This document contains multiple choice questions related to accounting concepts. Specifically: 1) It asks about the financial statements that would be affected by a machine purchase on credit. 2) It asks about calculating accrual-basis net income based on revenue, expenses, and timing differences between when amounts were collected/paid vs when services were performed. 3) It contains multiple choice questions testing accounting concepts like inventory costing methods, accounts included in different financial statement sections, internal vs external financial statement users, and more.

1. On the last day of the period, Jim Otto Company buys a $900 machine on credit. This
transaction will affect the:
a.income statement, retained earnings statement, and statement of financial position.
b.income statement only.
c.statement of financial position only.
d.income statement and retained earnings statement only.
Alpha Company collected£180,000 from customers in 2018. Of the amount collected,
£20,000 was for services performed in 2017. In addition, Alpha performed services worth
£80,000 in 2018, which will not be collecteduntil 2019. Alpha also paid £140,000 for
expenses in 2018. Of the amount paid, £10,000 was for expenses incurred on account in
2017. In addition, Alpha incurred £60,000 of expenses in 2018, which will not be paid
until 2019. 2018 accrual-basis net income is
a.£60,000
b.£50,000
c.£70,000
d.£40,000
Which of the following expenses would not generally be found in the General and
Administrative Expenses section of an income statement?
a.Wages Expense.
b.Depreciation Expense.
c.Advertising Expense.
d.Rent Expense.
A list of accounts and their balances at a given time is called a(n)
a.journal.
b.trial balance
c.posting

2. d.income statement
Which of the following would not be considered an internal user of accounting data for
the XYZ Company?
a.President of the company
b.Production manager
c.Merchandise inventory clerk
d.President of the employees' labor union
In periods of rising prices, the inventory method which results in the inventory value on
the statement of financial position that is closest to current cost is the
a.average-cost method
b.FIFO method
c.LIFO method
d.tax method
The adjusted trial balance of BNJ Enterprises shows the following data pertaining to sales
at the end of its fiscal year December 31, 2018: Sales Revenue €600,000, Freight-Out
€2,000, Sales Returns and Allowances €5,000, and Sales Discounts €2,000. The closing
entries for sales as following
a.Debit Sales Revenue, €600,000 and Freight-Out €2,000; Credit Income Summary
€602,000
b.Debit Sales Revenue, €600,000;Credit Income Summary €600,000
c.Debit Sales Revenue, €600,000 and Sales Returns and Allowances €5,000; Credit
Income Summary €605,000
d.Debit Sales Revenue, €600,000 and Sales Returns and Allowances €5,000 and Sales
Discounts €2,000; Credit Income Summary €607,000
The assets should be listed on Cerner’s statement of financial position in the following
order:

3. a.cash, prepaid insurance, supplies, accounts receivable
b.cash, accounts receivable, prepaid insurance, supplies
c.equipment, supplies, prepaid insurance, accounts receivable, cash
d.cash, accounts receivable, prepaid insurance, equipment
A debit is not the normal balance for which account listed below?
a.Accounts Receivable
b.Dividends
c.Service Revenue
d.Cash
On September 23, Pitts Company received a $350 check from Mike Moluf for services to
be performed in the future. The bookkeeper for Pitts Company incorrectlydebited Cash
for $350 and credited Accounts Receivable for $350. The amounts have been posted to
the ledger. To correct this entry, the bookkeeper should
a.debit Accounts Receivable $350 and credit Service Revenue $350
b.debit Accounts Receivable $350 and credit Unearned Service Revenue $350
c.debit Cash $350 and credit Unearned Service Revenue $350
d.debit Accounts Receivable $350 and credit Cash $350
At December 1, 2019, JNN Travel Agency had an Accounts Payable balance of $40,000.
During the month, the company made purchases on account of $50,000 and made
payments on account of $20,000. At December 31, 2019, the Accounts Payable balance
is
a.$82,000
b.$90,000
c.$70,000
d.$10,000

4. The balance in the income summary account before it is closed will be equal to
a.zero
b.the net income or loss on the income statement
c.the beginning balance in the owner's capital account
d.the ending balance in the owner's capital account
Expenses incurred but not yet paid or recorded are called
a.accrued expenses
b.interim expenses
c.prepaid expenses
d.unearned expenses
Disclosures about inventory should include each of the following except the
a.major inventory classifications
b.quantity of inventory
c.basis of accounting
d.costing method
Can financial statements be prepared directly from the adjusted trial balance?
a.Yes, adjusting entries have been recorded in the general journal and posted to the ledger
accounts
b.They cannot. The general ledger must be used
c.No, the adjusted trial balance merely proves the equality of the total debit and total
credit balances in the ledger after adjustments are posted. It has no other purpose
d.They can because that is the only reason that an adjusted trial balance is prepared
Payment of an account payable affects the components of the accounting equation in the
following way.

5. a.decreases equity and decreases liabilities.
b.increases assets and decreases liabilities.
c.decreases assets and increases equity.
d.decreases assets and decreases liabilities.
During the current year, 2011, a company decides to carry a brand new item in its
inventory. It purchases 25 new items for $100 each for a total of $2,500. It sells 7 items
during 2011 and has 18 items on hand at the end of the year. In 2012, it buys 6 more
items for the same price and only sells 7 items during the entire year. What is the
computed amount of Cost of Goods Sold for each year?
a.$1,800 and $700.
b.$700 and $1,800.
c.$700 and $700.
d.$2,500 and $700.
The _______________ principle requires that financial information is supported by
independent, unbiased evidence.
a.going-concern
b.objectivity
c.business entity
d.accounting period
Income from operations is gross profit less
a.other expenses and losses
b.operating expenses
c.administrative expenses
d.selling expenses
A sales invoice is a source document that

