Basic Accounting Multiple Choice 4 total

1. True or false. Unlike a merchandising business, a manufacturing business uses multiple inventory accounts to reflect the cost of raw materials, partially completed goods, and finished goods.

		TRUE
		FALSE

2.5 points   

QUESTION 2

1. For a manufacturing business, the finished goods inventory account reflects the cost of what?

		Shipping
		Partially completed goods
		Completed goods
		Raw materials

2.5 points   

QUESTION 3

1. Super Goods, an electronics retailer, purchases $80,000 worth of computers from a manufacturer in Taiwan. The terms of the purchase are FOB shipping point. Freight costs total $9,000. The goods are shipped on June 1 and delivered on June 15. On June 1, which two accounts should be debited by Super Goods in the following journal entry? Date Account Dr. Cr. 6-01-XX 80000.00 9000.00 Accounts Payable 89000.00

		Inventory and Freight-out
		Accounts Receivable and Freight-out
		Inventory and Freight-in
		Accounts Receivable and Freight-in

2.5 points   

QUESTION 4

1. At the time of shipment, goods that are purchased FOB shipping point are

		reported on the seller's balance sheet.
		considered the responsibility of the buyer.
		designated as freight-out.
		categorized as partially completed inventory.

2.5 points   

QUESTION 5

1. On February 15, a buyer purchases $30,000 worth of goods from a manufacturer. The manufacturer offers the buyer a 3% discount ($900) if payment for the goods is made within 10 days. The buyer pays for the merchandise on February 20. In a journal entry, the seller should debit ________ and credit ________ for $900.

		Sales; Purchase Discounts
		Accounts Receivable; Sales
		Sales; Accounts Receivable
		Accounts Payable; Inventory

2.5 points   

QUESTION 6

1. A buyer receives a sales discount from a seller for paying for purchased goods within a specific period of time. In what way does the sales discount affects the buyer?

		Reducing freight-in costs
		Reducing the cost of inventory
		Increasing freight-out costs
		Increasing the cost of inventory

2.5 points   

QUESTION 7

1. For a manufacturing business, the __________ inventory account reflects the cost of products that have been manufactured and are ready to be sold.

		Raw materials
		Work-in-process
		Freight-in
		Finished goods

2.5 points   

QUESTION 8

1. Which term refers to goods that a merchandising business purchases and resells?

		Inputs
		Frieght
		Supplies
		Inventory

2.5 points   

QUESTION 9

1. On February 15, a buyer purchases $10,000 worth of goods from a manufacturer, who spent $5,000 to manufacture the goods. The terms of sale are FOB shipping point, and shipping costs are $800. The goods will be shipped on June 1. The manufacturer must make two journal entries on June 1. In the second journal entry, the manufacturer should debit ________ and credit ________. Date Account Dr. Cr. 6-01-XX Accounts Receivable 10,000.00 Cash 800.00 Sales 10,000.00 Date Account Dr. Cr. 6-01-XX 5,000.00 5,000.00

		Cash; Cost of Goods Sold
		Cost of Goods Sold; Inventory
		Cost of Goods Sold; Cash
		Inventory; Cash

2.5 points   

QUESTION 10

1. Which statement about FOB shipping point is true?

		Goods are the buyer's property on the shipment date.
		The seller and buyer share all freight costs.
		Lost goods are the responsibility of the seller.
		The seller reports shipping costs as an expense.

Part 8

QUESTION 1

1. Which inventory costing approach calculates a new cost per unit every time a purchase is made?

		Periodic
		LIFO
		FIFO
		Average cost

2.5 points   

QUESTION 2

1. If a company that is facing rising prices wants to reduce the amount of its taxable income, which cost flow assumption should be used?

		average cost
		FIFO
		LIFO
		retail method

2.5 points   

QUESTION 3

1. Simply Shoes uses the FIFO system in conjunction with a perpetual inventory accounting system to track transactions that affect the store's shoe inventory. On August 1, 2015, the store had 50 pairs of shoes in inventory valued at $60 each. On August 8, the store bought 100 pairs of shoes at $65 each. Assuming the store has not sold any shoes, what was the ending inventory on August 9?

