Accounting Practice Exams 1.1 & 1.2

If the assets of a company increase by $55,000 during the year and its liabilities increase by $25,000 during the same year, then the change in equity of the company during the year must have been:

An increase of $30,000. Correct

The area of accounting aimed at serving the decision making needs of internal users is:

Managerial accounting. Correct

The business entity assumption:

Means that a business is accounted for separately from other business entities, including its owners.

The monetary assumption:

Means that we can express transactions and events in monetary, or money, units.

The 12-month period that ends when a company's sales activities are at their lowest level is called the:

Natural business year. Correct

Pablo Management has four part-time employees, each of whom earns $115 per day. They are paid on Fridays for work completed Monday through Friday of the same week. Near year-end, the four employees worked Monday, December 31, and Wednesday through Friday, January 2, 3, and 4. New Year's Day. (January 1) was an unpaid holiday.1. Prepare the year-end adjusting entry for wages expenses. 2. Prepare the journal entry to record payment of the employees' wages on Friday, January 4.

No Date General Journal Debit Credit 1 December 31 Wages expense 460 debit Wages payable 460 credit 2 January 04 Wages expense 1,380 debit Wages payable 460 debit Cash 1,840 credit

BMW Group, one of the world's largest automakers, reports the following income statement accounts for the year ended December 31, 2015 (euros in millions). Revenues € 92,175 Cost of sales 74,043 Selling and administrative costs 8,633 Other expenses 3,103 Using the above information prepare BMW's income statement for the year ended December 31, 2015.. (Enter your answers in millions.)

Revenue Revenues €92,175 Expenses Cost of sales €74,043 Selling and administrative costs 8,633 Other expenses 3,103 Total expenses 85,779 Net income €6,396

Increases in equity from a company's sales of products or services are:

Revenues. Correct

Which of the following is NOT an asset account:

Services Revenue

Cash investments by stockholders are listed on which of the following statement(s)?

Statement of cash flows only. Correct

The financial statement that shows the beginning balance of retained earnings; the changes in equity that resulted from net income (or net loss); dividends; and the ending retained earnings balance, is the:

Statement of retained earnings. Correct

If assets are $371,000 and equity is $123,000, then liabilities are:

$248,000. Correct Liabilities = $248,000

Use the following information for Meeker Corp. to determine the amount of equity to report. Cash $ 70,000 Buildings 125,000 Land 205,000 Liabilities 130,000

$270,000. Correct

Groro Co. bills a client $62,000 for services provided and agrees to accept the following three items in full payment: (1) $10,000 cash, (2) computer equipment worth $80,000, and (3) to assume responsibility for a $28,000 note payable related to the computer equipment. The entry Groro makes to record this transaction includes which one or more of the following?

$28,000 increase liability account, $10,000 increase in cash account, $62,000 increase in asset account This transaction created $62,000 in revenue, which is the value of the service provided. Payment is received in the form of a $10,000 increase in cash, an $80,000 increase in computer equipment, and a $28,000 increase in its liabilities. The net value received by the company is $62,000.

On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Griffith Publishing Company for the first year of the subscription assuming the company uses a calendar-year reporting period?

$387. Correct $1,548/36 = $43 per monthYear 1: $43 * 9 months = $387Year 2: $43 * 12 months = $516Year 3: $43 * 12 months = $516Year 4: $43 * 3 months = $129

Cash (a) 6,000 (b) 4,800 (e) 4,500 (d) 800 (f) 900 (g) 3,400 Supplies (c) 900 Prepaid Insurance (b) 4,800 Equipment (a) 7,600 (g) 3,400 Web Servers (a) 12,000 Accounts Payable (f) 900 (c) 900 Common Stock (a) 25,600 Services Revenue (e) 4,500 Selling Expenses (d) 800 Use information from the T-accounts given above to prepare general journal entries for each of the seven transactions a through g.

1(a)Cash6,000Equipment7,600Web servers12,000Common stock25,6002(b)Prepaid insurance4,800Cash4,8003(c)Supplies900Accounts payable9004(d)Selling expenses800Cash8005(e)Cash4,500Services revenue4,5006(f)Accounts payable900Cash9007(g)Equipment3,400Cash3,400

Pablo Management has two part-time employees, each of whom earns $220 per day. They are paid on Fridays for work completed Monday through Friday of the same week. Near year-end, the two employees worked Monday, December 31, and Wednesday through Friday, January 2, 3, and 4. New Year's Day. (January 1) was an unpaid holiday.1. Prepare the year-end adjusting entry for wages expenses. 2. Prepare the journal entry to record payment of the employees' wages on Friday, January 4.

