Please provide explanation of correct answer. Up to 100% bonus for clear and correct explanations. 1.

In the past period, customers paid for operas that were performed in the current period. The required adjusting entry recognizes the A. portion earned as revenue, and reduces the balance of a liability account B. portion of the asset consumed or expensed, and reduces the balance of an asset account C. revenue earned but not yet received, and records a receivable D. expense incurred, and records a liability for future payment When customers paid in the past, that was unearned revenue a liability. When the opera has been performed, the unearned revenue is earned. This will reduce the unearned revenue.

2. Inventory at the end of the current period was erroneously understated. Which of the following is true as a result of the understatement not being corrected? A. The cost of goods sold for the current year is understated. Capital at the end of the current year is overstated. B. Net income for the current year is overstated. C. Net income at the end of the following year will be overstated. The inventory is understated, the cost of goods sold is overstated and so net income is understated. This error will correct next year, and the net income will be overstated.

3. A bond with a face value of $1,000 is quoted at 105-1/2. The bond is selling for A. $1,000.00 B. $1050.50 C. $1105.50 D. $1055.00 The bond is selling for 100X1.055 = 1,055

4. Liabilities are usually listed on the balance sheet A. in alphabetical order B. in the order of smallest to largest. C. in the order in which they were incurred. D. in the order in which they are expected to be repaid. The current liabilities first and then the long term liabilities

5. When a retailer purchases inventory under credit terms of 2/10, n/30, the retailer A.

can deduct 2% from the invoice price by paying on the 10th day of the month following the month of the invoice. B. can deduct 2% from the invoice price by paying within 30 days of the invoice date C. can deduct 2% from the invoice price by paying within 10 days of the invoice date D. can deduct 10% from the invoice price by paying within 2 days of the invoice date.

6. Consider the following: 8% cumulative preferred stock, $100 par value, authorized 50,000 shares, issued 20,000 shares-----$2,000,000 Additional paid-in capital, preferred stock---$500,000 Common stock, $1 par value, authorized 10 million shares, issued 5 million shares--$5,000,000 Additional paid-in capital, common stock---$1,200,000Retained earnings---$3,200,000 Calculate the total paid-in capital of the corporation. A. $11,900,000 B. $1,700,000 C. $8,700,000 D. $4,900,000 Total paid in capital is 2,000,000+500,000+5,000,000+1,200,000=8,700,000

7.

Which of the following is NOT true about net income? A. The company can have a cash shortage and still have net income. B. Net income is an asset. C. Net income is the result of revenues exceeding expenses. D. Net income represents an increase in owners' equity. Net income is a part of owners equity and so is not an asset

8. After closing entries are posted, which of these accounts will have a balance? A. Salary Expense B. Retained Earnings C. Income Summary D. Revenue The rest are temporary accounts which will have zero balance 9. Which of the following is NOT a government agency? A. Internal Revenue Service (IRS)

B. Security and Exchange Commission (SEC) C. General Accounting Office (GAO) D. American Accounting Association (AAA)

10. A company has 100,000 shares of $10 par value common shares outstanding. The company declares a 4-for1 stock split. As a result, which of the following will occur? A. Par value will become $2.50 and shares outstanding will be 400,000. B. Par value will remain unchanged and shares outstanding will be 400,000. C. Par value will become $2.50 and shares outstanding will not change. D. Par value will become $40.00 and shares outstanding will be 25,000. 4 for one stock split means that the number of shares will be 100,000X4=400,000 and the par value will be 10/4=2.50

11. Taxpayers can use a depreciation method that conforms to generally accepted accounting principles but is based on a declining-balance method. What is the name of this accelerated depreciation method? A. Asset Cost Recovery Statement B. Asset Cost Recognition System

C. Modified Accelerated Cost Recovery System D. Accelerated Cost Recovery System

12. The bookkeeper recorded a payment by check for store supplies as $1,340.56. The bank recorded the check at its correct amount of $3,140.56. If no adjusting entries are made and the error is not detected through the bank reconciliation, which of the following will occur? A. The checkbook Cash account will be understated B. Accounts payable will be understated C. The checking account might become overdrawn D. The trial balance will not balance. The checking account will be higher by 3,140.56-1,340.56=1,800 in the books and so checks can be issued and the account will be overdrawn, since the actual bank balance is less by 1,800

