ACCT 303_Chapter 6-8
In its first year of operations, Blossom Company recognized $31,700 in service revenue, $6,700 of which was on account and still outstanding at year-end. The remaining $25,000 was received in cash from customers. The company incurred operating expenses of $16,400. Of these expenses, $12,220 were paid in cash; $4,180 was still owed on account at year-end. In addition, Blossom prepaid $2,390 for insurance coverage that would not be used until the second year of operations. What is the net income using accrual basis?
$15300
In its first year of operations, Blossom Company recognized $31,700 in service revenue, $6,700 of which was on account and still outstanding at year-end. The remaining $25,000 was received in cash from customers. The company incurred operating expenses of $16,400. Of these expenses, $12,220 were paid in cash; $4,180 was still owed on account at year-end. In addition, Blossom prepaid $2,390 for insurance coverage that would not be used until the second year of operations. What is the net income using cash basis?
$10390
Adjusting entries are required A) because some costs expire with the passage of time and have not yet been journalized. B) when the company's profits are below the budget. C) when expenses are recorded in the period in which they are earned. D) none of these answer choices are correct.
A) because some costs expire with the passage of time and have not yet been journalized.
Current assets are listed A) by order of expected conversion to cash. B) by importance. C) by longevity. D) alphabetically.
A) by order of expected conversion to cash.
If service for $ 175 had been performed but not billed, the adjusting entry to record this would include a A) credit to Service Revenue for $ 175. B) debit to Service Revenue for $ 175. C) debit to Unearned Revenue for $ 175. D) credit to Unearned Service Revenue for $ 175.
A) credit to Service Revenue for $ 175.
On a classified balance sheet, short-term investments are classified as A) current assets. B) property, plant, and equipment. C) intangible assets. D) long-term investments.
A) current assets.
Issuing shares of stock in exchange for cash is an example of a(n) A) financing activity. B) investing activity. C) operating activity. D) delivering activity.
A) financing activity.
During 2022, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity therefore A) increased $40,000. B) decreased $140,000. C) decreased $40,000. D) increased $140,000.
A) increased $40,000.
A trial balance A) is a list of accounts with their balances at a given time. B) proves that proper account titles were used. C) will not balance if a correct journal entry is posted twice. D) proves that all transactions have been recorded.
A) is a list of accounts with their balances at a given time.
The element of a corporation's annual report that describes the corporation's accounting methods is/are the A) notes to the financial statements. B) management discussion and analysis. C) auditor's report. D) income statement.
A) notes to the financial statements.
Characteristics associated with relevant accounting information are A) predictive value and confirmatory value. B) consistency and understandability. C) neutral and verifiable. D) comparability and timeliness.
A) predictive value and confirmatory value.
For each situation, list the assumption, principle, or constraint that has been violated. Hilo Company is in its fifth year of operation and has yet to issue financial statements. (Do not use the full disclosure principle.) A) Periodicity assumption B) Going concern assumption C) Historical cost principle D) No violation
A) Periodicity assumption
Balance sheet accounts whose balances are carried forward to the next accounting period. A) Permanent accounts B) Temporary accounts C) Closing entries D) Post-closing trial balance
A) Permanent accounts
Which types of accounts will appear in the post-closing trial balance? A) Permanent accounts. B) Temporary accounts. C) Expense accounts. D) None of the above.
A) Permanent accounts.
The procedure of transferring journal entry amounts to the ledger accounts. A) Posting B) Journalizing C) Recording D) Closing
A) Posting
What measures the income or operating sucess of a company for a given period of time? A) Profitability B) Liquidity C) Ratio D) Solvency
A) Profitability
The group charged with determining auditing standards and reviewing the performance of auditing firms. A) Public Company Accounting Oversight Board (PCAOB) B) Accounting Standards Board (IASB) C) Generally accepted accounting principles (GAAP) D) Securities and Exchange Commission (SEC)
A) Public Company Accounting Oversight Board (PCAOB)
The quality of information that indicates the information makes a difference in a decision. A) Relevance B) Fair value principle C) Historical cost principle D) Earnings per share (EPS)
A) Relevance
Which account will have a zero balance after a company has journalized and posted closing entries? A) Service Revenue. B) Supplies. C) Prepaid Insurance. D) Accumulated Depreciation.
A) Service Revenue.
