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Conservatism concept
Dual-aspect concept
2)
The historical cost concept reflects the fact that financial accounting practice favors:
4)
Turnkey Systems, Inc. began the month of June, 2004 with a prepaid expenses balance of $240,000. During the
month, debits totaling $110,000 and credits totaling $80,000 were made to the prepaid expenses account. What
was the June, 2004 ending balance of prepaid expenses?
10%
5%
20%
Cannot be calculated
6)
When an entity recognizes revenue before it has received cash for the sale, it records an increase in a(n):
Accounts payable
Accounts receivable
Prepaid expense
7)
Juan Foods pays off a long-term debt in full. Which one of the following statements describes the effect of the sale
on Juan Foods?
On January 1, 2005, Mansfield Company has a retained earnings balance of $256,000. During 2005, its net
income is $44,000 and it announces and pays $12,000 in dividends. There is no other dividend-related activity
8) during the year. Its December 31, 2005 retained earnings balance is:
$212,000
$288,000
$300,000
$224,000
9)
Juan Foods makes a cash sale with a positive gross margin. Which one of the following statements describes the
effect of the sale on Juan Foods?
10)
Juan Foods pays off a long-term debt in full. Which one of the following statements best describes the appropriate
book-keeping for this transaction?
11)
On March 31, 2005, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During
April 2005, Preston sells Cars devices with a sales price of $10,000 and a cost to Preston of $8,000. During April
Cars pays Preston $12,000 against the amount owed to Preston. What is the effect of these April transactions on
Preston's balance sheet?
Cash increased by $12,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained earnings
Accounts receivable increased by $2,000; inventory decreased by $8,000; cash increased by $12,000; retained earnings
Cash increased by $12,000; retained earnings decreased by $2,000; inventory decreased by $10,000; accounts receivab
Cash increased by $2,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained earnings
12)
Consider the same scenario as in the previous question: On March 31, 2005, Cars, Inc. owes Preston Devices,
one of its suppliers, $25,000 for previous purchases. During April 2005, Preston sells Cars devices with a sales
price of $10,000 and a cost to Preston of $8,000. During April Cars pays Preston $12,000 against the amount
owed to Preston. If Preston had no other sales and records no other collections from customers during the month
of April, the operating section of Preston's indirect method statement of cash flows for April will show the following
de-accrual adjustments to net income:
13)
Planet Music buys all of its inventory on credit. During 2005, Planet Music's inventory account increased by
$10,000. Which of the following statements must be true for Planet Music during 2005?
It made more cash payments to its suppliers than it recorded as cost of goods sold.
On December 31, 2005, Juan Foods purchases a van for $12,000. How does the purchase of the van affect Juan
14) Foods' 2005 income statement?
No material effect
15)
To be recorded as a liability, an item must meet three specific conditions. Two of them are: it must involve probable
future sacrifice of economic resources by the entity, and it must be a present obligation that arose as a result of a
past transaction. Which one of the following is the third condition?
The item must reduce the market value of the recording entity
16) The next 9 questions are based on Patnode Inc.'s balance sheets at year end 2004 and 2005.
During 2005, Patnode announced and paid dividends of $1,000, the only dividend-related activity during the year.
What was its 2005 net income?
$5,600
$3,600
$4,600
Cannot be estimated
17)
During 2005, Patnode had a cash outflow of $15,000 for investing activities and a cash inflow of $7,000 from
financing activities. Its 2005 cash flow from operations was:
Outflow of $15,000
Inflow of $15,000
Outflow of $8,000
Inflow of $8,000
18)
Patnode's 2005 statement of cash flows contains four items in the financing section. Three of them are: Short-term
debt issued, $15,000; Short-term debt paid, ($10,000) and Dividends paid, ($1,000). What is the fourth item in the
financing section?
19)
How much total depreciation and amortization expense did Patnode record during 2005?
$10,000
$6,000
$3,000
$5,000
20)
During 2005, Patnode recorded sales of $17,000. How much cash did it collect from its customers?
$17,000
$14,000
$3,000
Cannot be estimated
21)
Which one of the following items will not appear in the operating section of Patnode's 2005 indirect method cash
flow statement?
22)
What is Patnode's current ratio at the end of 2004?
2.46
0.41
1.12
0.89
23)
What is Patnode's total debt to equity ratio at the end of 2004 (rounded to two decimal places)?
5.3
0.19
0.25
4.04
The correct answer is 0.57, which is not available in the options (30,000 / 53,000)
24)
Patnode recorded a 2005 tax expense of $3,000. What amount did it pay to the tax authorities during 2005?
