1. The inventory data for an item for November are: Nov 1 Inventory 25 units at $20 Nov 10 Purchased 30 units at $21 Nov 30 Purchased 10 units at $22 Nov 30 Sold 35 units Using the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30? a. $640 b. $623 c. $600 d. $605 Q2. The due date of a 60-day note dated July 12 is a. September 11. b. September 8. c. September 9. d. September 10. Q3. Under the direct write-off method, an attempt is made to match Bad Debt Expense to sales revenues in the same accounting period. a. true b. false Q4. Merchandise Inventory is presented on the balance sheet in the current assets section. a. true b. false Q5. During inflationary periods, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method. a. true b. false Q6. A note receivable due in 18 months is listed on the balance sheet under the caption a. long-term liabilities. b. fixed assets. c. current assets. d. investments. Q7. The balance of the allowance for doubtful accounts is deducted from accounts receivable on the balance sheet. a. true b. false Q8. If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest gross profit? a. Average cost b. LIFO c. FIFO d. All methods will generate the same gross profit. Q9. The two most widely used methods for determining the cost of inventory are a. FIFO and LIFO. b. FIFO and average cost. c. LIFO and average cost. d. gross profit and average cost. Q10. A 60-day, 10% note for $6,000 dated April 15 is received from a customer on account. The face value of the note is a. $6,100. b. $5,400. c. $5,900. d. $6,000. Q11. Of the three widely used inventory costing methods (FIFO, LIFO, and average), the FIFO method of costing inventory is based on the assumption that costs are charged against revenues in the order in which they were incurred. a. true b. false Q12. The amount of the promissory note plus the interest earned on the due date is called the a. realizable value. b. maturity value. c. face value. d. net realizable value. Q13. Use the following data to calculate the cost of ending inventory under the FIFO method. September 1 Beginning Inventory 15 units @ $20 September 10 Purchases 20 units @ $25 September 20 Purchases 25 units @ $28 September 30 Ending Inventory 30 units a. $825 b. $750 c. $675 d. $840 Q14. When the estimate based on analysis of receivables is used, income is reduced when a specific receivable is written off. a. true b. false Q15. Allowance for Doubtful Accounts has an unadjusted balance of $500 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales. If net sales are $950,000, the amount of the adjustment to record the provision for doubtful accounts is a. $9,500. b. $500. c. $8,500. d. $9,000. Q16. A 90-day, 8% note for $10,000 dated May 1 is received from a customer on account. The maturity value of the note is a. $10,000. b. $10,800. c. $10,200. d. $9,800. Q17. Allowance for Doubtful Accounts has an unadjusted balance of $800 at the end of the year, and an analysis of accounts in the customers ledger indicates doubtful accounts of $15,000. Which of the following records the proper provision for doubtful accounts? a. Increase Uncollectible Accounts Expense, $800; increase Allowance for Doubtful Accounts, $800 b. Increase Uncollectiable Accounts Expense $15,000; increase Allowance for Doubtful Accounts, $15,000 c. Increase Uncollectible Accounts Expense, $14,200; increase Allowance for Doubtful Accounts, $14,200 d. Increase Uncollectible Accounts Expense, $15,800; increase Allowance for Doubtful Accounts, $15,800 Q18. The party promising to pay a note at maturity is the payee. a. true b. false Q19. In reference to a promissory note, the person who makes the promise to pay is called the a. maker. b. payee. c. seller. d. receiver. Q20. When an account is written off under the allowance method, a. the write-off is taken against the allowance account. b. bad debt expense is increased. c. accounts receivable remains unchanged. d. accounts receivable increases. Q21. The process of a company selling its accounts receivable to another company is referred to as a. discounting. b. adjusting. c. assignment. d. factoring. Q22. Allowance for Doubtful Accounts is a contra-equity account. a. true b. false Q23. The two methods of accounting for uncollectible receivables are the allowance method and the a. equity method. b. direct write-off method. c. interest method. d. cost method. Q24. Inventory costing methods place primary emphasis on assumptions about a. flow of goods. b. flow of costs. c. flow of goods or costs depending on the method. d. flow of values. Q25. Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales. If net sales are $300,000, the amount of the adjustment to record the provision for doubtful accounts is a. $400. b. $3,400. c. $3,000. d. $2,600. Q26. An estimate of the amount that an asset can be sold for at the end of its useful life is called book value. a. true b. false Q27. Fixed assets may be shown at book value on the balance sheet. a. true b. false Q28. Which of the following is an example of a capital expenditure? a. Cleaning the carpet in the front room b. Tune-up for a company truck c. Replacing an engine in a company car d. Replacing all burned-out light bulbs in the factory Q29. Book value is defined as a. current market value less residual value. b. cost less residual value. c. current market value less accumulated depreciation. d. cost less accumulated depreciation. Q30. Goodwill equals the purchase price of a company over the fair market value of its net assets. a. true b. false Q31. A capital expenditure would appear on the a. income statement under operating expenses. b. balance sheet under fixed assets. c. balance sheet under current assets. d. income statement under other