13. On November 1, a building with an estimated life of 15 years and no estimated salvage value was purchased for $180,000. The adjusting entry on November 30 will include A. a credit to Accumulated Depreciation: Building for $12,000. B. a debit to Depreciation Expense for $1,000

C. both (A) and (C). D. a debit to Depreciation Expense for $12,000. Depreciation expense for a month = 180,000/(15X12) = 1,000 14. Consider the following:Cash------$10,000Receivables-----$20,000Inventory----$45,000Accounts payable-----$12,000Wages payable-----$3,000Calculate the working capital, the current ratio, and the quick ratio. A. $60,000, 5,and 2 respectively B. $15,000, 5, and 2 respectively C. $60,000, 5 and 1 respectively D. $60,000, 2, and 5 respectively Current Ratio = (10,000+20,000+45,000)/(12,000+3,000) = 5 Working Capital = 75,000-15,000=60,000 Quick ratio = (10,000+20,000)/15,000=2

15. Calculate the interest on a $4,000, 6% note receivable dated April 10 and due on July 9. A. $240 B. $60 C.

$18 D. $24 Number of days are 90 Interest amount = 4,000X6%X90/360 = 60

16. Which is more likely to appear in the financial statements of a closely held corporation but not in a large, publicly owned corporation? A. stock dividends B. cash dividends C. treasury stock. D. prior period adjustments Prior period adjustments result from material errors. Publicly owned corporations are subject to annual audits and are not likely to have prior period errors of a material nature. 17. Office equipment was purchased by issuing a check for $5,000 and a note payable for the balance of $45,000. What effect did this transaction have on the financial position of the company? A. Assets-- decrease, Liabilities--no change, Owners' Equity--decrease B. Assets--decrease, Liabilities--increase--Owners' Equity--no change. C. Assets--increase, Liabilities--increase, Owners' Equity--no change.

D. Assets--no change, Liabilities--no change, Owners' Equity--no change. Assets increase by net 45,000 and liabilities increase by 45,000

18. The transferable shares of corporate ownership are known as A. private stock. B. public stock. C. treasury stock D. capital stock.

19. Assume that the sales tax rate in the county in which you reside is 8%. You've made a purchase of merchandise and charged the full amount, including sales tax, to your VISA card for $346.00. The retailer will recognize Sales Tax Payable of A. $32.03 B. $27.86 C. $24.33 D. $25.63

The sale amount is 346/1.08 = 320.37 Sales tax amount is 346-320/37 = 25.63

20. The collection of an account receivable A. increases total assets. B. increases owners' equity. C. increases revenues D. has no affect on total assets The receivable account decreases and the cash account increases

21. A company with owners' equity of $2,400,000 had net income, after taxes, of $288,000, liabilities of $80,000 due in the near future, and an ending cash balance of $15,000. Which of the following is true? A. The company has liquidity. B. The company's rate of return on equity was 12%. C. The company does not have liquidity. D. Both (B) and (C) are true. Return on equity = 288,000/2,400,000 = 12%. We cannot say anything about liquidity.

22. An asset having a four-year service life and a salvage value of $5,000 was acquired for $45,000 cash on June 28. What will be the depreciation expense at the end of the first year, December 31 A. $11,250, under the double-declining-balance method B. $22,500, under the double-declining-balance method C. $7,000, under the straight-line method D. $10,000, under the straight-line method Straight line depreciation = (45,000-5,000)/4 = 10,000

23. The inventory turnover rate of 10.0. What is the number of days to sell inventory? A. 10 days B. 20 days C. 36.5 days D. 365 days Number of days = 365/10 = 36.5 days

24.

