Accounting Exam 1 Study Guide

Randall Automotive signed a $5,000,120-day note payable on October 1 that bears interest at an annual rate of 9%. How much will appear on Randall's income statement for interest expense related to this note at December 31? $450 $150 $112.50 $4,500

$112.50

At the beginning of January, 2014, Wise Company had a balance in its Retained Earnings account totaling $42,000. At the end of the year, the balance totaled $47,000. If $11,000 of dividends were declared and paid during the year, how much was net income during 2014? $5,000 $16,000 $53,000 $6,000

$16,000

Tatum Enterprises' total assets decreased by $11,000 during the year. Its stockholders' equity increased by $12,000 during the same period. Net income totaled $8,000 during the year. What occurred to the company's total liabilities during the year? $23,000 decrease $1,000 increase $15,000 decrease $31,000 decrease

$23,000 decrease

Given the following information, compute 2019 net income for SaraDyne Company. Stockholders' equity—January 1, 2019 -- 84,000 Stockholders' equity—December 31, 2019 -- 87,000 Stockholder investments during 2019 -- 12,000 Dividends paid during 2019 -- 36,000 Revenues during 2019 -- 310,000 $3,000 $27,000 $310,000 $39,000

$27,000

Which one of the following contains the selected steps of the accounting cycle in the correct order? 1. Journalize the transactions 2. Post transactions to ledger accounts 3. Analyze transactions 4. Prepare financial statements 5. Prepare a trial balance. 1, 2, 3, 5, 4 3, 2, 1, 4, 5 3, 1, 2, 5, 4 3, 1, 2, 4, 5

3, 1, 2, 5, 4

ledger

A list of accounts and their balances at a given time

earnings per share

A measure of the net income earned on each share of common stock

Which one of the following is not the correct date format for the respective financial statement? A balance sheet as of May 31, 2014 A statement of retained earnings as of May 31, 2014 An income statement for the month ended May 31, 2014 A statement of cash flows for the month ended May 31, 2014

A statement of retained earnings as of May 31, 2014

cash basis accounting

Accounting basis in which a company records revenues only when it receives cash and an expense only when it pays out cash

accrual accounting

Accounting basis in which companies record amounts in the periods in which the events occur rather than in the periods in which the company receives or pays cash

What type of accounts can be found on a post-closing trial balance? All accounts that have balances after the closing process is complete Permanent and temporary accounts Assets, expenses, revenues, and liabilities Accounts that have been closed during the period

All accounts that have balances after the closing process is complete

Which of the following items will be reported on the statement of retained earnings? Cash received from customers Amounts received from issuing stock Amounts owed to creditors Amounts earned by a company but not distributed as dividends

Amounts earned by a company but not distributed as dividends

Periodicity Assumption

An assumption that the economic life of a business can be divided into artificial time period

Which of the following is meaningful comparison to assess a company's profitability? An intracompany comparison of net income for a two-year period Industry-average comparison of total assets Year-to-year comparisons of liabilities with a competitor in the same industry Intercompany comparisons of earnings per share for a two-year period

An intracompany comparison of net income for a two-year period

Which of the following has the advantage of enabling a business to raise funds most easily? Entity Sole proprietorship Corporation Partnership

Corporation

Which one of the following is true? Intangible assets are current assets that do not have physical substance. Obligations expected to be paid after one year are classified as expenses. Current assets are assets that a company expect to convert to cash or use up within the longer of one year or its operating cycle. Property, plant, and equipment are assets with relatively long useful lives that are held for resale purposes.

Current assets are assets that a company expect to convert to cash or use up within the longer of one year or its operating cycle.

current ratio

Current assets divided by current liabilities

Divdends

Distribution of cash or other assets from a corporation to its stockholders

On November 1, Lowe's had paid $3,600 for advertising in the Money Saver Magazine for 3 months. On December 31 the adjusting entry is: Dr. Advertising Expense $3,600 / Cr. Prepaid Advertising $3,600 Dr. Advertising Expense $2,400 / Cr. Prepaid Advertising $2,400 Dr. Advertising Expense $1,200 / Cr. Prepaid Advertising $1,200 Dr. Advertising Expense $1,800 / Cr. Prepaid Advertising $1,800 No correct answer given.

Dr. Advertising Expense $2,400 / Cr. Prepaid Advertising $2,400

On July 1, 2019, Lowe's paid $2,400 for a two-year insurance policy debiting an asset account at that time. The adjusting entry on December 31, 2019 is: Dr. Prepaid Insurance $2,400 / Cr. Cash $2,400. Dr. Insurance Expense $2,400 / Cr. Cash $2,400. Dr. Insurance Expense $600 / Cr. Prepaid Insurance $600. Dr. Prepaid Insurance $600 / Cr. Insurance Expense $600. No correct answer provided

Dr. Insurance Expense $600 / Cr. Prepaid Insurance $600.

