Chapter 1 Introduction to Accounting NAME ___________________________________________________ DATE _______________________________ 1. Which of the following events would be recorded as an accounting event? a. A guest enters the dining room and is seated by a host. b. A guest complains to front office representatives about a dirty guestroom. c. A valet parks a guest's vehicle. d. A guest purchases a meal in a food outlet. 2. The branch of accounting that involves reviewing and evaluating documents, records, and control systems is called: a. financial accounting. b. cost accounting. c. managerial accounting. d. auditing. 3. Which of the following groups has the most influence over the development of accounting principles in the private sector? a. Financial Accounting Standards Board (FASB) b. Securities and Exchange Commission (SEC) c. Internal Revenue Service (IRS) d. Hospitality Financial and Technology Professionals (HFTP) 4. The organization that administers the certification programs for Certified Hotel Account Executives and Certified Hotel Technology Professionals is: a. the Internal Revenue Service (IRS). b. the Securities and Exchange Commission (SEC). c. Hospitality Financial and Technology Professionals (HFTP). d. the Financial Accounting Standards Board (FASB). 5. The major disadvantage of the corporate form of business organization is: a. double taxation. b. limited liability. c. difficulty in raising capital. d. all of the above. 6. Regardless of the size of an operation's accounting department, the diversity of its responsibilities, or the number and types of reports produced, the accounting staff is responsible for providing: a. service. b. clean rooms that are ready for sale. c. inventory counts. d. guest comment cards. 7. The generally accepted accounting principle of matching requires that: a. accounting adjustments be made at least quarterly. b. balance sheet accounts and income statement accounts match. c. expenses be matched with the revenues they generate. d. hospitality businesses use the cash basis of accounting. 2 260T Hospitality Industry Financial Accounting 8. The Tech Hotel purchased a computer for $3,000. The retail value of the computer per the salesperson is $3,500; however, it is projected that the computer will have a market value of only $2,500 one year from now. The cost principle dictates that the computer purchase be recorded at the date of purchase for: a. $2,500. b. $3,000. c. $3,500. d. cannot be determined 9. Which of the following statements best describes the accounting principle of objective evidence? a. It requires supporting documents for accounting transactions whenever possible. b. It involves recording, classifying, and summarizing transactions in order to prepare reports. c. It requires that all events that would make a difference to the user of a financial report be accounted for. d. It assumes that the business will survive for the foreseeable future. 10. What happens to the fundamental accounting equation when the sole proprietor of a business invests more cash in it? a. Assets increase, liabilities increase, and owner's equity decreases. b. Assets increase, liabilities remain the same, and owner's equity increases. c. Assets remain the same, liabilities increase, and owner's equity increases. d. Assets increase, liabilities increase, and owner's equity remains the same. 3 260T Hospitality Industry Financial Accounting Chapter 2 Accounting for Business Transactions NAME ___________________________________________________ DATE _______________________________ 1. T-accounts are so named because of: a. their appearance. b. the kinds of information they provide. c. their relevance to trade analysis. d. their inventor, whose first initial was T. 2. Jerry accepts a formal, written promise from an employee of his hotel to pay a certain sum. The employee plans to repay the hotel within the current fiscal year, and states this intention in the note. Notes Receivable are classified as: a. liabilities. b. owners' equity. c. expenses. d. assets. 3. The basic element used in an accounting system to classify and summarize business transactions is the: a. T-account. b. account. c. liability. d. marketable security. 4. Sara totals the credits and debits for a certain account and finds that the account carries a debit balance. All of the following types of accounts typically carry a debit balance except: a. asset accounts. b. liability accounts. c. drawing accounts. d. expense accounts. 5. Revenue from cash sales ultimately affects which two balance sheet accounts? a. assets and liabilities b. assets and owner's equity c. liabilities and owner's equity d. assets and expenses 6. All of the following are balance sheet accounts except: a. revenue accounts. b. asset accounts. c. liability accounts. d. owners' equity accounts. 7. Which of the following kinds of accounts would appear in a general ledger? a. asset accounts b. drawing accounts c. owners' equity accounts d. all of the above 4 260T Hospitality Industry Financial Accounting 8. Collette is the owner of a small motel who keeps her own financial records. She needs to record the income from room sales for the day. All of today's income was from a single group, and the group's representative paid the bill on account. The accounts that this income affects are: a. Cash and Accounts Payable. b. Rooms Expense and Cash. c. Room Revenues and Accounts Receivable. d. Room Expense and Accounts Payable. 9. Which of the following procedures involves transferring amounts recorded in the general journal to ledger accounts? a. journalizing b. posting c. cross-indexing d. preparing a trial balance 10. Hospitality accounting staff members prepare a trial balance in order to: a. test the equality of debits and credits. b. keep track of how the bookkeeper handles transactions. c. make sure that all transactions have been entered only once. d. determine the firm's profitability. 5 260T Hospitality Industry Financial Accounting Chapter 3 Accounting Adjustments NAME ___________________________________________________ DATE _______________________________ 1. Which of the following statements about accrual basis accounting is true? a. Accrual basis accounting is reflected on the statement of cash flows. b. Accrual basis accounting is used only by small hospitality businesses. c. Accrual basis accounting allows a business to show greater profits than cash basis accounting. d. Accrual basis accounting generally requires that several adjusting entries be recorded at the end of the accounting period. 2. A meeting planner made a deposit with a hotel to reserve exhibit space and the hotel has hosted the meeting. Now that the meeting has taken place, accountants should make an adjustment: a. in which previously recorded assets become expenses. b. in which previously recorded liabilities become revenue. c. to record assets and revenues not previously provided. d. to record liabilities and expenses not previously recorded. 