Which of the following is a professional accounting organization of certified public accountants that engages in a variety of professional activities, including establishing auditing standards, conducting research, and working closely with the FASB in establishing financial reporting standards? A. Institute of Internal Auditors B. Institute of Management Accountants C. American Institute of Certified Public Accountants D. Financial Accounting Standards Board

25. A $25,000, 12%, 3-month, note payable is issued on July 15. Calculate the maturity value of the note. A. $25,000 B. $750 C. $25,750 D. $2,000 Interest amount is 25,000X12%X3/12 = 750 Maturity value is 25,750 1. An adjusting entry in which Unearned Services Revenue was debited for $4,000 and Services Revenue was credited for $4,000 was posted to the Unearned Services Revenue

account as a debit and to the Office Supplies Expense account as a credit. As a consequence of this error, the A. trial balance will have a debit balance $4,000 greater than the credit balance. B. trial balance will have a credit balance $4,000 greater than the debit balance C. net income will be overstated $4,000 D. trial balance will have equal totals of debit and credit balances. Since there is a credit and a debit, the trial balance will balance

2. Interest earned on cash equivalents is shown on the statement of cash flows as cash from A. an operating activity. B. a financing activity C. an investing activity D. a noncash investing and financing activity

3. In a perpetual inventory system, as inventory is purchased, it is initially recorded as (1) _____________. When inventory is sold to customers, it is converted to (2) ___________.

A. (1) an asset (2) revenue B. (1) an expense (2) revenue C. (1) an expense (2) cost of goods sold D. (1) an asset (2) an expense

4. Which of the following is a CORRECT statement of the rules of debit and credit? A. Debits increase assets and increase owners' equity. B. Debits increase assets and decrease liabilities. C. Credits increase assets and increase owners' equity D. Credits decrease assets and decrease liabilities.

5. Preferred Stock, $100 par, totals $500,000. Common Stock totals $500,000 and Additional Paid-in Capital, Common Stock is $100,000. Retained Earnings totals $250,000. If there are no dividends in arrears, what is the book value per share of the preferred stock? A. $110 per share

B. $102 per share C. $105 per share D. $100 per share Book value = par value = $100

6. In no particular order, the accounting cycle includes the following activities. A PostingB Adjusting entriesC Preparing financial statementsD Journalizing daily entriesE Preparing a trial balanceF Journalizing and posting closing entriesG Preparing after-closing trial balanceH Preparing an adjusted trial balanceWhat is the correct order of activities of the accounting cycle? A. D, A, E, B, F, G, H, C B. D, A, E, B, H, C, F, G C. D, A, E, B, C, H, F, G D. B, C, D, A, E, F, G, H

7. On June 28, 2005, a business sold for $1,500 a plant asset that cost $5,000. The asset had a 5-year service life, no salvage value, and had been used by the business since January 1, 2002. Straight-line depreciation was used. The fiscal year ends on December 31. What will be the result of selling the plant asset? A. A $1,000 gain on the disposal of a plant asset.

B. No gain or loss on the disposal of the plant asset. C. A $500 unrecognized gain on the sale of a plant asset. D. A $500 loss on the disposal of a plant asset. Depreciation per year is 5,000/5=1,000 Depreciation for 2002,2003 and 2004 is 3,000 Depreciation for year in 2005 is 500 Book value is 5,000-3,500=1,500 There is no gain or loss

8. The Sales Returns and Allowance account and the Sales Discount account are closed at the end of the period A. with other expense accounts B. to the Sales account C. to the Cost of Goods Sold account D. with other revenue accounts

9. Restructuring costs are reported as A. an extraordinary item. B. a deduction in arriving at operating income. C.

a deduction in arriving at taxable income D. an unusual and extraordinary item.

10. The Sarbanes-Oxley Act in 2002 provided for the establishment of the __________________ which is responsible for overseeing all aspects of the public accounting profession related to audits of publicly held companies. A. Professional Accounting Oversight Board B. Public Company Auditing Oversight Board C. Public Accounting Compliance Board D. Public Company Accounting Oversight Board

11. The effect of events on the business is recognized as services are rendered or consumed rather than when cash is received or paid and is a result of using the A. time period principle B. matching principle. C. realization principle D.

accrual basis of accounting.

12. Ten thousand shares of common stock with a par value of $5 are issued at a price of $7 per share. The journal entry to record this transaction will include a A. debit to Cash for $50,000. B. credit to Capital Stock for $70,000 C. credit to Additional Paid-in Capital for $20,000 D. debit to Discount on Capital Stock for $20,000.

