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SBS MBA - Accounting Skills 505

Question 1 of 48

1

If the indirect approach for the statement of cash flows is presented, which of the following items should be subtracted from accrual basis net income to derive cash flow from operating activities?

Select one of the following:

  • Gains on the sale of long-term investments

  • Losses on the sale of long-term investments

  • Depreciation expense

  • Amortisation expense

Explanation

Question 2 of 48

1

For purposes of calculating cash receipts from customers, which of the following adjustments should be made to convert accrual basis sales to cash basis sales?

Select one of the following:

  • Add an increase in accounts receivable to accrual basis sales

  • Subtract an increase in accounts receivable from accrual basis sales

  • Add cash in bank to accrual basis sales

  • Add the change in cash to the accrual basis sales

Explanation

Question 3 of 48

1

In preparing the statement of cash flows, how should non-cash investing/financing activities be reported?

Select one of the following:

  • Not be reported

  • Be reported in a separate schedule accompanying the statement of cash flows

  • Be reported in the investing activities section of the statement of cash flows

  • Be reported in the financing activities section of the statement of cash flows

Explanation

Question 4 of 48

1

On a statement of cash flows, which of the following types of activities would not be disclosed in a separate section?

Select one of the following:

  • Operating activities

  • Investing activities

  • Financing activities

  • Contractual activities

Explanation

Question 5 of 48

1

Which of the following activities would generally be regarded as a financing activity in preparing a statement of cash flows?

Select one of the following:

  • Dividend distribution

  • Proceeds from the sale of stocks of other firms

  • Loans made by the entity to other businesses

  • Employees' salaries and wages paid

Explanation

Question 6 of 48

1

Ames Corporation's net accounts receivable were $750,000 on December 31, 20X1, and $1,250,000 on December 31, 20X2. Net cash sales for 20X2 were $3,300,000. The accounts receivable turnover ratio for 20X2 was 16. What were the total net sales for 20X2?

Select one of the following:

  • $12,800,000

  • $16,000,000

  • $16,100,000

  • $19,300,000

Explanation

Question 7 of 48

1

Thompson Corporation wrote off a $200 uncollectible account receivable against the $2,400 balance in its Allowance for Bad Debts account. Compare the current ratio before the write-off (X) with the current ratio after the write-off (Y).

Select one of the following:

  • X greater than Y

  • X equals Y

  • X less than Y

  • Cannot be determined

Explanation

Question 8 of 48

1

Zhang Corporation had net income of $100,000 paid income taxes of $30,000, and had interest expense of $8,000. What was Zhang's times interest earned ratio?

Select one of the following:

  • 12.5

  • 16.25

  • 17.25

  • 17.85

Explanation

Question 9 of 48

1

Financial statement ratio analysis may be undertaken to study liquidity, turnover, profitability, and other indicators. To which does the current ratio most relate?

Select one of the following:

  • Liquidity

  • Turnover

  • Profitability

  • Other indicator

Explanation

Question 10 of 48

1

Gerber Department Store utilises the retail inventory method. Gerber's beginning inventory cost $140,000 and retailed for $280,000. Purchases for the period amounted to $390,000 and were priced to sell at twice that amount. Sales for the period, all at normal retail, were $600,000. How much is the cost of Gerber's estimated ending inventory?

Select one of the following:

  • $115,000

  • $150,000

  • $230,000

  • $300,000

Explanation

Question 11 of 48

1

Wonder Corporation failed to record the purchase of merchandise on account. The merchandise and related accounts payable should have been recorded but were not. What is the effect of these errors on assets, liabilities, retained earnings, and net income, respectively?

Select one of the following:

  • Understated, understated, no effect, no effect

  • Understated, understated, understated, understated

  • Understated, overstated, overstated, understated

  • Overstated, overstated, understated, overstated

Explanation

Question 12 of 48

1

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is:

Select one of the following:

  • FIFO

  • LIFO

  • Retail

  • Weighted-average

Explanation

Question 13 of 48

1

Which of the following inventory methods will always produce the same results under both a periodic and perpetual system?

