Acct questions
15. (LO 6) Services performed by a public accountant include: a. auditing, taxation, and management consulting. b. auditing, budgeting, and management consulting. c. auditing, budgeting, and cost accounting. d. auditing, budgeting, and management consulting.
*15. a. Auditing, taxation, and management consulting are all services performed by public accountants. The other choices are incorrect be- cause public accountants do not perform budgeting or cost accounting.
*16. (LO 6) Neutrality is an ingredient of: Faithful Representation Relevance a. Yes Yes b. No ON c. Yes ON d. No yes
*16. c. Neutrality is one of the enhancing qualities that makes in- formation more representationally faithful, not relevant. Therefore, choices (a), (b), and (d) are incorrect.
*16. (LO 5) on December 31, the Harvey Kohl Company correctly need an adjusting entry to recognize $2000 of accured salaries payable. On January 8 of the next year, total salaries of $3800 were paid. Assuming the correct reversing entry was made on January 1, the entry on January 8 will result in a credit to cash $3800 and the following debt(s): b. Salaries and Wages Payable $2,000 and Salaries and Wages Expense $1,800. c. Salaries and Wages Expense $3,800. d. Salaries and Wages Payable $3,800.
*16. c. The use of reversing entries simplifies the recording of the first payroll following the end of the year by eliminating the need to make an entry to the Salaries and Wages Payable account. The other choices are incorrect because (a) Salaries and Wages Payable is not part of the payroll entry on January 8, and the debit to Salaries and Wages Expense should be for $3,800, not $2,000; and (b) and (d) the Salaries and Wages Expense account, not the Salaries and Wages Payable account, should be debited.
*17. (LO 6) Which item is a constraint in financial accounting? a. Comparability. c. Cost. b. Materiality d. Consistency.
*17. c. Cost is a constraint in financial accounting. The other choices are all enhancing qualities of useful information.
1. (LO 1) Which of the following statements about an account is true? a. The right side of an account is the debit, or increase, side. d. The left side of an account is the credit, or decrease side. c. There are separate accounts for specific assets and liabilities but only one account for the owner's equity items. b. An account is an individual accounting record of increases and decreases in a specific asset, liability, and owner's equity items.
1. b. An account is an individual accounting record of increases and decreases in specific asset, liability, and owner's equity items. The other choices are incorrect because (a) the right side of the ac- count is the credit side, not the debit side, and can be the increase or the decrease side, depending on the specific classification account; (c) there are also separate accounts for different owner's equity items; and (d) the left side of the account is the debit side, not the credit side, and can be either the decrease or the increase side, depending on the specific classification account.
1. (LO 1) Which of the following is not a step in the accounting process? a. Identification. c. Recording. b. Economic entity. d. Communication.
1. b. Economic entity is not one of the steps in the accounting process. The other choices are true because (a) identification is the first step in the accounting process, (c) recording is the second step in the accounting process, and (d) communication is the third and final step in the accounting process.
1. (LO 1) Which of the following statements is incorrect concerning the worksheet? a. The worksheet is essentially a working tool of the accountant. b. The worksheet is distributed to management and other inter- ested parties. c. The worksheet cannot be used as a basis for posting to ledger accounts. d. Financial statements can be prepared directly from the work- sheet before journalizing and posting the adjusting entries.
1. b. The worksheet is a working tool of the accountant; it is not distributed to management and other interested parties. The other choices are all true statements.
10. (LO 3) A ledger: a. contains only asset and liability accounts. b. should show accounts in alphabetical order. c. is a collection of the entire group of accounts maintained by a company. d. is a book of original entry.
10. c. A ledger is a collection of all the accounts maintained by a company. The other choices are incorrect because a ledger (a) contains all account types-assets, liabilities, and owner's equity-not just assets and liability accounts; (b) usually shows accounts in account number order, not alphabetical order; and (d) is not a book of original entry because entries made in the ledger come from the journals (the books of original entry).
10. (LO 4) During 2020, Bruske Company's assets decreased $50,000 and its liabilities decreased $50,000. Its owner's equity therefore: a. increased $50,000. c. decreased $100,000. b. decreased $50,000. d. did aat shange.
