ACCY 200: Exam 1

In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account in which all the aforementioned accounts are closed into? Retained Earnings Cash Net Income Sales

Retained Earnings

In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of (older/newer), (higher/lower) costs to the income statement results in (higher/lower) profits than if current costs were to be recognized.

older lower higher

The investments by and distributions to owners during a reporting period are reported on the: statement of stockholders' equity income statement statement of cash flows balance sheet

statement of stockholders' equity

A firm prepares comparative financial statement so that _____. the management of the firm can easily spot errors in the financial statement and rectify them the users of the data can easily spot changes in the firm's financial position and in its results of operations the shareholders can participate in the day-to-day functioning of the firm the external auditors of the firm can easily spot errors in the internal audit reports

the users of the data can easily spot changes in the firm's financial position and in its results of operations

In the United States, the dollar is the (...) of (...) for all transactions.

unit of measurement

Understating assets and/or overstating liabilities when making judgments and estimates is driven by which of the following concepts/principles? Conservatism Materiality Objectivity Matching

Conservatism

Limiting a firm's ability to switch back and forth between alternative generally accepted accounting methods is driven by which of the following concepts/principles? Matching Consistency Full disclosure Conservatism

Consistency

Which of the following is true regarding the balance sheet components? Stockholders' equity are the owners' claims to the organization's liabilities. Assets are the obligations of the organization. Liabilities are the obligations of the organization. Liabilities are the resources of the organization.

Liabilities are the obligations of the organization.

(...) refers to accountants' desire to have a given transaction recorded in the same way in all situations.

Objectivity

Which concept/principle suggests that a given transaction should be recorded in the same way in all situations? Matching Accrual Objectivity Full disclosure

Objectivity

The time frame associated with an income statement is: a past period of time. a function of the information included in it. a point in time in the past. a future period of time.

a past period of time.

The effects on the financial statements of accruing interest on short-term marketable debt securities include: an increase in net income. an increase in revenues. an increase in liabilities. an increase in assets. an increase in expenses.

an increase in net income. an increase in revenues. an increase in assets.

An entity's financial position at the end of a reporting period is reported on the: statement of cash flows income statement balance sheet statement of stockholders' equity

balance sheet

Assets = Liabilities + Paid-in capital + Retained earnings (beginning/ending) + (Revenues/Expenses) - (Revenues/Expenses)

beginning Revenues expenses

Periodically, the petty cash fund is reimbursed to: ensure that there will be enough cash on hand to pay the next month's electric bill. record the sales that have taken place since the fund was last reimbursed. record all of the debits to Merchandise Inventory that have accumulated. bring the cash in the fund back to the original amount

bring the cash in the fund back to the original amount.

The four concepts/principles that relate to the financial statements are:

consistency, full disclosure, materiality, and conservatism

Most assets are not recorded at their current market values because of the limitations imposed by the (...) principle.

cost

An agreement by the borrower to supply financial statements to the lender and an agreement by the borrower to refrain from paying dividends until the note is paid are both examples of provisions known as (collateral/covenants/interest/default).

covenants

In bookkeeping and accounting, (...) means left and (...) means right, and nothing more.

debits credits

The cost of an inventory item is released to the income statement as an: expense when the product is sold (or becomes worthless or is lost or stolen). asset when the product is sold (or becomes worthless or is lost or stolen). asset when the product is purchased (or becomes worthless or is lost or stolen). expense when the product is purchased (or becomes worthless or is lost or stolen).

expense when the product is sold (or becomes worthless or is lost or stolen).

The (...) (...) concept requires that the financial statements and notes include all necessary information to prevent a reasonably astute user of the financial statements from being misled.

full disclosure

The (...) (...) concept refers to the presumption that the entity will continue to operate in the future.

going concern

The concept that refers to the presumption that the entity will continue to operate in the future is known as the: going concern concept accounting period concept consistency concept materiality concept

going concern concept

Although revenues and expenses are reported on the income statement, they also: impact the ending balance of paid-in capital on the balance sheet. impact stockholders' equity on the balance sheet. increase the noncurrent assets on the balance sheet. are treated as financing activities in the statement of cash flows.

impact stockholders' equity on the balance sheet.

Liability accounts: increase with credit entries decrease with debit entries decrease with credit entries increase with debit entries normally have a debit balance normally have a credit balance

increase with credit entries decrease with debit entries normally have a credit balance

The balance sheet:

is like a snapshot of the organization's financial position, frozen at a specific point in time.

