exam 2 accounting
Expenses incurred but not yet paid or recorded are called a. prepaid expenses. b. accrued expenses. c. interim expenses. d. unearned expenses.
b. accrued expenses.
Paden Company purchased merchandise from Emmett Company with freight terms of FOB shipping point. The freight costs will be paid by the a. seller. b. buyer. c. transportation company. d. buyer and the seller.
b. buyer.
The income statement for the month of June, 2021 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 The entry to close the expense accounts includes a a. debit to Income Summary for $1,300. b. credit to Rent Expense for $1,500. c. credit to Income Summary for $5,700. d. debit to Salaries and Wages Expense for $3,000.
b. credit to Rent Expense for $1,500.
On September 23, Sebadoh Company received a $350 check from Surfer Rosa Inc. for services to be performed in the future. The bookkeeper for Sebadoh Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should a. debit Cash $350 and credit Unearned Service Revenue $350. b. debit Accounts Receivable $350 and credit Unearned Service Revenue $350. c. debit Accounts Receivable $350 and credit Cash $350. d. debit Accounts Receivable $350 and credit Service Revenue $350.
b. debit Accounts Receivable $350 and credit Unearned Service Revenue $350.
As prepaid expenses expire with the passage of time, the correct adjusting entry will be a a. debit to an asset account and a credit to an expense account. b. debit to an expense account and a credit to an asset account. c. debit to an asset account and a credit to an asset account. d. debit to an expense account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
In preparing closing entries a. each revenue account will be credited. b. each expense account will be credited. c. the retained earnings account will be debited if there is net income for the period. d. the dividends account will be debited.
b. each expense account will be credited.
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. expense will be understated.
The expense recognition principle matches a. customers with businesses. b. expenses with revenues. c. assets with liabilities. d. creditors with businesses.
b. expenses with revenues.
Freight costs paid by a seller on merchandise sold to customers will cause an increase a. in the selling expense of the buyer. b. in operating expenses for the seller. c. to the cost of goods sold of the seller. d. to a contra-revenue account of the seller.
b. in operating expenses for the seller.
After gross profit is calculated, operating expenses are deducted to determine a. gross margin. b. net income. c. gross profit on sales. d. net margin.
b. net income.
If a company is given credit terms of 2/10, n/30, it should a. hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time. b. pay within the discount period and recognize a savings. c. pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill. d. recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.
b. pay within the discount period and recognize a savings.
The revenue recognition principle dictates that revenue should be recognized in the accounting records a. when cash is received. b. when the performance obligation is satisfied. c. at the end of the month. d. in the period that income taxes are paid.
b. when the performance obligation is satisfied.
McIntyre Company made a purchase of merchandise on credit from Marvin Company on August 8, for $9,000, terms 3/10, n/30. On August 17, McIntyre makes the appropriate payment to Marvin. The entry on August 17 for McIntyre Company is: a. Accounts Payable.................................................................. 9,000 Cash............................................................................. 9,000 b. Accounts Payable.................................................................. 8,730 Cash............................................................................. 8,730 c. Accounts Payable.................................................................. 9,000 Purchase Returns and Allowances.............................. 270 Cash............................................................................. 8,730 d. Accounts Payable.................................................................. 9,000 Inventory....................................................................... 270 Cash............................................................................. 8,730
d. Accounts Payable.................................................................. 9,000 Inventory....................................................................... 270 Cash............................................................................. 8,730
What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $18,500, and unexpired amounts per analysis of policies of $6,000? a. Debit Insurance Expense, $6,000; Credit Prepaid Insurance, $6,000. b. Debit Insurance Expense, $18,500; Credit Prepaid Insurance, $18,500. c. Debit Prepaid Insurance, $12,500; Credit Insurance Expense, $12,500. d. Debit Insurance Expense, $12,500; Credit Prepaid Insurance, $12,500.
d. Debit Insurance Expense, $12,500; Credit Prepaid Insurance, $12,500.
The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit a. Accounts Payable. b. Purchase Returns and Allowances. c. Sales Revenue. d. Inventory.
d. Inventory.
Accumulated Depreciation is a. an expense account. b. a stockholders' equity account. c. a liability account. d. a contra asset account.
d. a contra asset account.
The income statement for the month of June, 2021 of Camera Obscura Enterprises contains the following information: Revenues $7,000 Expenses: Salaries and Wages Expense $3,000 Rent Expense 1,500 Advertising Expense 800 Supplies Expense 300 Insurance Expense 100 Total expenses 5,700 Net income $1,300 The entry to close the revenue account includes a a. debit to Income Summary for $1,300. b. credit to Income Summary for $1,300. c. debit to Income Summary for $7,000. d. credit to Income Summary for $7,000.
d. credit to Income Summary for $7,000.
