Midterm 1 practice

Which of the following describes the classification and normal balance of the Unearned Rent Revenue account? a. Asset, debit b. Liability, credit c. Revenues, credit d. Expense, debit

b. Liability, credit

The normal balance of any account is the a. left side. b. right side. c. side which increases that account. d. side which decreases that account.

c. side which increases that account.

Which of the following is not a liability? a. Unearned Service Revenue b. Accounts Payable c. Accounts Receivable d. Interest Payable

Accounts Receivable

The Accounts Receivable account has a beginning balance of $52,000 and an ending balance of $69,000. If $42,000 was sold on account during the year, what were the total collections on account? a. $25,000 b. $59,000 c. $69,000 d. $79,000

a. $25,000

15. Based on the following data, what is the amount of net working capital? Accounts Payable $ 64,000 Accounts Receivable $ 114,000 Cash $ 60,000 Intangible Assets $ 100,000 Inventory $ 138,000 Long Term Investments $ 160,000 Long-term Liabilities $ 200,000 Short-term Investments $ 80,000 Notes Payable (Short-term) $ 56,000 Property, Plant and Equipment $ 1,340,000 Prepaid Insurance $ 2,000 a. $274,000 b. $322,000 c. $360,000 d. $316,000

a. $274,000

In 2019 Grider Corporation had cash receipts of $35,000 and cash disbursements of $20,000. Grider's ending cash balance at December 31, 2019 was $55,000. What was Grider's beginning cash balance? a. $40,000 b. $50,000 c.$75,000 d. $70,000

a. $40,000

If total liabilities decreased by $50,000 and stockholders' equity increased by $10,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $40,000 decrease b.$40,000 increase c. $50,000 increase d. $60,000 increase

a. $40,000 decrease

Which of the following errors, each considered individually, would cause the trial balance to be out of balance? a. A payment of $148 to a creditor was posted as a debit to Accounts Payable and debit of $148 to Cash. b. Cash of $530 received from a customer on account was posted as a debit of $350 to Cash and as a credit of $350 to Accounts Payable. c. A payment of $59 for supplies was posted as a debit of $95 to Supplies and a credit of $95 to Cash. d. A transaction was not posted.

a. A payment of $148 to a creditor was posted as a debit to Accounts Payable and debit of $148 to Cash.

Nacron Company borrowed $10,000 from the bank signing a 6%, 3 -month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be: a. debit Interest Expense, $50; credit Interest Payable, $50. b. debit Interest Expense, $600; credit Interest Payable, $600. c. debit Note Payable, $600; credit Cash, $600. d. debit Cash, $50; credit Interest Payable, $50.

a. debit Interest Expense, $50; credit Interest Payable, $50.

An adjusting journal entry at the end of the period related to unearned revenue: a. decreases liabilities and increases revenues. b. increases liabilities and increases revenues. c. increases assets and increases revenues. d. decreases revenues and decreases assets.

a. decreases liabilities and increases revenues.

One of the accounting concepts upon which adjustments for prepayments and accruals are based is: a. expense recognition. b.cost. c. monetary unit. d. economic entity.

a. expense recognition.

Collection of a $600 Accounts Receivable a. increases an asset $600; decreases an asset $600. b. increases an asset $600; decreases a li ability $600. c. decreases a liability $600; increases stockholders' equity $600. d. decreases an asset $ 600; decreases a liability $600.

a. increases an asset $600; decreases an asset $600.

Which accounting assumption requires that only those things that can be expressed in dollar values are included in the accounting records? a. monetary unit assumption. b. historical cost principle. c. periodicity assumption. d. full disclosure principle.

a. monetary unit assumption.

If the retained earnings account decreases from the beginning of the year to the end of the year, then a. net income is less than dividends. b. there was a net income and no dividends. c. additional investments are less than net losses. d. net income is greater than dividends.

a. net income is less than dividends.

Goods or services purchased for future use in the business, such as rent, are called: a. prepaid expenses. b.revenues. c. stockholders' equity. d. Liabilities

a. prepaid expenses.

Expenses are recognized when: a. they contribute to the production of revenue. b. they are paid. c. they are billed by the supplier. d. the invoice is received

a. they contribute to the production of revenue.

At December 31, 2019 Keen Company had retained earnings of $1,292,000. During 2019 they issued stock for $49,000, and paid dividends of $17,000. Net income for 2019 was $201,000. The retained earnings balance at the beginning of 2019 was a. $1,476,000. b. $1,108,000. c. $1,157,000. d. $1,427,000.

b. $1,108,000.

