Accounting Test 2

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Accounting Quizzes & Trivia
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  • 1. 
    Gross profit will result if:
    • A. 

      Sales revenue are greater than cost of goods sold.

    • B. 

      Operating expenses are greater than cost of goods sold.

    • C. 

      Operating expenses are less than net income.

    • D. 

      Sales revenue are greater than operating expenses


  • 2. 
    Under a perpetual inventory system, when goods are purchased for resale by a company:
    • A. 

      Purchases on account are debited to Merchandise Inventory.

    • B. 

      Purchases on account are debited to Purchases

    • C. 

      Purchase returns are debited to Purchase Returns and Allowances

    • D. 

      Freight costs are debited to Freight-out


  • 3. 
    The sales accounts that normally have a debit balance are:
    • A. 

      Sales Returns and Allowances.

    • B. 

      Neither Sales Discounts nor Sales Returns and Allowances.

    • C. 

      Both Sales Discounts and Sales Returns and Allowances.

    • D. 

      Sales Discounts.


  • 4. 
    A credit sale of $750 is made on June 13, term 2/10, net/30. A return of $50 is granted on June 16. The amount received as payment in full on June 23 is:
    • A. 

      $700

    • B. 

      $650

    • C. 

      $686

    • D. 

      $685


  • 5. 
    Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system?
    • A. 

      Freight-in

    • B. 

      Purchases

    • C. 

      Purchase Discounts

    • D. 

      Cost of Goods Sold


  • 6. 
    To record the sale of goods for cash in a perpetual inventory system:
    • A. 

      Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods and reduction of inventory.

    • B. 

      Only one journal entry is necessary to record the reciept of cash and the sales revenue.

    • C. 

      Two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue.

    • D. 

      Only one journal entry is necessary to record cost of goods sold and reduction of inventory.


  • 7. 
    The steps in the accounting cycle for a merchandising company are the same as those in a service company except:
    • A. 

      A mutiple-step income statement is required for a merchandising company.

    • B. 

      Closing journal entries are not required for a merchandising company.

    • C. 

      A post-closing trial balance is not required for a merchandising company.

    • D. 

      An additional journal entry for inventory may be needed in a merchandising company.


  • 8. 
    The multiple-step income statement for a merchandising company shows each of the following features except:
    • A. 

      Investing activities section.

    • B. 

      Gross profit.

    • C. 

      A sales revenue section.

    • D. 

      Cost of goods sold.


  • 9. 
    If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000 the gross profit is:
    • A. 

      $90,000

    • B. 

      $340,000

    • C. 

      $400,000

    • D. 

      $30,000


  • 10. 
    A single-step income statement:
    • A. 

      Reports gross profit.

    • B. 

      Reports sales revenue and "Other revenues and gains" in the revenues section of the income statement.

    • C. 

      Reports operating income separately.

    • D. 

      Does not report cost of goods sold.


  • 11. 
    Which of the following appears on both a single-step and a multiple-step income statement?
    • A. 

      Income from operations

    • B. 

      Merchandising inventory

    • C. 

      Gross profit

    • D. 

      Cost of goods sold


  • 12. 
    In determining cost of goods sold:
    • A. 

      Freight-in added to net purchases.

    • B. 

      Freight-out is added to net purchases.

    • C. 

      Purchases returns and allowances are deducted from net purchases.

    • D. 

      Purchase discounts are deducted from net purchases.


  • 13. 
    If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of goods sold is:
    • A. 

      $420,000

    • B. 

      $390,000

    • C. 

      $370,000

    • D. 

      $330,000


  • 14. 
    When goods are purchased for resale by a company using a periodic inventory system:
    • A. 

      Purchases on account are debited to Purchases.

    • B. 

      Freight costs are debited to Purchases.

    • C. 

      Purchase returns are debited to Purchase Returns and Allowances.

    • D. 

      Purchases on account are debited to Merchandise Inventory.


  • 15. 
    In a worksheet, Merchandise Inventory is shown in the following columns:
    • A. 

      Income statement credit and balance sheet debit.

    • B. 

      Income statement credit and adjusted trial balance debit.

    • C. 

      Adjusted trial balance debit and balance sheet debit.

    • D. 

      Income statement debit and balance sheet debit.


