Accounting 2101 Exam 1 Practice Questions

Determine Net Income, if a corporation had total assets of $600,000 and total equity of $225,000 at the beginning of the year, and assets increased by $150,000 and liabilities increased by $60,000, and no other transactions occurred except a dividend payment of $45,000 and revenues and expenses. a. $135,000 b. $45,000 c. $90,000 d. $105,000

A. $135,000

On April 30 of the current month, the Accounts Payable account had a normal balance of $56,800. During the monthof April, sales to credit customers amounted to $15,700 and purchases on credit were $55,900. Also during the month of April, payments to creditors on account amounted to $17,500 and payments received from customers on account amounted to $22,400. Given these facts determine the balance of the Accounts Payable account on April 1, of the current month. a. $18,400 b. $88,500 c. $95,200 d. $25,100

A. $18,400

A company sold merchandise to one of it's customers on account for $23,000, terms 2/15, n/45. The cost of the merchandise sold is $18,500. Later the company issued a credit memorandum to this customer for $2,500 for part of the merchandise returned that originally cost the company $1,900. The customer paid the invoice within the discount period. The amount of Net Sales from the above transactions would be? a. $20,090 b. $20,500 c. $22,540 d. $20,040

A. $20,090

At the end of the current month, a company had an ending balance in the Accounts Payable account of $22,000. Purchases on account during the current month amounted to $16,600. If the balance in the Accounts Payable account at the end of the previous month was $27,200, what is the amount paid to creditors for purchases on account, during the current month? a. $21,800 b. Cannot be determined c. $65,800 d. $32,600

A. $21,800

Since the accounting equation must remain in balance after each transaction, a transaction that causes an increase in an asset, may also cause a. An increase in a liability b. An increase in another asset c. A decrease in owner's equity d. A decrease in a liability

A. An increase in a liability

Under the perpetual inventory system, when merchandise purchased for Cash is returned to the seller, the buyer would: a. Credit Merchandise Inventory b. Credit Purchases Returns and Allowances c. Credit Accounts Payable d. Debit Sales Returns and Allowances e. Credit Cost of Goods Sold

A. Credit Merchandise Inventory

For the year ending December 31, 2008, Medical Co. mistakenly omitted adjusting entries for recording earned revenues that were unbilled. Indicate the effect of this error for 2008. a. Equity is understated b. Liabilities are overstated c. Assets are overstated d. Net Income is overstated

A. Equity is understated

There are four transactions that affect Owner's equity. Which are the two transactions that increase owner's equity? a. Revenues and Additional investments b. Expenses and Dividends c. Additional Investments and Expenses d. Revenues and Expenses

A. Revenues and Additional investments

Which of the following statements is true with respect to the time element of Financial Statements? a. The Statement of Retained Earnings explains changes in retained earnings during a particular period. b. The Balance Sheet covers a period of time. c. The Income Statement, Statement of Retained Earnings and the Balance Sheet are all prepared as of a specific date. d. The Income Statement lists amounts at a particular point in time.

A. The Statement of Retained Earnings explains changes in retained earnings during a particular period.

For which of the following accounts would a debit balance most likely indicate an error? a. Unearned Rent b. Rent Expense c. Accounts Receivable d. Prepaid Rent

A. Unearned Rent

Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account will not include a: a. credit to Sales Returns and Allowances b. credit to Accounts Receivable c. debit to Merchandise Inventory d. credit to Cost of Goods Sold

A. credit to Sales Returns and Allowances

Credit entries are used to a. increase the unearned rent account. b. increase the prepaid insurance account. c. decrease the Service Fees account. d. increase the Dividend account.

A. increase the unearned rent account

Before preparing the balance sheet and income statement, an accountant would use what accounting record to first record the firm's transactions? a. the journal b. the owner's Equity statement c. the trial balance d. the general ledger

A. the journal

Aztec Company is selling a piece of land adjacent to their business. An appraisal reported the market value of the land to be $100,000. The Majestic Company initially offered to buy the land for $87,000. The companies settled on a purchase price of $95,000. On the same day, another piece of land on the same block sold for $102,000. Under the cost concept, what is the amount that will be used to record this transaction in the accounting records? a. $102,000 b. $95,000 c. $87,000 d. $100,000

B. $95,000

A company prepares four basic financial statements: 1.Balance Sheet 2. Statement of Cash Flows 3. Statement of Retained Earnings 4. Income Statement. These are prepared in the following order: a. 4,1,2,3 b. 4,3,1,2 c. 1,4,3,2 d. 1,3,4,2

