acct test 1
Universal Corp. has beginning retained earnings of $80,000, cash flow from operations during the current year of $35,000, dividends paid during the year of $5,000, net income for the current year of $50,000, and contributed capital at the end of the year of $15,000. Its retained earnings at the end of the year is:
$125,000 (beginning retained earnings + income - dividends) contributed capital not included in retained earnings
The National Co. has contributed capital of $80,000, total assets of $170,000, and total liabilities of $70,000. Its retained earnings is:
$20,000 (170,000= 70,000+ 80,000 + x)
If total liabilities decreased by $25,000 and stockholders' equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during that same time period?
$20,000 decrease (-20,000 = -25,000 + 5,000)
Able Corp. started business this year. For this year, it had revenues of $200,000, expenses of $150,000, cash flow from operations of $40,000, and dividends paid out of $5,000. Able's retained earnings at the end of its first year is:
$45,000
A company was recently formed with $50,000 cash contributed to the company by stockholders for common stock. The company then borrowed $20,000 from a bank and bought $10,000 of supplies on account. The company also purchased $50,000 of equipment by paying $20,000 in cash and issuing a note for the remainder. What is the amount of total assets to be reported on the balance sheet? a. $110,000 b. $100,000 c. $90,000 d. None of the above
a. $110,000
The current ratio is: a. A measure of a firm's ability to pay its current liabilities. b. Current liabilities divided by current assets c. Total assets divided by total liabilities d. A measure of profitability
a. A measure of a firm's ability to pay its current liabilities.
Which account is least likely to be debited when revenue is recorded? a. Accounts Payable b. Accounts Receivable c. Cash d. Unearned Revenue
a. Accounts Payable
Which of the following statements describe transactions that would be recorded in the accounting system? a. An exchange of an asset for a promise to pay. b. An exchange of a promise for another promise. c. Both of the above. d. None of the above.
a. An exchange of an asset for a promise to pay.
Dividends paid to stockholders: a. Are a reduction to retained earnings. b. Appear in the cash flow from operations section of the statement of cash flows c. Appear on the income statement. d. Are subtracted from contributed capital.
a. Are a reduction to retained earnings.
Which of the following would appear in the cash flow from operations section of the statement of cash flows? a. Cash paid to suppliers and employees b. Cash paid to purchase equipment c. Cash paid on notes payable d. Cash paid for dividends
a. Cash paid to suppliers and employees
Moore Co. had a beginning balance in accounts receivable of $12,000. During the year, it had credit sales of $150,000. Moore received payments on account of $140,000. At the end of the year, accounts receivable has a: a. Debit balance of $22,000. b. Credit balance of $22,000. c. Debit balance of $2,000. d. Credit balance of $2,000.
a. Debit balance of $22,000.
Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is not yet recorded at the end of the year, what will the adjusting journal entry include? a. Debit to Advertising Expense of $10,000. b. Credit to Advertising Expense of $10,000. c. Debit to Accrued Liabilities of $10,000. d. Need more information to determine.
a. Debit to Advertising Expense of $10,000.
Company A has owned a building for several years. Which of the following statements regarding depreciation is false from an accounting perspective? a. Depreciation Expense for the year will equal Accumulated Depreciation. b. Depreciation is an estimated expense to be recorded each period during the building's life. c. As depreciation is recorded, stockholders' equity is reduced. d. As depreciation is recorded, total assets are reduced.
a. Depreciation Expense for the year will equal Accumulated Depreciation.
If a company incorrectly records a payment as an asset, rather than as an expense, how will this error affect net income in the current period? a. Net income will be too high. b. Net income will be too low. c. Net income will not be affected by this error d. It's a mystery; nobody really knows.
a. Net income will be too high.
A journal does all of the following except: a. Summarizes all of the transactions that affect one account. b. Records all purchases and sales of assets of a company. c. Records each day's transactions. d. Records all the revenues and expenses of a company.
a. Summarizes all of the transactions that affect one account.
Which of the following is not one of the items required to be shown in the heading of a financial statement? a. The financial statement preparer's name. b. The title of the financial statement. c. The financial reporting date or period. d. The name of the business entity.
a. The financial statement preparer's name.
Which of the following is true regarding the income statement? a. The income statement is sometimes called the statement of operations b. The income statement reports revenues, expenses, and liabilities c. The income statement only reports revenue for which cash was received at the point of sale d. The income statement reports the financial position of a business at a particular point in time
a. The income statement is sometimes called the statement of operations
Which of the following is correct? a. The income statement measures the amount of revenue earned during the current period. b. The income statement measures the change in value of a company. c. The income statement measures the true values of revenues and expenses without using estimates. d. The income statement measures the amount of cash generated by the business.
a. The income statement measures the amount of revenue earned during the current period.
