Accounting Exam 1 Q&A

The basic financial statements are listed below: 1. Statement of Cash Flows 2. Balance Sheet 3. Income Statement 4. Statement of Changes in Stockholders' Equity What is the order of preparing financial statements?

3, 4, 2, 1

Which of the following accounts is not an asset? A. Inventory B. Cash C. Common stock D. Equipment

Common stock

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

Debit rent expense, credit rent payable

When cash has been paid or received but expense or revenue has not been recognized this represents a(n) A. accrual B. deferral

Deferral

The following events pertain to Big Sky Ski Resort Corporation. Feb 1 - Big Sky ordered snack bar food of $20,000 on account Feb 5 - $10,000 of the food was shipped to Big Sky Feb 7 - Food shipped on Feb 5 was received by Big Sky Feb 8 - Big Sky used the food received on Feb 7 for a one-time party Feb 25 - Big Sky paid $10,000 cash for the food received Feb 28 - The remaining food was delivered to Big Sky Under cash-basis accounting, on which date should Big Sky Ski Resort record food expense?

Feb. 25

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

Income

Which of the following is correct? A. Accounts Receivable is increased with a credit B. Inventories are decreased with a credit C. Rent Payable is increased with a debit D. Rent Expense is increased with a credit

Inventories are decreased with a credit

The area of accounting that emphasizes developing accounting information for use within a company is A. financial accounting B. managerial accounting C. manufacturing accounting D. operations accounting

Managerial accounting

The branch of accounting concerned with providing management with information to facilitate planning and control. A. Financial accounting B. Tax accounting C. Managerial accounting D. Control accounting

Managerial accounting

Which of the following characteristics best describes a corporation? A. a business with a single owner B. is not taxed C. owners are not personally responsible for the liabilities of the corporation D. each year all of its income or earnings are distributed to stockholders

Owners are not personally responsible for the liabilities of the corporation

What makes accounting a valuable discipline? A. Produces financial reports B. It stores financial information in accounts C. Provides information to make decisions D. Records events and transactions

Provides information to make decisions

Which of the following is an example of prepaid or deferral adjusting entry? A. Recording interest expense incurred on a bank borrowings that are payable next year B. Recording wages for employees not paid C. Recording revenue that has been earned but not yet received D. Recording the usage of supplies inventory during the period

Recording the usage of supplies inventory during the period

The amounts recorded when the company sells products or provides services to customers are referred to as: A. Revenues B. Assets C. Liabilities D. Expenses

Revenues

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

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

Which of the following is the best definition of accounting? A. electronic collection, organization, and communication of vast amounts of information B. the interconnected network of subsystems necessary to operate a business C. A means of recording transactions and keeping records D. The measurement, processing, and communication of financial information about an entity

The measurement, processing, and communication of financial information about an entity

Adjusting accounts is the process of A. zeroing out account balances to prepare for the next period B. reducing revenues by deducting expenses to measure income C. posting transactions as they occur during the period D. updating accounts at the end of an accounting period

Updating accounts at the end of an accounting period

Trans American Airlines, Inc. flies throughout North America employing a strategy of short flights using smaller aircraft to increase efficiencies and utilization. The Company's policy is to provide a cash refund to customers for unused aircraft tickets. When should Trans American recognize revenue for ticket sales? A. When the passenger pays for the ticket B. When the airline sells the ticket C. When boarding passes are taken at the plane door D. When the plane arrives at its destination

When the plane arrives at its destination

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

a company should maintain separate set of financial records for each business entity or subsidiary

The measurement/communication process of financial accounting is referred to as the A. accounting process B. chart of accounts C. accounting cycle D. trial balance

accounting cycle

Those who lend money or deliver goods and services before being paid are called A. creditors B. investors C. debtors D. stockholders

creditors

Assets are listed on the balance sheet in the order of their A. purchase date B. adjustments C. balance D. liquidity

liquidity

A classified balance sheet: A. provides more detail of current assets and liabilities B. shows only current assets and current liabilities C. shows changes in assets, liabilities, revenues and expenses D. shows subtotals for current assets and current liabilities

shows subtotals for current assets and current liabilities

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. $5000 B. $10,000 C. $20,000 D. $30,000

