FA EXAM 1
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company's financial statements; after
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Patterson Company reported stockholders' equity of $75,000 at the beginning of the year. During the year, the company recognized net income of $15,000. Stockholders made an additional investment of $10,000 at midyear and received a $5,000 dividend at year-end. The stockholders' equity at the end of the year is
95,000
In which of the following cases would an adjusting entry be required for a company with a June 30th year-end?
A utility bill received on June 24th is to be paid on July 10th. The adjusting entry is necessary because the expense has occurred although payment will not be made
A typical ledger would have the following accounts in which order?
Accounts Receivable, Accounts Payable, Retained Earnings, Interest Expense.
the expanded accounting equation is
Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses.
If a company fails to adjust a prepaid rent account for rent that has expired, what effect will this have on that month's financial statements?
Assets will be overstated and net income and stockholders' equity will be overstated.
When Alexander Company purchased supplies for $500, it incorrectly recorded a credit to Supplies for $5,000 and a debit to Cash for $5,000. Before correcting this error
Cash is overstated and Supplies is understated.
Ginni founded Waggstooth Manor Doggie Day Care and, after a year in business, formed a partnership with her husband, Warren. Their friend, Phoebe, is a shareholder with Networth Bank. In terms of personal liability, who is at greater risk? Why?
Ginni and Warren, because both partners have unlimited personal liability, regardless of who owns a larger percentage of the company.
Companies that borrow money which will be repaid in a subsequent period will debit ________ and credit ________ to accrue interest expense.
Interest Expense; Interest Payable
When interest expense on a note payable is accrued in one period and paid in the next, the entry to record accrual of interest will require a debit to ________, and payment of interest and principal will include debits to ________ and _________. Which of the following?
Interest Expense; Interest Payable; Notes Payable.
Some revenues are not recorded until the end of the period because they accrue with the passage of time. An example of this type of accrual is
Interest Revenue.
What will happen if a business does not make an adjusting entry at the end of the period to record an accrued expense?
It will cause an understatement of expenses and an understatement of liabilities.
Suppose a firm uses $18,000 of its cash to pay rent this month. What effect would this have on the Cash and Rent Expense accounts?
It would decrease the Cash account as a credit and increase the Rent Expense account as a debit.
A flower shop makes a large sale for $1,500 on June 30th. The customer is sent an invoice on July 5th, and a check is received on July 10th. The flower shop follows GAAP and applies the revenue recognition principle. When should the $1,500 of revenue be recognized?
June 30th
Which of the following statements regarding closing journal entries is correct?
Revenue accounts are debited and the income summary account is credited.
Earlier this fiscal year, Nugget Mining purchased a new piece of excavation equipment. How will this purchase affect Nugget's post-closing trial balance at the end of the fiscal year?
Nugget will need to include a contra-asset account that indicates the amount of accumulated depreciation on the equipment.
________ is not an example of unearned revenue.
Services performed on account
A post closing trial balance prepared by a company includes the following accounts: Interest Payable and Interest Expense. Which of the following statements is correct?
Only Interest Payable should be listed.
Which of the following represents a correct ordering of the steps in the accounting cycle?
Post to ledger accounts, prepare an adjusted trial balance, prepare reversing entries.
Which of the following represents the correct ordering of sections on a classified balance sheet?
Post to ledger accounts, prepare an adjusted trial balance, prepare reversing entries.
Which of the following is an example of an accrual?
Record Revenues that will be paid for in a subsequent period.
A journal entry includes a debit to Salary and Wages Expense of $5,000; a debit to Salary and Wages Payable of $3,000; and a credit to Cash for $8,000. Why would this entry be appropriate?
The entry reflects $5,000 payment of wages and salaries for the current period and $3,000 for wages and salaries accrued previously.
What would be the balance in the Accounts Receivable ledger account after the following entries, debit for $12,000, credit for $9,000 and credit for $1,000, if the beginning balance was $6,000?
The normal balance for Accounts Receivable is a debit. Debits increase Accounts Receivable, and credits decrease Accounts Receivable. Therefore, the new balance of Accounts Receivable is $6,000 + $12,000 -
When writing the title of an account, how is it formatted? Why?
The title is capitalized to indicate that it is a specific account name.