A decrease in a liability account is recorded by a debit. A) True B) False
A) True
An account is often referred to as a T-account because of the way it is constructed. A) True B) False
A) True
An increase in an asset is recorded by a debit. A) True B) False
A) True
Comparison of earnings per share (EPS) across companies are not meaningful. A) True B) False
A) True
Economic events that require recording in the financial statements are called accounting transactions. A) True B) False
A) True
The account balance is the difference in total dollars between total debit amounts and total credit amounts. A) True B) False
A) True
The accounting information needs and questions of external users vary considerably. A) True B) False
A) True
The current ratio is more dependable indicator of liquidity than working capital. A) True B) False
A) True
The higher the percentage of total liabilities (debt) to total asset, the greater the risk that the company may be unable to pay its debts as they come due. A) True B) False
A) True
The liability of corporate stockholders is limited to the amount of their investment. A) True B) False
A) True
The payment of a liability decreases both cash and accounts payable. A) True B) False
A) True
What is the difference between the amounts of current assets and current liabilities? A) Working capital B) Earnings per share C) Asset to debt ratio D) Current ratio
A) Working capital
A multiple-column form that companies may use in the adjustment process and in preparing financial statements. A) Worksheet B) Post-closing trial balance C) Closing entries D) Contra asset account
A) Worksheet
Generally accepted accounting principles are A) a set of standards and rules that are recognized as a general guide for financial reporting. B) usually established by the Internal Revenue Service. C) the guidelines used to resolve ethical dilemmas. D) fundamental truths that can be derived from the laws of nature.
A) a set of standards and rules that are recognized as a general guide for financial reporting.
The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) A) account payable. B) account receivable. C) revenue. D) expense.
A) account payable.
Information that is available to decision-makers before it loses its capacity to influence decisions. A) Comparability B) Timely C) Verifiability D) Understandability
B) Timely
The element of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the A) income statement. B) auditor's opinion. C) balance sheet. D) comparative statements.
B) auditor's opinion.
Genesis Company buys a $900 machine on credit. This transaction will affect the A) income statement only. B) balance sheet only. C) income statement and retained earnings statement only. D) income statement, retained earnings statement, and balance sheet.
B) balance sheet only.
Debt securities sold to investors that must be repaid at a particular date some years in the future are called A) accounts payable. B) bonds payable. C) taxes payable. D) notes receivable.
B) bonds payable.
An intangible asset A) is converted into a tangible asset during the operating cycle. B) derives its value from the rights and privileges it provides the owner. C) is worthless because it has no physical substance. D) cannot be classified on the balance sheet because it lacks physical substance.
B) derives its value from the rights and privileges it provides the owner.
Interest Payable A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
E) Current liabilities (CL)
Salaries and Wages Payable A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE)
E) Current liabilities (CL)
Unearned Service Revenue A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
E) Current liabilities (CL)
Tracing accounting events to particular companies.
Economic Entity Assumption
Mortgage Payable (Due in 3 Years) A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
F) Long-term liabilities (LTL)
The desire to minimize errors and bias in financial statements.
Faithful Representation
The reporting of all information that would make a difference to financial statement users.
Full Disclosure Principle
Retained Earnings A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
G) Stockholders' equity (SE)
Belief that a company will continue to operate for the foreseeable future
Going Concern Assumption
Depreciation Expense A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
H) NA
Service Revenue A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
H) NA
A belief that items should be reported on the balance sheet at the price that was paid to acquire the item.
Historical Cost Principle
The judgment concerning whether an item is large enough to matter to decision-makers.
Materiality
Reporting only those things that can be measured in dollars.
Monetary Unit Assumption
A company makes an accrued revenue adjusting entry for $780 and an accrued expense adjusting entry for $510. How much was net income understated or overstated prior to these entries? Net income will be [blank] by $[blank].
Net income will be understated by $270.
The practice of preparing financial statements at regular intervals.
Periodicity Assumption
The full disclosure principle dictates that A) financial statements should disclose only those events that can be measured in dollars. B) financial statements should disclose all events and circumstances that would matter to users of financial statements. C) financial statements should disclose all assets at their cost. D) financial statements should not be relied on unless an auditor has expressed an unqualified opinion on them.
B) financial statements should disclose all events and circumstances that would matter to users of financial statements.
The common characteristic possessed by all assets is A) long life. B) future economic benefit. C) great monetary value. D) tangible nature.
B) future economic benefit.
Adjustments for accrued revenues A) increase assets and increase liabilities. B) increase assets and increase revenues. C) decrease assets and decrease revenues. D) decrease liabilities and increase revenues.