B. 4,3,1,2

An example of resources owned by a company is a. Accounts Payable b. Accounts Receivable c. Common Stock d. Retained Earnings

B. Accounts Receivable

A company pays its subcontractors for their services on the 10th day of the month following the month in which the services were performed. In order to correctly state the balances of its revenue, expense, asset and liability accounts, the company must prepare an adjusting entry at the end of each month to a. Defer the expense related to the services b. Accrue the expense related to the services c. Accrue the revenue related to the services d. Defer the revenue related to the services

B. Accrue the expense related to the services

A company follows the perpetual method of accounting for its inventory. At the end of the current accounting period, the Merchandise Inventory account showed a balance of $12,840 and a physical count revealed an inventory balance of $11,560. If the Cost of Goods Sold account had a balance of $24,000 before the adjusting entry for inventory shrinkage is recorded, what would the balances of the Cost of Goods Sold account and the Merchandise Inventory account be after the adjusting entry is recorded and posted. a. Cost of Goods Sold $22,720; Merchandise Inventory cannot be determined b. Cost of Goods Sold $25,280; Merchandise Inventory $11,560 c. Cost of Goods Sold $22,720; Merchandise Inventory $12,840 d. Cost of Goods Sold $24,000; Merchandise Inventory $11,560

B. Cost of Goods Sold $25,280; Merchandise Inventory $11,560

During the month of April, Solar Company provided services of $30,000 to a customer on account. The customer later made a partial payment of $17,000 of the amount owed to Solar Company. Solar Company would record this payment received from the customer with a a. Debit to Cash and Credit to Unearned Fees b. Debit to Cash and Credit to Accounts Receivable c. Debit to Cash and Credit to Accounts Payable d. Credit to Cash and a Debit to Prepaid Revenue

B. Debit to Cash and Credit to Accounts Receivable

A business pays its employees $18,400 every Friday at the end of each five day work week. September 30th, the end of the accounting period for the company, falls on a Wednesday. The journal entry that the company makes on Friday, October 2nd, when salaries are paid to it's employees will include a: a. Debit to Salaries payable $7,360 b. Debit to Salaries payable for $11,040 c. Debit to Salaries expense for $ 11,040 d. Credit to Cash for $7,360

B. Debit to Salaries payable for $11,040

Which of the following items should not be included in the cost of ending merchandise inventory for XYZ Company. a. Inventory sold by XYZ Company, F.O.B. destination which is still in transit. b. Inventory purchased by XYZ Company, F.O.B. destination which is still in transit. c. Merchandise Inventory in the warehouse. d. Inventory purchased by XYZ Company, F.O.B. shipping point which is still in transit.

B. Inventory purchased by XYZ Company, F.O.B. destination which is still in transit

Which one of the following is an example of a deferred revenue? a. Revenue earned but not yet recorded. b. Payments received prior to providing services to customers. c. Cash sales made to customers. d. Credit Sales made to customers.

B. Payments received prior to providing services to customers.

Which of the following accounts has a normal debit balance? a. Accounts Payable b. Sales Returns and Allowances c. Sales d. Accumulated Depreciation

B. Sales Returns and Allowances

A corporation had $1,800 of supplies on hand at January 1, 2008. During 2008, supplies with a cost of $4,000 were purchased. At December 31, 2008, the actual cost of supplies on hand were $1,300. After the adjustments are recorded and posted at December 31, 2008, determine the amount appearing as supplies expense on the Income Statement for 2008 and as Supplies on the Balance Sheet at December 31, 2008 a. Supplies expense, $4,000; Supplies $1,800 b. Supplies expense, $4,500; Supplies $1,300 c. Supplies expense, $5,800; Supplies $4,500 d. Supplies expense, $5,800; Supplies $1,300

B. Supplies expense, $4,500; Supplies $1,300

Which of the following is not classified as a selling expense? a. Advertising Expense b. Transportation-In c. Sales Salaries Expense d. Transportation-Out

B. Transportation-In

On December 15, 2008, a company received $25,000 from a customer for services to be performed during the year 2009. This event would be journalized by the company on December 15, 2008 as a a. debit to cash for $25,000 and a credit to Prepaid Service Expense for $25,000 b. debit to cash for $25,000 and a credit to Unearned Service Fees for $25,000 c. debit to Unearned Service Fees for $25,000 and a credit to Cash for $25,000 d. debit to Prepaid Service Expense for $25,000 and a credit to Cash for $25,000

B. debit to cash for $25,000 and a credit to Unearned Service Fees for $25,000

A Consulting company provided services to some customers on account and some customers for cash. The effect of providing these services is: a. increase in one asset, decrease in another asset and increase in owner's equity b. increase in assets, increase in owner's equity c. increases in assets and liabilities d. increase in assets, increase in liabilities and increase in owner's equity.

