1. Rules and concepts that govern the reporting of financial statements are called:
a. Principles of Accounting
b. Generally Accepted Accounting Principles
c. Securities Exchange Commission
d. Accounting Assumptions
2. The private group that currently has the authority to establish generally accepted accounting
principles in the United States is the:
3. The two primary external users of the financial statements are: (Hint: consider appropriate
a. IRS and owners
b. IRS and creditors
c. management and creditors
d. creditors and owners
4. An asset is best defined as:
a. residual interest of owners.
b. economic resource obtained as a result of past transactions. Assets will be used to generate
c. something that has been used to generate revenues.
d. something owned.
5. Revenue is properly recognized:
a. When cash from a sale is received
b. When the customer’s order is received.
c. Only if the transaction creates an account receivable.
d. Upon completion of the sale or when services have been performed.
6. The Maxim Company acquired a building for $500,000. Maxim had the building appraised, and
found that the building was easily worth $575,000. The seller had paid $300,000 for the building 6
years ago. Which accounting principle would require Maxim to record the building on its records at
a. Monetary unit assumption.
b. Going-concern assumption.
c. Cost principle.
d. Business entity assumption.
7. Which of the following accounting concept prescribes when a company should record its expenses
incurred to generate the revenue reported? a. Going-concern assumption.
b. Time period (periodicity) assumption
c. Matching (expense recognition) principle.
d. Business entity assumption.
8. If a company paid $38,000 of its accounts payable in cash, what was the effect on the assets,
liabilities, and equity?
a. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would decrease
b. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would increase
c. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would not change.
d. There would be no effect on the accounts because the accounts are affected by the same amount.
9. A credit entry:
a. Increases asset and expense accounts, and decreases liability, equity, and revenue accounts.
b. Decreases asset and expense accounts, and increases liability, equity, and revenue accounts.
c. Is recorded on the left side of a T-account.
d. Is always an increase in an account.
10. Of the following accounts, the one that normally has a credit balance is:
c. Wages Payable.
d. Sales Salaries Expense.
Questions 11-35 relate to the ongoing business activities of Zoogle Company—a newly formed
company that provides dog-walking and pet-sitting services for families in the city. As of
January 1, 2014, the company employs one person, who was given the title of “general
manager.” Note that some questions pertain to a one month period and others a full year.
11. On January 1, 2014, Zoogle Corporation paid $3,000 cash to rent office space for the
period from January 1 to June 30, 2014. Assuming that the appropriate adjusting journal entry is
made on January 31 for the rent events, what amount would Zoogle Corporation report for rent
expense for month ending January 31, 2014?
a. $ 0
b. $ 250
c. $ 500
d. $ 3,000
12. Zoogle recognizes revenue according to the revenue principle. Friends of Zoogle’s general
manager are allowed to purchase services on account, whereas other customers are required to pay
for services in advance. During January 2014 Zoogle:
1 – provided $600 of services to friends on account and has collected one-half of those accounts (in
2 – received $200 cash in advance from other customers and has provided $100 worth of services to
these other customers. What amount of revenue should Zoogle report for the month of January 2014?
13. Zoogle decided to start selling pet supplies and purchased $10,000 of merchandise on April 15
with terms of 3/10, n/45. On April 20, it returned $800 of that merchandise. On April 24, it paid the
balance owed for the merchandise taking any discount it is entitled to. The cash paid on April 24
14. If Zoogle had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of
$1,700, and sales discounts of $3,475. Zoogle’s net sales for this period equal:
15. On April 1, Zoogle Company sold merchandise in the amount of $5,800 to Rosser, with credit
terms of 2/10, n/30. The cost of the items sold is $4,000. Robinson uses the perpetual inventory
system. The journal entry or entries that Zoogle will make on April 1 is:
Questions #16 – 19 are based on the following information:
The following month Zoogle starts selling and delivering bags of dry dog food to interested
customers. On May 1, 2014, Zoogle buys 40 bags at a cost of $20 per bag. Also, assume that Zoogle
purchases 30 bags on May 8 at a cost of $21 per bag, and 30 more bags on May 18 at a cost of $22
per bag. 60 bags are sold during the last week of May.
