EXAM 1 (ACCT 2301)

Cash basis accounting means

(a) Cash receipts minus cash expenses (b) Does not include credit sales and expenses incurred on credit. (c) Does not involve depreciation expense (d) All of the above. D

If a company debits depreciation expense and credits accumulated depreciation for $1,000 instead of $100 by mistake, then

(a) Expense is overstated by 900 (b) Net income is understated understated by 900 (c) No effect on revenues rvenues is not in this adjusting entry (d) Assets are understated by 900 because accum depr is contra asset (e) No effect on Liabilities No liab in this adusting journal entry (f) Stockholders equity is overstated UNDER stated (g) All of the above except (f) All of the above G

Accrual basis accounting

(a) Includes accounts receivable and accounts payable for the year. (b) Includes depreciation expense (c) Does not include deferred revenue (no services rendered). (d) All of the above D

If a company's expenses are overstated

(a) Net income is understated (b) Net income is overstated (c) Neither is true A

If a company forgets the adjusting entry of debit to rent expense and credit to prepaid rent then expenses are

(a) Understated (b) Overstated (c) No effect A

If a company forgets the adjusting entry of debit to rent expense and credit to prepaid rent then assets are

(a) Understated (b) Overstated (c) No effect B

If a company forgets the adjusting entry of debit to rent expense and credit to prepaid rent then net income is

(a) Understated (b) Overstated (c) No effect B

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 6,000/6 months = 1,000/month used 1,000/month x 5 months 5,000 Used Up = 1,000 B

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 Beg RE + NI - Div = End Re Beg RE = 80,000 - 24,000 = 105,000 Beg RE = 49,000 B

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 C

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 Closing entries is to zero them out D

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 SL(straight line) Depr = (Cost - Salvage)/EUL(estimated useful life) in yrs = (140,000 - 0) / 7 yrs.= 20,000/yr C

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 Debit (Dr) & Credit (Cr) D

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 Debit (Dr) & Credit (Cr) C

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. Beg RE + (Rev-Exp) - Div = End Retained Earnings D

A 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 A

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

Which of the following accounts would appear in the Balance Sheet debit column?

A) Unearned service revenue Liab B) Depreciation expense Exp C) Service revenue earned Rev D) Prepaid insurance Asset Assets = Liab + SE D

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. Beg RE + NI - Div = End RE Beg RE + (4,500 - 1,600) - 1,350 = 9,000 Beg RE = 7,450 D

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 Change in RE = NI - Div = (120,000 - 50,000) - 4,000 = 66,000 A

On Oct. 1, Basher Company received $1,000 from a customer as 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

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

Which of the individuals listed below 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

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

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

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. A

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 E

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

What accounts are increased with a DEBIT?

Assets, Expenses, Dividends

Which accounts are Permanent accounts?

Assets, Liabilities, Contributed Capital, Retained Earnings

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?

Beg RE + NI - Div = End RE 58,000 + 75,000 - div = 60,000 So Dividend = 73,000

What are the classifications of accounts?

Current Assets, Long-Term Assets, Contra Assets, Current Liabilities, Long-Term Liabilities, Contributed Capital, Retained Earnings, Dividends, Revenues, Expenses

Who is the major accounting standard-setting body in the United States?

Financial Accounting Standards Board (FASB)

What does GAAP stand for?

Generally Accepted Accounting Principles

Who is the major accounting standard-setting body for International Reporting?

International Accounting Standards Board (IASB)

What accounts are increased with a CREDIT?

Liabilities, Contributed Capital, Retained Earnings, Revenues

What are the major functions of Financial Accounting?

Measuring Businesses Activities and Communicating to Users

What permanent account is included in the closing journal entries?

Retained Earnings

What is the equation for the Income Statement?

Revenues - Expenses = Net Income (OR Net Loss if Expenses > Revenues)

Which accounts are Temporary accounts?

Revenues, Expenses, Dividends

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 Net income in 2015?

a. $10 b. $15 c. $20 d. $75 e. $60 Net Inc = Rev 75 - 60 = $15 B

Given: Assets-Jan.1,2015 $320 Liabilities- Jan. 1, 2015 $140 Assets-Dec. 31, 2015 $350 Revenues in 2015 $75 Expenses in 2015 $60 Net Income in 2015 $15 What are " Liabilities" at December 31, 2015 if no withdrawals or investments were made during the year?

a. $125 b. $110 c. $170 d. $155 at 12/31/15 Assets = Liab + SE (End) at 1/1/15 A = Liab (Beg) + SE (Beg) 320 = 140 + SE so Beg SE =180 Beg SE + NI - Div +Issued Stk = End SE 180 + 15 - 0 + 0 = End SE of 195 At 12/31/15 A = L + SE so 350 = L + 195 so L = 155 D

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 24000/24 months = 100/month gets used 100/month x 5 months = 500 B

After initially recording a transaction, the data are then copied or posted to which of the following?

a. Chart of Accounts b. Ledger c. Trial Balance d. Journal B

An example of a contra- asset account is:

a. Prepaid insurance b. Income summary c. Accumulated depreciation d. Taxes payable e. Unearned revenue Reduces Total Assets C

Which of the following financial statements illustrates the fundamental accounting equation?

a. The Balance Sheet b. The Income Statement c. The Statement of Cash Flows d. The Statement of Owners Equity e. The Statement of Retained Earnings A

Which of the following accounts is increased with a debit?

a. Unearned revenue--liab b. Prepaid expense c. Service revenue--Rev d.Retained earnings--SE B

How to find Book value

cost - accumulated depreciation = Book Value (BV)