Principles of Accounting Code No.

8401
Chapter =01

1. Accounting is sometimes called the “language of _____.”

A. Wall Street
B. business
C. Main Street
D. financial statements

2. External users of financial accounting information include all of the following

except ________.
A. lenders such as bankers
B. governmental agencies such as the IRS
C. employees of a business
D. potential investors

3. All of the following are examples of managerial accounting activities except

________.
A. preparing external financial statements in compliance with GAAP
B. deciding whether or not to use automation
C. making equipment repair or replacement decisions
D. measuring costs of production for each product produced

4. The primary purpose of what type of business is to serve a particular need in

the community?
A. for-profit
B. not-for-profit
C. manufacturing
D. retail

5. Governmental agency can best be described by which of the following statements?

A. has a primary purpose of making a profit
B. has a primary purpose of using taxpayer funds to provide services
C. produces goods for sale to the public
D. has regular shareholder meetings
6. Which of the following is not considered a stakeholder of an organization?
A. creditors
B. lenders
C. employees
D. community residents
E. a business in another industry
7. Which of the following sell stock on an organized stock exchange such as the New
York Stock Exchange?
A. publicly traded companies
B. not-for-profit businesses
C. governmental agencies
D. privately held companies
E. government-sponsored entities
8. The accounting information of a privately held company is generally available to
all of the following except for ________.
A. governmental agencies
B. investors
C. creditors and lenders
D. competitors
9. Which of the following is typically required for entry-level positions in the
accounting profession?
A. bachelor’s degree
B. master’s degree
C. Certified Public Accountant (CPA)
D. Certified Management Accountant (CMA)
E. only a high school diploma
10. What type of organization primarily offers tax compliance, auditing, and
consulting services?
A. corporations
B. public accounting firms
C. governmental entities
D. universities
11. Which of the following equations properly represents a derivation of the
fundamental accounting equation?
A. Assets + liabilities = owner's equity.
B. Assets = owner's equity.
C. Cash = assets.
D. Assets – liabilities = owner's equity.
12. Which of these items would be accounted for as an expense?
A. Repayment of a bank loan.
B. Dividends to stockholders.
C. The purchase of land.
D. Payment of the current period's rent.
13. Which of the following transactions would have no impact on stockholders’
equity?
A. Purchase of land from the proceeds of a bank loan.
B. Dividends to stockholders.
C. Net loss.
D. Investments of cash by stockholders.

14. Which of the following would not be included on a balance sheet?

A. Accounts receivable.
B. Accounts payable.
C. Sales.
D. Cash.
15. Accounting is the information system that
A. Communicates the results to decision makers.

B. Measures business activity.

C. Processes information into reports.

D. All of the above

ANSWERS
1. B
2. C
3. A
4. B
5. B
6. E
7. A
8. D
09. A
10. B
11. D
12. D
13. A
14. C
15. D
Chapter = 02

1. Which of these statements is not one of the financial statements?

A. income statement
B. balance sheet
C. statement of cash flows
D. statement of owner investments
2. Identify the correct components of the income statement.
A. revenues, losses, expenses, and gains
B. assets, liabilities, and owner’s equity
C. revenues, expenses, investments by owners, distributions to owners
D. assets, liabilities, and dividends
3. Assume a company has a $350 credit (not cash) sale. How would the transaction
appear if the business uses accrual accounting?
A. $350 would show up on the balance sheet as a sale.
B. $350 would show up on the income statement as a sale.
C. $350 would show up on the statement of cash flows as a cash outflow.
D. The transaction would not be reported because the cash was not exchanged.
4. Owners have no personal liability under which legal business structure?
A. a corporation
B. a partnership
C. a sole proprietorship
D. There is liability in every legal business structure.

