MGMT200 Exam 1
Accrued revenues involve the receipt of cash after the revenue has been earned and an asset has been recorded. A. True B. False
A
An alternative form of the accounting equation is: A. Assets - Liabilities = Stockholders' Equity. B. Net Income = Revenues ‐Expenses. C. Stockholders' Equity = Assets + Liabilities. D. Assets = Liabilities ‐Stockholders' Equity.
A
Any transaction that affects the income statement ultimately affects the balance sheet through the balance of retained earnings. A. True B. False
A
Because cash‐basis accounting violates both the revenue recognition principle and the matching principle, it is generally not accepted in preparing financial statements. A. True B. False
A
Deferred revenues refer to: A. Customers paying cash in advance of the good or service to be provided B. Revenue being recorded prior to cash collection from the customer. C. Revenue being recorded at the same time the cash is collected from the customer D. Cash being collected from the customer after the revenue is recorded.
A
Dividends represent a return of the company's profits to its owners, the stockholders. A. True B. False
A
Following are transactions of ATI, Inc., a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. How many of these transactions decreased ATI's total assets? A. one B. two C. three D. four
A
For accounting information to be relevant, it should possess which of the following characteristics? A. Predictive value, confirmatory value, and/or materiality. B. Large in amount and timely. C. Comparability or consistency. D. Verifiability.
A
How many of following accounts would appear in ayear ‐end balance sheet? A. five B. four C. three D. two Accounts Payable $4,400 Salaries Expense 12,800 Cash 1,700 Common Stock 2,400 Service Revenue 8,300 Supplies 4,300 Retained Earnings 1,100 Utilities Expense 5,000
A
Knomark, Inc. sold $500 of shoe polish to a customer on account on January 1. On January 11 Knomark collected the cash from that customer. What is the impact on Knomark's accounting equation from the collection of cash? A. No net effect to the accounting equation. B. Decrease assets and increase liabilities. C. Increase assets and increase liabilities. D. Decrease assets and decrease liabilities.
A
Of the following, the most important objective for financial accounting is to provide information useful for: A. Predicting cash flows. B. Determining taxable income. C. Providing accountability. D. Increasing future profits.
A
Pawn Shops, Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual‐basis or cash‐basis accounting? A. Purchased $500 of office supplies on account (supplies were used in May and paid for in May). B. Paid $1,800 for a six‐month insurance policy covering the period July 1—December 31. C. Paid $700 for an advertisement that appeared in the May 17 edition of the Las Vegas Sunnewspaper. D. Received $300 from customers for services performed in March.
A
Prepayments occur when: A. Cash payment (or an obligation to pay cash) occurs before the expense recognition. B. Sales are delayed pending credit approval. C. Customers are unable to pay the full amount due when goods are delivered. D. Cash payment occurs after the expense is incurred and liability is recorded
A
Retained earnings at the end of the year is calculated using: A. Beginning retained earnings, income, and dividends. B. Common stock and dividends. C. Stockholders' equity, income, and dividends. D. Income and dividends.
A
The accounting equation shows that a company's resources equal creditors' and owners' claims to those resources. A. True B. False
A
The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income. A. True B. False
A
The adjusting entry required when amounts previously recorded as deferred revenues are earned by providing goods or services to customers includes: A. A debit to a liability. B. A debit to an asset C. A credit to a liability D. A credit to an asset
A
The concept of matching in accounting refers to: A. All costs that are used to generate revenue are recorded in the period the revenue is recognized. B. All transactions are recorded at the exchange price. C. The business is separate from its owners. D. The business will continue to operate indefinitely unless there is evidence to the contrary.
A
The difference between revenues and expenses is referred to as net income or net loss. A. True B. False
A
The equation best describing the income statement is: A. Revenues ‐Expenses = Income B. Assets = Revenues -Expenses C. Assets = Liabilities + Stockholders' Equity D. Revenues + Expenses = Income
A
When a company pays employees' salaries for the current period, how will the basic accounting equation be affected? A. Stockholders' equity decreases. B. Revenues decrease. C. Expenses decrease. D. Assets increase.
A
When cash payments are made to stockholders, what is the effect on the company's accounts? A. Cash decreases and dividends increase. B. Cash increases and dividends decrease. C. Cash decreases and common stock decreases. D. Cash increases and common stock increases.
