UNIT 1 Multiple Choice Questions (Enter your answers on the enclosed answer sheet) 1. The type of business organization that can continue indefinitely is known as a: a. sole proprietorship b. partnership c. corporation d. None of the above. 2. The purpose of the accounting process is to provide financial information about: a. sole proprietorships b. small businesses c. large corporations d. All of the above. 3. The cash purchase of a truck was recorded as a purchase on credit. Due to this error: a. assets were overstated b. liabilities were overstated c. answers a and b are both correct d. None of the above. 4. Which of the following would cause one asset to increase and another asset to decrease? a. The owner invested cash in the business. b. The business paid a creditor. c. The business incurred an expense on credit. d. The business bought supplies for cash. 5. Which accounts are affected when the company buys supplies on account? a. assets and capital b. liabilities and capital c. assets and liabilities d. None of the above. 6. Which accounts are affected when the company provides services to a cash customer? a. assets and capital b. liabilities and capital c. assets and revenue d. None of the above. 7. Which accounts are affected when the owner withdraws cash from the business? a. assets and withdrawals b. liabilities and capital c. assets and liabilities d. None of the above. 8. A chart of accounts: a. is set up in alphabetical order b. includes account balances c. is a listing of all the accounts used by a company d. All of the above. 9. Accounts payable had a normal starting balance of $800. There were debit postings of $600 and credit postings of $300 during the month. The ending balance is: a. $500 debit b. $1,000 debit c. $500 credit d. $1,000 credit 10. The beginning balance in the computers account was $2,000. The company purchased an additional $1000 worth of computers. The balance in the account is: a. debit of $2,000 b. credit of $3,000 c. debit of $3,000 d. credit of $2,000 11. A list of all the accounts from the ledger with their ending balances is called a: a. normal balance b. trial balance c. chart of accounts d. footing 12. Which of the following is prepared first? a. balance sheet b. income statement c. statement of owner’s equity d. trial balance 13. Which type of account would not be reported on the income statement? a. revenue b. expenses c. liabilities d. None of the above. 14. The left column of a financial statement is often used to: a. subtotal numbers b. show credits c. show totals d. show debits 15. The beginning capital account would appear on which financial statement? a. statement of owner’s equity b. balance sheet c. income statement d. None of the above. 16. The income statement contains: a. liabilities b. revenues c. assets d. Both b and c are correct. 17. Net income or net loss for a period is calculated by which of the following formula? a. total revenues - total withdrawals b. ...

1. UNIT 1
Multiple Choice Questions (Enter your answers on the enclosed
answer sheet)
1. The type of business organization that can continue
indefinitely is known as a:
a. sole proprietorship
b. partnership
c. corporation
d. None of the above.
2. The purpose of the accounting process is to provide financial
information about:
a. sole proprietorships
b. small businesses
c. large corporations
d. All of the above.
3. The cash purchase of a truck was recorded as a purchase on
credit. Due to this error:
a. assets were overstated
b. liabilities were overstated
c. answers a and b are both correct
d. None of the above.
4. Which of the following would cause one asset to increase and
another asset to decrease?
a. The owner invested cash in the business.
b. The business paid a creditor.
c. The business incurred an expense on credit.
d. The business bought supplies for cash.
5. Which accounts are affected when the company buys supplies

2. on account?
a. assets and capital
b. liabilities and capital
c. assets and liabilities
d. None of the above.
6. Which accounts are affected when the company provides
services to a cash customer?
a. assets and capital
b. liabilities and capital
c. assets and revenue
d. None of the above.
7. Which accounts are affected when the owner withdraws cash
from the business?
a. assets and withdrawals
b. liabilities and capital
c. assets and liabilities
d. None of the above.
8. A chart of accounts:
a. is set up in alphabetical order
b. includes account balances
c. is a listing of all the accounts used by a company
d. All of the above.
9. Accounts payable had a normal starting balance of $800.
There were debit postings of $600
and credit postings of $300 during the month. The ending
balance is:
a. $500 debit
b. $1,000 debit
c. $500 credit
d. $1,000 credit

3. 10. The beginning balance in the computers account was $2,000.
The company purchased an
additional $1000 worth of computers. The balance in the
account is:
a. debit of $2,000
b. credit of $3,000
c. debit of $3,000
d. credit of $2,000
11. A list of all the accounts from the ledger with their ending
balances is called a:
a. normal balance
b. trial balance
c. chart of accounts
d. footing
12. Which of the following is prepared first?
a. balance sheet
b. income statement
c. statement of owner’s equity
d. trial balance
13. Which type of account would not be reported on the income
statement?
a. revenue
b. expenses
c. liabilities
d. None of the above.
14. The left column of a financial statement is often used to:
a. subtotal numbers
b. show credits
c. show totals
d. show debits