$2,400
$7,000
$600
$5,400
25)
Kirby, Inc. records a sale with a gross margin of $1,400. Which one of the following statements correctly describes
the effect of such a sale on its balance sheet?
26)
Sandy Robbins is the sole owner of a hair salon. He often takes small amounts of "lunch money" from the cash
register, figuring that "it is my business anyway." His accountant, however, insists that Sandy make a note of the
cash he takes, and at the end of the each accounting period, she debits owners' equity and credits the cash
account for the total amount that Sandy has taken during the period.
In recording the cash withdrawals even though Sandy is sole proprietor, the accountant is correctly applying the:
Matching concept
Entity concept
Materiality concept
Conservatism concept
27)
Anderson Electronics' 2005 return on sales percentage is 20%. Its 2005 net income is $40,000. What is its 2005
sales?
$400,000
$80,000
$200,000
$100,000
28)
Anderson Electronics' 2005 return on sales percentage is 20%. Its 2005 net income is $40,000. What is its 2005
sales?
$400,000
$80,000
$200,000
$100,000
29)
During June 2005, Bextra Inc. recorded sales of $55,000 but only $20,000 was collected in cash from customers.
Cost of goods sold of $38,000. What was the effect of these sales on Bextra's current ratio?
30)
Which one of the following statements is not true about statements of cash flows prepared according to U.S.
GAAP?
The operating section of the indirect method starts with the net income of the period
In the indirect method statement, the period's depreciation is added to net income because it is a source of
cash
Interest payments are included in the operating section of the direct method statement
The investing section of the direct method statement for a period is identical to the investing section of the
indirect method statement for the same period
31)
A company raised $50,000 in cash by taking a one-year loan of $10,000 and a 5-year loan of $40,000. Which of
the following is the correct journal entry to record this transaction?
Debit short-term debt $40,000; debit retained earnings $10,000; credit cash $50,000
Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000
32)
Which one of the following statements describes the rules about posting transactions into T-accounts in the ledger?
For assets, debits are entered on the left; for liabilities, credits are entered on the left
For assets, credits are entered on the left; for liabilities, debits are entered on the left
33)
Baxtra, Inc. pays $20,000 in cash as interest to its lenders during 2005. According to U.S. GAAP, in which section
of the statement of cash flows would this payment be included?
34)
Taylor Company had a salaries payable balance of $18,000 on December 31, 2004. During 2005, it paid $50,000
in cash as salaries, and recorded a salary expense of $50,000. Its December 31, 2005 salaries payable balance is:
$50,000
$18,000
$100,000
35)
On April 30, 2005, Zono Electronics, Inc. made a payment of $3,500 to Imperial Distributors, a supplier. Choose the
statement that best describes the recording of this financial transaction by Imperial Distributors.
36)
Sardi Company estimates its 2005 tax expense to be $80,000. It makes a cash payment of $20,000 to the tax
authorities on December 31, 2005. How should this transaction be recorded by Sardi?
Debit tax expense $80,000; credit cash $60,000; credit taxes payable $20,000
Debit tax expense $80,000; credit cash $20,000; credit taxes payable $60,000
Debit tax expense $80,000; credit cash $20,000; credit accounts payable $60,000
37)
On June 1, 2005, Planet Music has accounts payable of $45,000. During the month, debits of $3,000 and credits of
$11,000 were made to the account. At the end of June 2005, what was the accounts payable balance?
38)
Barnaby & Sons receives a large shipment of goods from its supplier. It pays $58,000 at the time of delivery and
promises to pay the remaining $42,000 within the next two months. What is appropriate journal entry for this
transaction?
Debit cash $42,000; debit inventory $16,000; credit accounts payable $58,000;
Debit inventory $100,000; credit cash $58,000; credit accounts payable $42,000
Debit accounts payable $58,000; credit cash $42,000; credit inventory $16,000
Debit accounts payable $58,000; debit cash $42,000; credit inventory $100,000
39)
Annie's Fitness sells a set of free weights to a customer for $1,000. The customer pays $600 in cash and puts the
rest on her store credit account. Which one of the following statements describes the most appropriate accounting
for the transaction?
Debit cash $600; debit accounts receivable $400; credit cost of good sold $1000
Debit cash $600; debit accounts receivable $400; credit revenues $1,000
Debit revenues $1,000; credit cash $600; credit accounts receivable $400
Debit cash $600; debit accounts receivable $400; credit inventory $1,000
40)
Annie's Fitness sells a set of free weights to a customer for which Annie's had paid $750. Which one of the
following statements describes the most appropriate accounting for the transaction?