Transactions are initially recorded in a (journal/ledger/chart of accounts).

journal

The (...) concept does not mean that revenue and expense for a reporting period are equal.

matching

Most assets are reported on the balance sheet based on their: original (historical) cost replacement cost current market (fair) value cost or market value whichever is lower

original (historical) cost

The LIFO cost flow assumption results in the most (distant/recent) costs being transferred to cost of goods sold. In times of rising prices, the costs transferred to cost of goods sold under LIFO will therefore be (higher/lower) than the costs transferred to cost of goods sold under FIFO.

recent higher

Although (...) and (...) are reported on the income statement, they also impact the ending balance of retained earnings shown on the balance sheet.

revenues expenses

Accounts are summarized in financial (...), whereas (...) are summarized in accounts.

statements transactions

If debits equal credits, then: the company will have a positive balance in the retained earnings account. the company's assets will be greater than the sum of its liabilities and stockholders' equity. the company's balance sheet equation will be in balance. the company's revenues will be greater than its expenses.

the company's balance sheet equation will be in balance.

If the total assets is equal to $15,000 and the total liabilities is equal to $9,000, then:

the total stockholders' equity is equal to $6,000.

Revenue is recognized at the time of sale, which is when: the cash payment from the buyer to seller is made title passes to the buyer or when the services are performed a discount is provided for prompt payment the cash payment from the seller to buyer is made

title passes to the buyer or when the services are performed

Assume that Missvel Inc. has credit sales terms of 3/10, n90. On May 5, Missvel Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying:

$9,700 by May 15 or paying $10,000 by August 3.

The balance sheet equation can be represented by: Assets = Liabilities + Stockholders' Equity Assets - Liabilities = Stockholders' Equity Net Assets = Stockholders' Equity All of the answers are correct.

All of the answers are correct.

Beginning inventory = $30,000, Ending inventory = $27,000, and Cost of goods sold = 150,000. Thus: Cost of goods available for sale = $177,000 and Purchases = $147,000. Cost of goods available for sale = $123,000 and Purchases = $93,000. Cost of goods available for sale = $57,000 and Purchases = $93,000. Cost of goods available for sale = $180,000 and Purchases = $153,000.

Cost of goods available for sale = $177,000 and Purchases = $147,000. Beginning inventory + Purchases = Cost of goods for Sale Cost of Goods for Sale - Ending Inventory = Cost of Goods Sold

Providing more (rather than less) detail in the notes to the financial statements is driven by which of the following concepts/principles? Conservatism Consistency Full disclosure Objectivity

Full disclosure

Which of the following accounts would be closed during the year-end closing process? Wages Expense Sales Loss on Sale of Buildings Cash Accounts Payable Dividends Buildings Rent Expense

Wages Expense Sales Loss on Sale of Buildings Dividends Rent Expense

The petty cash fund: is used to make small payments of cash. uses petty cash vouchers to make payments rather than cash. is used as management's slush fund for personal expenditures. records expenses each day as disbursements are made.

is used to make small payments of cash.

Transactions are summarized in: the notes for the financial statements. the independent auditor's report. the entity's accounts. the Accounting Standards Updates (ASUs).

the entity's accounts.

A corporation's annual report contains the reporting firm's financial statements and each of the following key components, except: management's discussion and analysis of the financial statements the reporting firm's operating budget for the next fiscal year the report of the external auditor's examination of the financial statements the notes to the financial statements

the reporting firm's operating budget for the next fiscal year

A corporation's annual report contains the reporting firm's financial statements and each of the following key components, except: the report of the external auditor's examination of the financial statements management's discussion and analysis of the financial statements the reporting firm's operating budget for the next fiscal year the notes to the financial statements

the reporting firm's operating budget for the next fiscal year

Assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would have been reported on the balance sheet as "Net accounts receivable" before the write-off entry was recorded?

$47,000

A = L + SE is called the (...) (...).

Accounting Equation

The balance sheet might also be called: Statement of Financial Position. Statement of Assets. Statement of Changes in Financial Position. Statement of Equity.

Statement of Financial Position.

Assets = Liabilities + Retained earnings Stockholders' equity Net income Paid-in capital

Stockholders' equity

The three concepts/principles that relate to the entire model are: accounting entity, going concern, and materiality accounting equation, accounting entity, and going concern accounting equation, conservatism, and objectivity unit of measurement, cost principle, and objectivity

accounting equation, accounting entity, and going concern

The four concepts/principles that relate to bookkeeping procedures and the accounting process are: matching, revenue recognition, unit of measurement, and full disclosure accounting period, matching, revenue recognition, and accrual accounting period, going concern, cost principle, and accrual accounting equation, going concern, revenue recognition, and materiality

accounting period, matching, revenue recognition, and accrual

If debits equal credits, then: assets will equal the sum of liabilities and stockholders' equity. liabilities will equal the sum of assets and net income. net income minus dividends will be equal to total assets. assets will equal the sum of liabilities and retained earnings.

assets will equal the sum of liabilities and stockholders' equity.

