accounting 201 exam 1 review

1) The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the: A) FASB B) SEC C) APB D) AAA E) AICPA

A) FASB

23) On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9,300. What is the amount of stockholders' equity as of May 31 of the current year? A) 20,500 B) 13,050 C) 31,100 D) 8,300 E) 40,400

C) 31,100

70) Marsha Bogswell is the owner of Bogswell Legal Services, Inc. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services, Inc.? A) Monetary unit assumption. B) Going-concern assumption. C) Business entity assumption. D) Cost principle. E) Matching principle.

C) Business entity assumption.

47) Source documents may include all of the following except: A) Sales tickets. B) Checks. C) Ledgers. D) Purchase orders. E) Bank statements.

C) Ledgers.

4) The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is: A) Revenue recognition principle. B) Business entity assumption. C) Objectivity principle. D) Going-concern assumption. E) Time-period assumption.

C) Objectivity principle.

27) Identify the statement below that is correct. A) Accrued liabilities include accounts receivable. B) An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business. C) Promises of future payment by the customer are called accounts receivable. D) When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. E) Increases and decreases in cash are always recorded in the common stock account.

C) Promises of future payment by the customer are called accounts receivable.

22) Assets created by selling goods and services on credit are: A) Accounts payable. B) Expenses. C) Equity. D) Accounts receivable. E) Liabilities.

D) Accounts receivable.

58) A post-closing trial balance reports: A) All temporary and permanent ledger accounts with balances. B) All nominal ledger accounts with balances. C) Only asset accounts. D) All permanent ledger accounts with balances. E) Only revenue and expense accounts.

D) All permanent ledger accounts with balances.

18) Doc's Ribhouse had beginning equity of $52,000; net income of $35,000, and Dividends by thecompany of $12,000. Calculate the ending equity. A) 29,000. B) 55,000 C) 5,000. D) 99,000. E) 75,000.

E) 75,000.

43) A debit is used to record an increase in all of the following accounts except: A) Cash B) Dividends C) Supplies D) Prepaid Insurance E) Accounts Payable

E) Accounts Payable

34) Andrea Apple opened Apple Photography, Inc. on January 1 of the current year. DuringJanuary, the following transactions occurred and were recorded in the company's books: 1. Andrea, the stockholder, invested $13,500 cash in the business. 2. Andrea contributed $20,000 of photography equipment to the business. 3. The company paid $2,100 cash for an insurance policy covering the next 24 months. 4. The company received $5,700 cash for services provided during January. 5. The company purchased $6,200 of office equipment on credit. 6. The company provided $2,750 of services to customers on account. 7. The company paid cash of $1,500 for monthly rent. 8. The company paid $3,100 on the office equipment purchased in transaction #5 above. 9. Paid $275 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be: A) 12,225. B) 13,500. C) 18,700. D) 41,450. E) 15,250.

A) 12,225.

66) If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: A) Assets, net income, and equity overstated. B) Assets overstated and equity understated. C) Assets, net income, and equity understated. D) Assets and equity both understated. E) Assets overstated, net income understated, and equity overstated.

A) Assets, net income, and equity overstated.

29) An account used to record the stockholders' investments in a business is called a(n): A) Common stock account. B) Dividends account. C) Revenue account. D) Liability account. E) Expense account.

A) Common stock account.

65) An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n): A) Contra account. B) Accrued expense. C) Accrued revenue. D) Adjunct account. E) Intangible asset.

A) Contra account.

41) Willow Rentals purchased office supplies on credit. The general journal entry made by WillowRentals will include a: A) Credit to Accounts Payable. B) Debit to Accounts Payable. C) Debit to Accounts Receivable. D) Credit to Common Stock. E) Credit to Cash.

A) Credit to Accounts Payable.

52) The adjusting entry to record the salaries earned due to employees for services provided but unpaid at the end of the accounting period affects the accounts in which of the following ways? A) Debit Salaries Expense and credit Salaries Payable. B) Debit Accrued Salaries and credit Salaries Payable. C) Debit Salaries Expense and credit Cash. D) Debit Salaries Payable and credit Salaries Expense. E) Debit Cash and credit Salaries Expense.

A) Debit Salaries Expense and credit Salaries Payable.

68) The broad principle that requires expenses to be reported in the same period as the revenuesthat were earned as a result of the expenses is the: A) Expense recognition (matching) principle. B) Recognition principle. C) Time period principle. D) Cost principle. E) Cash basis of accounting.

A) Expense recognition (matching) principle.

24) Creditors' claims on the assets of a company are called: A) Liabilities. B) Net losses. C) Equity. D) Expenses. E) Revenues.

A) Liabilities.

5) External users of accounting information include all of the following except: A) Purchasing managers. B) Creditors. C) Customers. D) Government regulators. E) Shareholders.

A) Purchasing managers.

11) If Houston Company billed a client for $10,000 of consulting work completed, the accountsreceivable asset increases by $10,000 and: A) Revenue increases $10,000. B) Accounts payable increases $10,000. C) Revenue decreases $10,000. D) Cash increases $10,000. E) Accounts payable decreases $10,000.

A) Revenue increases $10,000.

46) The numbering system used in a company's chart of accounts: A) Typically begins with balance sheet accounts. B) Depends on the source documents used in the accounting process. C) Is the same for all companies. D) Typically begins with income statement accounts. E) Is determined by generally accepted accounting principles.

A) Typically begins with balance sheet accounts.

49) On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the current year ended December 31?A) $1,000. B) $1,200. C) $1,400. D) $400. E) $2,400.

B) $1,200.

14) Prevor Corporation reports the following account balances at the end of its first year of operation: Accounts Payable $30,000 Accounts Receivable 16,500 Cash 14,000 Common Stock 20,000 Expenses 110,500 Land 40,000 Revenues 133,000 Supplies 2,000 Prevor's total liabilities equal: A) 72,500 B) 30,000 C) 46,500. D) 50,000. E) 42,500.

B) 30,000

61) Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are: A) Unearned expenses. B) Accrued expenses. C) Intangible expenses. D) Net expenses. E) Prepaid expenses.

B) Accrued expenses.

69) Adjusting entries: A) Affect only balance sheet accounts. B) Affect both income statement and balance sheet accounts. C) Affect only income statement accounts. D) Affect cash accounts. E) Affect only equity accounts.

B) Affect both income statement and balance sheet accounts.

15) The income statement reports all of the following except: A) Net income or loss earned by a business. B) Assets owned by a business. C) Expenses incurred by a business. D) Revenues earned by a business. E) The time period over which the earnings occurred.

B) Assets owned by a business.

56) Which of the following accounts showing a balance on the post-closing trial balance indicate an error? A) Salaries Payable. B) Depreciation Expense—Office Equipment. C) Accumulated Depreciation—Office Equipment. D) Office Equipment. E) Retained Earnings.

B) Depreciation Expense—Office Equipment.

57) Which of the following accounts showing a balance on the post-closing trial balance indicate an error? A) Unearned Revenue. B) Dividends. C) Prepaid Insurance. D) Land. E) Accounts Payable.

B) Dividends.

45) A debit: A) Always increases an account. B) Is the left-hand side of a T-account. C) Is the right-hand side of a T-account. D) Is not needed to record a transaction. E) Always decreases an account.

B) Is the left-hand side of a T-account.

28) Unearned revenues are generally: A) Revenues that have been earned but not yet collected in cash. B) Liabilities created when a customer pays in advance for products or services before the revenue is earned. C) Revenues that have been earned and received in cash. D) Recorded as an asset in the accounting records. E) Increases to stockholders equity.

B) Liabilities created when a customer pays in advance for products or services before the revenue is earned.

38) On January 1 of the current year, Jimmy's Sandwich Company, Inc. reported stockholders' equity totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year the business paid $20,000 to the stockholders. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $196,000, the change in stockholders' equity during the year was: A) An increase of $9,500. B) A decrease of $30,500. C) A decrease of $9,500. D) An increase of $73,500. E) An increase of $30,500.

C) A decrease of $9,500.

31) A company's ledger is: A) A collection of documents that describe transactions and events entering the accounting process. B) A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item. C) A record containing all accounts and their balances used by the company. D) A journal in which transactions are first recorded. E) A list of all accounts a company uses with an assigned identification number.

C) A record containing all accounts and their balances used by the company.

19) All of the following are classified as liabilities except: A) Interest Payable. B) Bonds Payable. C) Accounts Receivable. D) Wages Payable. E) Accounts Payable.

C) Accounts Receivable.

21) Saddleback Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation? A) Assets, $30,000 decrease; liabilities, $30,000 increase. B) Assets, $30,000 decrease; equity $30,000 decrease. C) Assets, $30,000 decrease; liabilities, $30,000 decrease. D) Assets, $30,000 increase; equity, $30,000 increase. E) Liabilities, $30,000 decrease; equity, $30,000 increase.

C) Assets, $30,000 decrease; liabilities, $30,000 decrease.

10) Resources a company owns or controls that are expected to yield future benefits are: A) Liabilities. B) Expenses. C) Assets. D) Revenues. E) Stockholders' Equity.

C) Assets.

8) To include the personal assets and transactions of a business's stockholders in the records and reports of the business would be in conflict with the: A) Monetary unit assumption. B) Objectivity principle. C) Business entity assumption. D) Going-concern assumption. E) Revenue recognition principle.

C) Business entity assumption.

42) Golddigger Services, Inc. provides services to clients. On May 1, Golddigger Services collected $60,000 from a client for 6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a: A) Debit to Management Fees Earned for $60,000. B) Debit to Unearned Management Fees for $60,000. C) Credit to Unearned Management Fees for $60,000. D) Credit to Cash for $60,000. E) Credit to Management Fees Earned for $60,000.

C) Credit to Unearned Management Fees for $60,000.

12) The basic financial statements include all of the following except: A) Statement of Retained Earnings. B) Income Statement. C) Statement of Changes in Assets. D) Balance Sheet. E) Statement of Cash Flows.

C) Statement of Changes in Assets.

55) A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the: A) Operating cycle of a business. B) Accrual basis of accounting. C) Time period assumption. D) Going-concern assumption. E) Matching principle.

C) Time period assumption.

62) Unearned revenue is reported in the financial statements as: A) An unearned revenue on the income statement. B) A revenue on the balance sheet. C) A financing activity on the statement of cash flows. D) A liability on the balance sheet. E) An asset on the balance sheet.

D) A liability on the balance sheet.

16) Accounts payable appear on which of the following statements? A) Income statement. B) Statement of cash flows. C) Transaction statement. D) Balance sheet. E) Statement of retained earnings.

D) Balance sheet.

2) The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A) Revenue recognition principle. B) Time-period assumption. C) Cost principle. D) Business entity assumption. E) Going-concern assumption.

D) Business entity assumption.

54) The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:A) Accrual basis accounting. B) Current basis accounting. C) Operating cycle accounting. D) Cash basis accounting. E) Revenue recognition accounting.

D) Cash basis accounting.

60) K. Canopy, the stockholder of Canopy Services, Inc., The company paid $5,700 cash in dividends to the owner (sole stockholder). The entry to close the dividends account at the end of the year is: A) Debit Income Summary $5,700; credit Retained Earnings $5,700 B) Debit Retained Earnings $5,700; credit Salary Expense $5,700 C) Debit Dividends $5,700; credit Cash, $5,700 D) Debit Retained Earnings $5,700; credit Dividends $5,700 E) Debit Dividends $5,700; credit Retained Earnings $5,700

D) Debit Retained Earnings $5,700; credit Dividends $5,700

48) Prepaid expenses, accrued expenses, unearned revenues, and accrued revenues are all examples of: A) Items that require contra accounts. B) Asset and equity. C) Asset accounts. D) Items that require adjusting entries. E) Income statement accounts.

D) Items that require adjusting entries.

35) Identify the correct formula below used to calculate the debt ratio. A) Total Equity/Total Liabilities. B) Total Equity/Total Assets. C) Total Liabilities/Total Equity. D) Total Liabilities/Total Assets. E) Total Assets/Total Liabilities.

D) Total Liabilities/Total Assets.

36) Joe Jackson opened Jackson's Repairs, Inc. on March 1 of the current year. During March, the following transactions occurred and were recorded in the company's books: 1. Jackson invested $25,000 cash in the business. 2. Jackson contributed $100,000 of equipment to the corporation. 3. The company paid $2,000 cash to rent office space for the month. 4. The company received $16,000 cash for repair services provided during March. 5. The company paid $6,200 for salaries for the month. 6. The company provided $3,000 of services to customers on account. 7. The company paid cash of $500 for monthly utilities. 8. The company received $3,100 cash in advance of providing repair services to a customer. Based on this information, net income for March would be: A) $8,400. B) 13,400. C) 13,500. D) 5,300. E) 10,300.

E) 10,300.

17) Speedy has net income of $18,955, and assets at the beginning of the year of $200,000. Assets at the end of the year total $246,000. Compute its return on assets. A) 11.8%. B) 9.5%. C) 7.7%. D) 13.0%. E) 8.5%.

E) 8.5%.

30) A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n): A) Posting. B) Trial balance. C) Chart of accounts. D) Journal. E) Account.

E) Account.

67) The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: A) The matching principle. B) The time period assumption. C) Revenue basis accounting. D) Cash basis accounting. E) Accrual basis accounting.

E) Accrual basis accounting.

59) Reversing entries: A) Are mandatory. B) Correct errors in journal entries. C) Are prepared on the worksheet. D) Are required by GAAP. E) Are optional.

E) Are optional.

26) Prepaid expenses are generally: A) Decreases in equity. B) Payments made for products and services that do not ever expire. C) Promises of payments by customers. D) Classified as liabilities on the balance sheet. E) Assets that represent prepayments of future expenses.

E) Assets that represent prepayments of future expenses.

51) What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250? A) Debit Cash, $7,750; credit Prepaid Insurance, $7,750. B) Debit Insurance Expense, $3,250; credit Prepaid Insurance, $3,250. C) Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500. D) Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750. E) Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.

E) Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.

63) If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is: A) Debit Cash and credit Unearned Legal Fees. B) Debit Cash and credit Legal Fees Earned. C) Debit Unearned Legal Fees and credit Accounts Receivable. D) Debit Legal Fees Earned and credit Unearned Legal Fees. E) Debit Unearned Legal Fees and credit Legal Fees Earned.

E) Debit Unearned Legal Fees and credit Legal Fees Earned.

6) The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the: A) Cost Principle. B) Monetary unit assumption. C) Business entity assumption. D) Objectivity principle. E) Going-concern assumption.

E) Going-concern assumption.

13) Salaries expense appears on which of the following statements? A) Statement of cash flows only. B) Statement of periodic expenses. C) Statement of retained earnings. D) Balance sheet. E) Income statement.

E) Income statement.

64) The total amount of depreciation recorded against an asset over the entire time the asset has been owned: A) Is shown on the income statement of the final period. B) Is referred to as depreciation expense. C) Is only recorded when the asset is disposed of. D) Is referred to as an accrued asset. E) Is referred to as accumulated depreciation.

E) Is referred to as accumulated depreciation.

7) If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be: A) Assets increase $1,300 and liabilities increase $1,300. B) Assets decrease $1,300 and equity decreases $1,300. C) Assets increase $1,300 and liabilities decrease $1,300. D) Assets decrease $1,300 and equity increases $1,300. E) One asset increases $1,300 and another asset decreases $1,300, causing no effect.

E) One asset increases $1,300 and another asset decreases $1,300, causing no effect.

3) The primary objective of financial accounting is to: A) Know what, when, and how much product to produce. B) Monitor and control company activities. C) Provide information on both the costs and benefits of looking after products and services. D) Serve the decision-making needs of internal users. E) Provide accounting information that serves external users.

E) Provide accounting information that serves external users.

40) An asset created by prepayment of an insurance expense is: A) Recorded as a debit to Unearned Revenue. B) Not recorded in the accounting records until the insurance period expires. C) Recorded as a credit to Unearned Revenue. D) Recorded as a credit to Prepaid Insurance. E) Recorded as a debit to Prepaid Insurance.

E) Recorded as a debit to Prepaid Insurance.

25) On December 15 of the current year, Conrad Accounting Services signed a $40,000 contractwith a client to provide bookkeeping services to the client in the following year. Whichaccounting principle would require Conrad Accounting Services to record the bookkeepingrevenue in the following year and not the year the cash was received? A) Business entity assumption. B) Going-concern assumption. C) Cost principle. D) Monetary unit assumption. E) Revenue recognition principle.

E) Revenue recognition principle.

20) Custom Air purchased $5,000 of supplies on account. The correct journal entry to record this transaction is: A) Cash 5,000 Supplies 5,000 B) Supplies Expense 5,000 Cash 5,000 C) A/P 5,000 Cash 5,000 D) A/P 5,000 Supplies 5,000 E) Supplies 5,000 A/P 5,000

E) Supplies 5,000 A/P 5,000

44) Identify the statement below that is incorrect. A) The normal balance of accounts receivable is a debit. B) The normal balance of the common stock account is a credit. C) The normal balance of dividends is a debit. D) The normal balance of unearned revenues is a credit. E) The normal balance of an expense account is a credit.

E) The normal balance of an expense account is a credit.

9) Revenue is properly recognized: A) Only if the transaction creates an account receivable. B) When cash from a sale is received. C) When the customer makes an order. D) At the end of the accounting period. E) Upon completion of the sale of goods or when services have been performed and the business obtains the right to collect the sales price.

E) Upon completion of the sale of goods or when services have been performed and the business obtains the right to collect the sales price.

32) J. Brown Consulting paid $500 cash for utilities for the current month. Given the choices below, determine the general journal entry that J. Brown Consulting will make to record this transaction. A) Cash 5,000 A/P 5,000 B) Prepaid Utilities 5,000 A/P 5,000 C) Cash 5,000 Utilities Expense 5,000 D) Utilities Expense 5,000 A/P 5,000 E) Utilities Expense 5,000 Cash 5,000

E)Utilities Expense 5,000 Cash 5,000