income Summary:
Will have a credit balance of $50,000.
Will have a debit balance of $50,000.
Will have a debit balance of $20,000.
Will have a credit balance of $20,000.
Will have a credit balance of $2,000.
253. Return on equity is calculated by:
Dividing net income by average stockholders' equity.
Dividing net income by total revenue.
Dividing net income by working capital.
Dividing dividends by stockholders' equity.
Dividing dividends by assets.
254. If current assets are $90,000 and current liabilities are $70,000, the current ratio will be:
1.3.
$20,000.
77%.
$160,000.
1.9
255. If current assets are $110,000 and current liabilities are $50,000, working capital will be:
$60,000.
2:2.
45.5%.
$160,000.
75.8%
256. If current assets are $180,000 and current liabilities are $130,000, the current ratio will be:
1.4.
$50,000.
72%.
$310,000.
1.9
257. If current assets are $180,000 and current liabilities are $130,000, working capital will be:
$50,000.
72%.
1.4.
$310,000.
2.5
258. Interim financial statements:
Cover a period less than one year.
Cover only periods of one quarter (of a year).
Cover periods greater than a year.
Cannot cover a period of one month or less.
Cover only periods of 3 months.
259. Which of the following businesses is likely to have the shortest operating cycle?
A food store
A department store
An art store
A car store
A furniture store
260. Merchandising companies:
Include both wholesalers and retailers.
Do not sell directly to the public.
Manufacture their own products and then sell them to the public.
Include companies such as General Motors, IBM, and Boeing Aircraft
Include wholesalers only.
261. Sales revenue is recognized in the period in which:
Merchandise is delivered to the customer.
The customer orders the merchandise.
Cash payment is received by the seller.
Purchases are made to replace the merchandise sold
The customer returns the merchandise to seller.
262. Gross profit is the difference between:
Net sales and the cost of goods sold.
The cost of merchandise purchased and the cost of merchandise sold.
Net sales and net income.
Net sales and all expenses.
Net sales and depreciation expense
263. The basic purpose of a subsidiary ledger is to:
Provide details about the individual items comprising the balance of a general ledger account.
Provide a chronological record of all business transactions.
Enable accountants to prepare financial statements.
Provide persons outside of the organization with detailed information about the company's operations.
Enable accountants to prepare trial balance.
264. Parkside Pool reports net sales of $625,000, gross profit of $275,000, and net income of $15,000. The company's cost of goods sold is:
$350,000
$335,000.
$340,000.
$325,000.
$310,000.
265. Berg Tooling reports net sales of $325,000, gross profit of $175,000, and net income of $15,000. The company's cost of goods sold is:
$150,000.
$135,000
$140,000.
$125,000.
$105,000.
266. Sutton Supplies reports net sales of $3,750,000, net income of $375,000, and gross profit of $900,000. The company's cost of goods sold is:
$2,850,000.
$1,900,000.
$3,375,000.
$1,700,000.
$1,000,500.
267. VanRoy Supplies reports net sales of $1,750,000, net income of $175,000, and gross profit of $300,000. The company's cost of goods sold is:
$1,450,000.
$475,000.
$1,575,000.
$1,400,000.
$1,200,000.
268. The Cost of Goods Sold account is closed by:
Debiting Income Summary and crediting Cost of Goods Sold.
Debiting Cost of Goods Sold and crediting Retained Earnings.
Debiting Cost of Goods Sold and crediting Income Summary.
Debiting Retained Earnings and crediting Cost of Goods Sold.
Debiting Income Summary and crediting Retained Earnings.
269. Under the perpetual inventory system which journal entry would indicate a purchase of merchandise?
Debit Inventory and credit Cash.
Debit Purchases and credit Cash.
Debit Costs of Goods Sold and credit Inventory
Debit Inventory and credit Cost of Goods Sold.
Debit Inventory and Credit Cost of Goods Sold.
270. In a perpetual inventory system
Merchandising transactions are recorded as they occur
No effort is made to record the Cost of Goods Sold until year-end.
Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold.
The need to take physical inventory is eliminated
All of the listed is correct.
