Accounting Test 2 Practice

27 Questions | Total Attempts: 72

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Accounting Test 2 Practice


Questions and Answers
  • 1. 
    Which of the following businesses is most likely to use a periodic inventory system?
    • A. 

      A beer bar

    • B. 

      An aircraft manufacturer

    • C. 

      A supermarket that is part of a national chain

    • D. 

      An independently owned art gallery with a manual account system

  • 2. 
    A periodic inventory system eliminates the need for: 
    • A. 

      Taking an annual physical inventory

    • B. 

      Recording the revenue from sales transactions

    • C. 

      Recording the cost of merchandise sold as sales occur

    • D. 

      None of the above

  • 3. 
    If management wants to know the cost and quantity of merchandise on hand at all times, the business will probably:
    • A. 

      Use a periodic inventory system

    • B. 

      Maintain an inventory subsidiary ledger

    • C. 

      Take a complete physical inventory each day

    • D. 

      Debit all purchases of merchandise directly to the Cost of Goods sold account

  • 4. 
    In a perpetual inventory system, the entry to record the cost of goods sold always includes an entry of equal amount to the:
    • A. 

      Inventory account

    • B. 

      Sales Account

    • C. 

      Purchases account

    • D. 

      None of the above

  • 5. 
    Prior to taking a physical inventory at year-end, the perpetual inventory records of Athena Designs showed an inventory of $26,000, sales of $358,000, and the cost of goods sold of $215,000. The year-end physical inventory indicated merchandise on hand costing $24,000. The company's gross profit for the year was:
    • A. 

      $334,000

    • B. 

      $145,000

    • C. 

      $141,000

    • D. 

      Some other amount

  • 6. 
    The normal order in which the financial statements are prepared is:
    • A. 

      Balance Sheet, income statement, statement of retained earnings

    • B. 

      Income statement, statement of retained earnings, balance sheet

    • C. 

      Income tax return, income statement, balance sheet

    • D. 

      Income statement, statement of cash flows, balance sheet

  • 7. 
    If Income Summary has a net credit balance, it signifies:
    • A. 

      A net loss

    • B. 

      Net income

    • C. 

      A reduction of net worth

    • D. 

      Dividends have been declared

  • 8. 
    If a business closes its accounts only at year-end:
    • A. 

      Financial statements are prepared only at year-end

    • B. 

      Adjusting entries are made only at year-end

    • C. 

      Revenue and expense accounts reflect year-to-date amounts throughout the year

    • D. 

      Monthly and quarterly financial statements cannot be prepared

  • 9. 
    Assets are considered current assets if they are cash or will usually be inverted into cash:
    • A. 

      Within a month or less

    • B. 

      Within 3 months

    • C. 

      Within a year or less

    • D. 

      Within 6 months or less

  • 10. 
    Which account listed below is classified as contra-revenue account?
    • A. 

      Cost of Goods Sold

    • B. 

      Gross Profit

    • C. 

      Sales Discounts

    • D. 

      Purchases

  • 11. 
    Gross Profit is the difference between:
    • A. 

      Net sales and the cost of goods sold

    • B. 

      The cost of merchandise purchased and the cost of merchandise sold

    • C. 

      Net sales and net income

    • D. 

      Net sales and all expenses

  • 12. 
    The credit term2.10, n.30 means:
    • A. 

      That after 10 days 2% interest is charged

    • B. 

      That there is a 10% discount if payment is received within 30 days

    • C. 

      That there is a 2% discount if payment is received within 10 days, otherwise, full payment is due within 30 days

    • D. 

      There is a 10% discount if paid immediately and 2% if paid within 30 days

  • 13. 
    The basic purpose of a subsidiary ledger is to:
    • A. 

      Provide a chronological record of all business transactions

    • B. 

      Provide details about the individual items comprising the balance of a general ledger account

    • C. 

      Enable accountants to prepare financial statements

    • D. 

