Accounting exam 1

The journal for accounting purposes provides; A. The balances for each account. B. A list of all accounts used in the business. C. A chronological record of transactions. D. Information about a transaction in several different places.

C. A chronological record of transactions.

When Copper pays its employees $5,000 on January 1, 2021, how much would be recorded as salaries expense? a. $1,000. b. $4,000. c. $5,000. d. $2,000.

a. $1,000.

If Cal Corporation had net income for the year ended December 31, 2020 of $46,000, what would be the balance of Retained Earnings on December 31, 2020? a. $141,000. b. $31,000. c. $156,000. d. $151,000.

a. $141,000.

At the beginning of the year, January 1, 2020, DTO Inc. had a balance in retained earnings of $500. DTO had net income for the year of $300, and had an ending balance in retained earnings of $600. What is the amount of dividends paid by DTO during 2020? a. $200. b. $600. c. $100. d. $300.

a. $200.

XYZ Company purchases equipment for $50,000, paying $10,000 in cash and borrowing $40,000 from the bank as a note payable due in six months. What are the NET results to accounts? a. Assets will increase by $40,000, liabilities will increase by $40,000. b. Assets will increase by $50,000, liabilities will increase by $40,000, and expenses will increase by $10,000. c. Assets will increase by $50,000, liabilities will increase by $40,000, and stockholders' equity will increase by $10,000. d. Assets will increase by $50,000 and liabilities will increase by $50,000.

a. Assets will increase by $40,000, liabilities will increase by $40,000.

What is the Net Equipment that should be shown on a classified balance sheet at December 31, 2020? a. $60,000. b. $84,000. c. $108,000. d. $36,000.

d. $36,000.

ACC Corporation was formed on June 1, 2015 and uses a calendar year (January 1 through December 31) for its financial statements. For the calendar year ending December 31, 2020, ABC's Income Statement would show: a. Dated "for the year ended December 31, 2020". b. Dated "for the period June 15, 2015 through December 31, 2020". c. Dated "December 31, 2020". d. Has no date.

a. Dated "for the year ended December 31, 2020".

Buffet Corporation purchased an insurance policy on its office building on August 1, 2020. The policy is for a term of two years and the total premium paid on August 1 for the two-year policy was $12,000. The entry on August 1 was to debit the asset account Prepaid Insurance and credit cash for $12,000. What adjusting entry should be made on December 31, 2020 assuming no adjusting entry has been made prior to December 31, 2020? a. Insurance expense 2,500 Prepaid insurance 2,500 b. Insurance expense 500 Prepaid insurance 500 c. Prepaid insurance 2,500 Insurance expense 2,500 d. Insurance expense 2,000 Prepaid insurance 2,000

a. Insurance expense 2,500 Prepaid insurance 2,500

For questions 3-10, assume no monthly adjusting journal entries were made. Any adjusting journal entries should be made for the year ended December 31, 2020. Richards Corporation borrowed $105,000 on November 1, 2020 at 4% annual interest rate, due date May 1, 2021. The principal balance of the note plus interest for all six months is due on May 1, 2021. Richards makes its adjusting entries on December 31, 2020, none have been made earlier in the year. What adjusting entry would Richards Corporation make at December 31, 2020? a. Interest expense 700 Interest payable 700 b. Interest expense 4,200 Interest payable 4,200 c. Interest payable 700 Interest expense 700 d. Interest expense 1,400 Interest payable 1,400

a. Interest expense 700 Interest payable 700

On August 1, 2020, an architectural firm received an advance payment of $20,000 in cash for services to be performed in the future. The journal entry made on August 1, 2020 was: Cash 20,000 Unearned Service Revenue 20,000 What type of account is Unearned Service Revenue? a. Liability. b. Revenue. c. Asset. d. Expense.

a. Liability.

The four primary financial statements are interrelated. Which statement below is incorrect regarding the interrelationship of financial statements? a. Statement of Cash Flows is related to the Balance Sheet. b. The Income Statement is related to the Statement of Retained Earnings. c. The Balance Sheet is related to the Statement of Retained Earnings. d. The Income Statement is related to the Statement of Cash Flows.

a. Statement of Cash Flows is related to the Balance Sheet.

The terms Current Ratio and Working Capital have different meanings. Which statement below regarding these terms is incorrect? a. The Current Ratio is current liabilities divided by current assets. b. Working Capital is current assets minus current liabilities. c. The Current Ratio is a liquidity ratio that measures the company's ability to pay its bills in the short-run. d. If Working Capital is negative, the company might face severe short-term financial difficulties.

a. The Current Ratio is current liabilities divided by current assets.

Which of the following is an incorrect statement regarding the Income Statement? a. The Income Statement shows results of operations at a specific point in time. b. Presents revenues and expenses. c. Is used to predict future net income. d. Borrowing money from a bank is not reported on the Income Statement.

a. The Income Statement shows results of operations at a specific point in time.

1. Clark Corporation purchased equipment at a cost of $10,000 on January 1, 2016. The equipment has an estimated useful life of 10 years. Journal entries for depreciation were properly made for the four years 2016-2019. After the depreciation is recorded and posted for the year ended December 31, 2020, what are the balances for Depreciation Expense and Accumulated Depreciation? Depreciation Expense Accumulated Depreciation a. $5,000 $5,000 b. $1,000 $5,000 c. $1,000 $4,000 d. $4,000 $5,000

b. $1,000 $5,000

At the beginning of the year, January 1, 2020, XYZ Inc. has a balance in retained earnings of $120,000. XYZ had net income for the year of $300,000, issued additional common stock of $100,000, and paid dividends of $50,000. What is the ending balance of retained earnings at December 31, 2020? a. $200,000. b. $370,000. c. $420,000. d. $250,000

b. $370,000.

What is the net income for the year ended December 31, 2020? a. $206,000. b. $46,000. c. $60.000. d. $31,000.

b. $46,000.

What are the total liabilities as of December 31, 2020? a. $32,000. b. $52,000. c. $172,000. d. $104,000.

b. $52,000.

Below are the general ledger balances of Watson Corporation on June 30, 2020 in alphabetical order: Accounts payable $4,000 Rent expense $ 8,000 Accounts receivable 7,000 Retained earnings 10,000 Cash 4,000 Salaries expense 16,000 Common Stock 6,000 Service revenue 34,000 Equipment 19,000 What is the total balance of each column of the trial balance for Watson corporation at June 30, 2020? a. $47,000. b. $54,000. c. $58,000. d. $64,000.

b. $54,000.

1. Earnings per share (EPS) is computed as follows: EPS = (Net income - Preferred Stock dividends)/Weighted average of common stock shares outstanding If Smith Corporation had net income of $1,000,000 in 2020 and had common stock of 100,000 shares at January 1, 2020 and issued an additional 60,000 shares on October 1, 2020, what would Smith's EPS be for 2020? a. $6.25. b. $7.69. c. $12.50. d. $10.00.

b. $7.69.

Which statement below regarding closing entries is NOT correct? a. Closing entries transfer net income to retained earnings at the end of the year. b. Asset and liability accounts are closed at the end of the year. c. Closing an account is simply making the balance to zero in the account. d. Revenue, expense, and dividend accounts are called temporary accounts and are the only accounts closed at the end of the year.

b. Asset and liability accounts are closed at the end of the year.

If a company fails to record service revenue performed on account (i.e., accounts receivable), then: a. Net income on the income statement will be overstated. b. Assets on the balance sheet will be understated. c. Liabilities on the balance sheet will be understated. d. Revenue on the income statement will be overstated.

b. Assets on the balance sheet will be understated.

Which form of organization has the attributes of 1) limited liability for owners of the organization, and 2) ease of raising capital? a. Sole proprietorship b. Corporation c. Limited liability company d. Partnership

b. Corporation

Which statement below regarding the Statement of Retained Earnings is incorrect? a. Retained earnings reflects net income less dividends since the inception of the corporation. b. Retained earnings reflects the amount of cash the corporation has at the current time. c. Retained earnings is interrelated with the Income Statement. d. A corporation cannot pay more dividends than the balance of retained earnings.

b. Retained earnings reflects the amount of cash the corporation has at the current time

Bullet Corporation is a consulting firm and on September 18, 2020 received a payment of $48,000 for services to be performed over the next 4 months beginning October 1, 2020. The services will be performed evenly over the next four months. The entry made by Bullet on September 18 was: Cash 48,000 Unearned service revenue 48,000 No adjusting entries have been made prior to December 31, 2020. What adjusting entry should be made on December 31, 2020? a. Service revenue 36,000 Unearned service revenue 36,000 b. Unearned service revenue 36,000 Service revenue 36,000 c. Cash 36,000 Service revenue 36,000 d. Unearned service revenue 12,000 Service revenue 12,000

b. Unearned service revenue 36,000 Service revenue 36,000

Below is an adjusted trial balance at December 31, 2020 with totals of each column of $. After closing entries are made, what will be the totals for the debit and credit columns of the post-closing trial balance? ADJUSTED TRIAL BALANCE Debit Credit Cash 3,000 Accounts receivable 10,000 Machinery 25,000 Accumulated depreciation - machinery 8,000 Accounts payable 6,000 Unearned service revenue 5,000 Common stock 8,000 Retained earnings 7,000 Dividends 1,000 Service revenue 40,000 Salaries expense 15,000 Rent expense 20,000 _____ TOTALS 74,000 74,000 a. $74,000. b. $30,000. c. $38,000. d. $39,000.

c. $38,000.

What is the amount of current assets at December 31, 2020? a. $65,000. b. $40,000. c. $70,000. d. $130,000.

c. $70,000.

Using the information in Question 4 above, after the October 10 entry was posted into the general ledger accounts, what is the balance in the Accounts Receivable account on October 10? a. $18,500. b. $10,000. c. $8,500. d. $0.

c. $8,500.

For Buffet Corporation above, after the proper adjusting entry on December 31, 2020, what is the balance in the Prepaid Insurance account? a. $10,000. b. $2,500. c. $9,500. d. $7,000.

c. $9,500.

Accumulated depreciation is: a. A liability account. b. A temporary account. c. A contra-asset account. d. An expense account.

c. A contra-asset account.

Which of the following accounts is NOT closed at the end of the year? a. Service revenue. b. Dividends. c. Accounts payable. d. Insurance expense.

c. Accounts payable.

The usual sequence of steps in the process of recording of transactions is: a. Journalize, analyze transaction, post to the ledger. b. Journalize, post to the ledger, analyze transaction. c. Analyze transaction, journalize, post to the ledger. d. Post to the ledger, journalize, analyze transaction.

c. Analyze transaction, journalize, post to the ledger.

Which of the following statements is correct regarding current assets? a. Current assets include Long-term Investments. b. Current assets include Accumulated Depreciation. c. Current assets are listed on the Balance Sheet in the order of liquidity. d. Supplies are not considered a current asset.

c. Current assets are listed on the Balance Sheet in the order of liquidity.

Gold Corporation purchases equipment on July 1, 2020 for $24,000. The equipment has an estimated useful life of 5 years and is depreciated using the straight-line method. What is the correct adjusting entry for depreciation for the year ended December 31, 2020? a. Depreciation expense 4,800 Equipment 4,800 b. Accumulated depreciation 4,800 Depreciation expense 4,800 c. Depreciation expense 2,400 Accumulated depreciation 2,400 d. Depreciation expense 4,800 Accumulated depreciation 4,800.

c. Depreciation expense 2,400 Accumulated depreciation 2,400

Which statement below regarding the Balance Sheet is incorrect? a. The Balance sheet reports assets, liabilities, and stockholders' equity at a specific point in time. b. Assets are listed in the order of liquidity. c. Revenues and expenses are shown on the Balance Sheet. d. Two groups have claims on the assets of a corporation: 1) claims of creditors (liabilities) and 2) claims of owners (stockholders' equity).

c. Revenues and expenses are shown on the Balance Sheet.

Copper Inc has a daily payroll of $1,000, or $5,000 per week. Employees are paid every Friday for the week (Monday through Friday). December 31, 2020 falls on Thursday. What adjusting journal entry should Copper make on December 31, 2020 with regard to the salaries earned by the employees in 2020 that have not been paid? a. Salaries payable 1,000 Salaries expense 1,000 b. Salaries expense 1,000 Salaries payable 1,000 c. Salaries expense 4,000 Salaries payable 4,000 d. Salaries payable 4,000 Salaries expense 4,000

c. Salaries expense 4,000 Salaries payable 4,000

Four types of financial statements are required to be in accordance with generally accepted accounting principles (GAAP) for purposes of financial reporting. Which statement below is not one of the four required statements? a. Statement of Cash flows. b. Income Statement. c. Statement of Liabilities. d. Retained Earnings.

c. Statement of Liabilities.

All companies maintain a general ledger. Which of the following statements is incorrect regarding ledger accounts and the general ledger? a. Every asset, liability, stockholders' equity, revenue, and liability account has a separate ledger account. b. Journal entries are posted into the appropriate ledger accounts. c. The general ledger contains only asset, liability, and stockholders' equity accounts. d. Ledger accounts provide the balance in each of the accounts as well as keeps track of changes to these account balances.

c. The general ledger contains only asset, liability, and stockholders' equity accounts.

Which of the following error would be detectable from the trial balance? a. The payment of salaries expense was recorded by a $10,000 debit to the Cash account and a $10,000 credit to the Salaries Expense account. b. The providing of services on account for $5,000 that was not recorded at all. c. The sale of a building for $600,000 cash that was recorded with a debit to the Building account and a $600,000 debit to the Cash account. d. The purchase of machinery for $50,000 that was recorded by a debit to the Land account and a $50,000 credit to the Cash account.

c. The sale of a building for $600,000 cash that was recorded with a debit to the Building account and a $600,000 debit to the Cash account.

1. Aggie Inc. provides consulting services. Aggie signed a contract on November 1, 2020 to provide services for a client for $10,000 per month for 18 months. The consulting services will begin on November 1, 2020 and Aggie will send monthly invoices at the end of each month. Aggie sent an invoice for $10,000 to the client on December 3, 2020 for the month of November and the amount was paid by the client on December 9. Services were provided in December, 2020 but the invoice was not prepared for the month of December until January 3, 2021. What adjusting entry, if any, should Aggie make on December 31, 2020? a. No entry necessary. b. Service Revenue 10,000 Accounts receivable 10,000 c. Cash 10,000 Service revenue 10,000 d. Accounts receivable 10,000 Service Revenue 10,000

d. Accounts receivable 10,000

1. The basic accounting equation is: a. Assets = Liabilities + Revenues. b. Assets = Liabilities + Net Income. c. Assets + Liabilities = Stockholders' Equity. d. Assets = Liabilities + Stockholders' Equity.

d. Assets = Liabilities + Stockholders' Equity.

1. Earnest & Olde (E&O) is a CPA firm. On October 1, 2020, E&O sent invoices in the amount of $18,500 to clients for which accounting services had been provided. E&O made the following journal entry on October 1, 2020: Accounts Receivable 18, 500 Service Revenue 18,500 On October 10, E&O received checks from some of the clients in the amount of $10,000. The journal entry to be made by E&O on October 10 is: a. Accounts Receivable 10,000 Cash 10,000 b. Accounts Receivable 8,500 Cash 8,500 c. Cash 10,000 Service Revenue 10,000 d. Cash 10,000 Accounts Receivable 10,000

d. Cash 10,000 Accounts Receivable 10,000

The effect of declaring and paying a cash dividend will: a. Increase common stock. b. Decrease common stock. c. Increase retained earnings. d. Decrease retained earnings.

d. Decrease retained earnings.

A current asset is: a. Normally found as the last item in the Assets section of the Balance Sheet. b. An asset which is currently being used to produce a product or service. c. Usually found as a separate classification on the Income Statement. d. Expected to be converted to cash or used in the business within one year.

d. Expected to be converted to cash or used in the business within one year.

The Haggin Company performed and completed a service for a customer and sent an invoice to the customer for $7,200. What is the effect of this transaction? a. Decrease in current assets and an increase to service revenue. b. No effect on current assets or service revenue. c. Unable to determine with the information provided. d. Increase in current assets and to service revenue.

d. Increase in current assets and to service revenue.

The Statement of Retained Earnings begins with the beginning balance. To arrive at the ending balance, which of the following statements is correct? a. Is computed by adding net income and adding dividends. b. Is computed by deducting net income and deducting dividends. c. Is computed by deducting net income and adding dividends. d. Is computed by adding net income and deducting dividends.

d. Is computed by adding net income and deducting dividends.

When Richards Corporation in the question above pays the loan back plus the interest, what journal entry would be made on May 1, 2021? (numbers omitted) a. Interest expense Interest payable Note payable Cash b. Interest expense Interest payable Note Payable Cash c. Note payable Interest expense Interest payable Cash d. Note payable Interest expense Interest payable Cash

d. Note payable Interest expense Interest payable Cash

Slider Corporation had office supplies (asset account) on hand at January 1, 2020 of $3,000 and during the 2020 year, the corporation purchased $17,000 of additional office supplies. Bullet had $2,000 of office supplies on hand at December 31, 2020. No adjusting journal entry has been made prior to December 31, 2020. What should be the adjusting entry on December 31, 2020? a. Office supplies 2,000 Office supplies expense 2,000 b. Office supplies expense 17,000 Office supplies 17,000 c. Office supplies expense 20,000 Office supplies 20,000 d. Office supplies expense 18,000 Office supplies 18,000

d. Office supplies expense 18,000 Office supplies 18,000

There are two overall methods of accounting, cash basis and accrual basis. Three of the transactions below describe the accrual basis of accounting. Which transaction below is not connected with the accrual basis of accounting? a. Revenues are recognized when services are performed, not necessarily when cash is received. b. When equipment is purchased, it is expensed over its useful life through depreciation rather than expensing the total cost in the year of purchase. c. Expenses are recognized when the corresponding liability is incurred, not necessarily when the cash is spent. d. Service revenues are recognized when cash payments are received from customers, not necessarily when the services are performed.

d. Service revenues are recognized when cash payments are received from customers, not necessarily when the services are performed.

A trial balance proves: a. That all transactions have been posted. b. That all transactions have been recorded correctly. c. The ledger is posted correctly. d. The mathematical equality of debits and credits after the posting process.

d. The mathematical equality of debits and credits after the posting process.

Which statement below is incorrect regarding depreciation and accumulated depreciation? a. Depreciation is the allocation of the cost of an asset over its useful life to the business. b. Accumulated depreciation is the total depreciation that has been expensed since the asset was acquired. c. The account Accumulated Depreciation is subtracted from the cost of the asset in the Balance Sheet as a contra asset. d. The purpose of depreciation is to adjust the asset to its fair market value at the balance sheet date

d. The purpose of depreciation is to adjust the asset to its fair market value at the balance sheet date