1December 31Wages expense440Wages payable4402January 04Wages expense1,320Wages payable440Cash1,760 To record accrued wages for one day (2 workers × $220) = $440.To record accrued and current wages.Wages expense = 2 workers × 3 days × $220 = $1,320.Cash = 2 workers × 4 days × $220 = $1,760.

M&R company provided $3,800 in services to customers that are expected to pay the company sometime in January following the company's year-end. Wage expenses of $2,800 have been incurred but are not paid as of December 31. M&R company has a $6,800 bank loan and has incurred (but not recorded) 6% interest expense of $408 for the year ended December 31. The company will pay the $408 interest in cash on January 2 following the company's year-end. M&R Company hired a firm to provide lawn services at a monthly fee of $680 with payment occurring on the 15th of the following month. Payment for December services will occur on January 15 following the company's year-end. M&R company has earned $380 in interest revenue from investments for the year ended December 31. The interest revenue will be received on January 15 following the company's year-end. Salary expenses of $1,080 have been earned by supervisors but not paid as of December 31. Prepare year-end adjusting journal entries for M&R Company as of December 31, 2017, for each of the above separate cases.

1a.Accounts receivableselected answer correct3,800selected answer correctnot attemptedRevenueselected answer correctnot attempted3,800selected answer correct2b.Wages expenseselected answer correct2,800selected answer correctnot attemptedWages payableselected answer correctnot attempted2,800selected answer correct3c.Interest expenseselected answer correct408selected answer correctnot attemptedInterest payableselected answer correctnot attempted408selected answer correct4d.Lawn services expenseselected answer correct680selected answer correctnot attemptedLawn services payableselected answer correctnot attempted680selected answer correct5e.Interest receivableselected answer correct380selected answer correctnot attemptedInterest revenueselected answer correctnot attempted380selected answer correct6f.Salary expenseselected answer correct1,080selected answer correctnot attemptedSalary payableselected answer correctnot attempted1,080

Groro Co. bills a client $62,000 for services provided and agrees to accept the following three items in full payment: (1) $10,000 cash, (2) computer equipment worth $80,000, and (3) to assume responsibility for a $28,000 note payable related to the computer equipment. The entry Groro makes to record this transaction includes which one or more of the following? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

28,000 increase in a liability account 10,000 increase in the cash account 62,000 increase in a revenue account This transaction created $62,000 in revenue, which is the value of the service provided. Payment is received in the form of a $10,000 increase in cash, an $80,000 increase in computer equipment, and a $28,000 increase in its liabilities. The net value received by the company is $62,000.

Given the following errors, identify the one by itself that will cause the trial balance to be out of balance.

A $100 cash receipt from a customer in payment of her account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable. Correct

If cash is received from customers in payment for products or services that have not yet been delivered to the customers, the business would record the cash receipt as:

A credit to an unearned revenue account. Correct

A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

Account

For each of the following (1) identify the type of account as an asset, liability, equity, revenue, or expense, (2) identify the normal balance of the account, and (3) select debit (Dr.) or credit (Cr.) to identify the kind of entry that would increase the account balance.

AccountType of AccountNormal BalanceIncrease (Dr. orCr.) a.Land, Asset, Debit, Debit b.Cash, Asset, Debit, Debit c.Legal Expense, Expense, Debit, Debit d.Prepaid Insurance, Asset, Debit, Debit e.Accounts Receivable, Asset, Debit, Debit f.Dividends, Equity, Debit, Debit g.License Fee Revenue, Revenue, Credit, Credit h.Unearned Revenue, Liability, Credit, Credit i. Fees Earned, Revenue, Credit, Credit j Equipment, Asset, Debit, Debit k Notes Payable, Liability, Credit, Credit l.Common Stock, Equity, Credit, Credit

All of the following are classified as assets except:

Accounts Payable. Correct

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Accrual basis accounting. Correct

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

Accrued expenses. Correct

If a company receives $12,000 from its sole stockholder to establish a corporation, the effect on the accounting equation would be:

Assets increase $12,000 and equity increases $12,000. Correct

Which financial statement reports an organization's financial position at a single point in time?

Balance sheet. Correct

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:

Business entity assumption. Correct

An account used to record stockholders' investments in a business is called a(n):

Common stock account. Correct

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):

Contra account. Correct

A roofing company collects fees when jobs are complete. The work for one customer, whose job was bid at $3,000, has been completed as of December 31, but the customer has not yet been billed. Assuming adjustments are only made at year-end, what is the adjusting entry the company would need to make on December 31, the calendar year-end?

