Accounting Past Test Questions and Answers

What is the basic equation of accounting?

Assets = Liabilities + Stockholder's Equity

On October 1st, a company borrowed $60,000 from Eighth National Bank on a 1-year, 7% note. If the company's fiscal year ends on December 31st, a year-end adjusting entry is required to increase

interest payable by $1,050

The balance in the retained earnings account represents

accumulated earnings that have not been distributed to stockholders

A company should choose a depreciation method that

best allocates the original cost of the asset to the periods benefited by the use of the asset.

The Securities Exchange Commission (SEC) is concerned with

Setting accounting rules for publicly-traded companies in the United States

Capitalizing an expenditure rather than recording it as a revenue expenditure

impacts the total book value of the plant assets reported on the balance sheet and the amount of net income reported during a period.

Expenses should be matched against revenue

in the same period as the revenue that they helped generate

A company sells merchandise to customers shoulod normally recognize

revenue and the related expenses in the period the revenue earned, whether payment is received or not.

On January 1, 2013, Kaiser Permanente issued $2,000,000 of 8% bonds at par. These bonds are due in 10 years with interest payable semi-annually on June 30 and December 31. What is the amount of the interest expense in 2013 assuming the use of the effective interest amortization method?

$160,000

On January 1, 2012, a company issued 10,000 shares of 10%, $10 par value cumulative preferred stock. No dividends were declared in 2012 or 2013. In 2014, the company declared a dividend of $200,000. How much of ther2014 dividend should be paid to common stockholders?

$170,000

What is the primary objective of financial reporting?

To provide useful information for decision making

Which of the following statements is true with regard to 7% cumulative, participating preferred stock?

If the corporation pays a per share dividend in excess of 7% of the preferred stock's par value and there are no dividends in arrears, the preferred shared will receive a share of the amounts available for distribution as dividends to other classes of stock.

The Discount on Bonds Payable account is shown on the balance sheet as

a contra-liability account that reduces the bond to market value at the issue date.

What does the phrase, "Revenue is recognized when earned" mean?

Revenue is recorded in the accounting records when the goods are received from a supplier and reported on the income statement when sold to the customer.

Refer to the information provided for the Klump Co. If the company uses the LIFO inventory costing method, the amount of the ending inventory at June 30th is:

$1,811.75

Refer to AT&U Company. If the company estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense for 2012?

$24,500

A company issued $10,000,000 of bonds. Assuming the most common denomination of bonds, the number of bonds sold was

100,000

Which of the following statements is false?

A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system.

Refer to HVAC service. The journal entry to record payment for the office equipment and supplies will include a debit to

Accounts Payable

According to the Sarbanes-Oxley Act of 2002, who is primarily responsible for establishing and maintaining a system of internal control over the company's financial reporting?

Management of the company

Refer to A2Z Events. What are the effects on the accounting equation when the company writes off a bad debt under the allowance method?

No effect on overall assets or stockholders' equity

All of the following accounts ahve normal debit balances except

Service Revenue

Which of the following sets of factors is needed to calculate depreciation on plant and equipment?

The estimated life of the asset, its acquisition cost, and its estimated residual value

Authorized stock represents the

maximum number of shares that can be issued for each class of stock.

Research and development cost are

treated as an expense when incurred

Which of the following statements is true about assets?

Assets are initially recorded using the historical cost principle

Which of the following would describe a callable bond?

Borrower has the right to pay off the bonds prior to due date.

What is the impact on the accounting equation of recording the issuance of a short-term note payable?

Both assets and liabilities increase

Refer to Fabian Woodworks. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2012?

Double-declining-balance

Which of the following is the correct date format for the financial statement heading?

Income Statement for the Year Ended December 31, 2013

While preparing a bank reconciliation, which of the following items would be subtracted from the balance per the bank statement?

Outstanding checks

Which one of the following statements is true if a company's collection period for accounts receivable is unacceptably long?

