Accounting Midterm
141)The December 31, 2017 worksheet for Fran's Fine Dining showed the following amounts related to the Supplies Expense account: A) $0 B) $125 C) $870 D) $745
$0 The expense account would have been closed out for 2017; the beginning balance for 2018 would be $0
137) If current assets are $110,000 and current liabilities are $50,000, working capital will be: A) 2:2. B) $160,000. C) 45.5%. D) $60,000.
$60,000. $110,000 - $50,000 = $60,000 assets-liabilities=working capital
79) A journal entry that records revenue must include: A) A credit to the owners' equity account. B) A debit to Cash. C) A credit to a revenue account. D) A debit to the owners' equity account.
A credit to a revenue account.
76)Black Systems sold and delivered modems to White Computers for $330,000 to be paid by White in three equal installments over the next three months. The journal entry made by Black Systems to record this transaction will include: A) A debit to Accounts Receivable for $330,000. B) A debit to Cash for $330,000. C) A debit to Sales Revenue for $330,000. D) A debit to Accounts Receivable for $110,000.
A debit to Accounts Receivable for $330,000.
98) An adjusting entry to convert an asset to expense consists of: A) A debit to an asset account and a credit to an expense account. B) A debit to an expense and a credit to cash. C) A debit to a liability and a credit to cash. D) A debit to an expense and a credit to an asset account.
A debit to an expense and a credit to an asset account.
56)The sequence of accounting procedures used to record, classify, and summarize accounting information is called the: A) Accrual accounting. B) Double-entry bookkeeping. C) Accounting cycle. D) Accounting period.
Accounting cycle.
73)Recognizing revenue when it is earned and not when cash is received and recognizing expenses when the related goods or services are used rather than when they are paid for is called: A) Revenue recognition. B) Matching. C) Accrual accounting. D) Conservatism.
Accrual accounting.
96) An example of a contra-asset account is: A) Prepaid expenses. B) Accumulated Depreciation. C) Depreciation Expense. D) Unearned revenue.
Accumulated Depreciation.
31) Which of the following best defines an asset? A)An economic resource representing cash or the right to receive cash in the near future. B) Something owned by a business that has a ready market value. C) Something with physical form that is valued at cost in the accounting records. D)An economic resource owned by a business and expected to benefit future operations.
An economic resource owned by a business and expected to benefit future operations.
91) Which of the following is not considered a basic type of adjusting entry? A) An entry to convert a liability to a revenue. B) An entry to convert an asset to a liability. C) An entry to convert an asset to an expense. D) An entry to accrue unpaid expenses.
An entry to convert an asset to a liability.
104) Which of the following is not considered an end-of-period adjusting entry? A) An entry to record revenue that has been earned but has not yet been billed to customers. B) The entry to record depreciation expense. C) An entry to record repayment of a bank loan and to recognize related interest expense. D)The entry to record the portion of unexpired insurance which has become expense during the period.
An entry to record repayment of a bank loan and to recognize related interest expense.
80) If the trial balance has a smaller debit balance than credit balance, it signifies: A) A profit. B) Assets are more than liabilities. C) A loss. D) An error has been made.
An error has been made.
48) A revenue transaction may result in all of the following except: A) A positive cash flow in either the past, present, or future. B) An increase in liabilities. C) An increase in assets. D) An increase in owners' equity.
An increase in liabilities.
34) If a transaction causes an asset account to decrease, which of the following related effects may occur? A) An increase in the combined total of liabilities and owners' equity. B) An increase of equal amount in an owners' equity account. C) An increase of equal amount in another asset account. D) An increase in a liability account.
An increase of equal amount in another asset account.
12) Financial statements may be prepared for which time period? A) Any time period. B) One year. C) Less than one year. D) More than one year.
Any time period.
86) Adjusting entries: A) Are generally made daily. B) Are needed whenever revenue transactions affect more than one period. C) Generally fall into one of two categories. D) Assign revenues to the period in which they are received.
Are needed whenever revenue transactions affect more than one period.
22)Generally accepted accounting principles are intended to assist accountants in preparing financial statements that: A) Show the business to be both solvent and profitable. B) Are ideally suited to the specific needs of each user of the financial statements. C) Comply with all income tax rules and regulations. D) Are relevant, verifiable, comparable, and understandable.
