Accouting Exam 1

revenues: debit ___ and credit ____

decrease, increase

stockholder's equity: debit ___ and credit ____

decrease, increase

1. Financial accounting does not deal with which of the following? A) Making business decisions. B) Communicating financial results to investors. C) Measuring a company's economic activity. D) Preparing financial reports.

A

12. On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. According to the revenue recognition principle, on which date should Johnson record service revenues? A) May 7 (date of service) B) May 10 (date of cash receipt) C) Evenly over the three dates. D) May 5 (date of phone call)

A

19. Which of the following is a possible closing entry? A) Debit Service Revenue, credit Retained Earnings. B) Debit Dividends, credit Retained Earnings. C) Debit Cash, credit Service Revenue. D) Debit Cash, credit Retained Earnings.

A

20. Which of the following is a permanent account? A) Retained Earnings B) Dividends C) Service Revenue D) Advertising Expense

A

22. When a company incurs workers' salaries but does not pay them, how will the basic accounting equation be affected? A. Stockholders' equity decreases and liabilities increase. B. Assets decrease and liabilities decrease. C. Assets increase and stockholders' equity increases. D. Liabilities decrease and stockholders' equity increases.

A

37. Permanent accounts would not include: A. Interest Expense. B. Salaries Payable. C. Prepaid Rent. D. Unearned Revenues.

A

9. A company received a bill for newspaper advertising services received, $400. The bill will be paid in 10 days. How would the transaction be recorded today? A) Debit Advertising Expense $400, credit Accounts Payable $400. B) Debit Accounts Payable $400, credit Cash $400. C) Debit Accounts Payable $400, credit Advertising Expense $400. D) Debit Advertising Expense $400, credit Cash $400.

A

10. On July 31, ALOE Inc. received $5,000 cash from a customer who previously purchased ALOE's products on account. What should ALOE Inc. record at the time it receives cash? A) Debit Accounts Receivable, $5,000; credit Cash, $5,000. B) Debit Cash, $5,000; credit Accounts Receivable, $5,000. C) Debit Cash, $5,000; credit Service Revenue, $5,000. D) Debit Cash, $5,000; credit Accounts Payable, $5,000.

B

11. Which of the following accounts would normally have a credit balance? A) Income Tax Payable, Service Revenue, Dividends. B) Accounts Payable, Service Revenue, Common Stock. C) Salaries Payable, Unearned Revenue, Delivery Expense. D) Cash, Repairs and Maintenance Expense, Dividends.

B

23. Expenses normally carry a _______ balance and are shown in the _________. A. Debit; Statement of stockholders' equity B. Debit; Income statement C. Credit; Balance sheet D. Debit; Balance Sheet

B

19. Net income appears in which two financial statements? A. Balance sheet and income statement. B. Statement of stockholders' equity and balance sheet. C. Income statement and statement of stockholders' equity. D. Net income appears in only one financial statement.

C

18. Which of the following is the correct order for preparing the financial statements? A. Balance sheet, statement of stockholders' equity, and income statement. B. Balance sheet, income statement, and statement of stockholders' equity. C. Statement of stockholders' equity, income statement, and balance sheet. D. Income statement, statement of stockholders' equity, and balance sheet.

D

2. McGill purchases additional office equipment to better serves its customers. This purchase is classified as what type of activity? A) Company activity. B) Operating activity. C) Financing activity. D) Investing activity.

D

21. Purchasing supplies for cash has what effect on the accounting equation? A. Increase assets. B. Decrease stockholders' equity. C. Decrease liabilities. D. No effect.

D

6. On January 1, Lindstrom has total assets of $100,000, total liabilities of $30,000, and total stockholders' equity of $70,000. Lindstrom purchases $20,000 of supplies on account and $2,000 if prepaid rent for cash. After these transactions, total assets will equal $ ________. A) $ 82,000 B) $ 100,000 C) $ 120,000 D) $ 122,000

D

7. If a company provides services on account, which of the following is true? A) Expenses increase. B) Liabilities increase. C) Assets decrease. D) Stockholders' equity increases.

D

For USA companies, ___ are the rules, ____ makes the rules and ____ enforces the rules

GAAP, FASB, SEC

liability: debit ___ and credit ____

decrease, increase

balance in retained earnings =

add net income to beginning balance then deduct dividends

3 steps when preparing journal entry

analyze transaction, debit and credit rules, prepare

trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements

auditors

last day of accounting period, presents financial position of the company at a certain date

balance sheet

stockholder's equity =

common stock + retained earnings

normal account balance for SE

credit

normal account balance for liability

credit

normal account balance for revenue

credit

liabilities and stockholder's equity are increased by

credits

normal account balance for asset

debit

normal account balance for dividends

debit

normal account balance for expense

debit

assets are increased by ____

debits

expenses ____ SE

decrease

____ are not an expense and thus not shown in income statement

dividends

revenue is recognized when cash is ___ on accrual basis

earned

measures business activities of a company and communicates those measurements to external parties for decision making purposes

financial accounting

issuing common stock is a ____ activity

financing

paying dividends to stockholders is a is a ____ activity

financing

transactions with investors, issuing stock and borrowing money are _____ activities

financing

compare revenues and expenses for a period of time, no single piece of company information better explains companies stock price

income statement

revenues ____ SE

increase

one way to increase assets is to

increase liabilities

asset: debit ___ and credit ____

increase, decrease

dividends: debit ___ and credit ____

increase, decrease

expenses: debit ___ and credit ____

increase, decrease

expense is recognized when cash is ____ on accrual basis

incurred

purchase and sale of resources, buying long term assets are _____ activities

investing

purchasing land is a ____ activity

investing

claims of creditors

liabilities

assets =

liabilities + stockholder's equity

expenses are recorded in the same period as they revenues they help generate

matching principle

if revenues > expenses

net income

if revenue < expenses

net loss

providing services to customers is a ____ activity

operating

transactions relating to primary operations are ___ activities

operating

statement of cash flows can be broken down into 3 categories

operating, investing, financing

2 or more individuals share control

partnership

sarbanes oxley act

regulation of auditors

net income =

revenues - expenses

financial statement that measures activities involving cash receipts and cash payments over an interval of time

statement of cash flows

claims of owners

stockholder's equity