1.

Which of the following equations properly represents a

derivation of the fundamental accounting equation?

a. Assets + Liabilities = Owner’s equity

b. Assets = Owner’s equity
c. Cash = Assets
d. Assets – Liabilities = Owner’s equity

2. Retained earnings will change over time because of several

factors. Which of the following factors would explain an increase in
retained earnings?

a. Net loss
b. Net Income
c. Dividends
d. Investment by stock holders

3. Which of these items would be accounted for as an expense?

a. Repayment of a bank loan
b. Dividends to stockholders
c. Purchase of land
d. payment to the current period’s rent

4. Which of the following would not be included on a balance

sheet?

a. Accounts receivable
b. Accounts payable
c. sales
d. Cash

5 Which of the following statements is true concerning assets?

a. They are recorded at cost and adjusted for inflation.

b. They are recorded at market value for financial reporting because
historical cost is arbitrary.
c. Accounting principles require that companies report assets on the
income statement.
d. Assets are measured using the cost concept.

6. Which of the following is a correct expression of the accounting

equation?

a. Assets - Liabilities + Owners’ Equity

b. Assets = Liabilities - Owners’ Equity
c. Assets + Owners’ Equity = Liabilities
d. Assets = Liabilities + Owners’ Equity

7. How is the balance sheet linked to the other financial

statements?

a. The beginning retained earnings balance on the statement of

retained earnings becomes the amount of retained earnings reported
on the balance sheet.

b. Retained earnings is added to total assets and reported on the

balance sheet.

c. Net income increases retained earnings on the statement of

retained earnings, which ultimately increases retained earnings
on the balance sheet.

d. There is no link between the balance sheet and the other

statements.

8. Information that is material means that an error or alternative

method of handling a transaction

a. would possibly affect the judgment of someone relying on the

financial statements.

b. would not affect the decisions of users.

c. might cause a company to understate its earnings for the

accounting period.

d. could increase the profitability of a company.

9. The process of recording the economic effects of business
transactions in a book of original entry:

a. double entry system

b. debit

c. credit

d. journalizing

e. posting

10. If the sum of the debits and credits in a trial balance is not equal,
then

a. there is no concern because the two amounts are not meant to be

equal.

b. the chart of accounts also does not balance.

c. it is safe to proceed with the preparation of financial statements.

d. most likely an error was made in posting journal entries to the

general ledger or in preparing the trial balance.

11. Treml Corp. had Rs. 1800 of goods on hand at January 1, 2006.
During 2006, goods worth Rs.7,000 were purchased. At December
31, 2006, the actual goods on hand amounts to Rs.2,300. After the
adjustments are recorded and posted at December 31, 2006, the
balances in the
Goods and cost of Goods Expense accounts will be:
a. Goods,Rs.7,000; Cost of goods, Rs.2,300.
b. Goods,Rs.1,800; Cost of goods Rs.7,000.
c. Goods, Rs.2,300; Cost of goods Rs.6,500.
d. Goods, Rs.2,300; Cost of goods Rs.3,900.

Use the information presented below to answer the questions that

follow.
Solid Co. received a non-interest-bearing note from Bedrock Co. on
October 1, 2006. The amount of the note due at the maturity date is
Rs 6,200. The note was accepted by Solid for Goods sold to
Bedrock with a selling price of Rs.6,000. The note is due in 3 months.

12. The difference of Rs.200 between the amount of the note

(Rs6,200) and the sales price of the merchandise (Rs.6,000)

a. is the interest explicitly included in the amount of the note.

b. will be recorded in a contra account, Discount on Notes
Receivable, by Solid Co.
c. will be recorded as interest revenue on October 1, 2006.
d. is an error made in preparing the note.

13. Which of the following combination of financial statements would

provide the most in-depth information to help understand a
company’s liquidity?

a. income statement and statement of cash flows

b. balance sheet and statement of cash flows
c. balance sheet and income statement
d. statement of retained earnings and statement of cash flows

14. Boston Bean Company sold equipment for Rs.4,000. This

resulted in Rs.1,500 loss. What is the impact of this sale on the
working capital?

a. reduces working capital

b. increases working capital
c. has no affect on working capital at all
d. the increase offsets the decrease

15. To determine whether a lottery winner would prefer to receive the

money in a single lump sum immediately or receive an equal amount
over a period of years, you would use which type of time value of
money calculation?

a. the future value of a single amount

b. the present value of a single amount
c. the future value of an annuity
d. the present value of an annuity

16. Quartermaine Corp. issued 10-year, 8%, Rs.100,000 bonds

paying interest on an annual basis, at Rs 5,200 premium. Which one
of the following statements is true?

a. Quartermaine’s annual interest expense on the bonds will be

greater than the amount of interest payments to bondholders each
year.

b. Quartermaine’s annual interest expense on the bonds will be less

than the amount of interest payments to bondholders each year.

c. Quartermaine will receive Rs.94,800 as the issue price.

d. None of the above

17. The book value per share for a corporation is

a. the market price of the stock.

b. the cost of investments in stock of other corporations.
c. based on the excess of total assets over total liabilities.
d. the amount shareholders would receive if they sold their
shares back to the corporation.

