question

Which of the following is the primary purpose of accounting? A. To establish a business. B. To identify, record, and communicate business transactions. C. To earn a large profit. D. To reduce taxes owed for the business. E. To establish credit for a company.

answer

B. To identify, record, and communicate business transactions.

question

Technological advancement A. Has replaced accounting. B. Has not changed the work that accountants do. C. Has freed accounting professionals to concentrate more on the analysis and interpretation of information. D. In accounting has replaced the need for decision makers. E. In accounting is only available to large corporations.

answer

C. Has freed accounting professionals to concentrate more on the analysis and interpretation of information

question

Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash? A. Acme washes 500 cars. B. J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed. C. Clean Company, a supplier, sells 50 pounds of soap to ABC Company. D. Sudsey Company, a supplier, goes out of business. E. Acme hires Andrea as a receptionist.

answer

A. Acme washes 500 cards.

question

Internal users of accounting information include: A. Shareholders B. Customers C. Creditors D. Government regulators E. Production managers

answer

E. Production Managers

question

The primary objective of financial accounting is: A. To serve the decision-making needs of internal users. B. To provide financial statements to help external users analyze and interpret an organization's activities. C. To monitor and control company activities. D. To provide information on both the costs and benefits of managing products and services. E. To know what, when and how much to produce.

answer

B. To provide financial stat

question

Internal users of accounting information always include: A. Shareholders B. Managers C. Lenders D. Suppliers E. Customers

answer

B. Managers

question

. The area of accounting aimed at serving the decision-making needs of internal users is: A. Financial accounting B. Managerial accounting C. External auditing D. SEC reporting E. Governmental accounting

answer

B. Managerial Accounting

question

Why are ethics crucial to accounting? A. Ethical behavior creates the most profit for the business. B. Ethics are a tool which help the accountants balance the accounting equation. C. For accounting information to be useful, it must be trusted and therefore the result of ethical decisions. D. Ethics are important to consider when applying GAAP but do not apply to international accounting issues. E. Ethics are a way to compute revenues and expenses, but they do not apply to assets, liabilities, and owners' equity.

answer

C. For accounting information to be useful, it must be trusted and therefore the result of ethical decisions

question

What is the opportunity component of the fraud triangle? A. A person thinks that there is a way to commit fraud without much chance of getting caught. B. A person has a really good reason to commit fraud. C. A person does not think of the fraudulent activity as bad. D. A person persuades two or more other people to assist with the fraud . E. A person is concerned about the impact of their actions on society.

answer

A. A person thinks that there is a way to commit fraud without much chance of getting caught.

question

Which accounting assumption assumes that all accounting information can be reported monthly or yearly? A. Business entity assumption B. Monetary unit assumption C. Value assumption D. Cost assumption E. Time period assumption

answer

E. Time period assumption

question

Which of the following accounting principles dictates when expenses are recognized? A. Revenue recognition principle B. Monetary unit principle C. Business entity principle D. Matching principle E. Full disclosure principle

answer

D. Matching Principle

question

Which of the following is the correct sequence for the heading for ABC Company's 2013 balance sheet? A. ABC Company, For the year ended 12/31/13, Balance Sheet B. For the year ended 12/31/13, Balance Sheet, ABC Company C. Balance Sheet, 12/31/13, ABC Company D. 12/31/13, ABC Company, Balance Sheet E. ABC Company, Balance Sheet, 12/31/13

answer

E.ABC Company, Balance Sheet, 12/31/13

question

Which of the following elements are found on the income statement? A. Cash B. Accounts receivable C. Common stock D. Retained earnings E. Salaries expense

answer

E. Salaries expense

question

An asset is: A. Only acquired with cash. B. Something the company owns. C. Only contributed by stockholders. D. A company's obligation to pay. E. Is also called contributed capital.

answer

B. Something the company owns

question

Ethical behavior requires: A. That an auditor's pay not depend on the figures in the client's reports. B. Auditors to invest in businesses they audit. C. Analysts to report information favorable to their companies. D. Managers to use accounting information to benefit themselves. E. That an auditor provides a favorable opinion.

answer

A. That an auditor's pay not depend on the figures in the client's reports.

question

Social responsibility: A. Is a concern for the impact of one's actions on society as a whole. B. Is a code that helps in dealing with confidential information. C. Is required by the SEC. D. Requires that all businesses conduct social audits. E. Is mandated by the federal government.

answer

A. Is a concern for the impact of one's actions on society as a whole.

question

Which of the following elements are found on the balance sheet? A. Service revenue B. Net income C. Operating activities D. Utilities expense E. Retained earnings

answer

E. Retained Earnings

question

The accounting guideline prescribing that financial statement information be supported by independent, unbiased evidence other than someone's belief or opinion is the: A. Business entity principle B. Monetary unit principle C. Going-concern principle D. Objectivity principle E. Full disclosure principle

answer

D. Objectivity principle

question

Businesses can take all of the following forms except: A. Sole proprietorship B. Common stock C. Partnership D. Corporation E. Limited liability corporation

answer

B. Common Stock

question

A corporation: A. Is a legal entity separate and distinct from its owners. B. Must have many owners. C. Has shareholders who have unlimited liability for the acts of the corporation. D. Is the same as a limited liability partnership. E. Does not have to pay taxes.

answer

A. Is a legal entity separate and distinct from its owners.

question

Generally Accepted Accounting Principles: A. Focus on the review of a situation. B. Do not require financial statements. C. Never change. D. Intend to make information on the financial statements relevant, reliable, and comparable. E. Oversees Security and Exchange Commission.

answer

D. Intend to make information on the financial statements relevant, reliable, and comparable.

question

The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the: A. AICPA B. FASB C. CAP D. SEC E. IASB

answer

E. IASB

question

The private board that currently has the authority to establish U.S. generally accepted accounting principles is the: A. APB B. FASB C. AAA D. AICPA E. SEC

answer

B. FASB

question

Which of the following statements best describes the relationship of U.S. GAAP and IFRS? A. They are identical. B. They are entirely different conceptual frameworks. C. They are similar but not identical. D. Neither has anything to do with accounting E. They both relate only to publicly traded companies.

answer

C. They are similar but not identical.

question

The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the: A. Going-concern principle B. Business entity principle C. Objectivity principle D. Cost principle E. Monetary unit principle

answer

A. Going-concern principle

question

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the: A. Objectivity principle B. Realization principle C. Business entity principle D. Going-concern principle E. Revenue recognition principle

answer

C. Business entity principle

question

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange is the: A. Accounting equation B. Cost principle C. Going-concern principle D. Realization principle E. Business entity principle

answer

B. Cost Principle

question

Recording the items on the financial statements in dollars is done because of the: A. Objectivity principle B. Monetary unit principle C. Revenue recognition principle D. Going-concern principle E. Cost principle

answer

B. Monetary unit principle

question

The objectivity principle: A. Means that information is supported by independent, unbiased evidence. B. Means that information can be based on what the preparer thinks is true. C. Means that financial statement should contain information that is optimistic. D. Means that a business may not recognize revenue until cash is received. E. Means the assets acquired must be recorded at what the company paid for them.

