Intermediate Accounting-Chapter 3

2hich of the following is not an internal event? a. Depreciation b. Using raw materials in the production process c. Dividend declaration and subsequent payment d. All of these are internal transactions

C

If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts

F

It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period.

F

Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed

F

Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions

F

The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid

F

The book value of any depreciable asset is the difference between its cost and its salvage value

F

The first step in the accounting cycle is the journalizing of transactions and selected other events.

F

The post-closing trial balance consists of asset, liability, stockholders' equity, revenue and expense accounts.

F

Real accounts are periodically closed. True False

False

True/False Cost of goods sold appears on the income statement of a service firm but not a merchandising firm.

False

Posting is the process of transferring items entered in a general journal to the:

General ledger

The ____________ is the "book of original entry" where the company initially records transactions and other events.

Journal

Which of the following is typically the first step in the accounting cycle? Preparing reversing entries. Journalizing a transaction. Posting to the general ledger. Recording adjustments to the accounts.

Journalizing a transaction

Each general journal entry consists of how many parts? A. One. B. Two. C. Three. D. Four.

4 *(1) the accounts and amounts to be debited; (2) the accounts and amounts to be credited; (3) a date; and (4) an explanation.*

Nominal accounts are also called a. temporary accounts. b. permanent accounts. c. real accounts. d. None of these answer choices are correct

A

The failure to properly record an adjusting entry to accrue an expense will result in an a. understatement of expenses and an understatement of liabilities. b. understatement of expenses and an overstatement of liabilities. c. understatement of expenses and an overstatement of assets. d. overstatement of expenses and an understatement of assets.

A

Which of the following is not a recordable event or item? A. Changes in managerial policy. B. Sales of the company's product in overseas markets. C. Declaration of dividends. D. Purchase of supplies.

A. Changes in managerial policy

Adjustments are often prepared A. after the balance sheet date, but dated as of the balance sheet date. B. after the balance sheet date, and dated after the balance sheet date. C. before the balance sheet date, but dated as of the balance sheet date. D. before the balance sheet date, and dated after the balance sheet date.

A. after the balance sheet date, but dated as of the balance sheet date.

The difference between the cost of a depreciable asset and its related contra account, Accumulated Depreciation is referred to as the asset's: A. book value. B. fair value. C. market value. D. real value.

A. book value

A journal entry to record the sale of inventory on account will include a a. debit to Inventory. b. debit to Accounts Receivable. c. debit to Sales Revenue. d. credit to Cost of Goods Sold

B

Which of the following is a nominal account? A. Interest Payable. B. Dividends. C. Cash. D. Retained earnings.

B. Dividends

To convert cash receipts from customers to revenue on an accrual basis, which of the following adjustments is necessary? A. Add ending Accounts Receivable. B. Subtract ending Unearned Service Revenue. C. Subtract beginning Accounts Receivable. D. All of these answer choices are correct.

D. All of these answer choices are correct

In general, debits refer to increases in account balances, and credits refer to decreases

F

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts

T

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue recognized in the current accounting period

T

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense

T

True/False Depreciation allocates the cost of long-lived assets to expense over the periods which benefit from their use (useful life).

True

True/False Revenue, equity and liability accounts have normal credit balances

True

True/False The accounting cycle for a merchandiser is the same as the accounting cycle for a service firm.

True

True/False When a company makes reversing entries, it debits all cash payments of expenses to the related expense account.

True

True/False When a merchandiser prepares closing entries, Cost of Goods Sold is credited and Income Summary is debited.

True

A happening of consequence. May be Internal or external. May or may not be a transaction.

Event *hiring someone is an event thats not a transaction*

True/False Companies may prepare a trial balance at any time.

True

Nominal accounts are also called

temporary accounts *They are closed at the end of each year*

At the time a company prepays a cost a. it debits an asset account to show the service or benefit it will receive in the future. b. it debits an expense account to match the expense against revenues recognized. c. its credits a liability account to show the obligation to pay for the service in the future. d. it credits an asset account and debits an expense account.

A

Total stockholders' equity consists of common stock and the earnings retained in the business.

T

The double-entry accounting system means a. Each transaction is recorded with two journal entries. b. Each item is recorded in a journal entry, then in a general ledger account. c. The dual effect of each transaction is recorded with a debit and a credit. d. None of these answer choices are correct

C

An adjusting entry to record an accrued expense involves a debit to a(an) a. expense account and a credit to a prepaid account. b. expense account and a credit to Cash. c. expense account and a credit to a liability account. d. liability account and a credit to an expense account

C

An optional step in the accounting cycle is the preparation of a. adjusting entries. b. closing entries. c. a statement of cash flows. d. a post-closing trial balance

D

Adjustments are often prepared a. after the balance sheet date, but dated as of the balance sheet date. b. after the balance sheet date, and dated after the balance sheet date. c. before the balance sheet date, and dated before the balance sheet date. d. before the balance sheet date, and dated after the balance sheet date.

