Exam 1: Intermediate Accounting

On April 1, 2019, Miller Company paid $6,280 for a two-year insurance policy. On that date, Miller recorded the purchase by debiting Prepaid Insurance and crediting Cash. The correct December 31, 2019, adjusting entry would be

Insurance Expense 2,355 Prepaid Insurance 2,355

The city of Anchorage sold land for its appraised value to the Big Bear Oil Company on June 1, 2014, that originally cost the city $950,000. On June 1, 2014, the land was appraised at a value of $1,400,000, and on December 31, 2014, the land's value was estimated to be $1,450,000. On Big Bear Oil Company's balance sheet at December 31, 2014, the land should be valued at

$1,400,000

The Nathan's Company rents numerous properties throughout the year. Nathan's pays rents in advance in some cases, and in other cases rents are paid after the rental period expires. The following data are included in Nathan's December 31 balance sheets:20192020Prepaid Rents$70,000$30,000Rent Payable$50,000$35,000 Nathan paid $200,000 in rentals. In its accrual basis income statement for the year ended December 31, 2020, Nathan should report rent expense of:

$225,000

The codification

1. areas 2. topics 3. subtopics 4. sections 5. subsections 6. paragraphs

FASB has how many members?

7 board members

FASB

Financial Accounting Standards Board

Rental receipts for the period July 1, 2019, through June 30, 2020, were collected on June 30, 2019. The effects of these economic events on the 2019 financial statements for unearned revenue and rent revenue areUnearned RevenueRent Revenue I.IncreaseIncrease II.IncreaseDecrease III.DecreaseNo effect IV.DecreaseIncrease

I

The balances in deferred (unearned) revenue accounts represent amounts that areEarnedCollected I.YesNo II.YesYes III.NoNo IV.NoYes

IV

On March 31, 2019, the Turi Company purchased a two-year fire insurance policy. Turi recorded the purchase by debiting Prepaid Insurance and crediting Cash for $10,000. Which of the following adjusting entries should Turi prepare at the end of 2019?

Insurance Expense 3,750 Prepaid Insurance 3,750

On May 1, 2019, Alang Corporation borrowed $3,600 on a two-year, 6% note payable. Interest is due and payable at the end of each six months. Alang makes all interest payments on schedule. The correct December 31, 2020, adjusting entry would be

Interest Expense 36 Interest Payable 36

IASB

International Accounting Standards Board

PCAOB

Public Company Accounting Oversight Board

On February 1, 2019, Apollo Company received $24,000 in advance for a three-year rental of land, and credited Rent Revenue for the entire amount. The correct December 31, 2019 adjusting entry would be

Rent Revenue 16,667 Unearned Rent 16,667

The FASB Accounting Standards Codification includes six levels or components. Which of the following is not one of those levels? a. Area b. Topic c. Sub-paragraphs d. Paragraphs

Sub-paragraphs

Which of the following statements about the FASB Accounting Standards Codification is true? a. It only exists as an electronic database; paper copies are not available. b. When the Codification was adopted in 2009, it caused major changes in the contents of U.S. GAAP. c. It is reviewed and periodically updated by the SEC. d. It is only one of a large number of authoritative pronouncements that have been issued over time, all of which comprise U.S GAAP.

a. It only exists as an electronic database; paper copies are not available.

With closing entries, you would expect to find all of the following except a. debit Unearned Rent; credit Income Summary. b. debit Sales Revenue; credit Income Summary. c. debit Retained Earnings; credit Dividends. d. debit Income Summary; credit Loss on Sale of Land.

a. debit Unearned Rent; credit Income Summary.

The state legislature is currently debating a bill that, if passed, would require the Roberts Company to go out of business. Which of the following principles or assumptions related to the preparation of Roberts financial statements is most directly affected by this impending vote of the legislature? a. going concern b. verifiability principle c. entity concept d. materiality concept

a. going concern

Adjusting entries are made a. to match the consumption of prepaid assets against current revenues. b. to record accrued expenses. c. to record estimated items, such as depreciation. d. for all of these reasons.

a. to match the consumption of prepaid assets against current revenues. b. to record accrued expenses. c. to record estimated items, such as depreciation.

An adjusting entry always affects a. balance sheet accounts only. b. income statement accounts only. c. an income statement account and a balance sheet account. d. either a balance sheet account or an income statement account but not both.

an income statement account and a balance sheet account.

