Exam 1 (Hard)

Which of the following is a temporary account? Select one: A. Accounts Payable B. Cash Dividends C. Subscriptions Received in Advance D. Cash

B. Cash Dividends (Topic: Temporary Accounts, Level: Easy) Rationale: Temporary accounts are accounts used to gather information for a particular accounting period. Dividends are a temporary subdivision of stockholders' equity.

As of the beginning of the year, the Long Company had equipment totaling $1,800,000 which was depreciated at $150,000 per year.If Long Company makes the appropriate adjusting entry at year end, which of the following is one part of the journal entry that will be made? Select one: A. Debit Depreciation Expense for $150,000 B. Debit Accumulated Depreciation for $150,000 C. Credit Depreciation Expense for $150,000 D. Debit Equipment for $150,000

A. Debit Depreciation Expense for $150,000 (Topic: Adjusting for Depreciation, Level: Easy) Rationale: The entry will debit Depreciation Expense for $150,000 and credit Accumulated Depreciation for the same amount.

In a double-entry accounting system: Select one: A. All accounts have normal debit balances B. A debit entry is recorded on the left side of an account C. Liabilities, common stock, and expense accounts all have normal credit balances D. A credit entry records a decrease in an account

B. A debit entry is recorded on the left side of an account (Topic: Debits and Credits, Level: Medium) Rationale: The terms debit and credit are used to refer to the left side and the right side, respectively, of an account.

On which statement are assets, liabilities and stockholders' equity reported? Select one: A. Statement of retained earnings B. Balance sheet C. Income statement D. Statement of cash flows

B. Balance sheet (Topic: Financial Statements, Level: Medium) Rationale: A balance sheet lists amounts for assets, liabilities, and stockholders' equity at a point in time.

Which of the following is not an advantage of the corporate form of business organization? Select one: A. The relative ease of selling ownership shares B. Both the business and the owners are taxed C. The ease with which capital can be raised D. The protection afforded stockholders against personal liability

B. Both the business and the owners are taxed (Topic: Business Organizations, Level: Easy) Rationale: The advantage of the corporate form of business organization include the ease of raising capital, stockholder protection against personal liability, and the ease of selling ownership shares.

Which of the following is not a component of the accounting equation? Select one: A. Stockholders' equity B. Income statement C. Liabilities D. Assets E. None of the above

B. Income statement (Topic: Accounting Equation, Level: Easy) Rationale: The accounting equation: Assets = Liabilities + Stockholder's equity, states that a firm's assets equal the sum of its liabilities plus its stockholders' equity. Assets refer to a company's resources, liabilities refer to creditor claims on those resources, and stockholders' equity refers to owner claims on those resources.

A company received payment of $30,000 from a customer that had previously received services performed on account. What would the effect of this transaction on the company's current month accounting equation? Select one: A. $30,000 increase in Assets; $30,000 increase in Liabilities; No effect on Stockholders' Equity B. No effect on Assets; No effect on Liabilities; No effect on Stockholders' Equity C. No effect on Assets; $30,000 increase in Liabilities; $30,000 decrease in Stockholders' Equity D. $30,000 increase in Assets; No effect on Liabilities; $30,000 increase in Stockholders' Equity

B. No effect on Assets; No effect on Liabilities; No effect on Stockholders' Equity (Topic: Analyzing Transactions, Level: Medium) Rationale: Cash 30,000 Debit Accounts receivable 30,000 Credit

Assets must always equal the sum of liabilities plus stockholders' equity. Select one: True False

True (Topic: Accounting Equation) Rationale: The accounting equation is Assets = Liabilities + Stockholders' Equity. This relation must always exist.

Adjusting entries must be journalized and posted before closing entries may be prepared. Select one: True False

True (Topic: Closing Entries) Rationale: The adjusted trial balance lists all general ledger accounts after adjustments have been posted. It contains much of the data needed to construct the financial statements. After this the financial statements are prepared. Then, closing entries are posted.

The income statement, statement of stockholders/equity, and statement of cash flows are referred to as period-in-time statements. Select one: True False

True (Topic: Preparing Financial Statements) Rationale: Specific periods of time are reported on all financial statements, except the balance sheet. The balance sheet is referred to as a point-in-time statement.

Which of the following increases stockholders' equity? Select one: A. Providing services to clients with payment received immediately B. Collecting an amount owed by a client on account C. Purchasing supplies for cash D. Receiving payment in advance from a client for service to be performed in the future

A. Providing services to clients with payment received immediately (Level: Medium) Rationale: Providing services to clients (service revenue) increases stockholders' equity. All of the other transactions do not.