B. increase in assets, increase in owner's equity

A credit balance in which of the following accounts would indicate a likely error? a. Common Stock b. Rent Expense c. Accounts Payable d. Unearned Rent

B. rent expense

Silver Co. sold merchandise to Bronze Co. on account, $23,000, terms 2/15, n/45, F.O.B. Destination. The cost of the merchandise sold is $18,500 and shipping costs paid were $250. Silver Co. issued a credit memorandum for $2,500 for merchandise returned that originally cost $1,900. If Bronze Co. paid the invoice within the discount period, what is amount of net cost of purchases from the above transactions? a. $16,850 b. $22,290 c. $20,090 d. $20,340

C. $20,090

A corporation mistakenly forgot to prepare the adjusting entry for interest owed but not paid or recorded. This omission would cause: a. An understatement of Net Income b. An overstatement of Expenses c. An overstatement of Equity d. An understatement of Revenues

C. An overstatement of Equity

Which of the following statements best describes the effects of recording revenue earned by a business entity? a. Equity increases only when Credit Sales are made and Assets increase only when cash sales are made. b. Assets increase and Equity increases only when cash sales are made. c. Both Assets and Equity increase for Cash and Credit sales. d. Assets increase, however, Equity remains unchanged when credit sales are made.

C. Both assets and equity increase for cash and credit sales

An account that will have a zero balance after closing entries have been journalized and posted is: a. Prepaid expenses b. Accumulated depreciation c. Depreciation expense d. Retained Earnings

C. Depreciation expense

Which of the following terms best describes Merchandise available for sale? a. Merchandise available for sale is an expense account. b. Merchandise available for sale is added to beginning inventory to determine cost of purchases during the period. c. Merchandise available for sale is allocated between merchandise on hand and cost of goods sold at the end of the accounting period. d. Merchandise available for sale is subtracted from net sales to arrive at the gross profit.

C. Merchandise available for sale is allocated between merchandise on hand and cost of goods sold at the end of the accounting period.

Glass Corporation sold merchandise to a customer for $30,000 on credit on July 15. The customer paid Glass the amount due on July 31. Under the accrual basis of accounting, which of the following statements is correct with respect to these transactions for Glass Corporation? a. Revenue is recognized after the cost of the merchandise sold has been paid by Glass Corporation. b. The July 15th transaction increases revenue, but has no effect on assets. c. The July 31st transaction has no effect on total assets under the accrual basis. d. Glass will recognize the revenue on July 31.

C. The July 31st transaction has no effect on total assets under the accrual basis

Which of the following statements is false with respect to a Balance Sheet? a. The balance sheet reports the amount of assets, liabilities and stockholder's equity of an entity at a point in time. b. The retained earnings balance shown on the balance sheet must agree with the ending retained earnings balance shown on the statement of retained earnings. c. The balance sheet reports the changes in assets, liabilities and stockholder's equity over a period of time. d. The accounts shown on the balance sheet represent the basic accounting equation for a particular business entity.

C. The balance sheet reports the changes in assets, liabilities and stockholder's equity over a period of time.

The Securities and Exchange Commission (SEC) is: a. primarily responsible for setting GAAP. b. involved with setting accounting standards for Government entities. c. concerned with setting reporting requirements for U.S. companies that issue stock to the public. d. involved with setting broad rules and principles that are used by the accounting profession.

C. concerned with setting reporting requirements for U.S. companies that issue stock to the public

Which of the following entries is an example of an entry that is prepared to get the balance of a temporary account to zero during the closing process: a. debit Income Summary; credit Service Revenue b. debit Income Summary; credit Accumulated Depreciation c. debit Income Summary; credit Rent Expense d. debit Dividends; credit Retained Earnings

C. debit Income Summary; credit Rent Expense

A company provided consulting services worth $5,800 to a customer, and received $1,400 in cash with the balance to be received in 30 days. The journal entry that would be prepared when the customer pays the balance owed would be: a. debit to Accounts Payable and a credit to Consulting Revenue for $4,400 b. debit to Accounts Receivable and credit to Consulting Revenue for $4,400 c. debit to Cash and credit to Accounts Receivable for $4,400 d. credit to Accounts payable and Debit to Cash for $4,400