In order to close the dividends account, the a. income summary account should be debited. b. income summary account should be credited. c. retained earnings account should be credited. d. retained earnings account should be debited.
d. retained earnings account should be debited.
An error has occurred in the closing entry process if a. revenue and expense accounts have zero balances. b. the retained earnings account is credited for the amount of net income. c. the dividends account is closed to the retained earnings account. d. the balance sheet accounts have zero balances.
d. the balance sheet accounts have zero balances.
During 2022, Parker Enterprises generated revenues of $90,000. The company's expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000. Parker's net income is a. $24,000. b. $27,000. c. $45,000. d. $90,000.
a. $24,000.
Glover Co. returned defective goods costing $5,000 to Mal Company on April 19, for credit. The goods were purchased April 10, on credit, terms 3/10, n/30. The entry by Glover Co. on April 19, in receiving full credit is: a. Accounts Payable.................................................................. 5,000 Inventory....................................................................... 5,000 b. Accounts Payable.................................................................. 5,000 Inventory................................................................................ 150 Cash............................................................................. 5,150 c. Accounts Payable.................................................................. 5,000 Purchase Discounts..................................................... 120 Inventory....................................................................... 4,850 d. Accounts Payable.................................................................. 5,000 Inventory....................................................................... 120 Cash............................................................................. 4,850
a. Accounts Payable.................................................................. 5,000 Inventory....................................................................... 5,000
Which of the following is in accordance with generally accepted accounting principles? a. Accrual-basis accounting b. Cash-basis accounting c. Both accrual-basis and cash-basis accounting d. Neither accrual-basis nor cash-basis accounting
a. Accrual-basis accounting
Which of the following would not be classified as a long-term liability? a. Current maturities of long-term debt b. Bonds payable c. Mortgage payable d. Lease liabilities
a. Current maturities of long-term debt
REM Real Estate received a check for $27,000 on July 1 which represented a six-month advance payment on a building it rents to a client. Unearned Rent Revenue was credited for the full $27,000. Financial statements will be prepared on July 31. REM Real Estate should make the following adjusting entry on July 31: a. Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500. b. Debit Rent Revenue, $4,500; Credit Unearned Rent Revenue, $4,500. c. Debit Unearned Rent Revenue, $27,000; Credit Rent Revenue, $24,000. d. Debit Cash, $27,000; Credit Rent Revenue, $27,000.
a. Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500.
A candy factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in a. February. b. March. c. the period when the workers receive their checks. d. either in February or March depending on when the pay period ends.
a. February.
If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the a. Inventory account will be increased. b. Inventory account will not be affected. c. seller will bear the freight cost. d. carrier will bear the freight cost.
a. Inventory account will be increased.
Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire show that the revenue was recognized? a. July 31 b. August 1 c. August 5 d. August 6
a. July 31
Adjusting entries are required a. because some costs expire with the passage of time and have not yet been journalized. b. when the company's profits are below the budget. c. when expenses are recorded in the period in which they are incurred. d. when revenues are recorded in the period in which services are performed
a. because some costs expire with the passage of time and have not yet been journalized.
Sales revenue less cost of goods sold is called a. gross profit. b. net profit. c. net income. d. marginal income.
a. gross profit.
The balance in the Income Summary account before it is closed will be equal to a. the net income or loss on the income statement. b. the beginning balance in the retained earnings account. c. the ending balance in the retained earnings account. d. zero.
a. the net income or loss on the income statement.
During 2022, Parker Enterprises generated revenues of $90,000. The company's expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000. Parker's income from operations is a. $18,000. b. $27,000. c. $45,000. d. $90,000.
b. $27,000.
The balance in the supplies account on June 1 was $5,200, supplies purchased during June were $3,500, and the supplies on hand at June 30 were $3,000. The amount to be used for the appropriate adjusting entry is a. $3,500. b. $5,700. c. $6,500. d. $11,700.
b. $5,700.
Meat Puppets Company purchased equipment for $7,200 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: a. Debit Depreciation Expense, $1,800; Credit Accumulated Depreciation, $1,800. b. Debit Depreciation Expense, $150; Credit Accumulated Depreciation, $150. c. Debit Depreciation Expense, $5,400; Credit Accumulated Depreciation, $5,400. d. Debit Equipment, $7,200; Credit Accumulated Depreciation, $7,200.
b. Debit Depreciation Expense, $150; Credit Accumulated Depreciation, $150.
Each of the following accounts is closed to Income Summary except a. Expenses. b. Dividends. c. Revenues. d. All of these are closed to Income Summary.
b. Dividends.