Which of the following activities is an example of an operating activity? Select one: A. Selling merchandise online B. Issuing shares of stock in exchange for cash C. Receiving a loan from a bank D. Purchasing a delivery truck

A. Selling merchandise online (Topic: Activities of a Business, Level: Easy) Rationale: Selling merchandise online is an example of an operating activity.

Baker received $5,000 from a tenant on December 1 for five months' rent of an office. This rent was for December, January, February, March, and April.If Baker debited Cash and credited Unearned Rental Income for $5,000 on December 1, what necessary adjustment would be made on December 31? Select one: A.Unearned Rental Income 1,000 Debit Rental Income 1,000 Credit B.Rental Income1,000 Unearned Debit Rental Income 1,000 Credit C.Rental Income 4,000 Unearned Debit Rental Income 4,000 Credit D.Unearned Rental Income 4,000 Debit Rental Income 4,000 Credit

A.Unearned Rental Income 1,000 Debit Rental Income 1,000 Credit (Topic: Unearned Income Adjusting Entries, Level: Easy) Rationale: Transfer 1/5 x $5,000 = $1,000 from Unearned Rental Income to Rental Income

On April 1, Eng Technologies paid $240,000 for rent on warehouse space one year in advance.If Eng Technologies makes the appropriate adjusting entry, how much will be reported on the December 31 income statement for rent expense? Select one: A. $135,000 B. $180,000 C. $45,000 D. $150,000

B. $180,000 (Topic: Adjusting Entries, Level: Medium) Rationale: Rent expense = $240,000 × 9/12 = $180,000

A company paid employee wages of $24,000 for the month. What would the effect of this transaction on the current month's accounting equation? Select one: A. $24,000 increase in Assets; $24,000 increase in Liabilities; No effect on Stockholders' Equity B. $24,000 decrease in Assets; No effect on Liabilities; $24,000 decrease in Stockholders' Equity C. $24,000 decrease in Assets; $24,000 decrease in Liabilities; No effect on Stockholders' Equity D. No effect on Assets; $24,000 decrease in Liabilities; $24,000 increase in Stockholders' Equity

B. $24,000 decrease in Assets; No effect on Liabilities; $24,000 decrease in Stockholders' Equity (Topic: Analyzing Transactions, Level: Difficult) Rationale: Wage expense 24,000 Debit Cash 24,000 Credit

Manzo Industries recorded and paid $1,400 advertising for the current month. Which occurred? Select one: A. Current assets increase B. Net income decreases C. Current liabilities decrease D. Retained earnings increases

B. Net income decreases (Topic: Recording Transactions, Level: Medium) Rationale: Assets (cash) decrease and Advertising Expense (an operating expense) increases, causing operating income to decrease.

On December 31, the end of the accounting period, $31,800 in service fees had been earned but not billed or received. The Marsh Company uses the account Fees Receivable to reflect amounts due but not yet billed.The proper adjusting entry would be: Select one: A.Cash 31,800 Debit Service Fees Earned 31,800 Credit B.Fees Receivable 31,800 Debit Service Fees Earned 31,800 Credit C.Unearned Service Fees 31,800 Debit Service Fees Earned 31,800 Credit D.Fees Receivable 31,800 Debit Unearned Service Fees 31,800 Credit

B.Fees Receivable 31,800 Debit Service Fees Earned 31,800 Credit (Topic: Accrued Revenue Adjusting Entries, Level: Easy) Rationale: Revenues must be recognized in the period in which they are earned, a credit to Service Fees Earned. The Fees Receivable account is used by the Marsh Company to reflect amounts due to not yet billed.

Williams, Inc. started the year with total assets of $180,000, total liabilities of $120,000, and retained earnings of $54,000. During the year, the business recorded $300,000 in repair revenues, $210,000 in expenses, and the company paid dividends of $45,000.Williams' balance of stockholders' equity at the start of the year was: Select one: A. $45,000 B. $6,000 C. $60,000 D. $300,000 E. None of the above

C. $60,000 (Topic: Financial Statements, Level: Easy) Rationale: $180,000 - $120,000 = $60,000

The double-entry system of debits and credits means that: Select one: A. Two pieces of information must be recorded for each transaction--the date and the dollar amount. B. Debits will be recorded twice as often as credits. C. At least two entries, a debit and a credit, must be made for each transaction. D. Each debit and credit will be recorded two times, once in the general ledger and once in the trial balance.

C. At least two entries, a debit and a credit, must be made for each transaction. (Topic: Double-entry Accounting, Level: Easy) Rationale: The accounting equation always remains in balance and at least two elements of the equation are always affected.

A company's fiscal year may: Select one: A. Be any portion of a year including a month or quarter B. Be for a period either greater or less than 12 months C. Be the same as the calendar year D. All of the above are true of a company's fiscal year

C. Be the same as the calendar year (Topic: Fiscal Year, Level: Easy) Rationale: A company's fiscal year must be a complete year, may not be for a period greater or less than 12 months, and may be the same as the calendar year.