10. d. In this situation, owner's equity does not change because only assets and liabilities decreased $50,000. Therefore, the other choices are incorrect.
10. (LO 3) When Lopez Company purchased supplies worth $600, it incorrectly recorded a credit to Supplies for $6,000 and a debit to Cash for $6,000. Before correcting this error: a. Cash is overstated and Supplies is overstated. b. Cash is understated and Supplies is understated. c. Cash is understated and Supplies is overstated. d. Cash is overstated and Supplies is understated.
10. d. This entry causes Cash to be overstated and Supplies to be understated. Supplies should have been debited (increasing supplies) and Cash should have been credited (decreasing cash). The other choices are incorrect because (a) Supplies is understated, not over- stated; (b) Cash is overstated, not understated; and (c) Cash is over- stated, not understated, and Supplies is understated, not overstated.
11. (LO 3) Cash of $100 received at the time the service was per- formed was journalized and posted as a debit to Cash $100 and a credit to Accounts Receivable $100. Assuming the incorrect entry is not reversed, the correcting entry is: a. debit Service Revenue $100 and credit Accounts Receivable $100. b. debit Accounts Receivable $100 and credit Service Revenue $100. c. debit Cash $100 and credit Service Revenue $100. d. debit Accounts Receivable $100 and credit Cash $100.
11. b. The correcting entry is to debit Accounts Receivable $100 and credit Service Revenue $100. The other choices are incorrect because (a) Service Revenue should be credited, not debited, and Accounts Receivable should be debited, not credited; (c) Service Revenue should be credited for $100, and Cash should not be included in the correcting entry as it was recorded properly; and (d) Accounts Receivable should be debited for $100 and Cash should not be included in the correcting entry as it was recorded properly.
11. (LO 4) Payment of an account payable afferts the components of the accounting equation in the following way. a. Decreases owner's equity and decreases liabilities. b. Increases assets and decreases liabilities. c. Decreases assets and increases owner's equity. d. Decreases assets and decreases liabilities.
11. d. Payment of an account payable results in an equal decrease of assets (cash) and liabilities (accounts payable). The other choices are incorrect because payment of an account payable (a) does not affect owner's equity, (b) does not increase assets, and (c) does not affect owner's equity.
11. (LO 3) Posting: a. normally occurs before journalizing. b. transfers ledger transaction data to the journal. c. is an optional step in the recording process. d. transfers journal entries to ledger accounts.
11. d. Posting transfers journal entries to ledger accounts. The other choices are incorrect because posting (a) occurs after journalizing, (b) transfers journal transaction data to the ledger; and (c) is not an optional step in the recording process.
12. (LO 5) Which of the following statements is false? a. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. b. A balance sheet reports the assets, liabilities, and owner's equity at a specific date. c. An income statement presents the revenues, expenses, changes in owner's equity, and resulting net income or net loss for a specific period of time. d. An owner's equity statement summarizes the changes in owner's equity for a specific period of time.
12. c. An income statement the revenues, expenses, and the resulting net income or net loss for a specific period of time but not the changes in owner's equity. The other choices are true statements.
12. (LO 4) The correct order of presentation in a classified balance sheet for the following current assets is: a. accounts receivable, cash, prepaid insurance, inventory. b. cash, inventory, accounts receivable, prepaid insurance. c. cash, accounts receivable, inventory, prepaid insurance. d. inventory, cash, accounts receivable, prepaid insurance.
12. c. Companies list current assets on balance sheet in the order of liquidity: cash, accounts receivable, inventory, and prepaid insurance. Therefore, choices (a), (b), and (d) are incorrect.
12. (LO 3) Before posting a payment of $5,000, the Accounts Paya- ble of Senator Company had a normal balance of $16,000. The bal- ance after posting this transaction was: a. $21,000. c. $11,000. b. $5,000.ll d. Cannot be determined.
12. c. The balance is $11,000 ($16,000 normal balance $5,000 payment), not (a) $21,000 or (b) $5,000. Choice (d) is incorrect because the balance can be determined.
13. (LO 4) A trial balance: a. is a list of accounts with their balances at a given time. b. proves the journalized transactions are correct. c. will not balance if a correct journal entry is posted twice. d. proves that all transactions have been recorded.
