AC210 Test 1 Study Questions

The journal entry to record the purchase of supplies on account includes a ____ (debit/credit) to what account?

A credit to Accounts Payable

On December 1, 2010, B. Darin Company received $3,600 from S. Dee Company for rent of an office owned by B. Darin Company. The $3,600 is for the 4-month period from December 1, 2010 through March 31, 2011. B. Darin Company recorded this as Deferred Rent Revenue in full when it was received on December 1. The adjusting entry on December 31 would include...

A credit to Rent Revenue of $900 $3,600 / 4 months = $900

The adjusting entry to record Revenue for Services the seller has performed but not yet collected requires..

A debit to Accounts Receivable and credit to Service Revenue

The adjusting entry to record Depreciation includes

A debit to Depreciation Expense and a Credit to Accumulated Depreciation

The entry to record Income Tax accrued, but unpaid, at the end of the accounting period includes

A debit to Income Tax Expense and a credit to Income Tax Payable

The adjusting entry to record interest owed on obligations at the end of the accounting period includes...

A debit to Interest Expense and a credit to Interest Payable

If an expense has been incurred but will be paid later, then:

A liability account is created or increased and an expense is recorded

If Molly Company has $21 million in revenue and net income of $9 million, then its: A. Expenses must have been $12 million B. Assets must have been $21 million C. Assets must have been $9 million D. Expenses must have been $30 million

A. Expenses must have been $12 million $9 million = $21 million - Expenses 21-9=12

Which of the following would be reported on the income statement for the current year? A. In the current year, the company sold goods to customers who agreed to pay next year. B. In the current year, the company received payment in cash for goods that were sold to customers last year. C. In the current year, the company borrowed money from the bank which is to be used in the business activities this year D. In the current year, the company issued stock to owners and received cash immediately. E.More than one of the above

A. In the current year, the company sold goods to customers who agreed to pay next year

At December 31, Aloe Inc's assets equals $8,000 and stockholders equity equals $5,000. Liabilities must equal $_____

A=L+SE $8,000 = L + $5,000 $8,000 - $5,000 = $3,000

After posting the adjusting entry to record revenues for which the seller has performed of its obligations but has not yet collected, which account will be increased?

Accounts Receivable

When Pizza Company delivers pizza to customers and bills its customer accounts, it should record a debit to ______ and a credit to ______:

Accounts Receivable and Deferred Revenue

___ Involve adjusting entries where goods/services have been provided to customers or the expense has been incurred, the cash will be collected or paid in the future

Accrual

An ___ trial ___ is prepared immediately ___ the adjusting entries have been recorded and ___ the financial statements are prepared

Adjusted Trial Balance; After; Before

Rebecca Company paid salaries of $20,000 during the year. In addition, $8,800 in salaries has accrued by the end of the year but has not been paid. The year-end adjusting entry would include?

Credit to Salaries Payable for $8,800

The entry to record the sale of services for cash includes a....

Credit to Service Revenue and debit to Cash

Revenues are increased with...

Credits because they increase SE

Which of the following accounts is increased by a credit? A. Notes Payable B. Service Revenue C. Deferred Revenue D. All of the above E.None of the above

D. All of the above

Which of the following statements is false? A. Equipment is an asset account. B.The purpose of the statement of retained earnings is to report how the profits of a company have been distributed to stockholders or retained in the business. C. The stockholders' equity of a company is the difference between assets and liabilities. D. Contributed Capital and Retained Earnings are examples of liabilities. E. None of the above is false; all are true statements

D. Contributed Capital and Retained Earnings are examples of liabilities

Which of the following statements is true? A. The Balance Sheet reports revenues earned and expenses incurred by the company. B. Accounts Payable and Notes Payable are reported on the income statement. C.The three basic elements of the balance sheet are assets, revenues, and expenses. D. Retained Earnings is a part of the stockholders equity section of the balance sheet

D. Retained Earnings is a part of the stockholders equity section of the balance sheet

A company has earned revenue from selling a product but has not yet received the payment in cash. Which of the following statements is true regarding the adjusting entry needed to record this accrual? A. The entry requires a credit to Accounts Receivable. B. The entry requires a debit to Unearned Revenue. C. The entry requires a debit to Sales Revenue. D. The entry requires a credit to Sales Revenue. E. The entry requires a credit to Unearned Revenue.

