Exam 1 Multiple Choice Questions (CH 2-4)

Before posting a payment of $5,000, the Accounts Payable of Chola Corporation had a normal balance of $18,000. The balance after posting this transaction was: A. $13,000 B. $5,000 C. $23,000 D. Cannot be determined

A ($13,000)

Which of the following statements about a journal is false? A. It is not a book of original entry. B. It provides a chronological record of transactions. C. It helps to locate errors because the debit and credit amounts for each entry can be readily compared. D. It discloses in one place the complete effect of a transaction.

A (It is not a book of original entry.)

Which types of accounts will appear in the post-closing trial balance? A. Permanent (real) accounts. B. Temporary (nominal) accounts. C. Accounts shown in the income statement columns of a worksheet. D. None of these answer choices is correct.

A (Permanent accounts)

An account that will have a zero balance after closing entries have been journalized and posted is: A. Service Revenue. B. Supplies. C. Prepaid Insurance. D. Accumulated Depreciation - Equipment.

A (Service Revenue)

Accumulated Depreciation is: A. a contra asset account. B. an expense account. C. a stockholders' equity account. D. a liability account

A (a contra asset account)

Current assets are listed: A. by expected conversion to cash. B. by importance. C. by longevity. D. alphabetically.

A (by expected conversion to cash)

The trial balance shows Supplies $0 and Supplies Expense $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is: A. debit Supplies $800 and credit Supplies Expense $700. B. debit Supplies Expense $800 and credit Supplies $800. C. debit Supplies $700 and credit Supplies Expense $700. D. debit Supplies Expense $700 and credit Supplies $700.

A (debit Supplies $800 and credit Supplies Expense $700)

Adjustments for unearned revenues: A. decrease liabilities and increase revenues. B. have an assets-and-revenues-account relationship. C. increase assets and increase revenues. D. decrease revenues and decrease assets.

A (decrease liabilities and increase revenues)

The principle or assumption dictating that efforts (expenses) should be recognized in the period in which a company consumes assets or incurs liabilities to generate revenue is the: A. expense recognition principle. B. cost assumption. C. time period assumption. D. revenue recognition principle

A (expense recognition principle)

A trial balance: A. is a list of accounts with their balances at a given time. B. proves the mathematical accuracy of journalized transactions. C. will not balance if a correct journal entry is posted twice. D. proves that all transactions have been recorded.

A (is a list of accounts with their balances at a given time)

The revenue recognition principle states that: A. revenue should be recognized in the accounting period in which a performance obligation is satisfied. B. expenses should be matched with revenues. C. the economic life of a business can be divided into artificial time periods. D. the fiscal year should correspond with the calendar year

A (revenue should be recognized in the accounting period in which a performance obligation is satisfied)

Which of the following statements about an account is true? A. The right side of an account is the debit, or increase, side. B. An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. C. There are separate accounts for specific assets and liabilities but only one account for stockholders' equity items. D. The left side of an account is the credit, or decrease, side.

B (An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items.)

Which of the following is not part of the recording process? A. Analyzing transactions. B. Preparing an income statement. C. Entering transactions in a journal. D. Posting journal entries.

B (Preparing an income statement)

The order of the accounts in the ledger is: A. assets, revenues, expenses, liabilities, common stock, dividends. B. assets, liabilities, common stock, dividends, revenues, expenses. C. common stock, assets, revenues, expenses, liabilities, dividends. D. revenues, assets, expenses, liabilities, common stock, dividends.

B (assets, liabilities, common stock, dividends, revenues, expenses.)

When a net loss has occurred, Income Summary is: A. debited and Retained Earnings is credited. B. credited and Retained Earnings is debited. C. debited and Dividends is credited. D. credited and Dividends is debited.

B (credited and Retained Earnings is debited)

Adjustments for accrued revenues: A. have a liabilities-and-revenues-account relationship. B. have an assets-and-revenues-account relationship. C. decrease assets and revenues. D. decrease liabilities and increase revenues.

