Net income plus operating expenses is equal to:A. Cost of goods sold B.Cost of goods available for sale C.Net sales D.Gross profitANSWER: D2. Generally, the revenue account for a merchandising business is entitled: A.Sales B.Net Sales C.Gross Sales D.Gross profitANSWER: A3. A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $4,000; Transportation-In, $450; Purchases, $12,000; Purchases Returns and Allowances, $2,300; Purchases Discounts, $220. The cost of merchandise purchased is equal to:A.$13,930 B.$9,930 C.$9,489 D.$14520ANSWER: B 4. Multiple-step income statements show:A.Gross profit but not income from operations B.Neither gross profit nor income from operations C.Both gross profit and income from operations D.Income from operations but not gross profitANSWER: C 5. The statement of owner"s equity shows:A.Only net income, beginning and ending capital B.Only total assets, beginning and ending capital C.Only net income, beginning capital, and withdrawals D.All the changes in the owner"s capital as a result of net income, net loss, additional investments, and withdrawalsANSWER: D 6. Black Company sold Red Company merchandise on account FOB shipping point, 2/10, net 30, for $10,000. Black prepaid the $200 shipping charge. Which of the following entries does Black make to record this sale?A.Accounts Receivable-Red, debit $10,000; Sales, credit $10,000 B.Accounts Receivable-Red, debit $10,000; Sales, credit $10,000, andAccounts Receivable-Red, debit $200; Cash, credit $200 C.Accounts Receivable-Red, debit $10,400; Sales, credit $10,400 D.Accounts Receivable-Red, debit $10,000; Sales, credit $10,000, andTransportation Out, debit $200; Cash, credit $200ANSWER: B 7. Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as: A.Purchases discount B.Sales discount C.Trade discount D.Early payment discountANSWER: B 8. Based on the following information, by what date does the invoice need to be paid in order to take the advantage of the discount?1.$5,000 of merchandise inventory was ordered on April 2, 20072.$2,000 of this merchandise was received on April 5, 20073.On April 6, 2007, an invoice dated April 4, 2007, with terms of 2/10, net 30 for $2,150 which included a $150 prepaid freight cost, was received4.On April 10, 2007, $500 of the merchandise was returned to the sellerA.April 15, 2007 B.April 16, 2007 C.April 10, 2007 D.April 14, 2007ANSWER: D 9. Who pays the freight costs when the terms are FOB shipping point?A.The ultimate customer B.The buyer C.The seller D.Either the seller or the buyerANSWER: B10. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?A.Merchandise Inventory B.Accumulated Depreciation C.Drawing D.Cost of Merchandise SoldANSWER: D11. When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory method is called:A.First-in, last-out B.Last-in, first-out C.First-in, first-out D.Average costANSWER: C12. The inventory data for an item for November are:Nov. 1Inventory20 units at $20 4Sold10 units 10Purchased30 units at $21 17Sold20 units 30Purchased10 units at $22Using the perpetual system, costing by the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30?A.$640 B.$610 C.$620 D.$630ANSWER: A13. Under a perpetual inventory system, when a shortage is discovered:A.Merchandise Inventory is debited B.Cost of Merchandise Sold is credited C.Inventory Shortages is credited D.Merchandise Inventory is creditedANSWER: D14. During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is:A.FIFO B.LIFO C.Average cost D.Weighted averageANSWER: B15. Damaged merchandise that can be sold only at prices below cost should be valued at:A.Net realizable value B.LIFO C.FIFO D.AverageANSWER: A16. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and owner"s equity?A.Net income is overstated, assets are overstated, owner"s equity is understated B.Net income is overstated, assets are overstated, owner"s equity is overstated C.Net income is understated, assets are understated, owner"s equity is understated D.Net income is understated, assets are understated, owner"s equity is overstatedANSWER: B17. If the cost of an item of inventory is $60 and the current replacement cost is $65, the amount included in inventory according to the lower of cost or market is:A.$5 B.$60 C.$65 D.$125ANSWER: B18. The number of days" sales in inventory A.Measures the length of time it takes to acquire, sell, and replace the inventoryB.Is computed by dividing the cost of merchandise sold by 365C.Measures the length of time it takes to sell the merchandise on credit and collect the account receivableD.Is about the same for all industriesANSWER: A19. If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the:A.Consignee B.Retailer C.Manufacturer D.ShipperANSWER: C20. Under a periodic inventory system:A.Accounting records continuously disclose the amount of inventory B.A separate account for each type of merchandise is maintained in a subsidiary ledger C.A physical inventory is taken at the end of the period D.Merchandise inventory is debited when goods are returned to vendorsANSWER: C21. Which one of the following below is NOT an element of internal control?A.Risk assessment B.Monitoring C.Information and communication D.Behavior analysisANSWER: D22. The objectives of internal control are to:A.Control the internal organization of the accounting department personnel and equipment B.Provide reasonable assurance that operations are managed to achieve goals, financial reports are accurate, and laws and regulations are complied with C.Prevent fraud and promote the social interest of the company D.Provide control over "internal-use only" reports and employee internal conductANSWER: B23. The debit balance in Cash Short and Over at the end of an accounting period is reported as A.An expense on the income statement B.Income on the income statement C.An asset on the balance sheet D.A liability on the balance sheetANSWER: A24. A bank statement:A. Is a credit reference letter written by the depositor"s bank B. Lets a depositor know the financial position of the bank as of a certain date C. Is a bill from the bank for services rendered D. shows the activity that increased or decreased the depositor"s account balance ANSWER: D25. Following the completion of the bank reconciliation, an adjusting entry was