4. 15. The beginning capital account would appear on which
financial statement?
a. statement of owner’s equity
b. balance sheet
c. income statement
d. None of the above.
16. The income statement contains:
a. liabilities
b. revenues
c. assets
d. Both b and c are correct.
17. Net income or net loss for a period is calculated by which of
the following formula?
a. total revenues - total withdrawals
b. total revenues - total expenses - total withdrawals
c. total revenues - total expenses
d. total revenues - total expenses + capital
18. The process that begins with recording business transactions
and includes the completion of
the financial statements is the:
a. calendar year
b. natural business years
c. fiscal year
d. accounting cycle
19. The twelve-month period a business chooses for its
accounting period is a(n):
a. calendar year

5. b. accounting period
c. fiscal year
d. accounting cycle
20. If cash has been debited, it is likely that:
a. the owner made an investment
b. a charge customer made a payment
c. the business borrowed cash from the bank
d. All of the above.
21. If prepaid rent has been debited, it is likely that:
a. the rent was paid for three months in advance
b. a bill for the past month’s rent was received
c. this month’s rent was paid
d. All of the above.
22. Proof that the dollar amount of the debits equals the dollar
amount of the credits in the ledger
means:
a. all of the information from the journal was correctly
transferred to the ledger
b. all accounts have their correct balances in the ledger
c. only the ledger is accurate; the journal may be incorrect
d. only that the debit dollar amounts equal the credit dollar
amounts
23. In preparing the trial balance of the K&L’s Bridal Service,
the withdrawal account (which had a
normal balance in the general ledger) was listed as a credit for
$400. What will be the
difference between the debit and credit sides of the trial
balance?

6. a. $150
b. $200
c. $300
d. $800
24. The trial balance:
a. includes all accounts with a balance in the ledger
b. includes assets, liabilities, capital, withdrawals, revenues and
expenses
c. ensures that debits equal credits
d. All of the above
25) The proper format for a journal entry includes all of the
following, except:
a. the total amounts of debits must equal the total amount of
credits
b. skip a line between transactions
c. the credit portion of the transaction is always first
d. listed in chronological order
UNIT 2
1. A form used to organize and check data before preparing
financial reports is known as a(n):
a. trial balance
b. income statement
c. balance sheet
d. worksheet
2. Equipment with a cost of $150,000 has an accumulated
depreciation of $100,000. What is

7. the historical cost of the equipment?
a. $150,000
b. $50,000
c. $200,000
d. $100,000
3. Bailey’s received its electric bill for December on December
31, but did not pay nor record it in
the general journal. This resulted in:
a. understated assets
b. overstated net income
c. overstated liabilities
d. understated capital
4. The adjusted trial balance columns:
a. help to ensure the ledger is still in balance
b. help to identify any errors that may have been made during
adjustment
c. show updated account balances to aid in preparation of the
financial statements
d. All of the above.
5. The capital balance amount shown in the balance sheet
column of the worksheet represents:
a. the beginning capital plus net income
b. the beginning capital plus net income less withdrawal
c. the beginning capital less withdrawals
d. the beginning capital plus any investments to capital that
occurred during the
period
6. On a worksheet, the income statement debit column totals
$10,200 and the credit column
totals $10,000. Which of the following statements is correct?
a. The company had a net loss of $200.
b. The company had a net income of $200.
c. The company’s revenues were greater than expenses.

8. d. None of the above are correct.
7. Adjusting journal entries:
a. need not be journalized since they appear on the worksheet.
b. need not be posted if the financial statements are prepared
from the worksheet.
c. are not needed if closing entries are prepared.
d. must be journalized and posted.
8. Accounts in which the balances are carried over from one
accounting period to the next are
called:
a. real accounts
b. nominal accounts
c. temporary accounts
d. zero accounts
9. Closing entries:
a. need not be journalized since they appear on the worksheet
b. need not be posted if the financial statements are prepared
from the worksheet
c. are not needed if adjusting entries are prepared
d. must be journalized and posted
10. The entry to close income summary (net loss) was entered in
reverse—income summary was
debited and capital was credited. This error will cause:
a. income summary to have a credit balance
b. income summary to have a debit balance
c. the assets to be overstated
d. the liabilities to be overstated
11. In the normal accounting cycle, the:
a. financial statements are prepared after the adjusting entries
are posted
b. financial statements are prepared before the adjusting entries
are posted

