Accounting Exam 1

In November and December 2015, Bee Company, a newly organized newspaper publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January 2, 2016, issue of the newspaper. How much should Bee report in its 2015 income statement for subscription revenue?

$0

Sparkling Pools provides $1,000 of pool maintenance services during July and collects payment in August. The company performs $1,600 of pool maintenance services during July that were paid for in June. The company accepts an order to perform $500 of pool maintenance services in August (that is actually performs in August) and will be paid in the same month. Revenue should be credited for:

$0 in June, $2,600 in July, and $500 in August.

The following transactions occurred during July: Received $900 cash for services provided to a customer during July. Received $2,200 cash investment from Bob Johnson, the owner of the business. Received $750 from a customer in partial payment of his account receivable which arose from sales in June. Provided services to a customer on credit, $375. Borrowed $6,000 from the bank by signing a promissory note. Received $1,250 cash from a customer for services to be rendered next year. What was the amount of revenue for July?

$1,275.

A company's January 1, 2014 balance sheet reported total assets of $120,000 and total liabilities of $40,000. During January 2014, the following transactions occurred: (A) the company issued stock and collected cash totaling $30,000; (B) the company paid an account payable of $6,000; (C) the company purchased supplies for $1,000 with cash; (D) the company purchased land for $60,000 paying $10,000 with cash and signing a note payable for the balance. What is total stockholders' equity after the transactions above?

$110,000

Following are transactions of Brenner Tanners, Inc., a new company, during the month of January: Issued 10,000 shares of common stock for $15,000 cash. Purchased land for $12,000, signing a note payable for the full amount. Purchased office equipment for $1,200 cash. Received cash of $14,000 for services provided to customers during the month. Purchased $300 of office supplies on account. Paid employees $10,000 for their first month's salaries. What was the total amount of Brenner's liabilities following these six transactions?

$12,300.

Wally Corporation had assets of $270,000 and liabilities of $160,000 at the beginning of 2014. During 2014, assets increased $25,000 and liabilities increased $5,000. What was stockholders' equity on December 31, 2014?

$130,000

Park & Company was recently formed with a $6,300 investment in the company by stockholders. The company then borrowed $3,300 from a local bank, purchased $1,130 of supplies on account, and also purchased $6,300 of equipment by paying $2,130 in cash and signing a promissory note for the balance. Based on these transactions, the company's total assets are:

$14,900

On January 1, 2014, Ryan Company paid the premium on a three-year insurance policy in the amount of $6,000. At that time, the full amount paid was recorded as prepaid insurance. After recording the adjusting entry for the insurance policy on December 31, 2014, what would be the balance in Ryan Company's prepaid insurance account?

$4,000

On January 1, 2014, the general ledger of Global Corporation included Supplies (an asset account) of $1,000. During 2014, supplies purchased amounted to $5,000, which were added to the Supplies account. A physical count of inventory on hand at December 31, 2014 determined that the amount of supplies on hand was $1,200. How much is the 2014 supplies expense?

$4,800.

At the beginning of January of 2015, Little Mikey's Catering ledger reflected a debit balance of $52,000 for accounts receivable. During January, the company collected $14,800 from customers on account and provided additional services to customers on account totaling $12,500. Additionally, during January one customer paid Mikey $5,000 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be:

$49,700.

A company entered into the following transactions: - Borrowed $5,110 from the bank by signing a promissory note - Issued stock to owners for $11,100 - Purchased $1,110 of supplies, on account - Paid $510 to suppliers as payment on account for the supplies purchased What is the amount of total liabilities?

$5,710

A company has the following three events in December, 2015: December 1 - Pay last month's rent (November), $500. December 15 - Pay rent for the current month (December), $500. 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?

$500.

On January 1, 2015, Miller Corporation had retained earnings of $8,000,000. During 2015, Miller reported net income of $1,500,000, declared dividends of $500,000, and issued common stock for $1,000,000. What were Miller's retained earnings on December 31, 2015?

$9,000,000.

The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:

A debit to a liability.

The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?

Accounts Payable

Which of the following accounts are increased by a credit?

Accounts Payable and Contributed Capital

Which accounts would be reported as assets on the balance sheet?

Accounts receivable, inventory, and cash

Which of the following transactions and events results in a decrease in both total assets and net income?

Adjustment of the prepaid rent account for rent used during the period.

On September 30, 2015, MFP Co. paid employee salaries of $7,000, including $1,000 it owed to its employees last month for services they rendered last month (August 2015). What are the effects of the payment of the salaries on September 30, 2015?

Assets decreased, liabilities decreased, and expenses increased.