C. debit to Cash and credit to Accounts Receivable for $4,400

Adjustments for deferred revenues: a. increase assets and increase revenues b. increase liabilities and increase revenues c. decrease liabilities and increase revenues d. decrease assets and increase revenues

C. decrease liabilities and increases revenues

A business started the current period with liabilities of $71,000 and Equity of $37,000. During the period the following business transactions took place. 1. Purchased equipment for $43,000; paying $17,000 cash and issuing a note payable for the balance. 2. Received $2,700 of the amount owed by a customer for services provided on account. 3. Paid $5,700 of the amount owed for supplies purchased on account. 4. Provided services of $3,500 on account. 5. Paid $1,900 towards rent for the current period. Determine the assets of the business at the end of the period. a. $146,100 b. $120,100 c. $55,900 d. $129,900

D. $129,900

For the current month, a business had Purchases of $32000; Sales of $65,000; a beginning inventory balance of $7,400 and an ending inventory balance of $8,900. Purchase discounts taken were $900 and Sales discounts given were $450. Sales Returns and Allowances were $850 and Purchase Returns were $1,150 . Additionally Transportation Costs paid on merchandise purchased was $1000. Given these facts, determine the Cost of Goods Sold. a. $54,800 b. $63,700 c. $30,500 d. $29,450

D. $29,450

The supplies account has a balance of $1,000 at the beginning of the year and $2,800 of supplies were purchased during the year. If $750 of supplies are on hand at the end of the year, the supplies expense year would be: a. $3,800 b. $3,550 c. $750 d. $3,050

D. $3,050

Merchandise with an invoice price of $4,000 is purchased on June 2 subject to terms of 2/10, n/30, FOB destination. Transportation costs paid by the seller totaled $150. What is the cost of the merchandise if paid on June 12, assuming the discount is taken? a. $4,150 b. $4,070 c. $4,067 d. $3,920

D. $3,920

A Company had Assets of $159,000 and Liabilities of $84,000 on May 1 of the current year. There were no transactions that took place between May 1 and May 4. On May 4, the company had the following two transactions: 1. Services performed for a customer for $15,000; only $7,000 of which were received in Cash. 2. Repaid $4,000 of the $18,000 owed to a supplier. Determine the total Stockholder's Equity after the transactions for May 4 are recorded? a. $258,000 b. $82,000 c. $162,000 d. $90,000

D. $90,000

All Star Financial Service Company noticed a credit of $15,000 in its Accounts Payable account in the general ledger. This credit could be a result of : a. A receipt of $15,000 cash from a customer for sales made to the customer during the previous month. b. Services of $15,000 rendered to a customer on account. c. A payment of $15,000 to a supplier for purchases made on account during the previous month. d. A purchase of $15,000 from a supplier on account.

D. A purchase of $15,000 from a supplier on account

Prior to December 31, of the current year, Salaries expense had a balance of $15,900. On December 31, of the current year, salaries earned by employees but unpaid, amounted to $3,800. If all necessary adjustments are recorded and posted on December 31, closing entries prepared on December 31, of the current year would include a: a. Credit to Salaries Expense for $15,900 b. Debit to Salaries Expense for $3,800 c. Credit to Salaries Payable for $19,700 d. Credit to Salaries Expense for $19,700

D. Credit to Salaries Expense for $19,700

The journal entry made to record Cash received from a customer for services to be performed next month would include a: a. Debit to Prepaid Expenses b. Credit to Prepaid Expenses c. Debit to Unearned Revenues d. Credit to Unearned Revenues

D. Credit to Unearned Revenues

A company omitted to record four adjustments at the end of its accounting period on December 31, 2010. Which one of the following omissions of adjustments will overstate equity? a. Services performed for customers who paid for their services at the beginning of the year 2010 are not recorded. b. Services performed for customers during December 2010 are not recorded and customers have not yet been billed. c. Interest earned on monies loaned during 2010 have not yet been recorded. d. Depreciation on Buildings for the year 2010 has not been recorded.

D. Depreciation on Buildings for the year 2010 has not been recorded

Which of the following statements is true? a. Posting occurs when numbers in the general ledger accounts are transferred to the general journal. b. If a debit entry is made to an account in the general journal, the same account will receive a credit entry when the amount is posted to the general ledger. c. If the sum of the debit balances equals the sum of the credit balances then there were no mistakes made in the posting process. d. If all transactions are correctly posted to the general ledger, the sum of the accounts with debit balances should be equal to the sum of the accounts with credit balances.