B) increase assets and increase revenues.
The effect on the basic accounting equation of performing services for cash are to A) increase liabilities and increase stockholders' equity. B) increase assets and increase stockholders' equity. C) increase assets and increase liabilities. D) increase assets and decrease stockholders' equity.
B) increase assets and increase stockholders' equity.
The effects on the basic accounting equation of performing services for cash are to A) increase assets and decrease stockholders' equity. B) increase assets and increase stockholders' equity. C) increase assets and increase liabilities. D) increase liabilities and increase stockholders' equity.
B) increase assets and increase stockholders' equity.
Buying assets needed to operate a business is an example of a(n) A) delivering activity. B) investing activity. C) financing activity. D) operating activity.
B) investing activity.
The partnership form of business organization A) has limited liability. B) is a common form of organization for service-type businesses. C) is a separate legal entity. D enjoys an unlimited life.
B) is a common form of organization for service-type businesses.
Most business enterprises in the United States are A) partnerships. B) proprietorships and partnerships. C) corporations. D) government units.
B) proprietorships and partnerships.
Before adjusting entries, unearned revenues are A) recognized as revenue but not yet received or recorded. B) received and recorded as liabilities before they are recognized as revenue. C) recognized as revenue and recorded as liabilities before they are received. D) recognized as revenue and already received and recorded.
B) received and recorded as liabilities before they are recognized as revenue.
In a classified balance sheet, assets are usually classified as A) current assets; long-term assets; property, plant, and equipment; and intangible assets. B) current assets; long-term investments; property, plant, and equipment; and common stock. C) current assets; long-term investments; tangible assets; and intangible assets. D) current assets; long-term investments; property, plant, and equipment; and intangible assets.
D) current assets; long-term investments; property, plant, and equipment; and intangible assets.
Liabilities are generally classified on a balance sheet as A) small liabilities and large liabilities. B) tangible liabilities and intangible liabilities. C) present liabilities and future liabilities. D) current liabilities and long-term liabilities.
D) current liabilities and long-term liabilities.
As prepaid expenses expire with the passage of time, the correct adjusting entry will be a A) debit to an asset account and a credit to an asset account. B) debit to an asset account and a credit to an expense account. C) debit to an expense account and a credit to an expense account. D) debit to an expense account and a credit to an asset account.
D) debit to an expense account and a credit to an asset account.
Adjustments for unearned revenue A) increase liabilities and increase revenues. B) decrease revenues and decrease assets. C) increase assets and increase revenues. D) decrease liabilities and increase revenues.
D) decrease liabilities and increase revenues.
A current asset is A) an asset which is currently being used to produce a product or service. B) the last asset purchased by a business. C) usually found as a separate classification in the income statement. D) expected to be converted to cash or used in the business within one year or one operating cycle, whichever is longer.
D) expected to be converted to cash or used in the business within one year or one operating cycle, whichever is longer.
One of the accounting concepts upon which adjustments for prepayments and accruals are based is A) economic entity. B) cost. C) monetary unit. D) expense recognition.
D) expense recognition.
Borrowing money is an example of a(n) A) operating activity. B) delivering activity. C) investing activity. D) financing activity.
D) financing activity.
The statement of cash flows would disclose the payment of a dividend A) nowhere on the statement. B) in the operating activities section. C) in the investing activities section. D) in the financing activities section.
D) in the financing activities section.
On a classified balance sheet, companies usually list current assets A) in alphabetical order. B) with the largest dollar amounts first. C) in the order of acquisition. D) in the order in which they are expected to be converted into cash.
D) in the order in which they are expected to be converted into cash.
A revenue account A) is increased by debits. B) is decreased by credits. C) has a normal balance of a debit. D) is increased by credits.
D) is increased by credits.
A business organized as a corporation A) has tax advantages over a proprietorship or partnership. B) requires that stockholders be personally liable for the debts of the business. C) is not a separate legal entity in most states. D) is owned by its stockholders.
D) is owned by its stockholders.
If cash is received in advance from a customer A) stockholders' equity will decrease. B) retained earnings will increase. C) assets will decrease. D) liabilities will increase.
D) liabilities will increase.