		$9,000
		$9,500
		$9,750
		$9,450

2.5 points   

QUESTION 4

1. Super Sportz uses the FIFO system in conjunction with a perpetual inventory accounting system to track transactions that affect the store's inventory of sporting goods. On July 1, there were 100 basketballs in inventory, all valued at $5 each. On July 9, the store sold 30 basketballs for $15 each. The store's accountant made two journal entries for July 9. Which two did the accountant make?

7-9-xx	Accounts Receivable	450.00
	Sales		450.00
7-9-xx	_________________	150.00
	_________________		150.00
		Debit to Inventory; credit to Cost of Goods Sold
		Debit to Cost of Goods Sold; credit to Inventory
		Debit to Sales; credit to Cost of Goods Sold
		Debit to Accounts Payable; credit to Inventory

2.5 points   

QUESTION 5

1. Which of the following best explains the increasing use of perpetual inventory accounting systems?

		Changes in government regulations
		Demands of globalization
		Improvements in technology
		Increases in consumer awareness

2.5 points   

QUESTION 6

1. The selling price of every item offered by Dailey Department Store is marked up 5% over the actual cost of the merchandise. Given this information, Dailey Department Store can estimate its ending inventory balance using the method.

		lower-of-cost-or-market
		retail

2.5 points   

QUESTION 7

1. Tom's Tools uses the LIFO system and made the following purchases and sales in August. The cost of goods available for sale for Tom's Tools is 

Date	Purchases	Sales	Remaining Inventory Balance
Aug 1			100 units @ $5
Aug 7		40 units @ $12
Aug 14	80 units @ $7
Aug 21		60 units @ $14
Aug 28	90 units @ $8

		$1,320.00
		$460.00
		$1,780.00
		$1,280.00

2.5 points   

QUESTION 8

1. DIY Hardware's inventory purchases 

	Date	Quantity Purchased	Cost per Unit	Total Cost
Beginning Balance	July 1	800	$2.00	$1,600
Purchase 2	July 15	600	$2.25	$1,350
Purchase 3	July 24	700	$2.10	$1,470
		Cost of goods available for sale
		Operating expenses
		Accounts receivable
		Cost of goods sold

2.5 points   

QUESTION 9

1. True or false. A firm's decision to use FIFO, LIFO, or average costing depends on its needs and preferences. However, all three methods typically result in the same values for ending inventory, cost of goods sold, gross margin, and net income.

		TRUE
		FALSE

2.5 points   

QUESTION 10

1. Which inventory costing method depends on a firm's markup being the same for all inventory items?

		FIFO
		LIFO
		Retail method
		Lower-of-cost-or-market method

Part 9

QUESTION 1

1. On January 1, 2015, Madison Manufacturing purchased a piece of equipment that cost $600,000 and has a 10-year life. The Madison accountant, who uses the double-declining balance depreciation method, needs to make a journal entry to indicate the machine’s depreciation in its second year. What amount should be debited and credited in the following entry?

Date	Account	Dr.	Cr.
12-31-16	Depreciation Expense
	Accumulated Depreciation
		$192,000
		$96,000
		$120,000
		$60,000

5 points   

QUESTION 2

1. The units-of-activity method of depreciation relies on units of _________________ to determine an asset’s depreciation.

		time
		use

5 points   

QUESTION 3

1. The accountant for Dawson Dairy uses the straight-line depreciation method. The business recently purchased a refrigerated truck for $180,000. The truck’s salvage value is $30,000, and has a service life of 6 years. What is the truck’s annual depreciation?

