2005 SLC Accounting II Page 1 Indicate whether the sentence or statement is True or False. Mark A if True or B if False. 1. Most companies have a code of conduct that they distribute and/or communicate to all workers. 2. The business entity concept requires that monetary business transactions be recorded at market value. 3. Cash investments by owners increase both equity and assets. 4. The ratio of liabilities to owner s equity can be expressed, total owner s equity divided by total assets. 5. In horizontal analysis, the base for computing changes is generally the oldest period. 6. Posting a transaction twice will cause the trial balance totals to be unequal. 7. If the adjustment for accrued taxes at the end of the period is inadvertently omitted, net income for the period will be overstated. 8. Standards that require honesty, fairness, and justice in all business dealings is referred to as ethical standards. 9. Salaries owed, but not yet paid, are accrued liabilities and appear on the income statement. 10. The most important output of the accounting cycle is the financial statements. 11. Immediately after reversing entries have been recorded and posted, a credit balance in Salary Expense, assuming no errors, represents a contra expense that needs to be set up on the chart of accounts. 12. The single summarizing account for a subsidiary ledger is referred to as a controlling account. 13. The purchases of supplies for cash would be recorded in the purchases journal. 14. The amount of net income for a period appears on both the income statement and the statement of owner s equity for that period. 15. The balance sheet accounts of a work sheet provide the information to prepare the closing entries. 16. In establishing a petty cash fund, a check is written for the amount of the fund and is recorded as a debit to Accounts Payable and a credit to Petty Cash.
2005 SLC Accounting II Page 2 17. The amount of depreciation expense for the first full year of use of a fixed asset costing $65,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $20,000 by the sum-of-the-year-digits method. 18. If the proceeds from discounting a note receivable are more than the face value of the note, Interest Expense will be debited for the excess of the proceeds over the face value. 19. The higher the quick ratio, the more liquid a company is. 20. The treasury stock account normally has a credit balance. 21. If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are reacquired, the number of outstanding shares is 14,500. 22. When a corporation discontinues a segment of its operations at a loss, the loss should be reported in the retained earnings section of the balance sheet. 23. If common stock is $900,000, paid-in capital in excess of par is $375,000, and the deficit is $50,000, the total stockholders equity is $1,275,000. 24. Differences between the cost and the face amount of bonds purchased as long-term investments should be amortized over the life of the bonds. 25. The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet. Mark the correct answer(s) on your Scantron sheet for each of the following questions. 26. The classification of Unearned Fees is a(n) a. current asset. b. current liability. c. long-term liability. d. owner s equity. 27. The classification of Treasury Stock is a(n) a. current asset. b. long-term liability. c. owner s equity. d. stockholder s equity. 28. The classification of bonds payable due in six months is a(n) a. current liability. b. long-term liability. c. expense. d. investment. 29. The classification of accounts receivable is a(n) a. current asset. b. property, plant, and equipment. c. current liability. d. revenue.
2005 SLC Accounting II Page 3 Use for questions 30-34. DIRECTIONS: Indicate the proper place for each of the following reconciling items by selecting the correct letter from the bank reconciliation form. Mark a, b, c, or d on your answer sheet to indicate the correct answer. Popcorn Co., Bank Reconciliation, January 31, 2004 Cash balance per bank statement $xxx Cash balance per depositor s records $xxx Additions a Additions c Deductions b Deductions d Adjusted balance $xxx Adjusted balance $xxx 30. Deposit in transit not recorded by bank, $10,000. 31. Customer s check returned by bank to depositor because of insufficient funds, $65. 32. Bank credit memorandum for note collected by the bank, $2050, including $50 interest. 