A
Which business form has the advantage of limited liability? A. Corporation B. Sole proprietorship C. Partnership D. All business forms share equal limited liability
A
Which of the following is not possible when recording a transaction? A. Liabilities increase and assets decrease. B. Stockholders' equity increases and assets increase. C. One asset increases and another asset decreases. D. Stockholders' equity decreases and assets decrease.
A
Which of the following would be recorded as an expense under cash‐basis accounting? A. The company purchases office supplies with cash and does not use the supplies. B. The company uses utilities in the current period but does not pay cash. C. The company provides services to customers for cash. (revenue) D. The company purchases equipment by borrowing from the bank. (asset & liability)
A
If total assets of a company equal $25,000 and total stockholders' equity equals $10,000, then total liabilities equal $15,000. A. True B. False
A Assets = Liabilities + Equity $25,000 = $15,000 + $10,000
A company received a bill for newspaper advertising services, $400. The bill will be paid in 10 days. How would the transaction be recorded today? A. Debit Advertising Expense $400, credit Accounts Payable $400. B. Debit Accounts Payable $400, credit Advertising Expense $400. C. Debit Accounts Payable $400, credit Cash $400. D. Debit Advertising Expense $400, credit Cash $400.
A Debit Credit Advertising Expense (‐SE)..................... 400 Accounts Payable (+L).................... 400 (record newspaper advertising expense on account)
Which of the accounts are decreased on the debit side and increased on the credit side? A. Liabilities, stockholders' equity, and revenues B. Dividends, liabilities, and assets C. Expenses, dividends, and stockholders' equity D. Assets, dividends, and expenses
A Dr. = Cr. + Cr. Normal Balance assets = liabilities + equity
Dividends represent a return of the company's profits to its owners, the stockholders. A. True B. False
A Not classified as an "expense"
A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later (November 28). The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle? A. November B. December C. Evenly in each of the two months D. One‐third in November and two‐thirds in December
A Record on delivery date -11/28
Which of the following is recorded with an adjusting entry associated with a prepaid expense? A. Credit an asset B. Debit a liability C. Credit an expense D. Debit an asset
A The adjusting entry involving a prepaid expense always involves a debit to an expense and a credit to an asset.
On January 1, LePage's, Inc. sold $30,000 in products to a customer on account. Then on January 10, LePage's collected the cash on that account. What is the impact on LePage's accounting equation from the collection of cash on January 10? A. No net effect on the accounting equation. B. Assets increase and liabilities decrease. C. Assets decrease and liabilities decrease. D. Assets increase and stockholders' equity increases.
A assets = liabilities + equity (+) cash = (‐) accts. receivable
A company determined that services were provided to acustomer but not billed. What is the adjusting entry? A. Dr. -Service Revenue; Credit -Accounts Receivable B. Dr. ‐Accounts Receivable; Credit ‐Service Revenue C. Dr. ‐Cash; Credit -Service Revenue D. Dr. -Accounts Receivable; Credit -Unearned Revenue
B
A trial balance represents the: A. Source documents used to determine the effects of transactions on the company's accounts B. List of all accounts and their balances at a particular date to ensure that debits equal credits C. Chronological record of all transactions affecting the company D. Process of transferring debit and credit information from the journal to the accounts in the general ledger
B
Amalgamated Company engages in the following cash payments: What is the total amount of cash paid for operating activities? A. $1,500 B. $500 C. $6,000. D. $2,000 E. $7,000 Paiddividends to owners $2,000 Paid rent 500 Repay loan to the bank 5,000 Purchaseequipment 1,000
B
An expense has what effect on the accounting equation? A. Decrease liabilities. B. Decrease stockholders' equity. C. Increase assets. D. No effect.
B
Financial accounting does not deal with which of the following? A. Measuring a company's economic activity. B. Providing information to internal users. C. Preparing financial reports. D. Communicating financial results to investors.
B
Financing activities include: A. The purchase of a building. B. Issuing common stock to stockholders. C. Transactions with company employees. D. Selling goods or services to customers.
B
Income (loss) appears in which two financial statements? A. Balance sheet and income statement. B. Income statement and statement of stockholders' equity. C. Statement of stockholders' equity and balance sheet. D. Income appears in only one financial statement.
B
Investing cash flows in the statement of cash flows would include which of the following? A. Paying salaries for the month. B. Purchase of land. C. Paying dividends to stockholders. D. Selling goods or services to customers.
B
Preparing a budget for a business is considered A. financial accounting. B. managerial accounting.
B
Providing goods or services to customers on account is an example of a(n): A. Accrued expense. B. Accrued revenue. C. Prepaid expense. D. Deferred revenue.