A prepaid expense is a. a payment received by the company in advance for the future sale of inventory or performance of services b. an item of goods or services purchased by the company for use in its operations but not fully consumed by the end of the accounting period c. an expense that has been incurred during the accounting period but has been neither paid nor recorded d. an item that has been earned by the company during the accounting period but has been neither received nor recorded

an item of goods or services purchased by the company for use in its operations but not fully consumed by the end of the accounting period

The accountant failed to make the adjusting entry to record the depreciation for the year. This error would cause a. an overstatement of assets. b. an overstatement of expenses. c. an understatement of liabilities. d. an understatement of shareholders' equity.

an overstatement of assets.

Expenses are recognized and matched against revenues on the basis of three principles. Which of the following is not one of these principles? a. immediate consumption b. associating cash flows c. systematic and rational allocation over time d. cause and effect

associating cash flows

Adjusting journal entries are made a. at the beginning of the accounting period b. at the end of the accounting period c. when revenue is realized (or realizable) d. anytime we need to adjust an account

at the end of the accounting period

Which of the following is a sales return? a. A supplier agrees to take back merchandise and provides a full refund. b. A customer returns merchandise for a refund. c. A customer keeps damaged merchandise and the company returns a portion of the selling price. d. A customer pays within the discount period.

b. A customer returns merchandise for a refund.

Which of the following accounts would not be closed to Income Summary during the year-end closing process? a. Loss on Sale of Land b. Prepaid Rent c. Freight-In d. Sales Discounts

b. Prepaid Rent

Which of the following is a contra account? a. Unearned Rental Revenue b. Sales Discounts Taken c. Bad Debts Expense d. Depreciation Expense

b. Sales Discounts Taken

Prior to 2009, which of the following types of FASB Pronouncements carried the highest authority within GAAP by establishing the methods and procedures required on specific accounting issues? a. Staff Positions b. Statements of Financial Accounting Standards c. Statements of Financial Accounting Concepts d. Technical Bulletins

b. Statements of Financial Accounting Standards

Where would the closing entries be found for a particular company?a. financial statements b. general journal c. trial balance d. journal entries

b. general journal

The financial statements are the responsibility of the a. auditors. b. management. c. independent certified accountants. d. Public Accounting Oversight Board.

b. management.

A company that uses accounting methods in preparing its tax returns that differ from the accounting methods used to prepare its financial statements is a. in violation of the consistency principle b. not necessarily violating either the income tax laws or generally accepted accounting principles c. probably guilty of tax evasion d. in violation of the relevance assumption

b. not necessarily violating either the income tax laws or generally accepted accounting principles

The FASB Accounting Standards Codification is expected to provide all of the following benefits except a. to reduce the research time necessary to solve an accounting research issue. b. to codify authoritative support such as results of academic research. c. to provide real-time updates as new standards are issued. d. to improve the usability of the authoritative accounting literature.

b. to codify authoritative support such as results of academic research.

Which of the following is a purchase return? a. A company agrees to keep damaged inventory and receives a refund from the supplier. b. A customer agrees to keep damaged inventory and receives a partial refund of the selling price. c. A company returns inventory to the supplier and receives a refund of the purchase price. d. A customer returns inventory to a company and receives a refund of the purchase price.

c. A company returns inventory to the supplier and receives a refund of the purchase price.

Which of the following statements regarding a post-closing trial balance is false? a. Post-closing trial balances only contain permanent accounts. b. Balances in a post-closing trial balance cannot be used to calculate current income. c. Post-closing trial balances only contain temporary accounts. d. A post-closing trial balance verifies that the total of the debit balances equals the total of the credit balances of all permanent accounts in the general ledger.

c. Post-closing trial balances only contain temporary accounts.

Which of the following statements regarding the requirement to follow U.S. GAAP in financial reporting is true? a. U.S. GAAP has been adopted as federal law, so failure to follow U.S. GAAP is prosecuted through the federal court system. b. U.S. GAAP has been adopted as state law in all 50 states, so failure to follow U.S. GAAP is prosecuted through the state court system. c. U.S. GAAP represents a set of professional standards, and the requirement to follow U.S. GAAP is enforced through the AICPA Code of Professional Conduct. d. Compliance with U.S. GAAP is not enforced; it is a voluntary choice made by most companies and by most professional accountants

c. U.S. GAAP represents a set of professional standards, and the requirement to follow U.S. GAAP is enforced through the AICPA Code of Professional Conduct.

Prior to preparing the organization's financial statements, the accountant prepares a. a balance sheet. b. a post-closing trial balance. c. an adjusted trial balance. d. a closed trial balance.

c. an adjusted trial balance.