During March, the Better Living Consulting Company provides $23,000 in consulting services of which $12,000 is immediately paid for and $11,000 is on account.

Cash increases $12,000, Accounts Receivable increases $11,000, and revenues increase $23,000.

Which of the following would not be reported in the operating activities section of a cash flow statement?

Cash paid for dividends to stockholders.

Which of the following would not be found within the investing activities section of the statement of cash flows?

Cash received from the sale of common stock to stockholders.

Which of the following elements are NOT found on the income statement?

Cash, Accounts receivable, Contributed capital, Retained earnings

What type of account is Accumulated Depreciation?

Contra-asset with a normal credit balance

Golddigger Services Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction on May 1 will include a:

Credit to Unearned Revenue for $60,000.

Company A receives $10,000 in advance in September 2011 for work to be performed in October 2011. For September, the company should:

Debit Cash $10,000 and credit Unearned Revenue $10,000.

Baylor Company collected $5,000 from a customer on account. What journal entry will Baylor record?

Debit Cash, credit Accounts Receivable.

Below are two related transactions for Golden Corporation. The annual accounting period ends December 31. The books are adjusted only at year-end. October 1, 2014: Golden Corporation borrowed $100,000 and signed a note providing for 8% annual interest. The principal and interest are due in one year on September 30, 2015. December 31, 2014: End of the annual accounting period. What adjusting entry is required on December 31 if the company adjusts its books once a year, on December 31?

Debit Interest Expense $2,000, Credit Interest Payable $2,000

Which of the following is a normal closing entry?

Debit Service Revenue, credit Retained Earnings.

On November 1, 2014, Bug Busters collected $6,000 in advance for three months of service to be provided beginning on that date. Bug properly recorded the entire amount as unearned revenue for $6,000 on November 1. The books are adjusted only at year-end. What is the adjusting entry required on December 31, 2014?

Debit Unearned Revenue $4,000, Credit Service Revenue $4,000

A credit in a journal entry:

Decreases asset and expense accounts, and increases liability, owner's capital, and revenue accounts.

Which of the following accounts would NOT be reported on the balance sheet?

Dividends

A journal entry can consist of no more than one account to be debited and one account to be credited. T/F

False

A trial balance represents a chronological record of all transactions affecting the company. T/F

False

According to the matching principle, salary expense is recognized on the income statement when the salaries are paid rather than when the employee provides the work. T/F

False

Accounts receivable and accounts payable are reported on the income statement. T/F

False

Accumulated Depreciation is presented in the Liabilities section of a balance sheet. T/F

False

Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period. T/F

False

Adjusting entries should be prepared after financial statements are prepared. T/F

False

Assets on the balance sheet include retained earnings T/F

False

Contributed Capital (or Common Stock) is an asset on the balance sheet. T/F

False

Credits increase assets accounts and decrease liability and equity accounts T/F

False

Debits decrease assets and increase liability and equity accounts T/F

False

Net income includes a deduction for dividend payments made to stockholders. T/F

False

Providing services to a customer on account does not impact net income. T/F

False

Purchasing a six-month insurance policy results in a debit to insurance expense and a credit to cash at the date of purchase. T/F

False

The U.S. has made the decision to switch from GAAP to IFRS, effective December 31, 2015, for SEC reporting of publicly traded companies. T/F

False

The amounts you owe to suppliers as part of an informal agreement to purchase supplies are called Notes Payable. T/F

False

The balance sheet provides a listing of assets and liabilities at their fair market values. T/F

False

The normal balance of the contributed capital account is a debit T/F

False

The three basic elements of the balance sheet are revenues, expenses, and assets T/F

False

The total amount debited does not always need to equal the total amount credited for a particular transaction T/F

False

Unearned revenues are revenues that have been earned but not yet collected in cash. T/F

False

When the principal of a loan is repaid, total stockholders' equity is decreased T/F

False

7. Cash received from issuing new stock to stockholders are reported as cash flows from ________ activities on the statement of cash flows.

Financing

On April 1, 2014, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2014 adjusting entry?

Insurance expense will increase $2,250.

Which of the following does correctly describes an adjusting journal entry that debits depreciation expense and credits accumulated depreciation?

It increases expenses and decreases assets.

On January 28, 2015, your company bought a 30-second advertisement that aired during the a sporting event at a cost of $1.2 million. It is legally obligated to pay for the ad but has not yet done so. How does the purchase and use of the ad time affect your company's balance sheet on January 28, 2015?

It increases liabilities and decreases stockholders' equity by $1.2 million each.

Greenboy Company's retained earnings increased $20,000 during 2014. What was Greenboy's 2014 net income or loss given that Greenboy declared $25,000 of dividends during 2014?

