Accounting Exam 1

On October 1, Metz Industries had an Accounts Payable balance of $30,000. During October, the company made cash payments on account of $25,000 and October 31, the Accounts Payable balance is $15,000. Determine the amount of purchases on account for the month of October.

$10,000

A corporation purchased a $40,000 delivery truck by paying $4,000 cash and signing a $36,000 note payable. Immediately prior to this transaction the corporation had liabilities of $52,000 and owners' equity $23,000. What is the total amount of the corporation's assets after this transaction has been recorded?

$111,000

On December 31, 2011, Wesam Company had a $61,275 balance in Accounts Receivable. During the year 2012. the company collected $102,050 from its credit customers. The December 31, 2012 balance of the Accounts Receivable was $85,325. Determine the amount of Wesam's Company sales on account for 2012.

$126,100

The ending balance of Accounts Receivable was $12,000. Services billed to customers during the year were $21,500 and collections on account from customers were $23,600. What was the beginning balance of Accounts Receivable?

$14,100

On September 1,2010, Baxter Inc. reported Retained Earnings of $136,000. During the month of September, Baxter generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the balance in Retained Earnings on September 31, 2010.

$142,000 credit

A company has twice as much owners' equity as it does liabilities. Total liabilities are $50,000, what amount of assets are owned by the company?

$150,000

During its first month of operations, Stephen Company borrowed $80,000 from a bank, and then purchased equipment costing $40,000 by paying cash of $20,000 and signing a long term note for the remaining amount. During the month, the company also purchased supplies for $30,000 on credit, performed services for clients for $40,000 on account. paid $15,000 cash for accounts payable, and received $10,000 from its credit customers. What is the company's amount of total assets at the end of the month?

$155,000

On January 1, 2016, Kroger's company Stockholder's Equity account had a balance of $23,500. During the year 2016, the company has issued additional stock for $6,000, generated revenues of $92,200, and recorded expenses for $64,100. They also paid dividends to their shareholders. If the Stockholders' Equity had a balance of $55,600 on December 31, 2016, determine the amount of dividends paid by Kroger Company during 2016.

$2,000

Fran Company has beginning equity of $257,000, net income of $51,000, dividends of $40,000 and investments by owners in exchange for stock of $6,000. Its ending equity is:

$274,000

Jeffery Company's Office Supplies account shows a beginning balance of $1600 and an ending balance of $1400. If the office supplies expense for the year is $3100, calculate total amount of office supplies purchased during the period?

$2900

Tesser Company's Accounts Payable had a balance of $3,700 on September 2, 2011, and a balance of $4500 on September 30,2011. During the month of September 2011, the company made total payments of $32,800 on accounts payables. What must have been their total purchases on account during September 2011?

$33,600

Dulany Company's Accounts Payable had a balance of $95,300 on December 31, 2011, and a balance of $87,900 on December 31, 2012. During the year, 2012, the company made cash payments for accounts payable of $53,700. Determine the company's purchases on account for the year 2012.

$46,300

A company's balance sheet shows: Cash $22,000, Accounts Receivable $16,000, office equipment $50,000 and Accounts Payable $17,000. What is the amount of stockholders' equity?

$71,000

Depreciation Expense for Period

(cost - salvage value) / useful life

An adjusted trial balance

- lists all accounts and their balances at a particular date after updating account balances for adjusting entries - is used to prepare the financial statements - includes balances for revenues, expenses and dividends

On April 1,2016, a company paid $1350 premium on a three year insurance policy with benefits beginnings on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2016?

337.50

Sole Proprietorship

A business owned by one person

Partnership

A business owned by two or more people

Ethics

A code or moral system that provides criteria for evaluating right and wrong behavior

Verifiability

A consensus among different measurers

Which of the following direct effects on the fundamental accounting equation is not possible as a result of transactional analysis?

A decrease in a liability and an increase in an asset

Statement of Cash Flows

A financial statement that measures activities involving cash receipts and cash payments over an interval of time

Balance sheet

A financial statement that presents the financial position of the company on a particular date

Income statement

A financial statement that reports the company's revenues and expenses over an interval of time

statement of stockholders' equity

A financial statement that summarizes the changes in stockholders' equity over an interval of time

A trial balance can be described as

A list of general ledger account titles and balances at a certain date

Which of the following errors, each considered individually, would cause a trial balance to be out of balance?

