Chapter 3

A debit balance in Income Summary indicates the company a.had a net loss for the period. b.is in its first year of operations. c.had a net income for the period. d.made an error.

a

Current assets include all of the following except a.inventory. b.cash. c.accounts receivable. d.intangible assets.

d

Revenue that a company has earned but not yet received is a. Deferred revenue. b. Prepaid expense. c. Estimated. d. Accrued revenue.

d. Accrued revenue.

True or false: A journal entry has one debit and one credit. True False

False

True or false: The balance sheet is prepared before the income statement. True False

False

True or false: When a company uses special journals, the general journal is not needed. True False

False

True or false: When a worksheet is used, financial statements are not prepared separately. True False

False

On a worksheet, which of the following accounts will not be extended to the Balance Sheet columns? a.Unearned Rent b.Accumulated Depreciation c.Depreciation Expense d.Capital Stock

c

The control account for a subsidiary ledger a. Is optional, although it is frequently used. b. Must have a balance equal to that of the subsidiary ledger. c. Provides a check on the accuracy of the debits and credits in the subsidiary ledger. d. Requires a company to keep up-to-date records of credit customers and suppliers.

b. Must have a balance equal to that of the subsidiary ledger.

True or false: Entries in the general journal first list the accounts being debited. True False

True

True or false: When a worksheet is used, adjusting and closing entries are still recorded in the general journal. True False

True

For the current year, Vidalia Company reported revenues of $250,000 and expenses of $225,000. At the beginning of the year, its retained earnings had a balance of $95,000. During the year, Vidalia paid $11,000 dividends to shareholders. Its contributed capital was $56,000 at the beginning of the year, and it did not issue any new stock during the year. Vidalia's assets total $237,500 on December 31 of the current year. What are Vidalia's total liabilities on December 31 of the current year?

72,500 Assets = Liabilities + Shareholders' equity

Which of the following is an adjusting entry? Salaries Expense 500 Cash 500 Depreciation Expense 975 Accumulated Depreciation 975 Cash 1,000 Sales Revenue 1,000 Land 5,000 Cash 5,000

Depreciation Expense 975 Accumulated Depreciation 975

A __________ is the entire set of accounts for a company. a.general ledger b.trial balance c.general journal d.balance sheet

a

Reversing entries should be made for all the following situations except a.adjusting entries that defer expenses by recording them initially as assets. b.adjusting entries that defer revenues for prepayments from customers by recording them as unearned or deferred revenues. c.adjusting entries that accrue revenues to be collected in the next accounting period. d.adjusting entries that accrue expenses to be paid in the next accounting period.

a

The effects of adjusting entries for accrued expenses include a.an increase in a liability and an increase in an expense. b.an increase in an asset and an increase in revenue. c.a decrease in a liability and an increase in revenue. d.a decrease in an asset and an increase in an expense.

a

The journal entry consists of all of the following except a.columns to keep a running total of the balance in each account. b.a column to list titles of the accounts affected. c.columns to list the amounts recorded as a debit or credit to each account. d.the date.

a

The most common types of special journals include all of the following except a.general journal. b.cash receipts journal. c.sales journal. d.purchases journal.

a

Which of the following errors is not identified by the trial balance? a. A transaction is accidentally recorded twice. b. A slide. c. A debit is posted as a credit. d. A transposition.

a. A transaction is accidentally recorded twice.

In the double-entry system, which accounts are increased by debits? a. All accounts on the left side of the accounting equation. b. All permanent accounts. c. All accounts on the right side of the accounting equation. d. All temporary accounts.

a. All accounts on the left side of the accounting equation.

Adjusting entries a. Are necessary because not all accounts are up to date at the end of the accounting period. b. Are made at the beginning of the accounting period to ready the books for the year's activity. c. Will affect two permanent accounts or two temporary accounts, but not one permanent and one temporary account. d. All of the choices are correct regarding adjusting entries.

a. Are necessary because not all accounts are up to date at the end of the accounting period.

Reversing entries are made for adjusting entries that _____ at the end of the accounting period for transactions that _____ during the next accounting period. a. Create a new balance sheet account; will be completed. b. Use an existing balance sheet account; will be completed. c. Create a new balance sheet account; will not be completed. d. Use an existing balance sheet account; will not be completed.

a. Create a new balance sheet account; will be completed.

Prepaid insurance requires which type of adjusting entry? a. Deferral. b. Estimate. c. Accrual. d. Expense.

a. Deferral.

Which statement verifies that the debit balances total is equal to the credit balances total in the permanent accounts only? a. Post-closing trial balance. b. Balance sheet. c. Adjusted trial balance. d. Statement of cash flows.

a. Post-closing trial balance.

All of the following are noncurrent assets except a. Prepaid items. b. Licenses. c. Investments. d. Natural resources.

a. Prepaid items.

Why are reversing entries used? a. To routinely record subsequent related transactions. b. To determine accrued expenses to be paid in the next accounting period. c. To speed up closing the accounts at the end of a period. d. To determine deferred revenues to be collected in the next accounting period.

a. To routinely record subsequent related transactions.