13. a. A trial balance is a list of accounts with their balances at a given time. The other choices are incorrect because (b) the trial balance does not prove that journalized transactions are mathematically correct; (c) if a journal entry is posted twice, the trial balance will still balance; and (d) the trial balance does not prove that all transactions have been recorded.
13. (LO 5) on the last day of the period, Alan Cessna Company buys a $900 machine on credit. This transaction will affect the: a. Income statement only b. balance sheet only. c. income statement and owner's equity statement only. d. income statement, owner's equity statement, and balance sheet.
13. b. This transaction will cause assets to increase by $900 and lia- bilities to increase by $900. The other choices are incorrect because this transaction (a) will have no effect on the income statement, (c) will have no effect on the income statement or the owner's equity statement, and (d) will affect the balance sheet but not the income statement or the owner's equity statement.
13. (LO 4) A company has purchased a tract of land. It expects build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as: a. property, plant, and equipment. b. land expense. c. a long-term investment. d. an intangible asset.
13. c. Long-term investments include long-term assets such as land that a company is not currently using in its operating activities. The other choices are incorrect because (a) land would be reported as property, plant, and equipment only if it is being currently used in the business; (b) land is an asset, not an expense; and (d) land has physical substance and thus is a tangible property.
14. (LO 5) The financial statement that reports assets, liabilities, and owner's equity is the: a. income statement. b. owner's equity statement. c. Balance sheet d. Statemtnof cash flows
14. c. The balance sheet is the statement that reports assets, liabilities and owner's equity. The other choices are incorrect because (a) the income statement reports revenues and expenses, (b) the owner's equity statement reports details about owner's equity, and (d) the statement of cash flows reports inflows and outflows of cash.
14. (LO 4) A trial baiance will not balance if: a. a correct journai entry is posted twice. b. the purchase of supplies on account is debited to Supplies and credited to Cash. c. a $100 cash drawing by the owner is debited to Owner's Drawings for $1,000 and credited to Cash for $100. d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.
14. c. The trial balance will not balance in this case because the debit of $1,000 to Owner's Drawings is not equal to the credit of $100 to Cash. The other choices are incorrect because (a) if a correct journal entry is posted twice, the trial balance will still balance; (b) if the purchase of supplies on account is debited to Supplies and credited to Cash, Cash and Accounts Payable will be understated but the trial balance will still balance; and (d) since the debit and credit amounts are the same, the trial balance will still balance but both Accounts Payable and Cash will be overstated.
14. (LO 4) In a classified balance sheet, assets are usually classified using the following categories: a. current assets; long-term assets; property, plant, and equip- ment; and intangible assets. b. current assets; long-term investments; property, plant, and equipment; and tangible assets. c. current assets; long-term investments; tangible assets; and intangible assets. d. current assets; long-term investments; property, plant, and equipment; and intangible assets.
14. d. These are the categories usually used in a classified balance sheet. The other choices are incorrect because the categories (a) "long- term assets" and (b) and (c) "tangible assets" are generally not used.
15. (LO 4) Current assets are listed: a. by expected conversion to cash. b. by importance. c. by longevity. d. alphabetically.
15. a. Current assets are listed in order of their liquidity, not (b) by importance, (c) by longevity, or (d) alphabetically.
15. (LO 4) The trial balance of Jeong Company had accounts with the following normal balances: Cash $5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages Expense $40,000, Rent Expense $10,000, Owner's Capital $42,000, Owner's Drawings $15,000, and Equipment $61,000. In preparing a trial balance, the total in the debit column is: a. $131,000. c. $91,000. b. $216,000. d. $116,000.
15. a. The total debit column = $5,000 (Cash) + $40,000 (Salaries and Wages Expense) + $10,000 (Rent Expense) + $15,000 (Owner's Drawings) + $61,000 (Equipment) = $131,000. The normal balance for Assets, Expenses, and Owner's Drawings is a debit. The other choices are incorrect because (b) revenue of $85,000 should not be included in the total of $216,000 and its normal balance is a credit; (c) the total of $91,000 is missing the Salaries and Wages Expense of $40,000, which has a normal balance of a debit; and (d) the total of $116,000 is missing the Owner's Drawings of $15,000, which has a normal balance of a debit.