A payment of $148 to a creditor was posted as a debit to Accounts Payable for $148 and a debit of $148 to cash.

Monetary Unit Assumption

A unit or scale of measurement can be used to measure financial statement elements

Faithful representation

Accounting information that is complete, neutral, and free from error

Revelance

Accounting information that possesses confirmatory value and/or predictive value, and that is material

A trial balance can best be explained as a list of

All accounts and their balances at a particular date.

Economic Entity Assumption

All economic events with a particular economic entity can be identified

Temporary accounts

All revenue, expense, and dividend accounts; account balances are maintained for a single period and then closed (or zeroed out) and transferred to the balance of the Retained Earnings account at the end of the period.

Liabilities

Amounts owed to creditors

contra account

An account with a balance that is opposite, or "contra," to that of its related accounts.

Corporation

An entity that is legally separate from its owners

Financial Accounting Standards Board (FASB)

An independent, private body that has primary responsibility for the establishment of GAAP in the United States.

International Accounting Standards Board (IASB)

An international accounting standard-setting body responsible for the convergence of accounting standards worldwide.

which of the following is not a step in the process of measuring external transactions?

Analyze the impact of the transaction on the accounting equation Record the transaction using debits and credits Post the transaction to the T-account in the general ledger All of the above are steps in the measurement process of external transactions^

The resources of a company are referred to as:

Assets

Expanded Accounting Equation

Assets = Liabilities + Common Stock + Revenues - Expenses - Dividends

Accounting Equation

Assets = Liabilities + Owner's Equity

Basic Accounting Equation

Assets = Liabilities + Stockholders' Equity

On May 31, payment is made for an equipment that was purchased in April on account. Which of the following will occur as a result of the May transaction?

Assets decrease and liabilities decrease

Which financial statement shows that a company's resources equal claims to those resources?

Balance sheet

Which of the following reflect the balances of deferred revenue prior to adjustment?

Balance sheet accounts are overstated and income statement accounts are understated.

Equity includes

Capital stock, dividends, revenues, and expenses

Enhancing Characteristics

Comparability, verifiability, timeliness, and understandability

Constraint

Cost effectiveness (benefits exceed costs)

Expenses

Costs of providing products and services and other business activities during the current period

Providing services to customers on account for $100 is recorded as

Debit Accounts Receivable $100 Credit Service Revenue $100

On April 5,2019, Pittsburgh Company performed a service for which payment is not received until June 30,2019. On April 5,2019, Pittsburgh Company should

Debit Accounts Receivable and credit Service Revenue

On September 1, 2019, Rockwell Company collected six months of rent in advance from its tenant Fintech Company. The amount collected was $12,000 and recorded as Deferred Revenue on September 1. Assuming Rockwell prepares its financial statements at the end of each calendar year, what adjusting entry is required on December 31, 2019?

Debit Deferred Revenue $8000 Credit Rent Revenue $8000

On November 1, 2021, a company receives cash of $6,000 from a customer for services to be provided evenly over the next six months. Deferred revenue is recorded at that time. Which of the following adjusting entries is needed on December 31, 2021?

Debit Deferred Revenue for $2,000 and credit service revenue for $2,000

On November 1, Williams Company paid $9,000 to Pittsburgh Company for 6 months of insurance coverage beginning November 1 and recorded the amount as Prepaid Insurance. If financial statements are prepared on December 31, the adjusting entry to be made by Williams is;

Debit Insurance Expense $3000 Credit Prepaid Insurance $3000

Ambassador Hotels purchases one year of fire insurance coverage on December 1 for $24,000 ($2,000 per month), debiting Prepaid Insurance. On December 31, Ambassador would record the following year-end adjusting entry:

Debit Insurance Expense 2,000 credit prepaid insurance 2,000

A customer signed a three-month note payable to Bank of Pittsburgh in the amount of $5000 on November 1. The notes requires the customer to pay interest at 12%. Which of the following will be part of the journal entry made by the bank on December 31.

