Financial Accounting Midterm

Is accounts payable an asset, liability, or stockholder's equity?

liability

Pumpkin Incorporated sold $500 in pumpkins to a customer on account on January 1. On January 11 Pumpkin collected the cash from that customer. What is the impact on Pumpkin's accounting equation from the collection of cash?

No net effect to the accounting equation

Consider the following accounts: Utilities Expense Accounts Payable Service Revenue Common Stock How many of these accounts are increased with debits?

One

Transactions related to the primary business activities of the company, such as selling goods and services to customers and the associated costs of doing so are referred to as

Operating activities

Internal Users

managers and supervisors; run the company

Balance Sheet

presents the financial position of the company on a particular date

Income Statement

reports the company's revenues and expenses over an interval of time

Revenue Recognition Principle

revenue is recorded in the period in which goods and services are provided to the customer

Is common stock an asset, liability, or stockholder's equity?

stockholder's equity

Is rent expense an asset, liability, or stockholder's equity?

stockholder's equity

Is service revenue an asset, liability, or stockholder's equity?

stockholder's equity

statement of stockholders'

summarizes the changes in stockholders' equity account over a interval of time

The two functions of financial accounting are:

to measure business activities of a company, and to communicate those measurements to external parties for decision-making purposes

On January 1, Barton Brothers, Incorporated started the year with a $492,000 balance in retained earnings and a $605,000 balance in common stock. During the year, the company reported net income of $92,000, paid a dividend of $15,200, and issued more common stock for $27,500. What is total stockholder's equity at the end of the year?

$1,201,300

UNO Insurance sells a 12-month insurance to a customer for $24,000 on the effect date of December 1st. How much revenue can be recognized on December 31st?

$2,000

Which of the following accounts would normally have credit balance? A. Cash, Repairs, Maintenance Expense, Dividends B. Salaries Payable, Deferred Revenue, Delivery Expense C. Income Tax Payable, Service Revenue, Dividends D. Accounts Payable, Service Revenue, Common Stock

Accounts Payable, Service Revenue, Common Stock

A list of all accounts and their balances after updating account balances for adjusting entries referred to as:

Adjusted Trial Balance

Which statement below best describes the objectives of financial accounting? A. Provide information that helps to predict cash flows B. Provide information about the economic resources, claims to resources, and changes in resources and claims C. Provide information that is useful to investors and creditors in making decisions D. All of the answer choices describe objectives of financial accounting

All of the answer choices describe objectives of financial accounting

Which of the following does not represent a liability of a company? A. Salaries owed to employees B. Taxes owed to the government C. Amounts owed to suppliers D. All of the answers are liabilities

All of the answers are liabilities

Which step in the process of measuring external transactions involves determining the effect on assets, liabilities, and stockholder's equity?

Analyze the impact of the transaction on the accounting equation

Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue?

April

What is the accounting equation?

Assets = Liabilities + Stockholders' Equity

For each transaction recorded in an accounting system, the basic equation that must be maintained at all times is:

Assets = liabilities + stockholder's equity

The balance sheet depicts which of the following equations? A. Net cash flows = total cash inflows - total cash outflows B. Ending retained earnings = beginning retained earnings + net income - dividends C. Net income = revenue - expenses D. Assets = liabilities + stockholder's equity

Assets = liabilities + stockholder's equity

Paying salaries to employees for the current period would have what effect on the accounting equation?

Assets decrease and stockholder's equity decreases

Which of the following transaction would be recorded under the accrual basis of accounting, but not under cash basis accounting? A. Buy supplies on account B. Buy an equipment and pay cash C. Pay employees' salaries D. Receive cash in advance for future services

Buy supplies on account

On July 1, 2024, Rents-A-Lot Incorporated paid $72,000 for 36 months of advance rent on its warehouse. What would be the amount of rent expense in the 2025 financial statements for Rents-A-Lot under both cash-basis and accrual-basis accounting?

Cash Basis = $0; Accrual-basis = $24,000

Which business has the advantage of limited liability?

Corporation

A company provides maintenance services to customers. The company's policy is to provide services and then bill customers on the 10th of the following month. In December 2024, the company provided services of $14,000 and plans to bill customers on January 10th, 2025. What adjusting entry if any will the company record on December 31st, 2024?