  • 16. 
    Sales revenue less cost of goods sold is called net profit.
    • A. 

      True

    • B. 

      False


  • 17. 
    In a perpetual inventory system, a company determines the cost of goods sold each time a sale occurs.
    • A. 

      True

    • B. 

      False


  • 18. 
    In a periodic inventory system, companies keep detailed inventory records of the goods on hand throughout the period.
    • A. 

      True

    • B. 

      False


  • 19. 
    FOB destination means that the seller places the goods free on board the common carrier and the buyer pays the freight costs.
    • A. 

      True

    • B. 

      False


  • 20. 
    Sales Returns and Allowances is a contra revenue account to Sales and has a normal debit balance.
    • A. 

      True

    • B. 

      False


  • 21. 
    A merchandiser using a perpetual system will require one additional adjusting entry to make the record agree with the actual inventory on hand.
    • A. 

      True

    • B. 

      False


  • 22. 
    The income statement for retailers contains one expense catergory just like the income statement of a service company.
    • A. 

      True

    • B. 

      False


  • 23. 
    A multiple-step income statement distinguishes between operating and non-operating activities.
    • A. 

      True

    • B. 

      False


  • 24. 
    Under a periodic system, the company uses seperate accounts to record freight costs, returns, and discounts.
    • A. 

      True

    • B. 

      False


  • 25. 
    There are more steps involved in preparing a worksheet for a merchandising company than for a service company.
    • A. 

      True

    • B. 

      False


  • 26. 
    Gross profit is:
    • A. 

      Sales revenue less operating expenses.

    • B. 

      Net income less operating expenses.

    • C. 

      Sales revenue less cost of goods sold.

    • D. 

      Net income less cost of goods sold.


  • 27. 
    A company determines the cost of goods sold each time a sale occurs in:
    • A. 

      Neither a periodic nor perpetual inventory system.

    • B. 

      Both a periodic and perpetual inventory system.

    • C. 

      Periodic inventory system only.

    • D. 

      A perpetual inventory system only.


  • 28. 
    In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting:
    • A. 

      Merchandise Inventory

    • B. 

      Purchases

    • C. 

      Purchase Discounts

    • D. 

      Purchase Returns and Allowances


  • 29. 
    Which of the following is not part of the journal entries made when merchandise is sold on credit?
    • A. 

      Debit the Accounts Receivable account

    • B. 

      Credit the Cost of Goods Sold account

    • C. 

      Credit the Sales account

    • D. 

      Credit the Merchandise Inventory account


  • 30. 
    FOB shipping point means that the:
    • A. 

      Goods are placed free on board to the buyer's place of business.

    • B. 

      Buyer pays the freight.

    • C. 

      Seller pays the freight.

    • D. 

      Common carrier pays the freight.


  • 31. 
    The account Sales Discounts is a:
    • A. 

      Revenue account

    • B. 

      Expense account

    • C. 

      Contra revenue account

    • D. 

      Liability account


  • 32. 
    Net sales is sales less:
    • A. 

      Sales returns and allowances

    • B. 

      Sales discounts

    • C. 

      Sales returns & allowances and sales discounts

    • D. 

      Cost of goods sold


  • 33. 
    In a multiple-step income statement, which of the following would not be reported in the operating expenses section?
    • A. 

      Advertising expense

    • B. 

      Interest expense

    • C. 

      Freight-out

    • D. 

      All of the above are operating expenses


  • 34. 
    Which of the following is shown for both merchandising and service companies?
    • A. 

      Operating expenses

    • B. 

      Sales returns and allowances

    • C. 

      Gross profit

    • D. 

      Cost of goods sold


  • 35. 
    In a perpetual inventory system, which of the following would be debited when goods are purchased with the intent of being resold?
    • A. 

      Purchases

    • B. 

      Accounts Payable

    • C. 

      Cost of Goods Sold

    • D. 

      Merchandise Inventory


  • 36. 
    Which of the following accounts is NOT closed to Income Summary?
    • A. 

      Sales

    • B. 

      Cost of Goods Sold

    • C. 

      Sales Discounts

    • D. 

      Merchandise Inventory


  • 37. 
    All of the following items would be reported as other revenues and gains except:
    • A. 

      Sales revenue

    • B. 

      Rent revenue

    • C. 

