Principles of Accounting I Final Exam

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Name: ________________________________________

 

1. GAAP stands for

a. Generally Accepted Auditing Procedures.

b. Generally Accepted Accounting Principles.

c. Generally Accepted Auditing Principles.

d. Generally Accepted Accounting Procedures.

 

 

2. The proprietorship form of business organization

a. must have at least three owners in most states.

b. represents the largest number of businesses in the United States.

c. combines the records of the business with the personal records of the owner.

d. is characterized by a legal distinction between the business as an economic unit and the owner.

 

 

3. Jo Smith is the proprietor (owner) of Smitty's, a retailer of athletic apparel. When recording the financial transactions of Smitty's, Jo does not record an entry for a car she purchased for personal use. Jo took out a personal loan to pay for the car. What accounting concept guides Jo's behavior in this situation?

a. Pay back concept

b. Economic entity assumption

c. Cash basis concept

d. Monetary unit assumption

 

 

4. Owner's equity is best depicted by the following:

a. Assets = Liabilities.

b. Liabilities + Assets.

c. Residual equity + Assets.

d. Assets Liabilities.

 

 

5. Liabilities

a. are future economic benefits.

b. are existing debts and obligations.

c. possess service potential.

d. are things of value used by the business in its operation.

 

6. Revenues would not result from

a. sale of merchandise.

b. initial investment of cash by owner.

c. performance of services.

d. rental of property.

 

7. An income statement

a. summarizes the changes in owner's equity for a specific period of time.

b. reports the changes in assets, liabilities, and owner's equity over a period of time.

c. reports the assets, liabilities, and owner's equity at a specific date.

d. presents the revenues and expenses for a specific period of time.

 

 

8. The balance sheet is frequently referred to as

a. an operating statement.

b. the statement of financial position.

c. the statement of cash flows.

d. the statement of owner's equity.

 

9. The left side of an account is

a. blank.

b. a description of the account.

c. the debit side.

d. the balance of the account.

 

 

10. A debit to an asset account indicates

a. an error.

b. a credit was made to a liability account.

c. a decrease in the asset.

d. an increase in the asset.

 

 

11. For the basic accounting equation to stay in balance, each transaction recorded must

a. affect two or less accounts.

b. affect two or more accounts.

c. always affect exactly two accounts.

d. affect the same number of asset and liability accounts.

 

12. Which of the following journal entries is recorded correctly and in the standard format?

a. Wages Expense ................................................................... 400

Cash ............................................................................... 1,000

Advertising Expense ............................................................. 600

 

b. Wages Expense ................................................................... 400

Advertising Expense ............................................................. 600

Cash ............................................................................... 1,000

 

c. Cash ..................................................................................... 1,000

Wages Expense ............................................................. 400

Advertising Expense ....................................................... 600

 

d. Wages Expense ................................................................... 400

Advertising Expense ............................................................. 600

Cash ............................................................................... 1,000

 

 

13. Management could determine the amounts due from customers by examining which ledger account?

a. Service Revenue

b. Accounts Payable

c. Accounts Receivable

d. Supplies

 

 

 

14. An accounting time period that is one year in length, but does not begin on January 1, is referred to as

a. a fiscal year.

b. an interim period.

c. the time period assumption.

d. a reporting period.

 

15. Joe's Tune-up Shop follows the revenue recognition principle. Joe services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Joe on August 5. Joe receives the check in the mail on August 6. When should Joe show that the revenue was earned?

a. July 31

b. August 1

c. August 5

d. August 6

 

16. Accrued revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. earned and already received and recorded.

 

 

17. Depreciation is the process of

a. valuing an asset at its fair market value.

b. increasing the value of an asset over its useful life in a rational and systematic manner.

c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.

d. writing down an asset to its real value each accounting period.

 

 

18. Sales revenue less cost of goods sold is called

a. gross profit.

b. net profit.

c. net income.

d. marginal income

 

19. Company A sells $600 of merchandise on account to Company B with credit terms of 2/10, n/30. If Company B remits a check taking advantage of the discount offered, what is the amount of Company B's check?

a. $420.

b. $588.

c. $540.

d. $480.

