Bus. 312: Acctg.
Prin. 1
Dr. Ahiarah
Practice Test for Exam #1
The following are
designed to provide clues for areas and types of questions to
expect; these are not the actual test. A
good, careful, preparation should include a thorough review of each area and
type of question clued. Click on each
link to go to the site. At the site,
take and grade the self-study quiz.
Carefully note comments/explanations provided for the M/Cs you did not
answer correctly.
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4.
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ADDITIONAL
COMPREHENSIVE BANK OF MULTIPLE CHOICE QUESTIONS ARE
PROVIDED BELOW. THE MORE HONEST PRACTICE,
THE MORE CONFIDENT YOU OUGHT TO BE FOR EXAM #1.
You are to select the letter of the choice that BEST answers each
question. Suggested letter answers
appear toward the end of the bank.
Typing errors are possible here and should neither invalidate everything
that has been emphasized and re-emphasized so far in the course, nor should any
typing errors here invalidate the actual test that does not contain the typing
error. If a suggested answer does not
make sense in the light of what the instructor has emphasized in class, do more
research to ascertain the correct answer.
1. Which of
the following statements is true?
a. Owners' equities are economic sacrifices after
deducting liabilities.
b. Assets are expected to benefit no one.
c. Liabilities are future cash inflows.
d. Assets are always the sum of liabilities and
owners' equities.
e. All of the above statements are false.
2. Over the
past 12 years, The Tahlequah Company has averaged $80,000 in annual merchandise
inventory sales to The York Company. Therefore, Tahlequah was surprised to
learn that
a. Decrease the cash account by $80,000 and
decrease the capital account by $80,000.
b. Decrease the inventory account by $80,000 and
decrease the capital account by $80,000.
c. Increase the inventory account by $80,000 and
decrease the capital account by $80,000.
d. Increase the inventory account by $80,000 and
increase the capital account by $80,000.
e. The opportunity lost in bankruptcy is not
recorded in the accounts of The Tahlequah Company.
3. McDonald's acquired
equipment costing $2,000 on account. The effect of this transaction on The
McDonald's would be to:
a. Increase the equipment by $2,000 and decrease
the capital by $2,000.
b. Increase the equipment by $2,000 and increase
in the capital by $2,000.
c. Increase the equipment by $2,000 and increase
the accounts payable by $2,000.
d. Increase the equipment by $2,000 and decrease
the accounts payable by $2,000.
e. No transaction is recorded since no cash has
been paid.
4. The
auditor's opinion includes all of the following except:
a. The financial statements are in conformity with
generally accepted accounting principles.
b. The financial statements are free of any and
all misstatements.
c. The audit includes examining, on a test basis,
evidence supporting amounts and disclosures in the financial statements.
d. The auditor's responsibility is to express an
opinion on the financial statements.
e. The financial statements are the responsibility
of the company's management.
5. The
Oakville Company acquired $2,500 worth of merchandise inventory on account.
Upon inspection, the company discovered that $500 worth of the merchandise
inventory was defective.
a. Decrease the merchandise inventory account by
$500 and increase the accounts payable account by $500.
b. Decrease the merchandise inventory account by
$500 and decrease the accounts payable account by $500.
c. Decrease the merchandise inventory account by
$500 and increase the accounts receivable account by $500.
d. Decrease the merchandise inventory account by
$500 and decrease the accounts receivable account by $500.
e. Since the merchandise inventory was never used,
6. Disc Inc.
owned land originally costing $10,000. A real estate agent appraised the land
and stated that it was now worth $11,000. Disc Inc. should:
a. Increase the land account by $1,000 and
increase the capital stock account by $1,000.
b. Increase the land account by $1,000 and
decrease the capital stock account by $1,000.
c. Increase the land account by $1,000 and
increase the cash account by $1,000.
d. Increase the land account by $1,000 and
increase the paid-in capital in excess of par account by $1,000.
e. There is no effect from this transaction on the
accounts of Disc Inc.
