ACC 210 Exam 1 Practice Questions

Assume that Cavalier, Inc. had a retained earnings balance of $10,000 on August 1, and that the company had the following transactions during August. Cavalier follows GAAP. Issued common stock for cash, $5,000. Provided services to customers on account, $2,000. Provided services to customers in exchange for cash, $900. Purchased equipment and paid cash, $4,300. Paid August rent, $800. Paid employees' salaries for August, $700. What was Cavalier's retained earnings balance at the end of August?

$11,400

The Accounts Receivable account has a beginning balance of $72,000 and the company provides services of $175,000 on account during the month. The ending balance was $64,000. How much cash did the company receive from customers during the month?

$183,000

Duke, Inc. purchased $25,000 of office supplies throughout 2021. They had $5,000 of office supplies on hand at January 1, 2021 and a physical count of the office supplies inventory at December 31 found $8,000 of supplies remaining. If Duke only prepares adjusting journal entries on December 31 each year, what amount of Supplies Expense will appear on the 2021 Income Statement?

$22,000 Duke had $30,000 of office supplies available to use and still has $8,000 at year-end. hence, they must have used $22,000. That would be the expense to recognize on the Income Statement.

WFDD, Inc. purchased $270,000 in supplies during the year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. For what amount was the adjusting entry to supplies expense?

$260,000

WP, Inc. pays $18,000 for an annual insurance policy on March 1, 2021. They initially debit Prepaid Insurance for that amount. If WP only prepares adjusting journal entries at the end of the year (12/31), how much Prepaid Insurance will appear on the December 31, 2021 Balance Sheet as a result of this transaction?

$3,000 After 10 months (March - December), WP will have consumed $15,000 of the insurance ($18,000 x 10/12). $3,000 will remain as an asset to be reported on the 12/31/2021 Balance Sheet.

TH Corp. borrowed $60,000 from NoleBank on June 1, 2021. The loan must be repaid in nine months (from June 1). The interest rate is 9%. If TH only prepares adjusting journal entries on December 31 each year, how much Interest Expense will they record on December 31, 2021?

$3,150 Interest Expense = $60,000 x .09 x 7/12 = $3,150. June 1 - December 31 is seven months. Also recall that interest rates are expressed as annual rates.

Using the information below from the accounting records of Thomas Corporation, stockholders' claims to the company's resources amount to: Assets $1,200,000 Liabilities $900,000 Net income $100,000 Retained earnings $250,000

$300,000 A = L + SE $1,200,000 = $900,000 + SE SE = $1,200,000 - $900,000 = $300,000

DW has an ending Retained Earnings balance of $52,500. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance? A. $34,300 B. $32,900 C. $300 D. $69,300

A. $34,300 X + $22,500 - $4,300 = $52,500 X = $52,500 - $22,500 + $4,300 = $34,300

Limited liability means: A. Stockholders of a corporation are not obligated to pay the corporation's debts with personal assets. B. Liabilities of a company cannot exceed its assets. C. Companies are not allowed to borrow unless they are profitable. D. Companies are less likely to be sued if they are formed as a corporation.

A. Stockholders of a corporation are not obligated to pay the corporation's debts with personal assets. Stockholders can lose their invested capital but their other personal assets are not at risk in a corporate bankruptcy

If a company has stockholders' equity of $60,000 at the end of the year, which of the following statements must be true? A. The company's assets exceed liabilities by $60,000. B. The company has issued $60,000 of common stock. C. Net income for the year equals $60,000. D. Total revenues during the year equal $60,000.

A. The company's assets exceed liabilities by $60,000. Assets = Liabilities + Stockholders' Equity so Assets - Liabilities = Stockholders' Equity

Financial accounting: A. Provides information primarily for a company's employees. B. Provides information primarily for external decision makers. C. Provides information primarily for the use of managers of the company. D. Is primarily used to compute a company's tax obligation.

B. Provides information primarily for external decision makers. The primary goal of financial accounting is to deliver useful information to external investors and creditors

Fundamental qualitative characteristics of accounting information are: A. Relevance and comparability. B. Comparability and consistency. C. Faithful representation and relevance. D. Faithful representation and consistency.

C. Faithful representation and relevance. Just a definition out of the Conceptual Framework. These two qualities make accounting information useful to decision makers.

