ACCT 2403 exam one uark
The following pre-closing accounts and balances were drawn from the records of Carolina Company on December 31, Year 1: Cash $ 4,000 Accounts receivable $ 3,400 Dividends 2,000 Common stock 3,900 Land 3,200 Revenue 3,200 Accounts payable 1,800 Expense 2,200 What is net income that will be shown on Carolina's Year 1 income statement?
$1,000 - (Net income = $3,200 revenue − $2,200 expenses = $1,000)
Nelson Company experienced the following transactions during Year 1, its first year in operation. Issued $12,000 of common stock to stockholders. Provided $4,600 of services on account. Paid $3,200 cash for operating expenses. Collected $3,800 of cash from accounts receivable. Paid a $200 cash dividend to stockholders. What is the amount of retained earnings that will be shown on the company's balance sheet prepared as of December 31, Year 1?
$1,200- (Ending retained earnings = $0 Beginning retained earnings + $1,400 Net income − $200 Dividends = $1,200)
Nelson Company experienced the following transactions during Year 1, its first year in operation. Issued $12,000 of common stock to stockholders Provided $4,600 of services on account Paid $3,200 cash for operating expenses Collected $3,800 of cash from accounts receivable Paid a $200 cash dividend to stockholders What is the net income that will be reported for Year 1?
$1,400 - (Net income = $4,600 revenue − $3,200 expenses = $1,400 Revenue is recognized when it is earned, regardless of when cash changes hands. Issuing common stock and paying dividends do not affect net income.)
At March 31, Cummins Company had a balance in its cash account of $10,400. At the end of March, the company determined that it had outstanding checks of $900, deposits in transit of $600, a bank service charge of $20, and an NSF check from a customer for $200. The true cash balance at March 31 is:
$10,180 - ($10,400 unadjusted book balance − $20 service charge − $200 NSF check = $10,180 true cash balance)
Owen Company's unadjusted book balance at June 30 is $9,700. The company's bank statement reveals bank service charges of $45. Two credit memos are included in the bank statement: one for $900, which represents a collection that the bank made for Owen, and one for $50, which represents the amount of interest that Owen had earned on its interest-bearing account in June. Based on this information, Owen's true cash balance is:
$10,605. - ($9,700 unadjusted book balance − $45 service charge + $900 collection + $50 interest = $10,605 true cash balance)
Lexington Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.) Acquired $6,000 cash from issuing common stock. Borrowed $4,400 from a bank. Earned $6,200 of revenues. Incurred $4,800 in expenses. Paid dividends of $800. Lexington Company engaged in the following transactions during Year 2: Acquired an additional $1,000 cash from the issue of common stock. Repaid $2,600 of its debt to the bank. Earned revenues, $9,000. Incurred expenses of $5,500. Paid dividends of $1,280. The amount of total assets on Lexington's balance sheet at the end of Year 1 was:
$11,000- ($0 beginning balance + $6,000 (cash) + $4,400 (cash) + $6,200 (cash) − $4,800 (cash) − $800 (cash) = $11,000)
The balance sheet of the Algonquin Company reported assets of $50,000, liabilities of $22,000 and common stock of $15,000. Based on this information only, what is the amount of retained earnings?
$13,000.- (Assets = Liabilities + Stockholders' Equity; Stockholders' equity includes common stock and retained earnings. $50,000 = $22,000 + $15,000 + Retained earnings; Retained earnings = $13,000)
The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500. Based on this information, the amount of expenses on Calloway's income statement was:
$16,500. - (Beginning retained earnings + Revenue − Expenses − Dividends = Ending retained earnings$3,500 + $22,000 − Expenses − $1,500 = $7,500Expenses = $16,500)
ABC Company ended Year 1 with the following account balances: Cash $600, Common Stock $400, and Retained Earnings $200. The following transactions occurred during Year 2: Issued common stock for $19,000 cash. ABC borrowed an additional $11,000 from Chris Bank. ABC earned $9,000 of revenue on account. ABC incurred $4,000 of operating expenses on account. Cash collections of accounts receivables were $6,000. ABC provided additional services to customers for $1,000 cash. ABC purchased land for $14,000. ABC used $3,000 in cash to make a partial payment on its accounts payable. ABC declared and paid a $200 dividend to the stockholders On December 31 ABC had accrued salaries of $4,000. What is the amount of net income (loss) reported on the December 31, Year 2 income statement?
