Acct Exam 1 MC

On January 1, Gucci Brothers Inc. started the year with a $696,000 balance in Retained Earnings and a $604,000 balance in common stock. During the year, the company reported net income of $104,000, paid a dividend of $14,200, and issued more common stock for $24,500. What is total stockholders' equity at the end of the year?

$1,414,300 (Total Stockholders' Equity = Common Stock ($604,000 + $24,500) + Retained Earnings ($696,000 + $104,000 − $14,200) = $1,414,300.)

timpleton Company engages in the following cash payments: -Purchase equipment: $3,700 -Pay rent: 750 -Repay loan to the bank: 5,600 -Pay workers' salaries: 900 What is the total amount of cash paid for operating activities?

$1,650 (Rent ($750) + Workers' salaries ($900) = total amount of cash paid for operating activities ($1,650).)

The account type that represents payments to stockholders is called:

Dividends.

Constraints on qualitative characteristics of accounting information include:

Cost effectiveness.

Prior to adjusting entries, Salaries Expense had a balance of $22,300. The following year-end adjusting entry was made by the company: Salaries Expense 4,400 Salaries Payable 4,400 What balance would be shown for Salaries Expense in the adjusted trial balance?

$26,700. ($22,300 + $4,400 = $26,700.)

Aikman Company paid dividends of $2,560, $0, $1,400 and $1,070 over the first four years of the company's existence, respectively. If Retained Earnings has an ending balance of $9,600 at the end of year four, what was the average annual amount of net income (loss) over the first four years for Aikman?

$3,658 (Beginning Retained Earnings ($0) + Net Income ($14,630) − Dividends ($2,560 + $0 + $1,400 + $1,070) = Ending Retained Earnings ($9,600). Divide net income amount by 4 to get average ($14,630 / 4) = $3,658.)

In the statement of stockholders' equity, Retained Earnings had a beginning balance of $25,000. During the period, the company reports a net income of $10,000 and a dividend of $4,000. The ending balance in the Retained Earnings account is:

$31,000 (Beginning Retained Earnings ($25,000) + Net Income ($10,000) − Dividends ($4,000) = Ending Retained Earnings.)

The retained earnings account had a beginning credit balance of $26,250. During the period, the business had a net loss $12,800, and the company paid dividends of $8,950. The ending balance in the retained earnings account is:

$4,500. (Beginning Retained Earnings ($26,250) − Net Loss ($12,800) − Dividends ($8,950) = Ending Retained Earnings ($4,500).)

The ending Retained Earnings balance of Boomer Inc. decreased by $1.1 million from the beginning of the year. The company declared a dividend of $6.1 million during the year. What was the net income for the year?

$5.0 million (Beginning Retained Earnings ($0) + Net Income ($5.0) − Dividends ($6.1) = Ending Retained Earnings (−$1.1)

The following financial information is from Shovels Construction Company: -Accounts payable: $13,100 -Buildings: 85,000 -Cash: 11,100 -Accounts receivable: 9,600 -Sales tax payable: 2,900 -Retained earnings: 47,200 -Supplies: 40,000 -Notes payable: (due in 18 months) 33,000 -Interest payable: 2,200 -Common stock: 47,300 What is the amount of current assets, assuming the accounts above reflect normal activity?

$60,700 (Cash ($11,100), Accounts Receivable ($9,600), and Supplies ($40,000) are normally current assets.)

The following table contains financial information for Trumpter Inc. before closing entries: -Cash$12,700 -Supplies 4,700 -Prepaid Rent 3,300 -Salaries Expense 5,000 -Equipment 65,500 -Service Revenue 28,600 -Miscellaneous Expenses 21,200 -Dividends 5,000 -Accounts Payable 4,700 -Common Stock 67,400 -Retained Earnings 16,700 What is the amount of Trumpter's total assets?

$86,200 (cash + supplies +prepaid rent + equipment)

A company purchased $400 of office supplies on account during May. All the supplies were used in May, and the account was paid during June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

(1) No effect, (2) No effect, (3) Decrease.

A list of all accounts and their balances after posting closing entries is referred to as:

A post-closing trial balance.

A company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. This company is using:

Accrual-basis accounting.

Receiving a utility bill for costs in the current period but delaying payment until the following period is an example of a(n):

Accrued expense.

Which one of the following best describes the characteristics of adjusting entries?

Adjusting entries update balances for the recognition of revenue and expenses.

The basic principle involved with expense recognition is:

All costs that are used to generate revenue are recorded in the period the revenue is recognized.

