2000 Accounting II Page 1

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1 2000 Accounting II Page 1 1. In accounting, the two types of equity are liabilities and owner's equity. 2. When journalizing, you are advised to go from left to right. 3. Transportation charges need to be included in order to determine net purchases. 4. When using a special journal, the journalizing and posting processes are much more complicated than when using the general journal. 5. Both the double-declining balance method and the sum-ofthe-y ears'-digits method of depreciation are examples of accelerated methods of depreciation. 6. When buying merchandise on account, the bookkeeper will debit purchases and credit cash. 7. To determine depreciation using the double-declining balance method, the salvage value of the asset is used in the calculation. 8. Merchandise Inventory will appear on the Balance Sheet but not the Income Statement. 9. A delivery truck bought on June 16 is counted for the full month when calculating depreciation. 10. To determine the cost of merchandise sold, include the ending inventory but not the beginning inventory in the calculation. 11. Reporting income on the basis of when it is earned is called the accrual basis of accounting.

2 2000 Accounting II Page If a business has a note payable, the amount is classified as a liability to the business. 13. Advertising costs for a manufacturing business are usually classified as manufacturing overhead. 14. The book value of an asset is not the same as the asset's trade-in-allowance. 15. The amount of depreciation for an asset depreciated using the straight-line method will be lower in the first year than when using other depreciation methods. 16. Self-generated income is an example of income for a not-forprofit organization. 17. Shipping costs incurred by a seller for merchandise sold should be considered an expense rather than an inventory cost. 18. Purchase discounts increase the cost of merchandise bought for resale to customers. 19. The cost of merchandise sold is deducted from sales, and the amount reported for merchandise inventory affects net income. 20. Retained Earnings is one stockholders' equity account; the other is Capital Stock. 21. When an uncollectible account is written off, the method the accountant uses is called the direct-write-off method.

3 2000 Accounting II Page A straight-line method of calculating depreciation for an asset assumes that higher amounts of depreciation are recorded in the early years rather than in the later years. 23. Purchase Returns and Allowances would normally have a credit balance. 24. Transportation In would normally have a debit balance. 25. In a partnership, only one partner needs to maintain a separate capital account and a separate withdrawal account in accordance with the standards of accounting principles. 26. The social security tax was established by the Fair Labor Standards Act. 27. Form W-2 summarizes the employer's earnings and taxes for a given year. 28. The gross earnings of an employee are debited to the Salary Expense account each pay period. 29. Supplies, accounts receivable, and equipment are examples of plant asset accounts. 30. On a note receivable, the interest plus the principal is called the face value. 31. Not counting extensions, the filing deadline for federal income tax returns for individuals is 32. When current assets exceed current liabilities, payments to creditors on the last day of the month will A. January 15 B. March 15 C. April 15 D. August 15 A. increase capital. B. decrease current ratio. C. increase current ratio. D. have no effect.

4 2000 Accounting II Page Jones and Smith are partners with capital balances of $40,000 and $20,000. They share profit and loss in the ratio of 2:1, respectively. On December 31, 1998, Hunter invests $18,000 cash for a 20 interest in the capital and profit of the business. How much will be credited to Hunter's capital account on December 31, 1998? 34. An asset with a useful life of four years and an estimated 10 salvage value was purchased on January 1, Would depreciation expense using the sum-of-the-years'-digits method of depreciation be higher or lower than depreciation expense using the double-declining balance method of depreciation in the first and second years? 35. Acme Company pays all employees on a biweekly basis. Overtime pay, however, is paid on the next biweekly period. The company accrues salaries expense only at year end. Data relating to salaries earned in December 1998 are as follows: Last payroll was paid on 12/24/98, for the 2-week period ended 12/25/98. Overtime pay earned in the same 2-week period was $4,200. Work days remaining in the year were December The recurring biweekly salaries total $75,000. Assuming a five-day workweek, the company should record a liability on December 31 for accrued salaries of A. $17,000 B. $13,600 C. $12,000 D. $15,600 A. First Year, Higher; Second Year, Higher B. First Year, Lower; Second Year, Higher C. First Year, Higher; Second Year, Lower A. $22,500. B. $49,200. C. $45,000. D. $26,700. D. First Year, Lower; Second Year, Lower

