Accounting Exam 1 Correct Answers
An accounting time period that is one year in length is called a) fiscal year b) an interim period c) the time period assumption d) a reporting period
A
An intangible asset a) derives its value from the rights and privileges it provides the owner b) is worthless because it has no physical substance c) is converted into a tangible asset during the operating cycle d) cannot be classified on the balance sheet because it lacks physical substance
A
Which type of corporate information is readily available to investors? a) Financial comparison of operating alternatives b) Marketing strategies for a product that will be introduced in eighteen months c) Forecasts of cash needs for the upcoming year d) Amount of net income retained in the business
D
Explanatory notes and supporting schedules are an optional part of an annual report?
False
T or F: Accumulated Depreciation is a liability account and has a credit normal account balance
False
T or F: Claims of creditors and owners on the assets of a business are called liabilities?
False
T or F: Dividends are classified as an expense
False
T or F: GAAP stands for generally accepted accounting procedures
False
T or F: Information I the notes to the financial statements have to be quantifiable?
False
T or F: The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique
False
T or F: The normal balance of an asset is a credit
False
T or F: The periodicity assumption states that the business will remain in operation for the foreseeable future.
False
T or F: Transactions are entered in the ledger first and then they re analyzed in terms of their effect on the accounts
False
N3 corporation has assets of 4,200,000, common stock of 1,092,000, and retained earnings of 665,000. What are the creditors' claims on their assets? a) 3,773,000 b) 1,757,000 c) 2,443,000 d) 4,627,000
C
The receipt of cash in advance from a customer a) increases assets and stockholders' equity b) increases assets and decreases stockholder's equity c) increases assets and liabilities d) none of these answer choices are correct
C
Adjusting entries affect at least a) one revenue and one expense account b) one asset and one liability account c) one revenue and one balance sheet account d) one income statement account and one balance sheet account
D
A T-account is a) a way of depicting the basic form of an account b) a special account used instead of a journal c) a special account used instead of a trial balance d) used for accounts that have Botha. debit and credit balance
A
A business organized as a separate legal entity is a a) Corporation b) Proprietorship c) Government Unit d) Partnership
A
A paid dividend a) decreases assets and stockholder's equity b) increases assets and stockholder's equity c) increases assets and decreases stockholders equity d) decreases assets and increases stockholders equity
A
Accounting information should be neutral in order to enhance a) faithful representation b) consistency c) comparability d) relevance
A
Collection of a $600 Accounts Receivable a) increases an asset $600; decreases an asset $600. b) increases an asset $600; decreases a liability $600. c) decreases a liability $600; increases stockholders' equity $600. d) decreases an asset $600; decreases a liability $600.
A
Equipment was purchased by Noland Manufacturing on January 1, 2017, for 125,000. Noland's policy is to adjust its accounts at year-end. Which is the appropriate journal entry to record depreciation at year-end if the company expects to use equipment constantly for five years? in the choices below, as per convention, debits are listed first followed by credits a) depreciation expense equipment-25,000; accumulated depreciation-equipment 25,000 b) accumulated depreciation- equipment 25,000; depreciation expense-equipment 25,000 c) depreciation expense-equipment 25,000; equipment 25,000 d) accumulated depreciation-equipment 25,000; equipment 25,000
A
Expenses are recognized when a) they contribute to the production of revenue b) they are paid c) they are billed by the supplier d) the invoice is received
A
If services are rendered for cash, then a) assets will increase b) liabilities will increase c) stockholder's equity will decrease d) liabilities will decrease
A
Kinger Corporation has current assets of 1,800,000 and current liabilities of 750,000. If they pay 350,000 of their accounts payable what will their new current ratio be? a) 3.6 : 1 b) 2.4 : 1 c) 4.5 : 1 d) 2.0 : 1
A
Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized? a) August 31 b) August 1 c) September 5 d) September 6
A
Receiving payment of a portion fo an accounts receivable will a) not affect total assets b) increase liabilities c) increase stockholder's equity d) decrease net income
A
The double-entry system requires that each transaction must be recorded a) in at least two different accounts b) in two sets of books c) in a journal and in a ledger d) first as a revenue and then as an expense
A
Which of the following is the most appropriate and modern definition of accounting? a) The information system that identifies, records, and communicates the economic events of an organization to interested users b) a means of collecting information c) The interconnected network of subsystems necessary to operate a business d) Electronic collection, organisation, and communication of vast amounts of information
A
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
Suppose that Morgan Corporation produced and sold 4,800 laptop computers during 2017. It reported 130,000 cash provided by operating activities. In order to maintain production at 4,800 laptops, Morgan invested 8,600 in equipment. Morgan paid 1,400 in dividends. What's Morgan's free cash flow? a) 120,000 b) 140,000 c) 137,000 d) 130,000
A (130,000-8,600-1,400)
A journal is not useful for a) disclosing in one place the complete effect of a transaction b) preparing financial statements c) providing a record of transactions d) locating and preventing errors
B
Accounts often need to be adjusted because a) there are never enough accounts to record all the transactions b) many transactions affect more than one time period c) there re always errors made in recording transactions d) management can't decide what they want to report
B
Adjusting entries are: a) not necessary if the accounting system is operating properly b) usually required before financial statements are prepared c) made whenever management desires to change an account balance d) made to balance sheet accounts only.