B
The accounting equation is in balance if there is a (an) A. increase in liabilities and an increase in equity B. decrease in assets and an decrease in liabilities C. decrease in assets and an increase in equity D. decrease in equity and an increase in assets
B
The accounting equation will notbe in balance when a business transaction increases and decreases assets in the same amount? A. True B. False
B
The body of rules and procedures that guide the measurement and communication of financial accounting information in the United States is known as A. Standards of Professional Compliance (SPC). B. Generally Accepted Accounting Principles (GAAP). C. Generally Accepted Auditing Standards (GAAS). D. Rules of Financial Reporting (RFR).
B
The costs of providing goods and services to customers are referred to as: A. Assets B. Expenses C. Liabilities D. Revenues
B
The costs related to rent, utilities, and salaries in the current reporting period are examples of liabilities. A. True B. False
B
The following statements pertain to recording transactions. Which of them are true? I. Total debits should equal total credits. II. It is possible to have multiple debits or credits in one journal entry. III. Assets are always listed first in journal entries. IV. Some journal entries will have debits only A. I only. B. I and II. C. I, II, and IV. D. II, III, and IV.
B
The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as the: A. Trial balance B. Accounting cycle C. Chart of accounts D. General ledger
B
Transactions related to the primary business activities of the company, such as selling goods and services to customers, are referred to as: A. Investing activities. B. Operating activities. C. Management activities. D. Financing activities.
B
Transfer of ownership will not affect the continuity of a A. corporation or partnership B. corporation C. partnership D. sole proprietorship
B
When a payment is made on an account payable A. Assets and stockholders' equity decrease. B. Assets and liabilities decrease. C. Liabilities and revenues decrease. D. Assets and expenses decrease.
B
Which financial statement best reveals to investors and creditors information about a company's debt? A. Income statement B. Balance sheet C. Statement of cash flows D. Statement of stockholders' equity
B
Which of the following best describes revenue? A. Resources of a company. B. Sales of goods and services to a customer. C. Cash received from a customer. D. Dividends paid to stockholders.
B
Which of the following would be recorded as an expense under accrual‐basis accounting? A. The company purchases office supplies with cash and does not use the supplies.(asset & asset) B. The company uses utilities in the current period but does not pay cash. (expense & liability) C. The company provides services to customers for cash. (asset & revenue) D. The company purchases equipment by borrowing from the bank. (asset & liability)
B
Which of the following would increase assets and increase liabilities? A. Provide services to customers on account. B. Purchase office supplies on account. C. Pay dividends to stockholders D. Receive a utility bill but do not pay it immediately
B
The statement of changes in stockholders' equity is a financial statement that summarizes stockholders' equity at a point in time. A. True B. False
B summarizes the changes in stockholders' equity over an interval of time
Boiler Bagels opened for business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the property damage policy was $12,000 for a two‐year term. What was the balance in Boiler's Prepaid Insurance account as of December 31, 2018? A. $9,000 B. $18,000 C. $30,000 D. $48,000
B 12/31/18 Prepaid liability insurance $36,000 ×6/18 (remaining) $12,000 Prepaid property insurance $12,000 ×12/24 (remaining) 6,000 Total $18,000
A debit to an account balance always results in the balance increasing. A. True B. False
B A debit decreases liabilities and stockholders' equity Dr. = Cr. + Cr. Normal Balance assets = liabilities + equity
If total liabilities of a company equal $29,000 and total stockholders' equity equals $15,000, then total assets equal $14,000. A. True B. False
B Assets = Liabilities + Equity $44,000 = $29,000 + $15,000
Emmitt had the following final balances after the first year of operations: assets, $55,000; stockholders' equity, $25,000; dividends, $3,000; and income, $10,000. What is the amount of Emmitt's liabilities? A. $55,000. B. $30,000. C. $13,000. D. $ 7,000.
