Exam 1 practice

The following information is available from the adjusted trial balance of the Harris Vacation Rental Agency. After closing entries are posted, what will be the balance in the Retained earnings account? Ending Retained earnings = Beginning Retained Earnings + Revenues − Expenses − Dividends

$130,000.

True

Adjusting entries result in a better matching of revenues and expenses for the period.

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Assets increase $4,500 and liabilities increase $4,500.

If equity is $300,000 and liabilities are $192,000, then assets equal:

$492,000.

Using the information in the table, calculate the company's reported net income for the period. Net Income = Total Revenues − Total Expenses

$5,500.

False

A balance sheet covers activities over a period of time such as a month or year.

A classified balance sheet differs from an unclassified balance sheet in that:

A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio.

True

A company's chart of accounts is a list of all the accounts used and includes an identification number assigned to each account.

False

A net loss occurs when revenues exceed expenses.

All of the following are classified as assets except:

Accounts Payable.

Prepaid accounts (also called prepaid expenses) are generally:

Assets that represent prepayments of future expenses.

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and dividends accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as:

Closing entries.

True

Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period.

Willow Rentals purchased office supplies on credit. The general journal entry made by Willow Rentals will include a:

Credit to Accounts Payable.

All of the following regarding the current ratio are true except:

Current ratio does not affect a creditor's decision on whether to allow a company to buy on credit.

The Retained earnings account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and dividends are $9,000. What is the correct closing entry for the expense accounts?

Debit Income Summary $39,800; credit Expense accounts $39,800.

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

Depreciation expense.

The difference between a company's assets and its liabilities, or net assets is:

Equity.

Decreases in equity from costs of providing products or services to customers are called:

Expenses.

True

External users include tenders, shareholders, customers, and regulators

If the assets of a business increased $89,000 during a period of time and its liabilities increased $67,000 during the same period, equity in the business must have:

Increased $22,000.

True

Items such as sales receipts, bank statements, checks, and purchase orders are examples of a business's source documents.

A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n):

Journal.

False

Liabilities are owners claims on assets

Temporary accounts include all of the following except:

Prepaid rent.

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

Revenue recognition principle.

True

Revenues are increases in equity (via net income) from a company's sale of products and services to customers.

True

The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not when cash is received.

False

The expense recognition (matching) principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

True

Unearned revenue is a liability that is settled in the future when a company delivers its products or services.

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

Wages Expense

The area of accounting aimed at serving the decision making needs of internal users is:

managerial accounting

A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

$175.

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

$274,000.

The right side of a T-account is a(n):

Credit.

False

Credits always increase account balances.

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Debit Insurance Expense, $360; credit Prepaid Insurance, $360.

Accounting is an information and measurement system that does all of the following except.

Elimates the need for interpreting financial data

True

Financial accounting is the area of accounting aimed at serving external users by providing them with general purpose financial statements

The record of all accounts and their balances used by a business is called a:

Ledger (or General Ledger).

Unearned revenues are generally:

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

False

The balance sheet shows a company net income or loss over a period of time.

True

The income statement describes revenues earned and expenses incurred along with resulting net income or loss over a specified period of time