Financial Accounting Test 1

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the balance of Gotebo's Cash account following these six transactions?

$17,800. Cash = ($15,000 − $1,200 + $14,000 − $10,000) = $17,800.

Eve's Apples opened for business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2018?

$18,000.

Given the information below about Thomas Corporation, what was the amount of dividends the company paid in the current period? Beginning retained earnings $54,000 Ending retained earnings $110,000 Decrease in cash $10,000 Net income $84,000 Change in stockholders' equity $15,000

$28,000. Beginning Retained Earnings ($54,000) + Net Income ($84,000) − Dividends = Ending Retained Earnings ($110,000).

The employees of Neat 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 3. Neat Clothes is now preparing financial statements for the year ended December 31. What is the adjusting entry to record accrued salaries at the end of the year?

$3,200 × 7 days = $22,400.

DW has an ending Retained Earnings balance of $51,100. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance?

$32,900. Beginning Retained Earnings + Net Income ($22,500) − Dividends ($4,300) = Ending Retained Earnings ($51,100).

In the statement of stockholders' equity, the balance of Retained Earnings increased by $32,000. The company declared a dividend of $10,000 during the year. What was the net income for the year?

$42,000. Increase in Retained Earnings ($32,000) = Net Income − Dividends ($10,000).

The Accounts Receivable account has a beginning balance of $10,000 and the company provides services of $50,000 on account during the month. The ending balance was $12,000. How much did the company receive from customers during the month?

$48,000. $10,000 + $50,000 − $12,000 = $48,000.

In the statement of stockholders' equity, Retained Earnings had a beginning balance of $60,000. During the period, the company reports a net loss of $10,000 and net cash outflows of $15,000. The ending balance in the Retained Earnings account is:

$50,000. Beginning Retained Earnings ($25,000) − Net Loss ($10,000) = Ending Retained Earnings.

On September 1, 2018, Gold Magazine sold 400 one-year subscriptions for $90 each. The total amount received was credited to Deferred Revenue. What would be the required adjusting entry at December 31, 2018?

$90/12 months = $7.50 per month. $7.50 × 4 months × 400 subscriptions = $12,000.

Of the following six accounts, which ones have temporary balances: (1) Service Revenue (2) Dividends (3) Salaries Expense (4) Common Stock (5) Retained Earnings (6) Cash

(1), (2), and (3).

Of the following six accounts, which ones have temporary balances: (1) Service Revenue (2) Dividends (3) Salaries Expense (4) Common Stock (5) Retained Earnings (6) Cash

4), (5), and (6).

The adjusting entry required to record accrued expenses includes:

A credit to liability.

The owner of an office building should report rent collected in advance as a debit to Cash and a credit to:

A liability.

A list of all accounts and their balances after posting closing entries is referred to as:

A post-closing trial balance.

A(n) _______________ summarizes all transactions related to a particular item over a period of time

Account

The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as the:

Accounting cycle

Which of the following accounts would normally have a credit balance?

Accounts Payable, Service Revenue, Common Stock.

Which of the following items would not appear in an income statement

Accounts Payable.

Which of the following accounts represents a resource of the company?

Accounts receivable.

The accounting basis that helps to measure and report revenues and expenses in a way that clearly reflects the ability of a company to generate value for its owners is referred to as:

Accrual-basis.

Which of the following trial balances shows account balances that incorporate current year deferrals and accruals?

Adjusted trial balance.

Which of the following regarding adjusting entries is correct?

Adjusting entries are needed because we use accrual-basis accounting

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

An adjusted trial balance.

The balance sheet depicts which of the following equations?

Assets = liabilities + stockholders' equity.

On September 30, MFP Co. paid employee salaries of $7,000, including $1,000 it owed to its employees last month. What are the effects of this transaction on the accounting equation?

Assets decreased, liabilities decreased, and expenses increased.

Investments by stockholders have what effect on the accounting equation?

Assets increase and stockholders' equity increases.

When a company provides services on account, the accounting equation would be affected as follows:

Assets increase and stockholders' equity increases.

Which financial statement provides information for a point in time only?

Balance sheet.

The purpose of closing entries is to transfer:

Balances in temporary accounts to a permanent account.