5. Which of the following decreases owner’s equity?

A. investments by owners
B. losses
C. gains
D. short-term loans
6. All of the following increase owner’s equity except for which one?
A. gains
B. investments by owners
C. revenues
D. acquisitions of assets by incurring liabilities
07. Which of the following is the correct order of preparing the financial
statements?
A. income statement, statement of cash flows, balance sheet, statement of
owner’s equity
B. income statement, statement of owner’s equity, balance sheet, statement of
cash flows
C. income statement, balance sheet, statement of owner’s equity, statement of
cash flows
D. income statement, balance sheet, statement of cash flows, statement of
owner’s equity
8. Which financial statement shows the financial performance of the company on a
cash basis?
A. balance sheet
B. statement of owner’s equity
C. statement of cash flows
D. income statement
9. Working capital is an indication of the firm’s ________.
A. asset utilization
B. amount of noncurrent liabilities
C. liquidity
D. amount of noncurrent assets

10. Failure to record the receipt of a utility bill for services already received
will result in:

A. An overstatement of assets.
B. An overstatement of liabilities.
C. An overstatement of equity.
D. An understatement of assets.

11. The proper journal entry to record Ransom Company’s billing of clients for $500
of services rendered is:
A. Cash 500
Accounts Receivable 500
B. Accounts Receivable 500
Capital Stock 500

C. Accounts Receivable 500

Service Revenue 500
D. Cash 500
Service Revenue 500
12. The trial balance:
A. Is a formal financial statement.
B. Is used to prove that there are no errors in the journal or ledger.
C. Provides a listing of every account in the chart of accounts.
D. Provides a listing of the balance of each account in active use.
13. Which of the following accounts is increased with a debit.
A. Land
B. Service Revenue
C. Interest Payable
D. Common Stock
14. When a company performs a service but has not yet received payment, it
A. Debits Service Revenue and credits Accounts Receivable.
B. Debits Accounts Receivable and credits Service Revenue.
C. Debits Service Revenue and credits Accounts Payable.
D. Makes no entry until cash is received.

15. Which financial statement shows the financial position of the company?
A. Balance sheet
B. Statement of owner’s equity
C. Statement of cash flows
D. Income statement

ANSWERS
1. D
2. A
3. B
4. A
5. B
6. D
7. B
8. C
9. C
10. C
11. C
12. D
13. A
14. B
15.D
Chapter= 03
1. That a business may only report activities on financial statements that are
specifically related to company operations, not those activities that affect the
owner personally, is known as which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
2. The system of using a monetary unit, such as the US dollar, to value the
transaction is known as which of the following?
A. separate entity concept
B. monetary measurement concept
C. going concern assumption
D. time period assumption
3. The independent, nonprofit organization that sets financial accounting and
reporting standards for both public- and private-sector businesses that use
generally accepted accounting principles (GAAP) in the United States is which of
the following?
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
4.These are used by the FASB, and it is a set of concepts that guide financial
reporting.
A. Financial Accounting Standards Board (FASB)
B. generally accepted accounting principles (GAAP)
C. Securities and Exchange Commission (SEC)
D. conceptual framework
5. Which of the following is the principle that a company must recognize revenue in
the period in which it is earned; it is not considered earned until a product or
service has been provided?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
6. Also known as the historical cost principle, ________ states that everything the
company owns or controls (assets) must be recorded at their value at the date of
acquisition.
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle
7. Which of the following does not accurately represent the accounting equation?
A. Assets – Liabilities = Stockholders’ Equity
B. Assets – Stockholders’ Equity = Liabilities
C. Assets = Liabilities + Stockholders’ Equity
D. Assets + Liabilities = Stockholders’ Equity
8. Which of these accounts is an asset?
A. Common Stock
B. Supplies
C. Accounts Payable
D. Fees Earned
9. If equity equals $100,000, which of the following is true?
A. Assets exceed liabilities by $100,000.
B. Liabilities exceed equity by $100,000.
C. Assets + liabilities equal $100,000.
D. None of the above is true.
10. The step-by-step process to record business activities and events to keep
financial records up to date is ________.
A. day-to-day cycle
B. accounting cycle
C. general ledger
D. journal
11. ________ takes all transactions from the journal during a period and moves the
information to a general ledger (ledger).
A. Hitching
B. Posting
C. Vetting
D. Laxing
12. A company purchased a building twenty years ago for $150,000. The building
currently has an appraised market value of $235,000. The company reports the
building on its balance sheet at $235,000. What concept or principle has been
violated?
A. separate entity concept
B. recognition principle
C. monetary measurement concept
D. cost principle
13. What is the impact on the accounting equation when a payment of account payable
is made?
A. both sides increase
B. both sides decrease
C. only the Asset side changes
D. neither side changes
14. What is the impact on the accounting equation when a sale occurs?
A. both sides increase
B. both sides decrease
C. only the Asset side changes
D. neither side changes
15. Which of the following accounts is increased by a debit?
A. Common Stock
B. Accounts Payable
C. Supplies
D. Service Revenue
ANSWER
1. A
2. B
3. A
4. D
5. A
6. C
7. D
8. B
9. A
10. B
11. B
12. D
13. B
14. A
15. C