D. The entry requires a credit to Sales Revenue

When a company receives cash from a customer in advance of performing the service, the company will ___ (debit/credit) ____ (account) and ___(debit/credit) ___(account)

Debit Cash and credit Deferred Revenue

Northern Living Magazine sold 600 one-year subscriptions for $100 each on September 1, 2017. The total amount received was recorded as Deferred Revenue when received. What would be the required adjusting entry at December 31, 2017? No adjusting entries have been made yet regarding this transaction.

Debit Deferred Revenue $20,000, Credit Service Revenue $20,000

Trudy's Café paid employees $1,700 in September for work performed that month. What journal entry will Trudy's prepare to record that transaction?

Debit Salaries and Wages Expense and credit Cash for $1,700

Alice Corporation had $2,400 in supplies on hand at the beginning of December. During the month, supplies purchased amounted to $4,400, but by the end of the month the supplies on hand were only $3,200. What is the appropriate month-end adjusting entry?

Debit Supplies Expense $3,600, credit Supplies $3,600

The journal entry to record the purchase of supplies on account is...

Debit Supplies and Credit Accounts Payable

During the closing process, the closing entry to reduce the sales revenue normal account balance to zero requires the revenue account be ___(debited/credited)

Debited -Since revenues increase with a credit entry and therefore, contain a normal credit balance, the accounts must be debited to reduce the balance

Molly Co. makes adjustments on a monthly basis. On July 1, 2017, Molly Co. paid $18,000 to Rent-An-Office for rent covering 24 months from July 2017 through June 2019. The adjusting entry needed at December 31, 2017 by Molly Co. will:

Decrease equity and decrease assets

The adjusting entry to record the amount of the obligation that has been fulfilled by the seller that was previously collected in advance will...

Decrease liabilities and increase revenues

The adjusting entry to record Supplies used during the period will result in a ....

Decrease to Supplies and an increase to Supplies Expense

Virginia Co. purchased equipment for cash on March 25 of this year. How does this transaction affect the accounting equation on March 25?

No change in total assets, no change in total liabilities, no change in total stockholders' equity

Noodlecake signs a contract with an independent developer for program code to be delivered and paid for in 2 months. What is the effect on the accounting equation?

No effect

Receiving cash from a customer for payment on account for sale that was recorded previously will have what effect on total assets?

No effect

What is the effect on total stockholders equity when a company purchases a cash register for a cash payment of $1,200?

No effect

Mauricio, the owner of Pizza Aroma Inc, arranged for the business to borrow $25,000 from River Bank. Which entity should show the liability on its balance sheet?

Pizza Aroma

____ Expenses require adjustment because the cash is paid in one period, but the resource is not completely used until a later period

Prepaid Expenses

In accordance with the expense recognition principle, expenses are recorded in the period when the:

Related revenues are recorded

The balance sheet...

Reports the assets, liabilities, and stockholders equity section of the balance sheet

How is Net Income calculated?

Revenues - Expenses

The equation for the income statement is...

Revenues - Expenses = Net Income

Mortgage Payable is increased with an entry on what side of the T-account?

Right side (debit side)

Ending Retained Earnings balance appears on which financial statements?

Statement of Retained Earnings and Balance Sheet

Performing services on account will increase ____ and ____

Stockholders Equity and total assets

If a company is paid in full for services provided this month, how will the basic accounting equation be affected?

Stockholders equity will increase as revenue is recorded

If ABC Inc. has Common Stock of $40,000, total assets of $85,000, and total liabilities of $35,000, its Retained Earnings equals $____

$10,000

A company's financial records at the end of the year including the following amounts: -Cash: $71,600 -Accounts Receivable: $29,600 -Supplies: $5,600 -Accounts Payable: $11,600 -Notes Payable: $5,800 -Beginning Retained Earnings: $18,600 -Common Stock: $56,000 -Service Revenue: $42,600 -Wages Expense: $9,600 -Advertising Expense: $6,600 -Rent Expense: $11,600 What is the amount of total assets to be reported on the balance sheet at the end of the year?