7. TM Inc.
acquired land costing $20,000. TM Inc. paid $5,000 in cash and accepted a
short-term note for the balance. The effect of this transaction on TM Inc.
would be to:
a. Increase the land account by $5,000 and
decrease the cash account by $5,000.
b. Increase the land account by $20,000, decrease the
cash account by $5,000, and decrease the balance in the notes receivable
account by $15,000.
c. Increase the land account by $20,000, decrease
the cash account by $5,000, and increase the balance in the notes receivable
account by $15,000.
d. Increase the land account by $20,000, decrease
the cash account by $5,000, and decrease the balance in the notes payable
account by $15,000.
e. Increase the land account by $20,000, decrease
the cash account by $5,000, and increase the balance in the notes payable
account by $15,000.
8. The O'Hara
Company is a sole proprietorship owned and operated by Jim O'Hara. On May 1,
20X2, Jim O'Hara acquired a house to be used as his personal residence. The
house cost $100,000, and Jim O'Hara made a down payment of $20,000 cash, with
the remaining balance to be paid through a 25-year mortgage. Jim O'Hara
realized that in the event of The O'Hara Company's bankruptcy, the company's
creditors could force Jim to sell the house and use the proceeds to pay off
outstanding company debts. The effect of Jim O'Hara acquiring his house on the
accounts of The O'Hara Company would be to:
a. Increase the house account by $20,000 and
decrease the cash account by $20,000.
b. Increase the house account by $100,000 and
decrease the cash account by $20,000.
c. Increase the house account by $100,000,
decrease the cash account by $20,000, and decrease the mortgage payable account
by $80,000.
d. Increase the house account by $100,000,
decrease the cash account by $20,000, and increase the mortgage payable account
by $80,000.
e. There is no effect from this transaction on the
accounts of The O'Hara Company.
9. Which of
the following is not true of accounting?
a. It can help predict the future effects of
decisions.
b. It helps direct attention to current problems
as well as opportunities.
c. It is the major means of organizing information
about economic activities.
d. It is only useful to managers in the
organization.
e. It can be used to sort and classify economic activities.
10. A balance
sheet does not:
a. Have counter-balancing sections
b. Show the financial status of a business entity
c. Present revenues and expenses of a business
entity
d. Represent a particular instant in time.
e. Present assets, liabilities and equity for a
fiscal period.
11. Which of
the following equations represents the balance sheet equation?
a. Net Income = Revenues - Expenses
b. Assets + Liabilities = Owner's Equity
c. Assets + Owner's Equity = Liabilities
d. All of the above are expressions of the balance
sheet equation.
e. None of the above is an expression of the
balance sheet equation
12. An entity:
a. Is a separate economic unit.
b. Allows a section of an organization to be a separate
economic entity.
c. Helps the accountants relate events to a
defined area of accounting.
d. All of the above.
e. None of the above
13. A
transaction:
a. affects the
financial position of an entity
b. maintains the
equality of the balance sheet equation
c. is reliably recorded
in terms of money
d. All of the above.
e. None of the above
14. Carl
Anderson owns 600 shares of TLC Inc. The capital stock of TLC Inc. has a par
value of $5 per share. Carl Anderson sells his 600 shares of TLC Inc. Stock to
Jay Kessler for $15 per share. The effect of this transaction on TLC Inc. Would
be to:
a. Increase the cash account by $9,000 and
increase the capital stock account by $9,000
b. Increase the cash account by $9,000 and
decrease the capital stock account by $9,000
c. Increase the cash account by $9000, increase
the capital stock account by $3,000, and increase the paid-in capital in excess
of par account by $6,000
d. TLC Inc. would not record
this transaction but would note the change in ownership.
e. TLC Inc. records
this transaction but would not note the change in ownership.
15. Public
accounting is:
a. The field of accounting where accountants work
for businesses, government agencies, or other non-profit organizations.
b. The field of accounting where services are
offered to the general public on a fee basis.
c. A field of accounting were
no audits occur.
d. All of the above.
e. None of the above.
