Financial Accounting Exam #2
Leonardo Corporation received $450 in cash from customers on December 1 in advance of performing a work. By December 31, Leonardo had earned $250 of the amount. What is the balance in unearned revenue on December 31?
$200
Highlander Corporation paid $600 for insurance at the beginning of December. The payment covered the months of December, January, and February. What would be the balance in the prepaid insurance account at the end of December if Highlander's accountant makes the correct adjusting entry?
$400
If a company pays for inventory previously acquired on account::
Accounts Payable should be debited.
On November 1, Alpha Corporation agreed to provide services to Delta Company for $9,000. On December 31, two-third of the work was substantially completed. What entry should Alpha Corporation make on December 31?
Accounts Receivable 6,000 Sale of Services 6,000
Short-term liabilities to pay for goods and services that have been acquired on credit is known as:
Accoutns payable
Ulysses Company purchases a truck for $6,000, paying $2,000 cash and signing a note payable for the remaining amount. Which of the following is true of this transaction?
Assets and liabilities will increase by $4,000.
On December 1, Year One, a company receives $10,000 in advance for work it will perform in January, Year Two. The company accountant immediately recorded the $10,000 as revenue and no adjusting entry was made on December 31, Year One. Which of the following statements is true of this transaction?
At the end of Year One, net income is overstated
On November 1, Year One, a company is paid $12,000 in advance to do a job for a customer. The job has ten separate steps. The first four steps were completed in Year One and the remaining six steps were completed in Year Two. The accountant mistakenly believed that this was just one big job and recorded it in that fashion. However, each of the ten steps was really an individual job and should have been accounted for in that way. Which of the following statements is true?
At the end of Year One, the company's retained earnings are understated.
A company pays its workers $2,000 salary per month on the first day of the following month. At the end of December, Year One, the company failed to make an adjusted entry for the accrued liability. The accountant thought that the adjusting entry had been made and, so, when the payment was made, it was recorded as if the proper adjusting entry had been made. Which of the following statements is true?
At the end of Year Two, the company's retained earnings are overstated.
Formal opinion issued by an independent auditor to communicate whether or not financial statements are fairly presented is known as:
Audit Report
On August 6, Pacific Corporation buys inventory for $4,000 on account. The company pays for the inventory on August 16. On August 22, the inventory is sold for $5,500 on account. Pacific pays for the inventory on September 5. Under accrual accounting, on which day should revenue be recognized?
August 22
Jackson Corporation issued capital stock for cash. To record this, the company's accountant debited cash and credited capital stock account. Which of the following statements is true of this transaction?
Capital stock is correctly stated
Ryland Publishers collected $3,500 in cash from customers for future subscriptions. Which entry should Ryland make on the date the cash is received?
Cash 3,500 Unearned Revenue 3,500
Harry and Claire Inc. sells a piece of land which originally cost $300 for $500 cash. Which journal entry correctly captures this transaction?
Cash 500 Land 300 Gain on Sale of Land 200
Kendall Corporation purchased inventory for $400 and later sold it to United Company for $900. Which of the following accounts would be debited for $400 when the inventory is sold?
Cost of goods Sold
Saturn Corporation sold inventory costing $32,000 for $45,000 cash. Which of the following statements is true of this transaction?
Cost of goods sold increases by $32,000.
The conclusions rendered by the EITF are considered to be authoritative until the:
FASB provides its own formal guidance.
A company purchases a plot of land for cash. To record this, Cash should be debited and Land should be credited.
False
A decrease in retained earnings is recorded with a credit.
False
Adjusting entries are the result of physical events or transactions that occurred during a period.
False
After closing temporary accounts, the resulting single figure should be equal to the retained earnings balance.
False
Assets, liabilities, and common stock are all examples of temporary accountants.
False
At most two accounts can be impacted by a financial transaction.
False
Corporate officials who produce fraudulent financial statements can be fired, but cannot be fined or put in jail.
False
Debits and credits will not be equal when a transaction involves more than two accounts.