The Noble Corp. installs $15,000 of equipment, paying $5,000 cash and promising to pay the remaining $10,000 in 6 months. What is the impact to this transaction? a. Total assets are increased by $10,000 b. Current assets are increased by $10,000 c. Total assets are increased by $15,000 d. Current assets are increased by $15,000
a. Total assets are increased by $10,000
The duality of effects can best be described as follows: a. When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result. b. When an exchange takes place between two parties, both parties must record the transaction. c. When a transaction is recorded, both the balance sheet and the income statement must be impacted. d. When a transaction is recorded, one account will always increase and one account will always decrease.
a. When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result.
Which account is least likely to appear in an adjusting journal entry? a. cash b. interest receivable c. income tax expense d. salaries and wages expense
a. cash
Webby Corporation reported the following amounts on its income statement: service revenues, $32,500; utilities expense, $300; net income, $1,600; and income tax expense, $900. If the only other amount reported on the income statement was for selling expenses, what amount would it be? a. $2,200 b. $29,700 c. $30,000 d. $30,900
b. $29,700
The Xtech Co. has total debits in its cash T-account of $62,000 and total credits of $48,000. The balance in the cash T-account is: a. A debit of $62,000 b. A debit of $14,000 c. A credit of $48,000 d. A credit of $14,000
b. A debit of $14,000
Which of the following would not be a goal of external users reading a company's financial statements? a. Understanding the current financial state of the company. b. Assessing the company's contribution to social and environmental policies. c. Predicting the company's future financial performance. d. Evaluating the company's ability to generate cash from sales.
b. Assessing the company's contribution to social and environmental policies.
Characteristics that make information useful do not include: a. Relevant b. Detailed c. Consistent d. Understandable
b. Detailed
The prepayment of rent for the next three months (not including this month): a. Reduces total assets. b. Has no effect to total assets. c. Increases expenses. d. Decreases stockholders' equity.
b. Has no effect to total assets.
If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to report too small a value for which of the following on its balance sheet? a. Assets b. Liabilities c. Retained Earnings d. Common Stock
b. Liabilities
Which of the following items is not a specific account in a company's accounting records? a. Accounts Receivable b. Net Income c. Sales Revenue d. Unearned Revenue
b. Net Income
Which of the following accounts normally has a debit balance? a. Unearned Revenue b. Rent Expense c. Retained Earnings d. Sales Revenue
b. Rent Expense
When should companies that sell gift cards to customers report revenue? a. When the gift card is issued and cash is received. b. When the gift card is used by the customer. c. At the end of the year in which the gift card is issued. d. None of the above.
b. When the gift card is used by the customer.
Which of the following accounts would not appear in a closing journal entry? a. interest revenue b. accumulated depreciation c. retained earnings d. salaries and wages expense
b. accumulated depreciation
Which of the following is not one of the four financial statements a. the balance sheet b. the audit report c. the income statement d. the statement of cash flows
b. the audit report
The Lion Corp has the following information in regard to its cash account for the month of August. It had a balance of $25,000 on August 1. During August, it had three debit entries totaling $100,000. The balance in the cash account on August 31 was $45,000. What is the total of the credit entries during the month of August? a. $20,000 b. $45,000 c. $80,000 d. $120,000
c. $80,000
Which of the following is an accounting transaction? a. A manager hires an employee. b. A manager orders supplies. c. A manager signs a promissory note and receives cash. d. A manager agrees to deliver their product in three weeks.
c. A manager signs a promissory note and receives cash.
Which of the following trial balances is used as a source for preparing the income statement? a. Unadjusted trial balance b. Pre-adjusted trial balance c. Adjusted trial balance d. Post-closing trial balance
c. Adjusted trial balance
Which of the following statements is prepared as of a point in time? a. Income statement b. Statement of retained earnings c. Balance sheet d. Statement of cash flows
c. Balance sheet
Which of the following is the entry to be recorded by a law firm when it receives a payment from a new client that will be earned when services are provided in the future? a. Debit Accounts Receivable; credit Service Revenue. b. Debit Unearned Revenue; credit Service Revenue. c. Debit Cash; credit Unearned Revenue. d. Debit Unearned Revenue; credit Cash.
c. Debit Cash; credit Unearned Revenue.
On September 30, ABC Co. received a bill for $1,000 for running a newspaper ad in September. The bill will be paid in October. Which of the following statements is correct for September? a. Liabilities are decreased by $1,000. b. Assets are increased by $1,000. c. Expenses are increased by $1,000. d. Revenues are decreased by $1,000.
c. Expenses are increased by $1,000.
