Accounting Exam #1

Which of the following accounts represents a resource of the company? Select one: A. Accounts receivable. B. Salaries expense. C. Service revenue. D. Common stock.

A. Accounts receivable.

Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the total amount of Gotebo's liabilities following these six transactions? Select one: A. $12,300. B. $27,300. C. $15,500. D. $22,600.

A. $12,300.

DW has an ending Retained Earnings balance of $51,100. 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? Select one: A. $32,900. B. $300. C. $24,300. D. $69,300.

A. $32,900

Allen Inc. took out a 1-year, 8%, $100,000 loan on March 31, 2018. Interest is due upon maturity of the loan. The loan and interest must be paid back on March 31, 2019. As of December 31, 2018, what amount, if any, should Allen Inc. report for interest payable? Select one: A. $6,000. B. $0. C. $8,000. D. $2,000.

A. $6,000.

Lithuanian Motors has the following balance sheet accounts: Land $170,000 Equipment 66,000 Salaries Payable ? NotesPayable 88,000 Supplies 14,000 Cash 26,000 Common Stock 100,000 Retained Earnings 40,000 Accounts Payable ? Prepaid Rent 12,000 If the company has total assets of $288,000, what is the balance of the company's Salaries Payable account? Select one: A. Cannot be determined given the information provided. B. $25,000. C. $15,000. D. $12,000.

A. Cannot be determined given the information provided.

The closing process includes which of the following? Select one: A. Closing the balances of revenue, expense and dividend accounts to zero. B. Closing the balance of only the dividends account to zero. C. Closing the balances of only revenue and expense accounts to zero. D. Closing the balance of the retained earnings account to zero.

A. Closing the balances of revenue, expense and dividend accounts to zero.

The two categories of stockholders' equity usually found in the balance sheet of a corporation are: Select one: A. Common stock and retained earnings. B. Revenues and expenses. C. Assets and liabilities. D. Common stock and liabilities.

A. Common stock and retained earnings.

Revenues normally carry a _______ balance and are shown in the ______________. Select one: A. Credit; Income statement B. Credit; Balance sheet C. Debit; Statement of stockholders' equity D. Debit; Balance sheet

A. Credit; Income statement

When a company prepares closing entries, which one of the following is NOT a correct closing entry? Select one: A. Debit Dividends; credit Retained Earnings. B. Debit Retained Earnings; credit Salaries Expense. C. Debit Service Revenue; credit Retained Earnings. D. All of the other answers are not correct.

A. Debit Dividends; credit Retained Earnings.

When the company pays stockholders a dividend, what is the effect on the accounting equation for that company? Select one: A. Decrease assets and decrease stockholders' equity. B. Increase liabilities and increase assets. C. Decrease stockholders' equity and increase assets. D. Decrease assets and decrease liabilities.

A. Decrease assets and decrease stockholders' equity.

The assumption that a business will continue to operate into the future is the: Select one: A. Going concern assumption. B. Monetary unit assumption. C. Periodicity assumption. D. Economic entity assumption.

A. Going concern assumption.

Which of the following is true about a "credit"? I. It is part of the double-entry procedure that keeps the accounting equation in balance. II. It represents a decrease to assets. III. It represents an increase to liabilities. IV. It is on the right side of a T-account. Select one: A. I, II, III, and IV. B. IV only. C. I and II. D. I, II, and III.

A. I, II, III, and IV.

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

A. Legal liability.

Temporary accounts would not include: Select one: A. Salaries Payable. B. Dividends. C. Advertising Expense. D. Supplies Expense.

A. Salaries Payable.

The legal authority to set accounting standards lies with the: Select one: A. Securities and Exchange Commission. B. American Institute of Certified Public Accountants. C. Financial Accounting Standards Board. D. Accounting Principles Board.

A. Securities and Exchange Commission.

Eve's Apples opened for business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2018? Select one: A. $30,000. B. $18,000. C. $48,000. D. $9,000.