$10,000

Given the information below about Kensal Green Corporation, what was the amount of dividends the company paid in the current period? Beginning Retained Earnings - $200,000 Ending Retained Earning - $150,000 Decrease in cash - $10,000 Income - $150,000 Change in Stockholders' Equity - $50,000

$200,000 (Beginning R/E + Income - Ending R/E)

Allegheny Co., Inc. engages in the following cash payments. What is the total amount of cash paid for financing activities? Borrowing from a bank - $50,000 Dividends to stockholders - $5000

$55,000

On July 1, 2018, a 2-year insurance policy was purchased for $30,000 with coverage to begin immediately. What was the amount of insurance expense for the year ended December 31, 2018? A. $2500 B. $5000 C. $7500 D. $15,000 E. $30,000

$7500

The financial statement of Timken Corporation contain the following accounts. How much is its earnings? Expenses - $20,000 Revenues - $100,000

$80,000

At Dec. 31, Burlingame Inc., an air quality service business, had total assets of $100,000 and equity of $10,000. How much were Burlingame's liabilities?

$90,000

Kensal Green Inc. pays its sales employees $300 per day for a 5-day work week that runs from Monday to Friday. If Dec. 31 is a Wednesday what is the amount of the salaries adjustment at Dec. 31 assuming that Friday is payday? A. $300 B. $600 C. $900 D. $1200

$900

Following are transactions of Beverly Inc. 1. Purchase of 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. Purchase $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 salary How many of these transactions decreased Beverly's total assets? A. 1 B. 2 C. 3 D. 4

2: paid cash for $10,000 for repair services provided last month, paid employees $25,000 for their first month's salary

How many of the following items would affect investing cash flows reported in the statement of cash flows? 1. Decrease in wages payable 2. Borrow from the bank 3. Increase inventory levels 4. Purchase a delivery truck 5. Repay an equipment loan 6. Sell some excess land A. 1 B. 2 C. 3 D. 4

2: purchase a delivery truck, sell some excess land

How many of the following accounts would appear in a year-end income statement? 1. sales 2. dividends to stockholders 3. rent deposit 4. salaries expense 5. accounts receivable 6. service revenue 7. accounts payable A. 5 B. 4 C. 3 D. 2

3; sales, salaries expense, service revenue

How many of the following accounts would appear in a year-end balance sheet? 1. Accounts Receivable 2. Salaries Payable 3. Salaries Expense 4. Common Stock 5. Dividends 6. Service Revenue 7. Retained Earnings 8. Fee Income A. 5 B. 4 C. 3 D. 2

4: Accounts Receivable, Salaries Payable, Common Stock, Retained Earnings

Consider the following accounts: revenues, prepaid rent, equipment, utilities expense, salaries expense, cash, accounts payable, common stock, rent payable, dividends. How many of these have normal debit accounts? A. 4 B. 5 C. 6 D. 7

6: prepaid rent, equipment, utilities expense, salaries expense, cash, dividends

Which of the following is true? A. A debit will increase a liability account B. A credit will increase an asset account C. A credit will increase a revenue account D. A debit will decrease an expense account

A credit will increase a revenue account

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

A customer places an order for product

What is the process of identifying, measuring, and communicating economic information to various users? A. Accounting B. Management C. Business D. Analysis

Accounting

Which account is least likely to be debited when revenue is recorded? A. Accounts Payable B. Accounts Receivable C. Cash D. Deferred Revenue

Accounts Payable

Which of the following appears on a post-closing balance? A. Accounts Receivable, Accrued Wages, and Retained Earnings B. Cash, Salaries Payable, and Service Revenue C. Equipment, Taxes Payable, and Rental Expense D. Cash, Prepaid Deposits, and Sales Revenue

Accounts Receivable, Accrued Wages, and Retained Earnings

After preparing a trial balance, which situation(s) indicate(s) potential adjustment(s)? A. prepaid insurance account has a credit balance B. A liability account for royalties due on product sales has a debit balance C. Product sales account for the current month is less than half of the previous month's balance D. All of the above