Failure to make an adjusting entry at the end of a period to record an accrued revenue would cause an understatement of assets and an understatement of revenues.
True
Walter Company prepared the following closing entry. Which of the following statements best describes this closing entry? Retained earnings 32,400(dr) Income summary 32,400(cr)
Walter Company experienced a net loss for the period of $32,400.
a trial balance will not balance if
a $100 cash drawing by the owner is debited to dividends for $1000 and credited to cash for $100
Patty Sims, a payroll accountant for Jett Company, discovered the following error on June 26: The payment of salaries and wages for the week ending June 12 was made on June 15 for $1,200 and was debited to Salaries and Wages Expense for $2,100 and credited to Cash for $2,100. Which of the following is the correcting entry for this error?
a credit for $900 to Salaries and Wages Expense and a debit for $900 to Cash
In the unadjusted trial balance columns of its worksheet for the year ended December 31, Taitum Company reported Equipment of $120,000. The year-end adjusting entries require an adjustment of $15,000 for depreciation expense for the equipment. Which option listed depicts the correct balance for the accounts affected.
a debit of $120,000 for Equipment in the balance sheet column.
In the unadjusted trial balance of its worksheet for the year ended December 31, 2019, Knox Company reported Equipment of $120,000. the year-ended adjusting entries require an adjustment of $15,000 for depreciation expense for the equipment. After the adjusted trial balance is completed, what amount should be shown in the financial statements column
a debit of 120,000 for equipment in the balance sheet column
Theresa Phillips, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. The journal entry to record the payment will include
a debit to Cash and a credit to Accounts Receivable.
An adjusting entry for prepaid expenses requires
a debit to an expense account and a credit to an asset or contra asset account.
Cathy Cline, an employee of Merlin Company, will not receive her paycheck until April 2. Based on services performed from March 16 to March 31, her salary was $900. The adjusting entry for Merlin Company on March 31 includes
a debit to salaries and wages expense for $900
Businesses often purchase equipment to generate future cash flows. Although an outflow of cash is generated immediately, the potential benefit of the equipment allows it to be classified as a(n)
asset
Accounts that are increased with a debit include
assets
An investment by the stockholders in a business causes an increase in which of the following?
assets and stockholders' equity
A company forgot to prepare the adjusting entry to record the current month's usage of Prepaid Rent. What is the resulting impact on the financial statements?
assets will be overstated and net inome will be overstated
the order of the accounts in the ledger is
assets, liabilities, common stock, dividends, revenues, expenses
The Accumulated Depreciation account appears in the _______ credit column of the worksheet
balance sheet
The amount of cash at the end of the period in the Statement of Cash Flows should also be reported on the
balance sheet
The numbering system for a firm's chart of accounts typically starts with
balance sheet accounts
the ending retained earnings amount is shown on the
balance sheet and the retained earrings statement
on the last day of the period, jim otto company buys a $900 machine on credit. this transaction will affect the
balance sheet only
Accounting information should be verifiable in order to
be an accurate depiction of what really happened
When a customer pays for magazine subscriptions in advance, the journal entry involves a debit to which account for the publishing company?
cash
when Ramirez Company purchased supplies worth 5,000, it incorrectly recorded a credit to supplies for 5,000 and a debit to cash for 5,000. before correcting this error,
cash is overstated and supplies is understated
Deferrals occur when
cash is received before revenue is earned
the correct order of presentation in a classified balance sheet for the following current assets is:
cash, accounts receivable, inventory, prepaid insurance
DG Inc. uses the ________ of accounting because it is easier to manage, although the company is violating GAAP because this method does not comply with the ________.
cash-basis; matching principle
cash of $100 received at the time the service was performed was journalized and posted as a debit to cash 100 and a credit to accounts receivable 100. assuming the incorrect entry is not reversed, the correcting entry is:
debit accounts receivable $100 and credit service revenue
During the past year, assets decreased by $5,000 and stockholder's equity increased by $2,000. What was the change in liabilities?
decrease of 7,000
To record depreciation on a building, which account should be debited?
depreciation expense
an accounting time period that is one year in length is
a fiscal year
Companies that use cash-basis accounting will have financial statements that do NOT include which account?
acc receivable
Revenues that are recorded at the end of the period but have not been paid by the customer involve a debit to ________ and a credit to ________. Which of the following?
