Accounting Test 2 (Chapters 3-4)

Current assets total $120,000, plant and equipment assets $24,000, current liabilities $48,000, and long-term liabilities $12,000. What is the current ratio of the business? A) 1.0:1. B) 2.0:1. C) 2.5:1. D) 3.0:1. E) None of the above.

2.5:1.

Which of the following is listed on the post-closing trial balance for a sole proprietorship? A) Income Summary. B) Sales Revenue. C) Accumulated Depreciation. D) Depreciation Expense. E) Salaries Expense.

Accumulated Depreciation.

The subtotals of the Income Statement debit and credit columns of the work sheet are $17,300 and $29,800, respectively. If the subtotal of the Balance Sheet Debit column is $12,800, what should be the subtotal of the Balance Sheet Credit column? A) $15,300. B) $10,300. C) $300. D) $2,500. E) A total other than the choices shown.

$300.

A tenant rented space in your company's office building on October 1 at $1,800 per month, paying seven months' rent in advance. The bookkeeper recognized a current liability of $12,600. How much of this amount remains unearned as of December 31? A) $12,600. B) $5,400. C) $7,200. D) $0. E) None of the above.

$7,200.

At the end of the accounting period, the business had $5,000 of office supplies on hand. At the beginning of the period, the amount of supplies on hand was $2,000. If the business purchased $12,000 of office supplies during the year, what amount of office supplies were used during the year? A) $7,000. B) $14,000. C) $10,500. D) $9,000. E) None of the above.

$9,000.

A company purchased a two-year fire insurance policy on May 1, 2012. It paid the $2,400 premium in cash on the same date and recorded the entry with a debit to Prepaid Insurance for $2,400. The company has adopted a 12-month accounting period ending on January 31 of each year. If the company uses the accrual basis of accounting, how much insurance expense will be recorded for the periods ended January 31, 2013, and January 31, 2014, respectively? A) $1,800 and $2,400. B) $900 and $1,200. C) $2,400 and $0. D) $0 and $2,400. E) None of the above.

$900 and $1,200

As described in the textbook, in what order should the temporary accounts be closed? A) (1) income statement debit balances, (2) income statement credit balances, (3) income summary, and (4) owner's withdrawals. B) (1) owner's withdrawals, (2) income statement debit balances, (3) income statement credit balances, and (4) income summary. C) (1) revenues, (2) expenses, (3) owner's drawings, and (4) income summary. D) (1) income statement credit balances, (2) income statement debit balances, (3) income summary, and (4) owner's withdrawals. E) None of the above.

(1) income statement credit balances, (2) income statement debit balances, (3) income summary, and (4) owner's withdrawals.

For the current period, a company's revenues and expenses are $480,000 and $420,000, respectively. What is the company's profit margin for the current period? A) 25.0%. B) 87.5%. C) 12.5%. D) $60,000. E) None of the above.

12.5%.

The typical accounting worksheet has five sets of columns with each set having a debit column on the left and a credit column on the right. In moving from left to right across the worksheet, which of the following lists describes the proper order for four of these sets of columns? A) Adjustments, Adjusted Trial Balance, Unadjusted Trial Balance, and Income Statement. B) Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet. C) Adjusted Trial Balance, Adjustments, Income Statement, and Balance Sheet. D) Adjustments, Adjusted Trial Balance, Balance Sheet, and Income Statement. E) Unadjusted Trial Balance, Adjustments, Income Statement, and Adjusted Trial Balance.

Adjustments, Adjusted Trial Balance, Income Statement, and Balance Sheet.

Dee Hellings, Inc. performed $3,000 worth of services for a client during December but did not get paid until the first week of February of the next year. No year-end adjusting entry was recorded on December 31. As a consequence of this oversight, which of the following occurred? A) Assets were understated and revenue was understated. B) Assets were overstated and revenue was understated. C) Assets were understated and revenue was overstated. D) Assets were overstated and revenue was overstated. E) Liabilities were understated and revenue was understated.

Assets were understated and revenue was understated.

What are the main purposes of the post-closing trial balance? A) To make sure all transactions have been correctly recorded in the general journal. B) To verify that all the temporary or nominal accounts have zero balances. C) To verify that only real accounts continue to have a balance in them and that the sum of the entire debit balances in the real accounts is equal to the sum of all the credit balances in the real accounts. D) B and C. E) All of the above.

B and C.

You own a CPA firm. You have agreed to provide accounting services on behalf of a client for a fee of $650 per month. Your services will be rendered uniformly during the year, and you begin your work on April 16. You use the accrual basis of accounting for your own company and prepare monthly financial statements for your firm. Your client makes his first payment of $650 to you on May 16. Which of the following entries will you record on May 16 when you receive the $650 cash payment? A) Cash, debit, $325; Accounts Receivable, credit, $325. B) Cash, debit, $650; Accounts Receivable, credit, $325; Fees Earned, credit, $325. C) Cash, debit, $650; Fees Earned, credit, $650. D) Accounts Receivable, debit, $650; Cash, credit, $325; Fees Earned, credit, $325. E) None of the above.