3. Which of the following is an example of an accounting adjustment in which previously recorded assets become expenses? a. Prepaid Rent decreases and Rent Expense increases. b. Utilities Payable increases and Utilities Expense increases. c. Prepaid Insurance decreases and Insurance Expense decreases. d. Depreciation Expense increases and Accumulated Depreciation, Building increases. 4. Which of the following adjustments is an example of an accrual adjustment? a. a liability/revenue adjustment involving unearned revenues b. an asset/expense adjustment involving insurance c. an asset/expense adjustment involving depreciation d. a liability/expense adjustment involving utility expenses 5. Accounts that record accumulated depreciation are shown on the: a. balance sheet as deductions from assets. b. income statement as deductions from liabilities. c. income statement as increases to expenses. d. statement of cash flows as revenue. 6. James Bell plans to stay at the Michaels Motel for one month, and he prepays his room charges. Bell arrives and begins his stay on January 21. To account for Bell's prepayment, at the end of January (the end of the accounting period) the motel accountant should: a. credit Room Revenue and debit Cash. b. debit Unearned Room Revenue and credit Cash. c. debit Unearned Room Revenue and credit Room Revenue. d. credit Accounts Receivable and debit Cash. 7. Accounting adjustments to account for unpaid wages would: a. credit Wage Expense and debit Accrued Wages Payable. b. debit Wage Expense and credit Accrued Wages Payable. c. credit both Wage Expense and Cash. d. debit both Wage Expense and Accrued Wages Payable. 6 260T Hospitality Industry Financial Accounting 8. Telephone service costs the Eggleston Motor Hotel $250 per week. The business pays its phone service bill on the fifteenth day of each month, but it prepares its financial statements at the end of each month. Which of the following types of adjustments is required to ensure the accuracy of the Eggleston Motor Hotel's financial statements? a. a liability/expense adjustment b. an asset/expense adjustment c. a liability/revenue adjustment d. an asset/revenue adjustment 9. Jaime failed to make adjusting entries to account for the use of prepaid insurance for his hotel. This mistake affects which of the following financial statements? a. the balance sheet b. the income statement c. the statement of cash flows d. a and b 10. If an accountant fails to make adjusting entries for utility service payments that have not yet been made: a. expenses will be understated. b. assets will be understated. c. gross revenue will be overstated. d. liabilities will be overstated. 7 260T Hospitality Industry Financial Accounting Chapter 4 Completing the Accounting Cycle NAME ___________________________________________________ DATE _______________________________ 1. Which of the following steps in the accounting cycle is performed immediately before preparing adjusting entries? a. analyzing transactions b. recording and posting closing entries c. preparing a trial balance d. preparing the financial statements 2. The accounting cycle step that involves summarizing the ledger accounts to prove the equality of debits and credits is called: a. posting adjusting entries. b. preparing a trial balance. c. preparing the financial statements. d. analyzing transactions. 3. Which of the following serves as the link between the income statement and the balance sheet? a. the statement of cash flows b. the statement of owners' equity c. the adjusted trial balance d. the post-closing trial balance 4. Trish is preparing a financial statement for which she needs the balances of the owners' capital and drawing accounts. Which statement is Trish most likely preparing? a. an income statement b. an adjusted trial balance c. a statement of owners' equity d. a statement of cash flows 5. Ivan is making several entries into the general journal at the restaurant where he serves as an accountant. The main difference between entries for routine business transactions and adjusting entries is that: a. entries for business transactions are made more often than adjusting entries. b. adjusting entries are usually higher than entries for routine business transactions. c. adjusting entries are usually lower than entries for routine business transactions. d. entries for business transactions usually affect fewer kinds of accounts than adjusting entries. 6. Why do accountants close accounts? a. to ensure that the general ledger is the only remaining ledger account b. to test the balance of debits and credits c. to consolidate revenues and expenses into one net figure d. to obtain more detailed information on revenues and expenses 7. Closing the Interest Income account usually involves: a. debiting a liabilities account. b. crediting an asset account. c. crediting an expense account. d. crediting the Owners' Equity account. 8 260T Hospitality Industry Financial Accounting 8. All of the following are examples of accounts that would be listed on a worksheet except: a. Income Summary. b. Rooms Revenue. c. Interest Expense. d. Depreciation Expense. 9. Which of the following items do accountants neither publish nor give to managers? a. the statement of owner's equity b. the worksheet c. the balance of the owner's capital account d. the income statement 10. Accountants should not reverse the adjustment of prepaid insurance to recognize insurance expense at the end of the accounting period because: a. Prepaid Insurance is a liability account. b. Prepaid Insurance should never be adjusted. c. doing so results in a change from accrual basis accounting to cash basis accounting. d. there is no transaction in the following accounting period to offset a reversing entry as there is for the accrual of assets and liabilities. 9 260T Hospitality Industry Financial Accounting Chapter 5 Income Statement NAME ___________________________________________________ DATE _______________________________ 1. The Expenses section of an income statement includes which of the following? a. outflows related to the accounting period and expenses that were incurred in the process of producing revenue b. the amounts of prepaid utility fees and allowances c. inflows related to the accounting period and expenses that were incurred in the process of producing revenue d. depreciation and interest income 2. A certain reservationist receives a call and makes a reservation for one room night for a future hotel guest. The traveler uses a credit card to guarantee the reservation, but no amount is charged to the traveler's account. From an accounting standpoint, a sale ___________ and the event ____________. a. has been made; should be recorded b. has not been made; should be recorded c. has been made; should not be recorded d. has not been made; should not be recorded 3. Hospitality managers are held responsible primarily for: a. the profitability of the operation they manage. b. increasing gains on assets sold. c. decreasing losses on assets sold. d. b and c. 4. Stormin' Norman's Resort sold two golf carts for a total of $1,000 in order to raise cash. The resort's managers had originally bought the carts for a total of $6,000. The accumulated depreciation on both carts was $4,000. The resort's managers will have to record a _______ of _______ on the sale of these carts. a. gain; $3,000 b. loss; $500 c. loss; $1,000 d. loss; $4,000 5. Which of the following groups would be considered internal users of a company's income statement? a. investors b. creditors c. operation managers d. suppliers 6. Earnings per share is calculated only for: a. sole proprietorships. b. partnerships. c. restaurant corporations. d. corporations. 