2. (LO 1) Debits: a. increase both assets and liabilities. b. decrease both assets and liabilities. c. increase assets and decrease liabilities, d. decrease assets and increase liabilities
2. c. Debits increase assets but they decrease liabilities. The other choices are incorrect because debits (a) decrease, not increase, liabilities; (b) increase, not decrease, assets; and (d) increase, not decrease, assets and decrease, not increase, liabilities.
2. (LO 1) In a worksheet, net income is entered in the following columns: a. income statement (Dr) and balance sheet (Dr). b. income statement (Cr) and balance sheet (Dr). c. income statement (Dr) and balance sheet (Cr). d. income statement (Cr) and balance (Cr).
2. c. Net income is entered in the Dr column of the income state- ment and the Cr column of the balance sheet. The other choices are incorrect because net income is entered in the (a) Cr (not Dr) column of the balance sheet, (b) Dr (not Cr) column of the income statement and in the Cr (not Dr) column of the balance sheet, and (d) Dr (not Cr) column of the income statement.
2. (LO 1) Which of the following statements about users of account- ing information is incorrect? a. Management is an internal user. b. Taxing authorities are external users. c. Present creditors are external users. d. Pegulatory anthorities are internal users.
2. d. Regulatory authorities are external, not internal, users of accounting information. The other choices are true statements.
3. (LO 1) In the unadjusted trial balance of its worksheet for the year ended December 31, 2020, Knox Company reported Equipment of $120,000. The year-end adjusting entries require an adjustment of $15,000 for depreciation expense for thequipment. After the ad- justed trial balance is completed, what amount should be shown in the financial statement columns? a. A debit of $105,000 for Equipment in the balance sheet column. b. A credit of $15,000 for Depreciation Expense in the income statement column. c. A debit of $120,000 for Equipment in the balance sheet column. d. A debit of $15,000 for Accumulated Depreciation- Equipment in the balance sheet column.
3. c. A debit of $120,000 for Equipment would appear in the balance sheet column. The other choices are incorrect because (a) Equipment, less accumulated depreciation of $15,000, would total $105,000 under assets on the balance sheet, not on the worksheet; (b) a debit, not credit, for Depreciation Expense would appear in the income statement column; and (d) a credit, not debit, of $15,000 for Accumulated Depreciation-Equipment would appear in the balance sheet column.
3. (LO 2 The hisiorical cost principle states that: a. assets should be initinky recorded at cost and adjusted when the fair vanet charnges. b. activities of en entity are to be kept separate and distinct from its owner. c. assets should be recorded at their cost. d. only transaction data capable of being expressed in terms of money be included in the accounting records.
3. c. The historical cost principle states that assets should be re- corded at their cost, The other choices are incorrect because (a) the historical cost principle does not say that assets should be adjusted for changes in fair value, (b) describes the economic entity assump- tion, and (d) describes the monetary unit assumption.
3. (LO 1) A revenue account: a. is increased by debits. b. is decreased by credits. c. has a normal balance of a debit. d. is increased by credits.
3. d. A revenue account is increased by credits. The other choices are incorrect because a revenue account (a) is increased by credits, not debits; (b) is decreased by debits, not credits; and (c) has a normal balance of a credit, not a debit.
4. (LO 2) An account that will have a zero balance after closing entries have been journalized and posted is: a. Service Revenue. b. Supplies. c. Prepaid Insurance. d. Accumulated Depreciation-Equipment. entrics
4. a. The Service Revenue account will have a zero balance after closing entries have been journalized and posted because it is a temporary account. The other choices are incorrect because (b) Supplies, (c) Prepaid Insurance, and (d) Accumulated Depreciation-Equipment are all permanent accounts and therefore not closed in the closng process.
4. (LO 2) Which of the following statements about basic assump- tions is correct? a. Basic assumptions are the same as accounting principles. b. The economic entity assumption states that there should be a particular unit of accountability. c. The monetary unit assumption enables accounting to mea- sure employee morale. d. Partnerships are not economic entities.
