SAMPLE MULTIPLE CHOICE QUESTIONS

Accounting in business
1. A
2. D
3. D Cost = $10,000 paid now
+ 65,000 to be paid later
$75,000
4. C
5. C
6. C Assets = Liabilities + Stockholders equity
-1,000 = +2,000
+
X
-3,000 = X
7. D
8. A Assets = Liabilities + Stockholders equity
205,000 = 140,000 + ? beginning of year
225,000 = 175,000 +
? end of year
25,000 = 35,000 + X change during year

Change in equity = stock issued dividends + net income

-15,000
= +10,000 - 35,000 + NI
NI = -15,000 - 10,000 + 35,000 = 10,000

9. D
10. D
11. B
12. D
13. C
14. D
15. B $40,000 Stockholders Equity (beg.)
+90,000 Net Income
-20,000 Dividends
$110,000 Stockholders Equity (end)
Beginning of year equity = 205,000 140,000 = 65,000
16. D Assets = Liabilities + Stockholders Equity
End of year equity =
225,000 175,000 = 50,000
215,000 = X + 110,000
Decrease in equity during the year X =
-15,000
105,000 = X
ANALYSE TRANSACTION
1. A
15. D
2. C
16. D
3. C
17. D
4. B
18. A
5. B
19. A
6. A
20. A
7. B
21. A
8. A
22. D
9. A
23. C
10. A
24. C
11. A
25. A
12. C
26. D
13. C
27. C
14. B
28. B
FINANCIAL STATEMENT
1. A
8. C: $7,200 account balance - $1,200 inventory = $6,000
2. C
used
3. D
9. C: $45,000/5 = 9,000/day * 4 days = $36,000
4. C
10. B: entry omitted: Depreciation Expense - Equip.
5. D
Accumulated Depreciation - Equip.
6. A: $18,000/3 = $6,000/month
Therefore: Expenses are understated, so net income is
7. A: entry omitted: Salary Expense
overstated on the
Salary Payable
income statement and retained earnings is overstated on
Therefore: Salary expense is understated, so net income
both the retained
is overstated and
earnings statement and balance sheet.
stockholders equity is overstated as well.
11. B

12.
13.
14.
15.
16.
17.
18.
19.
20.

B
C
A
B
D
D
A
A
A
21. C
22. B
23. C

24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.

B
A
A
A
A
C
D
D
B
B
D

MERCHANDISING
1. C
15. B
2. B
16. D
3. C
17. C: 1,800 500 return = 1,300 balance due * 2% = $26
4. B
discount
5. A
1,300 26 discount = $1,274 cash received
6. B: 12,000 - 600 return = 11,400 balance due * 2% =
18. B: Sales Returns & Allowances
$228 discount
Accounts Receivable
11,400 due + 500 shipping 228 discount = $11,672 cash
Merchandise Inventory
received
Cost of Merchandise Sold
7. C
19. D 450,000 10,000 = $440,000 net sales
8. D: 7,000 * 2% = $140 discount
$440,000 net sales 320,000 coms = $120,000 gross
7,000 + 125 shipping 140 disc. = $6,985
profit
9. B
120,000 gross profit 35,000 net income = $85,000
10. B
operating exp.
11. A
20. A Accounts Payable
12. B
Cash
13. B
Merchandise Inventory
14. D
INVENTORIES
1. C (6,000 mdse + 500 ins + 50 tariff)
12. A
2. A
Purchased 300 units 90 units @ $150
3. B
10 units @ $155
4. B
300 units @ $165
5. D
6. C
13. C Sum of Cost of Mdse Sold column in 12
7. A
8. D: (300 units @ $1,980 + 200 units @ $1,260 =
14. D
$3,240)
Beginning Inventory 180,000
9. B: (300 units @ $1,560 + 200 units @ $1,170 =
Add: Purchases 1,200,000
$2,730)
Mdse Available for Sale 1,380,000
10. D: (8,400 cost / 1,400 units = $6 per unit; 500 units *
COMS (1,600,000 * 60%) 960,000
6 = $3,000)
Ending Inventory 420,000
11. C

15.

Cost Retail
Beginning Inventory $234,260 $ 360,400
Add: Purchases 565,500 870,000
Mdse Available for Sale 799,760 1,230,400
(Cost to Retail %: 799,760 / 1,230,400 = 65%)

Deduct: Sales 750,000

Ending Inventory at retail 480,400
Cost to retail ratio
x 65%
Ending Inventory at cost $312,260