$2,000 - (Revenue is recognized when it is earned and expenses when they are incurred, regardless of when cash changes hands. The issuance of common stock, the borrowing, the purchase of land and the payment of dividends do not affect net income. Revenue = $9,000 earned revenue on account + $1,000 provided services for cash = $10,000 Expenses = $4,000 operating expenses + $4,000 accrued salaries = $8,000 Net income = Revenue of $10,000 − Expenses of $8,000 = $2,000)
Packard Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.) 1) Acquired $950 cash from the issue of common stock.2) Borrowed $420 from a bank.3) Earned $650 of revenues cash.4) Paid expenses of $250.5) Paid a $50 dividend. During Year 2, Packard engaged in the following transactions. (Assume all transactions are cash transactions.) 1) Issued an additional $325 of common stock.2) Repaid $220 of its debt to the bank.3) Earned revenues of $750 cash.4) Paid expenses of $360.5) Paid dividends of $100.What is the amount of total assets that will be reported on Packard's balance sheet at the end of Year 2?
$2,115 - (Year 1: Ending total assets = Beginning total assets of $0 + Cash from issuance of common stock of $950 + Cash from borrowing of $420 + Cash from revenues of $650 − Cash to pay expenses of $250 − Cash used to pay dividends of $50 = $1,720Year 2: Ending total assets = Beginning total assets of $1,720 (from above) + Cash from issuance of common stock of $325 − Cash used to repay debt of $220 + Cash from revenues of $750 − Cash to pay expenses of $360 − Cash used to pay dividends of $100 = $2,115)
Item13 0/0points awarded ItemScored eBookPrintReferences Explanationsame page Item 13 Prior to closing the accounts, Syracuse Company's accounting records showed the following balances: Retained earnings $ 16,800 Service revenue 21,750 Interest revenue 1,800 Salaries expense 12,300 Operating expense 3,450 Interest expense 900 Dividends 2,700 After closing the accounts, Syracuse's retained earnings balance would be
$21,000. - ($16,800 + $21,750 + $1,800 − $12,300 − $3,450 − $900 − $2,700 = $21,000)
If Ballard Company reported assets of $500 and liabilities of $200, Ballard's stockholders' equity equals:
$300. - (In the accounting equation, assets equal claims (liabilities + stockholders' equity). If assets are $500, total claims must also be $500. Therefore, stockholders' equity must be ($500 − $200), or $300.)
Lexington Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.) Acquired $6,000 cash from issuing common stock. Borrowed $4,400 from a bank. Earned $6,200 of revenues. Incurred $4,800 in expenses. Paid dividends of $800. Lexington Company engaged in the following transactions during Year 2: Acquired an additional $1,000 cash from the issue of common stock. Repaid $2,600 of its debt to the bank. Earned revenues, $9,000. Incurred expenses of $5,500. Paid dividends of $1,280. Total liabilities on Lexington's balance sheet at the end of Year 1 equal:
$4,400 - (Borrowed $4,400 from a bank.)
At the beginning of Year 2, Jones Company had a balance in common stock of $300,000 and a balance of retained earnings of $15,000. During Year 2, the following transactions occurred:· Issued common stock for $90,000· Earned net income of $50,000· Paid dividends of $8,000· Issued a note payable for $20,000Based on the information provided, what is the total stockholders' equity on December 31, Year 2?
$447,000- (The total stockholder's equity equals Ending Common Stock + Ending Retained Earnings. First, ending common stock is calculated as: Beginning common stock + Common stock issued or $300,000 + $90,000 = $390,000. Next, ending retained earnings is calculated as follows. Beginning retained earnings of $15,000 + Net income of $50,000 − Dividends of $8,000 = Ending retained earnings of $57,000. Finally, ending common stock of $390,000 + Ending retained earnings of $57,000 = Total stockholders' equity of $447,000. Paying back a portion of a note payable does not affect stockholders' equity and therefore it is not included in the calculation.)