B
Adjusting entries are: a) the same as correcting entires b) needed to ensure that expense recognition principle is followed c) optional d) rarely needed
B
At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true? a) salaries and wages expense for the year is overstated b) liabilities at the end fo the year are understated c) assets at the end fo the year are understated d) stockholders' equity at the end of the year is understated
B
Borrowing money is an example of a(n) a) Delivering activity b) Financing activity c) Investing activity d) Operating activity
B
Crawford Company started the year with 60,000 in its common stock account and a credit balance in retained earnings of 44,000. During the year, the company earned net income of 48,000 and declared and paid 20,000 of dividends. In addition, the company sold additional common stock amounting to 28,000. As a result the amount of its retained earnings at the end of the year would be a) 160,000 b) 72,000 c) 132,000 d) 100,000
B
Notes to the financial statements a) are optional b) help clarify information presented in the financial statements c) are generally brief and few in number d) need not be read in detail if an unqualified opinion accompanies the financial statements
B
Ratios that measure the income or operating success of a company for a given period of time are a) liquidity ratios b) profitabliity ratios c) solvency ratios d) trending ratios
B
The agency of the US government that oversees the US financial markets is the a) Internal Revenue Service b) Security Exchange Commission c) Financial Accounting Standards Board d) International Auditing Standards Committee
B
The operating cycle of a company is the average time that is required to go from cash to a) sales in producing revenues b) cash in producing revenues c) inventory in producing revenues d) accounts receivable ein producing revenues
B
The proprietorship form of business organization a) Must have at least two owners in most states b) Generally receives favorable tax treatment relative to a corporation c) Combines the records of the business with the personal records of the owner d) Is classified as a separate legal entity
B
The right to receive money in the future is called a(n) a) Account Payable b) Account Receivable c) Liability d) Revenue
B
When a company performs a service but has not yet received payment, it a) debits service revenue and credits account receivable b) debits accounts receivable and credits service revenue c) debits service revenue and credits accounts payable d) makes no entry until cash is received
B
Which financial statement is prepared first? a) Balance sheet b) Income Statement c) Retained Earnings Statement d) Statement of Cash Flows
B
Which of the following describes the classification and normal balance of the Unearned Rent Revenue Account a) asset, debit b) liability, credit c) revenues, credit d) expense, debit
B
Which of the following is not a step for solving an ethical dilemma? a) Identifying the alternatives and weighing the impact of each alternative on various stakeholders b) Certifying the ethical accuracy fo the financial information c) Identifying and analyzing the principal elements in the situation d) Recognizing the ethical situation and issues involved
B
Henson Company began the year with retained earnings of $380,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year? a) $540,000 b) $460,000 c) $840,000 d) $500,000
B (Initial Retained Earnings+Revenue-Expenses-Dividends)
Use the following data to determine the total dollar amount of assets to be classified as current assets Koonce Office Supplies. a) 855,000 b) 600,000 c) 510,000 d) 435,000
B (Current assets=Cash+accounts receivable+inventory+Prepaid Insurance)
A company purchased office supplies costing 5,000 and debited supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed 900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be a) debit supplies expense 5,900; credit supplies 5,900 b) debit supplies 900; credit supplies expense 900 c) debit supplies expense 4,100; credit supplies 4,100 d) debit supplies, 4,100; credit supplies expense 4,100
C
A corporation has which of the following sets of characteristics a) Shared control, tax advantages, increased skills and resources b) Simple to set up and maintains control with founder c) Easier to transfer ownership and raise funds, no personal liability d) harder to raise funds and gives owner control
C
A revenue account a) is increased with a debit b) is decreased with a credit c) is increased with a credit d) has a normal balance of a debit
C
Accrued expenses are a) paid and recorded in an asset account before they are used or consumed b) paid and recorded in an asset account after they are used or consumed c) incurred but not yet paid or recorded d) incurred and already paid or recorded
C