      Provide persons outside of the organization with detailed information about the company's operations

  • 14. 
    In a perpetual inventory system, two entries usually are made to record each sales transition. The purposes of these entries are best described as follows:
    • A. 

      On entry recognizes the sales revenue, and the other recognizes the cost of goods sold

    • B. 

      One entry records the purchase of the merchandise, and the other records the sale

    • C. 

      One entry records the cost of goods sold, and the other reduces the balance in the Inventory account

    • D. 

      One entry updates the general ledger, and the other updates the subsidiary ledgers

  • 15. 
    Regal Artwork Co. records purchases net of all available purchase discounts. If the company makes payment after the discount has expired, the entry to record the payment should include a:
    • A. 

      Debit to Purchase Discount Lost

    • B. 

      Credit to Purchase Discount Lost

    • C. 

      Debit to Sales Discount

    • D. 

      Credit to Sales Discount

  • 16. 
    The allowance for Doubtful Accounts will appear on the:
    • A. 

      Income Statement

    • B. 

      Balance Sheet

    • C. 

      Cash flow statement

    • D. 

      Owner's equity statement

  • 17. 
    The bookkeeper prepare a check for $68 but accidentally recorded it as $86. When preparing the bank reconciliation, this should be corrected by:
    • A. 

      Adding $18 to the bank statement

    • B. 

      Subtracting $18 from the bank balance

    • C. 

      Adding $18 to the book balance

    • D. 

      Subtracting $18 from the book balance

  • 18. 
    Financial assets:
    • A. 

      Consist of cash and cash equivalents

    • B. 

      Are reported at cost in the balance sheet

    • C. 

      Included short-term investments i marketable securities and receivables, as well as cash

    • D. 

      Are not very productive assets and should be kept to a minimum in a well-managed company

  • 19. 
    When preparing a bank reconciliation, checks outstanding will:
    • A. 

      Increase the balance per depositor's records

    • B. 

      Decrease the balance per depositor's

    • C. 

      Increase the balance per the bank statement

    • D. 

      Decrease the balance per the bank statement

  • 20. 
    When the account Allowance for Doubtful Accounts is used, writing-off of an uncollectible accounts receivable will:
    • A. 

      Reduce income

    • B. 

      Reduce an expense

    • C. 

      Not change income or total assets

    • D. 

      Increase total assets

  • 21. 
    What is the equation for net income?
    • A. 

      Expenses + Taxes = Net Income

    • B. 

      Revenue - Expenses = Net Income

    • C. 

      Revenue - Expenses + Retained Earnings = Net Income

    • D. 

      Revenue - Dividends = Net Income

  • 22. 
    What is the equation for Retained Earning at the end of a period?
    • A. 

      Inventory + Gross Profit = Retained Earnings

    • B. 

      Beginning Retained Earnings - Gross Profit - Inventory = Ending Retained Earnings

    • C. 

      Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

    • D. 

      Beginning Retained Earnings + Dividends - Gross Profit = Ending Retained Earnings

  • 23. 
    What do you increase on the statement of retained earnings?
    • A. 

      Dividends

    • B. 

      Business Earnings

    • C. 

      Income

    • D. 

      Business Losses (Depreciation)

  • 24. 
    What do you decrease on the statement of retained earnings?
    • A. 

      Dividends

    • B. 

      Business Earnings

    • C. 

      Business Losses (Depreciation)

    • D. 

      Profit

  • 25. 
    What goes under "Balance per Bank" when reconciling a bank statement?
    • A. 

      + Deposits in Transit

    • B. 

      - Deposits in Transit

    • C. 

      + Deposits by Bank

    • D. 

      - Deposits by Bank

    • E. 

      +/- Bank Adjustments

    • F. 

      +/- Book Adjustments

    • G. 

      + Outstanding Checks

    • H. 

      - Outstanding Checks

    • I. 

      - Service Charge

    • J. 

      + Service Charge

    • K. 

      + NSF Checks

    • L. 

      - NSF Checks

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