16. Income is
the primary way of evaluating the financial performance of:
a. individuals
b. for-profit
corporations
c. all other for-profit
entities
d. all of the above are
correct responses
e. none of the above
are correct responses
Table 2-2
______________________________________________________________________
The Windover Corporation,
a wholesale distributor of slot machines, began business on July 1, 20X0. The
following summarized transactions occurred during July:
1. Windover's stockholders
contributed $250,000 in cash in exchange
for their common stock.
2. On July 1, Windover
signed a one-year lease on a warehouse, paying
$120,000 cash in advance for occupancy of twelve months.
Rent
expense was recognized for the month of July.
3. On July 1, Windover
acquired warehouse equipment for $225,000. A
cash down payment of $25,000 was made and a note payable was
signed
for the balance.
4. On July 1, Windover
paid $36,000 cash for a two-year insurance
policy covering fire, casualty, and related risks. Insurance
expense was recognized for the month.
5. Windover acquired
assorted merchandise for $200,000 on account.
6. Total sales were $475,000, of which $85,000 were
for cash.
7. Cost of inventory sold was $160,000.
8. Depreciation expense of $5,000 was recognized for
the month.
9. Cash collections from credit customers totaled
$325,000 for the
month.
10 Cash payments to trade creditors totaled $175,000
for the month. ______________________________________________________________________
17. Referring
to Table 2-2, what was the balance in the Prepaid Insurance account as of July
31, 20X0?
a. $15,000
b. $30,000
c. $33,000
d. $34,500
e. $36,000
18. Referring to
Table 2-2, what was the balance in the Prepaid Rent account as of July 31,
20X0?
a. $120,000
b. $110,000
c. $100,000
d. $85,000
e. $10,000
Page 9
19. Referring
to Table 2-2, what was net income for July 20X0?
a. $303,500
b. $298,500
c. $258,500
d. $257,000
e. $98,500
20. Referring
to Table 2-2, suppose that Windover measured
performance on the cash basis instead of the accrual basis. What would the net
cash provided by (or used for) operating activities be?
a. $79,000
b. $125,000
c. $(10,000)
d. $(121,000)
e. $(146,000)
21. Referring
to Table 2-2, what was the balance in Windover's
stockholders' equity account as of July 31?
a. $250,000
b. $298,500
c. $548,500
d. $348,500
e. $508,500
22. Which of the
following accounts may be thought of as stored costs that are carried forward
to future periods rather than immediately charged against revenue?
a. prepaid insurance
b. inventory
c. prepaid rent
d. equipment
e. all of the above can
be thought of as stored costs
23. Referring
to Table 2-2, what was the balance in the cash account as of July 31?
a. $304,000
b. $319,000
c. $114,000
d. $119,000
e. $474,000
24. Referring to
Table 2-2, what is the balance in the accounts receivable account as of July
31?
a. $150,000
b. $85,000
c. $410,000
d. $65,000
e. $52,500
25. Referring
to Table 2-2, what is the balance in the accounts payable account as of July
31?
a. $200,000
b. $160,000
c. $40,000
d. $25,000
e. $(15,000)
Table 2-4
______________________________________________________________________
During 20X0, the Brookline Company had the following
events occur:
1. Cash
purchase of inventory
2. Cash sale
of inventory
3.
Collection of accounts receivable
4. Payment
of a cash dividend
5. Payment
of employee wages
6. Payment
of long-term debt
7. Purchase
of equipment
8.
9.