Concord Corporation has total assets of $3534000, common stock of $943000, and retained earnings of $580000 on December 31, 2022. What are the creditors' claims on their assets at that date? A) $3883000 B) $1423000 C) $2011000 D) $3151000
C) $2011000
Accumulated Depreciation - Equipment A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
C) Property, plant, and equipment (PPE)
Equipment A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
C) Property, plant, and equipment (PPE)
Which is an advantage of corporations relative to partnerships and sole proprietorships? A) Lower taxes. B) Harder to transfer ownership. C) Reduced legal liability for investors. D) Most common form of organization.
C) Reduced legal liability for investors.
For each situation, list the assumption, principle, or constraint that has been violated. East Lake Company recognizes revenue at the end of the production cycle but before sale. The price of the product, as well as the amount that can be sold, is not certain. A) No violation B) Periodicity assumption C) Revenue recognition principle D) Historical cost principle
C) Revenue recognition principle
An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period. A) Quality of earnings B) Earnings management C) Reversing entry D) Contra asset account
C) Reversing entry
The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies. A) Financial Accounting Standards Board (FASB) B) Public Company Accounting Oversight Board (PCAOB) C) Securities and Exchange Commission (SEC) D) Sarbanes and Oxley Act (SOX)
C) Securities and Exchange Commission (SEC)
The ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity. A) Liquidity B) Solvency ratios C) Solvency D) Understandability
C) Solvency
The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is A) Supplies 600 Supplies Expense 600 B) Supplies 750 Supplies Expense 750 C) Supplies Expense 750 Supplies 750 D) Supplies Expense 600 Supplies 600
C) Supplies Expense 750 Supplies 750
Which statement is incorrect concerning the adjusted trial balance? A) An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. B) The adjusted trial balance provides the primary basis for the preparation of financial statements. C) The adjusted trial balance does not list temporary accounts. D) The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.
C) The adjusted trial balance does not list temporary accounts.
What is the periodicity assumption? A) Companies should recognize revenue in the accounting period in which services are performed. B) Companies should match expenses 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.
C) The economic life of a business can be divided into artificial time periods.
What are the first step and the final step in the revenue recognition process? A) The first step is identify the contract with customers, and the final step is allocate the transaction price to the separate performance obligations. B) The first step is identify the separate performance obligations in the contract, and the final step is determine the transaction price. C) The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied. D) The first step is determine the transaction price, and the final step is identify the separate performance obligations in the contract.
C) The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied.
What is the primary criterion by which accounting information can be judged? A) Consistency. B) Predictive value. C) Usefulness for decision-making. D) Comparability.
C) Usefulness for decision-making.
The quality of information that occurs when independent observers, using the same methods, obtain similar results. A) Comparability B) Timely C) Verifiable D) Consistency
C) Verifiable
A trial balance will not balance if A) a correct journal entry is posted twice. B) the purchase of supplies on account is debited to Supplies and credited to Cash. C) a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100. D) a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.
C) a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100.
A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as A) property, plant, and equipment. B) land expense. C) a long-term investment. D) an intangible asset.
C) a long-term investment.
The right to receive money in the future is called a(n) A) revenue. B) account payable. C) account receivable. D) liability.
C) account receivable.
If total liabilities decreased by $3440, then A) stockholders' equity must have decreased by $3440. B) assets must have increased by $3440. C) assets must have decreased by $3440. or stockholders' equity must have increased by $3440. D) assets and stockholders' equity each increased by $1720.
C) assets must have decreased by $3440. or stockholders' equity must have increased by $3440.
If an expense is paid with cash A) liabilities will increase. B) retained earnings will increase. C) assets will decrease. D) expenses will decrease.
C) assets will decrease.
The operating cycle of a company is the average time that is required to go from cash to A) inventory in producing revenues. B) accounts receivable in producing revenues. C) cash in producing revenues. D) sales in producing revenues.
C) cash in producing revenues.
The correct order of presentation in a classified balance sheet for the following current assets is A) accounts receivable, cash, prepaid insurance, inventory. B) cash, inventory, accounts receivable, prepaid insurance. C) cash, accounts receivable, inventory, prepaid insurance. D) inventory, cash, accounts receivable, prepaid insurance.
C) cash, accounts receivable, inventory, prepaid insurance.
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) decrease assets and increase expenses.
Retained earnings is decreased by A) revenues. B) owner's investments. C) expenses. D) assets.
C) expenses.
Debits A) increase both assets and liabilities. B) decrease both assets and liabilities. C) increase assets and decrease liabilities. D) decrease assets and increase liabilities.
C) increase assets and decrease liabilities.
