Multiple - Choice Questions
1. Which of the following is not a specific account in a company’s chart of accounts?
a. Gains
b. Revenue
c. Net Income
d. Unearned Revenue
2. Which of the following is not one of the four criteria that normally must be met for revenue to be recognized according to the revenue principle for accrual basis accounting?
a. Cash has been collected.
b. Services have been performed.
c. The price is determinable.
d. Evidence of an arrangement exists.
3. The matching principle controls
a. Where on the income statement expenses should be presented.
b. When costs are recognized as expenses on the income statement.
c. The ordering of current assets and current liabilities on the balance sheet.
d. How costs are allocated between Cost of Sales (sometimes called Cost of Goods Sold) and general and administrative expenses.
4. When expenses exceed revenues in a given period,
a. Retained earnings are not impacted.
b. Retained earnings are decreased.
c. Retained earnings are increased.
d. One cannot determine the impact on retained earnings without additional information.
5. On January 1, 2011, Anson Company started the year with a $250,000 credit balance in Retained Earnings and a $300,000 balance in Contributed Capital. During 2011, the company earned net income of $50,000, declared a dividend of $15,000, and issued more stock for $12,500. What is total stockholders’ equity on December 31, 2011?
a. $692,500.
b. $597,500.
c. $585,000.
d. None of the above.
6. During 2011, CliffCo Inc. incurred operating expenses of $200,000, of which $150,000 was paid in cash; the balance will be paid in January 2012. Transaction analysis of operating expenses for 2011 should reflect only the following:
a. Decrease stockholders’ equity, $150,000; decrease assets, $150,000.
b. Decrease assets, $200,000; decrease stockholders’ equity, $200,000.
c. Decrease stockholders’ equity, $200,000; decrease assets, $150,000; increase liabilities, $50,000.
d. Decrease assets, $200,000; increase liabilities, $50,000; decrease stockholders’ equity, $150,000.
e. None of the above is correct.
7. Which of the following is the entry to be recorded by a law firm when it receives a $2,000 retainer from a new client at the initial client meeting?
a. Debit to Cash, $2,000; credit to Legal Fees Revenue, $2,000.
b. Debit to Accounts Receivable, $2,000; credit to Legal Fees Revenue, $2,000.
c. Debit to Unearned Revenue, $2,000; credit to Legal Fees Revenue, $2,000.
d. Debit to Cash, $2,000; credit to Unearned Revenue, $2,000.
e. Debit to Unearned Revenue, $2,000; credit to Cash, $2,000.
8. You have observed that the total asset turnover ratio for a retail chain has increased steadily over the last three years. The most likely explanation is which of the following?
a. Salaries for upper management as a percentage of total expenses have decreased over the last three years.
b. A successful advertising campaign increased sales companywide, but no new store locations were added over the last three years.
c. New stores were added throughout the last three years, and sales increased as a result of the additional new locations.
d. The company began construction of a new, larger main office location three years ago that was put into use at the end of the second year.
9. Cash payments for salaries are reported in what section of the Statement of Cash Flows?
a. Operating. c. Financing.
b. Investing. d. None of the above.
10. This period a company collects $100 cash on an account receivable from a customer for a sale last period. How would the receipt of cash impact the following two financial statements this period?
Income Statement Statement of Cash Flows
a. Revenue + $100 Inflow from investing
b. No impact Inflow from operations
c. Revenue − $100 Inflow from operations
d. No impact Inflow from financing