Which of the following regarding GAAP is true? a. GAAP is an abbreviation for generally applied accounting principles. b. Changes in GAAP always affect the amount of income reported by a company. c. GAAP is the abbreviation for generally accepted accounting principles. d. Changes to GAAP must be approved by the Senate Finance Committee.
c. GAAP is the abbreviation for generally accepted accounting principles.
Which of the following describes how assets are listed on the balance sheet? a. In alphabetical order. b. In order of magnitude, lowest value to highest value. c. In the order they will be used up or turned into cash. d. From least current to most current.
c. In the order they will be used up or turned into cash.
Homerdale Corp. received an order from a customer on November 10. It manufactured the ordered items on November 15, shipped the goods on November 17, and received payment on December 2. Under the accrual basis of accounting, it recorded revenue on: a. November 10 b. November 15 c. November 17 d. December 2
c. November 17
Investors and creditors look at the balance sheet to see whether the company: a. Is profitable. b. Can maintain its existing product line. c. Owns enough assets to pay all that it owes to creditors. d. Has had a positive cash flow from operations.
c. Owns enough assets to pay all that it owes to creditors.
Which of the following regarding retained earnings is false? a. Retained earnings is increased by net income. b. Retained earnings is a component of stockholders' equity on the balance sheet. c. Retained earnings is an asset on the balance sheet. d. Retained earnings represents earnings not distributed to stockholders in the form of dividends.
c. Retained earnings is an asset on the balance sheet.
When expenses exceed revenues in a given period, a. Stockholders' equity will not be impacted. b. Stockholders' equity will be increased. c. Stockholders' equity will be decreased. d. One cannot determine the impact on stockholders' equity without information about the specific revenues and expenses.
c. Stockholders' equity will be decreased.
Which of the following is false regarding the balance sheet? a. The accounts shown on a balance sheet represent the basic accounting equation for a particular business. b. The retained earnings balance shown on the balance sheet must agree with the ending retained earnings balance shown on the statement of retained earnings. c. The balance sheet summarizes the net changes in specific account balances over a period of time. d. The balance sheet reports the amount of assets, liabilities, and stockholders' equity of a business at a point in time.
c. The balance sheet summarizes the net changes in specific account balances over a period of time.
Which of the following statements regarding the statement of cash flows is false? a. The statement of cash flows separates cash inflows and outflows into three major categories: operating, investing, and financing. b. The ending cash balance shown on the statement of cash flows must agree with the amount shown on the balance sheet at the end of the same period. c. The total increase or decrease in cash shown on the statement of cash flows must agree with the "bottom line" (net income or net loss) reported on the income statement. d. The statement of cash flows covers a period of time.
c. The total increase or decrease in cash shown on the statement of cash flows must agree with the "bottom line" (net income or net loss) reported on the income statement.
Which of the following items is reported on the income statement as an expense? a. This month's cash sales b. The purchase of supplies c. This month's utility bill d. The purchase of land
c. This month's utility bill
If supplies are purchased for cash: a. Total assets will increase. b. Total assets will decrease. c. Total assets will remain the same. d. Stockholders' equity will increase.
c. Total assets will remain the same.
Which of the following would appear in the credit column on the unadjusted trial balance? a. Advertising Expense b. Cash c. Unearned Revenue d. Prepaid Rent
c. Unearned Revenue
When should a company report the cost of an insurance policy as an expense? a. When the company first signs the policy. b. When the company pays for the policy. c. When the company receives the benefits from the policy over its period of coverage. d. When the company receives payments from the insurance company for its insurance claims.
c. When the company receives the benefits from the policy over its period of coverage.
On December 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How many accounts will be included in this adjusting journal entry? a. none b. one c. two d. three
c. two
Assume the balance in Prepaid Insurance is $2,500 but it should be $1,500. The adjusting journal entry should include which of the following? a. Debit to Prepaid Insurance for $1,000. b. Credit to Insurance Expense for $1,000. c.Debit to Insurance Expense for $1,000. d. Debit to Insurance Expense for $1,500.
c.Debit to Insurance Expense for $1,000.
The Smith Corp. began business this year. It received a $20,000 investment in the company by stockholders. It then borrowed $10,000 from a bank, and bought $3,000 of inventory on account. Smith also purchased $8,000 of equipment by paying $3,000 in cash and issuing a note for the remainder. What is the amount of total assets to be reported on the balance sheet? a. $26,000 b. $30,000 c. $32,000 d. $38,000
d. $38,000
Which of the following statements would be considered true regarding debits and credits? a. In any given transaction, the total dollar amount of the debits and the total dollar amount of the credits must be equal. b. Debits decrease certain accounts and credits decrease certain accounts. c. Liabilities and stockholders' equity accounts usually end in credit balances, while assets usually end in debit balances. d. All of the above.
d. All of the above
The T-account is used to summarize which of the following? a. Increases and decreases to a single account in the accounting system. b. Debits and credits to a single account in the accounting system. c. Changes in specific account balances over a time period. d. All of the above describe how T-accounts are used by accountants.
d. All of the above describe how T-accounts are used by accountants.
