1.Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.
A)True
B)False
2.The depreciable cost of a plant asset is its original cost minus obsolescence.
A)True
B)False
3.In calculating depreciation, both plant asset cost and useful life are based on estimates.
A)True
B)False
4.If a plant asset is sold at a gain, the gain on disposal should reduce the cost of goods sold section of the income statement.
A)True
B)False
5.Natural resources are long-lived productive assets that are extracted in operations and are replaceable only by an act of nature.
A)True
B)False
6.A company purchased land for $90,000 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)$97,000.
B)$90,000.
C)$95,000.
D)$102,000.
7.Feeney Clinic purchases land for $130,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Feeney Clinic record as the cost for the land?
A)$132,200
B)$130,000
C)$134,700
D)$132,500
8.Belle Company buys land for $50,000 on 12/31/07. As of 3/31/08, the land has appreciated in value to $50,700. On 12/31/08, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2008?
A)$0
B)$700
C)$1,100
D)$1,800
9.Pine Company acquires land for $86,000 cash. Additional costs are as follows:
Removal of shed$ 300
Filling and grading1,500
Salvage value of lumber of shed120
Broker commission1,130
Paving of parking lot10,000
Closing costs560
Pine will record the acquisition cost of the land as
A)$86,000.
B)$87,690.
C)$89,610.
D)$89,370.
10.Shawnee Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions?
A)$30,000 should be debited to the Land account.
B)$15,000 should be debited to Land Improvements.
C)$45,000 should be debited to the Land account.
D)$45,000 should be debited to Land Improvements.
11.A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?
A)The cost of the building will not include the repainting and recarpeting costs.
B)The cost of the building will include the cost of replacing the roof.
C)The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.
D)The wiring is part of the computer costs, not the building cost.
12.Carley Company purchases a new delivery truck for $45,000. The sales taxes are $3,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Carley record as the cost of the new truck?
A)$49,540
B)$49,420
C)$48,000
D)$47,420
13.Becky’s Blooms purchased a delivery van for $20,000. The company was given a $2,000 cash discount by the dealer, and paid $1,000 sales tax. Annual insurance on the van is $500. As a result of the purchase, by how much will Becky’s Blooms increase its van account?
A)$20,000
B)$18,000
C)$19,500
D)$19,000
14.Equipment was purchased for $75,000. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
A)$17,700.
B)$14,700.
C)$12,300.
D)$12,000.
15.A truck was purchased for $120,000 and it was estimated to have a $24,000 salvage value at the end of its useful life. Monthly depreciation expense of $2,000 was recorded using the straight-line method. The annual depreciation rate is
A)20%.
B)2%.
C)8%.
D)25%.
16.The percentage of receivables basis of estimating expected uncollectible accounts emphasizes income statement relationships.
A)True
B)False
17.Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible.
A)True
B)False
18.Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off.
A)True
B)False
19.A factor purchases receivables from businesses for a fee and collects the remittances directly from customers.
A)True
B)False
20.The two key parties to a note are the maker and the payee.
A)True
B)False
21.When counting the exact number of days to determine the maturity date of a note, the date of issue is included but the due date is omitted.
A)True
B)False
22.Which of the following receivables would not be classified as an “other receivable”?
A)Advance to an employee
B)Refundable income tax
C)Notes receivable
D)Interest receivable
23.Which of the following would be considered as an unlikely occurrence?
A)Manufacturer offers a cash discount to a wholesaler.
B)Wholesaler offers a cash discount to a retailer.
C)Retailer offers a cash discount to a customer.
D)All of these are standard practices.
24.When an account becomes uncollectible and must be written off,
A)Allowance for Doubtful Accounts should be credited.
B)Accounts Receivable should be credited.
C)Bad Debts Expense should be credited.
D)Sales should be debited.
25.Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited
A)when a credit sale is past due.
B)at the end of each accounting period.
C)whenever a pre-determined amount of credit sales have been made.
D)when an account is determined to be uncollectible.
26.If a worksheet is used, financial statements can be prepared before adjusting entries are journalized.