33. Checks outstanding, $8,950. 34. Deposit of $6,950 recorded in books as $6590. 35. A sales invoice included the following information: merchandise price, $8,000; transportation, $400; terms 2/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $800 is granted prior to payment, that the transportation is prepaid by the seller, and that the invoice is paid within the discount period, what is the amount of cash received by the seller? 36. Which of the following would be reported on the statement of owner s equity for the current year? 37. Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the entry is made in the seller s accounts on November 15. If the credit terms are 1/10, n/30, the credit period begins with what date? 38. Which of the following is not considered a cause of unethical behavior. 39. If the allowance method of accounting for uncollectible receivables is used, what general ledger account is debited to write off a customer s account as uncollectible? a. $7,200 b. $7,456 c. $7,600 d. $7,056 a. Merchandise inventory b. Sales c. Cost of merchandise sold d. Withdrawals for the current year a. November 12 b. November 15 c. November 17 d. November 22 a. Excessive emphasis on profits a. Allowance for Doubtful Accounts b. Unwillingness to take a stand b. Uncollectible Accounts Expense c. Making decisions based on the principles of right and wrong d. Misplaced business loyalty c. Accounts Receivable d. Interest Expense
2005 SLC Accounting II Page 4 40. Allowance for Doubtful Accounts has a credit balance of $1,500 at the end of the year (before adjustment), and an analysis of customers accounts indicates doubtful accounts of $17,900. Which of the following entries records the proper provision for doubtful accounts? a. Debit Allowance for Doubtful Accounts, $16,400; credit Uncollectible Accounts Expense, $16,400 b. Debit Allowance for Doubtful Accounts, $19,400; credit Uncollectible Accounts Expense, $19,400 c. Debit Uncollectible Accounts Expense, $19,400; credit Allowance for Doubtful Accounts, $19,400 d. Debit Uncollectible Accounts Expense, $16,400; credit Allowance for Doubtful Accounts, $16,400 41. A 90-day, 12% note for $20,000, dated April 10, is received from a customer on account. If the note is discounted at 15% on May 10, the maturity value is a. $19,400. b. $20,000. c. $20,600. d. $22,400. 42. During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is 43. The first step in deciding whether an action is ethical is: a. Will I get caught. b. Will the boss reward 44. If the cost of an item of inventory is $60 and the current replacement cost is $65, the amount included in inventory according to the lower of cost or market is 45. A machine with a cost of $65,000 has an estimated residual value of $5,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-ofproduction method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours? 46. Equipment with a cost of $80,000, an estimated residual value of $5,000, and an estimated life of 15 years was depreciated by the straight-line method for 5 years. Due to obsolescence, it was determined that the useful life should be shortened by 5 years and the residual value changed to zero. The depreciation expense for the current and future years is 47. When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry: 48. The journal entry to record the amortization of a premium on bonds payable is 49. The entry to adjust the accounts for wages accrued at the end of the accounting period is a. FIFO. b. LIFO. c. average cost. d. weighted average. c. Will it make money for d. Analyzing the me for the action. the company. situation. a. $ 5. b. $ 60. c. $ 65. d. $125. a. $ 8,000 b. $20,000 c. $12,000 d. $21,667 a. $ 5,500. b. $10,000. c. $ 5,000. d. $11,000. a.debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal. a.debit Premium on Bonds Payable; credit Interest Expense. a.debit Wages Payable; credit Wages Income. b. debit Machinery and Accumulated Depreciation; credit Machinery and Cash. b. debit Interest Expense; credit Premium on Bonds Payable. b. debit Wages Income; credit Wages Payable. c. debit Cash and Machinery; credit Accumulated Depreciation. c. debit Interest Expense; credit Cash. c. debit Wages Payable; credit Wages Expense. d. debit Cash and Machinery; credit Accumulated Depreciation and Machinery. d. debit Bonds Payable; credit Interest Expense. d. debit Wages Expense; credit Wages Payable.