Select one of the following:

  • FIFO

  • LIFO

  • Average

  • All of these

Explanation

Question 14 of 48

1

Ritz Company agreed to purchase certain inventory items from Hostess Corporation. Hostess shipped the goods F.O.B. destination. On December 31, Ritz's accounting year-end, Ritz was aware that the goods had been shipped and would be received any day.

Select one of the following:

  • Ritz should include the goods in its inventory calculated on December 31

  • Ritz should include the goods in its inventory calculated on December 31, but should not record the obligation to pay for them

  • Ritz should not include the goods in its inventory calculated on December 31, but should include the related payable on its balance sheet at December 31

  • Ritz should not include the goods in its inventory calculated on December 31, and should not include the related payable on its balance sheet at December 31

Explanation

Question 15 of 48

1

Inventory accounts should be classified in which section of a balance sheet?

Select one of the following:

  • Current assets

  • Investments

  • Property, plant and equipment

  • Intangible assets

Explanation

Question 16 of 48

1

Under the income statement approach to adjusting entries, the receipt of $5,000 of unearned revenue would be recorded by debiting Cash. What account should be credited?

Select one of the following:

  • Cash

  • Revenue

  • Unearned revenue

  • Prepaid revenue

Explanation

Question 17 of 48

1

At the end of the current accounting period, Johnson Company failed to record utilities consumed during the period. Johnson will be billed for the utilities during the next accounting period. As a result, current period assets, liabilities, equity, and income, respectively, are:

Select one of the following:

  • Overstated, overstated, correct, correct

  • Correct, understated, overstated, overstated

  • Overstated, understated, overstated, overstated

  • Overstated, understated, correct, correct

Explanation

Question 18 of 48

1

The appropriate journal entry to record equipment depreciation expense would consist of a debit to Depreciation Expense and a credit to which of the following accounts?

Select one of the following:

  • Equipment

  • Accumulated Depreciation: Equipment

  • Retained Earnings

  • Cash

Explanation

Question 19 of 48

1

Adjusting entries at the end of an accounting period would not be required for which of the following?

Select one of the following:

  • Multiperiod costs that must be split among two or more accounting periods

  • Multiperiod revenues that must be split among two or more accounting periods

  • Expenses that have been incurred in a given period but not as yet recorded in the accounts

  • Revenue that has been earned and recording in the accounting records

Explanation

Question 20 of 48

1

For purposes of measuring business income, the life of a business is:

Select one of the following:

  • divided into specific points in time

  • divided into irregular cycles

  • divided into discrete accounting periods

  • considered to be a continuous cycle

Explanation

Question 21 of 48

1

Which of the following errors will be disclosed in the preparation of a trial balance?

Select one of the following:

  • Recording transactions in the wrong account

  • Duplication of a transaction in the accounting records

  • Posting only the debit portion of a particular journal entry

  • Recording the wrong amount for a transaction to both the account debited and the account credited

Explanation

Question 22 of 48

1

The trial balance:

Select one of the following:

  • is a formal financial statement

  • is used to prove that there are no errors in the journal or ledger

  • provides a listing of every account in the chart of accounts

  • provides a listing of the balance of each account in active use

Explanation

Question 23 of 48

1

Failure to record the receipt of a utility bill for services already received will result in:

Select one of the following:

  • an overstatement of assets

  • an overstatement of liabilities

  • an overstatement of equity

  • an understatement of assests

Explanation

Question 24 of 48

1

The following comments each relate to the recording of journal entries. Which statement is true?

Select one of the following:

  • For any given journal entry, debits must exceed credits.

  • It is customary to record credits on the left and debits on the right.

  • The chart of accounts reveals the amount to debit and credit to the affected accounts.

  • Journalization is the process of converting transactions and events into debit/credit format.

Explanation

Question 25 of 48

1

The following comments all relate to the recording process. Which of these statements is correct?

Select one of the following:

  • The general ledger is a chronological record of transactions.

  • The general ledger is posted from transactions recorded in the general journal.

  • The trial balance provides the primary source document for recording transactions into the general journal.

  • Transposition is the transfer of information from the general journal to the general ledger.