Ending RE

Beginning balance+NI-D

The primary purpose(s) of financial accounting is(are) to:

Both measure and communicate financial information to external parties.

Prepayments occur when:

Cash payment (or an obligation to pay cash) occurs before the expense recognition.

Dividends represent:

Cash payments to stockholders

Enhancing qualitative characteristics of accounting information include

Comparability and consistency.

Xenon Corporation borrows $75,000 from First Bank. Xenon Corporation records this transaction with a:

Credit to Notes Payable.

A debit in a journal entry is always posted to the general ledger as a(n)

Debit

Clement Company paid an account payable related to a previous utility bill of $1,000. This transaction should be recorded as follows on the payment date:

Debit Accounts Payable $1,000, credit Cash $1,000.

On July 31, ALOE Inc. received $5,000 cash from a customer who previously purchased ALOE's products on account. What entry should ALOE Inc. record at the time it receives cash?

Debit Cash, $5,000; credit Accounts Receivable, $5,000.

When a company pays $2,500 dividends to its stockholders, the transaction should be recorded as:

Debit Dividends; credit Cash.

Which of the following is a possible adjusting journal entry?

Debit Salaries Expense, credit Salaries Payable.

Which of the following is a possible closing entry?

Debit Service Revenue, credit Retained Earnings.

At the beginning of December, Global Corporation had $2,000 in supplies on hand. During the month, supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $800. What is the appropriate month-end adjusting entry?

Debit Supplies Expense $4,200, credit Supplies $4,200. Beginning supplies ($2,000) + purchases ($3,000) − ending supplies ($800) = $4,200.

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

Debit Utilities Expense $1,800, credit Cash $1,800.

Providing services on account would be recorded with a:

Debit to Accounts Receivable.

Assets normally carry a _______ balance and are shown in the ______________.

Debit; Balance sheet

When the company pays stockholders a dividend, what is the effect on the accounting equation for that company?

Decrease assets and decrease stockholders' equity.

Which of the following is possible for a particular business transaction?

Decrease assets; Increase assets

Which of the following current liabilities does not involve the future payment of cash?

Deferred Revenue.

When a magazine sells one-year subscriptions to customers but receives the full amount of cash immediately, it is an example of a(n):

Deferred revenue.

Which one of the following accounts would NOT have a balance after closing entries?

Dividends.

Independent auditors express an opinion on the:

Fairness of financial statements.

The private sector organization that is currently responsible for setting accounting standards in the United States is the:

Financial Accounting Standards Board.

Transactions of a company involving external sources of funding are referred to as:

Financing activities.

Consider the following account balances of the Shattuck Law Firm at the end of the year: Accounts Payable $4,400 Salaries Expense 12,800 Cash 1,700 Common Stock 2,400 Service Revenue 8,300 Supplies 4,300 Retained Earnings 1,100 Utilities Expense 5,000 How many of these accounts would appear in Shattuck's year-end balance sheet?

Five. Accounts Payable, Cash, Common Stock, Supplies, and Retained Earnings

The assumption that a business will continue to operate into the future is the:

Going concern assumption.

Net income (loss) appears in which two financial statements?

Income statement and statement of stockholders' equity.

Which of the following is the correct order for preparing the financial statements listed?

Income statement, statement of stockholders' equity, and balance sheet.

Which of the following is NOT possible for a business transaction?

Increase assets and decrease revenue.

Frosty Inc. has the following balances on December 31 prior to closing entries: Revenues $35,000 Retained Earnings, Jan. 1 10,000 Cash 7,000 Expenses 23,000 Accounts Payable 4,000 Dividends 1,000 Supplies 18,000 Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Increase of $11,000. Revenues ($35,000) − Expenses ($23,000) − Dividends ($1,000).

On April 1, a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance. At the end of the year, the financial statements would report:

Insurance Expense, $3,600; Prepaid Insurance $1,200.

McGill purchases additional office equipment to better serves its customers. This purchase is classified as what type of activity?

Investing activity.

The primary focus for financial accounting information is to provide information useful for:

Investment decisions and credit decisions.

An adjusted trial balance:

Is a list of all accounts and their balances after adjusting entries.