At March 1, 2019, Candy Inc. had supplies on hand of $1,500. During the month, Candy purchased supplies of $2,900 and used supplies of $2,800. The March 31 balance sheet should report what balance in the supplies account? a. $1,500 b. $1,600 c. $2,800 d. $2,900

b. $1,600

Based on the account balances below, what is the total of the debit and credit columns of the adjusted trial balance? Service Revenue $ 4,300 Cash $ 1,525 Unearned Service Revenue $ 5,320 Wage Expense $ 1,050 Common Stock $ 390 Equipment $ 7,400 Prepaid Insurance $ 1,225 Depreciation Expense $ 640 Acc. Depr. $ 1,280 Retained Earnings $ 550 a. $10,150 b. $11,840 c. $10,560 d. $11,430

b. $11,840

43. Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. Cash Received From Customers $ 48,000 Accounts Receivable $ 12,000 Cash paid for Expenses $ 26,000 Accounts Payable (related to expenses) $ 3,000 Prepaid Rent for next period $ 7,000 a.$22,000 b. $31,000 c. $24,000 d. $15,000

b. $31,000

Elston Company compiled the following financial information as of December 31, 2019 (presented below). Elston's stockholders' equity on December 31, 2019 is Service Revenue: $ 700,000 Common Stock: $ 150,000 Equipment: $ 200,000 Operating Expenses: $ 625,000 Cash: $ 175,000 Dividends: $ 50,000 Supplies: $ 25,000 Accounts Payable: $ 100,000 Accounts Receivable: $ 75,000 Retained Earnings 1/1/2019: $ 375,000 a. $525,000. b. $550,000. c. $400,000. d. $600,000.

b. $550,000.

Why are expenses increased with a debit? a. They are always paid by cash, which is credited. Thus expenses are debited. b. They decrease stockholders' equity thus they increase with a debit. c. They have the same rules of debits and credits as the retained earnings account. d. None of the statements are correct.

b. They decrease stockholders' equity thus they increase with a debit.

The usual sequence of steps in the transaction recording process is a. journalize, analyze, post to the ledger. b. analyze, journalize, post to the ledger. c. journalize, post to the ledger, analyze. d. post to the ledger, journalize, analyze.

b. analyze, journalize, post to the ledger.

Based on the following information is from the Income Statement of the Dirt Poor Laundry, the entry to close the Income Summary includes a: Revenues: Service Revenue $ 5,500 Expenses: Wages Expense $ 1,950 Advertising Expense $ 500 Rent Expense $ 300 Supplies Expense $ 200 Insurance Expense $ 100 Total Expenses $ 3,050 Net Income $ 2,450 a. credit to Income Summary for $2,450. b. debit to Income Summary for $2,450. c. debit to Retained Earnings for $2,450. d. credit to Common Stock for $2,450.

b. debit to Income Summary for $2,450.

Based on the following information is from the Income Statement of the Dirt Poor Laundry, the entry to close the expense accounts includes a: Revenues: Service Revenue $ 5,500 Expenses: Wages Expense $ 1,950 Advertising Expense $ 500 Rent Expense $ 300 Supplies Expense $ 200 Insurance Expense $ 100 Total Expenses $ 3,050 Net Income $ 2,450 a. credit to Income Summary for $3,050. b. debit to Income Summary for $3,050. c. debit to Salaries and Wages Expense for $1,950. d. credit to Retained Earnings for $3,050.

b. debit to Income Summary for $3,050.

Cash dividends will a. increase retained earnings. b. decrease retained earnings. c. increase common stock. d. decrease common stock.

b. decrease retained earnings.

An expense a. decreases assets and liabilities. b. decreases stockholders' equity. c. leaves stockholders' equity unchanged. d. is basically the same as a liability.

b. decreases stockholders' equity.

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that: a. assets should be matched with liabilities. b. expenses should be recorded in the period they are used to generate revenues. c. expenses should be equal to revenues. d. cash payments should be matched with cash receipts.

b. expenses should be recorded in the period they are used to generate revenues.

Adjusting entries are: a. the same as correcting entries. b. needed to ensure that the expense recognition principle is followed. c. optional. d. rarely needed.

b. needed to ensure that the expense recognition principle is followed.

Masterfalls Corporation purchased a one -year insurance policy in January 2018 for $30,000. The insurance policy is in effect from March 2018 through February 2019. If the company neglects to make the proper year-end adjustment for the expired insurance: a. net income and assets will be understated by $25,000. b. net income and assets will be overstated by $25,000. c. net income and assets will be understated by $5,000. d. net income and assets will be overstated by $5,000.

b. net income and assets will be overstated by $25,000.

Adjusting entries are: a. not necessary if the accounting system is operating properly. b. usually required before financial statements are prepared. c. made whenever management desires to change an account balance. d. made to balance sheet accounts only.

b. usually required before financial statements are prepared.

