Financial Accounting Mid-Term Exam Practice

A sale on account is recorded as a debit to Service Revenue and a credit to Accounts Receivable. A. True B. False

B. False WHY? The answer would be false because accounts receivable would be debited and interest revenue would be credited.

The accounting principle that requires revenue to be recorded when earned is the: A. Matching principle. B. Revenue recognition principle. C. Time period assumption. D. Accrual reporting principle. E. Going-concern assumption.

B. Revenue recognition principle.

All of the following are true regarding deferred revenues except: A. They are payments received in advance of services performed. B. The adjusting entry for deferred revenues increases assets and increases revenues. C. The adjusting entry for deferred revenues increases revenues and decreases liabilities. D. They are liabilities. E. As they are earned, they become revenues.

B. The adjusting entry for deferred revenues increases assets and increases revenues.

A company reported the following information for its most recent year of operation: purchases, $100,000; beginning inventory, $20,000; and cost of goods sold, $110,000. How much was the company's ending inventory? A. $10,000. B. $20,000. C. $15,000. D. $30,000

A. $10,000. Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory Cost of Goods Sold ($110,000) = Beginning Inventory ($20,000) + Purchases ($100,000) - Ending Inventory ($10,000)

RJ Corporation has provided the following information about one of its inventory items: During the year, RJ sold 3,000 units. Ending inventory using LIFO would be: A. $640,000 B. $840,000 C. $770,000 D. $880,000

A. $640,000

The accounting equation is defined as: A. Assets = Liabilities + Stockholders' Equity. B. Assets = Liabilities - Stockholders' Equity. C. Net Income = Revenues - Expenses. D. Liabilities + Revenues = Assets.

A. Assets = Liabilities + Stockholders' Equity.

Which of the following accounts would not appear on a balance sheet? A. Service Revenue. B. Salaries Payable. C. Deferred Revenue. D. Neither Service Revenue nor Deferred Revenue would appear on a balance sheet.

A. Service Revenue

Generally Accepted Accounting Principles (GAAP) are best defined as: A. Standards or methods for presenting financial accounting information. B. Government-mandated rules that companies must follow. C. Rules that best estimate profitability for a company. D. The group of individuals that create and enforce all accounting rules.

A. Standards or methods for presenting financial accounting information.

The primary difference between accrual-basis and cash-basis accounting is: A. The timing of when revenues and expenses are recorded. B. Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting. C. Accrual-basis accounting violates both the revenue recognition and matching principles. D. Adjusting entries are only a necessary part of cash-basis accounting.

A. The timing of when revenues and expenses are recorded.

RJ Corporation has provided the following information about one of its inventory items: RJ Corporation has provided the following information about one of its inventory items: During the year, RJ sold 3,000 units. Cost of goods sold using FIFO would be: A. $11,680,000. B. $11,590,000. C. $11,480,000. D. $11,550,000.

C. $11,480,000 Cost of Goods Sold = (400 x $3200) + (800 x $3600) + (1,200 x $4000) + (600 x $4200)

On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, balance of $97,250; Allowance for Uncollectible Accounts, credit balance of $951. What amount should be debited to Bad Debt Expense, assuming 6% of accounts receivable at the end of the current year will be uncollectible? A. $951 B. $3,992 C. $4,884 D. $5,835 E. $6,786

C. $4884 WHY? Total allowance for doubtful accounts required=(6%*97250)=$5835 Less: allowance for doubtful accounts balance =$951 Hence bad debt expense to be debited=$4884(C)

Liabilities normally carry a _______ balance and are shown in the _________. A. Debit; Statement of stockholders' equity B. Debit; Income statement C. Credit; Balance sheet D. Debit; Balance Sheet

C. Credit; Balance sheet

Which of the following journal entries correctly records the write-off of an uncollectible account receivable when using the allowance method? A. Debit Bad Debt Expense; Credit Uncollectible Sales B. Debit Allowance for Uncollectible Accounts; Credit Accounts Receivable C. Debit Allowance for Uncollectible Accounts; Credit Bad Debt Expense D. Debit Bad Debt Expense; Credit Allowance for Uncollectible Accounts

C. Debit Allowance for Uncollectible Accounts; Credit Accounts Receivable

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: A. Debit Office Supplies $105 and credit Office Supplies Expense $105. B. Debit Office Supplies Expense $105 and credit Office Supplies $105. C. Debit Office Supplies Expense $254 and credit Office Supplies $254. D. Debit Office Supplies $254 and credit Office Supplies Expense $254. E. Debit Office Supplies $105 and credit Supplies Expense $254.