6. a.provides support for goods purchased for resale
b.provides evidence of incurred operating expenses
c.serves only as a customer receipt
d.provides evidence of credit sales
If beginning inventory is understated by $15,000, the effect of this error in the current
period is
a.Cost of Goods Sold is understated by $15,000, Net Income is Overstated by $15,000
b.Cost of Goods Sold is Overstated by $15,000, Net Income is Overstated by $15,000
c.Cost of Goods Sold is Overstated by $15,000, Net Income is understated by $15,000
d.Cost of Goods Sold is understated by $15,00000, Net Income is understated by $15,000
The double-entry system requires that each transaction must be recorded
a.first as a revenue and then as an expense
b.in at least two different accounts
c.in a journal and in a ledger
d.in two sets of books
Liabilities of a company would not include
a.notes payable
b.accounts payable
c.wages payable
d.cash
Cole Company has sales revenue of $39,000, cost of goods sold of $24,000 and operating
expenses of $9,000 for the year ended December 31. Cole's gross profit is
a.$30,000

7. b.$6,000
c.$0
d.$15,000
Accumulated Depreciation is
a.an Share Capital account
b.a liability account
c.a contra asset account
d.an expense account
The usual sequence of steps in the transaction recording process is
a.analyze � journal � ledger
b.journal � ledger � analyze
c.journal � analyze � ledger
d.ledger � journal � analyze
GNN Moto Company received a $590 cash from a customer for the balance due. The
transaction was erroneously recorded as a debit to Cash $990 and a credit to Service
Revenue $990. Assuming the incorrect entry is not reversed, the correctingentry is
a.Debit Service Revenue, $990;credit Cash, $400 and Accounts Receivable, $590.
b.Debit Cash, $990; credit Accounts Receivable, $990.
c.Debit Cash, $400 and Service Revenue, $590; credit Accounts Receivable, $990.
d.Debit Cash, $590 and Accounts Receivable, $590; credit Service Revenue, $1,080.
A disadvantage of a sole proprietorship is the fact that the owner has ______________.
a.only one owner
b.simple activities

8. c.unlimited liability
d.limited liability
Failure to prepare an adjusting entry at the end of the period to recordan accrued expense
would cause
a. an overstatement of expenses and an overstatement of liabilities
b. an understatement of expenses and an understatement of liabilities
c. an overstatement of assets and an overstatement of liabilities
d. net income to be understated
A proprietorship employs one full-time accountant. This person is considered an
employee. On the desk in front of her are five different business documents. Which one
of the following would not be considered an original source document from the
proprietorship's point of view?
a.A bank receipt for $10,000 evidencing yesterday's cash receipts deposited in the bank.
b.The invoice received by the proprietorship from Samsung Electronics when the
proprietorship purchased its first lot of inventory to be sold to its customers.
c.A copy of the Statement of Financial Positionat the end of the company's first year of
existence.
d.A cancelled check for $500 representing payment in full for the annual insurance
premium mentioned in item B above.
In a perpetual inventory system, cost of goods sold is recorded
a.on a monthly basis
b.on an annual basis
c.on a daily basis
d.with each sale
The adjusted trial balance is prepared

9. a.after financial statements are prepared
b.before the trial balance
c.to prove the equality of total assets and total liabilities
d.after adjusting entries have been journalized and posted
If at the end of the accounting period, the company's liabilities total $19,000 and its
equity totals $40,000, then what must be the total of assets?
a.$14,000.
b.$21,000.
c.$59,000.
d.$40,000.
e.None of the above.
Under a perpetual inventory system, acquisition of merchandise for resale is debited to
the
a.Purchases account
b.Cost of Goods Sold account
c.Merchandise Inventory account
d.Supplies account
Maple Tree Inc. purchased a 12-month insurance policy on March 1, 2019 for $900. At
March 31, 2019, the adjusting journal entry to recordexpiration of this asset will include
a
a.debit to Insurance Expense and a credit to Prepaid Insurance for $75
b.debit to Insurance Expense and a credit to Cash for $75
c.debit to Prepaid Insurance and a credit to Insurance Expense for $100
d.debit to Prepaid Insurance and a credit to Cash for $900

10. If goods in transit are shipped FOB destination
a.the buyer has legal title to the goods until they are delivered
b.no one has legal title to the goods until they are delivered
c.the seller has legal title to the goods until they are delivered
d.the transportation company has legal title to the goods while the goods are in transit
Net loss will result during a time period when:
a.Revenues exceed expenses
b.Expenses exceed revenues
c.Assets exceed liabilities
d.Assets exceed revenues
Monthly and quarterly time periods are called
a.interim periods
b.calender periods
c.quarterly periods
d.fiscal periods
JNK Company showed the following balances at the end of its first year: Cash $4,200,
Prepaid insurance $1,200, Accounts receivable $2,400, Accounts payable $3,000,
Salaries and Wages Expense: $4,400, Share Capital - Ordinary $6,000, Service Revenue
$5,000, Salaries and Wages Expense $1,800. What did JNK Company show as total
credits on its trial balance?
a.$18,000
b.$17,000
c.$14,000
d.$20,000

11. In preparing closing entries for a merchandising company, the Income Summary account
will be credited for the balance of
a.sales
b.freight-out
c.merchandise inventory
d.sales discounts
The accounting process involves all of the following except
a.analyzing and interpreting financial reports
b.identifying economic transactions that are relevant to the business.
c.communicating financial information to users by preparing financial reports
d.recording nonquantifiable economic events
Closing entries are necessary for
a.both permanent and temporary accounts
b.permanent accounts only
c.temporary accounts only
d.permanent or real accounts only
T&H Company reported the following balances at December 31, 2018: Sales £300,000,
Sales Returns and Allowances £10,000, Sales Discounts £4,000, Cost of Goods Sold
£250,000. Net sales for the month is
a.£236,000
b.£290,000
c.£286,000
d.£300,000
Beginning inventory plus the cost of goods purchased equals

12. a.cost of goods sold
b.cost of goods available for sale
c.net purchases
d.total goods purchased
A current asset is
a.an asset that a company expects to convert to cash or use up within one year
b.an asset which is currently being used to produce a product or service
c.the last asset purchased by a business
d.usually found as a separate classification in the income statement
A company purchased inventory as follows: 200 units at $10, 300 units at $12. The
average unit cost for inventory is
a.$11.20
b.$10.00
c.$12.00
d.$11.00
Which of the following accounts has a normal credit balance?
a.Sales Returns and Allowances
b.Sales
c.Selling Expense
d.Sales Discounts
Total assets and total liabilities of a company are reported on which of the following?
a.Statement of owner's equity.
b.Statement of cash flows.