D. If all transactions are correctly posted to the general ledger, the sum of the accounts with debit balances should be equal to the sum of the accounts with credit balances

The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the: a. Cash Basis of Accounting b. Recognition Principle c. Going Concern Principle d. Matching Principle

D. Matching Principle

Embassy Corporation reported Net Income of $15,000; Total Assets of $ 150,000 and Total Liabilities of $ 80,000 for the year 2008. In 2009 it was discovered that the company had failed to record deferred revenues of $23,000 that were earned in 2008. After accounting for this error, what are the corrected Net Income, Total Assets and Liabilities for the year 2008? a. Net Income $15,000; Total Assets $173,000 and Total Liabilities $103,000 b. Net Income $38,000; Total Assets $173,000 and Total Liabilities $103,000 c. Net Loss $8,000; Total Assets $150,000 and Total Liabilities $57,000 d. Net Income $38,000; Total Assets $150,000 and Total Liabilities $57,000

D. Net Income $38,000; Total Assets $150,000 and Total Liabilities $57,000

An example of an account where Cash is paid before Expense is recognized is: a. Accumulated Depreciation b. Unearned Rent c. Accounts Receivable d. Prepaid Subscriptions

D. Prepaid Subscriptions

On October 1, 2008, the Vice President for Sales of a manufacturing business entered into a contract with a merchandising company to sell 50,000 cases of their product to the merchandising company at a price of $1,500,000. The product is delivered to the merchandising company in June , 2009. The accounting principle that requires the manufacturing company to record revenues of $1,500,000 in June 2009 instead of October 2008 would be the? a. Going Concern principle b. Cost principle c. Business entity principle d. Revenue recognition principle e. Monetary unit principle

D. Revenue recognition principle

At the end of the year, a corporation had total Expenses of $80,000; Assets of $112,000; Net Income of $12,000 and a total Stockholder's Equity of $60,000. Given these facts, what are the amount of Revenues and Liabilities? a. Insufficient information to determine. b. Revenues $140,000 and Liabilities $172,000 c. Revenues $68,000 and Liabilities $72,000 d. Revenues $92,000 and Liabilities $52,000

D. Revenues $92,000 and Liabilities $52,000

Gross profit is equal to: a. sales plus (sales discounts and sales returns and allowances) plus cost of goods sold b. sales plus sales returns and allowances less sales discounts less cost of goods sold c. sales plus sales discounts less sales returns and allowances less cost of goods sold d. sales less (sales discounts and sales returns and allowances) less cost of goods sold

D. Sales less (sales discounts and sales returns and allowances) less cost of goods sold

XYZ Hospital had purchased X-ray equipment for $3,000, paying $750 down, with the remainder to be paid later. The journal entry to record the payment of the balance owed on the equipment would be : a. debit to equipment and credit to cash for $2,250 b. debit to accounts receivable and credit to cash for $2,250 c. credit to accounts payable and debit to equipment for $750 d. credit to cash and debit to accounts payable for $2,250

D. credit to cash and debit to accounts payable for $2,250

The debit side of an account a. can be either side of the account depending on whether there are increases or decreases in the account. b. represents increases for liabilities and decreases for assets c. depends on whether the account is an asset, liability or owner's equity d. is greater than the credit side if the account has a debit balance

D. is greater than the credit side if the account has a debit balance

When goods are shipped FOB destination and the seller pays the transportation charges, the buyer a. journalizes a reduction for the cost of the merchandise. b. journalizes a reimbursement to the seller. c. does not take a discount. d. makes no journal entry for the transportation.

D. makes no journal entry for the transportation

Prepaid Rent, Unearned Rent, Supplies, Prepaid Advertising, Unearned Legal Fees Revenue are all examples of items: a. where cash is paid or received after adjusting entries are recorded. b. where cash is never paid or received. c. classified as accrued revenues or accrued assets d. where cash has already been paid or received prior to the end of the accounting period.

D. where cash has already been paid or received prior to the end of the accounting period

Which of the following is not a balance sheet account? a. Accounts Receivable b. Prepaid Rent c. All the accounts listed are balance sheet accounts d. Unearned Subscription Revenue e. Subscriptions Revenue

E. Subscriptions Revenue