The company may offer sales discounts to shorten the collection period.

The cost of goods sold is equal to:

The cost of goods available for sales less ending inventory.

Which of the following statements is true regarding a corporation's purchase of treasury stock?

The cost of treasury stock is a reduction in stockholders' equity.

The Allowance for Doubtful Accounts represents:

The difference between the recorded value of accounts receivable and the net realizable value of accounts receivable.

Treasury shares represent the

number of previously issued shares that have been repurchased by the corporation.

Outstanding shares represent the

number of shares that are currently held by stockholders.

Issued shares represent the

number of shares that the corporation has sold.

Depreciation is a process by which

the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset

If a company's bonds are callable,

the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.

Which of the following financial statements show the end of the year cash balance for the business entity?

Balance Sheet and Statement of Cash Flows

How do you find retained earnings?

Beginning Balance + Net Income - Dividends

Which of the following are Noncurrent assets?

Machinery and Equipment

Which of the following is not a generally recognized internal control over the company's financial reporting?

Reducing the cost of hiring seasonal employees

Effective cash management and control for a company's operating cycle includes all of the following except

The practice of using surplus for the purchase of bonds or other long-term investments

Each of the following items is considered a cash equivalent except

a 180-day note issued by a local goverment

Bonds sell at a premium when the

market rate of interest is less than the stated interest rate at the time of issue.

Refer to Fabian Woodworks. What amount will be reported as the depreciation expense over the 5-year life of the equipment?

$10,000

Refer to AT&U Company. If the company uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2012?

$25,000

What will be the increase in the Paid-in capital in excess of par account if a corporation issues 20,000 shares of $1.00 par common stock for $6 per share?

$100,000

A company had sales of $40,000, sales discounts of $800, sales returns of $1,600 and commissions owed to sales people of $600. Compute net slaes.

$37,600

A graphics design company issued bonds in the amount $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds?

$800,000

Total stockholders' equity includes $50,000 of common stock with a stated value of $0.50, and 5,000 shares of treasury stock with the total cost of $25,000. How many total shares are outstanding?

95,000

Refer to Gainesville Truck Center. Which of the following expense accounts will be recorded as a result of this payroll transaction?

All of the accounts are needed to record the company's payroll.

Which of the following statements regarding amortization is true?

Amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero.

A company plans to distribute $134,000 in dividends. It has outstanding 200,000 shares of 7% $10 par preferred stock (non-cumulative and non-participating) and 60,000 shares of $2 par common stock. How much will be distributed per share on preferred and common stock?

Preferred Stock: $0.67 Common Stock: $0.00

If a corporation declares a 2-for-1 stock split, which of the following is true?

The number of outstanding shares is twice the number that were previously outstanding before the split.

Par value represents the

arbitrary amount that establishes a minimum price for the stock when it is first issued

When is a liability for dividends created?

at the date of declaration.

After a corporation declares a cash dividend, what takes place on the date of record?

No entry is necessary.

What is the distinguishing characteristic between accounts receivable and notes receivable?

Notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid.

Which of the following statements is true?

Sound internal control practice dictates that disbursement should be made by check

A corporation issued $150,000 of 10-year bonds at the stated rate of 8%, with interest payable semiannually. How much cash will the bond investors receive at the end of the first interest period?

$6,000

Refer to Lanthier's Heating & Air. What is the maximum amount that can be reported on the balance sheet for common stock and preferred stock, respectively, if all of the stock is issued?

Common Stock: $20,000 Preferred Stock: $40,000

Which of the following statements is false regarding the choice between alternative inventory costing methods?

Companies sometimes choose FIFO because it presents a more realistic income statement in terms of current market values.

Which one the following is an accurate description of the Allowance for Doubtful Accounts?

Contra Account

Depreciation is

an effort to achieve proper matching of the cost of operating assets with related revenues.

When bonds are issued by a company, the accounting entry shows an

increase in assets and an increase in liabilities.