13. c.Income statement.
d.Statement of Financial Position
Understating beginning inventory will understate
a.net income
b.assets
c.owner's equity
d.cost of goods sold
The right side of an account
a.reflects all transactions for the accounting period
b.shows all the balances of the accounts in the system
c.is the credit side
d.is the correct side
Boron Company has prepared the adjusted trial balance as of December 31, 2011. Even
though this adjusted trial balance is correct in every respect, there is still one account
whose balance does not represent the correct end-of-the-period balance. Which account is
it?
a.Cash.
b.Retained Earnings.
c.Accounts Receivable.
d.Accumulated Depreciation.
A company purchased inventory as follows: 200 units at $10, 300 units at $12. The
average unit cost for inventory is
a.$12.00
b.$10.00

14. c.$11.20
d.$11.00
Company A is taking the end-of-the-year physical inventory. Its accounting period ends
on December 31. Which of the following items would not be counted in the ending
inventory count?
a.Items Company A ordered from a supplier on December 15 were shipped on December
17th and received by Company A on December 28 where the seller paid the shipping
charges.
b.Unsold inventory that remains in Company A's warehouse on December 31.
c.Items sold on December 29 and shipped the same day where the purchaser is
responsible for paying the freight charge. The item arrived at its destination on January 3.
d.Items owned by Company A were delivered to another company on consignment on
December 27. The items are still held by the other company on December 31.
A company's ending inventory amount is overstated by $10,000. What will be the effect
of this overstatement on Cost of Goods Sold and Net Income?
a.Cost of Goods Sold is understated by $10,000 and Net Income is overstated by $10,000.
b.Cost of Goods Sold and Net Income are overstated by $10,000.
c.Cost of Goods Sold is overstated by $10,000 and Net Income is understated by $10,000.
d.Costs of Goods Sold and Net Income are understated by $10,000.
In a perpetual inventory system, when a buyer returns defective merchandise to the seller,
the buyer credits which account?
a.Merchandise Inventory.
b.Cash.
c.Sales Revenue.
d.Sales Returns.

15. Customarily, a trial balance is prepared
a.only at the inception of the business
b.at the end of an accounting period
c.after each journal entry is posted
d.at the end of each day
Office Equipment is classified in the statement of financial position as
a.property, plant, and equipment
b.an intangible asset
c.a long-term investment
d.a current asset
If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect
will this have on that month's financial statements?
a.Failure to make an adjustment does not affect the financial statements
b.Expenses will be overstated and net income and owner's equity will be understated
c.Assets will be overstated and net income and owner's equity will be overstated
d.Assets will be overstated and net income and owner's equity will be understated
A limited liability company offers the limited liability of a partnership or proprietorship.
a.False
b.True
In a perpetual inventory system, the Cost of Goods Sold account is used
a.only when a credit sale of merchandise occurs
b.only when a sale of merchandise occurs
c.whenever there is a sale of merchandise or a return of merchandise sold

16. d.only when a cash sale of merchandise occurs
A compound journal entry involves
a.four or more accounts
b.two accounts
c.three or more accounts
d.three accounts
In a manufacturing business, inventory that is ready for sale is called a
a.work in process inventory
b.finished goods inventory
c.store supplies inventory
d.raw materials inventory
If total liabilities increased by $15,000 and owner’s equity increased by $5,000 during a
period of time, then total assets must change by what amount and direction during that
same period?
a.$30,000 increase
b.$20,000 increase
c.$20,000 decrease
d.$25,000 increase
Dee Hellings, Inc. performed $3,000 worth of services for a client during December but
did not get paid until the first week of February of the next year. No year-end adjusting
entry was recorded on December 31. As a consequence of this oversight, which of the
following occurred?
a.Assets were understated and revenue was understated.
b.Assets were overstated and revenue was overstated.

17. c.Assets were overstated and revenue was understated.
d.Assets were understated and revenue was overstated.
Which of the following statements is false?
a.A statement of financial position reports the assets, liabili- ties, and equity at a specific
date.
b. A statement of cash flows summarizes information about the cash inflows (receipts)
and outflows (payments) for a specific period of time.
c.A retained earnings statement summarizes the changes in retained earnings for a
specific period of time.
d.An income statement presents the revenues, expenses, assets, and liabilities for a
specific period of time.
The basic accounting equation is Assets = Liabilities + Equity. The Equity term of the
equation can be further broken down into several other terms. Assume that the entity is a
sole proprietorship. Which of the following statements is correct?
a.Increases in expenses will decrease equity; and owner withdrawals will decrease equity.
b.Additional investments by the business owner will decrease equity; and revenues will
increase equity.
c.Additional investments by the business owner will increase equity; and revenues will
decrease equity.
d.Revenues will decrease equity; and owner withdrawals will increase equity.
e.Revenues will increase equity; and owner withdrawals will increase equity.
Although it is possible to find an exception to the following statement, the vast majority
of adjusting entries follow which pattern described below?
a.Both of the accounts debited or credited are income statement accounts.
b.Both of the accounts debited or credited are part of the statement of owner's equity.
c.Both of the accounts debited or credited are balance sheet accounts.