Debit Interest Receivable 100

During January 2011, Wells Corporation purchased $80,000 of inventory: they paid one- fourth in cash, and signed a note for the remaining balance. This transaction will be recorded:

Debit Inventory $80,000 Credit Cash $20,000 Credit Notes Payable $60,000

Spagnola Company's weekly payroll of $25,00 is paid every Friday for a 5 day workweek. Assume that the last day of the fiscal year falls on Wednesday. Which of the following journal entries would be made on the first Friday following the year end

Debit Salaries Expense $15000 and Salaries Payable $15000 and credit cash $25000

A company pays two office employees each Friday at the rate of $100 per day for each employee for a five day week that begins on Monday. If the monthly accounts period ends on Tuesday and the employees worked on both Monday and Tuesday, the month- end adjusting entry is:

Debit Salaries Expense $400 and credit Salaries Payable $400

A company owes employee salaries of $5,000 on December 31 for work completed in the current year, but the company doesn't plan to pay those salaries until the following year. What adjusting entry, if any, is needed on December 31?

Debit Salaries Expense for $5,000; credit cash for $5,000

The purchase of supplies with cash would be recorded as

Debit Supplies, Credit Cash

The payment of utilities of the current month would be recorded as

Debit Utilities Expense, Credit Cash

On June 1, 2012, Marino Corporation received $1800 as advance payment for 12 months' advertising. The receipt was recorded as a credit to Deferred Revenue. What adjusting entry is required on December 31, 2012?

Debit deferred revenue $1050 and credit advertising revenue $1050

At the beginning of the period, Stanger Corporation had $400 of supplies on hand. During the period, it purchased $900 of supplies and at the end of the period, Stanger determined that only $800 of supplies were still on hand. What adjusting entry should Stanger Corporation make at the end of the period?

Debit supplies expense for $500 and credit supplies for $500

Paying a previously recorded invoice from a supplier (of supplies) involves:

Debiting Accounts Payable and crediting Cash

Conceptual Framework of Accounting: Overriding Objective

Decision Usefulness

Divdends

Distributions to stockholders, typically in the form of cash

closing entries

Entries that transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account

Accounting Equation (Defined)

Equation that shows a company's resources (assets) equal creditors' and owners' claims to those resources (liabilities and stcokholders' equity)

On January 17, Papa's Pizza signs a contract with Bug Zappers for exterminating services related to a recent sighting of cockroaches in the restaurant. Papa's pays for the extermination service on January 29, and Bug Zappers sprays for bugs on February 7. On which date should Papa's Pizza record the extermination expense?

February 7 (date of extermination service)

Financial accounting and reporting standards in the United States are established primarily by the

Financial Accounting Standards Board (FASB)

Cost constraint

Financial accounting information is provided only when the benefits of doing so exceed the costs

Based on the introductory section of this chapter, which course is most like financial accounting?

Foreign language

Accounting Cycle

Full set of procedures used to accomplish the measurement/communication process of financial accounting

The body of rules and procedures that guide the measurement and communication of financial accounting information is known as

Generally Accepted Accounting Principles (GAAP)

What is a benefit to a career in accounting?

High salaries Wide range of job opportunities High demand for accounting graduates

Which financial statement conveys a company's ability to generate profits in the current period?

Income statement

Which of the following causes the accounting equation not to balance

Increase assets, increase liabilities

Chaffin Consulting performed consulting services during June 2012 on account and collections for these services were not received until August 2012. What effect did performing these services on June 2012 have on the accounting equation?

Increase in assets and increase in stockholders' equity

Timeliness

Information being available to users early enough to allow them to use it in the decision process

Which of the following transactions causes and increase in total assets?

Issue common stock in exchange for cash

Why does financial accounting have a positive impact on our society?

It allows investors and creditors to redirect their resources to successful companies and away from unsuccessful companies

In the language of accounting, the term "debit" always means

Left hand side

Debit

Left side of an account. Indicates an increase to asset, expense, or dividend accounts, and a decrease to liability, stockholders' equity, or revenue accounts.

Amounts owed by the

Liabilities

A not-so-good accountant forgot to make the adjusting entry for a deferred revenue account at the end of the accounting period. As a result of in the financial statements prepared by this accountant:

Liabilities will be overstated and net income will be understated

On January 17, Papa's Pizza signs a contract with Bug Zappers for exterminating services related to a recent sighting of cockroaches in the restaurant. Papa's pays for the extermination service on January 29, and Bug Zappers sprays for bugs on February 7. Using cash basis accounting, on which date should Papa's Pizza record the extermination expense?

May 10 (date of cash receipt)

On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. Using cash basis accounting, on which date should Johnson record service revenue?

May 10 (date of cash receipt)

On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. According to the revenue recognition principle, on which date should Johnson record service revenue?

