Principles of Accounting Variant 1


1. For purposes of measuring business income, the life of a business is:
a. divided into specific points in time.
b. divided into irregular cycles.
c. divided into discrete accounting periods.
d. considered to be a continuous cycle.
e. none of the above
2. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday?
a.Salary Expense10,000
Salary Payable 10,000
b.Salary Expense10,000
Cash 10,000
c.Salary Payable10,000
Cash 10,000
d.Salary Payable10,000
Salary Expense 10,000
e.Salary Payable5,000
Salary Expense 5,000
3. Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Blankenship's year-end occurred on Wednesday, at which time a correct adjusting entry was recorded. On the following Friday, which of the following payroll journal entries should be recorded?
a.Salary Expense10,000
Cash 10,000
b.Salary Expense4,000
Salary Payable6,000
Cash 10,000
c.Salary Expense6,000
Salary Payable4,000
Cash 10,000
d.Salary Payable10,000
Cash 10,000
e.Salary Expense2,000
Salary Payable8,000
Cash 10,000
4. At the end of the current accounting period, Johnson Company failed to record utilities consumed during the period. Johnson will be billed for the utilities during the next accounting period. As a result, current period assets, liabilities, equity, and income, respectively, are:
a. Overstated, overstated, correct, correct
b. Correct, understated, overstated, overstated
c. Overstated, understated, overstated, overstated
d. Overstated, understated, correct, correct
e. Understated, overstated, correct, correct
5. Under the income statement approach to adjusting entries, the receipt of $5,000 of unearned revenue would be recorded by debiting Cash. What account should be credited?
a. Cash
b. Revenue
c. Unearned Revenue
d. Prepaid Revenue
e. Deferred tax
6. The accountant's worksheet:
a. lays the groundwork for formal financial statement preparation.
b. is a fundamental financial statement.
c. provides details necessary for full disclosure and the preparation of footnotes.
d. is prepared at the end of each operating cycle.
e. all of the above
7. Which of the following accounts would not be closed at the end of an accounting period?
a. Income Summary
b. Dividends
c. Revenue
d. Capital Stock
b. all of the above accounts must be closed
8. The following statements all pertain to the accounting cycle. Which of these statements is wrong?
a. A post-closing trial balance is prepared prior to closing temporary accounts.
b. Formal financial statements may be produced from the worksheet.
c. Adjusting entries are recorded in the journal and posted to the ledger.
d. The post-closing trial balance is prepared by examining ledger balances subsequent to the closing of accounts.
e. all of the above statements are wrong
9. Shipman Company had accrued salaries of $300 on December 31. The company recorded reversing entries on the following January 1. On the next payday, January 7, the appropriate entry to record the payment of $1,000 in salaries should include:
a. a debit to Salaries Expense of $1,000.
b. a debit to Salaries Expense of $700.
c. a debit to Salaries Expense of $1,300.
d. a debit to Salaries Payable for $300.
e. a debit to Salaries Payable for $200.
10. On a classified balance sheet, the appropriate ordering of specific classifications is:
a. Current assets; long-term investments; property, plant, and equipment; intangible assets; other assets.
b. Current assets; property, plant, and equipment; long-term investments; intangible assets; other assets.
c. Current assets; intangible assets; property, plant, and equipment; long-term investments; other assets.
d. Current assets; other assets; long-term investments; intangible assets; property, plant, and equipment.
e. Current assets; property, plant, and equipment; long-term investments; other assets; intangible assets.
11. The Sales account and Purchases account should include:
a. only cash sales and cash purchases of merchandise.
b. only credit sales and credit purchases of merchandise.
c. both cash and credit sales and cash and credit purchases of merchandise.
d. not only merchandise transactions, but also purchases and sales of other assets used in the business.
e. not only merchandise transactions, but also investments in fixed capital.
12. Bergstrom accepted the return of merchandise by a customer. The merchandise had been sold on account, and payment had not been received on the date of return. The returned goods retailed for $400, but cost Bergstrom only $300. The appropriate journal entry for Bergstrom is:
a.Accounts Receivable400
Sales Returns & Allowances400
b.Sales Returns & Allowances400
Accounts Receivable 400
c.Sales400
Purchases 300
Accounts Receivable 100
d.Sales Returns & Allowances400
Purchases 300
Accounts Receivable 100
e.Sales Returns & Allowances500
Purchases 350
Accounts Receivable 150
13. Lux had net purchases of $50,000, ending inventory of $25,000, net sales of $100,000, and gross profit of $32,000. How much was Lux's beginning inventory?
a. $7,000
b. $43,000
c. $93,000
d. $143,000
e. $47,000
Sales - cost of goods sold = gross profit;
$100,000 - cost of goods sold = $32,000;
Cost of goods sold = $68,000
Goods available for sale - ending inventory = cost of goods sold;
Goods available for sale - $25,000 = $68,000;
Goods available for sale = $93,000
Beginning inventory + purchases = goods available for sale;
Beginning inventory + $50,000 = $93,000;
Beginning inventory = $43,000
14. On March 1, Zekew Company purchased $1,000 of merchandise, terms 1/10, n/30. Zekew uses the net method of recording purchases. Payment of the accounts payable was made on March 4. Which of the following journal entries is appropriate for the March 4 transaction?
a.Purchases990
Cash 990
b.Accounts Payable990
Cash 990
c.Accounts Payable1,000
Purchases Discounts10
Cash 990
d.Accounts Payable1,000
Cash 1,000
e.Accounts Payable1,000
Purchases Discounts80
Cash 920
15. Russell Merchandising uses the perpetual inventory system. Which of the following statements is correct?
a. When Russell records a sale, it should also debit inventory.
b. When Russell records a sale, it should also credit inventory.
c. When Russell records a sale, it should also credit cost of goods sold.
d. When Russell records a sale, it should also debit cost of goods available for sale.
e. None of the above statements is correct.
16. The Cash account on the balance sheet should not include which of the following items?
a. Travel advances to employees
b. Currency
c. Money orders
d. Deposits in transit
e. It should include all of the above items.
17. When reconciling the ending cash balance per the bank statement to the correct adjusted cash balance, how would deposits in transit be handled?
a. Added to the balance per the bank statement.
b. Subtracted from the balance per the bank statement.
c. Added to the balance per company records.
d. Ignored.
e. (c) and (d)
18. Malory Company provides the following information about the month-end bank reconciliation:
Ending cash per bank statement$1,367
Ending cash per company records7,383
Monthly bank service charge25
Deposits in transit at month-end8,345
Outstanding checks at month-end2,399
Customer check returned NSF45
The correct ending cash balance is:
a. $4,914
b. $7,268
c. $7,313
d. $7,383
e. $8,913
The correct ending cash balance is $7,313:
Ending balance per bank statement $1,367 
Add: Deposits in transit  8,345 
Deduct: Outstanding checks(2,399)
Adjusted cash balance: bank  $7,313 
   
