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Practice Exam
Question 1. Which adjusting entry is required for accrued revenues at year‑end? A) Debit Cash, Credit Revenue B) Debit Accounts Receivable, Credit Revenue C) Debit Revenue, Credit Accounts Receivable D) Debit Unearned Revenue, Credit Revenue Answer: B Explanation: Accrued revenues are earned but not yet received; the entry records a receivable and recognizes revenue. Question 2. Under the accrual basis of accounting, which of the following is true? A) Revenues are recorded when cash is received. B) Expenses are recorded when cash is paid. C) Revenues are recorded when earned, regardless of cash receipt. D) Expenses are recorded only when invoiced. Answer: C Explanation: Accrual accounting recognizes revenues when earned and expenses when incurred, independent of cash flows. Question 3. A company prepaid $12,000 for a one‑year insurance policy on July 1. What is the adjusting entry on December 31? A) Debit Insurance Expense $6,000; Credit Prepaid Insurance $6, B) Debit Prepaid Insurance $6,000; Credit Insurance Expense $6, C) Debit Insurance Expense $12,000; Credit Cash $12, D) No entry is required. Answer: A
Practice Exam
Explanation: Six months of coverage have expired (July‑Dec), so $6,000 is transferred from prepaid to expense. Question 4. Which of the following best describes unearned revenue? A) Revenue earned but not yet billed. B) Cash received before the related service is performed. C) Revenue earned and cash received simultaneously. D) Expense incurred before cash payment. Answer: B Explanation: Unearned revenue is a liability representing cash received for services not yet rendered. Question 5. Depreciation expense for a $50,000 equipment with a 5‑year straight‑line life and no salvage value is: A) $5, B) $10, C) $12, D) $15, Answer: B Explanation: Straight‑line depreciation = (Cost‑Salvage)/Useful life = $50,000/5 = $10, per year. Question 6. Which trial balance is prepared after posting adjusting entries? A) Unadjusted trial balance B) Adjusted trial balance C) Post‑closing trial balance
Practice Exam
A) Federal Unemployment Tax (FUTA) B) Social Security tax (employee portion) C) State Unemployment Tax (SUTA) D) Medicare tax (employer portion) Answer: B Explanation: The employee portion of Social Security is withheld from wages; the employer pays its own matching portion. Question 10. An employee works 45 hours in a week; regular time is 40 hours and overtime is paid at 1.5×. If the hourly rate is $20, what is the gross wage? A) $ B) $ C) $ D) $ Answer: C Explanation: Regular = 40 × $20 = $800; Overtime = 5 × $20 × 1.5 = $150; Total = $950. (Correction: answer should be D) Answer: D Explanation: Regular pay $800 + overtime $150 = $950. Question 11. Which form reports quarterly federal payroll tax deposits and liability? A) Form W‑ 2 B) Form 941 C) Form 940 D) Form W‑ 4 Answer: B
Practice Exam
Explanation: Form 941 is the employer’s quarterly federal tax return for income tax withholding and FICA. Question 12. Under the periodic inventory system, the cost of goods sold is computed using: A) Beginning inventory + Purchases – Ending inventory B) Beginning inventory – Purchases + Ending inventory C) Purchases – Ending inventory D) Beginning inventory + Purchases + Ending inventory Answer: A Explanation: COGS = Beginning Inventory + Purchases – Ending Inventory for periodic systems. Question 13. Which inventory costing method assumes the most recent purchases are the first to be sold? A) FIFO B) LIFO C) Weighted‑average D) Specific identification Answer: B Explanation: LIFO (Last‑In, First‑Out) assumes newest inventory is sold first. Question 14. When applying the Lower of Cost or Market (LCM) rule, a company must compare: A) Historical cost to replacement cost. B) Historical cost to net realizable value.