18. d. One of the accounts debited or credited is an income statement account while the
second account debited or credited is a balance sheet account.
A post-closing trial balance will show
a.only temporary account balances
b.only permanent account balances
c.zero balances for all accounts
d.the amount of net income (or loss) for the period
A merchandising company using a perpetual system will make
a.one less adjusting entry than a service company does
b.the same number of adjusting entries as a service company does
c.different types of adjusting entries compared to a service company
d.one more adjusting entry than a service company does
Overstating ending inventory will overstate all of the following except
a.owner's equity
b.assets
c.net income
d.cost of goods sold
The usual sequence of steps in the recording process is to analyze each transaction, enter
the transaction in the
a.journal, and transfer the information to the ledger accounts
b.book of original entry, and transfer the information to the journal
c.ledger, and transfer the information to the journal

19. d.book of accounts, and transfer the information to the journal
Which of the following statements about the accounting cycle is false?
a.Journalizing the transactions is performed before preparing the unadjusted trial balance.
b.Preparing the post-closing trial balance is done after the temporary account have been
closed.
c.Posting is done after transactions have been analyzed.
d.Financial statements are prepared before preparing the adjusted trial balance.
e.Adjusting the accounts is done prior to preparing the adjusted trial balance.
At the beginning of September, 2008, RFI Company reported Merchandise Inventory of
$4,000. During the month, the company made purchases of $7,800. At September 31,
2008, a physical count of inventory reported $3,200 on hand. Cost of goods sold for the
month is
a.$7,800
b.$600
c.$8,600
d.$11,800
Double-entry accounting requires which of the following?
Select one or more:
a.
All journal entries must be posted twice.
b.
At least two accounts are involved, with at least one debit and one credit.
c.
The total amount debited must equal the total amount credited.

20. The accounting process is correctlysequenced as
a.communication, recording, identification
b.identification, recording, communication
c.identification, communication, recording
d.recording, communication, identification
OTHER MULTIPLE CHOICES:
CHAPTER 1:
The primary objective of financial reporting is to provide information:
A) About a firm's financing and investing activities.
B) About a firm's economic resources and obligations.
C) About a firm's productlines.
D) Useful in predicting cash flows.
The SEC exerts a continuing influence on the establishment of accounting
standards. It does so primarily by:
A) Monitoring the development of GAAP within the accounting professionand
using its stature to influence that development.
B) Exercising its statutory authority to prescribe external financial reporting
requirements.
C) Allying with the AICPA to lobby the efforts of the FASB.
D) Providing auxiliary funding to the FASB.
The documents that set forth fundamental concepts on which financial accounting
and reporting standards will be based are:
A) Statements of Financial Accounting Standards.

21. B) Statements of Financial Accounting Concepts.
C) Accounting Principles Board Opinions.
D) All of the above.
The two primary decision-specific qualities that make accounting information
useful are:
A) Verifiability and representational faithfulness.
B) Predictive value and feedback value.
C) Costeffectiveness and materiality.
D) Relevance and reliability.
Relevance requires that information possesspredictive and/or feedback value and
be:
A) Neutral.
B) Comparable.
C) Timely.
D) Reliable.
The qualitative characteristic that means there is agreement between a measure and
a real-world phenomenon is:
A) Verifiability.
B) Representational faithfulness.
C) Neutrality.
D) Materiality.
Which of the following is considered a practical constraint on the qualitative
characteristics:
A) Verifiability.

22. B) Conservatism.
C) Costeffectiveness.
D) Timeliness.
In general, revenue is recognized when the earnings process is virtually complete
and:
A) Collection of the sales price is reasonably assured.
B) A purchase order is received.
C) Cash is collected.
D) Production is completed.
The primary objective of the matching principle is to:
A) Provide timely information to external decision-makers.
B) Provide full disclosure.
C) Recognize expenses in the same period as the related revenue.
D) All of the above.
Which of the following is not an external user of a business's financial
information?
A.) Customers
B.) Taxing Authorities
C.) Investors
D.) Employee
Assume National Cleaning Service had net income of $1,260 for the year. National
Cleaning Service's beginning and ending total assets were $5,210 and $4,870,
respectively. Calculate National Cleaning Service's return on assets for the year.
A.) 25%

23. B.) 25.9%
C.) 24.2%
D.) 4%
(Tutorial: net income/ total assets
(5,210+4,870)/2 = 5,040 (1,260/5,040) = .25)
The balance sheet reports the
A.) financial position for a specific period.
B.) results of operations on a specific date.
C.) financial position on a specific date.
D.) results of operations for a specific period.
The statement of retained earnings is one of the financial statements most
frequently provided by public companies.
A. True
B. False
(The financial statements most frequently provided by public companies include
the balance sheet, the statement of cash flows, and the statement of stockholder's
equity).
Which of the following statements about basic assumptions is correct?
a. Basic assumptions are the same as accounting principles
b. the economic entity assumption states that there should be a particular unit of
accountability
c. the monetary unit assumptions enables accounting to measure employee morale
d. partnerships are not economic entities

24. Services performed by a public accountant include:
a. auditing, taxation, and management consulting
b. auditing, budgeting, and management consulting
c. auditing, budgeting, and costaccounting
d. auditing, budgeting, and management consulting
Which of the following statements describe transactions that would be recorded in
the accounting system?
A. An exchange of an asset for a promise to pay
B. An exchange of an promise for another promise to pay
C. Both of the above
D. None of the above
Total assets on a balance sheet prepared on any date must agree with which of the
following?
A. The sum of total liabilities and net income as shown on the income statement
B. The sum of total liabilities and contributed capital
C.The sum of total liabilities and contributed capital
D. The sum of total liabilities and contributed capital and retained earnings
If a publicly traded company is trying to maximize its perceived value to decision
makers external to the corporation, the company is most likely to report too small a
value for which of the following on it balance sheet?
A. Assets
B. Liabilities
C. Retained earnings
D. Contributed Capital