C. Debit Office Supplies Expense $254 and credit Office Supplies $254.

Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are: A. Debit Rent Expense, credit Cash. B. Debit Prepaid Rent, credit Rent Expense. C. Debit Prepaid Rent, credit Cash. D. Debit Cash, credit Prepaid Rent.

C. Debit Prepaid Rent, Credit Cash

The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the: A. Monetary unit assumption. B. Going concern assumption. C. Economic entity assumption. D. Periodicity assumption.

C. Economic entity assumption.

Which of the following statements does not correctly describe the allowance for uncollectible accounts balance? A. It is reported on the balance sheet as a component of current assets. B. It is a contra-asset account. C. It is reported on the balance sheet as a stockholders' equity account. D. It is created as a result of the adjusting entry to record bad debt expense.

C. It is reported on the balance sheet as a stockholders' equity account.

Creditors' claims to a corporation's resources are referred to as: A. Dividends. B. Assets. C. Liabilities. D. Stockholders' equity.

C. Liabilities

Resources owned by the company that will provide a benefit for more than one year are called: A. Current assets. B. Current liabilities. C. Long-term assets. D. Revenues.

C. Long-Term assets

The following information pertains to Sooner Company: Assuming that Sooner Company uses accrual-basis accounting, when would the company record the expense related to the supplies? A. May 2. B. May 8. C. May 15. D. May 20.

C. May 15

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on June 10, assuming the customer made the correct payment on that date? a. Cash 46,000 Accounts Receivable 45,540 Discounts Receivable 460 b. Cash 46,000 Accounts Receivable 45,540 Interest Revenue 460 c. Cash 46,000 Accounts Receivable 46,000 d. Cash 46,460 Accounts Receivable 46,000 Interest Revenue 460 A. Option a. B. Option b. C. Option c. D. Option d.

C. Option c. Cash $46,000 Accounts Receivable $46,000

A company that uses the allowance method to account for uncollectible accounts A. Records Bad Debt Expense when a receivable is written off. B. Does not record uncollectible accounts until the amount becomes significant. C. Reports the net realizable value of its accounts receivable on the balance sheet. D. None of these answer choices are correct.

C. Reports the net realizable value of its accounts receivable on the balance sheet. A company that uses the allowance method estimates uncollectible accounts expense before they actually become uncollectible using a contra-asset account known as allowance for doubtful accounts, and reports the net realizable value of accounts receivable on the balance sheet.

The primary purpose of closing entries is to: A. Prove the equality of the debit and credit entries in the general journal. B. Ensure that all assets and liabilities are recognized in the appropriate period. C. Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions. D. Assure that adjusting entries balance.

C. Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions

Select the account below that normally has a credit balance. A. Cash. B. Office Equipment. C. Wages Payable. D. Dividends E. Salaries Expense.

C. Wages Payable

Purchasing supplies for cash has what effect on the accounting equation? A. Increase assets. B. Decrease stockholders' equity. C. Decrease liabilities. D. No effect.

D. No effect

RJ Corporation has provided the following information about one of its inventory items: During the year, RJ sold 3,000 units. Cost of goods sold using the weighted average method would be? A. $11,680,000. B. $11,590,000. C. $11,480,000. D. $11,550,000

D. $11,550,000

The following accounts and balances were drawn from the records of Hoover Company on December 31, 2013: Total assets on the December 31, 2013 balance sheet would amount to: A. $3,150. B. $3,450. C. $1,800. D. $2,650.

D. $2650

A company's current inventory consists of 200 units purchased at $16 per unit. Net realizable value has now fallen to $13 per unit. What is the amount of the lower of cost or net realizable value adjustment the company must make? A. $1,000. B. $1,400. C. $400. D. $600. E. $800.

D. $600 WHY? The inventory cost in the market has reduced to $3 per unit, and lower of market value and cost principle is applied. Organization suffered a loss of $3 per unit of inventory.