Explanation

Question 26 of 48

1

The basic sequence in the accounting process can best be described as:

Select one of the following:

  • Transaction, journal entry, source document, ledger account, trial balance.

  • Source document, transaction, ledger account, journal entry, trial balance.

  • Transaction, source document, journal entry, trial balance, ledger account.

  • Transaction, source document, journal entry, ledger account, trial balance.

Explanation

Question 27 of 48

1

Of the following account types, which would be increased by a debit?

Select one of the following:

  • Liabilities and expenses

  • Assets and equity

  • Assets and expenses

  • Equity and revenues

Explanation

Question 28 of 48

1

Gerald has beginning total stockholder's equity of $160,000. During the year total assets increased by $240,000 and total liabilities increased by $120,000. Gerald's net income was $180,000. No additional investments were made; however, dividends did occur during the year. How much were the dividends?

Select one of the following:

  • $20,000

  • $60,000

  • $140,000

  • $220,000

Explanation

Question 29 of 48

1

Which of the following would not be included on a balance sheet?

Select one of the following:

  • Accounts receivable

  • Accounts payable

  • Sales

  • Cash

Explanation

Question 30 of 48

1

Retained earning will change over time because of several factors. Which of the following factors would explain an increase in retained earnings?

Select one of the following:

  • Net loss

  • Net income

  • Dividends

  • Investments by stockholders

Explanation

Question 31 of 48

1

Which of these items would be accounted for as an expense?

Select one of the following:

  • Repayment of a bank loan

  • Dividends to stockholders

  • The purchase of land

  • Payment of the current period's rent

Explanation

Question 32 of 48

1

The accounting profession can be divided into three major categories; specifically, the practice of public accounting, private accounting, and governmental accounting. A somewhat unique and important service of public accounting is:

Select one of the following:

  • Financial accounting

  • Managerial accounting

  • Auditing

  • Cost accounting

Explanation

Question 33 of 48

1

The primary private sector agency that oversees external financial reporting standards is the:

Select one of the following:

  • Financial Accounting Standards Board

  • Federal Bureau of Investigation

  • General Accounting Office

  • Internal Revenue Service

Explanation

Question 34 of 48

1

Which of the following equations properly represents a derivation of the fundamental accounting equation?

Select one of the following:

  • Assets + Liabilities = Owner's equity

  • Assets = owner's equity

  • Cash = assets

  • Assets - Liabilities = Owner's Equity

Explanation

Question 35 of 48

1

Wilson Company owns land that cost $100,000. If a "quick sale" of the land was necessary to generate cash, the company feels it would receive only $80,000. The company continues to report the asset on the balance sheet at $100,000. This is justified under which of the following concepts?

Select one of the following:

  • The historical-cost principle

  • The value is tied to objective and verifiable past transactions

  • Neither of the above

  • Both 'a' and 'b'

Explanation

Question 36 of 48

1

The proper journal entry to record Ransom Company's billing of clients for $500 of services rendered is:

Select one of the following:

  • Cash 500
    Accounts Receivable 500

  • Accounts Receivable 500
    Capital Stock 500

  • Accounts Receivable 500
    Service Revenue 500

  • Cash 500
    Service Revenue 500

Explanation

Question 37 of 48

1

The proper journal entry to record $1000 of Dividends paid by Myer's Corporation is:

Select one of the following:

  • Dividends 1000
    Cash 1000

  • Accounts Payable 1000
    Cash 1000

  • Dividends Expense 1000
    Cash 1000

  • Dividends Expense 1000
    Service Revenue 1000

Explanation

Question 38 of 48

1

Lynn Lipincott invested land valued at $5000 in her business. This transaction would be recorded by:

Select one of the following:

  • Cash 5000
    Capital Stock 5000

  • Land 5000
    Capital Stock 5000

  • Land 5000
    Service Revenue 5000

  • Capital Stock 5000
    Land 5000

Explanation

Question 39 of 48

1

Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday?

Select one of the following:

  • Salary Expense 10,000
    Salary Payable 10,000

  • Salary Expense 10,000
    Cash 10,000

  • Salary Payable 10,000
    Cash 10,000

  • Salary Payable 10,000
    Salary Expense 10,000

Explanation

Question 40 of 48

1

Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. What journal entry would be recorded (on Wednesday) if the end of the accounting period occurred on a Wednesday?