Debit Accounts Receivable, $3,000; credit Roofing Fees Revenue, $3,000.

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:

Debit Salaries Expense and credit Salaries Payable. Correct

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

Depreciation expense.

Consider the following separate situations, identify each as being a sole proprietorship, partnership or corporation.

Description Business Organization a.Micah and Nancy own Financial Services, a financial services provider. Neither Micah nor Nancy has personal responsibility for the debts of Financial Services. - Corporation b.Riley and Kay own Speedy Packages, a courier service. Both are personally liable for the debts of the business. - Partnership c.IBC Services does not have separate legal existence apart from the one person who owns it. - Sole proprietorship d.Trent Company is owned by Trent Malone, who is personally liable for the company's debts. - Sole proprietorship e.Ownership of Zander Company is divided into 1,000 shares of stock.Corporation f.Physio Products does not pay income taxes and has one owner. - Sole proprietorship g.AJ Company pays its own income taxes and has two owners. - Corporation

Ford Motor Company, one of the world's largest automakers, reports the following income statement accounts for the year ended December 31, 2015 ($ in millions). Selling and administrative costs $ 14,999 Cost of sales 124,041 Revenues 149,558 Other expenses 3,145 Using the above information prepare Ford's income statement for the year ended December 31, 2015. (Enter your answers in millions.)

Income StatementFor Year Ended December 31, 2015RevenueRevenuesselected answer correct$149,558selected answer correctExpensesSelling and administrative costsselected answer correct$14,999selected answer correctCost of salesselected answer correct124,041selected answer correctOther expensesselected answer correct3,145selected answer correctnot attemptednot attemptednot attemptednot attemptedTotal expenses142,185Net income$7,373

Financial statements are typically prepared in the following order:

Income statement, statement of retained earnings, balance sheet. Correct

The adjusting entry to record an accrued revenue is:

Increase an asset; increase revenue. Correct

M&R company provided $2,800 in services to customers that are expected to pay the company sometime in January following the company's year-end. Wage expenses of $1,800 have been incurred but are not paid as of December 31. M&R company has a $5,800 bank loan and has incurred (but not recorded) 6% interest expense of $348 for the year ended December 31. The company will pay the $348 interest in cash on January 2 following the company's year-end. M&R Company hired a firm to provide lawn services at a monthly fee of $580 with payment occurring on the 15th of the following month. Payment for December services will occur on January 15 following the company's year-end. M&R company has earned $280 in interest revenue from investments for the year ended December 31. The interest revenue will be received on January 15 following the company's year-end. Salary expenses of $980 have been earned by supervisors but not paid as of December 31. Prepare year-end adjusting journal entries for M&R Company as of December 31, 2017, for each of the above separate cases.

No Transaction General Journal Debit Credit a.Accounts receivable 2,800 - Revenue 2,800 b. Wages expense 1,800 - Wages payable 1,800 c. Interest expense 348 - Interest payable348 d. Lawn services expense 580 - Lawn services payable 580 e. Interest receivable280 - Interest revenue280 f. Salary expense 980 - Salary payable980

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is:

Objectivity principle

A column in journals and ledger accounts that is used to cross reference journal and ledger entries is the:

Posting reference column. Correct

The full disclosure principle:

Prescribes that a company report the details behind financial statements that would impact users' decisions.

A business's general journal provides a place for recording all of the following except:

The balance in each account. Correct

Identify the account used by businesses to record the transfer of assets from a business to its stockholders:

The dividends account. Correct

Zen began a new consulting firm on January 5. The accounting equation showed the following balances after each of the company's first five transactions. Analyze the accounting equation for each transaction and match the given transaction with its most likely description.

The owner invested $40,000 cash in the business in exchange for its common stock. 2.The company purchased office supplies for $3,000 by paying $2,000 cash and putting $1,000 on credit. 3.The company purchased office furniture for $8,000 cash. 4. The company billed a customer $6,000 for services provided. 5.The company provided services for $1,000 cash.

Identify the statement below that is true.

The trial balance is a list of all accounts from the ledger with their balances at a point in time. Correct

A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:

Time period assumption. Correct

A report that lists a business's accounts and their balances, in which the total debit balances should equal the total credit balances, is called a(n):

Trial balance. Correct

A credit is used to record an increase in all of the following accounts except:

Wages Expense Correct

Select the account below that normally has a credit balance.

Wages Payable. Correct