Cash, debit, $650; Accounts Receivable, credit, $325; Fees Earned, credit, $325.

A classified balance sheet categorizes assets and liabilities. Which of the following is a typical categorization? A) Current assets, current liabilities, noncurrent assets, noncurrent liabilities. B) Noncurrent assets, current assets, current liabilities, noncurrent liabilities. C) Intangible assets, current assets, current liabilities, noncurrent liabilities. D) Current assets, noncurrent assets, current liabilities, noncurrent liabilities. E) None of the above.

Current assets, noncurrent assets, current liabilities, noncurrent liabilities.

A company accountant has started to prepare a ten-column worksheet as shown in the chapter. She calculates the amount of an adjustment and is about to enter it in the Adjustments column but cannot locate the name of the account on the worksheet. What should she do? A) Go back to the general ledger. Open an account with the proper name. Enter the adjustment into the newly created account and then enter the adjustment on the worksheet. B) If there is no proper account name on the worksheet; she cannot enter the adjustment on the worksheet. C) Go back to the Chart of Accounts and add a new account to it. Enter the adjustment into the general journal and then transfer it to the worksheet without having posted it to the general ledger. D) Write the name of the account on the first blank line in the worksheet. Enter the adjustment on this line in the Adjustments column and continue with the worksheet. There is no need to go back to the general journal or the general ledger at this time. E) None of these is the proper procedure.

D) Write the name of the account on the first blank line in the worksheet. Enter the adjustment on this line in the Adjustments column and continue with the worksheet. There is no need to go back to the general journal or the general ledger at this time.

Which of the following sets of accounts are both considered to be temporary accounts which must be closed at the end of the accounting period? A) Cash and Service Revenue. B) Depreciation Expense and Interest Revenue. C) Owner's Drawings and Accounts Payable. D) Cash and Notes Payable. E) Owner's Equity and Owner's Drawings.

Depreciation Expense and Interest Revenue.

A business rented space in an office building on October 1, at $600 per month, paying 9 months of rent in advance. The bookkeeper recognized a prepaid asset of $5,400 when the payment was made. No year-end adjustment was recorded. As a consequence of not recording the required adjustment, which of following occurred? A) Expenses were overstated and assets were understated. B) Expenses were understated and assets were overstated. C) Expenses were overstated and assets were overstated. D) Expenses were understated and assets were understated. E) None of the above.

Expenses were understated and assets were overstated.

Which of the following statements about the accounting cycle is false? A) Posting is done after transactions have been analyzed. B) Preparing the post-closing trial balance is done after the temporary accounts have been closed. C) Adjusting the accounts is done prior to preparing the adjusted trial balance. D) Journalizing the transactions is performed before preparing the unadjusted trial balance. E) Financial statements are prepared before preparing the adjusted trial balance.

Financial statements are prepared before preparing the adjusted trial balance.

A company's bookkeeper has prepared a worksheet for the 2013 calendar year. He has made all of the adjustments and finished the Adjusted Trial Balance set of columns. He has extended each of the adjusted account balances from the Adjusted Trial Balance columns into either the Income Statement or the Balance Sheet set of columns as appropriate. He has added up the Income Statement debit and credit columns and he has added up the Balance Sheet debit and credit columns and has entered the four totals on the appropriate part of the worksheet. He has not made any mistakes up to this point. What can we say about the worksheet at this point in time? A) If the company has Net Income for the period, the total debits in the Income Statement columns will equal the total credits in the Income Statement columns at this point in time. B) If the company has Net Income for the period; the Income Statement debit column subtotal will be greater than the Income Statement credit column subtotal. C) If the company has Net Income for the period; the Income Statement credit column subtotal will be greater than the Income Statement debit column subtotal. D) If the company has a Net Income for the period, the Balance Sheet debit column subtotal will be less than the Balance Sheet credit column subtotal. E) None of the above.

If the company has Net Income for the period; the Income Statement credit column subtotal will be greater than the Income Statement debit column subtotal.

Current assets total $240,000 and current liabilities total $120,000. The company pays off an accounts payable of $30,000 with cash. How the does the current ratio change after the transaction? A) It does not change. B) It changes from 2.00:1 to 1.80:1. C) It changes from 2.00:1 to 2.25:1. D) It changes from 2.00:1 to 2.33:1. E) It changes from 2.00:1 to 3.00:1.

It changes from 2.00:1 to 2.33:1.

Which of the following accounts is a temporary account? A) Notes Payable. B) Unearned Revenue. C) Capital, Lola Delong. D) Lola Delong, Withdrawals. E) Land.

Lola Delong, Withdrawals.

