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Program Ultimate Exam
Question 1. Which of the following most accurately distinguishes cash-basis from accrual-basis accounting? A) Cash basis records revenue when earned; accrual basis records revenue when cash is received. B) Cash basis records expenses when incurred; accrual basis records expenses when cash is paid. C) Cash basis records transactions only when cash changes hands; accrual basis records revenues when earned and expenses when incurred. D) Cash basis follows GAAP; accrual basis does not. Answer: C Explanation: Cash-basis bookkeeping recognizes transactions only when cash is received or paid, while accrual-basis recognizes revenues when earned and expenses when incurred, regardless of cash flow. Question 2. An adjusting entry for accrued revenue would include which of the following? A) Debit Cash, Credit Service Revenue. B) Debit Accounts Receivable, Credit Service Revenue. C) Debit Service Revenue, Credit Accounts Receivable. D) Debit Unearned Revenue, Credit Service Revenue. Answer: B Explanation: Accrued revenue is earned but not yet received; the entry records a receivable (debit) and recognizes revenue (credit). Question 3. Which adjusting entry correctly records accrued wages at month-end? A) Debit Wages Expense, Credit Cash. B) Debit Wages Expense, Credit Wages Payable.
Program Ultimate Exam
C) Debit Wages Payable, Credit Wages Expense. D) Debit Cash, Credit Wages Expense. Answer: B Explanation: Accrued wages are expenses incurred but not yet paid; they increase Wages Expense and create a liability (Wages Payable). Question 4. When a company receives $5,000 in advance for services to be performed next month, the initial entry should be: A) Debit Cash, Credit Service Revenue. B) Debit Service Revenue, Credit Cash. C) Debit Cash, Credit Unearned Revenue. D) Debit Unearned Revenue, Credit Cash. Answer: C Explanation: Cash is received, but the revenue is not earned; therefore, a liability (Unearned Revenue) is recorded. Question 5. At the end of an accounting period, a prepaid insurance policy covering six months has two months elapsed. The adjusting entry will: A) Debit Insurance Expense, Credit Prepaid Insurance for two-sixths of the premium. B) Debit Prepaid Insurance, Credit Insurance Expense for two-sixths of the premium. C) Debit Insurance Expense, Credit Cash for the full premium. D) No entry is required until the policy expires. Answer: A Explanation: The portion of prepaid insurance that has expired becomes an expense; the entry reduces Prepaid Insurance and records Insurance Expense.
Program Ultimate Exam
Explanation: The trial balance only checks that total debits equal total credits; it cannot detect errors that preserve this equality, such as transposition, omission, or posting to the wrong account. Question 9. An accountant discovers that a $1,200 purchase of supplies was recorded as $12,200. This is an example of: A) Commission error. B) Transposition error. C) Slide error. D) Omission error. Answer: B Explanation: Reversing digits (12 vs 1,2) is a transposition error. Question 10. When reconciling the bank statement, “outstanding checks” are: A) Checks that the bank has cleared but the company has not recorded. B) Checks written by the company that have not yet cleared the bank. C) Checks that have been returned for insufficient funds. D) Checks issued by the bank to the company. Answer: B Explanation: Outstanding checks are those the company has recorded but the bank has not yet processed. Question 11. Which of the following items is not a typical reconciling item? A) Deposits in transit. B) Bank service charges. C) Unrecorded payroll liabilities.
Program Ultimate Exam
D) Outstanding checks. Answer: C Explanation: Unrecorded payroll liabilities are adjusting entries, not bank-statement reconciling items. Question 12. In payroll accounting, an independent contractor should receive which of the following forms at year-end? A) Form W-2. B) Form 1099-NEC. C) Form W-4. D) Form 941. Answer: B Explanation: Independent contractors receive Form 1099-NEC for non-employee compensation; employees receive Form W-2. Question 13. Under the Fair Labor Standards Act (FLSA), overtime pay is calculated as: A) Time and a half of the employee’s regular hourly rate for hours worked over 40 in a workweek. B) Double the regular hourly rate for any hours worked over 8 in a day. C) The employee’s regular rate for all hours worked beyond 40 in a week. D) No overtime is required for salaried employees. Answer: A Explanation: FLSA requires 1.5 times the regular rate for hours exceeding 40 in a workweek.
