ACC 201 Final Study Guide

All of the following would involve a debit memorandum except a. a bank service charge. b. an NSF check. c. the cost of printing checks. d. interest earned.

A

Sales revenue a. may be recorded before cash is collected. b. will always equal cash collections in a month. c. only results from credit sales. d. is only recorded after cash is collected.

A

The primary source of revenue for a wholesaler is a. investment income. a. Safeguard company assets b. Overstate liabilities in order to be conservative c. Enhance the accuracy and reliability of accounting records d. Reduce the risks of errors

A

. An intangible asset a. does not have physical substance, yet often is very valuable. b. is worthless because it has no physical substance. c. is converted into a tangible asset during the operating cycle. d. cannot be classified on the balance sheet because it lacks physical substance.

A

International standards are developed by the a. IFRS. b. GAAP. c. IASB. d. FASB.

C

The left side of an account is a. blank. b. a description of the account. c. the debit side. d. the balance of the account

C

From an internal control standpoint, the asset most susceptible to improper diversion and use is a. prepaid insurance. b. cash. c. buildings. d. land.

B

. A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the a. stand alone concept. b. monetary unit assumption. c. corporate form of ownership. d. economic entity assumption.

D

A current asset is a. the last asset purchased by a business. b. an asset which is currently being used to produce a product or service. c. usually found as a separate classification in the income statement. d. an asset that a company expects to convert to cash or use up within one year

D

Adjusting entries are made to ensure that: • (a) expenses are recognized in the period in which they are incurred. • (b) revenues are recorded in the period in which services are performed. • (c) balance sheet and income statement accounts have correct balances at the end of an accounting period. • (d) All the responses above are correct.

D

. If employees are bonded a. it means that they are not allowed to handle cash. b. they have worked for the company for at least 10 years. c. they have been insured against misappropriation of assets. d. it is impossible for them to steal from the company

C

. The normal balance of any account is the a. left side. b. right side. c. side which increases that account. d. side which decreases that account

C

Adjustments for unearned revenues: • (a) decrease liabilities and increase revenues. • (b) have an assets-and-revenues-account relationship. • (c) increase assets and increase revenues. • (d) decrease revenues and decrease assets

A

Sales Returns and Allowances is increased when a. an employee does a good job. b. goods are sold on credit. c. goods that were sold on credit are returned. d. customers refuse to pay their accounts.

C

The principle of establishing responsibility does not include a. one person being responsible for one task. b. authorization of transactions. c. independent internal verification. d. approval of transactions.

C

The private sector organization involved in developing accounting principles is the a. Feasible Accounting Standards Body. b. Financial Accounting Studies Board. c. Financial Accounting Standards Board. d. Financial Auditors' Standards Body

C

The time period assumption states that: • (a) companies must wait until the calendar year is completed to prepare financial statements. • (b) companies use the fiscal year to report financial information. • (c) the economic life of a business can be divided into artificial time periods. • (d) companies record information in the time period in which the events occur

C

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales a. discount. b. return. c. contra asset. d. allowance.

D

A decrease in Equipment

Credit

. The principle or assumption dictating that efforts (expenses) should be recognized in the period in which a company consumes assets or incurs liabilities to generate revenue is the: • (a) expense recognition principle(including the matching principle). • (b) cost assumption. • (c) time period assumption. • (d) revenue recognition principle

A

. Under a perpetual inventory system, acquisition of merchandise for resale is debited to the a. Inventory account. b. Purchases account. c. Supplies account. d. Cost of Goods Sold account.

A

A credit sale of $3,600 is made on July 15, terms 2/10, n/30, on which a return of $200 is granted on July 18. What amount is received as payment in full on July 24(assuming any available discount is taken)? Hint: Use an Accounts Receivable (A/R) T-account to solve. a. $3,332 b. $3,440 c. $3,528 d $3,600

A

Accumulated Depreciation is: • (a) a contra asset account. • (b) an expense account. • (c) a stockholders' equity account. • (d) a liability account.

A

Cleese Company sells merchandise on account for $5,000 to Langston Company with credit terms of 2/10, n/30. Langston Company returns $1,000 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? a. $3,920 b. $4,000 c. $4,900 d. $4,920

A

Current liabilities a. are obligations that the company is to pay within the forthcoming year. b. are listed in the balance sheet in order of their expected maturity. c. are listed in the balance sheet, starting with accounts payable. d. should not include long-term debt that is expected to be paid within the next year.

A

Physical controls to safeguard assets do not include a. cashier department supervisors. b. vaults. c. employee identification badges. d. security guards.