On October 1, Robertson Company sold merchandise in the amount of $5,800 to Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses the perpetual inventory system. The journal entry or entries that Robertson will make on October 1 is: A. Sales $5,800 Accounts Receivable $5,800 B. Sales $5,800 Accounts Receivable $5,800 Cost of Goods Sold $4,000 Merchandise Inventory$4,000 C. Accounts Receivable $5,800 Sales $5,800 D. Accounts Receivable $5,800 Sales $5,800 Cost of Goods Sold $4000 Merchandise Inventory $4000 E. Accounts Receivable $4000 Sales $4000

D. Accounts Receivable $5,800 Sales $5,800 Cost of Goods Sold $4,000 Merchandise Inventory$4,000

When a payment is made on an account payable: A. Assets and stockholders' equity decrease. B. Assets and liabilities decrease. C. Liabilities and revenues decrease. D. Assets and expenses decrease.

D. Assets and liabilities decrease.

Xenon Corporation borrows $75,000 from First Bank. Xenon Corporation records this transaction with a: A. Debit to Investments. B. Credit to Retained Earnings. C. Credit to Notes Payable. D. Credit to Interest Expense.

D. Credit to Notes Payable.

On June 1 a company purchased a one-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: A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800. B. Debit Prepaid Insurance, $900; credit Insurance Expense, $900. C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360. D. Debit Insurance Expense, $1,050; credit Prepaid Insurance, $1,050. E. Debit Insurance Expense, $1,800; credit Prepaid Insurance, $1,800.

D. Debit Insurance Expense $1,050 credit prepaid insurance $1,050

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is: A. Debit Unpaid Salaries and credit Salaries Payable. B. Debit Salaries Payable and credit Salaries Expense. C. Debit Salaries Expense and credit Cash. D. Debit Salaries Expense and credit Salaries Payable. E. Debit Cash and credit Salaries Expense.

D. Debit Salaries Expense and credit Salaries Payable.

Providing services on account would be recorded with a: A. Debit to Service Revenue. B. Credit to Accounts Receivable. C. Credit to Accounts Payable. D. Debit to Accounts Receivable.

D. Debit to Accounts Receivable.

At the end of 2015, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (debit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2015, to record its estimated uncollectible accounts included a: A. Credit to Allowance for Uncollectible Accounts of $12,000. B. Debit to Bad Debt Expense of $16,500. C. Credit to Allowance for Uncollectible Accounts of $16,500. D. Debit to Bad Debt Expense of $16,500; credit to Allowance for Uncollectible Accounts of $16,500.

D. Debit to Bad Debt Expense of $16,500; credit to Allowance for Uncollectible Accounts of $16,500.

A debit: A. Always increases an account. B. Is the right-hand side of a T-account. C. Always decreases an account. D. Is the left-hand side of a T-account. E. Is not need to record a transaction.

D. Is the left-hand side of a T-account.

The following information pertains to Sooner Company: Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense related to the supplies? A. May 2. B. May 8. C . May 15. D. May 20.

D. May 20

Identify the statement below that is incorrect. A. The normal balance of accounts receivable is a debit. B. The normal balance of dividends is a debit. C. The normal balance of deferred revenues is a credit. D. The normal balance of an expense account is a credit. E. The normal balance of the owner's equity account is a credit.

D. The normal balance of an expense account is a credit.

The primary purpose(s) of financial accounting is (are) to: A. Measure and record business transactions. B. Prepare federal and state tax returns. C. Communicate financial results to investors and creditors. D. a and c

D. a and c

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between A. beginning inventory and net purchases during the period. B. ending inventory and beginning inventory. C. net purchases during the period and ending inventory. D. ending inventory and cost of goods sold. E. beginning inventory and cost of goods sold.

D. ending inventory and cost of goods sold.

On July 22, a company that uses the perpetual inventory system purchased merchandise inventory at a cost of $5,250 with credit terms 2/10, net 30. If the company pays for the purchase on August 1, what would be the appropriate journal entry? A. Merchandise Inventory $5,250 Accounts Payable $5,250 B. Accounts Payable $5,250 Merchandise Inventory $5,250 C. Purchase Discount $5,145 Accounts Payable $5,145 D. Accounts Payable $5,145 Cash $5,145 E. Accounts Payable $5,250 Merchandise Inventory $105 Cash $5,145

E. Accounts Payable $5,250 Merchandise Inventory $105 Cash $5,145