16. Which of the following represents the cost of goods sold under the FIFO cost method?
d. $ 870
17. Which of the following represents the cost of goods sold under the LIFO cost method?
d. $ 800
18. In reference to #16 – 17above, because of the effect of income taxes, which method will
provide a better cash position?
a. LIFO b. FIFO
c. All will provide the same cash position
d. Unable to determine
19. In reference to #16 – 17 above, which method will provide a higher net income?
c. All will provide the same cash position
d. Unable to determine
20. Generally accepted accounting principles require that the inventory of Zoogle be reported at:
a. Market value
b. Historical cost
c. Replacement cost
d. Lower of cost or market
21. The bank reconciliation of Zoogle Corporation prepared for the month of February shows $20 of
deposits in transit, $176 of outstanding checks, $30 of interest earned, $15 for a customer check
returned as NSF, and no other reconciling items. If $175 is the February 28 reconciled balance that is
reported on the balance sheet, what must have been the balance reported on the bank statement and
the unadjusted balance reported in the company’s books at February 28?
Bank Statement Balance Unadjusted Book Balance
a. $160 $331
b. $190 $19
c. $ 19 $190
d. $331 $160
22. Zoogle has $90,000 in outstanding accounts receivable and it uses the allowance method to
account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are
uncollectible. The current balance in the allowance for doubtful accounts before adjustments is a
debit (negative) amount of $800. What will be the adjusted amount reported for the Allowance for
Doubtful Accounts and Bad Debts Expense?
Allowance for Doubtful Accounts Bad Debts Expense
a. 5400 5400
b. 5400 6200
c. 6200 6200
d. 6800 6800
23. Zoogle reports its Accounts Receivable at Net Realizable Value, which is:
a. Gross accounts receivable minus cost of goods sold.
b. Also known as net pretax income.
c. Also known as net after-tax income.
d. Gross accounts receivable minus allowance for doubtful accounts.
24. On March 29, Zoogle Company concluded that a customer’s $4,400 account receivable was
uncollectible and that the account should be written off. What effect will this write-off have on this
company’s net income and total assets assuming the allowance method is used to account for bad
a. Decrease in net income; no effect on total assets.
b. No effect on net income; no effect on total assets.
c. Decrease in net income; decrease in total assets.
d. No effect on net income; decrease in total assets.
25. On January 1, 2014, Zoogle Corporation purchased a pick-up truck at a cost of $32,000 cash.
Zoogle also had a liner and cap installed on the pick-up box, at an additional cost of $1,000, which
was charged on account. Zoogle paid $800 for an insurance policy for the first year and anticipates
spending $1,200 for gas during the first year. What is the cost of the truck?
26. On June 1, 2014, Zoogle Corporation purchased another vehicle at a cost of $27,000. The truck is
estimated to have a useful life to Zoogle of ten years and a resale value of $4,000 at the end of its
life. How much depreciation expense should be reported for this vehicle in the income statement for
the month of June 2014 assuming the straight-line is adopted?
a. $ 200
b. $ 192
27. At December 31, the records of Zoogle reflected the following information:
Expenses (excluding depreciation)… . …………. 66,000
Depreciation expense (straight-line) …………… 4,000
Depreciation expense (accelerated)………………. 7,000
Income tax rate…………………………………… 40%
To “save cash,” Zoogle is considering using an accelerated depreciation method for income tax
reporting, in which case depreciation expense would be $7,000. Calculate how much cash Zoogle
would save by using an accelerated method for tax purposes rather than the straight-line method of
Note: You do NOT need to compute depreciation; that has been provided for you.
d. $ 0
28. Zoogle owned other equipment that cost $93,500 with accumulated depreciation of $64,000.
Zoogle asked $35,000 for the equipment but was only able to sell the equipment for $33,000.
Compute the amount of gain or loss on the sale.
a. $3,500 loss
b. $3,500 gain
c. $5,500 loss
d. $5,500 gain
e. $58,500 gain
29. Zoogle is required to report its trucks at book value on its balance sheet, which represents:
a. Acquisition cost less the accumulated depreciation
b. Acquisition cost plus accumulated depreciation
c. Amount that could be obtained for the asset if it were sold
d. What the trucks are worth
30. Zoogle’s obligations due to be paid within one year or the company’s operating cycle, whichever
is longer, are:
a. Current assets
b. Operating cycle liabilities
d. Current liabilities
31. Employee Phil Phoenix is paid monthly. For the month of January, he earned a total of $8,288.
The FICA tax rate for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The
FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the
first $7,000 of an employee’s pay. The amount of Federal Income Tax withheld from his earnings
was $1,375.17. What is the total amount of taxes withheld from the Phoenix’s earnings?
Questions #32 – 33 are based on the following information:
Zoogle sold merchandise to TechCom on October 17 and received a $4,800, 90-day, 10% note in
32. What entry should Zoogle make on December 31, to record the accrued interest on the note?
(Assume 360 days in a year.)
a. Debit Interest Receivable $20; credit Interest Revenue $20.
b. Debit Interest Receivable $100; credit Interest Revenue $100.
c. Debit Cash $20; credit Notes Receivable $20.
d. Debit Cash $100; credit Notes Receivable $100.