All of the above

Of the following 5 accounts, which ones are permanent accounts? 1. Cash 2. Deferred Revenue 3. Prepaid Expense 4. Common Stock 5. Retained Earnings A. 1, 4 and 5 B. 1, 3, and 4 C. 1, 3 and 5 D. All of the above

All of the above

In 2018, San Bruno Corporation reported sales of $100,000 and expenses of $75,000. The company also paid a dividend of $10,000 in 2018. On Dec. 31, 2018, San Bruno prepared closing entries. The net effect of the closing entries on retained earnings was A. An increase of $25,000 B. An increase of $85,000 C. An increase of $15,000 D. A decrease of $10,000

An increase of $15,000

Below is Birmingham Corporation's Wages Payable T‐account. Wages Payable Beg. 10,000 6,000 3,000 End. 7,000 The $6,000 amount could represent which of the following? A. Cash received from employees B. Cash payments to employees for services performed C. Wages earned and not paid D. Recording expense for wages

Cash payments to employees for services performed

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

Credit an asset

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

Credit is on the right side of an asset account

Knight Co., Inc. performed cleaning services for its customers on account. These transactions would be recorded as: A. Debit Service Revenue, Credit Cash B. Debit Cash, Credit Service Revenue C. Debit Cash, Credit Accounts Receivable D. Debit Accounts Receivable, Credit Service Revenue

Debit Accounts Receivable, Credit Service Revenue

Greenwich Corporation received a bill for building maintenance services performed in the current month of $1,500. The bill will be paid next month. How would the transaction be recorded today? A. Debit Accounts Payable $1,500, credit Building Maintenance Expense $1,500. B. Debit Building Maintenance Expense $1,500, credit Accounts Payable $1500 C. Debit Accounts Payable $1500, credit Cash $1500 D. Debit Building Maintenance Expense $1500, credit Cash $1500

Debit Building Maintenance Expense $1500, credit Cash $1500

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

Dr. - Accounts Receivable; Credit - Service Revenue

During the month of January, Expert Legal Services, Inc. provided legal services of $10,000 to a client that were not billed. What is the required adjusting entry by the law firm on January 31? A. Dr. Account Receivable $10,000 Cr. Legal service revenue $10,000 B. Dr. Legal service revenue $10,000 Cr. Accounts receivable $10,000 C. Dr. Unearned revenue $10,000 Cr. Legal service revenue $10,000 D. Legal service revenue $10,000 Cr. Cash $10,000

Dr. Accounts receivable $10,000 Cr. Legal service revenue $10,000

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

Expenses

In a journal entry, credits are always recorded before debits. A. True B. False

False

Revenue should be recorded when the related cash has been collected, not when it has been earned. A. True B. False

False

When payment is received for services not yet rendered, no entry is recorded until that service has been rendered. A. True B. False

False (record cash received and a liability (deferred revenue))

The main objective of financial reporting is to provide information A. on a company's assets, liabilities, and stockholders' equity B. for decision making C. about a company's financial performance during a period D. provide stockholders' information to assess an entity's performance

For decision making

The following statements pertain to recording transactions. Which of them are true? I. Total debits should equal total credits II. Liabilities are listed second 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 III C. II and IV D. I and IV

I and III

Which of the following statements is true? I. Debits represent decreases, and credits represent increases II. Credits must always equal debits III. Liabilities and stockholders' equity have normal credit balances while assets have normal debit balances A. I B. I and II C. II and III D. All of these

II and III

An advantage of a classified balance sheet is that it is easy to see: A. If the company is likely to be profitable in future periods B. If current assets are large enough to pay current liabilities C. If the company is profitable in the current period D. If dividends have been paid to stockholders

If current assets are large enough to pay current liabilities

On December 31, a company purchased a $5000 liability insurance policy for the next year on account. What is the entry at December 31? A. Increase assets and decrease liabilities by $5000 B. Increase liabilities and decrease stockholders' equity by $5000 C. Increase both assets and liabilities by $5000 D. Decrease both assets and stockholders' equity