Practice Exam
A) Segregation of duties. B) Independent bank reconciliations. C) Posting all cash receipts to the general ledger by the same employee who collected cash. D) Use of pre‑numbered deposit slips. Answer: C Explanation: Having the same employee collect and record cash defeats segregation of duties and increases fraud risk. Question 18. The accounting equation must always remain in balance. Which transaction would not affect the equation? A) Owner invests $10,000 cash into the business. B) Company pays $2,000 cash for utilities. C) Company borrows $5,000 from a bank. D) Company purchases equipment for $3,000 cash. Answer: B Explanation: Paying utilities reduces both assets (cash) and equity (expenses), keeping the equation balanced; all transactions affect it, but the net effect is a decrease in both assets and equity, so the equation stays balanced. (All affect, but the question asks which does not change the totals; paying utilities changes both sides equally, thus the equation remains balanced.) Question 19. Which journal entry records the employer’s portion of FICA taxes? A) Debit Payroll Tax Expense; Credit FICA Payable B) Debit Salaries Expense; Credit Cash C) Debit FICA Payable; Credit Payroll Tax Expense D) Debit Cash; Credit Payroll Tax Expense Answer: A
Practice Exam
Explanation: The employer records its payroll tax expense and a liability (FICA Payable) for the amount owed. Question 20. When preparing a post‑closing trial balance, which accounts are included? A) All temporary and permanent accounts. B) Only permanent (balance‑sheet) accounts. C) Only temporary (income‑statement) accounts. D) No accounts are included. Answer: B Explanation: Post‑closing trial balance lists only permanent accounts; temporary accounts have been closed to retained earnings. Question 21. Under MACRS, which class life is typically assigned to office furniture? A) 3 years B) 5 years C) 7 years D) 10 years Answer: B Explanation: MACRS places office furniture in the 5‑year property class for tax depreciation. Question 22. A company’s payroll register shows $3,000 of employee‑withheld federal income tax. Which liability account is increased? A) Federal Income Tax Payable B) Payroll Tax Expense C) Federal Unemployment Tax Payable
Practice Exam
A) Form W‑ 2 B) Form W‑ 4 C) Form 941 D) Form 1099‑MISC Answer: B Explanation: Form W‑4 tells the employer how much federal income tax to withhold from the employee’s wages. Question 26. The journal entry to record a $1,200 purchase of inventory on account under the perpetual system is: A) Debit Inventory $1,200; Credit Accounts Payable $1, B) Debit Purchases $1,200; Credit Cash $1, C) Debit Cost of Goods Sold $1,200; Credit Inventory $1, D) Debit Inventory $1,200; Credit Cash $1, Answer: A Explanation: Inventory increases (debit) and a liability to the vendor is created (credit). Question 27. Which of the following best describes a “bad‑debt expense” under the allowance method? A) Direct write‑off of specific uncollectible accounts. B) Estimated expense based on a percentage of credit sales. C) Recovery of previously written‑off accounts. D) Adjustment of cash receipts for doubtful accounts. Answer: B Explanation: The allowance method records an estimated expense (e.g., % of sales) before specific accounts are identified.
Practice Exam
Question 28. Under the declining‑balance method, the depreciation rate is: A) 1 ÷ Useful life. B) 2 ÷ Useful life (double‑declining). C) (Cost – Salvage) ÷ Useful life. D) (Cost – Accumulated Depreciation) ÷ Remaining life. Answer: B Explanation: The double‑declining‑balance method uses twice the straight‑line rate (2 ÷ useful life). Question 29. Which internal control is most effective in preventing check fraud? A) Requiring two signatures on checks over $5,000. B) Allowing the same employee to prepare and sign checks. C) Storing checks in an unlocked drawer. D) Issuing checks without a check‑register. Answer: A Explanation: Dual signatures provide segregation of duties and verification, reducing the risk of fraudulent checks. Question 30. The journal entry to record employer’s FUTA tax liability for a payroll of $50,000 at a 0.6% rate is: A) Debit Payroll Tax Expense $300; Credit FUTA Payable $ B) Debit FUTA Expense $300; Credit Cash $ C) Debit Salaries Expense $300; Credit FUTA Payable $ D) Debit Payroll Tax Expense $300; Credit Cash $ Answer: A
Practice Exam
Answer: C Explanation: Budget preparation is a planning activity, not a required step of the accounting cycle. Question 34. A company uses LIFO for inventory valuation. If prices are rising, what is the likely effect on reported net income compared to FIFO? A) Higher net income B) Lower net income C) No effect D) Net income will be the same as FIFO Answer: B Explanation: LIFO matches recent higher costs against revenue, reducing gross profit and net income when prices rise. Question 35. Which account is not closed to the Income Summary at year‑end? A) Sales Revenue B) Salaries Expense C) Owner’s Capital D) Rent Expense Answer: C Explanation: Owner’s Capital is a permanent equity account and is not closed; only temporary revenue and expense accounts are closed. Question 36. Which of the following best describes a “deposit in transit”? A) A deposit recorded by the bank but not yet by the company. B) A deposit recorded by the company but not yet cleared by the bank.