Receipt of an unearned revenue A) decreases a revenue; increase stockholders' equity. B) increases an asset; increases a revenue. C) increases an asset; increases a liability. D) decreases a liability; increases stockholders' equity.
C) increases an asset; increases a liability.
A ledger A) contains only asset and liability accounts. B) should show accounts in alphabetical order. C) is a record of all accounts maintained by a company and their amounts. D) provides a chronological record of transactions.
C) is a record of all accounts maintained by a company and their amounts.
The balance in retained earnings is not affected by A) net income. B) net loss. C) issuance of common stock. D) dividends.
C) issuance of common stock.
Buying and selling products are examples of A) financing activities. B) delivering activities. C) operating activities. D) investing activities.
C) operating activities.
An architecture firm earned $ 1960 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause A) liabilities to be understated. B) net income to be overstated. C) revenues to be overstated. D) revenues to be understated.
D) revenues to be understated.
Expenses are incurred A) to produce liabilities. B) only on rare occasions. C) to produce assets. D) to generate revenues.
D) to generate revenues.
Posting A) normally occurs before journalizing. B) transfers ledger transaction data to the journal. C) is an optional step in the recording process. D) transfers journal entries to ledger accounts.
D) transfers journal entries to ledger accounts.
Each of the following is a major type (or category) of adjusting entry except A) prepaid expenses. B) accrued revenues. C) accrued expenses. D) unearned expenses.
D) unearned expenses.
The revenue recognition principle dictates that revenue should be recognized in the accounting records A) at the end of the month. B) when cash is received. C) in the period that income taxes are paid. D) when the performance obligation is satisfied
D) when the performance obligation is satisfied
Which of the following did not result from the Sarbanes-Oxley Act? A) Top management must now certify the accuracy of financial information. B) Penalties for fraudulent activity increased. C) Independence of auditors increased. D) Tax rates on corporations increased.
D) Tax rates on corporations increased.
Information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning. A) Comparability B) Timely C) Faithful representation D) Understandability
D) Understandability
Cash received and a liability recorded before services are performed. A) Accrued basis B) Cash basis C) Adjusting entries D) Unearned revenues
D) Unearned revenues
Generally accepted accounting principles A) are sound in theory but rarely used in real life. B) are accounting rules formulated by the Internal Revenue Service. C) have eliminated all errors in accounting. D) are accounting rules that are recognized as a general guide for financial reporting.
D) are accounting rules that are recognized as a general guide for financial reporting.
A business organized as a separate legal entity is a A) proprietor. B) partnership. C) government unit. D) corporation.
D) corporation.
Kingbird. Inc. began the year 2022 with $143600 in its Common Stock account and a debit balance in Retained Earnings of $61600. During the year, the company earned net income of $30800, and declared and paid $10300 of dividends. In addition, the company sold additional common stock amounting to $37600. Based on this information, what should the transaction analysis show for total stockholders' equity at the end of 2022? A) $188000 B) $140100 C) $283900 B) $263300
B) $140100
The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement. A) True B) False
B) False
Cash paid to stockholders (dividends). A) Operating Activity B) Financing Activity C) Investing Activity
B) Financing Activity
Net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid. A) Current assets B) Free cash flow C) Fair value principle D) Long-term investments
B) Free cash flow
For each situation, list the assumption, principle, or constraint that has been violated. Bly Hospital Supply Corporation reports only current assets and current liabilities on its balance sheet. Equipment and bonds payable are reported as current assets and current liabilities, respectively. Liquidation of the company is unlikely. A) Periodicity assumption B) Going concern assumption C) Historical cost principle D) No violation
B) Going concern assumption
In which balance sheet section would trademarks be reported? A) Property, plant, and equipment B) Intangible assets C) Current assets D) Investments
B) Intangible assets
What measures the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash? A) Profitability B) Liquidity C) Ratio D) Solvency
B) Liquidity
Investment in Real Estate A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
B) Long-term investments (LTI)
The characteristic of information that evaluates whether it is large enough to impact a decision. A) Comparability. B) Materiality. C) Cost. D) Consistency.
B) Materiality.
Which is not part of the recording process? A) Analyzing transactions. B) Preparing an income statement. C) Entering transactions in a journal. D) Posting journal entries.
B) Preparing an income statement.