At the time of liquidation, Fairchild Company reported assets of $200,000, liabilities of $120,000, common stock of $90,000 and retained earnings of ($10,000). What amount of Fairchild's assets are the shareholders entitled to receive?
$80,000- (Creditors receive first priority in asset distribution during a business liquidation. Therefore, creditors would collect the $120,000 owed to them, leaving the shareholders with the remaining $80,000.
Turner Company reported assets of $20,000 (including cash of $9,000), liabilities of $8,000, common stock of $7,000, and retained earnings of $5,000. Based on this information, what can be concluded?
25% of Turner's assets are from prior earnings, $5,000 is the maximum possible dividend, and 40% of assets are the result of borrowed resources. - (Retained earnings of $5,000 is equal to 25% of the company's assets, indicating that 25% of Turner's assets are from prior earnings. $8,000, or 40%, of Turner's assets are liabilities, indicating that those assets are the result of borrowed resources. A company can pay out no more in dividends than it has in its retained earnings account.)
The adjusting entry to recognize work completed on unearned revenue involves which of the following?
A decrease in liabilities and an increase in stockholders' equity - (Recognizing work completed on unearned revenue involves a decrease in liabilities (unearned revenue) and an increase in stockholders' equity (retained earnings as a result of revenue).)
Which of the following is not a procedure to maintain internal controls over cash payments?
A receipt should be provided to each cash customer. - (Providing receipts to each cash customer is a procedure to maintain internal controls over cash receipts, not cash payments.)
Which of the following statements concerning internal controls is true?
A system of internal controls is designed to prevent or detect errors and fraud. (A system of internal controls is designed to prevent or detect errors and fraud. However, no control system is foolproof. Internal controls can be circumvented by collusion among employees. Two or more employees working together can hide embezzlement by covering for each other. Similarly, internal controls can be compromised by management override. No system can prevent all fraud. However, a good system of internal controls minimizes illegal or unethical activities by reducing temptation and increasing the likelihood of early detection. When duties are separated, the work of one employee can act as a check on the work of another employee. Whenever possible, the functions of authorization, recording, and custody of assets should be performed by separate individuals.)
Recognition of revenue may be accompanied by which of the following?
An increase in an asset or a decrease in a liability - (Recognizing revenue may be accompanied by either an increase in assets (cash or accounts receivable) or a decrease in liabilities (unearned revenue).)
The recognition of an expense may be accompanied by which of the following?
An increase in liabilities - (Recognizing an expense may be accompanied by an increase in liabilities (i.e. accounts payable, salaries payable) or a decrease in assets (i.e. cash, prepaid rent or prepaid insurance).)
During Year 1 China Enterprises experienced the following events: (1) Earned $10,000 of revenue on account (2) Incurred $9,000 of expenses on account Based on this information, which of the following describes the combined effects of both events on the amounts of total assets, net income, and cash flows from operating activities shown on the Year 1 financial statements?
Assets = $10,000 NI = $1,000 CF from OA = $0 (Event (1) increases total assets (accounts receivable), revenues, and net income by $10,000. Event (2) increases total liabilities (accounts payable) and expenses by $9,000, which decreases net income by $9,000. The combined effect of the two events is an increase in total assets of $10,000, an increase in total liabilities of $9,000, and an increase in net income of $1,000 (or $10,000 − $9,000). The two events did not affect cash; as a result, there is no effect on net cash flows from operating activities.)
While performing the monthly bank reconciliation, the bookkeeper for Avon Company made the adjusting entry for a bank service charge of $20. Which of the following correctly shows the effect of the entry on the financial statements?
Assets = (20) Liabilities = n/a SE = (20) Revenue = n/a Expense = 20 NI = (20) Statement of CF = (20) OA (The entry to record the service charge will decrease cash and increase expenses, which decreases net income and stockholders' equity. It is reported as a cash outflow for operating activities on the statement of cash flows.)
On October 1, Year 1 Allen Company paid $24,000 cash to lease office space for one year beginning immediately. How would the adjustment on December 31, Year 1 to recognize rent expense affect the company's financial statements?
