Chapter 1,2,&3 review questions

Which financial statement conveys a company's ability to generate profits in the current period? A. Income statement. B. Statement of cash flows. C. Balance sheet. D. Statement of stockholders' equity.

A. Income statement

Which of the following is not a characteristic of adjusting entries? A. Reduce the balances of revenue, expense, and dividend accounts to zero. B. Allow for proper application of the revenue recognition principle (revenues) or the matching principle (expenses). C. Are part of accrual-basis accounting. D. Are recorded at the end of the accounting period.

A. Reduce the balances of revenue, expenses, and dividend accounts to zero.

What are the two fundamental qualitative characteristics identified by the Financial Accounting Standards Board's (FASB) conceptual framework? A. Relevance and faithful representation. B. Materiality and efficiency. C. Comparability and consistency. D. Costs and benefits.

A. Relevance and faithful representation

A debit is used to increase which of the following accounts? A. Utilities Expense. B. Accounts Payable. C. Service Revenue. D. Common Stock.

A. Utilities expense

Why does financial accounting have a positive impact on our society? A. It entails a detailed transaction record necessary for filing taxes with the Internal Revenue Service (IRS). B. It allows investors and creditors to redirect their resources to successful companies and away from unsuccessful companies. C. It prevents competitors from being able to steal the company's customers. D. It provides a system of useful internal reports for management decision making.

B. It allows investors and creditors to redirect their resources to successful companies and away from unsuccessful companies.

On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. Using cash-basis accounting, on which date should Papa's Pizza record the extermination expense? A. January 17 (date of the contract). B. January 29 (date of cash payment). C. February 7 (date of extermination service). D. Evenly over the three dates.

B. January 29 (date of cash payment)

On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. According to the revenue recognition principle, on which date should Johnson record service revenue? A. May 5 (date of phone call). B. May 7 (date of service). C. May 10 (date of cash receipt). D. Evenly over the three dates.

B. May 7 (date of service)

Sales of products or services are referred to as: A. Assets. B. Revenues. C. Liabilities. D. Expenses.

B. Revenues

Which financial statement shows that a company's resources equal claims to those resources? A. Income statement. B. Statement of stockholders' equity. C. Balance sheet. D. Statement of cash flows.

C. Balance sheet

Which of the following describes the information reported in the statement of stockholders' equity? A. Net income for the period calculated as revenues minus expenses. B. Equality of total assets with total liabilities plus stockholders' equity. C. Change in stockholders' equity through changes in common stock and retained earnings. D. Net cash flows from operating, investing, and financing activities.

C. Change in stockholders' equity through changes in common stock and retained earnings

On January 17, Papa's Pizza signs a contract with Bug Zappers for exterminating services related to a recent sighting of cockroaches in the restaurant. Papa's pays for the extermination service on January 29, and Bug Zappers sprays for bugs on February 7. According to the matching principle, on which date should Papa's Pizza record the extermination expense? A. January 17 (date of the contract). B. January 29 (date of cash payment). C. February 7 (date of extermination service). D. Evenly over the three dates.

C. February 7 (date of extermination service)

Which of the following causes the accounting equation not to balance? A. Increase assets; increase liabilities. B. Decrease assets; increase expenses. C. Increase assets; increase dividends. D. Decrease liabilities; increase revenues.

C. Increases assets; increases dividends

Which of the following transactions causes an increase in total assets? A. Pay employee salaries for the current month. B. Pay dividends to stockholders. C. Issue common stock in exchange for cash. D. Purchase office equipment for cash.

C. Issue common stock in exchange for cash

On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. Using cash-basis accounting, on which date should Johnson record service revenue? A. May 5 (date of phone call). B. May 7 (date of service). C. May 10 (date of cash receipt). D. Evenly over the three dates.

C. May 10 (date of cash receipt)

Which of the following represents an external transaction? A. Lapse of insurance due to passage of time. B. Use of office supplies by employees over time. C. Payment of utility bill. D. Salaries earned by employees but not yet paid.

C. Payment of utility bill

Which of the following transactions causes an increase in stockholders' equity? A. Pay dividends to stockholders. B. Obtain cash by borrowing from a local bank. C. Provide services to customers on account. D. Purchase advertising on a local radio station.

C. Provide services to customers on account

Which of the following accounts is not listed in a post-closing trial balance? A. Prepaid Rent. B. Accounts Payable. C. Salaries Expense. D. Retained Earnings.

C. Salaries expense

Posting is the process of: A. Analyzing the impact of the transaction on the accounting equation. B. Obtaining information about external transactions from source documents. C. Transferring the debit and credit information from the journal to individual accounts in the general ledger. D. Listing all accounts and their balances at a particular date and showing the equality of total debits and total credits.

C. Transferring the debit and credit information from the journal to individual accounts in the general ledger

A trial balance can best be explained as a list of: A. The income statement accounts used to calculate net income. B. Revenue, expense, and dividend accounts used to show the balances of the components of retained earnings. C. The balance sheet accounts used to show the equality of the accounting equation. D. All accounts and their balances at a particular date.

D. All account and their balances at a particular date

What is a benefit to a career in accounting? A. High salaries. B. Wide range of job opportunities. C. High demand for accounting graduates. D. All of the above.

D. All of the above

Which of the following is not a step in the process of measuring external transactions? A. Analyze the impact of the transaction on the accounting equation. B. Record the transaction using debits and credits. C. Post the transaction to the T-account in the general ledger. D. All of the above are steps in the measurement process of external transactions.

D. All of the above are steps in the measurement process of external transactions

An adjusted trial balance: A. Lists all accounts and their balances at a particular date after updating account balances for adjusting entries. B. Is used to prepare the financial statements. C. Includes balances for revenues, expenses, and dividends. D. All the above.

D. All the above

Resources of a company are referred to as: A. Liabilities. B. Stockholders' equity. C. Dividends. D. Assets.

D. Assets

Financial accounting serves which primary function(s)? A. Measures business activities. B. Communicates business activities to interested parties. C. Makes business decisions on behalf of interested parties. D. Both a. and b. are functions of financial accounting.

D. Both a. and b. are functions of financial accounting

Which of the following describes the purpose(s) of closing entries? A. Adjust the balances of asset and liability accounts for unrecorded activity during the period. B. Transfer the balances of temporary accounts (revenues, expenses, and dividends) to Retained Earnings. C. Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period. D. Both b. and c.

D. Both b. and c.

The body of rules and procedures that guide the measurement and communication of financial accounting information is known as: A. Standards of Professional Compliance (SPC). B. Code of Ethical Decisions (COED). C. Rules of Financial Reporting (RFP). D. Generally Accepted Accounting Principles (GAAP).

D. Generally Accepted Accounting Principles

A credit is used to increase which of the following accounts? A. Dividends. B. Insurance Expense. C. Cash. D. Service Revenue.

D. Service revenue