13. On October 1, the company issued $500,000 of 6%, 10-year bonds at a price of 100. Interest is paid semiannually. What is the journal entry at the end the first year, December 31, to accrue the interest on the bonds? A. A debit to Bond Interest Expense for $7,500 and a credit to Bonds for $7,500. B. A debit to Bond Interest Expense for $7,500 and a credit to Bond Interest Payable for $7,500 C. A debit to Bond Interest Expense for $30,000 and a credit to Bond Interest Payable for $30,000. D. A debit to Bond Interest Expense for $7,500 and a credit to Cash for $7,500

3 months of interest is to be accrued. The amount is 500,000 X 6% X 3/12 = 7,500

14. On January 1, a business exchanged a plant asset with a cost of $18,000 and accumulated depreciation of $16,500 for a similar asset that had a list price of $23,000. The business received a trade-in allowance of $2,100 on the old plant asset. The income-tax method was used to record this trade. What was the result of the exchange? A. A cost basis of $22,400 for the new plant asset B. A $600 recognized gain on the exchange of the plant asset. C. A cost basis of $23,600 for the new plant asset D. A $1,000 unrecognized gain on the exchange of the plant asset The book value is 18,000-16,500=1,500. The trade in allowance is 2,100. No gain will be recognized. The cash paid is 23,000-2,100=20,900. The cost of the asset is 20,900+1,500=22,400

15. Ending inventory is overstated in Period A. As a result of this error A. Income of Period A is understated. B. Retained Earnings at the end of Period A is understated C. Income of Period B is overstated D. Retained Earnings at the end of Period B is correct.

The inventory error is a self correcting error and so the retained earnings will be correct at the end of period B

16. When a firm writes off a bad debt under the allowance method of accounting for bad debts, which of the following will occur? A. The cash account will decrease B. The net realizable value of accounts receivable decreases C. The net realizable value of accounts receivable will not change D. Total net current assets will decrease Net realizable value = Gross value allowance When a rite off occurs, both the gross value and allowance reduce and there is no effect on net realizable value. 17. Sales were $424,000. Beginning inventory was $45,000. Purchases were $245,000. Ending inventory is $38,000. Operating expenses were $124,000. Calculate the cost of goods sold. A. $252,000 B. $290,000 C. $172,000 D. $128,000

Cost of goods sold = opening inventory + purchases ending inventory = 45,000+245,000-38,000=252,000

18. A trial balance with equal total credits and total debits is proof of which of the following? A. No errors occurred when journalizing (recording) transactions. B. No errors occurred when journalizing or posting C. The equality of debit and credits. D. No errors occurred when posting.

19. In accounting, the word accrued refers to the payment of expenses A. that has occurred B. that has been deferred C. at the time of payment. D. that will not be made

20. Which accounting principle or concept permits the direct write-off method of accounting for uncollectible accounts? A. materiality principle B. business entity concept C. matching principle D. full-disclosure principle

21. Consider the following: Assets-----$300,000 Liabilities-----$90,000 Capital stock-----$120,000 What is the dollar amount of retained earnings? A. $30,000 B. $210,000 C. $90,000 D. $180,000 Retained earnings = 300,000-90,000-120,000=90,000

22. Accounting principles are given the force of law when they are adopted by the A. Securities Exchange Commission (SEC). B. Internal Revenue Service (IRS). C. American Accounting Association (AAA). D. Financial Accounting Standards Board (FASB).

23. If the beginning inventory was $45,000, the cost of goods sold was $380,000, and the inventory turnover rate is 8, the ending inventory must be A. $52,500 B. $40,000 C. $50,000 D. $45,000 Average inventory = 380,000/8 = 47,500 We get (45,000+ending inventory)/2 = 47,500 Ending inventory = 50,000

24.

Which of the following is significant as a measure of short-term debt paying ability expressed in dollars? A. Return on Equity B. Net Income Percentage C. Current ratio D. Working capital

25. Consider the following: Gross wages-----$100,000 State Income Taxes Payable-----$2,000 Federal Income Taxes Payable (employee)-----$23,500 Social Security and Medicare Taxes Payable (employee)-----$8,000 Federal and State Unemployment Taxes-----7,200 Prepaid Worker's Compensation Insurance-----$4,000 Employee Health and Life Insurance Expense-----$9,000Pension Fund Expense----$12,000 The Employee Medical Insurance Expense and the Pension Fund Expense are employee benefits paid by the employer. What is the amount of wages payable? A. $73,500 B. $57,500 C. $66,500 D. $45,500 Wages payable = 100,000-2,000-23,500-8,000=66,500