5 2000 Accounting II Page 5 The same company had a checkbook balance of $ 15,000 on December 31. In addition, the company held the following items during December: Check payable for $2,000 dated January 4, 1999, for payment of a sale made in December. Check for $500 deposited December 24 and included in the December 31 checkbook balance, but returned on December 30 stamped "NSF." The check was redeposited on January 4, and cleared on January 8. Check for $300 payable to a creditor, dated and recorded on December 31 and mailed on January What amount should be A. $14,800 B. $14,700 C $ D. $16,800 shown as Cash on the balance sheet on December 31, 1998? 37. On June 1, 1999, Acme Company borrowed cash and signed a two-year interestbearing note on which both the principal and interest are payable on June 1, On December 31,1999, the liability for accrued interest should be for A. 24 months. B. 6 months. C. 12 months. D. 7 months. ITEMS 38 AND 39 ARE BASED ON THE FOLLOWING DATA: In preparing its bank reconciliation for month ending May 31, 1999, Smith Corporation has available the following data: Balance on bank statement, 5/28 $30,000 Deposit in transit, 5/29 $5,200 Outstanding checks $6,750 Bank service charges for month $ Smith Corporation's adjusted checkbook balance after reconciliation should be 39. Given the information above, a debit to Miscellaneous Expense and a credit to Cash in Bank should be made for what amount? 40. Individual taxpayers whose itemized deductions exceed their standard deduction must file which IRS Form in order to take advantage of itemizing? 41. The effect of declaring a dividend for any given year is 42. If the maturity date of a 90 day note payable is August 3, what was the issue date? A. $23,225. B. $28,475. C. $28,450. D. $28,425. A. $0 B. $25 C. $5,200 D. $6,750 A. 1040EZ B. 1040A C D. Both b and c A. a debit to Dividends Declared and a credit to Dividends Payable. B. a debit to Dividends Declared and a credit to Retained Earnings. C. a debit to Dividends Payable and a credit to Dividends Declared. A. June 4 B. May 4 C. May 3 D. May 5 D. no transaction until the dividend is paid to stockholders.

6 2000 Accounting II Page Jamie has not cashed his payroll check; therefore, the payroll bank account still shows a balance. What affect does this have on the Balance Sheet? 44. Under the inventory costing method, items purchased at the end of the month are the first items sold at the beginning of the month. This is called 45. Find the interest and maturity value for a 60 day note with principal of $1,500 and interest at 8 percent. A. The amount will show as a current asset. B. The amount will show as a current liability. C. It's the Income Statement that is affected, not the Balance Sheet. D. The balance will not show on either the Balance Sheet or the Income Statement. A. FIFO. B. LIFO. C. Perpetual Inventory. D. Periodic Inventory. A. $ interest; $ 1, maturity value TravelWorks provided you with the following information for 1998: Net Sales $100,000 Beginning Inventory $36,000 Purchases $42,000 Ending Inventory $16,000 B. $32.88 interest; $1, maturity value C. $3.29 interest; $1, maturity value D. $19.74 interest; $1, maturity value 46. What is TravelWorks's cost A. $62,000 and $38,000 B. $38,000 and $62,000 C. $22,000 and $78,000 D. None of the above. of good sold and its gross profit on sales? 47. A fiscal period may be A. three months. B. six months. C. twelve months. D. any of the above. 48. Which of the following is A. Raw materials B. Indirect labor C. Utilities D. Supervisor's salary not a cost considered as factory overhead? 49. An example of a business's A. advertising. B. rent expense. C. direct labor. D. All of the above variable cost would be 50. If a business installs a new A. revenue expense. B. capital expense. C. pre-paid expense. D. liability. and improved electrical system, the cost is considered a 51. In a manufacturing A. finished goods. B. raw materials. C. work in progress. D. interim inventory. business, products that have not yet been fully completed are called 52. A franchise is a A. patent. B. copyright. C. charter. D. right to conduct business 53. When a business exchanges a plant asset for a similar plant asset, losses are 54. When a corporation sells a bond issue to an investment firm, the firm is known as the under a contracted name. A. not recognized. B. recognized. C. recognized, but at book value. D. recognized, but at market value. A. mortgagor. B. mortgagee. C. stockholder. D. underwriter.

