Introductory Accounting Exam

C (Debit Advertising Expense $500, credit Accounts Payable $500)

A company received a bill for newspaper advertising services, $400. The bill will be paid in 10 days. How would the transaction be recorded today? A. Debit Accounts Payable $500, credit Advertising Expense $400. B. Debit Advertising Expense $500, credit Cash $500. C. Debit Advertising Expense $500, credit Accounts Payable $500. D. Debit Accounts Payable $500, credit Cash $500.

B (September)

A customer purchased a bed and dresser on August 25 on account from a furniture store. The furniture was delivered on September 6. The customer paid for the furniture on October 10. When should the furniture store record the revenue for this transaction according to the revenue recognition principle? A. August B. September C. October D. Evenly in each of the three months E. One‐third in August and two‐thirds in September

B (False)

A debit to an account balance always results in the balance increasing. A. True B. False

C (Chart of accounts)

A list of all account names used to record transactions of a company is referred to as the: A. Financial statements B. Income statement C. Chart of accounts D. Balance sheet

C ( List of all accounts and their balances at a particular date to ensure that debits equal credits)

A trial balance represents the: A. Chronological record of all transactions affecting the company B. Source documents used to determine the effects of transactions on the company's accounts C. List of all accounts and their balances at a particular date to ensure that debits equal credits D. Process of transferring debit and credit information from the journal to the accounts in the general ledger

True

Accounting is a system of maintaining records of a company's operations and communicating that information to decision makers.

B (Always involve at least one income statement account and one balance sheet account.)

Adjusting entries: A. Usually are recorded at the beginning of the accounting period. B. Always involve at least one income statement account and one balance sheet account. C. Adjust the balance of revenue and expense accounts to zero. D. Often include the Cash account.

D (updating the accounts at the end of the period)

Adjusting the accounts is the process of A. subtracting expenses from revenues to measure net income. B. recording transactions as they occur during the period. C. zeroing out account balances to prepare for the next period. D. updating the accounts at the end of the period.

D (Cash payment occurs after the expense is recognized and a liability is recorded.)

An accrued expense occurs when: A. Cash payment (or an obligation to pay cash) occurs before the expense recognition. B. An expense is recorded at the same time as the cash payment. C. Cash is paid but an expense is never recorded. D. Cash payment occurs after the expense is recognized and a liability is recorded.

A - L = SE (Assets - Liabilities = Stockholders' Equity)

An alternative form of the accounting equation is:

D (Debit; Credit)

An increase to an asset account is shown with a ______________. An increase to a liability account is shown with a ______________. A. Credit; Credit B. Credit; Debit C. Debit; Debit D. Debit; Credit

A ( June, $15,000; July, $0; August, $0)

Assume a business bills a client $15,000 on June 30, 2017, for services rendered during June. The business collects $8,500 of the billings during July and the remainder in August. Under the accrual basis of accounting, when would the business record the revenue for the fees? A. June, $15,000; July, $0; August, $0 B. June, $0; July, $6,500; August, $8,500 C. June, $8,500; July, $6,500; August, $0 D. June, $0; July, $8,500; August, $6,500

B (Increase both assets and equity by $1,500)

Assume that J&K, Inc. performed advertising services for a bakery on account for $1,500. How would this transaction affect J&K, Inc.? A. Increase both assets and liabilities by $1,500. B. Increase both assets and equity by $1,500. C. Increase both liabilities and equity by $1,500. D. Decrease liabilities by $1,500, and increase equity by $1,500

D (Increase both assets and equity by $200)

Assume that Perfect Clean, Inc. performed cleaning services for a business on account for $200. How would this transaction affect Perfect Clean, Inc.? A. Decrease liabilities by $200, and increase equity by $200. B. Increase both assets and liabilities by $200. C. Increase only equity by $200. D. Increase both assets and equity by $200.