False
Garson Corporation received a $4,900 on a customer's account. To record this, Garson should debit Cash and credit Accounts Payable.
False
Mark Corporation issues ownership shares to new shareholders for $100,000 cash. Capital stock will decrease by $100,000 as a result of this transaction.
False
Orion Inc. made cash payment on its rent payable. To record this, Orion should debit rent payable and credit rent expense.
False
The Auditing Standards Board oversees the audits of companies, which do not sell securities on public exchanges.
False
The SEC is a private organization.
False
The first paragraph of the auditor's report should include information about the audit work performed.
False
The two accounts affected by any adjusting entry are permanent accounts.
False
Tryor Corporation owes for advertising which has already been run. When Tryor's accountant makes an adjusting entry to reflect this, advertising payable will be debited.
False
Tyson's Grocery sells a piece of old equipment for $700, but it was listed on Tyson's books for $900. Tyson's should report an expense of $200.
False
Harris' customers paid $560 in advance of Harris performing any work. Harris' accountant debited cash and credited revenue when the cash was received. Which of the following statements is true?
Harris' retained earnings are overstated.
Harry Bakery sells land for $110,000, which was bought for $90,000. Which of the following statements is true?
Harry will credit Gain on Sale of Land $20,000.
An increase in a liability is recorded with a credit.
Increase in cash
Venus Solutions Inc. issues ownership shares to new stockholders for $180,000 cash. Which of the following statements is true of this transaction?
Liabilities are not affected.
Joey Corporation borrows $500,000 from its bank, to purchase inventory and equipment. Which of the following statements is true of this transaction?
Note payable will increase by $500,000.
During the year, Cinci Corporation collected $15,000 of its accounts receivable. In recording this transaction, Cinci's bookkeeper increased both cash and accounts receivable by $15,000. Accounts receivable balance at the beginning of the year was $88,000. This will result in:
Overstatement of assets
Lacey Company paid for the next two months of advertising. The journal entry to record this transaction is:
Prepaid Advertising Cash
Kylie Company pays $4,500 for insurance for the next 6 months. Which of the following is true of this transaction?
Prepaid Insurance Will Increase
On December 1, Dennis Corporation paid $800 rent for the month of December, and January. This was recorded with a debit to rent expense and credit to cash for $800. What adjusting entry does Dennis needs to make on December 31?
Prepaid Rent 400 Rent Expense 400
The Big Four Public Accounting Firms includes:
PricewaterhouseCooper
On December 1, Rob Corporation paid $500 rent for the month in advance. This was recorded with a debit to prepaid rent and credit to cash for $500. What adjusting entry does Rob needs to make on December 31?
Rent Expense 500 Prepaid Rent 500
Which of the following would be an example of an internal control?
Requiring authorization for purchases
Perkins Corporation paid $30,000 for advertising for the months of June, July, and August at the beginning of June. Perkin's accountant forgot to make an adjusting entry at the end of June. Which of the following is true, assuming original entry was made to prepaid rent?
Retained earnings are overstated by $10,000.
The ASB is a technical committee within the:
SEC. AICPA. EITF. PCAOB.
Flanders Company paid its employees $5,000 for the last two weeks of work. No previous accrual had been made. The journal entry made to record the payment will be:
Salaries Expense $5,000 Cash $5,000
Global Cleaning Services Company pays its employees salary of $60,000 for work performed during the last month. No entry has been recorded previously. However, the company's accountant made an entry assuming an accrual entry was made previously. Which of the following statements is true?
Salary Payable is understated by $60,000.
Axom Corporation earns revenue over time by performing the same service daily. It will not be paid until the service is done, but each daily service is considered a separate job. If financial statements are prepared in the middle of the service time, what should Axom credit?
Sales of service
Which of the following paragraphs of the audit report explains the audit work performed by the auditor?
Scope Opinion Explanatory Control
Which of the following organizations produces accounting standards for state and local governments in the U.S.?
The SEC The EITF The GASB The IASB
Who pays auditor's remuneration?
