Multiple Choice Question

1. Which of the following accounts would not appear in a closing entry?

a. Salary Expense

b. Interest Income

c. Accumulated Depreciation

d. Retained Earnings

2. Which account is least likely to appear in an adjusting journal entry?

a. Interest Receivable

b. Cash

c. Property Tax Expense

d. Salaries Payable

3. On October 1, 2011, the $12,000 premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2011 (end of the accounting period), what adjusting entry is needed?

a. Insurance Expense  (+ E)                            2,000

Prepaid Insurance (− A)                                              2,000

b. Insurance Expense  (+ E)                            3,000

Prepaid Insurance (− A)                                              3,000

c. Prepaid Insurance    (+ A)                           3,000

Insurance Expense (− E)                                             3,000

d. Prepaid Insurance   (+ A)                           9,000

Insurance Expense (− E)                                             9,000

4. On June 1, 2010, Oakcrest Company signed a three-year $100,000 note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2011. What amount of interest expense should be reported on the income statement for the year ended December 31, 2010?

a. $5,250

b. $6,000

c. $6,750

d. $9,000

5. Failure to make an adjusting entry to recognize accrued salaries payable would cause which of the following?

a. An understatement of expenses, liabilities, and stockholders’ equity.

b. An understatement of expenses and liabilities and an overstatement of stockholders’ equity.

c. An overstatement of assets and stockholders’ equity.

d. An overstatement of assets and liabilities.

6. An adjusted trial balance

a. Shows the ending account balances in a “debit” and “credit” format before posting the adjusting journal entries.

b. Is prepared after closing entries have been posted.

c. Shows the ending account balances resulting from the adjusting journal entries in a “debit” and “credit” format.

d. Is a tool used by financial analysts to review the performance of publicly traded companies.

7. JJ Company owns a building. Which of the following statements regarding depreciation as used by accountants is false?

a. As depreciation is recorded, stockholders’ equity is reduced.

b. As depreciation is recorded, the net book value of the asset is reduced.

c. As the value of the building decreases over time, it “depreciates.”

d. Depreciation is an estimated expense to be recorded over the building’s estimated useful life.

8. At the beginning of 2011, Donna Company had $1,000 of supplies on hand. During 2011, the company purchased supplies amounting to $6,400 (paid for in cash and debited to Supplies). At December 31, 2011, a count of supplies reflected $2,600. The adjusting entry Donna Company would record on December 31, 2011, to adjust the Supplies account would include a

a. Debit to Supplies for $2,600.

b. Credit to Supplies Expense for $4,800.

c. Credit to Supplies for $2,600.

d. Debit to Supplies Expense for $4,800.

9. What ratio is required by GAAP to be reported on the financial statements or in the notes to the statements?

a. Return on equity ratio. c. Earnings per share ratio.

b. Net profit margin ratio. d. Current ratio.

10. If a company is successful in reducing selling and administrative costs while maintaining sales volume and the sales price of its product, what is the effect on the net profit margin ratio?

a. The ratio will increase.

b. The ratio will not change.

c. The ratio will decrease.

d. Either (a) or (c).