Conservatism concept
Dual-aspect concept
2)
The
historical
cost
concept
reflects the
fact that
financial
accounting
practice
favors:
Reliabili
ty over
relevan
ce
Manag
ement's
best
guess
over
historic
al
financia
l
informa
tion
Releva
nce
over
reliabilit
Consen
sus
market
values
over
historic
al
financia
l
informa
tion
3)
Jon Sports'
inventory
account
increased
from
$25,000 on
December
31, 2003 to
$30,000 on
December
31, 2004.
Which one
of the
following
items
would be
included in
the
operating
section of
its 2004
indirect
method
statement
of cash
flows?
4)
Turnkey
Systems,
Inc. began
the month
of June,
2004 with
a prepaid
expenses
balance of
$240,000.
During the
month,
debits
totaling
$110,000
and credits
totaling
$80,000
were made
to the
prepaid
expenses
account.
What was
the June,
2004
ending
balance of
prepaid
expenses?
A debit
balance
of
$210,0
00
A credit
balance
of
$210,0
00
A debit
balance
of
$270,0
00
A credit
balance
of
$270,0
00
5)
Pentex
and
Marbro,
small
companies
in the
stationery
business,
each had a
dollar
gross
margin of
$20,000
during
September
2004.
Pentex's
September
sales were
twice that
of
Marbro's. If
Pentex's
gross
margin as
a
percentage
of sales for
September
was 10%,
Marbro's
gross
margin as
a
percentage
of sales for
the same
period
was:
10%
5%
20%
Cannot be calculated
6)
When an
entity
recognizes
revenue
before it
has
received
cash for
the sale, it
records an
increase in
a(n):
Liability
such as
'Advanc
es from
custom
ers'
Accoun
ts
payable
Accoun
ts
receiva
ble
Prepaid
expens
e
7)
Juan
Foods
pays off a
long-term
debt in full.
Which one
of the
following
statements
describes
the effect
of the sale
on Juan
Foods?
Current
ratio
increas
es; total
debt to
equity
ratio
decreas
es
Current
ratio
decreas
es; total
debt to
equity
ratio
decreas
es
Current
ratio
decreas
es; total
debt to
equity
ratio
increas
es
Current
ratio
increas
es; total
debt to
equity
ratio
increas
es
On
January 1,
2005,
Mansfield
Company
has a
retained
earnings
balance of
$256,000.
During
2005, its
net income
is $44,000
and it
announces
and pays
$12,000 in
dividends.
There is no
other
dividend-
related
activity
during the
year. Its
December
31, 2005
retained
earnings
balance is:
8)
###
###
###
###
9)
Juan
Foods
makes a
cash sale
with a
positive
gross
margin.
Which one
of the
following
statements
describes
the effect
of the sale
on Juan
Foods?
Current
ratio
increas
es
Current
ratio
decreas
es
No
change
to Juan
Foods'
current
ratio
Insuffici
ent
informa
tion to
judge
effect
on
current
ratio
10)
Juan
Foods
pays off a
long-term
debt in full.
Which one
of the
following
statements
best
describes
the
appropriat
e book-
keeping for
this
transaction
?
Debit
cash;
credit
long-
term
debt
Debit
long-
term
debt;
credit
owners'
equity
Debit
owners'
equity;
credit
long-
term
debt
Debit
long-
term
debt;
credit
cash
11)
On March
31, 2005,
Cars, Inc.
owes
Preston
Devices,
one of its
suppliers,
$25,000
for
previous
purchases.
During
April 2005,
Preston
sells Cars
devices
with a
sales price
of $10,000
and a cost
to Preston
of $8,000.
During
April Cars
pays
Preston
$12,000
against the
amount
owed to
Preston.
What is the
effect of
these April
transaction
s on
Preston's
balance
sheet?
Cash increased by $12,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained ea
Accounts receivable increased by $2,000; inventory decreased by $8,000; cash increased by $12,000; retained ea
Cash increased by $12,000; retained earnings decreased by $2,000; inventory decreased by $10,000; accounts re
Cash increased by $2,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained ear
12)
one of its
suppliers,
$25,000
for
previous
purchases.
During
April 2005,
Preston
sells Cars
devices
with a
sales price
of $10,000
and a cost
to Preston
of $8,000.
During
April Cars
pays
Preston
$12,000
against the
amount
owed to
Preston. If
Preston
had no
other sales
and
records no
other
collections
from
customers
during the
month of
April, the
operating
section of
Preston's
13)
Planet
Music buys
all of its
inventory
on credit.
During
2005,
Planet
Music's
inventory
account
increased
by
$10,000.