The reporting company
Allen Company received payment from a customer for a previous purchase of merchandise. To record this, Allen's accountant debited Accounts Receivable and credited Cash. Which of the following statements is true?
Total assets will be correctly stated
Ashley Company purchased equipment for cash, but did not journalize the transaction. Which of the following statements is true?
Total assets will be correctly stated
A company borrows money from bank. Both assets and liabilities increase as a result of this transaction.
True
A company owes for utilities but has not made an adjusting entry to reflect that. As a result, expense will be understated.
True
A journal entry is an indication of the accounts and balances affected by a single transaction.
True
A perpetual inventory system is one in which an ongoing record of inventory is kept.
True
A transaction is any event that has an immediate financial impact on a company.
True
Alto Corporation paid for the rental of its offices for the next four months. This transaction has no overall effect on Alto's assets.
True
An increase in a liability is recorded with a credit.
True
An increase in an asset is recorded with a debit.
True
Any expense that grows gradually over time but has not yet been paid is known as an accrued expense.
True
At least two accounts must be impacted by every financial transaction.
True
Carmichael Industries received payments in advance for a work yet to be performed. Carmichael's accountant debited revenue and credited unearned revenue. As a result, Carmichael's assets will be understated.
True
Closing entries bring the balance of temporary accounts back to zero.
True
During the posting process, debits and credits from journal entries are recorded in the ledger.
True
If expenses paid in advance are initially recorded as prepaid expenses, an adjusting entry is made to reclassify it to expense as time passes to satisfy the matching principle.
True
Legally, the SEC has the ability to establish accounting rules for all companies under its jurisdiction.
True
The left side of a T-account is the debit side.
True
Which of the following accounts require adjusting entries?
Unearned Revenue
Which of the following indicates that the auditor did not find any problems worth noting?
Unqualified opinion
Johnson Corporation received cash on a customer's account. The journal entry to record this transaction would involve:
a debit to asset and a credit to asset.
Recording the purchase of inventory on account would involve:
a debit to asset and a credit to liability
A journal entry where rent payable is credited is an example of a(n):
accrued expense.
A detailed examination of a company's financial statements is called a(n):
audit
Prepaid insurance is an example of:
deferred expense.
Unearned revenue is also referred as:
deferred revenue.
Informed decision makers should understand that auditors provide only reasonable assurance that financial statements are fairly presented.
false
Only companies under the jurisdiction of the SEC may get an audit.
false
The FASB oversees the work of auditors of publicly traded companies.
false
The PCAOB holds no authority on the audit performed on financial statements of an organization issuing publicly traded securities.
false
When auditors perform audit procedures, they are trying to determine that all account balances are exactly right.
false
An accrued expense is an expense which:
has been incurred but not paid.
Redundancies added to a system to ensure that it functions properly are known as:
internal controls.
Which of the following paragraphs of the audit report explains the assessment of accounting principles that were applied?
scope
Foreign companies, whose securities are traded publicly within the United States fall under the jurisdiction of the:
sec
The SEC refers to:
securities and exchange commission
The CPA designation is a license that allows a person:
to provide auditing and other accounting services to the public.
"Cooking the books" refers to producing fraudulent financial statements.
true
Auditor's report is attached to the financial statements of a company, which can be accessed by any user.
true
Companies that do not issue stock on public exchanges are required to comply with state laws.
true
Companies that have an audit may be able to borrow money at lower interest rates.
true
The auditor will often include a report on internal control in the auditor's report on the financial statements.
true
The auditor's report should be addressed to the SEC.
true
When customers pay in advance for a work yet to be performed, the company performing the work records a(an):
unearned revenue.
The role of the Securities and Exchange Commission (SEC) includes:
use innovative and cost-effective tools to improve audit quality and reduce the risk of auditing failures in the U.S. ensuring that the reporting process is working as intended by the government. taking disciplinary action if the auditor fails to act appropriately. issuing statements audited by an independent firm to enhance credibility of a company.
