FBLA Accounting II Practice Questions with Explanations
Questions
An inventory method that assumes the first items purchased are the first items sold is:
- FIFO
- LIFO
- Weighted average
- Specific identification
An inventory method that assumes the most recently purchased items are sold first is:
- LIFO
- FIFO
- Weighted average
- Gross profit method
An inventory method that uses the average cost of all units available for sale is:
- Weighted-average method
- FIFO
- LIFO
- Specific identification
An inventory method that tracks the actual cost of each individual item sold is:
- Specific identification
- FIFO
- LIFO
- Retail method
During a period of rising prices, which method reports the highest net income?
- FIFO
- LIFO
- Weighted average
- All three report the same income
During a period of rising prices, which method results in the lowest income taxes?
- LIFO
- FIFO
- Specific identification
- Weighted average
A business has 10 units at $5 (beginning), then buys 10 units at $7. It sells 12 units. Using FIFO, cost of merchandise sold is:
- $64
- $74
- $72
- $60
A business has 10 units at $5 (beginning), then buys 10 units at $7. It sells 12 units. Using LIFO, cost of merchandise sold is:
- $80
- $64
- $72
- $74
A business has 10 units at $5 and 10 units at $7. Using weighted average, the cost per unit is:
- $6.00
- $5.50
- $6.50
- $12.00
An inventory system that updates the inventory account continuously with each purchase and sale is:
- Perpetual inventory
- Periodic inventory
- Physical inventory
- Retail inventory
An inventory system that determines inventory by counting at the end of a period is:
- Periodic inventory
- Perpetual inventory
- Just-in-time inventory
- Consignment inventory
A method of estimating inventory using the previous year's gross profit percentage is the:
- Gross profit method
- Retail method
- FIFO method
- Specific identification method
Reporting inventory at the lower of its cost or net realizable value follows the principle of:
- Conservatism
- Going concern
- Materiality
- Business entity
Cost of merchandise sold is $120,000 and average inventory is $30,000. Merchandise inventory turnover is:
- 4.0 times
- 0.25 times
- 90 times
- 3.0 times
Ending inventory is overstated by $2,000. What is the effect on the current year's net income?
- Overstated by $2,000
- Understated by $2,000
- No effect
- Overstated by $4,000
Beginning inventory is $8,000, purchases are $32,000, and cost of merchandise sold is $30,000. Ending inventory is:
- $10,000
- $6,000
- $70,000
- $2,000
Net sales are $100,000 and the gross profit percentage is 40%. Estimated cost of merchandise sold is:
- $60,000
- $40,000
- $140,000
- $100,000
A depreciation method that charges an equal amount of depreciation each year is:
- Straight-line
- Declining-balance
- Sum-of-the-years'-digits
- Units-of-production
A depreciation method that multiplies book value by a constant rate, resulting in higher depreciation in early years, is:
- Declining-balance
- Straight-line
- Units-of-production
- Composite depreciation
A depreciation method based on the asset's actual usage, such as miles driven, is:
- Units-of-production
- Straight-line
- Declining-balance
- Sum-of-the-years'-digits
Equipment cost $20,000 with a 5-year life. Using double declining-balance, first-year depreciation is:
- $8,000
- $4,000
- $10,000
- $6,000
A truck cost $50,000, has salvage value of $5,000, and is expected to be driven 150,000 miles. If it is driven 30,000 miles this year, depreciation is:
- $9,000
- $10,000
- $15,000
- $4,500
The depreciation method required for most business assets on federal tax returns is:
- MACRS
- Straight-line
- Units-of-production
- Sum-of-the-years'-digits
A plant asset with a book value of $3,000 is sold for $3,800. The result is a:
- Gain on plant assets of $800
- Loss on plant assets of $800
- Gain of $3,800
- Loss of $3,000
A plant asset with a book value of $5,000 is sold for $4,200. The result is a:
- Loss on plant assets of $800
- Gain on plant assets of $800
- Loss of $4,200
- Gain of $5,000
Before recording the sale of a plant asset partway through the year, the business must first record:
- Depreciation up to the date of sale
- A closing entry
- The gain on the sale
- A reversing entry
Assets such as patents, copyrights, and trademarks that have value but no physical substance are:
- Intangible assets
- Plant assets
- Current assets
- Natural resources
Spreading the cost of an intangible asset over its useful life is called:
- Amortization
- Depreciation
- Depletion
- Accrual
Spreading the cost of a natural resource, such as a mine, over the units extracted is called:
- Depletion
- Amortization
- Depreciation
- Appreciation
The excess of the purchase price over the fair value of net assets when buying a business is:
- Goodwill
- Book value
- Salvage value
- Paid-in capital
Equipment costing $24,000 with $4,000 salvage value and a 4-year life has been used 3 years under straight-line. Its book value is:
- $9,000
- $5,000
- $15,000
- $18,000
A plant asset bought on October 1 with annual straight-line depreciation of $3,600 will have how much depreciation for the calendar year of purchase?
- $900
- $3,600
- $1,200
- $2,700
Costs that extend an asset's useful life, such as a new engine for a truck, are recorded as:
- Capital expenditures added to the asset
- Repairs expense for the period
- Revenue
- Liabilities
The method of recording estimated uncollectible accounts expense in the same period as the related sales is the:
- Allowance method
- Direct write-off method
- Cash method
- Specific identification method
The contra asset account used under the allowance method is:
- Allowance for Uncollectible Accounts
- Accounts Receivable
- Uncollectible Accounts Expense
- Notes Receivable
Accounts Receivable is $40,000 and the Allowance for Uncollectible Accounts is $2,500. The book value of accounts receivable is:
- $37,500
- $42,500
- $40,000
- $2,500
Estimating uncollectible accounts as a percentage of total sales on account is the:
- Percentage of sales method
- Aging of accounts receivable method
- Direct write-off method
- Specific identification method
Analyzing accounts receivable by how long each account has been unpaid is called:
- Aging accounts receivable
- Factoring
- Discounting
- Reconciling
Under the allowance method, writing off a specific uncollectible account debits:
- Allowance for Uncollectible Accounts
- Uncollectible Accounts Expense
- Cash
- Sales
A written and signed promise to pay a sum of money at a specified time is a:
- Promissory note
- Check
- Invoice
- Purchase order
The original amount of a note, before interest, is the:
- Principal
- Maturity value
- Interest rate
- Face rate
Interest on a $5,000, 8%, 90-day note (using a 360-day year) is:
- $100
- $400
- $40
- $1,000
The amount due on the maturity date of a note, principal plus interest, is the:
- Maturity value
- Principal
- Face value
- Book value
A $2,000, 6%, 1-year note has a maturity value of:
- $2,120
- $2,012
- $2,006
- $2,600
A note that is not paid when it is due is a:
- Dishonored note
- Discounted note
- Matured note
- Canceled note
Credit sales for the year are $300,000, and uncollectible accounts are estimated at 1% of credit sales. Uncollectible Accounts Expense is:
- $3,000
- $300
- $30,000
- $29,700
Interest on a $9,000, 10%, 60-day note (using a 360-day year) is:
- $150
- $900
- $1,500
- $90
A note dated March 10 for 60 days matures on:
- May 9
- May 10
- April 9
- May 11
Revenue earned in one period but not received or recorded until a later period is:
- Accrued revenue
- Unearned revenue
- Deferred expense
- Prepaid revenue
Expenses incurred in one period but not paid until a later period are:
- Accrued expenses
- Prepaid expenses
- Deferred revenue
- Unearned expenses