C (Debit to Insurance Expense for $1000)

Assume the balance in Prepaid Insurance is $2,500 but it should be $1,500. The adjusting journal entry should include which of the following? A. Debit to Prepaid Insurance for $1,000. B. Credit to Insurance Expense for $1,000. C. Debit to Insurance Expense for $1,000. D. Debit to Insurance Expense for $1,500.

15000

At the end of its year, J&L Services, Inc., a computer services business, had total assets of $25,000 and equity of $10,000. How much were J&L Services' liabilities?

B (Customers paying cash in advance of the good or service to be provided)

Deferred revenues refer to: A. Revenue being recorded prior to cash collection from the customer. B. Customers paying cash in advance of the good or service to be provided C. Revenue being recorded at the same time the cash is collected from the customer D. Cash being collected from the customer after the revenue is recorded.

True

Dividends represent a return of the company's profits to its owners, the stockholders. A. True B. False

A (Dr. Legal service revenue $8,500 Cr. Accounts receivable $8,500)

During the month of January, Expert Legal Services, Inc. provided legal services of $8,500 to a client that were not billed. What is the required adjusting entry by the law firm at January 31? A. Dr. Legal service revenue $8,500 Cr. Accounts receivable $8,500 B. Dr. Accounts receivable $8,500 Cr. Legal service revenue $8,500 C. Dr. Legal service revenue $8,500 Cr. Cash $8,500 D. Dr. Unearned revenue $8,500 Cr. Legal service revenue $8,500

C (October)

Elgin, Co. orders office supplies in September. Those supplies are received and used in October. The supplies are paid for in November. In which month should Elgin record supplies expense? A. September. B. November C. October. D. Evenly over the three months.

D (Providing information to internal users)

Financial accounting does not deal with which of the following? A. Measuring a company's economic activity. B. Preparing financial reports. C. Communicating financial results to investors D. Providing information to internal users.

B (two: 3,6)

Following are transactions of Beverly, Inc., a new company: 1. Purchased office equipment for $500 cash. 2. Purchased land for $20,000, signing a note payable for the full amount. 3. Paid cash of $10,000 for repair services provided last month. 4. Purchased $300 of office supplies on account. 5. Issued 10,000 shares of common stock for $50,000 cash. 6. Paid employees $25,000 for their first month's salaries. How many of these transactions decreased Beverly's total assets? A. one B. two C. three D. four

A (Five: Salaries Payable, Common Stock, Supplies, Retained Earnings, Cash)

How many of following accounts would appear in a year‐end balance sheet? A. five B. four C. three D. two Wages Expense $10,000 Salaries Payable 12,000 Fees Earned 1,700 Common Stock 2,400 Supplies 28,000 Service Revenue 4,300 Retained Earnings 1,100 Cash

B (Four: Salaries Expense, Service Revenue, Truck Expense, Utilities Expense)

How many of the following accounts would appear in a year‐end income statement?: A. five B. four C. three D. two Accounts Payable $ 4,400 Salaries Expense 12,800 Cash 1,700 Common Stock 2,400 Service Revenue 8,300 Truck Expense 4,300 Retained Earnings 1,100 Utilities Expense 5000

B (Two: 1,3)

How many of the following items would affect operating cash flows reported in the statement of cash flows (all transaction involve cash)? 1. Decrease in wages payable of $12,000 during the year 2. Borrowed $50,000 from the bank 3. Increase in inventory of $10,000 4. Purchased a delivery truck for $12,000 5. Repaid an equipment loan of $10,000 6. Received $25,000 from issuing common stock A. one B. two C. three D. four

Three (2,3,6)

How many of the following transactions are operating activities? 1. Repaid a loan of $20,000 to a bank 2. Provide services to customers for $10,000 3. Paid employee wages of $3,500 4. Purchased a delivery truck for $12,000 5. Received $100,000 from issuing common stock 6. Purchased $12,000 in supplies

C ($400)

If Oxford, Inc. borrowed $40,000 on November 1 at the rate of 6% annually, how much interest expense should be accrued at December 31, assuming no accrual has yet been made this year? A. $200 B. $300 C. $400 D. $500

D (The company's assets exceed liabilities by $5,000.)

