ACCT 2331 Exam 1 Review

Giving the following: Beginning RE $58,000 Ending RE $60,000 Liabilities $42,000 Net Income $75,000 What is the amount of Dividend paid? ______________________________

$ 73 use the retained earning equation

Types of Financial Statements

1) Income Statement 2) statement of stockholder equity 3) Balance sheet 4) Statement of Cash Flows

A characteristic feature of corporations is A. Limited liability for investors B. Ability to make contracts in its own name C. Ownership rights proportional to shares D. Articles of incorporation E. All of the above

A corporation has: * Limited liability for investors * Ability to make contracts in its own name * ownership rights proportional to shares * Articles of incorporation so Answer: E. All of the Above

During the year, EcoWash has $120,000 in revenues, $50,000 in expenses, and $4000 in dividends. Retained Earnings is changed by A. +$66000 B. +$70000 C. -$66000 D. +$74000

A. +$66000 It is positive because 120,000 - 54,000 The revenue gets a retained earning that debits the account and vise-Versa for dividends and expenses

On Oct. 1, Basher Company received $1,000 from a customer as an advance payment for services to be rendered and credited Unearned Revenues at the time of receipt. By Dec. 31, Basher had performed $750 of services. The adjusting journal entry at Dec.31 would include: A. A debit to unearned revenues for $750. B. A credit to unearned revenues for $750. C. A debit to unearned revenues for $250. D. A credit to unearned revenues for $250.

A. A debit to unearned revenues for $750

Which of the following is recorded with an adjusting entry associated with a prepaid expense? A. Credit an asset B. Debit a liability C. Credit an expense D. Debit an asset

A. Credit an asset The adjusting entry involving a prepaid expense always involves a debit to an expense and a credit to an asset or a contra account.

Those obligations of a firm that must be either paid in cash or settled by providing goods or services within one year are referred to as: A. Current liabilities. B. Accounts payable. C.Notes payable. D. Bonds payable. E. Current assets.

A. Current Liabilities

The cash collected from a customer would be recorded as which type of activity in the statement of cash flows? A. Operating Activity B. Business Activity C. Investing Activity D. Financing Activity

A. Operating Activities

Which account would NOT be closed during the closing process? A. Retained Earnings B. Dividends C. Interest Expense D. Interest Revenue

A. Retained Earnings Only temporary accounts are closed. Temporary accounts include all revenues, expenses, and dividends. Balances of temporary accounts are transferred to the balance of Retained Earnings, which is a permanent account that is not closed.

Which of the following would be recorded as an expense under cash-basis accounting? A. The company purchases office supplies with cash and does not use the supplies. B. The company uses utilities in the current period but does not pay cash. C. The company provides services to customers for cash. D. The company purchases equipment by borrowing from the bank.

A. The company purchases office supplies with cash and does not use the supplies. A cash-basis expense is recorded when cash is paid for a cost of operating the business. The company paid cash for supplies and would therefore record Supplies Expense under cash-basis accounting.

Given: Assets-Jan.1,2015 $320 Liabilities- Jan. 1, 2015 $140 Assets-Dec. 31, 2015 $350 Revenues in 2015 $75 Expenses in 2015 $60 What are " Liabilities" on December 31, 2015, if no withdrawals or investments were made during the year? (use the information from

Add net income total to the Liabilities of the beginning of the year to get the Liabilities at the end of the year so $15 + $140 = $155

Purchasing a building for $110,000 by paying cash of $15000 and signing a note payable for $95000 will? A. Increase both total assets and total liabilities by $95,000. B. Increase both total assets and total liabilities by $110,000. C. Decrease both total assets and total liabilities by $15,000. D. Decrease total assets and increase total liabilities by $15,000.

