EXAM 2 REVIEW QUESTIONS CHAPTER 3&4

21. Jamal Company began the year with $126,000 in its Common Stock account and a balance in Retained Earnings of $54,000. During the year, the company earned net income of $27,000 and paid $9,000 of dividends. In addition, the company issued additional common stock amounting to $33,000. What is the ending total of all stockholders' equity accounts? a. $231,000 b. $249,000 c. $123,000 d. $165,000

a. $231,000

27. Baden Industries borrows $20,000 at 7% annual interest for six months on October 1st, 2017. Which is the appropriate adjustment to accrue interest if Baden has a December 31st, 2017, fiscal year? a. Increase Interest Expense $350, Increase Interest Payable $350 b. Increase Interest Expense $1,400, Increase Interest Payable $1,400 c. Increase Interest Expense $350, Decrease Notes Payable $350 d. Decrease Notes Payable $1,400, Increase Interest Payable $1,400

a. Increase Interest Expense $350, Increase Interest Payable $350

3. Issuing common stock to stockholders increases a. assets and stockholders' equity. b. assets and liabilities. c. liabilities and stockholders' equity. d. assets only.

a. assets and stockholders' equity.

6. Unearned revenues are: a. cash payments received and recorded as liabilities before revenue is recorded. b. recorded as revenue and recorded as liabilities before cash is received. c. recorded as revenue before cash is received. d. cash payments received after revenue is recorded

a. cash payments received and recorded as liabilities before revenue is recorded.

7. Sunburn Corporation paid a cash dividend. The effect of this transaction a. decreases assets and stockholders' equity. b. increases assets and stockholders' equity. c. increases assets and decreases stockholders' equity. d. decreases assets and increases stockholders' equity

a. decreases assets and stockholders' equity.

19. Each of the following is a major type (or category) of adjustment except: a. earned expenses. b. prepaid expenses. c. accrued expenses. d. accrued revenues.

a. earned expenses.

Collection of a $600 Accounts Receivable a. increases an asset $600; decreases an asset $600. b. increases an asset $600; decreases a liability $600. c. decreases a liability $600; increases stockholders' equity $600. d. decreases an asset $600; decreases a liability $600.

a. increases an asset $600; decreases an asset $600.

9. When collection is made on Accounts Receivable, a. total assets will remain the same. b. stockholders equity will increase. c. total assets will increase. d. total assets will decrease.

a. total assets will remain the same.

17. At December 1, 2017, Orear Company's Accounts Receivable balance was $16,800. During December, Orear had sales on account of $45,000 and collected accounts receivable of $36,000. At December 31, 2017, the Accounts Receivable balance is a. $16,800 b. $25,800 c. $61,800 d. $9,000

b. $25,800

29. At December 31, before any year-end adjustments were made, Daily Company's Prepaid Insurance account had a balance of $5,800. It was determined that $2,600 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be: a. $2,600 b. $3,200 c. $5,800 d. $2,800

b. $3,200

13. Powers Corporation received a cash advance of $500 from a customer. As a result of this event, a. Cash and Service Revenue increased by $500. b. Cash and Unearned Service Revenue increased by $500. c. Cash increased and Unearned Service Revenue decreased by $500. d. Accounts Receivable and Service Revenue increased by $500.

b. Cash and Unearned Service Revenue increased by $500.

4. Windsor, Inc. paid $500 on May 1 for office rent for the month of May. This transaction will a. Increase cash and decrease accounts payable. b. Decrease cash and increase expenses. c. Increase accounts payable and increase expenses. d. Decrease cash and decrease prepaid rent.

b. Decrease cash and increase expenses.

30. If a company fails to adjust for accrued salaries & wages, what effect will this have on that month's financial statements? a. Failure to make an adjustment does not affect the financial statements. b. Expenses will be understated and net income and stockholders' equity will be overstated. c. Assets will be overstated and net income and stockholders' equity will be overstated. d. Assets will be overstated and net income and stockholders' equity will be understated.

b. Expenses will be understated and net income and stockholders' equity will be overstated.

10. An expense a. decreases assets and liabilities. b. decreases stockholders' equity. c. leaves stockholders' equity unchanged. d. increases assets and decreases liabilities

b. decreases stockholders' equity.

