Accounting II

True/False
Indicate whether the sentence or statement is true or false.

____ 1. A set of procedures for controlling cash payments by preparing and approving vouchers before
payments are made is known as a voucher system.

____ 2. In a voucher system, vouchers needing to be paid are kept in a vouchers payable ledger.

____ 3. An inventory record lists the number of units on hand, the unit price of the item, and the item's
total cost.

____ 4. The percentage of accounts receivable method estimates a percentage of accounts receivable that
will not be collected and updates the balance of Allowance for Uncollectible Accounts so that it
equals the estimated amount.

____ 5. When a customer's account is written off, its balance is reduced to zero.

____ 6. From experience, businesses know that the longer an account is outstanding, the less likely it is
to be collected.

____ 7. Recording uncollectible accounts expense at the time the amount is actually known to be
uncollectible is called the allowance method of recording losses from uncollectible accounts.

____ 8. The accounts receivable turnover ratio is a measure of collection efficiency.

____ 9. Regardless of the care taken in granting credit, some customers will not pay the amounts owed.

____ 10. To use the production-unit depreciation method for a vehicle, the estimated useful life must be
stated in number of miles.

____ 11. Included in the original cost of a plant asset are all costs paid to make the asset usable including
the purchase price, delivery costs, and any necessary installation costs.

____ 12. The Matching Expenses with Revenue concept is being applied when special accounting
procedures are implemented so that the correct amount of revenue earned in the fiscal period is
recognized in the financial statements.

____ 13. When a corporation earns a profit, it is required to distribute a portion of the earnings to the
stockholders.

____ 14. A corporation maintains a separate record of its net income and its issued capital stock by
recording net income in the capital account Retained Earnings.
____ 15. If a bond issue was for $500,000.00, the amount to be deposited in the bond sinking fund equals
$500,000.00.

____ 16. A comparative income statement compares one year's actual results to another year's actual
results. A performance report compares the budget amounts to the actual results.

____ 17. On a comparative income statement, if a cost or expense item increase is a higher percentage
than the net sales increase, net income is favorably affected.

____ 18. On a graph showing the breakeven point, the net loss area always appears below and to the left
of the breakeven point.

____ 19. Unit sales at breakeven may be calculated by dividing total fixed costs by the contribution
margin per unit.

____ 20. If a company can reduce its fixed costs, the number of units that must be sold to break even will
decline.

____ 21. The percentage relationship between one financial statement item and the total that includes that
item is called a component percentage.

____ 22. The cash receipts and cash payments of a company are called cash flows.

____ 23. On a work sheet, Cost of Goods Sold is extended to the Income Statement Debit column.

____ 24. The balance sheet of a manufacturing business includes inventories for materials, cost of goods
sold, and finished goods.

____ 25. The total of the materials ledger should equal the balance in the general ledger account Materials.

____ 26. The additional capital provided by a new partner adds financial strength to allow a business to
grow.

____ 27. If the partnership agreement calls for salaries to the partners, then the salaries are considered
expenses of the business, rather than a withdrawal of earnings.

____ 28. The net income component percentage may be higher for partnerships than for corporations since
partnerships have fewer expenses.

____ 29. Salaries are often paid to partners who devote time to working for the partnership.

____ 30. A governmental accounting entity with a set of accounts in which assets always equal liabilities
plus equities is called a fund.

____ 31. In modified accrual accounting, expenditures are recognized when the payment is made.
____ 32. Fund equity that is not reserved for a specific purpose represents resources that are available for
appropriations and spending.

____ 33. A merchandise inventory determined by keeping a continuous record of increases, decreases, and
balance on hand is a perpetual inventory.

____ 34. Net income increases the retained earnings of a corporation as shown on the statement of
stockholders' equity.

____ 35. A list of customer accounts, account balances, and total amount due from all customers is an
accounts receivable ledger.

____ 36. If employer payroll taxes are paid using the Electronic Federal Tax Payment System (EFTPS),
the entry is recorded in the general journal.

____ 37. Total shares of ownership in a corporation are called capital stock.

____ 38. The Bank columns in the check register are not posted to any ledger.

____ 39. Treasury Stock may be sold for more than its cost.

____ 40. The adjusting entry to record depreciation on office equipment involves a debit to Depreciation
Expense–Office Equipment and a credit to Accumulated Depreciation–Office Equipment.

