1. One of the accounting concepts upon which adjustments for prepayments and accruals are based is:
2. In a service-type business, revenue is considered earned:
at the end of the month.
at the end of the year.
when the service is performed.
when cash is received.
3. On April 1, 2010, M Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years and will have no residual value. M records depreciation expense of $9,000 for the calendar year ending December 31, 2010. Which accounting principle has been violated?
Revenue recognition principle
No principle has been violated because M has correctly matched the expense for using the equipment to the period during which it generated revenue.
Matching principle because the cash was paid in 2007 and should be expensed in 2007.
4. The following is selected information from M Corporation for the fiscal year ending October 31, 2010:
Cash received from customers $300,000
Revenue earned 350,000
Cash paid for expenses 170,000
Expenses incurred 200,000
Based on the accrual basis of accounting, what is M Corporation’s net income for the year ending October 31, 2010?
5. Adjusting entries are made to ensure that:
expense are recognized in the period in which they are incurred.
revenues are recorded in the period in which they are earned.
balance sheet and income statement accounts have correct balances at the end of an accounting period.
All of the above
6. Detailed records of movements in merchandise (each purchase and sale) are not maintained in the inventory account in a:
perpetual inventory system.
periodic inventory system.
double entry accounting system.
business that sells expensive merchandise.
7. Hunter Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period?
8. Lindy’s Market recorded the following events involving a recent purchase of merchandise:
Received goods for $80,000, terms 2/10, n/30.
Returned $2,000 of the shipment for credit.
Paid $500 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s merchandise inventory:
increased by $76,440.
increased by $78,000.
increased by $76,940.
increased by $76,840.
9. The Freight-in account:
increases the cost of merchandise purchased.
is contra to the Purchases account.
is a permanent account.
has a normal credit balance.
10. Which statement is false?
Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.
No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period.
An inventory count is generally more accurate when goods are not being sold or received during the counting.
Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.
11. Of the following companies, which one would not likely employ the specific identification method for inventory costing?
Music store specializing in piano sales
Custom Jewelry store
12. Which of the following statements is true regarding inventory cost flow assumptions?
A company may use more than one cost-flow assumption concurrently for different product lines.
A company must comply with the method specified by industry standards.
A company must use the same method for domestic and foreign operations.
A company may never change its inventory costing method once it has chosen a method.
13. In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
Average cost method
Need more information to answer
14. The figure for which of the following items is determined at a different time under the perpetual inventory method than under the periodic method?
Cost of Goods Sold
15. Two categories of expenses in merchandising companies are:
cost of goods sold and financing expenses.
operating expenses and financing expenses.
cost of goods sold and operating expenses.
sales and cost of goods sold.