28. Mary Richardo, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What transaction will she record upon receipt of the payments? a. decrease Unearned Service Revenue and increase Service Revenue b. increase Cash and decrease Accounts Receivable c. increase Accounts Receivable and increase Service Revenue d. Increase Cash and increase Service Revenue

b. increase Cash and decrease Accounts Receivable

12. The TNT Company has five plants nationwide that cost $300 million. The current fair value of the plants is $500 million. The plants will be reported as assets at a. $200 million. b. $800 million. c. $300 million. d. $500 million.

c. $300 million

16. During January 2017, its first month of operation, Osborn Enterprises earned net income of $6,800 and paid dividends to the owners of $2,000. At January 31, the balance in Retained Earnings will be a. $0. b. $6,800 c. $4,800 d. $2,000

c. $4,800

26. If service for $175 had been performed but not billed, the adjustment to record this would include a(n): a. decrease to Service Revenue for $175. b. increase to Unearned Service Revenue for $175. c. increase to Service Revenue for $175. d. decrease to Unearned Revenue for $175.

c. increase to Service Revenue for $175.

24. Hoosher Enterprises purchased an 18-month insurance policy on May 31, 2017 for $10,800. The December 31, 2017 balance sheet would report Prepaid Insurance of: a. $0 because Prepaid Insurance is reported on the Income Statement. b. $4,200. c. $6,600. d. $10,800.

c. $6,600.

20. Adjustments for prepaid expenses: a. decrease assets and increase revenues. b. decrease expenses and increase assets. c. decrease assets and increase expenses. d. decrease revenues and increase assets.

c. decrease assets and increase expenses.

23. On January 1, 2017, M. Johanson Company purchased equipment for $54,000. The company is depreciating the equipment at the rate of $750 per month. The adjustment for depreciation expense at December 31, 2017 is: a. increase Depreciation Expense, $750; increase Accum. Depreciation, $750. b. increase Accum. Depreciation, $750; decrease Depreciation Expense, $750. c. increase Depreciation Expense, $9,000; increase Accum. Depreciation, $9,000. d. increase Accum. Depreciation, $9,000; decrease Depreciation Expense, $9,000.

c. increase Depreciation Expense, $9,000; increase Accum. Depreciation, $9,000.

22. The unadjusted account balances show Supplies $5,000 and Supplies Expense $0. If $900 of supplies are on hand at the end of the period, the adjustment a. increases Supplies Expense, $5,900; decreases Supplies, $5,900. b. increases Supplies, $900; decreases Supplies Expense, $900. c. increases Supplies Expense, $4,100; decreases Supplies, $4,100. d. increases Supplies, $4,100; decreases Supplies Expense, $4,100.

c. increases Supplies Expense, $4,100; decreases Supplies, $4,100.

18. Accrued expenses are: a. paid and recorded in an asset account before they are used or consumed. b. paid and recorded in an asset account after they are used or consumed. c. incurred but not yet paid or recorded. d. incurred and already paid or recorded.

c. incurred but not yet paid or recorded.

2. When a company performs services on account, then a. assets will decrease. b. liabilities will increase. c. stockholders' equity will increase. d. liabilities will decrease

c. stockholders' equity will increase.

15. At February 1, 2017, the balance in Goebel Inc.'s supplies account was $3,500. During February, Goebel purchased supplies of $3,000 and used supplies of $4,000. At the end of February, the balance in the Supplies on hand should be a. $3,500 b. $4,500 c. $10,500 d. $2,500

d. $2,500

11. If a company purchases a $7,000 machine on account, this transaction will affect the a. income statement and retained earnings statement only. b. income statement only. c. income statement, retained earnings statement, and balance sheet. d. balance sheet only.

d. balance sheet only.

14. Comstock Company provided consulting services and billed the client $2,500. As a result of this event a. assets remained unchanged. b. assets increased by $2,500. c. equity increased by $2,500 d. both assets and equity increased by $2,500.

d. both assets and equity increased by $2,500.

8. The payment of a liability a. decreases assets and stockholders' equity. b. increases assets and decreases liabilities. c. decreases assets and increases liabilities. d. decreases assets and liabilities.

d. decreases assets and liabilities

25. The balance in the prepaid rent account before adjustment at the end of the year is $12,000 and represents three months of rent paid on December 1. The adjustment required on December 31 is: a. increase Prepaid Rent, $4,000; decrease Rent Expense $4,000. b. increase Prepaid Rent, $8,000; decrease Rent Expense, $8,000. c. increase Rent Expense, $12,000; decrease Prepaid Rent, $12,000. d. increase Rent Expense, $4,000; decrease Prepaid Rent, $4,000.

d. increase Rent Expense, $4,000; decrease Prepaid Rent, $4,000.

5. Windsor, Inc. purchased equipment for $5,000 cash. This transaction will a. increase assets and stockholders' equity. b. increase assets and liabilities. c. decrease assets and increase liabilities. d. leave total assets unchanged

d. leave total assets unchanged