A

Rebekah Grace has worked for Specoly Inc., for 20 years without taking a vacation. An internal control feature that would address this situation would be a. human resource controls. b. establishment of responsibility. c. physical controls. d. documentation procedures

A

Sales revenue less cost of goods sold is called a. gross profit. b. net profit. c. net income. d. marginal income

A

The balance in the income summary account before it is closed will be equal to a. the net income or loss on the income statement. b. the beginning balance in the retained earnings account. c. the ending balance in the retained earnings account. d. zero.

A

The revenue recognition principle states that: • (a) revenue should be recognized in the accounting period in which a performance obligation is satisfied. • (b) expenses should be matched with revenues. • (c) the economic life of a business can be divided into artificial time periods. • (d) the fiscal year should correspond with the calendar year

A

The trial balance shows Supplies $0 and Supplies Expense $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is: • (a) debit Supplies $800 and credit Supplies Expense $800. • (b) debit Supplies Expense $800 and credit Supplies $800. • (c) debit Supplies $700 and credit Supplies Expense $700. • (d) debit Supplies Expense $700 and credit Supplies $700

A

Which of the following would not be classified a long-term liability? a. Current maturities of long-term debt b. Bonds payable c. Mortgage payable d. Lease liabilities

A

. A system of internal control a. is infallible. b. can be rendered ineffective by employee collusion. c. invariably will have costs exceeding benefits. d. is premised on the concept of absolute assurance

B

A credit granted to a customer for returned goods requires a debit to a. Sales Revenue and a credit to Cash. b. Sales Returns and Allowances and a credit to Accounts Receivable. c. Accounts Receivable and a credit to a contra-revenue account. d. Cash and a credit to Sales Returns and Allowances.

B

Adjustments for accrued revenues: • (a) have a liabilities-and-revenues-account relationship. • (b) have an assets-and-revenues-account relationship. • (c) decrease assets and revenues. • (d) decrease liabilities and increase revenues

B

After closing entries are posted, the balance in the retained earnings account in the ledger will be equal to a. the beginning retained earnings reported on the retained earnings statement. b. the amount of the retained earnings reported on the balance sheet. c. zero. d. the net income for the period

B

After gross profit is calculated, operating expenses are deducted to determine a. gross margin. b. net income. c. gross profit on sales. d. net margin.

B

Closing entries are necessary for a. permanent accounts only. b. temporary accounts only. c. both permanent and temporary accounts. d. permanent or real accounts only.

B

Cost of goods sold is determined only at the end of the accounting period in a. a perpetual inventory system. b. a periodic inventory system. c. both a perpetual and a periodic inventory system. d. neither a perpetual nor a periodic inventory system.

B

Credits a. decrease both assets and liabilities. b. decrease assets and increase liabilities. c. increase both assets and liabilities. d. increase assets and decrease liabilities.

B

Detailed records of goods held for resale are not maintained under a a. perpetual inventory system. b. periodic inventory system. c. double entry accounting system. d. single entry accounting system

B

Each of the following accounts is closed to Income Summary except a. Expenses. b. Dividends. c. Revenues. d. All of these are closed to Income Summary

B

Financial information that is capable of making a difference in a decision is a. faithfully representative. b. relevant. c. convergent. d. generally accepted.

B

For the basic accounting equation to stay in balance, each transaction recorded must a. affect two or less accounts. b. affect two or more accounts. c. always affect exactly two accounts. d. affect the same number of asset and liability accounts.

B

GAAP stands for a. Generally Accepted Auditing Procedures. b. Generally Accepted Accounting Principles. c. Generally Accepted Auditing Principles. d. Generally Accepted Accounting Procedures

B

The entry to replenish a petty cash fund includes a credit to a. Petty Cash. b. Cash. c. Freight-in. d. Postage Expense.

B

The partnership form of business organization a. is a separate legal entity. b. is a common form of organization for service-type businesses. c. enjoys an unlimited life. d. has limited liability.

B

The principles of internal control include all of the following except a. establishment of responsibility. b. combining of duties. c. physical, mechanical, and electronic controls. d. independent internal verification

B

The relationship between current assets and current liabilities is important in evaluating a company's a. profitability. b. liquidity. c. market value. d. accounting cycle.

B

When two or more people get together for the purpose of circumventing prescribed controls, it is called a. a fraud committee. b. collusion. c. a division of duties. d. bonding of employees

B

Which of the following is not one of the main factors that contribute to fraudulent activity? a. Opportunity. b. Incompatible duties. c. Financial Pressure. d. Rationalization

B

Which one of the following is not a part of an account? a. Credit side b. Trial balance c. Debit side d. Title

B

Which one of the following represents the expanded basic accounting equation? a. Assets = Liabilities + Common stock + Retained Earnings + Dividends - Revenues - Expenses. b. Assets = Liabilities + Common stock + Retained Earnings + Revenues - Dividends - Expenses c. Assets - Liabilities - Dividends = Common stock + Retained Earnings + Revenues - Expenses. d. Assets = Revenues + Expenses - Liabilities.