If a company has stockholders' equity of $5,000 at the end of the year, which of the following statements must be true? A. Total revenues during the year equal $5,000. B. The company has issued $5,000 of common stock. C. Net income for the year equals $5,000. D. The company's assets exceed liabilities by $5,000.

18000 increase

If total assets increased $30,000 during a period and total liabilities increased $12,000 during the same period, the amount and direction (increase or decrease) of the change in stockholders' equity for that period is:

D (2,1,3)

In what order are the following financial statements prepared: (1) statement of changes in stockholders' equity, (2) income statement and (3) balance sheet? A. 1, 2, 3. B. 2, 3, 1. C. 3, 2, 1. D. 2, 1, 3.

A (Credit to Notes Payable)

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

A (Accounts receivable increase by $500; revenues increase by $500.)

Lakemont Corporation performs services for a customer and bills the customer for $500. How would Lakemont record this transaction? A. Accounts receivable increase by $500; revenues increase by $500. B. Accounts payable increase by $500; revenues increase by $500. C. Cash increases by $500; revenues increase by $500. D. Accounts receivable increase by $500; revenues decrease by $500. E. Accounts receivable increase by $500; accounts payable increase by $500.

D (Accounts Payable $350 Cash $350)

Lakemont Resources, Inc. purchased office paper on account for $350. Which journal entry records the payment on account of the office paper? A. Accounts Payable $350 Accounts Receivable $350 B. Cash $350 Accounts Payable $350 C. Office Supplies $350 Cash $350 D. Accounts Payable $350 Cash $350

The amount owed to creditors

Liabilities can be best described as

True

Limited liability means the stockholders are not held personally responsible for the financial obligations of the corporation. A. True B. False

B (Debit to Utility Expense for $500)

Marlin, Inc. received its utility bill for the current period of $500 and immediately paid it. Its journal entry to record this transaction includes a A. Credit to Utility Expense for $500 B. Debit to Utility Expense for $500 C. Debit to Accounts Payable for $500 D. Debit to Cash for $500

A ($400)

Nottingham, Inc. pays an employee $200 per day for a five‐day work week that runs from Monday to Friday, and December 31 is a Tuesday, what is the amount of the salaries adjustment at December 31, assuming that Friday is payday? A. $400 B. $600 C. $800 D. $1,000

C ($7,500)

On July 1, 2016, a two‐year insurance policy was purchased for $30,000 with coverage to begin immediately. What is the amount of insurance expense for the year ended December 31, 2016? A. $2,500 B. $5,000 C. $7,500 D. $15,000 E. $30,000

A (Debit to Unearned Consulting Fees for $1,000)

On November 1, 2016 Royce, Inc. receives $3,000 cash from McCulley Corporation for consulting services to be provided evenly over the period November 1, 2016, to April 30, 2017, at which time Royce credited $3,000 to Unearned Consulting Fees. The adjusting entry on December 31, 2016 (Royce's year‐end) would include a A. Debit to Unearned Consulting Fees for $1,000. B. Debit to Unearned Consulting Fees for $3,000. C. Credit to Consulting Fees Earned for $3,000. D. Debit to Consulting Fees Earned for $1,000. E. Credit to Cash for $3,000.

True

Once the adjusted trial balance is complete, financial statements are prepared. A. True B. False

A (Dr. ‐ Accounts Receivable; Credit ‐ Service Revenue)

Paddington Corporation determined that services were provided to a customer but not billed. What is Paddington's adjusting entry? A. Dr. ‐ Accounts Receivable; Credit ‐ Service Revenue B. Dr. ‐ Cash; Credit - Service Revenue C. Dr. - Accounts Receivable; Credit - Unearned Revenue D. Dr. - Service Revenue; Credit - Accounts Receivable

managerial accounting

Preparing a budget for a business is considered

C (Cash payment (or an obligation to pay cash) occurs before the expense recognition.)