$106,800

On April 30, 2011, a three-year insurance policy was purchased with a cash payment of $18,000. Coverage began immediately. What is the amount to be reported on the balance sheet as Prepaid Insurance at December 31, 2011?

$14,000

At December 31, Equate Inc's assets equal $50,000 and liabilities equal $30,000. Stockholders Equity must equal $___

$20,000 A=L+SE $50,000 = $30,000 +SE

The beginning balance in Ace's Accounts Payable was $3,000. Ace then bought $200 of supplies paying cash. It also paid $500 of the amount it owed for supplies purchased on account last month. The ending balance in Ace's Accounts Payable is a _____(debit/credit) of $_____

$3,000 -$500 = $2,500; the supplies purchased with cash does not affect Accounts Payable

The annual depreciation taken on a vehicle totals $3,000. The vehicle has been in service for 3 full years and the adjusting entries have been completed for the year. At the end of the 3rd year, the annual financial statements will report Depreciation Expense equal to $___ and Accumulated Depreciation equal to $___.

$3,000, $9,000 -The expense reflects just the current year's use. The past 2 years depreciation has been closed into Retained Earnings -The Accumulated Depreciation account accumulates and includes all three years of use or $9,000 (=$3,000 x 3 years)

The annual Depreciation taken on a vehicle totals $3,000. The vehicle has been in service for 3 full years and the adjusting entries have been completed for the year. At the end of the 3rd year, the annual financial statements will report Depreciation Expense equal to $___, and Accumulated Depreciation equal to $___.

$3,000, $9,000 -The expense reflects just the current years use. The past 2 years Depreciation has been closed in Retained Earnings -The Accumulated Depreciation account accumulated and includes all 3 years of use or $9,000 -$3,000 x 3 years = $9,000

Ace Electronics bought equipment for $4,000. Normally the equipment would have cost $4,500, but the supplier gave Ace a special discount. Ace's balance sheet report equipment of $____

$4,000

A company's beginning accounts payable is $1,000. It had a $10,000 of purchases on account and paid $7,000 of the amounts owed. The accounts payable ending balance equals a ____

$4,000 credit -Accounts Payable, a liability, equals a $4,000 credit balance (=$1,000 credit + 10,000 credit - 7,000 debit)

The following transactions occurred during July: -Received $800 Cash for serviced rendered in July -Received $5,000 from issuance of stock to investors -Received $400 from a customer in payment of Accounts Receivable from the prior month -Billed customers for services performed in July, $3,500 -Borrowed $2,500 from the bank, giving a promissory note in exchange -Received $1,000 from a customer for services to be performed next year What is the amount of Revenue for July?

$4,300

Bonnie Co. has $36,000 in its Cash account, $20,000 in its Inventory account, and $12,000 in its Notes Payable account. If Spin's only other Common Stock, what is the balance of that account?

$44,000

Ace Electronics sold $5,000 of goods to customers of which $3,000 has been collected. Using accrual accounting, Ace Electronics should report revenues of $_____.

$5,000

On January 1, 2020, Jed's Crops opened a business and paid $180,000 for an insurance policy effective on that date. The policy was $180,000 for eighteen months. What is the balance in Jed's Prepaid Insurance account as of December 31, 2020?

$60,000 $180,000 / 18 months =10,000 10,000 x 12 months =120,000 180,000 - 120,000 = 60,000

Sterling Company paid $1,200 for 3 months of rent on April 1 of the current year. On April 30, Sterling Company made an adjusting entry to account for the rent that expired during the month of April. The adjusting entry contained a debit to Rent Expense in the amount of $___ and a credit to Prepaid Rent in the amount of $___. The remaining balance in the Prepaid Rent account after the adjustment was $___

- $400, $400, $800 -The rent used during April is $1,200 / 3 months = $400 -The asset account is reduced by one months rent which equals $1,200 / 3 months = $400 -The rent used during April is $1,200 / 3 months leaving only 3 months of unexpired rent in the assets account

During its 1st month of business, Noodlecake's cash increased by receiving $5,000 from issuing common stock to its owners, borrowing $2,000 from bank, and collecting $3,000 from its customers. Its cash decreased by paying $2,000 to its employees and suppliers and $3,000 for the purchase of equipment. On its statement of cash flows, Cash Provided By Operating Activities $____, Cash from Investing Activities equals $____, Cash from Financing Activities equals $_____, and the Change in Cash equals $____.