accounts rec; service revenue
Stefan Industries performs services but does not record these services until the end of the accounting period. The end-of-period adjusting entry is an example of
accrued revenue.
an adjusting end that debits an assets and credits a revenue is necessary for
accrued revenues
Networth Bank is preparing its end of year financial statements, which will be distributed to shareholders. The CEO wants to include the results of the latest employee opinion survey to demonstrate the company has a good reputation. According to the monetary unit assumption, this information cannot be included because
activities that cannot be measure in monetary terms are not reported
The __________ is prepared after using the trial balance.
adjusted trial balance
A(n) ________ is(are) prepared ________ adjusting entries have been journalized and posted.
adjusted trial balance; after
An adjusted trial balance is created
after preparing all adjusting entries
Debbie's Delights pays its employees biweekly. If the next pay period occurs in the accounting period following the period when the wages are earned, the company records an adjusting entry to follow the
expense recognition principle.
If a company fails to make an adjusting entry to record supplies expense, then
expenses will be understated.
the expense recognition principle matches
expenses with revenues
Transferring journal entries to the ledger accounts is called journalizing.
false
a trial balance will not balance if a correct journal entry is posted twice
false
The Statement of Cash Flows reports the success or profitability of the company's operations over time.
false - the income statement
accumulated depreciation is a liability account
false it is a contra asset account
which of the following is not one of the reasons that a single set of international accounting standards is needed
government regulations
According to the ________ a company can purchase an asset for $1,000 and despite an increase in value over time can continue to report the asset for $1,000.
historical cost principle
revenues and expenses are reported on the
income statement
In a worksheet, net income is entered in the following columns
income statement (Dr) and balance sheet (Cr)
Harley's Insurance Company needs to record its revenue for the last month. The company should include service revenues on the
income statement as gross increase in stockholder's equity
debits
increase assets and decrease liabilities
performing service on account will have the following effects on the components of the basic accounting equation
increase assets and increase stockholders equity
a credit to a liability account indicated a(n0
increase in the liability
a credit to a liability account indicates a(n)
increase in the liabiltity
If a company provides services on account, then stockholder's equity
increases and an asset increases
in journalizing a transaction
indent the title of the credit account
On January 1, 2015, Snowcraft, Inc. issued a note payable for $10,000. The company accrued interest expense in the amount of $80 for the month of June 2015 by debiting Interest Expense and crediting Cash. One of the effects of the correcting entry necessary to fix the error is a credit to
interest payable
which of the following would not be considered an internal user of accounting data for a company
internal revenue service
The time period assumption divides the life of a business entity into
into months, quarters or years, define for convenience
A T-account
is balanced by taking the differeence between the total credits and total debits
Journalizing and posting closing entries
is only done at the end of the annual accounting period.
On a worksheet, when the total of the income statement debit column exceeds the total of the income statement credit column:
the company experienced a net loss for the period
the question "how much of our annual budget should we spend to advertise our new product line"? most likely be asked by a
marketing manager
The Expense Recognition Principle requires that expenses be recognized in the period when they are
matched with revenues
the journal
may also be referred to as the book of original entry.
A credit difference in the totals of the balance sheet columns of the worksheet resulting from ---- indicates an increase in stockholders' equity.
net income
The difference between accrued revenues and unearned revenues is that accrued revenues have
not been recorded and unearned revenues have.
the receipt of cash on account will
not change total assets
When journalizing a transaction, a short explanation may be written
on the line following each journal entry
Every adjusted trial balance amount must be extended to ------ of the four financial statement columns on the worksheet
one
Which types of accounts will appear in the post-closing trial balance?
permanent (real) accounts
which of the following is not one of the career opportunities in accounting
personal accounting
To determine the retained earnings of the corporation at the end of an accounting period, Pioneer must prepare the ________.
post-closing trial balance
Amanda posts transactions to ledger accounts and then journalizes and posts adjusting entries. What step of the accounting cycle did Amanda skip?