The major underlying assumptions of financial accounting include all of the following except: A. Economic entity. B. Monetary unit. C. Limited liability. D. Going concern.

C. Limited liability. Limited Liability is a feature of corporations but not an assumption we make for financial accounting

How many of the following transactions are classified as operating activities? Borrowed $50,000 from the bank Purchased $12,000 in office supplies Provide services to customers for $27,000 Paid the utility bill of $750 Purchased a delivery truck for $12,000 Received $25,000 from issuing common stock A. One B. Two C. Three D. Four

C. Three The purchase of office supplies, the provision of services to customers, and the utility bill payment are examples of operating activities

True or false: Technical accounting skills represent the only skills required of accounting professionals. True false question.

False Other skills; e.g., interpersonal, and leadership are also important

You can just select the business activity that matches the description. a. Transactions related to revenues and expenses. b. Transactions with lenders and owners. c. Transactions involving the purchase and sale of productive assets.

Operating Financing Investing

True or false: Financial information that is immaterial in amount or nature need not be reported in accordance with GAAP.

True Information that will not affect external users' decisions need not be reported in accordance with GAAP.

When the amount of interest receivable decreases during an accounting period: Select one: a. Accrual-basis revenues are less than cash collections from borrowers b. Accrual-basis revenues exceed cash collections from borrowers c. Accrual-basis expenses are less than cash payments to borrowers d. Accrual-basis net income exceeds cash-basis net income

a. Accrual-basis revenues are less than cash collections from borrowers

Equipment costing $20,000 is purchased by paying $15,000 cash and signing a note for the balance owed. The journal entry should include a Select one: a. Credit to Notes Payable for $5,000 b. Credit to Notes Receivable for $5,000 c. Debit to Cash for $15,000 d. Credit to Notes Payable for $15,000

a. Credit to Notes Payable for $5,000 The entry: Equipment 20,000 Cash 15,000 Notes Payable 5,000

A closing journal entry should be prepared at what point in the accounting cycle? Select one: a. Immediately after preparation of the financial statements. b. Immediately before preparing the Adjusted trial balance. c. Immediately after preparing the Post-Closing trial balance. d. Closing journal entries are optional. They need not be made as part of completing the accounting cycle. e. Immediately after posting the adjusting journal entries to the General Ledger.

a. Immediately after preparation of the financial statements. Closing entries are prepared after the financial statements and are designed to prepare the books for the next accounting period (and to update the Retained Earnings balance in the General ledger to its correct end-of-period balance).

Which of the following hypothetical adjusting entries is not possible? Select one: a. Interest Receivable 2,000 Interest Payable 2,000 b. Salaries Expense 450 Salaries Payable 450 c. Insurance Expense 800 Prepaid Insurance 800 d. Deferred Revenue 1,200 Service Revenue 1,200

a. Interest Receivable 2,000 Interest Payable 2,000 All adjusting entries involve both an income statement acccount (a revenue or an expense) and a balance sheet account (an asset or liability). No adjusting entry includes a debit or credit to Cash. Also, recall that Deferred Revenue is a liability account.

Which of the following items are found on a balance sheet? (Select all that apply.) Multiple select question. a. Assets b. Liabilities c. Revenue d. Stockholders' equity e. Dividends

a. Assets b. Liabilities d. Stockholders' equity

A closing journal entry should be prepared at what point in the accounting cycle? Select one: a. Immediately after the preparation of the financial statements. b. Immediately before preparing the Adjusted trial balance. c. Immediately after preparing the Post-Closing trial balance. d. Closing journal entries are optional. They need not be made as part of completing the accounting cycle. e. Immediately after posting the adjusting journal entries to the General Ledger.

a. Immediately after the preparation of the financial statements.