Adjusting entries:

Always involve at least one income statement account and one balance sheet account.

A current liability is defined as:

An amount due within one year.

Which step in the process of measuring external transactions involves determining the effect on assets, liabilities, and stockholders' equity?

Analyze the impact of the transaction on the accounting equation.

Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue?

April

Consider the following events for Sophia Incorporated: -April 5 Sophia purchases volleyballs for $200 on account. -April 6 Sophia advertises a sand volleyball camp for $20 a person. -April 12 Thirty people sign up for the camp paying a total of $600. -April 21 Sophia hosts the sand volleyball camp. -April 23 Sophia pays for the volleyballs purchased on April 5. Under accrual-basis accounting, what is the appropriate day to record the expenses related to the sand volleyball camp?

April 21 (Accrual-basis expenses are recorded at the time they help to produce revenue.)

Consider the following events for Sophia Incorporated: -April 5 Sophia purchases volleyballs for $200 on account. -April 6 Sophia advertises a sand volleyball camp for $20 a person. -April 12 Thirty people sign up for the camp paying a total of $600. -April 21 Sophia hosts the sand volleyball camp. -April 23 Sophia pays for the volleyballs purchased on April 5. Under accrual-basis accounting, what is the appropriate day to record the revenues from the sand volleyball camp?

April 21 (Accrual-basis revenues are recorded when services are provided.)

For each transaction recorded in an accounting system, the basic equation that must be maintained at all times is:

Assets = Liabilities + Stockholders' Equity.

The accounting equation is defined as:

Assets = Liabilities + Stockholders' Equity.

The Deferred Revenue account is shown in which statement?

Balance sheet.

DW has an ending Retained Earnings balance of $51,100. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance?

Beginning Retained Earnings ($32,900) + Net Income ($22,500) − Dividends ($4,300) = Ending Retained Earnings ($51,100).= $32,900.

How to find dividends paid

Beginning Retained Earnings - Net Income - Dividends = Ending Retained Earnings

The primary purpose(s) of financial accounting is(are) to:

Both measure and communicate financial information to external parties.

Which of the following is a balance sheet item?

Cash

What is the amount of current assets, assuming the accounts above reflect normal activity?

Cash, Accounts Receivable , and Supplies are normally current assets.

Which of the following accounts would normally have a debit balance?

Cash, Delivery Expense, Dividends.

Which of the following provides a description of the relation between revenues and expenses for financial reporting purposes?

Cause-and-effect.

The two categories of stockholders' equity usually found in the balance sheet of a corporation are:

Common stock and retained earnings.

According to the conceptual framework, verifiability implies:

Consensus.

During the year, Cheng Company paid salaries of $23,600. In addition, $8,100 in salaries has accrued by the end of the year but has not been paid. The year-end adjusting entry would include which one of the following?

Credit to salaries payable for $8,100

Which of the following groups is not among the external users for whom financial statements are prepared?

Customers, suppliers, and employees are all external users of financial statements.

Clement Company paid an account payable related to a previous utility bill of $1,060. This transaction should be recorded as follows on the payment date:

Debit Accounts Payable $1,060, credit Cash $1,060.

Childers Service Company provides services to customers totaling $3,900, for which it billed the customers. How would the transaction be recorded?

Debit Accounts Receivable $3,900, credit Service Revenue $3,900

Bostel wanted to expand the size of its warehouse in order to generate more profits. The company decided to purchase the building adjacent to its existing warehouse. The company pays for the building by borrowing from the bank. The purchase would be recorded as:

Debit Buildings; credit Notes Payable.

On July 7, Saints Incorporated received $10,500 in cash from a customer for services to be provided on October 10. Which of the following describes how the transaction should be recorded on July 7?

Debit Cash $10,500, credit Deferred Revenue $10,500

Summer Leasing received $10,400 from a customer to cover 24 months of rent in advance. How should Summer record this transaction?

Debit Cash; credit Deferred Revenue

Summer Leasing received $11,300 from a customer to cover 24 months of rent in advance. How should Summer record this transaction?

Debit Cash; credit Deferred Revenue

When a company pays $2,900 dividends to its stockholders, the transaction should be recorded as:

Debit Dividends; Credit Cash.

Purchasing equipment for $10,000 cash is recorded as:

Debit Equipment $10,000, credit Cash $10,000.

Assume that $18,600 cash is paid for insurance to cover the next year. The appropriate debit and credit would be:

Debit Prepaid Insurance $18,600, credit Cash $18,600.

Assume that cash is paid for rent to cover the next year. The appropriate debit and credit would be:

Debit Prepaid Rent, credit Cash.