		$20,000
		$30,000
		$35,000
		$25,000

5 points   

QUESTION 4

1. Top-Notch Construction purchased a bulldozer on January 1, 2012 for $120,000. The bulldozer has an estimated service life of 80,000 machine hours, and a salvage value of $20,000. The number of hours the bulldozer was used for the first 4 years is as follows: 8,000 hours in 2012; 9,000 hours in 2013; 7,000 hours in 2014; and 10,000 hours in 2015. The accountant for Top-Notch uses the units-of-activity method of depreciation. Which of the following is the correct journal entry for recording the depreciation for 2014?

		Date Account Dr. Cr. 12-31-14 Accumulated Depreciation 8,750.00          Depreciation Expense   8,750.00
		Date Account Dr. Cr. 12-31-14  Accumulated Depreciation 10,500.00           Depreciation Expense   10,500.00
		Date Account Dr. Cr. 12-31-14 Depreciation Expense 10,500.00          Accumulated Depreciation   10,500.00
		Date Account Dr. Cr. 12-31-14 Depreciation Expense 8,750.00          Accumulated Depreciation   8,750.00

5 points   

QUESTION 5

1. Which term refers to spreading the cost of an asset over the asset’s service life?

		Depreciation
		Adjusting
		Forecasting
		Transation

Part 10

QUESTION 1

1. The process of depletion applies to which of the following?

		Timber
		Patents
		Equipment
		Real estate

3.125 points   

QUESTION 2

1. On January 1, 2009, Dixon Enterprises purchased a delivery truck for $60,000 to be used for 10 years. The truck has no salvage value. On November 30, 2015, the company sold the truck for $20,000 in cash. The journal entry below records the truck's depreciation for 2015.

Date	Account	Dr.	Cr.
11-30-15	Depreciation Expense	5,500.00
	Accumulated Depreciation		5,500.00

Which of the following journal entries correctly removes the asset and its accumulated depreciation account from the books?

		Date Account Dr.  Cr. 11-30-15 Accumulated Depreciation 41,500.00     Loss 20,000.00          Equipment      60,000.00
		Date Account Dr.  Cr. 11-30-15 Equipment 60,000.00     Gain   1,500.00          Accumulated Depreciation     41,500.00        Cash     20,000.00
		Date Account Dr.  Cr. 11-30-15 Equipment 60,000.00     Loss   1,500.00          Accumulated Depreciation     41,500.00        Cash     20,000.00
		Date Account Dr.  Cr. 11-30-15 Accumulated Depreciation 41,500.00     Cash 20,000.00          Gain     1,500.00        Equipment   60,000.00

3.125 points   

QUESTION 3

1. In 2014, Medco Pharmaceuticals spent $1,000,000 on research and development (R&D). In 2015, Medco scientists developed a new medication as a result of the 2014 R&D findings. Given this information, Medco should have

		credited the R&D expenses in 2014.
		amortized the R&D expenses between 2014 and 2015.
		recorded R&D expenses in 2014.
		recorded R&D expenses in 2015.

3.125 points   

QUESTION 4

1. Which term refers to allocating the cost of a natural resource to all accounting periods benefitting from its use?

		Amortization
		Depreciation
		Depletion
		Retirement

3.125 points   

QUESTION 5

1. The owner of Rosie's Flower Shop recently spent $300 to install a GPS navigation system in the shop's delivery truck, and spent $40 to replace the truck's oil. Which of the following statements about this situation is true?

		The oil change is a betterment, as well as a capital expenditure.
		The satellite is a betterment, as well as a revenue expenditure.
		The satellite is a betterment, as well as a capital expenditure.
		The oil change is a replacement outlay, as well as a capital expenditure.

3.125 points   

QUESTION 6

1. In July 2015, the owner of Carlson Construction decides to retire a dump truck before the end of its service life because the truck is no longer reliable. The truck has no salvage value. The company's accountant needs to create two journal entries in this scenario. The first journal entry records depreciation for the first 7 months of the year. Which of the following explains the purpose of the second journal entry?