The accountant failed to make the adjusting entry to record the unpaid wages of its employees as of December 31. This error will cause a. an overstatement of assets, liabilities, and shareholders' equity. b. an understatement of expenses, liabilities, and shareholders' equity. c. an understatement of liabilities and an overstatement of shareholders' equity. d. an understatement of assets and liabilities.

c. an understatement of liabilities and an overstatement of shareholders' equity.

Which of the following is not a type of adjusting entry? a. depreciation of long-term physical assets b. allocation of unearned revenue c. correction of an error in the general journal d. recording of accrued revenue

correction of an error in the general journal

Operating expenses would not include a. cost of goods sold. b. salaries expenses. c. insurance expenses. d. depreciation expenses.

cost of goods sold.

On August 1, 2019, Yellow Company paid $6,320 for a three-year insurance policy. On that date, an expense account was charged. In the adjusting entry on December 31, 2019, there would be a

credit to Insurance Expense for $5,442.

On June 1, 2019, Little Corporation received $5,320 in advance for a two-year rental of some land and properly credited Unearned Rent. In the adjusting entry at December 31, 2019, there would be a

credit to Rent Revenue for $1,552

Which of the following statements about the FASB Accounting Standards Codification is false? a. The Codification is currently the only authoritative source of U.S. GAAP. b. The purpose of creating the Codification was to simplify user access to authoritative U.S. GAAP. c. The framework of the Codification contains six levels, which are increasingly more specific. d. The six levels contained within the Codification framework are hierarchical in nature, such that the higher levels are considered to be more authoritative than the lower levels.

d. The six levels contained within the Codification framework are hierarchical in nature, such that the higher levels are considered to be more authoritative than the lower levels.

Which of the following sets includes only accounting assumptions and conventions? a. timeliness, prudence, historical cost, and neutrality b. matching, comparability, period of time, and faithful representation c. monetary unit, going concern, relevance, and materiality d. monetary unit, entity, going concern, and recognition

d. monetary unit, entity, going concern, and recognition

The purpose of closing entries is to a. update a periodic inventory account for credit sales. b. update the retained earnings account on a daily basis. c. apportion prepaid expenses and unearned revenues to bring the accounts up to date. d. reduce all temporary accounts to zero.

d. reduce all temporary accounts to zero.

The Oliver Construction Company received $18,000 for six months rental income in advance on November 1, 2019, and credited the Rental Revenue account. The required adjusting entry on December 31, 2019, would include a

debit to Rental Revenue for $12,000

Which of the following is an accrued expense? a. depreciation b. employees' salaries c. interest revenue d. rental expense paid three months in advance

employees' salaries

Which of the following is an economic resource that should be depreciated over the accounting periods estimated to be benefited? a. salaries incurred but unpaid at year-end b. rent collected in advance for a three-year rental period c. equipment purchased for use in the business operations d. interest revenue accrued on investment in bonds

equipment purchased for use in the business operations

Accrued revenues a. have been earned and collected, but not yet recorded. b. have been collected, but not yet earned or recorded. c. have been collected and recorded. d. have been earned, but not yet collected or recorded.

have been earned, but not yet collected or recorded.

An accrued expense is an expense a. incurred but neither paid nor recorded. b. incurred, paid, and recorded. c. paid and recorded but not incurred. d. whose amount is subject to estimation.

incurred but neither paid nor recorded.

The use of the historical cost principle is justified because the resulting information has the qualitative characteristics of a. neutrality and materiality b. neutrality and verifiability c. timeliness and relevance d. verifiability and predictive value

neutrality and verifiability

Which of the following documents includes all of the accounting standards? a. Regulation S-X b. The FASB Conceptual Framework c. Statements of Financial Accounting Standards d. none of these

none of these

When cash is debited for rents that are collected but are not yet earned, the amount credited should be a. recognized as revenue when collected. b. presented as a liability until earned. c. recorded as an asset until earned. d. presented as a separate item in shareholders' equity.

presented as a liability until earned.

Which of the following adjusting entries involves the recognition of an accrued expense? a. recording depreciation on a long-lived asset b. writing off the portion of an insurance policy that has expired c. recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period d. recognition of bad debt losses that are expected to result from making sales on credit terms

recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period

Which one of the following assumptions or principles most logically supports the preparation of a single set of consolidated financial statements that combines the financial information of several wholly owned but separately identifiable businesses? a. historical cost b. industry practices c. reporting entity d. materiality

reporting entity

The accountant failed to make the adjusting entry to record the amount of interest owed on a note to the bank at the end of the year. This error would cause an overstatement of a. assets. b. expenses. c. liabilities. d. shareholders' equity.

shareholders' equity.

All of the following items are classified as accounting assumptions and conventions except for a. going concern b. timeliness c. monetary unit d. reporting entity

timeliness