ACT 125

Which of the following accounts should be closed to Retained Earnings at the end of the fiscal year? a.Service Revenue b.Prepaid Insurance c.Equipment d.Unearned Rent

a.Service Revenue

A bank reconciliation should be prepared periodically because a.any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected b.the bank must make sure that its records are correct c.the bank has not recorded all of its transactions d.the company's records and the bank's records are in agreement

a.any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected

Which of the following financial statements reports information as of a specific date? a.balance sheet b.income statement c.statement of cash flows d.statement of stockholders' equity

a.balance sheet

What is the type of account and normal balance of Allowance for Doubtful Accounts? a.contra asset, credit b.asset, credit c.contra asset, debit d.asset, debit

a.contra asset, credit

Question Content Area Prepaid insurance is reported on the balance sheet as a a.current asset b.current liability c.long-term liability d.fixed asset

a.current asset

A trial balance is prepared to a.discover errors that affect the equality of debits and credits b.prove that each account balance is correct c.prove that no errors were made in posting to the ledger d.prove that there were no errors made in recording transactions into the journal

a.discover errors that affect the equality of debits and credits

Sarbanes-Oxley applies to a.publicly held companies b.not-for-profit organizations c.privately held businesses d.all of these

a.publicly held companies

Taking a physical count of inventory a.should be done near year-end b.is not necessary when a periodic inventory system is used c.is not necessary when a perpetual inventory system is used d.has no internal control relevance

a.should be done near year-end

The matching principle a.states that the revenues and related expenses should be reported in the same period b.requires that the dollar amount of debits equal the dollar amount of credits on a trial balance c.addresses the relationship between the journal and the balance sheet d.determines whether the normal balance of an account is a debit or credit

a.states that the revenues and related expenses should be reported in the same period

What is the goal of the closing process? a.to make sure all temporary accounts have a zero balance b.to end the accounting period with a profit c.to verify that all adjustments have been made d.to move all equity accounts to Retained Earnings

a.to make sure all temporary accounts have a zero balance

Using accrual accounting, revenues are recorded a.when a service has been performed or products have been delivered to customers without regard to when cash is received b.when cash is received at the time services are performed or products have been delivered to customers c.when cash is received without regard to when the services are performed or products have been delivered to customers d.only if cash is received after the services are performed or products have been delivered to customers

a.when a service has been performed or products have been delivered to customers without regard to when cash is received

Debts listed as current liabilities are those that a.will be paid in less than one year b.are due to be paid in 5 to 10 years c.are owed to the stockholders and will never be paid d.are due to be paid in more than one year

a.will be paid in less than one year

Which of the following accounts is a liability? a.Service Revenue b.Accounts Payable c.Wages Expense d.Accounts Receivable

b.Accounts Payable

Which of the following is not true about closing entries? a.The closing entries are dated the last day of the accounting period. b.All real accounts are closed at the end of the period. c.By closing nominal accounts at the end of the period to zero, it is possible to isolate next period's information correctly. d.There are two closing entries that update the retained earnings account.

b.All real accounts are closed at the end of the period.

The initials GAAP stand for a.General Accounting Procedures b.Generally Accepted Accounting Principles c.Generally Accepted Accounting Practices d.Generally Accepted Plans

b.Generally Accepted Accounting Principles

The asset created by a business when it makes a sale on account is termed a.accounts payable b.accounts receivable c.prepaid expense d.interest revenue

b.accounts receivable

All of the following are general-purpose financial statements except a.income statement b.cash budget c.statement of stockholders' equity d.balance sheet

b.cash budget

Entries are made to the petty cash account when a.recording shortages in the fund b.establishing the fund c.replenishing the petty cash fund d.making payments out of the fund

b.establishing the fund

Internal control does not consist of policies and procedures that a.protect assets from misuse b.guarantee the company will earn a profit c.ensure that business information is accurate d.ensure employees and managers comply with laws and regulations

b.guarantee the company will earn a profit

The debit side of an account a.can be either side of the account depending on how the accountant set up the system b.is the left side of the account c.depends on whether the account is an asset, liability, or stockholders' equity d.is the right side of the account

b.is the left side of the account

Ending inventory is made up of the oldest purchases when a company uses a.average cost b.last-in, first-out c.retail method d.first-in, first-out

b.last-in, first-out

Debts owed by a business are referred to as a.expenses b.liabilities c.accounts receivables d.stockholders' equity

b.liabilities

Under the _____ inventory method, accounting records maintain a continuously updated inventory value. a.periodic b.perpetual c.retail d.physical

b.perpetual

The primary objectives of control over inventory are a.maintaining constant observation of the inventory and reporting inventory in the financial statements b.safeguarding inventory from damage and reporting inventory in the financial statements c.reporting inventory in the financial statements d.safeguarding the inventory from damage and maintaining constant observation of the inventory

b.safeguarding inventory from damage and reporting inventory in the financial statements

