AC 210 Test 1

Kirby, Inc. borrows $16 million from its bank. It then uses this money to buy equipment. How do these two transactions affect the company's accounting equation? A) Assets and liabilities both increase by $16 million. B) Assets increase by $8 million and liabilities decrease by $8 million. C) Assets increase by $16 million, liabilities increase by $8 million, and stockholders' equity increases by $8 million. D) Assets remain unchanged and liabilities increase by $16 million.

A) Assets and liabilities both increase by $16 million.

The Noble Corp. installs $75,000 of equipment, paying $25,000 cash and promising to pay the remaining $50,000 in 6 months. What is the impact to this transaction on the accounting equation? A) Total assets are increased by $50,000. B) Current assets are increased by $50,000. C) Total assets are increased by $75,000. D) Current assets are increased by $75,000.

A) Total assets are increased by $50,000.

Doug's Doodle Shop, specializing in dog supplies, signs a contract with a pet groomer. Next month, the groomer will begin leasing a portion of Doug's store and provide grooming services. The signing of the contract: A) has no effect on the accounting equation. B) increases assets. C) increases liabilities. D) decreases stockholders' equity.

A) has no effect on the accounting equation.

Sue Shells, Inc. pays back $200,000 on a loan it had obtained earlier from a bank. A) Assets decrease by $200,000; liabilities and stockholders' equity are both unchanged. B) Assets decrease by $200,000, liabilities decrease by $200,000, and stockholders' equity is unchanged. C) Assets decrease by $200,000 and liabilities increase by $200,000. D) Assets decrease by $200,000, liabilities are unchanged, and stockholders' equity decreases by $200,000.

B) Assets decrease by $200,000, liabilities decrease by $200,000, and stockholders' equity is unchanged.

Spin Co. has $52,000 in its Cash account, $20,000 in its Inventory account, and $12,000 in its Notes Payable (short-term) account. If Spin's only other account is Common Stock, what is the balance of that account? A) $20,000. B) $84,000. C) $60,000. D) $44,000.

C) $60,000

A business can obtain financing by issuing stock or borrowing from third parties, such as banks. What are the balance sheet effects of issuing stock to obtain cash? A) No effect on assets; Decrease liabilities; Increase stockholders' equity B) Increase assets; Increase liabilities; Increase stockholders' equity C) Increase assets; No effect on liabilities; Increase stockholders' equity D) Increase assets; Increase liabilities; No effect on stockholders' equity

C) Increase assets; No effect on liabilities; Increase stockholders' equity

1. A company's financial records at the end of the year including the following amounts: Cash $ 70,000 Accounts receivable 28,000 Supplies 4,000 Accounts payable 10,000 Notes payable 5,000 Retained earnings 17,000 Common stock 40,000 Service revenue 61,000 Wages expense 8,000 Advertising expense 5,000 Rent expense 10,000 What is the amount of net income on the income statement for the year? a. $47,000. b. $88,000. c. $38,000. d. $30,000.

C. $38,000

Retained Earnings represents: a. the amount invested in the entity by the owners. b. cash that is available to pay dividends to stockholders. c. cumulative net income that has not been distributed to owners as dividends. d. the total fair market value of the company on that date. e. total revenues in excess of expenses for that year.

C. cumulative net income that has not been distributed to owners as dividends.

Which account is affected by recording the buying of goods on credit? A) Cash B) Retained Earnings C) Common Stock D) Accounts Payable

D) Accounts Payable

Danny Company purchased supplies using cash. What is the effect on Danny's balance sheet? A) No effect on total assets; decrease total liabilities; increase total stockholders' equity B) Increase total assets; increase total liabilities; increase total stockholders' equity C) Decrease total assets; no effect on total liabilities; increase total stockholders' equity D) No effect on total assets; no effect on total liabilities; no effect on total stockholders' equity

D) No effect on total assets; no effect on total liabilities; no effect on total stockholders' equity

Assets: a. Represent the amounts earned by a company. b. Must equal the liabilities of a company. c. Must equal the stockholders' equity of the company. d. Represent the resources presently controlled by a company.

D. Represent the resources presently controlled by a company.

The following activities occurred in 2019: 1. Performed advertising services on account, $61,250. 2. Received cash payments for services performed in 2018 of $11,700. 3. Received deposits from customers for advertising services to be performed in 2020, $3,400. 4. Made payments to suppliers on account, $5,220. 5. Incurred $50,100 of operating expenses; $43,400 was paid in cash and $6,700 was on account and unpaid as of the end of the year. What is the amount of revenue that will be reported on the income statement for the year ended December 31, 2019 assuming that the company uses the accrual basis of accounting? a. $61,250 b. $56,030 c. $64,650 d. $43,400

a. $61,250

Which of the following would not be reported on the income statement? a. Cost of land purchased with cash for future use. b. Rent expense incurred and paid for in the current reporting period. c. Utilities expense incurred in the current period that won't be paid until the following period. d. Revenue for services provided to customers who promise to pay in the next period.

a. Cost of land purchased with cash for future use.

