Florida International University - ACG 2021

ACG2021 Spring2016Additional Practice Questions Chapter 1 – 6

Answers and Explanations

Chapter 1 – 2

1)Which item is an asset?

1. 1. Unearned Revenue
   2. Interest Payable
   3. Accounts Receivable
   4. Dividends

 

 

2. Recording a payable for an invoice representing the purchase of $90,000 of services incurred during the period had what net effect at the end of the period?
   1. Decrease in assets
   2. Increase in owner’s equity
   3. Decrease in liabilities
   4. No effect on assets

 

3. In the financial accounting records, most assets should be reported at:
   1. Current replacement cost.
   2. Current market value.
   3. Historical cost.
   4. Inflation-adjusted cost.

 

 

The following information relates to question # 4 through 9:

Listed below are the account balances of the Frank Corporation on December 31, 2014.

 

Accounts Payable	75,000
Accounts Receivables	25,000
Cash	100,000
Common Stock	185,000
Dividends	50,000
Land	260,000
Retained Earnings	40,000
Sales	250,000
Equipment	40,000
Note Payable due in 60 days	25,000
Long-Term Debt	30,000
Salary Expense	60,000
Accumulated Depreciation	20,000
Depreciation Expense	5,000
Rent Revenue	10,000
Prepaid Insurance	15,000
Insurance Expense	10,000
Cost of Goods Sold	100,000
Accrued Salaries	30,000

4. What are Frank’s total assets and total liabilities on December 31, 2014: A. $ 420,000; $180,000.

B. $ 420,000; $160,000.

C. $ 440,000; $160,000.

D. $ 460,000; $130,000.

 

 

 

 

 

 

5. What is Frank’s net income for 2014:

 A. $55,000.

B. $70,000.

C. $85,000.

D. $90,000.

 

6. What is the total of the debit side of the trial balance as of December 31, 2014:

A. $665,000.

B. $705,000.

C. $645,000.

D. $755,000.

 

 

 

7. What are Frank’s current assets and current liabilities as on December 31, 2014: A. $ 125,000; $130,000.

B. $ 140,000; $130,000.

C. $ 125,000; $105,000.

D. $ 140,000; $150,000.

 

 

 

 

8. What is Frank’s current ratio:

A. 1.077.

B. 0.929.

C. 1.190.

D. 0.933.

 

 

9. What is Frank’s debt ratio: A. 0.283.

B. 0.381.

C. 2.333.

D. 2.625.

 

 

10. Which of the following is not reported in the Balance Sheet?
    1. Prepaid insurance and interest receivable.
    2. Accrued salary and unearned revenue.
    3. Equipment and accumulated depreciation.

1. 4. Cost of goods sold and sales.

 

 

11. Which of the following is not a step in the accounting cycle?
    1. Journal entries are prepared
    2. Journal entries are posted to ledger accounts.

2. Trial balance is prepared.
3. Financial Statements are prepared.
4. All of the above are steps in the accounting cycle.

 

 

 

12. On a trial balance which of the following would all have debit balances:
    1. Depreciation expense, prepaid insurance, rent revenue, cost of goods sold.
    2. Accrued salary, utilities expense, accumulated depreciation, sales.
    3. Equipment, unearned revenue, accounts receivable, notes receivable.
    4. None of the above

 

 

13. When a company sells merchandise, but customer does not pay it immediately, it should:
    1. Increase Assets and Increase Expense.
    2. Increase Assets and Increase Liabilities.
    3. Increase Revenue and Increase Liability.
    4. Increase Revenue and Increase Assets.

 

 

 

14. Sale of merchandise on credit for $4,000 was recorded by debiting cash and crediting sales. They entry needs to be corrected by:
    1. Debit Accounts Receivable $4,000, credit Sales $4,000
    2. Debit Cash $4,000, credit Accounts Receivable $4,000
    3. Debit Sales $4,000, credit Cash $4,000
    4. Debit Accounts Receivable $4,000, credit Cash $4,000

 

Chapter 3

 

15. Under cash-basis accounting:
    1. Net income is calculated by deducting incurred expenses from earned revenues.
    2. Cash is adjusted for all income and expenses.
    3. Transactions are recognized in period in which cash is paid or received.
    4. None of the above.

