Midterm Practice Exam

A bookkeeper writes an amount in the debit column of an account. Where in the account does that amount sit?

Select one.

• On the right side, whatever kind of account it is
• On whichever side makes the account grow
• On the left side, whatever kind of account it is
• On the side that signals good news for the business

An illustrative dog-grooming service is ready to turn its adjusted trial balance into its year-end financial statements. In what order does it prepare the three statements?

Select one.

• Balance sheet, then statement of retained earnings, then income statement
• Statement of retained earnings, then balance sheet, then income statement
• Income statement, then statement of retained earnings, then balance sheet
• Income statement, then balance sheet, then statement of retained earnings

An illustrative hardware store buys 25 wheelbarrows for $2,500, pays $150 of freight under FOB shipping point, and takes a $50 purchase discount. What did each wheelbarrow cost the store?

Select one.

• $100
• $106
• $104
• $98

An illustrative hardware store uses a periodic system for one color of paint: beginning inventory of 20 cans at $10, a first purchase of 50 cans at $12, and a second purchase of 30 cans at $14. It sells 60 cans at $23 each. What is gross profit under FIFO?

Select one.

• $600
• $648
• $1,380
• $700

An illustrative hardware store owes its supplier $6,500 for garden hoses bought on terms of 2⁄10, n⁄30 and pays within 10 days. Which entry records the payment in its perpetual system?

Select one.

• Debit Accounts Payable 6,500; credit Inventory 130; credit Cash 6,370
• Debit Accounts Payable 6,500; credit Cash 6,500
• Debit Accounts Payable 6,500; credit Purchase Discount Revenue 130; credit Cash 6,370
• Debit Accounts Payable 6,370; credit Cash 6,370

A bookkeeper finds several mistakes in a month's records. Which of them would still let the trial balance's debit total equal its credit total? Select every one that applies.

Select every option that applies.

• Posting the credit half of an entry but not its debit half
• Never journalizing a purchase of supplies on account
• Journalizing and posting one customer's payment two times
• Posting a $450 debit and a $540 credit for a single entry
• Posting a debit meant for Rent Expense to Utilities Expense

True or false: when an illustrative landscaping company organized as a corporation pays its shareholders a $750 cash dividend on Day 27, the payment counts as one of the company's expenses for the month.

True or false.

• True
• False

An illustrative software firm prepares financial statements for its lenders and investors under U.S. GAAP. Which basis of accounting must those statements use?

Select one.

• The cash basis
• Whichever basis the firm's managers choose each year
• The cash basis for expenses and the accrual basis for revenues
• The accrual basis

After closing, an illustrative tutoring business's remaining ledger balances are Cash $5,900, Accounts Receivable $650, Equipment $4,800, Accumulated Depreciation $400, Accounts Payable $550, Common Stock $7,000, and Retained Earnings $3,400. What total does each side of its post-closing trial balance show?

Select one.

• $10,950
• $11,350
• $10,400
• $11,750

An illustrative coffee roaster uses FIFO, and its 50 pounds of beans on hand cost $600. It now expects to receive $11 a pound, net of selling costs. Under the lower of cost and net realizable value, what happens?

Select one.

• A write-down of $50; the beans are reported at $550
• No write-down; the beans stay at $600, the amount the roaster paid
• A write-down of $550; the beans are reported at $50
• A write-up of $50; the beans are reported at $650

A classmate says Luca Pacioli invented double-entry bookkeeping. Which statement accurately describes what his Summa de arithmetica, geometria, proportioni et proportionalita, printed in Venice, gave accounting?

Select one.

• Its pages hold the first published description of double-entry bookkeeping
• It proves that Pacioli invented double-entry bookkeeping himself
• It made a balanced trial balance a legal duty for Venetian merchants
• It laid down the first generally accepted accounting principles

A classmate calls the Financial Accounting Standards Board (FASB) a branch of the federal government. Which statement describes the FASB accurately?

Select one.

• A federal agency, set up in the 1930s, with legal authority over public-company reporting
• A private-sector, not-for-profit standard setter, formed in the 1970s, whose GAAP the SEC recognizes
• A division of the IRS that writes the tax rules each business has to follow every year
• The international board that issues International Financial Reporting Standards

An illustrative software firm begins its first year with no retained earnings, earns net income of $6,500, and pays $1,800 of dividends. What ending balance does its statement of retained earnings report?