Assets = (6,000) Liabilities = n/a Equity = (6,000) Revenue = n/a Expense = 6,000 NI = (6,000) Statement of CF = n/a (At the end of Year 1, Allen Company is required to expense the amount of office space that has been used. Allen Company paid $24,000 on October 1, Year 1 to rent office space for one year. The portion of the lease cost that represents using office space from October 1 through December 31 is computed as follows: $24,000 Cost of annual lease / 12 months = $2,000 Cost per month $2,000 Cost per month × 3 months used = $6,000 Rent expense The expense recognition is an asset use transaction. On the balance sheet, assets (Prepaid Rent) and stockholders' equity (Retained Earnings) decrease. The expense recognition reduces the amount of net income shown on the income statement. The statement of cash flows is not affected.)
Wyatt Company was formed on January 1, Year 1, when it acquired $50,000 cash from issuing common stock. Which of the following shows the impact of this transaction on Wyatt's accounting equation?
Assets = + Liabilities = n/a SE = + (Acquiring cash from issuing common stock will increase assets (Cash) and increase stockholders' equity (Common Stock). There is no impact on liabilities.)
Wing Company provided services for $30,000 cash. Which of the following shows the impact of this transaction on Wing's accounting equation?
Assets = + Liabilities = n/a SE = + (Providing services for cash is considered revenue. The cash revenue increases assets (Cash) and stockholders' equity (Retained Earnings).
Which of the following illustrates how the recognition of revenue earned on account affects the financial statements?
Assets = + SE = + Liabilities = n/a Revenue = + Expenses = n/a NI = + Statement of CF = n/a (Earning revenue on account causes assets (Accounts Receivable) and stockholders' equity (Retained Earnings) to increase on the balance sheet. On the income statement, the increase in revenue increases net income. The cash will be collected in the future. Because cash was not collected or paid, the statement of cash flows is not affected for this event.)
Which of the following shows how paying cash to lease office space for one year affects the company's financial statements?
Assets = +/- Liabilities = n/a equity = n/a revenue = n/a Expense = n/a NI = n/a Statement of CF = -OA (Purchasing prepaid rent is an asset exchange transaction. The asset account Cash decreases and the asset account Prepaid Rent increases. Expense recognition is deferred until the office space is used. Because the cash outflow was incurred to operate the business, it is classified as an operating activity on the statement of cash flows.)
Wing Company paid $20,000 cash in salaries to its employees. Which of the following shows the impact of this transaction on Wing's accounting equation?
Assets = - Liabilities = n/a SE = - (An economic sacrifice a business incurs in the process of generating revenue is called an expense. The asset account Cash decreases and the stockholders' equity account retained earnings decreases.)
Which of the following shows the effects of paying a cash dividend on the balance sheet and income statement?
Assets = - Liabilities = n/a SE = - Revenue = n/a Expense = n/a NI = n/a (A cash dividend decreases the asset account Cash and decreases the stockholders' equity account Retained Earnings. Paying a dividend is not recognized as an expense. Therefore, it has no effect on the income statement.)
Which of the following shows how the year-end adjustment to recognize supplies expense will affect a company's financial statements?
Assets = - Liabilities = n/a equity = - Revenue = n/a Expense = + NI = - Statement of CF = n/a (Recognizing supplies expense is an asset use transaction. On the balance sheet, the asset account Supplies and the stockholders' equity account Retained Earnings decrease. The recognition of supplies expense would cause the amount of net income shown on the income statement to decrease. There is no effect on the statement of cash flows.)
Jantzen Company recorded employee salaries earned but not yet paid. Which of the following represents the effect of this transaction on the financial statements?
Assets = n/a Liabilities = + Equity = - Revenue = n/a Expense = + NI = - Statement of CF = n/a (Accruing salaries expense increases liabilities (salaries payable) and increases expenses, which decreases net income and stockholders' equity (retained earnings). It does not affect cash flows.)
Which of the following answer choices accurately reflects how the recording of accrued salary expense at the end of the year affects the financial statements of a business?
Assets = n/a Liabilities = + Equity = - Revenue = n/a Income Expense = + NI = - Statement of CF = n/a (Accruing salary expense increases liabilities (salaries payable) and increases expenses, which decreases net income and stockholders' equity (retained earnings). It does not affect cash flows.)
Which of the following describes the effects of a claims exchange transaction on a company's financial statements?