Answer A: Increase both total assets and total liabilities by $95,000. Because only the $95,000 is being borrowed from the bank

Which of the following financial statements illustrates the fundamental accounting equation? a. The Balance Sheet b. Income Statement c. The Statement of Cash Flows d. The Statement of Owners Equity e. The Statement of Retained Earnings

Answer: A due to the balance sheet being the only one where it specifically states and has a column for "Assets, Liabilities and Stockholder equity"

Journal entry for a $75 payment for rent expense was posted as a debit to salary expense and a credit to cash. No other mistake was made. This error will cause which of the following conditions on the trial balance? A) The sum of the credits will still equal the sum of the debits. B) The sum of the debits will exceed the sum of the credits by $75. C) The sum of the debits will exceed the sum of the credits by $150. D) The sum of the credits will exceed the sum of the debits

Answer: A) The sum of the credits will still equal the sum of the debits. This is because all expense is counted for the same underneath exepense, so total should be the same

Which of the following accounts is increased with a debit? a. Unearned revenue b. Prepaid expense c. Service revenue d. Retained earnings

Answer: B Prepaid expense (Follow the rules of Dea/lor)

After initially recording a transaction, the data are then copied or posted to which of the following? a. Chart of Accounts b. General Ledger c. Trial Balance d. Journal

Answer: B. General Ledger

Which accounts appear on which financial statement? Balance sheet Income statement A Receivables, land, payables Revenues, supplies B Cash, revenues, land Expenses, payables C Cash, receivables, payables Revenues, expenses D Expenses, payables, cash Revenues, receivables, land

Answer: C Since the Balance sheet includes * Assets * Stockholder Equity * Liabilities Income Statement includes: * Revenues * Expenses * Tip: similar to the net income equation

Which of the following journal entries would be recorded if a business received cash of $600 on account for services performed at an earlier date? A) Cash 600 Service Revenue 600 B) Accounts Receivable 600 Service Revenue 600 C) Cash 600 Accounts Receivable 600 D) Service Revenue 600 Accounts Receivable 600

Answer: C. Cash 600 Accounts Receivable 600 Be aware of the term "on account"

What must result if the revenues minus the expenses is less than the amount of the dividends paid?  A) The retained earnings account increases. B) The company had positive net income. C) The company had a net loss. D) The retained earnings account decreases.

Answer: D) The retained earnings account decreases.

Basic Accounting Equation

Assets = liabilities + stockholder's equity (owners equity)

If net income is $80,000, dividend is $ 24,000, and ending RE balance is $105,000. How much is beginning RE? A) $81 B) $49 C) $1 D) $25

B) $49

On August 1, 2015, Xcel Auto Repair, Inc. paid $6,000 for six months rent. After adjusting entries are made, what will be the balance of Prepaid Rent on December 31, 2015? A) $6,000 B) $1,000 C) $2,000 D) $4,000

B. $1,000

If a company borrowed $20,000 on November 1 at the rate of 6% annually, how much interest expense should be accrued at the year-end date of December 31, assuming no accrual has yet been made this year? A. $1,200 B. $200 C. $600 D. $400

B. $200 The formula to calculate interest for November and December (two months) is: Note Payable × Annual Interest Rate × Fraction of the Year $200 = $20,000 × 6% × 2/12 The adjusting entry on December 31 would be: Interest Expense 200 Interest Payable 200

A two year insurance policy in the amount of $2,400 was purchased on Feb 1, 2015 and was recorded by debiting the prepaid insurance account. At the end of its fiscal year at June 30, 2015, the firm will have to recognize insurance expense of : a. $2400 b. $500 c. $1900 d. $1100

B. $500 (2,400/ 24 months = $100 so $100 times however many months in between

Which of the following is equivalent to the book value of an asset? A. Cost of the asset plus the accumulated depreciation B. Cost of the asset less the accumulated depreciation C. The estimate of time that the asset will last D. Cost of the asset divided by its useful life

B. Cost of the asset less the accumulated depreciation The book value of the asset is the asset's original cost less its accumulated depreciation. Another common word that is synonymous with book value is carrying value.

If 1 year of rent paid in advance on January 1. 2015 was debited to prepaid rent, what adjusting entry is needed to adjust on 1/31/2015? A. Debit prepaid rent, credit cash. B. Debit rent expense, credit prepaid rent. C. Debit rent expense, credit unearned rent. D. Office supplies expense.

B. Debit rent expense and credit prepaid rent because the whole year has already passed, the rent has already been used, meaning the prepaid rent

Which of the following assumptions indicates that the life of a company can be divided into artificial time periods for periodic reporting? A. Economic Entity B. Periodicity C. Going Concern D. Monetary Unit

B. Periodicity The periodicity assumption states that the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for periodic financial reporting.