Which of
the
following
statements
must be
true for
Planet
Music
during
2005?
It made more cash payments to its suppliers than it recorded as cost of goods sold.
14)
No material effect
15)
To be
recorded
as a
liability, an
item must
meet three
specific
conditions.
Two of
them are: it
must
involve
probable
future
sacrifice of
economic
resources
by the
entity, and
it must be
a present
obligation
that arose
as a result
of a past
transaction
. Which
one of the
following is
the third
condition?
The item must reduce the market value of the recording entity
During
2005,
Patnode
announced
and paid
dividends
of $1,000,
the only
dividend-
related
activity
during the
year. What
was its
2005 net
income?
$5,600
$3,600
$4,600
Cannot
be
estimat
ed
17)
During
2005,
Patnode
had a cash
outflow of
$15,000
for
investing
activities
and a cash
inflow of
$7,000
from
financing
activities.
Its 2005
cash flow
from
operations
was:
Outflow of $15,000
Inflow of $15,000
Outflow of $8,000
Inflow of $8,000
18)
Patnode's
2005
statement
of cash
flows
contains
four items
in the
financing
section.
Three of
them are:
Short-term
debt
issued,
$15,000;
Short-term
debt paid,
($10,000)
and
Dividends
paid,
($1,000).
What is the
fourth item
in the
financing
section?
Retaine
d
earning
s,
$4,600
Commo
n stock
issued,
$3,000
Long-
term
debt
paid,
($3,000
)
Cash
from
financin
g,
$3,000
19)
How much
total
depreciatio
n and
amortizatio
n expense
did
Patnode
record
during
2005?
###
###
###
###
20)
During
2005,
Patnode
recorded
sales of
$17,000.
How much
cash did it
collect
from its
customers
?
###
###
$3,000
Cannot
be
estimat
ed
21)
Which one
of the
following
items will
not appear
in the
operating
section of
Patnode's
2005
indirect
method
cash flow
statement?
Deduct:
increas
e in
account
s
receiva
ble
$3,000
Add:
decreas
e in
account
s
payable
$1,000
Add:
increas
e in
taxes
payable
$2,400
Add:
decreas
e
inventor
ies
$6,000
22)
What is
Patnode's
current
ratio at the
end of
2004?
2.46
0.41
1.12
0.89
23)
What is
Patnode's
total debt
to equity
ratio at the
end of
2004
(rounded
to two
decimal
places)?
5.3
0.19
0.25
4.04
24)
Patnode
recorded a
2005 tax
expense of
$3,000.
What
amount did
it pay to
the tax
authorities
during
2005?
$2,400
$7,000
$600
$5,400
25)
Kirby, Inc.
records a
sale with a
gross
margin of
$1,400.
Which one
of the
following
statements
correctly
describes
the effect
of such a
sale on its
balance
sheet?
Commo
n stock
increas
es by
$1,400
The
sales
revenu
e
account
increas
es by
$1,400
The
gross
margin
account
increas
es by
$1,400
The
retaine
d
earning
s
account
increas
es by
$1,400
26)
Robbins is
the sole
owner of a
hair salon.
He often
takes small
amounts of
"lunch
money"
from the
cash
register,
figuring
that "it is
my
business
anyway."
His
accountant
, however,
insists that
Sandy
make a
note of the
cash he
takes, and
at the end
of the each
accounting
period, she
debits
owners'
equity and
credits the
cash
account for
the total
amount
that Sandy
has taken
during the
In
recording
the cash
withdrawal
s even
though
Sandy is
sole
proprietor,
the
accountant
is correctly
applying
the:
Matching concept
Entity concept
Materiality concept
Conservatism concept
27)
Anderson
Electronics
' 2005
return on
sales
percentage
is 20%. Its
2005 net
income is
$40,000.
What is its
2005
sales?
###
###
###
###
28)
Anderson
Electronics
' 2005
return on
sales
percentage
is 20%. Its
2005 net
income is
$40,000.
What is its
2005
sales?
###
###
###
###
29)
During
June 2005,
Bextra Inc.
recorded
sales of
$55,000
but only
$20,000
was
collected in
cash from
customers.
Cost of
goods sold
of $38,000.
What was
the effect
of these
sales on
Bextra's
current
ratio?
Current
ratio
increas
es
Current
ratio
decreas
es
Current
ratio
remains
unchan
ged
Insuffici
ent
informa
tion
provide
d to
judge
effect
on
current
ratio
30)
Which one
of the
following
statements
is not true
about
statements
of cash
flows
prepared
according
to U.S.
GAAP?
