Multiple Choice Questions (Enter your answers on the enclosed answer sheet)

1. In a perpetual inventory system:

a. Merchandise Inventory is debited every time inventory is purchased

b. cost of Goods Sold is debited every time inventory is sold

c. a physical inventory is taken at least annually

d. All of the above.

2. Under the perpetual inventory system, the purchase of merchandise is recorded by a debit to:

a. Merchandise Inventory; credit to Accounts Payable or Cash

b. Cost of Goods Sold; credit to Accounts Payable

c. Purchases; credit to Accounts Payable

d. Accounts Payable; credit to Purchases

3. Individual inventory items are tracked in the:

a. accounts receivable ledger

b. inventory ledger

c. accounts payable ledger

d. purchases journal

4. Which of the following goods should Pin Department Store include in its December 31 count?

a. goods held on consignment from ABC Wholesale

b. goods sold and shipped to Gray Brothers, in-transit F.O.B shipping point

c. goods that have been consigned to Dalton Brothers

d. goods in transit purchased F.O.B. destination point

5. St. Paul Corporation has a normal gross profit of 45%. The current years beginning inventory

was $2,500, purchases were $9,000, and retail sales were $15,000. The estimated ending

inventory under the gross profit method is:

a. $4,750

b. $3,250

c. $8,220

d. $4,050

6. An overstatement of ending inventory in one period results in:

a. an overstatement of net income for the next period

b. no effect on net income for the next period

c. an overstatement of the ending inventory for the next period

d. an understatement of net income for the next periodUnit 4 Examination 160 BAM 110 Introduction to Accounting

7. The full disclosure principle says that if a change is made:

a. the company should disclose the change

b. the effects of the change on profit and inventory valuation should be disclosed

c. the company should show justification for the change in a footnote on the financial

reports

d. All of the above.

8. Costs and assessments that should be charged to the land account include:

a. streets

b. parks

c. flood prevention

d. All of the above.

9. Which of the following assets would not be classified as property, plant, and equipment?

a. delivery truck

b. copyright

c. land

d. furniture

10. The amount to include in the entry to record the cost of a property, plant, and equipment asset

would include:

a. acquisition cost

b. freight

c. installation

d. All of the above.

11. The depreciation method that does not base the expense on the passage of time but on the

level of use is:

a. units-of-production

b. straight-line

c. modified accelerated cost recovery

d. double-declining-balance

12. Which depreciation method does not deduct residual value when computing depreciation

expense?

a. units-of-production

b. straight-line

c. double-declining-balance

d. a and b onlyUnit 4 Examination 161 BAM 110 Introduction to Accounting

13. What would be the depreciation expense in year 1, using units-of-production, for a molding

machine that cost $18,000, had a useful life of 3 years, and an estimated total machine hours

of 36,000? The salvage value is $3,000 and production in year 1 was 10,000 hours.

a. $5,000

b. $4,167

c. $6,000

d. $2,167

14. The articles of incorporation are submitted by the incorporators to the:

a. IRS for approval

b. Office of the Secretary of State for approval

c. Securities and Exchange Commission for approval

d. Governor of the State for approval

15. Characteristics of a corporation include:

a. stockholders having unlimited liability

b. direct management by the stockholders

c. stockholders having limited liability

d. choosing a board of directors

16. The entry to record selling 150 shares of no-par common stock with a stated value of $30 for

$40 would be to:

a. debit Common Stock for $6,000; credit Cash for $6,000

b. debit Cash for $6,000; credit Common Stock for $6,000

c. debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in

Excess of Stated Value-Common for $1,500

d. debit Cash for $6,000; credit Common Stock for $4,500; credit Paid-In Capital in

Excess of Par Value-Common for $1,500

17. No entry was recorded for the exchange of stock for land. This error would cause:

a. the period end stockholders equity to be understated

b. the period end stockholders equity to be overstated

c. the periods net income to be understated

d. a and c only

18. Sunrise Online issued 500 shares of its $10 common stock in exchange for equipment with a

fair market value of $7,500. The entry to record the transaction would include a:

a. debit to Equipment for $5,000

b. debit to Common Stock for $5,000

c. credit to Paid-in Capital in Excess of Par Value for $2,500

d. credit to Common Stock Subscribed for $5,000Unit 4 Examination 162 BAM 110 Introduction to Accounting

19. Dollys Best issued 200 shares of its $10 common stock in exchange for used packaging

equipment with a fair market value of $2,400. The entry to record the acquisition of the

equipment would include a:

a. debit to Equipment for $2,000

b. debit to Paid-in Capital in Excess of Par for $400

c. credit to Common Stock for $2,400

d. debit to Equipment for $2,400

20. A statement comparing data from two or more consecutive periods is called a:

a. horizontal analysis

b. comparative income statement

c. common-size statement

d. comparative balance sheet

21. In a comparative balance sheet, the ending Cash for 2012 was $315,000 and is $270,000

for 2013. The net increase or decrease from 2012 to 2013 is:

a. 86.0%

b. 14.3%

c. 26.4%

d. 16.7%

22. Liquidity ratios measure:

a. how effectively a company is using its equity

b. how effectively a company is using its liabilities

c. a companys ability to pay shareholders

d. a companys ability to pay off short-term debts

23. Debt management ratios measure:

a. how effectively a company is using its cash

b. how well a company is using debt versus equity position

c. a companys ability to earn profit

d. a companys ability to meet payable obligations

24. If the average collection period is 35 days, this means:

a. from the date of purchase to the date of payment is 35 days

b. from the date of sale to the date of receipt of payment is 35 days

c. from the date of discount to the date of receipt of payment is 35 days

d. None of the above.Unit 4 Examination 163 BAM 110 Introduction to Accounting

25. The inventory turnover ratio calculates:

a. how many times the inventory turns over in one period

b. number of times inventory is purchased in one period

c. the dollar amount of change in inventory in one period

d. None of the above.