Refer to Gainesville Truck Center. Assuming December 31st fall on a Thursday, the year-end adjusting entry would

increase wages expense by $8,000

Accrued expenses originate from

incurring expenses without yet having paid cash for them.

Operating assets with no physical properties are called

intangible assets

Bonds are a popular source of financing because

the relative cost of issuing debt is often lower than the cost of issuing equity.

Beginning accounts receivable were $200,000 and edning accounts receivable were $300,000. Assuming cash collections totaled $1,100,000, what were credit sales?

$1,200,000

Refer to the information provided for the Klump Co. If the company uses the FIFO inventory costing method, the amount of the ending inventory reported on the balance sheet is:

$1,823.75

Refer to A&B Foods. If the company uses 4% of the net credit sales estimate its bad debts, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

$103,000

Refer to the information provided for Aaron Corporation. Calculate the Cost of Goods Sold.

$105,500

A company's accounts receivable balance after posting net collections from customers for 2012 is $150,000. Management feels that uncollected accounts should be based on the fllowing aging of accounts receivable and uncollected percentages. There are $100,000 that are 1-30 past due at 2% and $50,000 that are 31 to 60 days past due at 10%. The net realizable value of the acconts receivable is

$143,000

Refer to the information provided for the Aaron Corporation. Calculate gross margin.

$144,500

Refer to Fabian Woodworks. If the company uses the straight-line method of depreciation, what is the book value at December 31, 2014?

$6,000

On January 1, 2012, a company reported assets of $1,000,000 and liabilities of $600,000. During 2012, assets decreased by $100,000 and Stockholders' Equity decreased $200,000. What is the amount of liabilities at December 31, 2012?

$700,000

Bihary Company has a beginning balance in its inventory account of $2,250 and the ending balance is $1,500. Cost of goods sold is $9,750. According to the cost of goods sold model, what was the amount of inventory purchased during the year?

$9,000

A company has total assets of $350,000 consisting of current assets of $115,000, property, plant, and equipment of $200,000, and other assets of $35,000. The company has total liabilities of $100,000 consisting of current liabilities of $65,000 and other liabilities of $35,000. What is the current ratio?

1.77

Carnegie Jewelers accepted a 9-month, 9% note for $100,000 from the customer on July 1, 2013. The note is due on MArch 31, 2014. Assuming the company's accounting period ends on December 31, 2013, how much interest revenue should be recognized druing 2013 and 2014?

2013: $4,500 2014: $2,250

Which of the following is a reconciling item on the bank side of a bank reconciliation?

Outstanding checks

Which of the following would not appear on a bank statement for a checking account?

Outstanding checks

Transportation-in is:

Part of the net cost of purchases

In order for accounting information to be useful in making informed decisions, it must be

both relevant and reliable

Goodwill can be recorded as an asset when a(n)

business is purchased and payment is made in excess of the value of the net assets

The payment of Accounts Payable results in a(n)

decrease in both liabilities and assets

Generally accepted accounting principles (GAAP) require that research and development costs to develop a new product can be

expensed in the period incurred

All of the following accounts have normal credit balances except

Inventory

A company purchased land and incurred the following costs: Purchase Price $500,000 Excavation Costs $50,000 Razing Old Building $12,500 Broker Fees $10,000 Cost of a Parking Lot $25,000 What is the cost of the land?

$572,500

GTO Division has $14,000 in current assets, $2,000 in accounts payable, and $2,000 in unearned sales revenue What is the division's current ratio?

3.50

Refer to Fireworks City. Using the data for 2012, determine the average life of the company's property, plant, and equipment rounded to one decimal place.

4.0 years

Refer to Hesson Properties. What journal entry is required to record the cash collected in advance?

Cash 500 Unearned Revenue 500

Which of the following is an example of a debit memo?

Notice of a bank service charge

What is the company's adjusted cash balance at October 31?