Prepayments occur when: A. Sales are delayed pending credit approval. B. Customers are unable to pay the full amount due when goods are delivered. C. Cash payment (or an obligation to pay cash) occurs before the expense recognition. D. Cash payment occurs after the expense is incurred and liability is recorded.

managerial accounting

Product Profitability reports for a business are considered

C (Accrued revenue)

Providing goods or services to customers on account is an example of a(n): A. Accrued expense. B. Prepaid expense. C. Accrued revenue. D. Deferred revenue.

D (Increases one asset and decrease another asset)

Receiving cash from an account receivable A. Increases revenue and decreases an asset. B. Decreases a liability and increases an asset. C. Increases an asset and increases revenue. D. Increases one asset and decreases another asset.

B (Beginning retained earnings, income, and dividends)

Retained earnings at the end of the year is calculated using: A. Common stock and dividends. B. Beginning retained earnings, income, and dividends. C. Stockholders' equity, income, and dividends. D. Income and dividends.

B ($10000)

The Accounts Receivable account has a beginning balance of $20,000 and the company provides services of $20,000 on account during the month. The ending balance was $30,000. How much cash did the company receive from customers during the month? A. $5,000 B. $10,000 C. $20,000 D. $30,000

A (Decrease in assets and decrease in equity)

The accounting equation is in balance if there is a (an) A. decrease in assets and an decrease in equity. B. increase in liabilities and an increase in equity. C. decrease in assets and an increase in liabilities. D. decrease in equity and an increase in assets.

A (decrease in assets and a decrease in liabilities)

The accounting equation is in balance if there is a (an) A. decrease in assets and an decrease in liabilities. B. increase in liabilities and an increase in equity. C. decrease in assets and an increase in equity. D. decrease in equity and an increase in assets.

False

The adjusting entry for an accrued revenue always includes a debit to a liability account and a credit to a revenue account A. True B. False

D (A debit to a liability)

The adjusting entry required when amounts previously recorded as deferred revenues are earned by providing goods or services to customers includes: A. A debit to an asset B. A credit to a liability C. A credit to an asset D. A debit to a liability

revenues

The amounts recorded when the company sells products or provides services to customers are referred to as

D (All of the above)

The benefits of a statement of cash flows are to A. determine ability to pay indebtedness and cash dividends. B. estimate future cash flows. C. evaluate asset management D. all of the above

D (Expenses)

The costs associated with producing revenues are referred to as: A. Dividends. B. Assets. C. Liabilities. D. Expenses

B (A company should maintain separate set of financial records for each business entity or subsidiary.)

The economic entity concept requires that A. tax records be kept separate from financial reporting records. B. a company should maintain separate set of financial records for each business entity or subsidiary. C. transactions that involve an exchange of value be kept together with those that do not. D. a separate set of books be established for each segment of a business.

C ( when costs are recognized as expenses on the income statement.)

The expense recognition principle guides A. where on the income statement expenses should be presented. B. the ordering of current assets and current liabilities on the balance sheet. C. when costs are recognized as expenses on the income statement. D. when revenues are recognized on the income statement.

C (I and III)

The following statements pertain to recording transactions. Which of them are true? I. Total debits should equal total credits. II. Assets are always listed first in journal entries. III. It is possible to have multiple debits or credits in one journal entry. IV. Some journal entries will have debits only A. I only. B. I and II. C. I and III. D. II, III, and IV.

