ACG Exam 1

On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What amount of the insurance expense will be reported on the annual income statement for the first year ended December 31?

$1,350 × 9/36 = $337.50

The Unadjusted Trial Balance columns of a company's work sheet shows the Store Supplies account with a balance of $750. The Adjustments columns shows a credit of $425 for supplies used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the work sheet is:

$325 debit.

Cloud Solutions had the following accounts and balances as of December 31:

(Cash $20,000 + Accounts Receivable $2,000 + Prepaid Insurance $1,400 + Supplies $1,500 = $24,900)

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

1,200

A company pays its employees $4,000 each Friday, which amounts to $800 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is:

4 days × $800/day = $3,200

A classified balance sheet differs from an unclassified balance sheet in that:

A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio.

On July 1 Olive Co. paid $7,500 cash for management services to be performed over a two-year period. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Olive should record:

A debit to a prepaid expense and a credit to Cash for $7,500.

161. On July 1 of the current calendar year, Olive Co. paid $7,500 cash for management services to be performed over a two-year period beginning July 1. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Olive would include:

A debit to an expense and a credit to a prepaid expense for $1,875.

A company's ledger is:

A record containing all accounts and their balances used by the company

The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

Accounting cycle.

The accounting process begins with:

Analysis of business transactions and source documents.

Langley has a debt ratio of 0.3 and its competitor, Appleton, has a debt ratio equal to 0.7. Determine the statement below that is correct.

Appleton's financial leverage is greater than Langley's financial leverage.

A company's balance sheet shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?

Assets − Equity = LiabilitiesCash + Accounts Receivable + Equipment − Equity = Liabilities$24,000 + $30,000 + $50,000 − $72,000 = $32,000

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

Assets, net income, and equity overstated.

Adjusting entries made at the end of an accounting period accomplish all of the following except:

Assuring that external transaction amounts remain unchanged.

Marsha Bogswell is the sole stockholder of Bogswell Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services?

Business entity assumption.

A company's list of accounts and the identification numbers assigned to each account is called a:

Chart of accounts

Palmer Company is at the end of its annual accounting period. The accountant has journalized and posted all external transactions and all adjusting entries, has prepared an adjusted trial balance, and completed the financial statements. The next step in the accounting cycle is:

Close temporary accounts.

GreenLawn Co. provides landscaping services to clients. On May 1, a customer paid GreenLawn $60,000 for 6-months services in advance. GreenLawn's general journal entry to record this transaction will include a:

Credit to Unearned Revenue for $60,000

Based on the following information from Scranton Company's balance sheet, calculate the current ratio.

Current Ratio = Current Assets/Current LiabilitiesCurrent Ratio = $87,000/$39,000 = 2.23

Use the information in the adjusted trial balance presented below to calculate the current ratio for Wicked Wicker Company:

Current Ratio = Current Assets/Current LiabilitiesCurrent Ratio = ($23,000 + $16,000 + $6,600)/($17,000 + $2,400 + $5,000)Current Ratio = $45,600/$24,400 = 1.87

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Debit Insurance Expense, $360; credit Prepaid Insurance, $360. $1,800 × 1/5 = $360 per year

A company pays each of its two office employees each Friday at the rate of $100 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

Debit Salaries Expense $400 and credit Salaries Payable $400.

On December 31, Carmack Company received a $215 utility bill for December that it will not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:

Debit Utilities Expense $215; credit Accounts Payable $215.

Edison Consulting received a $300 utilities bill and immediately paid it. Edison's general journal entry to record this transaction will include a:

Debit to Utilities Expense for $300

Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

Depreciation Expense-Office Equipment.

Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

Dividends.

Savvy Sightseeing had beginning equity of $72,000; revenues of $90,000, expenses of $65,000, and dividends to stockholders of $9,000; there were no stock issuances. Calculate the ending equity.

Ending Equity = Beginning Equity + Revenues − Expenses + Stock issuances − DividendsEnding Equity = $72,000 + $90,000 − $65,000 + 0 − $9,000Ending Equity = $88,000

The closing process is necessary in order to:

Ensure that net income or net loss and dividends for the period are closed into the retained earnings account.

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Expense recognition (Matching) principle.

The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the:

FASB

Before an adjusting entry is made to recognize the cost of expired insurance for the period, Prepaid Insurance and Insurance Expense are both overstated.

False

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

Closing the temporary accounts at the end of each accounting period does all of the following except:

Has no effect on the retained earnings account.

A business's source documents may include all of the following except:

Ledgers

Unearned revenues are generally:

Liabilities created when a customer pays in advance for products or services before the revenue is earned.

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Measurement (Cost) principle.

Jackson Services had the following accounts and balances at December 31:

Net Income = Total Revenues − Total Expenses.Service Revenue $20,000 − Utilities Expense $2,000 − Salaries Expense $1,200 = $16,800

Which of the following is classified as a current asset?

Office supplies.

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

Overstate net income by $28,000.

A company earned $3,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

Profit Margin = Net Income/Net SalesProfit Margin = $3,000/$10,000 = .30 = 30%

A company had $6,992,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

Profit Margin = Net Income/Net SalesProfit Margin = $6,992,000/$15,200,000 = .460 = 46.0%

The primary objective of financial accounting is to:

Provide accounting information that serves external users.

External users of accounting information include all of the following except:

Purchasing managers.

The main purpose of adjusting entries is to:

Record internal transactions and events

Swiss Group reports net income of $40,000 for 2019. At the beginning of 2019, Swiss Group had $200,000 in assets. By the end of 2019, assets had grown to $300,000. What is Swiss Group's 2019 return on assets?

Return on assets= Net income / Average total assets = $40,000 / [($200,000 + $300,000)/2] = 16%

The question of when revenue should be recognized on the income statement according to GAAP is addressed by the:

Revenue recognition principle.

Identify the statement that is incorrect.

Risk is higher if a company has more assets.

A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error?

Supplies, overstated $130; Fees Earned, overstated $130.

Identify the statement below that is incorrect.

The normal balance of an expense account is a credit

While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the Equipment account. The effect of this error will be that:

The trial balance will not balance.

Adjusting entries result in a better matching of revenues and expenses for the period.

True

Jose Consulting paid $500 cash for utilities for the current month. Determine the general journal entry that Jose Consulting will make to record this transaction.

Utilities expense debited 500, cash credited 500

A credit is used to record an increase in all of the following accounts except:

Wages Expense

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

account

Alejandro Consulting paid $2,500 cash for a 5-month insurance policy that begins on March 1. Given the choices below, determine the general journal entry that Alejandro Consulting will make to record the cash payment. Assume the company's policy is to initially record prepaid and unearned items in balance sheet accounts.

prepaid insurance debited for 2,500, cash credited for 2,500