Accounting 101 Midterm

Which of the following financial statements is concerned with the enterprise at a point in time? a. Income statement b. Balance sheet c. Statement of cash flows d. Statement of retained earnings

b. Balance Sheet

Net income a. is accumulated in Retained Earnings. b. All of these choices. c. is reported on the income statement. d. occurs when revenues exceed expenses.

b. All of these choices.

T/F Classified balance sheets list accounts in alphabetical order.

false

Which of the following transactions does not involve an exchange of value? a. Payment of a debt b. Loss from theft c. Purchase of a building on credit d. Borrowing money

B. loss from theft

T/F A business using cash to expand by purchasing land and a building is an example of an operating activity.

False

T/F A journal entry shows the date, credit account, and credit amount shown on one line, and the debit account (indented) and debit amount shown on the next line.

False

T/F Accrual accounting recognizes revenues and expenses at the point that cash changes hands.

False

T/F An adjusted trial balance will probably list fewer accounts than are listed in the trial balance.

False

T/F Depreciation Expense-Equipment is an example of a contra account.

False

T/F Purchase requests and purchase orders are economic events, and as such they affect a company's financial position, and are recognized in the accounting records.

False

T/F The general ledger is used to record the details of each transaction. The general journal is used to update each account.

False

T/FProfitability means having enough cash on hand to pay bills when they become due.

False

Use this information pertaining to Tucson Company to answer the following question. 1. The corporation's Supplies account showed a beginning debit balance of $400 and supplies purchased of $1,600. There were $600 of supplies on hand at year end. 2. Depreciation on a building is estimated to be $10,000. 3. A one-year insurance policy was purchased for $4,800. Five months have passed since the purchase. 4. Accrued interest on a note receivable amounted to $200. 5. The company received a $3,600 advance payment during the year on services to be performed. By the end of the year, one-third of the services had been performed.

Supplies Expense 1,400 Supplies 1,400

T/F A corporation is an economic unit that is legally separate from its owners.

True

T/F A transaction that increases expenses will decrease stockholders' equity.

True

T/F An adjusting entry includes at least one balance sheet account and at least one income statement account.

True

T/F Even when no errors have been made, accounting is never 100 percent accurate because of the extensive use of estimates.

True

T/F Fair value is the exchange price of an actual or potential business transaction between market participants.

True

T/F Generally accepted accounting principles encompass the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

True

T/F The statement of retained earnings relates the income statement to the balance sheet by showing how the Retained Earnings account changed during the accounting period.

True

T/F The two parts of a corporation's stockholders' equity section are contributed capital and retained earnings.

True

T/F When a net loss occurs, it is subtracted from the balance in the Retained Earnings account.

True

T/F the obligation to provide services to another entity is a type of liability

True

Which of the following should be classified as an intangible asset? a. Copyright b. Special funds established to pay off a debt c. Long-term notes receivable d. Land held for future use

a. Copyright

Which of the following events does not require a journal entry? a. Purchase of a one-year insurance policy. b. Agreement to perform a service at a future date. c. Payment for a service performed previously. d. All of these choices.

b. Agreement to perform a service at a future date.

The Supplies account had a $720 debit balance at the end of the accounting period before adjustment for supplies used, and an inventory of $160 of unused supplies was on hand. Which of the following is the required adjusting entry? a. Debit Supplies Expense $560 and credit Supplies $560. b. Debit Supplies Expense $160 and credit Supplies $160. c. Debit Supplies $160 and credit Supplies Expense $160. d. Debit Supplies $560 and credit Supplies Expense $560. Hide Feedback

a. Debit Supplies Expense $560 and credit Supplies $560.

The user can depend on the accuracy of financial information when which of the following qualitative characteristics has been followed? a. Faithful representation b. Relevance c. Timeliness d. Understandability

a. Faithful representation

Which of the following accounts could decrease as a result of adjusting entries? a. Prepaid Insurance. b. Service Revenue. c. Accumulated Depreciation-Buildings. d. Rent Expense.

a. Prepaid Insurance.

A company records a transaction in which six months' rent is paid in advance. Which of the following journal entries records the transaction? a. Prepaid Rent - Debit; Cash - Credit b. Rent Revenue - Debit; Cash - Credit c. Rent Expense- Debit; Cash - Credit. d. Rent Receivable - Debit; Cash - Credit

a. Prepaid Rent - Debit; Cash - Credit

Which of the following errors will cause the trial balance to be out of balance? a. The balance of an account was incorrectly computed. b. An entire transaction was omitted from the general journal. c. A debit entry was entered in the wrong debit account. d. An entire transaction was entered in the general journal as $27 instead of $72.

a. The balance of an account was incorrectly computed.