4. b. The economic entity assumption states that there should be a particular unit of accountability. The other choices are incor- rect because (a) basic assumptions are not the same as accounting principles, (c) the monetary unit assumption allows accounting to measure economic events, and (d) partnerships are economic entities.
4. (LO 1) Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and owner's capital. c. assets, liabilities, and owner's drawings. d. assets, owner's drawings, and expenses.
4. d. Assets, owner's drawings, and expenses all have normal debit balances. The other choices are incorrect because (a) revenues have normal credit balances, (b) owner's capital has a normal credit balance, and (c) liabilities have normal credit balances.
5. (LO 2) The three types of business entities are: a. proprietorships, small businesses, and partnerships. b. proprietorships, partnerships, and corporations. c. proprietorships, partnerships, and large businesses. d. financial, manufacturing, and service companies.
5. b. Proprietorships, partnerships, and corporations are the three types of business entities. Choices (a) and (c) are incorrect because small and large businesses only denote the sizes of businesses. Choice (d) is incorrect because financial, manufacturing, and service companies are types of businesses, not business entities.
5. (LO 2) When a net loss has occurred, Income Summary is: a. debited and Owner's Capital is credited. b. credited and Owner's Capital is debited. c. debited and Owner's Drawings is credited. d. credited and Owner's Drawings is debited.
5. b. The effect of a net loss is a credit to Income Summary and a debit to Owner's Capital. The other choices are incorrect because (a) Income Summary is credited, not debited, and Owner's Capital is debited, not credited; (c) Income Summary is credited, not debited, and Owner's Drawings is not affected; and (d) Owner's Capital, not Owner's Drawings, is debited.
5. (LO 1) The expanded accounting equation is: a. Assets + Liabilities = Owner's Capital + Owner's Drawings + Revenues + Expenses. b. Assets = Liabilities + Owner's Capital + Owner's Drawings + Revenues - Expenses. c. Assets = Liabilities - Owner's Capital - Owner's Drawings Revenues - Expenses. ied famt d. Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenues Expenses.
5. d. The expanded accounting equation is Assets = Liabilities + Owner's Capital - Owner's Drawings + Revenue other choices are incorrect because (a) both Owner's Drawings and Expenses must be subtracted, not added, and Liabilities should be added to the right side of equation, not to the left side; (b) Owner's Drawings must be subtracted, not added; and (c) Owner's Capital and Revenues must be added, not subtracted.
6. (LO 2) Which of the following is not part of the recording process? a. Analyzing transactions. b. Preparing an income statement. c. Entering transactions in a journal. d. Posting journal entries.
6. b. Preparing an income statement is not part of the recording process. Choices (a) analyzing transactions, (c) entering transactions in a journal, and (d) posting journal entries are all part of the record- ing process.
6. (LO 2) The closing process involves separate entries to close (1) expenses, (2) drawings, (3) revenues, and (4) income summary. The correct sequencing of the entries is: a. (4), (3), (2), (1). b. (1), (2), (3), (4). c. (3), (1), (4), (2). d. (3), (2), (1), (4).
6. c. The correct order is (3) revenues, (1) expenses, (4) income summary, and (2) drawings. Therefore, choices (a), (b), and (d) are incorrect.
6. (LO 3) Net income will result during a time period when: a. assets exceed liabilities, b. assets exceed revenues. c. expenses exceed revenues. d. revenues exceed expenses.
6. d. Net income results when revenues exceed expenses. The other choices are incorrect because (a) assets and liabilities are not used in income; (b) revenues, not assets, are included the computation of: in the computation of net income; and (c) when expenses exceed revenues, a net loss results.
7. (LO 2) Which types of accounts will appear in the post-closing trial balance? a. Permanent (real) accounts. b. Temporary (nominal) accounts. c. Accounts shown in the income statement columns of a work- sheet. d. None of these answer choices is correct.
7. a. Permanent accounts appear in the post-closing trial balance. The other choices are incorrect because (b) temporary accounts and (c) income statement accounts are closed to a zero balance and are therefore not included in the post-closing trial balance. Choice (d) is wrong as there is only one correct answer for this question.
7. (LO 2) Which of the following statements about a journal is false? a. It is not a book of original entry. b. It provides a chronological record of transactions. c. It helps to locate errors because the debit and credit amounts for each entry can be readily compared. d. It discloses in one place the complete effect of a transaction.