answer

A. Means that information is supported by independent, unbiased evidence.

question

The principle that (A) requires revenue to be recognized at the time it is earned, (B) allows the inflow of assets associated with revenue to be in a form other than cash, and (C) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services is called the: A. Going-concern principle B. Cost principle C. Revenue recognition principle D. Objectivity principle E. Business entity principle

answer

C. Revenue recognition principle

question

The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the: A. Revenue recognition principle B. Going-concern principle C. Objectivity principle D. Business entity principle E. Cost principle

answer

A. Revenue recognition principle

question

The International Accounting Standards Board (IASB) A. Hopes to create harmony among accounting practices of different countries. B. Is the government group that establishes reporting requirements for companies that issue stock to the public. C. Has the authority to impose its standards on companies D. Is the only source of U.S. generally accepted accounting principles (GAAP). E. Applies only to companies that are members of the European Union.

answer

A. Hopes to create harmony among accounting practices of different countries.

question

The Maximum Experience Company acquired a building for $500,000. Maximum Experience had an appraisal done and found that the building was worth $575,000. The seller had paid $300,000 for the building six years ago. Which accounting principle would prescribe that Maximum Experience record the building on its records at $500,000? A. Monetary unit principle B. Going-concern principle C. Cost principle D. Business entity principle E. Revenue recognition principle

answer

C. Cost Principle

question

On December 15, 2013, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2014. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2014 and not 2013? A. Monetary unit principle B. Going-concern principle C. Cost principle D. Business entity principle E. Revenue recognition principle

answer

E. Revenue recognition principle

question

Marian Mosely is the owner of Mosely Accounting Services. Which accounting assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services? A. Monetary unit assumption B. Going-concern assumption C. Cost assumption D. Business entity assumption E. Full disclosure assumption

answer

D. Business entity assumption

question

Congress passed the Sarbanes-Oxley Act to A. Provide jobs to U.S. accountants and limit the number of jobs sent outside the country. B. Impose penalties on CEO's and CFO's who knowingly sign off on bogus accounting reports, although at this time the penalties are token amounts. C. Help curb financial abuses at companies that issue their stock to the public. D. Force auditors to attest to the absolute accuracy of the financial statements. E. Require that all companies publicly disclose their internal control plans.

answer

C. Help curb financial abuses at companies that issue their stock to the public.

question

A limited partnership: A. Includes a general partner with unlimited liability. B. Is subject to double taxation. C. Has owners called stockholders. D. Is the same as a corporation. E. Must only have two partners.

answer

A. Includes a general partner with unlimited liability.

question

The owners of a partnership: A. Have created an entity that can also be called a sole proprietorship. B. Have unlimited liability. C. Have to have a written agreement in order to be legal. D. Have created a legal organization separate from its owners. E. Are called shareholders.

answer

B. Have unlimited liability.

question

. According to generally accepted accounting principles, a company's balance sheet should show the company's assets at: A. The cash equivalent value of what was given up. B. The current market value of the assets at the balance sheet date. C. The cash paid to acquire them, even if something other than cash was given in the exchange. D. The best estimate from a certified internal auditor. E. The objective value to external users.

answer

A. The cash equivalent value of what was given up.

question

Which of the following accounting principles would prescribe that all goods and services purchased are recorded at cost? A. Going-concern principle B. Continuing-concern principle C. Cost principle D. Business entity principle E. Consideration principle

answer

C. Cost principle

question

Revenue is properly recognized: A. When the customer's order is received. B. Only if the transaction creates an account receivable. C. At the end of the accounting period. D. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price E. When cash from a sale is received.

answer

D. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price

question

An example of a financing activity is: A. Buying office supplies. B. Obtaining a long-term loan. C. Buying office equipment. D. Selling inventory. E. Buying land.

answer

B. Obtaining a long-term loan.

question

An example of an operating activity is: A. Paying wages. B. Purchasing office equipment C. Borrowing money from a bank. D. Selling stock. E. Paying off a loan.

answer

A. Paying Wages

question

Planning activities: A. Are the means organizations must use to pay for resources. B. Involve the acquiring and disposing of resources that an organization uses to acquire and sell its products or services. C. Involve defining the ideas, goals, and actions of an organization D. Are the carrying out of an organization's plans. E. Involve using resources to research, develop, purchase, produce, and market products and services.

answer

C. Involve defining the ideas, goals, and actions of an organization

question

Operating activities: A. Are the means organizations must use to pay for resources like land, buildings, and equipment. B. Involve using resources to research, develop, purchase, produce, distribute, and market products and services. C. Involve acquiring and disposing of resources that a business uses to acquire and sell its products or services. D. Are also called asset management. E. Are also called strategic management.

answer

B. Involve using resources to research, develop, purchase, produce, distribute, and market products and services.

question

The major activities of a business include: A. Operating, investing, making a profit. B. Investing, making a profit, operating C. Making a profit, operating, borrowing D. Operating, investing, financing E. Investing, making a profit, financing

answer

D. Operating, investing, financing

question

An example of an investing activity is: A. Paying wages of employees. B. Paying dividends. C. Purchasing land. D. Selling inventory. E. Contribution from owner.

answer

C. Purchasing land

question

Net income: A. Decreases equity. B. Represents the amount of assets owners put into a business. C. Equals assets minus liabilities. D. Is the excess of revenues over expenses. E. Represents the owners' claims against assets.

answer

D. Is the excess of revenues over expenses.

question

Resources owned or controlled by a company that are expected to yield benefits are: A. Assets B. Revenues C. Liabilities D. Stockholder's equity E. Expenses

answer

A. Assets

question

Increases in retained earnings from a company's earnings activities are: A. Assets B. Revenues C. Liabilities D. Stockholder's equity E. Expenses

answer

B. Revenues

question

The difference between a company's assets and its liabilities is: A. Net income B. Expense C. Equity D. Revenue E. Net loss

answer

C. Equity

question

Creditors' claims on the assets of a company are called: A. Net losses B. Expenses C. Revenues D. Equity E. Liabilities

answer

E. Liabilities

question

Decreases in retained earnings that represent costs of assets or services that are used to earn revenues are called: A. Liabilities B. Equity C. Withdrawals D. Expenses E. Contributed capital

answer

D. Expenses

question

The description of the relation between a company's assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the: A. Income statement equation . B. Accounting equation. C. Business equation . D. Return on equity ratio. E. Net income.

answer

B. Accounting Equation

question

Expenses: A. Increase retained earnings B. Are increases in retained earnings from a company's earning activity. C. Are the costs of assets or services used to earn revenues. D. Occur when retained earnings exceed revenue. E. Are creditors' claims on assets.

answer

C. Are the costs of assets or services used to earn revenues.

question

Revenues are: A. The same as net income. B. The excess of expenses over assets. C. Resources owned or controlled by a company. D. Increases in retained earnings from a company's earning activities. E. The costs of assets or services used.

answer

D. Increases in retained earnings from a company's earning activities.

question

Another name for equity is: A. Net income B. Expenses C. Net assets D. Revenue E. Net loss

answer

C. Net assets

question

Which of the following statements is not true about assets? A. They are economic resources owned or controlled by the business. B. They are expected to provide future benefits to the business. C. They appear on the balance sheet. D. They appear on the statement of retained earnings. E. Claims on them are shared between creditors and owners.

answer

D. They appear on the statement of retained earnings.

question

The distribution of assets to stockholders is called a(n): A. Liability B. Dividend C. Expense D. Contribution E. Investment

answer

B. Dividend

question

Which of the following statements is true? A. Assets and revenues are the same thing. B. If employees have not yet been paid for their work, the company has wages payable. C. Retained earnings equal cash that the company has earned and kept D. Revenue is another term for profit. E. Revenue minus expense equals retained earnings.