B. $18,000.

Given the information below about Thomas Corporation, what was the amount of dividends the company paid in the current period? *Beginning retained earnings $54,000 *Ending retained earnings $110,000 *Decrease in cash $10,000 *Net income $84,000 *Change in stockholders' equity $15,000 Select one: A. $18,000. B. $28,000. C. $110,000. D. $13,000.

B. $28,000.

A company provided $1,500 of services to customers during the month of May. The customers paid in June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual basis net income? Select one: A. (1) No effect, (2) No effect, (3) No effect. B. (1) No effect, (2) No effect, (3) Increase. C. (1) Increase, (2) Increase, (3) Increase. D. (1) Increase, (2) Increase, (3) No effect.

B. (1) No effect, (2) No effect, (3) Increase.

Consider the adjustment process at the end of the accounting period. 1. Record the adjusting entries in the journal. 2. Prepare an adjusted trial balance to check the equality of the debits and credits. 3. Determine the accounts requiring adjustment, using the unadjusted trial balance. 4. Post the adjusting entries to the general ledger.Place the items in the proper order. Select one: A. 1, 4, 3, 2. B. 3, 1, 4, 2. C. 3, 4, 2, 1. D. 1, 2, 4, 3.

B. 3, 1, 4, 2.

The adjusting entry required to record accrued expenses includes: Select one: A. A credit to Cash. B. A credit to liability. C. A debit to an asset. D. A credit to an asset.

B. A credit to liability.

The closing entry for expenses includes: Select one: A. A debit to Revenues and a credit to all expense accounts. B. A debit to Retained Earnings and a credit to all expense accounts. C. A debit to Revenues and a credit to Retained Earnings. D. A debit to Dividends and a credit to all expense accounts.

B. A debit to Retained Earnings and a credit to all expense accounts.

The owner of an office building should report rent collected in advance as a debit to Cash and a credit to: Select one: A. Stockholders' equity. B. A liability. C. Revenue. D. An asset other than Cash.

B. A liability.

Which of the following items would not appear in an income statement? Select one: A. Service Revenue. B. Accounts Payable. C. Utilities Expense. D. Delivery Expense.

B. Accounts Payable.

Providing goods or services to customers on account is an example of a: Select one: A. Prepaid expense. B. Accrued revenue. C. Accrued expense. D. Deferred revenue.

B. Accrued revenue.

Which one of the following best describes the characteristics of adjusting entries? Select one: A. Adjusting entries allow for the proper recognition of cash flows. B. Adjusting entries allow for the proper recognition of revenue and expenses. C. Adjusting entries allow for the proper recognition of investments from and distributions to stockholders. D. Adjusting entries reduce the balance of revenue, expense, and dividend accounts to zero.

B. Adjusting entries allow for the proper recognition of revenue and expenses.

Which financial statement best reveals to investors and creditors information about a company's debt? Select one: A. Statement of stockholders' equity. B. Balance sheet. C. Income statement. D. Statement of cash flows.

B. Balance sheet.

An accrued expense occurs when: Select one: A. Cash payment (or an obligation to pay cash) occurs before the expense recognition. B. Cash payment occurs after the expense is recognized and a liability is recorded. C. An expense is recorded at the same time as the cash payment. D. Cash is paid but an expense is never recorded.

B. Cash payment occurs after the expense is recognized and a liability is recorded.

During the year, Cheng Company paid salaries of $24,000. In addition, $8,000 in salaries has accrued by the end of the year but has not been paid. The year-end adjusting entry would include which one of the following? Select one: A. Debit to Salaries Payable for $24,000. B. Credit to Salaries Payable for $8,000. C. Debit to Salaries Expense for $32,000. D. Credit to Salaries Expense of $8,000.

B. Credit to Salaries Payable for $8,000.

Liabilities normally carry a _______ balance and are shown in the ______________. Select one: A. Debit; Statement of stockholders' equity B. Credit; Balance sheet C. Debit; Income statement D. Debit; Balance sheet

B. Credit; Balance sheet

Styleson Inc. performed cleaning services for its customers for cash. These transactions would be recorded as: Select one: A. Debit Cash, credit Accounts Receivable. B. Debit Cash, credit Service Revenue. C. Debit Service Revenue, credit Cash. D. Debit Accounts Receivable, credit Service Revenue.