9. c. adjusting and closing entries are journalized before the
financial statements are
prepared
d. post-closing trial balance is prepared before the closing
entries are posted
12. Closing entries will:
a. increase the owner’s capital
b. decrease the owner’s capital balance
c. either increase or decrease owner’s capital
d. not affect the owner’s capital balance
13. The adjusting entry to record depreciation for the company
automobile would be:
a. debit accumulated depreciation, automobile; credit
depreciation expense,
automobile
b. debit accumulated depreciation, automobile; credit
automobile
c. debit depreciation expense, automobile; credit accumulated
depreciation, auto
mobile
d. debit depreciation expense, automobile; credit automobile
14. Internal control over a company’s assets should include the
following policy:
a. responsibilities and duties of employees will be divided
b. all cash receipts will be deposited into the bank the same day
they arrive
c. all cash payments will be made by check (except petty cash)
d. All of the above.
15. Company policy for internal control should include all of
the following except:

10. a. employees will be rotated
b. monthly bank statements should be sent to and reconciled by
the same employees
who authorize payments and write checks
c. the owner (or responsible employee) signs all checks after
receiving authorization
to pay from the departments concerned
d. at time of payment, all supporting invoices or documents will
be stamped “paid”
16. If the written amount on the check does not match the
amount expressed in figures, the bank
may:
a. pay the amount written in words
b. return the check unpaid
c. contact the drawer to see what was meant
d. All of the above
17. The bank would issue a credit memorandum to Maria’s Life
Management when the bank:
a. received the deposits in transit
b. collects a note receivable from a customer
c. discovered a check that was deposited was returned for
nonsufficient funds
d. None of the above.
18. How would outstanding checks be handled when reconciling
the ending cash balance per the
bank statement to the correct adjusted cash balance?
a. They would be added to the balance of the bank statement.
b. They would be subtracted from the balance of the bank
statement.
c. They would be added to the balance per books.
d. They would be ignored.
19. A petty cash fund is set up:

11. a. to pay for large expenses
b. to pay for small expenses
c. for the owner to withdraw money for personal use
conveniently
d. None of the above.
20. A pay period is defined as:
a. weekly
b. bi-weekly
c. monthly
d. All of the above.
21. Gross earnings are the same as:
a. regular earnings only
b. regular earnings + overtime earnings
c. net earnings
d. net earnings + overtime earnings
22. Bob Hill’s hourly rate is $25.00, and he worked 38 hours
during the week. What is his gross
pay for the week?
a. $950
b. $780
c. $1,000
d. $975
23. Another name for the Fair Labor Standards Act is:
a. Federal Insurance Contribution Act
b. Federal Wage and Hour Law
c. Federal Income Tax Act
d. Federal Hourly Law
24. Which of the below allowances would have the least amount
of taxes withheld for federal
income tax purposes?
a. S-1

12. b. S-0
c. S-3
d. S-2
25. Blue’s Tax Service has two types of employees:
management and clerical support. The
company estimates that it will pay the clerical support $300,000
next year and the managers
$255,000. For every $100, the company pays $0.14 into the
workers’ compensation
insurance. Calculate the amount of workers’ compensation
insurance.
a. $777
b. $336
c. $441
d. None of the above.
UNIT 3
1. Prepaid workers’ compensation insurance is what type of
account?
a. Asset
b. Expense
c. Liability
d. Revenue
2. What type of an account is Wages and Salaries Payable?
a. Asset
b. Liability
c. Revenue
D. Expense

13. 3. Wages and Salaries Expense is:
a. equal to net pay
b. equal to gross pay
c. equal to the employer’s taxes
d. None of the above.
4. A calendar quarter is made up of:
a. 4 months
b. 13 weeks
c. 12 weeks
D) however many weeks are needed to complete the month
5. FUTA taxes are paid:
a. by the end of January of the following year if the amount
owed is less than $500
b. by the end of the month following the end of the calendar
quarter if the amount
owed is more than $500
c. at the same time as the Form 941 taxes
d. Both a and b are correct.
6. The correct journal entry to record the payment of SUTA is
debit:
a. SUTA Expense; credit Cash
b. Cash; credit SUTA Expense
c. Cash; credit SUTA Payable
d. SUTA Payable; credit Cash
7. Which form is used to report FICA taxes for the employer
and employee, and also federal income

