Financial Accounting Questions and Answers

Question 1 (40 marks)

1.The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

A.Cash basis accounting.

B.Operating cycle accounting.

C.Accrual basis accounting.

D. Revenue recognition accounting.

2.During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

A. Specific identification method.

B. Average cost method.

C. Weighted-average method.

D. FIFO method.

3.Which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company?

A. Conservatism

B. Materiality concept

C.Disclosure principle

D. Consistency principle

4.Merchandise inventory:

A. Is a long-term asset.

B. Is a current asset.

C. Includes supplies the company will use in future periods

.
D. Is classified with investments on the balance sheet.

5. The credit terms 2/10, n/30 are interpreted as:

A. 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

B.10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.

C.30% discount if paid within 2 days.

D.30% discount if paid within 10 days.

6. A measure of how quickly an asset may be converted into cash.

A.Materiality Concept

B.Cash Basis Accounting

C.Accrual Basis Accounting

D.Liquidity

7. Records revenues when earned and expenses when incurred.

A.Materiality Concept

B.Accrual Basis Accounting

  
C.Time Period Concept

D.Liquidity

8. A business's activities can be divided into small segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year.

A.Materiality Concept

B.Accrual Basis Accounting

C.Time Period Concept

D.Liquidity

9. A company must perform strictly proper accounting only for significant items.

A.Materiality Concept

B.Cash Basis Accounting

C.Accrual Basis Accounting

D.Time Period Concept

10.At May 1, 2017, Deitrich Company had beginning inventory consisting of 300 units with a unit cost of €3.50.  During May, the company purchased inventory as follows:

600 units at €3.50

900 units at €4.00

The company sold 1,500 units during the month for €6 per unit. Deitrich uses the average-cost method. The average cost per unit for May is

A.€3.50.

B.€3.75.

C.€3.80.

D.€4.00.

E.Another answer.

11. An inventory system that keeps a running computerized record of merchandise

A.Perpetual Inventory System

B.Merchandise Inventory account

C.Cash Basis Accounting

D.Accrual Basis Accounting

12.Revenue is earned when the business has.

Choose the best answer for each of the following questions

A. Entered into an agreement with the customer about the goods or services to be delivered

B. Prepared a journal entry to record revenue

C. Received cash from the customer before goods or services are delivered

D. Delivered a good or service to the customer

13.The goal of reporting realistic figures and never overstating assets or net income applies to the 

A. Materiality concept

B. Conservatism principle 

C. Disclosure principle

D. Consistency principle

14.ABC Company earned revenues of $19,000 and incurred expenses of $4,000. The company declared and paid cash dividends of $1,500. What is the balance in the Income Summary account after closing net income or loss to the Retained Earnings account?

A. Debit balance of $19,000

B. Credit balance of $4,000

C. Credit balance of $15,000

D. Balance of $0

E. Another answer.

15.An invoice of $600 for merchandise purchased is showing 3/15, n/30 as terms of credit. If the invoice is paid on or before the fifteenth day, the amount to be paid is .

A.$582

B. $600

C. $618

D. $621

E.Another answer.

16.A company purchased inventory for $73,000 from a vendor on account, FOB shipping point, with terms of 4/10, n/30. The company paid the shipper $1,500 cash for freight in. The company paid the vendor nine days after the sale. If there was no beginning inventory, the cost of inventory would be.(Assume a perpetual inventory system.)

A.$71,580

B.$74,500

C.$68,580

D.$71,500

E.Another answer.

17.Quality Jewelers uses the perpetual inventory system. On April 2, Quality sold merchandise for $60,000 to a customer on account with terms of 2/15, n/30. The allowances and returns on this sale amounted to $10,000. The cost of goods sold was $23,000. On April 20, Quality received payment from the customer. Calculate the amount of gross profit.

A.$50,000

B. $23,000

C. $27,000

D. $25,800

E.Another answer.

18.Accrued expense is classified as a(n) account.

A. Liability

B. Asset

C. Revenue

D.Equity

19.Ted's Used Cars uses the specific identification method of costing inventory. During March, Ted purchased three cars for $8,000, $10,000, and $13,000, respectively. During March, two cars are sold for $15,000 each. Ted determines that at March 31, the $13,000 car is still on hand. What is Ted’s gross profit for March?

A.$6,000.

B.$12,000.

C.$7,000.

D.$9,000.

E.Another answer.

20.Which of the following statements is not correct with respect to inventories?

A.The LIFO method assumes that the costs of the earliest goods acquired are the last to be sold.

B.It is generally bad business management to sell the most recently acquired goods first.

C.Under LIFO, the ending inventory is based on the latest units purchased.

D.All statements are correct.

Before year-end adjustments are made, the December 31, 2019 trial balance of XYZ’s Adventures contains revenue of $10,000 and expenses of $8,700. Adjustments are necessary for the following items:

1.Depreciation for the year is $2,000.

2.Revenue earned but not yet billed is $5,300.

3.Accrued interest expense is $1,100.

4.Supplies used, $150.

5.Revenue collected in advance that is now earned is $9,000.

6.Portion of prepaid insurance expired during the year is $600.

a)Record the above adjusting entries in the Journal.[12 Marks]

b)Open One T-account and post to Service Revenue account Only, then compute its adjusted balance as on December 31,2019.[4 Marks]

c)Calculate the correct Net Income (Net Loss) for XYZ’s Adventures for the year ended Dec.31, 2019 (After adjustments). [4 Marks]

Modern Furniture Company uses Perpetual Inventory System. During the month of June, Modern Furniture Company purchased and sold merchandise on account as follows:

a)Prepare perpetual inventory record for Modern Furniture Company using LIFO inventory costing method. [10 Marks]

b)Calculate “Gross Profit” for June in $ and as percentage %.

The following is the adjusted trial balance as of December 31, 2019 of Tarek Photography:

A. Journalize the closing entries for Tarek Photography (10 Marks).

B. Compute the ending balance of Retained Earnings (after closing the entries) (2 mark).

C. Prepare post-closing trial balance at December 31, 2019 (7 Marks).

D. Present the Assets section in a Classified Balance Sheet as on December 31, 2019 (7 Marks).