ACCT 2101 Midterm (CH 1-6)

Accounting Cycle

1. Analyze transactions from source documents. (Occurs daily.) 2. Record transactions in a journal. (Occurs daily.) 3. Post journal entries to general ledger accounts. (Occurs daily.) 4. Prepare the unadjusted trial balance. 5. Journalize and post adjusting entries. 6. Prepare the adjusted trial balance 7. Prepare the financial statements. (see exhibit on page 135) 8. Journalize and post closing entries. 9. Prepare post-closing trial balance.

The Cash T-account of Rainbow, Inc. has a beginning balance of $52,000. During the year, $244,000 was debited and $241,000 was credited to the account. What is the ending balance of cash? Select one: A. $ 55,000 B. $ 37,000 C. ($ 5,000) D. Cannot be determined from the information given

A. $ 55,000

Which of the following is a permanent account? Select one: A. Accounts Receivable B. Advertising Expense C. Cash Dividends D. Professional Fees Earned

A. Accounts Receivable

Indicate the account that will be debited for each of the following transactions: A. Issued common stock for cash B. Borrowed money from a bank C. Provided services on account D. Purchased inventory on account E. Collected cash from customers that owed a balance due

A. Cash B. Cash C. Accounts Receivable D. Inventory E. Cash

An accrual of wages expense would produce what effect on the balance sheet? Select one: A. Increase liabilities and decrease equity B. Increase assets and increase liabilities C. Decrease assets and decrease liabilities D. Decrease liabilities and increase equity

A. Increase liabilities and decrease equity

Aashish Company had a transaction that caused a $40,000 decrease in both assets and liabilities. This transaction could have been a(n): Select one: A. Repayment of a $40,000 bank loan B. Investment of $40,000 cash in the business by the stockholders C. Purchase of office equipment for $54,000, paying $14,000 cash and issuing a note payable for the balance D. Purchase of office equipment for $40,000 cash

A. Repayment of a $40,000 bank loan

Which one of the following is not a key linkage among the four primary financial statements? A. The expenses in the income statement link to the total liability balance B. The statement of retained earnings links to ending retained earnings on the balance sheet C. The income statement links to the ending retained earnings in the statement of retained earnings D. The statement of cash flows links to ending cash balance reported on the balance sheet

A. The expenses in the income statement link to the total liability balance

Corportation

Best for raising large amounts of funds, double taxation, limited liability, easiest to transfer ownership interest

Honey Corporation has the following normal account balances in its general ledger at the end of a period: Sales revenue $600,000 Advertising expense 90,000 Which of the following gives the correct entry required to close only the accounts above? Select one: A. Advertising Expense 90,000 Retained Earnings 510,000 Sales Revenue 600,000 B. Sales Revenue 600,000 Advertising Expense 90,000 Retained Earnings 510,000 C. Retained Earnings 510,000 Net Income 510,000 D. None of the above. These accounts are not closed.

C. Retained Earnings 510,000 Net Income 510,000

Adam Vega's Landscaping Company has compiled the following list of account balances of various assets, liabilities, revenues and expenses on December 31, 2016, the end of its first year of operations. Common stock $25,200 Accounts payable 5,000 Salary expense 9,000 Repairs expense 1,600 Dividends 10,000 Truck 17,000 Equipment 12,600 Notes payable 16,400 Cash 35,200 Supplies expense 3,200 Service revenue 43,600 Gasoline expense 1,600 The retained earnings for Adam Vega's Landscaping on December 31, 2016 are: A. $6,300 B. $28,200 C. $18,200 D. $1,400

C. $18,200

A company received a $24,000 payment for services to be performed over the next few months. What would the effect of this transaction on the current year's accounting equation? Select one: A. No effect on Assets; $24,000 decrease in Liabilities; $24,000 increase in Stockholders' Equity B. No effect on Assets; $24,000 increase in Liabilities; $24,000 decrease in Stockholders' Equity C. $24,000 increase in Assets; $24,000 increase in Liabilities; No effect on Stockholders' Equity D. $24,000 increase in Assets; No effect on Liabilities; $24,000 increase in Stockholders' Equity

