1. The Sales Returns and Allowances A) account is presented on the balance sheet as a deduction from Accounts Receivable.

1.  The Sales Returns and Allowances

A) account is presented on the balance sheet as a deduction from Accounts Receivable.

B) on the income statement as a deduction from Sales.

C) on the income statement as an addition to Sales.

D) on the balance sheet as a deduction from Capital.

2.  If a firm had sales of $50,000 during a period and sales returns and allowances of $4,000, its net sales were

A) $54,000.

B) $50,000.

C) $46,000.     

D) $4,000.

3.  The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes:

A) a debit to Return Expense and a credit to Accounts Receivable.

B) a debit to Sales and a credit to Sales Returns and Allowances.

C) a debit to Sales Returns and Allowances and a credit to Accounts Receivable.

D) a debit to Accounts Receivable and a credit to Sales Returns and Allowances.

4.  With the accrual basis of accounting, it is appropriate to recognize revenue from a credit sale

A) on the date of the sale.

B) on the date the account is collected in full.

C) each time a payment on an account balance is received.

D) either on the date of the sale or when the amount of the sale is collected.

5.  On December 31, prior to adjustment, Allowance for Doubtful Accounts has a credit balance of $200. An age analysis of the accounts receivable produces an estimate of $1,000 of probable losses from uncollectible accounts. The adjusting entry needed to record the estimated losses from uncollectible accounts is made for

A) $800.    

B) $1,000.

C) $1,200

D) $200

6.  When the allowance method of recognizing losses from uncollectible accounts is used, the entry to record the write-off of a specific account consists of

A) a debit to Uncollectible Accounts Expense and a credit to Accounts Receivable.

B) a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.

C) a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts.

D) a debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.

7.  A firm reported sales of $300,000 during the year and has a balance of $20,000 in its Accounts Receivable account at year-end. Prior to adjustment, Allowance for Doubtful Accounts has a credit balance of $300. The firm estimated its losses from uncollectible accounts to be one-half of 1 percent of sales. The entry to record the estimated losses from uncollectible accounts will include a credit to Allowance for Doubtful Accounts for

A) $1,200

B) $1,500     

C) $1,800

D) $3,000

8.  When a firm uses the allowance method to provide for losses, the collecting of an account previously written off as uncollectible requires an entry

A) to reinstate the account receivable.

B) to increase the balance of the Sales account.

C) to reduce the balance of Uncollectible Accounts Expense.

D) to decrease the balance of the Allowance for Doubtful Accounts.

9.  On December 31, prior to adjustments, the balance of Accounts Receivable is $16,000 and Allowance for Doubtful Accounts has a credit balance of $95. The firm estimates its losses from uncollectible accounts to be 5% of accounts receivable at the end of the year. The adjusting entry needed to record the estimated losses from uncollectible accounts is made for

A) $705.     

B) $800.

C) $895.

D) $95.

10.  The adjusting entry to record accrued interest on a note receivable requires

A) a debit to Interest Income and a credit to Notes Receivable.

B) a debit to Interest Receivable and a credit to Interest Revenue.

C) a debit to Interest Revenue and a credit to Cash.

D) a debit to Interest Revenue and a credit to Interest Receivable.

11.  When a company issues a promissory note, the accountant records an entry that includes a credit to Note Receivable for

A) the face value of the note.

B) the face value of the note plus the interest that will accrue.

C) the face value less the interest that will accrue.

D) the maturity value of the note.

12.  How much interest will accrue on a $20,000 face value, 60-day note that bears interest at 9 percent a year (based on a 360 day year)?

A) $300     

B) $1,800

C) $450.

D) $900.

13.  Notes payable which are to be satisfied with current assets and are due within one year are usually shown

A) in the Current Assets section of the balance sheet.

B) in the Current Liabilities section of the balance sheet,

C) in the Other Expenses section of the income statement.

D) in the Long-Term Liabilities section of the balance sheet.

14.  Upon collection of the amount due on a $6,000 face value, 90-day note with interest at 10 percent a year, the Note Receivable account is

A) debited for $6,600.

B) credited for $6,000.

C) credited for $6,150.

D) debited for $6,000.

15.  The balance sheet shows

A) the results of business operations.

B) all revenues and expenses.

C) the amount of net income or loss.

D) the financial position of a business at a given time.

