Financial Accounting Test 1 Practice Question

question

Enable every owner to limit their personal liability while also avoiding “double taxation”?
answer

Limited Liability Company
question

Allow an individual owner the most freedom to manage the business as he or she wishes?
answer

Proprietorship
question

Give the company’s creditors the maximum protection in the event that the company fails and cannot pay its debts?
answer

Partnership
question

Is the most common form of business in the U.S?
answer

Proprietorship
question

Is the largest in terms of assets, income, and employees?
answer

Corporation
question

“Honest” Frank Lee owns a law firm. With dividends from his practice, he has purchased personal investments. These investments are reflected on the balance sheet of his legal practice at original cost. What basic principle or assumption is violated in each of the following independent situations and why?
answer

The Entity Assumption
question

“Honest” Frank purchased the land for the office 10 years ago for $26,000. the bank appraised the land for $30,000 and accordingly loaned his practice the money to buy the land. “Honest” Frank recorded the land at the appraised value, $30,000. What basic principle or assumption is violated in each of the following independent situations and why?
answer

Historical Cost Principal
question

What 2 types of activities cause stockholders’ equity to increase?
answer

1. Revenue 2. Common Stock
question

What 2 types of activities cause stockholders’ equity to decrease?
answer

1. Expenses 2. Dividends
question

The primary objective of financial reporting is to provide information
answer

Useful for making investment and credit decisions
question

Which type of business organization provides the least amount of protection for bankers and other creditors of the company?
answer

Corporation
question

A potential investor interested in evaluating a company’s operating performance during the current period would probably examine which of the following financial statements?
answer

Income Statement
question

Which of the following statements should be prepared before the balance sheet is prepared?
answer

Statement of Retained Earnings
question

The Entity Concept States that
answer

The personal assets and liabilities of an owner not be shown on the business’s financial statements.
question

The pattern of recording transactions is based on?
answer

The double-entry system (Give something and receive something)
question

Each transaction has at lest ____ accounts?
answer

2
question

Each Transaction involves an equal amount of ______ and ______ ?
answer

Debits and Credits
question

Receiving cash from a customer on account will …
answer

Have no effect on total assets
question

Purchasing a laptop computer on account will …
answer

Increase total assets Increase total liabilities Have no effect on stockholder’s equity
question

Purchasing a building for $95,000 by paying cash of $25,000 and signing a note payable for $70,000 will …
answer

Increase both total assets and total liabilities by $70,000
question

Which of the following transactions will increase an asset and increase stockholders’ equity?
answer

Performing a service on account for a customer
question

Which is the correct sequence for recording transactions and preparing financial statements?
answer

1. Journal 2. Ledger 3. Trial Balance 4. Financial Statements
question

Which of the following statements regarding accounts is false?
answer

Dividends are increased by credits and decreased by debits
question

An asset is increased by a debit and decreased by a credit
answer

True
question

A liability is decreased by a debit and increased by a credit
answer

True
question

Revenue is increased by a credit and an expense is increase by a debit
answer

True
question

The revenue principle requires that business record revenue when the business
answer

Delivers the good or services to a customer
question

An expense incurred in 2015 is not paid until 2016. Using the accrual basis of accounting, the expense should appear on:
answer

The 2015 Income Statement
question

An adjusting entry recorded June salary expense that will be paid in July. Which statement best describes the effect of this adjusting entry on the company’s accounting equation?
answer

Assets are not affected, liabilities are increased, and stockholders’ equity is decreased
question

What is the effect on the financial statements of recording depreciation on equipment?
answer

Net income, assets, and stockholders’ equity are all decreased
question

The unearned revenue account was not adjusted for work performed in the current year. The effect of this error is:
answer

Liabilities are overstated and revenues are understated
question

On November 1 of the current year, a business received $5,400 for legal services to be performed evenly through the next 12 months. The adjusting entry for the current year ended on December 31 would include a:
answer

Credit to Service Revenue for $900
question

Elton Company made a $2 million sale on account. Prior to the sale, Elton’s current ratio was 1.5 and its debit ratio was 0.60. How will this transaction affect the current ration and the debit ratio?
answer

It improves both the current ratio and the debt ratio
question

Entertainment Services USA started the year with $200 of supplies. During the year the company purchased additional supplies costing $1,200. There was $800 of supplies on hand at the end of the year. The Income Statement will report what amount for supplies Expense?
answer

$600
question

For 2015, Wyndham Company has revenues in excess of expenses. Which statement describes Wyndham’s closing entries at the end of 2015 (assume there is only one closing entry for both revenue and expense)
answer

Revenues will be debited, expenses will be credited, and retained earnings will be credited
question

An owner’s investment of cash into the business will
answer

Increase both total assets and total stockholders’ equity
question

Purchasing office equipment on account will
answer

Increase total assets Increase total liabilities Have no affect on stockholders’ equity
question

Performing a service on account will
answer

Increase total assets Increase stockholders’ equity
question

Receiving a payment from a customer on account will
answer

Have no affect on total assets
question

Purchasing office equipment for cash will
answer

Have no affect on total assets, total liabilities, or stockholders’ equity
question

Purchasing a building for $100,000 by paying cash of $20,000 and obtaining a mortgage for $80,000 will
answer

Increase both total assets and total liabilities by $80,000
question

What is the affect on total assets and stockholders’ equity of paying the electric bill as soon as it is received each month?
answer