Select one.

• $6,500
• $4,700
• $8,300
• $1,800

For its first season, an illustrative farmers' market stall reports revenue of $7,300 and total expenses of $5,150. Its Cash account shows $6,050. What is the stall's net income for the season?

Select one.

• $6,050
• $12,450
• $7,300
• $2,150

An illustrative tutoring business collected $1,600 in advance for a block of eight equal sessions and recorded it as Unearned Revenue. By month-end it has taught three of the sessions. Which adjusting entry records the work done?

Select one.

• Debit Cash 600; credit Service Revenue 600 for the sessions taught
• Debit Service Revenue 600; credit Unearned Revenue 600
• Debit Unearned Revenue 1,000; credit Service Revenue 1,000
• Debit Unearned Revenue 600; credit Service Revenue 600

True or false: an illustrative coffee roaster reports the cost of its 45 unsold bags of beans on its balance sheet as ending inventory, a current asset, and the cost of the 155 bags it sold on its income statement as cost of goods sold.

True or false.

• True
• False

True or false: if an illustrative software firm forgot its month-end entry for $650 of wages its developers earned but had not yet been paid, its adjusted trial balance would show unequal debit and credit totals.

True or false.

• True
• False

An illustrative hardware store sells 12 power drills at $95 each on account. Which entry records the revenue side of the sale?

Select one.

• Debit Accounts Receivable 1,140; credit Sales Revenue 1,140
• Debit Sales Revenue 1,140; credit Accounts Receivable 1,140
• Debit Cost of Goods Sold 1,140; credit Inventory 1,140
• Debit Cash 1,140; credit Sales Revenue 1,140

Three founders of an illustrative software firm invest $45,000 cash and receive 4,500 shares of $10-par common stock. Which form of business organization does the firm's Common Stock account show it has?

Select one.

• A corporation, which issues shares of stock to its owners
• A partnership, because the firm has three founders
• A sole proprietorship, because the firm is new and small
• A nonprofit, because the founders have not paid themselves yet

An illustrative catering company has taken a $2,500 deposit from a wedding couple for a dinner it will serve next season. The couple wants to know whether the caterer will stay in business long enough to serve it. In this course's terms, what kind of reader of the caterer's numbers is the couple?

Select one.

• A regulator, because the couple can make the caterer serve the dinner they paid for
• An internal user, because their $2,500 is already tied up in the caterer's work
• An external user, because the couple are customers outside the business who rely on its reports
• A managerial accounting user, because the couple will plan the whole wedding day around the dinner

True or false: an illustrative tutoring business organized as a corporation lists the $350 dividend it paid during the year among the expenses on its income statement.

True or false.

• True
• False

A newly hired staff accountant is reading the AICPA Code of Professional Conduct. Which of these are principles that the Code sets out? Select all that apply.

Select every option that applies.

• Loyalty to the Employer
• The Public Interest
• Responsibilities
• Speed of Service
• Scope and Nature of Services

An illustrative tutoring business's ledger at the end of its first month shows Cash $5,400, Supplies $600, Accounts Payable $900, Common Stock $4,000, Service Revenue $2,300, and Wages Expense $1,200. What are the column totals of its unadjusted trial balance?

Select one.

• $6,000 in each column
• $7,200 of debits and $6,000 of credits
• $7,200 in each column
• $5,100 in each column

A student is asked to say in one sentence what financial accounting is. Which sentence gives the meaning this course uses?

Select one.

• It prepares general-purpose financial statements for readers outside the business, such as lenders and investors
• It prepares reports tailored to the business's own managers, such as a weekly staffing plan or a product-line budget
• It is a rulebook that tells each business how much income tax it owes to the IRS for the year
• It is a log of the owner's household bills, kept in the same folder as the records of the business

An illustrative coffee roaster buys the same green beans at several different costs per pound during the year. What does the roaster's choice of cost flow assumption determine?

Select one.

• Which bags of beans are physically roasted and shipped first
• What price per pound the roaster charges the cafés it supplies
• Which bean supplier the roaster pays first when its bills come due
• How the period's bean costs are split between cost of goods sold and ending inventory