Colleen Mooney earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Colleen's employer at September 30 is A) No entry is required. B) Salaries and Wages Expense 400 Salaries and Wages Payable 400 C) Salaries and Wages Expense 400 Cash 400 D) Salaries and Wages Payable 400 Cash 400
B) Salaries and Wages Expense 400 Salaries and Wages Payable 400
The basic form of an account. A) Double-entry system B) T-account C) Posting D) Debit
B) T-account
On January 1, 2022. Sunland Company purchased equipment for $ 51840. The company is depreciating the equipment at the rate of $720 per month. The book value of the equipment at December 31, 2022 is A) $43200. B) $51840. C) $8640. D) $0.
A) $43200.
If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements? A) Assets will be overstated and net income and stockholders' equity will be overstated. B) Expenses will be overstated and net income and stockholders' equity will be understated. C) Assets will be overstated and net income and stockholders' equity will be understated. D) Failure to make an adjustment does not affect the financial statements.
A) Assets will be overstated and net income and stockholders' equity will be overstated.
Ability to compare the accounting information of different companies because they use the same accounting principles. A) Comparability B) Operating cycle C) Generally accepted accounting principles (GAAP) D) Liquidity
A) Comparability
Constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available. A) Cost constraint B) Debt to assets ratio C) Solvency ratios D) Verifiable
A) Cost constraint
An account has $300 on the debit side and $900 on the credit side. How much is the account balance? A) Credit of $600 B) Debit of $1,200 C) Credit of $900 D) Debit of $600
A) Credit of $600
Debt Investment (Short-term) A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
A) Current assets (CA)
Obligations that a company expects to pay within the next year or operating cycle, whichever is longer. A) Current liabilities B) Long term liabilities C) Expense D) Account payable
A) Current liabilities
A measure of solvency calculated as total liabilities divided by total assets. It measures the percentage of total financing provided by creditors. A) Debt to assets ratio B) Working capital C) Current ratio D) Earnings per shares (EPS)
A) Debt to assets ratio
For each situation, list the assumption, principle, or constraint that has been violated. Toxy Syles, president of Classic Music Company, bought a computer for her personal use. She paid for the computer by using company funds and debited the "Computers" account. A) Economic entity assumption B) Going concern assumption C) Historical cost principle D) No violation
A) Economic entity assumption
Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? A) Expense recognition principle. B) Historical cost principle. C) Periodicity principle. D) Revenue recognition principle.
A) Expense recognition principle.
What organization issues U.S. accounting standards? A) Financial Accounting Standards Board. B) International Accounting Standards Committee. C) International Auditing Standards Committee. D) None of the above.
A) Financial Accounting Standards Board.
A temporary account used in closing revenue and expense accounts. A) Income Summary B) Retained Earnings C) Dividends D) Revenue
A) Income Summary
Which of these statements about a journal is false? A) It contains only revenue and expense accounts. B) It provides a chronological record of transactions. C) It helps to locate errors because the debit and credit amounts for each entry can be readily compared. D) It discloses in one place the complete effect of a transaction.
A) It contains only revenue and expense accounts.
An accounting record in which transactions are initially recorded in chronological order. A) Journal B) Posting C) Debit D) Account
A) Journal
Shared control, tax advantages, increased skills and resources. A) Partnership B) Corporation C) Sole Proprietorship
A) Partnership
Which of the following is not classified properly as a current asset? A) Short-term debt investments B) A receivable from the sale of an asset to be collected in two years C) A fund to be used to purchase a building within the next year D) Supplies
B) A receivable from the sale of an asset to be collected in two years
Which basis of accounting (cash or accrual) provides more useful information for decision-makers? A) Cash basis B) Accrual basis
B) Accrual basis
Which statement about an account is true? A) An account consists of a title, a debit side, and a ledger side. B) An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. C) There are separate accounts for specific assets and liabilities but only one account for stockholders' equity items. D) The left side of an account is the credit, or decrease, side.
B) An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items.
Which of the statements below is not true? A) An adjusted trial balance proves the mathematical equality of debits and credits in the ledger. B) An adjusted trial balance is prepared before all transactions have been journalized. C) An adjusted trial balance can be used to prepare financial statements. D) An adjusted trial balance should show ledger account balances.
B) An adjusted trial balance is prepared before all transactions have been journalized.
Which of the following events is not recorded in the accounting records? A) Equipment is purchased on account. B) An employee is terminated. C) A cash investment is made into the business. D) Company pays dividend to stockholders.
B) An employee is terminated.