answer

B. If employees have not yet been paid for their work, the company has wages payable.

question

Assets created by selling goods and services on credit are: A. Accounts payable B. Accounts receivable C. Liabilities D. Expenses E. Equity

answer

B. Accounts receivable

question

An exchange of value between two entities is called: A. The accounting equation. B. Recordkeeping or bookkeeping. C. A business transaction. D. An asset. E. Net Income.

answer

C. A business transaction

question

How would the accounting equation of Boston Company be affected by the billing of a client for $10,000 of consulting work completed? A. +$10,000 accounts receivable, -$10,000 accounts payable. B. +$10,000 accounts receivable, +$10,000 accounts payable. C. +$10,000 accounts receivable, +$10,000 cash. D. +$10,000 accounts receivable, +$10,000 consulting revenue. E. +$10,000 accounts receivable, -$10,000 consulting revenue.

answer

D. +$10,000 accounts receivable, +$10,000 consulting revenue.

question

Viscount Company collected $42,000 cash on its accounts receivable. How does this transaction affect the company's accounting equation? A. Assets decrease and equity increases B. Both assets and liabilities decrease C. Assets, liabilities, and equity are unchanged D. Both assets and equity are unchanged and liabilities increase E. Assets increase and equity decreases

answer

C. Assets, liabilities, and equity are unchanged

question

Return on assets is: A. Also called rate of return. B. Computed by dividing net income by average total assets. C. Computed by multiplying net income by average total assets. D. Used in helping evaluate expenses. E. Found on the balance sheet.

answer

B. Computed by dividing net income by average total assets.

question

U.S. government bonds are: A. High-risk and high-return investments. B. Low-risk and low-return investments. C. High-risk and low-return investments. D. Low-risk and high-return investments. E. High risk and no-return investments.

answer

B. Low-risk and low-return investments.

question

Risk is: A. Net income divided by average total assets. B. The reward for investment. C. The uncertainty about the expected return that will be earned from an investment. D. Unrelated to expected return. E. Derived from the idea of getting something back from an investment.

answer

C. The uncertainty about the expected return that will be earned from an investment.

question

Consider the risk of the following investments. Choose the answer that lists the investments in order from highest expected return to lowest expected return. A. Drilling exploration to discover oil, stock in a secure "blue chip" corporation, government bonds. B. Stock in a secure "blue chip" corporation, government bonds, drilling exploration to discover oil. C. Government bonds, drilling exploration to discover oil, stock in a secure "blue chip" corporation. D. Drilling exploration to discover oil, government bonds, stock in a secure "blue chip" corporation. E. Government bonds, stock in a secure "blue chip" corporation, drilling exploration to discover oil.

answer

A. Drilling exploration to discover oil, stock in a secure "blue chip" corporation, government bonds.

question

The statement of cash flows reports on cash flows for: A. Operating activities B. Revenue activities C. Expense activities D. Planning activities E. Equity activities

answer

A. Operating activities

question

The statement of cash flows reports information on: A. Revenue activities B. Expense activities C. Financing activities D. Equity activities E. Asset activities

answer

C. Financing activities

question

The statement of retained earnings: A. Reports how retained earnings changes at a point in time. B. Reports how retained earnings changes over a period of time C. Reports on cash flows for operating, financing and investing activities over a period of time. D. Reports on cash flows for operating, financing and investing activities at a point in time E. Reports on amounts for assets, liabilities and equity at a point in time.

answer

B. Reports how retained earnings changes over a period of time

question

The financial statement that reports whether the business earned a profit and also lists the types and amounts of the revenues and expenses is called a(n): A. Balance sheet. B. Statement of retained earnings. C. Statement of cash flows. D. Income statement. E. Statement of financial position.

answer

D. Income Statement

question

A balance sheet lists: A. The types and amounts of the revenues and expenses of a business. B. Only the information about what happened to retained earnings during a time period. C. The types and amounts of assets, liabilities and equity of a business as of a specific date. D. The cash inflows and outflows during the period. E. The assets and liabilities of a company, but not the equity.

answer

C. The types and amounts of assets, liabilities and equity of a business as of a specific date.

question

A financial statement providing information that helps users understand a company's financial status and lists the types and amounts of assets, liabilities, and equity as of a specific date is called a(n): A. Balance sheet. B. Income statement. C. Statement of cash flows. D. Statement of retained earnings. E. Financial status statement.

answer

A. Balance Sheet

question

The financial statement that describes where a company's cash came from and how it was spent during the period is the: A. Statement of financial position. B. Statement of cash flows. C. Balance sheet. D. Income statement. E. Statement of retained earnings.

answer

B. Statement of cash flows.

question

The financial statement that shows beginning and ending retained earnings balances and the effects of net income (loss) and a dividend for the period is the: A. Statement of financial position. B. Statement of cash flows. C. Balance sheet. D. Income statement. E. Statement of retained earnings.

answer

E. Statement of retained earnings.

question

Cash investments by owners in exchange for stock are listed on which of the following statements? A. Balance sheet. B. Income statement. C. Statement of retained earnings. D. Statement of cash flows. E. Statement of cash received

answer

D. Statement of cash flows.

question

Accounts payable appear on which of the following statements? A. Balance sheet. B. Income statement. C. Statement of retained earnings. D. Statement of cash flows E. Transaction statement.

answer

A. Balance Sheet

question

The income statement reports all of the following except: A. Revenues earned by a business. B. Expenses incurred by a business. C. Assets owned by a business. D. Net income or loss earned by a business. E. The time period over which the earnings occurred.

answer

C. Assets owned by a business.

question

Rent expense that is paid with cash appears on which of the following statements? A. Balance sheet B. Income statement C. Statement of retained earnings D. Schedule of accounts receivable E. Statement of cash received

answer

B. Income Statement

question

Fees earned (but not yet received in cash) by a business in exchange for services that it has provided appear on which of the following statements? A. Income statement B. Statement of cash received C. Statement of retained earnings D. Statement of cash flows E. Schedule of accounts receivable

answer

A. Income statement

question

CHAPTER 2 The accounting process begins with: A. Analysis of business transactions and events. B. Preparation of financial statements and other reports. C. Summarizing the recorded effects of business transactions. D. Presentation of financial information to decision-makers. E. Preparation of the trial balance.

answer

A. Analysis of business transactions and events.

question

Which of the following list of events properly reflects the early steps taken in the accounting process? A. Record relevant transactions, post journal information to ledger accounts, analyze each transaction, and prepare and analyze the trial balance. B. Post journal information to ledger accounts, analyze each transaction, post journal information to ledger accounts, and prepare and analyze the trial balance. C. Prepare and analyze the trial balance, analyze each transaction, post journal information to ledger accounts, record relevant transactions. D. Analyze each transaction, post journal information to ledger accounts, record relevant transactions, and prepare and analyze the trial balance. E. Analyze each transaction, record relevant transactions, post journal information to ledger accounts, and prepare and analyze the trial balance.

answer

E. Analyze each transaction, record relevant transactions, post journal information to ledger accounts, and prepare and analyze the trial balance.

