Accounting Midterm Study Guide

A company has the following three events in December:1. December 1 - Pay last month's rent (November), $500.2. December 15 - Pay rent for the current month (December), $500.3. December 31 - Pay rent for the following year, $6,000.How much would be recorded as Rent Expense for the month of December using accrual-basis accounting? A. $6,500. B. $7,000. C. $1,000. D. $500.

$500.

The following financial information is from Shovels Construction Company: Accounts Payable$15,000 Buildings80,000 Cash10,500 Accounts Receivable9,500 Sales Tax Payable4,500 Retained Earnings47,500 Supplies40,000 Notes Payable (due in 18 months)35,000 Interest Payable3,000 Common Stock35,000 What is the amount of current assets, assuming the accounts above reflect normal activity? A. $20,000. B. $60,000. C. $140,000. D. $175,000.

$60,000.

Nina Corp. had the following net income (loss) the first three years of operation: $7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years? A. $500. B. $0. C. $9,100. D. $8,000.

$8,000

Which of the following statements regarding financial reports is not correct? A. A balance sheet contains assets, liabilities, and stockholders' equity information. B. An income statement shows revenues and expenses. C. A statement of stockholders' equity reports revenues, net income, and dividends information. D. A statement of cash flows shows cash inflows and outflows from operating, investing, and financing activities.

A statement of stockholders' equity reports revenues, net income, and dividends information.

Which of the following accounts represents a resource of the company? A. Common stock. B. Service revenue. C. Accounts receivable. D. Salaries expense.

Accounts receivable.

The accounting basis that helps to measure and report revenues and expenses in a way that clearly reflects the ability of a company to generate value for its owners is referred to as: A. Cash-basis. B. Accrual-basis. C. Matching-basis. D. Reporting-basis.

Accrual-basis.

Receiving a utility bill for costs in the current period but delaying payment until the following period is an example of a(n): A. Accrued expense. B. Accrued revenue. C. Prepaid expense. D. Deferred revenue.

Accrued expense.

Which of the following regarding adjusting entries is correct? A. Adjusting entries are recorded for all external transactions. B. Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period. C. Adjusting entries are needed because we use accrual-basis accounting. D. After adjusting entries, all temporary accounts should have a balance of zero.

Adjusting entries are needed because we use accrual-basis accounting.

The concept of matching in accounting refers to: A. All costs that are used to generate revenue are recorded in the period the revenue is recognized. B. All transactions are recorded at the exchange price. C. The business is separate from its owners. D. The business will continue to operate indefinitely unless there is evidence to the contrary.

All costs that are used to generate revenue are recorded in the period the revenue is recognized.

Providing services to customers on account would affect the balances reported in which financial statement(s)? A. Income statement. B. Statement of stockholders' equity. C. Balance sheet. D. All of the financial statements in the other answers would be affected.

All of the financial statements in the other answers would be affected.

Which statement below best describes the objectives of financial accounting? A. Provide information that helps predict cash flows. B. Provide information about the economic resources, claims to resources and changes in resources and claims. C. Provide information that is useful in making decisions. D. All of the other answers are objectives of financial accounting.

All of the other answers are objectives of financial accounting.

Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue? A. January. B. February. C. April. D. Evenly in each of the three months.

April.

The equation best describing the balance sheet is: A. Assets = Liabilities + Stockholders' Equity. B. Revenues − Expenses = Net Income. C. Ending Retained Earnings + Dividends = Net Income. D. Revenues + Expenses = Net Income.

Assets = Liabilities + Stockholders' Equity.

When a company provides services on account, the accounting equation would be affected as follows: A. Assets increase. B. Revenues increase. C. Assets increase and liabilities decrease. D. Assets increase and stockholders' equity increases.

Assets increase and stockholders' equity increases.

Retained earnings at the end of the year is calculated using: A. Beginning retained earnings, net income, and dividends. B. Common stock and dividends. C. Stockholders' equity, net income, and dividends. D. Net income and dividends.

Beginning retained earnings, net income, and dividends.

A list of all account names used to record transactions of a company is referred to as the: A. Chart of Accounts B. Income statement C. General journal D. Balance sheet

Chart of Accounts

Below is the company's Cash T-account. CashBeg.1,200 5,200 3,100 End.3,300 The $5,200 amount could represent which of the following? A. Purchase of supplies on account. B. Ending balance of cash. C. Payment for salaries. D. Collection from customers.

