Financial Accounting- Exam 1

on December 31, 2017, retained earnings has a normal balance of $18,500. on December 31, 2018, retained earnings has a normal balance of $17,100. during 2018, dividends of $4,200 were declared & paid. based on this information, net income for 2018 is:

$2,800

if assets are $369,000 & equity is $122,000, then liabilities are:

$247,000

a company reported total equity of $145,000 at the beginning of the year. the company reported $210,000 in revenues & $165,000 in expenses for the year. there were no stockholder investments or dividends during the year. liabilities at the end of the year totaled $92,000. what are the total assets of the company at the end of the year?

$282,000 Equity+Liability+Revenue-Expenses 145,000+92,000+210,000-165,000

use the following information as of December 31 to determine equity cash $57,000 building 175,000 equipment 206,00 liabilities 141,000

$297,000 Equity=Assets-Liabilities 57,000+175,00+206,000=438,000 (ASSETS) 438,000-141,000=297,000

on may 31 of the current year, the assets & liabilities of Riser, Inc. are as follows: Cash $20,500; Accounts Receivable $7,250, Supplies $650, Equipment $12,000, Accounts Payable $9,300. what is the amount of equity as of May 31 of the current year?

$31,100 20,500+7,250+650+12,000 = 9,300+Equity

If equity is $300,000 and liabilities are $192,000, then assets equal:

$492,000

if equity is $370,000 & liabilities are $197,000, then assets equal:

$567,000

If assets are $99,000 and liabilities are $32,000, then equity equals:

$67,000 Equity=assets-liabilities $99,000-$32,000= $67,000

what are the liability accounts?

-accounts payable -notes payable (short-term note payable or long-term payable) -unearned revenue -accrued liabilities (wages payable, taxes payable, interest payable)

what are the asset accounts?

-cash -accounts receivable -notes receivable -prepaid accounts (prepaid insurance, prepaid services -supplies accounts -equipment accounts -building accounts -land

what are the equity accounts?

-common stock -dividends -sales -commissions earned -fees earned -rent revenue -interest revenue -expense accounts

a company recorded 2 days of accrued salaries of $1,400 for its employees on January 31. on February 9, it paid its employees $7,000 for these accrued salaries & for other salaries earned through February 9. assuming the company does not prepare reversing entries, the January 31 & February 9 journal entries are:

1/31 Salaries Expense 1,400 Salaries Payable 1,400 2/9 Salaries Expense 5,600 Salaries Payable 1,400 Cash 7,000

what is the formula for current ratio?

Current Ratio = Current Assets / Current Liabilities

a simple tool that is widely used in accounting to represent a ledger account & to understand how debits & credits affect an account balance is called a:

T-account

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

account

promises to pay later

accounts payable

held by a seller & are promises of payment from customers to sellers.

accounts receivable

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

accrual basis accounting

amounts owed but not yet paid

accrued liabilites

adjusting entries:

affect both income statement & balance sheet accounts

classify if it is an asset, liability, or equity accounts receivable

asset

classify if it is an asset, liability, or equity equipment

asset

classify if it is an asset, liability, or equity land

asset

classify if it is an asset, liability, or equity notes receivable

asset

classify if it is an asset, liability, or equity prepaid insurance

asset

classify if it is an asset, liability, or equity prepaid rent

asset

what is the type of account & normal balance for land?

asset debit

what is the type of account & normal balance for notes receivable?

asset debit

what is the type of account & normal balance for prepaid rent?

asset debit

accrued revenues would appear on the balance sheet as:

assets

if a company purchases equipment costing $4,400 on credit, the effect on the accounting equation would be:

assets increase $4,400 & liabilities increase $4,400

prepaid accounts (also called prepaid expenses) are generally

assets that represent prepayments of future expenses

stores, offices, warehouses, & factories. they provide future benefits.

building accounts

to include the personal assets & transactions of a business stockholders in the records & reports of the business would be in conflict with the:

business entity assumption

includes money & any funds that a bank accepts for deposit (coins, checks, money orders, & checking account balances)

cash

owner investments in company

common stock

an account used to record stockholders investments in a business is called

common stock account

identify the normal balance, debit or credit accounts payable

credit

identify the normal balance, debit or credit common stock

credit

identify the normal balance, debit or credit interest payable

credit

identify the normal balance, debit or credit unearned revenue

credit

the closing entry involving net income will include a:

credit to income summary

identify the normal balance, debit or credit accounts receivable

debit

identify the normal balance, debit or credit equipment

debit

identify the normal balance, debit or credit notes receivable

debit

identify the normal balance, debit or credit prepaid rent

debit

identify the normal balance, debit or credit supplies

debit

a law firm collected $2,000 for work to be performed in the following month. which of the following general journal entries will the firm make to record this transaction?