Ending balance per company records $7,383 
Deduct:NSF Check  --  45Service charge  --  25 (70)
Adjusted cash balance: company records $7,313 
19. When using a petty cash system, the replenishment of the fund would normally include a debit to:
a. Cash.
b. Petty Cash.
c. Revenues.
d. None of the above.
e. All of the above
20. During its first year of operation, Lenton Company acquired three investments in trading securities. Investment A cost $50,000 and had a year-end market value of $60,000. Investment B cost $35,000 and had a year-end market value of $17,000. Investment C cost $26,000 and had a year-end market value of $24,000. What amount should be reported as a charge against income in Lenton's income statement for the first year of operation?
a. $0
b. $10,000
c. $20,000
d. $30,000
e. $35,000
21. Inventory accounts should be classified in which section of a balance sheet?
a. Current assets
b. Investments
c. Property, plant, and equipment
d. Intangible assets
e. Other assets
22. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
January 2Beginning Inventory 500 units at $3.00
April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.00
December 7Purchased 1,600 units at $4.40
Sales during the year were 2,700 units at $5.00. If Hefty used the first-in, first-out method, ending inventory would be:
a. $2,780
b. $3,960
c. $9,700
d. $10,880
e. $5,740
$3,960. Ending inventory consisted of 900 units ((500 + 1,100 + 400 + 1,600) - 2,700). The value for these items is based on the last purchase at $4.40 each (900 X $4.40).
23. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
January 2 Beginning Inventory 500 units at $3.00
April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.00
December 7Purchased 1,600 units at $4.40
Sales during the year were 2,700 units at $5.00. If Hefty used the weighted-average method, gross profit would be:
a. $3,255
b. $3,415
c. $10,245
d. $13,500
e. $8,250
$3,255. Sales minus cost of goods sold equals gross profit. Sales are $13,500 (2,700 X $5.00). Cost of goods sold is $10,245, calculated as weighted-average cost per unit (((500 units X $3) + (1,100 units X $3.20) + (400 units X $4.00) + (1,600 units X $4.40))/(500 + 1,100 + 400 + 1,600)) times the 2,700 units sold.
24. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is:
a. FIFO
b. LIFO
c. Retail
d. Weighted-average
e. (c) and (d)
25. Bernstein Corporation recently experienced a fire which destroyed all of its inventory. The following data have been reconstructed from partial accounting information, and pertain to the year up to the date of the fire.
Beginning inventory$20,000
Net purchases $45,000
Sales $80,000
Gross profit rate 40%
Using the gross profit method, estimate the dollar amount of inventory which was destroyed in the fire.
a. $17,000
b. $33,000
c. $48,000
d. $65,000
e. $57,000
$17,000. Cost of goods sold up to the date of the fire was $48,000 ($80,000 sales minus cost of goods sold equals the gross profit of $32,000 ($80,000 X 40%)). Beginning inventory ($20,000) plus net purchases ($45,000) is goods available for sale ($65,000). Goods available for sale minus cost of goods sold is the estimated ending inventory lost to fire.

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