The
operati
ng
section
of the
indirect
method
starts
with the
net
income
of the
period
In the
indirect
method
stateme
nt, the
period's
depreci
ation is
added
to net
income
becaus
e it is a
source
of cash
Interest
paymen
ts are
include
d in the
operati
ng
section
of the
direct
method
stateme
nt
The
investin
g
section
of the
direct
method
stateme
nt for a
period
is
identica
l to the
investin
g
section
of the
indirect
method
stateme
nt for
the
same
period
31)
A company
raised
$50,000 in
cash by
taking a
one-year
loan of
$10,000
and a 5-
year loan
of $40,000.
Which of
the
following is
the correct
journal
entry to
record this
transaction
?
Debit
short-
term
debt
$40,00
0; debit
retaine
d
earning
s
$10,00
0; credit
cash
$50,00
0
Debit
short-
term
debt
$50,00
0; credit
cash
$50,00
0
Debit
cash
$50,00
0; credit
long-
term
debt
$50,00
0
Debit
cash
$50,00
0; credit
short-
term
debt
$10,00
0; credit
long-
term
debt
$40,00
0
32)
Which one
of the
following
statements
describes
the rules
about
posting
transaction
s into T-
accounts
in the
ledger?
For assets, debits are entered on the left; for liabilities, credits are entered on the left
For assets, credits are entered on the left; for liabilities, debits are entered on the left
33)
Baxtra,
Inc. pays
$20,000 in
cash as
interest to
its lenders
during
2005.
According
to U.S.
GAAP, in
which
section of
the
statement
of cash
flows
would this
payment
be
included?
34)
Taylor
Company
had a
salaries
payable
balance of
$18,000 on
December
31, 2004.
During
2005, it
paid
$50,000 in
cash as
salaries,
and
recorded a
salary
expense of
$50,000.
Its
December
31, 2005
salaries
payable
balance is:
###
###
###
35)
On April
30, 2005,
Zono
Electronics
, Inc. made
a payment
of $3,500
to Imperial
Distributor
s, a
supplier.
Choose
the
statement
that best
describes
the
recording
of this
financial
transaction
by Imperial
Distributor
s.
36)
Sardi
Company
estimates
its 2005
tax
expense to
be
$80,000. It
makes a
cash
payment of
$20,000 to
the tax
authorities
on
December
31, 2005.
How
should this
transaction
be
recorded
by Sardi?
Debit tax expense $80,000; credit cash $60,000; credit taxes payable $20,000
Debit tax expense $80,000; credit cash $20,000; credit taxes payable $60,000
Debit tax expense $80,000; credit cash $20,000; credit accounts payable $60,000
37)
On June 1,
2005,
Planet
Music has
accounts
payable of
$45,000.
During the
month,
debits of
$3,000 and
credits of
$11,000
were made
to the
account. At
the end of
June 2005,
what was
the
accounts
payable
balance?
38)
Barnaby &
Sons
receives a
large
shipment
of goods
from its
supplier. It
pays
$58,000 at
the time of
delivery
and
promises
to pay the
remaining
$42,000
within the
next two
months.
What is
appropriat
e journal
entry for
this
transaction
?
Debit cash $42,000; debit inventory $16,000; credit accounts payable $58,000;
Debit inventory $100,000; credit cash $58,000; credit accounts payable $42,000
Debit accounts payable $58,000; credit cash $42,000; credit inventory $16,000
Debit accounts payable $58,000; debit cash $42,000; credit inventory $100,000
39)
Annie's
Fitness
sells a set
of free
weights to
a customer
for $1,000.
The
customer
pays $600
in cash
and puts
the rest on
her store
credit
account.
Which one
of the
following
statements
describes
the most
appropriat
e
accounting
for the
transaction
?
Debit cash $600; debit accounts receivable $400; credit cost of good sold $1000
Debit cash $600; debit accounts receivable $400; credit revenues $1,000
Debit revenues $1,000; credit cash $600; credit accounts receivable $400
Debit cash $600; debit accounts receivable $400; credit inventory $1,000
40)
Annie's
Fitness
sells a set
of free
weights to
a customer
for which
Annie's
had paid
$750.
Which one
of the
following
statements
describes
the most
appropriat
e
accounting
for the
transaction
?
Debit
cost of
goods
sold
expens
e $750;
credit
cash
$750
Debit
inventor
y $750;
credit
cost of
goods
sold
expens
e $750
Debit
cost of
goods
sold
expens
e $750;
credit
inventor
y $750
Debit
inventor
y $750;
credit
account
s
payable
$750
decreased by $8,000; retained earnings increased by $2,000.