B Assets = Liabilities + Stockholders Equity Assets ‐ Liabilities = Stockholders Equity $55,000 ‐ $30,000 = $25,000
Selling common stock for cash is recorded with a debit to common stock. A. True B. False
B Debit Credit Cash (+A).................................................. $ ‐Common Stock (+SE).......................... $ ‐(receive cash from investors)
If a company borrowed $20,000 on November 1 at the rate of 6% annually, how much interest expense should be accrued at the year end date of December 31, assuming no accrual has yet been made this year? A. $1,200 B. $200 C. $600 D. $400
B December 31 Debit Credit Interest Expense (+E, −SE) ..................... 200 Interest Payable (+L) ..................... 200 (Interest incurred, but not paid, in the current period)
Revenues normally carry a _______ balance and are shown in the ______________. A. Debit; Statement of stockholders' equity B. Credit; Income statement C. Credit; Balance sheet D. Debit; Balance sheet
B Dr. = Cr. + Cr. Normal Balance assets = liabilities + equity
Which of the following is not a possible journal entry? A. Credit assets; Debit expenses. B. Debit assets; Debit stockholders' equity. C. Credit revenues; Debit assets. D. Debit expenses; Credit liabilities
B Dr. = Cr. Cr. assets = liabilities + equity ( + ) = ( ) (-)
Which of the following best represents value created for stockholders during the current period? A. Retained earnings B. Income. C. Total assets. D. Stockholders' equity.
B Income reflects profits earned (value created) by the company during the current period.
J&L Corporation provides services to a customer on June 17, but the customer does not pay for the services until August 12. According to the revenue recognition principle, J&L should record the revenue on August 12. A. True B. False
B Record revenue when services are performed on June 17
Use the following amounts to calculate net income: Revenues, $12,000; Liabilities, $5,000; Expenses, $4,000; Assets, $19,000; Dividends, $4,000 A. $6,000. B. $8,000. C. $4,000. D. $14,000.
B Revenues $12,000 Expenses (4,000) Net income $8,000
On November 1, 2018, a company receives $1,800 for services to be provided evenly over the next six months. The December 31, 2018, adjusting entry for the company would include a creditto Deferred Revenue for $600. A. True B. False
B The adjusting entry would involve a debit to Deferred Revenue and a credit to Service Revenue for $600.
The adjusting entry for an accrued revenue always includes a debit to a liability account and a credit to a revenue account A. True B. False
B The debit to an asset account
Which of the following is equivalent to the book value of an asset? A. Cost of the asset plus the accumulated depreciation B. Cost of the asset less the accumulated depreciation C. The estimate of time that the asset will last D. Cost of the asset divided by its life
B also called carrying value
The following amounts are reported in the ledger of Mariah Company: What is the balance in the Common Stock account? A. $44,000 B. $32,000 C. $48,000 D. $42,000 Assets $80,000 Liabilities 36,000 Retained Earnings 12,000
B assets ‐ liabilities = equity $80,000 ‐ $36,000 = $44,000 retained earnings + common stock $12,000 + $32,000
Amalgamated Company begins the year with $1,000 in supplies, purchases an additional $5,500 of supplies during the year, and ends the year with $700 in supplies. The year‐end adjusting entry includes Supplies Expense of $7,200. A. True B. False
B beginning balance $1,000 add purchases 5,500 available to use 6,500 less ending supplies (700) supplies used (expense) $5,800 December 31 Debit Credit Supplies Expense (+E, −SE) .................. 5,800 Supplies (−A) ................................... 5,800 ( adjust supplies account to actual at year end )
A company orders office supplies in June. Those supplies are received and used in July. The supplies are paid for in August. In which month should the company record supplies expense? A. June. B. July. C. August. D. Evenly over the three months.
B record expense when used
A company received an order from a customer in June for services to be provided. Those services were provided in July, and the customer paid the full amount in August. According to the revenue recognition principle, in which month should the company record revenue? A. June. B. July. C. August. D. Evenly over the three months.
B record revenue when services are performed
In November, a company hires three temporary employees that are scheduled to work only the month of December. Those employees work during December, and they are then paid their full salaries in January. In which month should the company record salaries expense? A. November. B. December. C. January. D. Evenly over the three months.
B record when employees provide services
The process of transferring the debit and credit information from the journal to individual accounts in the general ledger is called journalizing. A. True B. False
B the process is posting
The amounts recorded when the company sells products or provides services to customers are referred to as: A. Liabilities B. Revenues C. Assets D. Expenses
B Revenues are recorded at the time the company provides products or services to customers.
Which of the following does not represent an asset of a company? A. Supplies held by the company. B. Amounts owed to suppliers. C. Equipment owned and used for operations. D. Amounts receivable from customers.
B, issa liability
A company receives a $50,000 cash deposit from a customer on October 15 but will not provide services until November 20. Which of the following statements is true? A. The company records service revenue on October 15. B. The company records cash collection on November 20. C. The company records deferred revenue on October 15. (liability) D. The company records nothing on October 15.