Are relevant, verifiable, comparable, and understandable.
72) The rules of debit and credit may be summarized as follows: A)Accounts on the left side of the balance sheet are increased by credits, whereas accounts on the right side of the balance sheet are increased by debits. B) The balance of a ledger account is increased by debit entries and is decreased by credit entries. C)Asset accounts are increased by debits, whereas, liabilities and owners' equity are increased by credits. D) The balance of a ledger account is increased by credit entries and is decreased by debit entries.
Asset accounts are increased by debits, whereas, liabilities and owners' equity are increased by credits.
113)The accountant for Perfect Painting forgot the following two adjustments at the end of 2018: (a) The entry to record depreciation: $3,000. (b) The entry to record the portion of fees received in advance, which have now been earned: $3,000. As a result of these two omissions: A) Liabilities of Perfect Painting are understated at December 31, 2018. B) Net income for Perfect Painting for 2018 is overstated. C) Assets of Perfect Painting are overstated at December 31, 2018. D) Net income for Perfect Painting for 2018 is understated.
Assets of Perfect Painting are overstated at December 31, 2018.
62) If a company purchases equipment on account: A) Assets will increase and liabilities will decrease. B) Assets will increase and owners' equity will remain unchanged. C) Assets will increase and owners' equity will also increase. D) Assets will increase and owners' equity will decrease.
Assets will increase and owners' equity will remain unchanged.
20) The basic purpose of an audit is to: A)Record changes in the financial position of an organization by applying the concepts of double entry accounting. B)Assure outsiders that financial statements are prepared in conformity with GAAP. C)Provide as much useful information to decision makers as possible, regardless of cost. D)Meet an organization's need for accounting information as efficiently as possible.
Assure outsiders that financial statements are prepared in conformity with GAAP.
90)Which of the following situations does not require Empire Company to record an adjusting entry at the end of January? A)At the end of January, Empire Company pays the custodian for January office cleaning services. B)On January 1, Empire Company began delivery service for a large client who will pay at the end of a three-month period. C) On January 1, Empire Company paid rent for six months on its office building. D)On January 1, Empire Company purchased delivery equipment with an estimated useful life of five years.
At the end of January, Empire Company pays the custodian for January office cleaning services.
26)Which of the following has the least impact upon the integrity of financial statements issued by publicly owned corporations? A) Federal securities laws. B) Competence and integrity of the CPAs who perform audits. C) Professional judgment of the accountants who prepare the financial statements. D) Audits of the financial statements by the Internal Revenue Service.
Audits of the financial statements by the Internal Revenue Service.
In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a management accounting report is more likely to: A) Focus upon the operation results of the most recently completed accounting period. B) Be tailored to the specific needs of an individual decision maker. C) View the entire organization as the reporting entity. D) Be used by decision makers outside of the business organization.
Be tailored to the specific needs of an individual decision maker.
85) Adjusting entries are prepared: A) Before financial statements and after a trial balance has been prepared. B)After a trial balance has been prepared and after financial statements are prepared. C) Anytime an accountant sees fit to prepare the entries. D) After posting but before a trial balance is prepared.
Before financial statements and after a trial balance has been prepared.
78) The reason that both expenses and dividends are recorded by debit entries is that: A) Both expenses and dividends reduce owners' equity. B)Both expenses and dividends are offset against revenues in the income statement. C)The statement is untrue-expenses are recorded by debits, but dividends are recorded by credits to the owners' equity account. D)All dividend and expense transactions involve offsetting credit entries to the Cash account.
Both expenses and dividends reduce owners' equity.
14)Investors and creditors are interested in the probability that their original investment or loan will eventually be returned, and that they will receive a reasonable return while their funds are invested or borrowed. These expectations are collectively referred to as: A) The objectives of financial reporting. B) Cash flow prospects. C) Expected profitability. D) Financial position.
Cash flow prospects.
75)Davis, Inc., a music group, entertained at a black-tie dinner dance on April 26, and collected the fee in full at the end of the evening. This transaction: A) Causes an increase in assets and revenue, as well as an increase in owners' equity. B)Violates the matching principle unless any expenses associated with this cash receipt are paid prior to recording the revenue. C) Is recorded by debiting Cash and crediting the Retained Earnings account. D) Causes an increase in assets and a decrease in owners' equity.
