Accouting Midterm 1

Under the accrual basis of accounting: A) cash must be received before revenue is recognized. B) net income is calculated by matching cash outflows against cash inflows. C) events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. D) the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles

C

An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause: A) revenues to be overstated. B) net income to be overstated. C) liabilities to be understated. D) revenues to be understated.

D

A T-account is A) a way of depicting the basic form of an account. B) a special account used instead of a journal. C) a special account used instead of a trial balance. D) used for accounts that have both a debit and credit balance.

A

A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in: A) January. B) February. C) the period when the workers receive their checks. D) either January or February depending on when the pay period ends

A

Adjustments for unearned revenue: A) decrease liabilities and increase revenues. B) increase liabilities and increase revenues. C) increase assets and increase revenues. D) decrease revenues and decrease assets.

A

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized? A) August 31 B) August 1 C) September 5 D) September 6

A

Powers Corporation received a cash advance of $500 from a customer. As a result of this event, A) assets increased by $500. B) equity increased by $500. C) liabilities decreased by $500. D) Both assets and equity increased by $500

A

Receiving payment of a portion of an accounts receivable will A) not affect total assets. B) increase liabilities. C) increase stockholders' equity. D) decrease net income.

A

The double-entry system requires that each transaction must be recorded A) in at least two different accounts. B) in two sets of books. C) in a journal and in a ledger. D) first as a revenue and then as an expense

A

Which of the following accounts is increased with a debit? A) Dividends B) Service Revenue C) Interest Payable D) Common Stock

A

Which organization issues U.S. accounting standards? A) Financial Accounting Standard Board B) International Accounting Standards Council C) American Institute of Certified Public Accountants D) U.S. president office.

A

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be: A) debit Unearned Service Revenue and credit Cash. B) debit Unearned Service Revenue and credit Service Revenue. C) debit Unearned Service Revenue and credit Prepaid Expense. D) debit Unearned Service Revenue and credit Accounts Receivable.

B

If a company fails to adjust for accrued expenses, what effect will this have on that month's financial statements? A) Failure to make an adjustment does not affect the financial statements. B) Expenses will be understated and net income and stockholders' equity will be overstated. C) Assets will be overstated and net income and stockholders' equity will be understated. D) Assets will be overstated and net income and stockholders' equity will be overstated

B

If a company fails to make an adjusting entry to record supplies expense, then: A) stockholders' equity will be understated. B) expense will be understated. C) assets will be understated. D) net income will be understated.

B

Incurring an expense A) decreases assets and liabilities. B) decreases stockholders' equity. C) leaves stockholders' equity unchanged. D) is basically the same as a liability

B

Which ratio or measure is an indicator of profitability? A) Current ratio. B) Earnings per share. C) Asset turnover ratio. D) Free cash flow.

B

Winrow Company's trial balance at the end of its first month of operations reported the following accounts and amounts: Cash $11,000 Prepaid insurance 500 Accounts receivable 2,500 Accounts payable 2,000 Notes payable 3,000 Common stock 5,000 Dividends 500 Revenues 22,000 Expenses 12,500 Total debits on Winrow Company's trial balance are A) $32,500. B) $32,000. C) $31,500. D) $33,000.

B

A company purchased office supplies costing $5,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: A) debit Supplies Expense, $5,900; credit Supplies, $5,900. B) debit Supplies, $900; credit Supplies Expense, $900. C) debit Supplies Expense, $4,100; credit Supplies, $4,100. D) debit Supplies, $4,100; credit Supplies Expense, $4,100.

C

A trial balance will NOT balance if: A) a correct journal entry is posted twice. B) the purchase of supplies on account is debited to Supplies and credit to cash. C) a $100 cash dividend is debited to Dividend for $1,000 and credited to Cash for $100. D) a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

C

At May 1, Barclays Inc. reported at Cash account balance of $1,000. During the month, the total of the debit entries to the Cash account amounted to $2,000 and the total of the credit entries to the Cash account amounted to $1,800. At the end of May, Barclays' Cash account has a A) $1,800 credit balance. B) $3,000 debit balance. C) $1,200 debit balance. D) $1,800 credit balance.

C

During 2022, its first year of operations, Jane's Bakery had revenues of $130,000 and expenses of $66,000. The business paid cash dividends of $36,000. What is the balance in Retained Earnings at December 31, 2022? A) $28,000 debit B) $36,000 debit C) $28,000 credit D) $64,000 credit

C

If a company issues common stock for $40,000 and uses $30,000 of the cash to purchase a truck, the net impact of both transactions by the end of the year: A) assets will be increased by $10,000. B) shareholders' equity will be reduced by $30,000. C) assets will be increased by $40,000. D) shareholders' equity will be increased by $10,000

C

The best interpretation of the word "credit" is the A) offset side of an account. B) increase side of an account. C) right side of an account. D) decrease side of an account.

C

The primary difference between prepaid and accrued expenses is that prepaid expenses have: A) been incurred and accrued expenses have not. B) not been paid and accrued expenses have. C) been recorded and accrued expenses have not. D) not been recorded and accrued expenses have.

C

Which of the following statements is true? A) Debits increase assets and increase liabilities. B) Credits decrease assets and decrease liabilities. C) Credits decrease assets and increase liabilities. D) Debits increase liabilities and decrease assets

C

A credit is not the normal balance for which account listed below? A) Common Stock B) Revenue C) Accounts Payable D) Dividends

D

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause: A) expenses to be overstated. B) net income to be overstated. C) liabilities to be understated. D) revenues to be understated.

D

If a company buys a $700 machine on account, this transaction will affect the A) income statement and retained earnings statement only. B) income statement only. C) income statement, retained earnings statement, and balance sheet. D) balance sheet only.

D

If a company fails to adjust for accrued revenues: A) liabilities will be understated and revenues will be understated. B) liabilities will be overstated and revenues will be understated. C) assets will be overstated and revenues will be understated. D) assets will be understated and revenues will be understated.

D

If a company pays dividends of $10,000 in cash to shareholders, A) only retained earnings account will be reduced by $10,000. B) net income will be reduced by $10,000. C) common stock will be reduced by $10,000. D) Both retained earnings and total stockholders' equity will be reduced by $10,000.

D

On April 1, 2022, Propel Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years. Propel records depreciation expense of $48,000 for the calendar year ending December 31, 2022. Which accounting principle has been violated? A) Depreciation principle. B) No principle has been violated. C) Cash principle. D) Expense recognition principle

D

Which one of these statements about the accrual basis of accounting is false? A) Companies record events that change their financial statements in the period in which events occur, even if cash was not exchanged. B) Companies recognize revenue in the period in which the performance obligation is satisfied. C) The basis is in accordance with generally accepted accounting principles. D) Companies record revenue only when they receive cash and record expense only when they pay out cash.

D