Total Assets – Decrease Total Stockholders’ Equity – Decrease
question

Which of the following transactions would increase an asset and increase a liability?
answer

Borrowing money from the bank
question

Which of the following transactions would increase an asset and increase stockholders’ equity?
answer

Performing a service on account for a customer
question

Where is the first place a transaction is recorded?
answer

Journal
question

Which of the following statements is false?
answer

Dividends are increased by credits
question

Assets are increased by debits
answer

True
question

Revenues are increased by credits
answer

True
question

Liabilities are increased by credits
answer

True
question

The journal entry to record the purchase of supplies on account consists of a
answer

Debit to supplies and a credit to accounts payable
question

The journal entry to record a payment on account will include a
answer

Debit to accounts payable and credit to cash
question

If the credit amount of an entry to record they payment of an account payable was not posted:
answer

Assets will be overstated
question

A trial balance is a listing of all accounts with their current balances?
answer

True
question

A trial balance is the same as the balance sheet?
answer

False
question

A trial balance is used to check on the equality of debits and credits?
answer

True
question

A trial balance may be taken at anytime
answer

True
question

Who are the primary users of financial statements?
answer

Investors and Creditors
question

Choose the account that most closely fits each heading
answer

Asset – Prepaid Expense Liability – Unearned Revenue Revenue – Sales
question

Baldwin Company bought a building from McCraw Inc. on June 30, 2011 for $2,000 cash. The journal entry to record that transaction would include a credit to which of the following?
answer

Cash
question

Prepaid Expense has a normal debit balance?
answer

True
question

Erratt Inc. borrowed a $10,000 note from the bank. What is the correct journal entry to record this transaction?
answer

Cash Note Payable
question

To find liabilities
answer

Assets – Owner’s Equity
question

Which of the following would decrease both an asset and owner’s equity?
answer

Paying out cash dividends
question

Accounts Payable has a normal credit balance?
answer

True
question

Unearned Revenue has a normal credit balance?
answer

True
question

Retained Earnings has a normal credit balance?
answer

True
question

Prepaid Expenses has a normal credit balance?
answer

False
question

The Balance Sheet and the Income Statement, respectively, are known by what other names?
answer

The Statement of Financial Position, and The Statement of Operations
question

In what order should the Financial Statements be prepared?
answer

1. Income Statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of Cash Flows
question

The principle that states that the assets and liabilities of a business should be kept separate from the assets and liabilities of the owner(s).
answer

Entity Principle
question

Generally Accepted Accounting Principles are:
answer

Principles, practices, guidelines, conventions, rules, and procedures that must be used in the preparation of financial statements for public companies.
question

Wages payable would appear on the balance sheet>?
answer

True
question

Unearned revenue would appear on the balance sheet?
answer

True
question

Prepaid Expense would appear on the balance sheet?
answer

True
question

Supplies would appear on the balance sheet?
answer

True
question

The primary objective of financial reporting is to provide information?
answer

That is useful for making investment and lending decisions
question

How much are total liability if owner’s equity is $38,000 and total assets are $56,000?
answer

$18,000
question

Revenues are?
answer

Increases in retained earning resulting from selling products or performing services.
question

The financial statement that presents a summary of the REVENUES and EXPENSES of an entity is called the?
answer

Income Statement
question

Another name for the balance sheet is?
answer

Statement of financial position
question

Which of the following is an acceptable variation of the accounting equation?
answer

Assets – Liabilities = Stockholders’ Equity
question

The amount of dividends paid by a company to its owners is shown on the?
answer

Statement of Retained Earnings
question

If assets increased by $20,000 during a period and liabilities decreased by $4,000 during the same period, stockholders’ equity must have?
answer

Increased by $24,000
question

The amount of an entity’s receivables as of a given date generally appears on?
answer

The Balance Sheet in the assets section
question

Accounts Receivable is a current asset?
answer

True
question

Office Supplies is a current asset?
answer

True
question

Cash is a current asset?
answer

True
question

Furniture is a current asset?
answer

False
question

Increases in stockholder’s equity arise from?
answer

1. Investment in the business by owners 2. Earning Net Income
question

The amount of net income reported on the income statement also appears on the?
answer

Statement of Retained Earnings
question

The ending balance of retained earnings appears on?
answer

Both the statement of retained earnings and the balance sheet
question

If an adjusting entry is not made to record what the expired portion of a prepaid expense, net income will be?
answer

Overstated
question

For the current year, Cameron Company had revenues in excess of expenses. Which of the following statements is correct regarding the closing entries made by Cameron Company at the end of the current year?
answer

Revenue accounts were debated, Expense accounts were credited, and Retained Earnings had a net credit change
question

Which of the following accounts would not be included in the closing entries prepared by a taxi cab company?
answer

Accumulated Depreciation
question

Which of the following accounts is credited during the closing process?
answer

1.Salary Expense 2.Dividends
question

Which of the following accounts is debited during the closing process?
answer

1. Service Revenue 2. Sales Revenue
question

On January 1, 2013, the balance of the supplies account for Alyssa’s Camping Store was $1,000. Purchases of supplies during the year amounted to $4,890. A physical count at year end showed $2,740 of supplies remained. The AJE on 12/31 would include what?
answer

A credit to supplies for $3,150
question

Accumulated Depreciation is what kind of account, and what account does it subtract from?
answer

Contra-Asset; Equipment
question

Which of these entries cannot be a closing entry?
answer

Revenue Cash

Get instant access to
all materials

Become a Member