Increase both assets and liabilities by $5000 (+prepaid insurance, +accounts payable)

Assume that Clifford Gardens, Inc. performed landscaping services of $1250 on account for a river park. How would this transaction affect Clifford Gardens? A. Increase both assets and liabilities by $1250 B. Increase equity and increase assets by $1250 C. Increase equity and increase liabilities by $1250 D. Decrease liabilities by $1250 and increase equity by $1250

Increase equity and increase assets by $1250

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

Journalize transactions, post to the accounts, prepare a trial balance

In April, Wilderness Camp Inc. hires ten counselors for a summer camp to be held in June. Those employees work during June and are paid all of their wages in July. In which month should the camp record counselor wage expense? A. April B. May C. June D. July

June

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

June, $15,000; July, $0; August, $0

Racquet Sports Inc. orders tennis balls in February. Those tennis balls are received and used in March for a beginner tennis camp. The tennis balls are paid for in April. In which month should Racquet Sports record expense for the tennis balls? A. February B. March C. April

March

Washington Inc. sold a product 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 on the account equation C. Decrease assets and decrease liabilities D. Decrease assets and increase liabilities

No net effect on the accounting equation (increase cash, decrease accounts receivable)

The most important objective for financial accounting is to provide information useful for: A. Providing accountability B. Predicting cash flows C. Increasing future profit D. Documenting business transactions

Predicting cash flows

Which of the following transactions would cause an increase in liabilities and a decrease in retained earnings? A. Paying insurance premium for the next two years B. Paying advertising for the current month C. Receiving a maintenance bill to be paid the following month D. Providing installation services to customers

Receiving a maintenance bill to be paid the following month

On April 1, 2018, Cotswolds Inc. paid $90,000 to its landlord for rent covering 18 months from July 1, 2018 through December 31, 2019. What adjusting entry should Cotswolds record at Dec. 31, 2018? A. Prepaid rent 90,000 Rent expense 90,000 B. Rent expense 30,000 Cash 30,000 C. Rent expense 45,000 Prepaid rent 45,000 D. Rent expense 30,000 Prepaid rent 30,000

Rent expense 30,000 Prepaid rent 30,000

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

Sale of a product on credit

A customer purchased a bed and dresser on August 25 on account from a furniture store. The furniture was delivered on Sept 6. The customer paid for the furniture on Oct 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 the three months E. 1/3 in August 2/3 in September

September

A fitness club receives $540 from a customer for 6 physical training classes. The training classes will be performed later. After providing four training classes to the customer, what should the fitness club record on the income statement using the accrual method of accounting? A. Service revenue of $540 B. Unearned revenue of $540 C. Service revenue of $360 D. Cash of $180

Service revenue of $360

Which of the following business events is not a recordable transaction in accounting? A. Paying wages B. Receiving goods C. Signing a contract D. Purchasing a service

Signing a contract

A concert promoter received $50,000 in cash deposits from students in February for a concert to be held in March. Which of the following statements is true? A. The promoter records revenue in February. B. The promoter records the cash collections in March. C. The promoter records deferred revenue in February. D. The promoter records nothing in February.

The promoter records deferred revenue in February

Which of the following statements is false? A. All T-accounts have both a credit and a debit side B. Many times transactions are analyzed using T-accounts C. The right side of a T-account is called the debit side D. The amount in an account is at any time called the balance of the account

The right side of a T-account is called the debit side

Which of the following statements is correct concerning an income statement? A. The statement will include how much was paid to stockholders in the form of dividends B. The statement shows the results of a company at a point in time C. The statement provides information about a business' ability to earn a profit and growth D. The statement consists of assets, liabilities, revenues, and expenses

The statement provides information about a business' ability to earn a profit and growth

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

Total credits exceed total debits

If Bridgetown Corporation records cash received for services to be provided in the future with a debt to Cash and a credit to Service Revenue, how will this error affect total liabilities for the current period? A. Total liabilities will be too low B. Total liabilities will be too high C. Total liabilities will be correct D. Not possible to determine

Total liabilities will be too low

A transaction is any event, external or internal, that is recognized in a set of financial statements. A. True B. False