14. taxes for the employee?
a. Form 941
b. Form 944
c. Form W-4
d. Form W-2
8. Which form contains information about gross earnings and is
given to the employee by January
31?
a. Form W-2
b. Form W-3
c. SS-4
d. Form W-4B
9. How often is a 940 filed?
a. Monthly
b. Annually
c. Weekly
d. Quarterly
10. Merchants who buy goods from wholesalers for resale to
customers are:
a. merchandisers
b. retailers
c. service companies
d. None of the above.
11. Credit terms of 1/10, n/30 mean that:
a. 1% discount is allowed if the bill is paid within 10 and 30
days
b. 1% discount is allowed if the bill is paid within 30 days
c. 1% discount is allowed if the bill is paid after 10 days
d. 1% discount is allowed if the customer pays the bill within 10
days, or the entire
amount is due within 30 days
12. Net sales equal:

15. a. gross sales
b. gross sales - sales returns and allowances
c. gross sales - sales returns and allowances - sales discounts
d. sales discounts
13. Received payment, within the discount period, for
merchandise sold previously. This will be
recorded with a:
a. credit to an asset account
b. debit to a liability account
c. debit to Capital
d. None of the above.
14. When using a subsidiary ledger, the Accounts Receivable
account in the general ledger is
called the _________ account.
a. master
b. subsidiary
c. receivable
d. controlling
15. Recording to the accounts receivable subsidiary ledger is
done:
a. daily
b. monthly
c. quarterly
d. annually
16. The collection on account within the 1/10 n/30 discount
period was recorded using a 10%
discount rather than a 1% discount in both the controlling and

16. subsidiary accounts. This error
will cause the:
a. net income for the period to be understated
b. net income for the period to be overstated
c. control account to not agree with the subsidiary ledger
d. assets to be overstated
17. A checkmark in the PR column in the general journal means
the:
a. entry was recorded correctly
b. amount was posted to the controlling account
c. mount was recorded in the subsidiary ledger
d. entry was audited
18. Net purchases are:
a. Purchases + Purchases Returns and Allowances
b. Purchases - Purchases Discount - Purchases Returns and
Allowances
c. Purchases - Freight - Purchases Returns and Allowances
d. Purchases + Freight-in
19. If a display rack was purchased for the store, which of the
following accounts would be
increased?
a. Store Equipment
b. Purchases
c. Cash
d. Capital
20. A purchase discount was recorded as a credit to the
Purchases account and a debit to
Accounts Payable. This error will cause:
a. net income to be overstated
b. net income to be understated
c. net income to not be affected
d. total assets to be overstated

17. 21. Office Supplies (not used for resale) bought on account
were returned for credit and recorded
with a debit to Accounts Payable and a credit to Purchase
Returns and Allowances. This error
will cause:
a. net income to be overstated
b. net income to be understated
c. net income to not be affected
d. total assets to be understated
22. Returned merchandise paid for within the discount period
for cash. The perpetual inventory
system is in use. This will be recorded with a debit to a(n):
a. liability and a credit to an asset
b. asset and a credit to an asset
c. expense and a credit to a liability
d. expense and a credit to an asset
23. If the company uses special journals, all payments should be
recorded on a:
a. cash receipts journal
b. cash payments journal
c. purchases journal
d. sales journal
24. A characteristic of purchases is:
a. it has a debit normal balance
b. it reduces net income
c. that it is used to record the purchase of merchandise to be
resold
d. All of the above.
25. Which of the following transactions will cause one asset to
be debited and another to be
credited when the periodic inventory system is in use?

18. a. purchased merchandise on account
b. purchased merchandise for cash
c. purchased office supplies for cash
d. purchased office supplies on account
UNIT 4
1. In a perpetual inventory system:
a. Merchandise Inventory is debited every time inventory is
purchased
b. cost of Goods Sold is debited every time inventory is sold
c. a physical inventory is taken at least annually
d. All of the above.
2. Under the perpetual inventory system, the purchase of
merchandise is recorded by a debit to:
a. Merchandise Inventory; credit to Accounts Payable or Cash
b. Cost of Goods Sold; credit to Accounts Payable
c. Purchases; credit to Accounts Payable
d. Accounts Payable; credit to Purchases
3. Individual inventory items are tracked in the:
a. accounts receivable ledger
b. inventory ledger
c. accounts payable ledger
d. purchases journal
4. Which of the following goods should Pin Department Store
include in its December 31 count?
a. goods held on consignment from ABC Wholesale
b. goods sold and shipped to Gray Brothers, in-transit F.O.B
shipping point
c. goods that have been consigned to Dalton Brothers
d. goods in transit purchased F.O.B. destination point
5. St. Paul Corporation has a normal gross profit of 45%. The
current year’s beginning inventory
was $2,500, purchases were $9,000, and retail sales were