Causes an increase in assets and revenue, as well as an increase in owners' equity.
116) The dividends account should be: A) Closed only if there is a profit. B) Not closed at all. C) Closed to income summary. D) Closed to retained earnings.
Closed to retained earnings
6) A strong internal control structure: A) Ensures a business will remain solvent. B) Contributes to the accuracy and verifiability of the accounting records. C) Will prevent a business from operating at a loss. D) Will prevent fraud, theft, and embezzlement.
Contributes to the accuracy and verifiability of the accounting records.
19)Overseeing a company's affairs to ensure that the company is managed with the best interest of shareholders in mind is called: A) Financial integrity. B) The audit function. C) Internal control. D) Corporate governance.
Corporate governance.
93)If Hot Bagel Co. estimates depreciation on an automobile to be $578 for the year, the company should make the following adjusting entry: A)Debit Depreciation Expense $578 and credit Automobile $578. B) Debit Accumulated Depreciation $578 and credit Depreciation Expense $578. C) Debit Depreciation Expense $578 and credit Accumulated Depreciation $578. D) Debit Automobile $578 and credit Depreciation Expense $578.
Debit Depreciation Expense $578 and credit Accumulated Depreciation $578.
3) The field of accounting may best be described as: A) Developing information in conformity with generally accepted accounting principles. B) Developing the information required for the preparation of income tax returns. C) Recording the financial transactions of an economic entity. D) The art of interpreting, measuring, and describing economic activity.
The art of interpreting, measuring, and describing economic activity.
29) A balance sheet is designed to show: A) How much a business is worth. B) The cost of replacing the assets and of paying off the liabilities at December 31. C) The profitability of the business during the current year. D) The assets, liabilities, and owners' equity of a business as of a particular date.
The assets, liabilities, and owners' equity of a business as of a particular date.
Which financial statement is primarily concerned with reporting the financial position of a business at a particular time? A) The income statement. B) The balance sheet. C) The statement of cash flows. D) Consolidated statement of stockholders' equity.
The balance sheet.
64)On June 18, Baltic Arena paid $6,600 to Marvin Maintenance, Inc. for cleaning the arena following a monster truck show. Which of the following most likely occurred on Baltic's books as a result of this transaction? A) The cash account was credited. B) Total liabilities increased. C) Total assets increased. D) The accounts receivable account was debited.
The cash account was credited.
118) A statement of retained earnings shows: A)The changes in the Retained Earnings account occurring during the accounting period. B) The changes in the Cash account occurring during the accounting period. C)The types of assets that have been purchased with the earnings retained during the accounting period. D) The revenue, expense, and dividends of the period.
The changes in the Retained Earnings account occurring during the accounting period.
18)Which of the following is not an important factor in ensuring the integrity of accounting information? A) The cost of preparing the financial information. B) Institutional factors, such as standards for preparing information. C) Competence, judgment, and ethical behavior of individual accountants. D) Professional organizations, such as the American Institute of CPAs.
The cost of preparing the financial information.
5) Which of the following events is not a transaction that would be recorded in a company's accounting records? A) The purchase of equipment on account. B) The purchase of equipment for cash. C) The investment of additional cash in the business by the owner. D) The death of a key executive.
The death of a key executive.
92) Which of the following is not an example of an adjusting entry? A) The entry to record unpaid expenses. B) The entry to convert liabilities to revenue. C) The entry to pay outstanding bills. D) The entry to record uncollected revenues.
The entry to pay outstanding bills.
97)Which of the following entries causes an immediate decrease in assets and in net income? A) The entry to record accrued wages payable. B) The entry to record revenue earned but not yet received. C) The entry to record the earned portion of rent received in advance. D) The entry to record depreciation expense.
The entry to record depreciation expense.
63)The journal entry to record a particular business transaction includes a credit to a liability account. This transaction is most likely also to include: A) A cash payment. B) A credit to Accounts Receivable. C) Issuance of new capital stock. D) The purchase of an asset on account.
The purchase of an asset on account.
4) Information is cost effective when: A) The information is generated by a computer based accounting system. B) The value of the information exceeds the cost of producing it. C) The information aids management in controlling costs. D) The information is based upon historical costs, rather than upon estimated market values.
The value of the information exceeds the cost of producing it.