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the total amount of Gotebo's liabilities following these six transactions?

Liabilities = ($12,000 + $300) = $12,300.

Purchasing office equipment on account has what impact on the accounting equation?

Liabilities increase and assets increase.

Creditors' claims to a corporation's resources are referred to as:

Liabilities.

The accounts that represent resources owed to creditors are called:

Liabilities.

Which of the following concepts suggests that expenses should be recognized in the same period as the revenues they help to generate?

Matching.

Which financial accounting number impacts stock prices more than any other single piece of information?

Net income.

Purchasing supplies for cash has what effect on the accounting equation?

No effect.

On January 1, Brad Inc. sold $30,000 in products to a customer on account. Then on January 10, Brad collected the cash on that account. What is the impact on Brad's accounting equation from the collection of cash on January 10?

No net effect on the accounting equation.

A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?

November

Consider the following transactions: Issued common stock for cash. Purchased equipment by signing a note payable. Provided services to customers on account. Collected cash from customers on account. How many of these four transactions increased the given company's total liabilities?

One. Purchased equipment by signing a note payable

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

One. Utilities Expense.

Which of the following would not typically be used as an adjusting entry? A. Rent Expense Prepaid Rent B. Cash Deferred Revenue C. Interest Expense Interest Payable D. Deferred Revenue Service Revenue

Option B

Which of the following transactions would cause a decrease in both assets and stockholders' equity?

Paying advertising for the current month.

Cash paid for which of the following activities would affect the amount reported for operating cash flows in the statement of cash flows?

Paying electricity bill for the month.

For accounting information to be relevant, it should possess which of the following characteristics?

Predictive value, confirmatory value, and/or materiality.

The conceptual framework's qualitative characteristic of relevance includes:

Predictive value.

Which of the following accounts will NOT be involved in closing entries?

Prepaid Insurance.

Which step in the process of measuring external transactions involves assessing the equality of total debits and total credits for the period?

Prepare a trial balance.

RE

R-E-D

SE

RE+CS

Which of the following describes the purpose(s) of closing entries?

Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period.

The assets of a company represent:

Resources that will be used to benefit the company.

The equation best describing the income statement is:

Revenues − Expenses = Net Income.

Which of the following best describes revenue?

Sales of goods and services to a customer.

Consider the following list of accounts: Cash Retained Earnings Service Revenue Utilities Expense Salaries Expense Accounts Receivable Accounts Payable Common Stock Equipment Dividends How many of these accounts have a normal debit balance?

Six. Cash, Salaries Expense, Equipment, Utilities Expense, Accounts Receivable, Dividends.

Generally Accepted Accounting Principles (GAAP) are best defined as:

Standards or methods for presenting financial accounting information.

Limited liability means:

Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket.

Which of the following best explains the meaning of total stockholders' equity?

The amount of capital invested by stockholders plus profits retained over the life of the company.

Which of the following statements is true regarding the post-closing trial balance?

The post-closing trial balance is an internal report prepared as the last step in the accounting cycle.

The following table contains financial information for Trumpeter's Inc. before closing entries: Cash $12,000 Supplies 4,500 Prepaid Rent 2,000 Salaries Expense 4,500 Equipment 65,000 Service Revenue 30,000 Miscellaneous Expense 20,000 Dividends 3,000 Accounts Payable 5,000 Common Stock 68,000 Retained Earnings 8,000 What is the amount of Trumpeter's total stockholders' equity?

Total stockholders' equity includes common stock plus (ending) retained earnings. Common stock is $68,000. Ending retained earnings = beginning retained earnings ($8,000) plus revenues ($30,000) less expenses ($24,500) less dividends ($3,000) = $10,500. Total stockholders' equity = $68,000 + $10,500 = $78,500.

Posting transactions to T-accounts involves:

Transferring debit and credit information from the journal to the accounts in the general ledger.

Consider the following transactions: Issued common stock for cash. Purchased equipment by signing a note payable. Paid rent for the current month. Collected cash from customers on account. How many of these four transactions increased the given company's total assets?

Two. (1) Issued common stock for cash and (2) purchased equipment by signing a note payable.

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.

Permanent accounts would not include:

Utilities Expense.

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits.

before; equality