True

Adjusting entries are useful in apportioning costs among two or more accounting periods. A. True B. False

True

An accrual represent cash that has not been paid or received but expense has been incurred or revenue recognized. A. True F. False

True

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

True

Transactions must affect the financial position of the business to be recorded in a financial accounting system. A. True B. False

True

Below is the Cambridge Corporation's Prepaid Rent T-account. Prepaid Rent Beg. 1,000 10,000 7,000 End. 4,000 The $7000 amount could represent which of the following? A. Payment of rent in advance B. Use of rented warehouse space C. Recording a rent payable D. Cash received for rental income from customers

Use of rented warehouse space

San Pedro Corporation recently purchased a truck for $60,000, which will be paid within 45 days after delivery. At what point would the event be recorded in San Pedro's accounting system? A. When San Pedro signs the agreement with the seller B. When San Pedro receives delivery of the truck C. When San Pedro receives the invoice from the seller D. When San Pedro pays the $60,000 to the seller

When San Pedro receives delivery of the truck

A supplier that deliver goods and services before being paid is typically recorded in a liability account called: A. accounts payable B. wages payable C. accounts receivable D. notes payable

accounts payable

Receiving a repair bill for costs in the current period but delaying payment until the following period is an example of a(n): A. prepaid expense B. accrued expense C. accrued revenue D. deferred revenue

accrued expense

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

accrued revenue

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

always involve at least one income statement account and one balance sheet account

What is the best definition of accounts receivable? A. owners' investment in the business B. amount owed by customers to a company C. an account D. an amount owed by the company to others

amounts owed by customers to a company

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

assets decrease and stockholders' equity increase

Investments by stockholders have what effect on the accounting equation? A. Assets increase and stockholders' equity increases B. Assets increase and liabilities increase C. Expenses increase and liabilities increase D. Assets increase and revenues increase

assets increase and stockholders' equity increases

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

customers paying cash in advance of the good or service being provided

The effects of paying salaries for the current period are to: A. decrease assets and decrease stockholders' equity B. increase assets and increase stockholders' equity C. increase assets and increase liabilities D. decrease assets and increase liabilities

decrease assets and decrease stockholders' equity

The purpose of an audit is to: A. determines whether investors should rely on financial information B. agrees with income tax requirements C. determine that the financial statements are in accordance with GAAP D. determine whether or not a company a good credit risk

determine that the financial statement are in accordance with GAAP

If the supplies account indicated a balance of $2,250 before adjustment on May 31 and supplies on hand at May 31 totaled $950, the adjustment would be: A. increase Supplies, $950; decrease Supplies Expense, $950 B. increase Supplies, $1300; decrease Supplies Expense, $1300 C. increase Supplies Expense, $950; decrease Supplies, $950 D. increase Supplies Expense, $1300; decrease Supplies, $1300

increase Supplies Expense, $1300; decrease Supplies, $1300

The effects of purchasing inventories on credit are to: A. increase assets and increase stockholders' equity B. increase assets and increase liabilities C. decrease assets and decrease stockholders' equity D. decrease assets and decrease liabilities

increase assets and increase liabilities

Debits will: A. decrease liabilities, revenues, and dividends B. increase assets, liabilities, revenues, expenses, and dividends C. increase assets, expenses, and dividends D. decrease assets, liabilities, revenues, expenses, and dividends

increase assets, expenses, and dividends

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

increase in one asset and a decrease in another asset

Posting: A. involved transferring information from the trial balance B. involves the transformation information in journal entries to the general ledger C. is an optional step in the accounting cycle D. is performed after a trial balance is prepared

involves the transformation information in journal entries to the general ledger

A trial balance: A. detects all errors that could be made during the journalizing or posting steps of the accounting cycle B. lists only revenue and expense accounts C. lists all accounts and their balances D. will help detect omitted journal entries

lists all accounts and their balances

Assets can best be described as: A. Resources owned by the company having future benefit to the company B. collection of resources belonging to the company and the claims to these resources C. cash owned by the company D. owners' investment in the business

resources owned by the company having future benefit to the company