81) A trial balance that is out of balance indicates that: A) A debit has been posted to the wrong account. B) A journal entry has been completely omitted from the posting process. C) There is not an equality of debit and credit amounts in the ledger. D)The number of ledger accounts with debit balances is not equal to the number of accounts with credit balances.
There is not an equality of debit and credit amounts in the ledger.
23)Which of the following is not an objective of generally accepted accounting principles? A)To ensure that both preparers and users of financial statements understand the concepts and assumptions used in presenting information within these statements. B)To increase the comparability of financial statements prepared by different companies. C) To minimize the amount of income taxes owed. D)To enhance the relevance and verifiability of information contained in financial statements.
To minimize the amount of income taxes owed.
89) Which of the following is not a purpose of adjusting entries? A)To accomplish the objective of offsetting the revenue of the period with all the expenses incurred in generating that revenue. B)To prepare the revenue and expense accounts for recording transactions of the following period. C) To establish the proper amounts of assets and liabilities in the balance sheet. D)To apportion the proper amounts of revenue and expense to the current accounting period.
To prepare the revenue and expense accounts for recording transactions of the following period.
32) Which of the following is correct when a corporation uses cash to pay for an expense? A) Owners' equity will increase. B) Total assets will decrease. C) Liabilities will increase. D) Retained earnings will increase.
Total assets will decrease.
38) If a company purchases equipment for $65,000 by issuing a note payable: A) Total assets will increase by $65,000. B) Total assets will remain the same. C) Total assets will decrease by $65,000. D) Total owners' equity will decrease.
Total assets will increase by $65,000.
124) The balance in Income Summary: A) Will always be equal to the increase in retained earnings. B) Will equal net income or net loss. C) Will equal net income less dividends. D) Should equal retained earnings.
Will equal net income or net loss.
74)In February of each year, the Carlton Hotel holds a very popular wine tasting event. Tickets must be ordered and paid for in advance, and are typically sold out by November of the preceding year. The realization principle indicates that the revenue from these ticket sales should be recognized in the period in which the: A) Expenses associated with the wine tasting are paid in full. B) Payments are received. C) Order is placed. D) Wine tasting event is held.
Wine tasting event is held.
102)Videobusters, Inc. offered books of video rental coupons to its patrons at $40 per book. Each book contained a certain number of coupons for video rentals. During the current period 500 books were sold for $20,000, and this amount was credited to Unearned Rental Revenue. At the end of the period, it was determined that $15,000 worth of coupons had been used by customers to rent videos. The appropriate adjusting entry at the end of the period would be: A) Debit Rental Revenue $15,000 and credit Unearned Rental Revenue $15,000. B) Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000. C) Debit Rental Revenue $5,000 and credit Unearned Rental Revenue $5,000. D) Debit Unearned Rental Revenue $5,000 and credit Rental Revenue $5,000.
Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.
61) The collection of accounts receivable is recorded by a: A) Credit to Cash and a credit to Accounts Receivable. B) Debit to Cash and a credit to Accounts Receivable. C) Credit to Cash and a debit to Accounts Receivable. D) Debit to Cash and a debit to Accounts Receivable.
Debit to Cash and a credit to Accounts Receivable.
60) The purchase of equipment on credit is recorded by a: A) Credit to Equipment and a credit to Accounts Payable. B) Debit to Equipment and a credit to Accounts Payable. C) Debit to Equipment and a debit to Accounts Payable. D) Debit to Accounts Payable and a credit to Equipment.
Debit to Equipment and a credit to Accounts Payable.
107)Gordy's Corp. has seven employees. Each earns $800 per week for a five-day work week ending on Friday. This month, the last day of the month falls on a Thursday. The company should make an adjusting entry: A) Debiting Wage Expense for $4,480 and crediting Wages Payable for $4,480. B) Debiting Wage Expense for $640 and crediting Wages Payable for $640. C) Crediting Wage Expense for $640 and debiting Wages Payable for $640. D) Crediting Wage Expense for $4,480 and debiting Wages Payable for $4,480.
Debiting Wage Expense for $4,480 and crediting Wages Payable for $4,480. $800 × 4 ÷ 5 × 7 = $4,480
120) Dividends will have what effect upon retained earnings? A) Increase. B) Depends upon if there is income or loss. C) Decrease. D) No effect.
