Q1. Which principle determines the amount initially entered into the records for purchases? a. Cost principle b. Going concern concept c. Business entity concept d. Objectivity concept Q2. Reporting the financial condition of a business at a point in time and the changes in the financial condition of a business over a period of time are the two major objectives of a. tax accounting. b. union contracts. c. managerial accounting. d. financial accounting. Q3. Companies using a low-cost emphasis provide products and services that compete on features other than price. a. true b. false Q4. The popularity of the sole proprietorship is due to the ease and low cost of organizing. a. true b. false Q5. Which statement is normally prepared first? a. Income statement b. Balance sheet c. Statement of cash flows d. Retained earnings statement Q6. Given the following list of accounts, calculate Total Assets:

Accounts Receivable	5,000
Capital Stock	20,000
Cash	19,300
Equipment	15,400
Fees Earned	44,400
Miscellaneous Expense	18,200
Rent Expense	4,150
Retained Earnings	6,550
Wages Expense	13,900

a. $84,100 b. $59,700 c. $46,250 d. $39,700 Q7. Rights to payments from customers are a. liabilities. b. prepaid expenses. c. accounts receivable. d. accounts payable. Q8. What is the primary objective of most businesses? a. To maximize profits b. To pay dividends to stockholders c. To provide a benefit to society d. To manufacture a quality product Q9. Who has first preference to assets in case a business fails? a. Stockholders b. Long-term creditors c. Customers d. Employees Q10. A corporation is a business that is legally separate and distinct from its owners. a. true b. false Q11. The Balance Sheet represents the accounting equation. a. true b. false Q12. Stockholders in a corporation are internal stakeholders. a. true b. false Q13. A limited liability corporation combines attributes of a partnership and a corporation. a. true b. false Q14. Motel 6 is an example of a business using which of the following? a. Low-cost emphasis b. Combination emphasis c. Differentiation strategy d. Premium-price emphasis Q15. Cash investments made by the stockholders of the business are reported on the statement of cash flows in the a. financing activities section. b. investing activities section. c. operating activities section. d. supplemental statement. Q16. The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n) a. prior period statement. b. statement of retained earnings. c. income statement. d. balance sheet. Q17. Porsche is an example of a business that uses a premium-price emphasis to attract customers. a. true b. false Q18. The 'rules' of accounting are called a. income tax regulations. b. SEC regulations. c. Internet rules. d. Generally Accepted Accounting Principles. Q19. Large corporations such as ExxonMobil and Walmart are organized as limited liability companies. a. true b. false Q20. When a business borrows money, it incurs a(n) a. tax. b. liability. c. receivable. d. additional equity. Q21. Merchandising businesses must be corporations. a. true b. false Q22. Creditors have preference to assets behind stockholders if a business fails. a. true b. false Q23. When a product is sold, this cost is often called a. cost of goods sold. b. revenue. c. products. d. retained earnings. Q24. Browning, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $30,000 during 2010. Which of the following statements is correct? a. Net income for 2010 totaled $29,000. b. Net income for 2010 totaled $59,000. c. Total retained earnings increased by $59,000 during 2010. d. Total retained earnings decreased by $30,000 during 2010. Q25. More that 70% of businesses are organized as what type of business? a. Not-for-profit b. Corporation c. Partnership d. Sole proprietorship Q26. Philip Corporation purchased equipment on account. What is the effect of this transaction? a. Cash will decrease and equipment will increase. b. Total assets will remain unchanged. c. Cash flow from Investing Activities will decrease. d. Total assets and total liabilities will both increase. Q27. By keeping a running total of the effects of transactions, the accounting equation provides a framework for summarizing the effects of a series of transactions. a. true b. false Q28. Retained earnings will be increased by the amount in the dividend account. a. true b. false Q29. A to Z Corporation engaged in the following transaction 'Purchased a building for $80,000 cash.' On the Statement of Cash Flows, the transaction would be classified as a. Cash Flows from Operating Activities. b. Cash Flows from Investing Activities. c. Cash Flows from Financing Activities. d. Noncash transaction. Q30. The payment of utilities expense in cash would affect the operating activities in the statement of cash flows and the income statement but NOT the balance sheet. a. true b. false Q31. Johnson, Inc. paid rent expense of $3,500 for the month of October. How are the accounts affected due to this transaction? a. Increase in cash $3,500 and increase in retained earnings $3,500 b. Increase in cash $3,500 and decrease in retained earnings $3,500 c. Decrease in cash $3,500 and decrease in retained earnings $3,500 d. Decrease in cash $3,500 and increase in retained earnings $3,500 Q32. The first month of operation showed the net cash from operating activities to be $3,760, the net cash from investing activities to be ($5,415), and the ending cash balance to be $3,425. The net cash from financing activities must be a. $1,770. b. $5,080. c. $5,750. d. $12,600. Q33. Rush Corporation borrowed $25,000 from the bank. Which of the following accurately shows the effects of the transaction? a. Increase cash $25,000 and decrease notes payable $25,000 b. Increase cash $25,000 and increase notes payable $25,000 c. Decrease cash $25,000 and decrease notes payable $25,000 d. Decrease cash $25,000 and increase notes payable $25,000 Q34. The basic financial statements do NOT include the a. income