Add everything and subtract outstanding checks and NSF checks from customers

What amount shoudl thr company report on its Balance Sheet for Total Assets?

Add the assets. So it's property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

Cash collected and recorded by a company but not yet reflected in a bank statement are known as

Deposits in transit

Refer to Hesson Properties. What journal entry is required to record the purchase of the carts?

Equipment 1,500 Accounts Payable 1,500

A manufacturing company purchased equipment on January 1, 2004 for $450,000. As of January 1, 2013, depreciation of &202,500 had been recorded on this asset. Depreciation expense for 2013 is $22,500. After the adjustments are recorded and posted at December 31, 2013, what are the balances for the Equipment and Accumulated Depreciation?

Equipment: $450,000 Accumulated Depreciation: $225,000

The resources used to earn revenues during a period are called:

Expenses

Which inventory cost flow method assigns the cost of the most recent items purchased to ending inventory?

FIFO

Which of the following organizations is primarily responsible for establishing GAAP in the United States?

Financial Accounting Standards Board (FASB)

Kiss Greetings planned to raise $500,000 by issuing bonds. The bond certificates were printed bearing a stated interest rate of 6%, which was equal to the yield rate of interest. However, before the bonds could be issued, economic conditions forced yield rate up to 7%. If the life of the bonds is 10 years and interest is paid annually on December 31, how much will the company receive from the sale of the bonds?

Less than $500,000 because the 7% yield rate of interest was higher than the stated rate.

What is the impact on the accounting equation of recording the accrual of interest expense?

Liabilities increase and stockholders' equity decreases

The following journal entry was included in the accounting records of Jentzen Corp.: Oct. 15 Accounts Payable 4,000 Merchandise Inventory 40 Cash 3,960 Based on this information, it is likely that the company:

Paid for the inventory purchased on credit, and took advantage of a 1% purchase discount.

All of the following are acceptable for financial accounting purposes EXCEPT:

Retail cost

Refer to HVAC service. The journal entry to record payment of the salaries will include a credit to

Salary Expense

Refer to Gainesville Truck Center. Which of the following statements is true regarding the FICA taxes that must be recorded?

Social Security tax expense will be debited in the amount of $620.

Which of the following items is a classification on the Classified Balance Sheet?

Stockholders' Equity

During December, Camp David, Inc. purchased $5,000 of supplies for the use of its business. At the end of December, 20% of the supplies were still on hand, but only 70% had been paid. What amounts will appear on the company's balance sheet on December 31?

Supplies on Hand: $1,000 Accounts Payable: $1,500

A particular company had $2,400 of supplies on hand at January 1. During the year, supplies with a cost of $4,000 were purchased. At december 31, the actual supplies on hand ammounted to $2,000. After the adjustments are recorded and posted at December 31, what are the ending balances in the Supplies and Supplies Expense accounts?

Supplies: $2,000 Supplies Expense: $4,400

Which allowance method approach is considered to be an income statement approach to estimating bad debts?

The percentage of net credit sales approach

Assets become expenses when?

Their economic benefits expire.

The accounting life intangible assets is determined by

Their legal lives or useful lives, whichever is shorter.

Which of the following concepts is important to accrual accounting?

Time period, because accrual accounting divides earnings into time periods.

Carithers Cleaning Service received advance payments from the customers during 2013 of $24,000. At December 31, 2013, $5,000 of the advance payments still had not been earned. After the adjustments are recorded and posted at Decemebr 31, 2013, the balances in the Unearned Services Reveneue and Service Revenue accounts will be.

Unearned Services Revenue: $5,000 Service Revenue: $19,000

On May 1, a company borrowed $30,000 from the First National Bank on a 1-year, 6% note. Assuming the company keeps its records on a calendar year basis, an entry is needed on December 31st to increase

interest payable by $1,200

At the year-end inventory count, if the goods in transit are shipped FOB destination, they should be included in the inventory count of:

the seller