B (have an assets-and-revenues account relationship)

The trial balance of Stevens Corporation had accounts with the following normal balances: Cash $5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages Expense $40,000, Rent Expense $10,000, Common Stock $42,000, Dividends $13,000, and Equipment $61,000. In preparing a trial balance, based on these amounts only, the total in the debit column is: A. $116,000. B. $118,000. C. $129,000. D. $131,000.

C ($129,000)

The closing process involves separate entries to close (1) expenses, (2) dividends, (3) revenues, and (4) income summary. The correct sequencing of the entries is: A. (4), (3), (2), (1). B. (1), (2), (3), (4). C. (3), (1), (4), (2). D. (3), (2), (1), (4).

C ((3), (1), (4), (2))

On December 31, Kevin Hartman Company correctly made an adjusting entry to recognize $2,000 of accrued salaries payable. On January 8 of the next year, total salaries of $3,400 were paid. Assuming the correct reversing entry was made on January 1, the entry on January 8 will result in a credit to Cash $3,400 and the following debit(s): A. Salaries and Wages Payable $1,400 and Salaries and Wages Expense $2,000. B. Salaries and Wages Payable $2,000 and Salaries and Wages Expense $1,400. C. Salaries and Wages Expense $3,400. D. Salaries and Wages Payable $3,400.

C (Salaries and Wages Expense $3,400.)

Which of the following statements is incorrect concerning the adjusted trial balance? A. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. B. The adjusted trial balance provides the primary basis for the preparation of financial statements. C. The adjusted trial balance lists the account balances segregated by assets and liabilities. D. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.

C (The adjusted trial balance lists the account balances segregated by assets and liabilities)

A trial balance will not balance if: A. correct journal entry is posted twice. B. the purchase of supplies on account is debited to Supplies and credited to Cash. C. a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100. D. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

C (a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100.)

The purchase of supplies on account should result in: A. a debit to Supplies Expense and a credit to Cash. B. a debit to Supplies Expense and a credit to Accounts Payable. C. a debit to Supplies and a credit to Accounts Payable. D. a debit to Supplies and a credit to Accounts Receivable.

C (a debit to Supplies and a credit to Accounts Payable)

A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as: A. property, plant, and equipment. B. land expense. C. a long-term investment. D. an intangible asset

C (a long-term investment)

The correct order of presentation in a classified balance sheet for the following current assets is: A. accounts receivable, cash, prepaid insurance, inventory. B. cash, inventory, accounts receivable, prepaid insurance. C. cash, accounts receivable, inventory, prepaid insurance. D. inventory, cash, accounts receivable, prepaid insurance.

C (cash, accounts receivable, inventory, prepaid insurance)

Cash of $100 received at the time the service was performed was journalized and posted as a debit to Cash $100 and a credit to Accounts Receivable $100. Assuming the incorrect entry is not reversed, the correcting entry is: A. debit Service Revenue $100 and credit Accounts Receivable $100. B. debit Accounts Receivable $100 and credit Service Revenue $100. C. debit Cash $100 and credit Service Revenue $100. D. debit Accounts Receivable $100 and credit Cash $100.

C (debit Cash $100 and credit Service Revenue $100)

Rivera Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows: A. Debit Depreciation Expense and Credit Accumulated Dep - Rivera Company B. Debit Depreciation Expense and Credit Equipment C. Debit Depreciation Expense and Credit Accumulated Depreciation—Equipment) D. Debit Equipment Expense and Credit Accumulated Depreciation—Equipment

C (debit Depreciation Expense and credit Accumulated Depreciation—Equipment)

Adjustments for prepaid expenses: A. decrease assets and increase revenues. B. decrease expenses and increase assets. C. decrease assets and increase expenses. D. decrease revenues and increase assets.

C (decrease assets and increase expenses)

Debits: A. increase both assets and liabilities. B. decrease both assets and liabilities. C. increase assets and decrease liabilities. D. decrease assets and increase liabilities.

C (increase assets and decrease liabilities.)

