Accounting 1 Exam 1

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

$1,200

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

$1200

On January 1, Eastern College received $1,200,000 from its students for the spring semester that it recorded in Unearned Tuition and Fees. The term spans four months beginning on January 2 and the college spreads the revenue evenly over the months of the term. Assuming the college prepares adjustments monthly, what amount of tuition revenue should the college recognize on February 28?

$300000

A company pays its employees $4,000 each Friday, which amounts to $800 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is:

$3200

A company's balance sheet shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?

$32000

The Unadjusted Trial Balance columns of a company's work sheet shows the Store Supplies account with a balance of $750. The Adjustments columns shows a credit of $425 for supplies used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the work sheet is:

$325 debit

On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What amount of the insurance expense will be reported on the annual income statement for the first year ended December 31?

$337.50

On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Otisco Publishing Company for the first year of the subscription assuming the company uses a calendar-year reporting period?

$387

On May 1, a two-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

$6000

Savvy Sightseeing had beginning equity of $72,000; revenues of $90,000, expenses of $65,000, and dividends to stockholders of $9,000; there were no stock issuances. Calculate the ending equity.

$88,000

Identify the statement below that is incorrect.

1. The normal balance of accounts receivable is a debit. 2. The normal balance of dividends is a debit. 3. The normal balance of unearned revenues is a credit. 4. The normal balance of an expense account is a credit. 5. The normal balance of the common stock account is a credit.

A company earned $3,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

30%

A company had $6,992,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin:

46%

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.

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

A debit to Salaries Payable and a credit to Cash.

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

A debit to Unearned Rent and a credit to Rent Revenue for $2,400.

On July 1 Olive Co. paid $7,500 cash for management services to be performed over a two-year period. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Olive should record:

A debit to a prepaid expense and a credit to Cash for $7,500.

On July 1 of the current calendar year, Olive Co. paid $7,500 cash for management services to be performed over a two-year period beginning July 1. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Olive would include:

A debit to an expense and a credit to a prepaid expense for $1,875.

FASB

A group that sets accounting principles in the United States

A company's ledger is:

A record containing all accounts and their balances used by the company

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

Account

Public Accountant

Accounting professionals who provide services to many clients

The accounting process begins with:

Analysis of business transactions and source documents

Langley has a debt ratio of 0.3 and its competitor, Appleton, has a debt ratio equal to 0.7. Determine the statement below that is correct.

Appleton's financial leverage is greater than Langley's financial leverage.

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

Assets, net income, and equity overstated.

Adjusting entries made at the end of an accounting period accomplish all of the following except:

Assuring that external transaction amounts remain unchanged.

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Book Value

Marsha Bogswell is the sole stockholder of Bogswell Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services?

Business Entity Assumption

Which of the following does not require an adjusting entry at year-end?

Cash invested by stockholders

A company's list of accounts and the identification numbers assigned to each account is called a:

Chart of Accounts

Palmer Company is at the end of its annual accounting period. The accountant has journalized and posted all external transactions and all adjusting entries, has prepared an adjusted trial balance, and completed the financial statements. The next step in the accounting cycle is:

Close Temporary Accounts

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

Contra Account

GreenLawn Co. provides landscaping services to clients. On May 1, a customer paid GreenLawn $60,000 for 6-months services in advance. GreenLawn's general journal entry to record this transaction will include a:

Credit to Unearned Revenue for $60,000.

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.

A company pays each of its two office employees each Friday at the rate of $100 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

Debit Salaries Expense $400 and credit Salaries Payable $400.

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Debit Unearned Legal Fees and credit Legal Fees Earned.

On December 31, Carmack Company received a $215 utility bill for December that it will not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:

Debit Utilities Expense $215; credit Accounts Payable $215.

Edison Consulting received a $300 utilities bill and immediately paid it. Edison's general journal entry to record this transaction will include a:

Debit to Utilities Expense for $300

Jose Consulting paid $500 cash for utilities for the current month. Determine the general journal entry that Jose Consulting will make to record this transaction.

Debit utility expense, credit cash

A credit entry

Decreases asset and expense accounts, and increases liability, common stock, and revenue accounts.

Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

Depreciation Expense-Office Equipment.

Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

Dividends

The closing process is necessary in order to:

Ensure that net income or net loss and dividends for the period are closed into the retained earnings account.

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Expense recognition principle

The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the:

FASB

True or False Before an adjusting entry is made to recognize the cost of expired insurance for the period, Prepaid Insurance and Insurance Expense are both overstated

False

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption

Closing the temporary accounts at the end of each accounting period does all of the following except:

Has no effect on the retained earnings account.

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

Is referred to as accumulated depreciation.

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

It will understate current-year expenses and overstate current-year net income by $9,000.

A business's source documents may include all of the following except

Ledgers

Total Assets

Liabilities + Owner's Equity

Unearned revenues are generally:

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

Budgeting is

Managerial Accounting

Internal auditing is

Managerial Accounting

Cost Accounting

Managerial accounting which calculates, records and controls the operating costs of producing goods or services.

Areas of accounting

Managerial, tax, financial

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Measurement Cost Principle

An example of a financing activity is

Obtaining a long-term loan.

Which of the following is classified as a current asset?

Office Supplies

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

Overstate net income by $28,000.

An example of an operating activity is

Paying wages

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

A business source document:

Provide objective evidence that a transaction has taken place.

External users of accounting information include all of the following except:

Purchasing manager

The main purpose of adjusting entries is to:

Record internal transactions and events

The question of when revenue should be recognized on the income statement according to GAAP is addressed by the:

Revenue recognition principle

Net Income Equation

Revenues - Expenses

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

Salaries expense: Debit $1200 Salaries payable: Debit $1800 Cash: Credit $3000

A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error?

Supplies, overstated $130; Fees Earned, overstated $130.

A double-entry accounting system is an accounting system

That records the effect of each transaction in at least two accounts with equal debits and credits.

The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

The Accounting Cycle

While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the Equipment account. The effect of this error will be that:

The trial balance will not balance

Debt Ratio

Total liabilities/total assets

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

True

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

Wages Expense

On December 1, Orenthal Marketing Company received $3,600 from a customer for a 2-month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31 would include:

a debit to Unearned Fees for $1,800.

Net Income

amount a business earns in excess of all expenses and cost associated with its sales and revenues

Audit

an assessment of whether financial statements follow GAAP

Current Ratio

current assets /current liabilities

The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

debit Salary Expense, $9,000; credit Salaries Payable, $9,000

On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the second year?

debit Unearned Fees, $516; credit Fees Earned, $516.

Analyzing external financial reports

financial accounting

External Auditing

financial accounting

Preparing external financial statements

financial accounting

Return on Assets (ROA)

net income/average total assets

Profit Margin Ratio

net income/net sales

Ethics

principles that determine whether an action is right or wrong

An example of an investing activity is

purchase of land

A business uses a credit to

record a decrease in an asset account

Enforcing tax law is

tax accounting

Planning transactions to minimize taxes

tax accounting

An account balance is

the difference between the total debits and total credits for an account including the beginning balance.

A debit

the left side of an T account