25. Which of the following statements would be considered true regarding debits and
credits?
A. In any given transaction, the total dollar amount of the debit and the total dollar
amount of the credit must be equal
B. Debits decrease certain accounts and credits decrease certain accounts
C. Liabilities and stockholders equity accounts usually end in credit balances while
assets usually end in debit balances
D. All of the above
Which of the following statements would be considered true regarding the balance
sheet?
A. One cannot determine the true current value of a company be reviewing just its
balance sheet
B. The balance sheet reports assets only if they have been acquired through
identifiable transactions
C. A balance sheet shows only the ending balances in a summarized system as of a
particular date
D. All of the above
If a company incorrectly records a payment as an asset, rather than as an expense,
how will this error affect net income in the current period?
A. Net income will be too high
B. Net income will be too low
C. Net income will not be affected by this error
D. Its a mystery; nobodyreally knows
When should a company report the costan insurance policy as an expense?

26. A. When the company first signs the policy
B. When the company pays for the policy
C. When the company receives the benefits form the policy over its period of
coverage
D. When the company receives payments from the insurance company for its
insurance
Which of the following is the entry to be recorded by law firm when it receives a
payment from a new client that will be earned when service are provided in the
future?
A. Debit accounts receivable; credit legal services revenue
B. Debit unearned revenue; credit legal service revenue
C. Debit cash; credit unearned revenue
D. Debut unearned revenue; credit cash
Wilson Company owns land that cost$100,000. If a “quick sale” of the land was
necessary to generate cash, the company feels it would receive only $80,000. The
company continues to report the asset on the balance sheet at $100,000. Which of
the following concepts justifies this?
The historical-cost principle.
The value is tied to objective and verifiable past transactions.
Neither of the above.
Both "a" and "b".
CHAPTER 2:
1. Which of the following statements about an account is true?
a. The right side of an account is the debit, or increase, side.
b. An account is an individual accounting recordof increases and decreases in
specific asset, liability, and equity items.
c. There are separate accounts for specific assets and liabilities but only one
account for equity items.

27. d. The left side of an account is the credit, or decrease, side.
2. Debits:
a. increase both assets and liabilities.
b. decrease both assets and liabilities.
c. increase assets and decrease liabilities.
d. decrease assets and increase liabilities.
3. A revenue account:
a. is increased by debits.
b. is decreased by credits.
c. has a normal balance of a debit.
d. is increased by credits.
4. Accounts that normally have debit balances are:
a. assets, expenses, and revenues.
b. assets, expenses, and share capital—ordinary.
c. assets, liabilities, and dividends.
d. assets, dividends, and expenses.
5. The expanded accounting equation is:
a. Assets + Liabilities = Share Capital + Retained Earnings +
Dividends + Revenues + Expenses.
b. Assets = Liabilities + Share Capital + Retained Earnings +
Dividends + Revenues – Expenses.
c. Assets = Liabilities – Share Capital – Retained Earnings –
Dividends – Revenues – Expenses.
d. Assets = Liabilities + Share Capital + Retained Earnings +
Revenues – Expenses – Dividends.
6. Which of the following is not part of the recording
process?
a. Analyzing transactions.
b. Preparing an income statement.
c. Entering transactions in a journal.
d. Posting journal entries.
7. Which of the following statements about a journal is
false?
a. It is not a book of original entry.

28. b. It provides a chronological record of transactions.
c. It helps to locate errors because the debit and credit amounts
for each entry can be readily compared.
d. It discloses in one place the complete effect of a
transaction.
8. The purchase of supplies on account should result in:
a. a debit to Supplies Expense and a credit to Cash.
b. a debit to Supplies Expense and a credit to Accounts
Payable.
c. a debit to Supplies and a credit to Accounts Payable.
d. a debit to Supplies and a credit to Accounts Receivable.
9. The order of the accounts in the ledger is:
a. assets, revenues, expenses, liabilities, share capital—ordinary,
dividends.
b. assets, liabilities, share capital—ordinary, dividends, revenues,
expenses.
c. share capital—ordinary, assets, revenues, expenses, liabilities,
dividends.
d. revenues, assets, expenses, liabilities, share capital—ordinary,
dividends.
10. A ledger:
a. contains only asset and liability accounts.
b. should show accounts in alphabetical order.
c. is a collectionof the entire group of accounts maintained by
a company.
d. is a book of original entry.
11. Posting:
a. normally occurs before journalizing.
b. transfers ledger transaction data to the journal.
c. is an optional step in the recording process.
d. transfers journal entries to ledger accounts.
12. Before posting a payment of €5,000, the Accounts Payable of Green Grocers
had a normal balance of €16,000. The balance
after posting this transaction was:

29. a. €21,000. c. €11,000.
b. €5,000. d. cannot be determined.
13. A trial balance:
a. is a list of accounts with their balances at a given time.
b. proves the journalized transactions are correct.
c. will not balance if a correct journal entry is posted twice.
d. proves that all transactions have been recorded.
14. A trial balance will not balance if:
a. a correct journal entry is posted twice.
b. the purchase of supplies on account is debited to Supplies
and credited to Cash.
c. a £100 dividend is debited to Dividends for £1,000 and
credited to Cash for £100.
d. a £450 payment on account is debited to Accounts Payable
for £45 and credited to Cash for £45.
15. The trial balance of Jeong Company had accounts with
the following normal balances: Cash $5,000, Service Revenue
$85,000, Salaries and Wages Payable $4,000, Salaries and Wages
Expense $40,000, Rent Expense $10,000, Share Capital—Ordinary
$42,000, Dividends $15,000, and Equipment $61,000. In preparing a
trial balance, the total in the debit column is:
a. $131,000. c. $91,000.
b. $216,000. d. $116,000.
CHAPTER 3:
1. The revenue recognition principle states that:
a. revenue should be recognized in the accounting period in
which a performance obligation is satisfied.
b. expenses should be matched with revenues.
c. the economic life of a business can be divided into artificial
time periods.
d. the fiscal year should correspond with the calendar year.
2. The time period assumption states that:
a. companies must wait until the calendar year is completed to
prepare financial statements.