C
Adjusting entries: A. Often include the Cash account. B. Usually are recorded at the beginning of the accounting period. C. Always involve at least one income statement account and one balance sheet account. D. Adjust the balance of revenue and expense accounts to zero.
C
An accrued expense occurs when: A. Cash payment (or an obligation to pay cash) occurs before the expense recognition. B. An expense is recorded at the same time as the cash payment. C. Cash payment occurs after the expense is recognized and a liability is recorded. D. Cash is paid but an expense is never recorded.
C
Below is the company's Cash T‐account The $3,100 amount could represent which of the following? A. Purchase of supplies on account B. Ending balance of cash C. Payment for salaries D. Collection from customers Debit (Cash Beg.): 1,200 5,200; Credit: 3,100 End. 3,300
C
Consider the following list of accounts: How many of these accounts have a normal debit balance? A. four B. five C. six D. seven Cash Retained Earnings Service Revenue Utilities Expense Salaries Expense Accounts Receivable Accounts Payable Common Stock Equipment Dividends
C
How many of the following transactions are operating activities? 1. Borrowed $50,000 from the bank 2. Purchased $12,000 in supplies 3. Provide services to customers for $27,000 4. Paid the utility bill of $750 5. Purchased a delivery truck for $12,000 6. Received $25,000 from issuing common stock A. One. B. Two C. Three D. Four
C
How many of the following transactions would affect operating cash flows reported in the statement of cash flows (all transaction involve cash)? 1. Borrowed $50,000 from the bank 2. Purchased $12,000 in supplies 3. Provide services to customers for $27,000 4. Paid the utility bill of $750 5. Purchased a delivery truck for $12,000 6. Received $25,000 from issuing common stock A. one B. two C. three D. four
C
Most business enterprises in the United States are A. government units. B. partnerships C. sole proprietorship. D. corporations.
C
The accounting basis that records revenues when goods or services are provided to customers and expenses with related revenues is referred to as: A. Cash‐basis. B. Matching‐basis. C. Accrual‐basis D. Reporting‐basis
C
The accounting equation is in balance if there is a (an) A. increase in liabilities and an increase in equity B. decrease in assets and an increase in liabilities C. increase in assets and an increase in equity D. decrease in equity and an increase in assets
C
The legal authority to set accounting standards lies with the: A. Financial Accounting Standards Board. B. Accounting Principles Board. C. Securities and Exchange Commission. D. American Institute of Certified Public Accountants.
C
The resources of a company are referred to as: A. Liabilities B. Revenues C. Assets D. Expenses
C
What is the best definition of an accounts receivable? A. an amount owed by the company to others. B. owners' investment in the business. C. amounts owed by customers to a company D. none of the above
C
Which of the following is a business transaction that is not considered a recordable transaction in an accounting system? A. A company receives a service B. A company receives a product previously ordered C. A company receives an order from a customer. D. A company pays an employee for work performed
C
Which of the following is a possible adjusting journal entry? A. Debit Cash, credit Accounts Payable. B. Debit Service Revenue, credit Cash. C. Debit Salaries Expense, credit Salaries Payable. D. Debit Utilities Expense, credit Retained Earnings.
C
Which of the following is not an external user of a business's financial information? A. Taxing authorities B. Customers C. Employees D. Investors
C
Which of the following items would not appear in an income statement? A. Salaries expense B. Service revenue C. Cash D. Advertising expense
C
Which of the following requires accounting information to be complete, neutral, and free from material error? A. Economic entity assumption. B. Cost principle. C. Faithful representation concept. D. Going concern assumption.
C
Which one of the following statements regarding financial reports is correct? A. The balance sheet classifies all assets according to operating, investing, and financing activities. B. The income statement is used to show that a company's resources equal claims to those resources. C. The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year. D. The statement of cash flows shows cash inflows and outflows from operating activities only.
C
Which statement best describes when expenses should be recorded? A. Expenses are recorded when paid. B. Expenses are recorded the day a company promises to pay. C. Expenses are recorded when the cost is used to help produce revenue. D. None of the above
C
Amounts owed to suppliers for supplies purchased on account are defined as a(n): A. Revenue. B. Asset. C. Liability. D. Expense.
C Accounts payable is the storage account
Which of the following accounts represents a resource of the company? A. Common stock. B. Service revenue. C. Accounts receivable. D. Supplies expense.
C Amounts due from customers
The Accounts Receivable account has a beginning balance of $10,000 and the company provides services of $50,000 on account during the month. The ending balance was $12,000. How much did the company receive from customers during the month? A. $50,000 B. $52,000 C. $48,000 D. $62,000
C Balance 10,000 Services 50,000 48,000 Cash Rec'd Balance 12,000
Given the information below about Royce Corporation, what was the amount of dividends the company paid in the current period? A. $13,000 B. $110,000 C. $28,000 D. $18,000 Beginning retained earnings $54,000 Ending retained earnings $110,000 Decrease in cash $10,000 Income $84,000 Change in stockholders' equity $15,000
C Beginning R/E $ 54,000 Income 84,000 138,000 Less dividends (28,000) Ending R/E $110,000
Amalgamated Corporation borrows $75,000 from First Bank. Amalgamated Corporation records this transaction with a: A. Debit to Investments. B. Credit to Retained Earnings. C. Credit to Notes Payable. D. Credit to Interest Expense.
C Debit Credit Cash (+A).................................................. 75,000 Notes Payable (+L).......................... 75,000 (receive cash from bank borrowings)
Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are: A. Debit Rent Expense, credit Cash. B. Debit Prepaid Rent, credit Rent Expense. C. Debit Prepaid Rent, credit Cash. D. Debit Cash, credit Prepaid Rent.
C Debit Credit Prepaid Rent (+A).................................. $ ‐Cash (‐A).......................................... $ ‐(record rent deposit for the next 12 months)
An increase to an asset account is shown with a ______________. An increase to a liability account is shown with a ______________. A. Debit; Debit B. Credit; Debit C. Debit; Credit D. Credit; Credit
C Dr. = Cr. + Cr. Normal Balance assets = liabilities + equity
Liabilities normally carry a _______ balance and are shown in the ______________. A. Debit; Statement of stockholders' equity B. Debit; Income statement C. Credit; Balance sheet D. Debit; Balance sheet
C Dr. = Cr. + Cr. Normal Balance assets = liabilities + equity
Liabilities can be best described as: A. The amount of expenses over the past year. B. The amount expected to be distributed to stockholders. C. The amount owed to creditors D. The amount of services provided to customers during the year.
C Storage account used is accounts payable
Amounts owed to suppliers for supplies purchased on account are defined as a(n): A. Revenue. B. Asset. C. Liability. D. Expense.
C assets = liabilities + stockholders' equity
Owners' claims to the company's resources are referred to as: A. Liabilities. B. Assets. C. Stockholders' equity. D. Net liabilities.
C assets = liabilities +stockholders' equity
XYZ Airlines, Inc. flies throughout North America employing a strategy of short flights using smaller aircraft to increase efficiencies and utilization. The Company's policy is to provide a cash refund to customers for unused aircraft tickets. When should XYZ recognize revenue for ticket sales? A. When the passenger pays for the ticket. B. When the airline sells the ticket. C. When the plane arrives at its destination. D. When boarding passes are taken at the plane door.
C at completion of service
American Airlines collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should American Airlines have recognized this revenue? A. January. B. February. C. April. D. Evenly in each of the three months.
C record revenue when flight is complete
If a company has stockholders' equity of $25,000 at the end of the year, which of the following statements must be true? A. The company has issued $25,000 of common stock. B. Net income for the year equals $25,000. C. The company's assets exceed liabilities by $25,000. D. Total revenues during the year equal $25,000.
C assets = liabilities + stockholders' equity assets ‐liabilities = stockholders' equity assets ‐liabilities = $25,000
External events include all of the following except: A. Paying rent. B. Purchasing equipment. C. Using office supplies. D. Collecting an account receivable.
C end of the period adjustment
Accounting is the information system that A. measures business activities B. communicates the results to decision makers C. processes information into reports D. all of the above.
D
Below is the company's Cash T‐account The $5,200 amount could represent which of the following? A. Purchase of supplies on account B. Ending balance of cash C. Payment for salaries D. Collection from customers Cash Beg. 1,200 5,200 Credit: 3,100 End. 3,300
D
Cash received from bank borrowing would be reported in the statement of cash flows as what type of activity? A. Investing B. Organizing C. Operating D. Financing
D
Consider the following transactions: 1. The company uses supplies purchased in the previous period, $1,500. (expense -accrual basis) 2. The company pays cash for rent in advance, $6,000. (expense -cash basis) 3. The company repays a loan to the bank, $10,000 (ignore any interest cost). The amount of accrual‐basis expense is _____ while the amount of cash‐basis expense is _____. A. $6,000; 11,500 B. $6,000; $16,000 C. $1,500; 16,000 D. $1,500; $6,000
D
During the month of January, a law firm provided legal services of $20,000 to a client that were not billed. What is the required adjusting entry by the law firm at January 31? A. Dr. Legal service revenue $20,000 Cr. Accounts receivable $20,000 B. Dr. Legal service revenue $20,000 Cr. Cash $20,000 C. Dr. Unearned revenue $20,000 Cr. Legal service revenue $20,000 D. Dr. Accounts receivable $20,000 Cr. Legal service revenue $20,000
D
During the year, Cheng Company paid salaries of $24,000. In addition, $8,000 in salaries has accrued by the end of the year but has not been paid. The yearend adjusting entry would include which one of the following? A. Debit to Salaries Expense for $32,000. B. Credit to Salaries Expense of $8,000. C. Debit to Salaries Payable for $24,000. D. Credit to Salaries Payable for $8,000
D
In what order are the following financial statements prepared: (1) balance sheet, (2) income statement, and (3) statement of stockholders' equity? A. 1, 2, 3. B. 3, 2, 1 C. 1, 3, 2 D. 2, 3, 1
D
Investments by stockholders have what effect on the accounting equation? A. Assets increase and liabilities increase. B. Expenses increase and liabilities increase. C. Assets increase and revenues increase. D. Assets increase and stockholders' equity increases.
D
On July 1, 2018, Silver Co. paid $18,000 to Rent‐AnOffice for rent covering 18 months from July 2018 through December 2019. What adjusting entry should Silver Co. record on December 31, 2018? A. Rent Expense 18,000 Cash 18,000 B. Rent Expense 18,000 Prepaid Rent 18,000 C. Prepaid Rent 6,000 Rent Expense 6,000 D. Rent Expense 6,000 Prepaid Rent 6,000
D
The adjusting entry required to record accrued expenses includes: A. A credit to Cash. B. A debit to an asset. C. A credit to an asset. D. A credit to liability.
D
The financial statement(s) that record activity over an interval of time include the A. Income statement B. Balance sheet C. Balance sheet and income statement D. Income statement and statement of cash flows.
D
The following events pertain to Jasper Corporation: aMay 1Jasper purchased office supplies of $3,000 on account. BMay 5The office supplies were shipped to Jasper. CMay 8Jasper used these office supplies for a one‐time event. DMay 9Jasper paid$3,000 cash for the office supplies purchased on May 1. Using cash‐basis accounting, on which date should Jasper record supplies expense?
D
The primary difference between accrual‐basis and cash‐basis accounting is: A. Cash‐basis accounting is allowed for financial reporting purposes but not accrual‐basis accounting. B. Accrual‐basis accounting violates both the revenue recognition and matching principles. C. Adjusting entries are only a necessary part of cash‐basis accounting. D. The timing of when revenues and expenses are recorded.
D
Those who lend money or deliver goods and services before being paid are called A. investors B. debtors C. underwriters D. creditors
D
When a magazine company sells one‐year subscriptions to customers but receives the full amount of cash immediately, it is an example of a(n): A. Accrued expense. B. Accrued revenue. C. Prepaid expense. D. Deferred revenue.
D
Which of the following best explains the meaning of total stockholders' equity? A. The difference between total revenues and total expenses, less dividends for the year. B. The amount of common stock less dividends over the life of the company. C. All revenues, expenses, and dividends over the life of the company. D. The amount of capital invested by stockholders plus profits retained over the life of the company.
D
Which of the following is an operating activity? A. Issuing common stock. B. Paying dividends. C. Borrowing cash from a bank to acquire a factory. D. Paying electricity bills for the month.
D
Which one of the following best describes the characteristics of adjusting entries? A. Adjusting entries reduce the balance of revenue, expense, and dividend accounts to zero. B. Adjusting entries allow for the proper recognition of cash flows. C. Adjusting entries allow for the proper recognition of investments from and distributions to stockholders. D. Adjusting entries allow for the proper recognition of revenue and expenses.
D
Providing services on account would be recorded with a: A. Debit to Service Revenue. B. Credit to Accounts Receivable. C. Credit to Accounts Payable. D. Debit to Accounts Receivable.
D Accounts Receivable (+A)..................... $ ‐Service Revenue (+SE).................... $ ‐(record service revenue to customer on account)
Knomark, Inc. purchased equipment by signing a note payable. This transaction would be recorded as: A. Debit Equipment, credit Cash. B. Debit Cash, credit Notes Payable. C. Debit Notes Payable, credit Equipment. D. Debit Equipment, credit Notes Payab
D Debit Credit Equipment (+A)...................................... $ ‐Notes Payable (+L).......................... $ ‐(purchased equipment by executing a note agreement)
Which one of the following accounts will have a credit balance? A. Dividends B. Salary Expense C. Supplies D. Common Stock
D Dr. = Cr. + Cr. Normal Balance assets = liabilities + equity
Which of the following accounts would normally have a debit balance? A. Accounts Payable, Service Revenue, Common Stock. B. Salaries Payable, Deferred Revenue, Utilities Expense. C. Income Tax Payable, Service Revenue, Dividends. D. Cash, Delivery expense, Dividends.
D Expenses and dividends decrease stockholders' equity (use opposite of normal balance) Dr. = Cr. + Cr. Normal Balance assets = liabilities + equity
If a company pays an employee $100 per day for a fiveday work week that runs from Monday to Friday, and December 31 is a Tuesday, what is the amount of the salaries adjustment, assuming that Friday is payday? A. $500 B. $400 C. $300 D. $200
D Since the employee worked two days in the last week of December (Monday and Tuesday), the amount of the accrual should be for $200 ($100 per day ×2 days).
Following are transactions of ATI, Inc., a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $10,000, signing a note payable for the full amount. 3. Received cash of $14,000 for services provided to customers during the month. 4. Purchased $500 of office supplies on account. 5. Paid employees $10,000 for their first month's salaries. 6. Purchased office equipment for $1,200 cash. What was the total amount of ATI's liabilities following these six transactions? A. $12,300. B. $27,300. C. $22,600. D. $10,500.
D assets = liabilities + equity 1. (+) $15,000 = (+) $15,000 2. (+) $10,000 = (+) $10,000 + 3. (+) $14,000 = + (+) $14,000 4. (+) $ 500 = (+) $ 500 + 5. (‐) $ 1,200 (+) $ 1,200 Total = $10,500
Purchasing supplies for cash has what effect on the accounting equation? A. Increase assets. B. Decrease stockholders' equity. C. Decrease liabilities. D. No effect.
D assets = liabilities + equity (‐) cash = (+) supplies
Which statement below best describes the accounting equation? A. The change in retained earnings equals net income less dividends. B. Equality of revenue and expense transactions over time. C. Financing activities equal investing and operating activities. D. Resources of the company equal creditors' and owners' claims to those resources.
D assets = liabilities +stockholders' equity
Consider the following events for Betterment, Inc.: Under accrual‐basis accounting, what is the appropriate day to record the expenses related to the gasoline? A. January 1. B. January 7. C. January 12 D. January 13 January 1 Betterment purchases gasoline for $200 on account. January 7 Betterment advertises lawn mowing services for $100 per lawn. January 9 Betterment signs up 8 customers who pay a total of $800 cash. January 12 Betterment mows the lawns of the 8 customers and all gasoline purchased on January 1 is used. January 13 Betterment pays for the gasoline purchased on January 1.
c
Using the information below from the accounting records of Knomark Corporation, stockholders' claims to the company's resources amount to: Assets $1,200,000 Liabilities $800,000 Net income $100,000 Retained earnings $250,000 A. $1,200,000 B. $800,000. C. $250,000 D. $400,000
1,200,000 = 800k + 400k
Financial Accounting
accounting information and analyses prepared for people outside the organization
Managerial Accounting
accounting used to provide information and analyses to managers inside the organization to assist them in decision making
Assume that Executive Maintenance, Inc. performed cleaning services for a business on account for $180. How would this transaction affect Executive Maintenance, Inc.? A. Increase both assets and liabilities by $180. B. Increase both assets and equity by $180. C. Increase both liabilities and equity by $180. D. Decrease liabilities by $180, and increase equity by $180.
assets = liabilities + equity ( + ) = ( + ) accts. receivable service revenue
A business provides a service to a customer. The customer will pay the business next month. common retained assets = liabilities + stock + earnings A. ( + )= ( )+ ( ) +( + ) B. ( + )= ( ) + ( ) + ( ‐ ) C. ( + )= ( + ) + ( ) + ( ) D. ( +,‐)= ( )+ ( ) + ( )
assets = liabilities + equity (R/E) (+) accts. = (+) service receivable revenue