Chapter=4
1. Which of the following is any reporting period shorter than a full year (fiscal
or calendar) and can encompass monthly, quarterly, or half-year statements?
A. fiscal year
B. interim period
C. calendar year
D. fixed year
2. Revenues and expenses must be recorded in the accounting period in which they
were earned or incurred, no matter when cash receipts or outlays occur under which
of the following accounting methods?
A. accrual basis accounting
B. cash basis accounting
C. tax basis accounting
D. revenue basis accounting
3. Which of the following is a twelve-month reporting cycle that can begin in any
month, except January 1, and records financial data for that twelve-month
consecutive period?
A. fixed year
B. interim period
C. calendar year
D. fiscal year
4. Which type of adjustment occurs when cash is not collected or paid, but the
related income or expense is reportable in the current period?
A. accrual
B. deferral
C. estimate
D. cull
5. If an adjustment includes an entry to Accumulated Depreciation, which type of
adjustment is it?
A. accrual
B. deferral
C. estimate
D. cull
6. Rent paid in advance is an example of which of the following?
A. accrued expense
B. accrued revenue
C. deferred expense (prepaid expense)
D. deferred revenue (unearned revenue)
7. Revenue earned but not yet collected is an example of which of the following?
A. accrued expense
B. accrued revenue
C. deferred expense (prepaid expense)
D. deferred revenue (unearned revenue)
8. Which of these transactions requires an adjusting entry (debit) to Unearned
Revenue?
A. revenue earned but not yet collected
B. revenue collected but not yet earned
C. revenue earned before being collected, when it is later collected
D. revenue collected before being earned, when it is later earned
9. Which of the following accounts’ balance would be a different number on the
Balance Sheet than it is on the adjusted trial balance?
A. accumulated depreciation
B. unearned service revenue
C. retained earnings
D. dividends
10. On which financial statement would the Dividends account appear?
A. Balance Sheet
B. Income Statement
C. Retained Earnings Statement
D. Statement of Cash Flows
11. On which two financial statements would the Retained Earnings account appear?
A. Balance Sheet
B. Income Statement
C. Retained Earnings Statement
D. Statement of Cash Flows

12. Salaries owed but not yet paid is an example of which of the following?
A. accrued expense
B. accrued revenue
C. deferred expense (prepaid expense)
D. deferred revenue (unearned revenue)
13. In preparing a worksheet, a net loss would be computed and entered in the:
A. Debit column of the income statement columns of the worksheet.
B. Credit column of the income statement columns of the worksheet.
C. In the debit column of the adjusted trial balance.
D. In the credit column of the balance sheet columns of the worksheet.

14.Which of the following accounts would not be closed at the end of an accounting
period?
A. Income Summary
B. Dividends
C. Revenue
D. Capital Stock
15. The following statements all pertain to the accounting cycle. Which of these
statements is wrong?
A. A post-closing trial balance is prepared prior to closing temporary accounts.
B. Formal financial statements may be produced from the worksheet.
C. Adjusting entries are recorded in the journal and posted to the ledger.
D. The post-closing trial balance is prepared by examining ledger balances
subsequent to the closing of accounts.
ANSWER
1. B
2. A
3. D
4. A
5. B
6. C
7. B
8. D
9. C
10. C
11. A and C
12.A
13. B
14.D
15.A