271. In a periodic inventory system, the formula used in computing the cost of goods sold may be summarized as follows:
Beginning inventory + purchases - ending inventory.
Beginning inventory + purchases - net sales.
Ending inventory + purchases - net sales.
Ending inventory – ending inventory – purchase.
Beginning inventory + ending inventory + net sales.
272. In a periodic inventory system, which of the following accounts may be closed by debiting Cost of Goods Sold?
Inventory (beginning) and Purchases.
Sales, Inventory (beginning), and Gross Profit.
Purchases and Inventory (ending).
Sales, Inventory (beginning), and Cost of Goods Available for Sale
Sales and Inventory (ending)
273. In a periodic inventory system, the cost of goods sold is:
Determined by a computation which is performed at year-end, after the taking of a complete physical inventory.
Recorded as sales transactions occur.
Equal to the beginning inventory, plus purchases made during the period, less sales revenue for the period.
Determined by subtracting the balance in the Gross Profit account from the amount of net sales.
Cannot be determined.
274. Which of the following factors would suggest the use of a perpetual inventory system?
Inventory items with a high per-unit cost.
A small company
A desire to minimize record-keeping requirements.
Only annual reporting is required.
Reporting is done semi-annually.
275. Which of the following factors would suggest the use of a periodic inventory system?
Both a small company and a high volume of sales and a manual accounting system.
A high volume of sales and a manual accounting system.
Neither a small company nor a high volume of sales and a manual accounting system.
A small company.
All of the listed is correct.
276. Periodic inventory systems are used primarily by:
Small businesses with manual accounting systems.
Large manufacturing companies.
Small businesses that sell a high volume of low-priced items.
Companies that sell a high volume of low-priced items and record sales transactions on point-of-sale terminals.
Medium-size companies that sell a high volume of low-priced items.
277. Which account listed below is classified as a contra-revenue account?
Sales Discounts.
Cost of Goods Sold.
Gross profit.
Net profit
Purchases.
278. Sales discounts and allowances:
Will reduce net profit when properly recorded.
Will increase net profit when properly recorded.
Will not affect net profit.
Are always immaterial and need not be recorded.
None of the listed is correct.
279. The cost of delivering merchandise to the customer is:
An operating expense.
Used in the calculation of net sales.
Part of cost of goods sold.
A reduction of gross profit.
An increase of gross profit.
280. The cost of the transportation of inventory purchased:
Becomes part of the cost of inventory.
Increases income.
Are expensed in the current period.
Reduces the sales price.
All of the listed is correct.
281. When making sales, the sales taxes received are:
A liability.
Revenue
An expense if incurred.
A reduction in inventory value
An asset
282. If cost of goods sold is $480,000 and the gross profit rate is 40%, what is the gross profit?
$320,000.
$288,000.
$480,000.
$1,200,000.
$100,000.
283. If costs of goods sold is $560,000 and its gross profit rate is 20%, what is the gross profit?
$140,000
$ 70,000
$120,000
$112,000
$150,000
284. Financial assets:
Include short-term investments in marketable securities and receivables, as well as cash.
Are reported at cost in the balance sheet.
Only consist of cash and cash equivalents.
Are not very productive assets and should be kept to a minimum in a well-managed company.
Only consist of receivables.
285. Which of the following is not considered a cash equivalent?
Accounts receivable
Money market funds
U.S. Treasury bills
High-grade commercial paper
Short-term government bonds
286. The term cash equivalent refers to:
Very liquid short-term investments such as U.S. Treasury Bills and commercial paper.
An account receivable from a reliable customer who has always paid bills within the discount period.
A guaranteed line of credit at the company's bank.
An item such as a money order, travelers' check, or check from a customer.
Coins and paper money.
287. Marketable securities are:
Almost as liquid as cash.
Listed immediately after Inventory on the balance sheet.
Originally recorded at cost less any broker's commission
Sold for a gain when cash received is less than the cost basis.
Are not liquid
288. Sales to customers using bank credit cards, such as Visa or MasterCard, are recorded as:
Cash sales.
An account receivable from the cardholder.
An account receivable from the bank.
Credit card discount expense.