B. Debit Cash, credit Service Revenue.

Assume that cash is paid for rent to cover the next year. The appropriate debit and credit are: Select one: A. Debit Rent Expense, credit Cash. B. Debit Prepaid Rent, credit Cash. C. Debit Prepaid Rent, credit Rent Expense. D. Debit Cash, credit Prepaid Rent.

B. Debit Prepaid Rent, credit Cash.

Daniel Dino Restaurant owes employees' salaries of $15,000. This would be recorded as: Select one: A. Debit Salaries Expense, credit Cash. B. Debit Salaries Expense, credit Salaries Payable. C. Debit Salaries Payable, credit Cash. D. Debit Salaries Payable, credit Salaries Expense.

B. Debit Salaries Expense, credit Salaries Payable.

When a magazine sells one-year subscriptions to customers but receives the full amount of cash immediately, it is an example of a: Select one: A. Prepaid expense. B. Deferred revenue. C. Accrued revenue. D. Accrued expense.

B. Deferred revenue.

The account type that represents payments to stockholders is called: Select one: A. Stockholders' equity. B. Dividends. C. Liabilities. D. Assets.

B. Dividends.

Financial accounting and reporting standards in the United States are established primarily by the: Select one: A. International Accounting Standards Board. B. Financial Accounting Standards Board. C. U.S. Congress. D. Securities and Exchange Commission.

B. Financial Accounting Standards Board.

Net income (loss) appears in which two financial statements? Select one: A. Balance sheet and income statement. B. Income statement and statement of stockholders' equity. C. Statement of stockholders' equity and balance sheet. D. Net income appears in only one financial statement.

B. Income statement and statement of stockholders' equity.

Purchasing office supplies on account will: Select one: A. Increase assets and decrease liabilities. B. Increase assets and increase liabilities. C. Not change assets. D. Increase assets and increase stockholders' equity.

B. Increase assets and increase liabilities.

Receiving cash from an account receivable: Select one: A. Decreases a liability and increases an asset. B. Increases one asset and decreases another asset. C. Increases revenue and decreases an asset. D. Increases an asset and increases revenue.

B. Increases one asset and decreases another asset.

Which of the following has the single greatest impact on stock prices? Select one: A. Total revenues. B. Net income. C. Total dividends. D. Total assets.

B. Net income.

The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000 (or $3,200 per weekday). The current pay period ends on Friday, January 3. Neat Clothes is now preparing financial statements for the year ended December 31. What is the adjusting entry to record accrued salaries at the end of the year? A. Salaries Payable 22,400 Salaries Expense 22,400 B. Salaries Expense 6,400 Salaries Payable 6,400 C. Salaries Expense 9,600 Salaries Payable 9,600 D. Salaries Expense 22,400 Salaries Payable 22,400 Select one: A. Option A B. Option D C. Option B D. Option C

B. Option D

Generally Accepted Accounting Principles (GAAP) are best defined as: Select one: A. The group of individuals that create and enforce all accounting rules. B. Standards or methods for presenting financial accounting information. C. Rules that best estimate profitability for a company. D. Government-mandated rules that companies must follow.

B. Standards or methods for presenting financial accounting information.

If a company provides services on account, which of the following is true? Select one: A. Expenses increase. B. Stockholders' equity increases. C. Liabilities increase. D. Assets decrease.

B. Stockholders' equity increases.

Which one of the following statements regarding financial reports is correct? Select one: A. The balance sheet classifies all assets according to operating, investing, and financing activities. B. The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year. C. The income statement is used to show that a company's resources equal claims to those resources. D. The statement of cash flows shows cash inflows and outflows from operating activities only.

B. The statement of stockholders' equity updates the balances of common stock and retained earnings for related transactions during the year.