Decrease.
121) The concept of adequate disclosure: A) Does not apply to events occurring after the balance sheet date. B) Grants users of the financial statements access to a company's accounting records. C) Specifies which accounting methods must be used in a company's financial statements. D) Demands a "good faith effort" by management.
Demands a "good faith effort" by management.
1) Financial accounting information is: A) Designed to assist investors and creditors. B) Not applicable to individuals. C) Called "special-purpose" accounting information. D) Submitted to the IRS in lieu of a tax form.
Designed to assist investors and creditors.
35) Owners' equity in a business increases as a result of which of the following? A) Payments of cash to the owners. B) Earnings from profitable operation of the business. C) Losses from unprofitable operation of the business. D) Borrowing from a commercial bank.
Earnings from profitable operation of the business.
129) Closing entries should be made: A) Only when an entity goes out of business. B) Only if there is a profit. C) Only if there is a loss. D) Every year.
Every year.
25)Generally accepted accounting principles are the "ground rules" used in the preparation of: A) Income tax returns. B) Financial statements. C) Reports to federal and state regulatory agencies. D) All accounting reports.
Financial statements.
24) The accounting standards and concepts used in the preparation of financial statements are called: A) Generally accepted accounting principles (GAAP). B) Certified principles of accounting (CPA). C) Standards enforcing consistency (SEC). D) Federal accounting standards and bylaws (FASB).
Generally accepted accounting principles (GAAP).
37) To appear in a balance sheet of a business entity, an asset need not: A) Be expected to benefit future operations. B) Be owned by the business. C) Have a ready market value. D) Be an economic resource.
Have a ready market value.
114) An annual report: A) Includes comparative financial statements for several years. B) Must be filed with the SEC by all companies in the United States. C) Must be audited by the IRS. D) Is delivered to stockholders and the public on the last day of the fiscal year.
Includes comparative financial statements for several years.
122)The concept of adequate disclosure requires a company to inform financial statement users of each of the following, except: A) The accounting methods in use. B)Destruction of a large portion of the company's inventory on January 20, three weeks after the balance sheet date, but prior to issuance of the financial statements. C) The due dates of major liabilities. D)Income projections for the next five years based upon anticipated market share of a new product; the new product was introduced a few days before the balance sheet date.
Income projections for the next five years based upon anticipated market share of a new product; the new product was introduced a few days before the balance sheet date.
115) Which of the following financial statements is usually prepared first? A) Balance sheet. B) Income statement. C) Income tax return. D) Statement of retained earnings.
Income statement.
126) Income Summary appears on which financial statement: A) Income statement. B) Income summary does not appear on any financial statement. C) Balance sheet. D) Retained Earnings statement.
Income summary does not appear on any financial statement.
21) Audits of financial statements are performed by: A) The controller of the reporting company. B) The Financial Accounting Standards Board (FASB). C) Independent certified public accountants (CPAs). D) The management of the reporting company
Independent certified public accountants (CPAs).
13) Investors may be described as: A) Those whose primary economic activity consists of buying and selling stocks and bonds. B) Individuals and enterprises that have ownership interest in a reporting entity. C) Individuals and enterprises that have provided credit to a reporting entity. D) Anyone with an interest in the results of the operations of the reporting entity.
Individuals and enterprises that have ownership interest in a reporting entity.
16) All of the following are characteristics of management accounting, except: A) Its purpose is to assist managers in planning and controlling business operations. B)Information must be developed in conformity with generally accepted accounting principles or with income tax regulations. C) Information may be tailored to assist in specific managerial decisions. D) Reports are used primarily by insiders rather than by persons outside of the business entity.
Information must be developed in conformity with generally accepted accounting principles or with income tax regulations.
15)Objectives of financial reporting to external investors and creditors include preparing information about all of the following except: A) Information that is useful in making investment and credit decisions. B)Information about economic resources, claims to those resources, and changes in both resources and claims. C) Information that is useful in assessing the amount, timing, and uncertainty of future cash flows. D) Information used to determine which products to produce.
Information used to determine which products to produce.
58) The accounting cycle begins with: A) Formation of a business. B) Posting of journal entries to ledger accounts. C) Initial recording of business transactions. D) Preparation of a trial balance.
Initial recording of business transactions.