______________________________________________________________________
26. Referring
to Table 2-4, which of the events will affect the investing section of the
Brookline Company's cash flow statement?
a. 7 and 9
b. 4,6, and 8
c. 4,7, and 9
d. 4,7,8, and 9
e. 1,2,5, and 9
27. Referring
to Table 2-4, which of the events will affect the financing section of the
Brookline Company's cash flow statement?
a. 4 and 6
b. 4 and 8
c. 4, 6, and 8
d. 7,8, and 9
e. 4,6,7,8, and 9
28. Referring to
Table 2-4, which of the events will affect the operations section of the
Brookline Company's cash flow statement?
a. 1 and 2
b. 2 and 5
c. 1,2,3, and 5
d. 1,2,4, and 5
Table 4-6
______________________________________________________________________
The Grosse Pointe Company
Balance Sheet
At December 31, 20X6
Current Assets:
Cash
$7,400
Accounts Receivable 12,500
Inventory 13,300
Prepaid Rent 1,200
34,400
Long-term Assets:
Fixed Assets 87,600
Less: Accumulated
Depreciation (31,900)
55,700
Total Assets $90,100
_________
Current Liabilities:
Accounts Payable $6,200
Wages Payable 4,100
Income Taxes Payable 1,600
Interest Payable 1,100
13,000
Long-term Liabilities:
Note Payable 17,900
Stockholders: Equity:
Capital Stock ($10 par) 3,000
Additional Paid-in Capital 15,000
Retained Income 41,200
Total Stockholders' Equity $59,200
Total Liabilities & Stockholders $90,100
Equity ________
The Grosse Pointe Company
Income Statement
For the Year Ended December 31, 20X6
Sales $315,800
Less: Cost of Goods Sold (204,500)
Gross Profit $111,300
Less: Operating Expenses:
Wages $51,600
Depreciation
7,100
Rent 6,900
65,600
Operating Income $ 45,700
Less Other Expenses:
Interest ( 1,600)
Income Before Taxes $ 44,100
Page 5
Less: Income Tax Expense (17,600)
Net Income $ 26,500
__________
______________________________________________________________________
29. Referring to
Table 4-6, the financial statements for the Grosse Pointe Company include:
a. a balance sheet with
a report format and a multiple-step income statement
b. a balance sheet with
an account format and a multiple-step income statement
c. a balance sheet with
a report format and a single-step income statement
d. a balance sheet with
an account format and a single-step income statement
30. Referring to
Table 4-6, the current ratio for the Grosse Pointe Company is:
a. 0.14
b. 0.26
c. 0.38
d. 2.65
e. 6.93
31. Referring to
Table 4-6, the working capital for the Grosse Point Company is:
a. $3,500
b. $21,400
c. $55,700
d. $59,200
e. $132,800
32. Referring to Table
4-6, which of the following statements is incorrect?
a. If the industry average for the current ratio
is 1.9, then Grosse Pointe appears to be doing well.
b. If the industry average for working capital is
$14,000, then Grosse Pointe appears to be doing well.
c. If Grosse Pointe's 20X5
current ratio was 2.3, then it appears that 20X6 is an improvement over
20X5.
d. If Grosse Pointe's 20X5
working capital was $17,000, then it appears 20X6 is an improvement over
20X5.
e. All of the above statements are correct.
33. Referring to
Table 4-6, the gross profit percentage for Grosse Pointe is:
a. 4.2%
b. 23.8%
c. 35.2%
d. 54.4%
e. 420.0%
34. Referring to
Table 4-6, the return on sales for Grosse Pointe is:
a. 8.4%
b. 14.0%
c. 14.5%
d. 35.2%
e. 64.8%
35. Referring to
Table 4-6, if the beginning stockholders' equity balance for Grosse Pointe was
$46,200, then the return on stockholders' equity is:
a. 16.7%
b. 44.8%
c. 50.3%
d. 57.4%
e. 58.5%
SUGGESTED ANSWERS
1. d
2. e
3. c
4. b
5. b
6. e
7. e
8. e
9. d
10. c
11. e
12. d
13. d
14. d
15. b
16. d
17. d
18. b
19. b
20. a
21. c
22. e
23. a
24. d
25. d
26. a
27. c
28. c
29. a
30. d
31. b
32. e
33. c
34. a
35. c