Question

1. The President of the McQuade Company took his children on a business trip. The cost of the tickets for the children was $500. This was recorded as an expense by the McQuade Company. This is a violation of:

A. The Revenue Recognition Principle

B. The Separate Entity Principle

C. The Going Concern Principle

D. Periodicity

2. A company has a net income of $50,000 for the year ended December 31, 2019. During 2019, it declared and paid dividends of $12,000. The ending balance in retained earnings at December 31, 2019 is $200,000. The balance in retained earnings at January 1, 2019 was:

A. $238,000

B. $38,000

C. $162,000

D. Cannot be determined with the information provided

3. Which of the following is incorrect with respect to the accounting cycle?

A. Only the temporary accounts are reset to zero as part of closing entries

B. The purpose of the trial balance is to see whether the financial statements are prepared in accordance with generally accepted accounting principles

C. The Income statement is prepared before the balance sheet

D. The Income Statement is prepared before the Statement of Changes in Stockholders’ Equity

4. Which of the following statements is always true about the balance sheet of a public company in the US?

A. There are more asset accounts than liability accounts

B. Total liabilities minus total assets will be a positive number

C. Total liabilities equal total assets minus total stockholders’ equity

D. Prepaid expenses will never be included in the current asset section of a classified balance sheet

5. Which of the following are liability, asset and expense accounts, respectively?

A. Unearned revenue, cost of goods sold, prepaid rent

B. Prepaid rent, unearned revenue, cost of goods sold

C. Unearned revenue, prepaid rent, cost of goods sold

D. Cost of goods sold, prepaid rent, unearned revenue

6. Poppie’s Pizza reported assets of $100,000 and liabilities of $60,000 on December 31, 2019. Poppie’s net sales for 2019 were $80,000 and his profit margin was 8%. What was Poppies’ return on equity for 2019?

A. 10.7%

B. 6.4%

C. 16.0%

D. None of the above

7. Which of the following statements about the Statement of Cash Flows is correct?

A. A company with a net loss on its’ Income Statement will always have a negative net cash flow from operating activities

B. A company’s net cash flow from financing activities must always be a positive number

C. Cash paid for dividends is recorded as a financing activity

D. Both a and c above are correct

8. The Milton Company pays salaries every Friday in the amount of $200,000 for work performed during Monday through Friday of that week. During 2019, the year ended on a Wednesday. The Milton Company should make the following adjusting entry on December 31, 2019:

A. Debit Salary Expense $80,000; Credit Cash $80,000

B. Debit Salary Expense $120,000; Credit Salaries Payable $120,000

C. Debit Salaries Payable $120,000; Credit Salary Expense $120,000

D. Debit Salary Expense $120,000; Credit Cash $120,000

9. Using generally accepted accounting principles, when a company writes off an uncollectible account:

A. Total assets are decreased

B. Total owners’ equity is decreased

C. Both a and b above are correct

D. None of the above answers are correct

10. Which of the following activities would be recorded as a current period expense on the income statement?

A. Purchase of inventory

B. Cash paid in the current month for next month’s rent

C. Payment of accounts payable

D. Utilities costs used in the current period, but not yet paid for

11. Which of the following statements about adjusting journal entries is correct?

A. Adjusting journal entries never have more than one debit

B. Adjusting journal entries usually impact only one financial statement

C. Adjusting journal entries never impact the cash account

D. Both B and C are correct

12. If a company pays for inventory that was originally purchased on credit, the following is the impact on the accounting equation.

A. Assets and stockholders’ equity are both increased

B. Both assets and liabilities are decreased

C. Assets and liabilities are both increased

D. Assets and stockholders’ equity are both decreased

13. Liu, Inc. has been in business for 20 years. During that time, the company has consistently used the LIFO inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The company has maintained the same inventory quantities over the 20-year period. Which of the following statements is most likely true?

A. The ending inventory figure reported on the balance sheet would be significantly lower than its current value

B. Liu, Inc. will have paid more income taxes over the 20 years than it would have paid if it used the FIFO method

C. Liu, Inc.’s reported net income for the past 20 years is greater in total that it would have been if it had used the FIFO inventory method

D. Both A and B above are true

14. Company A computed the following ratios at the end of its most recent year of operations:

Current Ratio 1.51

Gross Profit Margin 24.6%

Inventory Turnover 27.85 times

Profit Margin 2.8%

Which of the following observations is most likely true about Company A based on the information provided?