- Cash from Operating Activities= $3,000(from customers) - $2,000(paid to employees and suppliers) = $1,000 -Cash used by Investing Activities = $(3,000) (purchase of equipment) negative because cash is being decreased -Cash Provided from Financing Activities = $5,000 (issuance of stock) + $2,000 (borrowing from bank) = $7,000 -The Change in Cash = $1,000 (Operating) + $(3,000) (Investing) + $7,000 (Financing) = $5,000

The following are the assets, liabilities, and stockholders equity balances in millions at December 31 in alphabetical order: -Accounts Payable: $500 -Cash: $700 -Common Stock: $600 -Equipment: $900 -Retained Earnings: ??? Retained Earnings equals $___, Total Assets equals $___. Total liabilities plus stockholders equity equals $___.

-$500, $1,600, $1,600 -A=L+SE A= Cash ($700) + Common Stock ($600) = $1,600 -Accounts Payable ($500) + Common Stock ($600) = $1,100 -$1,600 - $1,100 = Retained Earnings ($500)

Which of the following are possible effects on the accounting equation when recording a transaction that increases a liability by $100?

-An asset increases by $100 -A stockholders equity account decreases by $100

After posting all entries to the ledger, the accounts payable T-account will show....

-Beginning balance on the top of the credit side -Payments made on the debit side -Ending balance on the bottom of the credit side -Purchases on account on the credit side

As of December 31, the unadjusted balance in deferred revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period?

-Deferred Revenue needs to be decreased by the amount gift cards redeemed during the month -Sales Revenue needs to be increased by the amount of gift cards redeemed during the month

Squid Roe Inc purchased equipment that cost $20,000 by issuing a 6%, $15,000 promissory note and paying the remainder in cash. The effects on the accounting equation are

-Equipment, an asset, is increased by $20,000 -Note payable, a liability, is increased by $15,000 -Cash, an asset, is decreased by $5,000

The adjustment for Supplies used during the period will result in a ____(increase/decrease) to the Supplies Expense account

-Increase -As supplies are used, the expense account is increased (debited) and the assets account is decreased (credited)

When a company buys an asset on account ____ _____(increase/decrease) and ___ ____ (increase/decrease)

-Liabilities increase and assets increase -The company receives an asset in exchange for a payable, a liability, causing both asset and liabilities to increase

What is the effect on total assets when a company purchases land for a cash payment of $10,000?

-No effect -Land is increased and cash is decreased. Both are assets, thus there is no effect on total assets since they offset one another

Examples of what does not affect the accounting equation

-Obtaining a bid for future services -The hiring of an employee to start work at the beginning of next month -The signing of a contract for future services

Deferral adjustments involve what accounts?

-One asset and one expense account OR -One liability and one revenue account

Accrual adjustments involve what accounts?

-One asset and one revenue account OR -One liability and one expense account

Which of the following transactions increase total assets and liabilities by $4,000?

-Purchasing $5,000 of equipment by paying $1,000 cash and promising to pay the remaining $4,000 next month -Purchasing $4,000 of equipment on account

Why is it necessary to make adjustments to revenue accounts at the end of the accounting period?

-Revenues the seller has performed of its obligations but not yet billed to Accounts Receivable, should be recorded as a Revenue -Deferred Revenue should be reduced for any portion the seller has fulfilled of its obligations during the accounting period

Why is an adjustment necessary for Interest Accrued on a Note Payable at the end of the period if the interest will not be paid until the note is due?

