Financial Accounting Test 1 Multiple Choice Review

Brunswick borrows $50,000 cash from Third National Bank. How does this transaction affect the accounting equation for Brunswick? A.Assets increase by $50,000; liabilities increase by $50,000; no effect on equity. B.Assets increase by $50,000; no effect on liabilities; equity increases by $50,000. C.Assets increase by $50,000; liabilities decrease by $50,000; no effect on equity. D.No effect on assets; liabilities increase by $50,000; equity increases by $50,000. E.No effect on assets; liabilities increase by $50,000; equity decreases by $50,000.

A

Geek Squad performs services for a customer and bills the customer for $500. How would Geek Squad record this transaction? A.Accounts receivable increase by $500; revenues increase by $500. B.Cash increases by $500; revenues increase by $500. C.Accounts receivable increase by $500; revenues decrease by $500. D.Accounts receivable increase by $500; accounts payable increase by $500. E.Accounts payable increase by $500; revenues increase by $500.

A

Based on the following information from Repicor Company's balance sheet, what is Repicor Company's current ratio? Current Assets....$75,000 Current Liabilities....$50,000 Investments..$30,000 Long Term Liabilities...$60,000 Plant Assets...$300,000 Common Stock...$295,000 A.2.10 B.1.50 C.1.00 D.0.95 E.0.67

B

A trial balance prepared at year-end shows total credits exceed total debits by $765. This discrepancy could have been caused by A.An error in the general journal where a $765 increase in Accounts Payable was recorded as a $765 decrease in Accounts Payable. B.The ledger balance for Accounts Payable of $7,650 being entered in the trial balance as $765. C.A general journal error where a $765 increase in Accounts Receivable was recorded as a $765 increase in Cash. D.The ledger balance of $850 in Accounts Receivable was entered in the trial balance as $85. E.An error in recording a $765 increase in Cash as a credit.

D

On November 1, 2015, Stockton Co. receives $3,600 cash from Hans Co. for consulting services to be provided evenly over the period November 1, 2015, to April 30, 2016—at which time Stockton credited $3,600 to Unearned Consulting Fees. The adjusting entry on December 31, 2015 (Stockton's year-end) would include a A.Debit to Unearned Consulting Fees for $1,200. B.Debit to Unearned Consulting Fees for $2,400. C.Credit to Consulting Fees Earned for $2,400. D.Debit to Consulting Fees Earned for $1,200. E.Credit to Cash for $3,600.

a; Consulting fees earned = $3,600 × (2/6) = $1,200; adjusting entry is: dr. Unearned Consulting Fee for $1,200, cr. Consulting Fees Earned for $1,200.

On May 1, Mattingly Lawn Service collected $2,500 cash from a customer in advance of five months of lawn service. Mattingly's journal entry to record this transaction includes a A.Credit to Unearned Lawn Service Fees for $2,500. B.Debit to Lawn Service Fees Earned for $2,500. C.Credit to Cash for $2,500. D.Debit to Unearned Lawn Service Fees for $2,500. E.Credit to Common Stock for $2,500.

a; debit Cash for $2,500, and credit Unearned Lawn Service Fees for $2,500.

On May 1, 2015, a two-year insurance policy was purchased for $24,000 with coverage to begin immediately. What is the amount of insurance expense that appears on the company's income statement for the year ended December 31, 2015? A.$4,000 B.$8,000 C.$12,000 D.$20,000 E.24,000

b; Insurance expense = $24,000 × (8/24) = $8,000; adjusting entry is: dr. Insurance Expense for $8,000, cr. Prepaid Insurance for $8,000.

Amalia Company received its utility bill for the current period of $700 and immediately paid it. Its journal entry to record this transaction includes a A.Credit to Utility Expense for $700. B.Debit to Utility Expense for $700. C.Debit to Accounts Payable for $700. D.Debit to Cash for $700. E.Credit to Common Stock for $700.

b; debit Utility Expense for $700, and credit Cash for $700

On December 30, 2014, KPMG signs a $150,000 contract to provide accounting services to one of its clients in 2015. KPMG has a December 31 year-end. Which accounting principle or assumption requires KPMG to record the accounting services revenue from this client in 2015 and not 2014? A.Business entity assumption B.Revenue recognition principle C.Monetary unit assumption D.Cost principle E.Going-concern assumption

b; revenue is recorded when earned.

A company forgot to record accrued and unpaid employee wages of $350,000 at period-end. This oversight would A.Understate net income by $350,000. B.Overstate net income by $350,000. C.Have no effect on net income. D.Overstate assets by $350,000. E.Understate assets by $350,000.

b; the forgotten adjusting entry is: dr. Wages Expense, cr. Wages Payable.

A building is offered for sale at $500,000 but is currently assessed at $400,000. The purchaser of the building believes the building is worth $475,000, but ultimately purchases the building for $450,000. The purchaser records the building at: A.$50,000 B.$400,000 C.$450,000 D.$475,000 E.$500,000

c; $450,000 is the actual cost incurred.

Prior to recording adjusting entries, the Supplies account has a $450 debit balance. A physical count of supplies shows $125 of unused supplies still available. The required adjusting entry is: A.Debit Supplies $125; Credit Supplies Expense $125. B.Debit Supplies $325; Credit Supplies Expense $325. C.Debit Supplies Expense $325; Credit Supplies $325. D.Debit Supplies Expense $325; Credit Supplies $125. E.Debit Supplies Expense $125; Credit Supplies $125.

c; Supplies used = $450 − $125 = $325

Liang Shue contributed $250,000 cash and land worth $500,000 to open his new business, Shue Consulting Corporation. Which of the following journal entries does Shue Consulting make to record this transaction?

c; debit Cash for $250,000, debit Land for $500,000, and credit Common Stock for $750,000.

If the assets of a company increase by $100,000 during the year and its liabilities increase by $35,000 during the same year, then the change in equity of the company during the year must have been: A.An increase of $135,000. B.A decrease of $135,000. C.A decrease of $65,000. D.An increase of $65,000. E.An increase of $100,000.

d; Assets($100,000)=Liabilities($35,000)+Equity(?)

Bonaventure Company has total assets of $1,000,000, liabilities of $400,000, and equity of $600,000. What is its debt ratio (rounded to a whole percent)? A.250% B.167% C.67% D.150% E.40%

e; Debt ratio = $400,000/$1,000,000 =

If a company had $15,000 in net income for the year, and its sales were $300,000 for the same year, what is its profit margin? A.20% B.2,000% C.$285,000% D.$315,000% E.5%

e; Profit margin = $15,000/$300,000 = 5%