Exam 1

Who ultimately controls a corporation?

The Stockholders

A company purchased medical equipment for $100,000 on January 1, 2009. The company determined that the yearly depreciation expense is $10,000. What will be the ending balance in the Accumulated Depreciation — Medical Equipment at December 31, 2012?

$10,000 10,000 depreciation per year * 4 years = 40,000 accumulated depreciation

Little Company had a beginning cash balance of $10,000, received cash of $8,000 and ended the month with a cash balance of $6,000. Cash payments for the month were:

$12,000

O'Connor Company purchased supplies totaling $21,600. By year end, $9,300 of supplies were still on hand. How much Supplies Expense should O'Connor recognize?

$12,300 21,600 (Purchases) - 9,300 (Ending balance) = 12,300

Given that total liabilities decreased by $75,000 and total owner's equity increased by $90,000 during the same accounting time period, what is the net effect on total assets during this period?

$15,000 increase

Consider the following transactions: I. Owners invested $8,000 cash to begin the business II. Provided services for cash, $6,000 III. Provided services on account, $4,000 IV. Paid cash for expenses, $7,500 How much net income did the business earn?

$2,500

On November 1 of the current year, Prepaid Rent was debited $5,400 for three months of rent, paid in advance. The amount of the adjusting entry on December 31 is:

$3,600 5,400/3= 1,800 rent per month. 1,800 * 2 months used = 3,600

Stockholders' equity for Commerce Corporation on January 1, 2010 and December 31, 2010 were $60,000 and $75,000, respectively. Assets on January 1, 2010 and December 31, 2010 were $115,000 and $105,000, respectively. Liabilities on January 1, 2010 were $55,000. What were liabilities on December 31, 2010?

$30,000

A company started the year with $400 of supplies. During the year the company purchased additional supplies costing $1,600. There were $800 of supplies on hand at the end of the year. An adjusted trial balance prepared at the end of the accounting period shows the following balance in supplies:

$800

Consider the following transactions: I. Borrowed cash on a note payable, $80,000 II. Provided services on account, $10,000 III. Received cash from a customer as payment on account, $8,000 IV. Received a utility bill, $1,200 What are total liabilities?

$81,200

The accounts receivable account for Moon Rivers had a beginning balance of $6,000. During August, the company received payments of $8,000 and added new accounts receivable of $11,000. At the end of August the balance in accounts receivable is _____ and is a ______.

$9,000, debit

Consider the following transactions: I. Borrowed cash on a note payable, $80,000 II. Provided services on account, $10,000 III. Received cash from a customer as payment on account, $8,000 IV. Received a utility bill, $1,200 Total assets would be:

$90,000 (80,000 (cash) + 10,000 (A/R) + 8,000 (cash) - 8,000 (A/R) = 90,000

Revenues are recorded when:

) the work is completed on the job, whether the cash is received

When determining the adjusting entries that may be needed:

A deferral is an adjustment for payment of an item in advance

Which item is not an asset?

Accounts Payable

AMR received $1,600 on account for a sale using the cash basis of accounting. The balance sheet omission of the cash basis of accounting with respect to this transaction comes from the failure to record an entry to which account(s)?

Accounts Receviable

A business transaction has occurred when:

An event affects the entity's financial position AND the event can be reliably measured

On July 25, Hockey Company's accountant prepared a check for August's rent payment. Hockey Company mails the check on July 27 to the landlord. The landlord receives the check on July 31 and cashes the check on August 2. When should Hockey Company record the rent expense associated with this transaction?

August 31st

An investor wishing to assess a company's overall financial position at the end of the period would probably examine the:

Balance Sheet

The ending balance in Retained Earnings appears on the:

Balance Sheet and Statement of Retained Earnings

Which financial statement provides a "snapshot photo" of one moment in time for the whole entity?

Balance Sheet only

Which of the following financial statements is prepared using the adjusted trial balance?

Both the balance sheet and the income statement

An entity that is organized according to state law and in which ownership units are called stock is a:

Corporation

For which form of business ownership are the owners of a business legally distinct from the business?

Corporation

Which of the following best describes a liability? Liabilities are:

Debts payable to outsiders called creditors

A company purchased office supplies for cash. This transaction increased assets and:

Decreased assets

The stable-monetary-unit assumption of accounting:

Enables accountants to ignore the effect of inflation in the accounting records

Which of the following accounts has a normal debit balance?