May 7 (date of service)

Financial Accounting

Measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes.

Financial accounting serves which primary function(s)?

Measures business activities Communicates business activities to interested parties

A company reports the following in an income statement: total revenues of $500,000 and total expense of $300,000. Which of the following is true?

Net income equals $200,000

Which of the following accounts normally has a credit balance?

Notes Payable

An accountant for O'Leary Company enters a transaction in which she debits Accounts Receivable and credits Service Revenue. What type of transaction occurred that results in this entry?

O'Leary performed a service for a client and sent a bill for services rendered

Stockholders' Equity

Owners' claims to resources, which equal total assets minus total liabilities

Financial statements

Periodic reports published by the company for the purpose of providing information to external users

Which of following transactions causes an increase in stockholders' equity?

Provide services to customers on account

Howard Company had a transaction that caused a $5,000 increase in both assets and total liabilities. This transaction could have been a(n):

Purchase of office equipment for $12,000, paying $7,000 cash and issuing a note payable for the balance

Accural Basis Accounting

Record revenues when goods and services are provided to customers, and record expenses for the costs and used to provide those goods and services to customers

Which of the following is not a characteristic of adjusting entries?

Reduce the balances of revenue, expense, and dividend accounts to zero

Which of the following describes the purpose(s) of closing entries?

Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period Transfer the balances of temporary accounts (revenues, expenses and dividends) to retained earnings

What are the two fundamental qualitative characteristics identified by the Financial Accounting Standards Board's (FASB) conceptual framework?

Relevance and faithful representation

Assets

Resources of a company

Sales of products or services are referred to as

Revenues

Net income

Revenues - Expenses

Credit

Right side of an account. Indicates a decrease to asset, expense, or dividend accounts, and an increase to liability, stockholders' equity, or revenue accounts.

Which pair of the listed accounts follows the rules of debits and credits in relation to increases and decreases in the opposite manner?

Salary Expense and Notes Payable

A credit is used to increase which of the following accounts?

Service Revenue

Based on the introductory section of this chapter, financial accounting can also be described as a way to

Tell the financial story of a company

Decision usefulness

The ability of the information to be useful in decision making

Comparability

The ability of users to see similarities and differences between two different business activities

Revenues

The amounts recognized when the company sells products or provides services to customers

Periodicity Assumption

The economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting

Generally Accepted Accounting Principles (GAAP)

The rules of financial accounting

International Financial Reporting Standards (IFRS)

The standards being developed and promoted by the International Accounting Standards Board.

Consistency

The use of similar accounting procedures either over time for the same company, or across companies at the same point in time.

If a company has an increase in total expenses of $10,000, which of the following is possible?

Total assets decrease by $10,000

If a company has an increase in total revenues of $10,000, which of the following is possible?

Total assets increase by $10,000

The accountant at Error Prone Company recorded the purchase of $100 of supplies for cash as a debit to Supplies for $100 and a credit to Accounts Payable for $100. Determine the effect of this error on the accounting equation of Error Prone Company.

Total assets would be overstated by $100

A company reports the following in its balance sheet: Total assets of $800,000 and total liabilities of $700,000. Which of the following is true?

Total stcokholders' equity equals $100,000

Auditors

Trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company's financial statements with GAAP

Posting is the process of

Transferring the debit and credit information from the journal to individual accounts in the general ledger.

Understandability

Users must understand the information in the context of the decision being made

A debit is used to increase which of the following accounts?

Utilities Expense

A trial balance will not balance if:

a $350 payment of rent is debited to Rent Expense for $350 and credited to Cash for $35

Journal

a chronological record of all transactions affecting a firm

General ledger

a collection of each account with its individual transactions and resulting account balance

Cheng Company obtained a $25000, one year, 12 percent bank loan on November 1 of the current year. Interest is payable at the end of the loan term. The company's adjusting entry needed on December 31 is:

a debit to interest expense of $500 and a credit to interest payable of $500

A trial balance will not balance if:

a journal entry is only partially posted

Chart of accounts

a list of all account names used to record transactions of a company

adjusted trial balance

a list of all accounts and their balances after we have updated account balances for adjusting entries

post-closing trial balance

a list of all accounts and their balances at a particular date after we have updated account balances for closing entries

Trial balance

a list of all accounts and their balances at a particular date, showing that total debits equal total credits

