Accounting Exam 1 MC Questions

Which account is least likely to be debited when revenue is recorded? a. Accounts payable b. Accounts receivable c. Cash d. Unearned revenue

a. Accounts payable

Which of the following statements describe transactions that would be recorded in the accounting system? a. An exchange of an asset for a promise to pay b. An exchange of a promise for another promise c. Both of the above d. None of the above

a. An exchange of an asset for a promise to pay

Which account is least likely to appear in an adjusting journal entry? a. Cash b. Interest Receivable c. Income Tax Expense d. Salaries and Wages Expense

a. Cash

Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is not yet recorded at the end of the year, what will the adjusting journal entry include? a. Debit to Advertising Expense of $10,000 b. Credit to Advertising Expense of $10,000 c. Debit to Accrued Liabilities of $10,000 d. Need more information to determine

a. Debit to Advertising Expense of $10,000

Company A has owned a building for several years. Which of the following statements regarding depreciation is false from an accounting perspective? a. Depreciation Expense for the year will equal Accumulated Depreciation b. Depreciation is an estimated expense to be recorded each period during the building's life c. As depreciation is recorded, stockholders' equity is reduced d. As depreciation is recorded, total assets are reduced

a. Depreciation Expense for the year will equal Accumulated Depreciation

If a company incorrectly records a payment as an asset, rather than as an expense, how will this error affect net income in the current period? a. Net income will be too high b. Net income will be too low c. Net income will not be affected by this error d. It's a mystery, no one really knows

a. Net income will be too high

Which of the following is not one of the items required to be shown in the heading of a financial statement? a. The financial statement preparer's name b. The title of the financial statement c. The financial reporting date or period d. The name of the business entity

a. The financial statement preparer's name

Which of the following is true regarding the income statement? a. The income statement is sometimes called the statement of operations b. The income statement reports revenues, expenses, and liabilities c. The income statement only reports revenue for which cash was received at the point of sale d. The income statement reports the financial position of a business at a particular point in time

a. The income statement is sometimes called the statement of operations

The duality of effects can best be described as follows: a. When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result b. When an exchange takes place between two parties, both parties must record the transaction c. When a transaction is recorded, both the balance sheet and the income statement must be impacted d. When a transaction is recorded, one account will always increase and one account will always decrease

a. When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result

Which of the following accounts would not appear in a closing journal entry? a. Interest revenue b. Accumulated Depreciation c. Retained earnings d. Salaries and wages expense

b. Accumulated Depreciation

Which of the following would not be a goal of external users reading a company's financial statements? a. Understanding the current financial state of the company b. Assessing the company's contribution to social and environmental policies c. Predicting the company's future financial performance d. Evaluating the company's ability to generate cash from sales

b. Assessing the company's contributing to social and environmental policies

If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to report too small a value for which of the following on its balance sheet? a. Asset b. Liabilities c. Retained earnings d. Common stock

b. Liabilities

Which of the following items is not a specific account in a company's accounting records? a. Accounts Receivable b. Net income c. Sales revenue d. Unearned revenue

b. Net income

Which of the following accounts normally has a debit balance? a. Unearned Revenue b. Rent expense c. Retained earnings d. Sales Revenue

b. Rent expense

Which of the following is not one of the four basic financial statements? a. Balance sheet b. The audit report c. The income statement d. The statement of cash flows

b. The audit report

When should companies that sell gift cards to customers report revenue? a. When the gift card is issued and cash is received b. When the gift card is used by the customer c. At the end of the year in which the gift card is issued d. None of the above

b. When the gift card is used by the customer

Which of the following is the entry to be recorded by a law firm when it receives a payment from a new client that will be earned when services are provided in the future? a. Debit Accounts Receivable; credit Service Revenue b. Debit Unearned Revenue; credit Service Revenue c. Debit Cash; credit Unearned Revenue d. Debit Unearned Revenue; credit Cash

c. Debit Cash; credit Unearned Revenue

Assume the balance in Prepaid Insurance is $2,500 but it should be $1,500. The adjusting journal entry should include which of the following? a. Debit to Prepaid Insurance for $1,000 b. Credit to Insurance Expense for $1,000 c. Debit to Insurance Expense for $1,000 d. Debit to Insurance Expense for $1,500

c. Debit to Insurance Expense for $1,000

Which of the following regarding GAAP is true? a. GAAP is an abbreviation for generally applied accounting principles b. Changes in GAAP always affect the amount of income reported by a company c. GAAP is the abbreviation for generally accepted accounting principles d. Changes to GAAP must be approved by the Senate Finance Committee

c. GAAP is the abbreviation for generally accepted accounting principles

Which of the following describes how assets are listed on the balance sheet? a. In alphabetical order b. In order of magnitude, lowest value to highest value c. In the order they will be used up or turned into cash d. From least current to most current

c. In the order they will be used up or turned into cash

Which of the following trial balances is used as a source for preparing the income statement? a. Unadjusted trial balance b. Pre-adjusted trial balance c. Adjusted trial balance d. Post-closing trial balance

c. Pre-adjusted trial balance

Which of the following regarding retained earnings is false? a. Retained earnings is increased by net income b. Retained earnings is a component of stockholders' equity on the balance sheet c. Retained earnings is an asset on the balance sheet d. Retained earnings represents earnings not distributed to stockholders in the form of dividends