A bank statement a.is a credit reference letter written by the company's bank b.shows the activity that increased or decreased the company's account balance c.shows a company the financial position of the bank as of a certain date d.is a bill from the bank for services rendered

b.shows the activity that increased or decreased the company's account balanc

Notes or accounts receivable that result from sales transactions are often called a.merchandise receivables b.trade receivables c.sales receivables d.nontrade receivables

b.trade receivables

Gently Laser Clinic purchased laser equipment for $8,500 and paid $2,250 down, with the remainder to be paid later. The correct entry would be a.Equipment2,250 Cash 2,250 b.Cash2,250 Accounts Payable 6,250 Equipment 8,500 c.Equipment8,500 Accounts Payable 6,250 Cash 2,250 d.Equipment Expense 8,500 Accounts Payable 2,250 Cash 6,250

c. Equipment8,500 Accounts Payable 6,250 Cash 2,250

The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is unearned at the end of the accounting period, the amount of the adjusting entry is a.$90,000 b.$36,000 c.$54,000 d.$18,000

c.$54,000

Which account would normally not require an adjusting entry? a.Wages Expense b.Accumulated Depreciation c.Cash d.Accounts Receivable

c.Cash

Which of the following accounts is a stockholders' equity account? a.Prepaid Insurance b.Accounts Payable c.Common Stock d.Cash

c.Common Stock

The retained earnings statement should be prepared a.before the income statement and balance sheet b.after the income statement and balance sheet c.after the income statement and before the balance sheet d.before the income statement and after the balance sheet

c.after the income statement and before the balance sheet

Adjusting entries are a.rarely needed in large companies b.the same as correcting entries c.needed to bring accounts up to date and match revenue and expense d.optional under generally accepted accounting principles

c.needed to bring accounts up to date and match revenue and expense

An element of internal control is a.journals b.controlling accounts c.risk assessment d.subsidiary ledgers

c.risk assessment

Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited a.when a credit sale is past due b.whenever a predetermined amount of credit sales have been made c.when an account is determined to be worthless d.at the end of each accounting period

c.when an account is determined to be worthless

Which one of the following below is not an element of internal control? a.monitoring b.information and communication c.risk assessment d.cost-benefit considerations

d. cost benefit consideration

What is the first account that should be listed in the post-closing trial balance? a.Accounts Payable b.Fees Earned c.Common Stock d.Cash

d.Cash

During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of goods sold is a.FIFO b.average cost c.weighted average d.LIFO

d.LIFO

Which group of accounts is composed of only assets? a.Cash, Accounts Payable, Buildings b.Unearned Revenues, Prepaid Expenses, Cash c.Accounts Receivable, Revenue, Cash d.Prepaid Expenses, Buildings, Patents

d.Prepaid Expenses, Buildings, Patents

Which of the following account groups are temporary accounts? a.Common Stock, Dividends, Retained Earnings b.Prepaid Insurance, Equipment, Fees Earned c.Cash, Dividends, Wages Payable d.Rent Revenue, Fees Earned, Miscellaneous Expense

d.Rent Revenue, Fees Earned, Miscellaneous Expense

Which one of the following reflects a weak internal control system? a.all employees must take their vacations b.all employees are well supervised c.a single employee is responsible for comparing a receiving report to an invoice d.a single employee is responsible for collecting and recording of cash

d.a single employee is responsible for collecting and recording of cash

The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is a.deferred b.matched c.prepaid d.accrued

d.accrued

The amount of cash to be reported on the balance sheet at June 30 is the a.balance as of June 30 on the bank statement b.total of the cash column in the cash receipts journal as of June 30 c.total of the cash column in the cash payments journal as of June 30 d.adjusted balance appearing in the bank reconciliation for June 30

d.adjusted balance appearing in the bank reconciliation for June 30

The cash account in the company's ledger is a(n) a.liability with a normal credit balance b.asset with a normal credit balance c.liability with a normal debit balance d.asset with a normal debit balance

d.asset with a normal debit balance

The revenue recognition principle a.is not in conflict with the cash method of accounting b.states that revenue is not recorded until the cash is received c.controls all revenue reporting for the cash basis of accounting d.determines when revenue is credited to a revenue account

d.determines when revenue is credited to a revenue account

The amount for which a promissory note is written is called the a.realizable value b.proceeds c.maturity value d.face value

d.face value

Adjusting entries affect at least one a.revenue and one stockholders' equity account b.asset and one stockholders' equity account c.revenue and the dividends account d.income statement account and one balance sheet account

d.income statement account and one balance sheet account

The receivable that is usually evidenced by a formal, written instrument of credit is a(n) a.accounts receivable b.income tax receivable c.trade receivable d.note receivable

d.note receivable

What is the purpose of the adjusted trial balance? a.to verify that the net income (loss) is correctly reported b.to verify that all of the adjusting entries have been posted c.to verify that no adjusting journal entry has been omitted d.to verify that the debits and credits balance

d.to verify that the debits and credits balance

Once the adjusting entries are posted, the adjusted trial balance is prepared to a.verify that the net income correctly flows into the statement of stockholders' equity from the income statement b.verify the correct flow of accounts into the financial statements c.verify that the net income (loss) is correct for the period d.verify that the debits and credits are in balance

d.verify that the debits and credits are in balance