A company has the following three events in December: 1. December 1 - Pay last month's rent (November), $500. 2. December 15 - Pay rent for the current month (December), $500. 3. December 31 - Pay rent for the following year, $6,000. How much would be recorded as Rent Expense for the month of December using accrual-basis accounting? Select one: A. $6,500. B. $1,000. C. $500. D. $7,000.

C. $500.

Xenon Corporation borrows $75,000 from First Bank. Xenon Corporation records this transaction with a: Select one: A. Credit to Interest Expense. B. Debit to Investments. C. Credit to Notes Payable. D. Credit to Retained Earnings.

C. Credit to Notes Payable.

Which financial statement is typically prepared first? Select one: A. Statement of cash flows. B. Statement of stockholders' equity. C. Income statement. D. Balance sheet.

C. Income statement.

Revenues have what effect on the accounting equation? Select one: A. Increase liabilities. B. No effect. C. Increase stockholders' equity. D. Decrease assets.

C. Increase stockholders' equity.

When a company pays cash for equipment, what is the effect on the accounting equation for that company? Select one: A. Increase assets and increase liabilities. B. Decrease assets and decrease liabilities. C. No change. D. Increase assets and increase stockholders' equity.

C. No change.

Financial accounting does not deal with which of the following? Select one: A. Measuring a company's economic activity. B. Preparing financial reports. C. Providing information to internal users. D. Communicating financial results to investors.

C. Providing information to internal users.

Which of the following is a permanent account? Select one: A. Advertising Expense. B. Service Revenue. C. Retained Earnings. D. Dividends.

C. Retained Earnings.

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

C. The company's assets exceed liabilities by $60,000.

Consider the following items: Land Accounts Receivable Notes Payable (due in three years) Accounts Payable Retained Earnings Prepaid Rent Deferred Revenue Buildings Notes Payable (due in six months) Equipment How many of the items listed above are generally long-term assets? Select one: A. Five. B. Four. C. Three. D. Two.

C. Three.

Posting is the process of: Select one: A. Analyzing the impact of the transaction on the accounting equation. B. Obtaining information about external transactions from source documents. C. Transferring the debit and credit information from the journal to individual accounts in the general ledger. D. Listing all accounts and their balances at a particular date.

C. Transferring the debit and credit information from the journal to individual accounts in the general ledger.

On January 1, Gucci Brothers Inc. started the year with a $492,000 balance in Retained Earnings and a $605,000 balance in Common Stock. During the year, the company reported net income of $92,000, paid a dividend of $15,200, and issued more common stock for $27,500. What is total stockholders' equity at the end of the year? Select one: A. $1,097,000. B. $1,588,300. C. $1,231,700. D. $1,201,300.

D. $1,201,300.

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 $800,000 *Net income $100,000 *Retained earnings $250,000 Select one: A. $800,000. B. $250,000. C. $1,200,000. D. $400,000.

D. $400,000.

A company has the following transactions: 1. Pay employees' salaries for the current period. 2. Pay rent in advance. 3. Pay dividends to stockholders in the current period. 4. Receive (but do not pay) a utility bill. 5. Use supplies previously purchased. How many of these transactions result in an expense being reported in the current period using cash-basis accounting? Select one: A. 3. B. 1. C. 4. D. 2.

D. 2.

The concept of matching in accounting refers to: Select one: A. The business will continue to operate indefinitely unless there is evidence to the contrary. B. All transactions are recorded at the exchange price. C. The business is separate from its owners. D. All costs that are used to generate revenue are recorded in the period the revenue is recognized.

D. All costs that are used to generate revenue are recorded in the period the revenue is recognized.

If a company incorrectly records Service Revenue too high, which of the following is true? Select one: A. Total stockholders' equity in the balance sheet is overstated. B. Net income in the income statement is overstated. C. Retained earnings in the statement of stockholders' equity is overstated. D. All of the other answers are correct.

D. All of the other answers are correct.

Which of the following does not represent a liability of a company? Select one: A. Taxes owed to the government. B. Salaries owed to employees. C. Amounts owed to suppliers. D. All of the other answers are liabilities.