A. Company A manufactures and sells airplanes

B. Company A is a grocery store chain

C. Company A has been in business for more than 20 years, but has never been profitable

D. Company A is start up and has not yet reached profitability

15. Which ratio would you look at first to determine whether a company will be able to pay its current liabilities?

A. Asset Turnover Ratio

B. Accounts Payable Turnover Ratio

C. Quick Ratio

D. Market-to-Book Ratio

16. The following would be found on a Balance Sheet:

A. Cash

B. Net Income

C. Retained Earnings

D. Both A and C above.

17. The total assets of the Osterheld Company are $500,000 larger than the total Liabilities of the Osterheld Company; therefore:

A. The total Retained Earnings of the Osterheld Company is equal to $500,000

B. The total Common Stock of the Osterheld Company is equal to $500,000

C. The total Preferred Stock of the Osterheld Company is equal to $500,000

D. The total Stockholders’ Equity of the Osterheld Company is equal to $500,000

18. Which of the following can be learned by reviewing the Income Statement of a company?

A. The gross margin of a company

B. The net income of a company

C. The tax expense of a company

D. All of the above can be learned by reviewing the Income Statement of a company

19. Select the correct information about prepaid expenses:

(Account Classification, Normal Balance, Financial Statement)

A. Expense Debit Income Statement

B. Expense Credit Income Statement

C. Asset Debit Balance Sheet

D. Stockholders’ Equity Credit Balance Sheet

20. If a Statement of Cash Flows is prepared on the Direct Method, which of the following would be included in the Operating Section?

A. Cash paid to purchase a manufacturing facility

B. Cash paid for dividends

C. Cash paid for inventory

D. Cash received from an initial public offering

Answer 1

1. Correct answer is Option B . Separate entity principle

The cost of the ticket for the children of $ 500 recorded as a company expense. which is violation of The separate entity principle. as per separate entity principle, company and owners are separate.

Other given options are wrong.

2. Correct answer is Option C . $ 1,62,000

Ending retained earnings ( $ 200000) - Net income ( $ 50000) + dividend declared ( $ 12000) = $ 162000.

Other given options are wrong.

3. Correct answer is Option B . The purpose of of the trial balance to see whether the financial statements are prepared in accordance with generally accepted accounting principles.  This is a false statement. The purpose of Trial balance is not to see whether the financial statements are prepared in accordance with GAAP.

All other given options are true statements.

4. Correct answer is Option C. Total liabilities equal total assets minus total stockholders' equity.

All other given options are not correct.

5. Correct answer is Option C. Unearned revenue, prepaid rent, cost of goods sold.

All other given options are wrong.

6. Correct answer is Option C. 16%.

Return on equity = Net income/ stock holders equity = ( 80,000 x 8%) / ( 100000 - 60000) = 6400/40000 = 0.16 = 16%

7. Correct answer is Option C. Cash paid for dividends recorded as a financing activity.

All other given options are wrong.

8. Correct answer is Option B. Debit salary expense $ 120000: Credit Salaries payable $ 120000. ( 200000/5) x 3 = 120000

All other given options are wrong.

9. Correct answer is Option C. Both a and b above are correct.

When a company writes off an uncollectible account, total assets and as well as total owners equity will decrease.

All other given options are not true.

10. Correct answer is Option D. Utilities costs used in the current period, but not yet paid for.

The above transaction is a expense nature and all other transactions are not expense nature.

11. Correct answer is Option C. Adjusting journal entries never impact the cash account.

All other options are wrong.

12. Correct answer is Option B. Both assets and liabilities are decreased. when making payment cash asset is decreased and accounts payable balance also decreased.

All other options are wrong.

13. Correct answer is Option D. Both A and B above are true.

14. Correct answer is Option B. Company A is a grocery store chain.

15. Correct answer is Option C. Quick ratio,

Quick ratio is the company's ability to pay its current liabilities with easy convertible to cash asset.

16. Correct answer is Option D. Both A and C above.

Cash and Retained earnings showing in Balance sheet.

17. Correct answer is Option D. The total stockholders equity of the Osterheld company is equal to $ 500,000

All other given options are wrong.

18. Correct answer is Option D. All of the above can be learned by reviewing the income statement of a company.

By reviewing the income statement, Gross margin, net income and tax expense can learn.

All other given options are wrong.

19. Correct answer is Option C. Asset Debit Balance sheet

Prepaid expense is a Asset account, which has debit balance and it is a Balance sheet item.

20. Correct answer is Option C. Cash paid for inventory.

Cash paid for inventory is included in cash flow under the cash flow from operating activity section.

All other given options are wrong.