Which of the following would not appear in the owner's equity section of a corporation? a. W. Muller, Capital b. Additional paid-in capital c. Retained earnings d. Common stock

a. W. Muller, Capital

A company should classify land held for a planned manufacturing facility as a. an investment. b. an intangible asset. c. property, plant, and equipment. d. a current asset.

a. an investment.

Revenues a. are earned through the sale of goods, even though the cash may not be collected until later. b. are a cost of doing business. c. are decreases in equity resulting from rendering services. d. are called expired costs.

a. are earned through the sale of goods, even though the cash may not be collected until later.

A practical decision to expense a $120 printer rather than record it as property, plant, and equipment and depreciate it probably is made on the basis of the convention of a. materiality. b. conservatism. c. full disclosure. d. consistency.

a. materiality.

Which of the following is an example of a financing activity? a. Obtaining a bank loan b. Selling equipment c. Paying taxes to the government d. Purchasing land

a. obtaining a bank loan

Accounting information should make a difference to the outcome of a decision, according to the qualitative characteristic of a. relevance. b. consistency. c. understandability. d. faithful representation.

a. relevance.

The best definition of assets is the a. resources belonging to a company having future benefit to the company. b. collection of resources belonging to the company and the claims on these resources. c. cash owned by the company. d. owner's investment in the business.

a. resources belonging to a company having future benefit to the company.

Transfer of ownership will affect the continuity of a a. sole proprietorship or partnership. b. sole proprietorship. c. partnership. d. corporation.

a. sole proprietorship or partnership

All of the following statements about corporations are true except... a. the stockholders have direct control of the business. b. they are chartered by the state. c. the sale of stock does not dissolve the business. d. ownership is represented by shares of stock

a. the stockholders have direct control of the business

Which of the following statements is false about a journal entry? a. It may have more than one debit or credit entry. b. Accounts that are increased are always listed first. c. Credits are always indented. d. All debits are always listed before any credits.

b. Accounts that are increased are always listed first.

Which of the following accounts should be debited in a journal entry? a. Accounts Receivable, when it has been decreased. b. Dividends, when it has been increased. c. Wages Payable, when it has been increased. d. All of these choices.

b. Dividends, when it has been increased.

Which of the following transactions results in the recognition of an expense? a. Payment on the principal portion of a loan. b. Expiration of the usefulness of equipment during the accounting period. c. Declaration and payment of dividends. d. Payment on an account payable.

b. Expiration of the usefulness of equipment during the accounting period.

Which of the following represents the proper order of financial statement preparation? a. Statement of retained earnings, income statement, statement of cash flows, balance sheet b. Income statement, statement of retained earnings, balance sheet, statement of cash flows c. Statement of cash flows, balance sheet, income statement, statement of retained earnings d. Balance sheet, statement of cash flows, statement of retained earnings, income statement

b. Income statement, statement of retained earnings, balance sheet, statement of cash flows

Which of the following accounts might be placed first in a journal entry? a. Unearned Revenue, when it has been increased. b. Interest Payable, when it has been decreased. c. Service Revenue, when it has been increased. d. Accounts Receivable, when it has been decreased

b. Interest Payable, when it has been decreased.

According to the FASB, the usefulness of accounting is judged by which of the following two qualitative characteristics of accounting information? a. Verifiability and timeliness b. Relevance and faithful representation c. Comparability and neutrality d. Understandability and comparability

b. Relevance and faithful representation

Which of the following should be classified as a current asset? a. Trademark b. Supplies c. Land held for future use d. Equipment

b. Supplies

After all closing entries have been posted, which of the following accounts is most likely to have a nonzero balance? a. Interest Expense b. Unearned Revenue c. Service Revenue d. Income Summary

b. Unearned Revenue

When there is a net loss, the entry to close the Income Summary account is a. debit Net Loss and credit Income Summary. b. debit Retained Earnings and credit Income Summary. c. debit Income Summary and credit Retained Earnings. d. debit Income Summary and credit Net Loss.

b. debit Retained Earnings and credit Income Summary.

Receiving cash from a customer for settlement of an Account Receivable will... a. decrease Stockholder's Equity b. not a affect total assets c. increase net income d. increase total assets

b. not a affect total assets

The controller for Tires and More, Inc. has recorded the following transactions during the month: the purchase of equipment for $8,500 cash; payment of $6,300 for 3 months of rent; and, collection of $2,400 from a customer for services performed. At the beginning of the month the company was established by selling 10,000 shares of stock to the public for $15,000 cash. What is the balance in the Cash account at the end of the month, and is the balance a debit or a credit? a. $15,200 debit b. $6,800 debit c. $2,600 debit d. $2,600 credit

c. $2,600 debit

Which of the following accounts is not considered an asset? a. Accounts Receivable b. Inventory c. Accounts Payable d. Trademark

c. Accounts Payable

When a company has performed a service but has not yet received payment, what is the required journal entry to be recorded? a. Service Revenue - Debit; Accounts Payable - Credit. b. No entry is required until the cash is received. c. Accounts Receivable - Debit; Service Revenue - Credit d. Service Revenue - Debit; Accounts Receivable - Credit

c. Accounts Receivable - Debit; Service Revenue - Credit

Which of the following accounts could increase as a result of adjusting entries? a. Unearned Fees. b. Office Equipment. c. Accounts Receivable. d. Prepaid Insurance.

c. Accounts Receivable.

Which of the following accounts would likely not need to be adjusted at year end? a. Prepaid Insurance b. Equipment c. Common Stock d. Supplies

c. Common Stock

A company's five-day weekly payroll of $890 is paid on Fridays. Assume that the last day of the month falls on Tuesday. Which of the following is the required adjusting entry for the month end? a. Debit Salaries Expense $534 and credit Salaries Payable $534. b. Debit Unpaid Salaries $356 and credit Salaries Payable $356. c. Debit Salaries Expense $356 and credit Salaries Payable $356. d. Debit Salaries Payable $534 and credit Salaries Expense $534.

c. Debit Salaries Expense $356 and credit Salaries Payable $356.

Which pair of accounts follows the rules of debit and credit in the same manner? a. Notes Payable and Buildings b. Wages Expense and Service Revenue c. Land and Dividends d. Service Revenue and Equipment

c. Land and Dividends

Which of the following accounts is increased with a debit? a. Common Stock b. Service Revenue c. Prepaid Insurance d. Rent Payable

c. Prepaid Insurance

Which of the following is an agency of the U.S. government? a. AICPA b. IASB c. SEC d. FASB

c. SEC - securities and Exchange commission

An adjusting entry made to record salaries earned but not yet paid or recorded is made with which of the following entries? a. Salaries Payable - Debit; Salaries Expense - Credit b. Cash - Debit; Salaries Expense - Credit c. Salaries Expense - Debit; Salaries Payable - Credit d. Salaries Expense - Debit; Cash - Credit

c. Salaries Expense - Debit; Salaries Payable - Credit

Which of the following accounts is increased with a credit? a. Land b. Office Supplies c. Unearned Revenue d. Prepaid Insurance

c. Unearned Revenue

What is the adjusting entry for that portion of revenue received in advance which has now been earned? a. Service Revenue - Debit; Unearned Revenue - Credit b. Unearned Revenue - Debit; Cash - Credit c. Unearned Revenue - Debit; Service Revenue - Credit d. Cash - Debit; Unearned Revenue - Credit

c. Unearned Revenue - Debit; Service Revenue - Credit

Which of the following accounts is most likely to appear on the balance sheet as a current liability? a. Accumulated Depreciation b. Mortgage Payable c. Wages Payable d. Bonds Payable

c. Wages Payable

The purpose of an audit is to a. comply with income tax regulations. b. determine whether or not a company is a good investment. c. ascertain that the financial statements follow GAAP. d. determine whether or not a company is a good credit risk.

c. ascertain that the financial statements follow GAAP

Which of the following is legally a separate entity from its owner(s)? a. Sole proprietorship and partnership only b. Partnership only c. Corporation only d.sp;e proprietorship only

c. corporation only

The primary purpose of the trial balance is to test the a. equality of debit and credit balances in the journal. b. analysis of transactions. c. equality of debit and credit balances in the ledger. d. recording of transactions.

c. equality of debit and credit balances in the ledger.

The following users of accounting information have a direct financial interest in a business except a. management. b. an investor. c. a financial adviser. d. a creditor.

c. financial adviser

he intentional preparation of misleading financial statements, known as fraudulent financial reporting, can result from all of the following except a. the manipulation of inventory records. b. fictitious sales or orders. c. recording a revenue that has been earned but not yet received. d. the misapplication of accounting principles.

c. recording a revenue that has been earned but not yet received.

An important purpose of closing entries is to a. adjust the accounts in the ledger. b. set permanent account balances to zero to begin the next period. c. set temporary account balances to zero to begin the next period. d. help in preparing financial statements.

c. set temporary account balances to zero to begin the next period.

As the usefulness of a plant asset expires, a. an amount is transferred from one asset account to another. b. a liability is created. c. the cost of the asset is allocated to an expense account. d. a related expense account is reduced.

c. the cost of the asset is allocated to an expense account.

Failure to record depreciation at year end will result in all of the following except a. overstatement of total assets. b. overstatement of stockholders' equity. c. understatement of total liabilities. d. overstatement of net income.

c. understatement of total liabilities.

The controller for Tires and More, Inc. has recorded the following transactions during the month: the purchase of supplies on credit, $4,200; receipt of a bill for utilities for the month which is due on the 15th of the next month, $1,200; and, partial payment on the balance due for supplies, $800. What is the balance in the Accounts Payable account at the end of the month assuming a beginning balance of $0, and is the balance a debit or a credit? a. $3,400 credit. b. $5,400 credit. c. $4,600 debit. d. $4,600 credit.

d. $4,600 credit.

Which of the following is a business event that is not considered a recordable transaction? a. A company receives a product previously ordered. b. A customer purchases a service. c. A company pays an employee for work performed. d. A customer inquires about the availability of a service.

d. A customer inquires about the availability of a service.

Which of the following is a business event that is considered a recordable transaction? a. A company orders a product from a supplier. b. A company hires a new employee. c. An employee sends a purchase requisition to the purchasing department. d. A customer purchases merchandise

d. A customer purchases merchandise

Closing entries are made a. to clear dividends of its balance. b. to clear revenue and expense accounts of their balances. c. to summarize a period's revenues and expenses. d. All of these choices.

d. All of these choices.

Which of the following accounts is not closed during the closing process? a. Commissions Earned b. Income Summary c. Dividends d. Common Stock

d. Common Stock

Goodwill would appear in which balance sheet section? a. Property, plant, and equipment b. Current assets c. Investments d. Intangible assets

d. Intangible assets

___________ is related to both the nature of an item and its size. a. Neutrality b. Timeliness c. Verifiability d. Materiality

d. Materiality

Which of the following is not an application of accrual accounting? a. Recording telephone expense in the accounting period covered by the monthly bill. b. Adjusting unearned advertising fees to the proper balance at the end of the month. c. Recording advertising fees earned at the time the work is done. d. Recording advertising fees earned at the time the cash payment is received.

d. Recording advertising fees earned at the time the cash payment is received.

Slim Co. is ordering a new computer for its corporate office. Which of the following events would trigger the recognition of the computer and related liability on Slim's books? a. The purchasing department sends a purchase order to the supplier. b. The company generates a purchase order. c. The company receives the bill from the supplier. d. The company receives the computer.

d. The company receives the computer.

Which of the following is not a temporary account? a. Interest Income b. Service Revenue c. Depreciation Expense-Vehicles d. Unearned Revenue

d. Unearned Revenue

The Double-Entry System a. is based on the principle of duality b. requires that each transaction be recorded with at least one debit and one credit c. total amount of credits must equal the total amount of debits d. all of the above

d. all of the above

When a business erroneously records expenses as assets, it has violated the measurement issue of a. communication. b. valuation. c. realization. d. classification.

d. classification.

The following users of accounting information have an indirect financial interest in the business except... a. taxing authority. b. labor union. c. regulatory agency. d. creditor.

d. creditor

The issue of deciding when to record a transaction is solved by a. analyzing the intent of management. b. assigning historical cost to the transaction. c. properly classifying the transaction. d. deciding on a point of recognition.

d. deciding on a point of recognition.

If an adjusting entry is not made at the end of an accounting period to remove the earned revenue from the Unearned Revenue account, a. stockholders' equity would be overstated. b. liabilities would be understated. c. assets would be understated. d. liabilities would be overstated.

d. liabilities would be overstated.

Mesquite, Inc. is ordering a new machine to be used in its manufacturing facility. Which of the following events would trigger the recognition of the machine and related liability on Mesquite's books? a. The company pays the bill from the supplier. b. A technician installs the machine on the floor of the manufacturing facility. c. The company generates a purchase order. d. The company receives the machine.

d. the company receives the machine.

An investment is classified as short term or long term based on a. the purpose for which it is held. b. the dollar amount of the investment. c. whether the investment can be sold immediately. d. the length of time the investor expects to hold it.

d. the length of time the investor expects to hold it.