D. All of the other answers are liabilities.

The figure below is a depiction of a T-account. Account I -------------------------------------- ​ I 1,700 I Beg 1,200 I I ​ I 800 I ​ I 3,300 I End -------------------------------------- Which of the following statements is correct? Select one: A. During the period, a journal entry was recorded that included a credit to the account for $800. B. The amount reported to stockholders at the end of the period for this account is $3,300. C. The account is a liability account. D. All of the other answers provide a correct statement.

D. All of the other answers provide a correct statement.

When cash payments are made to stockholders, what is the effect on the company's accounts? Select one: A. Cash decreases and common stock decreases. B. Cash increases and dividends decrease. C. Cash increases and common stock increases. D. Cash decreases and dividends increase.

D. Cash decreases and dividends increase.

Which of the following items would not appear in an income statement? Select one: A. Salaries expense. B. Service revenue. C. Advertising expense. D. Cash.

D. Cash.

A list of all account names used to record transactions of a company is referred to as the: Select one: A. Income statement B. Balance sheet C. General journal D. Chart of Accounts

D. Chart of Accounts

The qualitative characteristic that says accounting information can influence users' decisions by allowing them to assess past performance is: Select one: A. Timeliness. B. Predictive value. C. Neutrality. D. Confirmatory value.

D. Confirmatory value.

A company received a bill for newspaper advertising services, $400. The bill will be paid in 10 days. How would the transaction be recorded today? Select one: A. Debit Accounts Payable $400, credit Cash $400. B. Debit Advertising Expense $400, credit Cash $400. C. Debit Accounts Payable $400, credit Advertising Expense $400. D. Debit Advertising Expense $400, credit Accounts Payable $400.

D. Debit Advertising Expense $400, credit Accounts Payable $400.

On July 7, Saints Inc. received $10,000 in cash from a customer for services to be provided on October 10. Which of the following describes how the transaction should be recorded on July 7? Select one: A. Debit Accounts Receivable $10,000, credit Service Revenue $10,000. B. Debit Cash $10,000, credit Service Revenue $10,000. C. Debit Deferred Revenue $10,000, credit Cash $10,000. D. Debit Cash $10,000, credit Deferred Revenue $10,000.

D. Debit Cash $10,000, credit Deferred Revenue $10,000.

In November, a company hires three temporary employees that are scheduled to work only the month of December. Those employees work during December, and they are then paid their full salaries in January. In which month should the company record supplies expense? Select one: A. January. B. Evenly over the three months. C. November. D. December.

D. December.

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

D. Faithful representation and relevance.

Frosty Inc. has the following balances on December 31 prior to closing entries: Revenues $35,000 Retained Earnings, Jan. 1 10,000 Cash 7,000 Expenses 23,000 AccountsPayable 4,000 Dividends 1,000 Supplies 18,000 Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries? Select one: A. Increase of $13,000. B. Increase of $14,000. C. Increase of $12,000. D. Increase of $11,000.

D. Increase of $11,000.

A company received an order from a customer in June for services to be provided. Those services were provided in July, and the customer paid the full amount in August. According to the revenue recognition principle, in which month should the company record revenue? Select one: A. June. B. August. C. Evenly over the three months. D. July.

D. July.

A trial balance represents the: Select one: A. Process of transferring debit and credit information from the journal to the accounts in the general ledger. B. Source documents used to determine the effects of transactions on the company's accounts. C. Chronological record of all transactions affecting the company. D. List of all accounts and their balances at a particular date to ensure that debits equal credits.

D. List of all accounts and their balances at a particular date to ensure that debits equal credits.

When a company makes an end-of-period adjusting entry that includes a credit to Prepaid Rent, the debit is usually made to: Select one: A. Rent Receivable. B. Rent Payable. C. Cash. D. Rent Expense.

D. Rent Expense.

A company receives a $50,000 cash deposit from a customer on October 15 but will not provide services until November 20. Which of the following statements is true? Select one: A. The company records cash collection on November 20. B. The company records service revenue on October 15. C. The company records nothing on October 15. D. The company records deferred revenue on October 15.

D. The company records deferred revenue on October 15.