      Gains on sale of equipment

    • D. 

      Interest revenue


  • 38. 
    Income from operations is:
    • A. 

      Gross profit less operating expenses.

    • B. 

      Gross profit less other expenses and losses.

    • C. 

      Net sales less cost of goods sold.

    • D. 

      Net sales less operating expenses.


  • 39. 
    Which of the following is shown on both a multiple-step and a single-step income statement?
    • A. 

      Other expenses and losses

    • B. 

      Gross profit

    • C. 

      Income from operations

    • D. 

      Net sales


  • 40. 
    Income from operations appears on:
    • A. 

      Both a multiple-step and a single-step income statement.

    • B. 

      A multiple-step income statement only.

    • C. 

      Neither a multiple-step nor a single-step income statement.

    • D. 

      A single-step income statement only.


  • 41. 
    In a periodic inventory system the entry to record the credit sale of merchandise affects which of the following accounts?
    • A. 

      Cost of Goods Sold

    • B. 

      Merchandise Inventory

    • C. 

      Sales

    • D. 

      Purchases


  • 42. 
    A company has the following account balances: Sales, $1,000,000; Sales Returns and Allowances, $180,000; Sales Discounts, $20,000; and Cost of Goods Sold, $600,000. What is the company's gross profit rate?
    • A. 

      25%

    • B. 

      60%

    • C. 

      50%

    • D. 

      75%


  • 43. 
    Villa Sales Company had the following amounts related to its business: Beginning Inventory, $12,000; Purchases, $42,000; Net Sales, $50,000; and Gross Profit, $15,000. The amount of the ending inventory is
    • A. 

      $35,000

    • B. 

      $19,000

    • C. 

      $54,000

    • D. 

      $77,000


  • 44. 
    The following amounts relate to Amato Company for the current year: Beginning Inventory, $20,000; Ending Inventory, $28,000; Purchases, $166,000; Purchase Returns, $4800; and Freight-Out, $6,000. The amount of Cost of Goods Sold for the period is
    • A. 

      $169,200

    • B. 

      $153,200

    • C. 

      $159,200

    • D. 

      $162,800


  • 45. 
    When preparing a worksheet for a merchandising company, which of the following accounts should not be reported in the Income Statement columns?
    • A. 

      Dividends

    • B. 

      Sales Discounts

    • C. 

      Depreciation Expense

    • D. 

      Cost of Goods Sold


  • 46. 
    Which of the following should not be included in the physical inventory of a company?
    • A. 

      Goods held on consignment from another company

    • B. 

      Goods shipped on consignment to another company

    • C. 

      Goods in transit from another company shipped FOB shipping point

    • D. 

      None of the above


  • 47. 
    Cost of goods available for sale consists of two elements: beginning inventory and:
    • A. 

      Ending inventory

    • B. 

      Cost of goods purchased

    • C. 

      Cost of goods sold

    • D. 

      All of the above


  • 48. 
    In periods of rising prices, LIFO will produce:
    • A. 

      The same net income as FIFO.

    • B. 

      Higher net income than average costing.

    • C. 

      Lower net income than FIFO

    • D. 

      Higher net income than FIFO


  • 49. 
    Factors that affect the selection of an inventory costing method do not include:
    • A. 

      Tax effects

    • B. 

      Perpetual vs. periodic inventory system

    • C. 

      Income statement effects

    • D. 

      Balance sheet effects


  • 50. 
    Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inventory under lower of cost or market is:
    • A. 

      $80,000

    • B. 

      $16,000

    • C. 

      $18,200

    • D. 

      $91,000


  • 51. 
    Atlantis Company's ending inventory is understated $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are:
    • A. 

      Overstated, overstated

    • B. 

      Understated, overstated

    • C. 

      Overstated, understated

    • D. 

      Understated, understated


  • 52. 
    Which of these would cause the inventory turnover ratio to increase the most?
    • A. 

      Keeping the amount of inventory on hand constant but increasing sales

    • B. 

      Decreasing the amount of inventory on hand and increasing sales

    • C. 

      Keeping the amount of inventory on hand constant but decreasing sales

    • D. 

      Increasing the amount of inventory on hand


  • 53. 
    Songbird Company has sales of $150,000 and cost of goods available for sale of $135,000. If the gross profit rate is 30%, the estimated cost of the ending inventory under the gross profit method is:
    • A. 