Assets = n/a liabilities = + equity = - revenue = n/a expense = + NI = - Statement of CF = n/a (A claims exchange transaction will result in either an increase in liabilities and a decrease in stockholders' equity or a decrease in liabilities and an increase in stockholders' equity. It may or may not affect the income statement, but it will never affect the statement of cash flows, as it does not affect any asset, including cash.)
Which of the following could describe the effects of an asset exchange transaction on the accounting equation?
Assets= +/- Liabilities = n/a SE = n/a (An asset exchange transaction is one that increases one asset account and decreases another, resulting in no net change in assets. There are no changes to the company's liabilities and stockholders' equity either.)
The balance of Accounts Receivable is shown on which of the following financial statements?
Balance sheet - (Accounts receivable is an asset account on the balance sheet.)
Mary Company collected cash from an account receivable. Which of the following financial statements are affected by this accounting event?
Balance sheet and the statement of cash flows- (Collecting an account receivable is an asset exchange event. The balance in the cash account will increase and the balance in the accounts receivable account will decrease. Both of these accounts are shown on the balance sheet. Since the revenue was recognized when it was earned, it will not be recognized again when the cash is collected. Therefore, the income statement is not affected. The cash inflow will be shown in the operating section of the statement of cash flows)
The transaction, "provided services for cash," affects which two accounts?
Cash and Revenue- (Providing services for cash increases a company's assets (cash) and stockholders' equity (revenue, which closes to retained earnings).
Which of the following items appears in the investing activities section of the statement of cash flows?
Cash outflow for the purchase of land.- (Purchasing land (a long-lived asset) for cash is an investing activity. Issuing common stock and paying dividends are both financing activities. Cash inflow from interest revenue is an operating activity.)
Which of the following is not an element of the financial statements?
Cash- (Cash is not an element of the financial statements. It is an account that is part of the element assets.)
Assets = +/- SE = n/a Liabilities = n/a Revenue = n/a Expenses = n/a NI = n/a Statement of CF = +OA Which of the following accounting events could have caused these effects on the company's financial statements?
Collected cash in partial settlement of its account receivable - (The collection of an account receivable is an event that affected the financial statements as indicated because it increased one asset account (Cash) and decreased another asset account (Account Receivable). The amount of total assets is not affected. The company does not recognize revenue when the cash is collected because the revenue was recognized when the service was provided. Therefore, there is no effect on the income statement. It is reported as a cash inflow from operating activities on the statement of cash flows.)
What documentation issued by a bank increases a company's checking account balance at the bank?
Credit memo - (The bank adds collections and interest directly to the depositor's account and notifies the depositor about the increases through credit memos that are included on the bank statement. Banks deduct fees and penalties directly from the depositor's account and advise the depositor of these deductions through debit memos that are included on the bank statement. Certified checks, therefore, have been deducted by the bank in determining the unadjusted bank balance, whether they have cleared the bank or remain outstanding as of the date of the bank statement. A balance sheet is a financial statement rather than documentation prepared by the bank about a company's checking account.)
Which resource providers lend financial resources to a business with the expectation of repayment with interest?
Creditors- (Businesses borrow money from creditors, and repay the amount borrowed, plus, when applicable, an additional fee known as interest. Investors, in contrast, provide financial resources in exchange for ownership interest in the business.)
Which of the following is not a typical form or document associated with a bank checking account?
Debit memo - (Typical forms or documents associated with a bank checking account include bank signature cards, deposit tickets, bank checks, and bank statements. A debit memo is not a separate document. It is a notation on a bank statement indicating that the bank took cash out of a company's checking account, often for bank service charges.)
Duluth Company collected a $6,000 cash advance from a customer on November 1, Year 1 for work to be performed over a six-month period beginning on that date. If the year-end adjustment is properly recorded, what will be the effect of the adjusting entry on Duluth's Year 1 financial statements?
Decrease liabilities and increase revenues - (The adjusting entry to recognize revenue earned on the contract will decrease liabilities (unearned revenue) and increase revenues.)
Which of the following financial statement elements is closed at the end of an accounting cycle?
Dividends - (Revenues, expenses, and dividends are closed to retained earnings at the end of an accounting cycle.)
Which of the following is not considered a common control activity?
