Financial Accounting Exam 1 TS

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When should a company report the cost of an insurance policy as an expense?

When the company receives the benefits from the policy over its period of coverage

When should companies that sell gift cards to customers report revenues?

When the gift card is used by the customer

Which of the following describes how assets are listed on the balance sheet?

In the order they will be used up or turned into cash

A company was recently formed with $50,000 cash contributed to the company by stockholders for common stock. The company then borrowed $20,000.......

$110,000

Webby Corporation reported the following accounts..... $1,600 $32,500 $300 $900

$29,700

Statement of cash flows equation

+/- Operating Cash Flows +/- Investing Cash Flows +/- Financing Cash Flows = Change in Cash +Beginning Cash = Ending Cash

Payable

+L

Matching Principle

- expenses are recorded when incurred in earning revenue -revenues are recognized (included) in the month they are earned -expenses are recognized in the same period as the revenues to which they relate -if expense cannot be directly associated with revenue, then expense in the period it is incurred

4 Financial Statements

-Income statement -Balance sheet - statement of retained earnings -Statement of cash flows

what are expenses recorded as in balance sheet

-SE

Which account is LEAST likely to be debited when revenue is recorded?

Accounts Payable

Classifying: Amounts K.Swiss owes to suppliers of watches

Accounts Payable; Liability

Classifying: Amounts K.Swiss can collect from customers

Accounts Receivable; Asset

Which of the following accounts would not appear in a closing journal entry?

Accumulated Depreciation

Depreciation Expense (+E, -SE)

Accumulated Depreciation (-A)

The T-account is used to summarize which of the following?

All of the above

Which of the following statements would be considered true regarding debits and credits?

All of the above

Which of the following statements would be considered true regarding the balance sheet?

All of the above

An adjusting journal entry to recognize accrued salaries payable would cause which of the following?

An increase in expenses and liabilities and a decrease in stockholders equity

Which of the following would NOT be a goal of external users reading a company's financial statements?

Assessing the company's contributions to social and environmental policies

Ending Retained Earnings = (equation)

Beginning R/E + Net Income - Dividends

Which account is least likely to appear in an adjusting journal entry?

Cash

Classifying: Coins and Currency

Cash; Asset

Which of the following is not an asset account?

Common stock

Amounts contributed to K.Swiss by stockholders

Common stock; SE

Which of the following regarding GAAP is true?

GAAP is the abbreviation for generally accepted accounting principles

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?

Debit to Advertising Expense of $10,000

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?

Debit to Insurance Expense for $1000

Which of the following is the entry to be recorded by a law firm when it receives a payment from a new claim that will be earned when services are provided in the future?

Debit: cash, credit: unearned revenue

Company A has owned a building for several years. Which of the following statements regarding depreciation is FALSE from an accounting perspective?

Depreciation expense for the year will equal Accumulated Depreciation

Amounts distributed from profits to stockholders

Dividends; SE

Statement of retained earnings equation

Ending retained earnings = Beginning R/E + Net Income - Dividends

Which of the following acronyms is true?

FASB creates GAAP

Classifying: Property on which buildings will be built

Land; Asset

Assets = (equation)

Liabilities + SE

What is at the head of financial statements

Name of Company Title of Financial Statement Date (At then date)

which of the following items is not a specific account in a company's accounting records?

Net income

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?

Net income will be too high

Classifying: Amounts owed to bank for loan to buy building

Notes Payable; Liability

What goes with Rent Expense (+E, -SE)

Prepaid Rent (-A)

Which of the following accounts normally has a debit balance?

Rent expense

Net Income = (equation)

Revenues - expenses

When expenses exceed revenues in a given period

SE will be decreased

Amounts earned by K.Swiss by selling watches

Sales Revenue; Revenue

An adjusted trial balance

Shows the ending balances resulting from the adjusting journal entries in a debit-and-credit format

Cost of paper used up during month

Supplies Expense; Expense

Unused Paper in K.Swiss head office

Supplies; Asset

Which of the following is NOT required by the Sarbanes- Oxley Act?

Top managers of public companies must be members of the American Institute of Certified Public Accountants

The duality of effects can best be described as follows:

When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result

Order of an Income Statement

accounts are listed in order of greatest to least, with the exception of income tax expense, which is always last

Which of the following trial balances is used as a source for preparing the income statement?

adjusted trial balance

What is recorded the same as depreciation?

amortization

Which of the following statements describe transactions that would be recorded in the accounting system?

an exchange of an asset for a promise to pay

accumulated depreciation is a ______ and goes under ______

asset; what it depreciates

Balance sheet equation

assets = liabilities + SE

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?

liabilities

Order of a Balance Sheet

listed in order of liquidity REQUIRED: current and long term assets and liabilities are listed in order from greatest to least

Which of the following regarding retained earnings is false?

retained earnings is an asset on the balance sheet

Income Statement equation

revenues - liabilities = net income

Which of the following is NOT one of the four basic financial statements? -balance sheet -audit report -income statement -statement of cash flows

the audit report

which of the following is false regarding the balance sheet?

the balance sheet summarizes the net changes in specific account balances over a period of time

which of the following is NOT one of the items required to be shown in the heading of a financial statement?

the financial statement preparer's name

which of the following is true regarding the income statement?

the income statement is sometimes called the statement of operations

Total assets on a balance sheet prepared on any date must agree with which of the following?

the sum of total liabilities and common stock on retained earnings

Which of the following statements regarding the statement of cash flows is false?

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

If there is a title for a section, then...

there must be a total

On Dec. 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How many accounts will be included in this adjusting journal entry?

two

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?

unearned revenue

The expense recognition principle ("matching") controls

when costs are recognized as expenses on the income statement


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