A closing entry a. Updates the Retained Earnings account. b. Reduces temporary and permanent accounts to zero at the end of the accounting period. c. Is optional for a company to make at year-end. d. All of the choices are correct.

a. Updates the Retained Earnings account.

Assume that Jordan Corporation uses a periodic inventory system. Jordan had beginning and ending inventory of $25,000 and $30,000, respectively. Cost of Goods Available for Sale is equal to $90,000. Cost of goods sold is a.$85,000 b.$60,000 c.$65,000 d.$30,000

b

Income Summary has a balance and appears on which of the following documents in the accounting cycle? a.Post-closing trial balance b.Income Summary doesn't appear on any documents included in the accounting cycle. c.Balance sheet d.Worksheet

b

Orange Company purchased 5 acres of land for a building site, paying $5,000 per acre. The land and building had a fair market value of $6,000 per acre. Orange recorded this with a a.credit to Cash for $30,000. b.debit to Land for $25,000. c.debit to Land for $30,000. d.debit to Cash for $25,000.

b

The accounting cycle starts with a.preparing the financial statements. b.recording the transaction based on the information in a source document. c.closing out the periodic accounts. d.preparing the adjusting entries.

b

The basic purpose of the trial balance is to a.list all of the accounts in the general ledger. b.verify that the total credits equal the total debits. c.be sure that all ledger accounts have been added correctly. d.be sure that all journal entries have been recorded.

b

The final step in the accounting cycle is to a.prepare and post adjusting entries. b.prepare and post closing entries. c.prepare the financial statements. d.post the journal entries to the accounts in the ledger.

b

The total of the individual customer account balances should equal the balance in a.Sales Revenue. b.Accounts Receivable. c.Accounts Payable. d.Allowance for Doubtful Accounts.

b

When preparing a journal entry, the standard format is to list all a.accounts to be credited first. b.accounts to be debited first. c.liability accounts first. d.assets accounts first.

b

Slate Company uses the cash basis of accounting to record transactions. Slate made $500,000 in payments to its suppliers during the year. Slate's beginning inventory was $20,000, and its ending inventory was $35,000. In addition, Slate had a beginning accounts payable of $50,000 and an ending accounts payable of $70,000. What is Slate's cost of goods sold converted to the accrual basis of accounting? a.$465,000 b.$505,000 c.$495,000 d.$535,000

b Payments to Suppliers + Beginning Inventory - Ending Inventory + Ending Accounts Payable - Beginning Accounts Payable = Cost of Goods Sold = $500,000 + $20,000 - $35,000 + $70,000 - $50,000 = $505,000.

The components of shareholders' equity are a. Contributed capital, net income, and dividends. b. Accumulated other comprehensive income, retained earnings, and contributed capital. c. Retained earnings, net income, and dividends. d. Accumulated other comprehensive income, net income, contributed capital, and retained earnings.

b. Accumulated other comprehensive income, retained earnings, and contributed capital.

Which type of adjusting entry debits a liability account and credits a revenue account? a. Accrued expense. b. Deferred revenue. c. Prepaid expense. d. Accrued revenue.

b. Deferred revenue.

Which of the following is/are correct regarding the accounting equation and the double-entry system of recording journal entries? a. Debit or credit entries affect three or more accounts in the assets, liabilities, and owner's equity, excluding the temporary accounts. b. The dollar amount of the debits entered in all the related accounts must be equal to the total dollar amount of the credits. c. The accounting equation is represented by Assets + Liabilities = Owner's Equity. d. All of the choices are correct.

b. The dollar amount of the debits entered in all the related accounts must be equal to the total dollar amount of the credits.

Green Company's adjusting entry was a debit to Interest Receivable and a credit to Interest Revenue for $500. The correct reversing entry is a a.debit to Unearned Revenue and a credit to Interest Receivable for $500. b.debit to Interest Revenue and a credit to Unearned Revenue for $500. c.debit to Interest Revenue and a credit to Interest Receivable for $500. d.debit to Unearned Revenue and a credit to Interest Revenue for $500.

c

The statement of cash flows reports for a period of time the net cash flows from a.investing, financing, and budgeting activities. b.income, investing, and budgeting activities. c.operating, investing, and financing activities. d.operating, income, and financing activities.

c

Under _____ accounting, a company records revenues in the accounting period in which they are earned, while _____ accounting records revenues in the accounting period in which cash is received. a.cash-basis; accrual-basis b.credit-basis; debit-basis c.accrual-basis; cash-basis d.debit-basis; credit-basis

c

Depreciation is an example of a. A prepaid expense. b. An accrued expense. c. An estimate. d. A contra account.

c. An estimate.

Noncurrent assets are listed on which statement? a. Adjusted trial balance. b. Statement of shareholders' equity. c. Balance sheet. d. Income statement.

c. Balance sheet.

How is depreciation handled when moving from cash-basis to accrual-basis accounting? a. Include depreciation expense in accrued expenses. b. Include depreciation expense in prepaid expenses. c. Include depreciation expense in operating expenses. d. Include depreciation expense in accounts payable.

c. Include depreciation expense in operating expenses.