Depreciation is a process of a) valuing an asset at its fair value b) increasing the value of an asset over the periods in which it is used c) allocating the cost of an asset to the periods in which it is used d) writing down an asset to its real value each accounting period
C
Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause a) net income to be understated b) an overstatement of assets and an overstatement of liabilities c) an understatement of expenses and an understatement of liabilities d) an overstatement of expenses and an overstatement of liabilities
C
Free cash flow is net cash provided by operating activities a) less capital expenditures b) less cash dividends c) less capital expenditures and cash dividends d) less capital expenditures and salaries expense
C
Generally accepted accounting principles a) are accounting rules formulated by the Internal Revenue Service b) are sound in theory but rarely used in real life c) are accounting rules that are recognized as a general guide for financial reporting d) have eliminated all errors in accounting
C
If services are rendered on account, then a) assets will decrease b) liabilities will increase c) stockholder' equity will increase d) liabilities will decrease
C
In recording an accounting transaction in a double-entry system a) the number of debit accounts must equal the number of credit accounts b) there must always be entries made on both sides of the accounting equation c) the amount of the debits must equal the amounts of the credits d) there must only be two accounts affected by any transaction
C
Intangible assets are a) listed directly under current assets on the balance sheet b) no listed on the balance sheet because they do not have physical substance c) listed after property, plant, and equipment d) listed as a long-term investment on the balance sheet
C
Issuing shares of stock in exchange for cash in an example of a(n) a) Delivering activity b) Investing activity c) Financing activity d) Operating activity
C
On a classified balance sheet, companies usually list current assets a) in alphabetical order b) with the largest dollar amounts first c) in the order in which they are expected to be converted into cash d) in the order of acquisition
C
On a classified balance sheet, short-term investments are classified as a) an intangible asset b) property, plant, and equipment c) a current asset d) a long-term investment
C
The Balance Sheet a) summarizes the changes in retained earnings for a specific period of time b) reports the changes in assets, liabilities, and stockholders' equity over a period of time c) reports the assets, liabilities, and stockholders' equity at a specific date d) presents the revenues and expenses for a specific period of time
C
The debt to assets ratio is computed by dividing a) long-term liabilities by total assets b) long-term liabilities by average assets c) total liabilities by total assets d) total liabilities by average assets
C
The following is selected information from C Corporation for the fiscal year ending October 31, 2017. Revenue recognized: 225,000 Expenses incurred including any depreciation: 119,000 Based on the accrual basis of accounting, what is C Corporations' net income fro the year ending October 31,f 2017? a) 132,000 b) 116,000 c) 106,000 d) 140,000
C
The primary difference between prepaid and accrued expenses is that prepaid expenses have a) been incurred and accrued expenses have not b) not been paid and accrued expenses have c) been recorded and accrued expenses have not d) not been recorded and accrued expenses have
C
Under the cash basis of accounting a) revenue is recognized when services are perfumed b) expenses are matched with the revenue that is produced c) cash must be received before revenue is recognized d) a promise to pay is sufficient to recognize revenue
C
Which of the following activities involves collecting the necessary funds to support the business? a) Operating b) Investing c) Financing d) Delivering
C
Which of the following external groups uses accounting information to determine whether the company can pay its obligations? a) Investors in common stock b) Marketing Managers c) Creditors d) Chief financial officer
C
Which of the following is a true statement about closing the books of a corporation? a) expenses are closed to the expense summary account b) only revenues are closed to the income summary account c) revenues and expenses are closed to the income summary account d) revenues, expenses, and the dividends amount are closed to the income summary account
C
Which of the following organizations issues accounting standards for countries outside the US? a) SEC b) GAAP c) IASB d) FASB
C
Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)? a) The act calls for increased oversight responsibilities for boards of directors b) The act has resulted in increased penalties for financial fraud by top management c) The act calls for decreased independence of outside auditors reviewing corporate financial statements d) The act is meant to decrease the likelihood of unethical corporate behavior