Lowe's borrowed $9,000 by signing a three-month, 6% interest, note payable on December 1, 2019. Dr. Interest Payable $45 / Cr. Interest Expense $45 Dr. Interest Expense $45 / Cr. Cash $45 Dr. Interest Expense $50 / Cr. Interest Payable $50 Dr. Interest Expense $45 / Cr. Interest Payable $45 No correct answer given

Dr. Interest Expense $45 / Cr. Interest Payable $45

A customer paid Lowe's $9,000 on December 1, 2019 for services to be rendered from December 1 through March 31, 2020. The receipt was credited to a liability account. The adjusting entry on December 31, 2019 was: Dr. Unearned Service Revenue $2,250 / Cr. Service Revenue $2,250 Dr. Service Revenue $2,250 / Cr. Unearned Service Revenue $2,250 Dr. Unearned Service Revenue $9,000 / Cr. Service Revenue $9,000 Dr. Service Revenue $9,000 / Cr. Unearned Service Revenue $9,000 No correct answer provided

Dr. Unearned Service Revenue $2,250 / Cr. Service Revenue $2,250

Lowe's has four employees who earn $90 per day per person. At December 31, two days' salaries have been earned by employees but not paid. The adjusting entry would be: Dr: Salary & Wages Expense $360 / Cr: Salary & Wages Payable $360 Dr: Salary & Wages Payable $360 / Cr: Salary & Wages Expense $360 Dr: Salary & Wages Expense $720 / Cr: Salary & Wages Payable $720 Dr: Salary & Wages Payable $720 / Cr: Salary & Wages Expense $720 No correct answer provided

Dr: Salary & Wages Expense $720 / Cr: Salary & Wages Payable $720

Lansing Cycles failed to record an adjusting entry for accrued expenses at the end of June. What effect does this have on the financial statements? Expenses are overstated and revenues are understated. Assets are overstated and expenses are understated. Expenses and liabilities are understated. Revenues and expenses are understated.

Expenses and liabilities are understated.

accrued expenses

Expenses incurred but not yet paid in cash or recorded

Which of the following is not considered an external user of accounting information? Finance directors Regulatory agencies Creditors Stockholders

Finance directors

Which one of the following represents the correct order of the three business activities for a new company? Financing, investing, operating Investing, financing, operating Operating, investing, financing Financing, operating, investing

Financing, investing, operating

Which statement is not true concerning the accrual basis of accounting? Transactions are recorded when payment is made for the costs incurred. GAAP requires the accrual basis for financial reporting. Transactions are recorded when events occur. Revenue.is recognized when services are performed.

GAAP requires the accrual basis for financial reporting.

Which of the following describes the timing of when revenue is recognized? In the period in which the related expenses are paid In the period in which the performance obligation is satisfied In the period in which payment is received for goods sold or work performed In the period in which the costs associated with earning the revenue are incurred and payment is received for goods sold or work performed

In the period in which the performance obligation is satisfied

temporary account

Income statement accounts whose balances are closed at the end of an accounting period.

Which one of the following is incorrect concerning the journal? It provides a chronological record of transactions. It helps prevent or locate errors. It contains a record of each account maintained by the company. It discloses in one place the complete effect of a transaction.

It contains a record of each account maintained by the company.

Which one of the following is true as it relates to the Accumulated Depreciation account? It is a contra account. It is offset against an asset account on the income statement. It represents the portion of the cost of a long-lived asset that has been allocated as a cost during the current accounting period. It is an operating expense.

It is a contra account.

To be relevant, what characteristic must accounting information exhibit? It must be capable of making a difference in a decision. It must be compared with other companies. It must be verifiable. It must be based on the U.S. monetary unit.

It must be capable of making a difference in a decision.

profitability

Measures of the income or operating success of an enterprise for a given period of time

Solvency

Measures the ability of an enterprise to survive over a long period of time

debt to assets ratio

Measures the percentage of total assets that creditors provide

Lowe's started the year with $400 of lawn care supplies on hand. It purchased $5,800 more during the year and has $700 on hand at December 31. Lowe's recognizes supplies as an asset when acquired. The adjusting entry on December 31 is: Dr. Supplies Expense $5,800 / Cr. Supplies $5,800 Dr. Supplies $5,800 / Cr. Supplies Expense $5,800 Dr. Supplies Expense $700 / Cr. Supplies $700 Dr. Supplies $700 / Cr. Supplies Expense $700 No correct answer provided

No correct answer provided

balance classification sheet: dividends

Not separately prepared on the balance sheet

balance classification sheet: Cost of Goods Sold

Not separately presented on the balance sheet.

liquidity

The ability of a borrower to pay obligations when they become due

Which one of the following statements is true concerning the interrelationships of financial statements? Net income on the income statement equals the cash balance at the end of the period on the balance sheet. The ending balance of retained earnings on the statement of retained earnings is equal to net income on the income statement. The amount of net income on the income statement is added to the beginning retained earnings balance on the statement of retained earnings. The amount of cash used during the period on the statement of cash flows is equal to total expenses on the income statement.

