Accounting Exam 1
In 1990, Johnson Company purchased a building for $150,000. In 2017, a real estate professional says the building has a fair value of $1,500,000. In 2017, a similar building down the street recently sold for $900,000. What value, before consideration of accumulated depreciation, is reported for the building on the balance sheet at December 31, 2017?
$150,000
All of the following statements are true except one. Which statement is false? A. Adjusting entries are required for a business that uses the cash basis. B. Accrual accounting produces better information than cash-basis accounting. C. A fiscal year may end on some date other than December 31. D. The expense recognition principle directs accountants to identify and measure all expenses incurred and deduct them from revenues earned during the same period.
A. Adjusting entries are required for a business that uses the cash basis.
What is the effect on total assets and stockholders' equity of paying the telephone bill as soon as it is received each month? Total assets Stockholders' equity A. Decrease Decrease B. No effect Decrease C. Decrease No effect D. No effect No effect
A. Decrease Decrease
In the closing process, which accounts are credited? A. Depreciation Expense, Insurance Expense, Salary Expense B. Accumulated Depreciation, Insurance Expense, Salary Expense, Dividends C. Accounts Payable, Prepaid Insurance D. Service Revenue, Interest Revenue
A. Depreciation Expense, Insurance Expense, Salary Expense
Which of the following transactions will increase an asset and increase stockholders' equity? A. Performing a service on account for a customer B. Borrowing money from a bank C. Collecting cash from a customer on an accounts receivable D. Purchasing supplies on account
A. Performing a service on account for a customer
A business paid $1900 on account. The journal entry would: A. debit Accounts Payable for $1900 and credit Cash for $1900. B. debit Cash for $1900 and credit Accounts Payable for $1900. C. debit Accounts Receivable for $1900 and credit Revenue for $1900. D. debit Cash for $1900 and credit Retained Earnings for $1900.
A. debit Accounts Payable for $1900 and credit Cash for $1900.
The two types of accounting are: A. financial and management. B. bookkeeping and decision oriented. C. internal and external. D. profit and nonprofit.
A. financial and management.
The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is: A. historical cost. B. objectivity. C. stable monetary unit. D. reliability.
A. historical cost.
A doctor performed surgery in March and did not receive cash from the patient until July. Under accrual accounting, the doctor recognizes revenue: A. in March. B. in July. C. in either March or July. D. at a time that cannot be determined from the facts.
A. in March.
An investment of cash by stockholders into the business will: A. increase stockholders' equity. B. decrease total liabilities. C. have no effect on total assets. D. decrease total assets.
A. increase stockholders' equity.
With an accrual of revenue: A. the cash is received after the revenue is recorded. B. plant assets can create an accrual adjustment. C. the cash is paid before the expense is recorded. D. prepaid expenses can create an accrual adjustment.
A. the cash is received after the revenue is recorded.
On December 1 of the current year, Prepaid Rent was debited $ 6 comma 000 for three months of rent, to cover the period December 1 to February 28. The amount of the adjusting entry on December 31 is: A. $0. B. $2,000. C. $6,000. D. $4,000.
B. $2,000.
An adjusting entry that debits an expense and credits a liability is which type? A. Prepaid expense B. Accrued expense C. Cash expense D. Depreciation expense
B. Accrued expense
Which of the following statements is TRUE? A. Dividends increase retained earnings. B. Dividends reduce retained earnings. C. Dividends reduce net income. D. Dividends are expenses of a business.
B. Dividends reduce retained earnings.
Which statement about the statement of cash flows is FALSE? A. The payment of a note payable is a financing activity. B. Purchases and sales of long term assets are financing cash flows. C. Operating activities should be the company's main source of cash. D. The payment of a dividend is a financing cash flow.
B. Purchases and sales of long term assets are financing cash flows.
When a business purchases land with a note payable: A. assets are increased and liabilities are decreased. B. both assets and liabilities are increased. C. assets are decreased and stockholder's equity is increased. D. both assets and stockholders' equity are increased.
B. both assets and liabilities are increased
Smith, Inc., purchased supplies for $1,100 during 2016. At yeardashend, Smith had $500 of supplies left. The adjusting entry should: A. debit Supplies $ 600. B. debit Supplies Expense $600 C. debit Supplies $ 500. D. credit Supplies $ 500.
B. debit Supplies Expense $600.
Receiving cash from a customer on account will: A. decrease liabilities. B. have no effect on total assets. C. increase stockholders' equity. D. increase total assets.
B. have no effect on total assets.
Which financial statement answers the following question: How well did the company perform during the year? A. balance sheet B. income statement C. statement of cash flows D. statement of retained earnings
B. income statement
Purchasing a building for $80,000 by paying cash of $25,000 and signing a note payable for $55,000 will: A. decrease total assets and increase total liabilities by $25,000. B. increase both total assets and total liabilities by $55,000. C. increase both total assets and total liabilities by $80,000. D. decrease both total assets and total liabilities by $25,000.
