Principles of Accounting 1 Test 2 (Grice)

Which of the following would not be classified a long-term liability? A. Current maturities of long-term debt B. Bonds payable C. Mortgage payable D. Note payable due in 2 years

A. Current maturities of long-term debt

An intangible asset: A. Derives its value from the rights and privileges it provides the owner B. Is worthless because it has no physical substance C. Is converted into a tangible asset during the operating cycle D. Cannot be classified on the balance sheet because it lacks physical substance

A. Derives its value from the rights and privileges it provides the owner

An account that will have a zero balance after closing entries have been journalized and posted is: A. Fees earned B. Advertising supplies C. Prepaid Insurance D. Accumulated depreciation

A. Fees earned

Deposits in transit: A. Have been recorded on the company's books but not yet by the bank B. Have been recorded by the bank but not yet by the company C. Have not been recorded by the bank or the company D. Are checks from customers that have not yet been received by the company

A. Have been recorded on the company's books but not yet by the bank.

An adjusting entry is not required on the company's books for: A. Outstanding checks B. Collection of a note by the bank C. NSF Checks D. Bank service charges

A. Outstanding checks

Which type of accounts will appear in the post-closing trial balance? A. Permanent (balance sheet) accounts B. Temporary (income statement) accounts C. Both A and B D. Neither A nor B

A. Permanent (balance sheet) accounts

Hiatt Company purchased merchandise inventory with an invoice price of $6,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hiatt Company pays within the discount period? A. $6,000 B. $5,880 C. $5,400 D. $5,520

B. $5,880

If a check correctly written and paid by the bank for $428 is incorrectly recorded on the company's books for $482, the appropriate treatment on the bank reconciliation would be to: A. Add $54 to the bank's balance B. Add $54 to the book's balance C. Deduct $54 from the bank's balance D. Deduct $428 from the book's balance

B. Add $54 to the book's balance

On July 18 Trojan Co. purchased merchandise from JSG Company for $1,200, terms 1/10, n/30. On July 27 Trojan paid JSG in full, less discount. The entry to record the payment on Trojan's book includes a: A. Credit to sales discounts for $12 B. Credit to purchase discounts for $12 C. Debit to sales discounts for $12 D. Debit to purchase discounts for $12

B. Credit to purchase discounts for $12

Freight costs paid by a seller on merchandise sold to customer will cause an increase: A. In the selling expense of the buyer B. In operating expenses for the seller C. To the cost of goods sold of the seller D. To a contra-revenue account of the seller

B. In operating expenses for the seller

Office equipment is classified in the balance sheet as: A. A current asset B. Property, plant, and equipment C. An intangible asset D. A long-term investment

B. Property, plant, and equipment

When a company that uses the periodic inventory purchases inventory: A. Purchases on account are credited to merchandise inventory B. Purchases on account are debited to purchases C. Purchase returns are debited to purchase returns and allowances D. Freight costs are debited to purchases

B. Purchases on account are debited to purchases

When goods are returned that relate to a prior cash sale: A. The sales return and allowances account should not be used B. The cash account will be credited C. Sales returns and allowances will be credited D. Accounts receivable will be credited

B. The cash account will be credited

Grant Company gathered the following reconciling information in preparing its July bank reconciliation; Cash balance per books, 7/31 $2,500 Deposits-in-transit $150 Notes receivable and interest collected by bank $850 Bank charge for check printing $20 Outstanding checks $2,000 NSF check $170 The adjusted cash balance per books on July 31 is: A. $3,160 B. $3,010 C. $1,310 D. $1,460

C. $1,310

On a classified balance sheet, merchandise inventory is classified as: A. An intangible asset B. Property, plant, and equipment C. A current asset D. A long-term investment

C. A current asset

The sales accounts that normally have a debit balance are: A. Sales discounts B. Sales returns and allowances C. Both A and B D. Neither A nor B

C. Both A and B

The respective normal account balances of sales, sales returns and allowances, and sales discounts are: A. Credit, credit, credit B. Debit, credit, debit C. Credit, debit, debit D. Credit, debit, credit

C. Credit, debit, debit

When cash refunds are made to customers for defective merchandise, the entry to record the refund is: A. Debit purchase returns and allowances; credit cash B. Debit cash; credit purchase returns and allowances C. Debit sales returns and allowances; credit cash D. Debit cash; credit sales returns and allowances

C. Debit sales returns and allowances; credit cash

Closing entries are made: A. In order to terminates the business as an operating entity B. So that all assets, liabilities, and owner's capital accounts will have zero balances when the next accounting period starts C. In order to transfer net income (or loss) and owner's drawing to the owner's capital account D. So that financial statements can be prepared

C. In order to transfer net income (or loss) and owner's drawing to the owner's drawing to the owner's capital account

A bank reconciliation should be prepared: A. Whenever the bank refuses to lend the company money B. When an employee is suspected of fraud C. To explain any differences between the balance per books with the balance per bank D. By the person who is authorized to sign checks

C. To explain any differences between the balance per bank

Liabilities are generally classified on a balance sheet as: A. Small liabilities and large liabilities B. Present liabilities and future liabilities C. Tangible liabilities and intangible liabilities D. Current liabilities and long-term liabilities

D. Current liabilities and long-term liabilities

The journal entry to record a credit sale is: A. Debit cash; credit sales B. Debit cash; credit service revenue C. Debit accounts receivable; credit service revenue D. Debit accounts receivable; credit sales

D. Debit accounts receivable; credit sales

In preparing a bank reconciliation, outstanding checks are: A. Added to the balance per bank B. Deducted from the balance per books C. Added to the balance per books D. Deducted from the balance per bank

D. Deducted from the balance per bank

A current asset is: A. The last asset purchased by a business B. An asset which is currently being used to produce a product or service C. Usually found as a separate classification in the income statement D. Expected to be realized in cash, sold or consumed within one year of the balance sheet date or the company's operating cycle, whichever is longer.

D. Expected to be realized in cash, sold or consumed within one year of the balance sheet date or the company's operating cycle, whichever is longer

Which of the following expressions is incorrect? A. Gross profit - operating expenses = net income B. Sales - cost of goods sold - operating expenses = net income C. Net income + operating expenses = gross profit D. Operating expenses - cost of goods sold = gross profit

D. Operating expenses - cost of goods sold = gross profit

Asset accounts will appear on a post-closing trial balance.

False

Expenses should be classified on the balance as noncurrent assets.

False

Inventory should be classified as a current liability.

False

Long-term investments would appear in the property, plant, and equipment section of the balance sheet.

False

Prepaid insurance will have a zero balance after closing entries have been journalized.

False

Sales minus operating expenses equal gross profit.

False

The cost of goods sold section can be found on a company's balance sheet.

False

The long-term portion of bonds payable should be classified as a current liability.

False

A liability is classified as a current liability if it is to be paid from current assets within the next year or operating cycle, whichever is longer.

True

All expense accounts should be included in the closing entries.

True

All revenue accounts should be included in the closing entries.

True

Cash and office supplies are both classified as current assets.

True

If net sales are $10,000,000 and cost of goods sold is $7,000,000, then gross profit is $3,000,000.

True

Inventory should be classified as a current asset.

True

Perpetual and periodic systems are two types of systems used to account for inventory.

True