Practice Exam
C) A deposit that has been returned by the bank due to insufficient funds. D) A deposit made to a different bank account. Answer: B Explanation: Deposits in transit are recorded by the company but have not yet appeared on the bank statement. Question 37. Under the periodic inventory system, the “Purchases Returns and Allowances” account is: A) A permanent asset account. B) A contra‑expense account that reduces total purchases. C) A liability account. D) A revenue account. Answer: B Explanation: Purchases Returns and Allowances offset the Purchases account, reducing the total cost of goods purchased. Question 38. Which of the following is a primary purpose of the Statement of Owner’s Equity? A) To show cash inflows and outflows. B) To reconcile beginning and ending equity balances. C) To report the company’s profitability. D) To list all asset accounts. Answer: B Explanation: The statement explains changes in owner’s equity during the period, including contributions, withdrawals, and net income.
Practice Exam
Explanation: Segregation of duties spreads responsibilities among multiple people to reduce fraud risk. Question 42. The journal entry to record a $2,500 purchase of equipment paid cash is: A) Debit Equipment $2,500; Credit Cash $2, B) Debit Cash $2,500; Credit Equipment $2, C. Debit Equipment $2,500; Credit Accounts Payable $2, D) Debit Equipment $2,500; Credit Notes Payable $2, Answer: A Explanation: Cash decreases (credit) and equipment (asset) increases (debit). Question 43. Which of the following is a typical reason for a “bank service charge” reconciling item? A) Customer deposit error. B. Outstanding check. C) Monthly maintenance fee charged by the bank. D. Deposit in transit. Answer: C Explanation: Service charges are fees deducted by the bank that appear on the bank statement but not yet in the company’s books. Question 44. In the weighted‑average inventory method, the average cost per unit is calculated by: A) Total cost of goods available for sale ÷ Total units available for sale. B. Beginning inventory cost ÷ Beginning inventory units. C. Ending inventory cost ÷ Ending inventory units.
Practice Exam
D. Total sales ÷ Total units sold. Answer: A Explanation: The weighted‑average cost is the total cost of goods available divided by the total number of units available. Question 45. Which of the following is not a typical feature of the “sum‑of‑the‑years’‑digits” depreciation method? A) Accelerated depreciation. B) Higher expense in early years. C. Linear expense each year. D. Depreciation based on a fraction of remaining life. Answer: C Explanation: The SYD method accelerates depreciation, resulting in decreasing expense amounts; it is not linear. Question 46. The “General Journal” is primarily used for: A. Recording recurring transactions automatically. B. Posting transactions to the ledger. C. Recording non‑routine or adjusting entries. D. Summarizing trial balance totals. Answer: C Explanation: The general journal captures all journal entries, especially those that are non‑routine or adjusting. Question 47. Which of the following best describes “owner’s withdrawals” in a sole‑proprietorship?
Practice Exam
Question 50. Which of the following accounts is always a liability? A. Accrued Expenses Payable B. Prepaid Insurance C. Supplies Expense D. Sales Revenue Answer: A Explanation: Accrued expenses payable represent amounts owed for expenses incurred but not yet paid. Question 51. When using the FIFO method, the cost of goods sold during a period is based on: A. The most recent purchases. B. The earliest purchases. C. The average cost of all inventory. D. The market value of inventory. Answer: B Explanation: FIFO assumes the oldest inventory items are sold first, so COGS reflects early purchase costs. Question 52. Which of the following best describes “employee withholding” on a pay‑check? A. Employer’s contribution to retirement plans. B. Amounts deducted from employee wages for taxes and benefits. C. The total gross wages earned. D. The net amount the employee receives. Answer: B
Practice Exam
Explanation: Withholding includes taxes and optional deductions taken out of gross pay. Question 53. The adjusting entry to record depreciation expense includes a credit to: A. Accumulated Depreciation – Equipment B. Depreciation Expense C. Equipment D. Cash Answer: A Explanation: Accumulated Depreciation is a contra‑asset account credited to accumulate depreciation. Question 54. Which of the following is not a typical purpose of a bank reconciliation? A. Detecting errors in the cash account ledger. B. Identifying fraudulent transactions. C. Adjusting the company’s inventory balance. D. Ensuring the cash balance matches the bank statement. Answer: C Explanation: Bank reconciliations focus on cash, not inventory. Question 55. The “cost of goods sold” (COGS) appears on which financial statement? A. Balance Sheet B. Statement of Cash Flows C. Income Statement D. Statement of Owner’s Equity Answer: C