33. How much cash will Zoogle receive on January 15 of the next year when the note matures?
(Assume 360 days in a year.)
34. Zoogle issued bonds with a face value of $400,000 and a quoted price of 98½. The bonds had a
selling price of
35. Zoogle Corporation is founded on January 1, 2014. The state authorized 3,000 shares of
common stock with a $10 par value. Ten investors contributed $3,000 each in exchange for 100
shares each. What is the correct accounting entry?
a. Cash 30,000
Common Stock 30,000
b. Cash 30,000
Common Stock 3,000
Paid-in Capital in Excess of Par Value 27,000
c. Cash 30,000
Common Stock 10,000
Paid-in Capital in Excess of Par Value 20,000
d. Cash 300,000
Common Stock 90,000
Paid-in Capital in Excess of Par Value 210,000
That’s it for Zoogle! But there are more questions to enjoy……………..
36. The following were some of the accounts in the stockholders’ equity section of the balance sheet
for Cloud Nine Co.
Preferred stock 6%, $100 par, cumulative, 1,000 shares issued
and outstanding………………………………………… $100,000
Common stock $10 par, 20,000 shares issued,
19,200 shares outstanding……………………………… $200,000
Paid –in capital in excess of par-common……………………… $100,000
Treasury stock……………………………………………… … $(16,000)
Cloud Nine Co. typically pays a dividend to its shareholders every year, however Cloud Nine failed
to distribute a dividend last year. The board of directors declared a dividend to provide the preferred
shareholders with all of their share of the cumulative and current dividend amounts and also $.50 per
share dividend for the common shareholders. The total amount of the dividend will be: a. $15,600
37. IBM issues 200,000 shares of stock at a par value of $0.01 for $150 per share. Three years later,
it repurchases these shares for $80 per share. IBM records the repurchase in which of the following
a. Debit Stockholders’ Equity for $30 million, credit Additional Paid-in Capital for $16 million and
credit Cash for $16 million.
b. Debit common stock for $2,000, debit Additional Paid-in Capital for $15,998,000 and credit cash
for $16 million.
c. Debit Common Stock for $2,000, debit Additional Paid-in Capital for $29,998,000 and credit Cash
for $30 million.
d. Debit Treasury Stock for $16 million and credit Cash for $16 million.
38. Which of the following statements is not true about a 2-for-1 stock split?
a. Total paid-in capital increases.
b. The market value of the stock will probably decrease.
b. A stockholder with 5 shares before the split owns 10 shares after the split.
c. Par value per share is reduced to half of what it was before the split.
39. Peninsula Company reported net income of $260,000 for the year. During the year, accounts
receivable increased by $21,000, accounts payable decreased by $9,000 and depreciation expense of
$45,000 was recorded. Net cash provided by operating activities for the year is
40. Statler Company sold for cash a machine that originally cost $18,000. The accumulated
depreciation to date of disposal was $15,000, and a gain on the disposal of $2,000 was
reported. Therefore, the cash inflow from this transaction was:
Match each activity below with the proper classification by inserting the proper capital
letter in the space to the left.
Classification of Activity
Activity _______ 41. Sales of land used in the business.
_______ 42. Payment of long-term debt with cash.
_______ 43. Cash paid to suppliers of inventory.
_______ 44. Purchase of equipment for cash.
_______ 45. Issuance of common stock for cash.
_______ 46. Cash received from customers.
Financial Statement Problem
From the following jumbled trial balance at the end of the 2014 year, prepare a
*Multi-step Income Statement
*Statement of Changes in Retained Earnings
*Classified Balance Sheet
Bell Department Store is located in midtown Metropolis. During the past several years, net income has been declining because suburban shopping centers have been attracting business away from city areas. At the end of the company’s fiscal year on November 30, 2014, these accounts appeared in its adjusted trial balance.
Accounts Payable $ 26,800
Accounts Receivable 17,200
Common Stock 35,000
Cost of Goods Sold 614,300
Depreciation Expense 13,500
Gain on Disposal of
Income Tax Expense 10,000
Insurance Expense 9,000
Interest Expense 5,000
Notes Payable 43,500
Prepaid Insurance 6,000
Advertising Expense 33,500
Rent Expense 34,000
Retained Earnings 14,200
Salaries and Wages
Sales Revenue 904,000
Salaries and Wages
Sales Returns and
Utilities Expense 10,600
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