2005 SLC Accounting II Page 5 50. The adjusting entry to record the depreciation of equipment for the fiscal period is d. debit Equipment; credit Depreciation. 51. What is the proper adjusting entry at June 30, the end of the fiscal year, based on a supplies account balance before adjustment, $4,200 and supplies inventory on June 30, $1,200? 52. The adjusting entry for rent earned that is currently recorded in the unearned rent account is a.debit Depreciation Expense; credit Equipment. a.debit Supplies, $1,200; credit Supplies Expense, $1,200 b. debit Depreciation Expense; credit Accumulated Depreciation. b. Debit Supplies Expense, $1,200; credit Supplies, $1,200 a.debit Unearned Rent; b. debit Rent Revenue; credit Rent Revenue. credit Unearned Rent. 53. A debit balance in retained earnings is called a.paid-in capital. b. paid-in capital in 54. Preferred stock that provides for the payment of preferred dividends that have been passed (are in arrears) before dividends may be paid on common stock is called 55. A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately 56. A company with 100,000 authorized shares of $5 par common stock issued 40,000 shares at $7. Subsequently, the company declared a 2% stock dividend on a date when the market price was $9 a share. The effect of the declaration and issuance of the stock dividend is to 57. Cash or property dividends are usually not paid on which of the following? 58. The income before income tax for the first year of operations is $800,000. Because of timing differences in accounting and tax methods, the taxable income for the same year is $600,000. Assuming an income tax rate of 50%, the amount of the deferred income tax would be 59. Deferred income tax may be reported on the balance sheet in the 60. Cash change funds, once established, require no additional charges or credits to Cash 61. Procedures designed to protect cash from theft and misuse from the time it is received until it can be deposited in a bank are called c. debit Accumulated Depreciation; credit Depreciation Expense c. Debit Supplies Expense, $3,000; credit Supplies, $3,000 c. debit Unearned Rent; credit Income Summary. d. Debit Supplies, $4,200; credit Supplies Expense, $4,200 d. debit Rent Expense; credit Unearned Rent. c. deficit. d. contra asset. excess of par. a.par. b. no-par. c. participating. d. cumulative. a.$30. b. $36. c. $45. d. $50. a.decrease retained earnings, increase common stock, and increase paid-in capital. b. increase retained earnings, decrease common stock, and decrease paid-in capital. c. increase retained earnings, decrease common stock, and increase paid-in capital. d. decrease retained earnings, increase common stock, and decrease paid-in capital. a.class B common stock b. Preferred stock c. Treasury stock d. Class A common stock a.$ 50,000. b. $100,000. c. $325,000. d. $375,000. a.current and/or intangible assets section as Prepaid Taxes. a.unless the amount of the fund is to be increased or decreased. b. intangible assets section. b. until cash is needed for the following business day. c. current liabilities as taxes payable, and longterm liabilities section as Deferred Income Tax Payable. c. until all change has been used for changing large bills. d. current assets section and investments section as Prepaid Taxes. d. until bills or coins are exchanged for another denomination at the bank. a.accounting controls. b. cash controls. c. preventive controls. d. detective controls.
2005 SLC Accounting II Page 6 62. A check drawn by a depositor in payment of a voucher for $925 was recorded in the journal as $295. What entry a.debit Accounts Payable; credit Cash b. Debit Cash; credit Accounts Receivable c. Debit Cash; credit Accounts Payable d. Debit Accounts Receivable; credit Cash is required in the depositor s account? 63. The party to whose order a check is written is called the a.payer. b. drawer. c. drawee. d. payee. 64. A net loss appears on the work sheet a.when revenue exceeds expenses. b. when expenses exceed revenue. 65. After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the debit and credit columns are $89,900 and $67,600, respectively. What is the amount of the net income or net loss for the period? Problem 67. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet: a. Accumulated Depreciation $6,000 b. Fees Earned 25,000 c. Depreciation Expense 1,500 d. Insurance Expense 1,000 e. Prepaid Insurance 4,000 f. Supplies 500 g. Supplies Expense 4,500 c. every time the Adjusted Trial Balance columns do not balance on the initial totaling. d. every time the Income Statement columns do not balance on the initial totaling. a.$89,900 net income b. $67,600 net loss c. $22,300 net income d. $22,300 net loss 66. Net income for the period is a. $18,000. b. $ 7,500. c. $ 8,000. d. $19,000. 67. The percentage of change in long-term liabilities between a.vertical analysis. b. solvency analysis. c. profitability analysis. d. horizontal analysis. two balance sheet dates is an example of 68. Statements in which all items are expressed only in relative terms (percentages of a common base) are 69. Which of the following accounts will ordinarily appear in the post-closing trial balance? 70. Accounts Payable represents amounts owed to suppliers of goods previously delivered. Accounts Payable are sometimes called 71. Which of the following would appear as an extraordinary item on the income statement? 72. When a partnership goes out of business, it usually sells the assets, pays the creditors, and distributes the remaining cash or other assets to the partners. This process is called a.horizontal statements. b. percentage statements. c. vertical statements. d. common-size statements. a.salaries Expense b. Lisa Maxine, Drawing c. Sales d. Lisa Maxine, Capital a.accounts Receivable. b. Trade Payables. c. Investments. d. Accrued Liabilities. a.correction of an error in the prior year s financial statements b. Gain resulting from the sale of fixed assets c.. Loss on the sale of temporary investments d. Loss on the condemnation of land a.liquidation. b. gain on realization. c. revaluation of assets. d. income division.