Financial statements that show a column for the current year and the prior year are known as (...) financial statements.

comparative

Companies are not allowed to switch back and forth between alternative accounting methods from year to year because of the (...) concept.

consistency

Transactions are: initially recorded in a journal and then posted to a ledger. initially listed in the chart of accounts and then posted to a ledger. initially recorded in a journal and then listed in the chart of accounts. initially posted to a ledger and then recorded in a journal.

initially recorded in a journal and then posted to a ledger.

Inventory is reported on the balance sheet at: current replacement cost. current market value. original (historical) cost. lower of cost or market value.

lower of cost or market value.

Asset accounts: normally have a debit balance normally have a credit balance decrease with credit entries increase with debit entries increase with credit entries decrease with debit entries

normally have a debit balance decrease with credit entries increase with debit entries

Companies are not allowed to switch back and forth between alternative accounting methods from year to year because of the (...) concept.

Consistency

Transactions: are summarized in accounts, and accounts are further summarized in financial statements can be seen as the bricks that build financial statements are procedures for sorting, classifying, and processing accounting information

are summarized in accounts, and accounts are further summarized in financial statements can be seen as the bricks that build financial statements

When using the horizontal model for a transaction that affects both the balance sheet and the income statement, the balance sheet will balance when the: net income for the year is greater than total liabilities. income statement effect on stockholders' equity is considered. net income for the year plus total assets is greater than total liabilities. revenues minus the expenses from the income statement equal zero.

income statement effect on stockholders' equity is considered.

In the horizontal model representation of the financial statements, the arrow going from net income to stockholders' equity means that net income affects the (...)(...) account within stockholders' equity.

retained earnings

The "market" in the lower of cost of market valuation is generally: the replacement cost of the inventory. the current selling price of the inventory. the current selling price of the inventory less the company's normal profit margin. the historical cost of the inventory less depreciation.

the replacement cost of the inventory.

The amount in the Cash account, which is reported as an asset on the balance sheet, includes: supplies on hand IOUs from credit worthy customers undeposited receipts including checks checking account balances savings account balances money on hand in petty cash funds

undeposited receipts including checks checking account balances savings account balances money on hand in petty cash funds

Which of the following items are normally included as key components of a corporation's annual report? A five-year (or longer) summary of key financial data The notes to the financial statements A corporate structure chart showing line and staff reporting responsibilities of all key personnel employed by the reporting firm The report of the external auditor's examination of the financial statements The reporting firm's operating budget for the next fiscal year

A five-year (or longer) summary of key financial data The notes to the financial statements The report of the external auditor's examination of the financial statements

Which concept/principle supports the fact that assets such as land, buildings, and equipment are not reported at their fair values? Consistency Conservatism Cost principle Full disclosure

Cost principle

Which of the following statements are true regarding the matching concept? Cash inflows and cash outflows are matched to the period in which revenues are earned. Expenses are recorded in the period in which they are incurred. Revenues and expenses for the period must be equal. Revenues are recorded in the period in which they are earned.

Expenses are recorded in the period in which they are incurred. Revenues are recorded in the period in which they are earned.

Which of the following concepts/principles relate to financial statements? Matching Materiality Conservatism Full disclosure Objectivity Consistency Accrual

Materiality Conservatism Full disclosure Consistency

In times of rising prices, LIFO results in: lower ending inventory value and higher cost of goods sold value than FIFO. higher ending inventory value and higher cost of goods sold value than FIFO. lower ending inventory value and lower cost of goods sold value than FIFO. higher ending inventory value and lower cost of goods sold value than FIFO.

lower ending inventory value and higher cost of goods sold value than FIFO.

Short-term marketable debt securities that are in the held-to-maturity category are reported on the balance sheet at: the entity's cost of the securities less accumulated depreciation. the lower of the entity's cost of the securities or the market value of the securities. the market value of the securities. the entity's cost of the securities.

the entity's cost of the securities.

Short-term marketable debt securities that are in the held-to-maturity category are reported on the balance sheet at: the entity's cost of the securities. the entity's cost of the securities less accumulated depreciation. the lower of the entity's cost of the securities or the market value of the securities. the market value of the securities.

the entity's cost of the securities.