B

. An example of poor internal control is a. The accountant should not have physical custody of the asset nor access to it. b. The custodian of an asset should not maintain or have access to the accounting records. c. One person should be responsible for handling related transactions. d. A salesperson makes the sale, and a different person ships the goods.

C

A bank may issue a credit memorandum for a. a bank service charge. b. an NSF (not sufficient funds) check from a customer. c. the collection of a note receivable for the depositor by the bank. d. the cost of printing checks.

C

A business organized as a corporation a. is not a separate legal entity in most states. b. requires that stockholders be personally liable for the debts of the business. c. is owned by its stockholders. d. terminates when one of its original stockholders dies

C

A petty cash fund of $100 is replenished when the fund contains $4 in cash and receipts for $93. The entry to replenish the fund would a. credit Cash Over and Short for $3. b. credit Miscellaneous Revenue for $3. c. debit Cash Over and Short for $3. d. debit Miscellaneous Expense for $3.

C

A sales invoice is a source document that a. provides support for goods purchased for resale. b. provides evidence of incurred operating expenses. c. provides evidence of credit sales. d. serves only as a customer receipt.

C

Accountants refer to an economic event as a a. purchase. b. sale. c. transaction. d. change in ownership.

C

Adjustments for prepaid expenses: • (a) decrease assets and increase revenues. • (b) decrease expenses and increase assets. • (c) decrease assets and increase expenses. • (d) decrease revenues and increase assets

C

All of the financial statements are for a period of time except the a. income statement. b. retained earnings statement. c. balance sheet. d. statement of cash flows.

C

All of the following are stockholders' equity accounts except a. Dividends. b. Common Stock. c. Investment in Stock. d. Retained Earnings.

C

Closing entries a. are prepared before the financial statements. b. reduce the number of permanent accounts. c. cause the revenue and expense accounts to have zero balances. d. summarize the activity in every account.

C

Closing entries are made a. in order to terminate the business as an operating entity. b. so that all assets, liabilities, and stockholders' equity accounts will have zero balances when the next accounting period starts. c. in order to transfer net income (or loss) and dividends to the retained earnings account. d. so that financial statements can be prepared.

C

In the first month of operations, the total of the debit entries to the cash account amounted to $1,200 and the total of the credit entries to the cash account amounted to $800. The cash account has a(n) a. $800 credit balance. b. $1,200 debit balance. c. $400 debit balance. d. $400 credit balance.

C

Intangible assets are a. listed under current assets on the balance sheet. b. not listed on the balance sheet because they do not have physical substance. c. long-lived assets that are often very valuable. d. listed as a long-term investment on the balance sheet.

C

Internal controls are concerned with a. only manual systems of accounting. b. the extent of government regulations. c. safeguarding assets. d. preparing income tax returns

C

On a classified balance sheet, current assets are customarily listed a. in alphabetical order. b. with the largest dollar amounts first. c. in the order of liquidity. d. in the order of acquisition.

C

Owners enjoy limited liability in a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship.

C

Rivera Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows. (a) Depreciation Expense 1,000 Accumulated Depreciation—Rivera Company 1,000 (b) Depreciation Expense 1,000 Equipment 1,000 (c) Depreciation Expense 1,000 Accumulated Depreciation—Equipment 1,000 (d) Equipment Expense 1,000 Accumulated Depreciation—Equipment 1,000

C

Storing cash in a company safe is an application of which internal control principle? a. Segregation of duties b. Documentation procedures c. Physical controls d. Establishment of responsibility

C

The accounting process is correctly sequenced as a. identification, communication, recording. b. recording, communication, identification. c. identification, recording, communication. d. communication, recording, identification

C

The best interpretation of the word credit is the a. offset side of an account. b. increase side of an account. c. right side of an account. d. decrease side of an account

C

The historical cost principle requires that when assets are acquired, they be recorded at a. appraisal value. b. cost. c. market price. d. book value.

C

The primary source of revenue for a wholesaler is a. investment income. b. service fees. c. the sale of merchandise. d. the sale of fixed assets the company owns.

C

Using pre-numbered checks and having an approved invoice for each check is an example of a. establishment of responsibility. b. segregation of duties. c. documentation procedures. d. independent internal verification

C

A decrease in Accounts Receivable

Credit

A decrease in Supplies

Credit

An increase in Common Stock

Credit

An increase in Service Revenue

Credit

. Which of the following statements about the accrual basis of accounting is false? • (a) Events that change a company's financial statements are recorded in the periods in which the events occur. • (b) Revenue is recognized in the period in which services are performed. • (c) This basis is in accordance with generally accepted accounting principles. • (d) Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.

