Accounting Exam 1

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In​ 1990, Johnson Company purchased a building for $150,000. In​ 2017, a real estate professional says the building has a fair value of $1,500,000. In​ 2017, a similar building down the street recently sold for​ $900,000. What​ value, before consideration of accumulated​ depreciation, is reported for the building on the balance sheet at December​ 31, 2017?

$150,000

All of the following statements are true except one. Which statement is​ false? A. Adjusting entries are required for a business that uses the cash basis. B. Accrual accounting produces better information than​ cash-basis accounting. C. A fiscal year may end on some date other than December 31. D. The expense recognition principle directs accountants to identify and measure all expenses incurred and deduct them from revenues earned during the same period.

A. Adjusting entries are required for a business that uses the cash basis.

What is the effect on total assets and​ stockholders' equity of paying the telephone bill as soon as it is received each​ month? Total assets ​Stockholders' equity A. Decrease Decrease B. No effect Decrease C. Decrease No effect D. No effect No effect

A. Decrease Decrease

In the closing​ process, which accounts are​ credited? A. Depreciation​ Expense, Insurance​ Expense, Salary Expense B. Accumulated​ Depreciation, Insurance​ Expense, Salary​ Expense, Dividends C. Accounts​ Payable, Prepaid Insurance D. Service​ Revenue, Interest Revenue

A. Depreciation​ Expense, Insurance​ Expense, Salary Expense

Which of the following transactions will increase an asset and increase​ stockholders' equity? A. Performing a service on account for a customer B. Borrowing money from a bank C. Collecting cash from a customer on an accounts receivable D. Purchasing supplies on account

A. Performing a service on account for a customer

A business paid​ $1900 on account. The journal entry​ would: A. debit Accounts Payable for​ $1900 and credit Cash for​ $1900. B. debit Cash for​ $1900 and credit Accounts Payable for​ $1900. C. debit Accounts Receivable for​ $1900 and credit Revenue for​ $1900. D. debit Cash for​ $1900 and credit Retained Earnings for​ $1900.

A. debit Accounts Payable for​ $1900 and credit Cash for​ $1900.

The two types of accounting​ are: A. financial and management. B. bookkeeping and decision oriented. C. internal and external. D. profit and nonprofit.

A. financial and management.

The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase​ is: A. historical cost. B. objectivity. C. stable monetary unit. D. reliability.

A. historical cost.

A doctor performed surgery in March and did not receive cash from the patient until July. Under accrual​ accounting, the doctor recognizes​ revenue: A. in March. B. in July. C. in either March or July. D. at a time that cannot be determined from the facts.

A. in March.

An investment of cash by stockholders into the business will: A. increase​ stockholders' equity. B. decrease total liabilities. C. have no effect on total assets. D. decrease total assets.

A. increase​ stockholders' equity.

With an accrual of​ revenue: A. the cash is received after the revenue is recorded. B. plant assets can create an accrual adjustment. C. the cash is paid before the expense is recorded. D. prepaid expenses can create an accrual adjustment.

A. the cash is received after the revenue is recorded.

On December 1 of the current​ year, Prepaid Rent was debited $ 6 comma 000 for three months of​ rent, to cover the period December 1 to February 28. The amount of the adjusting entry on December 31​ is: A. $0. B. $2,000. C. $6,000. D. $4,000.

B. $2,000.

An adjusting entry that debits an expense and credits a liability is which​ type? A. Prepaid expense B. Accrued expense C. Cash expense D. Depreciation expense

B. Accrued expense

Which of the following statements is​ TRUE? A. Dividends increase retained earnings. B. Dividends reduce retained earnings. C. Dividends reduce net income. D. Dividends are expenses of a business.

B. Dividends reduce retained earnings.

Which statement about the statement of cash flows is​ FALSE? A. The payment of a note payable is a financing activity. B. Purchases and sales of long term assets are financing cash flows. C. Operating activities should be the​ company's main source of cash. D. The payment of a dividend is a financing cash flow.

B. Purchases and sales of long term assets are financing cash flows.

When a business purchases land with a note​ payable: A. assets are increased and liabilities are decreased. B. both assets and liabilities are increased. C. assets are decreased and​ stockholder's equity is increased. D. both assets and​ stockholders' equity are increased.

B. both assets and liabilities are increased

Smith​, ​Inc., purchased supplies for $1,100 during 2016. At yeardash​end, Smith had $500 of supplies left. The adjusting entry should: A. debit Supplies $ 600. B. debit Supplies Expense $600 C. debit Supplies $ 500. D. credit Supplies $ 500.

B. debit Supplies Expense $600.

Receiving cash from a customer on account will: A. decrease liabilities. B. have no effect on total assets. C. increase​ stockholders' equity. D. increase total assets.

B. have no effect on total assets.

Which financial statement answers the following​ question: How well did the company perform during the​ year? A. balance sheet B. income statement C. statement of cash flows D. statement of retained earnings

B. income statement

Purchasing a building for $80,000 by paying cash of $25,000 and signing a note payable for $55,000 will: A. decrease total assets and increase total liabilities by $25,000. B. increase both total assets and total liabilities by $55,000. C. increase both total assets and total liabilities by $80,000. D. decrease both total assets and total liabilities by $25,000.

B. increase both total assets and total liabilities by $55,000.

The accountant for Trumbull Corp. failed to make the adjusting entry to record depreciation for the current year. The effect of this error is which of the​ following? A. Assets and expenses are​ understated; net income is understated. B. Net income is overstated and liabilities are understated C. Assets, net​ income, and​ stockholders' equity are all overstated. D. Assets are​ overstated; stockholders' equity and net income are understated.

