Accounting207 Exam #1 Concept Questions

What of the following is true? A. Companies can choose to end their fiscal year on any date they feel is most relevant B. Companies must end their fiscal year on March 31, June 20, September 30, or December 31 C. Companies can select any date except a holiday to end their fiscal year D. Companies must end their fiscal year on December 31

A. Companies can choose to end their fiscal year on any date they feel is most relevant

Which of the following statements about an adjusted trial balance is true? A. Debits should equal credits before and after adjustments are made B. Debits will equal credits after adjustments are made but not necessarily before C. Debits will equal credits before adjustments are made but not necessarily after D. Debits do not have to equal credits in the trial balance but they will in the income statement

A. Debits should equal credits before and after adjustments are made

Which of the following is not an example of a liability? A. Interest receivable B. Wages payable C. Unearned revenues D. Bonds Payable

A. Interest receivable

Which pair of the listed accounts follows the rule of debits and credits in relation to increases and decreases in the opposite manner? A. Salaries and Wage Expenses and Notes Payable B. Common Stock and Unearned Rent Revenue C. Prepaid Rent and Advertising Expense D. Service Revenue and Notes Payable

A. Salaries and Wage Expenses and Notes Payable

The separate entity assumption means: A. a company's financial statements reflect only the business activities of that company B. each separate owner's finances must be revealed in the financial statements C. each separate entity that has a claim on a company's assets must be shown in the financial statements D. all of the above

A. a company's financial statements reflect only the business activities of that company

One of the major advantages of making adjustments in order to improve the quality of financial statements is that they: A. insure that revenues and expenses are recognized during the period they are earned and incurred B. insure that all estimates of future activities are eliminated from consideration C. insure that revenues and expenses are recognized conservatively during the period they are paid D. all of the above

A. insure that revenues and expenses are recognized during the period they are earned and incurred

Recording an adjusting journal entry to recognize depreciation would cause which of the following? A. An increase in liabilities and expenses, and a decrease in stockholders' equity B. A decrease in assets and stockholders' equity, and an increase in expenses C. A decrease in assets, an increase in liabilities, and an increase in expenses D. None of the above

B. A decrease in assets and stockholders' equity, and an increase in expenses

Which of the following accounts does not normally have a credit balance on an adjusted trial balance? A. Accumulated depreciation B. Dividends declared C. Accounts payable D. Contributed capital

B. Dividends declared

Which financial statement is prepared first? A. Balance sheet B. Income statement C. Retained earnings statement D. Statement of cash flows

B. Income statement

Which of the following would not be associated with an expense? A. Using supplies B. Paying dividend C. Paying for electricity used by production equipment D. Paying wages for production workers

B. Paying dividend

Which line items on the balance sheet would be classified as long term? A. Cash; Supplies; Accounts Payable B. Property, Plant and Equipment; Notes Payable C. Supplies; Property, Plant and Equipment; Notes Payable D. Contributed Capital; Total Liabilities; Other Assets

B. Property, Plant and Equipment; Notes Payable

What is the minimum number of accounts that must be involved in any transaction? A. One B. Two C. Three D. No minimum

B. Two

Which of the following accounts would be classified as a current liability? A. Dividends declared B. Unearned revenue C. Wages expense D. None of the above

B. Unearned revenue

Which of the following business organization has only one owner? A. a corporation B. a sole proprietorship C. a public company D. a partnership

B. a sole proprietorship

Liabilities: A. are future economic benefits B. are debts and obligations C. possess service potential D. are things of value owned by business

B. are debts and obligations

Declaring a cash dividend will A. increase retained earnings B. decrease retained earnings C. increase common stock D. decrease common stock

B. decrease retained earnings

If XYZ Company had $12 million in revenue and net income of $3 million then its: A. expenses must have been $15 million B. expenses must have been $9 million C. assets must have been $12 million D. assets must have been $3 million

B. expenses must have been $9 million

The sales revenue account has a credit balance of $367,200 at the year end. After closing entries are made, the account will: A. have a debit balance of $367,200 B. have a zero balance C. still have a credit balance of $367,200 D. be removed entirely from the general ledger

B. have a zero balance

Assets are listed on the balance sheet in order of: A. date acquired B. liquidity C. estimated replacement date D. value

B. liquidity

Working capital is a measure of: A. consistency B. liquidity C. profitability D. solvency

B. liquidity

The first financial statement prepared after the adjusted trial balance is: A. the balance sheet B. the income statement C. the statement of cash flows D. the statement of retained earnings

B. the income statement

Which of the following is not an expense? A. wages of employees B. Interest incurred on a loan the company had taken out C. Dividends D. Corporate income tax

C. Dividends

Which of the following organizations issues accounting standards for countries outside the U.S.? A. SEC B. GAAP C. IASB D. FASB

C. IASB

Which of the following clarifies information presented in the financial statements, as well as expanding upon it where additional detail is needed? A. Auditor's report B. Management discussion and analysis section C. Notes to the financial statements D. President's state of the company report