2005 SLC Accounting II Page 7 73. A corporation has issued 25,000 shares of $100 par common stock and holds 3,000 of these shares as treasury stock. If the corporation declares a $2 per share cash dividend, what amount will be recorded as cash dividends? a.$22,000 b. $25,000 c. $44,000 d. $50,000 74. If a corporation reacquires its own stock, the stock is listed on the balance sheet in the 75. If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing 76. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30, and the seller prepays $50 in transportation costs, the amount of the discount for early payment would be 77. If revenue was $45,000, expenses were $37,500, and the owner s withdrawals were $10,000, the amount of net income or net loss would be 78. The principles of right and wrong that guide an individual in making decisions are called 79. The receipt of cash from customers in payment of their accounts would be recorded by a 80. A payment of cash for the purchase of services should be recorded in the 81. The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is 82. When a note receivable is dishonored, Accounts Receivable is debited for what amount? 83. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5? 84. On September 19, a firm borrows $4,000 from the First National Bank by giving the bank a 90-day, 15% note. The entry to record the receipt of cash and the issuance of the note is 85. On the due date of the note, the borrower owes $4,000 plus interest of $150. The entry to record the payment of the note is a.current assets section. b. long-term liabilities section. c. stockholders equity section. a.a debit memorandum. b. a credit memorandum. c. an invoice. d. a bill. a.$ 0. b. $ 5.00. c. $10.00. d. $10.50. d. investments section. a.$45,000 net income. b. $7,500 net income. c. $37,500 net loss. d. $7,500 net loss. a. procedures. b. ethics. c. rules. d. regulations. a. debit to Cash; credit to Accounts Receivable. b. debit to Accounts Receivable; credit to Cash. c. debit to Cash; credit to Accounts Payable. d. debit to Accounts Payable; credit to Cash. a. purchases journal. b. revenue journal. c. cash receipts journal. d. cash payments journal. a. debit Interest Expense; credit Cash and Discount on Bonds Payable. a.the face value of the note b. debit Interest Expense; credit Cash. b. The maturity value of the note c. debit Interest Expense and Discount on Bonds Payable; credit Cash. c. The maturity value of the note less accrued interest d. debit Interest Expense; credit Interest Payable and Discount on Bonds Payable. d. The maturity value of the note plus accrued interest a. October 31 b. November 2 c. November 3 d. November 4 a. debit Cash; credit Notes Receivable. a. debit Notes Payable and Interest Expense; credit Cash. b. debit Notes Receivable; credit Cash. b. debit Notes Payable; credit Cash and Interest Expense. c. debit Cash; credit Notes Payable. c. debit Cash; credit Notes Payable and Interest Expense. d. debit Notes Payable; credit Cash. d. debit Cash and Interest Expense; credit Notes Payable.
2005 SLC Accounting II Page 8 86. If a corporation has outstanding 1,000 shares of 9% cumulative preferred stock of $100 par and dividends have been passed for the preceding three years, what is the amount of preferred dividends that must be paid in the current year before a dividend can be declared on common stock? a. $ 9,000 b. $27,000 c. $36,000 d. $45,000 87. On March 1, Kelvin Co. purchased merchandise on account for $20,000. The entry to record the purchase is 88. A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account. If the note is discounted on May 21 at 15%, the amount of interest revenue or expense to be recorded by the payee of the note on May 21 is 89. Green, Inc. returned as defective $200 worth of $500 merchandise received. The entry to record this return is 90. Swifty Co., the seller, prepays the transportation costs of $50. The entry to record this transaction is 91. The balance in the unearned rent account for Jones Co. as of December 31 is $1,200. If Jones Co. failed to record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and income statement for December is 92. A corporation paid $670,000 of federal income tax during the year, based on estimated income. What journal entry should be recorded at the end of the year if the corporation has underpaid its taxes? 