      $45,000

    • B. 

      $30,000

    • C. 

      $75,000

    • D. 

      $15,000


  • 54. 
    In a perpetual inventory system,
    • A. 

      LIFO cost of goods sold will be the same as in a periodic inventory system.

    • B. 

      Average costs are based entirely on unit cost averages.

    • C. 

      A new average is computed under the average cost method after each sale.

    • D. 

      FIFO cost of goods sold will be the same as in a periodic inventory system.


  • 55. 
    Manufacturing companies usually classify inventory into three catagories.
    • A. 

      True

    • B. 

      False


  • 56. 
    When the terms of sale are FOB shipping point, ownership of the goods remains with the seller until the goods reach the buyer.
    • A. 

      True

    • B. 

      False


  • 57. 
    There is an accounting requirement that the cost flow assumption be consistent with the physical movement of the goods.
    • A. 

      True

    • B. 

      False


  • 58. 
    The FIFO method assumes that the earlies goods purchased are the first to be sold.
    • A. 

      True

    • B. 

      False


  • 59. 
    Under LIFO, companies obtain the cost of the ending inventory by taking the cost of the latest goods available for the sale and working backward until all the units have been costed.
    • A. 

      True

    • B. 

      False


  • 60. 
    Some argue that the use of FIFO in a period of inflation enables a company to avoid reporting paper (phantom) profit as economic gain.
    • A. 

      True

    • B. 

      False


  • 61. 
    Under the lower of cost or market basis, market is defined as current replacement cost.
    • A. 

      True

    • B. 

      False


  • 62. 
    An error in the ending inventory of the current period will have no effect on net income of the next accounting period.
    • A. 

      True

    • B. 

      False


  • 63. 
    Days in inventory measures the average number of days inventory is held.
    • A. 

      True

    • B. 

      False


  • 64. 
    The results under FIFO in a perpetual system are the same as in a periodic system.
    • A. 

      True

    • B. 

      False


  • 65. 
    All of the following would be classified as inventory except:
    • A. 

      Raw materials

    • B. 

      Supplies

    • C. 

      Merchandise inventory

    • D. 

      Work in process


  • 66. 
    Companies using a periodic inventory system take a physical inventory for each of the following purposes except to determine the:
    • A. 

      Cost of goods for the period

    • B. 

      Inventory on hand at the balance sheet date

    • C. 

      Amount of inventory lost due to shoplifting or employee theft

    • D. 

      All of the above are correct


  • 67. 
    Goods in transit should be included in the inventory of the buyer when the:
    • A. 

      Goods reach the buyer

    • B. 

      Terms of sale are FOB destination

    • C. 

      Public carrier accepts the goods from the seller

    • D. 

      Terms of sale are FOB shipping point


  • 68. 
    The cost flow method that often parallels the actual physical flow of merchandise is the:
    • A. 

      FIFO method

    • B. 

      LIFO method

    • C. 

      Average cost method

    • D. 

      Gross profit method


  • 69. 
    In a period of inflatino, which cost flow method produces the highest net income?
    • A. 

      Average cost method

    • B. 

      LIFO method

    • C. 

      FIFO method

    • D. 

      Gross profit method


  • 70. 
    Overstating beginning inventory will overstate:
    • A. 

      Stockholders' equity

    • B. 

      Assets

    • C. 

      Cost of goods sold

    • D. 

      Net income


  • 71. 
    The inventory turnover ratio is computed by dividing cost of goods sold by:
    • A. 

      Beginning inventory

    • B. 

      Ending inventory

    • C. 

      Average inventory

    • D. 

      365 days


  • 72. 
    Which of the following is used to estimate the cost of ending inventory?
    • A. 

      Net profit method

    • B. 

      Wholesale inventory method

    • C. 

      Perpetual inventory method

    • D. 

      Retail inventory method


  • 73. 
    International accounting standards do not allow the use of:
    • A. 

      LIFO

    • B. 

      FIFO

    • C. 

      Average cost method

    • D. 

      All of these are permitted


  • 74. 
    Which of the following is not an element of the fraud triangle?
    • A. 

      Segregation of duties

    • B. 

      Rationalization

    • C. 