A report prepared by corporate management that presents financial information including financial statements, a management discussion and analysis section, notes, and an independent auditor's report. A) Auditor's report B) Annual report C) Accounting D) Financial report
B) Annual report
Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash. A) Revenue recognition principle B) Cash-basis accounting C) Accrued-basis accounting D) Expense recognition principle
B) Cash-basis accounting
A list of the names of a company's accounts. A) General journal B) Chart of accounts C) Ledger D) Accounting information system
B) Chart of accounts
Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings. A) Post-closing entries B) Closing entries C) Adjusting entries D) Trial balance
B) Closing entries
Use of the same accounting principles and methods from year to year within a company. A) Verifiable B) Consistency C) Comparability D) Solvency
B) Consistency
A business that raises money by issuing shares of stock. A) Partnership B) Corporation C) Sole Proprietorship
B) Corporation
Easier to transfer ownership and raise funds, no personal liability. A) Partnership B) Corporation C) Sole Proprietorship
B) Corporation
Which of these measures is an evaluation of a company's ability to pay current liabilities? A) Earnings per share. B) Current ratio. C) Both (A) and (B). D) None of the above.
B) Current ratio.
What measures the net income earned on each share of common stock? A) Working capital B) Earnings per share C) Asset to debt ratio D) Current ratio
B) Earnings per share
Which is an indicator of profitability? A) Current ratio. B) Earnings per share. C) Debt to assets ratio. D) Free cash flow.
B) Earnings per share.
The cost of assets consumed or services used in the process of generating revenues. A) Retained Earnings B) Expenses C) Dividends D) Common stock
B) Expenses
A business organized as a separate legal entity owned by stockholders is a partnership. A) True B) False
B) False
A credit means that an account has been increased. A) True B) False
B) False
A new account is opened for each transaction entered into by a business firm. A) True B) False
B) False
Collection on an account receivable will increase both cash and accounts receivable. A) True B) False
B) False
External users of accounting information are managers who plan, organize, and run a business. A) True B) False
B) False
Novak Corp. started the year with $73200 in its Common Stock account and a credit balance in Retained Earnings of $53700. During the year, the company earned net income: of $58600, and declared and paid $24400 of dividends. In addition, the company sold additional common stock amounting to $34200. As a result, the balance in retained earnings at the end of the year would be A) $122100. B) $161100. C) $87900. D) $195300.
C) $87900.
The system of collecting and processing transaction data and communicating financial information to decision-makers. A) Accounting B) Accounting cycle C) Accounting information system D) Accounting transactions
C) Accounting information system
Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged. A) Accrued revenues B) Useful life C) Accrual-basis accounting D) Reversing entry
C) Accrual-basis accounting
Expenses incurred but not yet paid in cash or recorded. A) Accrued revenues B) Temporary accounts C) Accrued expenses D) Deferred expenses
C) Accrued expenses
Entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed. A) Adjusted trial balance B) Post-closing entries C) Adjusting entries D) Accrued expenses
C) Adjusting entries
Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized? A) August 1 B) September 6 C) August 31 D) September 5
C) August 31
Which of the following is generally not classified as a current liability? A) Taxes Payable B) Salaries and Wages Payable C) Bonds Payable D) Accounts Payable
C) Bonds Payable
Which of the following are internal reports that accounting provides to internal users? A) Forecasts of cash needs for next year. B) Financial comparisons of operating activity alternatives. C) Both forecasts of cash needs and financial comparisons D) Neither forecasts of cash needs nor financial comparisons
C) Both forecasts of cash needs and financial comparisons
An account that is offset against an asset account on the balance sheet. A) Depreciation account B) Worksheet C) Contra asset account D) Accrued expenses
C) Contra asset account
What is a measure of solvency? A) Working capital B) Earnings per share C) Debt to assets ratio D) Current ratio
C) Debt to assets ratio
Queenan 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—Queenan 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) Depreciation Expense 1,000 Accumulated Depreciation—Equipment 1,000
Which of the following is not considered an asset? A) Equipment B) Accounts receivable C) Dividends D) Inventory
C) Dividends
The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income. A) Adjusting entries B) Adjusted trial balance C) Earnings management D) Post-closing trial balance
C) Earnings management
Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments? A) Periodicity assumption B) Monetary unit assumption C) Going concern assumption D) Economic entity assumption
C) Going concern assumption