18. Which of the following is not an operating activity?

a. cash collections from credit customers

b. cash payments for operating expenses
c. cash receipts for interest earned
d. cash payments for dividends to shareholders

19. Comparability of information results when:

a. the information would influence a decision.

b. different companies use the same accounting principles.
c. the amounts involved are material.
d. a company uses the same accounting principles and methods
from year to year.
20. Items such as a sales slip, a check, a bill, or a cash register tape
are examples of:

a. balance sheet accounts.

b. income statement accounts.
c. cost of goods sold.
d. source documents.

21. Unearned revenues are:

a. prepayments.
b. liabilities.
c. temporary accounts.
d. both a and b above.

22. The revenue recognition principle requires that sales revenues be

recognized:

a. when cash is received.

b. when the merchandise is ordered.
c. when the goods are transferred from the seller to the buyer.
d. None of the above.

23. All of the following are “other receivables” except:

a. petty cash.
b. interest receivable.
c. income taxes refundable.
d. advances to employees.

24. Depreciation is dependent on a number of estimates. When a

change in an estimate is required, the change is made:

a. in the current year.

b. in the future year.
c. to prior periods.
d. both a and b above.

25. In order to pay a dividend:

a. the corporation must have adequate retained earnings.
b. the board of directors must declare a dividend.
c. the corporation must have adequate cash.
d. all of the above.

26. Upon receiving a stock dividend:

a. you own more shares.

b. your ownership interest has increased.
c. your ownership interest has not changed.
d. both a and b above.

27. The Cash account on the balance sheet should not include
which of the following items?

a. Travel advances to employees

b. Currency
c. Money orders
d. Deposits in transit

28. A credit memorandum accompanying a bank statement would

occur for which of the following items?

a. A previously deposited customer check which was returned NSF.

b. Bank service charges for the month.
c. The proceeds of a note collected by the bank are deposited to
the account.
d. Each of the above.

29. When reconciling the ending cash balance per the bank
statement to the correct adjusted cash balance, how would deposits
in transit be handled?

a. Added to the balance per the bank statement.

b. Subtracted from the balance per the bank statement.
c. Added to the balance per company records.
d. Ignored.

30. A bank reconciliation sometimes points to the need for

adjusting entries. In general, the source of the adjustments is:
a. the reconciliation of the ending balance per the bank statement to
the adjusted cash balance.
b. the reconciliation of the cash balance per the company
records to the adjusted cash balance.
c. both a and b.
d. none of the above.

31. Malory Company provides the following information about the

month-end bank reconciliation:

Ending cash per bank

Rs.1,367
statement
Ending cash per
7,383
company records
Monthly bank service
25
charge
Deposits in transit at
8,345
month-end
Outstanding checks at
2,399
month-end
Customer check
45
returned NSF

The correct ending cash balance is:

a.Rs.4,914
b.Rs. 7,268
c.Rs. 7,313
d.Rs. 7,383

32. Which of the following bank reconciliation items would not result
in an adjusting entry in the books (general ledger)?

a.Service charges
b.Outstanding checks
c.Interest earned
d.Collection of a note by the bank
33. Notification by the bank that a deposited customer check was
returned NSF requires that the company make the following adjusting
entry:

a. Accounts Receivable
Cash
b. Cash
Accounts Receivable
c. Miscellaneous Expense
Accounts Receivable
d. No adjusting entry is necessary.

34. which of the following errors will not affect the trial balance?

a. wrong balancing of an account

b. writing an amount in the wrong account but on the
correct side
c. wrong totaling of an amount
d. none of the above

35. which of the following errors is an error of omission?

a. sale of Rs. 500 was written in the purchases journal

b. wages paid to Mohan have been debited to his account
c. The total of the sales journal has not been posted to the
sales account
d. None of the above

36. Purchase of office furniture for Rs.3400 has been debited to

General Expenses account, it is an error of

a. commission
b. omission
c. principle
d. none of the above

37. Which of the flowing errors will affect the trial balance account?

a. repair to buildings have been debited to buildings

 b. the total of purchases journal is Rs. 1000 short
c. freight paid on new machinery has been debited to the
freight account
d. none of the above

38. Errors of commission do not allow:

a. correct totaling of the balance sheet

b. correct totaling of the trial balance
c. the trial balance to agree
d. none of the above

39. The preparation of a trial balance helps in

a. locating errors of complete omission

b. locating errors of principle
c. locating errors of commission
d. none of the above

40. which of the following errors is an error of principle

a. Rs.500 received from Ganpat has been debited to his

account
b. Purchase of Rs.1000 has been entered in the sales journal
c. Repairs to buildings have been debited to Buildings account
d. None of the above

41. The type of account with a normal credit balance is

a. An asset
b. A drawing
c. A revenue
d. An expense

42. The form listing the balances and the title of the accounts in the
ledger on a given date is the

a. Income statement
b. Balance Sheet
c. Retained earnings statement
d. Trial balance