Chapter= 05
1. Which of the following accounts is considered a temporary or nominal account?
A. Fees Earned Revenue
B. Prepaid Advertising
C. Unearned Service Revenue
D. Prepaid Insurance
2. If a journal entry includes a debit or credit to the Cash account, it is most
likely which of the following?
A. a closing entry
B. an adjusting entry
C. an ordinary transaction entry
D. outside of the accounting cycle
3. Which of these accounts would be present in the closing entries?
A. Dividends
B. Accounts Receivable
C. Unearned Service Revenue
D. Sales Tax Payable
4. Which of these accounts is never closed?
A. Dividends
B. Retained Earnings
C. Service Fee Revenue
D. Income Summary
5. Which account would be credited when closing the account for fees earned for the
year?
A. Accounts Receivable
B. Fees Earned Revenue
C. Unearned Fee Revenue
D. Income Summary
6. Which of these accounts is included in the post-closing trial balance?
A. Sales Revenue
B. Salaries Expense
C. Retained Earnings
D. Dividends
7.On which of the following would the year-end Retained Earnings balance be stated
correctly?
A. Unadjusted Trial Balance
B. Adjusted Trial Balance
C. Post-Closing Trial Balance
D. The Worksheet
8.If current assets are $112,000 and current liabilities are $56,000, what is the
current ratio?
A. 200 percent
B. 50 percent
C. 2.0
D. $50,000

9. In adjusting the cash balance one of the following is not taken into account:
A. Mistakes in the cash book
B. Mistake in the bank statement
C. Interest and dividends credited in the bank statement
D. None of the abvove
10. The debts, the recovery of which is uncertain are called.
A. Unbelievable debts
B. unrealized debts
C. doubtful debts
D. both b and c

11. The account of depreciation of building of Rs. 30,000 at 5% p.a. will be

A. Rs. 20,00
B. Rs. 15,00
C. Rs. 25,00
D. Rs. 5,00
12. Net Profit is transferred to
A. Trading Account
B. Balance Sheet
C. Capital a/c
D. Trial Balance
13. The bad debts which are showed in the trial balance are called
A. new bad debts
B. old bad debts
C. further bad debts
D. additional bad debts
14. Net profit is always
A. Equal to gross profit
B. more than gross profit
C. Less than gross profit
D. None of these
15. The Sales account and Purchases account should include:
A. Only cash sales and cash purchases of merchandise.
B. Only credit sales and credit purchases of merchandise.
C. Both cash and credit sales and cash and credit purchases of merchandise.
D. Not only merchandise transactions, but also purchases and sales of other assets
used in the business.
ANSWER
1. A
2. C
3. A
4. B
5. D
6. C
7. C
8. C
9. B
10.C
11.B
12.C
13.B
14.C
15.C

Chapter= 06
1. Which of the following is an example of a contra revenue account?
A. sales
B. merchandise inventory
C. sales discounts
D. accounts payable
2. Which of the following numbers represents the discount percentage applied if a
customer pays within a discount window and credit terms are 3/15, n/60?
A. 3
B. 15
C. 60
D. 3 and 15
3. Which of the following is a disadvantage of the perpetual inventory system?
A. Inventory information is in real-time.
B. Inventory is automatically updated.
C. It allows managers to make current decisions about purchases, stock, and
sales.
D. It is cost-prohibitive.
4. Which of the following is not a reason for the physical inventory count to
differ from what is recognized on the company’s books?
A. mismanagement
B. shrinkage
C. damage
D. sale of services to customers
5. Which of the following accounts are used when recording a purchase?
A. cash, merchandise inventory
B. accounts payable, merchandise inventory
C. A or B
D. cash, accounts payable
6. A retailer returns $400 worth of inventory to a manufacturer and receives a full
refund. What accounts recognize this return before the retailer remits payment to
the manufacturer?
A. accounts payable, merchandise inventory
B. accounts payable, cash
C. cash, merchandise inventory
D. merchandise inventory, cost of goods sold
7. Which of the following accounts are used when recording the sales entry of a
sale on credit?
A. merchandise inventory, cash
B. accounts receivable, merchandise inventory
C. accounts receivable, sales
D. sales, cost of goods sold
8. A customer returns $870 worth of merchandise and receives a full refund. What
accounts recognize this sales return (disregarding the merchandise condition entry)
if the return occurs before the customer remits payment to the retailer?
A. accounts receivable, sales returns and allowances
B. accounts receivable, cash
C. sales returns and allowances, merchandise inventory
D. accounts receivable, cost of goods sold
9. Which of the following is not a characteristic of FOB Destination?
A. The seller pays for shipping.
B. The seller owns goods in transit.
C. The point of transfer is when the goods leave the seller’s place of business.
D. The point of transfer is when the goods arrive at the buyer’s place of
business.
10. Which of the following is not a characteristic of FOB Shipping Point?
A. The buyer pays for shipping.
B. The buyer owns goods in transit.
C. The point of transfer is when the goods leave the seller’s place of business.
D. The point of transfer is when the goods arrive at the buyer’s place of
business.
11. Which of the following accounts would be reported under operating expenses on a
multi-step income statement?
A. sales
B. advertising expense
C. sales returns and allowances
D. interest expense
12. Which of the following accounts would not be reported under revenue on a simple
income statement?
A. interest revenue
B. net sales
C. rent revenue
D. operating expenses
13. The Cash account on the balance sheet should not include which of the following
items:
A. Travel advances to employees
B. Currency
C. Money orders
D. Deposits in transit
14. A credit memorandum accompanying a bank statement would occur for which of the
following items?
A. A previously deposited customer check which was returned NSF.
B. Bank service charges for the month.
C. The proceeds of a note collected by the bank are deposited to the account.
D. Each of the above.

