Financial Accounting Midterm

The intent of the Sarbanes Oxley Act of 2002 is to

-Reduce unethical corporate behavior -decrease likelihood of future corp. scandals -increase severity of penalties for fraudulent financial activity

the historical cost principle states that ? -assets should be initially recorded at cost and adjusted when fair value changes. -activities of an entity are to be kept separate and distinct from its owner. -assets should be recorded at their cost

-assets should be recorded at their cost

ALL OF THE FOLLOWING ARE REQUIRED STEPS IN THE ACCOUNTING CYCLE

-journalizing and posting closing entries -preparing a post-closing trial balance -journalizing transactions

Before posting a payment of $5,000, the Accounts Payable of Senator Company has a normal balance of $29,000. The balance after posting this transaction was

24000

Basic Accounting Equation

Assets = Liabilities + Stockholders' Equity

if expenses are paid in cash, then

Assets will decrease

Accounts that normally have debit balances are

Assets, dividends, and expenses

THE TRIAL BALANCE SHOWS SUPPLIES $1,350 AND SUPPLIES EXPENSE $0. IF $600 OF SUPPLIES ARE ON HAND AT THE END OF THE PERIOD, THE ADJUSTING ENTRY IS: -DR. Supplies 600 CR. Supplies Expense 600 -DR. Supplies 750 CR. Supplies Expense 750 -DR. Supplies Expense 750 CR. Supplies 750 -DR. Supplies Expense 600CR. Supplies 600

DR. Supplies Expense 750 CR. Supplies 750

KEVIN CORP. PURCHASES A ONE YEAR INSURANCE POLICY FOR HIS OFFICE BUILDING ON JANUARY 1ST 2020 FOR $12000. ON JANUARY 31ST, KEVIN CORP. IS PREPARING FINANCIAL STATEMENTS FOR THE MONTH OF JANUARY. WHAT WILL BE THE ADJUSTING ENTRY? -Debit insurance expense $1000 and credit prepaid insurance $1000 -Debit prepaid insurance $12000 and credit cash $12000 -Debit insurance expense $12000 and credit prepaid insurance $12000 -Debit cash $1000 and credit prepaid insurance $1000

Debit insurance expense $1000 and credit prepaid insurance $1000

the organizations primary responsible for establishing generally accepted accounting principals are the

FASB & SEC

the private sector organization involved in developing accounting principles is the

Financial Accounting Standards Board

a balance sheet is prepared as of specific date T/F

TRUE

the income summary account is

Temporary account that need to be closed at the end of accounting period.

I trail balance will not balance if

a $10000 cash dividend is debited to dividends for $20000 and credited to cash for $1000

ACCUMULATED DEPRECIATION IS: -a contra asset account -an expense account -a stockholders' equity account -a liability account

a contra asset

accumulated depreciation is

a contra asset account

adjusting entries can be classified as

accruals and deferrals

the adjusted trail balance is prepared

after the adjusting entries are prepared & posted to the ledger

Depreciation is a process of

allocating the cost of an asset to expense over its useful life in a rational and systematic manner

which is NOT recorded in the accounting records

an employee is terminated

A debit to an asset account indicates

an increase in the asset

The first step in the recording process is to

analyze each transaction for its effect on the accounts.

a chart of accounts usually starts with

asset accounts

A balance sheet shows

assets, liabilities, and stockholders' equity (at a certain point in time)

the balances that appear on the post closing trail balance will match the

balance sheet account balances after closing entries

on the last day of the period, Alan cesura company buys a $900 machine on credit. This transaction will affect the -income statement only -balance sheet only -income statement, retained earnings statement only -income statement, retained earnings statement, and balance sheet

balance sheet only

WHEN RAMIREZ COMPANY PURCHASED SUPPLIES WORTH $500, IT INCORRECTLY RECORDED A CREDIT TO SUPPLIES FOR $5,000 AND A DEBIT TO CASH FOR $5,000. BEFORE CORRECTING THIS ERROR -cash is overstated and supplies is understated -cash is understated and supplies understated -cash is understated and supplies is overstated -cash is overstated and supplies is understated