Duplication of duties - (Duplication of duties is not an internal control. Requiring vacations, bonding employees, and using prenumbered documents help to safeguard assets and ensure reliable accounting records.)
In which section of a statement of cash flows would the payment of cash dividends be reported?
Financing activities - (Paying cash dividends, and any cash exchanged between a company and its stockholders, is a financing activity.)
Ellen Gatsby and her siblings, Ben and Sarah, started Gatsby Company when they each invested $100,000 in the company. After the investments there will be
Four reporting entities- (The four reporting entities are Ellen Gatsby, her siblings Ben and Sarah, and Gatsby Company.)
The matching concept most significantly influences which financial statement?
Income statement - (The matching concept is the process of matching expenses with the revenues that they produce. Revenues and expenses are reported on the income statement.)
Amber Company recognized accrued salary expense. Which of the following financial statements are affected by this accounting event?
Income statement and the balance sheet- (Recognizing accrued salary expense will cause an increase in a liability account (salaries payable) that appears on the balance sheet. The recognition will also cause an increase in the salaries expense account that appears on the income statement. Since cash was not collected or paid, the statement of cash flows is not affected.)
Yowell Company began operations on January 1, Year 1. During Year 1, the company engaged in the following cash transactions: 1) issued stock for $40,0002) borrowed $25,000 from its bank3) provided consulting services for $39,000 cash4) paid back $15,000 of the bank loan5) paid rent expense for $9,0006) purchased equipment for $12,000 cash7) paid $3,000 dividends to stockholders8) paid employees' salaries of $21,000What is Yowell's net cash flow from operating activities?
Inflow of $9,000 - (Net cash flow from operating activities = $39,000 inflow from consulting services − $9,000 outflow for rent expense − $21,000 outflow for salaries expense = $9,000 inflow)
Which of the following statements accurately describes a fidelity bond?
Insurance that the company buys to protect itself from loss due to employee dishonesty - (A fidelity bond provides insurance that protects a company from losses caused by employee dishonesty. Employees in a position of trust should be bonded.)
A review of the bank statement and accounting records of the Blake Company revealed the following items: 1)Three outstanding checks 2)A debit memo showing a bank service charge 3)A deposit in transit 4)An NSF check written by one of Blake's customers 5)A certified check written by Blake 6)A credit memo reflecting interest revenue earned by Blake Which of the item(s) would be subtracted from the company's unadjusted book balance to determine the true cash balance?
Item numbers 2 and 4 - (The NSF check and the debit memo both reduce Blake's cash balance, but have not yet been recorded, so they should be subtracted from the unadjusted book balance. The outstanding checks were recorded when they were written, so they would not be subtracted again from the unadjusted book balance. A certified check is deducted from the customer's account when the bank certifies that the check is good. Certified checks, therefore, have been deducted by the bank in determining the unadjusted bank balance, whether they have cleared the bank or remain outstanding as of the date of the bank statement. Since certified checks are deducted both from bank and depositor records immediately, they do not cause differences between the depositor and bank balances.)
If total assets decrease, then which of the following statements is true?
Liabilities, common stock, or retained earnings must decrease - (If total assets decrease, then assets were used. Since the accounting equation must balance (i.e. assets must equal claims), the decrease on the asset (left) side of the accounting equation must be offset by a decrease on the claims (right) side of the equation. Since liabilities, common stock, and retained earnings appear on the right side of the equation, a decrease in an asset account must be offset by a decrease in one of these right-side accounts.)
What is the primary goal of the accrual basis of accounting?
Match revenues and expenses in the proper period. - (A primary goal of accrual accounting is to appropriately match expenses with revenues in accordance with the matching concept.)
Which of the following transactions would be reported on the statement of changes in stockholders' equity?
Paid a $100 cash dividend to the stockholders - (Dividends are reported as a deduction from retained earnings on the statement of changes in stockholders' equity. The other transactions listed (borrowing cash from the bank, purchasing land for cash and paying off a portion of a note payable) do not affect stockholders' equity.)
Which of the following is not an asset use transaction?
Paying cash to purchase land- (Paying cash to purchase land is an asset exchange transaction.)
Which of the following is an asset use transaction?
