Question 1.1. Which of the following statements concerning users of accounting information is incorrect?
Management is considered an internal user.
Present and prospective creditors are considered external users.
Regulatory authorities, such as the SEC, are considered internal users.
Taxing authorities are considered external users.
Question 2.2. Borrowing money is an example of a(n)
Question 3.3. Which activities involve putting the resources of the business into action to generate a profit?
Question 4.4. Resources owned by a business are referred to as
Question 5.5. Edwards Company recorded the following cash transactions for the year.
Paid $45,000 for salaries
Paid $20,000 to purchase office equipment
Paid $5,000 for utilities
Paid $2,000 in dividends
Collected $75,000 from customers
What was Edwards’ net cash provided by operating activities?
Question 6.6. In a classified balance sheet, assets are usually classified as
current assets; long-term assets; property, plant, and equipment; and tangible assets.
current assets; long-term investments; property, plant, and equipment; and common stocks.
current assets; long-term investments; and tangible assets.
current assets; long-term investments; property, plant, and equipment; and intangible assets.
Question 7.7. Which of the following is not considered an asset?
Question 8.8. The following are selected account balances on December 31, 2007.
-Land (location of the corporation’s office building): $200,000
-Land (held for future use): 300,000
-Corporate Office Building: 1,200,000
-Office Furniture: 200,000
-Accumulated Depreciation: 600,000
What is the total NET amount of property, plant, and equipment that will appear on the balance sheet?
Question 9.9. For 2010, Landford Corporation reported net income of $30,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2010 earnings per share?
Question 10.10. Morten Corporation had beginning retained earnings of $764,000 and ending retained earnings of $833,000. During the year they issued common stock totaling $47,000. There were no dividends issued. What was their net income for the year?
Question 11.11. On March 1, 2010, Dillon Company hires a new employee who will start the work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why, or why not?
Yes, the company is now obligated to pay the employee, thus that event must be recorded on March 6.
No, hiring an employee is an important event; however, it is not an economic event that should be recorded on March 6.
Yes, failure to record the event on March 6 would cause the financial statements to be misleading.
No, the journal entry should be made on March 1, which is the date of hiring.
Question 12.12. An account is a part of the financial information system and is described by all except which one of the following?
An account has a debit and credit side.
An account has to be in paper form.
An account has a zero or nonzero balance.
An account has a title.
Question 13.13. The classification and normal balance of the dividend account is
a revenue, with a credit balance.
an expense, with a debit balance.
a liability, with a credit balance.
under stockholders’ equity, with a debit balance.
Question 14.14. In recording an accounting transaction in a double-entry system
the number of debit accounts must equal the number of credit accounts.
there must always be entries made on both sides of the accounting equation.
the amount of the debits must equal the amount of the credits.
there must only be two accounts affected by any transaction.
Question 15.15. Which of the following is not always true of the terms debit and credit?
They can be abbreviated as DR and CR.
Debit means increase and credit means decrease.
They can be used to describe the balance of an account.
They can be interpreted to mean left and right of an account.
Question 16.16. The time period assumption states that
a transaction can only affect one period of time.
estimates should not be made if a transaction affects more than one time period.
adjustments to the enterprise’s accounts can only be made in the time period when the business terminates its operations.
the economic life of a business can be divided into artificial time periods.
Question 17.17. In a merchandising business, revenue may be considered earned when
cash is received from the customers.
a product is delivered to a customer.
an order is received from a customer.
a customer shows interest in a product.
Question 18.18. On April 1, 2010, M Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for 4 years and will have no residual value. M records depreciation expense of $9,000 for the calendar year ending December 31, 2010. Which accounting principle has been violated?
Revenue recognition principle
No principle has been violated because M has correctly matched the expense for using the equipment to the period during which it generated revenue.
Matching principle because the cash was paid in 2007 and should be expensed in 2007.
Question 19.19. The following is selected information from M Corporation for the fiscal year ending October 31, 2010.
-Cash received from customers: $300,000
-Revenue earned: 350,000
-Cash paid for expenses: 170,000
-Expenses incurred: 200,000
Based on the accrual basis of accounting, what is M Corporation’s net income for the year ending October 31, 2010?
Question 20.20. The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is
Question 21.21. Detailed records of movements in merchandise (each purchase and sale) are not maintained in the inventory account in a
perpetual inventory system.
periodic inventory system.
double entry accounting system.
business that sells expensive merchandise.
Question 22.22. Hunter Company purchased merchandise inventory with an invoice price of $6,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period?
Question 23.23. Zach’s Market recorded the following events involving a recent purchase of merchandise.
-Received goods for $50,000, terms 2/10, n/30.
-Returned $1,000 of the shipment for credit.
-Paid $250 freight on the shipment.
-Paid the invoice within the discount period.
As a result of these events, the company’s merchandise inventory
increased by $48,020.
increased by $49,250.
increased by $48,265.
increased by $48,270.
Question 24.24. If goods in transit are shipped FOB destination
the seller has legal title to the goods until they are delivered.
the buyer has legal title to the goods until they are delivered.
the transportation company has legal title to the goods while the goods are in transit.
no one has legal title to the goods until they are delivered.
Question 25.25. Which statement is false?
Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.
No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period.
An inventory count is generally more accurate when goods are not being sold or received during the counting.
Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance-sheet date and to determine cost of goods sold for the accounting period.
Question 26.26. Of the following companies, which one would not likely employ the specific identification method for inventory costing?
Music store specializing in piano sales
Custom jewelry store
Question 27.27. Which of the following statements is correct with respect to inventories?
The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
It is generally good business management to sell the most recently acquired goods first.
Under FIFO, the ending inventory is based on the latest units purchased.
FIFO seldom coincides with the actual physical flow of inventory.
Question 28.28. In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure?
Average cost method
Need more information to answer
Question 29.29. The figure for which of the following items is determined at a different time under the perpetual inventory method than under the periodic method?
Cost of goods sold
Question 30.30. A merchandiser that sells directly to consumers is
a service enterprise.