117) Retained Earnings at the end of a period: A)Is equal to the balance in the Retained Earnings account in the adjusted trial balance at the end of a period. B)Is equal to Retained Earnings at the beginning of the period, minus net income (or plus net loss) for the period. C) Is determined in the Statement of Retained Earnings. D) Appears in the Income Statement for the period.
Is determined in the Statement of Retained Earnings.
110) The concept of materiality: A)Is measured as an item significant enough to influence the decisions of users of financial statements. B) Involves only tangible assets and not intangible assets. C) Is always an exact percentage of a financial account balance. D) Relates only to the income statement and not the balance sheet.
Is measured as an item significant enough to influence the decisions of users of financial statements.
140) The worksheet: A) Starts with the first column being the adjusted trial balance. B) Is one of the basic financial statements. C) Is not a formal step in the accounting cycle. D) Is prepared throughout the year.
Is not a formal step in the accounting cycle.
2) Which of the following does not describe accounting? A) It is used by businesses, governments, non-profit organizations, and individuals. B) It is useful for decision-making. C) It is an end rather than a means to an end. D) It is commonly referred to as the language of business.
It is an end rather than a means to an end.
17) Characteristics of internal accounting information include all of the following except: A) It must be timely. B) It is generally oriented toward the future. C) It measures efficiency and effectiveness. D) It is audited by a CPA.
It is audited by a CPA.
99) Which statement is true about land? A) The straight-line method should be used to depreciate land. B) Land should be depreciated over the same period as the building located on it. C) Land cannot be depreciated for greater than a 40-year period. D) Land should not be depreciated.
Land should not be depreciated.
28) Which of the following describes the proper form of a balance sheet? A) Liabilities are listed before owners' equity. B)Owners' equity is always the first section listed because it is the most important to external users. C) A subtotal for total assets plus total liabilities is shown. D)Cash is always the first asset listed, followed by permanent assets (such as land and buildings), and finally by assets such as receivables and supplies.
Liabilities are listed before owners' equity.
36) Owners' equity in a business decreases as a result of which of the following? A) Profits from operating the business. B) Repaying a loan to a commercial bank. C) Investments of cash by the owners. D) Losses from unprofitable operation of the business.
Losses from unprofitable operation of the business.
125)After preparing the financial statements for the current year, the accountant for Exquisite Gems closed the Dividends account at year-end by debiting Income Summary and crediting the Dividends account. What is the effect of this entry on current-year net income and the balance in the Retained Earnings account at year-end? A)Net income is correct and the balance in the Retained Earnings account is overstated. B)Net income is understated and the balance in the Retained Earnings account is overstated. C)Net income is overstated and the balance in the Retained Earnings account is correct. D)Net income is understated and the balance in the Retained Earnings account is correct.
Net income is understated and the balance in the Retained Earnings account is correct.
95)Recently, Bon Appetite Café contracted and paid for a relatively expensive advertisement in Haute Cuisine magazine. Despite the fact that the ad will appear in Haute Cuisine three months after the end of Bon Appetite Café's current fiscal year, the Café's accountant recorded the disbursement to advertising expense. If no adjusting entry is made, how will this year's financial statements of Bon Appetite Café be affected? A) Net income will be understated and total assets will be understated B) Net income will be understated and total assets will be overstated. C) Net income will be overstated and total assets will be understated. D) Net income will be overstated and total assets will be overstated.
Net income will be understated and total assets will be understated
123) If Income Summary has a net credit balance, it signifies: A) A reduction of net worth. B) Net income. C) A net loss. D) Dividends have been declared.
Net income.
119) Declaring a dividend will: A) Increase the net worth of a company. B) Not change net income. C) Increase net income. D) Decrease net income.
Not change net income.
100) Depreciation expense is: A) An exact calculation prepared by an appraiser. B) Not to be calculated unless the exact life of an asset can be determined. C) To be determined for all assets owned by a company. D) Only an estimate.
Only an estimate.
87)We can compare income of the current period with income of a previous period to determine whether the operating results are improving or declining: A) Only if the same accountant prepares the income statement each period. B) Only if each accounting period covered is a full year. C) Only if the accounting periods are equal in length. D) Only if a manual accounting system is used in both periods.
Only if the accounting periods are equal in length.