 

 

16. 24. During 2014, XYZ Inc. sold merchandise worth $120,000 in cash and $150,000 on account. The company incurred expenses of $160,000, of which $70,000 is paid in cash. Compute net income of the company under accrual basis accounting.

A. $200,000. B. $110,000. C. $50,000.

D. $40,000.

 

 

 

17. Allied, Inc. bought a 2-year insurance policy on August 1 for $3,600. The adjusting entry on December 31 would be:
    1. debit Insurance Expense, $150; credit Prepaid Insurance, $150.
    2. debit Prepaid Insurance, $150; credit Insurance Expense, $150.
    3. debit Insurance Expense, $750; credit Prepaid Insurance, $750.
    4. debit Prepaid Insurance, $750; credit Insurance Expense, $750.

 

 

18. A company started the year with no supplies. During this year they bought $200 worth of supplies on account and later paid $150 of this debt. If there were $40 supplies left at the end of this year, what was the supply expense for the period?

A. $160

B. $50

C. $40

D. $10

 

 

 

 

 

 

19. On January 1 Corporate Condos. Inc received $96,000 for one year's rent for building A. What would the adjusting entry be on March 31?
    1. Debit Rent Expense $8,000, credit Prepaid Rent $8,000
    2. Debit Unearned Rent Revenue $8,000, credit Rent Revenue $8,000
    3. Debit Rent Expense $24,000, credit Prepaid Rent $24,000
    4. Debit Unearned Rent Revenue $24,000, credit Rent Revenue $24,000

 

 

20. Salary expense is $975 per day, Monday through Friday, and the business pays employees each Friday. If December 31 falls on a Wednesday, the amount of the adjusting entry to record accrued salaries would be:

A. $2,925.

B. $975.

C. $1,950.

D. $4,875.

 

 

 

 

21. Which of the following accounts would NOT be adjusted?
    1. Accumulated Depreciation
    2. Cash
    3. Depreciation Expense
    4. Wages

 

 

 

22. The entry to close the expense accounts includes:
    1. a debit to Retained Earnings and credits to the respective expense accounts.
    2. a debit to Dividends and credits to the respective expense accounts.
    3. debits to the respective expense accounts and a credit to Retained Earnings.
    4. debits to the respective expense accounts and a credit to Dividends.

 

 

Chapter 4

 

23. Which of the following is a primary concern of internal control?
    1. Promote training programs and control incentives
    2. Enhancing the reliability of accounting data
    3. Ensuring fairness of the financial statements
    4. Enhancing managerial performance

 

 

24. Each of the following is an attribute of internal control except
    1. Segregation of duties.
    2. Establishment of responsibility.
    3. Independent internal verification.
    4. A sound marketing plan.

 

 

 

25. As of the end of September a bank reconciliation includes outstanding checks of $2,640. Indicate where the transaction would appear in the bank reconciliation statement:
    1. Add to the bank statement balance
    2. Deduct from the bank statement balance
    3. Add to the book balance
    4. Deduct from the book balance
    5. Does not appear on the bank reconciliation

 

 

26. A customer’s check was returned for nonsufficient funds. Indicate where the transaction would appear in the bank reconciliation statement:
    1. Add to the bank statement balance
    2. Deduct from the bank statement balance
    3. Add to the book balance
    4. Deduct from the book balance
    5. Does not appear on the bank reconciliation

 

 

27. Which of the following requires an adjustment to the cash book balance on a bank reconciliation?
    1. Outstanding checks (bank side
    2. Bank error (bank side)
    3. Bank service charges
    4. Cash in transit (bank side)
    5. All of the above

 