Equipment

The acronym GAAP stands for:

Generally Accepted Accounting Principles

A business paid $15,000 cash for equipment used in the business. At the time of purchase, the equipment had a list price of $20,000. When the balance sheet was prepared, the value of the equipment was $22,000. What is the relevant measure of the value of the equipment?

Historical cost, $15,000

The continuity (going-concern) assumption of accounting:

Holds that the entity will remain in operation long enough to use its existing assets.

Which of the following transactions increase total assets? I. Borrowed cash on a note payable, $80,000 II. Provided services on account, $10,000 III. Received cash from a customer as payment on account, $8,000 IV. Received a utility bill, $1,200

I and II

A doctor performed surgery in March and did not receive cash from the patient until July. Under accrual accounting the doctor recognizes revenue:

In March

A company received cash in exchange for issuing stock. This transaction increased assets and

Increased equity

Accounting transactions are initially recorded in the:

Journal

Which element(s) of an accounting system provide(s) information about the balance in each account?

Ledgers

Which type of account is increased when a company records an increase in debt?

Liability

Assume Marlin Co.'s beginning balance in the Retained Earnings account is zero. If a debit balance of $5,000 exists in Retained Earnings after closing out revenues and expenses at the end of the current period, it indicates:

Marlin Co. had a net loss of $5,000

All things being equal, what form of organization gives owners the maximum exposure or risk in the event that a business fails and cannot pay its debts?

Partnership

Accumulated depreciation is normally associated with which asset on the Balance Sheet?

Property, plant and equipment

To be useful, accounting information must have the fundamental qualitative characteristics of:

Relevance and faithful representation

Which of the following is a correct statement about GAAP and IFRS?

The FASB and the IASB are working towards convergence of standards

The portion of net income that the company has kept over a period of years is called:

Retained Earnings

The XYZ Company purchased supplies for $5,000 on account. The entry to record this transaction is:

Supplies 5,000 Accounts Payable 5,000

ABC Company owns a ranch in Arizona it uses for client demonstrations. The president of ABC Company owns a ranch in Texas. Which of these properties is considered an asset(s) of ABC Company?

The Arizona ranch only

Which of the following is not a business transaction?

The company hires a new president

A tired accountant failed to record the adjusting entry for accrued salaries. How does this error affect net income?

The net income for the period will be overstated

The sum of "outsider claims" plus "insider claims" equals:

Total Assets

The Chart of Accounts is:

a listing of all open accounts and their balances.

The following accounts are up-to-date and need no adjustment at the end of the period:

cash, dividends and common stock

Permanent accounts include:

cash, prepaid expenses and unearned revenue

The book value of a plant asset is the:

cost of the asset less the accumulated depreciation

Borrowing money from the bank by signing a note payable:

has no effect on stockholders' equity

An owner makes an investment of cash into the business. This transaction includes a:

debit to Cash and a credit to Common Stock

Joe Donaldson deposited $80,000 in a bank account, purchased a company for $60,000 cash (Building $40,000 and Inventory $20,000), performed services for clients for $10,000 cash, purchased supplies for $5,000 cash, and paid utilities of $2,000 cash. The journal entry to record the purchase of the company includes a:

debit to Inventory for $20,000

A company pays an employee $1,000 per week for a five day work week. The adjusting entry on December 31, which is a Tuesday, is a:

debit to Salaries Expense for $400 and a credit to Salaries Payable for $400 1,000/5 = 200 per day; 200 * 2 days = 400

A company started the year with $400 of supplies. During the year, the company purchased an additional $1,200 of supplies. There were $700 of supplies on hand at the end of the year. An adjusting entry prepared at the end of the accounting period includes a:

debit to Supplies Expense for $900 400 (Beginning supplies inventory) + 1,200 (Purchases) - 700 (Ending supplies inventory) = 900

On January 1, 2010, total assets for Liftoff Technologies were $125,000; on December 31, 2010, total assets were $145,000. On January 1, 2010, total liabilities were $110,000; on December 31, 2010, total liabilities were $115,000. What is the amount of the change and the direction of the change in Liftoff Technologies' stockholders' equity for 2010?

ncrease of $15,000

The deferral adjustment for liabilities:

records the amount of revenue earned for the period

The two main components of stockholders' equity are:

retained earnings and paid-in capital.

After the closing entries are prepared:

the Retained Earnings account will have the correct ending balance

With an accrual:

the cash is received after the revenue is recorded

The proper order for the accounting process is:

transaction occurs, transaction analyzed, journalizing, and posting