Accounting Chapters 1 and 2

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

$1200

Marsha Bogswell is the sole stockholder of Bogswell Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services?

Business entity assumption.

A debit:

Is the left-hand side of a T-account.

The question of when revenue should be recognized on the income statement according to GAAP is addressed by the:

Revenue recognition principle.

A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error?

Supplies, overstated $130; Fees Earned, overstated $130

Jackson Services had the following accounts and balances at December 31: Using the information in the table, calculate the company's reported net income for the period.

$16,800

Charlie's Chocolates' had stock issuances of $50,000 and dividends of $20,000. The company has revenues of $83,000 and expenses of $64,000. Calculate its net income.

$19,000

Zapper has beginning equity of $257,000, net income of $51,000, dividends paid of $40,000 and stockholder investments of $6,000. Its ending equity is:

$274,000

Savvy Sightseeing had beginning equity of $72,000; revenues of $90,000, expenses of $65,000, and dividends to stockholders of $9,000; there were no stock issuances. Calculate the ending equity.

$88,000

A business uses a credit to record:

A decrease in an asset account.

A company's list of accounts and the identification numbers assigned to each account is called a:

Chart of accounts.

Edison Consulting received a $300 utilities bill and immediately paid it. Edison's general journal entry to record this transaction will include a:

Debit to utilities expense for $300.

A credit entry:

Decreases asset and expense accounts, and increases liability, common stock, and revenue accounts.

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Expense recognition (matching) principle.

The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the:

FASB

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

A business's source documents may include all of the following except:

Ledgers.

Unearned revenues are generally:

Liabilities created when a customer pays in advance for products or services before the revenue is earned.

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Measurement (cost) principle.

An example of a financing activity is:

Obtaining a long-term loan.

An example of an operating activity is:

Paying wages.

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

Identify the statement that is incorrect.

Risk is higher if a company has more assets.

A double-entry accounting system is an accounting system:

That records the effect of each transaction in at least two accounts with equal debits and credits.

An account balance is:

The difference between the total debits and total credits for an account including the beginning balance.

Identify the statement below that is incorrect.

The normal balance of an expense account is a credit.

A credit is used to record an increase in all of the following accounts except:

Wages expense

A company provided $12,000 of consulting services on account. The customer promises payment in 30 days. Identify the journal entry below that properly records this transaction.

accounts receivable 12,000 consulting services revenue 12,000

Sharp Services provided $800 of consulting work and $100 of design work to the same client. It billed the client for the total amount and is expecting to collect from the customer next month. Which of the following general journal entries did Sharp Services make to record the billing of the customer?

accounts receivable 900 consulting revenue 800 design revenue 100

Jay's Limo Services paid cash dividends of $100. Which of the following general journal entries will Jay's Limo Services make to record this transaction?

dividends 100 cash 100

Many accounting professionals work in one of the following three areas. Financial accounting Managerial accounting Tax accounting Identify the area of accounting that is most involved in each of the following responsibilities.

internal auditing= managerial external auditing= financial cost accounting= managerial budgeting= managerial enforcing tax laws= tax planning transactions to minimize taxes= tax preparing external financial statements= financial analyzing external financial reports= financial

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

Account.

Alicia Tax Services paid $500 to settle an account payable. Which of the following general journal entries will Alicia Tax Services make to record this transaction?

Debit accounts payable, $500; Credit cash, $500

A law firm billed a client $1,800 for work performed in the current month. Which of the following general journal entries will the firm make to record this transaction?

Debit accounts receivable, $1800; Credit legal fees revenue, $1800

Alejandro Consulting paid $2,500 cash for a 5-month insurance policy that begins on March 1. Given the choices below, determine the general journal entry that Alejandro Consulting will make to record the cash payment. Assume the company's policy is to initially record prepaid and unearned items in balance sheet accounts.

Prepaid Insurance 2,500 Cash 2,500

A business's source documents:

Provide objective evidence that a transaction has taken place.

An example of an investing activity is:

Purchase of land.

External users of accounting information include all of the following except:

Purchasing Managers

While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the Equipment account. The effect of this error will be that:

The trial balance will not balance.

Cloud Solutions had the following accounts and balances as of December 31: Using the information in the table, calculate the total assets reported on the balance sheet for the period.

$24,900

A company reported total equity of $145,000 at the beginning of the year. The company reported $210,000 in revenues and $165,000 in expenses for the year. Liabilities at the end of the year totaled $92,000. What are the total assets of the company at the end of the year?

$282,000

A company's balance sheet shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?

$32,000

On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What amount of the insurance expense will be reported on the annual income statement for the first year ended December 31?

$337.50

Zippy had cash inflows from operations of $60,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:

$38,500 increase

Rico's Taqueria had cash inflows from operating activities of $27,000; cash outflows from investing activities of $22,000, and cash outflows from financing activities of $12,000. Calculate the net increase or decrease in cash.

$7000 decrease

Match each of the descriptions with the term or phrase it best reflects.

1. An assessment of whether financial statements follow GAAP. = audit 2. Amount a business earns in excess of all expenses and costs associated with its sales and revenues. = net income 3. A group that sets accounting principles in the United States. = FASB 4. Accounting professionals who provide services to many clients. = public accountants 5.Principles that determine whether an action is right or wrong. = ethics

A company's ledger is:

A record containing all accounts and their balances used by the company.

The accounting process begins with:

Analysis of business transactions and source documents.

Langley has a debt ratio of 0.3 and its competitor, Appleton, has a debt ratio equal to 0.7. Determine the statement below that is correct.

Appleton's financial leverage is greater than Langley's financial leverage.

GreenLawn Co. provides landscaping services to clients. On May 1, a customer paid GreenLawn $60,000 for 6-months services in advance. GreenLawn's general journal entry to record this transaction will include a:

Credit to Unearned Revenue for $60,000.

A law firm collected $1,800 on account for work performed in the previous month. Which of the following general journal entries will the firm make to record this collection of cash?

Debit cash, $1800; Credit accounts receivable, $1800

Jose Consulting paid $500 cash for utilities for the current month. Determine the general journal entry that Jose Consulting will make to record this transaction.

Utilities Expense 500 Cash 500