The revenue recognition principle dictates that revenue should be recognized in the accounting records: a. when cash is received. b. when the performance obligation is satisfied. c. at the end of the month. d. in the period that income taxes are paid.

b. when the performance obligation is satisfied.

Use the following data to determine the total dollar amount of assets to be classified as investments. Koonce Office Supplies Balance Sheet 12/31/2019 Cash: $ 13,000 A/R: $ 100,000 Inventory: $ 110,000 Stock Investments: $ 170,000 Land: $ 180,000 Buildings: $ 210,000 Less: Acc. Depr.: $ (40,000) $ 170,000 Trademarks: $ 140,000 Total Assets: $ 1,060,000 A/P: $ 140,000 Wages Payable: $ 20,000 Mort. Payable: $ 160,000 Total Liabilities: $ 320,000 Common Stock: $ 240,000 Retained earnings: $ 500,000 Total Equity: $ 740,000 Total Liabilities and Equity: $ 1,060,000 a. $0 b. $350,000 c. $170,000 d. $310,000

c. $170,000

Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting. Revenue Earned $ 16,000 Accounts Receivable $ 3,000 Expenses Incurred $ 7,250 Accounts Payable (related to expenses) $ 750 Supplies Purchased with Cash $ 1,800 a. $6,500 b. $11,000 c. $4,700 d. $6,950

c. $4,700

In the first month of operations, the total of the debit entries to the Cash account amounted to $1,000 and the total of the credit entries to the Cash account amounted to $600. The Cash account has a a. $600 credit balance. b. $1,000 debit balance. c. $400 debit balance. d. $600 debit balance.

c. $400 debit balance.

Jamal Company began the year with $84,000 in its Common Stock account and a debit balance in Retained Earnings of $36,000. During the year, the company earned net income of $18,000 and declared and paid $6,000 of dividends. In addition, the company sold additional common stock amounting to $22,000. Based on this information, what should the transaction analysis show for the ending total of all stockholders' equity accounts? a. $154,000 b. $166,000 c. $82,000 d. $110,000

c. $82,000

A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be recognized? a. December 5 b. December 10 c. November 30 d. December 1

c. November 30

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner? a. Dividends Payable and Rent Expense b. Utilities Expense and Notes Payable c. Prepaid Insurance and Advertising Expense d. Service Revenue and Equipment

c. Prepaid Insurance and Advertising Expense

Which accounts normally have credit balances? a. Revenues, liabilities, and dividends b. Revenues, liabilities, and assets c. Revenues, liabilities, and retained earnings d. Revenues, liabilities, and expenses

c. Revenues, liabilities, and retained earnings

Generally accepted accounting principles a. are accounting rules formulated by the Internal Revenue Service. b. are sound in theory but rarely used in real life. c. are accounting rules that are recognized as a general guide for financial reporting. d.have eliminated all errors in accounting.

c. are accounting rules that are recognized as a general guide for financial reporting.

The primary difference between prepaid and accrued expenses is that prepaid expenses have: a. been expensed and accrued expenses have not. b. not been paid and accrued expenses have. c. been paid and accrued expenses have not. d. not been recorded and accrued expenses have.

c. been paid and accrued expenses have not.

Ye Olde Christmas shop signs a three -month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on October 1 in the amount of $20,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest? a. debit Interest Expense $100, credit Interest Payable $100 b. debit Interest Expense $200, credit Interest Payable $200 c. debit Interest Expense $300, credit Interest Payable $300 d. debit Interest Expense $1,200, credit Note Payable $1,200

c. debit Interest Expense $300, credit Interest Payable $300

Greese Company purchased office supplies costing $4,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,500 still on hand. The appropriate adjusting journal entry to be made at the: end of the period would be: a. debit Supplies Expense, $1,500; credit Supplies, $1,500. b. debit Supplies, $2,500; credit Supplies Expense, $2,500. c. debit Supplies Expense, $2,500; credit Supplies, $2,500. d. debit Supplies, $1,500; credit Supplies Expense, $1,500.

c. debit Supplies Expense, $2,500; credit Supplies, $2,500.

A measure of profitability is the a. current ratio. b. debt to assets ratio. c. earnings per share. d. working capital.

c. earnings per share.

Stockholders' equity a. is usually equal to cash on hand. b. is equal to liabilities and retained earnings. c. includes retained earnings and common stock. d. is shown on the income statement.

c. includes retained earnings and common stock.

The balance sheet a. summarizes the changes in retained earnings for a specific period of time. b. reports the changes in assets, liabilities, and stockholders' equity over a period of time. c. reports the assets, liabilities, and stockholders' equity at a specific date. d. presents the revenues and expenses for a specific period of time.

c. reports the assets, liabilities, and stockholders' equity at a specific date.