7 2000 Accounting II Page Which inventory cost A. FIFO B. LIFO C. Weighted average D. Specific identification method yields the smallest gross profit (and smallest tax obligation)? 56. When both a partnership and the partnership business end, this is called a A. mutual understanding. B. dissolution. C. termination. D. liquidation. Space Company shows the following data for May, 1999: Beginning Inventory at cost: $210,000; at retail: $428,510 Net Purchases at cost: $74,000; at retail: $129,667 Sales totaled $194, If the gross profit percentage has been 28 on average, what is the estimated cost of the ending inventory using the gross profit method? 58. The costing method used to determine the value of the ending inventory will 59. MACRS is a method to calculate depreciation. This statement is 60. Generally, the accountant will prepare financial statements in a specific order. Which of the following is the best order to follow? 61. The is used to determine the liquidity ratio of a business. 62. All of the information needed to journalize the closing entries is found in the 63. The Jones Corporation issued 6,000 shares of $10 par common stock at $14.50 per share. What amount will be credited to the Paid-in Capital (excess of par) account? 64. To evaluate a business's earning power, the accountant will determine A. $144,320 B. $139,680 C. $229,680 D. $199,987 A. affect all of the adjusting entries. A. true, and may be an advantage to a business for tax purposes. A. Balance Sheet, Income Statement, Statement of Owner's Equity B. affect the gross profit on sales for the period. B. true, but MACRS has no impact on a business's tax situation. B. Statement of Owner's Equity, Income Statement, Balance Sheet C. affect the market value of the inventory on hand. C. false, as MACRS is not a method to calculate depreciation. C. Income Statement, Statement of Owner's Equity, Balance Sheet D. affect the original cost of the merchandise purchased. D. None of the above are correct. D. Income Statement, Balance Sheet, Statement of Owner's Equity A. Income Statement B. Work Sheet C. Statement of Owner's Equity D. Balance Sheet A. Balance Sheet section of the work sheet. B. Income Statement section of the work sheet. C. General Journal. D. Trial Balance section of the work sheet. A. $60,000 B. $87,000 C. $27,000 D. $6,000 A. the quick ratio. B. the current ratio. C. the profitability ratio. D. the portfolio ratio.

8 2000 Accounting II Page When a corporation accepts assets other than cash in exchange for its stock, the journal entry is 66. When a dividend is paid in cash, the accounts debited and credited are 67. A method of estimating the uncollectible amount from customers' accounts is called 68. Would stockholders' equity be affected by a stock dividend? A stock split? 69. When a corporation issues preferred stock to its stockholders, the result will be 70. An example of direct labor is 71. The total of beginning inventory plus purchases represents the A. debit the assets at fair market value, credit stock. A. Dividends Received and Dividends Payable. B. debit the stock, credit the assets at fair market value. C. debit the assets at book value, credit the stock. B. Cash and Dividends Payable. C. Dividends Payable and Cash. D. Stock should never be issued for non-cash assets. D. Common Stock and Cash. A. aging of accounts receivable. B. bad debts allowance. C. matching principle. D. direct write-off. A. Yes and Yes B. Yes and No C. No and Yes D. No and No A. a decrease of preferred stock outstanding. A. wages paid to a person who works on a product. B. an increase of preferred stock outstanding. B. wages paid to a person who supervises the production process. A. gross profit on sales. B. merchandise available for sale. C. an increase of preferred stock authorized. D. both an increase and decrease of preferred stock outstanding. C. wage paid to a security person D. wage paid to the payroll clerk. who oversees the security of the production process. C. cost of goods sold. D. book value of the accounts receivable. QUESTIONS 72 THROUGH 80 ARE BASED ON ANALYZING WHETHER THE ACCOUNT WOULD NORMALLY HAVE A DEBIT OR CREDIT TRANSACTION. USE "A" FOR DEBIT AND "B" FOR CREDIT. 72. Certificates of Deposit A. Debit B. Credit 73. Grants Receivable A. Debit B. Credit 74. Wages Payable A. Debit B. Credit 75. Prepaid Rent A. Debit B. Credit 76. Purchase Returns and A. Debit B. Credit Allowances 77. Sales Returns and A. Debit B. Credit Allowances 78. Federal Income Tax A. Debit B. Credit Expense 79. Paid-in-capital from sale of A. Debit B. Credit treasury stock (at above cost) 80. Accumulated Depreciation A. Debit B. Credit 81. To write off a bond premium over the life of the bond, the accountant will A. depreciate the bond premium. B. underwrite the bond premium. C. amortize the bond premium. D. liquidate the bond premium.

9 2000 Accounting II Page The price-earnings ratio of a company's stock is calculated by. 83. If fixed costs increase profits will 84. If the number of units produced increases, unit fixed costs will 85. If the contribution margin increases, profits will A. dividing net income after taxes by the market price of the stock. A. increase B. decrease A. increase B. decrease A. increase B. decrease B. dividing the market price per share by the earnings per share. C. determining the current ratio. D. dividing the profitability ratio by the quick ratio.

ACCOUNTING I. 1. The cash account is used to summarize information about the amount of money the business has available.

ACCOUNTING I. 1. The cash account is used to summarize information about the amount of money the business has available. ACCOUNTING I True/False Indicate whether the sentence or statement is true or false. 1. The cash account is used to summarize information about the amount of money the business has available. 2. The source