Ch. 4-6 Practice Questions

Question 1

Accountants have developed two principles to use as guidelines in determining the amount of revenue and expenses to be reported in a given period. These principles are the:

Answer 1

Both cash basis accounting principles and revenue recognition principle are correct

Question 2

Which of the following is NOT true concerning cash basis accounting?

Answer 2

Matches expenses with revenues they help produce

Question 3

In order for revenues to be recorded in the period in which the services are performed, and for expenses to be recognized in the period in which they are incurred:

Answer 3

Adjusting entries are made

Question 4

Unearned revenues are:

Answer 4

Both deferrals and liabilities are correct

Question 5

All of the following are examples of prepaid expenses except:

Answer 5

Unearned revenues

Question 6

Depreciation is:

Answer 6

The process of allocating the cost of an asset to expense over its useful life

Question 7

Accumulated depreciation is:

Answer 7

Contra asset account

Question 8

Which of the following companies would probably NOT have learned revenue?

Answer 8

Poppa John’s Pizza

Question 9

Adjusting entries for accruals:

Answer 9

Both are required in order to record revenues fo services performed and expenses incurred in the current accounting period that have not been recognized through daily entries and thus are not yet reflected in the accounts and will increase both a balance sheet and an income statement account are correct.

Question 10

An assumption that the economic life of a business can be divided into artificial time periods is the:

Answer 10

Periodicity assumption

Question 11

Wal-mart is a prime example of which type organization:

Answer 11

Merchandising concern

Question 12

Under the perpetual inventory system, purchases of merchandise for sale are recorded in a account called:

Answer 12

Inventory

Question 13

A purchaser, dissatisfied with merchandise received, may return the goods to the seller for credit. This transaction is known by the seller, as a:

Answer 13

Sales return

Question 14

All of the following are examples of business documents except:

Answer 14

Memorandum describing merchandise

Question 15

In a periodic inventory system, the cost if goods sold is determined:

Answer 15

At the end of the accounting period

Question 16

Freight costs incurred by the seller on outgoing merchandise are considered:

Answer 16

Operating expenses to the seller

Question 17

If a sales invoice shows credit terms of 2/10, n/30, the descend period is:

Answer 17

10 days

Question 18

The revenue recognition principle requires that sales revenues be recognized

Answer 18

When the goods are transferred from the seller to the buyer

Question 19

Sales return and allowances and sales discounts are:

Answer 19

Contra revenue accounts

Question 20

The income statement of a merchanting company contains the following unique features:

Answer 20

Sales revenue, cost of goods sold, and gross profit

Question 21

In order to be classified as merchandise inventory, merchandise must be:

Answer 21

Both owned by the company and in a form ready for sale to customers in the ordinary course of business

Question 22

General Motors would classify automobiles on the assembly line in various stages of completion as:

Answer 22

Work in progress

Question 23

When purchases of merchandise are recorded in the purchases account rather than the inventory account the inventory system being used is the:

Answer 23

Periodic system

Question 24

To determine cogs under a periodic inventory system all of the following are necessary except:

Answer 24

Total cash register receipts for the period

Question 25

In some lines of business, it is customary to hold the goods of other parties and try to sell the good for them for a fee. These good are called:

Answer 25

Consigned goods

Question 26

When legal title of the goods remains with the seller until the goods reach the buyer the terms are said to be:

Answer 26

FOB destination

Question 27

The three assumed cost flow methods are:

Answer 27

FIFO, LIFO, and average-cost

Question 28

Which of the following statements are not true regarding LIFO:

Answer 28

Ending inventory is based on the price of the most recent units purchased

Question 29

In a period of increasing prices, the inventory system that will yield the highest net income is:

Answer 29

FIFO

Question 30

Under lower-of-cost-or-market (LCM), market is defined as:

Answer 30

Current replacement cost