30. b. companies use the fiscal year to report financial information.
c. the economic life of a business can be divided into artificial
time periods.
d. companies recordinformation in the time period in which the
events occur.
3. Which of the following statements about the accrual basis
of accounting is false?
a. Events that change a company’s financial statements are
recorded in the periods in which the events occur.
b. Revenue is recognized in the period in which services are
performed.
c. This basis is in accordance with International Financial
Reporting Standards.
d. Revenue is recorded only when cash is received, and expense
is recorded only when cash is paid.
4. The principle or assumption dictating that efforts (expenses)
should be recognized in the period in which a company consumes
assets or incurs liabilities to generate revenue is the:
a. expense recognition principle.
b. cost assumption.
c. time period assumption.
d. revenue recognition principle.
5. Adjusting entries are made to ensure that:
a. expenses are recognized in the period in which they are
incurred.
b. revenues are recorded in the period in which services are
performed.
c. statement of financial position and income statement accounts
have correct balances at the end of an accounting period.
d. All the responses above are correct.
6. Each of the following is a major type (or category) of adjusting entries except:
a. prepaid expenses. c. accrued expenses.
b. accrued revenues. d. recognized revenues.
7. The trial balance shows Supplies €1,350 and Supplies
Expense €0. If €600 of supplies are on hand at the end of the period,

31. the adjusting entry is:
a. Supplies 600
Supplies Expense 600
b. Supplies 750
Supplies Expense 750
c. Supplies Expense 750
Supplies 750
d. Supplies Expense 600
Supplies 600
8. Adjustments for prepaid expenses:
a. decrease assets and increase revenues.
b. decrease expenses and increase assets.
c. decrease assets and increase expenses.
d. decrease revenues and increase assets.
9. Accumulated Depreciation is:
a. a contra asset account. c. an equity account.
b. an expense account. d. a liability account.
10. Rivera Shipping computes depreciation on delivery equipment at ¥1,000 (amounts
in thousands) for the month of June. The adjusting entry to record this depreciation is
as follows.
a. Depreciation Expense 1,000
Accumulated Depreciation— Rivera Shipping 1,000
b. Depreciation Expense 1,000
Equipment 1,000
c. Depreciation Expense 1,000
Accumulated Depreciation — Equipment 1,000
d. Equipment Expense 1,000
Accumulated Depreciation — Equipment 1,000
11. Adjustments for unearned revenues:
a. decrease liabilities and increase revenues.
b. have an assets-and-revenues-account relationship.

32. c. increase assets and increase revenues.
d. decrease revenues and decrease assets.
12. Adjustments for accrued revenues:
a. have a liabilities-and-revenues-account relationship.
b. have an assets-and-revenues-account relationship.
c. decrease assets and revenues.
d. decrease liabilities and increase revenues.
13. Anika Winter earned a salary of €400 for the last week of September. She will be
paid on October 1. The adjusting entry for Anika’s employer at September 30 is:
a. No entry is required.
b. Salaries and Wages Expense 400
Salaries and Wages Payable 400
c. Salaries and Wages Expense 400
Cash 400
d. Salaries and Wages Payable 400
Cash 400
14. Which of the following statements is incorrect concerning the adjusted trial
balance?
a. An adjusted trial balance proves the equality of the total debit balances and the total
credit balances in the ledger after all adjustments are made.
b. The adjusted trial balance provides the primary basis for the preparation of
financial statements.
c. The adjusted trial balance lists the account balances segregated by assets and
liabilities.
d. The adjusted trial balance is prepared after the adjusting entries have been
journalized and posted.
15.* The trial balance shows Supplies NT$0 and Supplies Expense NT$1,500. If
NT$800 of supplies are on hand at the end of the period, the adjusting entry is:
a. debit Supplies NT$800 and credit Supplies Expense NT$800.
b. debit Supplies Expense NT$800 and credit Supplies NT$800.
c. debit Supplies NT$700 and credit Supplies Expense NT$700.
d. debit Supplies Expense NT$700 and credit Supplies NT$700.

33. 16. * Neutrality is an ingredient of:
Faithful
Representation
Relevance
a. Yes Yes
b. No No
c. Yes No
d. No Yes
17. * Which item is a constraint in financial accounting?
a. Comparability. c. Cost.
b. Materiality. d. Consistency.
CHAPTER 4:
1. Which of the following statements is incorrect concerning the worksheet?
a. The worksheet is essentially a working tool of the accountant.
b. The worksheet is distributed to management and other interestedparties.
c. The worksheet cannot be used as a basis for posting to ledger accounts.
d. Financial statements can be prepared directly from the worksheet before
journalizing and posting the adjusting entries.
2. In a worksheet, net income is entered in the following columns:
a. income statement (Dr) and statement of financial position (Dr).
b. income statement (Cr) and statement of financial position (Dr).
c. income statement (Dr) and statement of financial position (Cr).
d. income statement (Cr) and statement of financial position (Cr).
3. In the unadjusted trial balance of its worksheet for the year ended December 31,
2020, Kim Company reported Equipment of NT$120,000. The year-end adjusting
entries require an adjustmentnof NT$15,000 for depreciation expense for the
equipment. After the adjusted trial balance is completed, what amount should be
shown in the financial statement columns?
a. A debit of NT$105,000 for Equipment in the statement of financial position
column.
b. A credit of NT$15,000 for Depreciation Expense in the income statement
column.
c. A debit of NT$120,000 for Equipment in the statement of financial position
column.
d. A debit of NT$15,000 for Accumulated Depreciation — Equipment in the
statement of financial position column.