16.  Amounts that a business must pay in the future are known as

A) accounts receivable.

B) accounts payable.

C) stock.

D) expenses.

17.  Examples of assets are

A) cash and accounts receivable.

B) cash and revenue.

C) cash and rent expense.

D) investments by the owner and revenue.

18.  A net loss results

A) when expenses are greater than revenue.

B) when assets are greater than liabilities.

C) when revenue is greater than expenses

D) when expenses are greater than assets.

19.  The income statement shows

A) the financial position of a business on a specific date.

B) revenue and stockholders’ equity.

C) the results of operations for a period of time.

D) the total value of the business.

20.  If liabilities are $4,000 and stockholders’ equity is $15,000, assets are

A) $9,000.

B) $15,000.

C) $19,000.       

D) $4,000.

21.  Assets and liabilities are reported on

A) the balance sheet.

B) the income statement.

C) the statement of stockholders’ equity.

D) both the balance sheet and the income statement.

22.  The rent paid for future months is a (n)

A) asset.

B) liability.

C) expense.

D) revenue.

23.  Credits are used to record

A) decreases in assets and stockholders’ equity and increases in liabilities.

B) decreases in assets, liabilities, and stockholders’ equity.

C) decreases in liabilities and increases in assets and stockholders’ equity.

D) increases in liabilities and stockholders’ equity.

24.  Debits are used to record increases in

A) assets and revenue.

B) revenue and stockholders’ equity.

C) assets and expenses.

D) assets and liabilities.

25.  A firm paid cash to apply against a debt. To record this transaction, the accountant would

A) debit Accounts Receivable and credit Cash.

B) debit Accounts Payable and credit Cash.

C) debit Cash and credit Accounts Payable.

D) Debit Cash and credit Accounts Receivable.

26.  When charge customers pay cash to apply against their accounts, the amount is recorded

A) on the debit side of the Cash account and the credit side of the Fees Income account.

B) on the debit side of the Accounts Payable account and the credit side of the Cash account.

C) on the debit side of the Cash account and the credit side of the Accounts Receivable account.

D) on the debit side of the Accounts Receivable account and the credit side of the Cash account.

27.  The account used to record increases in stockholders’ equity from the sale of goods or services is

A) the revenue account.

B) the Cash account.

C) the stock account.

D) the dividends account.

28.  Which of the following types of accounts normally have debit balances?

A) assets and revenue.

B) assets, liabilities, and stockholders’ equity.

C) expenses and assets.

D) liabilities and Stockholders’ equity.

29.  Which of the following groups contain only accounts that normally have credit balances?

A) accounts receivable and fees income.

B) salaries expense and accounts payable.

C) fees income and stock.

D) accounts payable and equipment.

30.  The journal entry to record the sale of services on credit should include

A) debit to Accounts Receivable and a credit to Stock.

B) a debit to Cash and a credit to Accounts Receivable.

C) a debit to Fees Income and a credit to Accounts Receivable.

D) a debit to Accounts Receivable and a credit to Fees Income.

31.  The journal entry to record the purchase of equipment for a $100 cash down payment and a balance of $400 due in 30 days would include

A) a debit to Equipment for $100 and a credit to Cash for $100.

B) a debit to Equipment for $500, a credit to Cash for $100, and a credit to Accounts Payable for $400.

C) a debit to Equipment for $100 and a credit to Accounts Payable for $400.

D) debit to Equipment for $500 and a credit to Cash for $500.

32.  The journal entry to record the payment of the current month utility bill would include

A) a debit to Utilities Expense and a credit to Stock.

B) a debit to stockholders’ equity and a credit to Cash.

C) a debit to Utilities Expense and a credit to Cash.

D) a debit to Utilities Expense and a credit to Accounts Payable.

33.  The journal entry to record the payment of dividends for the month is:

A) a debit to Common Stock and a credit to Cash.

B) a debit to cash and a credit to dividends.

C) a debit to dividends and a credit to Cash.

D) a debit to dividends and a credit to common stock.

34.  The journal entry to record the payment of salaries should include

A) debit to Salaries Expense and a credit to Cash.

B) a debit to Stock and a credit to Cash.

C) a debit to Cash and a credit to Salaries Expense.

D) a debit to Salaries Expense and a credit to Accounts Payable.