cash is overstated and supplies is understated

Posting Journal Entries should be done in

chronological order

WHEN A NET LOSS HAS OCCURRED, INCOME SUMMARY IS -debited and retained earnings credited -credited and retained earnings debited -debited and dividends are credited -credited and dividends are debited

credited and retained earnings debited

EVAN'S SPORTING GOODS SELLS 5000 BASEBALLS ON ACCOUNT FOR $2 EACH ON MARCH 7TH 2020. WHAT WAS THE JOURNAL ENTRY TO RECORD THE TRANSACTION? -debit accounts receivable $10000 and credit sales revenue $10000 -debit cash $10000 and credit accounts receivable $10000 -debit cash $10000 and credit accounts payable $10000 -debit accounts payable $10000 and credit cash $10000

debit accounts receivable $10000 and credit sales revenue $10000

BOB CORP. BORROWS $500,000 DUE IN THREE YEARS. IF THE ANNUAL INTEREST RATE IS 3%, WHAT IS THE ADJUSTING ENTRY TO RECORD INTEREST ON THE NOTE FOR THE MONTH OF JUNE? -debit interest expense $15000 and credit interest payable $15000 -debit interest expense $1250 and credit cash $1250 -debit interest expense $1250 and credit interest payable $1250 -debit notes payable $1250 and credit cash $1250

debit interest expense $1250 and credit interest payable $1250

ON FEBRUARY 12, JOHN AND RAD ROOFERS ENTER INTO A CONTRACT TO INSTALL A NEW ROOF AT JOHN'S HOME FOR $1600. JOHN PAYS IN FULL ON THIS DAY. ON MARCH 21ST, THE ROOFERS INSTALL THE NEW ROOF. WHAT IS RAD ROOFERS ADJUSTING ENTRY ON MARCH 31? -debit unearned service revenue $1600 and credit service revenue $1600 -debit accounts receivable $1600 and credit service revenue $1600 -debit cash $1600 and credit unearned service revenue $1600 -debit unearned service revenue $1600 and credit accounts receivable $1600

debit unearned service revenue $1600 and credit service revenue $1600

payment of accounts payable affects the components of the accounting equation in this way :

decreases assets & decreases liabilities

A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the

economic entity assumption

the common characteristic possessed by ALL assets is

future economic benifit

the first activity of the accounting process is

identification

The starting point of the accounting process is

identifying economic events

The double-entry system requires that each transaction must be recorded..

in at least two different accounts

the chart of accounts is a

listing of the accounts & the account #'s which identify their location in the ledger

people who manage a business OR make business decisions....

need to understand accounting statements in order to realize & measure the financial impact of their decisions on the business

expenses paid in cash & recorded as assets before they are used are called

prepaid expenses

An income statement

presents the revenues and expenses for a specific period of time.

a small neighborhood shop operated by its owner is likely to be organized as a

proprietorship

The accounting process involves all of the following EXCEPT

recording non-quantifiable economic events

AN ACCOUNT THAT WILL HAVE A ZERO BALANCE AFTER CLOSING ENTRIES HAVE BEEN JOURNALIZED AND POSTED IS -service revenue -prepaid insurance -unearned service revenue -accumulated depreciation- equipment

service revenue

When two accounts are required in one journal entry, the entry is referred to as a

simple entry

Generally accepted accounting principles are

standards that indicate how to report economic events

In order to close the dividends account,

the retained earnings should be debited

which of the following statements about the accrual basis of accounting is FALSE? -events that change a company's financial statements are recorded in the periods in which the events occur - revenue is recognized in the period in which services are performed - this basis is in accord with GAAP - revenue is recorded only when cash is received and expense is recorded only when cash is paid

this basis is in accord with GAAP

a compound journal entry involves

three or more accounts

After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to

transfer the information to ledger accounts

Posting

transferring information from a journal entry to a ledger account

a list of accounts & their balances at a given point in time is called a

trial balance

which of the following is not a step in the accounting process? -identification -verification -recording -communication

verification

in a service type business, revenue is considered recognized

when the service is proformed