D

Cash equivalents could include each of the following except a. bank certificates of deposit. b. money market funds. c. petty cash. d. U.S. Treasury bills.

D

Company X sells $900 of merchandise on account to Company Y with credit terms of 2/10, n/30. If Company Y remits a check taking advantage of the discount offered, what is the amount of Company Y's check? a. $630 b. $720 c. $810 d. $882

D

Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of a. inadequate internal control. b. duplication of effort. c. external verification. d. segregation of duties.

D

If a company determines cost of goods sold each time a sale occurs, it a. must have a computer accounting system. b. uses a combination of the perpetual and periodic inventory systems. c. uses a periodic inventory system. d. uses a perpetual inventory system.

D

In a perpetual inventory system, cost of goods sold is recorded a. on a daily basis. b. on a monthly basis. c. on an annual basis. d. with each sale.

D

In order to close the dividends account, the a. income summary account should be debited. b. income summary account should be credited. c. retained earnings account should be credited. d. retained earnings account should be debited

D

Jawbreaker Company paid $940 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $490 and a credit to Accounts Receivable, $490. The correcting entry is a. Accounts Payable 940 Cash 940 b. Accounts Receivable 490 Cash 490 c. Accounts Receivable 490 Accounts Payable 490 d. Accounts Receivable 490 Accounts Payable 940 Cash 1,430

D

Liabilities are generally classified on a balance sheet as a. small liabilities and large liabilities. b. present liabilities and future liabilities. c. tangible liabilities and intangible liabilities. d. current liabilities and long-term liabilities.

D

On March 8, Black Candy Company bought supplies on account from the Arcade Fire Company for $550. Black Candy Company incorrectly debited Equipment for $500 and credited Accounts Payable for $500. The entries have been posted to the ledger. the correcting entry should be: a. Supplies 550 Accounts Payable 550 b. Supplies 550 Accounts Payable 500 Equipment 50 c. Supplies 550 Equipment 550 d. Supplies 550 Equipment 500 Accounts Payable 50

D

The Sales Returns and Allowances account is classified as a(n) a. asset account. b. contra asset account. c. expense account. d. contra revenue account.

D

The economic entity assumption requires that the activities a. of different entities can be combined if all the entities are corporations. b. must be reported to the Securities and Exchange Commission. c. of a sole proprietorship cannot be distinguished from the personal economic events of its owners. d. of an entity be kept separate from the activities of its owner.

D

The ending retained earnings amount is shown on a. the balance sheet only. b. the retained earnings statement only. c. both the income statement and the retained earnings statement. d. both the balance sheet and the retained earnings statement.

D

The income summary account a. is a permanent account. b. appears on the balance sheet. c. appears on the income statement. d. is a temporary account.

D

The journal entry to record a credit sale of merchandise is a. Cash Sales Revenue b. Cash Service Revenue c. Accounts Receivable Service Revenue d. Accounts Receivable Sales Revenue

D

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit a. Accounts Payable. b. Purchase Returns and Allowances. c. Sales Revenue. d. Inventory.

D

The post-closing trial balance contains only a. income statement accounts. b. balance sheet accounts. c. balance sheet and income statement accounts. d. income statement, balance sheet, and retained earnings statement accounts

D

The right side of an account a. is the correct side. b. reflects all transactions for the accounting period. c. shows all the balances of the accounts in the system. d. is the credit side.

D

Which of the following correctly identifies normal balances of accounts? a. Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Debit Expenses Credit b. Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Credit Expenses Credit c. Assets Credit Liabilities Debit Stockholders' Equity Debit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Credit Expenses Debit

D

Which of the following expressions is incorrect? a. Gross profit - operating expenses = net income b. Sales revenue - cost of goods sold - operating expenses = net income c. Net income + operating expenses = gross profit d. Operating expenses - cost of goods sold = gross profit

D

A decrease in Accounts Payable

Debit

An increase in Dividends

Debit

An increase in Prepaid Insurance

Debit

An increase in Rent Expense

Debit

An increase in Salaries and Wages Expense

Debit

Accumulated Depreciation

Found Under Property, Plant, and Equipment

retained earnings

Found under Stockholders Equity

Inventory

Found under current assets

Prepaid Rent

Found under current assets

Salaries and Wages Payable

Found under current liabilities

Patents

Found under intangible assets

Land held for investment

Found under long-term investments

Dividends

Not found on balance sheet

Interest Expense

Not found on balance sheet

mortgage payable

found under long-term liabilities