-The adjustment is needed to accurately portray the interest liability of the company, all amounts owed should be reported on the balance sheet -Even though the interest will not be paid until a future period, the expense was actually incurred during the current accounting period

Adjusting entries to adjust Supplies or Prepaid Rent have what kind of effects?

-The carrying value of the assets are decreased -Total assets are decreased on the balance sheet -Total expenses on the income statement are increased

4 Main External Users

1. Creditors 2. Investors 3. Directors 4. Government

The adjusting entry to record the amortization of a long-term asset that lacks physical substance includes a debit to ____and a credit to ____

Amortization Expense and Accumulated Depreciation

When a company receives an invoice for goods purchased and received from a supplier, it records a ____ (increase/decrease) to what account?

An increase in Accounts Payable

The balance of a Deferred Revenue account...

Appears in the liability section of the balance sheet

A Deferral Adjustment reduces the balance in an ___ account on the balance sheet and transfers that reduction into an ___ account on the income statement

Asset; Expense → Deferral adjustments may arise from a prepayment that was originally recorded as an asset. The asset is reduced and the reduction is transferred to an expense in the adjustment

Which account will appear on the a balance sheet? A. Supplies Expense B. Common Stock C. Sales Revenue D. Dividends E. None of the above

B. Common Stock

Which of the following accounts it NOT an asset? A. Equipment B. Common Stock C. Cash D. Accounts Receivable E. Supplies

B. Common Stock

Which of the following accounts is an equity account? A. Notes Payable B. Retained Earnings C. Buildings D. Accounts Receivable E. Cash

B. Retained Earnings

The prior periods ending balances became the next periods....

Beginning balances

On September 30, ABC Co. received a bill for $1,000 for running a newspaper ad in September. The bill will be paid in October. Which of the following statements is correct for the month of September? A. Liabilities are decreased by $1,000. B.Assets are decreased by $1,000. C. Expenses are increased by $1,000. D.Revenues are decreased by $1,000. E. Assets are increased by $1,000.

C. Expenses are increased by $1,000

Which of the following accounts will appear on an income statement? A. Dividends B. Notes Payable C. Rent Expense D. Cash E. All of the above

C. Rent Expense

The main goal of the accounting system is to...

Capture information about a business so that it can be reported to decision makers

The Statement of Cash Flows for the current year contained the following: -Cash inflow from customers: $10,000 -Cash outflow from the purchase of equipment: $40,000 -Cash inflow from capital contributed from stockholders: $30,000 -Cash outflow from payments to suppliers and employees: $5,000 -Cash outflow from payment of dividends to stockholders: $1,000 -Cash inflow from borrowing from the bank: $20,000 What was the amount of Cash Flows from Investing Activities?

Cash Outflow of $40,000

When a company pays its suppliers for amounts owed, what accounts are decreased?

Cash and Accounts Payable

What accounts are affected by borrowing from a bank?

Cash and Notes Payable

Grossing Inc. receives $10,000 in advance this month for work to be performed next month. This month, the company should record a journal entry that includes a debit to:

Cash and a credit to Deferred Revenue for $10,000

The journal entry that records the collection of cash from a customer for payment on account for a sale that was recorded previously includes a debit to:

Cash and credit to Accounts Receivable

The Statement of Cash Flows for the current year contained the following: -Cash inflow from customers: $10,000 -Cash outflow from the purchase of equipment: $40,000 -Cash inflow from capital contributed from stockholders: $30,000 -Cash outflow from payments to suppliers and employees: $5,000 -Cash outflow from payment of dividends to stockholders: $1,000 -Cash inflow from borrowing from the bank: $20,000 What is the amount of Cash Flows from Financing Activities?

Cash inflow of $49,000

If an asset account such as equipment has a normal debit balance, the association contra-account should have a normal ___(debit/credit) balance

Credit

When a company pays for amounts purchased on account, the entry includes....

Credit to Cash and debit to Accounts Payable

Companies wait until the ___ to adjust their accounts because daily adjustments would be time consuming and costly

End of the accounting period

A company started the month with $1,000 of Retained Earnings. During the month, it had Revenue of $5,000 and Expenses of $4,500. It also distributed a Dividend of $100 to its stockholders. The company's Retained Earnings at the end of the period equals $_____.