Net income was $45,000

Which of the following accounts would be reported on the balance sheet?

Notes payable, Retained earnings, Equipment, Inventory

Which of the following transactions causes a decrease in stockholders' equity?

Pay dividends to stockholders.

Which of the following transactions would cause a decrease in both assets and stockholders' equity?

Paying for advertising for an advertisement that ran in the current month.

Which of the following elements are found on the income statement?

Rent Expense

Which of the following is NOT one of the main financial statements?

Statement of Net Liabilities

When a company incurs employee salaries but does not pay them, how will the basic accounting equation be affected?

Stockholders' equity decreases.

The ending balance of Retained Earnings can best be described as:

The amount of net income over the life of the company not paid to owners in the form of dividends.

Which of the following statements is true?

The current ratio is used to evaluate a company's ability to pay its current obligations.

The primary difference between accrual-basis and cash-basis accounting is:

The timing of when revenues and expenses are recorded.

In October, your company prepays rent of $7,000 for November and December. Which of the following describes the effects of this transaction in October?

There is no change to total assets, liabilities or stockholders' equity.

Select the answer that best describes the entry that is required to enter the following transaction in the company's accounting system: Company paid $600 for supplies previously purchased on account in prior month. The supplies have not yet been used.

Total assets decrease.

A company's assets and stockholders' equity both increase when the company sells additional shares of stock in exchange for cash. T/F

True

Accounts payable, notes payable and wages payable are examples of liabilities. T/F

True

Accrued revenues have been earned but not yet received in cash, such as rent receivable and interest receivable. T/F

True

After closing entries are posted to the accounts in the general ledger, all revenue and expense accounts have a balance of zero. T/F

True

After every business transaction, the accounting equation always has to balance. T/F

True

Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080. T/F

True

Contributed capital represents the amount that stockholders have invested in the company T/F

True

Prepaid expenses, such as prepaid rent and prepaid insurance, represent assets for a business until they are used. T/F

True

Stockholders' equity on the balance sheet includes contributed capital and retained earnings T/F

True

The ending retained earnings balance from the statement of retained earnings is reported on the balance sheet T/F

True

The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time T/F

True

The income statement is prepared for a period of time such as a month, while the balance sheet is prepared at a specific point in time. T/F

True

The journal is a chronological record of a company's transactions. T/F

True

The payment of dividends is a financing activity T/F

True

The stockholders' equity of a company is the difference between assets and liabilities. T/F

True

Utilities Expense would be debited when a company receives a bill for utilities that it will pay later. T/F

True

When a company borrows money from a bank, total liabilities increase and stockholders' equity is unchanged. T/F

True

When a magazine sells subscriptions to customers, it is an example of an unearned revenue when the cash is received up front T/F

True

L. Lane received $12,000 from a tenant on December 1 for four months' rent of an office. This rent was for December, January, February, and March. If Lane properly recorded the entire amount as a liability of $12,000 on December 1, what necessary adjustment must be made on December 31?

Unearned Rental Revenue ............. 3,000 Rental Revenue .................... 3,000

Which of the following would eventually cause a reduction in retained earnings?

Using up supplies

On March 1, 2016, the company paid $6,000 rent in advance for a 12-month period. No entries have been made regarding this transaction since March 1, when it was all recorded in an asset account. On December 31, 2016, the company's necessary adjusting entry for this transaction would include:

a $5,000 debit to Rent Expense; a $5,000 credit to Prepaid Rent.

In an accrual accounting system based on GAAP,

a debit entry is recorded on the left-hand side of an account.

If a cost of doing business has been incurred but not yet recorded, then the end-of-period adjusting entry would involve

a liability and an expense account.

If Luverne Company purchases inventory on account for $4,000, then

assets and liabilities both increase by $4,000.

If a business receives $5,000 on account in November 2015 from clients who owed money for services provided and billed in October 2015, what is the effect on the accounting equation of the receipt of the cash in November?

assets remain the same and owner's equity remains the same.

Which of the following are the three basic elements of the balance sheet?

assets, liabilities, and stockholders' equity.

The supplies account balance on the balance sheet at the beginning of the period was $6,600. Supplies totaling $12,825 were purchased during the period and recorded as an asset. A physical count shows $3,825 of supplies on hand at the end of the period. The adjusting journal entry at the end of the period

debits Supplies Expense and credits Supplies for $15,600.

6. The purpose of a statement of retained earnings is to:

report how the profits of a company have been distributed to stockholders or retained in the business.

The income statement

reports the amount of revenues earned and expenses incurred during the period.

Li Company paid cash to purchase land. As a result of this accounting event

total assets were unchanged