7. Cami's floating casino achieved an earnings per share of $12 last accounting period. If her firm has 1,500 shareholders and 6,000 shares of common stock outstanding, how much net income did the firm earn last period? a. 4 shares b. $5,500 c. $60,000 d. $72,000 10 260T Hospitality Industry Financial Accounting 11 260T Hospitality Industry Financial Accounting 8. The Uniform System of Accounts for the Lodging Industry, in its tenth revised edition, could be described as any of the following except: a. a set of tables that indicate how much net income a property can expect to earn each year. b. a turnkey system for new entrants into the hospitality industry. c. a standardized accounting system. d. an instrument that allows for a more reasonable comparison of the operational results of similar hospitality firms. 9. Rent, property taxes, and insurance are all independent of hotel occupancy rates; they vary only with the passage of time. For this reason, these expenses are called: a. management fees. b. departmental income. c. costs of sales. d. fixed charges. 10. On which of the following financial statements would you expect to find a line item for correcting errors that were made in a previous financial statement? a. departmental operations report b. the income statement c. the balance sheet d. the statement of retained earnings 12 260T Hospitality Industry Financial Accounting Chapter 6 Balance Sheet NAME ___________________________________________________ DATE _______________________________ 1. Which of the following financial reports most completely reflects the financial position of a business at a given point in time? a. balance sheet b. statement of cash flows c. income statement d. statement of retained earnings 2. Which of the following financial statements would show how quickly a hospitality operation could convert assets into cash? a. income statement b. balance sheet c. statement of cash flows d. aging of accounts payable report 3. Cecil, the general manager of a hotel, picks up a balance sheet from the end of the previous fiscal year, which ended December 31. He is gathering information to prove to creditors that the hotel is able to pay its debts. If the current date is July 14: a. the balance sheet is too outdated to be helpful. b. the balance sheet's assets may need to be updated. c. Cecil may use the balance sheet for one-and-a-half more months, after which the statement will be useless. d. a few corrections to the footnotes may be all that is necessary to update the statement. 4. All of the following items are shown on the balance sheet of a hospitality company except: a. accounts payable. b. accounts receivable. c. intangible assets. d. employee training expenses. 5. Among current assets, the category Cash includes all of the following except: a. checking and savings accounts. b. bank accounts with restricted use. c. certificates of deposit. d. house banks. 6. All of the following are considered current liabilities except: a. deferred income taxes. b. advance deposits on rooms. c. payables resulting from the purchase of services. d. obligations relating to fixed asset purchases to be paid in the current period. 7. Which of the following would be included in the Investments category on the balance sheet? a. all marketable securities b. property not currently used in operations c. notes receivable due within twelve months d. leasehold improvements 13 260T Hospitality Industry Financial Accounting 14 260T Hospitality Industry Financial Accounting 8. The class of assets on the balance sheet that includes land, buildings, and furnishings that are in use is: a. fixed assets. b. property and equipment. c. investments. d. liabilities. 9. Which of the following statements best summarizes the role of footnotes on a balance sheet? a. Footnotes should explain balance sheet figures and help users interpret the balance sheet. b. Footnotes should contradict balance sheet information. c. Footnotes are meant to provide the details that the balance sheet presents only in summary form. d. Footnotes soften the disclosure of financial statements. 10. Which of the following statements about consolidated financial statements is true? a. Consolidated financial statements make footnotes unnecessary. b. Consolidated financial statements are required of all companies in the United States. c. The subsidiaries of corporations cease to be separate legal entities when their parent corporations use consolidated financial statements. d. Generally, most of the voting stock of a subsidiary should be owned by the holding company or by the same interests if the associated companies' financial statements are to be combined. 15 260T Hospitality Industry Financial Accounting Chapter 7 Specialized Journals and Subsidiary Ledgers NAME _____________________________________________________ DATE _________________________________ 1. Which of the following is a collection of individual accounts whose balances must add up to be equal to the balance of the corresponding control account? a. general ledger b. control account c. cash receipts journal d. purchases journal 2. The main function of a control account in a hospitality business's accounting system is to: a. summarize all similar transactions that take place in operations, such as all payments the firm makes. b. ensure that all transactions generate two bookkeeping entries. c. provide the greatest amount of detail about each transaction. d. keep the number of subsidiary ledgers low. 3. A ledger that was designed to record only the transactions that involved a certain customer would be: a. a general ledger. b. an accounts receivable subsidiary ledger. c. an accounts payable subsidiary ledger. d. a purchases journal. 4. Debits would always be recorded in which of the following sections of a cash receipts journal? a. Other Accounts b. Sales c. Cash d. Accounts Receivable 5. The role of the posting reference column(s) in any specialized journal is to help accounting staff make sure they: a. post the entry to a ledger. b. post the entry to the general journal. c. make the entry's debits equal to its credits. d. close the specialized journal to the general journal after each entry. 6. A hospitality business uses a cash receipts journal to record: a. guest payments on account. b. sales of capital stock. c. purchases of suppliers' goods and services. d. all of the above. 7. Sometimes a lodging business discounts its prices for guests. When this happens, the amount of the discount is typically recorded in the: a. cash disbursements journal. b. city ledger. c. guest ledger. d. allowance journal. 