21. Which of the following is a characteristic of a liability?
a. It creates a present obligation for future payment of cash or services.
b. It cannot be settled with services.
c. It is an avoidable obligation.
d It occurs because of a future transaction or event.
22. Assuming rising prices, which method will give the highest dollar value for cost of goods sold on the income statement?
a. FIFO
b. Average Cost
c. LIFO
d. All of these give equal values for cost of goods sold
23. Cash received in advance of providing goods or performing services is recorded as ________.
a. Unearned Revenue
b. Accrued Revenue
c. Service Revenue
d. Uncollected Revenue
24. Goods in transit which are shipped F.O.B. shipping point should be:
a. Included in the inventory of the shipping company
b. Included in the inventory of the buyer
c. Included in the inventory of the seller
d. None of the above
25. In accounting for bad debts:
a. The allowance method matches losses with related sales better than the direct write-off method.
b. The direct write-off method involves estimating credit losses.
c. The direct write-off method consistently understates assets on the balance sheet.
d. Both (b) and (c)
26. If a company fails to make an adjusting entry to estimate doubtful accounts, then this error:
a. Understates owners’ equity
b. Understates assets
c. Overstates net income
d. Overstates expenses
27. A note for $24,000 is dated May 3, 2019 and it matures on August 1, 2019. The note is a:
a. 3-month note
b. 90-day note
c. 91-day note
d. Both A and B
28. If Bruce Company fails to make an adjusting entry to accrue interest on a note receivable, then this error:
a. Overstates expenses
b. Understates income
c Understates assets and owners’ equity
d. b and c
29. The purpose of depreciation accounting is to:
a. Reflect changes in the current value of a plant asset over its useful life
b. Accumulate funds to replace a plant asset at the end of its useful life
c. Allocate a plant asset’s cost, less its salvage value, to expense over the asset’s useful life
d. Have a plant asset’s book value equal its initial cost by the end of its useful life
30. Which of the following plant assets is not depreciated?
a .Furniture and equipment
b. Land improvements
c. Delivery truck
d. All of these are depreciated
31. A land site for a new office building is purchased for $360,000 by Texas Coast Company. A barn on the site will be removed at a net cost of $34,000.
The $34,000 razing expenditure is properly debited to:
a. Office Building
b. Land
c. Razing Expense
d. Land Improvements
32. Current liabilities are all obligations that require, within the coming year or current operating cycle, whichever is longer:
a. The payment of cash
b. The use of existing current assets
c. The creation of other current liabilities
d. Either the use of existing current assets or the creation of other current liabilities
33. Which of the following transactions that affects current liabilities has a corresponding effect on the income statement?
a. Purchase inventory on credit from company QRS on January 1
b. Payment to QRS on February 1for a January 1 purchase
c. Interest accrued on a note payable
d. Payment to employees in March for wages earned in February
34. How many payment periods are in a 6-year, 8% bond with an effective interest rate of 6%, and interest paid semiannually? What is the effective interest rate per payment period?
a. 3,8%
b. 12,3%
c. 48,4%
d. 6,8%
35. A single-step income statement for a merchandising firm:
a. Shows a different net income amount than a multiple-step income statement
b. May not be used because it is an unacceptable reporting format
c. Does not show a gross profit on sales amount
d. None of the above
36. On the income statement of a merchandising company, interest income and interest expense are reported:
a. By offsetting interest income and interest expense and showing the excess as an operating revenue or expense
b. As separate items of other income and expense below the net operating income or loss
c. As part of cost of goods sold
d. By showing interest income as additional sales revenue and interest expense as an operating expense
37. Which of the following are not inputs to the Cash Budget?
a. Materials purchased and paid-for from the Direct Materials Budget
b. Cash purchases of equipment from the Capital Expenditures Budget
c. Cost of goods sold from the Budgeted Income Statement
d. Rental payments from the Manufacturing Overhead Budget
38. What budget must be prepared prior to the Production Budget?
a. Cash budget
b. Direct materials budget
c. Manufacturing overhead budget
d. None of the above
39. Which one of the following selections is not a part of Paid-in Capital?
a. Retained earnings
b. Common stock
c. Additional paid-In capital
d. All of the above
40. Which of the following statements is correct?
a. A corporation’s issued stock may exceed its outstanding stock.
b. A corporation’s outstanding stock may exceed its authorized stock.
c. A corporation’s issued stock may exceed its authorized stock.
d. A corporation’s treasury stock may exceed its issued stock.
21. Which of the following is a characteristic of a liability?
Answer: (a). It creates a present obligation for future payment of cash or services.
22. Assuming rising prices, which method will give the highest dollar value for cost of goods sold on the income statement?
Answer: (c). LIFO
23. Cash received in advance of providing goods or performing services is recorded as Unearned Revenue.
Answer: (a). Unearned Revenue
24. Goods in transit which are shipped F.O.B. shipping point should be:
Answer: (b). Included in the inventory of the buyer
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