preparing a trial balance
the primary purpose of a trial balance is to
prove that the debit equal the credits after the posting
the first step in solving an ethical dilemma is to
recognize an ethical situation and the ethical issues involved
Bookkeeping, as opposed to accounting, usually involves only
recording
keeping a systematic, chronological diary of events, measured in dollars and cents is called
recording
the accounting process involves all of the following except
recording non-quantifiable economic events
Cash-basis accounting can result in misleading financial statements due to the timing issue in
recording revenue before it is earned. receiving cash for earned revenues. paying expenses incurred earlier in the year.
the intent of the Sarbanes Oxley Act of 2002 is to
reduce unethical behavior, decrease likelihood of future corporate events, increase severity of penalties for fraudenelt financial activity
What are the earnings that a company does not distribute to stockholders as dividends?
retained earnings
In addition to an income statement, accountants can use an adjusted trial balance for a period to prepare which of the following?
retained earnings statement
the closing process involves separate entries to close in what order
revenues, expenses, income summary, dividends
On December 31, Kevin Hartman Company correctly made an adjusting entry to recognize 2,000 of accrued salaries payable. On January 8 of the next year, total salaries of $3,400 were paid. assuming the correct reversing entry was made on January 1, the entry on January 8 will result in a credit to cash 3,400 and the following debit
salaries and wages expense 3400 (the use of reversing entries simplifies the recording of the first payroll folloring the end of the year by eliminating the need to make an entry to the salaries payable account
Dana bought Chris a gift card to a popular restaurant for $40 on July 27th. Dana gave it to Chris on August 20th. Chris used the gift card as partial payment for a meal at the restaurant on September 2nd. In what month should the $40 be recorded as revenue by the restaurant?
september
an account that will have a zero balance after closing entries have been journalized and published is
service revenue
a credit will increase which account
servie revenue
Failure to accrue interest expense will cause ________ to be ________. Which of the following?
stockholders' equity; overstated.
On March 12, Racer Mechanical Company discovered the following error after the transaction had been journalized and posted: The purchase of supplies on account for $430 was recorded as a debit to Supplies for $340 and a credit to Accounts Payable for $340. The account requiring a debit in the entry to correct the error is
supplies
which of the following statements is incorrect concerning the adjusted trial balance
the adjusted trial balance lists the account balances segregated by assets and liabilities
which of the following statements is incorrect concerning the worksheet
the worksheet is distributed to management and other interested parties
In post closing trial balance,
there are no temporary accounts listed.
How many steps in the accounting cycle involve preparing some kind of trial balance?
three
Although a post-closing trial balance proves that debits and credits are in balance, what may go undetected?
unposted transactions
Which adjustment is an example of an accrual?
wages expense
According to the Revenue Recognition Principle, revenues are recognized
when a comppany provides a service
Creative Consulting has posted an adjusting entry to the wrong account. When will the error most likely be discovered, if it is discovered at all?
when reviewing the ledger
When will a debit to Dividends and credit to Cash will be posted?
when the company pays dividends to stockholders
Before posting a payment of $5,000, the Accounts Payable of Senator Company has a normal balance of $16,000. The balance after posting this transaction was
$11,000
Baxter Company's worksheet had the following balances: Income Statement columns, debit of $37,000 and credit of $49,000 and Balance Sheet columns, debit of $85,000 and credit of $73,000. The net income or net loss for the period is
$12,000 net income.
On March 1st, Kalka Company borrowed $5,000 in the form of a three-month note payable with an annual interest rate of 6 percent. The interest will be paid on May 31st at the same time the note is repaid. The Interest Expense accrued on March 31st will be
$25 (5,000.063/12)=75 75/3=25 per month
Meadows Manufacturing follows the accrual-basis of accounting. An accrual results when ____________ and a deferral results when __________.
$6,000 cash is received after a customer has been billed; $4,500 cash is paid for next quarter's insurance for property
Highspire Architects, Inc. has assets, other than investment securities, that cost $60 million. The current market value of the assets is $85 million. The assets will be recorded and reported at
60,000,000
On March 1st Supplies balance was $70. During March, $440 in supplies were purchased. On March 31st, a count of supplies showed that $50 of supplies remained. The required adjusting entry on March 31st would include a debit to Supplies Expense of
460
At the beginning of the year, Kimball Company had total assets of $700,000 and total liabilities of $400,000. If the total assets increased $100,000 and the total liabilities decreased $80,000, what is the amount of stockholders' equity at the end of the year?