16 260T Hospitality Industry Financial Accounting 8. When a hospitality firm uses specialized ledgers, the preparation of a trial balance takes place after accountants have proved that: a. the balances of specialized ledgers equal the balances of the appropriate accounts in the general ledger. b. the balances of Accounts Payable and Accounts Receivable control accounts are equal. c. the sum of all credits equals the sum of all debits. d. all of the above are true. 9. Which of the following accounting records includes a section for deductions? a. the general journal b. the Cash account c. the front office cash receipts journal d. the payroll journal 10. With which of the following computer system components is data storage time-consuming because of how data must be arranged? a. video display terminals b. magnetic tape units c. property management systems d. magnetic disks 17 260T Hospitality Industry Financial Accounting Chapter 8 Cash NAME _____________________________________________________ DATE _________________________________ 1. At the Seldon Inn, cash is deposited daily, employees use a voucher system, and cash-handling duties are segregated. These practices and policies are most likely in place to achieve: a. high profitability. b. internal control over assets. c. greater control over expenses. d. greater accuracy in recordkeeping. 2. All of the following would be considered Cash or Cash Equivalents for accounting purposes except: a. furniture and fixtures. b. credit card slips. c. money orders. d. certificates of deposit. 3. When a bill is due to be paid, an accounting employee pulls a voucher from the _______ file and prepares a __________ for the treasurer to sign. a. cash receipts; check b. tickler; voucher c. registration; report d. tickler; check 4. Petty cash is usually shown on the balance sheet as: a. Cash. b. Petty Cash. c. a noncurrent asset. d. a liability. 5. Once a firm establishes a petty cash fund, it has ____________ than it did before. a. more owners' equity b. higher expenses c. less money in demand deposits d. less liquidity 6. Cyril, a restaurant accountant, notices that there is a difference between the bank statement's balance and the balance in the restaurant records for the restaurant's account. All of the following are common causes for this difference except: a. credits for interest earned or receivables collected. b. NSF checks. c. allowances made for doubtful accounts. d. outstanding checks. 7. To prepare a bank reconciliation, an accounting employee may have to perform any of the following except: a. add deposits in transit to the balance per bank. b. deduct amounts of NSF checks from the balance per books. c. check the equality of the adjusted bank balance and the adjusted book balance. d. deduct interest earned from the balance per books. 18 260T Hospitality Industry Financial Accounting 8. When a supplier's invoice indicates terms of 2/15, n/30, and it has just been delivered, the hospitality firm will have to pay full price if payment is not made: a. after 2 days. b. after 15 days. c. after 30 days. d. within the number of days that it took to ship the goods or supply the services purchased. 9. A restaurant submits credit card slips that total $1,000 to American Express for payment. Suppose that American Express charges a 4 percent processing fee. The amount the hotel will receive is: a. $1,060. b. $960. c. $940. d. $40. 10. Cash forecasting is an aspect of which of the following? a. conducting audits b. preparing a bank reconciliation c. collecting franchise fees d. an integrated cash management system 19 260T Hospitality Industry Financial Accounting Chapter 9 Receivables and Payables NAME _____________________________________________________ DATE _________________________________ 1. A company that has either an account receivable or a note receivable on its books is called a: a. debtor. b. creditor. c. note maker. d. note discounter. 2. Danny Default is the maker of a note to the Long-Stay Hotel for his stay there. On the note's maturity date, Danny has not paid the note. Now the note is called a: a. debtor. b. non-interest-bearing note. c. discounted note. d. dishonored note. 3. I. Leftown is a former guest who owes the Munchies Restaurant $750 for a banquet. Restaurant managers have determined that this debt is now uncollectible. If the restaurant uses the direct write-off method of accounting for bad debt expense, the journal entry to recognize this bad debt would be a debit to ___________ and a credit to _________________. a. Provision for Doubtful Accounts; Accounts Receivable b. Allowance for Doubtful Accounts; Provision for Doubtful Accounts c. Provision for Doubtful Accounts; Administrative and General Expense d. Accounts Receivable; Accounts Payable 4. The Wayside Hotel uses the direct write-off method of accounting for bad debts. If the general manager of the hotel determines that a $700 debt is uncollectible and the current balance of Provision for Doubtful Accounts is $100, the journal entry to recognize this bad debt would involve: a. crediting Provision for Doubtful Accounts for $600. b. debiting Provision for Doubtful Accounts for $600. c. crediting Accounts Receivable for $700. d. debiting Accounts Receivable for $700. 5. Using the allowance method of accounting for bad debt expense _________ the carrying value of Accounts Receivable. a. increases b. decreases c. has no effect on d. cancels out 6. The aging of accounts receivable method is used to estimate bad debts at a certain firm. When accounting staff members total the estimated bad debts from the aging schedule, they have determined: a. the number of past-due accounts. b. the amount they need to add to the current balance in Allowance for Doubtful Accounts. c. the current balance in Allowance for Doubtful Accounts. d. what should be the current balance in Allowance for Doubtful Accounts. 20 260T Hospitality Industry Financial Accounting 7. Net credit sales for the Breakeven Diner for the past year stands at $4,500. If the diner's manager uses the percentage of sales method of estimating bad debt and uses 1.5 percent for this purpose, the amount of bad debt for the year would be: a. $9.50. b. $18.40. c. $45.00. d. $67.50. 8. The Tally-Ho Restaurant uses the percentage of sales method of estimating bad debt. Net credit sales for last year were $15,000, and net sales amounted to $21,000. If the firm's accountants estimated last year's uncollectible accounts to total $300, what percentage did they apply to determine this amount? a. 12 percent b. 2 percent c. 9 percent d. 5 percent 9. A 60-day note for $5,000 with an interest rate of 12 percent per annum will have a maturity value of _____________. (Assume that there are 360 days in a year for the purpose of calculating the interest.) a. b. c. d. $5,000 $5,100 $5,600 $6,300 10. An interest-bearing note receivable dated April 14 matures on July 23. The principal amount is $10,000, the annual interest rate is 10 percent, and the total interest income for the note is _____________. (Assume that a year has 360 days for the purpose of calculating interest.) a. $273.97 b. $277.78 c. $280 d. $1,000 21 260T Hospitality Industry Financial Accounting Chapter 10 Inventory NAME _____________________________________________________ DATE _________________________________ 1. Which of the following is a policy or practice that endangers the security of a hospitality firm's inventory? a. A physical inventory is taken only once every five years. b. The accountant who maintains the inventory records may not access the inventory itself. c. A daily inventory of high-priced items must be taken. d. There is a separation between the custody of the inventory records and custody of the inventory. 