expenses. Q32. If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must a. recognize a loss on the income statement under other expenses. b. recognize a loss on the income statement under operating expenses. c. recognize a gain on the income statement under other revenues. d. Gains and losses are not to be recognized upon the sell of fixed assets. Q33. A company acquired some land for $80,000 to construct a new office complex. Legal fees paid were $2,300, delinquent taxes assumed were $3,400, and $5,850 was paid to remove an old building from which salvaged materials sold for $1,950. What is the cost basis for the land? a. $93,500 b. $91,550 c. $85,700 d. $89,600 Q34. Other descriptive titles for fixed assets would include a. plant assets. b. property, plant, and equipment. c. other long-term assets d. both plant assets and property, plant, and equipment. Q35. The removal of an old building to make the land ready for its intended use is charged to a. land. b. land improvements. c. buildings. d. operating expenses. Q36. Depletion is the process of transferring the cost of intangible assets to an expense account. a. true b. false Q37. A machine with a useful life of 10 years and a residual value of $4,000 was purchased for $30,000. What is annual depreciation under the straight-line method? a. $3,000 b. $3,400 c. $2,600 d. $5,200 Q38. Which of the following expenditures would NOT be included in the cost of an asset? a. Freight costs b. Vandalism c. Sales tax d. Surveying fees Q39. The exclusive right to use a certain name or symbol is called a a. franchise. b. patent. c. trademark. d. copyright. Q40. The double-declining-balance method of depreciation is referred to as an accelerated method. a. true b. false Q41. Recording depreciation a. decreases net income and cash flows. b. decreases net income and has no effect on cash flows. c. decreases net income, assets, and cash flows. d. decreases net income and has no effect on assets and cash flows. Q42. A current asset account must be increased for revenue expenditures since they only benefit the current period. a. true b. false Q43. The cost of a patent should be amortized a. over 20 years. b. over its economic life. c. over 20 years or its economic life, whichever is shorter. d. only if an impairment occurs. Q44. If a company sells a fixed asset where the book value is less than the cash received, a gain must be recognized. a. true b. false Q45. Accelerated depreciation is primarily used for a. the financial statements of large companies. b. the financial statements of small companies. c. income tax purposes. d. both financial reporting and income taxes by most companies. Q46. Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets. a. true b. false Q47. A patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 12-year economic life. The entry to record amortization would include a. an increase in amortization expense for $33,500. b. an increase in research and development expense for $670,000. c. a decrease in patent for $55,833. d. an increase in accumulated amortization for $670,000. Q48. If an asset is discarded, a loss is recognized equal to the salvage value. a. true b. false Q49. The Accumulated Depreciation account is deducted from the cost of fixed assets on the balance sheet. a. true b. false Q50. A fixed asset with a cost of $30,000 and accumulated depreciation of $25,000 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset? a. $2,500 loss b. $1,500 loss c. $2,500 gain d. $1,500 gain Q51. FICA tax becomes a liability to the federal government at the time the employees are paid. a. true b. false Q52. A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be 40,000. a. true b. false Q53. If a corporation issues only one class of stock, it is called a. common stock. b. treasury stock. c. no-par stock. d. preferred stock. Q54. Most employers are required to withhold from employees for a. both federal and state unemployment compensation. b. only federal unemployment compensation tax. c. only federal income tax. d. only state unemployment compensation tax. Q55. Gross earnings for a payroll period less payroll deductions are referred to as a. overtime pay. b. bonus pay. c. gross pay. d. net pay. Q56. Bonds are sold at face value when the contract rate is equal to the market rate of interest. a. true b. false Q57. A company sold 200 shares of common stock with a par vale of $5 at a price of $12 per share. Which section of the statement of cash flows will contain this transaction? a. Operating activities b. Investing activities c. Financing activities d. Sale of stock will not appear on the statement of cash flows. Q58. A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately a. $30. b. $36. c. $45. d. $50. Q59. Federal unemployment compensation tax is a tax that is paid only by employers. a. true b. false Q60. A current liability is a debt that can reasonably be expected to be paid a. between 6 months and 18 months. b. out of currently recognized revenues. c. within one year. d. out of cash currently on hand. Q61. One of the prerequisites usually required to pay a cash dividend is sufficient retained earnings. a. true b. false Q62. The interest rate specified in the bond indenture is called the a. discount rate. b. contract rate. c. market rate. d. effective rate. Q63. The par value of common stock is rarely equal to its market value on the date the stock is issued. a. true b. false Q64. As interest is recorded on an interest-bearing note, the Interest Expense account is a. decreased; the Interest Payable account is increased. b. increased; the Interest Payable account is increased. c. increased; the Notes Payable account is decreased. d. increased; the Notes Payable account is increased. Q65. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount a. less than face value. b. equal to the face value. c. greater than face value. d. that cannot be determined. Q66. When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at a. a premium. b. their face value. c. their maturity value. d. a discount. Q67. Most employers are levied a tax on payrolls for a. sales tax. b. medical insurance premiums. c. federal unemployment compensation tax. d. union dues. Q68. Which statement below is NOT a reason for a corporation to buy back its own stock? a. Resale to employees b. Bonus to employees c. For supporting the market price of the stock d. To increase the shares outstanding Q69. Which of the following would most likely be classified as a current liability? a. Two-year notes payable b. Bonds payable c. Mortgage payable d. Unearned rent Q70. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding? a. 5,000 b. 100,000 c. 60,000 d. 55,000 Q71. The issuance of common stock affects both paid-in capital and retained earnings. a. true b. false Q72. When the market rate of interest is less than the contract rate for a bond, the bond will sell for a discount. a. true b. false Q73. When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at a. a premium. b. their face value. c. a discount. d. a discount or a premium. Q74. What options does a business have when financing operations? a. Debt financing b. Equity financing c. Asset financing d. Both debt financing and equity financing Q75. On June 5 Glover Co. issued a $60,000, 6%, 120-day note payable to Jones Co. How much will Glover Co. have to pay at maturity? a. $63,600 b. $58,800 c. $60,000 d. $61,200 Q76. All organizations face risks, and the assessment of these risks is necessary so that the objectives of internal control can be achieved. a. true b. false Q77. Employee fraud is the intentional act of deceiving an employer for personal gain. a. true b. false Q78. A voucher a. is received from customers to explain the purpose of a payment. b. is normally prepared in the Accounting Department. c. system is used to control cash receipts. d. system is an internal control procedure to verify that the assets in the records are the ones the company owns. Q79. An element of internal control is a. risk assessment. b. journals. c. subsidiary ledgers. d. controlling accounts. Q80. The objectives of internal control are to a. control the internal organization of the accounting department personnel and equipment. b. provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with. c. prevent fraud and promote the social interest of the company. d. provide control over 'internal-use only' reports and employee internal conduct. Q81. A voucher is a form where pertinent data about a liability and the particulars of its payment are recorded. a. true b. false Q82. Money market accounts, commercial paper, and U.S. Treasury Bills are examples of cash equivalents. a. true b. false Q83. The bank often informs the depositor of bank service charges by including a debit memorandum with the monthly bank statement. a. true b. false Q84. Internal control is enhanced by combining the control of a transaction with the record-keeping function. a. true b. false Q85. Which of the following would be deducted from the balance per books on a bank reconciliation? a. Service charges b. Outstanding checks c. Deposits in transit d. Notes collected by the bank Q86. In preparing a bank reconciliation, the amount indicated by a debit memorandum for bank service charges is deducted from the balance per bank statement. a. true b. false Q87. A voucher system is an example of an internal control procedure over cash receipts. a. true b. false Q88. A voucher is the notification accompanying the check issued to a creditor that indicates the specific invoice being paid. a. true b. false Q89. Cash equivalents include a. checks. b. coins and currency. c. money market accounts and commercial paper. d. stocks and short-term bonds. Q90. A minimum cash balance required by a bank is called a. cash in bank. b. cash equivalent. c. compensating balance. d. EFT. Q91. Accompanying the bank statement was a debit memorandum for an NSF check received from a customer. This item would require an adjusting entry including a a. debit to Accounts Receivable. b. debit to Cash. c. debit to Accounts Payable. d. credit to Accouts Payable. Q92. An element of internal control is a. fidelity insurance. b. prepaid insurance. c. monitoring. d. insurance expense. Q93. Requiring employees to take annual vacations is part of which element of internal control? a. The control environment b. Risk assessment c. Control procedures d. Monitoring Q94. The bank reconciliation a. should be prepared by an employee who records cash transactions. b. is part of the internal control system. c. is for information purposes only. d. is sent to the bank for verification. Q95. A credit memorandum received with a bank statement means the bank account has been increased. a. true b. false Q96. A special cash fund used to make small payments that occur frequently is called a(n) a. operating expenses fund. b. change fund. c. market fund. d. petty cash fund. Q97. When a firm uses internal auditors, it is adhering to which of the following internal control elements? a. Risk assessment b. Proofs and security measures c. Monitoring d. Separating responsibilities for related operations Q98. For efficiency of operations and better control over cash, a company should maintain only one bank account. a. true b. false Q99. For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees. a. true b. false Q100. Separating the custody of assets from accounting for assets is a part of which element of internal control? a. Information and communication b. Monitoring c. The control environment d. Control procedures