REVIEW 1

Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. Sky Company purchased equipment on November 1, 2010, by giving its supplier a 12-month, 9 percent note with a
face value of 48,000. The December 31, 2010, adjusting entry is
a. debit Interest Expense and credit Cash, 720.
b. debit Interest Expense and credit Interest Payable, 720.
c. debit Interest Expense and credit Interest Payable, 1,080.
d. debit Interest Expense and credit Interest Payable, 4,320.
2. The inventory system employing accounting records that continuously disclose the amount of inventory is called
a. retail
b. periodic
c. physical
d. perpetual
3. Jimmy, Jerry and Johnny decide to liquidate their partnership. All assets are sold and the liabilities are paid.
Following these transactions, the capital balances and profit and loss percentages are as follows: Jimmy, 27,000
and 30%; Jerry, (12,000) and 40%; Johnny, 43,000 and 30%. Jerry is unable to contribute any assets to reduce the
deficit. How much cash will Jimmy receive as a results of the partnership liquidation?
a. 27,000
b. 21,000
c. 23,400
d. 15,000
4. Which one is not a liability account ?
a. Cash Dividends payable
b. property dividends payable
c. Scrip dividends payable
d. Stock dividends payable
5. Jack and Jill share income and losses in a 2:1 ratio after allowing for salaries to Jack of 24,000 and 30,000 to Jill.
Net income for the partnership is 66,000. Income should be divided as follows:
a. Jack, 24,000; Jill, 30,000
b. Jack, 24,000; Jill, 34,000
c. Jack, 30,000; Jill, 36,000
d. Jack, 32,000; Jill, 34,000
6. Stan and Ollie are partners who share income in the ratio of 2:3 and have capital balances of 50,000 and 30,000
respectively. Ray is admitted to the partnership and is given a 40% interest by investing 20,000. What is Stan's
capital balance after admitting Ray?
a. 20,000
b. 25,000
c. 42,000
d. 18,000
7. An accrued expense can be described as an amount
a. paid and matched with earnings for the current period.
b. paid and not matched with earnings for the current period.
c. not paid and not matched with earnings for the current period.
d. not paid and matched with earnings for the current period.
8. The balance in a deferred revenue account represents an amount that is

Earned

9.

10.

11.

12.

Collected

a. Yes
Yes
b. Yes
No
c. No
Yes
d. No
No
A corporation purchases 10,000 shares of its own 10 par common stock for 25 per share, recording it at cost.
What will be the effect on total stockholders' equity?
a. increase, 100,000
b. increase, 250,000
c. decrease, 100,000
d. decrease, 250,000
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for 15,000. The
seller paid transportation costs of 1,000 and issued a credit memorandum for 5,000 prior to payment. What is the
amount of the cash discount allowable?
a. 160
b. 150
c. 140
d. 100
When the perpetual inventory system is used, the inventory sold is shown on the income statement as
a. cost of merchandise sold
b. purchases
c. purchases returns and allowances
d. net purchases
The journal entry to issue 1,000,000 shares of 5 par common stock for 7.00 per share on January 2nd would be:
a. Jan 2 Cash
7,000,000
Common Stock
5,000,000
Paid-In Capital in Excess of Par - C/S
2,000,000
b. Jan 2 Cash
5,000,000
Common Stock
5,000,000
c. Jan 2 Cash
5,000,000
Paid-In Capital in Excess of Par - C/S
2,000,000
Common Stock
7,000,000
d. Jan 2 Cash
1,000,000
Common Stock
1,000.000

13. Who are entitled to dividends?

a. Issued shares
b. Issued and subscribed shares
c. Issued and outstanding shares
d. Outstanding & subscribed shares
14. When purchases of merchandise are made for cash, the transaction may be recorded with the following entry
a. debit Cash; credit Merchandise Inventory
b. debit Merchandise Inventory; credit Cash
c. debit Merchandise Inventory; credit Cash Discounts
d. debit Merchandise Inventory; credit Purchases
15. A change in the ownership of a partnership results in the
a. consolidating of the partnership
b. liquidating of the partnership