c. Retained earnings is an asset on the balance sheet

When expenses exceed revenues in a given period, a. Stockholders' equity will not be impacted b. Stockholders' equity will be increased c. Stockholders' equity will be decreased d. One cannot determine the impact on stockholders' equity without information about the specific revenues and expenses

c. Stockholders' equity will be decreased

Which of the following is false regarding the balance sheet? a. The accounts shown on a balance sheet represent the basic accounting equation for a particular business b. The retained earnings balance shown on the balance sheet must agree with the ending retained earnings balance shown on the statement of retained earnings c. The balance sheet summarizes the net changes in specific account balances over a period of time d. The balance sheet reports the amount of assets, liabilities, and stockholders' equity of a business at a point in time

c. The balance sheet summarizes the net changes in specific account balances over a period of time

Which of the following statements regarding the statement of cash flows is false? a. The statement of cash flows separates cash inflows and outflows into three major categories: operating, investing, and financing b. The ending cash balance shown on the statement of cash flows must agree with the amount shown on the balance sheet at the end of the same period c. The total increase or decrease in cash shown on the statement of cash flows must agree with the "bottom line" (net income or net loss) reported on the income statement d. The statement of cash flows covers a period of time

c. The total increase or decrease in cash shown on the statement of cash flows must agree with the "bottom line" (net income or net loss) reported on the income statement

On December 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How many accounts will be included in this adjusting journal entry? a. None b. One c. Two d. Three

c. Two

When should a company report the cost of an insurance policy as an expense? a. When the company first signs the policy b. When the company pays for the policy c. When the company receives the benefits from the policy over its period of coverage d. When the company receives payments from the insurance company for its insurance claims

c. When the company receives benefits from the policy over its period of coverage

Which of the following statements would be considered true regarding debits and credits? a. In any given transaction, the total dollar amount of the debits and the total dollar amount of the credits must be equal b. Debits decrease certain accounts and credits decrease certain accounts c. Liabilities and stockholders' equity accounts usually end in credit balances, while assets usually end in debit balances d. All of the above

d. All of the above

Which of the following statements would be considered true regarding the balance sheet? a. One cannot determine the true current value of a company by reviewing just its balance sheet b. The balance sheet reports assets only if they have been acquired through identifiable transactions c. A balance sheet shows only the ending balances, in a summarized format, of balance sheet accounts in the accounting system as of a particular date d. All of the above

d. All of the above

The T-account is used to summarize which of the following? a. Increases and decreases to a single account in the accounting system b. Debits and credits to a single account in the accounting system c. Changes in specific account balances over a time period d. All of the above describe how T-accounts are used by accountants

d. All of the above describe how T-accounts are used by accountants

An adjusting journal entry to recognize accrued salaries payable would cause which of the following? a. A decrease in assets and stockholders' equity b. A decrease in assets and liabilities c. An increase in expenses, liabilities, and stockholders' equity d. An increase in expenses and liabilities and a decrease in stockholders' equity

d. An increase in expenses and liabilities and a decrease in stockholder's equity

Which of the following is not an asset account? a. Cash b. Land c. Equipment d. Common Stock

d. Common stock

Which of the following is true? a. FASB creates SEC b. GAAP creates FASB c. SEC creates CPA d. FASB creates GAAP

d. FASB creates GAAP

An adjusted trial balance a. Shows the ending balances in a debit and credit format before posting the adjusting journal entries b. Is prepared after closing entries have been posted c. Is a tool used by financial analysts to review the performance of publicly traded companies d. Shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format

d. Shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format

Total assets on a balance sheet prepared on any date must agree with which of the following? a. The sum of total liabilities and net income as shown on the income statement b. The sum of total liabilities and common stock c. The sum of total liabilities and retained earnings d. The sum of total liabilities and common stock and retained earnings

d. The sum of total liabilities and common stock and retained earnings

Which of the following is not required by the Sarbanes-Oxley Act? a. Top managers of public companies must sign a report certifying their responsibilities for the financial statements b. Public companies must maintain an audited system of internal control to ensure accuracy in accounting reports c. Public companies must maintain an independent committee to meet with the company's independent auditors d. Top managers of public companies must be members of the American Institute of Certified Public Accountants

d. Top managers of public companies must be members of the American Institute of Certified Public Accountants

When a concert promotions company collects cash for ticket sales two months in advance of the show date, which of the following accounts is recorded? a. Accrued Liability b. Accounts Receivable c. Prepaid Expense d. Unearned Revenue

d. Unearned Revenue

The expense recognition principle ("matching") controls... a. Where on the income statement expenses should be presented b. When revenues are recognized on the income statement c. The ordering of current assets and current liabilities on the balance sheet d. When costs are recognized as expenses on the income statement

d. When costs are recognized as expenses on the income statement

A company was recently formed with $50,000 cash contributed to the company by stockholders for common stock. The company then borrowed $20,000 from a bank and bought $10,000 of supplies on account. The company also purchased $50,000 of equipment by paying $20,000 in cash and issuing a note for the remainder. What is the amount of total assets to be reported on the balance sheet? a. $110,000 b. $100,000 c. $90,000 d. None of the above

a. $110,000