Ch. 3 - Practice Multiple Choice Test PDF

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Chapter 3 Multiple Choice Practice Test 1. Factors that shape an accounting information system include the A. transactions in which the business engages. B. informational demands of management. C. volume of data to be handled. D. All of these answer choices are correct.

2. Real accounts are periodically closed. A. True B. False

3. Which of the following is not transferred to Retained Earnings at the end of the period? A. Revenues. B. Dividends. C. Common stock. D. Expenses.

4. Revenue, equity and liability accounts have normal credit balances. A. True B. False

5. When a corporation purchases a computer for cash, A. liabilities increase. B. stockholders' equity decreases. C. assets increase. D. the account Cash will be credited.

6. Which of the following is an internal event? A. A transaction with another entity. B. Using machinery in operations. C. A change in the price of a good that an entity buys or sells. D. A flood.

7. A trial balance A. proves that debits and credits are equal in the ledger. B. chronologically lists transactions and other events. C. proves that a company recorded all transactions. D. All of these answer choices are correct.

8. Each general journal entry must have how many accounts affected at a minimum? A. One. B. Two. C. Three. D. Four.

9. Depreciation and amortization allocate the cost of long-term assets to the periods which benefit from their use. A. True B. False

10. The difference between the cost of a depreciable asset and its related contra account, Accumulated Depreciation is referred to as the asset's: A. book value. B. fair value. C. market value. D. real value.

11. The adjusting entry to record an accrued expense includes a debit to: A. a liability account and a credit to an expense account. B. a liability account and a credit to a revenue account. C. an expense account and a credit to a revenue account. D. an expense account and a credit to a liability account.

12. Adjustments are often prepared A. after the balance sheet date, but dated as of the balance sheet date. B. after the balance sheet date, and dated after the balance sheet date. C. before the balance sheet date, but dated as of the balance sheet date. D. before the balance sheet date, and dated after the balance sheet date.

13. After journalizing and posting all adjusting entries, a company prepares an adjusted trial balance that is the primary basis for preparation of the financial statements. A. True B. False

14. Adjusting entries can be classified as either: A. accruals or reversals B. prepayments or accruals. C. real or nominal. D. internal or external.

15. All of the following statements about contra asset accounts are true except: A. Contra asset accounts have normal credit balances. B. Contra asset accounts are permanent accounts. C. Contra asset accounts are not reported in the financial statements. D. Contra asset accounts are increased with credits.

16. Financial statements can be prepared directly from the adjusted trial balance. A. True B. False

17. In the closing process all of the asset and liability account balances are transferred to the Income Summary account. A. True. B. False.

18. When a merchandiser prepares closing entries, Cost of Goods Sold is credited and Income Summary is debited. A. True B. False

19. If the balances in both accounts receivable and accounts payable decrease during the year A. the decrease in both the accounts receivable and accounts payable balances will result in a decrease in cash for the period. B. the decrease in both the accounts receivable and accounts payable balances will result in a increase in cash for the period. C. the decrease in the accounts receivable balance would result in an increase in cash for the period. D. the decrease in the accounts payable balance would result in a increase in cash for the period.

20. Which one of the following guidelines regarding reversing entries is incorrect? A. All accruals should be reversed. B. All deferrals for which a company debited or credited the original cash transaction to an expense or revenue account, respectively should be reversed. C. Adjusting entries for bad debts are reversed. D. None of these answer choices are correct

21. Which of the following accounts would be closed at the end of the year? A. Allowance for doubtful accounts B. Accounts payable C. Insurance expense D. All of these answer choices are correct.

22. _________ is the process of transferring the accounts and amounts from the book of original entry to the ledger accounts. A. Journalizing. B. Posting. C. Closing. D. Ledgerizing.

23. Companies may prepare a trial balance at any time. A. True B. False

24. Which of the following is a temporary account? A. Interest Payable. B. Dividends. C. Cash. D. Retained earnings.

25. Which of the following is an incorrect depiction of the accounting equation? A. Assets = Liabilities + Stockholders' Equity. B. Assets – Stockholders' Equity = Liabilities. C. Assets – Liabilities = Stockholders' Equity. D. Assets + Stockholder's Equity = Liabilities.

26. The double-entry accounting system means A. each transaction is recorded with two journal entries. B. each item is recorded in a journal entry, then in a general ledger account. C. the dual effect of each transaction is recorded with a debit and a credit. D. each journal entry must have one debit and one credit, or two debits and two credits.

27. When a dividend is declared: A. assets decrease. B. liabilities increase. C. stockholders' equity increases. D. All of these answer choices are correct.

28. Which of the following is not a recordable event or item? A. Changes in managerial policy. B. Sales of the company's product in overseas markets. C. Declaration of dividends. D. Purchase of supplies.

29. Which of the following statements about a trial balance is incorrect? A. Its primary purpose is to prove the mathematical equality of debits and credits after posting. B. It can help uncover errors in journalizing and posting. C. It is useful in the preparation of financial statements. D. It proves that all transactions have been recorded.

30. Transactions are initially recorded in the general journal. A. True B. False

31. Which of the following is a reason the trial balance may not contain up-to-date and complete data? A. Some items may be unrecorded. B. Some costs are not recorded during the accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions. C. Some events are not recorded daily because it's not efficient to do so. D. All of these answer choices are correct.

32. If an adjusting entry is not made for a deferred revenue which was initially credited to an unearned revenue account, which of the following results? A. Liabilities are understated. B. Revenues are overstated. C. Assets are unaffected. D. All of these answer choices are correct.

33. Unearned revenues are: A. revenues. B. liabilities. C. accruals. D. All of these answer choices are correct.

34. If the adjusting entry for an accrued revenue is not made: A. assets will be overstated. B. revenues will be overstated. C. liabilities will be understated. D. equity will be understated.

35. An accrued expense is A. an expense which is recorded with the passage of time. B. an expense that has been incurred but for which payment has not yet been made. C. an expense for which cash is paid before the expense is incurred. D. initially recorded as an asset.

36. An adjusting entry would never include a: A. debit to an expense account and a credit to an asset account. B. debit to an expense account and a credit to a liability account. C. debit to a liability account and a credit to a revenue account. D. debit to an asset account and a credit to a liability account.

37. The proper sequence of financial statement preparation is: A. The Retained Earnings Statement, the Balance Sheet, the Income Statement, and then the Statement of Cash Flows. B. The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows. C. The Balance Sheet, the Retained Earnings Statement, the Income Statement, and then the Statement of Cash Flows. D. The Statement of Cash Flows, the Income Statement, the Retained Earnings Statement, and then the Balance Sheet.

38. Cost of goods sold appears on the income statement of a service firm but not a merchandising firm. A. True B. False

39. If the entry to close Income Summary to Retained Earnings includes a debit to Income Summary: A. The company has incurred a net loss. B. Retained Earnings will be increased by the current period's net income. C. Dividends paid exceed the net income earned for the period. D. Expenses exceed revenues.

40. The accounting cycle for a merchandiser is the same as the accounting cycle for a service firm. A. True B. False

Answer Key 1. D 2. B 3. C 4. A 5. D 6. B 7. A 8. B 9. A 10. A 11. D 12. A 13. A 14. B 15. C 16. A 17. B 18. A 19. C 20. C 21. C 22. B 23. A 24. B 25. D 26. C 27. B 28. A 29. D 30. A 31. D 32. C 33. B 34. D 35. B 36. D 37. B 38. B 39. B 40. A...