19. $15,000. The estimated ending
inventory under the gross profit method is:
a. $4,750
b. $3,250
c. $8,220
d. $4,050
6. An overstatement of ending inventory in one period results
in:
a. an overstatement of net income for the next period
b. no effect on net income for the next period
c. an overstatement of the ending inventory for the next period
d. an understatement of net income for the next period
7. The full disclosure principle says that if a change is made:
a. the company should disclose the change
b. the effects of the change on profit and inventory valuation
should be disclosed
c. the company should show justification for the change in a
footnote on the financial
reports
d. All of the above.
8. Costs and assessments that should be charged to the land
account include:
a. streets
b. parks
c. flood prevention
d. All of the above.
9. Which of the following assets would not be classified as
property, plant, and equipment?
a. delivery truck
b. copyright
c. land
d. furniture
10. The amount to include in the entry to record the cost of a
property, plant, and equipment asset

20. would include:
a. acquisition cost
b. freight
c. installation
d. All of the above.
11. The depreciation method that does not base the expense on
the passage of time but on the
level of use is:
a. units-of-production
b. straight-line
c. modified accelerated cost recovery
d. double-declining-balance
12. Which depreciation method does not deduct residual value
when computing depreciation
expense?
a. units-of-production
b. straight-line
c. double-declining-balance
d. a and b only
13. What would be the depreciation expense in year 1, using
units-of-production, for a molding
machine that cost $18,000, had a useful life of 3 years, and an
estimated total machine hours
of 36,000? The salvage value is $3,000 and production in year 1
was 10,000 hours.
a. $5,000
b. $4,167
c. $6,000
d. $2,167
14. The articles of incorporation are submitted by the
incorporators to the:
a. IRS for approval
b. Office of the Secretary of State for approval
c. Securities and Exchange Commission for approval

21. d. Governor of the State for approval
15. Characteristics of a corporation include:
a. stockholders having unlimited liability
b. direct management by the stockholders
c. stockholders having limited liability
d. choosing a board of directors
16. The entry to record selling 150 shares of no-par common
stock with a stated value of $30 for
$40 would be to:
a. debit Common Stock for $6,000; credit Cash for $6,000
b. debit Cash for $6,000; credit Common Stock for $6,000
c. debit Cash for $6,000; credit Common Stock for $4,500;
credit Paid-In Capital in
Excess of Stated Value-Common for $1,500
d. debit Cash for $6,000; credit Common Stock for $4,500;
credit Paid-In Capital in
Excess of Par Value-Common for $1,500
17. No entry was recorded for the exchange of stock for land.
This error would cause:
a. the period end stockholders’ equity to be understated
b. the period end stockholders’ equity to be overstated
c. the period’s net income to be understated
d. a and c only
18. Sunrise Online issued 500 shares of its $10 common stock
in exchange for equipment with a
fair market value of $7,500. The entry to record the transaction
would include a:
a. debit to Equipment for $5,000
b. debit to Common Stock for $5,000
c. credit to Paid-in Capital in Excess of Par Value for $2,500
d. credit to Common Stock Subscribed for $5,000
19. Dolly’s Best issued 200 shares of its $10 common stock in

22. exchange for used packaging
equipment with a fair market value of $2,400. The entry to
record the acquisition of the
equipment would include a:
a. debit to Equipment for $2,000
b. debit to Paid-in Capital in Excess of Par for $400
c. credit to Common Stock for $2,400
d. debit to Equipment for $2,400
20. A statement comparing data from two or more consecutive
periods is called a:
a. horizontal analysis
b. comparative income statement
c. common-size statement
d. comparative balance sheet
21. In a comparative balance sheet, the ending Cash for 2012
was $315,000 and is $270,000
for 2013. The net increase or decrease from 2012 to 2013 is:
a. 86.0%
b. 14.3%
c. 26.4%
d. 16.7%
22. Liquidity ratios measure:
a. how effectively a company is using its equity
b. how effectively a company is using its liabilities
c. a company’s ability to pay shareholders
d. a company’s ability to pay off short-term debts
23. Debt management ratios measure:
a. how effectively a company is using its cash
b. how well a company is using debt versus equity position
c. a company’s ability to earn profit
d. a company’s ability to meet payable obligations

23. 24. If the average collection period is 35 days, this means:
a. from the date of purchase to the date of payment is 35 days
b. from the date of sale to the date of receipt of payment is 35
days
c. from the date of discount to the date of receipt of payment is
35 days
d. None of the above.
25. The inventory turnover ratio calculates:
a. how many times the inventory turns over in one period
b. number of times inventory is purchased in one period
c. the dollar amount of change in inventory in one period
d. None of the above.