question

A sales invoice: A. Is a type of use document. B. Is a source document. C. Is not needed by buyers. D. Gives rise to an entry in the accounting process. E. Is not necessary in accounting.

answer

B. Is a source document.

question

Source documents include all of the following except: A. Sales tickets B. Ledgers C. Checks D. Purchase orders E. Bank statements

answer

B. Ledgers

question

Source documents: A. Include the ledger. B. Are the origins of accounting information. C. Must be in electronic form. D. Are based on accounting entries. E. Include the chart of accounts.

answer

B. Are the origins of accounting information.

question

For what reason do most sellers require customers to have their receipts in order to exchange or return purchased items? A. The receipt contains coded information that the seller needs to prepare and analyze the trial balance. B. Sellers wish to ensure that the sale in question was rung up on the register in the first place. C. This is a legal requirement mandated by a federal law. D. The receipt is serving as a promissory note. E. To create an environment in which customers do not want to return items.

answer

B. Sellers wish to ensure that the sale in question was rung up on the register in the first place.

question

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is a(n): A. Journal B. Posting C. Trial balance D. Account E. Chart of accounts

answer

D. Account

question

An account used to record the owners' investments in the business is called: A. Dividends B. Common Stock C. Revenue D. Expense E. Liability

answer

B. Common Stock

question

The account used to record the transfers of assets from a business to its stockholders is: A. A revenue account B. The dividends account C. Common stock account D. An expense account E. A liability account

answer

B. The dividends account

question

Which of the following statements is correct? A. When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. B. Promises of future payment are called accounts payable. C. Increases and decreases in cash are always recorded in the retained earnings account. D. An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business. E. Liabilities include accounts receivable.

answer

B. Promises of future payment are called accounts payable.

question

Unearned revenues are: A. Revenues that have been earned and received in cash. B. Revenues that have been earned but not yet collected in cash. C. Liabilities created when a customer pays in advance for products or services before the revenue is earned. D. Recorded as an asset in the accounting records. E. Increases to retained earnings.

answer

C. Liabilities created when a customer pays in advance for products or services before the revenue is earned.

question

Prepaid expenses are: A. Payments made for products and services that do not ever expire. B. Classified as liabilities on the balance sheet. C. Decreases in retained earnings. D. Assets that represent prepayments of future expenses. E. Promises of payments by customers.

answer

D. Assets that represent prepayments of future expenses.

question

A written promise to pay a definite sum of money on a specific future date is a(n): A. Unearned revenue B. Prepaid expense C. Credit account D. Note payable E. Account receivable

answer

D. Note Payable

question

A collection of all accounts (with account balances) used by a business is called a: A. Journal B. Book of original entry C. General Journal D. Balance column journal E. General Ledger

answer

E. General Ledger

question

A ledger is: A. A record containing all accounts (with amounts) for a business. B. A journal in which transactions are first recorded. C. A collection of documents that describe transactions and events during the accounting process. D. A list of all accounts with their debit balances at a point in time. E. A list of all accounts a company uses and includes an identification number assigned to each account.

answer

A. A record containing all accounts (with amounts) for a business.

question

Which of the following statements about the Cash account are true? A. Because most companies earn their fees in cash, the Cash account is categorized as revenue. B. For any given transaction, Accounts Receivable and Cash can be used interchangeably because both accounts are measured in terms of cash. C. The Cash account includes the value of any medium of exchange that a bank accepts for deposit. D. Cash is the same thing as Retained Earnings. E. Cash is a liability account.

answer

C. The Cash account includes the value of any medium of exchange that a bank accepts for deposit.

question

A list of all accounts used by a company and the identification number assigned to each account is called a: A. Ledger B. Journal C. Trial balance D. Chart of accounts E. General Journal

answer

D. Chart of accounts

question

The general ledger of a business A. Is a collection of all accounts used in a company's information system. B. Must be kept in a computer file. C. Is also called the book of original entry. D. Is not affected by a company's size and diversity. E. Is one of the four financial statements.

answer

A. Is a collection of all accounts used in a company's information system.

question

A debit is: A. An increase in an account. B. The right-hand side of a T-account. C. A decrease in an account. D. The left-hand side of a T-account. E. An increase to a liability account.

answer

D. The left-hand side of a T-account.

question

The right side of a T-account is a(n): A. Debit B. Increase C. Credit D. Decrease E. Account balance

answer

C. Credit

question

**Which of the following statements is incorrect? A. The normal balance of accounts receivable is a debit. B. The normal balance of dividends is a debit. C. The normal balance of unearned revenues is a credit. D. The normal balance of an expense account is a credit. E. The normal balance of common stock is a credit.

answer

D. the normal balance of an expense account is a credit

question

A credit is used to record: A. An increase in an expense account. B. An increase in an asset account. C. An increase in an unearned revenue account. D. A decrease in a revenue account. E. A decrease to retained earnings.

answer

C. An increase in an unearned revenue account.

question

A simple account form widely used in accounting to illustrate how debits and credits work is called a: A. Dividend account B. Common stock account C. Drawing account D. T-account E. Balance column sheet

answer

D. T-account

question

Which of the following statements is correct? A. The left side of a T-account is the credit side . B. Debits decrease asset and expense accounts and increase liability, equity, and revenue accounts. C. The left side of a T-account is the debit side. D. Credits increase asset and expense accounts and decrease liability, equity, and revenue accounts. E. In certain circumstances the total amount debited need not equal the total amount credited for a particular transaction.

answer

C. The left side of a T-account is the debit side.

question

An account balance is: A. The total of the credit side of the account. B. The total of the debit side of the account. C. The difference between the total debits and total credits for an account including the beginning balance. D. Assets = Liabilities + Equity E. Always a credit.

answer

C. The difference between the total debits and total credits for an account including the beginning balance.

question

Of the following accounts, the one that normally has a credit balance is: A. Cash B. Office Equipment C. Sales Salaries Payable D. Dividends E. Sales Salaries Expense

answer

C. Sales Salaries Payable

question

A debit is used to record: A. A decrease in an asset account. B. A decrease in an expense account. C. An increase in a revenue account. D. An increase in the balance of common stock. E. A decrease in the balance of retained earnings.

answer

E. A decrease in the balance of retained earnings.

question

A credit entry: A. Increases asset and expense accounts and decreases liability, common stock, and revenue accounts. B. Is always a decrease in an account. C. Decreases asset and expense accounts and increases liability, common stock, and revenue accounts. D. Is recorded on the left side of a T-account. E. Is always an increase in an account.

answer

C. Decreases asset and expense accounts and increases liability, common stock, and revenue accounts.

question

Double-entry accounting is an accounting system: A. That records each transaction twice. B. That records the effects of transactions and other events in at least two accounts with equal debits and credits. C. In which the impact of each transaction is checked twice to ensure there are no errors. D. That may only be used if T-accounts are used. E. That records the effects of transactions on at least two financial statements.

answer

B. That records the effects of transactions and other events in at least two accounts with equal debits and credits.

question

Which of the following is a true statement regarding debits and credits? A. If a company earned a profit, debits will not equal credits. B. For a business, debits are better than credits. C. A company's books are not in balance if they have a current period loss. D. Assets and expenses are both increased with a debit. E. Liabilities and equity are both increased with a debit.

