accounting exam 2 review questions

During April, the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount. The company uses accrual basis accounting. The cost of fertilizer recorded: A .as an asset, which will later be reduced as the fertilizer is used. B. as a liability, which will later be reduced as the fertilizer used. C. immediately as an expense. D. partially as an expense and partially as a liability.

A .as an asset, which will later be reduced as the fertilizer is used.

At the beginning of its first year of operations, Henry Corp. purchased $5,000 of supplies,which were debited to the Supplies account. It did not purchase any other supplies during theyear. At the end of the year, it has $1,000 of supplies left. The appropriate adjusting journal entry is: A) Debit Supplies Expense $4,000 and credit Supplies $4,000 B) Debit Supplies $4,000 and credit Supplies Expense $4,000 C) Debit Supplies $1,000 and credit Supplies Expense $1,000 D) Debit Supplies Expense $1,000 and credit Supplies $1,000

A) Debit Supplies Expense $4,000 and credit Supplies $4,000

An example of an account that could be included in an accrual adjustment for revenue is: A) Interest Receivable. B) Interest Payable. C) Unearned Revenue. D) Cash.

A) Interest Receivable.

The deferral adjustment to record the amount of deferred service revenue that is now earned includes a: A) debit to Deferred Revenue B) credit to Deferred Revenue C) debit to Service Revenue D) credit to Accounts Receivable

A) debit to Deferred Revenue

How can accrual adjustments for interest earned but not yet collected affect the balance sheet and the income statement? A. Accrual adjustments can increase assets and increase revenues. B. Accrual adjustments can increase liabilities and decrease expenses. C. Accrual adjustments can decrease assets and decrease expenses. D. Accrual adjustments can increase assets and increase expense

A. Accrual adjustments can increase assets and increase revenues.

Goods available for sale equals: A. Cost of Goods Sold plus ending inventory. B. Cost of Goods Sold minus ending inventory. C. Beginning inventory plus Cost of Goods Sold. D. Beginning inventory plus Purchases minus Cost of Goods Sol

A. Cost of Goods Sold plus ending inventory.

The deferral adjustment to record the amount of unearned service revenue that is now earned includes a: A. Debit to Unearned Revenue B. Credit to Unearned Revenue C. Debit to Service Revenue D. Credit to Accounts Receivable

A. Debit to Unearned Revenue

Which of the following steps is performed first at the end of each accounting period? A. Prepare adjusting entries. B. Prepare an adjusted trial balance. C. Prepare closing journal entries. D. Prepare a post-closing trial balance.

A. Prepare adjusting entries.

Beyer Company bought inventory from Sellar Company, FOB destination. On December 31, the last dayof the accounting year, the goods were on a truck owned by Common Carrier, Inc., and not expected toarrive until January 2. Which company should include these goods in its December 31 inventory? A. Sellar B. Beyer C. Common Carrier D. None of them should include these goods in inventor

A. Sellar

If a company forgot to prepare an adjusting entry to record salaries and wages incurred but unpaid at the end of the period, Total Liabilities would be understated and Retained Earnings would be overstated on the Balance Sheet. A. True B. False

A. True

It is possible for a company to be profitable, yet not have enough cash to pay its bills. A. True B. False

A. True

The adjusting entry to record services earned but not yet billed requires: A. a debit to Accounts Receivable and credit to Service Revenue B. a debit to Service Revenue and credit to Accounts Receivable C. a debit to Accounts Payable and credit to Service Revenue D. no entry since revenues should not be recorded until collected

A. a debit to Accounts Receivable and credit to Service Revenue

The accrual adjustment recorded to adjust for revenues earned but not yet collected will cause: A. assets to increase B. assets to decrease C. liabilities to increase D. liabilities to decrease

A. assets to increase

A closing entry includes a: A. debit to Sales Revenue B. credit to Cash. C. credit to Accounts Receivable. D. debit to Interest Expense.

A. debit to Sales Revenue

When using a perpetual inventory system, the Cost of Goods Sold is recorded: A. each time a sale is made. B. at the end of each month. C. at the end of the accounting period. D. at the end of each day

A. each time a sale is made.

Permanent accounts are found on: A. the balance sheet. B. the income statement. C. both the balance sheet and the income statement. D. none of the financial statements.

A. the balance sheet.

Which financial statement reports the dividends during the current accounting period? A) Dividends are reported on the Income Statement. B) Dividends are reported on the Statement of Retained Earnings. C) Dividends are reported on the Balance Sheet. D) Dividends are not reported on any of the financial statements.

B) Dividends are reported on the Statement of Retained Earnings.

An example of an account that could be included in an accrual adjustment for expense is: A) Accounts Receivable. B) Interest Payable. C) Prepaid Insurance. D) Accumulated Depreciation.

B) Interest Payable.

A company reports Equipment on its classified balance sheet. The balance of theAccumulated Depreciation account appears on a classified balance sheet as: A) an addition to arrive at the amount of Equipment, Net. B) a subtraction to arrive at the amount of Equipment, Net C) part of Total Liabilities section. D) a subtraction in the Total Liabilities section.

B) a subtraction to arrive at the amount of Equipment, Net

The Sales Revenue account has a credit balance of $367,200 at year end. After the closing entries have been posted, the account will: A) have a debit balance of $367,200. B) have a zero balance. C) still have a credit balance of $367,200. D) be removed entirely from the general ledger.

B) have a zero balance.

Under the periodic inventory system: A) inventory records are updated immediately after each purchase. B) inventory must be counted at the end of each accounting period. C) inventory does not have to be counted. (It can be taken from the accounting records.) D) inventory levels must be counted every day.

B) inventory must be counted at the end of each accounting period.

Boron Company has sales of $60,000, beginning inventory of $7,000, purchases of $35,000, and ending inventory of $5,000. The cost of goods sold is: A. $42,000 B. $37,000 C. $23,000 D. $33,000

B. $37,000

All of the following accounts will have zero balances on a post-closing trial balance except: A. Dividends. B. Accumulated Depreciation. C. Salaries and Wages Expense. D. Sales Revenue

B. Accumulated Depreciation.

Which of the following statements about the closing process is correct? A. Closing entries are recorded at the end of each reporting period which could be monthly, quarterly or annually. B. After closing entries are posted, the balances of the income statement accounts will be zero. C. Closing entries are made to zero out the balances of the permanent accounts on the balance sheet. D. After closing entries are posted, the only temporary account with a balance is the Dividends account.

B. After closing entries are posted, the balances of the income statement accounts will be zero.

A company sells goods at a selling price of $20,000. The cost of the goods is $15,000. Under a perpetual inventory system, the journal entries prepared to record the sale will include one with a debit to: A. Inventory and a credit to Sales Revenue for $15,000. B. Cost of Goods Sold and a credit to Inventory for $15,000. C. Inventory and credit to Sales Revenue for $20,000. D. Cost of Goods Sold and a credit to Sales Revenue for $15,00

B. Cost of Goods Sold and a credit to Inventory for $15,000.

Assuming that revenues exceed expenses, which of the following correctly indicates the structure of the journal entry that is used to close revenue and expense accounts? A. Debit Retained Earnings, credit Expenses, and credit Revenues B. Debit Revenues, credit Expenses, and credit Retained Earnings C. Debit Revenues, debit Expenses, and credit Retained Earnings D. Debit Expenses, credit Revenues, and credit Retained Earnings

B. Debit Revenues, credit Expenses, and credit Retained Earnings

In a period of rising prices, the inventory costing method that will cause the company to have the lowest cost of goods sold is: A. LIFO. B. FIFO. C. Weighted average. D. Specific identification

B. FIFO.

Adjusting entries often involve cash. A. True B. False

B. False

Depreciation is a measure of the decline in market value of an asset. A. True B. False

B. False

One of the purposes of the closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period. A. True B. False

B. False

Which is the first financial statement that should be prepared after the adjusted trial balance has been prepared? A. Balance Sheet B. Income Statement C. Statement of Cash Flows D. Statement of Retained Earnings

B. Income Statement

How does the adjustment for depreciation differ from other deferral adjustments? A. The depreciation adjustment results in an increase to a long-lived asset account while the other deferral adjustments reduce asset accounts. B. The depreciation adjustment uses a contra-asset account rather than reducing the asset accounts directly. C. The depreciation adjustment increases a liability account rather than reducing an asset account directly. D. The depreciation adjustment is not a deferral adjustment, but rather an accrual adjustme

B. The depreciation adjustment uses a contra-asset account rather than reducing the asset accounts directly.

On July 1, Darin Company sold inventory costing $4,500 to Dee Company for $6,000, terms2/10, n/30. Both companies use a perpetual inventory system. What journal entry will be recorded by Dee Company on July 1 assuming they use the gross method? A) Debit Purchases and credit Accounts Payable for $6,000 B) Debit Inventory and credit Accounts Receivable for $6,000 C) Debit Inventory and credit Accounts Payable for $6,000 D) Debit Cost of Goods Sold and credit Inventory for $4,500

C) Debit Inventory and credit Accounts Payable for $6,000

Which of the following statements is correct? A) FIFO results in a lower net income than LIFO when costs are rising. B) LIFO results in a higher net income than FIFO when costs are rising. C) LIFO results in a higher net income than FIFO when costs are falling. D) LIFO results in the same net income as FIFO when costs are rising.

C) LIFO results in a higher net income than FIFO when costs are falling.

The company uses up $5,000 of an existing asset and the company adjusts its accounts accordingly. This is an example of a(n): A) accrual adjustment. B) closing adjustment. C) deferral adjustment. D) unethical adjustment.

C) deferral adjustment.

Assume a periodic inventory system is used. The LIFO inventory costing method assumes that the cost of the units most recently purchased is the: A) last to be assigned to cost of goods sold. B) first to be assigned to ending inventory. C) first to be assigned to cost of goods sold. D) last to be assigned to units available for sale.

C) first to be assigned to cost of goods sold.

On December 31, the Human Bean Coffee Shop paid $12,000 for a full year of rent beginning on January 1. The rent payment was appropriately recorded in then Cash and Prepaid Rent accounts. If financial statements are prepared on January 31, the journal entry to record the adjustment would be: A. Debit Rent Expense and credit Prepaid Rent for $12,000. B. Debit Prepaid Rent and credit Rent Expense for $12,000. C. Debit Rent Expense and credit Prepaid Rent for $1,000. D. Debit Prepaid Rent and credit Rent Expense for $1,000.

C. Debit Rent Expense and credit Prepaid Rent for $1,000.

Which of the following will occur when inventory costs are decreasing? A. FIFO will result in a lower net income but a higher ending inventory than will LIFO. B. FIFO will result in a higher net income but a lower ending inventory than will LIFO. C. FIFO will result in a lower net income and a lower ending inventory than will LIFO. D. FIFO will result in a higher net income and a higher ending inventory than will LIF

C. FIFO will result in a lower net income and a lower ending inventory than will LIFO.

3. When a deferral adjustment is made to an liability account, that liability becomes a(n) A. Liability B. Other Asset C. Revenue D. Expense

C. Revenue

In order to calculate shrinkage: A. both periodic and perpetual inventory systems are needed. B. a periodic inventory system is more effective. C. a perpetual inventory system requires an occasional count of actual inventory. D. it does not matter which system one uses

C. a perpetual inventory system requires an occasional count of actual inventory.

An adjusted trial balance should be prepared immediately: A. after the financial statements, but before closing. B. before posting adjusting entries. C. after posting adjusting entries. D. after journalizing adjusting entries

C. after posting adjusting entries.

Closing entries: A. are prepared before financial statements are prepared. B. reduce the number of permanent accounts. C. cause the revenue and expense accounts to have zero balances. D. summarize the activity in every account

C. cause the revenue and expense accounts to have zero balances.

A contra-account: A. increases the original value of the account to which it relates. B. always appears in the same column of the trial balance as the account to which it relates. C. offsets, or reduces, another account. D. reduce the asset to its fair value

C. offsets, or reduces, another account.

A company makes a deferral adjustment that decreased a liability. This must mean that a(n): A. expense account was decreased by the same amount. B. expense account was increased by the same amount. C. revenue account was increased by the same amount. D. revenue account was decreased by the same amount.

C. revenue account was increased by the same amount.

Temporary accounts are closed at what stage of the accounting process? A) At the time that adjustments are made. B) After adjustments are made and before the income statement is prepared. C) After the income statement and the statement of retained earnings are prepared, but before the balance sheet is prepared. D) As the last journal entries at the end of each accounting year.

D) As the last journal entries at the end of each accounting year.

If merchandise purchased on credit is returned to the seller for a full refund, what would be the effect on the accounts listed below? A) Increase Inventory; No effect on Cost of Goods Sold; Decrease Accounts Payable B) Decrease Inventory; Decrease Cost of Goods Sold; No effect on Accounts Payable C) No effect on Inventory; Decrease Cost of Goods Sold; Decrease Accounts Payable D) Decrease Inventory; No effect on Cost of Goods Sold; Decrease Accounts Payable

D) Decrease Inventory; No effect on Cost of Goods Sold; Decrease Accounts Payable

.The specific identification method would probably be most appropriate for which of the following goods? A) Boxes of brass 4-inch drywall screws at Home Depot B) Bottles of suntan lotion in Wal-Mart's central warehouse C) Sets of tires at the Goodyear plant D) Diamond necklaces at a Tiffany & Co. jewelry store

D) Diamond necklaces at a Tiffany & Co. jewelry store

Which inventory system updates the inventory account only at the end of the accounting period? A) LIFO B) Perpetual C) FIFO D) Periodic

D) Periodic

Adjusting entries affect: A) only balance sheet accounts. B) only income statement accounts. C) only statement of cash flow accounts. D) both income statement and balance sheet accounts

D) both income statement and balance sheet accounts

If a company's ending inventory count was $50,000, cost of goods sold was $27,000, and purchases were $56,000, its beginning inventory must have been: A. $33,000. B. $133,000. C. $79,000. D. $21,000

D. $21,000

When goods are sold to a customer with credit terms of 2/15, n/30, the customer will receive a: A. 15% discount if they pay within 2 days. B. 2% discount if they pay 15% of the amount due within 30 days. C. 15% discount if they pay within 30 days. D. 2% discount if they pay within 15 days

D. 2% discount if they pay within 15 days

Which account below is a temporary account? A. Note Payable B. Deferred Revenue C. Accounts Receivable D. Depreciation Expense

D. Depreciation Expense

The specific identification method would probably be most appropriate for which of the following goods? A. Boxes of brass 4-inch drywall screws at Home Depot B. Bottles of suntan lotion in Wal-Mart's central warehouse C. Sets of tires at the Goodyear plant D. Diamond necklaces at a Tiffany & Co. jewelry store

D. Diamond necklaces at a Tiffany & Co. jewelry store

When a deferral adjustment is made to an asset account, that asset becomes a(n) A. Liability B. Other Asset C. Revenue D. Expense

D. Expense

One major difference between deferral and accrual adjustments is that: A. accrual adjustments affect income statement accounts and deferral adjustments affect balance sheet accounts. B. deferral adjustments increase net income and accrual adjustments decrease net income. C. deferral adjustments are made under the cash basis of accounting and accrual adjustments are made under the accrual basis of accounting. D. accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions (one account is increased and one account is decreased).

D. accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions (one account is increased and one account is decreased).

The Accumulated Depreciation account is a(n): A. expense account. B. liability account. C. asset account. D. contra-asset account.

D. contra-asset account.

Sales Discounts is a ______ account with a normal ______ balance. A. contra-asset; debit B. contra-revenue; credit C. contra-asset; credit D. contra-revenue; debit

D. contra-revenue; debit

At the end of the year, accrual adjustments could include a: A. debit to an expense and a credit to an asset. B. credit to a revenue and a debit to an expense. C. debit to cash and a credit to Common Stock. D. debit to an expense and a credit to a liability.

D. debit to an expense and a credit to a liability.

When a deferral adjustment is made to an asset account, that asset becomes a(n): A. liability. B. other asset. C. revenue D. expense.

D. expense.