7. a. The journal is a book of original entry. The other choices are all true statements.
7. (LO 3) As of December 31, 2020, Kent Company has assets of $3,500 and owner's equity of $2,000. What are the liabilities for Kent Company as of December 31, 2020? A. 1500 B. 1000 C. 2500 D. 2000
7. a. Using a variation of the basic accounting equation, Assets Owner's equity = Liabilities, $3,500 - $2,000 = $1,500. Therefore, choices (b) $1,000, (c) $2,500, and (d) $2,000 are incorrect.
8. (LO 4) Performing services on account will have the following effects on the components of the basic accounting equation: a. increase assets and decrease owner's equity. b. increase assets and increase owner's equity. c. increase assets and increase liabilities. d. increase liabilities and increase owner's equity.
8. b. When services are performed on account, assets are increased and owner's equity is increased. The other choices are incorrect be- cause when services are performed on account (a) owner's equity is increased, not decreased; (c) liabilities are not affected; and (d) owners equity is increased and liabilities are not affected
8. (LO 2) The purchase of supplies on account should result in: a. a debit to Supplies Expense and a credit to Cash.h b. a debit to Supplies Expense and a credit to Accounts Payable. c. a debit to Supplies and a credit to Accounts Payable. d. a debit to Supplies and a credit to Accounts Receivable.
8. c. The purchase of supplies on account results in a debit to Sup- plies and a credit to Accounts Payable. The other choices are incorrect because the purchase of supplies on account results in (a) a debit to Supplies, not Supplies Expense, and a credit to Accounts Payable, not Cash; (b) a debit to Supplies, not Supplies Expense; and (d) a credit to Accounts Payable, not Accounts Receivable.
8. (LO 3) All of the following are required steps in the accounting сycle except: a. journalizing and posting closing entries. b. preparing financial statements. c. journalizing the transactions. d. preparing a worksheet.
8. d. Preparing a worksheet is not a required step in the accounting cycle. The other choices are all required steps in the accounting cycle.
9. (LO 4) Which of the following events is not recorded in the account- ing records? a. Equipment is purchased on account. b. An employee is terminated. c. A cash investment is made into the business. d. The owner withdraws cash for personal use.
9. b. If an employee is terminated, this represents an activity of a company, not a business transaction. Assets, liabilities, and owner's equity are not affected. Thus, there is no effect on the accounting equation. The other choices are incorrect because they are all recorded: (a) when equipment is purchased on account, both assets and lia- bilities increase; (c) when a cash investment is made into a business, both assets and owner's equity increase; and (d) when an owner with- draws cash for personal use, both assets and owner's equity decrease.
9. (LO 3) The order of the accounts in the ledger is: a. assets, revenues, expenses, liabilities, owner's capital, owner's drawings. b. assets, liabilities, owner's capital, owner's drawings, revenues, expenses. c. owner's capital, assets, revenues, expenses, liabilities, owner's drawings. d. revenues, assets, expenses, liabilities, owner's capital, owner's drawings.
9. b. The correct order of the accounts in the ledger is assets, liabilities, owner's capital, owner's drawing, revenues, expenses. The other choices are incorrect because they do not reflect this order. The order of the accounts in the ledger is (1) balance sheet accounts: assets, liabilities, and owner's equity accounts (owner's capital and owner's drawings); and then (2) income statement accounts: revenues and expenses.
9. (LO 3) The proper order of the following steps in the accounting cycle is: a. prepare unadjusted trial balance, journalize transactions, post to ledger accounts, journalize and post adjusting entries. b. journalize transactions, prepare unadjusted trial balance, post to ledger accounts, journalize and post adjusting entries. c. journalize transactions, post to ledger accounts, prepare un- adjusted trial balance, journalize and post adjusting entries. d. prepare unadjusted trial balance, journalize and post adjust- ing entries, journalize transactions, post to ledger accounts.
9. c. The proper order of the steps in the accounting cycle is (1) journalize transactions, (2) post to ledger accounts, (3) prepare unadjusted trial balance, and (4) journalize and post adjusting entries. Therefore, choices (a), (b), and (d) are incorrect.