A series of journal entries at the end of the accounting period to remove the balances from the temporary accounts so that they can accumulate data for the following accounting period are called: Select one: A. Adjusting entries B. Reversing entries C. Closing entries D. Connecting entries

C. Closing entries (Topic: Closing Entries, Level: Easy) Rationale: An account that is closed is said to be closed to the account that receives the offsetting debit or credit. Thus, a closing entry simply transfers the balance of one account to another account. Because closing journal entries bring temporary account balances to zero, the temporary accounts are ready to start accumulating data for the next accounting period.

Which of the following accounts is not affected by closing entries? Select one: A. Cash Dividends B. Retained Earnings C. Common Stock D. Service Fees Earned

C. Common Stock (Topic: Closing Entries, Level: Medium) Rationale: The closing process includes entries to close revenue and expense accounts to the income summary and to close the Income Summary account and the Dividends account to the Retained Earnings account. Common stock is a permanent account and is not closed.

Which of the following accounts normally has a debit balance? Select one: A. Service Fees Earned B. Common Stock C. Dividends D. Accounts Payable

C. Dividends (Topic: Normal Balance, Level: Easy) Rationale: Assets, dividend, and expense accounts normally have debit balances, whereas liabilities, common stock, and revenue accounts normally have credit balances. So, dividends would have a normal debit balance.

Which of the following statements is true regarding generally accepted accounting principles (GAAP)? Select one: A. GAAP is a set of laws. B. U.S. GAAP is the same as GAAP in other countries. C. GAAP is subject to change as conditions warrant. D. Under GAAP, if two companies engage in the same transactions, they must choose the same accounting methods.

C. GAAP is subject to change as conditions warrant. (Topic: Generally Accepted Accounting Principles, Level: Medium) Rationale: Specific rules under GAAP are altered or new practices are formulated to fit changes in underlying economic circumstances of business transactions.

An accrual of wages expense would produce what effect on the balance sheet? Select one: A. Increase assets and increase liabilities B. Decrease assets and decrease liabilities C. Increase liabilities and decrease equity D. Decrease liabilities and increase equity

C. Increase liabilities and decrease equity (Topic: Effects of Accrued Wages, Level: Easy)

The Gray Company's Office Supplies account had a beginning balance of $16,000. During the month, purchases of office supplies totaling $4,000 were debited to the Office Supplies account.If $6,000 worth of office supplies is still on hand at month-end, what is the proper adjusting entry? Select one: A.Office Supplies 6,000 Debit Office Supplies Expense 6,000 Credit B.Office Supplies 6,000 Debit Office Supplies Expense 6,000 Credit C.Office Supplies Expense 14,000 Debit Office Supplies 14,000 Credit D.Office Supplies Expense 6,000 Debit Office Supplies 6,000 Credit

C.Office Supplies Expense 14,000 Debit Office Supplies 14,000 Credit (Topic: Supplies Expense Adjusting Entries, Level: Medium) Rationale: Transfer $16,000 + $4,000 - $6,000 = $14,000 from Office Supplies to Office Supplies Expense

Mankin Corporation started the year with total assets of $60,000, total liabilities of $40,000, and retained earnings of $18,000. During the year, the business recorded $100,000 in revenues, $70,000 in expenses, and the company paid dividends of $15,000. The net income reported by Mankin for the year was: Select one: A. $180,000 B. $ 40,000 C. $ 50,000 D. $ 30,000 E. None of the above

D. $ 30,000 (Topic: Financial Statements, Level: Medium) Rationale: $100,000 - $70,000 = $30,000

If the beginning Cash account balance of Franklin, Inc. was $60,000, the ending balance was $100,800, and the total cash paid out during the period was $192,000, what amount of cash was received during the period? Select one: A. $280,800 B. $232,800 C. $28,800 D. $223,200

D. $223,200 (Topic: Analyzing an Account, Level: Medium) Rationale: Beginning cash + Cash receipts - Cash payments = Ending Cash ($60,000 + X - $192,000 = $100,800) (X = $100,800 + $192,000 - $60,000) = $232,800

Morgan Company had $340,500 of Accounts Payable on March 31. During March, the company made total purchases on account of $581,220, and paid a total of $631,380 cash on accounts payable.Determine the balance of Accounts Payable on March 1. Select one: A. $ 20,340 B. $391,200 C. $871,100 D. $390,660

D. $390,660 (Topic: The "Account" System, Level: Difficult) Rationale:Beginning A/P balance + Purchases - Payments = Ending A/P balanceX + $581,220 - $631,380 = $340,500X = $341,500 - $581,220 + $631,380X = $390,660

Which of the following accounts should appear in a post-closing trial balance? Select one: A. Service Fees Earned B. Income Summary C. Depreciation Expense D. Accounts Payable

D. Accounts Payable (Topic: Post-Closing Trial Balance, Level: Easy) Rationale: Only permanent (balance sheet) accounts appear in the post-closing trial balance. Temporary (income statement) accounts are closed in the closing process, prior to the preparation of the post-closing trial balance.