Debit Accounts Receivable and Credit Service Revenue for $14,000

Savory Foods purchased a one-year hazard insurance policy on August 1st and recorded the $4,200 premium to prepaid insurance. At its December 31st year-end, Savory Foods would record which of the following adjusting entries? A. Debit Insurance Expense and Credit Prepaid Insurance for $2,450 B. Debit Insurance Expense and Credit Accounts Payable for $4,200 C. Debit Insurance Expense and Credit Accounts Payable for $4,200 D. Debit Insurance Expense and Credit Prepaid Insurance for $1,750

Debit Insurance Expense and Credit Prepaid Insurance for $1,750

Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and credit are:

Debit Prepaid Insurance: $18,000 Credit Cash: $18,000

The employees of Custom Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000 (or $3,200 per weekday). The current pay period ends on Friday, January 3rd. Custom Clothes is now preparing financial statements for the year ended December 31st. What is the adjusting entry to record accrued salaries at the end of the year?

Debit Salaries Expense and Credit Salaries Payable for $22,400

When a company pays utilities of $1,800 in cash, the transaction is recorded as:

Debit Utilities Expense: $1,800 Credit Cash: $1,800

Which of the following is possible for a business transaction? A. Increase assets and decrease liabilities B. Decrease one asset and increase another asset C. Decrease assets and increase stockholder's equity D. Decrease liabilities and increase expenses

Decrease one asset and increase another asset

The left side of the T-Accounts Receivable is the debit side and the left side of T-account for Accounts Payable is the credit side. TRUE OR FALSE?

FALSE

The primary functions of financial accounting are to measure business activities of a company and to communicate those measurements to internal users for decision-making purposes. TRUE OR FALSE?

FALSE

Fundamental qualitative characteristics of accounting information are:

Faithful representation and relevance

GAAP is an abbreviation for:

Generally Accepted Accounting Principles

What is the primary purpose of financial accounting?

Measure business activities and communicate those measures to external users to make decisions

If a company incorrectly records a prepayment as an expense instead of an asset, how will this error affect net income in the current period?

Net income will be too low

What is cash basis accounting?

Records revenues when we receive cash and expenses at the time we pay cash

After recording each transaction, total assets must equal total liabilities plus total stockholder's equity. TRUE OR FALSE?

TRUE

The accounting equation shows that a company's resources equal creditors' and owner's claims to those resources. TRUE OR FALSE?

TRUE

The key difference between the cash basis and accrual basis of accounting are the timing of revenues and expenses recognition. TRUE OR FALSE?

TRUE

A company receives a $50,000 cash deposit from a customer on October 15 but will not provide services until November 20. Which of the following statements is true? A. The company records nothing on October 15th B. The company records deferred revenue on October 15th C. The company records service revenue on October 15th D. The company records cash collection on November 20th

The company records deferred revenue on October 15th

Which statement below best describes the accounting equation? A. Revenue and expense transactions tend to equal out over time B. Financing activities equal investing and operating activities C. The change in retained earnings equals net income less dividends D. The total resources of the company equals creditor's and owner's claims to those resources

The total resources of the company equals creditor's and owner's claims to those resources

What is accounting?

a system of maintaining records of a company's operations and communicating that information to decision makers

Is accounts receivable an asset, liability, or stockholder's equity?

asset

Is cash an asset, liability, or stockholder's equity?

asset

Resources owned by the company =

claims to resources by creditors and owners

External Users

creditors and investors; evaluate the company

Jackson Services Inc. incurs $800 as a repair expense. This will

decrease the stockholder's equity

Expense Recognition Principle

expense is recorded in the period in which costs are used to provide those goods and services to customers

Accounting information provided to external users is referred to as:

financial accounting

Investing Activities

transactions involving the purchase and sale of resources that are expected to benefit the company for several years

Operating Activities

transactions that relate to the primary operations of the company

Financing Activities

transactions the company has with investors and creditors

The primary purpose of closing entries is to:

update the balance of retained earnings and prepare revenue, expense, and dividend accounts for next period's transactions