Question

1-25 True or False

1. Sales revenue is an inflow of assets.

2. The three distinct types of cost to a manufacturer are direct materials, direct labor, and manufacturing overhead.                      

3. Sales Returns and Allowances is a contra-asset account.

4. Like sales revenue, cost of goods sold represents an inflow of assets.

5. With the periodic inventory system the inventory account is updated after each sale or purchase.

6. When merchandise is sold FOB shipping point, the buyer is responsible for the shipping costs.

7. The inventory method that assigns the most recent costs to ending inventory is LIFO.

8. Specific identification relies on matching unit cost with the actual units sold.

9. The lower of cost or market (LCM) rule violates the historical cost principle.

10. A six-month certificate of deposit would be considered to be a cash equivalent.

11. If collection of accounts receivable is assured, then accounts receivable are considered to be cash equivalent.

12. When reconciling a bank, the company does not have to prepare an adjustment entry for outstanding checks.

13. Checks received from a customers are considered to be cash in the company’s books.

14. A company prepares adjusting entries for debit memorandums but not for credit memorandums.

15. According to the Sarbanes-Oxley Act of 2002, only external auditors can provide bookkeeping services for the clients they audit.

16. Accounts receivable are shown on the balance sheet at their net receivable value.

17. Bad debt expense is debited and Accounts Receivable is credited at the end of the period to recognize bad debt under the allowance method.

18. Because the allowance method results in better matching, accounting standards require its use rather than direct write-offs method, unless bad debts are immaterial.

19. An aging schedule typically categories the various accounts by the length of time each invoice is outstanding.

20. The equity method of accounting is used if the investor owns at least 20% of the investee and the investor is able to secure influence over the investee.

21. All operating assets, expect land, are subject to depreciation, amortization, or depletion.

22.

23. The Property, Plant, Equipment category includes long term investments.

24. If a company chooses to treat small plant assets expenditures as expense, GAAP are being violated.

25. Net income on a cash basis is arrived at, by adding depreciation and amortization back to accrual net income.

Multiple Choice.

26. Which of the following types of inventory accounts would be used by a wholesaler or retailer?

A) Merchandise inventory

B) Finished good inventory

C) Work in process inventory

D) Raw material inventory

27. Items should be reported as part of the company’s “inventory” at the year end, if they are?

A) Sold during period

B) Determined to be part of cost of goods sold

C) Purchased from a creditor, available for sale, and paid for the following year

D) Held in anticipation of an increase in market value

28. Which of the following accounts most likely would appear on the income statement of a merchandise company, but not on the income statement of service company?

A) Income tax expense

B) Cost of goods sold

C) Selling Expense

D) Administrative Expense

29. Tavelli Co. sold merchandise to Trapani Co. on account $17,000 terms 2/15 net 45. The cost of merchandise sold is $15,400. Tavelli Co. issued a credit memo for $1,750 for merchandise returned that originally cost $1,400. The Trapani Co. paid the invoice within the discount period. What is the amount of net sales from the above transaction?

A) $17,000

B) $14,945

C) $15,250   D) None of the above

30. Anthony’s Shoe Company uses a perpetual inventory system. The beginning balance in its inventory account is $1,500 and the ending balance is $1,000. Cost of goods sold is $6,500. What was the amount of inventory purchased during the year?

A) $500

B) $7,000

C) $7,500

D) $6,000

31. Sales Discounts is classified as what type of account?

32. The debit balance in Cash Short and Over at the end of an accounting period is reported as_____

A) an expense on the income statement

B) income on the income statement

C) an asset on the balance sheet

D) a liability on the balance sheet

33. A check drawn by a company for $360 in payment of liability was recorded in the journal as $360. What entry is required in the company’s accounts?

A) Debit accounts payable; Credit cash

B) Debit cash; Credit accounts receivable

C) Debit cash; Credit accounts payable

D) Debit accounts receivable; Credit cash

34. Genuine Parts received a promissory note from a customer on March 1, 2016. The face amount of the note is $8,000, the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?

A) Increase cash $8,000; Decrease notes receivable $8,000

B) Increase cash $8,180; Increase interest revenue $8,180; Decrease notes receivable $8,180

C) Increase cash $8,720; Decrease notes receivable $8,000; Decrease interest revenue $720

D) No entry is required; the customer pays the amount due to the bank

35.Comfort Shoes received a promissory note from a customer on April 1, 2016. The face amount of the note is $2,000, the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2016?

A) $40

B) $107

C) $120

D) $160

36. What are the effects on the accounting equation from the purchase of a short-term investment?

A) Assets and stockholders’ equity decrease

B) No effects- assets increase and decrease by the same amount

C) Assets and liabilities decrease

D) Stockholders’ equity decrease and liabilities increase

37. Goodwill can be recorded as an asset when a(n)

A) business has above normal profitability compared to other businesses in its industry.

B) business can determine that it has created customer goodwill and name recognition.

C) offer is received to purchase the business at a price in excess of the value of the assets.

D) business is purchase and payment is made in excess of the value of the net assets.

38. Research and development costs are

A) treated as an expense when incurred.

B) capitalized but not amortized.

C) capitalized and amortized over the periods that will probably benefit from the research and development.

D) included with the cost of the patent resulting from the research and development.

39. All of the following are intangible assets except

A) Patents

B) Goodwill

C) Franchises

D) Accounts Receivable

40. Which of the following below is an example of a capital expenditure?

A) Cleaning the carpet in the front room

B) Tune-up for a company truck

C) Replacing an engine in a company car

D) Replacing all burned-out lights bulbs in the factory

Answer 1

1) Solution: True

Explanation: Sales revenue is defined as inflow of assets resulting from the sale of products and services

2) Solution: True

Explanation: Three distinct costs type incurred by a manufacturer oncludes direct materials, direct labor and manufacturing overhead

3) Solution: False

Explanation: Sales Returns and Allowances is a contra revenue account.

4) Solution: False

Explanation: Cost of goods sold indicates an resource outflow, inventory, which is caused by the sale of products