		Recording the revenue expenditures associated with the asset
		Removing the asset and its accumulated depreciation from the books
		Removing the asset from the books and recording its replacement cost
		Recording the gain on disposition at the time of retirement

3.125 points   

QUESTION 7

1. Sunshine Hamburgers, a fast-food chain, purchases the copyright to a song that the company plans to use in all of its commercials. Sunshine pays the songwriter $40,000 in cash for the copyright and expects to use the song for 4 years. Based on this information, which of the following statements is true?

		Depreciation Expense should be debited for $10,000, annually.
		The copyright purchase is reported as goodwill on the balance sheet.
		Amortization Expense should be debited for $10,000, annually.
		The copyright is an intangible asset, so its costs are not amortized.

3.125 points   

QUESTION 8

1. DIY-Mart owns timber that it uses to make into the plywood and lumber sold in its stores. As the timber is processed into lumber, the DIY-Mart accountant needs to do which of the following to the cost of the timber?

		Depreciate it.
		Amortize it.
		Retire it.
		Deplete it.

Part 11

QUESTION 1

1. On December 1, 2015, Winston Enterprises secured a loan from a bank for $300,000 to purchase manufacturing equipment. The loan will be repaid in 5 years with payments due every month and an interest rate of 4%. What will be the interest expense for the first payment on January 1, 2016?

		$500
		$1,000
		$300
		$1,200

2.5 points   

QUESTION 2

1. Which type of bond gives the corporation the right to redeem the bond before the maturity date?

		Serial bond
		Callable bond
		Term bond
		Convertible bond

2.5 points   

QUESTION 3

1. On November 1, Carlson Flooring purchased copy paper and printer ink in the amount of $500 from Office Mart. The purchase was made on account. On November 20, Carlson's accountant paid the full amount of the invoice using a company check. Which journal entry correctly records the invoice payment?

		DR CR 11/1/2015 Office Supplies 500.00         Accounts Payable   500.00
		DR CR 11/20/2015 Accounts Payable 500.00         Cash   500.00
		DR CR 11/20/2015 Accounts Payable 500.00         Office Supplies   500.00
		DR CR 11/1/2015 Office Supplies 500.00         Cash   500.00

2.5 points   

QUESTION 4

1. True or false. When a business borrows a large sum of money from a bank, a notes payable serves as the contractual agreement between the two parties.

		TRUE
		FALSE

2.5 points   

QUESTION 5

1. Collins Clothing Company has an operating cycle of 90 days. How much time does Collins have to repay its current liabilities?

		2 years
		1 year
		90 days
		6 months

2.5 points   

QUESTION 6

1. The board of directors at Cameron Industries recently approved the firm's first bond issue. On November 1, 2015, the company issued $20 million in bonds with a 2% interest rate, payable annually, and at a market interest rate of 2%. The bonds will mature in 10 years. Which is recorded in the journal entry shown below?

		DR	CR
11/1/2025	Bonds Payable	20,000.00
	Cash		20,000.00
		Repaying a bond issued at face value
		Repaying a bond at a discount
		Issuing a bond at face value
		Paying interest on a bond issued at face value

2.5 points   

QUESTION 7

1. The board of directors at Cameron Industries recently approved the firm's first bond issue. On November 1, 2015, the company issued $20 million in bonds with a 2% interest rate, payable annually, and at a market interest rate of 2%. The bonds will mature in 10 years. Which correctly records the bonds being issued?

		DR CR 11/1/2025     Cash     20,400,000          Bonds Payable                  20,000,000         Premium on Bonds Payable              400,000
		DR CR 11/1/2025     Cash     20,000,000          Bonds Payable           20,000,000
		DR CR 11/1/2025     Cash     20,000,000     Discount on Bond Payable           400,000               Bonds Payable         20,400,000
		DR CR 11/1/2025     Bonds Payable     20,000,000          Cash           20,000,000

2.5 points   

QUESTION 8

1. Wilson Industries needs to raise capital to pay for costly new production equipment, so the firm obtains a 20-year bank loan at an interest rate of 5%. Which statement about this situation is most likely true?