Which of the following statements would be considered true regarding the balance sheet? a. One cannot determine the true current value of a company by reviewing just its balance sheet. b. The balance sheet reports assets only if they have been acquired through identifiable transactions. c. A balance sheet shows only the ending balances, in a summarized format, of balance sheet accounts in the accounting system as of a particular date. d. All of the above.
d. All of the above.
An adjusting journal entry to recognize accrued salaries payable would cause which of the following? a. A decrease in assets and stockholders' equity. b. A decrease in assets and liabilities. c. An increase in expenses, liabilities, and stockholders' equity. d. An increase in expenses and liabilities and a decrease in stockholders' equity.
d. An increase in expenses and liabilities and a decrease in stockholders' equity.
Which of the following is not an asset account? a. Cash b. Land c. Equipment d. Common Stock
d. Common Stock
CJ Inc. provides tax services on April 14th. They receive payment for their services on April 29. Which of the following is an appropriate journal entry for April 14th? a. No journal entry is made until payment is received. b. Debit Unearned Revenue and credit Tax Preparation Revenue. c. Debit Cash and credit Tax Revenue. d. Debit Accounts Receivable and credit Tax Preparation Revenue.
d. Debit Accounts Receivable and credit Tax Preparation Revenue.
The Hawk Co. borrowed $30,000 from a bank, depositing those funds in its bank account and signing a formal agreement to repay the loan in two years. What is the correct journal entry for this transaction? a. Debit notes payable and credit cash for $30,000 b. Debit notes payable and debit cash for $30,000 c. Credit notes payable and credit cash for $30,000 d. Debit cash and credit notes payable for $30,000
d. Debit cash and credit notes payable for $30,000
Which of the following is typically not a benefit of corporations over other organizational forms? a. Easier to transfer ownership b. Easier to limit an owner's liability for the organization's debt c. Easier to raise large amounts of money d. Easier to create with few legal fees
d. Easier to create with few legal fees
Which of the following is true? a. FASB creates SEC. b. GAAP creates FASB. c. SEC creates CPA. d. FASB creates GAAP.
d. FASB creates GAAP.
Which of the following requires a credit? a. Decreases in liabilities. b. Decreases in stockholders' equity. c. Increases to assets. d. Increases to liabilities.
d. Increases to liabilities.
Which of the following situations results in unearned revenue? a. Collected $100 from a customer who purchased goods a month ago. b. Received an order from a customer who will purchase and pay for goods in two weeks. c. Sold goods for $100 today with payment due from the customer in 30 days. d. Received $100 cash from a customer for an order of goods to be shipped next month.
d. Received $100 cash from a customer for an order of goods to be shipped next month.
Which of the following will result in an increase in revenue? a. Borrowing $10,000 from a bank. b. Stockholders investing $10,000 in a company. c. Selling concert tickets for $10,000 four months before the performance. d. Selling $10,000 of groceries.
d. Selling $10,000 of groceries.
An adjusted trial balance a. Shows the ending balances in a debit and credit format before posting the adjusting journal entries. b. Is prepared after closing entries have been posted. c. Is a tool used by financial analysts to review the performance of publicly traded companies. d. Shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format.
d. Shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format.
Total assets on a balance sheet prepared on any date must agree with which of the following? a. The sum of total liabilities and net income as shown on the income statement. b. The sum of total liabilities and common stock. c. The sum of total liabilities and retained earnings. d. The sum of total liabilities and common stock and retained earnings.
d. The sum of total liabilities and common stock and retained earnings.
Which of the following is not required by the Sarbanes-Oxley Act a. Top managers of public companies must sign a report certifying their responsibilities for the financial statements. b. Public companies must maintain an audited system of internal control to ensure accuracy in accounting reports. c. Public companies must maintain an independent committee to meet with the company's independent auditors. d. Top managers of public companies must be members of the American Institute of Certified Public Accountants.
d. Top managers of public companies must be members of the American Institute of Certified Public Accountants.
The expense recognition principle ("matching") controls a. Where on the income statement expenses should be presented. b. When revenues are recognized on the income statement. c. The ordering of current assets and current liabilities on the balance sheet. d. When costs are recognized as expenses on the income statement.
d. When costs are recognized as expenses on the income statement.
When a concert promotions company collects cash for ticket sales two months in advance of the show date, which of the following accounts is recorded? a. accrued liability b. accounts receivable c. prepaid expense d. unearned revenue
d. unearned revenue