Sample/practice exam 2015, questions and answers PDF

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2015 fall practice term test 1...

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Sample Term Test #1 1. The following information is available at the end of ABC Welding Limited’s first year in business: Cash on hand at the start of the year Collections of cash from customers Payments to suppliers Accounts receivable, ending balance Accounts payable, ending balance Ending inventory Depreciation expense

$ 1,200 60,650 59,210 6,920 8,440 2,170 860

What is the balance in the Cash account at the end of the first year? a) b) c) d)

($240) $1,440 $1,200 $2,640

2. The balance sheet of Company X at the end of Year 1 showed that total assets had decreased by $16,000 and equity had decreased by $6,500. The change in liabilities during the year was: a) b) c) d)

A decrease of $9,500 An increase of $16,000 An increase of $9,000 A decrease of $16,000

3. The payment of a business debt: a) b) c) d)

Decreases total assets Increases total liabilities Increases the equity in the business Decreases the equity in the business

4. The sale of merchandise to a customer partly for cash and partly on account would require which of the following to account for all financial statement effects? a) b) c) d)

Increase in Accounts receivable, Increase in Cash, Increase in Sales revenue Increase in Cash, Decrease in Accounts payable, Increase in Sales revenue Increase in Cash, Decrease in Accounts Receivable, Increase in Sales revenue Decrease in Accounts payable, Increase in Accounts receivable, Increase in Sales revenue

5. Which of the following would cause the trial balance to be out of balance? a) b) c) d)

An unrecorded entry An entry recorded as two debits An entry recorded twice An entry recorded to the wrong accounts

6. Company A borrowed $5,000 cash from the bank and signed an agreement to repay the amount plus 8% interest. At the time the funds are borrowed, the transaction is recorded by: a) Notes Receivable $5,000 Cash b) Cash $5,000 Notes Receivable c) Cash $5,000 Interest Expense $400 Notes Payable d) Cash $5,000 Notes Payable

$5,000 $5,000

$5,400 $5,000

7. Failure to record an accrued expense at year end will cause: a) b) c) d)

Assets to be overstated Liabilities to be understated Assets to be understated Owner’s equity to be understated

8. Accounting information is useful to which groups? a) Managers b) Owners c) Regulators d) All of these 9. Given the following three T/ledger accounts, determine what transaction(s) occurred. Cash

(1) 6000

Prepaid Rent

900 (2)

(2) 900

300 (3)

Rent Expense

(3) 300

a) There may have been a sale to a customer for $6,000 b) Cash of $900 was paid in advance for rent c) Use of the rental property during the period amounted to $300

d) All of the above 10. Which of the following best defines the matching concept? a) The attempt to match the dollar amount of revenues to the dollar amount of expenses b) Expenses should be recorded in the same time period as the related revenue are recognized c) The revenues earned will always match the revenue realized d) The dollar amount of total assets should match the dollar amount of total liabilities and total owners equity

11. On January 1, 2011, the Worchester Company paid $8,000 for January, February, March and April’s rent in advance. The company recorded this transaction by increasing the balance in the prepaid rent account. What will be the balance in the prepaid rent account as of March 31, 2011? a) b) c) d)

$0 $2,000 $4,000 $6,000

12. What is the effect on a company’s balance sheet equation when amortization expense is recognized? a) The total liabilities will increase and total shareholder’s equity will decrease by the same amount. b) There will be no change in the total assets, liabilities, and shareholders’ equity. c) The total assets and the shareholders’ equity account will decrease by the same amount. d) This transaction affects only the income statement, so no change on the balance sheet will occur.

13. The Newton Company determines that amortization amounts to $700 for the period. As the accountant, you would tell the bookkeeper to: a) Debit Amortization expense and credit accumulated amortization for $700 b) Debit accumulated amortization and credit fixed assets for $700 c) Debit amortization expense and credit fixed assets for $700

d) Debit fixed assets and credit accumulated amortization for $700 14. Which of the following is a distinguishing feature of a contra account? a) If a contra account has a credit balance, then its companion account will usually have a debit balance b) If a contra account has a credit balance, then its companion account will usually have a credit balance c) A contra account usually has a dollar balance larger than its companion account d) Contra accounts are found only in the liability section of the balance sheet 15. An example of an adjusting entry is: a) b) c) d)

The payment of wages which have been accrued The accruing of interest expense The return of defective inventory The payment of rent in advance

16. Expenses sometimes make their contribution to revenue in a different period than when the expense is paid. When salaries are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the first period? a) b) c) d)

Due from employees Due to employer Salaries payable Salaries expense

17. Indicate the generally accepted principles that is being violated: A blanket manufacturer recognized 0 depreciation expense on its quilter machine because the machine is made of metal and is oiled on a weekly basis. a) b) c) d)

Objectivity Realization Cost Matching

18. Each of the following is an essential characteristic of a liability, except: a) it is a result of past transactions or events. b) The dollar amount of the obligation is known for certain. c) It represents a probable future sacrifice of economic benefits

d) It represents an obligation to transfer assets or provide services to another entity in the future. 19. Depreciation (amortization): a) is a process of asset valuation b) affects only the income statement c) allocates an asset’s cost to the period benefited, in a rational and systematic manner d) is a cash expense 20. Ski Powder Resorts had a terrific first year of operations. The ski season began on November 1st. The following are their results for the first four months of operations. Ski Powder Resorts deals in both cash and open account (credit sales).

November 30 December 31 January 31 February 28

Credit Sales $30,000 $60,000 $70,000 $60,000

Accounts Receivable $10,000 $35,000 $65,000 $20,000

Cash Collect $29,000 $59,000 $80,000 $120,000

What is the best month for Lift ticket Revenue: a) b) c) d)

November December January February

21. When a company buys machinery for $80,000 and 25% is paid for with cash and the 75% is financed by a note payable, the following are the effects on assets, liabilities and shareholders’ equity respectively. a) assets increase by $80,000 and liabilities increase by the same amount b) total assets increase by $60,000 and liabilities increase by the same amount c) assets increase by $80,000 and liabilities increase $60,000 and shareholders’ equity increases by $20,000 d) total assets increase by $60,000 and liabilities increase by $80,000 and shareholders’ equity decreases by $20,000 22. Janet’s Fashions Ltd. produces and sells high fashion merchandise. For the year ended June 30, 2009, it reported $90,000 cash provided by operating activities, $10,000 from investing activities, and $45,000 from financing. It paid $25,000 in dividends and spent $35,000 for equipment. Its free cash flow for the year was a) $90,000.

b) $85,000. c) $50,000. d) $30,000. 23. The conceptual framework of accounting begins with a) b) c) d)

Accounting assumptions. Accounting constraints. The objective of financing reporting. The elements of financial statements.

24. An item is considered material if a) it costs a lot of money. b) it is of a tangible nature. c) it is likely to influence the decision of an investor or creditor. d) the cost of reporting the item is greater than its benefits. 25. Which of the following is a constraint in accounting? a) b) c) d)

Comparability Cost-benefit Faithful representation Relevance

Answers 1. D 2. A 3. A 4. A 5. B 6. D 7. B 8. D 9. D 10. B 11. B 12. C 13. A 14. A 15. B 16. C 17. D 18. B 19. C 20. C 21. B 22. D 23. C 24. C 25. B...