statement. b. tax return. c. balance sheet. d. statement of cash flows. Q35. For EFG Co., the transaction 'Purchase of store equipment with a note payable' would a. increase total assets. b. decrease total assets. c. have no effect on total assets. d. decrease total liabilities. Q36. When capital stock is issued by a corporation for cash, both the income statement and the balance sheet are affected. a. true b. false Q37. The statement of cash flows is integrated with the balance sheet because a. the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet. b. the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet. c. the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet. d. the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet. Q38. A business receives $10,000 cash for a sale of merchandise and records this receipt of cash as an increase in accounts receivable by mistake. The accounting equation is still in balance. a. true b. false Q39. Flow, Inc. received cash from fees earned. How does this transaction affect the Statement of Cash Flows? a. Increase cash from Operating Activities b. Increase cash from Investing Activities c. Increase cash from Financing Activities d. No effect on the Statement of Cash Flows Q40. Which of the following group of accounts are all assets? a. Cash, Accounts Payable, Buildings b. Accounts Receivable, Revenue, Cash c. Prepaid Expenses, Buildings, Patents d. Unearned Revenues, Prepaid Expenses, Cash Q41. The two sides of the accounting equation do NOT have to be equal. a. true b. false Q42. For EFG Co., the transaction 'Receipt of a utility bill' would a. increase total assets. b. decrease total assets. c. have no effect on total assets. d. decrease total liabilities. Q43. A to Z Corporation engaged in the following transaction 'Paid a $10,000 cash dividend.' On the Statement of Cash Flows, the transaction would be classified as a. Cash Flows from Operating Activities. b. Cash Flows from Investing Activities. c. Cash Flows from Financing Activities. d. Noncash transaction. Q44. Declaring and paying cash dividends affects which accounts? a. Cash only b. Capital stock only c. Cash and retained earnings d. Cash and capital stock Q45. A to Z Corporation engaged in the following transaction 'Issued a $30,000 note payable to borrow cash from the bank.' On the Statement of Cash Flows, the transaction would be classified as a. Cash Flows from Operating Activities. b. Cash Flows from Investing Activities. c. Cash Flows from Financing Activities. d. Noncash transaction. Q46. Which of the following transactions changes the mix of assets only? a. Paid for supplies with cash b. Borrowed money from Second National Bank c. Received money for fees earned d. Received a utility bill Q47. Miscellaneous expenses are expenses that have an undetermined amount to be paid. a. true b. false Q48. The accounting equation can be expressed: Assets - Liabilities = Revenues. a. true b. false Q49. It is possible for a transaction to change the makeup of assets, but to NOT affect assets in total. a. true b. false Q50. A transaction can affect at most two elements of the accounting equation. a. true b. false Q51. Under the cash basis of accounting, no adjustments are necessary prior to the preparation of the financial statements. a. true b. false Q52. Accumulated depreciation is _____ to get the carrying value. a. added to equipment b. subtracted from equipment c. added to accounts payable d. subtracted from accounts payable Q53. To determine cash payments for operating expenses for the cash flow statement using the direct method, depreciation expense is added to net income. a. true b. false Q54. Current liabilities are usually due within a. one month or less. b. one week or less. c. one year or less. d. more than one year. Q55. An adjusting entry would adjust an expense account so that the expense is reported when incurred. a. true b. false Q56. Which one of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a. A gain on the sale of land b. A decrease in accounts payable c. An increase in accrued liabilities d. Dividends paid on common stock Q57. Which of the following is an example of a deferred expense? a. Prepaid advertising b. Unearned revenue c. Accounts payable d. Accounts receivable Q58. Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a. An increase in inventory b. A decrease in accounts payable c. Preferred dividends declared and paid d. A decrease in accounts receivable Q59. If land costing $75,000 was sold for $135,000, the amount reported in the investing activities section of the statement of cash flows would be $135,000. a. true b. false Q60. Using accrual accounting, revenue is recorded and reported only a. when cash is received without regard to when the services are rendered. b. when the services are rendered without regard to when cash is received. c. when cash is received at the time services are rendered. d. if cash is received after the services are rendered. Q61. Under the accrual basis of accounting, the accounting records are normally updated after the preparation of the financial statements. a. true b. false Q62. In October, cash is received in advance of rendering services. Assuming that half of the services have been performed by December 31, the year-end adjustment would a. decrease Unearned Service Revenue and decrease Cash. b. increase Accounts Receivable and increase Service Revenue. c. increase Cash and increase Service Revenue. d. decrease Unearned Service Revenue and increase Service Revenue. Q63. When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section of the statement of cash flows is affected? a. Cash Flow from Operating Activities b. Cash Flow from Investing Activities c. Cash Flow from Financing Activities d. There is no effect on the statement of cash flows. Q64. Accrual accounting does NOT require that the accounting records be updated prior to preparing financial statements. a. true b. false Q65. Which of the following