____ 41. Dividends – both cash and stock – increase a corporation’s Retained Earnings account.

____ 42. The date of record is the date on which a board of directors votes to distribute a dividend.

____ 43. Intangible assets appear on the balance sheet.

____ 44. Issuing capital stock is a financing activity and a cash inflow.

____ 45. Depreciation expense is not a source or use of cash; therefore, it is subtracted from net income on
the statement of cash flows.

____ 46. Payroll expenses are an operating expense and a use of cash.

____ 47. Applied overhead is the estimated amount of factory overhead recorded on cost sheets.

____ 48. To determine departmental margin, direct expenses are subtracted from gross profit.

____ 49. Legally, a partnership must be formed by a written agreement.

____ 50. The primary purpose of a not-for-profit organization is to earn a net profit.
 Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 51. Voucher 655 was issued to Myrick Company for $1,100 for a purchase on account. The debit is
to ____.
a. Accounts Payable c. Vouchers Payable
b. Cash d. Purchases

____ 52. Every entry in a voucher register includes the date, ____.
a. payee, and voucher number c. account credited, and voucher number
b. account debited, and voucher number d. payee, and check number

____ 53. The voucher register page number is recorded ____.

a. in the general ledger c. on the voucher
b. in the vouchers payable ledger d. on the voucher check

____ 54. A file of stock records for all merchandise on hand is called a(n) ____.
a. accounts payable ledger c. merchandise ledger
b. stock ledger d. inventory record

____ 55. The first step in recording the collection of an account that has been written off is to ____.
a. reopen the account receivable
b. debit Collection of Uncollectible Accounts
c. record the cash received
d. reduce the amount of Allowance for Uncollectible Accounts

____ 56. Holt Co. has terms of 2/10, n/30. Its accounts receivable turnover ratio is 10.3. The average
number of days for payment is (rounded to the nearest day) ____.
a. 35 days c. 34 days
b. 36 days d. 30 days

____ 57. The adjusting entry to record the estimated uncollectible accounts expense using the percentage
of sales method is ____.
a. a debit to Uncollectible Accounts Expense and a credit to Allowance for
Uncollectible Accounts
b. a debit to Allowance for Uncollectible Accounts and a credit to Uncollectible
Accounts Expense
c. a debit to Uncollectible Accounts Expense and a credit to Accounts Receivable
d. a debit to Allowance for Uncollectible Accounts and a credit to Income Summary
____ 58. The amount that is due on the maturity date of a note is called the ____.
a. amount due c. maturity value
b. interest d. principal

____ 59. The day a note is issued is called the ____.

a. date of a note c. maturity date of a note
b. interest date of a note d. principal date of a note

____ 60. At the end of a fiscal period, a business must show how much rent received in advance has
become ____.
a. an expense c. an asset
b. a revenue d. a liability

____ 61. Recording an adjusting entry for accrued interest income is an application of the accounting
concept ____.
a. Objective Evidence c. Consistent Reporting
b. Historical Cost d. Matching Expenses with Revenue

____ 62. Assets of a nonphysical nature that have value for a business are ____.
a. difficult to value c. intangible assets
b. goodwill assets d. long-term capital assets

____ 63. A person or business who handles the details of issuing and transferring stock certificates is
known as a ____.
a. bank agent c. stock trader
b. stock broker d. transfer agent

____ 64. The approved articles of incorporation are called the ____.
a. authorization directive c. incorporation document
b. charter d. permission to begin operations

____ 65. Written evidence of the number of shares that each stockholder owns in a corporation is called
a(n) ____.
a. articles of ownership c. preferred stock offering
b. charter d. stock certificate
____ 66. A printed, long-term promise to pay a specified amount on a specified date and to pay interest at
stated intervals is known as a(n) ____.
a. bond c. indenture
b. bond issue d. stock

____ 67. When common stock is issued for more than its stated value, a debit is made to ____.
a. Cash
b. Paid-in Capital in Excess of Par Value–Common
c. Paid-in Capital in Excess of Stated Value–Common
d. Common Stock

____ 68. The relationship between net income and average stockholders' equity is the ____.
a. rate earned on average stockholders' equity
b. rate earned on average net income
c. rate earned on average total assets
d. price-earnings ratio