c. realization of the partnership

d. dissolution of the partnership
16. Goods in transit which are f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
17. Which one does not decrease retained earnings?
a. Net income
b. Appropriation
c. dividend
d. net loss
18. The balance sheet of Marilyn and Monroe was as follows immediately prior to the partnership's being liquidated:
cash, 20,000; other assets, 160,000; liabilities, 40,000; Marilyn capital, 60,000; Monroe capital, 80,000. The
other assets were sold for 139,000. Marilyn and Monroe share profits and losses in a 2:1 ratio. As a final cash
distribution from the liquidation, Marilyn will receive cash totaling
a. 46,000
b. 51,000
c. 60,000
d. 49,500
19. A chart of accounts is
a. a subsidiary ledger.
b. a listing of all account titles.
c. a general ledger.
d. a general journal.
20. Tom Barnes contributed equipment, inventory, and 44,000 cash to the partnership. The equipment had a book
value of 35,000 and market value of 28,000. The inventory has a book value of 25,000, but only had a market
value of 12,000. due to obsolescence. The partnership also assumed a 15,000 note payable owed by Tom that was
originally used to purchase the equipment.
What amount should Toms capital account be recorded?
a. 104,000
b. 89,000
c. 69,000
d. 84,000
21. Credit sales would normally be recorded in the
a. voucher register.
b. sales journal.
c. general journal.
d. cash receipts journal.
22. Stocks were sold for cash to 10,000 stockholders on march 1, 2004. The Board of

a.
b.
c.
d.

Directors declared a cash dividend of 10,000 on November 30 to stockholders on

record as of December 15,2004 payable on December 20. the accountant should
not prepared and entry on
March 1
Nov. 30
Dec. 15
Dec. 20

23. A company with 100,000 authorized shares of 4 par common stock issued 40,000 shares at 8. Subsequently, the
company declared a 2% stock dividend on a date when the market price was 11 a share. What is the amount
transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?
a. 3,200
b. 6,400
c. 4,800
d. 8,800
24. The Snow Corporation issues 10,000 shares of 50 par value preferred stock for cash at 60 per share. The entry to
record the transaction will consist of a debit to Cash for 600,000 and a credit or credits to
a. Preferred Stock for 600,000.
b. Preferred stock for 500,000 and Paid-in Capital in Excess of Par ValuePreferred Stock
for 100,000.
c. Preferred Stock for 500,000 and Retained Earnings for 100,000.
d. Paid-in Capital from Preferred Stock for 600,000.
25. Karren received 12,000 from a tenant on December 1 for four months' rent of an office. This rent was for
December, January, February, and March. If Karren debited Cash and credited Unearned Rental Income for 12,000
on December 1, what necessary adjustment would be made on December 31?
a. Unearned Rental Income .............
3,000
Rental Income ....................
3,000
b. Rental Income ......................
3,000
Unearned Rental Income ...........
3,000
c. Unearned Rental Income .............
9,000
Rental Income ....................
9,000
d. Rental Income ......................
9,000
Unearned Rental Income ...........
9,000
26. A company using the periodic inventory system has the following account balances: Merchandise Inventory at the
beginning of the year, 4,000; Transportation-In, 450; Purchases, 12,000; Purchases Returns and Allowances,
2,300; Purchases Discounts, 220. The cost of merchandise purchased is equal to
a. 13,930
b. 9,930
c. 9,489
d. 14520
27. Stan and Ollie are partners who share income in the ratio of 2:3 and have capital balances of 30,000 and 50,000
respectively. Ray is admitted to the partnership and is given a 10% interest by investing 20,000. What is Ollie's
capital balance after admitting Ray?
a. 56,000
b. 34,000
c. 20,000
d. 44,000
28. The overall objective of financial reporting is to provide information
a. that is useful for decision making.
b. about an enterprise's assets, liabilities, and owners' equity.
c. about an enterprise's financial performance during a period.
d. that allows owners to assess management's performance.
29. Using the following information, what is the amount of cost of merchandise sold?
Purchases
Merchandise inventory
April 1

28,000
6,500

Purchases discounts
Merchandise inventory
April 30

800
7,800

Sales returns and

allowances
Purchases returns and
allowances

30.

31.

32.

33.

750
1,000

Sales
Transportation In

57,000
880

a. 25,780
b. 23,270
c. 31,220
d. 24,020
Net income plus operating expenses is equal to
a. cost of goods sold
b. cost of goods available for sale
c. net sales
d. gross profit
Idos Company uses a periodic inventory system. Idos purchased cattle from Big Z Ranch at a cost of P27, 000 on
credit. The entry to record the receipt of the cattle would be
a. Purchases ........................... 27,000
Accounts Payable ..................
27,000
b. Inventory ........................... 27,000
Accounts Payable ..................
27,000
c. Purchases ........................... 27,000
Cash ..............................
27,000
d. Inventory ........................... 27,000
Cash ..............................
27,000
X and Y have original investments of 50,000 and 100,000 respectively in a partnership. The articles of partnership
include the following provisions regarding the division of net income: interest on original investment at 10%,
salary allowances of 27,000 and 18,000 respectively, and the remainder equally. How much of the net income of
90,000 is allocated to X?
a. 60,000
b. 43,000
c. 45,000
d. 47,000
Failure to record the expired amount of prepaid rent expense would not
a. understate expense.
b. overstate net income.
c. overstate owners' equity.
d. understate liabilities.

