ACCT 2301 Exam 2

1. The system through which management is given financial information for use in conducting the affairs of
the business and in reporting to owners and other interested parties is called the
a. accounting system
b. fiduciary system
c. operations system
d. auditing system
ANS: A

DIF:

Easy

OBJ:

05-01

2. The primary ledger containing all the balance sheet and income statement accounts is the
a. general ledger
b. creditors ledger
c. customers ledger
d. subsidiary ledger
ANS: A

DIF:

Easy

OBJ:

05-02

3. A purchase of supplies for cash is recorded in the

a. Revenue journal
b. Purchases journal
c. Cash Receipts journal
d. Cash Payments journal
ANS: D

DIF:

Easy

OBJ:

05-02

4. Which of the following transactions is recorded in the purchases journal?

a. purchase of store supplies on account
b. return of damaged office equipment
c. purchase of store supplies for cash
d. purchase of office equipment for cash
ANS: A

DIF:

Moderate

OBJ:

05-02

5. Which of the following transactions is recorded in the revenue journal?

a. sale of excess office equipment for cash
b. rendering services for cash
c. rendering services on account
d. sale of excess office equipment on account
ANS: C
DIF: Difficult
OBJ: 05-02
6. Which of the following is recorded in the general journal?
a. services rendered for cash
b. correction of error in billing client
c. purchases of equipment on account
d. purchases of equipment for cash
ANS: B

DIF:

Difficult

OBJ:

05-02

7. Which of the following is recorded in the cash receipts journal?

a. cash withdrawn by the owner
b. cash purchase of equipment
c. cash received on customer's account
d. adjusting entry for depreciation

ANS: C

DIF:

Moderate

OBJ:

05-02

Ch 6
8. The term "inventory" indicates
a. merchandise held for sale in the normal course of business
b. materials in the process of production or held for production
c. supplies
d. both (a) and (b)
ANS: D

DIF:

Easy

OBJ:

06-01

9. The primary difference between a periodic and perpetual inventory system is that a
a. periodic system determines the inventory on hand only at the end of the accounting period
b. periodic system keeps a record showing the inventory on hand at all times
c. periodic system provides an easy means to determine inventory shrinkage
d. periodic system records the cost of the sale on the date the sale is made
ANS: A

DIF:

Moderate

OBJ:

06-02

10. Using the following information, what is the amount of cost of merchandise sold?
Purchases
Merchandise inventory
April 1
Sales returns and
allowances
Purchases returns and
allowances
a.
b.
c.
d.

$28,000
6,500
750
1,000

Purchases discounts
Merchandise inventory
April 30
Sales
Transportation In

$800
7,800
57,000
880

25,780
23,270
31,220
24,020

ANS: A

DIF:

Difficult

OBJ:

06-02

11. Silver Co. sold merchandise to Bronze Co. on account, $23,000, terms 2/15, net 45. The cost of the
merchandise sold is $18,500. Silver Co. issued a credit memorandum for $2,500 for merchandise returned
that originally cost $1,900. The Bronze Co. paid the invoice within the discount period. What is amount of
net sales from the above transactions?
a. $20,090
b. $20,500
c. $3,490
d. $23,000
ANS: A

DIF:

Difficult

OBJ:

06-02

12. Merchandise with a sales price of $500 is sold on account with term 2/10, n/30. The journal entry to record
the sale would include a
a. debit to Cash for $500
b. Debit to Sales Discounts for $10
c. Credit to Sales for $500
d. Debit to Accounts Receivable for $490

ANS: C

DIF:

Moderate

OBJ:

06-03

13. 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
ANS: D

DIF:

Difficult

OBJ:

06-03

14. When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the
following entry
a. debit Merchandise Inventory; credit Cash
b. debit Cash; credit Merchandise Inventory
c. debit Cash; credit Sales Returns and Allowances
d. debit Sales Returns and Allowances; credit Cash
ANS: B

DIF:

Moderate

OBJ:

06-03

15. When merchandise is returned under the perpetual inventory system, the buyer would credit
a. Merchandise Inventory
b. Purchases Returns and Allowances
c. Accounts Payable
d. depending on the inventory system used.
ANS: A

DIF:

Moderate

OBJ:

06-03

16. 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
ANS: B

DIF:

Moderate

OBJ:

06-03

17. A retailer purchases merchandise with a catalog list price of $10,000. The retailer receives a 25% trade
discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise
Inventory account?
a. $7,500
b. $10,000
c. $9,800
d. $7,350

