Accounting first exam

13. Identify the account below that is classified as an asset in a company's chart of accounts: A. Accounts Receivable B. Accounts Payable C. Owner's Capital D. Unearned Revenue E. Service Revenue

A

23. The accrual basis of accounting: A. Is generally accepted for external reporting because it is more useful than cash basis for most business decisions. B. Is flawed because it gives complete information about cash flows. C. Recognizes revenues when received in cash. D. Recognizes expenses when paid in cash. E. Eliminates the need for adjusting entries at the end of each period.

A

3. Ethical behavior requires that: A. Auditors' pay not depend on the success of the client's business. B. Auditors invest in businesses they audit. C. Analysts report information favorable to their companies. D. Managers use accounting information to benefit themselves. E. Auditors' pay depends on the success of the client's business.

A

7. The question of when revenue should be recognized on the income statement according to GAAP is addressed by the: A. Revenue recognition principle. B. Going-concern assumption. C. Objectivity principle. D. Business entity assumption. E. Cost principle.

A

11. Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use: A. A revenue account. B. The owner's withdrawals account. C. The owner's capital account. D. An expense account. E. A liability account.

B

20. Happiness Catering has total assets of $385 million. Its total liabilities are $100 million and its equity is $285 million. Calculate its debt ratio. A. 35.1%. B. 26.0%. C. 38.5%. D. 28.5%. E. 58.8%.

B

21. The accounting principle that requires revenue to be recorded when earned is the: A. Matching principle. B. Revenue recognition principle. C. Time period assumption. D. Accrual reporting principle. E. Going-concern assumption.

B

4. The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the: A. APB. B. FASB. C. AAA. D. AICPA. E. SEC.

B

5. The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A. Time-period assumption. B. Business entity assumption. C. Going-concern assumption. D. Revenue recognition principle. E. Cost principle.

B

6. If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at: A. $95,000. B. $137,000. C. $138,500. D. $140,000. E. $150,000.

B

1. Technology: A. Has replaced accounting. B. Has not improved the clerical accuracy of accounting. C. Reduces the time, effort and cost of recordkeeping. D. In accounting has replaced the need for decision makers. E. In accounting is only available to large corporations.

C

15. Identify the statement below that is correct? A. The left side of a T-account is the credit side. B. Debits decrease asset and expense accounts, and increase liability, equity, and revenue accounts. C. The left side of a T-account is the debit side. D. Credits increase asset and expense accounts, and decrease liability, equity, and revenue accounts. E. In certain circumstances the total amount debited need not equal the total amount credited for a particular transaction.

C

2. External users of accounting information include all of the following except: A. Shareholders. B. Customers. C. Purchasing managers. D. Government regulators. E. Creditors.

C

27. Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is: A. Debit Office Supplies $105 and credit Office Supplies Expense $105. B. Debit Office Supplies Expense $105 and credit Office Supplies $105. C. Debit Office Supplies Expense $254 and credit Office Supplies $254. D. Debit Office Supplies $254 and credit Office Supplies Expense $254. E. Debit Office Supplies $105 and credit Supplies Expense $254.

C

28. On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. The adjusting entry on December 31 would be: A. A debit to Unearned Fees and a credit to Cash for $500. B. A debit to Fees Earned and a credit to Unearned Fees for $500. C. A debit to Unearned Fees and a credit to Fees Earned for $1,000. D. A debit to Fees Earned and a credit to Cash for $1,000. E. A debit to Fees Earned and a credit to Cash for $500.

C

8. The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000? A. Monetary unit assumption. B. Going-concern assumption. C. Cost principle. D. Business entity assumption. E. Revenue recognition principle.

C

Gi Gi's Dance Studio provided $150 of dance instruction and rented out its dance studio to the same client for another $100. The client paid immediately. Identify the general journal entry below that Gi Gi's will make to record the transaction. A. Rental Revenue 100 Instruction Revenue 150 Cash 250 B. Accounts Payable 250 Rental Revenue 100 Instruction Revenue 150 C. Cash 250 Rental Revenue 100 Instruction Revenue 150 D. Accounts Receivable 250 Rental Revenue 100 Instruction Revenue 150 E. Unearned Revenue 250 Rental Revenue 100 Instruction Revenue 150

C

Wiley Consulting purchased $7,000 worth of supplies and paid cash immediately. Which of the following general journal entries will Wiley Consulting make to record this transaction? A. Accounts Payable 7,000 Supplies 7,000 B. Cash 7,000 Supplies 7,000 C. Supplies 7,000 Cash 7,000 D. Supplies 7,000 Accounts Payable 7,000 E. Supplies Expense 7,000 Accounts Payable 7,000

C

Wiley Consulting purchased $7,000 worth of supplies and paid cash immediately. Which of the following general journal entries will Wiley Consulting make to record this transaction? A. Accounts Payable 7,000 Supplies 7,000 B. Cash 7,000 Supplies 7,000 C. Supplies 7,000 Cash 7,000 D. Supplies 7,000 Accounts Payable 7,000 E. Supplies Expense 7,000 Accounts Payable 7,000 A. $700. B. $1,100. C. $2,900. D. $0. E. $4,300.

C

10. If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be: A. Assets increase $4,500 and liabilities decrease $4,500. B. Equity decreases $4,500 and liabilities increase $4,500. C. Liabilities decrease $4,500 and assets increase $4,500. D. Assets increase $4,500 and liabilities increase $4,500. E. Equity increases $4,500 and liabilities decrease $4,500.

D

12. A credit is used to record an increase in all of the following accounts except: A. Accounts Payable B. Service Revenue C. Unearned Revenue D. Wages Expense E. Owner's Capital

D

17. J. Brown Consulting paid $2,500 cash for a 5-month insurance policy which begins on December 1. Given the choices below, determine the general journal entry that J. Brown Consulting will make to record this transaction. A. Insurance Expense 2,500 Cash 2,500 B. Cash 2,500 Insurance Expense 2,500 C. Cash 2,500 Prepaid Insurance 2,500 D. Prepaid Insurance 2,500 Cash 2,500 E. Insurance Expense 2,500 Prepaid Insurance 2,500

D

22. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: A. Cash basis accounting. B. The matching principle. C. The time period assumption. D. Accrual basis accounting. E. Revenue basis accounting.

D

9. Revenue is properly recognized: A. When the customer makes an order. B. Only if the transaction creates an account receivable. C. At the end of the accounting period. D. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price. E. When cash from a sale is received.

D

24. Which of the following statements is incorrect? A. Adjustments to prepaid expenses and unearned revenues involve previously recorded assets and liabilities. B. Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded. C. Adjusting entries can be used to record both accrued expenses and accrued revenues. D. Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. E. Adjusting entries affect only balance sheet accounts.

E

25. If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: A. Assets overstated and equity understated. B. Assets and equity both understated. C. Assets overstated, net income understated, and equity overstated. D. Assets, net income, and equity understated. E. Assets, net income, and equity overstated.

E

29. An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year? A. Salaries Expense 3,000 Cash 3,000 B. Salaries Payable 3,000 Cash 3,000 C. Salaries Payable 1,200 Cash 1,200 D. Salaries Expense 1,200 Salaries Payable 1,200 E. Salaries Payable 1,200 Salaries Expense 1,800 Cash 3,000

E

26. A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin. A. 85.4%. B. 117.1%. C. 53.9%. D. 217.1%. E. 46.1%.

E Profit Margin = Net Income/Net Sales Profit Margin = $7,000,000/$15,200,000 = .461 = 46.1%