Where is the time period covered by the income statement found? Multiple choice question. a. In the heading b. In the income section c. In the footnotes d. In the revenue section

a. In the heading

Which of the following hypothetical adjusting entries is not possible? Select one: a. Interest Receivable 2,000 Interest Payable 2,000 b. Salaries Expense 450 Salaries Payable 450 c. Insurance Expense 800 Prepaid Insurance 800 d. Deferred Revenue 1,200 Service Revenue 1,200 e. All of the above could be adjusting journal entries.

a. Interest Receivable 2,000 Interest Payable 2,000

Which of the following represents the net income earned by a corporation and not yet paid to shareholders? a. Retained earnings b. Additional paid-in capital c. Other comprehensive income d. Paid-in capital

a. Retained earnings

The system that maintains records of a company's operations and then communicates that information to decision makers is referred to as _____.

accounting

Which of the four basic financial statements is best represented by the fundamental accounting equation? Select one: a. Statement of Stockholders' Equity b. Balance Sheet c. Income Statement d. Statement of Cash Flows

b. Balance Sheet The Balance Sheet reports Assets, Liabilities and Stockholders' Equity account balances. It also shows that Assets = Liabilities + Stockholders' Equity.

Under accrual accounting principles, when may we recognize revenue? Select one: a. Only when we have both satisfied the performance obligation and have been paid. b. When we have satisfied the performance obligation. c. Only at the end of an accounting period. d. When we receive cash. e. Only when we have received cash in return for performing a service.

b. When we have satisfied the performance obligation. Accrual accounting allows entities to recognize revenue once they have satisfied the performance obligation, regardless of whether they have been paid in cash.

In financial accounting which of the following are the three types of business activities of a company? a. Multiple select question. b. Operating activities c. Selling activities d. Financing activities e. Investing activities f. Building activities

b. Operating activities d. Financing activities e. Investing activities

Which of the following is not one of the three types of activities we identify as a business activity? Select one: a. Operating Activities b. Sales Activities c. Financing Activities d. Investing Activities

b. Sales Activities The three types of business activities are operating, investing and financing activities.

Select all that apply The primary functions of accounting are to: Multiple select question. a. increase a company's profitability. b. communicate information to decision makers. c. provide information to taxing authorities. d. measure a company's activities. e. increase a company's stock market valuation.

b. communicate information to decision makers. d. measure a company's activities.

The financial statement that is most useful in explaining a company's stock price performance is the Multiple choice question. a. balance sheet. b. income statement. c. statement of stockholders' equity.

b. income statement.

A revenue account has a normal __________ balance. Select one: a. Debit. b. Work-life c. Credit. d. Revenue accounts may have normal debit or credit balances. e. Negative.

c. Credit. Revenue accounts have a normal credit balance. They are increased by credits and decreased by debits.

How is the Chart of Accounts organized? Select one: a. In the order in which accounts are first utilized by the company. b. It is a listing of all the accounts used by a business arranged in alphabetical order. c. In the same manner as the General Ledger. d. In the same manner as the General Journal.

c. In the same manner as the General Ledger. The chart of accounts is a listing of all the accounts used by a particular business. It is organized in the same manner as the General Ledger. Assets first, followed by liabilities, stockholders' equity accounts, dividends, revenues and expenses.

When we record a journal entry in the General Journal Select one: a. We typically would exclude the date on which the transaction occurred. b. We should first record the account whose balance we are decreasing followed by the account whose balance we are increasing. c. We should first record the account that we are debiting followed by the account that we are crediting d. We should first record the account whose balance we are increasing followed by the account whose balance we are decreasing.

c. We should first record the account that we are debiting followed by the account that we are crediting Each journal entry should include a date, an entry first to the account debited, followed by an entry into the account that is credited.

Using accrual accounting, expenses are recorded and reported only: Select one: a. When they are incurred and paid at the same time. b. If they are paid before they are incurred. c. When they are incurred whether or not cash is paid d. If they are paid after they are incurred

c. When they are incurred whether or not cash is paid The cash payment does not need to coincide with the expense being incurred. If incurred it should be recognized.

Which one of the following financial statements is prepared as of a particular date as opposed to providing information covering a specific time period (e.g., one month)? Select one: a. Statement of Cash Flows b. Income Statement c. Balance Sheet d. Statement of Stockholders' Equity

c. Balance Sheet The balance sheet provides information about the financial position of a company as of a particular date (for example, December 31). The other financial statements provide information about a particular time period (for example, the month of December).

Limited liability means: Select one: a. Companies are less likely to be sued if they are formed as a corporation b. Companies are not allowed to borrow unless they are profitable c. Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket. d. Liabilities of a company cannot exceed its assets

c. Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket.