93. The income before income tax for the first year of operations is $900,000. Because of temporary differences in accounting and tax methods, the taxable income for the same year is $640,000. Assuming an income tax rate of 30%, what is the amount of income tax to be reported on the income statement? a. debit Merchandise Inventory; credit Accounts Receivable Kelvin Co. b. debit Merchandise Inventory; credit Accounts Payable Kelvin Co. c. debit Accounts Receivable Kelvin Co.; credit Merchandise Inventory. d. debit Accounts Payable Kelvin Co., credit Merchandise Inventory. a. $30 interest revenue. b. $30 interest expense. c. $170 interest revenue. d. $170 interest expense. a. debit Accounts Receivable $200; credit Sales $200. a. debit Transportation Out $50; credit Accounts Payable $50. a. assets understated $600; net income overstated $600. a. Debit Income Tax Receivable; credit Cash 94. A merchandising business a. that uses a manual accounting system usually uses only two special journals. b. debit Cash $200; credit Accounts Receivable $200. b. debit Transportation Out $50; credit Cash $50. b. liabilities understated $600; net income understated $600. b. Debit Income Tax; credit Deferred Income Tax c. debit Sales Returns and Allowances $200; credit Sales $200. c. debit Transportation Out $50; credit Accounts Receivable. c. liabilities overstated $600; net income understated $600. c. Debit Income Tax Receivable; credit Income Tax d. debit Sales Returns and Allowances $200; credit Accounts Receivable $200. d. debit Cash $50; credit Transportation Out $50. d. liabilities overstated $600; net income overstated $600. d. Debit Income Tax; credit Income Tax Payable a. $192,000 b. $270,000 c. $78,000 d. $24,000 b. that uses a computerized accounting system usually uses only five special journals. c. is required to use a computerized accounting system because of the volume of journal entries. d. that uses a computerized accounting system usually uses no special journals.
2005 SLC Accounting II Page 9 Problems 95-97. Details of a purchase invoice and related credit memorandum are summarized as follows: Invoice: Cost of merchandise listed on purchase invoice $8,500 Prepaid transportation charge added to invoice 200 Terms, FOB shipping point, 1/10, n/eom Credit Memo: Cost of merchandise returned $2,500 Assume that the credit memorandum was received prior to payment, no discount on transportation charges, and that the invoice is paid within the discount period. 95. The amount of the cash discount allowed would be a. $ 60. b. $6,140. c. $6,200. d. $2,500. 96. The amount to be paid by the purchaser if the discount is taken would be a. $ 60. b. $6,140. c. $6,200. d. $2,500. 97. The cost of the merchandise to the purchaser if the discount is not taken would be 98. Which of the following is an example of a temporary difference between taxable income and reported income? 99. The outstanding stock is composed of 10,000 shares of $50 par, noncumulative preferred $5 stock and 50,000 shares of $20 par common stock. Preferred dividends have been paid every year except for the preceding two years and the current year. If $240,000 is to be distributed as a dividend for the current year, what total amount will be distributed to the preferred stockholders? a. $ 60. b. $6,140. c. $6,200. d. $2,500. a.u sing the installment method of determining revenue for taxable income and for income statement reporting b. Using the straight-line depreciation method for some assets and MACRS depreciation for other assets c. Including tax-exempt municipal bond interest in net income and not including any tax-exempt municipal bond interest in taxable income d. Using the straight-line depreciation method for income statement reporting and MACRS depreciation for taxable income a.$ 40,000 b. $ 50,000 c. $100,000 d. $150,000
2005 SLC Accounting II Page 10 2004 FBLA Answer Key ACCOUNTING II No. Answer No. Answer No. Answer No. Answer 1. A 26. B 51. C 76. C 2. B 27. D 52. A 77. B 3. A 28. A 53. C 78. B 4. B 29. A 54. D 79. A 5. A 30. A 55. C 80. D 6. B 31. D 56. A 81. A 7. A 32. C 57. C 82. B 8. A 33. B 58. B 83. C 9. B 34. C 59. C 84. C 10. A 35. B 60. A 85. A 11. B 36. D 61. C 86. C 12. A 37. B 62. A 87. B 13. B 38. C 63. D 88. A 14. A 39. A 64. B 89. D 15. B 40. D 65. D 90. B 16. B 41. C 66. A 91. C 17. A 42. B 67. D 92. D 18. B 43. D 68. D 93. B 19. A 44. B 69. D 94. D 20. B 45. B 70. B 95. A 21. A 46. D 71. D 96. B 22. B 47. B 72. A 97. C 23. B 48. A 73. C 98. D 24. A 49. D 74. C 99. B 25. B 50. B 75. A 100.