480,000
Harleys Insurance Company has assets of $5 million and liabilities of $3.5 million. What is the amount of stockholders' equity?
1.5 million dollars
As of December 31st, Bogglesworth Company has assets of $4,500 and stockholders' equity of $3,000. What are the liabilities for Bogglesworth Company as of December 31st?
1500
Jenny's Sweets's Accounts Payable balance on the April 30th trial balance is $27,000. On May 30th Jenny paid invoices totaling $10,000 and invoiced customers for a total of $8,000. What is the balance of Jenny's accounts payable account on their May 31st trial balance
17,000
Maxim Company had the following partial listing of accounts and balances at year-end: Cash, $7,000; Accounts Receivable, $6,000; Accounts Payable, $15,000; Equipment, $23,000; Inventories, $5,000; Supplies, $1,000; Land, $75,000; Unearned Service Revenue, $13,000; and Prepaid Rent, $4,000. The total current assets for Maxim Company is
23,000
Sheldon has the following year-end account balances: Accounts Receivable, $5,000; Supplies, $12,000; Equipment, $18,000; Accounts Payable, $17,000; Stockholders' Equity, $43,000. The Cash account balance was not available at year-end. Given the account balances listed, the balance in the Cash account should be
25,000
If Cash had a beginning balance of $3,000 and the only transactions affecting Cash are Common Stock that is issued for $5,000, and cash is used to purchase equipment for $4,000, then the ending balance in the Cash account is
4,000
Which of the following statements is true?
An adjusting entry is made to debit a liability account and credit a revenue account
How do correcting entries differ from adjusting entries?
Correcting entries correct errors made in recording transactions, while adjusting entries bring account balances up to date at the end of an accounting period.
what is the final step in the accounting cycle? A post the closing entries B analyze business transactions C prepare financial statements D prepare a post-closing trial balance
D: prepare a post-closing balance
On May 18, Wagon Company purchased inventory costing $125 on account. The transaction was journalized and posted as a $125 debit to Accounts Payable and a $125 credit to Cash. The error is discovered on May 28. Which of the following entries will Wagon prepare on May 28 to correct the error?
Debit Cash $125, debit Inventory $125, credit Accounts Payable $250.
On May 10, Wagon Company journalized and posted a $50 cash payment on account to a creditor as a debit to Accounts Payable and a credit to Prepaid Insurance. The error is discovered on May 20. Which of the following entries will Wagon prepare on May 20 to correct the error?
Debit Prepaid Insurance $50, credit Cash $50.
The worksheet for Booth Company shows the following in the financial statement columns: one of the closing entries at December 31 for Booth Company?
Debit Retained Earnings $30,000; credit Income Summary $30,000.
The accounting clerk for Smith Company mistakenly posted a transaction twice. How will this error affect the post-closing trial balance?
Debits and credits will be overstated.
Upon reviewing the July 31st trial balance, the accountant for Alpine Inc. notices a difference in the debit and credit total balances. What is the first step toward locating the source of the error?
Determine the amount of the difference between the two columns.
A company's post-closing trial balance contains each of the entries described below. Which entry most strongly suggests that the post-closing trial balance has not been prepared in accordance with GAAP?
The post-closing trial balance has a $50,000 credit entry listed under "Service Revenue." Service Revenue, a temporary account, should be closed before a post-closing trial balance can be prepared.
The number of accounts used in a firm's general ledger depends on the
amount of detail management desires
dividends are classified as
an equity account
An adjustment for accrued revenues will lead to
an increase in assets and an increase in revenues.
Irregular entries can often be an indicator of
an unethical misstatement of an entry
Correcting entries must be posted
before closing entries
Rider Company is in the process of preparing its closing entries. It first closes its revenue accounts by crediting the Income Summary account for $68,000 and then, closes its expense accounts by debiting the Income Summary account for $45,000. The entry to then close the Income Summary account is
debit Income Summary, $23,000, and credit Retained Earnings, $23,000.