A

The omission of the adjusting entry to record depreciation expense will result in an a. overstatement of assets and an overstatement of owners' equity. b. understatement of assets and an understatement of owner's equity. c. overstatement of assets and an overstatement of liabilities. d. overstatement of liabilities and an understatement of owners' equity

A

Unearned revenue on the books of one company is likely to be a. a prepaid expense on the books of the company that made the advance payment. b. an unearned revenue on the books of the company that made the advance payment. c. an accrued expense on the books of the company that made the advance payment. d. an accrued revenue on the books of the company that made the advance payment

A

transaction

An external event involving a transfer or exchange between two or more entities.

An adjusting entry should never include a. a debit to an expense account and a credit to a liability account. b. a debit to an expense account and a credit to a revenue account. c. a debit to a liability account and a credit to revenue account. d. a debit to a revenue account and a credit to a liability account

B

Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for a. an unearned revenue. b. a prepaid expense. c. an accrued revenue. d. an accrued expense

B

Which of the following is a nominal (temporary) account? a. Unearned Service Revenue b. Salaries and Wages Expense c. Inventory d. Retained Earnings

B

Once a company has prepared an adjusted trial balance it is ready to prepare financial statements. Which financial statement is prepared first, second, then third? A. First the retained earnings statement is prepared, then the balance sheet is prepared, finally the income statement is prepared. B. First the income statement is prepared, then the retained earnings statement is prepared, finally the balance sheet is prepared. C. First the income statement is prepared, then the balance sheet is prepared, finally the retained earnings statement is prepared. D. First the balance sheet is prepared, then the retained earnings is prepared, finally the income statement is prepared.

B. First the income statement is prepared, then the retained earnings statement is prepared, finally the balance sheet is prepared.

________ is the process of transferring the accounts and amounts from the book of original entry to the ledger accounts. A. Journalizing B. Posting C. Closing D. Ledgerizing

B. Posting

If the entry to close Income Summary to Retained Earnings includes a debit to Income Summary: A. The company has incurred a net loss. B. Retained Earnings will be increased by the current period's net income. C. Dividends paid exceed the net income earned for the period. D. Expenses exceed revenues.

B. Retained Earnings will be increased by the current period's net income.

The proper sequence of financial statement preparation is: A. The Retained Earnings Statement, the Balance Sheet, the Income Statement, and then the Statement of Cash Flows. B. The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows. C. The Balance Sheet, the Retained Earnings Statement, the Income Statement, and then the Statement of Cash Flows. D. The Statement of Cash Flows, the Income Statement, the Retained Earnings Statement, and then the Balance Sheet.

B. The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows.

Adjusting entries can be classified as either: A. accruals or reversals B. deferrals or accruals. C. real or nominal. D. internal or external.

B. deferrals or accruals.

Unearned revenues are: A. revenues. B. liabilities. C. accruals. D. all of these answer choices are correct.

B. liabilities

When a dividend is declared: A. assets decrease. B. liabilities increase. C. stockholders' equity increases. D. all of these answer choices are correct.

B. liabilities increase.

A journal entry to record a payment on account will include a a. debit to Accounts Receivable. b. credit to Accounts Receivable. c. debit to Accounts Payable. d. credit to Accounts Payable

C

During an accounting period, if an expense has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve a. a liability account and an asset account. b. an asset or contra asset account and an expense account. c. a liability account and an expense account. d. a receivable account and a revenue account

C

When a corporation pays a note payable and interest, a. the account notes payable will be increased. b. the account interest expense will be decreased. c. they will debit notes payable and interest expense. d. they will debit cash

C

Which one of the following guidelines regarding reversing entries is incorrect? A. All accruals should be reversed. B. All deferrals for which a company debited or credited the original cash transaction to an expense or revenue account should be reversed. C. Adjusting entries for bad debts are reversed. D. None of these answer choices are correct.

C. Adjusting entries for bad debts are reversed.

Which of the following is not transferred to Retained Earnings at the end of the period? A. Revenues. B. Dividends. C. Common stock. D. Expenses.

C. Common stock

Adjusting entries A. are external events involving a transfer or exchange between two or more entities. B. reduce the nominal accounts to zero and transfer net income or loss to an owners' equity account. C. are made at the end of an accounting period to bring all accounts up to date on an accrual basis. D. all of these answer choices are correct.