C. Notes to the financial statements

In the U.S. generally accepted accounting principles are established: A. directly by the 1933 Securities Act B. by the Public Company Accounting Oversight Board C. by the Financial Accounting Standards Board D. by the Association of Certified Public Accountants

C. by the Financial Accounting Standards Board

Under the cash basis of accounting: A. revenue is recognized when services are performed B. expenses are matched with the revenue that is produced C. cash must be received before revenue is recognized D. a promise to pay is sufficient to recognize revenue

C. cash must be received before revenue is recognized

Payments to stockholders are called A. expenses B. liabilities C. dividends D. distributions

C. dividends

On a classified balance sheet, companies usually list current assets A. in alphabetical order B. with the largest dollar amounts first C. in the order in which they are expected to be converted into cash D. in the order in acquisition

C. in the order in which they are expected to be converted into cash

An item is considered material if: A. it doesn't cost a lot of money B. it is of a tangible good C. its size is likely to influence the decision of an investor or creditor D. the cost of reporting the item is greater than its benefits

C. its size is likely to influence the decision of an investor or creditor

Intangible assets are: A. listed directly under current assets on the balance sheet B. not listed on the balance sheet because they do not have physical substance C. listed after property, plant, and equipment D. listed as a long-term investment on the balance sheet

C. listed after property, plant, and equipment

Which of the following would not affect a company's net income? A. a change in the company's income taxes B. changing the selling price of a company's product C. paying a dividend to stockholders D. advertising a new product

C. paying a dividend to stockholders

The most important information needed to determine if companies can pay their current obligations is the: A. net income for this year B. projected net income for next year C. relationship between current assets and current liabilities D. relationship between short-term and long-term liabilities

C. relationship between current assets and current liabilities

An income statement shows A. revenues, liabilities, and stockholders' equity B. expenses, dividends, and stockholders' equity C. revenues, expenses, and net income D. assets, liabilities, and stockholders' equity

C. revenues, expenses, and net income

A current asset is one that: A. the company has owned for over one year B. the company has owned for over five years C. the company will use up or convert into cash in less than one year D. the company will use up or convert into cash in less than five years

C. the company will use up or convert into cash in less than one year

Assuming no errors have been made, when a company prepares its adjusted trial balance: A. assets will equal liabilities plus retained earnings B. stockholders' equity will be adjusted to include the current period's net income C. the debit column and the credit will be equal D. income statement accounts will have been closed

C. the debit column and the credit will be equal

Which of these accounts would normally not be affected by an adjustment? A. Supplies B. Revenues C. Expenses D. Cash

D. Cash

What is the order in which assets are generally listed on a classified balance sheet? A. Current and long-term B. Current; property, plant and equipment; long-term investments; intangibles C. Current; property, plant and equipment; intangibles; long-term investments D. Current; long-term investments; property, plant, and equipment, intangibles

D. Current; long-term investments; property, plant, and equipment, intangibles

What organization issues U.S. accounting standards? A. Security Exchange Commission B. International Accounting Standards Committee C. International Auditing Standards Committee D. Financial Accounting Standards Board

D. Financial Accounting Standards Board

Which of the following accounts would be classified as a current liability? A. Service revenue B. Wages expense C. Accumulated depreciation D. None of the above

D. None of the above

Which of the following represents a subtotal rather than an account? A. Advertising Expense B. Sales Revenue C. Cost of Goods Sold D. Operating Income

D. Operating Income

If total debits are not equal to total credits in a trial balance, which of the following errors may have occurred? A. posting Wage Expense to Administrative Expenses B. Debiting Accrued Interest instead of debiting Interest Expense C. Debiting Notes Payable instead of debiting Interest Expense D. Posting a credit to Accounts Payable as a debit

D. Posting a credit to Accounts Payable as a debit

Which of the following is not an example of an asset? A. Notes receivable B. Supplies C. Prepaid expenses D. Unearned revenues

D. Unearned revenues

The notes to the financial statements: A. explain what policies were used to prepare the financial statements B. provide additional information about what is included in the financial statements C. provide additional information about financial matters that are not included in the financial statements D. all of the above

D. all of the above

Accumulated depreciation: A. is an expense account B. is a liability account C. is a regular asset account D. is an asset contra-account

D. is an asset contra-account

If the retained earnings account increases from the beginning of the year to the end of the year, then A. net income is less than dividends B. a net loss is less than dividends C. additional investments are less than net losses D. net income is greater than dividends

D. net income is greater than dividends

The characteristic shared by all liabilities is that they: A. provide a future economic benefit B. result in an inflow of resources to the company C. always end in the word "payable" D. obligate the company to do something in the future

D. obligate the company to do something in the future

Retained earnings is A. the stockholders' claim on total assets B. equal to cash C. equal to revenues D. the amount of net income kept in the corporation for future use

D. the amount of net income kept in the corporation for future use

Financial statements are most commonly prepared: A. semi-monthly B. monthly, quarterly, and annually C. whenever management feels like it D. weekly

b. monthly, quarterly, and annually