34. Which one does not affect total stockholders equity?

a. cash dividend
b. property dividend
c. scrip dividend
d. stock dividend
35. Using the following information, what is the amount of net sales?
Purchases
Merchandise inventory
April 1
Sales returns and
allowances

28,000
6,500
750

Purchases discounts
Merchandise inventory
April 30
Sales

800
7,800
57,000

Purchases returns and

allowances

36.

37.

38.

39.

40.

41.

42.

43.

1,000

Transportation In

880

a. 25,780
b. 57,000
c. 57,750
d. 56,250
What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
a. gross profit
b. income from operations
c. net income
d. gross sales
Goods in transit which are f.o.b. shipping point should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
The entry to record the return of merchandise from a customer would include a
a. debit to Sales
b. credit to Sales
c. debit to Sales Returns and Allowances
d. credit to Sales returns and Allowances
A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales
Revenue. The journal entry to correct this error would be
a. a debit to Sales Revenue and a credit to Accounts Receivable.
b. a debit to Sales Revenue and a credit to Unearned Revenue.
c. a debit to Cash and a credit to Accounts Receivable.
d. a debit to Accounts Receivable and a credit to Sales Revenue.
The Supplies on Hand account balance at the beginning of the period was 6,600. Supplies totaling 12,825 were
purchased during the period and debited to Supplies on Hand. A physical count shows 3,825 of Supplies on Hand
at the end of the period. The proper journal entry at the end of the period
a. debits Supplies on Hand and credits Supplies Expense for 9,000.
b. debits Supplies Expense and credits Supplies on Hand for 12,825.
c. debits Supplies on Hand and credits Supplies Expense for 15,600.
d. debits Supplies Expense and credits Supplies on Hand for 15,600.
Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
a. debit to Sales
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. credit to Accounts Receivable
If an expense has been incurred but not yet recorded, then the end-of-period adjusting entry would involve
a. a liability account and an asset account.
b. a liability account and an expense account.
c. an asset and an expense account.
d. a receivable account and a revenue account.
X and Y have original investments of 50,000 and 100,000 respectively in a partnership. The articles of
partnership include the following provisions regarding the division of net income: interest on original investment at
10%, salary allowances of 27,000 and 18,000 respectively, and the remainder equally. How much of the net loss
of 10,000 is allocated to X?

44.

45.

46.

47.

a. 10,000
b. 3,000
c. 5,000
d. 7,000
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000
shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
a. 5,000
b. 35,000
c. 45,000
d. 55,000
If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing
a
a. sales invoice
b. purchase invoice
c. credit memorandum
d. debit memorandum
The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the
accounting concept of:
a. accrual.
b. consistency.
c. comparability.
d. going concern.
Adjusting entries normally involve
a. real accounts only.
b. nominal accounts only.
c. real and nominal accounts.
d. liability accounts only.

48. On May 1 of the current year, Ted Companys board of directors declared a 10% stock dividend. The

market price of Teds 30, 000 outstanding shares of P20 par value was P90 per share on that date. The
stock dividend was distributed on July 1, when the market price was P100 per share. What amount should
Ted credit to share premium for this stock dividend?
a. 210, 000
b. 240, 000
c. 270, 000
d. 300, 000
49. The accounts below appear in the December 31, 2010 trial balance of Sheenah Company:

Authorized Share Capital

Unissued Share Capital
Subscribed Share Capital
Subscription Receivable
Share Premium
Retained Earnings- Unappropriated
Retained Earnings- Appropriated
Revaluation Surplus
Treasury Shares, at cost

5,000,000
2,000,000
1,000,000
400,000
500,000
600,000
300,000
200,000
100,000

In its December 31, 2010 Statement of Financial Position, Sheenah should report total shareholders
equity at
a. 5, 100, 000
b. 5, 500, 000
c. 4, 900, 000
d. 4, 800, 000
50. The shareholders equity section of Arce Company revealed the following information on December 31,

2010.
Preference Share Capital, P100 par
Share Premium- preference share
Ordinary Share capital, P10 par
Share Premium- ordinary share
Subscribed ordinary share capital
Retained Earnings
Notes Payable
Suncription Receivable
How much is the legal capital?
a. 7, 550, 000
b. 7, 600, 000
c. 13, 055, 000
d. 11, 150, 000

2,300,000
805,000
5,250,000
2,750,000
50,000
1,900,000
4,000,000
400,000

REVIEW 1
Answer Section
MULTIPLE CHOICE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.

B
D
B
D
D
C
D
C
D
D
A
A
D
B
D
A
B
A
B
C
B
C
D
B
A
B
A
A
A
D
A
D
B
D
D
A
B
C
D
D
C

42.
43.
44.
45.
46.
47.
48.
49.
50.

B
B
B
C
D
C
A
a
b