Which of the following accounts would you find on a post-closing trial balance? A. Dividends B. Retained Earnings C. Rent Expense D. Service Revenue

B. Retained Earnings The only one of these four accounts that would remain on a trial balance after all of the revenues, expenses, and dividends were closed would be Retained Earnings. Dividends, rent expense, and service revenue would have been closed during the closing process and therefore would not be on the post-closing trial balance.

Which of the following would be recorded as an expense under accrual-basis accounting? A. The company purchases office supplies with cash and does not use the supplies. B. The company uses utilities in the current period but does not pay cash. C. The company provides services to customers for cash. D. The company purchases equipment by borrowing from the bank.

B. The company uses utilities in the current period but does not pay cash. An accrual-basis expense is recorded when a cost is used to help produce revenue. A company that uses utilities has incurred a cost that helped to produce revenue in the current period and would therefore record Utilities Expense under accrual-basis accounting.

The accountant for Hobson Electrical Repair Corporation failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year. Which of the following is true? A) Total liabilities are overstated. B) Total liabilities are understated. C) Total assets are overstated. D) Total assets are understated.

B. Total liabilities were understated Assets are not affected either way, the salaries would be unpaid either if it was recorded or not

A business acquires equipment for $140,000 on January 1. The equipment has a life of seven years and 0 salvage value. Which of the following is the adjusting entry required on December 31? A) Debit $140,000 to Equipment, credit $140,000 to Cash B) Debit $140,000 to Depreciation Expense, credit $140,000 to Accumulated Depreciation C) Debit $20,000 to Depreciation Expense, credit $20,000 to Accumulated Depreciation D) Debit $20,000 to Depreciation Expense, credit $20,000 to Equipment

C) Debit $20,000 to Depreciation Expense, credit $20,000 to Accumulated Depreciation Divide the $140,000 by 7 years to get the 20,000. The 20,000 would be debited as depreciation expense since its over a year of time and it would be accumulated depreciation since it it is a contra- asset

Received utility bill, the bill will be paid at a later date: A. No journal entry required, until payment is made. B. Dr. Utility Expense, Cr. Cash C. Dr. Utility Expense, Cr. Utility Payable D. Dr. Utility Payable, Cr. Utility Expense

C. Dr. Utility Expense, Cr. Utility Payable

Which statement best describes when expenses should be recorded? A. Expenses are recorded when paid. B. Expenses are recorded the day a company promises to pay. C. Expenses are recorded when the cost is used to help produce revenue. D. None of the above

C. Expenses are recorded when the cost is used to help produce revenue. Any costs used to help generate revenues are recorded as expenses in the same period as those revenues.

22 Which of the following accounts would appear in the Balance Sheet debit column? A) Unearned service revenue B) Depreciation expense C) Service revenue earned D) Prepaid insurance

D) Prepaid insurance Balance Sheet includes * Assets * Liabilities * Stockholder Equity

If a company pays an employee $100 per day for a five-day work week that runs from Monday to Friday, and December 31 is a Tuesday, what is the amount of the salaries adjustment, assuming that Friday is payday? A. $500 B. $400 C. $300 D. $200

D. $200

During September, Amy's shop had revenue of $4,500 and expenses of $1,600, and $1,350 paid as dividends. If the Retained Earnings on September 30 was $9,000, the Retained Earnings on September 1 must have been: A. $10,550 B. $6,000 C. $11,000 D. $7,450.

D. 7,450 Use retained earning equation

An increase in an expense account could be balanced in a journal entry by: A. A decrease in a revenue account. B. A decrease in a liability account. C. A decrease in equity. D. A decrease in an asset account.

D. A decrease in an asset account.

An adjusting entry would be needed for which of the following transactions? A. Accrued salaries B. Services provided but unbilled C. Interest accrued on a loan payable D. All of the above

D. All of the above

Revenues total $10,200. Expenses total $7,300. Dividends declared and paid total $2,600. What is the balance in the revenues account after closing the temporary accounts to retained earnings account? A) Credit balance of $2,900 B) Credit balance of $ 300 C) Credit balance of $10,200 D) Balance of $0

D. Balance of $0 since the temporary accounts were already closed

Auditors are independent parties that help: A. To establish accounting rules in the U.S. B. To ensure management has appropriately prepared the company's financial statements C. Investors and creditors in their decisions by adding credibility to the financial statements. D. Both b. and c. are correct

D. Both B and C are correct

Which financial statement would include a line for net income? A. Income statement B. Statement of stockholders' equity C. Balance sheet D. Both a and b

D. Both a and b Net income is the final result in the income statement. This amount is also transferred from the income statement to the statement of stockholders' equity. So, the line item for net income would appear in both the income statement and the statement of stockholders' equity.