      Financial pressure

    • D. 

      Opportunity


  • 75. 
    An organization uses internal control to enhance the accuracy and reliability of its accounting records and to:
    • A. 

      Safeguard its assets

    • B. 

      Prevent fraud

    • C. 

      Produce correct financial statements

    • D. 

      Deter employee dishonesty


  • 76. 
    Which of the following was not a result of the Sarbanes-Oxley Act?
    • A. 

      Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

    • B. 

      Companies must file financial statements with Internal Revenue Service.

    • C. 

      All publicly traded companies must maintain adequate internal controls.

    • D. 

      The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity.


  • 77. 
    The principles of internal control do not include:
    • A. 

      Documentation procedures

    • B. 

      Establishment of responsibility

    • C. 

      Management responsibility

    • D. 

      Independent internal verification


  • 78. 
    Permitting only designated personnel to handle cash receipts is an application of the principle of:
    • A. 

      Establishment of responsibility

    • B. 

      Human resource controls

    • C. 

      Segregation of duties

    • D. 

      Independent check


  • 79. 
    The use of prenumbered checks in disbursing cash is an application of the principle of:
    • A. 

      Physical controls

    • B. 

      Establishment of responsibility

    • C. 

      Documentation procedures

    • D. 

      Segreagation of duties


  • 80. 
    A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $3 in cash. In recording the check, the company should:
    • A. 

      Debit petty cash for $94

    • B. 

      Credit cash for $94

    • C. 

      Credit petty cash for $3

    • D. 

      Debit cash over and short for $3


  • 81. 
    The control features of a bank account do not include:
    • A. 

      Safeguarding cash by using a bank as a depository

    • B. 

      Minimizing the amount of cash that must be kept on hand

    • C. 

      Having bank auditors verify the correctness of the bank balance per books

    • D. 

      Providing a double record of all bank transactions


  • 82. 
    In a bank reconciliation, deposits in transit are:
    • A. 

      Deducted from the book balance

    • B. 

      Added to the bank balance

    • C. 

      Added to the book balance

    • D. 

      Deducted from the bank balance


  • 83. 
    The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:
    • A. 

      Bank service charges

    • B. 

      A bank error

    • C. 

      Outstanding checks

    • D. 

      Deposit in transit


  • 84. 
    Few internal control systems provide for independent internal verification
    • A. 

      True

    • B. 

      False


  • 85. 
    A bank issues a debit memorandum when it collects a note receivable for a depositor.
    • A. 

      True

    • B. 

      False


  • 86. 
    All of the following are classified as cash except:
    • A. 

      Checks

    • B. 

      Money orders

    • C. 

      Money on hand

    • D. 

      Restricted cash


  • 87. 
    Making payments from a petty cash fund requires:
    • A. 

      No accounting entry to record a payment when it is made from petty cash

    • B. 

      A credit to cash

    • C. 

      A debit to various expense accounts

    • D. 

      A credit to petty cash


  • 88. 
    All of the following would involve a debit memorandum except:
    • A. 

      A bank service charge

    • B. 

      An NSF check

    • C. 

      The cost of printing checks

    • D. 

      Interest earned


  • 89. 
    On a bank reconciliation, outstanding checks are:
    • A. 

      Deducted from the bank balance

    • B. 

      Added to the book balance

    • C. 

      Deducted from the book balance

    • D. 

      Added to the bank balance


  • 90. 
    On a bank reconciliation, collection of a note receivable by the bank is:
    • A. 

      Added to the bank balance

    • B. 

      Deducted from the bank balance

    • C. 

      Added to the book balance

    • D. 

      Deducted from the book balance


  • 91. 
    A voucher system is an example of:
    • A. 

      Documentation procedures

    • B. 

      Human resource controls

    • C. 

      Segregation of duties

    • D. 

      Physical controls


  • 92. 
    Of the following persons, the best choice for preparing the monthly bank reconciliations would be:
    • A. 

      Randy, an assistant cashier, who also takes the daily deposits to the bank.

    • B. 

      Norman, the assistant treasurer, who also invests excess cash in short-term interest bearing securities.

    • C. 

      Cindy, the chief cashier, who also supervises Randy and Angela.

    • D. 

      Angela, an assistant cashier, who also prepares all the checks.


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