Select one of the following:

  • Salary Expense 6,000
    Salary Payable 6000

  • Salary Expense 6,000
    Cash 6,000

  • Salary Payable 6,000
    Cash 6,000

  • Salary Payable 6,000
    Salary Expense 6,000

Explanation

Question 41 of 48

1

Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically $10,000 per week. Blankenship's year-end occurred on Wednesday, at which time a correct adjusting entry was recorded. On the following Friday, which of the following payroll journal entries should be recorded?

Select one of the following:

  • Salary Expense 10,000
    Cash 10,000

  • Salary Expense 4,000
    Salary Payable 6,000
    Cash 10,000

  • Salary Expense 6,000
    Salary Payable 4,000
    Cash 10,000

  • Salary Payable 10,000
    Cash 10,000

Explanation

Question 42 of 48

1

On November 1, 20X1, Limit Company purchased a one-year insurance policy for $12,000. Limit Company debited Cash and credited Prepaid Insurance for $12,000. At the end of December, 20X1, $2,000 of insurance had expired. The journal entry to properly state all accounts involved on December 31, 20X1, would be:

Select one of the following:

  • Insurance Expense 2,000
    Prepaid Insurance 22,000
    Cash 24,000

  • Insurance Expense 2,000
    Prepaid Insurance 2,000

  • Insurance Expense 2,000
    Cash 2,000

  • Prepaid Insurance 2,000
    Insurance Expense 2,000

Explanation

Question 43 of 48

1

Simmons Company received and recorded a $5,000 payment for services to be rendered in the future. If the income statement approach to adjusting entries is used, the appropriate adjusting entry at the end of the accounting period for $3,000 of revenue not yet earned would be:

Select one of the following:

  • Service Revenue 3,000
    Unearned Service Revenue 3,000

  • Service Revenue 2,000
    Unearned Service Revenue 2,000

  • Accounts Receivable 3,000
    Unearned Service Revenue 3,000

  • No entry would be needed.

Explanation

Question 44 of 48

1

Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.

January 2 Beginning Inventory 500 units at $3.00
April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.40
December 7 Purchased 1,600 units at $4.40

Sales during the year were 2,700 units at $5.00. If Hefty used the first-in, first-out method, ending inventory would be:

Select one of the following:

  • $2,780

  • $3,960

  • $9,700

  • $10,880

Explanation

Question 45 of 48

1

Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.

January 2 Beginning Inventory 500 units at $3.00
April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.00
December 7 Purchased 1,600 units at $4.40

Sales during the year were 2,700 units at $5.00. If Hefty used the periodic LIFO method, cost of goods sold would be:

Select one of the following:

  • $2,780

  • $3,960

  • $9,700

  • $10,800

Explanation

Question 46 of 48

1

Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.

January 2 Beginning Inventory 500 units at $3.00
April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.00
December 7 Purchased 1,600 units at $4.40

Sales during the year were 2,700 units at $5.00. If Hefty used the Weighted-Average method, gross profit would be:

Select one of the following:

  • $3,255

  • $3,415

  • $10,245

  • $13,500

Explanation

Question 47 of 48

1

Bernstein Corporation recently experienced a fire which destroyed all of its inventory. The following data have been reconstructed from partial accounting information, and pertain to the year up to the date of the fire.

Beginning inventory $20,000
Net Purchases $45,000
Sales $80,000
Gross Profit Rate 40%

Using the gross profit method, estimate the dollar amount of inventory which was destroyed in the fire.

Select one of the following:

  • $17,000

  • $33,000

  • $48,000

  • $65,000

Explanation

Question 48 of 48

1

Selected information for 20X1 for the Bernstein Company is as follows:

Cost of goods sold $6,000,000
Average Inventory $2,000,000
Net sales $8,000,000
Average receivables $3,000,000
Net Income $1,000,000

Assuming a 360-day business year, what was the inventory turnover ratio for Bernstein?

Select one of the following:

  • 3

  • 4

  • 5

  • 6

Explanation

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