answer

D. Assets and expenses are both increased with a debit.

question

The debt ratio is used: A. To measure the amount of equity relative to the expenses. B. To reflect the risk associated with a company's debts. C. Only by banks when a business applies for a loan. D. To determine how much debt a firm should pay off. E. To determine who a company owes.

answer

B. To reflect the risk associated with a company's debts.

question

Which of the following formulas can be used to calculate the debt ratio? A. Total equity/Total liabilities B. Total liabilities/Total equity C. Total liabilities/Total assets D. Total assets/Total liabilities E. Total equity/Total assets

answer

C. Total liabilities/Total assets

question

Which of the following statements is incorrect? A. Higher financial leverage involves higher risk. B. Risk is higher if a company has more liabilities. C. Risk is higher if a company has higher assets. D. The debt ratio is one measure of financial risk. E. Lower financial leverage involves lower risk.

answer

C. Risk is higher if a company has higher assets.

question

Which of the following statements is false with regard to the debt ratio? A. It is of use to both internal and external users of accounting information. B. A relatively high ratio is always desirable. C. The dividing line for a high and low ratio varies from industry to industry. D. Many factors such as the company's age, stability, profitability, and cash flow influence the determination of what would be interpreted as a high versus a low ratio. E. The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.

answer

B. A relatively high ratio is always desirable.

question

Rocky Industries received its telephone bill in the amount of $300 and immediately paid it. Rocky's journal entry to record this transaction will include a A. Debit to Telephone Expense for $300. B. Credit to Accounts Payable for $300. C. Debit to Cash for $300. D. Credit to Telephone Expense for $300. E. Debit to Accounts Payable for $300.

answer

A. Debit to Telephone Expense for $300.

question

Wisconsin Rentals purchased office supplies on credit. The journal entry made by Wisconsin Rentals to record this transaction will include a: A. Debit to Accounts Payable. B. Debit to Accounts Receivable. C. Credit to Cash. D. Credit to Accounts Payable. E. Credit to Retained Earnings.

answer

D. Credit to Accounts Payable.

question

An asset created by prepayment of an expense is: A. Recorded as a debit to an unearned revenue account. B. Recorded as a debit to a prepaid expense account. C. Recorded as a credit to an unearned revenue account. D. Recorded as a credit to a prepaid expense account. E. Not recorded in the accounting records until the earnings process is complete.

answer

B. Recorded as a debit to a prepaid expense account.

question

A liability created by the receipt of cash from customers in payment for products or services that have not yet been delivered to the customers is: A. Recorded as a debit to an unearned revenue account. B. Recorded as a debit to a prepaid expense account. C. Recorded as a credit to an unearned revenue account. D. Recorded as a credit to a prepaid expense account. E. Not recorded in the accounting records until the earnings process is complete.

answer

C. Recorded as a credit to an unearned revenue account.

question

The Fireside Country Inn is a very popular destination for tourists. The Inn requires guests to make reservations at least two months in advance of their stay. A 20 percent down payment is required at the time the reservation is made. When should this inn recognize room rental revenue? A. On the date the reservation is received. B. On the date the money for the reservation is received. C. On the date the guests stay in the inn. D. On the date the guests pay the remaining 80 percent due. E. Once all cash has been received.

answer

C. On the date the guests stay in the inn.

question

Jones Hardware, Inc. paid a cash dividend of $6,000. What is the necessary entry to record this transaction? A. Debit Cash, credit Retained Earnings. B. Debit Dividends, credit Cash. C. Debit Common Stock, credit Cash. D. Debit Cash, credit Common Stock. E. Debit Cash, credit Dividend Income.

answer

B. Debit Dividends, credit Cash.

question

The process of transferring general journal information to the ledger is: A. Double-entry accounting. B. Posting. C. Balancing an account. D. Journalizing. E. Not required unless debits do not equal credits.

answer

B. Posting

question

A column in journal and ledger accounts used to cross reference journal and ledger entries is the: A. Account balance column B. Debit column C. Posting reference column D. Credit column E. Description column

answer

C. Posting reference column

question

The record in which business transactions are first recorded is the: A. Account balance B. Ledger C. General journal D. Trial balance E. Cash account

answer

C. General Journal

question

What is another name for the general journal? A. The book. B. The ledger. C. The book of original entry. D. The record. E. The account book.

answer

C. The book of original entry

question

A balance column account is: A. An account entered on the balance sheet. B. An account with debit and credit columns for posting entries and another column for showing the balance of the account after each entry is posted. C. An alternate name for the retained earnings account. D. An account used to record the transfers of assets from a business to its stockholders. E. A simple form of account that is widely used in accounting to illustrate the debits and credits required in recording a transaction.

answer

B. An account with debit and credit columns for posting entries and another column for showing the balance of the account after each entry is posted.

question

A general journal is: A. A ledger in which amounts are posted from a balance column account. B. Not required if T-accounts are used. C. A complete record of each transaction in the place from which transaction amounts are posted to the ledger accounts. D. Not necessary in electronic accounting systems. E. A book of final entry because financial statements are prepared from it.

answer

C. A complete record of each transaction in the place from which transaction amounts are posted to the ledger accounts.

question

Listed below are two pieces of information. Where is the best place to locate this information, in the journal or the ledger? 1. Details of a transaction that took place on October 3. 2. All of the sales activity that took place during the current month. A. 1. Journal 2. Journal B. 1. Journal 2. Ledger C. 1. Ledger 2. Ledger D. 1. Ledger 2. Journal E. This information is only available on the financial statements.

answer

B. 1. Journal 2. Ledger

question

**Which of the following is the appropriate journal entry if a company performs a service and then bills the customer? A. Debit to Cash, debit to Service Revenue. B. Debit to Cash, credit to Service Revenue. C. Debit to Accounts Receivable, credit to Cash. D. Debit to Service Revenue, credit to Accounts Receivable. E. Debit to Accounts Receivable, credit to Service Revenue.

answer

E. Debit to Accounts Receivable, credit to Service Revenue.

question

**Which of the following is the appropriate journal entry if a company performs a service and is paid immediately? A. Debit to Cash, debit to Service Revenue. B. Debit to Cash, credit to Service Revenue. C. Debit to Accounts Receivable, credit to Cash. D. Debit to Service Revenue, credit to Accounts Receivable. E. Debit to Accounts Receivable, credit to Service Revenue.

answer

B. Debit to Cash, credit to Service Revenue

question

Which of the following is the appropriate journal entry if a company hires a new employee? A. Debit to Cash, credit to Wages Revenue. B. No entry should be made. C. Debit to Wages Expense, credit to Cash. D. Debit to Cash, credit to Wages Expense. E. Debit to Wages Payable, credit to Wages Expense.

answer

B. No entry should be made.

question

Which of the following is the appropriate journal entry if a company purchases equipment costing $100,000 by paying cash of $10,000? A. Debit to Cash, debit to Equipment, credit to Notes Payable. B. No entry should be made. C. Debit to Equipment, credit to Notes Payable, credit to Cash. D. Debit to Cash, debit to Notes Payable, credit to Equipment. E. Debit to Equipment, debit to Notes Payable, credit to Cash.

answer

E. Debit to Equipment, debit to Notes Payable, credit to Cash.

question

A report that lists accounts and their balances, in which the total debit balances should equal the total credit balances, is called a(n): A. Account balance B. Trial balance C. Ledger D. Chart of accounts E. General journal

answer

B. Trial Balance

question

Which of the following statements are true? A. If the trial balance is in balance, it proves that no errors have been made in recording and posting transactions. B. The trial balance is a book of original entry. C. Another name for trial balance is chart of accounts. D. The trial balance is a list of all accounts from the ledger with their balances at a point in time. E. The trial balance is another name for the balance sheet as long as debits balance with credits.