A buyer would record a payment within the discount period under a perpetual inventory system by crediting a. Accounts Payable. b. Inventory. c. Purchase Discounts. d. Sales Discounts.
b. Inventory.
The following is selected information from Motley Corporation for the fiscal year ending October 31, 2022. Cash received from customers $300,000 Revenue recognized 375,000 Cash paid for expenses 180,000 Cash paid for computers on November 1, 2021 that will be used for 3 years (annual depreciation is $16,000) 48,000 Expenses incurred, including interest, but excluding any depreciation 220,000 Proceeds from a bank loan, part of which was used to pay for the computers 100,000 Based on the accrual basis of accounting, what is Motley Corporation's net income for the year ending October 31, 2022? a. $72,000 b. $104,000 c. $139,000 d. $155,000
c. $139,000
The following items are taken from the financial statements of Gray's Postal Service for the year ending December 31, 2021: Accounts payable $ 18,000 Accounts receivable 11,000 Accumulated depreciation - equipment 28,000 Advertising expense 21,000 Cash 15,000 Common stock 42,000 Dividends 14,000 Depreciation expense 12,000 Insurance expense 3,000 Note payable, due 6/30/22 70,000 Prepaid insurance (12-month policy) 6,000 Rent expense 17,000 Retained earnings (1/1/21) 60,000 Salaries and wages expense 32,000 Service revenue 133,000 Supplies 4,000 Supplies expense 6,000 Equipment 210,000 What is the company's net income for the year ending December 31, 2021? a. $12,000 b. $28,000 c. $42,000 d. $133,000
c. $42,000
Glenn Company purchased merchandise inventory with an invoice price of $9,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Glenn Company pays within the discount period? a. $8,100 b. $8,280 c. $8,820 d. $9,000
c. $8,820
On July 9, Sheb Company sells goods on credit to Wooley Company for $5,000, terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is: a. Cash...................................................................................... 5,000 Accounts Receivable.................................................... 5,000 b. Cash...................................................................................... 5,000 Sales Discounts............................................................ 50 Accounts Receivable.................................................... 4,950 c. Cash...................................................................................... 4,950 Sales Discounts..................................................................... 50 Accounts Receivable.................................................... 5,000 d. Cash...................................................................................... 5,050 Sales Discounts............................................................ 50 Accounts Receivable.................................................... 5,000
c. Cash...................................................................................... 4,950 Sales Discounts..................................................................... 50 Accounts Receivable.................................................... 5,000
In its first period of operations, Lake of Fire Company purchased supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1,900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be a. Debit Supplies Expense, $1,900; Credit Supplies, $1,900. b. Debit Supplies, $5,100; Credit Supplies Expense, $5,100. c. Debit Supplies Expense, $5,100; Credit Supplies, $5,100. d. Debit Supplies, $1,900; Credit Supplies Expense, $1,900.
c. Debit Supplies Expense, $5,100; Credit Supplies, $5,100.
Under the perpetual system, freight costs incurred by the buyer for the transporting of goods is recorded in a. Freight Expense. b. Freight - In. c. Inventory. d Freight - Out.
c. Inventory.
A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered to be recognized? a. December 5 b. December 10 c. November 30 d. December 1
c. November 30
An adjusting entry a. affects two balance sheet accounts. b. affects two income statement accounts. c. affects a balance sheet account and an income statement account. d. is always a compound entry.
c. affects a balance sheet account and an income statement account.
On a classified balance sheet, current assets are customarily listed a. in alphabetical order. b. with the largest dollar amounts first. c. in the order of liquidity. d. in the order of acquisition.
c. in the order of liquidity.
Costner's Market recorded the following events involving a recent purchase of merchandise: Received goods for $40,000, terms 2/10, n/30. Returned $800 of the shipment for credit. Paid $200 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's inventory a. increased by $38,416. b. increased by $38,612. c. increased by $38,616. d. increased by $39,400.
c. increased by $38,616.
If an adjustment is needed for unearned revenues, the a. liability and related revenue are overstated before adjustment. b. liability and related revenue are understated before adjustment. c. liability is overstated and the related revenue is understated before adjustment. d. liability is understated and the related revenue is overstated before adjustment.
c. liability is overstated and the related revenue is understated before adjustment.
Depreciation expense for a period is the a. original cost of an asset - accumulated depreciation. b. book value of the asset ÷ useful life. c. portion of an asset's cost that expired during the period. d. market value of the asset ÷ useful life.
c. portion of an asset's cost that expired during the period.
The fiscal year of a business is usually determined by a. the IRS. b. a lottery. c. the business. d. the SEC.
c. the business.
In a service-type business, revenue is considered recognized a. at the end of the month. b. at the end of the year. c. when the service is performed. d. when cash is received.
c. when the service is performed.