Collection from customers.

Which of the following accounts appears in the statement of stockholders' equity? A. Accounts Payable. B. Accounts Receivable. C. Common Stock. D. Supplies.

Common Stock

Liabilities normally carry a _______ balance and are shown in the ______________. A. Debit; Statement of stockholders' equity B. Debit; Income statement C. Credit; Balance sheet D. Debit; Balance sheet

Credit; Balance sheet

Revenues normally carry a _______ balance and are shown in the ______________. A. Debit; Statement of stockholders' equity B. Credit; Income statement C. Credit; Balance sheet D. Debit; Balance sheet

Credit; Income statement

Bostel wanted to expand the size of its warehouse in order to generate more profits. The company decided to purchase the building adjacent to its existing warehouse. The company pays for the building by borrowing from the bank. The purchase would be recorded as: A. Debit Cash; credit Notes Payable. B. Debit Buildings; credit Cash. C. Debit Buildings; credit Notes Payable. D. Debit Cash and Buildings; credit Notes Payable.

Debit Buildings; credit Notes Payable.

When a company prepares closing entries, which one of the following is NOT a correct closing entry? A. Debit Retained Earnings; credit Salaries Expense. B. Debit Dividends; credit Retained Earnings. C. Debit Service Revenue; credit Retained Earnings. D. All of the other answers are not correct.

Debit Dividends; credit Retained Earnings.

Which of the following is a possible adjusting journal entry? A. Debit Cash, credit Accounts Payable. B. Debit Service Revenue, credit Cash. C. Debit Salaries Expense, credit Salaries Payable. D. Debit Utilities Expense, credit Retained Earnings.

Debit Salaries Expense, credit Salaries Payable.

Providing services on account would be recorded with a: A. Debit to Service Revenue. B. Credit to Accounts Receivable. C. Credit to Accounts Payable. D. Debit to Accounts Receivable.

Debit to Accounts Receivable.

An increase to an asset account is shown with a ______________. An increase to a liability account is shown with a ______________. A. Debit; Debit B. Credit; Debit C. Debit; Credit D. Credit; Credit

Debit; Credit

Expenses normally carry a _______ balance and are shown in the ______________. A. Debit; Statement of stockholders' equity B. Debit; Income statement C. Credit; Balance sheet D. Debit; Balance sheet

Debit; Income statement

When the company pays stockholders a dividend, what is the effect on the accounting equation for that company? A. Decrease stockholders' equity and increase assets. B. Increase liabilities and increase assets. C. Decrease assets and decrease liabilities. D. Decrease assets and decrease stockholders' equity.

Decrease assets and decrease stockholders' equity.

Receiving cash from customers before services are performed results in: A. Prepaid Assets. B. Service Revenue. C. Deferred Revenues. D. Accounts Receivable.

Deferred Revenue

The costs of providing goods and services to customers are referred to as: A. Assets. B. Expenses. C. Liabilities. D. Revenues.

Expenses

The body of rules and procedures that guide the measurement and communication of financial accounting information in the United States is known as: A. Standards of Professional Compliance (SPC). B. Generally Accepted Accounting Principles (GAAP). C. Generally Accepted Auditing Standards (GAAS). D. Rules of Financial Reporting (RFR).

Generally Accepted Accounting Principles (GAAP).

The financial statement(s) that record activity over an interval of time include the: A.Income statement. B. Balance sheet. C. Balance sheet and income statement. D. Income statement and statement of cash flows.

Income statement and statement of cash flows.

Expenses are shown in which of the following statements? A. Income statement. B. Statement of cash flows. C. Balance sheet. D. Statement of stockholders' equity.

Income statement.

Purchasing office supplies on account will: A. Not change assets. B. Increase assets and decrease liabilities. C. Increase assets and increase liabilities. D. Increase assets and increase stockholders' equity.

Increase assets and increase liabilities.

Providing services and receiving cash will: A. Increase assets and increase stockholders' equity. B. Increase assets and increase liabilities. C. Decrease assets and increase liabilities. D. Decrease liabilities and increase stockholders' equity.

Increase assets and increase stockholders' equity.

