Financial Accounting Test 1 Madeline Brogan

A company was recently formed with $50,000 cash contributed to the company by stockholders for common stock. The company then borrowed $20,000 from a bank and bought $10,000 of supplies on account. The company also purchased $50,000 of equipment by paying $20,000 in cash and issuing a note for the remainder. What is the amount of total assets to be reported on the balance sheet? A. $110,000 B. $100,000 C. $90,000 D. None of the above

A. $110,000

If a company incorrectly records a payment as an asset, rather than as an expense, how will this error affect net income in the current period? A. Net income will be too high. B. Net income will be too low. C. Net income will not be affected by this error. D. It's a mystery; nobody really knows.

A. Net income will be too high.

The duality of effects can best be described as follows: A. When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result. B. When an exchange takes place between two parties, both parties must record the transaction. C. When a transaction is recorded, both the balance sheet and the income statement must be impacted. D. When a transaction is recorded, one account will always increase and one account will always decrease.

A. When a transaction is recorded in the accounting system, at least two effects on the basic accounting equation will result.

Which of the following is not one of the items required to be shown in the heading of a financial statement? A.The financial statement preparer's name. B. The title of the financial statement. C. The financial reporting date or period. D.The name of the business entity.

A.The financial statement preparer's name.

Which of the following is true regarding the income statement? A.The income statement is sometimes called the statement of operations. B.The income statement reports revenues, expenses, and liabilities. C.The income statement only reports revenue for which cash was received at the point of sale. D.The income statement reports the financial position of a business at a particular point in time.

A.The income statement is sometimes called the statement of operations.

Which of the following would not be a goal of external users reading a company's financial statements? A.Understanding the current financial state of the company. B. Assessing the company's contribution to social and environmental policies. C. Predicting the company's future financial performance. D. Evaluating the company's ability to generate cash from sales.

B. Assessing the company's contribution to social and environmental policies.

If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to report too small a value for which of the following on its balance sheet? A. Assets B. Liabilities C. Retained Earnings D. Common Stock

B. Liabilities

When should companies that sell gift cards to customers report revenue? A. When the gift card is issued and cash is received. B. When the gift card is used by the customer. C. At the end of the year in which the gift card is issued. D. None of the above.

B. When the gift card is used by the customer.

Webby Corporation reported the following amounts on its income statement: service revenues, $32,500; utilities expense, $300; net income, $1,600; and income tax expense, $900. If the only other amount reported on the income statement was for selling expenses, what amount would it be? A.$2,200 B.$29,700 C.$30,000 D.$30,900

B.$29,700

Which of the following items is not a specific account in a company's accounting records? A.Accounts Receivable B.Net Income C.Sales Revenue D. Unearned Revenue

B.Net Income

Which of the following is not one of the four basic financial statements? A.The balance sheet B.The audit report C.The income statement D.The statement of cash flows

B.The audit report

Which of the following regarding GAAP is true? A. GAAP is an abbreviation for generally applied accounting principles. B. Changes in GAAP always affect the amount of income reported by a company. C. GAAP is the abbreviation for generally accepted accounting principles. D. Changes to GAAP must be approved by the Senate Finance Committee.

C. GAAP is the abbreviation for generally accepted accounting principles.

Which of the following describes how assets are listed on the balance sheet? A. In alphabetical order. B. In order of magnitude, lowest value to highest value. C. In the order they will be used up or turned into cash. D. From least current to most current.

C. In the order they will be used up or turned into cash.

Which of the following statements regarding the statement of cash flows is false? A.The statement of cash flows separates cash inflows and outflows into three major categories: operating, investing, and financing. B. The ending cash balance shown on the statement of cash flows must agree with the amount shown on the balance sheet at the end of the same period. C. The total increase or decrease in cash shown on the statement of cash flows must agree with the "bottom line" (net income or net loss) reported on the income statement. D. The statement of cash flows covers a period of time.

C. The total increase or decrease in cash shown on the statement of cash flows must agree with the "bottom line" (net income or net loss) reported on the income statement.

When should a company report the cost of an insurance policy as an expense? A. When the company first signs the policy. B. When the company pays for the policy. C. When the company receives the benefits from the policy over its period of coverage. D. When the company receives payments from the insurance company for its insurance claims.