Recorded insurance expense at the end of the period. - (Recording insurance expense at the end of the period is an asset use transaction that decreases assets (prepaid insurance) and decreases stockholders' equity (insurance expense decreases retained earnings). Purchasing a machine for cash and investing cash in an interest earning account are asset exchange transactions. Accruing salary expense is a claims exchange transaction.)
Which term describes assets generated through operations that have been reinvested into the business?
Retained earnings
Which of the following accounts would not appear on a balance sheet?
Service Revenue. - (Service revenue is an income statement account. Unearned revenue, despite having the word "revenue" in its title, is a liability account that appears on the balance sheet.)
Dividends are reported on which financial statement?
Statement of Changes in Stockholders' Equity - (Dividends are reported as a deduction from retained earnings on the statement of changes in stockholders' equity.)
Rushmore Company provided services for $45,000 cash during Year 1. Rushmore incurred $36,000 expenses on account during Year 1, and by the end of the year, $9,000 of that amount had been paid with cash. Assuming that these are the only accounting events that affected Rushmore during Year 1, which of the following statements is true?
The amount of net income shown on the income statement is $9,000. - (Net income = $45,000 revenue − $36,000 expenses = $9,000 Revenue is recognized when it is earned and expenses when they are incurred, regardless of when cash changes hands.)
Which of the following statements about the balance in a revenue account at the beginning of an accounting period is true?
The beginning balance of a revenue account will always be zero. - (The closing process at the end of an accounting period closes all temporary accounts, including revenue, to zero to start off the next accounting period.)
Which of the following statements about liabilities is true?
They represent obligations to repay debts. They may increase when assets increase. They are found on the claims side of the accounting equation.
Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden Wheels. Jack transferred $650,000 of the cash that he borrowed to the store on the first day of the year. How many reporting entities exist in this scenario?
Three reporting entities- (The three reporting entities are Jack Henry, Walt Bank, and Wooden Wheels. A separate set of accounting records would be kept for each entity.)
Which of the following is not an internal control procedure for the control of cash receipts?
Use of prenumbered checks - (Use of prenumbered checks is a control procedure for the control of cash disbursements, not cash receipts.)
Following the February bank reconciliation for Kincaid Company, the accountant made an entry that increased accounts receivable and decreased cash by $150. This entry may have been used to record:
an NSF check received by Kincaid from a customer. - (When a company discovers an NSF check, it reduces its cash account and increases accounts receivable while it attempts to collect on the check.)
Earning revenue on account would be classified as a/an?
asset source transaction. - (This transaction increases assets (accounts receivable) and increases stockholders' equity (revenue increases retained earnings), and is therefore classified as an asset source transaction.)
In a bank reconciliation, a customer's NSF check included with the bank statement is:
deducted from the company's cash balance to get the true cash balance. - (When a NSF check is returned, the amount of the check is deducted from the company's bank account balance. The company is advised of the NSF check through debit memos that appear on the bank statement. The depositor deducts the amounts of the NSF check from the unadjusted book balance in the process of determining the true cash balance.)
In a company's bank reconciliation, an outstanding check is a check that:
has been issued by the company but has not been presented to the bank for payment - (Outstanding checks are disbursements that have been properly recorded as cash deductions on the depositor's books. However, the bank has not deducted the amounts from the depositor's bank account because the checks have not yet been presented by the payee to the bank for payment; that is, the checks have not cleared the bank. Outstanding checks must be subtracted from the unadjusted bank balance to determine the true cash balance.)
Expenses are shown on the:
income statement - (Expenses and revenues are reported on the income statement. Only permanent accounts are shown on the balance sheet. Net income is shown on the statement of stockholders' equity, but expenses are not.)
The bank statement for Tetra Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300. The adjustment to record the customer's NSF check will:
increase the Accounts Receivable balance and decrease the Cash account balance. - (The adjusting entry to record the NSF check is an asset exchange transaction. One asset, cash, decreases and another asset, accounts receivable, increases.)
Yi Company provided services to a customer for $5,500 cash. As a result of this event:
total assets increased and net income increased. - (Providing services to a customer for cash increases assets and stockholders' equity on the balance sheet. It also increases revenue, and therefore, net income on the income statement, and increases cash from operating activities on the statement of cash flows.)