2. Inventory value is used to calculate _____________, which in turn is used to calculate gross profit. a. cost of goods sold b. purchases c. cost of goods used internally d. sales revenue 3. Some suppliers absorb the expenses involved in transporting goods to the buyer, but others who deliver will charge the buyer for freight costs. In freight terminology, FOB means: a. the supplier will charge the buyer for freight costs. b. the supplier will not charge the buyer for freight costs. c. free on board, which doesn't necessarily mean free freight. d. freight on board, which means the freight charges will be included in the invoice amount. 4. FOB shipping point means that freight charges will be paid by the: a. hospitality firm that ordered the shipment. b. purchasing agent. c. freight company. d. supplier. 5. Use the LIFO method to value (at cost) the ending inventory. There was no beginning inventory. The purchases during the month were as follows: 5 units @ $2.00 apiece 10 units @ $2.10 apiece 15 units @ $2.20 apiece If the ending inventory were 15 units, it would be valued under LIFO at: a. $31.00. b. $33.00. c. $64.00. d. none of the above. 6. The beginning inventory of a certain item for the Frolicsome Resort was 10 units, which were purchased at $10 each. It purchased 5 units at $5 apiece, and later, 3 units at $10 apiece. The resort sold a total of 8 units during the current accounting period. Which of the following inventory valuation methods yields the highest ending inventory value for this inventory item? a. FIFO b. LIFO c. weighted average d. All these methods yield the same value for ending inventory. 22 260T Hospitality Industry Financial Accounting 7. Simone computes the gross profit percentage on the basis of previous years' figures. The fact that she is determining this percentage in this way means she must be using the _____________ method of estimating ending inventory. a. weighted average b. specific identification c. retail d. gross profit 8. Given the following information, estimate the value of ending inventory using the gross profit method: Beginning inventory Purchases Sales Gross profit percentage a. b. c. d. 9. $200 $50 $100 50% $175 $200 $225 $250 Which of the following generally accepted accounting principles is the reason accountants calculate the lower of cost or market (LCM)? a. matching principle b. conservatism principle c. going concern principle d. full disclosure principle 10. Which of the following statements about inventory control systems is true? a. A physical inventory of all products in storage areas is generally taken once a day. b. A periodic inventory system indicates how much of each product is on hand by maintaining a running balance of all products entered into and issued from storage areas. c. A perpetual inventory system eliminates the need for a monthly physical count of items in storage. d. Staff members who maintain an operation's perpetual inventory records should also have custody of the inventory itself. 23 260T Hospitality Industry Financial Accounting Chapter 11 Property, Equipment, and Other Assets NAME _____________________________________________________ DATE _________________________________ 1. When a piece of property or equipment is purchased, it is generally recorded at its __________ value. a. residual b. cost c. salvage d. book 2. All of the following would typically be treated as revenue expenditures except the payment for a: a. tankful of gas for a hotel's shuttle bus. b. $20 calculator. c. new hotel building. d. property tax bill. 3. Which of the following is the simplest of the methods of depreciation? a. straight-line method b. double declining balance method c. sum-of-the-years' digits method d. units of production method 4. The Coral Reef Adventure Resort plans to transport guests to its underwater facility in a submarine. The sub cost $250,000, has a salvage value of $10,000, and has an estimated useful life of 48,000 hours, or 6 years' use. During the first year of the sub's operation, it was used for 8,000 hours. Using the straight-line method of depreciation, calculate the sub's depreciation for the first year. a. $50,000 b. $40,000 c. $36,000 d. $80,000 5. The Coral Reef Adventure Resort plans to transport guests to its underwater facility in a submarine. The sub cost $250,000, has a salvage value of $10,000, and has an estimated useful life of 48,000 hours, or 6 years' use. During the first year of the sub's operation, it was used for 8,000 hours. Using the units of production method of depreciation, calculate the sub's depreciation for the first year. a. $41,667 b. $40,000 c. $38,000 d. $35,000 6. The Coral Reef Adventure Resort plans to transport guests to its underwater facility in a submarine. The sub cost $250,000, has a salvage value of $10,000, and has an estimated useful life of 48,000 hours, or 6 years' use. During the first year of the sub's operation, it was used for 8,000 hours. Using the sum-of-the-years' digits method of depreciation, calculate the sub's depreciation for the first year. a. $68,571 b. $71,870 c. $63,140 d. $68,061 24 260T Hospitality Industry Financial Accounting 7. The Lagoon Adventure Resort plans to transport guests to its underwater facility in a submarine. The sub cost $250,000, has a salvage value of $10,000, and has an estimated useful life of 40,000 hours, or 5 years' use. During the first year of the sub's operation, it was used for 8,000 hours. Using the double declining balance method of depreciation, calculate the sub's depreciation for the first year. a. $48,000 b. $92,000 c. $94,000 d. $100,000 8. If a batch of linens is expected to have a useful life of less than one year, it should be recorded as a(n) _______. a. current asset b. depreciable expense c. intangible asset d. long-term asset 9. A hotel trades an old van, which originally cost $20,000 and has a net book value of $4,000, for a new van. The new van has a market value of $28,000, and to purchase it, the hotel pays $22,000 in cash as well as turning in the old van. The new van is recorded on the books as having a value of: a. $28,000. b. $26,000. c. $24,000. d. $22,000. 10. Tina has purchased the right to do business as a hotelier with her building, land, and equipment for the coming year. The party that granted her this right also let her use its brand name. Tina has purchased: a. goodwill. b. a copyright. c. a patent. d. a franchise. 25 260T Hospitality Industry Financial Accounting Chapter 12 Current Liabilities and Payroll NAME _____________________________________________________ DATE _________________________________ 1. Jae is a hotel accountant who is aware of the existence of a certain liability but unsure of its amount. This liability would be classified as a(n): a. estimated liability. b. actual liability. c. contingent liability. d. loss contingency. 