FIN621 Solved MCQs for Papers File 1

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Q1. If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:

1. . understatement of net income for the year by $7,500
2. . understatement of cost of merchandise sold for the year by $7,500
3. . overstatement of merchandise inventory for the year by $7,500
4. . overstatement of gross profit for the year by $7,500

Correct answer: . understatement of net income for the year by $7,500

Q2. The balance sheet contains the same major headings as appear in the accounting equation.

1. . False
2. . True

Correct answer: . True

Q3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the a amount of net income or net loss would be:

1. . $37,500 net loss
2. . $2,500 net loss
3. . $7,500 net income
4. . $45,000 net income

Correct answer: . $2,500 net loss

Q4. If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to record depreciation would be:

1. . debit depreciation expense, $2,000; credit accumulated depreciation, $2,000
2. . debit equipment, $2,000; credit depreciation expense, $2,000
3. . debit depreciation expense, $$2,000; credit equipment, $2,000
4. . debit accumulated depreciation, $2,000; credit depreciation expense, $2,000

Correct answer: . debit depreciation expense, $2,000; credit accumulated depreciation, $2,000

Q5. Liabilities result from some future transaction.

1. . False
2. . True

Correct answer: . False

Q6. All calendar years are also fiscal years, but not all fiscal years are calendar years.

1. . True
2. . False

Correct answer: . False

Q7. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted from, gross sales.

1. . True
2. . False

Correct answer: . False

Q8. The post-closing trial balance may contain revenue and expense accounts.

1. . True
2. . False

Correct answer: . False

Q9. Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross profit and net income.

1. . True
2. . False

Correct answer: . False

Q10. All accounting systems currently in use are computerized.

1. . False
2. . True

Correct answer: . False

Q11. In a period of rising prices, FIFO results in the lowest cost of goods sold.

1. . True
2. .False

Correct answer: . True

Q12. If all of the adjusting entries are not made, the financial statements are incorrect.

1. . False
2. . True

Correct answer: . True

Q13. Which of the following entries closes the owner's drawing account at the end of the period.

1. . debit the owner's capital account, credit the drawing account
2. . debit the income summary account, credit the drawing account
3. . debit the drawing account, credit the owner's capital account
4. . debit the drawing account, credit income summary account

Correct answer: . debit the owner's capital account, credit the drawing account

Q14. Which of the following accounts would not be included in a post-closing trial balance.

1. . fees earned
2. . accumulated depreciation
3. . cash
4. . owner's equity

Correct answer: . fees earned

Q15. Which of the following is an example of an intangible asset.

1. . Patents
2. . all possible answers
3. . copyrights
4. . goodwill

Correct answer: . all possible answers

Q16. If total assets increased $20,000 during a period and total liabilities increased $12,000 during the same period, the amount and direction (increase or decrease) of the change in owner's equity for that period is:

1. . an $8,000 decrease
2. . an $8,000 increase
3. . a $32,000 increase
4. . a $32,000 decrease

Correct answer: . an $8,000 increase

17. The following units of a particular item were available for sale during the period:

What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic inventory system by the FIFO costing method. A. . $20

B. . $23

C. . $21 D. . $22

Q18. The Unearned Fees account is a revenue account.

1. . True
2. . False

Correct answer: . False

Q19. The accumulated depreciation account is an asset account that shows the amount of depreciation for the current year only.

1. . True
2. . False

Correct answer: . False

Q20. At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable is:

1. . $107,000
2. . $7,000
3. . $93,000
4. . $100,000

Correct answer: . $93,000

Q21. The percentage-of-sales method estimates the uncollectible accounts from the ending balance in accounts receivable.

1. . True
2. . False

Correct answer: . False

Q22. An example of an accelerated depreciation method is:

1. . Units-of-production
2. . Straight-line
3. . Depletion
4. . Declining-balance

Correct answer: . Declining-balance

Q23. The three forms business organizations are single proprietorship, partnership, and trust

1. . False
2. . True

Correct answer: . False

Q24. Current Liabilities are classified as clearly determinable, estimated and contingent.

1. . False
2. . True

Correct answer: . False