answer

D. The trial balance is a list of all accounts from the ledger with their balances at a point in time.

question

A company failed to post a $50 debit to the Office Supplies account. The effect of this error will be that: A. The Office Supplies account balance will be overstated. B. The trial balance will not balance. C. The error will overstate the debits listed in the journal. D. The total debits in the trial balance will be larger than the total credits. E. The trial balance will be in balance.

answer

B. The trial balance will not balance

question

If the Debit and Credit column totals of a trial balance are equal, then: A. All transactions have been recorded correctly. B. All entries from the journal have been posted to the ledger correctly. C. All ledger account balances are correct. D. The total debit entries and total credit entries are equal. E. The balance sheet would be correct.

answer

D. The total debit entries and total credit entries are equal.

question

**Of the following errors, which one will cause the trial balance to be out of balance? A. A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries Expense. B. A $100 cash receipt from a customer in payment of his account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable. C. A $75 cash receipt from a customer in payment of his account posted as a $75 debit to Cash and a $75 credit to Cash. D. A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50 credit to Cash. E. An $800 prepayment from a customer for services to be rendered in the future was posted as an $800 debit to Unearned Revenue and an $800 credit to Cash.

answer

B. A $100 cash receipt from a customer in payment of his account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable.

question

Which of the following accounts is a balance sheet account? A. Wages Payable B. Operating Activities C. Revenues D. Dividends E. Expenses

answer

A. Wages Payable

question

According to IFRS, comparative information on financial statements is: A. Not required. B. Required for publicly traded companies only. C. Required for the preceding period only. D. Required for the last five years. E. Not required, but considered a hallmark for companies of excellence.

answer

C. Required for the preceding period only.

question

Which financial statements are prepared for a period of time? A. Income statement, statement of retained earnings, balance sheet and statement of cash flows. B. Balance sheet. C. Income statement, statement of retained earnings, and statement of cash flows. D. Income statement and balance sheet. E. Statement of retained earnings and statement of cash flows.

answer

C. Income statement, statement of retained earnings, and statement of cash flows.

question

CHAPTER 3 Which of the following identifies the proper order of the accounting cycle? A. Analyze, journalize, unadjusted trial balance B. Analyze, post, unadjusted trial balance C. Journalize, post, unadjusted trial balance D. Unadjusted trial balance, adjusted trial balance, close E. Adjusted trial balance, adjustments, financial statements

answer

C. Journalize, post, unadjusted trial balance

question

A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the: A. Operating cycle of a business. B. Time period assumption. C. Going-concern principle. D. Matching principle. E. Accrual basis of accounting.

answer

B. Time period assumption

question

Interim financial statements refer to financial reports: A. That cover less than one year, usually spanning one, three, or six-month periods. B. That are prepared before any adjustments have been recorded. C. That show the assets above the liabilities and the liabilities above the equity. D. Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid E. That are prepared on the last day of the calendar year.

answer

A. That cover less than one year, usually spanning one, three, or six-month periods.

question

The 12-month period that ends when a company's activities are at their lowest point is called the: A. Fiscal year B. Calendar year C. Natural business year D. Accounting period E. Interim period

answer

C. Natural business year

question

Western Company has an annual reporting period that runs from July 1 through June 30. Based on this information, which of the following is a true statement? A. Western probably has little seasonal variation in their sales. B. Western has violated the time period principle. C. Western must prepare financial statements as of December 31 each year. D. Western has adopted a fiscal year. E. Western does not have an accountant.

answer

D. Western has adopted a fiscal year

question

The accounting principle that requires revenue to be reported when earned is the: A. Matching principle B. Revenue recognition principle C. Time period principle D. Accrual reporting principle E. Going-concern principle

answer

B. Revenue recognition principle

question

**Adjusting entries: A. Affect only income statement accounts. B. Affect only balance sheet accounts. C. Affect both income statement and balance sheet accounts. D. Affect only cash flow statement accounts. E. Affect only equity accounts.

answer

C. Affect both income statement and balance sheet accounts

question

The main purpose of adjusting entries is to: A. Record external transactions and events. B. Record internal transactions and events. C. Recognize assets purchased during the period. D. Recognize debts paid during the period. E. Correct errors.

answer

B. Record internal transactions and events.

question

The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of those expenses is the: A. Recognition principle B. Cost principle C. Cash basis of accounting D. Matching principle E. Time period principle

answer

D. Matching principle

question

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called: A. Accrual basis accounting B. Operating cycle accounting C. Cash basis accounting D. Revenue recognition accounting E. Current basis accounting

answer

C. Cash basis accounting

question

Which of the following accounts would not be impacted by adjusting journal entries? A. Accounts Receivable B. Consulting Fee Earned C. Unearned Consulting Fees D. Cash E. Wages Payable

answer

D. Cash

question

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: A. Cash basis accounting B. The matching principle C. The time period principle D. Accrual basis accounting E. Revenue basis accounting

answer

D. Accural basis accounting

question

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of: A. Items that require contra accounts. B. Items that require adjusting entries. C. Asset and equity. D. Asset accounts. E. Income statement accounts.

answer

B. Items that require adjusting entries.

question

The accrual basis of accounting: A. Is generally accepted for external reporting since it is more useful for most business decisions. B. Is flawed because it gives complete information about cash flows. C. Recognizes revenues when received in cash. D. Recognizes expenses when paid in cash. E. Eliminates the need for adjusting entries at the end of each period.

answer

A. Is generally accepted for external reporting since it is more useful for most business decisions.

question

Which of the following statements is incorrect? A. Prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities. B. Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded. C. Adjusting entries can be used to record both accrued expenses and accrued revenues. D. Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. E. Adjusting entries affect the cash account.

answer

E. Adjusting entries affect the cash account.

question

The recurring steps performed each accounting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, are referred to as the: A. Accounting period B. Operating cycle C. Accounting cycle D. Closing cycle E. Natural business year

answer

C. Accounting Cycle

question

Which of the following is the usual final step in the accounting cycle? A. Journalizing transactions. B. Preparing an adjusted trial balance. C. Preparing a post-closing trial balance. D. Preparing the financial statements. E. Preparing a work sheet.

answer

C. Preparing a post-closing trial balance.

question

Each letter below contains three of the steps found in the accounting cycle. Which presents the given steps in the proper sequence, first to last? A. Adjust, analyze transactions, close. B. Analyze transactions, adjust, close. C. Prepare post-closing trial balance, prepare statements, close. D. Prepare statements, post, close. E. Prepare adjusted trial balance, journalize, close.

answer

B. Analyze transactions, adjust, close.

question

A classified balance sheet: A. Measures a company's ability to pay its bills on time. B. Organizes assets and liabilities into important subgroups. C. Presents revenues, expenses, and net income. D. Reports operating, investing, and financing activities. E. Reports the effect of profit and dividends on retained earnings.

answer

B. Organizes assets and liabilities into important subgroups.

question

The asset section of a classified balance sheet usually includes: A. Current assets, investments, plant assets, and intangible assets. B. Current assets, long-term assets, revenues, and intangible assets. C. Current assets, investments, plant assets, and equity. D. Current liabilities, investments, plant assets, and intangible assets. E. Current assets, liabilities, plant assets, and intangible assets.