____ 69. Which budget schedule shows the quarterly estimates for Utilities Expense?
a. administrative expenses c. other revenue and expenses
b. cash payments d. selling expenses

____ 70. A performance report shows a budget amount for cost of merchandise sold of $336,000 and an
actual amount of $352,000. What is the percentage increase or decrease? (Percentages are
rounded to the nearest 0.1%.)
a. 4.5% decrease c. 4.8% decrease
b. 4.5% increase d. 4.8% increase

____ 71. If earnings per share increased from $6.22 in the prior year to $6.79 in the current year,
stockholders know that ____.
a. the number of shares outstanding increased
b. net income earned for each share increased
c. net sales increased
d. current assets increased

____ 72. Purchases of equipment are an ____.

a. operating activity and cash inflow c. investing activity and cash inflow
b. operating activity and cash outflow d. investing activity and cash outflow
____ 73. After cash flows from operating, investing, and financing activities have been determined, the
result is the ____.
a. cash balance, end of period
b. cash balance, beginning of period
c. net increase (decrease) in cash
d. net increase (decrease) in activity

____ 74. Retirement of bond principal is a(n) ____.

a. financing activity and cash inflow
b. financing activity and cash outflow
c. investing activity and cash inflow
d. investing activity and cash outflow

____ 75. The cost sheet for 90 units of inkjet printers shows $7,200.00 for direct materials and $4,200.00
for direct labor. Factory overhead is estimated at 70% of direct labor. The total cost of the job is
____.
a. $11,400.00 c. $16,440.00
b. $14,340.00 d. $16,530.00

____ 76. On a manufacturing work sheet, the difference between the Income Statement columns and the
Balance Sheet columns represents ____.
a. cost of goods sold c. net income
b. cost of goods manufactured d. work in process

After liquidating all noncash assets and all liabilities, the partnership has $23,000.00 in cash. The
loss and gain on realization has a credit balance of $3,000.00. Watson, Capital has a balance of
$12,000.00. Holbrooke, Capital has a balance of $8,000.00. The partnership agreement calls for
net income and net losses to be divided 60% for Watson and 40% for Holbrooke.

____ 77. Refer to the Watson and Holbrooke Scenario. After the loss or gain on realization has been
recorded, Watson's capital account has a balance of ____.
a. $13,800.00 c. $10,800.00
b. $12,200.00 d. $10,200.00

____ 78. When money is spent for capital outlays, such as roads and bridges, the total amount spent is
recorded as ____.
a. an asset to be depreciated
b. an expenditure in the period the money is spent
c. an encumbrance during the useful life of the asset
d. an appropriation for future periods
____ 79. Which of the following is NOT an example of other revenue (revenue that is not measurable
until it is received)?
a. fines c. parking meter receipts
b. property taxes d. penalties

____ 80. If an employer's annual federal unemployment tax liability is greater than $100.00, the employer
must make payments ____.
a. weekly c. each payroll period
b. monthly d. quarterly

____ 81. The total amount of earnings by all employees for a pay period is called ____.
a. Salaries Payable c. maximum taxable earnings
b. a payroll d. Wages Expense

Mar. 18. Paid cash for biweekly payroll. Check No. 833.
Total payroll consists of computer systems, $4,500.00; network systems, $6,200.00; and
administrative, $3,600.00. Deductions are made as follows:

Employee income tax–federal $2,450.00

Employee income tax–state 7.0% of payroll
Social security tax 6.5% of payroll
Medicare tax 1.5% of payroll
Health insurance $780.00

____ 82. Refer to the March Transaction. This transaction would be recorded in the ____.
a. cash payments journal c. general journal
b. cash receipts journal d. payroll register

Feb. 16. Received cash on account from Key Sports Co. covering Sales Invoice No. 822 for
$400.00 plus 5% sales tax, less Credit Memorandum No. 18 for $60.00 plus sales tax, less a 2%
discount, and less the applicable sales tax. Receipt No. 33.

____ 83. Refer to the Key Sports. Co. Transaction. The amount received from Key Sports Co. is ____.
a. $349.86 c. $357.00
b. $350.20 d. $364.14

____ 84. If the title to the goods passes from the vendor to the buyer at the time the goods are received at
the buyer's place of business, the shipping terms are ____.
a. FOB shipping point c. FOB destination
b. FOB delivery d. consigned
____ 85. Businesses that uses a periodic or a perpetual inventory usually take a periodic inventory once
each ____.
a. week c. quarter
b. month d. year

The following information for Romanoff, Inc., is available on December 31 of the current year.