ANS: A
DIF: Moderate
OBJ: 06-03
18. A sales invoice included the following information: merchandise price, $4,000; transportation, $300; terms
1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $600 is granted prior
to payment, that the transportation is prepaid by the seller, and that the invoice is paid within the discount
period, what is the amount of cash received by the seller?
a. $3,366
b. $3,400
c. $3,666
d. $3,950
ANS: C
DIF: Difficult
OBJ: 06-03
19. Black Company sold Red Company merchandise on account FOB shipping point, 2/10, net 30, for $10,000.
Black prepaid the $200 shipping charge. Which of the following entries does Black make to record this
sale?
a. Accounts Receivable-Red, debit $10,000; Sales, credit $10,000
b. Accounts Receivable-Red, debit $10,000; Sales, credit $10,000, and
Accounts Receivable-Red, debit $200; Cash, credit $200
c. Accounts Receivable-Red, debit $10,400; Sales, credit $10,400
d. Accounts Receivable-Red, debit $10,000; Sales, credit $10,000, and
Transportation Out, debit $200; Cash, credit $200
ANS: B

DIF:

Difficult

OBJ:

06-03

20. Orange Co. sold Red Co. merchandise on account FOB shipping point, 2/10, net 30, for $10,000. Orange
Co. prepaid the $200 shipping charge. Using the perpetual inventory method, which of the following
entries will Red Co. make if Red Co. pays within the discount period?
a. Accounts Payable-Orange Co., debit $10,000; Transportation In, credit $200; Cash, credit $9,800
b. Accounts Payable-Orange Co., debit $10,200; Merchandise Inventory, credit $200; Cash, credit
$10,000
c. Accounts Payable-Orange Co., debit $10,000; Transportation In, debit $200; Cash, credit $10,200
d. Accounts Payable-Orange Co., debit $10,200; Merchandise Inventory, debit $200; Cash, credit
$10,400
ANS: B

DIF:

Difficult

OBJ:

06-03

21. Who pays the freight costs when the terms are FOB shipping point?
a. the ultimate customer
b. the buyer
c. the seller
d. either the seller or the buyer

ANS: B

DIF:

Moderate

OBJ:

06-03

22. The Paula Corp. sold merchandise for cash, $6,900. The cost of the merchandise sold was $4,250. The
journal entry(s) to record this transaction would be
a. Cash
6,900
Merchandise Inventory 6,900

b.

c.

d.

e.

COMS
Sales
Accounts Rec
Sales

4,250
4,250
6,900
6,900

COMS
4,250
Merchandise Inv
Cash
6,900
Sales

4,250
6,900

COMS
6,900
Merchandise Inventory 6,900
Cash
4,250
Sales
4,250
COMS
4,250
Merchandise Inventory 4,250
Cash
6,900
Sales
6,900
COMS
4,250
Merchandise Inventory 4,250

ANS: E

DIF:

Moderate

OBJ:

06-03

Ch 7
23. Taking a physical count of inventory
a. is not necessary when a periodic inventory system is used
b. is a detective control
c. has no internal control relevance
d. is not necessary when a perpetual inventory system is used
ANS: B
DIF: Easy
OBJ: 07-01
24. Which of the following is not an example for safeguarding inventory?
a. Storing inventory in restricted areas.
b. Physical devices such as two-way mirrors, cameras, and alarms.
c. Matching receiving documents, purchase orders, and vendors invoice.
d. Returning inventory that is defective or broken.

ANS: D

DIF:

Easy

OBJ:

07-01

25. Which of the following inventory cost methods is appropriate for a business who has inventory with a
relatively small number of unique items and a high cost per item?
a. FIFO
b. LIFO
c. average
d. specific identification
ANS: D

DIF:

Moderate

OBJ:

07-02

26. The inventory data for an item for November are:

Nov. 1
4
10
17
30

Inventory
Sold
Purchased
Sold
Purchased

20 units at $20
10 units
30 units at $21
20 units
10 units at $22

Using the perpetual system, costing by the first-in, first-out method, what is the cost of the merchandise
inventory of 30 units on November 30?
a. $640
b. $610
c. $620
d. $630
ANS: A

DIF:

Difficult

OBJ:

07-03

27. The inventory data for an item for November are:

Nov. 1
4
10
17
30

Inventory
Sold
Purchased
Sold
Purchased

20 units at $20
10 units
30 units at $21
20 units
10 units at $22

Using the perpetual system, costing by the last-in, first-out method, what is the cost of the merchandise
inventory of 30 units on November 30?
a. $640
b. $610
c. $620
d. $630
ANS: D