15. When using a petty cash system, the replenishment of the fund would normally
include a debit to:
A. Cash.
B. Petty Cash.
C. Revenues.
D. None of the above.

ANSWER
1. C
2. A
3. D
4. D
5. C
6. A
7. C
8. A
9. C
10. D
11. B
12. D
13.A
14. C
15.D

Chapter= 07
1.So far, computer systems cannot yet ________.
A. receive data and instructions from input devices such as a scanner.
B. decide how to record a business transaction.
C. communicate with other computers electronically.
D. recognize that you made a mistake entering $100 when you meant to enter $101.
2. A document that asks you to return an identifying part of it with your payment
is a(n) ________.
A. source document
B. cloud document
C. point-of-sale document
D. turn-around document
3. An unhappy customer just returned $50 of the items he purchased yesterday when
he charged the goods to the company’s store credit card. Which special journal
would the company use to record this transaction?
A. sales journal
B. purchases journal
C. cash receipts journal
D. cash disbursements journal
E. general journal
4. A customer just charged $150 of merchandise using MasterCard. Which special
journal would the company use to record this transaction?
A. sales journal
B. purchases journal
C. cash receipts journal
D. cash disbursements journal
E. general journal
5. Your company paid rent of $1,000 for the month with check number 1245. Which
journal would the company use to record this?
A. sales journal
B. purchases journal
C. cash receipts journal
D. cash disbursements journal
E. general journal
6. Received a check for $72 from a customer, Mr. White. Mr. White owed you $124.
Which journal would the company use to record this transaction?
A. sales journal
B. purchases journal
C. cash receipts journal
D. cash disbursements journal
E. general journal
7. Sold goods for $650 cash. Which journal would the company use to record this
transaction?
A. sales journal
B. purchases journal
C. cash receipts journal
D. cash disbursements journal
E. general journal
8. Sold goods for $650, credit terms net 30 days. Which journal would the company
use to record this transaction?
A. sales journal
B. purchases journal
C. cash receipts journal
D. cash disbursements journal
E. general journal
9. The sum of all the accounts in the accounts receivable subsidiary ledger should
________.
A. equal the accounts receivable account balance in the general ledger before
posting any amounts
B. equal the accounts payable account balance in the general ledger before
posting any amounts
C. equal the accounts receivable account balance in the general ledger after
posting all amounts
D. equal the cash account balance in the general ledger after posting all
amounts
10. You just posted a debit to ABC Co. in the accounts receivable subsidiary
ledger. Which special journal did it come from?
A. sales journal
B. cash receipts journal
C. purchases journal
D. cash disbursements journal
E. general journal
11. You just posted a debit to Cash in the general ledger. Which special journal
did it come from?
A. sales journal
B. cash receipts journal
C. purchases journal
D. cash disbursements journal
E. general journal
12. You just posted a credit to Sales and a debit to Cash. Which special journal
did it come from?
A. sales journal
B. cash receipts journal
C. purchases journal
D. cash disbursements journal
E. general journal
13. Which of the following is not a way to prevent your computer from being
attacked by ransomware?
A. making sure your antivirus security programs are up to date
B. opening all attachments from emails from unknown senders
C. using secure (password protected) networks and backing up your files
regularly
D. not using open Wi-Fi (nonpassword, nonencrypted) in public locations
14. Artificial intelligence refers to ________.
A. tutorials that can make humans smarter than they naturally are
B. programming computers to mimic human reasoning and perform tasks previously
performed by humans
C. humans that do not possess reasonably high IQs
D. a concept that exists only in science fiction but has not yet been achieved
today
15. Which of the following is not true about cybercurrency?
A. Bitcoin is one of several cybercurrencies.
B. It is an alternate currency that does not go through the banking system.
C. It does not involve the actual exchange of physical currency.
D. All of these statements regarding Bitcoin are correct.
ANSWER
1. D
2. D
3. E
4. C
5. D
6. C
7. C
8. A
9. C
10. A
11. B
12. B
13. B
14. B
15. D