answer

A. Current assets, investments, plant assets, and intangible assets.

question

What is the difference between GAAP and IFRS presentations of the current assets section on the balance sheet? A. Under IFRS it is mandatory to present current assets first while under GAAP it is customary (but not required) to present noncurrent assets first. B. Both IFRS and GAAP require that current assets are listed first. C. Under GAAP it is mandatory to present current assets first, while under IFRS it is customary (but not required) to present noncurrent assets first. D. It is customary (but not required) under both IFRS and GAAP to present noncurrent assets first. E. GAAP requires that current assets be presented first, while IFRS requires that current assets be presented last

answer

C. Under GAAP it is mandatory to present current assets first, while under IFRS it is customary (but not required) to present noncurrent assets first.

question

IFRS tends to be more principles-based compared with GAAP, which is viewed as more rules-based. Which of the following is a true statement about a principles-based system? A. A principles-based system eliminates the need for internal controls. B. A principles-based system is significantly weaker than a rules-based system. C. A principles-based system will eliminate all fraud. D. A principles-based system is a way to calculate interest receivable or payable. E. A principles-based system depends heavily on control procedures to reduce the potential for fraud or misconduct.

answer

E. A principles-based system depends heavily on control procedures to reduce the potential for fraud or misconduct.

question

If a company forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: A. Assets overstated and equity understated. B. Assets and equity both understated. C. Assets overstated, net income understated, and equity overstated. D. Assets, net income, and equity understated. E. Assets, net income, and equity overstated.

answer

E. Assets, net income, and equity overstated.

question

If a company failed to make the end-of-period adjustment to remove the amount earned from the Unearned Management Fees account, there would be: A. An overstatement of net income. B. An overstatement of assets. C. An overstatement of liabilities. D. An overstatement of equity. E. An understatement of liabilities.

answer

C. An overstatement of liabilities.

question

A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned, one effect will be: A. An overstatement of equity. B. An understatement of equity. C. An understatement of assets D. An understatement of liabilities. E. An overstatement of assets.

answer

B. An understatement of equity.

question

A publishing company records the subscriptions paid in advance by its customers in an account called Unearned Subscription Revenue. If the company fails to make the end-of-period adjusting entry to record the portion of the subscriptions that have been earned, one effect will be: A. An overstatement of equity. B. An overstatement of liabilities. C. An understatement of assets. D. An understatement of liabilities. E. An overstatement of assets.

answer

B. An overstatement of liabilities

question

Profit margin is defined as: A. Revenues divided by net sales. B. Net sales divided by assets. C. Net income divided by net sales. D. Net income divided by assets. E. Assets divided by net sales.

answer

C. Net income divided by net sales.

question

A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is: A. 2% B. 20% C. 200% D. 500% E. $8,000

answer

B. 20%

question

**Which of the following accounts would be closed at the end of the accounting period? A. Accounts Receivable B. Unearned Consulting Fees C. Fees Earned D. Retained Earnings E. Land

answer

C. Fees Earned

question

**The current ratio: A. Is used to measure a company's profitability. B. Is used to measure the relation between assets and long-term debt. C. Measures the effect of operating income on profit. D. Is used to help evaluate a company's ability to pay its short-term obligations. E. Is calculated by dividing current assets by equity.

answer

D. Is used to help evaluate a company's ability to pay its short-term obligations.

question

**Which of the following accounts would not be on the post- closing trial balance? A. Accounts Payable B. Accounts Receivable C. Common Stock D. Dividends E. Retained Earnings

answer

D. Dividends

question

Which of the following is true of accrued revenues? A. Accrued revenues at the end of one accounting period often result in cash receipts from customers in the next period. B. Accrued revenues at the end of one accounting period often result in cash payments in the next period. C. Accrued revenues are also called unearned revenues. D. Accrued revenues are listed on the balance sheet as liabilities. E. Accrued revenues are recorded at the end of an accounting period because cash has already been received for revenues earned.

answer

A. Accrued revenues at the end of one accounting period often result in cash receipts from customers in the next period.

question

An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n): A. Accrued expense B. Contra account C. Accrued revenue D. Intangible asset E. Adjunct account

answer

B. Contra account

question

The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been used in the day-to-day operations of the business: A. Is referred to as depreciation expense. B. Is referred to as accumulated depreciation. C. Is shown on the income statement of the final period. D. Is only recorded when the asset is disposed of. E. Is referred to as an accrued asset.

answer

B. Is referred to as accumulated depreciation

question

**The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called: A. Accumulated depreciation B. A contra account C. The matching principle D. Depreciation E. An accrued account

answer

D. Depreciation

question

**Throughout an accounting period, the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees. What is the end-of-period adjusting entry to record the portion of those fees that have been earned? A. Debit Cash and credit Legal Fees Earned. B. Debit Cash and credit Unearned Legal Fees. C. Debit Unearned Legal Fees and credit Legal Fees Earned. D. Debit Legal Fees Earned and credit Unearned Legal Fees. E. Debit Unearned Legal Fees and credit Accounts Receivable.

answer

C. Debit Unearned Legal Fees and credit Legal Fees Earned.

question

Unearned revenue is reported on the financial statements as: A. A revenue on the balance sheet. B. A liability on the balance sheet. C. An unearned revenue on the income statement. D. An asset on the balance sheet. E. An operating activity on the statement of cash flows.

answer

B. A liability on the balance sheet.

question

Which of the following assets is not depreciated? A. Store fixtures B. Computers C. Land D. Buildings E. Vehicles

answer

C. Land

question

Which of the following does not require an adjusting entry at year-end? A. Accrued interest on notes payable. B. Supplies used during the period. C. Cash investments by stockholders. D. Accrued wages. E. Expired portion of prepaid insurance.

answer

C. Cash investments by stockholders.

question

Statements that show the effects of proposed transactions as if the transactions had already occurred are called: A. Pro forma statements B. Professional statements C. Simplified statements D. Temporary statements E. Interim statements

answer

A. Pro forma statements

question

**Accumulated depreciation, accounts receivable, and service fees earned would be sorted to which respective columns in completing a work sheet? A. Balance Sheet-Credit; Balance Sheet Debit; and Income Statement-Credit. B. Balance Sheet-Debit; Balance Sheet; and Income Statement-Credit. C. Income Statement-Debit; Balance Sheet-Debit; and Income Statement-Credit. D. Income Statement-Debit; Income Statement-Debit; and Balance Sheet-Credit. E. Balance Sheet-Credit; Income Statement-Debit; and Income Statement-Credit.

answer

A. Balance Sheet-Credit; Balance Sheet Debit; and Income Statement-Credit.

question

A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements and which is an optional tool in the accounting process is a(n): A. Adjusted trial balance B. Work sheet C. Post-closing trial balance D. Unadjusted trial balance E. General ledger

answer

B. Work sheet

question

**The alternative method of accounting for prepayments A. Initially records all prepaid expenses with debits to expense accounts. B. Initially records all prepaid expenses with credits to expense accounts. C. Requires an adjusting entry because expenses are understated. D. Requires an adjusting entry if the prepaid is consumed during the period. E. Requires an adjusting entry because net income is understated.

