MCQ Set49

Multiple Choice Answers

1. In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What would be the balance in income tax payable at the end of the year?
A. $150,000 credit.
B. $160,000 credit.
C. $10,000 credit.
D. $10,000 debit.

2. On September 1, 2011, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to unearned subscriptions revenue. What would be the required adjusting entry at December 31, 2011?
a. Unearned subscriptions revenue 48,600
Subscriptions revenue 16,200
Prepaid subscriptions 32,400
b. Unearned subscriptions revenue 16,200
Subscriptions revenue 16,200
c. Unearned subscriptions revenue 16,200
Subscriptions payable 16,200
d. Unearned subscriptions revenue 32,400
Subscriptions revenue 32,400
A. Option a
B. Option b
C. Option d
D. Option c

3. Janson Corporation Co.’s trial balance included the following account balances at December 31, 2011:
Accounts payable
$25,000
Bond payable, due 2020
22,000
Salaries payable
16,000
Note payable, due 2012
20,000
Note payable, due 2016
40,000
What amount should be included in the current liability section of Janson’s December 31, 2011, balance sheet?
A. $63,000
B. $101,000
C. $41,000
D. $61,000

4. Listed below are account balances (in $millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system.
What would Symphony report as total assets?
A. $2,318
B. $2,323
C. $2,338
D. $2,303

5. Permanent accounts would not include
A. cost of goods sold.
B. inventory.
C. accumulated depreciation.
D. current liabilities.

6. On December 31, 2011, the end of Larry’s Used Cars first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2011 balance sheet will be valued at
A. $53,600.
B. $54,800.
C. $1,200.
D. $52,400.

7. Assume a company’s liquidity and financing ratios all are less than 1.0 before it purchases inventory on credit. When it makes the purchase,
A. its quick ratio decreases.
B. its quick ratio remains unchanged.
C. its current ratio remains unchanged.
D. its current ratio decreases.

8. Which of the following was the first private sector entity that set accounting standards in the United States?
A. Accounting Principles Board
B. Committee on Accounting Procedure
C. AICPA
D. Financial Accounting Standards Board

9. On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $2,000,000. The company provided $6,400,000 of services in June and received full payment in July. Royal also incurred expenses of $3,000,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $1,000,000. What was the company’s income before income taxes for the two months ended July 31 under the following methods of accounting?
Cash Basis
Accrual Basis
a. $3,400,000
$3,400,000
b. $5,400,000
$2,400,000
c. $6,400,000
$3,400,000
d. $6,400,000
$2,400,000
A. Option b
B. Option a
C. Option c
D. Option d

10. Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of merchandise, costing $620, and sold for $960 on account?
a. Inventory 620
Accounts receivable 620
Sales 960
Revenue from sales 960
b. Accounts receivable 960
Sales revenue 960
Cost of goods sold 620
Inventory 620
c. Inventory 620
Gain on sale 340
Sales revenue 960
d. Accounts receivable 960
Sales revenues 620
Gain on sale 340
A. Option c
B. Option a
C. Option b
D. Option d

11. Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year?
A. $2,200,000
B. $2,400,000
C. $1,800,000
D. $1,600,000

12. The primary historical reason for the FASB reversing its positions when political pressures occur is that
A. the cost of gathering data was prohibitive.
B. they have no authority in such situations.
C. the difficulties in measurement were too great.
D. the SEC didn’t support the FASB position.

13. Based on recent financial statement data for Harmony Health Foods, Inc. (HHF), shown below, HHF’s times interest earned ratio is (rounded):
A. 10.0.
B. 2.47.
C. 3.47
D. 1.73.

14. Which of the following accounts has a debit balance?
A. Accounts payable
B. Bad debt expense
C. Accumulated depreciation
D. Accrued taxes

15. Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2011, and charged the $4,200 premium to Insurance expense. At its December 31, 2011, year-end, Yummy Foods would record which of the following adjusting entries?
a. Insurance expense 875
Prepaid insurance 875
b. Prepaid insurance 875
Insurance expense 875
c. Insurance expense 875
Prepaid insurance 3,325
Insurance payable 4,200
d. Prepaid insurance 3,325
Insurance expense 3,325
A. Option a
B. Option d
C. Option b
D. Option c

16. In its first year of operations, Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best’s net income for the year?
A. $306,000
B. $294,000
C. $290,000
D. $300,000

17. Based on recent financial statement data for Harmony Health Foods, Inc. (HHF), shown below, HHF’s debt-to-equity ratio is (rounded)
A. 0.75.
B. 1.13.
C. 0.53.
D. 1.80.

18. Listed below are account balances (in $millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system.
What is the amount of working capital for Symphony?
A. $113
B. $98
C. $128
D. $143

19. Pat’s Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat’s collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat’s accrual basis net income would be
A. $18,000.
B. $34,000.
C. $29,000.
D. $23,000.

20. The most political issue in the FASB’s most recent deliberations and amendments to GAAP on business combinations was
A. the unrealistic balance sheet assets that would be created if firms were required to use the pooling method of accounting for the combination.
B. the negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination.
C. the negative effects on subsequent earnings of amortizing goodwill if firms were required to use the pooling method of accounting for the combination.
D. the unrealistic balance sheet assets that would be created if firms were required to use the purchase method of accounting for the combination.

21. Based on recent financial statement data for Harmony Health Foods, Inc. (HHF), shown below, HHF’s long term debt-to-equity ratio equity is
A. 180%.
B. 75%
C. 0%.
D. 133.3%.

22. Molly’s Auto Detailers maintains its records on the cash basis. During 2011, Molly’s collected $72,000 from customers and paid $21,000 in expenses. Depreciation expense of $5,000 would have been recorded on the accrual basis. Over the course of the year, accounts receivable increased $4,000, prepaid expenses decreased $2,000, and accrued liabilities decreased $1,000. Molly’s accrual basis net income would be
A. $38,000.
B. $42,000.
C. $49,000.
D. $54,000.

23. An example of a contra account is
A. depreciation expense.
B. accounts receivable.
C. sales revenue.
D. accumulated depreciation.

24. Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. Indicate how Ace should record the purchase by selecting one of the options listed below.
a. Inventory 2,000
Accounts payable 2,000
b. Cost of goods sold 2,000
Deferred revenue 1,000
Sales in advance 3,000
c. Cost of goods sold 2,000
Inventory payable 2,000
d. Cost of goods sold 2,000
Profit 1,000
Sales payable 3,000
A. Option b
B. Option a
C. Option d
D. Option c

25. Listed below are account balances (in $millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system.
What would Symphony report as total current assets?
A. $1,696
B. $843
C. $823
D. $838