The amount of net income on the income statement is added to the beginning retained earnings balance on the statement of retained earnings.

working capital

The excess of current assets over current liabilities

Which statement describes the periodicity assumption? The life of a business can be divided into artificial times periods for which useful reports can be prepared. The business will remain in operation for the foreseeable future. Every economic unit can be separately identified and accounted for. Financial reports are issued on a timely basis for decision-making.

The life of a business can be divided into artificial times periods for which useful reports can be prepared.

General Journal

The most basic form of journal

revenue recognition principle

The principle that companies recognize revenue in the accounting period in which they perform the services

expense recognition

The principle that dictates that companies match efforts (expenses) with accomplishments (revenues)

What is the role of the FASB? To regulate U.S. financial markets and accounting standard-setting bodies To determine auditing standards in the U.S. To establish accounting standards in the U.S. To regulate foreign companies that do business in the U.S.

To establish accounting standards in the U.S.

For what purpose is the current ratio used? To assess profitability To determine the composition of a company's assets To measure the short-term ability of a company to pay its obligations To measure the profitability of operations

To measure the short-term ability of a company to pay its obligations

Cleaning supplies to be used in next month were purchased on account at a cost of $900 from Office Supply Company (Credit)

accounts payable

Paid $1,000 on account for supplies previously purchased and used during current (Debit)

accounts payable

Billed customers $9,000 for services rendered but not collected during the current month (Debit)

accounts receivable

Paid $500 cash to Val-Pak for advertisements mailed out during the first week of July (Debit)

advertising expense

Paid $1,000 on account for supplies previously purchased and used during current month (Credit)

cash

Paid $1,200 of dividends to stockholders (Credit)

cash

Paid $500 cash to Val-Pak for advertisements mailed out during the first week of July (Credit)

cash

Paid cash of $2,400 for a one-year insurance policy (Credit)

cash

Paid employees $5,100 for the current month (Credit)

cash

Stockholders invested $42,000 in the business (Debit)

cash

Stockholders invested $42,000 in the business (Credit)

common stock

A credit will increase ________, but decrease ________. accounts receivable; accounts payable accounts receivable; expenses accounts payable; common stock common stock; prepaid insurance

common stock; prepaid insurance

normal balance: accumulated depreciation

credit

normal balance: common stock

credit

normal balance: depreciation expense

credit

normal balance: painting service revenue

credit

normal balance: retained earnings

credit

normal balance: unearned service revenue

credit

balance classification sheet: accounts receivable

current assets

balance classification sheet: inventories

current assets

balance classification sheet: prepaid rent

current assets

balance classification sheet: supplies

current assets

balance classification sheet: Accounts Payable

current liabilities

balance classification sheet: income taxes payable

current liabilities

balance classification sheet: salaries payable

current liabilities

normal balance: accounts receivable

debit

normal balance: dividends

debit

normal balance: equipment

debit

normal balance: prepaid insurance

debit

Paid $1,200 of dividends to stockholders (Debit)

dividends

balance classification sheet: patents

intangible assets

balance classification sheet: mortgage payable

long term liabilities

balance classification sheet: notes payable (due in 2 years)

long term liabilities

Hired Ron Davis as vice-president to begin work on July 16, to be paid $3,000 monthly on the 30th day of each month (Credit)

no entry required

Hired Ron Davis as vice-president to begin work on July 16, to be paid $3,000 monthly on the 30th day of each month (Debit)

no entry required

balance classification sheet: advertising expense

not separately prepared on the balance sheet

balance classification sheet: service revenue

not separately prepared on the balance sheet

Equipment was purchased at a cost of $9,000 for which a three-month, 7% note payable was signed (Credit)

notes payable (short term)

Sunny Salon is a tanning salon that caters to college students. The accountant transferred journal entries to the ledger accounts at the end of the month. What is the name of this process? Ledgering Closing Recording Posting

posting

Paid $2,400 for a one-year insurance policy (Debit)

prepaid insurance

Equipment was purchased at a cost of $9,000 for which a three-month, 7% note payable was signed (Debit)

property plant and equipment

balance classification sheet: equipment

property, plant and equipment

balance classification sheet: accumulated depreciation building

property, plant, and equipment

Paid employees $5,100 for the current month (Debit)

salaries and wages expense

Billed customers $9,000 for services rendered but not collected during the current month (Credit)

service revenue

balance classification sheet: common stock

stockholders equity

balance classification sheet: retained earnings

stockholders equity

Cleaning supplies to be used in next month were purchased on account at a cost of $900 from Office Supply Company (Debit)

supplies

Received a delivery of cleaning supplies to be used immediately, along with a bill for $230 from DT Supplies (Credit)

supplies

Received a delivery of cleaning supplies to be used immediately, along with a bill for $230 from DT Supplies (Debit)

supplies expense

Received $3,000 from customers for services to be rendered next month (Credit)

unearned revenue