Program Ultimate Exam
D) Debit Wages Expense $2,000, Credit FIT Payable $100, Credit Cash $1,594, Credit Payroll Tax Expense $306. Answer: C Explanation: Employee withholdings (FIT $100, Social Security $124, Medicare $29) reduce cash; employer’s matching taxes are recorded as Payroll Tax Expense (another $124 + $29 = $153). Total payroll tax expense = $153 (employer) + $153 (employee) = $306, but only employee portion is a liability; employer portion is expense. The entry reflects employee withholdings and cash paid. Question 17. Which form reports quarterly federal payroll taxes withheld and employer contributions? A) Form W-2. B) Form 941. C) Form 940. D) Form 1099-MISC. Answer: B Explanation: Form 941 is the Employer’s Quarterly Federal Tax Return. Question 18. The straight-line depreciation method calculates annual depreciation by: A) (Cost – Salvage Value) ÷ Useful Life. B) (Cost – Salvage Value) × (Remaining Life ÷ Total Life). C) (Cost × Depreciation Rate). D) (Cost – Accumulated Depreciation) ÷ Remaining Life. Answer: A Explanation: Straight-line spreads the depreciable base evenly over the asset’s useful life.
Program Ultimate Exam
Question 19. For a machine costing $50,000 with a $5,000 salvage value and a 5-year life, the units-of-production method would require: A) Knowing the total estimated units the machine will produce. B) Using a fixed depreciation rate each year. C) Applying double-declining balance. D) No estimate of usage is needed. Answer: A Explanation: Units-of-production bases depreciation on actual usage, so total estimated production must be known. Question 20. Under MACRS, a 5-year property uses which depreciation convention? A) Half-year convention. B) Mid-month convention. C) Mid-quarter convention. D) Full-year convention. Answer: A Explanation: Most MACRS property (including 5-year) uses the half-year convention, assuming half a year of depreciation in the first and last years. Question 21. Which journal entry records the first year’s MACRS depreciation for a $30,000 asset placed in service, using a 20% rate? A) Debit Depreciation Expense $6,000; Credit Accumulated Depreciation $6,000. B) Debit Accumulated Depreciation $6,000; Credit Depreciation Expense $6,000. C) Debit Depreciation Expense $30,000; Credit Accumulated Depreciation $30,000.
Program Ultimate Exam
A) FIFO.
B) LIFO.
C) Weighted-average. D) Specific identification. Answer: B Explanation: LIFO (Last-In, First-Out) assumes the newest inventory items are sold first. Question 25. If a company uses FIFO and inventory prices are rising, the effect on: A) Net income – higher; ending inventory – higher. B) Net income – lower; ending inventory – lower. C) Net income – higher; ending inventory – lower. D) Net income – lower; ending inventory – higher. Answer: A Explanation: FIFO matches older (lower) costs against revenue, yielding higher net income, and the ending inventory consists of newer (higher) costs. Question 26. Under LIFO in a period of rising prices, the ending inventory will be: A) Valued at the most recent (higher) costs. B) Valued at the oldest (lower) costs. C) Equal to average cost. D) Not affected by price changes. Answer: B Explanation: LIFO leaves the oldest costs in ending inventory, which are lower when prices rise.
Program Ultimate Exam
Question 27. The Lower of Cost or Market (LCM) rule requires inventory to be reported at: A) The higher of historical cost or market value. B) The lower of historical cost or market value. C) Either cost or market, whichever the manager prefers. D) Net realizable value only. Answer: B Explanation: LCM mandates reporting inventory at the lesser of its cost or current market (replacement) value. Question 28. When a merchandise return is recorded under the perpetual system, which accounts are affected? A) Debit Sales Returns and Allowances; Credit Cash. B) Debit Inventory; Credit Cost of Goods Sold. C) Debit Accounts Receivable; Credit Sales Revenue. D) Debit Cost of Goods Sold; Credit Inventory. Answer: B Explanation: The returned merchandise is added back to Inventory (debit) and the related cost is removed from COGS (credit). Question 29. Which internal control component is primarily designed to ensure proper authorization of transactions? A) Segregation of duties. B) Physical controls. C) Independent verification. D) Documentation and record-keeping. Answer: A
Program Ultimate Exam
C) Only senior management can approve expenses. D) All transactions must be approved by at least three people. Answer: B Explanation: Least privilege restricts access rights to the minimum necessary for job responsibilities. Question 33. Which of the following best describes a “vendor-cheating” scheme? A) An employee creates a fictitious vendor and writes checks to personal accounts. B) A vendor inflates invoices for goods never delivered. C) Customers return goods for cash refunds. D) Management manipulates financial statements. Answer: B Explanation: Vendor cheating involves overbilling or billing for goods/services not provided. Question 34. During the accounting cycle, the step that follows posting to the general ledger is: A) Preparing the trial balance. B) Recording adjusting entries. C) Preparing the post-closing trial balance. D) Preparing financial statements. Answer: D Explanation: After posting, the adjusted trial balance is used to prepare the financial statements. Question 35. The basic accounting equation is:
Program Ultimate Exam
A) Assets = Liabilities – Owner’s Equity. B) Assets = Liabilities + Owner’s Equity. C) Assets + Liabilities = Owner’s Equity. D) Assets – Liabilities = Owner’s Equity. Answer: B Explanation: The equation reflects that assets are financed by liabilities and owner’s equity. Question 36. In double-entry bookkeeping, a debit to an asset account will: A) Increase the asset. B) Decrease the asset. C) Have no effect on the asset. D) Increase a liability. Answer: A Explanation: Asset accounts increase with debits and decrease with credits. Question 37. Which financial statement reports a company’s profitability over a specific period? A) Balance Sheet. B) Statement of Owner’s Equity. C) Income Statement. D) Cash Flow Statement. Answer: C Explanation: The Income Statement (Profit & Loss) summarizes revenues and expenses for a period.