*If Boward Co. has Common Stock of $5,000, total assets of $85,000, and total liabilities of $35,000, its Retained Earnings equals:* a. $10,000 b. $45,000 c. $50,000 d. $55,000

b. $45,000

If an apartment leasing company receives the rent for January 2019 from a tenant in December 2018, this will be reported by the leasing company as: a. Revenue in 2018. b. A liability in 2018. c. An expense in 2018. d. Stockholders' equity in 2018.

b. A liability in 2018.

Gumbo Shrimp, Inc. started the month of June with supplies on hand of $2,000. It purchased $800 of supplies. At the end of June, $1,300 of supplies were left. What adjusting journal entry should be made on June 30? a. Debit Supplies Expense for $1,300 and credit Supplies for $1,300 b. Debit Supplies Expense for $1,500 and credit Supplies for $1,500 c. Debit Supplies for $800 and credit Cash for $800 d. Debit Supplies for $700 and credit Supplies Expense for $700 e. Debit Supplies for $1,300 and credit Supplies Expense for $1,300

b. Debit Supplies Expense for $1,500 and credit Supplies for $1,500

On June 30, a company purchased 1 year of insurance coverage which started immediately, paying cash of $2,400. The company's year end is 12/31. Choose the true statement. a. On June 30, cash would be debited for $2,400. b. On the Income Statement for the year, insurance expense will be $1,200. c. On the Balance Sheet at the end of the year, prepaid insurance will be $2,400. d. On the Balance Sheet at the end of the year, prepaid insurance will be a non-current asset.

b. On the Income Statement for the year, insurance expense will be $1,200.

A net loss for a period arises when: a. Assets are greater than liabilities. b. Revenues are less than expenses. c. Liabilities are greater than stockholder's equity. d. Revenues are greater than expenses.

b. Revenues are less than expenses.

If an expense has been incurred but will be paid later, then: a. nothing is recorded on the financial statements. b. a liability account is created or increased and an expense is recorded. c. an asset account is decreased or eliminated and an expense is recorded. d. a revenue and an expense are recorded.

b. a liability account is created or increased and an expense is recorded.

*Which of the following statements about financial accounting is correct?* a. Financial accounting reports are used primarily by employees to make business decisions related to production. b. Financial accounting reports are used primarily by management to understand whether a product line should be discontinued. c. Financial accounting reports are primarily prepared to provide information for external decision makers. d. Financial accounting reports primarily contain detailed internal records of the company.

c. Financial accounting reports are primarily prepared to provide information for external decision makers.

3. GBE Company paid $12,000 cash for insurance in March that provides coverage for six months, from July through December. How much expense should be recognized in March to be in accordance with generally accepted accounting principles? a. $2,000 b. $12,000 c. No expense should be recognized in March. d. $6,000

c. No expense should be recognized in March.

Which of the following September transactions would impact the September income statement? a. Issuing stock to new shareholders b. Collecting cash related to an account receivable c. Providing services d. Purchasing equipment

c. Providing services

The accrual adjustment recorded to adjust for revenues earned but not yet collected will cause: a. liabilities to increase. b. assets to decrease. c. assets to increase. d. liabilities to decrease.

c. assets to increase.

The Smith Corporation paid $23,000 in advance for six months of rent. Which of the following records this transaction? a. debit Cash and credit Prepaid Rent for $23,000. b. debit Rent Expense and credit Cash for $23,000. c. debit Prepaid Rent and credit Cash for $23,000. d. debit Cash and credit Unearned Rent for $23,000.

c. debit Prepaid Rent and credit Cash for $23,000.

The adjusting entry to estimate depreciation expense for a period: a. Increases assets and decreases liabilities b. Decreases assets and increases equity c. Decreases assets and increases liabilities d. Decreases assets and decreases equity e. Results in no change in assets, liabilities, or equity.

d. Decreases assets and decreases equity

During May, Robinson Corporation billed a customer $3,000 for services performed during May. During June, Robinson Corporation collected the $3,000. Which of the following statements about this transaction is correct? a. $1,500 of revenue should be recorded in May and $1,500 in June b. No revenue should be recorded for these events because they relate only to the balance sheet c. $3,000 in revenues should be recorded in June d. $3,000 of revenue should be recorded in May

d. $3,000 of revenue should be recorded in May

The income statement: a. reports the assets, liabilities, and stockholders' equity of a company on a given date. b. reports cumulative earnings that have not been distributed to stockholders. c. reports the amount of profit distributed to owners during the period. d. reports the amount of revenues earned and expenses incurred during the period.

d. reports the amount of revenues earned and expenses incurred during the period.

Which of the following items would appear on a balance sheet? a. Wages Expense and Accounts Payable. b. Service Revenue and Retained Earnings. c. Supplies Expense and Cash. d. Sales Revenue and Equipment. e. Common Stock and Notes Payable.

e. Common Stock and Notes Payable.