28. As of October 31, a company's Cash account has a balance of $851. On the same day, the bank statement for this account reports a balance of $1,430. There are outstanding checks totaling $840 and a deposit in transit of $60. The bank statement shows interest earned of $19, service charges of $30, a customer's returned check of $100, and a check printing fee of $90. The reconciled Cash balance that should be reported on the company’s balance sheet as of October 31 is:

A. $590

B. $650

C. $760

D. $750

 

 

 

29. A company wrote a check to a vendor for $989. However, while recording in its Cash account, this payment was incorrectly recorded as $998. How is the difference of $9 handled on the bank reconciliation?
    1. Add to the bank statement balance
    2. Deduct from the bank statement balance
    3. Add to the book balance
    4. Deduct from the book balance
    5. Does not appear on the bank reconciliation

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter 5

30. On December 1, the XYZ Co. received a 120 day, 12% note receivable of $2,500 from its customer. What is the total amount of the interest due by the customer on April 1?

A. $300

B. $25

C. $600

D. $100

 

 

31. An unrealized gain occurs:
    1. If the sales price is greater than the investment carrying amount.
    2. If the fair value of the investment is less than the current recorded value.
    3. If the fair value of the investment is greater than the current recorded value.
    4. None of the above.

 

 

32. A company sold $200,000 worth merchandise in 2014. Of that sales, $15,000 worth merchandise were returned and $10,000 discounts were granted. During the year, the company collected

$180,000 cash from its customers. What is the total dollar amount of net sales during 2014? A. $185,000

B. $155,000

C. $175,000

D. $20,000

E. $180,000

 

 

33. During 2014, XYZ Inc. sold merchandise worth $320,000. It has $60,000 of beginning accounts receivables and $70,000 of ending accounts receivables. What is company’s receivable turnover (rounded)?

A. 73.00

B. 4.92

C. 11.25

D. 4.09

 

 

 

 

34. The Reingold Hat Company uses the allowance method to account for bad debts. During 2014, the company recorded $800,000 in credit sales. At the end of the year, account balances were: Accounts receivable, $120,000; Allowance for uncollectible accounts, $3,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of:
    1. Zero.

B. $27,000

C. $21,000

D. $24,000

 

 

 

35. On December 31, Thomas estimated the following percentages of accounts receivables to remain uncollectible.

Amount	Age	Estimated uncollectible (%)
$90,000	1-30 days	1%
$50,000	31-90 days	3%
$10,000	Over 90 days	5%

 

If allowance for uncollectible accounts has a balance of $2,000, what should be the Uncollectible Accounts Expense in the income statement?

A. $900

B. $2,900

C. $3,600

D. $4,900

 

 

36. When an accounts receivable account has been determined to be uncollectible the entry to record the write off using the allowance method would include:
    1. A debit to Accounts Receivable.
    2. A debit to Uncollectible Account Expense.
    3. A debit to Allowance for Uncollectible Accounts.
    4. A credit to Notes Receivable.

 

 

Chapter 6

 

37. The perpetual inventory system:
    1. Keeps a continuous record for each inventory item.
    2. Is used by most businesses.
    3. Requires an annual count of inventory on hand.
    4. All of the above

 

 

 

 

 

 

 

 

 

38. Using FIFO method, what is the cost of goods sold and ending inventory?

A. $1,995; $875

B. $2,152; $220

C. $2,049; $520

D. $717; $920

 

 

39. Using LIFO method, what is the cost of goods sold and ending inventory? A. $1,995; $875

B. $2,152; $220

C. $2,275; $595

D. $717; $920

 

40. The Eunice Merchandising Company had the following records:

 

Net sales	$217,000
Beginning inventory	15,000
Net purchases	140,000
Ending inventory	20,000

 

What is the cost of goods sold and gross profit for this company? A.           $140,000; $77,000

B.       $135,000; $82,000

C.       $130,000; $87,000

D.       $120,000; $97,000