An internal human resources director for a company would be most likely to need financial information about the
companys average salaries ranged compared to competitors
for a firm that pays rent each month, the posting entry would be
credit cash, debit rent expense
If a company debited interest expense instead of rent expense, in order to correct the error, it would need to
credit interest expense and debit rent expense.
when a net loss has occurred , income summary is
credited and retained earnings is debited
in a classified balance sheet, assets are usually classified using the following categories:
current assets, long term investments, tangible assets, and intangible assets
Cash of $100 received at the time a service was provided was journalized and posted as a debit to Cash $100 and a credit to Accounts Receivable $100. Assuming the incorrect entry is NOT reversed, the correcting entry is
debit Accounts Receivable $100 and credit Service Revenue $100.
On September 23, Reese Company received a $350 check from Mike Moluf for services to be performed in the future. The bookkeeper for Reese Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should
debit Accounts Receivable $350 and credit Unearned Service Revenue $350.
Juanita has performed $750 of consultancy for a client but has not billed the client as of the end of the accounting period. The adjusting entry in Juanita's books will be
debit Accounts Receivable and credit Service Revenue.
Income Summary has a credit balance of $12,000 after closing revenues and expenses. The entry to close Income Summary is
debit Income Summary $12,000, credit the Retained Earnings account $12,000.
On the trial balance, accounts are listed
in the order they appear in the ledger
a company has purchased a tract of land. it expects to build a production plant on the land in approximately 5 years. during the 5 years before construction, the land will be idle. the land should be reported as
long term investment
When the trial balance shows that total debits equal total credits,
it is possible the wrong accounts were used in the journal entry
the second step in the recording process is
journalizing the transaction
the proper order of the following steps in the accounting cycle is
journalizing transactions, post to ledger accounts, prepare unadjusted trial balance, journalize and post adjusting entries
NoKnotsense Hair Salon incorporated this year and is now an LLC. According to the economic entity assumption, the owner of the salon is now required to
keep the salon's economic records separate from her own
Salary and Wages Expense should have been accrued on December 31st, but the entry was not made. The result of this oversight is that
liabilities are understated
The accountant for Flexon Industries is preparing the company's balance sheet. The accountant will list Liabilities before Stockholders' Equity on the balance sheet because
liabilities refer to other economic entities, thus are required to be listed first by the Economic Entity assumption.
The relationship between current assets and current liabilities is important in evaluating a company's
liquidity
the chart of accounts is a
listing of the accounts and the account numbers that identify their location in the ledger
a chart of accounts
lists all accounts utilized by a company
________ is an adjustment that is an example of a deferral.
unearned revenue
At the time of closing entries, all the temporary accounts balances are transferred to
the income summary account or retained earnings.
What happens when a business collects on an accounts receivable?
total asses are not affected
Justin Company discovered the following error made in January: A payment received from a customer on account in the amount of $150 was debited to Accounts Payable and credited to Service Revenue, both for $150. By what amount will total liabilities and total revenues be understated or overstated for the month of January, if the error is not corrected?
total liabilities: $150 understated; total revenues: $150 overstated
posting
transfers journal entries to ledger accounts
a lis of accounts and their balances at a given point in time is called a
trial balance
A revenue account is closed with a debit to the revenue account and a credit to income summary.
true
An adjusting entry can include a debit to an asset account and a credit to a revenue account.
true
An adjusting entry related to unearned revenue requires a debit to unearned revenue and a credit to revenue.
true
At end of January, 2015, Fabric Town accrued $750 owed to a supplier. A payment of $450 was made to the supplier on February 24 with an increase to Supplies and a decrease to Cash. The company discovered the error on February 28. One effect of the correcting entry is a credit to Supplies.
true
Correcting entries are made as soon as errors are discovered, while adjusting entries are made at the end of an accounting period.
true
The account balances for the permanent accounts, Cash and Equipment, will remain constant from the unadjusted trial balance through the post-closing trial balance.
true
companies initially record transactions in chronological order in the general ledger
true
expenses that result from operating the business are decreases in stockholders equity
true
the historical cost principle dictates that companies originally record assets at their cost
true
the three most common forms of business organization, proprietorship, partnership, and corporation, are used in countries that use IFRS
true
Failure to make an adjusting entry at the end of a period to record an accrued revenue would cause an ----- of assets and an understatement of revenues.
understatement
Which of the following is an example of an adjusting journal entry for a deferral?
unearned revenue
Which of the following shows the relationship between a liability and a revenue account?
unearned revenue
