ACC 210 Practice Exam 1

WP Company had the following transactions during 2020: Sales of $15,000 on account Collected $5,000 for services to be performed in 2021 Paid $2,500 cash in salaries for 2020 Purchased airline tickets for $1,000 in December for a trip to take place in 2021 What is WP's 2020 net income using cash basis accounting? a. $1,500 b. $2,500 c. $<3,500> net loss d. $<2,500> net loss

a. $1,500

Brokaw Industries signs a $40,000, 6%, 6-month note payable on September 1, 2020. How much interest expense will Brokaw report in its 2021 financial statements? a. $400 b. $1,600 c. $800 d. $-0-

a. $400

If total liabilities decreased by $4,000, then a. Assets must have decreased by $4,000, or stockholders' equity must have increased by $4,000. b. Assets and stockholders' equity each increased by $2,000. c. Stockholders' equity must have decreased by $4,000. d. Assets must have increased by $4,000.

a. Assets must have decreased by $4,000, or stockholders' equity must have increased by $4,000

Closing entries: a. Cause the revenue and expense accounts to have zero balances. b. Summarize the activity in every account. c. Are prepared before the financial statements. d. Reduce the number of permanent accounts.

a. Cause the revenue and expense accounts to have zero balances.

On July 1 the Fisher Shoe Store paid $24,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is: a. Debit Rent Expense, $4,000; credit Prepaid Rent, $4,000 b. Debit Prepaid Rent, $4,000; credit Rent Expense, $4,000 c. Debit Rent Expense, $24,000; credit Prepaid Rent, $24,000 d. Debit Rent Expense, $20,000; credit Prepaid Rent, $20,000

a. Debit Rent Expense, $4,000; credit Prepaid Rent, $4,000

Greese Company purchased office supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: a. Debit Supplies Expense, $4,500; credit Supplies, $4,500. b. Debit Supplies Expense, $2,500; credit Supplies, $2,500 c. Debit Supplies, $2,500; credit Supplies Expense, $2,500. d. Debit Supplies, $4,500; credit Supplies Expense, $4,500

a. Debit Supplies Expense, $4,500; credit Supplies, $4,500.

A corporation has which of the following set of characteristics? a. Easier to transfer ownership and raise funds, no personal liability b. Harder to raise funds and gives owner control c. Simple to set up and maintains control with founder d. Shared control, tax advantages, increased skills and resources

a. Easier to transfer ownership and raise funds, no personal liability

Which of the following is not an advantage of the corporate form of business organization? a. Favorable tax treatment b. Easy to transfer ownership c. Easy to raise funds d. No personal liability

a. Favorable tax treatment

A chart of accounts for a business firm a. Lists the accounts in the general ledger b. Shows the balance of each account in the general ledger c. Indicates the amount of profit or loss for the period. d. Is a graph

a. Lists the accounts in the general ledger

Clemson Company purchased equipment for $2,400 cash. As a result of this event, a. Total assets remained unchanged. b. Both assets and stockholders' equity decreased by $2,400. c. Total assets increased by $2,400. d. Stockholders' equity decreased by $2,400.

a. Total assets remained unchanged

The Harris Company purchased equipment for $15,000 on December 1. It is estimated that annual depreciation on the computer will be $3,000. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: a. Debit Depreciation Expense, $3,000; credit Accumulated Depreciation, $3,000 b. Debit Depreciation Expense, $250; credit Accumulated Depreciation, $250. c. Debit Equipment, $15,000; credit Accumulated Depreciation, $15,000 d. Debit Depreciation Expense, $12,000; credit Accumulated Depreciation, $12,000

b. Debit Depreciation Expense, $250; credit Accumulated Depreciation, $250

On October 1, 2020, Freeze Company hires a new employee who will start to work on October 6. The employee will be paid on the last day of each month. Should a journal entry be made on October 1? Why or why not? a. No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known b. No, hiring an employee is an important event; however it is not an economic event that should be recorded. c. Yes, failure to record the event would cause the financial statements to be misleading d. Yes, the company is now obligated to pay the employee, thus that event must be recorded.

b. No, hiring an employee is an important event; however it is not an economic event that should be recorded.

WP Company had the following transactions during 2020: Sales of $15,000 on account Collected $5,000 for services to be performed in 2021 Paid $2,500 cash in salaries for 2020 Purchased airline tickets for $1,000 in December for a trip to take place in 2021 What is WP's 2020 net income using accrual accounting? a. $11,500 b. $7,500 c. $12,500 d. $6,500

c. $12,500

Lankston Company began the year by issuing $120,000 of common stock for cash. The company recorded revenues of $1,160,000, expenses of $960,000, and paid dividends of $60,000. What was Lankston's net income for the year? a. $120,000 b. $260,000 c. $200,000 d. $140,000

c. $200,000

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner? a. Service Revenue and Equipment b. Utilities Expense and Notes Payable c. Dividends and Rent Expense d. Prepaid Insurance and Interest Payable

c. Dividends and Rent Expense

James & Younger Corporation purchased a one-year insurance policy on March 1, 2020 for $42,000 and recorded it as a Prepaid Insurance. The insurance policy is in effect from March 2020 through February 2021. If the company neglects to make the proper year-end adjusting entry on December 31, 2020: a. Net income and assets will be understated by $7,000 b. Net income and assets will be understated by $35,000 c. Net income and assets will be overstated by $35,000 d. Net income and assets will be overstated by $7,000

c. Net income and assets will be overstated by $35,000

If a company pays dividends of $10,000, a. Stockholders' equity will be reduced by $10,000. b. Net income will be reduced by $10,000. c. Retained earnings will be reduced by $10,000. d. Both retained earnings and stockholders' equity will be reduced by $10,000.

d. Both retained earnings and stockholders' equity will be reduced by $10,000.

Issuing shares of stock in exchange for cash is an example of a(n) a. Inactivity b. Investing activity c. Operating activity d. Financing activity

d. Financing activity

Howard Company had a transaction that caused a $5,000 increase in both assets and total liabilities. This transaction could have been a(n) a. Investment of $5,000 cash in the business by the stockholders. b. Purchase of office equipment for $5,000 cash. c. Repayment of a $5,000 bank loan. d. Purchase of office equipment for $12,000, paying $7,000 cash and issuing a note payable for the balance.

d. Purchase of office equipment for $12,000, paying $7,000 cash and issuing a note payable for the balance.

Adjusting entries are: a. Made whenever management desires to change an account balance. b. Not necessary if the accounting system is operating properly. c. Made to balance sheet accounts only. d. Typically required before financial statements are prepared.

d. Typically required before financial statements are prepared

Consider the following eight accounts: Accounts Payable - Insurance Expense - Prepaid Rent - Common Stock - Salaries Payable - Dividends - Supplies - Deferred Revenue. How many of these accounts have a normal credit balance? a. Two b. Three c. Five d. Six e. Four

e. Four

Consider the following transactions: Issued common stock for cash. Purchased equipment by signing a note payable. Paid rent for the current month. Collected cash from customers on account. Paid the balance due on an accounts payable. How many of these five transactions increased the given company's total assets? a. Four b. Three c. One d. Five e. Two

e. Two