C. Assets, net​ income, and​ stockholders' equity are all overstated.

On October​ 1, 2016, Golde Company paid $24,600 for one year of insurance for the​ period, October​ 1, 2016 through September​ 30, 2017. Which of the following will be part of the adjusting entry on December​ 31, 2016? A. Debit Prepaid Insurance for $18,450 B. Debit Insurance Expense for $18,450 C. Debit Insurance Expense for $6,150 D. Debit Prepaid Insurance for $6,150

C. Debit Insurance Expense for $6,150

On December​ 15, 2017, a company receives an order from a customer for services to be performed on December​ 28, 2017. Due to a backlog of​ orders, the company does not perform the services until January​ 3, 2018. The customer pays for the services on January​ 6, 2018. The revenue principle requires the revenue to be recorded by the company​ on: A. January​ 6, 2018. B. December​ 15, 2017. C. January​ 3, 2018. D. December​ 28, 2017.

C. January​ 3, 2018.

On December​ 31, 2017, salaries owed to employees total $ 4 comma 750. These will be paid on January​ 4, 2018. An adjusted trial balance prepared on December​ 31, 2017, includes which of the​ following? A. Unearned​ Salaries, $4,750 B. Unearned​ Salaries, $4,750 and Salaries​ Payable, $4,750 C. Salaries​ Expense, $4,750 and Salaries​ Payable, $4,750 D. Salaries​ Payable, $4,750 and Unearned Salaries​ Revenue, $4,750

C. Salaries​ Expense, $4,750 and Salaries​ Payable, $4,750

On a trial​ balance, which of the following would indicate that an error has been​ made? A. Unearned Revenue has a credit balance. B. Salary Expense has a debit balance. C. Service Revenue has a debit balance. D. All of the above indicate errors.

C. Service Revenue has a debit balance.

In the closing​ process, which accounts are​ debited? A. Depreciation​ Expense, Insurance​ Expense, Salary​ Expense, Dividends B. Accounts​ Payable, Retained Earnings C. Service​ Revenue, Interest Revenue D. Depreciation​ Expense, Insurance​ Expense, Salary Expense

C. Service​ Revenue, Interest Revenue

The debt created by a business when it makes a purchase of inventory on account is​ a(n): A. note payable. B. account receivable. C. account payable. D. revenue.

C. account payable.

On August​ 1, 2016, Brian Quinn received​ $9600 for legal services to be performed evenly throughout the next twelve​ months, beginning August​ 1, 2016. An adjusted trial balance prepared on December​ 31, 2016 will show a credit balance in Unearned Revenue in the amount​ of: A. $0. B. $800. C. $4000. D. $5600.

D. $5600.

A company completed the following transactions during the month of​ October: I. Purchased office supplies on​ account, $5600. II. Provided services for​ cash, $22,000. III. Provided services on​ account, $36,000. IV. Collected cash from a customer on​ account, $27,000. V. Paid the monthly rent of​ $3800. What was the​ company's total revenue for the​ month? A. $22,000 B. $36,000 C. $85,000 D. $58,000

D. $58,000

Purchasing a laptop computer on account will: A. increase total assets. B. have no effect on​ stockholders' equity. C. increase total liabilities. D. All of the listed choices are correct.

D. All of the listed choices are correct.

Which of the following is not an asset​ account? A. Salary Expense B. Common Stock C. Service Revenue D. None of the listed accounts is an asset.

D. None of the listed accounts is an asset.

Performing a service on account will: A. increase total assets. B. increase​ stockholders' equity. C. increase total liabilities. D. accomplish both a and b.

D. accomplish both a and b.

The account Unearned Revenue is​ a(n) A. asset. B. revenue. C. expense. D. liability.

D. liability.

Verifiability means that the accounting​ information: A. is timely and understandable. B. is understandable. C. is material and relevant. D. must be capable of being checked for​ accuracy, completeness and reliability.

D. must be capable of being checked for​ accuracy, completeness and reliability.

The fair value of a plant asset is equal​ to: A. the amount a company can receive for the asset when sold in order to go out of business. B. the amount of cash paid plus the dollar value of noncash consideration given in exchange for the plant asset at acquisition. C. the amount of cash paid plus the loan taken out to finance the purchase of the plant asset. D. the amount the business could sell the asset for.

D. the amount the business could sell the asset for.

T/F: A balance sheet reports the​ company's financial position over a period of time.

False

T/F: Following current U.S.​ GAAP, the carrying value of a building can be increased to its fair value.

False

T/F: Prepaid rent is an expense because the payment provides a future benefit of the company.

False

T/F: Revenues and expenses are reported on both the income statement and the statement of retained earnings.

False

T/F: Accounting produces financial​ statements, which report information about a business.

True

T/F: Generally Accepted Accounting Principles​ (GAAP) require the use of accrual accounting.

True

T/F: In an unadjusted trial​ balance, the accounts are not yet ready for the preparation of the​ company's financial statements.

True

T/F: Stockholders have no personal obligation for the​ corporation's debts.

True

T/F: The decision framework for making ethical judgments provides general guidance for​ everyone, regardless of profession or industry.

True

T/F: The financial statements can be prepared from the adjusted trial balance.

True

T/F: The fundamental qualitative characteristics of accounting information are relevance and reliability.

True


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