The following events pertain to Bills Company: December 28, 2018: Bills was contacted by a customer for possible accounting and tax services. December 30, 2018: Bills signed a formal agreement with the customer to provide accounting and tax services in 2019. January 4, 2019: The customer paid $1,000 in advance for the services to be provided by Bills Company. January 11, 2019: Bills provided accounting and tax services to the customer. Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services? A. December 30, 2018. B. December 31, 2018. C. January 4, 2019. D. January 11, 2019.

January 11, 2019.

Consider the following events for Betterment Incorporated: January 1: Betterment purchases gasoline for $200 on account. January 7: Betterment advertises lawn mowing services for $100 per lawn. January 9: Betterment signs up 8 customers who pay a total of $800 cash. January 12: Betterment mows the lawns of the 8 customers and all gasoline purchased on January 1 is used. January 13: Betterment pays for the gasoline purchased on January 1. Under accrual-basis accounting, what is the appropriate day to record the revenues related to lawn services? A. January 1. B. January 7. C. January 9. D. January 12.

January 12.

Amounts owed to suppliers for supplies purchased on account are defined as a(n): A. Revenue. B. Asset. C. Liability. D. Expense.

Liability.

Which definition below best describes financial accounting? A. Process of measuring income taxes owed to the government. B. System of maintaining communication with a company's customers and suppliers. C. Procedures designed to enhance the company's image to potential investors. D. Measuring business activities and communicating them to external parties.

Measuring business activities and communicating them to external parties.

Consider the following accounts:DividendsInsurance ExpenseCashService RevenueHow many of these accounts are increased with credits? A. One. B. Two. C. Three. D. Four.

One.

Consider the following transactions:Issued common stock for cash.Purchased equipment by signing a note payable.Provided services to customers on account.Collected cash from customers on account.How many of these four transactions increased the given company's total liabilities? A. One. B. Two. C. Three. D. Four.

One.

On July 1, 2018, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2018 through December 2019. What adjusting entry should Charlie Co. record on December 31, 2018? A.Rent Expense18,000 Cash 18,000 B.Rent Expense18,000 Prepaid Rent 18,000 C.Prepaid Rent6,000 Rent Expense 6,000 D.Rent Expense6,000 Prepaid Rent 6,000 A. Option A B. Option B C. Option C D. Option D

Option D

An example of an adjusting entry would not include: A. Recording the use of office supplies. B. Recording the expiration of prepaid insurance. C. Recording unpaid salaries. D. Paying salaries to company employees.

Paying salaries to company employees.

Making insurance payments in advance is an example of a(n): A. Accrued revenue. B. Accrued expense. C. Deferred revenue. D. Prepaid expense.

Prepaid expense.

Financial accounting: A. Provides information primarily for external decision-makers. B. Provides information primarily for a company's employees. C. Provides information primarily for the use of managers of the company. D. Is primarily used to compute a company's tax obligation.

Provides information primarily for external decision makers.

Which of the following transactions would cause an increase in both the assets and liabilities of a company? A. Paying for the current month's rent. B. Pay for inventory purchased 90 days ago. C. Purchase of a building by issuing a note payable. D. Services received on account.

Purchase of a building by issuing a note payable.

The equation best describing the income statement is: A. Revenues − Expenses = Net Income. B. Assets = Revenues − Expenses. C. Assets = Liabilities + Stockholders' Equity. D. Revenues + Expenses = Net Income.

Revenues − Expenses = Net Income.

Limited liability means: A. Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket. B. Liabilities of a company cannot exceed its assets. C. Companies are not allowed to borrow unless they are profitable. D. Companies are less likely to be sued if they are formed as a corporation.

Stockholders of a corporation are not obligated to pay the corporation's debts out of their own pocket.

Consider the following account balances of the Shattuck Law Firm at the end of the year: Accounts Payable $4,400 Salaries Expense $12,800 Cash $1,700 Common Stock $2,400 Service Revenue $8,300 Supplies $4,300 Retained Earnings $1,100 Utilities Expense $5,000 How many of these accounts would appear in Shattuck's year-end income statement? A. Five. B. Four. C. Three. D. Two.

Three

Consider the following transactions:Issued common stock for cash.Purchased equipment by signing a note payable.Paid rent for the current month.Collected cash from customers on account.How many of these four transactions increased the given company's total assets? A. One. B. Two. C. Three. D. Four.

Two.

The adjusted trial balance should be prepared ______ the financial statements are prepared in order to prove the ______ of the debits and credits. A. after; equality B. before; accuracy C. before; equality D. after; accuracy

before; equality