C ($1,000; $5,000)

The following transactions occurred during the month of October: 1. The company pays cash for rent in December of $5,000. 2. The company uses $1,000 of supplies purchased in the previous period. 3. The company repays a loan to the bank of $20,000 (ignore any interest cost). For October, the amount of accrual‐basis expense is $1,000 while the amount of cash‐basis expense is $5,000. A. $1,000; 15,000 B. $1,000; $25,000 C. $1,000; $5,000 D. $21,000; 5,000

C (Accounting Cycle)

The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as the: A. Accounting process B. Trial balance C. Accounting cycle D. Chart of accounts

D (Debits)

The left side of an account is used to record which of the following? A. Debit or credit, depending on the type of account B. Increases C. Credits D. Debits

D (The timing of when revenues and expenses are recorded)

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

False

The process of transferring the debit and credit information from the journal to individual accounts in the general ledger is called journalizing. A. True B. False

C (Increase both assets and liabilities by $5,000)

The purchase of $5,000 of liability insurance policy for the next year on account will A. Increase both expense and liabilities by $5,000 B. Increase assets and decrease stockholders' equity by $5,000 C. Increase both assets and liabilities by $5,000 D. increase both assets and stockholders' equity

Assets

The resources of a company are referred to as

False

The statement of changes in stockholders' equity is a financial statement that summarizes stockholders' equity at a point in time. A. True B. False

creditors

Those who lend money or deliver goods and services before being paid are called

C (Corporation)

Transfer of ownership will not affect the continuity of a A. corporation or partnership B. sole proprietorship C. corporation D. partnership

10000

Use the following amounts to calculate net income: Revenues, $50,000; Liabilities, $10,000; Expenses, $40,000; Assets, $30,000; Dividends, $5,000

B (No net effect to the accounting equation)

Washington, Inc. sold $300 of office supplies to a customer on account on September 12. On September 30, Washington collected the cash from that customer. What is the impact on Washington's accounting equation from the collection of cash? A. Increase assets and increase liabilities. B. No net effect to the accounting equation. C. Decrease assets and decrease liabilities. D. Decrease assets and increase liabilities

amounts owed by customers to a company

What is t he best definition of an accounts receivable?

resources that benefit future operations

What is the best definition of an asset?

Provides information to make decisions

What makes accounting a valuable discipline.

No

When a company inquires about the availability of inventory, a transaction has occurred. (Yes or No)

C (Stockholders' equity decreases)

When a company pays employees' salaries for the current period, how will the basic accounting equation be affected? A. Revenues decrease. B. Expenses decrease. C. Stockholders' equity decreases. D. Liabilities decrease.

Yes (affects financial position and can be measured in money)

When a company receives a product previously ordered, a recordable accounting transaction has occurred. (Yes or No)

D (Unearned Revenue)

When a music concert promoter collects cash for advance ticket sales prior to the event, which of the following accounts is recorded? A. Accrued Liability B. Accounts Receivable C. Prepaid Expense D. Unearned Revenue

False (affects financial position since cash is received)

When a payment is received for services not yet rendered, no entry is recorded until that service has been rendered. (True or False)

C (Balance sheet)

Which financial statement best reveals to investors and creditors information about a company's indebtedness? A. Statement of cash flows B. Income statement C. Balance sheet D. Statement of stockholders' equity

C (Sales of goods and services to a customer)

Which of the following best describes revenue? A. Cash received from a customer. B. Resources of a company. C. Sales of goods and services to a customer. D. Amounts to be received from customers

C (The amount of capital invested by stockholders plus profits retained over the life of the company)

Which of the following best explains the meaning of total stockholders' equity? A. The difference between total revenues and total expenses, less dividends for the year. B. All revenues, expenses, and dividends over the life of the company. C. The amount of capital invested by stockholders plus profits retained over the life of the company. D. The amount of common stock less dividends over the life of the company

C (Earnings)

Which of the following best represents value created for stockholders during the current period? A. Stockholders' equity. B. Retained earnings C. Earnings. D. Total assets.