An account payable to the cardholder
289. With a line of credit, a liability arises:
As soon as any money is borrowed
As soon as the line is created
Upon repayment of the debt
At the maturity date
Even if it is not used
290. A good system of internal control will include all of the following except:
Preparing a pro-forma financial statement on a monthly basis.
Separating the handling of cash from the maintenance of accounting records
Making all major payments by check.
Reconciling bank statements with accounting records.
Verify every expenditure before payment
291. When preparing a bank reconciliation, deposits in transit will:
Increase the balance per the bank statement.
Decrease the balance per depositor's records.
Increase the balance per depositor's records.
Decrease the balance per the bank statement
None of the listed
292. When preparing a bank reconciliation, outstanding checks will:
Ecrease the balance per the bank statement.
Decrease the balance per depositor's records.
Increase the balance per the bank statement.
Increase the balance per depositor's records.
None of the listed.
293. Which of the four inventory approaches transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?
LIFO
FIFO
Average cost
Specific identification
None of the listed
294. A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:
Specific identification
Average cost
First-in, first-out.
Last-in, last-out
None of the listed
295. With respect to the valuation of inventory and measurement of the cost of goods sold, the principle of consistency means that the same method should be applied:
In successive accounting periods
By all companies in a given industry
To all products in the inventory
In financial statements and income tax returns
By some companies
296. If all things are equal, except one company uses LIFO during inflation and the other uses FIFO, then:
The LIFO company will have a higher inventory turnover.
The FIFO company will have a higher inventory turnover.
The two companies will have the same inventory turnover.
The two companies will rely upon an industry inventory turnover measurement.
None of the listed.
297. During periods of rising prices, and being primarily concerned with tax implications, most of the companies would select:
LIFO
FIFO
Specific identification.
The inventory valuation does not affect taxation.
None of the listed.
298. Kent Company has used the same inventory method for many years. This is an example of which principle?
Consistency
Realization
Cost
Matching
Conservatism
299. In which of these inventory approaches is it important to determine the actual cost of a particular inventory item being sold in order to determine cost of goods sold?
Specific identification
FIFO
LIFO
Average cost
None of the listed.
300. During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in the lowest taxable income?
FIFO
LIFO
Average cost
Specific identification
None of the listed
301. From an accounting view point,when is a business considered as an entity separate from its owner(s)?
A business is always considered as an accounting entity separate from the activities of the owner(s).
Only when organized as a soleproprietorship.
Only when organized as a partnership.
Only when organized as a corporation
Never
302. Net income is:
The increase in owners' equity resulting from the profitable operations.
The excess of debits over credits.
The excess of liabilities over assets.
The increase in assets of a company during a year.
The increase in liabilities of a company during a year.
303. Revenues increase owners' equity because:
Revenues increase net income, which increases retained earnings.
Revenues are recorded by a debit.
Of the matching principle.
Of the conservatism principle
Revenues decrease net income
304. Adjusting entries are needed:
Whenever transactions affect the revenue or expenses of more than one accounting period.
Whenever expenses are not paid in cash.
Only to correct errors in the initial recording of business transactions.
Whenever revenue is not received in cash.
Whenever revenues and expenses are realized in cash.
305. Under accrual accounting, fees received in advance from customers should be shown as being earned:
When services are performed or goods delivered
When cash is collected.
When tax rates are low.
When tax rates are high.
All of the listed
306. The operating cycle:
Starts with using cash to purchase merchandise and ends with collecting the cash back from customers.
Has seven steps.
Is repeated once per year for manufacturers and merchandisers.
Is longer for a retailer than for a manufacturer.
Has fifteen steps.
307. The basic purpose of offering customers cash discounts such as 2/10, n/30 is to:
Speed up the collection of accounts receivable.
Reduce net sales.
Increase sales
Increase expenses
Decrease net income
308. The Allowance for Doubtful Accounts represents:
The difference between the face value of accounts receivable and the net realizable value of accounts receivable.
The amount of uncollectible accounts written off to date.
The difference between total credit sales and collections on credit sales.
Cash set aside to make up for bad debt losses
None of the listed.
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