Ending Retained Earnings = $1,000 (Beginning Retained Earnings + $500(Net Income (=$5,000 (revenue) - $4,500 (expenses)) - $100 Dividends = $1,400

Adjustments made to expense accounts at the end of the accounting period adhere to the ____recognition principle

Expense

T/F In accordance with GAAP, the timing of cash receipts dictates when revenues are recognized

False

Borrowing from the bank is a ____ Activity

Financing Activity

When should supplies be recorded as an expense?

In the period the supplies were used, regardless of when they were purchased

When making deferral adjustments to record the AMOUNT USED during the period such as Prepaid Insurance or Supplies, the debit will ___(increase/decrease) an ____(expense/revenue) account

Increase an Expense account -Since the adjustment is accounting for the expiration of the insurance or the use of supplies, an expense has been incurred

The Statement of Cash Flows for the current year contained the following: -Cash inflow from customers: $10,000 -Cash outflow from the purchase of equipment: $40,000 -Cash inflow from capital contributed from stockholders: $30,000 -Cash outflow from payments to suppliers and employees: $5,000 -Cash outflow from payment of dividends to stockholders: $1,000 -Cash inflow from borrowing from the bank: $20,000 The change in cash for the current year was a _____(increase/decrease) of $____

Increase of $14,000

___ expense accumulated or accrued throughout the accounting period on notes payable

Interest Expense

The primary goal of most companies is to...

Make a profit

________ accounting reports include detailed financial reports about the company's operating performance that are continually updated and used by internal users. ______accounting reports are prepared periodically to provide information to external users

Managerial; Financial

When Accounts Receivable are collected...

The amount of total assets is unchanged

After the adjustments have been completed, the adjusted balance in income tax payable represents...

The amount owed to the government at the end of the accounting period

The adjusted trial balance will be used to determine....

The asset and liability balances on the balance sheet

The balance in Retained Earnings prior to the closing process equals...

The balance at the end of the previous accounting period

On December 31, 2017, accounts payable had a balance of $10,000. During the period 2018, there were $500,000 purchases on account and $490,000 payments of accounts payable. The December 31,2018 balance must equal $____

The beginning normal credit balance of $10,000 plus the credits during the year of $500,000 (purchases on account) minus the debits of $490,000 (payments) equals a $20,000 balance at the end of the year

What are the similarities between Notes Payable and Accounts Payable?

They are both liabilities and are amounts owed to creditors

On June 3, JohnJohn Co. paid off the balance it owed its supplier for supplies purchased last month. How does this transaction affect the accounting equation on June 3?

Total assets decrease, total liabilities decrease, and no change in total stockholders' equity

Davis Co. sold its stock to investors on April 2 of this year. How does this transaction affect the accounting equation on April 2?

Total assets increase, no change in total liabilities, and total stockholders' equity increases

On November 1, 2020, Bama Co. borrowed $50,000 from the bank and signed a note. How does this transaction affect the accounting equation on November 1, 2020?

Total assets increase, total liabilities increase, and no change in total stockholders' equity

Saban Co. purchased supplies on account on February 15 of this year. How does this transaction affect the accounting equation on February 15?

Total assets increase, total liabilities increase, and no change in total stockholders' equity

On October 1, 2017, Jethro Inc. paid $6,000 for the next 6 months of rent. How did the accounting entry made on October 1 affect the accounting equation?

Total assets remain unchanged, total liabilities remained the same, SE stayed the same

What is the effect on total liabilities when a company buys a building in exchange for a 20 year Note Payable?

Total liabilities will increase

T/F Operating Activities are the primary sources of revenue and expenses involved in running a business

True

If the purchase of Supplies on account is not recorded then liabilities will be ____

Understated

The key factor in determining whether revenue should be recognized is....

Whether the seller has provided the goods or services to the customer

A company purchased a $100,000 building in exchange for a 20-year note payable. The company recorded a $100,000 increase in the building account and a $100,000 decrease in cash. As a result of this error,

total assets are too low and total liabilities are too low