C. are made at the end of an accounting period to bring all accounts up to date on an accrual basis.

A journal entry to record a receipt of rent in advance will include a a. debit to Rent Revenue. b. credit to Rent Revenue. c. credit to Cash. d. credit to Unearned Revenue

D

An accounting record into which the essential facts and figures in connection with all transactions are first recorded is called the a. ledger. b. account. c. trial balance. d. None of these answer choices are correct

D

An accrued expense can best be described as an amount a. paid and currently matched with earnings. b. paid and not currently matched with earnings. c. not paid and not currently matched with earnings. d. not paid and currently matched with earnings

D

External events do not include a. interaction between an entity and its environment. b. a change in the price of a good or service that an entity buys or sells. c. improvement in technology by a competitor. d. using buildings and machinery in operations

D

Factors that shape an accounting information system include the a. nature of the business. b. size of the firm. c. volume of data to be handled. d. All of these answer choices are correct

D

The failure to properly record an adjusting entry to accrue a revenue item will result in an a. understatement of revenues and an understatement of liabilities. b. overstatement of revenues and an overstatement of liabilities. c. overstatement of revenues and an overstatement of assets. d. understatement of revenues and an understatement of assets

D

The process of transferring figures from the book of original entry to the ledger accounts is called a. adjusting. b. balancing. c. ledgering. d. posting.

D

Which of the following is an incorrect depiction of the accounting equation? A. Assets = Liabilities + Stockholders' Equity. B. Assets - Stockholders' Equity = Liabilities. C. Assets - Liabilities = Stockholders' Equity. D. Assets + Stockholder's Equity = Liabilities.

D. Assets + Stockholder's Equity = Liabilities.

Factors that shape an accounting information system include the A. transactions in which the business engages. B. informational demands of management. C. volume of data to be handled. D. all of these answer choices are correct.

D. all of these answer choices are correct

If the adjusting entry for an accrued revenue is not made: A. assets will be overstated. B. revenues will be overstated. C. liabilities will be understated. D. equity will be understated.

D. equity will be understated.

An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries

F

An example of an internal event would be a flood that destroyed a portion of a company's inventory

F

A general journal a. chronologically lists transactions and other events, expressed in terms of debits and credits. b. contains one record for each of the asset, liability, stockholders' equity, revenue, and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only adjusting entries

A

Stockholders' equity is not affected by all a. cash receipts. b. dividends. c. revenues. d. expenses

A

The accounting equation must remain in balance a. throughout each step in the accounting cycle. b. only when journal entries are recorded. c. only at the time the trial balance is prepared. d. only when formal financial statements are prepared

A

The debit and credit analysis of a transaction normally takes place a. before an entry is recorded in a journal. b. when the entry is posted to the ledger. c. when the trial balance is prepared. d. at the end of the accounting cycle

A

A trial balance A. proves that debits and credits are equal in the ledger. B. chronologically lists transactions and other events. C. proves that a company recorded all transactions. D. All of these answer choices are correct.

A. proves that debits and credits are equal in the ledger.

The difference between the accounting process and the accounting cycle is a. the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions. b. the accounting cycle represents the steps taken to accomplish the accounting process. c. the accounting process represents the steps taken to accomplish the accounting cycle. d. merely semantic, because both concepts refer to the same thing.

B

Which of the following is an example of an accrued expense? a. Office supplies purchased at the beginning of the year and debited to an expense account. b. Property taxes incurred during the year, to be paid in the first quarter of the subsequent year. c. Depreciation expense d. Rent recognized during the period, to be received at the end of the year

B

Which of the following properly describes a deferral? a. Cash is received after revenue is recognized. b. Cash is received before revenue is recognized. c. Cash is paid after expense is incurred. d. Cash is paid in the same time period that an expense is incurred

B

In the closing process, all of the revenue and expense account balances are closed to the: A. Capital account. B. Income Summary account. C. Retained Earnings account. D. Dividends account.

B. Income summary

Which of the following is an internal event? A. A transaction with another entity. B. Using machinery in operations. C. A change in the price of a good that an entity buys or sells. D. A flood.

B. Using machinery in operations

An accrued expense is A. an expense which is recorded with the passage of time. B. an expense that has been incurred but for which payment has not yet been made. C. an expense for which cash is paid before the expense is incurred. D. initially recorded as an asset.

B. an expense that has been incurred but for which payment has not yet been made.

If an adjusting entry is not made for a deferred revenue which was initially credited to an unearned revenue account, which of the following results? A. Liabilities are understated. B. Revenues are overstated. C. Assets are unaffected. D. All of these answer choices are correct.