The retained earnings statement shows all of the following except a. the amounts of changes in retained earnings during the period. b. the causes of changes in retained earnings during the period. c. the time period following the one shown for the income statement. d. beginning retained earnings on the first line of the statement.

c. the time period following the one shown for the income statement.

Selected account balances on December 31, 2019 are shown below. What is the total amount of property, plant, and equipment that will appear on the balance sheet? Land: $ 100,000 Stock Investments: $ 150,000 Buildings: $ 800,000 Inventory: $ 200,000 Equipment: $ 450,000 Furniture: $ 100,000 Accumulated Depreciation: $ 300,000 a. $1,500,000 b. $1,300,000 c. $1,800,000 d. $1,150,000

d. $1,150,000

At January 31, 2019, the balance in Goebel Inc.'s supplies account was $700. During February. Goebel purchased supplies of $600 and used supplies of $800. At the end of February, the balance in the Supplies account should be a. $700 debit. b. $900 credit. c. $2,100 debit. d. $500 debit.

d. $500 debit.

Use the following data to calculate the current ratio. Carne Auto Supplies Balance Sheet 12/31/2019 Cash: $ 35,000 A/R: $ 50,000 Inventory: $ 70,000 Prepaid Expense: $40,000 Stock Investments: $ 90,000 Land: $ 95,000 Buildings: $ 115,000 Less: Acc. Depr.: $ (30,000) $ 85,000 Trademarks: $ 70,000 Total Assets: $ 535,000 A/P: $ 65,000 Wages Payable: $ 10,000 Mort. Payable: $ 90,000 Total Liabilities: $ 165,000 Common Stock: $ 120,000 Retained earnings: $ 250,000 Total Equity: $ 370,000 Total Liabilities and Equity: $ 535,000 a. 2.07: 1 b. 1.67: 1 c. 3.00: 1 d. 2.60: 1

d. 2.60: 1

Regions Inc. pays its rent of $48,000 annually on January 1 and makes monthly adjusting entries. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following are true? a. Failure to make the adjustment does not affect the February financial statements. b. Expenses will be overstated by $4,000 and net income and stockholders' equity will be understated by $4,000. c. Assets will be overstated by $8,000 and net income and stockholders' equity will be understated by $8,000. d. Assets will be overstated by $4,000 and net income and stockholders' equity will be overstated by $4,000.

d. Assets will be overstated by $4,000 and net income and stockholders' equity will be overstated by $4,000.

Which accounts normally have debit balances? a. Assets, expenses, and revenues b. Assets, expense, and retained earnings c. Assets, liabilities, and dividends d. Assets, expenses, and dividends

d. Assets, expenses, and dividends

An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction? a. Nothing further must be done. b. Debit a stockholders' equity account for $500. c. Debit another asset account for $500. d. Credit a different asset account for $500.

d. Credit a different asset account for $500.

A company spends $20 million dollars for an office building. Over what period should the cost be written off? a. When the $20 million is expended in cash. b. All in the first year. c. After $20 million in revenue is earned. d. None of these answer choices are correct.

d. None of these answer choices are correct.

A debit to an asset account indicates a(n) a. error. b. credit was made to a liability account. c. decrease in the asset. d. increase in the asset.

d. increase in the asset.

The closing entry process consists of closing: a. all asset and liability accounts. b. out the Retained Earnings account. c. all permanent accounts. d. all temporary accounts.

d. all temporary accounts.

If a company buys a $700 machine on credit, this transaction will affect the a. income statement and retained earnings statement only. b. income statement only. c. income statement, retained earnings statement, and balance sheet. d. balance sheet only.

d. balance sheet only.

Accumulated Depreciation is a(n): a. expense account. b. stockholders' equity account. c. liability account. d. contra asset account.

d. contra asset account.

The balance in the prepaid rent account before adjustment at the end of the year is $15,000 and represents three months rent paid on December 1. The adjusting entry required on December 31 is: a. debit Prepaid Rent, $5,000; credit Rent Expense $5,000. b. debit Prepaid Rent, $10,000; credit Rent Expense, $10,000. c. debit Rent Expense, $15,000; credit Prepaid Rent, $15,000. d. debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.

d. debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.

The best definition of assets is the a. cash owned by the company. b. collections of resources belonging to the company and the claims on these resources. c. owners' investment in the business. d. resources belonging to a company that have future benefit to the company.

d. resources belonging to a company that have future benefit to the company.

An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause: a. revenues to be overstated. b. net income to be overstated. c. liabilities to be understated. d. revenues to be understated.

d. revenues to be understated.

If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates a. no errors have been made. b. no errors can be discovered. c. that all accounts reflect correct balances. d. the mathematical equality of the accounting equation.

d. the mathematical equality of the accounting equation.