DIF:

Difficult

OBJ:

07-03

28. Beginning inventory, purchases and sales data for tennis rackets are as follows:
Feb 3
11
14
21
25

Inventory
Purchase
Sale
Purchase
Sale

12 units
13 units
18 units
9 units
10 units

@
@

$15
$17

$20

Assuming the business maintains a perpetual inventory system, calculate the cost of merchandise sold and
ending inventory under First-in, first-out:
a. cost of merchandise sold 491; ending inventory 90
b. cost of merchandise sold 120; ending inventory 461
c. cost of merchandise sold 461; ending inventory 120
d. cost of merchandise sold 90; ending inventory 491
ANS: C
29. The following lots of a particular commodity were available for sale during the year:
Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $61
25 units at $63
30 units at $64
15 units at $73

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.
What is the amount of the inventory at the end of the year according to the average cost method?
a. $1,300
b. $1,305
c. $1,415
d. $1,236
ANS: A

DIF:

Moderate

OBJ:

07-04

30. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following
statements correctly states the effect of the error on net income, assets, and owner's equity?
a. net income is overstated, assets are overstated, owner's equity is understated
b. net income is overstated, assets are overstated, owner's equity is overstated
c. net income is understated, assets are understated, owner's equity is understated
d. net income is understated, assets are understated, owner's equity is overstated
ANS: B

DIF:

Difficult

OBJ:

07-06

Ch 8
31. Which one of the following below is not an element of internal control?
a. risk assessment
b. monitoring
c. information and communication
d. behavior analysis
ANS: D

DIF:

Easy

OBJ:

08-02

32. Which one of the following below is not a factor that influences a business's control environment?
a. management's philosophy and operating style
b. organizational structure
c. proofs and security measurers
d. personnel policies

ANS: C

DIF:

Easy

OBJ:

08-02

33. When a firm uses internal auditors, it is adhering to which one of the following internal control elements?
a. risk assessment
b. monitoring
c. proofs and security measures
d. separating responsibilities for related operations
ANS: B
DIF: Easy
OBJ:
NAT: AACSB Analytic | AICPA BB-Industry

08-02

34. The objectives of internal control are to

a. control the internal organization of the accounting department personnel and equipment
b. provide reasonable assurance that operations are managed to achieve goals, financial reports are
accurate, and laws and regulations are complied with
c. prevent fraud, and promote the social interest of the company
d. provide control over "internal-use only" reports and employee internal conduct
ANS: B

DIF:

Easy

OBJ:

08-02

35. Which one of the following below reflects a weak internal control system?
a. all employees are well supervised
b. a single employee is responsible for comparing a receiving report to an invoice
c. all employees must take their vacations
d. a single employee is responsible for collecting and recording of cash
ANS: D

DIF:

Easy

OBJ:

08-02

36. An example of a preventive control is

a. the use of a bank account
b. separation of the Purchasing Department and Accounting Department personnel
c. bonding employees who handle cash
d. accepting payment in currency only
ANS: B

DIF:

Easy

OBJ:

08-03

37. A check drawn by a depositor for $180 in payment of a liability was recorded in the journal as $810. This
item would be included on the bank reconciliation as a(n)
a. addition to the balance per the depositor's records
b. addition to the balance per the bank statement
c. deduction from the balance per the bank statement
d. deduction from the balance per the depositor's records
ANS: A

DIF:

Moderate

OBJ:

08-05

38. Receipts from cash sales of $9,500 were recorded incorrectly in the cash receipts journal as $5,900. This
item would be included on the bank reconciliation as a(n)
a. deduction from the balance per depositor's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per depositor's records

ANS: D

DIF:

Moderate

OBJ:

08-05

39. The amount of the outstanding checks is included on the bank reconciliation as a(n)
a. deduction from the balance per depositor's records
b. addition to the balance per bank statement
c. deduction from the balance per bank statement
d. addition to the balance per depositor's records
ANS: C
DIF: Easy
OBJ:
NAT: AACSB Analytic | AICPA FN-Measurement

08-05

40. Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?
a. bank service charges
b. deposits in transit
c. NSF checks
d. A check for $520, recorded in the check register for $250.
ANS: B

DIF:

Easy

OBJ:

08-05

41. Santos Company gathered the following reconciling information in preparing its August bank
reconciliation:
Cash balance per books, 8/31
Deposits in transit
Notes receivable and interest collected by bank
Bank charge for check printing
Outstanding checks
NSF check
The adjusted cash balance per books on August 31 is

a.
b.
c.
d.