Account

a record of the business activities related to a particular item

T-account

a simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits

Accounting

a system of maintaining records of a company's operations and communicating that information to decision makers

Examples of liabilites

accounts payable, notes payable, wages payable, taxes payable

permanent accounts

all accounts that appear in the balance sheet; account balances are carried forward from period to period

book value

an asset's original cost less accumulated depreciation

expense recognition

any costs used to help generate revenues are recorded as expenses in the same period as those revenues

deferred revenues

arise when a company receives cash in advance from customers, but goods and services won't be provided until a later period

prepaid expenses

arises when a company pays cash (or has an obligation to pay cash) to acquire an asset that is used until a later period

If only the debit amount of an entry to record the purchase of supplies was not posted:

assets would be understated

classified balance sheet

balance sheets that groups a company's assets and long term assets and that seprates liabilities into current liabilities and long term liabilities

Examples of assets

cash, accounts receivable, supplies, inventory, notes receivable, land, vehicles. buildings, equipment

Which of the following describes the information reported in the statement of stockholders' equity?

change in stockholders' equity through changes in common stock and retained earnings

examples of stockholders equity

common stock and retained earnings

Retained earnings

cumulative amount of net income earned over the life of the company that has been kept (retained) in the business rather than distributed to stockholders as dividends (not retained).

Draxon Company borrowed $30,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be:

debit Interest Expense $150 and credit Interest Payable $150

Mary Richards has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Mary make?

debit accounts receivable and credit service revenue

Green Realty Company received a check for $24,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client.Deferred rent was credited for the full $24,000. Financial statements will be prepared on July 31. Green Realty should make the following adjusting entry on July 31:

debit deferred rent $4,000 and credit rental revenue $4000

The normal balance of the supplies expense account is a __________ because it is a(n) _______________ account

debit, expense

GAAP underlying assumptions

economic entity, monetary unit, periodicity, going concern

adjusting entries

entries at the end of the period used to update balances of revenues and expenses (and changes in their related assets and liabilities that have occurred during the period but that we have not yet recorded

Under the accural basis of accounting:

events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received

In terms of debits and credits, which accounts below will have the same normal balances?

expenses, assets, and dividends

Accrued expenses are recognized when the expense:

has incurred

Accrued revenues are recognized when the revenue:

has incurred

Going concern assumption

in the absence of information to the contrary, a business entity will continue to operate indefinitely

Which of the following describes the information reported in the income statement?

net income for the period calculated as revenues minus expenses

accured expenses

occur when a company has used costs in the current period, but the company hasn't yet paid cash for those costs

accured revenue

occur when a company provides products or services but hasn't yet received cash

Which of the following represents an external transaction?

payment of utility bill

Components/Aspects

predictive value, confirmatory value, materiality, completeness, neutrality, free from error

Joshua Company sent a check for $36 to Readers Digest magazine on May 1 toward a one year subscription, starting on the same day. If the company's financial year ends on September 20, their financial statements will report:

prepaid subscription of $21 and subscription expense of $15

In a classified balance sheet, long term assets used in the normal course of business are known as

property, plant, and equipment

Revenue Recognition Principle

record revenue in the period in which we provide goods and services to customers

revenue recgonition principle

record revenue in the period in which we provide goods and services to customers for the amount the company is entitled to receive

Cash Basis Accounting

record revenues at the time cash is received and expenses at the time cash is paid

Which of the following is an example of an adjusting entry?

recording depreciation on a truck

Accural

refers to revenues or expenses without cash inflows or outflows in the meantime

Which of the following is not listed in a post closing trial balance

salaries expense

On March 1, Retro Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $950 and consumed supplies of $800. If no adjusting entry is made for supplies:

stockholders' equity will be overstated by $800

What effect does an accrued expense adjustment have a company's net income?

the adjustment decreases net income for the period

Journal entry

the format used for recording business transactions

In a classified balance sheet, liabilities are separated into two categories based on

the length of time until the obligation is expected to be satisfied- less than one year versus more than one year

Depreciation

the process of allocating the cost a long term asset to expense over its useful life

posting

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

External Transactions

transactions the firm conducts with a separate economic entity

On June 1, 2011, Allnut Landscaping received cash of $1800 in advance for an agreement to provide service to a client for three months, starting that day. As of June 30,2011, Allnut:

would have recognized $600 revenue under accural basis accounting and would have recognized $1800 revenue under cash basis accounting