 

 

20. In terms of liquidity, merchandise inventory is

a. more liquid than cash.

b. more liquid than accounts receivable.

c. more liquid than prepaid expenses.

d. less liquid than store equipment.

 

 

21. Cost of goods sold is computed from the following equation:

a. beginning inventory cost of goods purchased + ending inventory.

b. sales cost of goods purchased + beginning inventory ending inventory.

c. sales + gross profit ending inventory + beginning inventory.

d. beginning inventory + cost of goods purchased ending inventory

 

 

22. When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

a. a sale is made.

b. an account becomes bad and is written off.

c. management estimates the amount of uncollectibles.

d. a customer's account becomes past-due.

 

23. When customers make purchases with a national credit card, the retailer

a. is responsible for maintaining customer accounts.

b. is not involved in the collection process.

c. absorbs any losses from uncollectible accounts.

d. receives cash equal to the full price of the merchandise sold from the credit card company.

 

24. The maturity value of a $30,000, 10%, 60-day note receivable dated July 3 is

a. $30,000.

b. $33,000.

c. $35,000.

d. $30,500.

 

25. The face value of a note refers to the amount

a. that can be received if sold to a factor.

b. borrowed plus interest received at maturity from the maker.

c. that is identified on the formal instrument of credit.

d. remaining after a service charge has been deducted.

 

 

26. A company purchased land for $80,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at

a. $87,000.

b. $80,000.

c. $85,000.

d. $92,000.

 

27. Which of the following assets does not decline in service potential over the course of its useful life?

a. Equipment

b. Furnishings

c. Land

d. Fixtures

 

28. Belle Company buys land for $40,000 on 12/31/01. As of 3/31/02, the land has appreciated in value to $40,400. On 12/31/02, the land has an appraised value of $40,900. By what amount should the Land account be increased in 2002?

a. $0.

b. $400.

c. $500.

d. $900.

 

29. Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

a. Salvage value

b. Estimated useful life

c. Cash needed to replace the plant asset

d. Cost

 

30. The book value of an asset is equal to the

a. asset's market value less its historical cost.

b. blue book value relied on by secondary markets.

c. replacement cost of the asset.

d. asset's cost less accumulated depreciation.

 

31. A current liability is a debt that can reasonably expected to be paid

a. within one year.

b. between 6 months and 18 months.

c. out of currently recognized revenues.

d. out of cash currently on hand.

 

32. Unearned Rental Revenue

a. is a contra account to Rental Revenue.

b. is a revenue account.

c. is reported as a current liability.

d. is debited when rent is received in advance.

 

33. Sales taxes collected by a retailer are reported as

a. contingent liabilities.

b. revenues.

c. expenses.

d. current liabilities.

 

34. Working capital is

a. current assets plus current liabilities.

b. current assets minus current liabilities.

c. current assets divided by current liabilities.

d. current assets multiplied by current liabilities.

 

35. Current liabilities generally appear

a. after long-term debt on the balance sheet.

b. in decreasing order of magnitude on the balance sheet.

c. in order of maturity on the balance sheet.

d. in increasing order of magnitude on the balance sheet.

 

36. Information that relates to a firm's solvency is used to assess the firm's ability to

a. convert assets to cash.

b. pay its debts.

c. collect its receivables on time.

d. prepare income tax information.

 

 

37. An overriding criterion in evaluating the accounting information to be presented is

a. fairness.

b. legality.

c. management's goals.

d. decision usefulness.

 

Dinkel Construction signed a long-term construction contract to build a new business school for Iowa State University for $50 million. During the current year, $6 million in costs were incurred of an estimated total cost of $30 million.

 

38. The amount of revenue that Dinkel Construction recognized in the current year if the percentage-of-completion method is employed is

a. $50 million.

b. $6 million.

c. $44 million.

d. $10 million.

 

39. Under the installment method of accounting, gross profit is recognized in the period

a. that the most payments are made.

b. that the sale is made.

c. that cash is collected.

d. after the sale is made.

 

 

40. Accounting information should be neutral in order to enhance

a. reliability.

b. predictive value.

c. feedback value.

d. relevancy.