The theoretical reason for recording periodic depreciation expense rather than immediately expensing the cost of a plant asset in the period it is acquired is to adhere to the: A) Cost principle. B) Monetary unit principle. C) Going-concern principle. D) Materiality principle. E) Matching principle.

Matching principle.

Although it is possible to find an exception to the following statement, the vast majority of adjusting entries follow which pattern described below? A) One of the accounts debited or credited is an income statement account while the second account debited or credited is a balance sheet account. B) Both of the accounts debited or credited are income statement accounts. C) Both of the accounts debited or credited are balance sheet accounts. D) Both of the accounts debited or credited are part of the statement of owner's equity. E) None of the above is correct.

One of the accounts debited or credited is an income statement account while the second account debited or credited is a balance sheet account.

Boron Company is a sole proprietorship. Its bookkeeper has prepared the adjusted trial balance as of December 31, 2013. Even though this adjusted trial balance is correct in every respect, there is still one account whose balance does not represent the correct end-of-the-period balance. Which account is it? A) Accounts Receivable. B) Cash. C) Accumulated Depreciation. D) Owner's equity. E) None of these.

Owner's equity.

Optional entries that transfer the balances in balance sheet accounts which arose as a result of certain adjusting entries to income statement accounts are the definition for which term below? A) Adjusting entries. B) Reversing entries. C) Closing entries. D) Declarations of cash dividends. E) Payment of cash dividends.

Reversing entries.

At the end of the fiscal year, an adjusting entry was made for accrued salaries of $2,000. The salaries for one week, $4,250, were paid on the first Friday of the new fiscal period. When the weekly salaries are paid on the first Friday of the new accounting period, what will be the general journal entry? A) Salaries Expense, debit, $4,250; Cash, credit, $4,250. B) Salary Expense, debit, $2,000; Cash, credit, $2,000. C) Salaries Expense, debit, $4,250; Salaries Payable, credit, $4,250. D) Salary Expense, debit, $2,250; Salaries Payable, debit, $2,000; Cash, credit, $4,250. E) None of the journal entries shown above.

Salary Expense, debit, $2,250; Salaries Payable, debit, $2,000; Cash, credit, $4,250.

Braxton Company is a sole proprietorship. Its owner is preparing the accounting worksheet for the 2013 calendar year. The worksheet is the normal 10-column worksheet studied in the chapter. There is a $20,000 adjusted balance in the Owner's Drawings account and the account has its normal or expected balance. What happens to this balance on the worksheet? A) The adjusted balance is extended into the debit column of the Income Statement set of columns. B) The adjusted balance is extended into the credit side of the Income Statement set of columns. C) The adjusted balance is extended into the debit side of the Balance Sheet set of columns. D) The adjusted balance is extended into the credit side of the Balance Sheet set of columns. E) None of the above.

The adjusted balance is extended into the debit side of the Balance Sheet set of columns.

The basic difference between the cash basis of accounting and the accrual basis of accounting is that each basis interprets differently which two accounting principles? A) The going-concern principle and the cost principle. B) The monetary unit principle and the time-period principle. C) The matching principle and the revenue recognition principle. D) The cost principle and the revenue recognition principle. E) The conservatism principle and the cost principle.

The matching principle and the revenue recognition principle.

This principle presumes that an organization's activities can be divided into specific time periods such as a month, a three-month quarter, a six-month interval, or a year. A) Continuing-concern principle. B) Monetary unit principle. C) Revenue recognition principle. D) Time-period principle. E) Business entity principle.

Time-period principle.

A company adopts the accounting practice whereby all external transactions involving prepaid expenses, such as prepaid insurance, prepaid rent, and office supplies are initially debited to the asset account when acquired. If the company fails to adjust any one of these accounts for the current year, what will be the effect on (1) the current year's total expenses, (2) total revenues, (3) net income, and (4) ending owner's equity? A) Understated, understated, understated, and understated. B) Understated, overstated, overstated, and overstated. C) Understated, no effect, overstated, and overstated. D) Overstated, overstated, no effect, and no effect. E) Understated, no effect, overstated, and understated.

Understated, no effect, overstated, and overstated.

An NBA basketball team sells season tickets worth $48 million before the basketball season starts, late in the year. Assume this $48 million is debited to Cash and credited to Unearned Ticket Revenue. By the end of the calendar year, which also happens to be the end of the team's accounting period, 25% of the games have been played. What adjusting journal entry should be made at the end of the year? A) Unearned Ticket Revenue, debit, $12 million; Cash, credit, $12 million. B) Ticket Revenue, debit, 12 million; Unearned Ticket Revenue, credit, $12 million. C) Unearned Ticket Revenue, debit, $12 million; Ticket Revenue, credit, $12 million. D) Ticket Revenue, debit, $12 million; Cash, credit, $12 million. E) None of the above.

Unearned Ticket Revenue, debit, $12 million; Ticket Revenue, credit, $12 million.