35.  On a balance sheet, Accumulated Depreciation—Equipment is reported

A) as a deduction from the cost of the equipment.

B) as a liability.

C) as an expense.

D) as a deduction from the total of the assets.

36.  If the prepaid expenses are not adjusted, assets on the balance sheet

A) will be overstated.

B) will be understated.

C) will not be affected.

D) may be either overstated or understated.

37.  If long-term assets are not adjusted, expenses on the income statement

A) will be overstated.

B) will be understated.

C) will not be affected.

D) may be either overstated or understated.

38.  The entry to replenish a petty cash fund includes

A) a debit to Cash and a credit to Petty Cash.

B) a debit to Petty Cash Fund and a credit to Cash.

C) debits to various expense accounts and a credit to Petty Cash Fund.

D) debits to various expense accounts and a credit to Cash.

39.  On May 1, 20--, a firm purchased a 1-year insurance policy for $1,800 and paid the full premium in advance. The insurance expense associated with this policy for 20—is

A) $600.

B) $1,200.       

C) $1,800.

D) $1,050.

40.  To arrive at an accurate balance on a bank reconciliation statement, outstanding checks should be

A) added to the bank statement balance.

B) added to the book balance.

C) deducted from the bank statement balance.

D) deducted from the book balance.

41.  A firm appropriately wrote a check for $78 but entered the amount as payment of $87. On a bank reconciliation statement this error would be shown as

A) deduction of $9 from the book balance.

B) an addition of $9 to the book balance.           

C) a deduction of $9 from the bank statement balance.

D) an addition of $9 to the bank statement balance.

42.  The entry to record a purchase of merchandise on credit using a perpetual inventory system includes

A) a debit to Merchandise Inventory and a credit to Accounts Payable.

B) a credit to Merchandise Inventory and a debit to Accounts Payable.

C) a debit to Accounts Payable and a credit to Purchases.

D) a debit to Purchases (COGS) and a credit to Accounts Payable.

43.  A firm that sells a single product had a beginning inventory of 4,000 units with a total cost of $28,000. Early in the year, 10,000 units were purchased at $9 each. Using FIFO, what is the value of the ending inventory of 3,000 units?

A) $27,000         

B) $24,000

C) $21,000

D) $36,000

44.  A firm that sells a single product had a beginning inventory of 4,000 units with a total cost of $16,000 Early in the year, 8,000 units were purchased at $6 each. Using LIFO, what is the value of the ending inventory of 2,000 units?

A) $12,000

B) $10,000

C) $8,000       

D) $24,000

45.  Which of the following is allowed under generally accepted accounting principles?

A) A company was offered $60,000 for land that it had purchased for $15,000. The company did not sell the land but increased the Land account to $60,000.

B) An owner lists the full cost of his or her personal automobile, which is occasionally used for business purposes, on the company's balance sheet.

C) A large company recorded the $20 cost of a tool as an expense, although the item is expected to be used for 3 years.

D) The Equipment ledger account shows a balance of $55,000. This amount represents the original cost of $75,000 less the accumulated depreciation of $20,000.

46.  An accountant who records revenue when a credit sale is made rather than waiting for the receipt of cash from the customer is

A) following the accrual principle.

B) following the conservatism convention.

C) violating generally accepted accounting principles.

D) following the consistency principle.

47.  The FASB has concluded that financial reporting rules should

A) help companies minimize the taxes they must pay.

B) be in compliance with income tax law.

C) concentrate on providing helpful information to management.

D) concentrate on providing helpful information to present and potential investors and creditors.

48.  Keeping the personal assets of the owner of a business separate from the assets of the firm is an example of

A) following the going concern assumption.

B) applying the realization principle.

C) following the separate entity assumption.

D) applying the conservatism convention.

49.  Internal control is:

A) The act of stealing a business' assets.

B) The preparation of fraudulent financial statements.

C) The process that helps a business achieve its objectives such as operating efficiently and effectively.

D) The reconciliation of the bank’s cash balance to the book’s cash balance.

50.  Separation of duties refers to separating all of these functions except which of the following?

A) Authorizing transactions

B) Keeping accounting records

C) Hiring personnel

D) Maintaining custody of assets

51.  Which of the following is not a control activity?

A) Mandatory vacations

B) Risk assessment

C) Security measures

D) Proper authorization