A ledger: A. contains only asset and liability accounts. B. should show accounts in alphabetical order. C. is a collection of the entire group of accounts maintained by a company. D. is a book of original entry.

C (is a collection of the entire group of accounts maintained by a company)

The proper order of the following steps in the accounting cycle is: A. prepare unadjusted trial balance, journalize transactions, post to ledger accounts, journalize and post adjusting entries. B. journalize transactions, prepare unadjusted trial balance, post to ledger accounts, journalize and post adjusting entries. C. journalize transactions, post to ledger accounts, prepare unadjusted trial balance, journalize and post adjusting entries. D. prepare unadjusted trial balance, journalize and post adjusting entries, journalize transactions, post to ledger accounts.

C (journalize transactions, post to ledger accounts, prepare unadjusted trial balance, journalize and post adjusting entries)

The time period assumption states that: A. companies must wait until the calendar year is completed to prepare financial statements. B. companies use the fiscal year to report financial information. C. the economic life of a business can be divided into artificial time periods. D. companies record information in the time period in which the events occur

C (the economic life of a business can be divided into artificial time periods)

The expanded accounting equation is: A. Assets + Liabilities = Common Stock + Retained Earnings + Revenues + Expenses + Dividends. B. Assets = Liabilities + Common Stock + Retained Earnings + Revenues − Expenses + Dividends. C. Assets = Liabilities − Common Stock − Retained Earnings − Revenues − Expenses − Dividends. D. Assets = Liabilities + Common Stock + Retained Earnings + Revenues − Expenses − Dividends.

D (Assets = Liabilities + Common Stock + Retained Earnings + Revenues − Expenses − Dividends.)

When Ramirez Company purchased supplies worth $5,000, it incorrectly recorded a credit to Supplies for $5,000 and a debit to Cash for $5,000. Before correcting this error: A. Cash is overstated and Supplies is overstated. B. Cash is understated and Supplies is understated. C. Cash is understated and Supplies is overstated. D. Cash is overstated and Supplies is understated.

D (Cash is overstated and Supplies is understated)

Which of the following statements about the accrual basis of accounting is false? A. Events that change a company's financial statements are recorded in the periods in which the events occur. B. Revenue is recognized in the period in which services are performed. C. This basis is in accordance with generally accepted accounting principles. D. Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.

D (Revenue is recorded only when cash is received, and expense is recorded only when cash is paid)

Adjusting entries are made to ensure that: A. expenses are recognized in the period in which they are incurred. B. revenues are recorded in the period in which services are performed. C. balance sheet and income statement accounts have correct balances at the end of an accounting period. D. All the responses above are correct.

D (all responses are right)

Accounts that normally have debit balances are: A. assets, expenses, and revenues. B. assets, expenses, and common stock. C. assets, liabilities, and dividends. D. assets, dividends, and expenses.

D (assets, dividends, and expenses.)

In a classified balance sheet, assets are usually classified using the following categories: A. current assets; long-term assets; property, plant, and equipment; and intangible assets. B. current assets; long-term investments; property, plant, and equipment; and tangible assets. C. current assets; long-term investments; tangible assets; and intangible assets. D. current assets; long-term investments; property, plant, and equipment; and intangible assets.

D (current assets; long-term investments; property, plant, and equipment; and intangible assets)

A revenue account: A. is increased by debits. B. is decreased by credits. C. has a normal balance of a debit. D. is increased by credits.

D (is increased by credits.)

All of the following are required steps in the accounting cycle except: A. journalizing and posting closing entries. B. preparing financial statements. C. journalizing the transactions. D. preparing a worksheet.

D (preparing a worksheet)

Each of the following is a major type (or category) of adjusting entries except: A. prepaid expenses. B. accrued revenues. C. accrued expenses. D. recognized revenues.

D (should be unearned revenues)

Posting: A. normally occurs before journalizing. B. transfers ledger transaction data to the journal. C. is an optional step in the recording process. D. transfers journal entries to ledger accounts.

D (transfers journal entries to ledger accounts.)