2. The main difference between accounts payable and notes payable is that notes payable: a. are long-term liabilities instead of current liabilities. b. are recorded on the income statement instead of the balance sheet. c. are written promises to pay, not oral ones. d. must be paid to restaurant or hotel guests. 3. Which of the following federal laws covers payroll recordkeeping requirements as well as equal pay for equal work, minimum wage rates, and overtime pay? a. Federal Insurance Contributions Act b. Federal Unemployment Insurance Tax Act c. Fair Labor Standards Act d. Tax Equity and Fiscal Responsibility Act 4. Douglas receives $260 in regular pay per 40-hour week. If he lives in a country where hours in excess of 40 per week are paid at 1.5 times the hourly rate, his overtime rate per hour is: a. $6.50. b. $7.00. c. $7.83. d. $9.75. 5. Khodr works as a room attendant in a hotel, earning $6.84 per hour. The minimum wage for the district is $5.15. If Khodr worked 38 hours last week, which includes no overtime, Khodr's gross pay for that week should be (rounded to the nearest $1): a. $260. b. $255. c. $249. d. $196. 6. Felix, a restaurateur, wants to know more about the social security taxes he and his employees pay. The U.S. law that established the Social Security tax is the: a. Fair Labor Standards Act. b. Tax Equity and Fiscal Responsibility Act. c. Federal Insurance Contributions Act. d. Federal Unemployment Tax Act. 7. Assume the FICA tax is 6.2 percent on the first $64,500 of earnings and 1.45 percent on earnings in excess of $64,500. Jean has earnings of $65,000. What is the total FICA tax on Jean's earnings (to the nearest $1)? a. $935 b. $4,006 c. $4,030 d. $4,112 26 260T Hospitality Industry Financial Accounting 27 260T Hospitality Industry Financial Accounting 8. KayLee's Cafeteria serves up to 300 guests each day and has 23 full-time employees. Which of the following best describes how the 8 percent tip regulation applies to this operation? a. KayLee's Cafeteria is subject to the 8 percent tip regulation. b. KayLee's Cafeteria is not subject to the 8 percent tip regulation. c. KayLee's Cafeteria will be subject to the 8 percent tip regulation when it employs over 25 full-time employees. d. KayLee's Cafeteria is subject to the 8 percent tip regulation if it is a sole proprietorship. 9. In a certain region, restaurant managers are allowed a 40 percent maximum tip credit. If the minimum wage in this region is $6.00, this means that: a. employers may subtract all tips that were earned by tipped employees from their wages. b. employers may subtract 40 percent of all tips that were earned by tipped employees from their wages. c. employers may subtract as much as $2.40 from the hourly wages of tipped employees under certain circumstances. d. none of the above. 10. The Shiny Dirk Inn has a building worth $1,000,000, according to a recent valuation. If the tax rate for the inn's district is 50 mills, the inn owes property taxes of: a. b. c. d. $50,000. $500,000. $99,500. $500. 28 260T Hospitality Industry Financial Accounting Chapter 13 Partnerships NAME _____________________________________________________ DATE _________________________________ 1. 1. Partners Ma, Running-Buck, and McFarlane own a hotel. McFarlane decides that the business has far fewer linens than it needs, so he makes a major linen purchase on open account. Which of the following terms refers to the fact that partners Ma and Running-Buck are just as liable for this purchase as McFarlane? a. synergy b. liquidation c. unlimited liability d. mutual agency 2. All of the following are true statements about the differences between corporations and partnerships except: a. b. c. d. the partners in partnerships have limited liability, while owners of corporations have unlimited liability. partnerships are not taxed, but corporations are. corporations need articles of incorporation, while partnerships do not. partnerships are easier to form than corporations. 3. Which of the following statements best summarizes what a business partnership is all about? a. Partnerships can harness the skills and expertise of more than one person. b. A partnership involves two or more persons engaged in economic activity. c. Partners own the partnership's assets together. d. Partners need careful planning to succeed in business. 4. Sudds and Cobblestone decide to change their general partnership into a limited partnership. The main reason business partners would want to do this is to: a. develop synergy. b. avoid unlimited liability. c. initiate mutual agency. d. increase guest satisfaction ratings for the coming week. 5. Which of the following features do general and limited partnerships share? a. unlimited liability b. limited liability c. the requirement to have at least one general partner d. none of the above 6. Which of the following is the simplest way for partners to divide profits? a. in a fixed ratio b. according to salaries and a fixed ratio c. according to salaries, interest on beginning capital balances, and the remainder in a fixed ratio d. according to productivity ratings of all partners 7. Robbins and Byrd form a partnership, with Robbins contributing $75,000 in capital and Byrd contributing $85,000. If they decide to divide income by giving 45 percent of profits to Robbins and 55 percent to Byrd, Robbins would receive ________ out of total profits of $160,000. a. $72,000 b. $75,000 c. $85,000 d. $88,000 29 8. 260T Hospitality Industry Financial Accounting Two partners agree to share profits in the following arrangement: 1) Salary of $40,000 for each 2) Interest at 10 percent on beginning capital balances 3) The remainder in a 50-50 ratio The first partner contributed $100,000 in beginning capital, and the second contributed $50,000. How much money would the second partner receive from total profits of $120,000? a. $57,500 b. $52,500 c. $45,000 d. $12,500 9. If an incoming, new partner purchases an equity interest of $70,000 in a partnership and uses $90,000 in cash to do so, existing partners: a. receive bonuses. b. should give the new partner a one-third interest. c. have overvalued the business's oldest assets. d. forfeit some capital to the new partner. 10. The Williams & Wiley partnership has two partners and each partner has $50,000 invested in the firm. Woods is admitted to the partnership for one-third interest and invests $80,000. Woods's partnership account would be credited for: a. $50,000. b. $60,000. c. $80,000. d. $180,000. 30 260T Hospitality Industry Financial Accounting Chapter 14 Corporate Accounting NAME _____________________________________________________ DATE _________________________________ 2. 1. Which of the following types of business organization is more likely to enter into long-term contracts? a. corporations b. partnerships c. sole proprietorships d. any of the above 2. When corporations account for their taxes, they estimate their taxes quarterly and accrue them for payment. In such a transaction, the account Income Tax Expense receives: a. a credit. b. a debit. c. a footnote stating the details of the transaction. d. none of the above. 