ACCT 2600 Financial Exam

What does the phrase, "Revenue is recognized at the point of sale" mean?

Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer.

All of the following are included in the acquisition cost of property, plant, and equipment except:

maintenance costs

Which of the following best describes the term "equity"?

the amount of interest or claim that the owners have in the business

Which of the following best describes the term "expenses"?

the outflow of assets resulting from the sale of goods and services

One effect on the accounting equation when a firm lends money is

total assets remain the same.

Which internal control procedure is followed when storage areas are secured with limited access?

Safeguarding assets and records

Services are provided for customers who pay for the services immediately. For this transaction, identify the effect on the accounting equation.

Assets increase and stockholders' equity increases.

Which of the following transactions does not affect the total assets of Horizon Sailing Corp.?

A bill is received for the telephone service used by Horizon Sailing during the past month.

Squidly Products sold and delivered modems to Detail Solutions for $6,600 to be paid by Detail Solutions in three equal installments over the next three months. The journal entry made by Squidly to record this transaction will include:

A debit to Accounts Receivable for $6,600.

You are a potential stockholder and are concerned that a particular company you are ready to invest in might have too much debt. Which financial statement would provide you information needed in order to evaluate your concern?

Balance Sheet

Which one of the following financial statements reports an entity's financial position at a specific date?

Balance sheet

Failure to record depreciation expense for the period results in which of the following?

Both Net income being overstated and Stockholders' equity being overstated

Which pair of accounts has the same set of rules for debit and credit entries?

Common Stock (Capital Stock) and Accounts Payable

Which one of the following is an accurate description of Allowance for Doubtful Accounts?

Contra account

Which one of the following is not a recognized method of recognizing assets as expenses in a particular accounting period?

Customers' account balances in accounts receivable are assigned to expense in the period in which each customer pays.

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?

Depreciation Expense—Buildings

Which one of the following is not an accurate description of Allowance for Doubtful Accounts?

Income statement account

Which one of the following items would be added to the balance per books in a bank reconciliation?

Interest on customer note

Which of the following statements does not describe the responsibilities of a company's internal audit staff?

Internal auditors ensure that the company's financial statements have been presented fairly.

What effect does "recognizing revenue at the end of the accounting period for rent previously received in advance" have on the accounting equation for an insurance company?

Liabilities decrease and stockholders' equity increases.

A bill is received for electric service; the charge for the electricity is recorded, but payment will be made later. For this transaction, identify the effect on the accounting equation.

Liabilities increase and stockholders' equity decreases.

What effect does "recognizing an accrued liability for utilities at the end of the accounting period" have on the accounting equation?

Liabilities increase and stockholders' equity decreases.

Checks returned by a bank because customers did not have sufficient funds in their account are called

NSF checks

A company forgot to record four adjustments during 2016. Which one of the following omissions of adjustments will overstate assets?

Prepaid insurance is not reduced for the portion of the policy that has expired during the period.

As a general rule, revenue is recognized at the point of sale. Which one of the following situations illustrates this rule?

Products are sold to customers on credit with payment due in 30 days.

Allowing only certain employees to order goods and services for the company is an example of what internal control procedure?

Proper authorizations

Borden Company incurred the following costs to acquire and prepare land for a new parking lot: purchase price for land, cost to clear the land, cost of paving, lighting for the parking lot, and landscaping for the parking lot. How should the company determine which costs should be recorded as Land Improvements and which cost should be recorded as Land?

The costs with an unlimited life will increase Land, and the costs with a limited useful life will increase Land Improvements.

Which one of the approaches for the allowance method of accounting for bad debts emphasizes matching bad debts expense with revenue on the income statement?

The percentage of net credit sales approach

Payment is received from customers who were billed earlier for services provided for them. For this transaction, identify the effect on the accounting equation.

There is no effect on the accounting equation as one asset account increases while another asset account decreases.

How would interest earned on a checking account be dealt with in a bank reconciliation?

added to company's book balance

The effect of recording depreciation for the year is a(n)

decrease in assets and a decrease in net income.

How would customer's NSF checks be dealt with in a bank reconciliation?

deducted from company's book balance

Debit entries are used to

increase asset accounts.