CAPTER= 08
1. Which of the following would a fraudster perceive as a pressure?
A. lack of management oversight
B. everyone does it
C. living beyond one’s means
D. lack of an internal audit function
2. What is the best way for owners of small businesses to maintain proper internal
controls?
A. The owner must have enough knowledge of all aspects of the company and have
controls in place to track all assets.
B. Small businesses do not need to worry about internal controls.
C. Small businesses should make one of their employees in charge of all aspects
of the company, giving the owner the ability to run the company and generate sales.
D. Only managers need to be concerned about internal controls.
3. There are several elements to internal controls. Which of the following would
not address the issue of having cash transactions reported in the accounting
records?
A. One employee would have access to the cash register.
B. The cash drawer should be closed out, and cash and the sales register should
be reconciled on a prenumbered form.
C. Ask customers to report to a manager if they do not receive a sales receipt
or invoice.
D. The person behind the cash register should also be responsible for making
price adjustments.
4. There are three employees in the accounting department: payroll clerk, accounts
payable clerk, and accounts receivable clerk. Which one of these employees should
not make the daily deposit?
A. payroll clerk
B. account payable clerk
C. accounts receivable clerk
D. none of them
5. What is the advantage of using technology in the internal control system?
A. Passwords can be used to allow access by employees.
B. Any cash received does not need to be reconciled because the computer tracks
all transactions.
C. Transactions are easily changed.
D. Employees cannot steal because all cash transactions are recorded by the
computer/cash register.
6. Which of the following is true about the Sarbanes-Oxley Act?
A. It was passed to ensure that internal controls are properly documented and
tested by public companies.
B. It applies to both public and smaller companies.
C. It requires all companies to report their internal control policies to the US
Securities and Exchange Commission.
D. It does not require additional costs or resources to have adequate controls.
7. Petty cash is used to ________.
A. write checks for frequent purchases
B. make small payments in cash
C. avoid having to retain receipts because the amounts are very small
D. avoid having to get approvals due to the small amount of cash being paid
8. Which of the following items are found on a book side of the bank
reconciliation?
A. beginning bank balance
B. outstanding checks
C. interest income
D. error made by bank
9. What would be a reason a company would want to understate income?
A. to help nudge its stock price higher
B. to lower its tax bill
C. to show an increase in overall profits
D. to increase investor confidence
10. At what point does revenue recognition occur?
A. When the purchase order is received
B. When the seller receives the money for the job
C. When the seller has met “performance”
D. When the purchaser makes payment
11. The favorable balance of bank statement is

A. Credit balance
B. Debit balance
C. Zero balance
D. All of these
12. A double column cash book is used to record
A. Cash transactions only
B. Cash and bank transaction
C. Cash, bank and discount transaction
D. None of these

13. It is used to record only cash receipts and payments

A. Single column cash book
B. Double column cash book
C. Treble column cash book
D. Sales book

14. Bank reconciliation statement is prepared by

A. Banker
B. Customer's accountant
C. Auditors
D. Manager
15. A double column cash book is used to record
A. Cash transactions only
B. Cash and bank transaction
C. Cash, bank and discount transaction
D. None of these