A)True
B)False
27.It is not necessary to prepare formal financial statements if a worksheet has been prepared because financial position and net income are shown on the worksheet.
A)True
B)False
28.After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.
A)True
B)False
29.Closing entries are journalized after adjusting entries have been journalized.
A)True
B)False
30.A business entity has only one accounting cycle over its economic existence.
A)True
B)False
31.The accounting cycle begins at the start of a new accounting period.
A)True
B)False
32.Current assets are customarily the first items listed on a classified balance sheet.
A)True
B)False
33.If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has
A)earned net income for the period.
B)an error because debits do not equal credits.
C)suffered a net loss for the period.
D)to make an adjusting entry.
34.The net income (or loss) for the period
A)is found by computing the difference between the income statement credit column and the balance sheet credit column on the worksheet.
B)cannot be found on the worksheet.
C)is found by computing the difference between the income statement columns of the worksheet.
D)is found by computing the difference between the trial balance totals and the adjusted trial balance totals.
35.Closing entries are necessary for
A)permanent accounts only.
B)temporary accounts only.
C)both permanent and temporary accounts.
D)permanent or real accounts only.
36.Closing entries are made
A)in order to terminate the business as an operating entity.
B)so that all assets, liabilities, and owner’s capital accounts will have zero balances when the next accounting period starts.
C)in order to transfer net income (or loss) and owner’s drawing to the owner’s capital account.
D)so that financial statements can be prepared.
37.Closing entries are
A)an optional step in the accounting cycle.
B)posted to the ledger accounts from the worksheet.
C)made to close permanent or real accounts.
D)journalized in the general journal.
38.The income summary account
A)is a permanent account.
B)appears on the balance sheet.
C)appears on the income statement.
D)is a temporary account.
39.Closing entries
A)are prepared before the financial statements.
B)reduce the number of permanent accounts.
C)cause the revenue and expense accounts to have zero balances.
D)summarize the activity in every account.
40.The balance in the income summary account before it is closed will be equal to
A)the net income or loss on the income statement.
B)the beginning balance in the owner’s capital account.
C)the ending balance in the owner’s capital account.
D)zero.
41.Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.
A)True
B)False
42.The matching principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.
A)True
B)False
43.A company may use more than one inventory costing method concurrently.
A)True
B)False
44.An error that overstates the ending inventory will also cause net income for the period to be overstated.
A)True
B)False
45.Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.
A)True
B)False
46.The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.
A)True
B)False
47.In a manufacturing business, inventory that is ready for sale is called
A)raw materials inventory.
B)work in process inventory.
C)finished goods inventory.
D)store supplies inventory.
48.An employee assigned to counting computer monitors in boxes should
A)estimate the number if there is a large quantity to be counted.
B)read each box and rely on the box description for the contents.
C)determine that the box contains a monitor.
D)rely on the warehouse records of the number of computer monitors.
49.A recommended internal control procedure for taking physical inventories is that the counting should be done by employees who do not have custodial responsibility for the inventory. This is an example of what type of internal control procedure?
A)Establishment of responsibility
B)Documentation procedure
C)Independent internal verification
D)Segregation of duties
50.The term “FOB” denotes
A)free on board.
B)freight on board.
C)free only (to) buyer.
D)freight charge on buyer.
51.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
52.Which of the following is not a common cost flow assumption used in costing inventory?
A)First-in, first-out
B)Middle-in, first-out
C)Last-in, first-out
D)Average cost
53.Which of the following statements is true regarding inventory cost flow assumptions?
A)A company may use more than one costing method concurrently.
B)A company must comply with the method specified by industry standards.
C)A company must use the same method for domestic and foreign operations.
D)A company may never change its inventory costing method once it has chosen a method.
54.Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using
A)LIFO will have the highest ending inventory.
B)FIFO will have the highest cost of good sold.
C)FIFO will have the highest ending inventory.
D)LIFO will have the lowest cost of goods sold.
55.If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the
A)cost of goods sold of the companies will be identical.
B)cost of goods available for sale of the companies will be identical.
C)ending inventory of the companies will be identical.
D)net income of the companies will be identical.