C
Which statement is correct a) accumulated depreciation should always have a debit balance in the adjusted trial balance b) accumulated depreciation is added to the long-term liabilities on the balance sheet c) accumulated depreciation, equipment represents the total cost of equipment that has expired up to the date of the balance sheet d) accumulated depreciation is used to reveal the value of the related asset o the date of the balance sheet
C
At October 1, 2017, Metz Industries had an Accounts Payable balance of 140,000. During the month, the company made purchases on account of 100,000 and made payments on account of 160,000. At October 31, 2017, the accounts payable balance is a) 140,000 debit b) 20,000 credit c) 80,000 credit d) 160,000 credit
C ((140+100)-160))
Accumulated depreciation is a(n) a) expense account b) Stockholder's equity account c) liability account d) contra asset account
D
A debit to an asset account indicates a) error b) credit was made to a liability account c) decrease in the asset d) increase in the asset
D
All of the following are advantages for choosing a proprietorship for a business except: a) A proprietorship is a simple form of business to set up b) A proprietorship gives the owner control of the business c) Proprietorships receive more favorable tax treatment d) Transfer of ownership is easily achieved through stock sales
D
Buying assets needed to operate a business is an example of a(n) a) Delivering activity b) Financing activity c) Investing activity d) Operating activity
D
Debt securities sold to investors that must be repaid at a particular date some years in the future are called a) accounts payable b) notes receivable c) taxes payable d) bonds payable
D
Free cash flow provides an indication of a company's ability to a) generate cash to invest in new capital expenditures b) generate net income c) generate cash to pay dividends d) generate cash to invest in new capital expenditures and to pay dividends
D
Liabilities are generally classified on a balance sheet as a) small liabilities and large liabilities b) present liabilities and future liabilities c) tangible liabilities and intangible liabilities d) current liabilities and long-term liabilities
D
The procedure of transferring journal entries to the ledger accounts is called a) journalizing b) analyzing c) reporting d) posting
D
Which of the following is not a principal type of business activity? a) Operating b) Investing c) Financing Activity d) Delivering
D
Which of the following is not classified properly as a current asset? a) supplies b) debt investments c) a fund to be used to purchase a building within the next year d) A receivable from the sale of an asset to be collected in two years
D
Elston Company compiled the following financial information as of December 31, 2017: Service Rev: 840,000 Common Stock: 180,000 Equipment: 240,000 Operating Expenses: 750,000 Cash: 210,000 Dividends: 60,000 Supplies: 30,000 Accts Pay: 120,000 Accts Rec: 90,000 Retained Earnings 450,000 Elston's assets on December 31, 2017 are: a) 1,410,000 b) 1,020,000 c) 480,000 d) 570,000
D (240+210+30+90)
At January 1, 2017, Troyer Industries reported Retained Earnings of 350,000. During 2017, Troyer had a net loss of 75,000 and paid dividends to stockholders of 50,000. At December 31, 2017, the balance in retained earnings is a) 350,000 debit b) 300,000 credit c) 275,000 debit d) 225,00 credit
D (350-75-50)
Use the following to calculate the current ratio a) 2.13 : 1 b) 1.44 : 1 c) 2.86 : 1 d) 2.50 : 1
D (current assets/current liabilities) current liabilities are accounts payable and salaries&wages payable
What is the correct normal balances of the following accounts: Assets: Liabilites: Common Stock: Revenues: Expenses:
Debit, Credit, Credit, Credit, Debit
T or F: A contra asset account is subtracted from a related account in the balance sheet
True
T or F: A decrease in a liability account is recorded by a debit
True
T or F: Accrued revenues are revenues that have been recognized but not yet recorded
True
T or F: Closing entries result in the transfer of net income or net loss into the Retained Earnings Account
True
T or F: If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders' equity totals $45,000.
True
T or F: In a statement of cash flows, net cash provided by operating activities indicates the cash-generating of the company
True
T or F: Materiality relates to whether an item is large enough to likely influence the decision of an investor or creditor
True
T or F: Revenues are a subdivision of stockholder's equity
True
T or F: The accounting equation can be expressed as Assets-Stockholder's Equity=Liabilities
True
T or F: The debt to assets ratio measure the percentage fo assets financed by creditors
True