C. Assets are unaffected

All of the following statements about contra asset accounts are true except: A. Contra asset accounts have normal credit balances. B. Contra asset accounts are deducted from the related asset account to determine book value. C. Contra asset accounts are not reported in the financial statements. D. Contra asset accounts are increased with credits.

C. Contra asset accounts are not reported in the financial statements.

If the balances in both accounts receivable and accounts payable decrease during the year A. the decrease in both the accounts receivable and accounts payable balances will result in a decrease in cash for the period. B. the decrease in both the accounts receivable and accounts payable balances will result in an increase in cash for the period. C. the decrease in the accounts receivable balance would result in an increase in cash for the period. D. the decrease in the accounts payable balance would result in an increase in cash for the period.

C. the decrease in the accounts receivable balance would result in an increase in cash for the period.

The double-entry accounting system means A. each transaction is recorded with two journal entries. B. each item is recorded in a journal entry, then in a general ledger account. C. the dual effect of each transaction is recorded with a debit and a credit. D. each journal entry must have one debit and one credit, or two debits and two credits.

C. the dual effect of each transaction is recorded with a debit and a credit.

A trial balance a. proves that debits and credits are equal in the ledger. b. supplies a listing of open accounts and their balances that are used in preparing financial statements. c. is normally prepared three times in the accounting cycle. d. All of these answer choices are correct

D

A trial balance may prove that debits and credits are equal, but a. an amount could be entered in the wrong account. b. a transaction could have been entered twice. c. a transaction could have been omitted. d. All of these answer choices are correct.

D

Debit always means a. the right side of an account. b. an increase. c. a decrease. d. None of these answer choices are correct

D

All liability accounts and stockholders' equity accounts are increased on the credit side and decreased on the debit side

F

Which of the following criteria must be met before an event or item should be recorded for accounting purposes? a. The event or item can be measured objectively in financial terms. b. The event or item is relevant and reliable. c. The event or item is an element. d. All of these must be met.

D

Which of the following errors will cause an imbalance in the trial balance? a. Omission of a transaction in the journal. b. Posting an entire journal entry twice to the ledger. c. Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable. d. Listing the balance of an account with a debit balance in the credit column of the trial balance

D

Which of the following is a real (permanent) account? a. Goodwill b. Service Revenue c. Accounts Receivable d. Both Goodwill and Accounts Receivable

D

Which of the following is a recordable event or item? a. Changes in managerial policy b. The value of human resources c. Changes in personnel d. Payment of monthly payroll

D

Which of the following is not a principal purpose of an unadjusted trial balance? a. It proves that debits and credits of equal amounts are in the ledger. b. It is the basis for any adjustments to the account balances. c. It supplies a listing of open accounts and their balances. d. It proves that debits and credits were properly entered in the ledger accounts

D

Which of the following statements is true about the accrual basis of accounting? a. The timing of cash receipts and disbursements is emphasized. b. A minimal amount of record keeping is required in accrual basis accounting compared to cash basis. c. This method is used less frequently by businesses than the cash method of accounting. d. Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received

D

Which of the following is a reason the trial balance may not contain up-to-date and complete data? A. Some items may be unrecorded. B. Some costs are not recorded during the accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions. C. Some events are not recorded daily because it's not efficient to do so. D. All of these answer choices are correct.

D. All of these answer choices are correct.

Which of the following statements about a trial balance is incorrect? A. Its primary purpose is to prove the mathematical equality of debits and credits after posting. B. It uncovers errors in journalizing and posting. C. It is useful in the preparation of financial statements. D. It proves that all transactions have been recorded.

D. It proves that all transactions have been recorded.

When a corporation purchases a computer for cash, a. liabilities increase. b. stockholders' equity decreases. c. assets increase. d. the account Cash will be credited.

D. The account cash will be credited

The adjusting entry to record an accrued expense includes a debit to: A. a liability account and a credit to an expense account. B. a liability account and a credit to a revenue account. C. an expense account and a credit to a revenue account. D. an expense account and a credit to a liability account.

D. an expense account and a credit to a liability account.

An adjusting entry would never include a: A. debit to an expense account and a credit to an asset account. B. debit to an expense account and a credit to a liability account. C. debit to a liability account and a credit to a revenue account. D. debit to an asset account and a credit to a liability account.

D. debit to an asset account and a credit to a liability account.

A ledger is where a company first records transactions and other selected events

F

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed

T

One purpose of a trial balance is to prove that debits and credits are equal in the general ledger

T

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet

T

True/False After journalizing and posting all adjusting entries, a company prepares an adjusted trial balance that is the primary basis for preparation of the financial statements.

True

True/False Financial statements can be prepared directly from the adjusted trial balance.

True