Paying on Accounts Payable would result in: A. Dr. Cash, Cr. Accounts Payable B. Dr. Accounts Payable, Cr. Unearned Revenue C. Dr. Accounts Payable, Cr. Advertising Expense D. Dr. Accounts Payable, Cr. Cash

D. Dr. Accounts Payable, Cr. Cash Because when paying on account, accounts payable would increase because you are using money on the account and the cash would decrease because you are spending the money you are getting from the account

At the end of an accounting period, the office supplies account shows a balance of $500, but the actual supplies on hand amount to only $300. If this situation calls for an adjusting entry, what account should be debited? A. Office supplies B. Office supplies payable. C. Unused office supplies D. Office supplies expense

D. Office supplies expense

Which of the following accounts would appear in a company's income statement? a. Accounts Payable b. Cash c. Dividends d. Rent Expense

D. Rent expense

Debits = ?

Debits = Credits

Benefits of analyzing transactions

Determines which accounts are affected

Which of the individuals is most interested in financial statements produced in accord with generally accepted accounting principles (GAAP)? A. A manager involved in the operations of a business. B. A loan officer reviewing a loan application. C. An internal revenue agent reviewing the validity of a company's tax return. D. A potential stockholder of a corporation. E. B and D

E. B and D (B) A loan officer reviewing a loan application (D) A potential stockholder of a corporation

Retained Earning Equation

Ending retained earning = Beginning retained earning + net income/loss - dividends

Cash versus accrual accounting is???

GAAP make sure not to answer Cash

Liabilities Equation

Liabilities = Assets - Stockholder equity

Periodicity?

Measures performance

What affects retained earnings?

Net income Increases Dividends decrease

Recognizing revenue when? Matching principle for expenses when?

Recognizing revenue when (when it is earned) Matching principle for expenses when (when it is incurred)

In a journal entry, when the debits and credits cancel out, which side does the total balance amount get placed?

The total balance is placed in the bigger side

To reduce temporary account to zero

Transfer to retained earnings

Given: Assets-Jan.1,2015 $320 Liabilities- Jan. 1, 2015 $140 Assets-Dec. 31, 2015 $350 Revenues in 2015 $75 Expenses in 2015 $60 What is the net income in 2015?

Using the net income equation Net income = revenues - expenses Answer: $15

Which relationship is reflected in the balance sheet? a. Revenues − Expenses = Net income b. Assets = Liabilities + Stockholders' Equity c. Assets − Liabilities = Net Income d. Assets = Revenues + Dividends

b. Assets = Liabilities + Stockholders' Equity

What effect does the payment of dividends have on the accounting equation? a. Assets decrease and equity increases b. Assets decrease and equity decreases c. Assets decrease and liabilities increase d. Assets increase and equity increases

b. Assets decrease and equity decreases Payment of dividends causes the cash account (which is an asset) to decrease and also causes retained earnings (which is an equity account) to decrease. So the correct answer is the payment of dividends decreases both assets and equity.

Which of the following is used to provide a chronological record of all transactions affecting a firm? a. The general ledger b. The journal c. The trial balance d. The income statement

b. The journal

An example of a contra- asset account is? a. Prepaid insurance b. Income summary c. Accumulated depreciation d. Taxes payable e. Unearned revenue

c. Accumulated depreciation

Which of the following accounts would appear in the credit column of a trial balance? a. Prepaid Rent b. Dividends c. Common Stock d. Salaries Expense

c. Common Stock Remember Dea/lor

Which of the following accounts would be debited when a company pays $12,000 in advance for one year of rent? a. Cash b. Rent Expense c. Prepaid Rent d. Rental Income

c. Prepaid Rent

What would be the effect on total assets if a company purchased land for $200,000 cash? a. Total assets would go up by $200,000. b. Total assets would go down by $200,000. c. There would be zero effect on total assets. d. None of the above

c. There would be zero effect on total assets. Since land is a asset, the total balance is left alone

Net income equation

net income = Revenues - expenses

In corporations: owners (=)

owners = stockholders

Owners Equity equation

owners equity = common stock + retained earnings