3. Stockholders expect to receive a certain amount of money in return for their investments in corporations. When they come in the form of cash, these returns are called: a. stock dividends. b. cash dividends. c. issued shares. d. par values. 4. The date on which a list of stockholders is compiled so that dividend checks may be mailed to them is called the: a. date of declaration. b. date of payment. c. date of record. d. ex-dividend date. 5. Accountants sometimes make mistakes in recording transactions. A prior period adjustment is shown on the: a. balance sheet. b. income statement. c. statement of retained earnings. d. statement of cash flows. 6. Which of the following types of stock is typically both callable and cumulative? a. common b. callable c. preferred d. treasury 7. The Ultimate Restaurant Corporation declares a stock dividend as well as its usual cash dividend of $.25 per share. For the stock dividend, existing stockholders will receive 10 percent of the amounts of stock they currently hold. If Joan currently has 1,000 shares of stock in this company, she will receive cash dividends and stock dividends worth a total of: a. $250. b. $100. c. $275. d. $210. 31 260T Hospitality Industry Financial Accounting 8. Robert owns 50 shares of stock from a certain corporation. Each share is worth $3.00. After the corporation declares a two-for-one stock split, his shares are worth ________ each. a. $3.00 b. $1.50 c. $6.00 d. $150.00 9. Common stock that was once issued by a corporation but later repurchased by the same corporation is called: a. preferred stock. b. common stock. c. a stock dividend. d. treasury stock. 10. The Aquatics Corporation issues only common stock. It has total stockholders' equity of $200,000 and 50,000 outstanding shares. The par value of each share is $3. The book value per share of stock is: a. $4. b. $150,000. c. $16. d. $3. 32 260T Hospitality Industry Financial Accounting Chapter 15 Bonds, Mortgages, and Leases Payable NAME _____________________________________________________ DATE _________________________________ 3. 1. Which of the following features of bonds can be either an advantage of bond financing or a disadvantage, depending on the economic conditions of the general area? a. Bond interest rates are fixed. b. Bonds eventually mature and must be paid off, whereas stock does not. c. Bond interest is paid out of pretax earnings and therefore is not taxed. d. Bonds usually cost the issuing firm less than common stock. 2. The journal entry to record the sale of a bond issue at face value would involve: a. a debit to Cash and a credit to Bonds Payable. b. a debit to Bond Interest Payable and a credit to Cash. c. a debit to Bonds Payable and a credit to Cash. d. a debit to Cash, a credit to Bonds Payable, and a credit to Bond Interest Payable. 3. The initial issuance of a bond affects two accounts. Bond sales between interest payment dates, however, would affect __________ as well as these two accounts. a. Common Stock b. Bond Interest Expense c. Interest Revenue d. Bond Interest Payable 4. The Discount on Bonds Payable account is a(n) ____________ account. a. asset b. liability c. contra-asset d. contra-liability 5. The rule to remember when accounting for bonds sold at a premium or at a discount is that ______________ is always credited for the __________ of the bond issue, regardless of the selling price. a. Cash; face value b. Bonds Payable; face value c. Bonds Payable; market value d. Discount on Bonds Payable; face value 6. Which of the following accounts are affected by adjusting entries for a bond selling at a discount, regardless of the selling price of the bonds? a. Bond Interest Expense and Cash b. Premium on Bonds Payable and Bond Interest Expense c. Bond Interest Expense and Bond Interest Payable d. Bond Interest Payable and Bonds Payable 7. A certain bond issue sold for $600,000 instead of its face value of $500,000. The 10-year bonds bear interest at 12 percent. The adjusting entry at the end of the six months after the sale of these bonds would involve a debit to Premium on Bonds Payable of: a. $5,000. b. $6,000. c. $12,000. d. $1,200. 33 260T Hospitality Industry Financial Accounting 8. The market value of Multifarious Restaurants' common stock (which has a $5 par value) reached the conversion parity price of $50. The company has $800,000 in convertible bonds outstanding and a conversion ratio of 30 shares per $1,000 bond. If all the convertible bonds were converted to common stock, Common Stock would be credited for: a. $800,000. b. $680,000. c. $120,000. d. $24,000. 9. A gain or loss on the retirement of a company's bonds is shown on the: a. income statement as an ordinary item. b. income statement as sales. c. balance sheet. d. statement of retained earnings as an extraordinary item. 10. The Lost Loon Motel enters into an agreement with a supplier in which the supplier allows the motel to use a certain asset in exchange for a fixed periodic payment, and in which there is no intent on the supplier's part to sell the asset to the motel. This type of arrangement is called a(n): a. b. c. d. bond indenture. debenture bond. capital lease. operating lease. 34 260T Hospitality Industry Financial Accounting Chapter 16 Investments in Corporate Securities NAME _____________________________________________________ DATE _________________________________ 4. 1. The Multinational Hospitality Company (MHC) purchased bonds that had a total face value of $300,000 for $250,000 on August 1, 20X1. The bonds pay installments of the 8 percent annual interest on May 1 and November 1. The MHC pays for accrued bond interest in advance, at the time of purchase, when it buys bonds. The journal entry on the date of bond purchase would debit Debt Investments for _____________ and Bond Interest Receivable for _____________ and credit Cash for ______________. a. $250,000; $6,000; $256,000 b. $200,000; $50,000; $250,000 c. $250,000; $50,000; $300,000 d. $300,000; $250,000; $0 2. The Eat Out Company purchased bonds that had a total face value of $300,000 for $275,000 on August 1, 20X1. The bonds pay installments of the 8 percent annual interest on May 1 and November 1. The company pays for accrued bond interest in advance, at the time of purchase, when it buys bonds. The Eat Out Company's journal entry on November 1, would debit _____________ for ___________ and credit Bond Interest Income and Bond Interest Receivable for ___________ apiece. a. Debt Investments; $12,000; $6,000 b. Cash; $12,000; $6,000 c. Debt Investments; $25,000; $12,500 d. Cash; $25,000; $12,500 3. The Zeta Company purchased bonds that had a total face value of $500,000 for $450,000 on August 1, 20X1. The bonds pay installments of the 8 percent annual interest on May 1 and November 1. The Zeta Company's journal entry on December 31, 20X1, would be an entry to: a. record the payment of interest. b. record the receipt of interest. c. accrue interest. d. adjust the value of the bonds. 4. Dividends for equity securities are typically paid: a. monthly. b. daily. c. quarterly. d. annually. 