ANSWER
1. C
2. A
3. D
4. C
5. A
6. A
7. B
8. C
9. B
10. C
11. A
12. B
13.A
14.B
15.B

CHAPTER= 09
1. Which of the following is not a criterion to recognize revenue under GAAP?
A. The earnings process must be completed.
B. A product or service must be provided.
C. Cash must be collected.
D. GAAP requires that the accrual basis accounting principle be used in the
revenue recognition process.
2. If a customer pays with a credit card and the service has been provided, which
of the following accounts will be used to record the sales entry for this
transaction?
A. Cost of Goods Sold, Merchandise Inventory, Sales Revenue
B. Sales Revenue, Credit Card Expense, Accounts Receivable
C. Accounts Receivable, Merchandise Inventory, Credit Card Expense
D. Cost of Goods Sold, Credit Card Expense, Sales Revenue
3. Tines Commerce computes bad debt based on the allowance method. They determine
their current year’s balance estimation to be a credit of $45,000. The previous
period had a credit balance in Allowance for Doubtful Accounts of $12,000. What
should be the reported figure in the adjusting entry for the current period?
A. $12,000
B. $45,000
C. $33,000
D. $57,000
4. Balloons Plus computes bad debt based on the allowance method. They determine
their current year’s balance estimation to be a credit of $84,000. The previous
period had a credit balance in Allowance for Doubtful Accounts of $26,000. What
should be the reported figure in the adjusting entry for the current period?
A. $84,000
B. $58,000
C. $26,000
D. $110,000
5. Which method delays recognition of bad debt until the specific customer accounts
receivable is identified?
A. income statement method
B. balance sheet method
C. direct write-off method
D. allowance method
6. Which of the following best represents a positive product of a lower number of
days’ sales in receivables ratio?
A. collection of receivables is quick, and cash can be used for other business
expenditures
B. collection of receivables is slow, keeping cash secured to receivables
C. credit extension is lenient
D. the lender only lends to the top 10% of potential creditors
7. What information can best be elicited from a receivable ratio?
A. company performance with current debt collection
B. credit extension effect on cash sales
C. likelihood of future customer bankruptcy filings
D. an increase in future credit sales to current customers
8. Which of the following is not a way to manage earnings?
A. Change the method for bad debt estimation.
B. Change the figure for the uncollectible percentage.
C. Under the balance sheet aging method, change the past-due categories.
D. Change the dates of common stock issuance.
9. Which statement is most directly affected by a change to net income?
A. balance sheet
B. income statement
C. statement of retained earnings
D. statement of cash flows
10. Which of the following is true of a maturity date?
A. It must be calculated in days, not in months or years.
B. It is the date when principal and interest on a note are to be repaid to the
lender.
C. It is the date of establishment of note terms between a lender and customer.
D. It is not a characteristic of a note receivable.
11. A customer takes out a loan of $130,000 on January 1, with a maturity date of
36 months, and an annual interest rate of 11%. If 6 months have passed since note
establishment, what would be the recorded interest figure at that time?
A. $7,150
B. $65,000
C. $14,300
D. $2,383
12. Orion Rentals is unable to collect on a note worth $25,000 and has accumulated
interest of $250. It convert this note and interest to accounts receivable. After
some time, Orion is still unable to collect the debt and it decides to sell the
converted note to a collection agency. The collection agency will pay only 20% of
the value of accounts receivable to Orion. What is the amount of cash paid to Orion
from the collection agency?
A. $5,000
B. $5,050
C. $20,000
D. $19,950

13. Investments in Bonds that the investor intends to hold to maturity should be
disclosed on the balance sheet:

A. At their face value minus any unamortized premiums.

B. At their face value plus any unamortized premiums.
C. At their maturity value.
D. At their face value.
14. On January 1, 20X2, Miller Corporation purchased $100,000 of 5%, 10-year bonds
dated January 1, 20X2, at 98. Interest is paid on June 30 and December 31 of each
year. Assuming use of the straight-line amortization method, the proper amount to
report for Investment in Bonds at December 31, 20X3 is:

A. $98,000
B. $98,400
C. $100,000
D. $101,600
15. When the contract interest rate for a bond exceeds the effective interest rate
of the bond, then:

A. The price of the bond will be equal to the future cash flow associated with
the bond.
B. The bond will be issued at a premium.
C. The bond will be issued at a discount.
D. The face value of the bond will fluctuate over its life.
ANSWER
1. C
2. B
3. C
4. B
5. C
6. A
7. A
8. D
9. B
10. B
11. A
12. B
13. B
14. B
15. B