All of the following describe how accounting information flows through a company's accounting system except a. It is stored in accounts. b. The financial statements report it. c. It is reviewed in the general journal. d. Source documents contain the details about it.

c. It is reviewed in the general journal.

The retained earnings account reflects changes in a. Revenues and expenses. b. Assets, liabilities, and contributed capital. c. Net income and dividends. d. General ledger accounts.

c. Net income and dividends.

All of the following are temporary accounts except a. Revenue. b. Income Summary. c. Retained Earnings. d. Dividends.

c. Retained Earnings.

Using a general journal helps prevent errors because a. Closing and adjusting entries are made in each period. b. Entries are made daily. c. The equality of the debits and credits can be verified. d. Each entry includes an explanation.

c. The equality of the debits and credits can be verified.

Which of the following statements is correct regarding a perpetual accounting system? a. A company derives its cost of goods sold by first computing its cost of goods available for sale. b. The Purchases account is closed into the Inventory account. c. When a sale is made an entry is recorded to increase the Cost of Goods Sold account. d. Purchases of inventory are recorded in a Purchases account.

c. When a sale is made an entry is recorded to increase the Cost of Goods Sold account.

A reversing entry is an exact reverse (accounts and amounts) of a(n) __________ entry. a.routine b.closing c.correcting d.adjusting

d

In converting cash-basis financial statements to accrual-basis, a company must adjust operating costs for the change in a.inventory and accounts payable. b.accounts receivable. c.inventory and accounts receivable. d.prepaid and accrued expenses.

d

Which of the following is not a reason for preparing adjusting entries? a.To record accrued expenses b.To record estimated items, such as depreciation c.To match the consumption of prepaid assets against current revenues d.To record the purchase of equipment

d

Which of the following is the correct equation to calculate net income? a.Net Income = Revenues - Expenses - Gains - Losses b.Net Income = Revenues + Expenses + Gains - Losses c.Net Income = Revenues - Expenses + Gains + Losses d.Net Income = Revenues - Expenses + Gains - Losses

d

Which of the following statements is not true? a.Asset accounts are increased by debit entries and decreased by credit entries. b.Expense accounts normally have debit balances. c.The accounting equation must always remain in balance. d.Capital stock accounts are increased by debit entries and decreased by credit entries.

d

Which of the following statements regarding net income or net loss is true? a.In the Income Statement columns of a worksheet, if there is net income, it must be added to the credit column to make the two columns balance. b.In the Adjusted Trial Balance columns of a worksheet, if there is net income, it will be entered in the debit column to make the two columns balance. c.In the Retained Earnings columns of a worksheet, if there is a loss, it will be entered in the credit column to make the two columns balance. d.In the Income Statement columns of a worksheet, if there is a net loss, it must be added to the credit column to make the two columns balance.

d

Which of the following correctly represents the expanded accounting equation using the ten elements of financial accounting? a. Assets = Liabilities - (Contributed Capital - Beginning Retained Earnings - Beginning AOCI + Revenues - Expenses + Gains - Losses + Dividends + Other Comprehensive Income). b. Assets = Liabilities + (Common Stock + Beginning Inventory + Beginning Cash - Revenues + Expenses + Gains - Losses - Dividends - Ending Inventory). c. Assets = Liabilities + (Contributed Capital + Beginning Retained Earnings + Beginning Cash + Revenues - Expenses - Gains + Losses + Dividends - Ending Cash). d. Assets = Liabilities + (Contributed Capital + Beginning Retained Earnings + Revenues - Expenses + Gains - Losses - Dividends + Beginning AOCI + Other Comprehensive Income).

d. Assets = Liabilities + (Contributed Capital + Beginning Retained Earnings + Revenues - Expenses + Gains - Losses - Dividends + Beginning AOCI + Other Comprehensive Income).

Which of the following is characteristic of cash-basis accounting? a. Related cash flows may occur in a different period. b. Revenues are recognized in the period in which performance obligations are satisfied. c. Net income is not the same as net operating cash flow for the period. d. Expenses are recorded when cash is paid for operations.

d. Expenses are recorded when cash is paid for operations.

Which of the following pairings of a term and a definition is incorrect? a. Account - stores recorded monetary information from transactions and events. b. Contra account - an account created to show a reduction from a related account. c. General ledger - entire set of accounts for a company. d. Posting - transferring debit or credit amounts from the general ledger to the appropriate financial statement.

d. Posting - transferring debit or credit amounts from the general ledger to the appropriate financial statement.

Which of the following is the first step in the accounting cycle? a. Prepare the temporary accounts for the new period. b. Prepare and post adjusting entries. c. Post journal entries to the accounts in the ledger. d. Record transactions, events, and arrangements in the journal.

d. Record transactions, events, and arrangements in the journal.

After posting a. A company updates each account in the general ledger. b. The date and debit and credit amounts from the general ledger are transferred to the general journal. c. A company records its transactions, events, and arrangements in the general journal. d. The general ledger includes the journal entry information within all of the accounts.

d. The general ledger includes the journal entry information within all of the accounts.

All of the following are basic components of an accounting system except a. The accounting equation. b. Records. c. Outputs. d. Source documents. e.None of these choices.

e.None of these choices.