$4,160.
$4,010.
$2,310.
$2,460.

ANS:

DIF:

Moderate

OBJ:

08-05

CH 9
42. Two methods of accounting for uncollectible accounts are the
a. direct write-off method and the allowance method.
b. allowance method and the accrual method.
c. allowance method and the net realizable method.
d. direct write-off method and the accrual method.

$3,500
150
850
20
2,000
170

ANS: A

DIF:

Easy

OBJ:

09-02

43. Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),
and uncollectible accounts expense is estimated at 3% of net sales. If net sales are $600,000, the amount of
the adjusting entry to record the provision for doubtful accounts is
a. $18,500
b. $17,500
c. $18,000
d. none of the above
ANS: C
DIF: Moderate
OBJ:
NAT: AACSB Analytic | AICPA FN-Measurement

09-04

44. An estimate based on an analysis of receivables shows that $780 of accounts receivables are uncollectible.
The Allowance for Doubtful Accounts has a debit balance of $110. After preparing the adjusting entry at
the end of the year, the balance in the Allowance for Doubtful Accounts is
a. $110
b. $780
c. $670
d. $890
ANS: B
DIF: Moderate
OBJ:
NAT: AACSB Analytic | AICPA FN-Measurement

09-04

45. Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year (before adjustment),
and an analysis of accounts in the customers ledger indicates doubtful accounts of $15,000. Which of the
following entries records the proper provision for doubtful accounts?
a. debit Uncollectible Accounts Expense, $800; credit Allowance for Doubtful Accounts, $800
b. debit Uncollectible Accounts Expense, $14,200; credit Allowance for Doubtful Accounts, $14,200
c. debit Allowance for Doubtful Accounts, $800; credit Uncollectible Accounts Expense, $800
d. debit Allowance for Doubtful Accounts, $15,800; credit Uncollectible Accounts Expense, $15,800
ANS: B

DIF:

Moderate

OBJ:

09-04

46. Allowance for Doubtful Accounts has a debit balance of $500 at the end of the year (before adjustment),
and uncollectible accounts expense is estimated at 3% of net sales. If net sales are $600,000, the amount of
the adjusting entry to record the provision for doubtful accounts is
a. $18,500
b. $17,500
c. $18,000
d. none of the above
ANS: C

DIF:

Moderate

OBJ:

09-04

47. Allowance for Doubtful Accounts has a credit balance of $1,100 at the end of the year (before adjustment),
and an analysis of customers' accounts indicates doubtful accounts of $12,900. Which of the following
entries records the proper provision for doubtful accounts?
a. debit Uncollectible Accounts Expense, $14,000; credit Allowance for Doubtful Accounts, $14,000
b. debit Allowance for Doubtful Accounts, $14,000; credit Uncollectible Accounts Expense, $14,000
c. debit Allowance for Doubtful Accounts, $11,800; credit Uncollectible Accounts Expense, $11,800
d. debit Uncollectible Accounts Expense, $11,800; credit Allowance for Doubtful Accounts, $11,800

ANS: D
DIF: Moderate
OBJ: 09-04
NAT: AACSB Analytic | AICPA FN-Measurement
48 . A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account. If the note is
discounted on May 21 at 15%, the amount of interest revenue or expense to be recorded by the payee of the
note on May 21 is
a. $30 interest expense
b. $30 interest revenue
c. $170 interest revenue
d. $170 interest expense
ANS: B
DIF: Moderate
OBJ:
NAT: AACSB Analytic | AICPA FN-Measurement

09-App

49. A $6,000, 30-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal
entry to recognize this event is
a. debit Cash, $6,060; credit Notes Receivable, $6,060
b. debit Accounts Receivable, $6,060; credit Notes Receivable, $6,000; Credit Interest Receivable,
$60
c. debit Notes Receivable, $6,060; credit Accounts Receivable, $6,060
d. debit Accounts Receivable, $6,060; credit Notes Receivable, $6,000; Credit Interest Revenue, $60
ANS: D
DIF: Moderate
OBJ:
NAT: AACSB Analytic | AICPA FN-Measurement

09-06

50. On November 1, Kim Company accepted a 3-month note receivable as payment for services provided to
Chu Company. The terms of the note were $8,000 face value and 6% interest. Kim Company closes its
books at December 31 and does not use reversing entries. On February 1, the journal entry to record the
collection of the note should include a credit to
a. Notes Receivable for $8,120
b. Interest Receivable for $120
c. Interest Revenue for $120
d. Interest Revenue for $40
ANS: D

DIF:

Moderate

OBJ:

09-06