The entry to record accrued interest on Notes Receivable is: Dr. Cash xx Cr. Interest Income xx Dr. Interest Receivable xx Cr. Interest Expense xx Dr. Cash xx Cr. Interest Receivable xx Dr. Interest Receivable xx Cr. Interest Income xx

Dr. Interest Receivable xx Cr. Interest Income xx

The idea that tells absolute exactness in the amounts shown in the financial statements is not necessary is portrayed by the concept of _____. accrual rounding materiality conservatism

materiality

Identify the true statements regarding the balance sheet presentation of accounts receivable. "Net accounts receivable" represents the balance of an asset account less the balance of a contra asset account. "Net accounts receivable" is the net realizable value reported on the balance sheet. The allowance for bad debts is added to accounts receivable while presenting the accounts receivable in the balance sheet. In the balance sheet, the Allowance for Bad Debts account that is added to the accounts receivable represents accounts written off during the year. The allowance for bad debts is subtracted from accounts receivable while presenting the accounts receivable in the balance sheet.

"Net accounts receivable" represents the balance of an asset account less the balance of a contra asset account. "Net accounts receivable" is the net realizable value reported on the balance sheet. The allowance for bad debts is subtracted from accounts receivable while presenting the accounts receivable in the balance sheet.

The beginning inventory for ProKnows Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each, and during May, an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the LIFO cost flow assumption, cost of goods sold: = (30 @ $6) = $180. = (40 @ $6) + (30 @ $5) = $240 + $150 = $390. = (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340. = (20 @ $4) + (10 @ $5) = $130.

= (40 @ $6) + (30 @ $5) = $240 + $150 = $390.

Which of the following are acceptable/correct expressions of the balance sheet equation? Assets = Liabilities + Paid-in capital + Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Assets - Liabilities = Stockholders' equity Assets = Liabilities + Paid-in capital + Average retained earnings (for period) Assets = Liabilities + Paid-in capital + Retained earnings (end of period) + Revenues (during the period) - Expenses (during the period) Assets = Liabilities + Stockholders' equity Assets = Liabilities + Paid-in capital + Retained earnings

Assets = Liabilities + Paid-in capital + Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Assets - Liabilities = Stockholders' equity Assets = Liabilities + Stockholders' equity Assets = Liabilities + Paid-in capital + Retained earnings

If ending inventory was understated at the end of Year 1 but counted correctly at the end of Year 2 and this error was not discovered until sometime in Year 3, then: Cost of goods sold was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total. Cost of goods sold was overstated in Year 1 and overstated in Year 2 and the error would have doubled in total. Cost of goods sold was understated in Year 1 and overstated in Year 2 but the error would have self-corrected in total. Cost of goods sold was understated in Year 1 and understated in Year 2 and the error would have doubled in total.

Cost of goods sold was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total.

Assume that on September 1, Year 1, a six-month property insurance premium of $12,000 was paid for a policy whose coverage began on that day. Also assume that the Prepaid Insurance account was debited for $12,000 at this time. The December 31, Year 1, adjustment with respect to the this policy will include a: Credit to Prepaid Insurance for $4,000. Debit to Insurance Expense for $12,000. Debit to Insurance Expense for $4,000. Credit to Prepaid Insurance for $8,000.

Credit to Prepaid Insurance for $8,000.

Assume that on September 1, Year 1, a six-month property insurance premium of $12,000 was paid for a policy whose coverage began on that day. Assume also that the Prepaid Insurance account was debited for $12,000 at this time. The December 31, Year 1, adjustment with respect to the this policy will include a: Credit to Insurance Expense for $12,000. Debit to Prepaid Insurance for $8,000. Debit to Insurance Expense for $8,000. Credit to Prepaid Insurance for $4,000.

Debit to Insurance Expense for $8,000.

Identify the information that the current generally accepted accounting principles and auditing standards require the financial statements of an entity to show for the reporting period. Market value of the entity's net assets Financial position at the end of the period Investments by and distributions to owners (i.e., stockholders) during the period Budget versus actual comparisons of key balance sheet and income statement accounts Cash flows during the period Number of people employed by the entity Earnings for the period

Financial position at the end of the period Investments by and distributions to owners (i.e., stockholders) during the period Cash flows during the period Earnings for the period

Identify the true statements regarding a bank reconciliation. In a bank reconciliation, service charges are subtracted from the company's book balance. In a bank reconciliation, outstanding checks are subtracted from the company's book balance. In a bank reconciliation, NSF checks are subtracted from the company's book balance. In a bank reconciliation, deposits in transit are added to the company's book balance. In a bank reconciliation, interest earned is added to the company's book balance.