		Interest payments will be considered tax-deductible expenses.
		The loan will be considered a current liability because of the interest fees.
		If the loan is repaid before the due date, no interest will be charged.
		If the loan is repaid in a lump sum, no interest will be charged.

2.5 points   

QUESTION 9

1. Collins Clothing Company manufactures men's apparel and conducts all business on credit. Which item, when purchased, is considered a current liability for Collins?

		Land to build a new facility
		Fabric to make shirts
		Trucks to deliver clothes to retailers
		Buildings to store inventory

2.5 points   

QUESTION 10

1. How does a company benefit from issuing callable bonds?

		Retiring and reissuing bonds when interest rates drop
		Delaying the lump sum repayment of bonds
		Repaying bonds in increments when interest rates are low
		Issuing bonds without any collateral

Part 12

QUESTION 1

1. True or false. Davidson Corporation has 1,000,000 shares of $10 par value common stock issued and outstanding. The market price of the stock is $25 per share. On March 1, 2016, the company's board of directors declared a 5% stock dividend. The value of the stock dividend on the declaration date would be $500,000.

		TRUE
		FALSE

2.5 points   

QUESTION 2

1. True or false. On November 12, 2016, Barber Corporation issued 100,000 shares of its $2 par value common stock for $20 per share. The journal entry to record this transaction is:

		TRUE
		FALSE

2.5 points   

QUESTION 3

1. Which statement about preferred shareholders/stock is true?

		Preferred shareholders are not guaranteed a return on their investment in the form of cash dividends.
		Preferred stock cannot be converted to common stock.
		In the event the corporation goes out of business (liquidates), common shareholders will be paid any unpaid dividends (in arrears), plus the value of their stock holdings before preferred shareholders.
		Preferred shareholders do not have voting rights.

2.5 points   

QUESTION 4

1. On November 12, 2016, Barber Corporation issued 100,000 shares of its $2 par value common stock for $20 per share. Part of the journal entry to record this transaction would be a __________ to Paid-in Capital in Excess of Par for $1,800,000.

		credit
		debit

2.5 points   

QUESTION 5

1. What is a disadvantage to issuing stock instead of bonds?

		The payment of cash dividends is not a tax deductible expense.
		A corporation is required to pay cash dividends.
		The company must buy back its stock.
		Payment of dividends reduces the company's net income and profitability.

2.5 points   

QUESTION 6

1. True or false. Each share of common stock entitles the owner to own a proportionate share of the company.

		TRUE
		FALSE

2.5 points   

QUESTION 7

1. Babel Corporation has 2,000,000 shares of $10 par value common stock issued and outstanding. The market price of the stock was $100 per share. Suppose the company decided to declare a 4-for-1 stock split. What is the market price of the shares after the stock split?

		$25
		$2.50
		$50
		$5.00

2.5 points   

QUESTION 8

1. True or false. A key advantage of stock financing over bond financing is that there is no repayment.

		TRUE
		FALSE

2.5 points   

QUESTION 9

1. On June 15, 2016, Fabin Corporation purchased 15,000 shares of its common stock for $50 per share for its treasury. On December 1, 2016, the company sold 5,000 of its treasury shares for $40 per share. Part of the journal entry to record the sale of the treasury stock on December 1, 2016 would be a __________ to Retained Earnings for $50,000.

		debit
		credit

2.5 points   

QUESTION 10

1. Davidson Corporation has 1,000,000 shares of $10 par value common stock issued and outstanding. The market price of the stock is $25 per share. On March 1, 2016, the company's board of directors declared a 5% stock dividend. The value of the stock dividend on the declaration date would be:

		$25,000,000
		$50,000
		$500,000
		$1,250,000