accounts would likely be included in a deferral adjusting entry? a. Interest Revenue b. Unearned Revenue c. Salaries Payable d. Accounts Receivable Q66. Under the accrual basis of accounting, net cash flows from operating activities on the statement of cash flows will normally be the same as net income. a. true b. false Q67. On June 1, Green Pea, Inc. purchased $1,200 worth of supplies on account. Prior to the purchase, the balance in the supplies account was $0. On December 31, the fiscal year-end for Green Pea, it is determined that $500 of supplies have been used up. What is the balance in the supplies account after adjustment? a. $0 b. $700 c. $500 d. $1,200 Q68. Updating accrual accounting records prior to preparing financial statements is called a. the closing process. b. converting to cash basis accounting. c. the adjustment process. d. going concern adjustments. Q69. Cash receipts from interest and dividends are classified as a. investing activities. b. operating activities. c. either financing or investing activities. d. financing activities. Q70. Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in a. the cash flows from financing activities section. b. the cash flows from investing activities section. c. a separate schedule. d. the cash flows from operating activities section. Q71. ABN Company sold goods, receiving $20,000 in cash and $25,000 on credit. How much revenue should it record under the accrual basis of accounting? a. $5,000 b. $25,000 c. $20,000 d. $45,000 Q72. Under the cash basis of accounting, a business records only transactions involving increases or decreases of its cash. a. true b. false Q73. The process that begins with the analysis of transactions and ends with preparing the accounting records for the next accounting period is called the accounting cycle. a. true b. false Q74. An adjusting entry would adjust revenue so that it is reported when earned and not when cash is received. a. true b. false Q75. It is easy to objectively determine the physical decline in the ability of fixed assets to provide service. a. true b. false Q76. When the perpetual inventory system is used, the inventory sold is shown on the income statement as a. cost of merchandise sold. b. purchases. c. purchases returns and allowances. d. net purchases. Q77. Sales Returns and Allowances is a contra-asset account. a. true b. false Q78. Multiple-step income statements show a. gross profit but not net income. b. neither gross profit nor net income. c. gross profit but not cost of merchandise sold. d. gross profit, cost of merchandise sold, income from operations and net income. Q79. Merchandise inventory shrinkage will decrease Retained Earnings. a. true b. false Q80. If the seller is to pay the delivery expense of delivering merchandise, the delivery terms are stated as a. FOB shipping point. b. FOB destination. c. FOB n/30. d. FOB seller. Q81. There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method. a. true b. false Q82. What is subtracted from sales to arrive at net sales? a. Sales returns and allowances b. Sales discounts c. Both sales discounts and sales returns and allowances d. Neither sales discounts nor sales returns and allowances Q83. On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales. a. true b. false Q84. The sales discount account is a contra account to Sales. a. true b. false Q85. Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system. a. true b. false Q86. The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a a. multiple-step statement. b. revenue statement. c. report-form statement. d. single-step statement. Q87. Where are selling and administrative expenses found on the multi-step income statement? a. Before gross profit b. After sales and before gross profit c. After net income and before expenses d. After gross profit Q88. Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise. a. true b. false Q89. Office salaries, depreciation of office equipment, and office supplies are examples of what type of expense? a. Selling expense b. Miscellaneous expense c. Administrative expense d. Other expense Q90. If a $20,000 sale is made on January 1, with terms of 2/10, n/30, how much would the discount be if payment is made on January 9? a. $0 b. $200 c. $1,000 d. $400 Q91. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a a. sales invoice. b. purchase invoice. c. credit memorandum. d. debit memorandum. Q92. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are a. consigned. b. n/30. c. FOB shipping point. d. FOB destination. Q93. Sometimes a(n) _____ is offered to buyers as a means of encouraging them to pay before the end of the credit period. a. accounts receivable b. credit card c. sales discount d. cash sale Q94. Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 with terms of 1/15, net 45. What is the amount of the discount, and up to what date must the invoice be paid in order for the buyer to take advantage of the discount? a. $180, September 30 b. $180, September 25 c. $90, September 30 d. $90, September 25 Q95. Inventory NOT sold at the end of the period is reported as a. cost of goods sold. b. old stock. c. merchandise inventory. d. net purchases. Q96. Which of the following accounts will NOT be found in the Cost of Merchandise Sold section on the income statement? a. Purchases b. Transportation In c. Sales Returns and Allowances d. Merchandise Inventory Q97. If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination. a. true b. false Q98. A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570. a. true b. false Q99. Which of the following should be shown on a statement of cash flows under the financing activity section? a. The purchase of a long-term investment in the common stock of another company b. The payment of cash to retire a long-term note c. The proceeds from the sale of a building d. The issuance of a long-term note to acquire land Q100. Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer. a. true b. false