In a bank reconciliation, service charges are subtracted from the company's book balance. In a bank reconciliation, NSF checks are subtracted from the company's book balance. In a bank reconciliation, interest earned is added to the company's book balance.

Which of the following groups of accounts would be closed in the year-end closing process? Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales Gain on Sale of Equipment, Sales, Merchandise Inventory, and Supplies Expense Wages Payable, Service Revenue, Cost of Goods Sold, and Dividends Dividends, Common Stock, Sales, and Rent Expense

Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales (Only income statement accounts and dividends are closed)

Which of the following items are normally included as key components of a corporation's annual report? Legal counsel's assessment of the likelihood that the reporting firm may face future patent infringement lawsuits Management's discussion and analysis of the financial statements Highlights for the year, including net revenues, diluted earnings per share, and return of stockholders' equity The reporting firm's financial statements for the year The net present value of expected future cash flows of the reporting firm's next major capital investment project

Management's discussion and analysis of the financial statements Highlights for the year, including net revenues, diluted earnings per share, and return of stockholders' equity The reporting firm's financial statements for the year

Assets = Liabilities + Paid-in capital + Retained earnings (end of period) + Revenues (during the period) - Expenses (during the period) Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Retained earnings (beginning of period) + Revenues (during the period) + Expenses (during the period) Revenues (during the period) - Expenses (during the period)

Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period)

Which of the following accounts would be closed during the year-end closing process? Common Stock Notes Payable Service Revenue Cost of Goods Sold Rent Expense Dividends Payable Gain on Sale of Land Merchandise Inventory

Service Revenue Cost of Goods Sold Rent Expense Gain on Sale of Land (Only income statement accounts (revenues, expenses, gains, and losses) and dividends are closed to retained earnings.)

Prepaid expenses such as insurance premiums and lease (rental) payments that have been paid in advance should be treated as (assets/liabilities) until the benefits associated with the prepayment are received and thus the (revenue/expense) has been (earned/incurred).

assets expense incurred

Under accrual accounting, year-end adjustments are made: to ensure that expenses are recognized in the year in which they are earned. because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that revenues are recognized in the year in which they are earned.

because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that revenues are recognized in the year in which they are earned.

Under accrual accounting, year-end adjustments are made: because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that expenses are recognized in the year in which they are earned. to ensure that revenues are recognized in the year in which they are earned.

because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that revenues are recognized in the year in which they are earned.

When using the horizontal model for a transaction that affects both the balance sheet and the income statement, the balance sheet will balance when the: net income for the year plus total assets is greater than total liabilities. revenues minus the expenses from the income statement equal zero. net income for the year is greater than total liabilities. income statement effect on stockholders' equity is considered.

income statement effect on stockholders' equity is considered.

Short-term marketable debt securities that fall in the held-to-maturity category are reported on the balance sheet at the entity's cost, which is usually about the same as market value, because _____. the underlying assets in these securities are equities of banking companies of their high risk and the short time until maturity the underlying assets in these securities are equities of small-cap companies of their high quality and the short time until maturity

of their high quality and the short time until maturity

Accrual accounting results in: recognition of revenues when cash is received and recognition of expenses when they are incurred recognition of revenues when the cash is received and recognition of expenses when cash is paid recognition of revenues when they are earned (at the point of sale) and recognition of expenses when cash is paid recognition of revenues when they are earned (at the point of sale) and recognition of expenses when they are incurred

recognition of revenues when they are earned (at the point of sale) and recognition of expenses when they are incurred

Net income from the income statement is added to the beginning balance of: paid-in capital in the balance sheet. retained earnings in the statement of changes in retained earnings. paid-in capital in the statement of changes in retained earnings. retained earnings in the statement of changes in paid-in capital.

retained earnings in the statement of changes in retained earnings.

In the horizontal model representation of the financial statements, _____. A = L + SE - R - E the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings the balance sheet and income statement columns are completely independent of each other the statement of cash flows is the key financial statement illustrated in the model

the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings

In the horizontal model representation of the financial statements, _____. the balance sheet and income statement columns are completely independent of each other the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings A = L + SE - R - E the statement of cash flows is the key financial statement illustrated in the model

the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings

Under accrual accounting, year-end adjustments are made: to ensure that revenues are recognized in the year in which they are incurred. to ensure that expenses are recognized in the year in which they are incurred. because revenue receipts may occur before or after the event that causes revenue recognition.

to ensure that expenses are recognized in the year in which they are incurred. because revenue receipts may occur before or after the event that causes revenue recognition.

True or false: The key to using the horizontal model is to keep the balance sheet in balance.

True

The period of time selected for reporting financial statements is known as the (...) (...)

accounting period