Principle of Accounting Question

Question 1 of 30

3.3334 Points

An advantage of a promissory note receivable over an account receivable is that it:

A. collects interest revenue from the borrower.

B. establishes formal proof against the borrower.

C. has a specified interest rate and maturity date.

D. All of these answers are correct.

Question 2 of 30

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There was no accrual for interest on a promissory note receivable; this error would cause:

A. the period's net income to be overstated.

B. the period end assets to be overstated.

C. the period end liabilities to be understated.

D. the period's net income to be understated.

Question 3 of 30

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David borrows $2,000 from Matthew and gives him a promissory note. Matthew is the:

A. payor.

B. payee.

C. maker.

D. drawer.

Question 4 of 30

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A promissory note comes due on the:

A. maturity date.

B. issue date.

C. interest note.

D. discount date.

Question 5 of 30

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The person or company that borrows money and signs a promissory note payable is the:

A. drawer.

B. payee.

C. drawee.

D. maker.

Question 6 of 30

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When a note receivable is discounted, the business that endorses the note becomes potentially liable to the bank. This type of liability is called a:

A. potential liability.

B. dependent liability.

C. conditional liability.

D. contingent liability.

Question 7 of 30

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A promissory note:

A. entitles the maker to a discount.

B. is an oral promise to pay.

C. is a written promise to pay.

D. is due in 30 days.

Question 8 of 30

3.3334 Points

In the basic formula for calculating interest on a promissory note, principal refers to:

A. the maturity value.

B. the original amount-the discount.

C. the amount of interest to be paid.

D. the original amount loaned or borrowed.

Question 9 of 30

3.3334 Points

The accounting department forgot to adjust for interest on the note payable. This error would cause:

A. the period's net income to be understated.

B. the period end liabilities to be understated.

C. the period end assets to be understated.

D. None of these answers are correct.

Question 10 of 30

3.3334 Points

The adjusting entry for accrued interest on a notes receivable includes:

A. a debit to Interest Revenue; a credit to Accrued Interest Payable.

B. a debit to Accrued Interest Receivable; a credit to Interest Payable.

C. a debit to Interest Expense; a credit to Interest Revenue.

D. a debit to Accrued Interest Receivable; a credit to Interest Revenue.

Question 11 of 30

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In the basic formula for calculating interest, rate refers to:

A. percent per year.

B. percent per month.

C. percent per day.

D. percent per quarter.

Question 12 of 30

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Steadman's Computer endorses a customer's note dated June 17 to the bank on August The interest rate on the note is 10%, and the bank discount rate is 12%. The note matures on September 6. The discount period is:

A. 60 days.

B. 0 days.

C. 81 days.

D. 21 days.

Question 13 of 30

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Brooke Company grants James Decorating additional time to pay its past due account. James makes a written promise to pay Brooke the amount on a certain date. James records this transaction as follows:

A. debit Accounts Payable; credit Notes Payable.

B. debit Cash; credit Accounts Receivable.

C. debit Accounts Receivable; credit Notes Receivable.

D. debit Notes Receivable; credit Accounts Receivable.

Question 14 of 30

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Cory issued a note to his creditor in exchange for an account. Cory records the transaction as follows:

A. debit Accounts Receivable; credit Notes Payable.

B. debit Accounts Payable; credit Notes Payable.

C. debit Notes Payable; credit Accounts Payable.

D. debit Notes Receivable; credit Accounts Receivable.

Question 15 of 30

3.3334 Points

Accrued interest on a note payable would have which effect on the categories?

A. Total assets would be increased.

B. Owner's equity would be increased.

C. Total liabilities would be increased.

D. None of these answers are correct.

Question 16 of 30

3.3334 Points

If goods are shipped FOB destination point by the seller, when does title pass?

A. When they leave the seller's location

B. When the goods arrive at the buyer's location

C. When they are signed for

D. None of the above

Question 17 of 30

3.3334 Points

One advantage of the LIFO method is that:

A. ending inventory is valued at very old costs.

B. an equal cost is assigned to each unit, so net income does not fluctuate as much as with other methods.

C. flow of goods and flow of costs are the same.

D. it matches current selling prices and current costs.

Question 18 of 30

3.3334 Points

The principle of consistency states that:

A. changes in accounting methods should occur from one fiscal period to the next.

B. a company should switch from LIFO to FIFO every other period.

C. a company cannot change from one inventory valuation method to another.

D. by using the same method, the financial statements are more meaningful.

Question 19 of 30

3.3334 Points

A credit customer purchased $450 worth of items. Two days later, the customer returned $300 worth of those items. The entry to record this under the perpetual inventory method would include:

A. a debit to Sales Returns and Allowances $300; credit Accounts Receivable $300.

B. a credit to Cost of Goods Sold for our cost.

C. a debit to Merchandise Inventory for our cost.

D. All of the above.

Question 20 of 30

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A method that uses average gross profit rate and net sales to compute inventory is:

A. the retail method.

B. the weighted-average method.

C. the LIFO.

D. None of these answers are correct.

Question 21 of 30

3.3334 Points

Possible reasons for a business estimating the value of the ending inventory should NOT include:

A. the business uses perpetual system so a physical inventory is never needed.

B. the inventory is destroyed by fire.

C. the business uses periodic system and needs to prepare interim financial statements.

D. All of the above are valid reasons for estimating inventory.

Question 22 of 30

3.3334 Points

This inventory method produces the lowest income tax during a period of inflation.

A. Weighted-average

B. FIFO

C. LIFO

D. All would have the same tax effect.

Question 23 of 30

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As a result of understating ending inventory by $10,000 at the end of Year 1:

A. there will be no effect on net income for Year 2.

B. net income for Year 2 will be overstated.

C. net income for Year 2 will be understated.

D. ending inventory for Year 2 will be overstated.

Question 24 of 30

3.3334 Points

Under the periodic inventory system, in addition to making the entry to record a sale, a company would:

A. debit Cost of Goods Sold and credit Merchandise Inventory.

B. make no additional entry.

C. debit Cost of Goods Sold and credit Purchases.

D. debit Merchandise Inventory and credit Cost of Goods Sold.

Question 25 of 30

3.3334 Points

The perpetual inventory system is a system which:

A. updates inventory continuously.

B. uses either FIFO, LIFO, weighted-average, or specific invoice method.

C. never needs a physical inventory taken.

D. both A and B.

Question 26 of 30

3.3334 Points

The inventory method that assumes the oldest goods are sold first is:

A. specific invoice.

B. FIFO.

C. LIFO.

D. weighted-average.

Question 27 of 30

3.3334 Points

The inventory method where the cost flows tend to follow the physical flow is:

A. FIFO.

B. LIFO.

C. specific invoice.

D. weighted-average.

Question 28 of 30

3.3334 Points

The advantage of the weighted-average method is:

A. flow of goods and flow of costs are the same.

B. old costs are matched against current income.

C. an equal cost is assigned to each unit so net income does not fluctuate as much as with other methods.

D. it matches current selling prices and current costs.

Question 29 of 30

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This method assumes that the most recently acquired goods are sold first.

A. Weighted-average method

B. Specific invoice method

C. FIFO

D. LIFO

Question 30 of 30

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The company returned $200 of damaged merchandise. The entry to record this under the periodic inventory method is:

A. debit Merchandise Inventory $200; credit Accounts Payable $200.

B. debit Accounts Payable $200; credit Purchases Returns and Allowances $200.

C. debit Accounts Payable $200; credit Merchandise Inventory $200.

D. debit Cost of Goods Sold $200; credit Accounts Payable $200.

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