For each situation, list the assumption, principle, or constraint that has been violated. Chieu Company has inventory on hand that cost $400,000. Chieu reports inventory on its balance sheet at its current fair value of $425,000. A) Economic entity assumption B) Going concern assumption C) Historical cost principle D) No violation
C) Historical cost principle
Cash paid to purchase a new office building. A) Operating Activity B) Financing Activity C) Investing Activity
C) Investing Activity
Which of the following is not one of the three forms of business organization? A) Corporations B) Proprietorships C) Investors D) Partnerships
C) Investors
The procedure of entering transaction data in the journal. A) Posting B) Recording C) Journalizing D) Analyzing
C) Journalizing
The following is selected information from Swifty Corporation for the fiscal year ending October 31, 2022. Cash received from customers $228000 Revenue recognized $334400 Cash paid for expenses $129200 Cash paid for computers on November 1, 2021 that $36480 will be used for 3 years Expenses incurred including any depreciation $164160 Proceeds from a bank loan, part of which was used to $76000 pay for the computers Based on the accrual basis of accounting, what is Swifty's net income for the year ending October 31, 2022? A) $158080 B) $193040 C) $205200 D) $170240
D) $170240
A list of accounts and their balances after all adjustments have been made. A) Closing account B) Post-closing account C) Charts of accounts D) Adjusted trial balance
D) Adjusted trial balance
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 the performance obligation is satisfied. C) balance sheet and income statement accounts have correct balances at the end of an accounting period. D) All of the above.
D) All of the above.
Companies can use free cash flow to A) pay additional dividends. B) acquire more property, plant, and equipment. C) pay off debts. D) All of the above.
D) All of the above.
Which is not a required part of an annual report of a publicly traded company? A) Statement of cash flows. B) Notes to the financial statements. C) Management discussion and analysis. D) All of these are required.
D) All of these are required.
Which of the following events is not recorded in the accounting records? A) A cash investment is made into the business. B) The owner withdraws cash for personal use. C) Equipment is purchased on account. D) An employee is terminated.
D) An employee is terminated.
Which accounts normally have debit balances? A) Assets, expenses, and revenues. B) Assets, expenses, and retained earnings. C) Assets, liabilities, and dividends. D) Assets, dividends, and expenses.
D) Assets, dividends, and expenses.
Which one of these statements about the accrual basis of accounting is false? A) Companies record events that change their financial statements in the period in which events occur, even if cash was not exchanged. B) Companies recognize revenue in the period in which the performance obligation is satisfied. C) This basis is in accordance with generally accepted accounting principles. D) Companies record revenue only when they receive cash and record expense only when they pay out cash
D) Companies record revenue only when they receive cash and record expense only when they pay out cash
Which of the following would not be classified as a long-term liability? A) Mortgage payable B) Lease liabilities C) Bonds payable D) Current maturities of long-term debt
D) Current maturities of long-term debt
Paying an account payable with cash affects the components of the accounting equation in the following way A) Decreases stockholders' equity and decreases liabilities. B) Increases assets and decreases liabilities. C) Decreases assets and increases stockholders' equity. D) Decreases assets and decreases liabilities.
D) Decreases assets and decreases liabilities.
A system that records the two-sided effect of each transaction in appropriate accounts. A) Posting B) Account C) T-account D) Double-entry system
D) Double-entry system
Is the rationale for why plant assets are not reported at liquidation value A) Economic entity assumption B) Historical cost principle C) Monetary unit assumption D) Going concern assumption
D) Going concern assumption
Goodwill A) Current assets (CA) B) Long-term investments (LTI) C) Property, plant, and equipment (PPE) D) Intangible assets (IA) E) Current liabilities (CL) F) Long-term liabilities (LTL) G) Stockholders' equity (SE) H) NA
D) Intangible assets (IA)
For each situation, list the assumption, principle, or constraint that has been violated. Gomez, Inc. is carrying inventory at its original cost of $100,000. Inventory has a fair value of $110,000. A) Periodicity assumption B) Going concern assumption C) Historical cost principle D) No violation
D) No violation
The average time required to purchase inventory, sell it on account, and then collect cash from customers—that is, go from cash to cash. A) Full disclosure principle B) Consistency C) Current assets D) Operating cycle
D) Operating cycle
A technique that expresses the relationship among selected items of financial statement data. A) Economic entity assumption B) Current liabilities C) Verifiable D) Ratio analysis
D) Ratio analysis
What measure the ability of the company to survive over a long period of time? A) Profitability B) Liquidity C) Ratio D) Solvency
D) Solvency