2024 – Question 1 A trial balance proves the mathematical equality of debits and credits

Question 1
A trial balance proves

the mathematical equality of debits and credits after the posting process.

the ledger is posted correctly.

that all transactions have been recorded correctly.

that all transactions have been posted.
Question 2
Which of these would cause the inventory turnover ratio to increase the most?

Increasing the amount of inventory on hand.

Keeping the amount of inventory on hand constant but increasing sales.

Keeping the amount of inventory on hand constant but decreasing sales.

Decreasing the amount of inventory on hand and increasing sales.
Question 3
Which of the following is least likely to help a company minimize losses as credit standards are relaxed?

Require potential customers to provide bank guarantees.

Ask a potential customer for references regarding payment history.

Increase the estimate of uncollectible accounts at the end of each period.

Check a potential customer’s credit rating.
Question 4
Regions Inc. pays its rent of $48,000 annually on January 1 and makes monthly adjusting entries. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following are true?

Failure to make the adjustment does not affect the February financial statements.

Expenses will be overstated by $4,000 and net income and stockholders’ equity will be understated by $4,000.

Assets will be overstated by $8,000 and net income and stockholders’ equity will be understated by $8,000.

Assets will be overstated by $4,000 and net income and stockholders’ equity will be overstated by $4,000.
Question 5
Smithson Corporation’s unadjusted trial balance includes the following balances (assume normal balances):
• Accounts Receivable $3,357,000
• Allowances for Doubtful Accounts $ 63,900

Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt expense will the company record?

$201,420

$137,520

$133,686

$205,254
Question 6
Olympus Climbers Company has the following inventory data:
July 1 Beginning inventory 20 units at $19 $ 380
7 Purchases 70 units at $20 1,400
22 Purchases 10 units at $22 220
$2,000

A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is

$620.

$660.

$1,340.

$1,380.
Question 7
A merchandiser will earn an operating income of exactly $0 when

net sales equals cost of goods sold.

cost of goods sold equals gross margin.

operating expenses equal net sales.

gross profit equals operating expenses.
Question 8
A revenue generally

increases assets and liabilities.

increases assets and stockholders’ equity.

increases assets and decreases stockholders’ equity.

leaves total assets unchanged.
Question 9
Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns.

annual, annual

monthly, annual

quarterly, monthly

monthly, monthly
Question 10
The primary difference between accrued revenues and unearned revenues is that accrued revenues have:

not been recognized and accrued revenues have been.

been paid and unearned revenues have not.

been recorded and unearned revenues have not.

not been recorded and unearned revenues have.
Question 11
Independent internal verification of the physical inventory process occurs when

the employee is required to count all items twice for sake of verification.

the items counted are compared to the inventory account balance.

a second employee counts the inventory and compares the result to the count made by the first employee.

all prenumbered inventory tags are accounted for.
Question 12
Bad Debt Expense is considered

an avoidable cost in doing business on a credit basis.

an internal control weakness.

a necessary risk of doing business on a credit basis.

avoidable unless there is a recession.
Question 13
Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

LIFO will have the highest ending inventory.

FIFO will have the highest cost of goods sold.

FIFO will have the highest ending inventory.

LIFO will have the lowest cost of goods sold.
Question 14
A company usually determines the amount of supplies used during a period by:

adding the supplies on hand to the balance of the Supplies account.

summing the amount of supplies purchased during the period.

taking the difference between the supplies purchased and the supplies paid for during the period.

taking the difference between the balance of the Supplies account and the cost of supplies on hand.
Question 15
If a company is given credit terms of 2/10, n/30, it should

hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time.

pay within the discount period and recognize a savings.

pay within the credit period but don’t take the trouble to invest the cash while waiting to pay the bill.

recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.
Question 16
If Morris Corporation has a negative $131 million free cash flow, which of the following statements is most likely true?

Morris’ capital expenditures plus its cash dividends are less than its cash provided by operations.

This free cash flow indicates that Morris is in good shape to repay its long-term obligations when they come due.

This free cash flow indicates that Morris presents good cash generating ability to retire stock.

Morris’ cash provided by operations is less than its cash dividends plus capital expenditures.
Question 17
What is an advantage of using the multiple-step income statement?

It highlights the components of net income.

Gross profit is not a separate item.

It is easier to prepare than the single-step income statement.

Net income will be higher than net income computed using the single-step income statement.
Question 18
All of the following are characteristics of every accounting information system except it is a system

that collects transaction data.

that processes transaction data.

that communicates financial information to decision makers.

of data storage hardware for the chart of accounts.
Question 19
Which statement is incorrect?

Dividends represent a distribution by a corporation to its stockholders.

Dividends are shown on the income statement.

Dividends reduce stockholders’ equity, thus the Dividends account increases on the left side.

The Dividends account has a normal debit balance.
Question 20
Dobler Company gathered the following reconciling information in preparing its June bank reconciliation:

Cash balance per books, 6/30 $8,400
Deposits in transit 600
Notes receivable and interest collected by bank 1,480
Bank charge for check printing 50
Outstanding checks 3,000
NSF check 280

The adjusted cash balance per books on June 30 is

$10,150.

$9,880.

$9,550.
Question 21
Fehr Company sells merchandise on account for $5,000 to Kelly Company with credit terms of 2/10, n/30. Kelly Company returns $1,000 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?

$4,900

$4,920

$4,000

$3,920
Question 22
Which one of the following is not an objective of a system of internal controls?

Safeguard company assets.

Overstate liabilities in order to be conservative.

Enhance the accuracy and reliability of accounting records.

Reduce the risks of errors.
Question 23
Receivables are

one of the most liquid assets and thus are always considered current assets.

claims that are expected to be collected in cash.

shown on the income statement at cash realizable value.

always the result of revenue recognition.
Question 24
At Emerson Company, one bookkeeper prepares the cash deposits while the other bookkeeper enters the collections in the journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts?

Physical controls.

Documentation procedures.

Segregation of duties.

Mechanical controls.
Question 25
All of the following are true regarding the management and monitoring of cash except

companies may have plenty of sales, but insufficient cash to support operations.

the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company.

manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers.

companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand.