Financial Accounting Test 1 Chapters 1-3

On April 1, a company paid the $4,200 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 year ended December 31?

$1,050

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

If assets are $328,000 and liabilities are $189,000, then equity equals:

$139,000

If a company is considering the purchase of a parcel of land that was acquired by the seller for $95,000, is offered for sale at $170,000, is assessed for tax purposes at $105,000, is recognized by the purchaser as easily being worth $160,000, and is purchased for $157,000, the land should be recorded in the purchaser's books at:

$157,000

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

$25,000

Tiptoe Shoes, had annual revenues of $185,000, expenses of $103,700, and paid dividends of $18,000 during the current year. The retained earnings account before closing had a balance of $297,000. The ending retained earnings balance after closing is:

$360,300

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

$492,000

On April 30, Victor Services had an Accounts Receivable balance of $32,300. During the month of May, total credits to Accounts Receivable were $67,600 from customer payments. The May 31 Accounts Receivable balance was $26,000. What was the amount of credit sales during May?

$73,900

Happiness Catering has total assets of $419 million. Its total liabilities are $117 million and its equity is $302 million. Calculate its debt ratio.

27.9%

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

30%

A corporation is

A business legally separate from its owners

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,200. Fragmental collected the entire $9,600 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

A debit to Unearned Rent and a credit to Rent Revenue for $3,600

A debit is used to record an increase in all of the following accounts except: Supplies Cash Accounts Payable Dividends Prepaid Insurance

Accounts Payable

Which of the following accounts is a permanent (real) account? Fees earned. Office supplies expense. Interest revenue. Accounts payable. Salaries expense.

Accounts Payable

Identify the account below that is classified as an asset in a company's chart of accounts: Accounts Receivable Accounts Payable Common Stock Unearned Revenue Service Revenue

Accounts Receivable

Adjusting entries:

Affect both income statement and balance sheet accounts

Resources a company owns or controls that are expected to yield future benefits are:

Assets

If a company receives $12,000 from its sole stockholder to establish a corporation, the effect on the accounting equation would be:

Assets increase $12,000 and equity increases $12,000

If a company purchases equipment costing $5,300 on credit, the effect on the accounting equation would be:

Assets increase $5,300 and liabilities increase $5,300

If a company paid $38,000 of its accounts payable in cash, what was the effect on the accounting equation?

Assets would decrease $38,000, liabilities would decrease $38,000, and equity remains unchanged

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Book Value

Which of the following does not require an adjusting entry at year-end?

Cash invested by stockholders

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

Chart of accounts

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

Contra Account

Golddigger Services, Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $73,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a:

Credit to Unearned Management Fees for $73,000

The assets section of a classified balance sheet usually includes the subgroups:

Current assets, long-term investments, plant assets, and intangible assets

Two common subgroups for liabilities on a classified balance sheet are:

Current liabilities and long-term liabilities

A law firm billed a client $3,300 for work performed in the current month. Which of the following general journal entries will the firm make to record this transaction?

Debit Accounts Receivable, $3,300; credit Legal Fees Revenue, $3,300

Paul's Landscaping paid $680 on account for supplies purchased in the prior month. Which of the following general journal entries will Paul's Landscaping make to record this transaction?

Debit Accounts payable, $680; credit Cash, $680

Mary Martin, the sole stockholder of Martin Consulting, started the business by investing $52,000 cash. Identify the general journal entry below that Martin Consulting will make to record the transaction.

Debit Cash $52,000; Credit Common Stock $52,000

A law firm collected $3,300 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, $3,300; credit Unearned Legal Fees Revenue, $3,300

A law firm collected $3,400 on account for work performed in the previous month. Which of the following general journal entries will the firm make to record this transaction?

Debit Cash, $3,400; credit Accounts Receivable, $3,400

Prior to recording adjusting entries, the Office Supplies account had a $386 debit balance. A physical count of the supplies showed $99 of unused supplies available. The required adjusting entry is:

Debit Office Supplies Expense $287 and credit Office Supplies $287.

Paul's Landscaping purchased $640 of office supplies on credit. The company's policy is to initially record prepaid and unearned items in balance sheet accounts. Which of the following general journal entries will Paul's Landscaping make to record this transaction?

Debit Office supplies, $640; credit Accounts payable, $640

A company pays each of its two office employees each Friday at the rate of $180 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 $720 and credit Salaries Payable $720

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Debit Unearned Legal Fees and credit Legal Fees Earned

J. Brown Consulting immediately paid $540 cash for utilities for the current month. Given the choices below, determine the general journal entry that J. Brown Consulting will make to record this transaction.

Debit Utilities Expense $540; Credit Cash $540

Richard Redden, the sole stockholder, contributed $91,000 in cash and land worth $172,000 in exchange for common stock to open a new business, RR Consulting. Which of the following general journal entries will RR Consulting make to record this transaction?

Debit cash $91,000; debit land $172,000; Credit Common Stock, $263,000

Wiley Consulting purchased $8,900 worth of supplies and paid cash immediately. Which of the following general journal entries will Wiley Consulting make to record this transaction? Assume the company's policy is to initially record prepaid and unearned items in balance sheet accounts.

Debit supplies $8,900; Credit Cash $8,900

Ralph Pine Consulting received its telephone bill in the amount of $380, and immediately paid it. Pine's general journal entry to record this transaction will include a

Debit to Telephone Expenses for $380

Permanent accounts include all of the following except: Accumulated Depreciation—Equipment. Prepaid Insurance. Unearned Revenue. Accounts Receivable. Depreciation Expense—Equipment.

Depreciation Expense-Equipment

Distributions of cash or other resources by a business to its stockholders are called:

Dividends

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

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the:

FASB

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

Is referred to as accumulated depreciation

A Debit:

Is the left-hand side of a T-account

The record of all accounts and their balances used by a business is called a:

Ledger (or General Ledger)

Creditors' claims on the assets of a company are called:

Liabilities

Unearned revenues are generally:

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

A company's formal promise to pay (in the form of a promissory note) a future amount is a(n):

Note payable

Which of the following is classified as a plant asset?

Office Equipment

Which of the following is classified as a current asset?

Office supplies

If a company uses $1,600 of its cash to purchase supplies, the effect on the accounting equation would be:

One asset increases $1,600 and another asset decreases $1,600, causing no effect

Which of the following is the usual final step in the accounting cycle?

Preparing a post-closing trial balance

If Houston Company billed a client for $10,000 of consulting work completed, the accounts receivable asset increases by $10,000 and:

Revenue increase $10,000

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

Revenue recognition principle

The accounting principle that requires revenue to be recorded when earned is the:

Revenue recognition principle

Increases in equity from a company's sales of products or services are:

Revenues

Revenues are:

The increase in equity from a company's sales of products and services.

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

Identify the account below that impacts the Equity of a business: Utilities Expense Accounts Payable Accounts Receivable Cash Unearned Revenue

Utilities Expense