Which of the following errors may escape detection when a trial balance is taken? Select one: A. Failing to record or enter a particular transaction B. Entering a transaction more than once or entering one or more amounts in the wrong accounts C. Making an error that exactly offsets the effect of another error D. All of the above

D. All of the above (Topic: Trial Balance, Level: Medium) Rationale: If any of these errors occurred, the debits and credits of the trial balance would still be equal; therefore the errors may go undetected.

Which of the following is one effect of a purchase of $600 of supplies on credit? Select one: A. It would decrease liabilities by $600 B. It would decrease cash assets by $600 C. It would decrease retained earnings $600 D. It would increase liabilities by $600

D. It would increase liabilities by $600 (Topic: Accounting Equation, Level: Easy) Rationale: The purchase on credit creates an account payable. It would increase liabilities by $600. In addition, the supplies account in the asset section of the balance sheet would also increase.

Which of the following is a permanent account category? Select one: A. Revenues B. Dividends C. Expenses D. Liabilities

D. Liabilities (Topic: Permanent Accounts, Level: Easy) Rationale: Permanent accounts are accounts presented on the balance sheet. Revenues, dividend, and expenses are presented on the income statement.

Which of the following accounts normally has a credit balance? Select one: A. Accounts Receivable B. Rent Expense C. Dividends D. Notes Payable

D. Notes Payable (Topic: Normal Balance, Level: Easy) Rationale: Assets, dividend, and expense accounts normally have debit balances, whereas liabilities, common stock, and revenue accounts normally have credit balances. Notes payable is a liability account, so the normal balance would be a credit balance.

The increases to a company's resources that result when goods or services are provided to customers are called: Select one: A. Assets B. Liabilities C. Expenses D. Revenues E. None of the above

D. Revenues (Topic: Sales Revenue, Level: Medium) Rationale: Sales revenues are increases to a company's resources that result when goods or services are provided to customers. The amount of sales revenue earned is measured by the value of the assets received in exchange for good and services delivered.

Derzon Company signed a one-year lease on April 1, Year 1, and paid the $68,400 total year's rent in advance. Derzon recorded the transaction as a debit to Prepaid Rent and a credit to Cash.What adjusting entry should Derzon make on December 31, year 1 (no previous adjustment has been made)? Select one: A.Prepaid Rent 51,300 Debit Rent Expense 51,300 Credit B.Rent Expense 17,100 Debit Prepaid Rent 17,100 Credit C.Prepaid Rent 17,100 Debit Rent Expense 17,100 Credit D.Rent Expense 51,300 Debit Prepaid Rent 51,300 Credit

D.Rent Expense 51,300 Debit Prepaid Rent 51,300 Credit (Topic: Prepaid Rent Adjusting Entries, Level: Medium) Rationale: Transfer 9/12 x $68,400 = $51,300 from Prepaid Rent to Rent Expense

Assume December 31 is a Wednesday. Webb Company's wages are paid every Friday, and the weekly payroll (for five days) amounts to $6,000.To record the correct amount of expense for December, Webb makes the following entry on December 31: Select one: A.Wages Expense 3,600 Debit Wages Payable 3,600 Credit B.Wages Payable 6,000 Debit Wages Expense 6,000 Credit C.Wages Payable 3,600 Debit Wages Expense 3,600 Credit D.Wages Expense 3,360 Debit Wages Payable 3,360 Credit

D.Wages Expense 3,360 Debit Wages Payable 3,360 Credit (Topic: Wages Expense Accrual, Level: Medium) Rationale: Accrue 3/5 x $6,000 = $3,600 of Wages Expense

If a company reports retained earnings of $22.4 million on its balance sheet, it will also report $22.4 million in cash. Select one: True False

False (Topic: Balance Sheet) Rationale: The accounting equation requires total assets to equal the sum of total liabilities plus stockholders' equity. That does not imply, however, that liability and stockholders' equity accounts relate directly to specific assets.

The income statement is also known as the statement of financial position. Select one: True False

False (Topic: Income Statement) Rationale: The income statement is also known as the statement of operations, the statement of income, and the earnings statement. It is the balance sheet that is also referred to as the statement of financial position.

Retained earnings are present on both the income statement and the statement of stockholders' equity. Select one: True False

False (Topic: Retained Earnings) Rationale: Retained earnings are present in the statement of retained earnings and the balance sheet. The income statement represents current period earnings.