5. The Frontrunner Hotel Company originally bought other companies' stocks for $50,000; now it has sold its holdings for $45,000 and paid a broker a commission of $300 for the sale. As a result of this sale, accountants at the Frontrunner Hotel Company should record an increase of _________ to the Cash account. a. $300 b. $5,000 c. $45,000 d. $44,700 6. Super Corporation uses the equity method of accounting for its investment in the Investee Company. Super Corporation's balance sheet reflects its investment in the Investee Company with an account called: a. Minority Interest. b. Goodwill. c. Investment in Investee Company. d. Short-Term Investments. 35 260T Hospitality Industry Financial Accounting 7. The book value of the Ray Corporation was $2 million when the company was purchased in its entirety for $2,300,000 by the Manta Company. According to accounting conventions, the excess $300,000 should be: a. amortized over the useful life of the Ray Corporation. b. entered in the Goodwill account. c. recorded as a Loss on the Purchase of Investee. d. ignored in the preparation of the balance sheet. 8. The Philly Corporation invested $500,000 in 30 percent of Ecco's common stock. The Philly Corporation accounts for investment with the equity method. During 20X4, Ecco reported profits of $100,000 and paid cash dividends of $50,000. At the end of 20X4, Philly's investment account for Ecco would have a balance of: a. $500,000. b. $515,000. c. $530,000. d. $150,000. 9. Available-for-sale securities that are purchased with the intention to resell them at a time further than a year away should be listed on the balance sheet as: a. Bonds. b. Trading Securities. c. Short-Term Investments. d. Investments. 10. All of the following are securities in which hospitality firms may invest except: a. bonds purchased as trading securities. b. stocks purchased as trading securities. c. stocks purchased as held-to-maturity securities. d. bonds purchased as held-to-maturity securities. 36 260T Hospitality Industry Financial Accounting Chapter 17 Statement of Cash Flows NAME _____________________________________________________ DATE _________________________________ 1. Which of the following would best be described as short-term, highly liquid investments? a. cash inflows b. cash outflows c. cash equivalents d. financing activities 2. All of the following are sections of the statement of cash flows except the: a. Operating Activities section. b. Earning Activities section. c. Financing Activities section. d. Investing Activities section. 3. Proceeds from the issuance of capital stock would appear under the ________ section of the statement of cash flows. a. Noncash b. Operating Activities c. Financing Activities d. Earning Activities 4. The statement of cash flows is prepared according to the __________ basis of accounting. a. cash b. accrual c. double-entry d. direct 5. Accrued Payroll was $10,000 and $15,000 at the beginning and end of 20X4, respectively. The payroll expense for 20X4 totaled $520,000. Cash outflow for payroll during 20X4 totaled: a. $525,000. b. $520,000. c. $515,000. d. $510,000. 6. Sales of the Randolf Inn were $2,000,000 for 20X3. Accounts Receivable???Trade totaled $140,000 and $160,000 at the beginning and end of 20X3, respectively. What were the estimated cash receipts from sales for 20X3? a. $2,020,000 b. $2,000,000 c. $1,980,000 d. $20,000 7. The process of preparing the Investing Activities section of a statement of cash flows involves a focus on: a. net income from the income statement. b. owners' equity from the statement of retained earnings. c. noncurrent assets from the balance sheet. d. current assets from the balance sheet. 37 260T Hospitality Industry Financial Accounting 38 260T Hospitality Industry Financial Accounting 8. The Wilson Inn sold 10,000 shares of $5 par value common stock for $30 per share. How much would be reported as sale of common stock on the statement of cash flows? a. $15,000 b. $50,000 c. $25,000 d. $300,000 9. The River Hotel's Dividends Payable account at the beginning and end of 20X3 totaled $40,000 and $35,000, respectively. Assume that dividends declared during 20X3 totaled $65,000. The dividends paid by the River Hotel during 20X3 totaled: a. $70,000. b. $65,000. c. $45,000. d. $15,000. 10. The Norumbega Villa Resort sold investments that originally cost it $300,000 for $200,000. How would this transaction affect the Investing Activities section of its statement of cash flows? a. as a $200,000 cash inflow b. as a $200,000 cash outflow c. as a $200,000 noncash transaction d. no effect on the Investing Activities section 5. 39 260T Hospitality Industry Financial Accounting Chapter 18 Analysis and Interpretation of Financial Statements NAME _____________________________________________________ DATE _________________________________ 6. 1. Common-size statements are most closely associated with which of the following elements of financial analysis? a. vertical analysis b. horizontal analysis c. diagonal analysis d. the acid test 2. At the beginning of the year, Cash amounted to $100,000 for the Adams Company. At the end of the year, the total was $120,000. The relative change in cash from the beginning to the end of the year for this firm is: a. b. c. d. $20,000. 20 percent. 16.67 percent. 15 percent. 3. Abu has selected five consecutive financial periods to use in calculating trend percentages. He should assign 100 percent to each amount of which of the periods? a. the most recent period b. the period with the highest net income c. the earliest period d. the period that falls in the middle in terms of age 4. Which of the following classes of ratios focuses on managers' use of assets? a. solvency ratios b. activity ratios c. liquidity ratios d. operating ratios 5. Which of the following ratios is often expressed as the number of times current assets could cover current debt? a. acid-test ratio b. debt-equity ratio c. current ratio d. asset turnover ratio 6. Which of the following ratios compares a business's liabilities with its net worth? a. fixed charge coverage ratio b. debt-equity ratio c. long-term debt to total capitalization ratio d. acid-test ratio 7. Freddy's Place had a monthly beverage turnover of 1.25 times. This means that beverages were restored on an average of approximately _________ throughout the year. a. 20 days b. 24 days c. 25 days d. a number of days that cannot be determined 40 260T Hospitality Industry Financial Accounting 41 260T Hospitality Industry Financial Accounting 8. Asset turnover is determined by dividing _________ by ____________. a. Total Revenue; total assets at the end of the year b. Net Income; total assets at the end of the year c. Net Income; Average Total Assets d. Total Revenue; Average Total Assets 9. Given the following information, calculate the operating efficiency ratio: a. b. c. d. Rooms Revenue Food & Beverage Revenue Telecommunications Revenue Total Undistributed Operating Expenses 0.36 0.52 0.61 0.64 $646,000 $200,000 $34,000 $313,000 10. A motel with 100 rooms sold an average 80 room nights per day. Its average daily rate was $80. Its RevPAR is: a. $80. b. $64. c. $50. d. not determinable