34. 4. An account that will have a zero balance after closing entries have been
journalized and posted is:
a. Service Revenue.
b. Supplies.
c. Prepaid Insurance.
d. Accumulated Depreciation—Equipment.
5. When a net loss has occurred, Income Summary is:
a. debited and Retained Earnings is credited.
b. credited and Retained Earnings is debited.
c. debited and Dividends is credited.
d. credited and Dividends is debited.
6. The closing process involves separate entries to close
(1) expenses, (2) dividends, (3) revenues, and (4) income summary.
The correct sequencing of the entries is:
a. (4), (3), (2), (1).
b. (1), (2), (3), (4).
c. (3), (1), (4), (2).
d. (3), (2), (1), (4).
7. Which types of accounts will appear in the post-closing trial balance?
a. Permanent (real) accounts.
b. Temporary (nominal) accounts.
c. Accounts shown in the income statement columns of a worksheet.
d. None of these answer choices is correct.
8. All of the following are required steps in the accounting
cycle except:
a. journalizing and posting closing entries.
b. preparing financial statements.
c. journalizing the transactions.
d. preparing a worksheet.
9. The proper order of the following steps in the accounting
cycle is:
a. prepare unadjusted trial balance, journalize transactions, post to ledger accounts,
journalize and post adjusting entries.
b. journalize transactions, prepare unadjusted trial balance, post to ledger

35. accounts, journalize and post adjusting entries.
c. journalize transactions, post to ledger accounts, prepare unadjusted trial balance,
journalize and post adjusting entries.
d. prepare unadjusted trial balance, journalize and post adjusting entries,
journalize transactions, post to ledger accounts.
10. When Lopez Company purchased supplies worth $600, it incorrectly recorded
a credit to Supplies for $6,000 and a debit to Cash for $6,000. Before correcting
this error:
a. Cash is overstated and Supplies is overstated.
b. Cash is understated and Supplies is understated.
c. Cash is understated and Supplies is overstated.
d. Cash is overstated and Supplies is understated.
11. Cash of €100 received at the time the service was performed was journalized
and posted as a debit to Cash €100 and a credit to Accounts Receivable €100.
Assuming the incorrect entry is not reversed, the correcting entry is:
a. debit Service Revenue €100 and credit Accounts Receivable €100.
b. debit Accounts Receivable €100 and credit Service Revenue €100.
c. debit Cash €100 and credit Service Revenue €100.
d. debit Accounts Receivable €100 and credit Cash €100.
12. The correct order of presentation in a classified statement of financial position
for the following current assets is:
a. accounts receivable, cash, prepaid insurance, inventory.
b. prepaid insurance, inventory, accounts receivable, cash.
c. cash, accounts receivable, inventory, prepaid insurance.
d. inventory, cash, accounts receivable, prepaid insurance.
13. A company has purchased a tract of land. It expects to build a production plant
on the land in approximately 5 years. During the 5 years before construction, the
land will be idle. The land should be reported as:
a. property, plant, and equipment.
b. land expense.
c. a long-term investment.
d. an intangible asset.
14. In a classified statement of financial position, assets and liabilities are usually
shown in the following order:
a. current assets, current liabilities, non-current liabilities, and non-current assets.

36. b. non-current liabilities, current liabilities, current assets, and non-current assets.
c. non-current liabilities, non-current assets, current liabilities, and non-current
assets.
d. non-current assets, current assets, non-current liabilities, and current liabilities.
15. Current assets are listed:
a. in the reverse order of expected conversion to cash.
b. by importance.
c. by longevity.
d. by size.
16. * On December 31, Kohl Company correctlymade an adjusting entry to
recognize $2,000 of accrued salaries payable. On January 8 of the next year, total
salaries of $3,800 were paid. Assuming the correct reversing entry was made on
January 1, the entry on January 8 will result in a credit to Cash $3,800 and the
following debit(s):
a. Salaries and Wages Payable $1,800 and Salaries and Wages Expense $2,000.
b. Salaries and Wages Payable $2,000 and Salaries and Wages Expense $1,800.
c. Salaries and Wages Expense $3,800.
d. Salaries and Wages Payable $3,800
CHAPTER 5:
1. Gross profit will result if:
a. operating expenses are less than net income.
b. net sales are greater than operating expenses.
c. net sales are greater than cost of goods sold.
d. operating expenses are greater than cost of goods sold.
2. Under a perpetual inventory system, when goods are purchased for resale by a
company:
a. purchases on account are debited to 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 Freight-Out.
3. 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).

37. 4. A credit sale of NT$7,500 is made on June 13, terms 2/10, net/30. A return of
NT$500 is granted on June 16. The amount received as payment in full on June 23 is:
a. NT$7,000. c. NT$6,850.
b. NT$6,860. d. NT$6,500.
5. Which of the following accounts will normally appear in the ledger of a
merchandising company that uses a perpetual inventory system?
a. Purchases. c. Cost of Goods Sold.
b. Freight-In. d. Purchase Discounts.
6. To record the sale of goods for cash in a perpetual inventory system:
a. only one journal entry is necessary to recordcost of goods sold and reduction of
inventory.
b. only one journal entry is necessary to recordthe receipt of cash and the sales
revenue.
c. two journal entries are necessary: one to record the receipt of cash and sales
revenue, and one to record the cost of goods sold and reduction of inventory.
d. two journal entries are necessary: one to record the receipt of cash and reduction of
inventory, and one to recordthe cost of goods sold and sales revenue.
7. The steps in the accounting cycle for a merchandising company are the same as those
in a service company except:
a. an additional adjusting journal entry for inventory may be needed in a merchandising
company.
b. closing journal entries are not required for a merchandising company.
c. a post-closing trial balance is not required for a merchandising company.
d. an income statement is required for a merchandising company.
8. The income statement for a merchandising company shows each of the following
features except:
a. gross profit.
b. cost of goods sold.
c. a sales section.
d. investing activities section.
9. If net sales are €400,000, cost of goods sold is €310,000,
and operating expenses are €60,000, the gross profit is:

38. a. €30,000.
b. €90,000.
c. €340,000.
d. €400,000.
10. In a worksheet using a perpetual inventory system, Inventory is shown in the
following columns:
a. adjusted trial balance debit and statement of financial position debit.
b. income statement debit and statement of financial position debit.
c income statement credit and statement of financial position debit.
d. income statement credit and adjusted trial balance debit.
11. In determining cost of goods sold in a periodic system:
a. purchase discounts are deducted from net purchases.
b. freight-out is added to net purchases.
c. purchase returns and allowances are deducted from net purchases.
d. freight-in is added to net purchases.
12. If beginning inventory is HK$600,000, cost of goods purchased is HK$3,800,000,
and ending inventory is HK$500,000, cost of goods sold is:
a. HK$3,900,000. c. HK$3,300,000.
b. HK$3,700,000. d. HK$4,200,000.
13. When goods are purchased for resale by a company using a periodic inventory
system:
a. purchases on account are debited to 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
CHAPTER 6:
1. Which of the following should not be included in the physical inventory of a
company?
a. Goods held on consignment from another company.
b. Goods shipped on consignment to another company.
c. Goods in transit from another company shipped FOB shipping point.
d. All of the above should be included.

39. 2. As a result of a thorough physical inventory, Railway Ltd. determined that it had
inventory worth €180,000 at December 31, 2020. This count did not take into
consideration the following facts. Rogers Consignment currently has goods that would
cost €35,000 on its sales floor that belong to Railway but are being sold on consignment
by Rogers. The selling price of these goods is €50,000. Railway purchased €13,000 of
goods that were shipped on December 27, FOB destination, that will be received by
Railway on January 3. Determine the correct amount of inventory that Railway should
report.
a. €230,000. c. €228,000.
b. €215,000. d. €193,000.
3. Cost of goods available for sale consists of two elements:
beginning inventory and:
a. ending inventory.
b. cost of goods purchased.
c. cost of goods sold.
d. All of the answers are correct.
4. Tinker Bell Magic Shop has the following:
If Tinker Bell has 9,000 units on hand at December 31, the cost of the
ending inventory under FIFO is:
a. £99,000. c. £113,000.
b. £108,000. d. £117,000.
5. Davidson Electronics has the following:

40. If Davidson has 7,000 units on hand at December 31, the cost of
ending inventory under the average-cost method is:
a. £84,000. c. £56,000.
b. £70,000. d. £75,250.
6. In periods of rising prices, average-cost will produce:
a. higher net income than FIFO.
b. the same net income as FIFO.
c. lower net income than FIFO.
d. net income equal to the specific identifi cation method.
7. Factors that affect the selectionof an inventory costing
method do not include:
a. tax effects.
b. statement of financial position effects.
c. income statement effects.
d. perpetual vs. periodic inventory system.
8. Atlantis Aquarium’s ending inventory is understated
NT$122,000. The effects of this error on the current year’s cost of
goods sold and net income, respectively, are:
a. understated, overstated.
b. overstated, understated.
c. overstated, overstated.
d. understated, understated.
9. Lee Athletics overstated its inventory by NT$500,000 at
December 31, 2019. It did not correct the error in 2019 or 2020. As a
result, Lee’s equity was:
a. overstated at December 31, 2019, and understated at December 31, 2020.
b. overstated at December 31, 2019, and properly stated at December 31, 2020.
c. understated at December 31, 2019, and understated at December 31, 2020.

41. d. overstated at December 31, 2019, and overstated at December 31, 2020.
10. Rickety Company purchased 1,000 widgets and has 200 widgets inits ending
inventory at a cost of HK$91 each and a net realizable value of HK$80 each. The
ending inventory under LCNRV is:
a. HK$91,000. c. HK$18,200.
b. HK$80,000. d. HK$16,000.
11. Which of these would cause the inventory turnover to increase the most?
a. Increasing the amount of inventory on hand.
b. Keeping the amount of inventory on hand constant but increasing sales.
c. Keeping the amount of inventory on hand constant but decreasing sales.
d. Decreasing the amount of inventory on hand and increasing sales.
12. Carlos Cookware had beginning inventory of €80,000, ending inventory of €110,000,
cost of goods sold of €285,000, and sales of €475,000. Carlos’ days in inventory is:
a. 73 days.
b. 121.7 days.
c. 102.5 days.
d. 84.5 days.
13. Songbird Records has sales of £150,000 and cost of goods available for sale of
£135,000. If the gross profit rate is 30%, the estimated cost of the ending inventory under
the gross profit method is:
a. £15,000. c. £45,000.
b. £30,000. d. £75,000
14. In a perpetual inventory system:
a. specific identification is always used.
b. average costs are computed as a simple average of unit costs
incurred.
c. a new average is computed under the average-cost method
after each sale.
d. FIFO cost of goods sold will be the same as in a periodic
inventory system.
15. Using the data in Question 4, the cost of the ending inventory under LIFO is:
a. £113,000. c. £99,000.

42. b. £108,000. d. £100,000.
16. Disclosures about inventory should include each of the following except the
a. basis of accounting
b. costing method
c. quantity of inventory
d. major inventory classifications