3. Which of the following is true about an income statement? A) It reports revenues and expenses. B) It reports activity for a period of time. C) It does not include dividends paid. D) All of the other answers are true. 4. An aging of a company's accounts receivable indicates that $16,200 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $5,760 credit balance, the adjustment to record bad debts for the period will require a A) debit to Bad Debt Expense for $16,200. B) credit to Allowance for Doubtful Accounts for $16,200. C) debit to Bad Debt Expense for $10,440. D) debit to Allowance for Doubtful Accounts for $10,440. 5. Which of the following would increase assets and increase liabilities? A) Purchase office supplies on account. B) Receive a utility bill for the current month. Plan to pay bill beginning of next month. C) Provide services to customers on account. D) Pay dividends to stockholders. 6. The figure for which of the following items is determined at a different time under the perpetual inventory method than under the periodic method? A) Purchases B) Cost of Goods Sold C) Accounts Receivable D) Sales Revenue 7. Which of the following most likely would be classified as a current liability? A) Six-month notes payable B) Mortgage payable as a single payment in 10 years C) Dividends D) Bonds payable in 5 years 8. Which of the following is not a satisfactory statement of the accounting equation? A) Assets = Liabilities + Stockholders' Equity B) Assets - Liabilities = Stockholders' Equity C) Assets - Stockholders' Equity = Liabilities D) Assets = Stockholders' Equity - Liabilities 9. Which of the following assets is not properly classified as property, plant, and equipment? A) Land improvements, such as parking lots and fences B) A building used as a factory C) A truck held for resale by an automobile dealership D) Land used in ordinary business operations 10. Which of the following correctly identifies normal balances of accounts? 11. In Year 2, Nyssa Corporation has plant equipment that originally cost $216,000 and has accumulated depreciation of $72,000. A new processing technique has rendered the equipment obsolete, so it is retired. The journal entry to retire the equipment should include which of the following? A) A credit of Loss for $144,000. B) A credit of Equipment for $144,000. C) A credit of Accumulated Depreciation for $72,000. D) A credit of Equipment for $216,000. 12. If goods in transit are shipped FOB destination A) no one has legal title to the goods until they are delivered. B) the buyer has legal title to the goods until they are delivered. C) the seller has legal title to the goods until they are delivered. D) the transportation company has legal title to the goods while the goods are in transit. 13. Equipment was purchased for $540,000. Freight charges amounted to $25,200 and there was a cost of $72,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $108,000 salvage value at the end of its 5 -year useful life. Depreciation expense each year using the straight-line method will be A) $86,400. B) $91,440. C) $105,840. D) $127,440. 14. Which of the following describes the classification and normal balance of the Unearned Rent Revenue account? A) Asset, debit B) Liability, credit C) Revenues, credit D) Expense, debit 15. Which of the following items would not appear in an income statement? A) Delivery expense. B) Interest revenue. C) Utilities expense. D) Deferred revenue. 16. If a company records cash received for services to be provided in the future with a debit to Cash and a credit to Service Revenue, how will this error affect net income for the current period? A) Net income will be correct. B) Net income will be too high. C) Not possible to determine. D) Net income will be too low. 17. Kuna Company received a check for $32,400 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $32,400. Financial statements will be prepared on July 31 . Kuna should make the following adjusting entry on July 31 A) debit Unearned Rent Revenue, $32,400; credit Rent Revenue, $32,400. B) debit Unearned Rent Revenue, $5,400; credit Rent Revenue, $5,400. C) debit Rent Revenue, $5,400; credit Unearned Rent Revenue, $5,400. D) debit Cash, $32,400; credit Rent Revenue, $32,400. 18. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates A) that all accounts reflect correct balances. B) the mathematical equality of the accounting equation. C) no errors have been made. D) no errors can be discovered. 19. At April 30, Morley Company has the following bank information: What is Morley's adjusted cash balance on April 30 ? A) $14,634. B) $13,122. C) $13,149. D) $11,610. 20. The best definition of assets is the A) collections of resources belonging to the company and the claims on these resources. B) cash owned by the company. C) owners' investment in the business. D) resources belonging to a company that have future benefit to the company. 21. The interest on a $21,600,8%,90-day note receivable is A) $864. B) $1,296. C) $432. D) $1,728. 22. Use the following data to determine the total dollar amount of assets to be classified as current assets. Orchard Supplies Balance Sheet December 31, Year 2 A) $558,000 B) $594,000 C) $1,026,000 D) $702,000 23. Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. A) $19,260 B) $25,200 C) $21,960 D) $21,150 24. Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost? A) LIFO B) FIFO C) Average Cost D) Whichever method that produces the highest ending inventory figure 25. Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods purchased is recorded in which account? A) Freight Expense B) Freight-Out C) Inventory D) Freight-In