Using accrual accounting, expenses are recorded and reported only: Select one: a. When they are incurred and paid at the same time. b. If they are paid before they are incurred. c. When they are incurred whether or not cash is paid d. If they are paid after they are incurred

c. When they are incurred whether or not cash is paid

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner? Select one: a. Utilities Expense and Notes Payable b. Prepaid Insurance and Interest Payable c. Service Revenue and Equipment d. Cash and Salaries Expense

d. Cash and Salaries Expense Assets and Expenses behave the same way. Debits increase balances and credits decrease balances.

Which of the following accounts will reflect the account's beginning balance on the adjusted trial balance? Select one: a. Cash b. Prepaid rent c. Deferred Revenue d. Retained Earnings

d. Retained Earnings The adjusted trial balance includes balances for revenues, expenses, and dividends (if any). Until these accounts are closed, the retained earnings balance has not been updated for the current accounting period.

When the Trial Balance is prepared and found to be in balance we can conclude that Select one: a. There are no errors in the accounting records. b. All journal entries have been posted from the General Journal to the General Ledger. c. That the sum of the Asset account balances in the General Ledger equal the sum of the Liability account balances plus the balances in Common Stock and Retained Earnings. d. The General Ledger is in balance.

d. The General Ledger is in balance. The Trial balance simply verifies that the sum of the accounts in the General Ledger with debit balances equals the sum of the accounts with credit balances. If you exclude the Dividends, Revenues and Expenses you will likely not have a balanced trial balance (this would be true only if net income coincidentally equals the amount of dividends paid in the accounting period).

Double-entry bookkeeping means that Select one: a. We record a transaction in both the General Journal and in the General Ledger. b. We generally make two unique journal entries when we record a transaction. c. We must always record only one debit and one credit for each transaction. d. We record a change in at least two account balances when we prepare a journal entry.

d. We record a change in at least two account balances when we prepare a journal entry. Every transaction or event that is recorded in the General Journal affects at least two separate accounts.

Which of the following financial statements should be prepared first? Select one: a. Statement of Cash Flows b. Balance Sheet c. Statement of Stockholders' Equity d. Income Statement

d. Income Statement The Income Statement is the first statement prepared because we need the amount of net income in order to prepare the Statement of Stockholders' Equity. That statement provides data for the Balance Sheet which is needed to complete the Statement of Cash Flows.

Which definition below best describes financial accounting? Select one: a. Procedures designed to enhance the company's image to potential investors. b. Process of determining income taxes owed to the government c. System of maintaining communication with a company's customers and suppliers d. Measuring business activities and communicating them to external parties.

d. Measuring business activities and communicating them to external parties.

Which accounts will reflect the account's beginning balance on the adjusted trial balance? Select one: a. Cash b. Prepaid rent c. Deferred Revenue d. Retained Earnings

d. Retained Earnings

TThe purpose of an income statement is to: Multiple choice question. a. report the risk involved in operating the business for the reporting period b. report the cash inflows and cash outflows for the period c. report assets, liabilities, and stockholders' equity for the period d. summarize the profit-generating activities that occurred during a particular reporting period

d. summarize the profit-generating activities that occurred during a particular reporting period

Duke, Inc. purchased $25,000 of office supplies throughout 2021. They had $5,000 of office supplies on hand at January 1, 2021 and a physical count of the office supplies inventory at December 31 found $8,000 of supplies remaining. If Duke only prepares adjusting journal entries on December 31 each year, what amount of Supplies Expense will appear on the 2021 Income Statement? Select one: a. $17,000 b. $30,000 c. $28,000 d. $25,000 e. $22,000

e. $22,000

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of... a. Multiple choice question. b. neutrality and materiality. c. materiality and consistency. d. cost and benefit. e. relevance and faithful representation.

e. relevance and faithful representation.

Information that best explains companies' stock price performance is reported in the ____ ____ . (Enter one word per blank).

income statement

The purpose of a(n) _____ _____ is to report the profit-generating activities of a company over an interval of time. (Enter one word per blank)

income statement(s)

A balance sheet lists the assets, ________, and stockholders' equity as of a specific date.

liabilities

Financial information that may impact investors' and creditors' decisions is referred to as _____ and must be reported under GAAP

materiality