B. increase both total assets and total liabilities by $55,000.
The accountant for Trumbull Corp. failed to make the adjusting entry to record depreciation for the current year. The effect of this error is which of the following? A. Assets and expenses are understated; net income is understated. B. Net income is overstated and liabilities are understated C. Assets, net income, and stockholders' equity are all overstated. D. Assets are overstated; stockholders' equity and net income are understated.
C. Assets, net income, and stockholders' equity are all overstated.
On October 1, 2016, Golde Company paid $24,600 for one year of insurance for the period, October 1, 2016 through September 30, 2017. Which of the following will be part of the adjusting entry on December 31, 2016? A. Debit Prepaid Insurance for $18,450 B. Debit Insurance Expense for $18,450 C. Debit Insurance Expense for $6,150 D. Debit Prepaid Insurance for $6,150
C. Debit Insurance Expense for $6,150
On December 15, 2017, a company receives an order from a customer for services to be performed on December 28, 2017. Due to a backlog of orders, the company does not perform the services until January 3, 2018. The customer pays for the services on January 6, 2018. The revenue principle requires the revenue to be recorded by the company on: A. January 6, 2018. B. December 15, 2017. C. January 3, 2018. D. December 28, 2017.
C. January 3, 2018.
On December 31, 2017, salaries owed to employees total $ 4 comma 750. These will be paid on January 4, 2018. An adjusted trial balance prepared on December 31, 2017, includes which of the following? A. Unearned Salaries, $4,750 B. Unearned Salaries, $4,750 and Salaries Payable, $4,750 C. Salaries Expense, $4,750 and Salaries Payable, $4,750 D. Salaries Payable, $4,750 and Unearned Salaries Revenue, $4,750
C. Salaries Expense, $4,750 and Salaries Payable, $4,750
On a trial balance, which of the following would indicate that an error has been made? A. Unearned Revenue has a credit balance. B. Salary Expense has a debit balance. C. Service Revenue has a debit balance. D. All of the above indicate errors.
C. Service Revenue has a debit balance.
In the closing process, which accounts are debited? A. Depreciation Expense, Insurance Expense, Salary Expense, Dividends B. Accounts Payable, Retained Earnings C. Service Revenue, Interest Revenue D. Depreciation Expense, Insurance Expense, Salary Expense
C. Service Revenue, Interest Revenue
The debt created by a business when it makes a purchase of inventory on account is a(n): A. note payable. B. account receivable. C. account payable. D. revenue.
C. account payable.
On August 1, 2016, Brian Quinn received $9600 for legal services to be performed evenly throughout the next twelve months, beginning August 1, 2016. An adjusted trial balance prepared on December 31, 2016 will show a credit balance in Unearned Revenue in the amount of: A. $0. B. $800. C. $4000. D. $5600.
D. $5600.
A company completed the following transactions during the month of October: I. Purchased office supplies on account, $5600. II. Provided services for cash, $22,000. III. Provided services on account, $36,000. IV. Collected cash from a customer on account, $27,000. V. Paid the monthly rent of $3800. What was the company's total revenue for the month? A. $22,000 B. $36,000 C. $85,000 D. $58,000
D. $58,000
Purchasing a laptop computer on account will: A. increase total assets. B. have no effect on stockholders' equity. C. increase total liabilities. D. All of the listed choices are correct.
D. All of the listed choices are correct.
Which of the following is not an asset account? A. Salary Expense B. Common Stock C. Service Revenue D. None of the listed accounts is an asset.
D. None of the listed accounts is an asset.
Performing a service on account will: A. increase total assets. B. increase stockholders' equity. C. increase total liabilities. D. accomplish both a and b.
D. accomplish both a and b.
The account Unearned Revenue is a(n) A. asset. B. revenue. C. expense. D. liability.
D. liability.
Verifiability means that the accounting information: A. is timely and understandable. B. is understandable. C. is material and relevant. D. must be capable of being checked for accuracy, completeness and reliability.
D. must be capable of being checked for accuracy, completeness and reliability.
The fair value of a plant asset is equal to: A. the amount a company can receive for the asset when sold in order to go out of business. B. the amount of cash paid plus the dollar value of noncash consideration given in exchange for the plant asset at acquisition. C. the amount of cash paid plus the loan taken out to finance the purchase of the plant asset. D. the amount the business could sell the asset for.
D. the amount the business could sell the asset for.
T/F: A balance sheet reports the company's financial position over a period of time.
False
T/F: Following current U.S. GAAP, the carrying value of a building can be increased to its fair value.
False
T/F: Prepaid rent is an expense because the payment provides a future benefit of the company.
False
T/F: Revenues and expenses are reported on both the income statement and the statement of retained earnings.
False
T/F: Accounting produces financial statements, which report information about a business.
True
T/F: Generally Accepted Accounting Principles (GAAP) require the use of accrual accounting.
True
T/F: In an unadjusted trial balance, the accounts are not yet ready for the preparation of the company's financial statements.
True
T/F: Stockholders have no personal obligation for the corporation's debts.
True
T/F: The decision framework for making ethical judgments provides general guidance for everyone, regardless of profession or industry.
True
T/F: The financial statements can be prepared from the adjusted trial balance.
True
T/F: The fundamental qualitative characteristics of accounting information are relevance and reliability.
True