debit cash, $2,000; credit unearned legal fees revenue. $2,000

under the perpetual inventory system, in addition to making the entry to record a sale, a company would

debit cost of goods sold and credit inventory

high step shoes had annual revenues of $198,000 expenses of $110,200 & dividends of $23,200 during the current year. the retained earnings account before closing had a balance of $310,000. the entry to close the income summary account at the end of the year, after revenue & expense accounts have been closed is:

debit income summary $87,800, credit retained earnings $87,800 198,000-110,200

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

debit office supplies expanses $254 & credit office supplies $254

the balance in the prepaid rent account before adjustment at the end of the year is $20,000, which represents 4 months of rent paid on December 1. the adjusting entry required on December 31 is:

debit rent expense $5,000 credit prepaid rent $5,000

Sanborn Company has 10 employees , who earn a total of $1,800 in salaries each working day. they are paid on Monday for the 5-day workweek ending on the previous Friday. assume that year ended on December 31, which is a Wednesday, & all employees will be paid salaries for 5 full days on the following Monday. the adjusting entry needed on December 31 is:

debit salaries expense, $5,400; credit Salaries payable, $5,400 1,800/day * 3 = 5,400

permanent accounts include all of the following except:

depreciation expense- equipment

are not expenses of the business; they are simply the opposite of owner investment. a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves

dividends

classify if it is an asset, liability, or equity common stock

equity

what is the type of account & normal balance for commissions earned?

equity credit

what is the type of account & normal balance for fees earned?

equity credit

what is the type of normal balance & type of account for common stock?

equity credit

what is the type of account & normal balance for advertising expense?

equity debit

what is the type of account & normal balance for dividends?

equity debit

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

expense recognition (matching) principle

a revenue account normally has a debit balance T/F

false

after posting the entries to close all revenue & expense accounts, Marker Company's Income Summary account has a credit balance of $7,000 & its Dividends account has a debit balance of $3,000. these balances indicate that net income for the current accounts period amount to $4,000 T/F

false

debit means increase & credit means decrease for all accounts T/F

false

debit and credit rules revenue

increase (normal) credit decrease debit

debit and credit rules common stock

increase (normal) credit decrease debit

debit and credit rules asset

increase (normal) debit decrease credit

debit and credit rules dividends

increase (normal) debit decrease credit

debit and credit rules expense

increase (normal) debit decrease credit

debit and credit rules liability

increase (normal) credit decrease debit

if the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?

increases the balance of an expense account

which of the following is an example of an accrual?

interest earned but not yet received

net income:

is the excess of revenues over expenses

unearned revenue are generally

liabilities created when a customer pays in advances for products or services before the revenue is earned

classify if it is an asset, liability, or equity accounts payable

liability

classify if it is an asset, liability, or equity interest payable

liability

classify if it is an asset, liability, or equity unearned revenue

liability

classify if it is an asset, liability, or equity wages payable

liability

classify if it is an asset, liability, or equity rent payable

liability

what is the type of account & normal balance for interest payable?

liability credit

what is the type of account & normal balance for unearned rent revenue?

liability credit

the accounting principle that requires accounting information to be based on actual cost and requires assets & services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

measurement (cost) prinicple

at the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. which of the following statements are true?

net income will be overstated for the current year

written promissory notes to pay a future amount

notes payable

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

assets from prepayments of future expenses. when the expenses are later incurred, the amounts are transferred to expense accounts.

prepaid accounts

amounts received from sales of products & services to customers are recorded in accounts.

revenue accounts

the rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, & (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:

revenue recognition principle

at the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. which of the following statements is true?

salary expense for the year is understated

which of the following is an expense in the current accounting period under accrual accounting?

the cost of items used up this period but paid for next period

a broad principle that requires identifying the activities of a business with specific time period such as months, quarters, or years is the:

time period assumption

an account is a record of increase & decreases in a specific asset, liability, equity, revenue or expense item. T/F

true

before an adjusting entry is made to accrue employee salaries, Salaries expense & salaries payable are both understated T/F

true

external users of accounting information do not directly run the organization & have limited access to its accounting information T/F

true

objectivity means that financial information is supported by independent, unbiased evidence; it demands more than a persons opinion T/F

true

opportunities in accounting include auditing, consulting, market research and tax planning T/F

true

settled in the future when a company delivers its products or services. when customers pay in advance for products or services, the seller records this

unearned revenue

which of the following accounts ordinarily appears on the post-closing trial balance?

unearned revenue

revenue is properly recognized:

upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price