Accounting Test 2 MC

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?

August 31

110. Under the perpetual inventory system, in addition to making the entry to record a sale, a company would a.debit Inventory and credit Cost of Goods Sold. b.debit Cost of Goods Sold and credit Purchases. c.debit Cost of Goods sold and credit Inventory. d.make no additional entry until the end of the period.

.c.debit Cost of Goods sold and credit Inventory.

On April 1, 2022, Propel Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years. Propel records depreciation expense of $48,000 for the calendar year ending December 31, 2022. Which accounting principle has been violated?

Expense recognition principle.

67. Sales revenue less cost of goods sold is called a.gross profit. b.net profit. c.net income. d.marginal income.

a. Gross Profit

181.Baden Industries borrows $20,000 at 7% annual interest for six months on October 1, 2022. Which is the appropriate entry to accrue interest if Baden employs a December 31, 2022, fiscal year? a.Dr Interest Expense $350 Cr Interest Payable $350 b.Dr Interest Expense $1,400 Cr Interest Payable $1,400 c.Dr Interest Expense $350 Cr Notes Payable $350 d.Dr Notes Payable $1,400 Cr Interest Payable $1,400

a.Dr Interest Expense $350 Cr Interest Payable $350 (20000x.07)=1400 only from Oct to Dec so 1400x.25

99.Adjusting entries are required: a.because some costs expire with the passage of time and have not yet been journalized. b.when the company's profits are below the budget. c.when expenses are recorded in the period in which they are earned. d.None of these answer choices are correct.

a.because some costs expire with the passage of time and have not yet been journalized.

111.Prepaid expenses are: a.paid and recorded in an asset account before they are used or consumed. b.paid and recorded in an asset account after they are used or consumed. c.incurred but not yet paid or recorded. d.incurred and already paid or recorded

a.paid and recorded in an asset account before they are used or consumed.

88.Freight costs incurred by a seller on merchandise sold to customers will cause an increase a.in the selling expenses 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

179.At the beginning of the year, Wildcat Athletic had an inventory of $300,000. During the year, the company purchased goods costing $1,200,000. If Wildcat Athletic reported ending inventory of $450,000 and sales of $1,550,000, their cost of goods sold and gross profit rate would be a.$750,000 and 70% b.$1,050,000 and 32.26%. c.$750,000 and 30%. d.$1,050,000 and 67.74%. 300,000 + 1,200,000 - 450,000 = 1,050,000 COGS1,550,000 - 1,050,000 = 500,000 GP 500,000 / 1,550,000 = 32.26% (GP / Net sales = GPR)

b. 1,050,000 and 32.26% 300,000 + 1,200,000 - 450,000 = 1,050,000 COGS 1,550,000 - 1,050,000 = 500,000 GP 500,000 / 1,550,000 = 32.26% (GP / Net sales = GPR)

96.A credit sale of $1,400 is made on July 15, terms 2/10, net/30, on which a return of $100 is granted on July 18. What amount is received as payment in full on July 24? a.$1,400 b.$1,274 c.$1,350 d$1,372

b. 1274 (1,400 - 100 = 1,300 * .02 = $26 1,300 - 26 = 1,274)

194.If Hostell Company has net sales of $500,000 and cost of goods sold of $350,000, Hostell's gross profit rate is a.70% b.30% c.43% d.100%. 500,000 - 350,000 = 150,000 GP150,000 / 500,000 = 30%

b. 30% 500,000 - 350,000 = 150,000 GP150,000 / 500,000 = 30%

196.Mary Richardo, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will she make upon receipt of the payments? a.Debit Unearned Service Revenue and credit Service Revenue b.Debit Cash and credit Accounts Receivable c.Debit Accounts Receivable and credit Service Revenue d.Debit Cash and credit Service Revenue

b.Debit Cash and credit Accounts Receivable

70. Detailed records of goods held for resale are not maintained under a a.perpetual inventory system. b.periodic inventory system. c.double entry accounting system. d.single entry accounting system.

b.periodic inventory system.

121. Greese Company purchased office supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: a.debit Supplies Expense, $2,500; credit Supplies, $2,500. b.debit Supplies, $4,500; credit Supplies Expense, $4,500. c.debit Supplies Expense, $4,500; credit Supplies, $4,500. d.debit Supplies, $2,500; credit Supplies Expense, $2,500.

c. debit Supplies Expense, $4,500 credit Supplies, $4,500

Under the accrual basis of accounting: a.cash must be received before revenue is recognized. b.net income is calculated by matching cash outflows against cash inflows. c.events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. d.the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

c.events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.

80.La More Company had the following transactions during 2021: * Sales of $9,000 on account * Collected $4,000 for services to be performed in 2022 * Paid $3,750 cash in salaries for 2021 * Purchased airline tickets for $500 in December for a trip to take place in 2022. What is La More's 2021 net income using accrual accounting? a.$5,750 b.$9,750 c.$9,250 d.$5,250

d. $5,250 (9,000 Sales Completed/Earned- 3,750 Expenses Incurred)

81.La More Company had the following transactions during 2021 * Sales of $9,000 on account * Collected $4,000 for services to be performed in 2022 * Paid $2,650 cash in salaries for 2021 * Purchased airline tickets for $500 in December for a trip to take place in 2022 What is La More's 2021 net income using cash basis accounting?a.$10,350 b.$1,350 c.$9,850 d.$850

d. $850 (4,000 cash collected - 2,650 expenses paid - 500 expenses paid)

84.The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit a.Accounts Payable. b.Purchase Returns and Allowances c.Sales Revenue. d.Inventory.

d. Inventory

126. The balance in the prepaid rent account before adjustment at the end of the year is $12,000 and represents three months rent paid on December 1. The adjusting entry required on December 31 is: a.debit Prepaid Rent, $4,000; credit Rent Expense $4,000. b.debit Prepaid Rent, $8,000; credit Rent Expense, $8,000. c.debit Rent Expense, $12,000; credit Prepaid Rent, $12,000. d.debit Rent Expense, $4,000; credit Prepaid Rent, $4,000.

d. debit Rent Expense, $4,000 credit Prepaid Rent, $4,000.

114.The Sales Returns and Allowances account is classified as a(n) a.asset account. b.contra asset account. c.expense account. d.contra revenue account.

d.contra revenue account.