A company owes employee salaries of $16,000 at the end of the year. These salaries will be paid in the following year. What adjusting entry, if any, does the company need to record at the end of the year?

Debit Salaries Expense and credit Salaries Payable for $16,000.

Which of the following is a possible closing entry?

Debit Service Revenue, credit Retained Earnings.

Sooner purchased office supplies on account. The transaction would be recorded as:

Debit Supplies, Credit Accounts Payable

Jerome purchased a building for his business by signing a note to be repaid over the next ten years. Which of the following correctly describes how to record this transaction?

Debit assets, credit liabilities.

Expenses normally carry a _______ balance and are shown in the ______________.

Debit; Income statement

When the company pays stockholders a dividend, what is the effect on the accounting equation for that company?

Decrease assets and decrease stockholders' equity.

What is the amount of current liabilities?

Deferred Revenue, Accounts payable, and Interest payable are normally current liabilities.

The major underlying assumptions of accounting include:

Economic Entity; Monetary Unit; Going Concern

The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the:

Economic entity assumption.

Independent auditors express an opinion on the:

Extent to which financial statements are in compliance with GAAP.

The post-closing trial balance does not include any assets or liabilities, because these accounts all have zero balances after closing entries.

False (The post-closing trial balance does not include any revenues, expenses, or dividends, because these accounts all have zero balances after closing entries.)

Financial accounting and reporting standards in the United States are established primarily by the:

Financial Accounting Standards Board.

The private sector organization that is currently responsible for setting accounting standards in the United States is the:

Financial Accounting Standards Board.

Consider the following account balances of the Shattuck Law Firm at the end of the year: -Accounts Payable$4,400 -Salaries Expense 12,800 -Cash 1,700 -Common Stock 2,400 -Service Revenue 8,300 -Supplies 4,300 -Retained Earnings 1,100 -Utilities Expense 5,000 How many of these accounts would appear in Shattuck's year-end balance sheet?

Five (Accounts Payable, Cash, Common Stock, Supplies, and Retained Earnings.)

The body of rules and procedures that guide the measurement and communication of financial accounting information in the United States is known as:

Generally Accepted Accounting Principles (GAAP).

The assumption that a business will continue to operate into the future is the:

Going concern assumption.

The liquidity of an asset in a classified balance sheet refers to:

How quickly the asset will be converted to cash.

Which of the following is true about a "debit"? I. It is part of the double-entry procedure that keeps the accounting equation in balance. II. It represents an increase to assets. III. It represents a decrease to liabilities. IV. It is on the right side of a T-account.

I, II, and III

Which of the following is the correct order for preparing the financial statements listed?

Income statement, statement of stockholders' equity, and balance sheet.

Accountants are responsible for measuring various operating, investing and financing activities. Which of the following correctly matches the activity with its type?

Investing - purchasing land.

McGill purchases additional office equipment to better serve its customers. This purchase is classified as what type of activity?

Investing activity.

The primary focus for financial accounting information is to provide information useful for:

Investing decisions and credit decisions.

The term commonly used in accounting to describe the format for recording a transaction is:

Journal entry.

A transaction is initially recorded in the ______, and then subsequently posted to the general ______.

Journal; Ledger

A company received an order from a customer in June for services to be provided. Those services were provided in July, and the customer paid the full amount in August. According to the revenue recognition principle, in which month should the company record revenue?

July

The major underlying assumptions of accounting include all of the following except:

Legal Liability

Purchasing office equipment on account has what impact on the accounting equation?

Liabilities increase and assets increase.

Which of the accounts are decreased on the debit side and increased on the credit side?

Liabilities, stockholders' equity, and revenues.

Creditors' claims to a corporation's resources are referred to as:

Liabilities.

Which of the following is NOT part of measuring external transactions?

Making payments on all amounts owed.

Which of the following groups is not among the external users for whom financial statements are prepared? (2)

Managers

The following information pertains to Sooner Company: -May 1 Customer ordered an installation service to be done by Sooner Company on May 15. -May 2 Customer paid cash for the installation job to be done on May 15. -May 8 The Sooner Company purchased installation supplies on account for the job. -May 15 The installation job was started and completed. -May 20 Amount owed for supplies purchased on May 8 is paid. Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense related to the supplies?

May 20 (Cash-basis expenses are recorded at the time cash is paid.)

Which definition below best describes financial accounting?

Measuring business activities and communicating them to external parties.

Which financial accounting number impacts stock prices more than any other single piece of information?

Net Income

Which of the following is NOT a balance sheet item?