C. $24,000 increase in Assets; $24,000 increase in Liabilities; No effect on Stockholders' Equity

Chopper Corporation reported the following information at the end of its first year of operations: Common stock: $80,000 Sales revenue: $420,000 Total assets: $340,000 Total liabilities: $140,000 Dividends: $60,000 What must have been the expenses for the year? Select one: A. $260,000 B. $300,000 C. $240,000 D. $ 34,000

C. $240,000

An adjusting entry will not take the format of which one of the following entries? Select one: A. A debit to an expense account and a credit to a liability account B. A debit to a liability account and a credit to a revenue account C. A debit to an expense account and a credit to a revenue account D. A debit to an asset account and a credit to a revenue account

C. A debit to an expense account and a credit to a revenue account

Recording the collection of accounts receivable from customers involves: Select one: A. Debiting Cash and crediting Accounts Payable B. Debiting Accounts Receivable and crediting Cash C. Debiting Cash and crediting Accounts Receivable D. Debiting Cash and crediting Service Fees Earned

C. Debiting Cash and crediting Accounts Receivable

A trial balance that balances is useful because it indicates with certainty that: Select one: A. All entries into accounts during the period were made correctly. B. All accounts have normal balances. C. Total debits in the general ledger equal total credits. D. All of the above

C. Total debits in the general ledger equal total credits.

Mel's Mechanical Repair Shop started the year with total assets of $60,000, total liabilities of $40,000, and retained earnings of $18,000. During the year, the business recorded $100,000 in auto repair revenues, $70,000 in expenses, and the company paid dividends of $15,000. The net income reported by Mel's Mechanical Repair Shop for the year was: Select one: A. $180,000 B. $40,000 C. $50,000 D. $30,000 E. None of the above

D. $30,000

Which of the following financial statements is a period statement? Select one: A. Income statement B. Statement of retained earnings C. Statement of cash flows D. All of the above E. None of the above

D. All of the above

Which of the following is not an advantage of the corporate form of business organization? A. The ease with which capital can be raised B. The protection afforded stockholders against personal liability C. The relative ease of selling ownership shares D. Both the business and the owners are taxed

D. Both the business and the owners are taxed

Operating Activites

Day-to-day business activities, Sale of merchandise inventory, Purchase office supplies

Liabilities & Stockholders' Equity Inc/Dec w/ what?

Inc w/ Cr Dec w/ Dr

Asset Increase/Decrease with what?

Inc w/ Dr Dec w/ Cr

Dividends Inc/Dec w/ what?

Inc w/ Dr Dec w/ Cr

Expenses Inc/Dec w/ what?

Inc w/ Dr Dec w/ Cr

Types of Activities

Operating, Investing, Financing

Investing Activities

Purchase of land for a new warehouse, Invest excess cash, Sell old equipment that is no longer needed

What side does Credit go on?

Right

Sole Proprietorship

Sole ownership, easiest to establish, tax advantages, unlimited liability

Debt-to-total assets ratio

Total Debt/Total Assets

Indicate the account that will be credited for each of the following transactions: A. Issued common stock for cash B. Borrowed money from a bank C. Provided services on account D. Purchased inventory on account E. Collected cash from customers that owed a balance due

A. Common stock B. Note payable C. Revenue D. Accounts payable E. Accounts receivable

Accounting equation

Asset = Liabilities + Stock holder's Equity

Current Ratio

Current Assets/Current Liabilities

Which one of the following errors causes an overstatement of net income? Select one: A. Failure to record collection of an account receivable B. Failure to accrue revenue earned but not billed C. Failure to record a portion of fees received in advance that is earned by year-end D. Failure to record depreciation expense

D. Failure to record depreciation expense

Which of the following does not affect stockholders' equity? Select one: A. Receiving an investment of cash from an owner B. Paying wages to employees C. Selling goods to customers with payment due in 30 days D. Purchasing equipment with payment due in 30 days

D. Purchasing equipment with payment due in 30 days

Revenue Inc/Dec w/ what?

Inc w/ Cr Dec w/ Dr

What side does Debt go on?

Left

Financing Activities

Obtain a new bank loan, Payment of dividends

Partnership

Shared control, unlimited liability, tax advantages, increased skills and resources

Forms of Business Organization

Sole Proprietorship, Partnership, Corporation

Return on sales ratio

net income/net sales