RECEIVABLE
1. B
15. C
2. A
16. A
3. D
17. A
4. D: 600,000 * .02 = $12,000
18. C
5. B: 10,000 + 1,000 debit balance = 11,000 expense
19. A
6. A: 11,500 - 500 credit balance = 11,000 expense
20. C: 90 17 days Apr. = 73 31 days May = 42 30 days
7. C
June =
8. D
July 12
9. B: 7,000 * .12 * 30/360 = $70 interest revenue
21. A
10. B
22. D
11. C
23. B: 24,000 * .10 * 30/360 = 200 interest earned for
12. A
December
13. D
14. D
FIXED ASSETS AND INTANGIBLE ASSETS
1. B
16. A 18,000 cost + 500 freight + 2,500 installation =
2. D
$21,000
3. C: 4-year life = 25% per year under straight-line * 2 =
21,000 cost 2,000 salvage = $19,000 / 4 years = $4,750
50% declining rate
17. D Annual Depreciation: (48,000 3,000) / useful life
Year 1: 130,000 * 50% = 65,000
in years = 5,000
Year 2: 65,000 * 50% = 32,500
Useful life = 9
4. C: (130,000 10,000) / 16,000 hours = $7.50 per hour
Number of years passed: 20,000 accumulated
4,000 hours * 7.50 per hour = $30,000
depreciation /
5. B: (80,000 5,000) / 4 = $18,750
5,000 annual depreciation = 4 years
6. B
9-year useful life - 4 years passed = 5 years left Revised
7. A
July 2008
8. B 60,000 cost 55,000 accumulated depreciation =
Page 18 of 18
5,000 book value
6,000 trade-in - 5,000 book value = 1,000 gain
18. B
Reduce cost by gain: 80,000 1,000 = 79,000
19. B 80,000 Land + 12,000 Accrued Taxes + 5,000
9. A 15,000 cost 12,500 accumulated depreciation =
removal 2,000 received = $95,000
2,500 book value
20. C 1) Calculate Depreciation to date of sale
1,500 trade-in 2,500 book value = 1,000 loss
(50,000 8,000) / 6 = $7,000 per year
Do not adjust cost basis
7,000 * 3/12 (Jan. 1, 01 to Apr. 1, 01) = $1,750
10. A
2) Update Accumulated Depreciation
11. C
29,400 + 1,750 = $31,150
12. D
3) Calculate gain or loss
13. B
50,000 cost 31,150 accumulated depreciation =
14. A The higher the ratio the less debt in comparison
$18,850 book value
with fixed assets
18,000 selling price - 18,850 book value = -$850 loss
15. A Do not include patents and deduct accumulated
21. B Original Depreciation Schedule: (15,000 3,000) / 4
depreciation
years = $3,000 per year

After 2 years accumulated depreciation = 3,000 * 2 =

23. A (9,000 1,500) /4 = $1,875 per year * 4/12 (4
$6,000
months) = $625
Book Value on Jan. 1, 02: 15,000 6,000 = $9,000
24. D
Revised depreciation: (9,000 book value 3,000 salvage) /
25. A
3 years = 2,000
26. A
22. B 90,000 cost / 10 year useful life = 9,000 per year
27. D
9,000 * 10/12 (10 months) = $7,500
CURRENT LIABILITIES AND BONDS
1. A: 30,000 * .08 * 25/360 = $166.67
7. D: Interest: 70,000 * .09 * 150/360 = $2,625
2. B: 30,000 * .08 * 95/360 = $633.33
8. C: Discount: 5,000 * .06 * 90/360 = 75
3. A: 25,000 * X * 90/360 = (25,000 - 24,250)
Proceeds: 5,000 - 75 = 4,925
6,250X = 1,750
9. D: Interest: 12,000 * .08 * 60/360 = 160
X = 12%
Notes Payable 12,000
4. D
Interest Expense 160
5. C: Discount: 17,500 * .09 * 60/360 = 262.50
Cash 12,160
Proceeds: 17,500 - 262.50 = 17,237.50
10. A
6. B
11. B
LONG TERM LIABILITES
1. D
Carrying Value =
483,000
2. B
Loss =
2,000
3. B
18. B: 800,000 * 8% = 64,000 interest expense per year
4. D
Less: Amortization of premium (5%) 40,000 / 5 years =
5. C
8,000
6. C: Carrying Value = 2,000,000 15,000 discount =
Interest Expense = 56,000
1,985,000
19. C: Investment in Bonds XXX
Redemption Price = 2,000,000 * 99% = 1,980,000
Interest Income XXX
Loss = 5,000
20. C: 300,000 * 110% = 330,000 1,500 commission =
7. C: 1,000,000 * 99% = 990,000 + 1,000 commission =
328,500
991,000
Less: Carrying Value
325,800
8. B
Gain on Sale of Investment
2,700
9. D: Interest Expense XXX
Discount on B.P. XXX
Cash XXX
10. B: Interest Expense XXX
Premium on B.P. XXX
Cash XXX
11. D Face Value: 100,000 * .37689 (20 per., 5%) = 37,689
Interest:
4,500 * 12.46221 (20 per., 5%) = 56,098
Selling Price = 93,787
Discount = 6,213 Amortization = 6213/10 = 621.30
12. C
13. B
14. B: 150,000/10 = 15,000
15. C
16. D: Cash 1,940,000 = 2,000,000 * 97%
Discount on B.P. 60,000
Bonds Payable 2,000,000
17. A: Redemption Price = 500,000 * 97% = 485,000