Program Ultimate Exam
Question 41. When a company uses the weighted-average cost method in a perpetual system, the average cost is recomputed: A) After each purchase. B) At the end of the period only. C) Only when inventory is sold. D) Never; it is fixed at the beginning of the year. Answer: A Explanation: In a perpetual system, the weighted-average cost per unit is updated after each inventory acquisition. Question 42. Which of the following payroll taxes is calculated on the first $7,000 of each employee’s wages? A) Social Security tax. B) Medicare tax. C) Federal Unemployment Tax (FUTA). D) State Unemployment Tax (SUTA). Answer: C Explanation: FUTA applies to the first $7,000 of wages per employee per year (subject to annual adjustments). Question 43. The journal entry to record a $150 employee bonus payable at year-end, assuming the bonus has been earned but not yet paid, is: A) Debit Bonus Expense $150; Credit Cash $150. B) Debit Bonus Expense $150; Credit Bonus Payable $150. C) Debit Bonus Payable $150; Credit Bonus Expense $150. D) Debit Cash $150; Credit Bonus Expense $150. Answer: B
Program Ultimate Exam
Explanation: The expense is recognized (debit) and a liability (Bonus Payable) is created (credit) until cash is disbursed. Question 44. Which of the following best describes the purpose of the “post-closing trial balance”? A) To verify that debits equal credits after adjusting entries. B) To ensure that temporary accounts have zero balances before the next period. C) To reconcile bank statements. D) To calculate depreciation expense. Answer: B Explanation: After closing entries, the post-closing trial balance confirms that only permanent accounts remain with balances. Question 45. In the context of fraud prevention, “tone at the top” refers to: A) The level of employee training provided. B) Management’s attitude toward ethics and internal controls. C) The amount of cash on hand. D) The frequency of internal audits. Answer: B Explanation: “Tone at the top” is the ethical climate set by senior leadership, influencing overall control environment. Question 46. A company uses the sum-of-the-years’-digits (SYD) method for a $12,000 asset with a 4-year life and $2,000 salvage value. What is the depreciation expense for year 2? A) $3, B) $4,
Program Ultimate Exam
Explanation: Dual signatures provide an additional review layer, reducing the risk of unauthorized or misplaced checks. Question 49. The “matching principle” requires that: A) Expenses be recorded in the same period as the revenues they help generate. B) All assets be matched with corresponding liabilities. C) Revenues be matched with cash receipts. D) Payroll taxes be matched with employee wages. Answer: A Explanation: Matching aligns expenses with the revenues they support, ensuring accurate period reporting. Question 50. Which of the following is not a component of the cash flow statement? A) Operating activities. B) Investing activities. C) Financing activities. D) Equity activities. Answer: D Explanation: The cash flow statement includes operating, investing, and financing activities; equity activities are reflected within financing. Question 51. An employee’s overtime rate is calculated as: A) 1.5 × regular hourly rate. B) 2.0 × regular hourly rate. C) Regular hourly rate ÷ 1.5. D) 1.25 × regular hourly rate.
Program Ultimate Exam
Answer: A Explanation: Overtime is paid at time-and-a-half of the regular rate. Question 52. Which of the following is the correct journal entry to record employer’s portion of FUTA (0.6% on $7,000) for one employee? A) Debit FUTA Expense $42; Credit FUTA Payable $42. B; Debit FUTA Payable $42; Credit Cash $42. C) Debit Payroll Tax Expense $42; Credit FUTA Payable $42. D) Debit Cash $42; Credit FUTA Expense $42. Answer: C Explanation: FUTA is an employer expense; the expense is debited and a liability (FUTA Payable) is credited. Question 53. When using the perpetual inventory system, the entry to record a $2,500 purchase of inventory on account is: A) Debit Inventory $2,500; Credit Accounts Payable $2,500. B) Debit Purchases $2,500; Credit Cash $2,500. C) Debit Inventory $2,500; Credit Cash $2,500. D) Debit Purchases $2,500; Credit Accounts Payable $2,500. Answer: A Explanation: Perpetual systems add purchases directly to the Inventory account. Question 54. 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. C) A deposit that is lost in the mail.