Net Income; Dividends; Utilities Expense

Which of the following best represents value created for stockholders during the current period?

Net income.

While many financial accounting numbers have an impact on stock prices, which of the following has the single greatest impact, on average?

Net income.

The conceptual framework's qualitative characteristic of faithful representation includes:

Neutrality.

How many of the following transactions would decrease total stockholders' equity in the current period? • Pay dividends to stockholders. • Delay payment on supplies purchased until the following period. • Provide services on account to customers. • Borrow cash from a local bank.

One (Pay dividends to stockholders.)

Consider the following transactions: -Issued common stock for cash. -Purchased equipment by signing a note payable. -Provided services to customers on account. -Collected cash from customers on account. How many of these transactions increased the company's total liabilities?

One (purchased equipment by signing a note payable)

External events includes:

Paying Rent; Purchasing Equipment; Collecting an account receivable

Cash paid for which of the following activities would affect the amount reported for operating cash flows in the statement of cash flows?

Paying electricity bill for the month.

The assumption that the life of the business can be divided into time intervals for reporting purposes is the:

Periodicity assumption.

For accounting information to be relevant, it should possess which of the following characteristics?

Predictive value and confirmatory value.

Which of the following accounts will NOT be involved in closing entries?

Prepaid Insurance.

Eve's Apples opened for business on January 1, 2021, and paid for two insurance policies effective that date. The liability policy was $68,400 for 18 months, and the crop damage policy was $36,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2021?

Prepaid liability insurance: $68,400 × 6/18 = $22,800. Prepaid crop insurance: $36,000 × 12/24 = $18,000. $22,800 + $18,000 = $40,800.

The International Accounting Standards Board:

Promotes the use of high-quality, understandable global accounting standards.

Which of the following best describes a purpose of source documents?

Provide information related to external transactions, such as date and amount; Used by accountants to record transactions in specific accounts; Keep a record of transactions between the company and its vendors, customers, and other parties with whom the company conducts business.

Which statement below best describes the objectives of financial accounting?

Provide information that helps predict cash flows; Provide information about the economic resources, claims to resources and changes in resources and claims; Provide information that is useful in making decisions.

Financial accounting:

Provides information primarily for external decision makers.

Which statement below best describes the accounting equation?

Resources of the company equal creditors' and owners' claims to those resources. (Assets = Liabilities + Stockholders' Equity.)

Which of the following accounts appears in the statement of stockholders' equity?

Retained Earnings.

"Record revenue when goods or services are provided to customers" is the definition of which principle in accounting?

Revenue recognition.

The equation best describing the income statement is:

Revenues − Expenses = Net Income.

Which of the following accounts has a debit balance?

Salaries Expense.

Which of the following typically is considered a source document for gathering information about a transaction?

Sales invoice.

Which of the following accounts will be involved in closing entries?

Service Revenue. Utilities Expense. Retained Earnings.

Generally Accepted Accounting Principles (GAAP) are best defined as:

Standards for presenting financial accounting information.

If a company provides services on account, which of the following is true?

Stockholders' equity increases.

Which of the following accounts represents a resource of the company?

Supplies

Which of the following accounts DO NOT appear in the statement of stockholders' equity?

Supplies; Cash; Salaries Payable

An account balance represents:

The net amount of all debits and credits posted to an account over a period of time.

Consider the following list of accounts: -Accounts Payable -Cash -Prepaid Rent -Common Stock -Salaries Payable -Equipment -Supplies -Rent Expense How many of these accounts have a normal credit balance?

Three (Accounts Payable, Common Stock, Salaries Payable.)

How many of the following transactions are operating activities? -Borrow $50,000 from the bank. -Purchase $12,000 in supplies. -Provide services to customers for $27,000. -Pay the utility bill of $750. -Purchase a delivery truck for $12,000. -Receive $25,000 from issuing common stock.

Three ; (1) Purchase supplies, (2) Provide services to customers, and (3) Pay utility bill.

Financial accounting objectives do not include providing information:

To determine market values, assess profit potential, and evaluate management.

Financing activities include:

Transactions involving external sources of funding

Posting is the process of:

Transferring the debit and credit information from the journal to individual accounts in the general ledger.

The primary purpose of closing entries is to:

Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next period's transactions.

External events include all of the following except:

Using office supplies

Which of the following are parts of measuring external transactions

Using source documents to analyze accounts affected; Recording transactions; Analyzing transactions for their effect on the accounting equation.

The assets of a company represent:

resources that will be used to benefit the company

Which of the following is a permanent account?

retained earnings