94) Which of the following statements is not true regarding prepaid expenses? A) Prepaid expenses are shown in a special section of the income statement. B) Prepaid expenses appear in the balance sheet. C) Prepaid expenses become expenses only as goods or services are used up. D) Prepaid expenses represent assets.
Prepaid expenses are shown in a special section of the income statement.
57) Which of the following is not a step in the accounting cycle? A) Prepare financial statements. B) Prepare a purchase order. C) Prepare an adjusted trial balance. D) Prepare a trial balance.
Prepare a purchase order.
127) The purpose of making closing entries is to: A) Reduce the number of expense accounts. B) Establish new balances in the balance sheet accounts. C)Prepare revenue and expense accounts for the recording of the next period's revenue and expenses. D)Enable the accountant to transfer the balances from all permanent accounts to the Income Summary account.
Prepare revenue and expense accounts for the recording of the next period's revenue and expenses.
11) Financial statements are prepared: A) For corporations, but not for sole proprietorships or partnerships. B) Only for publicly owned business organizations. C) Primarily for the benefit of persons outside of the business organization. D) In either monetary or nonmonetary terms, depending upon the need of the decision maker.
Primarily for the benefit of persons outside of the business organization.
136) Return on equity measures: A) Solvency. B) Leverage. C) Profitability. D) Both solvency and leverage.
Profitability.
7) The financial statements of a business entity: A) Are the first step in the accounting process. B) Are prepared for a fee by the Financial Accounting Standards Board. C) Provide information about the cash flow prospects of the company. D) Include the balance sheet, income statement, and income tax return.
Provide information about the cash flow prospects of the company.
8) Financial statements are designed primarily to: A)Provide people outside the business organization with information about the company's financial position and operating results. B) Provide managers with detailed information tailored to the managers' specific information needs. C) Indicate to investors in a particular company the current market values of their investments. D) Report to the Internal Revenue Service the company's taxable income.
Provide people outside the business organization with information about the company's financial position and operating results.
27) Which of the following is the primary objective of an income statement? A)Providing managers with detailed information about where the enterprise stands at a specific date. B) Reporting to the Internal Revenue Service the company's taxable income. C)Indicating to investors in a particular company the current market values of their investments. D)Providing users outside the business organization with information about the company's operating results for a period of time.
Providing users outside the business organization with information about the company's operating results for a period of time.
109) Which of the following is the accounting principle that governs the timing of revenue recognition? A) Materiality B) Depreciation C) Realization principle D) Matching
Realization principle
88) The purpose of adjusting entries is to: A)Record certain revenue and expenses that are not properly measured in the course of recording daily routine transactions. B)Update the owners' equity account for the changes in owners' equity that had been recorded in revenue and expense accounts throughout the period. C)Prepare the revenue and expense accounts for recording the revenue and expenses of the next accounting period. D) Correct errors made during the accounting period.
Record certain revenue and expenses that are not properly measured in the course of recording daily routine transactions.
128) If a business closes its accounts only at year-end: A) Financial statements are prepared only at year-end. B) Revenue and expense accounts reflect year-to-date amounts throughout the year. C) Monthly and quarterly financial statements cannot be prepared. D) Adjusting entries are made only at year-end.
Revenue and expense accounts reflect year-to-date amounts throughout the year.
77) Revenues increase owners' equity because: A)The conservatism principle requires revenues be recognized with an increase to owners' equity. B) Of the matching principle. C) Revenues are recorded by a debit. D) Revenues increase net income, which increases retained earnings.
Revenues increase net income, which increases retained earnings.
33) Which of the following transactions would cause a change in owners' equity? A) Repayment of the principal on a bank loan. B) Purchase of a delivery truck on credit. C) Borrowing money from a bank. D) Sale of land on credit for a price above cost.
Sale of land on credit for a price above cost.
111) On the adjusted trial balance, retained earnings is: A) Adjusted for all revenues and expenses for the period. B) Stated at the period-end amount. C) Adjusted for the period's dividends. D) Stated at the period-beginning amount.
Stated at the period-beginning amount.
30)Blue Wholesale Shirt Co. sold shirts to Pink Retail Shoppe. The owner of Pink Retail said she would pay Blue at a later date, which Blue Wholesale agreed to. Blue Wholesale Shirt Co. is considered to be a: A) debtor. B) creditor. C) liability. D) borrower.
creditor.