D (Signing an agreement with a supplier)

Which of the following business events is not a transaction recorded in financial accounting? A. Purchasing a service B. Paying Wages C. Receiving goods D. Signing an agreement with a supplier

B (Managers)

Which of the following groups is not among the external users for whom financial statements are prepared? A. Creditors. B. Managers C. Regulators D. Investors E. Customers

B (A customer places an order for a product)

Which of the following is a business event that is not considered a recordable transaction? A. A company pays an employee for work performed B. A customer places an order for a product. C. A company receives a product previously ordered. D. A customer purchases a service.

B ( Debit Rent Expense, credit Rent Payable)

Which of the following is a possible adjusting journal entry? A. Debit Cash, credit Wages Payable. B. Debit Rent Expense, credit Rent Payable. C. Debit Service Revenue, credit Cash. D. Debit Utilities Expense, credit Retained Earnings

C (Accounts Payable is increased with a credit)

Which of the following is correct? A. Prepaid Expenses are decreased with a debit. B. Unearned Revenue liability is increased with a debit C. Accounts Payable is increased with a credit. D. Rent Expense is increased with a credit.

C (Liabilities increase and assets decrease)

Which of the following is not possible when recording a transaction? A. Stockholders' equity increases and assets increase. B. One asset increases and another asset decreases. C. Liabilities increase and assets decrease. D. Stockholders' equity decreases and assets decrease

B (Credit an asset)

Which of the following is recorded with an adjusting entry associated with a prepaid expense? A. Debit a liability B. Credit an asset C. Credit an expense D. Debit an asset

D (Measure business activities and communicate those measures to external users to make decisions)

Which of the following is the primary purpose of financial accounting ? A. Communicate business activities to internal management B. Determine the amount of tax liabilities owned to government jurisdictions. C. Measure the profitability of the company in order to assist employees with making decisions. D. Measure business activities and communicate those measures to external users to make decisions

D (The debit is on the left side of the account)

Which of the following is true? A. The debit is on the right side of the account. B. The credit is on the left side of a liability account. C. The debit is on the right side of an expense account. D. The debit is on the left side of the account.

A (Income)

Which of the following items is not a specific account in a company's accounting records? A. Income B. Accounts Receivable C. Sales Revenue D. Service Fees

D (Purchased equipment for $25000)

Which of the following transactions changes only the mix of assets and does not affect liabilities or stockholders' equity? A. Borrowed $50,000 from a local bank B. Received $10,000 for fees earned C. Paid $10,000 for office wages D. Purchased equipment for $25,000 cash

A ( Sale of a service on credit)

Which of the following transactions results in an increase in revenues? A. Sale of a service on credit B. Receipt of cash from bank loan C. Sale of land at cost for cash D. Collection of cash on account

B (The company purchases office supplies with cash and does not use the supplies)

Which of the following would be recorded as an expense under cash‐basis accounting? A. The company uses utilities in the current period but does not pay cash. B. The company purchases office supplies with cash and does not use the supplies. C. The company provides services to customers for cash. D. The company purchases equipment by borrowing from the bank.

D (Purchase office supplies on account)

Which of the following would increase assets and increase liabilities? A. Provide services to customers on account. B. Pay dividends to stockholders. C. Receive a utility bill but do not pay it immediately. D. Purchase office supplies on account.

B (Assessing the company's contribution to social politics)

Which of the following would not be an objective of external users reading a company's financial statements? A. Understanding the current financial statements of the company B. Assessing the company's contribution to social politics C. Predicting the company's future financial performance D. Evaluating the company's ability to generate cash from the business.

D ( Journalize transactions, post to the accounts, prepare a trial balance)

Which sequence correctly summarizes the accounting process? A. Journalize transactions, prepare a trial balance, post to the accounts B. Post to accounts, journalize transactions, prepare a trial balance C. Prepare a trial balance, journalize transactions, post to the accounts D. Journalize transactions, post to the accounts, prepare a trial balance

B (Total debits exceed total credits)

Which situation indicates a loss within the Income Statement portion of a trial balance? A. Total credits exceed total debits B. Total debits exceed total credits C. Total debits equal total credits D. More debit accounts as compared to credit accounts