made that debited cash and credited Interest Revenue. Therefore the bank reconciliation must have included an item that was:A.Deducted from the balance per depositor"s records B.Deducted from the balance per bank statement C.Added to the balance per bank statement D.Added to the balance per depositor"s recordsANSWER: D26. The bank reconciliation:A.Should be prepared by an employee who records cash transactions B.Is part of the internal control system C.Is for information purposes only D.Is sent to the bank for verificationANSWER: B27. Receipts from cash sales of $9,500 were recorded incorrectly in the cash receipts journal as $5,900. What entry is required in the depositor"s accounts?A.Debit Sales; credit Cash B.Debit Cash; credit Accounts Receivable C.Debit Cash; credit Sales D.Debit Accounts Receivable; credit CashANSWER: C28. The amount of deposits in transit is included on the bank statement as a(n): A.Deduction from the balance per the depositor"s books B.Deduction from the balance per bank statement C.Addition to the balance per bank statement D.Addition to the balance per depositor booksANSWER: C29. The amount of cash to be reported on the balance sheet at June 30 is the:A.Total of the cash column in the cash receipts journal as of June 30 B.Adjusted balance appearing in the bank reconciliation for June 30 C.Total of the cash column in the cash payments journal as of June 30 D.Balance as of June 30 on the bank statementANSWER: B30. The debit recorded in the journal to reimburse the petty cash fund is to:A.Petty Cash B.Accounts Receivable C.Cash D.Various accounts for which the petty cash was disbursedANSWER: D31. The receivable that is usually evidenced by a formal instrument of credit is a(n):A.Trade receivable B.Note receivable C.Accounts receivable D.Income tax receivableANSWER: B32. The type of account and normal balance of Allowance for Doubtful Accounts is:A.Contra asset, credit B.Asset, debit C.Liability, credit D.Expense, debit E.Expense, creditANSWER: A33. Two methods of accounting for uncollectible accounts are the:A.Direct write-off method and the allowance method B.Allowance method and the accrual method C.Allowance method and the net realizable method D.Direct write-off method and the accrual methodANSWER: A34. Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and uncollectible accounts expense is estimated at 3% of net sales. If net sales are $600,000, the amount of the adjusting entry to record the provision for doubtful accounts is:A.$18,500 B.$17,500 C.$18,000 D.None of the aboveANSWER: C35. An estimate based on an analysis of receivables shows that $780 of accounts receivables are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. After preparing the adjusting entry at the end of the year, the balance in the Allowance for Doubtful Accounts is:A.$110 B.$780 C.$670 D.$890ANSWER: D36. Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year (before adjustment), and an analysis of accounts in the customers ledger indicates doubtful accounts of $15,000. Which of the following entries records the proper provision for doubtful accounts?A.Debit Uncollectible Accounts Expense, $800; credit Allowance for Doubtful Accounts, $800 B.Debit Uncollectible Accounts Expense, $14,200; credit Allowance for Doubtful Accounts, $14,200 C.Debit Allowance for Doubtful Accounts, $800; credit Uncollectible Accounts Expense, $800 D.Debit Allowance for Doubtful Accounts, $15,800; credit Uncollectible Accounts Expense, $15,800ANSWER: B37. The maturity value of a $20,000, 9%, 40-day note receivable dated July 3 is:A.$20,000 B.$20,200 C.$21,800 D.$22,000ANSWER: B38. Receivables are usually listed on the balance sheet after Cash in what order?A.Accounts Receivable, Notes Receivable, Interest Receivable B.Interest Receivable, Notes Receivable, Accounts Receivable C.Notes Receivable, Interest Receivable, Accounts Receivable D.Notes Receivable, Accounts Receivable, Interest ReceivableANSWER: D39. The number of days" sales in receivables:A.Is an estimate of the length of time the receivables have been outstanding B.Measures the number of times the receivables turn over each year C.Is Net Credit Sales divided by Average Receivables D.Is not meaningful and therefore is not usedANSWER: A 40. A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account. If the note is discounted on June 10 at 15%, the proceeds are:A.$10,115 B.$10,200 C.$10,000 D.$10,030ANSWER: A41. Which of the following should be included in the acquisition cost of a piece of equipment?A.Transportation costs B.Installation costs C.Testing costs prior to placing the equipment into production D.All are correctANSWER: D42. A building with an appraisal value of $137,000 is made available at an offer price of $142,000. The purchaser acquires the property for $30,000 in cash, a 90-day note payable for $40,000, and a mortgage amounting to $60,000. The cost basis recorded in the buyer"s accounting records to recognize this purchase is:A.$137,000 B.$142,000 C.$130,000 D.$100,000ANSWER: C43. A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $2,000, would have a cost basis of:A.$92,000 B.$91,000 C.$87,000 D.$86,000ANSWER: A44. In a lease contract, the party who legally owns the asset is the:A.Lessee B.Lessor C.Operator D.BankerANSWER: B45. A fixed asset"s estimated value at the time it is to be retired from service is called:A.Book value B.Residual value C.Market value D.Carrying valueANSWER: B46. Equipment with a cost of $160,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?A.$30,000 B.$32,500 C.$34,000 D.$40,000ANSWER: A47. A machine with a cost of $65,000 has an estimated residual value of $5,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?A.$8,000 B.$20,000 C.$12,000 D.$21,667ANSWER: B48. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is:A.Amortization B.Depletion C.Depreciation D.AllocationANSWER: A49.


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The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called:A.Depletion B.Deferral C.Amortization D.DepreciationANSWER: A50. Fixed assets are ordinarily presented in the balance sheet:A.At current market values B.At replacement costs C.At cost less accumulated depreciation D.In a separate section along with intangible assetsANSWER: