accounting exam set 1 ch.3

All of the following statements about contra asset accounts are true except: -Contra asset accounts have normal credit balances. -Contra asset accounts are deducted from the related asset account to determine book value. -Contra asset accounts are increased with credits. -Contra asset accounts are not reported in the financial statements.

-Contra asset accounts are not reported in the financial statements.

Which of the following statements about a trial balance is incorrect? -It uncovers errors in journalizing and posting. -It proves that all transactions have been recorded. -Its primary purpose is to prove the mathematical equality of debits and credits after posting. -It is useful in the preparation of financial statements.

-It proves that all transactions have been recorded.

If the entry to close Income Summary to Retained Earnings includes a debit to Income Summary: -Retained Earnings will be increased by the current period's net income. -Expenses exceed revenues. -Dividends paid exceed the net income earned for the period. -The company has incurred a net loss.

-Retained Earnings will be increased by the current period's net income.

To convert cash receipts from customers to revenue on an accrual basis, which of the following adjustments is necessary? Add ending Accounts Receivable. Subtract ending Unearned Service Revenue. Subtract beginning Accounts Receivable. All of these answer choices are correct.

All of these answer choices are correct.

Which of the following is a nominal account? Dividends. Interest Payable. Cash. Retained earnings.

Dividends

In the closing process, all of the revenue and expense account balances are closed to the: Dividends account. Income Summary account. Retained Earnings account. Capital account.

Income Summary account.

Factors that shape an accounting information system include the -all of these answer choices are correct. -volume of data to be handled. -informational demands of management. -transactions in which the business

all of these answer choices are correct.

If the adjusting entry for an accrued revenue is not made: equity will be understated. assets will be overstated. revenues will be overstated. liabilities will be understated.

equity will be understated.

Cost of goods sold appears on the income statement of a service firm but not a merchandising firm. True False

false

Real accounts are periodically closed. -true -false

false

Each general journal entry consists of how many parts? Two. One. Three. Four.

four

Unearned revenues are: revenues. liabilities. accruals. all of these answer choices are correct.

liabilities

When a dividend is declared: assets decrease. liabilities increase. stockholders' equity increases. all of these answer choices are correct.

liabilities increase.

_________ is the process of transferring the accounts and amounts from the book of original entry to the ledger accounts. Closing Posting Journalizing Ledgerizing

posting

When a corporation purchases a computer for cash, assets increase. the account Cash will be credited. liabilities increase. stockholders' equity decreases.

the account Cash will be credited.

Which of the following is an incorrect depiction of the accounting equation? Assets - Liabilities = Stockholders' Equity. Assets - Stockholders' Equity = Liabilities. Assets + Stockholder's Equity = Liabilities. Assets = Liabilities + Stockholders' Equity.

Assets + Stockholder's Equity = Liabilities.

If an adjusting entry is not made for a deferred revenue which was initially credited to an unearned revenue account, which of the following results? Liabilities are understated. Revenues are overstated. Assets are unaffected. All of these answer choices are correct.

Assets are unaffected.

Which one of the following guidelines regarding reversing entries is incorrect? -All accruals should be reversed. -All deferrals for which a company debited or credited the original cash transaction to an expense or revenue account should be reversed. -Adjusting entries for bad debts are reversed. -None of these answer choices are correct.

-Adjusting entries for bad debts are reversed.

Which of the following is a reason the trial balance may not contain up-to-date and complete data? -Some items may be unrecorded. -Some costs are not recorded during the accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions. -Some events are not recorded daily because it's not efficient to do so. -All of these answer choices are correct.

-All of these answer choices are correct.

Which of the following is not a recordable event or item? -Purchase of supplies. -Sales of the company's product in overseas markets. -Changes in managerial policy. -Declaration of dividends.

-Changes in managerial policy.

The proper sequence of financial statement preparation is: -The Statement of Cash Flows, the Income Statement, the Retained Earnings Statement, and then the Balance Sheet. -The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows. -The Retained Earnings Statement, the Balance Sheet, the Income Statement, and then the Statement of Cash Flows. -The Balance Sheet, the Retained Earnings Statement, the Income Statement, and then the Statement of Cash Flows.

-The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows.

Which of the following is an internal event? -A change in the price of a good that an entity buys or sells. -Using machinery in operations. -A transaction with another entity. -A flood.

-Using machinery in operations.

Adjustments are often prepared -after the balance sheet date, and dated after the balance sheet date. -after the balance sheet date, but dated as of the balance sheet date. -before the balance sheet date, and dated after the balance sheet date. -before the balance sheet date, but dated as of the balance sheet date.

-after the balance sheet date, but dated as of the balance sheet date.

The adjusting entry to record an accrued expense includes a debit to: -an expense account and a credit to a revenue account. -a liability account and a credit to a revenue account. -an expense account and a credit to a liability account. -a liability account and a credit to an expense account.

-an expense account and a credit to a liability account.

An accrued expense is -initially recorded as an asset. -an expense for which cash is paid before the expense is incurred. -an expense which is recorded with the passage of time. -an expense that has been incurred but for which payment has not yet been made.

-an expense that has been incurred but for which payment has not yet been made.

An adjusting entry would never include a: -debit to an asset account and a credit to a liability account. -debit to a liability account and a credit to a revenue account. -debit to an expense account and a credit to an asset account. -debit to an expense account and a credit to a liability account.

-debit to an asset account and a credit to a liability account.

A trial balance -proves that debits and credits are equal in the ledger. -chronologically lists transactions and other events. -proves that a company recorded all transactions. -All of these answer choices are correct.

-proves that debits and credits are equal in the ledger.

If the balances in both accounts receivable and accounts payable decrease during the year -the decrease in both the accounts receivable and accounts payable balances will result in a decrease in cash for the period. -the decrease in the accounts payable balance would result in an increase in cash for the period. -the decrease in both the accounts receivable and accounts payable balances will result in an increase in cash for the period. -the decrease in the accounts receivable balance would result in an increase in cash for the period.

-the decrease in the accounts receivable balance would result in an increase in cash for the period.

The double-entry accounting system means -each item is recorded in a journal entry, then in a general ledger account. -each transaction is recorded with two journal entries. -the dual effect of each transaction is recorded with a debit and a credit. -each journal entry must have one debit and one credit, or two debits and two credits.

-the dual effect of each transaction is recorded with a debit and a credit.

Which of the following is not transferred to Retained Earnings at the end of the period? Expenses. Dividends. Common stock. Revenues.

Common stock.

The difference between the cost of a depreciable asset and its related contra account, Accumulated Depreciation is referred to as the asset's: real value. market value. book value. fair value.

book value

Adjusting entries can be classified as either: real or nominal. accruals or reversals internal or external. deferrals or accruals.

deferrals or accruals

After journalizing and posting all adjusting entries, a company prepares an adjusted trial balance that is the primary basis for preparation of the financial statements. True False

true

Companies may prepare a trial balance at any time. True False

true

Depreciation allocates the cost of long-lived assets to expense over the periods which benefit from their use (useful life). True False

true

Financial statements can be prepared directly from the adjusted trial balance. True False

true

Revenue, equity and liability accounts have normal credit balances. -true -false

true

The accounting cycle for a merchandiser is the same as the accounting cycle for a service firm. True False

true

Transactions are initially recorded in the general journal. True False

true

When a company makes reversing entries, it debits all cash payments of expenses to the related expense account. True False

true

When a merchandiser prepares closing entries, Cost of Goods Sold is credited and Income Summary is debited. True False

true