Cost Retail
Beginning merchandise inventory $42,400.00 $70,000.00
Net purchases to date 136,000.00 227,400.00
Net sales to date 207,400.00
Gross profit percentage 40%

____ 86. Refer to the Anderson Inc. Scenario. What is the average merchandise inventory for the current
year?
a. $314,365.00 c. $341,635.00
b. $341,365.00 d. $342,000.00

____ 87. If prepaid insurance is initially recorded as an expense and the appropriate adjusting and closing
entries are made, the reversing entry will consist of a ____.
a. debit to Prepaid Insurance and a credit to Insurance Expense
b. debit to Insurance Expense and a credit to Prepaid Insurance
c. debit to Insurance Expense and a credit to Income Summary
d. debit to Income Summary and a credit to Insurance Expense

____ 88. When an account that has been written off using the direct write-off method is collected, the
revenue account used is ____.
a. Allowance of Uncollectible Accounts c. Resales
b. Collection of Uncollectible Accounts d. Uncollectible Accounts Revenue

____ 89. If the principal of a 90-day note is $5,000.00 and the interest due at maturity is $125.00, the
interest rate on the note is ____.
a. 9.0% c. 10.0%
b. 9.5% d. 12.0%

____ 90. Net sales for the year are $400,000.00 and 50% of the sales were made on account. The average
book value of accounts receivable is $20,000.00. The accounts receivable turnover ratio is ____.
a. 5 times c. 12 times
b. 10 times d. 20 times
____ 91. When treasury stock is purchased, ____.
a. Capital Stock is debited and Treasury Stock is credited
b. Treasury Stock is debited and Cash is credited
c. Cash is debited and Treasury Stock is credited
d. Treasury Stock is debited and Capital Stock is credited

____ 92. The share of net income assigned to common stock divided by the number of shares of common
stock outstanding is known as the ____.
a. equity per share c. earnings per share
b. dividend rate d. price-earnings ratio

On May 1, Alliance, Inc., purchases 5,000 shares of its own stock to be held as treasury stock.
The stock has a stated value of $10.00 per share, and the stock is purchased for $12.00 per share.
On July 1, 1,000 shares of the treasury stock are sold to Frank Abbott at $16.00 per share. On
August 10, 1,000 shares of the treasury stock are sold to David Merrill for $11.00 per share.

____ 93. Refer to the Alliance Inc. Scenario. The balance of Treasury Stock after the August 10
transaction has been recorded is ____.
a. $20,000.00 c. $30,000.00
b. $24,000.00 d. $36,000.00

____ 94. Which of the following does not require an entry on the company's books?
a. sales of preferred stock
b. sales of common stock
c. sales of stock by one investor to another investor
d. declaration of dividends

____ 95. A performance report shows a budget amount for net sales of $800,000.00 and an actual amount
of $840,000.00. What is the percentage increase or decrease? (Round percentages to the nearest
0.1%.)
a. 5.0% increase c. 4.8% increase
b. 5.0% decrease d. 4.8% decrease

____ 96. Which accounting concept is applied when it is stated that the earnings of a business must be
satisfactory to continue operations.
a. Adequate Disclosure c. Going Concern
b. Consistent Reporting d. Materiality
____ 97. A product currently sells for $10.00 and has variable costs of $6.00 per unit. Fixed costs total
$20,000.00. If the selling price is raised to $11.00 and fixed and variable costs do not change,
how many units must be sold to break even?
a. 4,000 units c. 4,500 units
b. 5,000 units d. 5,500 units

____ 98. If the departmental margins are 30% of net sales, the company's net income for the fiscal period
will normally be ____.
a. 30% of net sales
b. more than 30% of net sales
c. less than 30% of net sales
d. greater than the cost of merchandise sold

____ 99. Responsibility accounting traces revenues, costs, and expenses to ____.
a. the accounting department
b. each employee
c. the income statement
d. individual managers who are responsible for making decisions about those
revenues, costs, and expenses

____100. The entry to record Partner A's share of a deficit is a debit to Partner A, Capital and a credit to
____.
a. Partner A, Drawing c. Income Summary
b. Cash d. Loss and Gain on Realization