C. When the company receives the benefits from the policy over its period of coverage.

Which of the following is the entry to be recorded by a law firm when it receives a payment from a new client that will be earned when services are provided in the future? A.Debit Accounts Receivable; credit Service Revenue. B.Debit Unearned Revenue; credit Service Revenue. C.Debit Cash; credit Unearned Revenue. D. Debit Unearned Revenue; credit Cash.

C.Debit Cash; credit Unearned Revenue.

Which of the following regarding retained earnings is false? A.Retained earnings is increased by net income. B.Retained earnings is a component of stockholders' equity on the balance sheet. C.Retained earnings is an asset on the balance sheet. D.Retained earnings represents earnings not distributed to stockholders in the form of dividends.

C.Retained earnings is an asset on the balance sheet.

When expenses exceed revenues in a given period, A.Stockholders' equity will not be impacted. B.Stockholders' equity will be increased. C.Stockholders' equity will be decreased. D. One cannot determine the impact on stockholders' equity without information about the specific revenues and expenses.

C.Stockholders' equity will be decreased.

Which of the following is false regarding the balance sheet? A.The accounts shown on a balance sheet represent the basic accounting equation for a particular business. B.The retained earnings balance shown on the balance sheet must agree with the ending retained earnings balance shown on the statement of retained earnings. C.The balance sheet summarizes the net changes in specific account balances over a period of time. D.The balance sheet reports the amount of assets, liabilities, and stockholders' equity of a business at a point in time.

C.The balance sheet summarizes the net changes in specific account balances over a period of time.

The T-account is used to summarize which of the following? A. Increases and decreases to a single account in the accounting system. B. Debits and credits to a single account in the accounting system. C. Changes in specific account balances over a time period. D. All of the above describe how T-accounts are used by accountants.

D. All of the above describe how T-accounts are used by accountants.

Which of the following statements would be considered true regarding debits and credits? A. In any given transaction, the total dollar amount of the debits and the total dollar amount of the credits must be equal. B. Debits decrease certain accounts and credits decrease certain accounts. C. Liabilities and stockholders' equity accounts usually end in credit balances, while assets usually end in debit balances. D. All of the above.

D. All of the above.

Which of the following statements would be considered true regarding the balance sheet? A. One cannot determine the true current value of a company by reviewing just its balance sheet. B. The balance sheet reports assets only if they have been acquired through identifiable transactions. C. A balance sheet shows only the ending balances, in a summarized format, of balance sheet accounts in the accounting system as of a particular date. D. All of the above.

D. All of the above.

Which of the following is true? A.FASB creates SEC. B.GAAP creates FASB. C.SEC creates CPA. D. FASB creates GAAP.

D. FASB creates GAAP.

Total assets on a balance sheet prepared on any date must agree with which of the following? A. The sum of total liabilities and net income as shown on the income statement. B. The sum of total liabilities and common stock. C. The sum of total liabilities and retained earnings. D. The sum of total liabilities and common stock and retained earnings.

D. The sum of total liabilities and common stock and retained earnings.

Which of the following is not required by the Sarbanes-Oxley Act? A.Top managers of public companies must sign a report certifying their responsibilities for the financial statements. B.Public companies must maintain an audited system of internal control to ensure accuracy in accounting reports. C. Public companies must maintain an independent committee to meet with the company's independent auditors. D. Top managers of public companies must be members of the American Institute of Certified Public Accountants.

D. Top managers of public companies must be members of the American Institute of Certified Public Accountants.

The expense recognition principle ("matching") controls A.Where on the income statement expenses should be presented. B.When revenues are recognized on the income statement. C.The ordering of current assets and current liabilities on the balance sheet. D. When costs are recognized as expenses on the income statement.

D. When costs are recognized as expenses on the income statement.

Which account is least likely to be debited when revenue is recorded? A.Accounts Payable B. Accounts Receivable C. Cash D. Unearned Revenue

A.Accounts Payable

Which of the following accounts normally has a debit balance? A.Unearned Revenue B.Rent Expense C.Retained Earnings D.Sales Revenue

B.Rent Expense

Which of the following statements describe transactions that would be recorded in the accounting system? A.An exchange of an asset for a promise to pay. .B. An exchange of a promise for another promise. C. Both of the above. D. None of the above.

A.An exchange of an asset for a promise to pay.

Which of the following is not an asset account? A.Cash B. Land C. Equipment D. Common Stock

D. Common Stock