answer

A. Initially records all prepaid expenses with debits to expense accounts.

question

**Which of the following statements is true? A. Retained earnings must be closed each accounting period. B. A post-closing trial balance should include only permanent accounts. C. Information on the work sheet can be used in place of preparing financial statements . D. By using a work sheet to prepare adjusting entries, you need not post these entries to the ledger accounts E. Closing entries are only necessary if errors have been made.

answer

B. A post-closing trial balance should include only permanent accounts.

question

A post-closing trial balance includes: A. All ledger accounts with balances, none of which can be temporary accounts. B. All ledger accounts with balances, none of which can be permanent accounts. C. All ledger accounts with balances, which include some temporary and some permanent accounts. D. Only revenue and expense accounts. E. Only asset accounts.

answer

A. All ledger accounts with balances, none of which can be temporary accounts.

question

The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is: A. $325 debit B. $325 credit C. $425 debit D. $750 debit E. $750 credit

answer

A. $325 debit

question

A company shows a $600 balance in prepaid insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in: A. $200 less in net income. B. $200 more in net income. C. $200 difference between the debit and credit columns of the unadjusted trial balance. D. $200 of prepaid insurance. E. An error in the financial statements.

answer

A. $200 less in net income.

question

Statements that show the effects of proposed transactions as if the transactions had already occurred are called: A. Pro forma statements B. Professional statements C. Simplified statements D. Temporary statements E. Interim statements

answer

A. Pro forma statements

question

Which of the following errors would cause the Balance Sheet columns of a work sheet to be out of balance? A. Entering an asset amount in the Income Statement Debit column. B. Entering a liability amount in the Income Statement Credit column. C. Entering an expense amount in the Balance Sheet Debit column. D. Entering a revenue amount in the Balance Sheet Debit column. E. Entering a liability amount in the Balance Sheet Credit column.

answer

D. Entering a revenue amount in the Balance Sheet Debit column.

question

The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain entries for the following: Office supplies used during the period, $1,200. Expiration of prepaid rent, $700. Accrued salaries expense, $500. Depreciation expense, $800. Accrued service fees receivable, $400. The Adjusted Trials total is: A. $80,400 B. $84,000 C. $85,700 D. $85,900 E. $87,600

answer

C. $85,700

question

On January 1, Able Company purchased equipment costing $135,000 with an estimated salvage value of $10,500, and an estimated useful life of five years. Using the straight-line method, what is the amount that should be recorded as depreciation on December 31? A. $27,000 B. $24,900 C. $29,100 D. $135,000 E. $10,500

answer

B. $24,900, Feedback: 135,000-10,500 = 124,500/5 = $24,900

question

A company had service revenue of $250,000, rent expense of $10,000, utility expense of $3,500, salary expense of $18,500, depreciation expense of $9,000, advertising expense of $4,500, dividends in the amount of $18,000, and a beginning balance in retained earnings of $17,900. What is the balance in the income summary account before it is closed for the period? A. $250,000 B.$45,500 C. $204,500 D. $222,400 E. $232,100

answer

C. $204,500

question

CHAPTER 4 A merchandising company: A. Earns net income by buying and selling merchandise. B. Receives fees only in exchange for services. C. Earns profit from commissions only. D. Earns profit from fares only. E. Buys products from consumers.

answer

A. Earns net income by buying and selling merchandise.

question

Cost of goods sold: A. Is another term for merchandise sales. B. Is the cost of merchandise sold to customers. C. Is another term for revenue. D. Is also called gross margin. E. Is a term only used by service firms.

answer

B. Is the cost of merchandise sold to customers.

question

Merchandise inventory: A. Is a long-term asset. B. Is a current asset. C. Includes supplies. D. Is classified with investments on the balance sheet. E. Must be sold within one month.

answer

B. Is a current asset.

question

The operating cycle for a merchandiser that sells only for cash moves from: A. Purchases of merchandise to inventory to cash sales. B. Purchases of merchandise to inventory to accounts receivable to cash sales. C. Inventory to purchases of merchandise to cash sales. D. Accounts receivable to purchases of merchandise to inventory to cash sales. E. Accounts receivable to inventory to cash sales.

answer

A. Purchases of merchandise to inventory to cash sales.

question

The current period's ending inventory is: A. The next period's beginning inventory. B. The current period's cost of goods sold. C. The prior period's beginning inventory. D. The current period's net purchases. E. The current period's beginning inventory.

answer

A. The next period's beginning inventory.

question

Beginning inventory plus net cost of purchases is: A. Cost of goods sold. B. Merchandise available for sale. C. Ending inventory. D. Sales. E. Shown on the balance sheet.

answer

B. Merchandise available for sale.

question

The acid-test ratio: A. Is also called the quick ratio. B. Measures profitability. C. Measures inventory turnover. D. Is generally greater than the current ratio. E. Is not used by merchandise companies.

answer

A. Is also called the quick ratio.

question

Quick assets are defined as: A. Cash, short-term investments, and inventory. B. Cash, short-term investments, and current receivables. C. Cash, inventory, and current receivables. D. Cash, noncurrent receivables, and prepaid expenses. E. Accounts receivable, inventory, and prepaid expenses.

answer

B. Cash, short-term investments, and current receivables.

question

Liquidity problems are likely to exist when a company's acid-test ratio: A. Is less than the current ratio B. Is 1 to 1 C. Is higher than 1 to 1 D. Is substantially lower than 1 to 1 E. Is higher than the current ratio

answer

D. Is substantially lower than 1 to 1

question

The acid-test ratio differs from the current ratio in that: A. Liabilities are divided by current assets. B. Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio. C. The acid-test ratio measures profitability and the current ratio does not. D. The acid-test ratio excludes short-term investments from the calculation. E. The acid-test ratio is a measure of liquidity but the current ratio is not.

answer

B. Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.

question

The gross margin ratio: A. Is also called the net profit ratio. B. Measures a merchandising firm's ability to earn a profit from the sale of inventory. C. Is also called the profit margin. D. Is a measure of liquidity. E. Should be greater than 1.

answer

B. Measures a merchandising firm's ability to earn a profit from the sale of inventory.

question

The credit terms 2/10, n/30 are interpreted as: A. 2% cash discount if the amount is paid within 10 days, with the balance due in 30 days B. 10% cash discount if the amount is paid within 2 days, with balance due in 30 days C. 30% discount if paid within 2 days D. 30% discount if paid within 10 days E. 2% discount if paid within 30 days

answer

A. 2% cash discount if the amount is paid within 10 days, with the balance due in 30 days,

question

A trade discount is: A. A term used by a purchaser to describe a cash discount given to customers for prompt payment B. A reduction in price below the list price C. A term used by a seller to describe a cash discount granted to customers for prompt payment D. A reduction in price for prompt payment E. Also called a rebate

answer

B. A reduction in price below the list price

question

A debit memorandum is: A. Required whenever a journal entry is recorded B. The source document for the purchase of merchandise inventory C. Required when a purchase discount is granted D. The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records E. Not necessary in a perpetual inventory system,

answer

D. The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records

question

Sales returns: A. Refer to merchandise that customers return to the seller after the sale. B. Refer to reductions in the selling price of merchandise sold to customers. C. Represent cash discounts. D. Represent trade discounts. E. Are not recorded under the perpetual inventory system until the end of each accounting period.

answer

A. Refer to merchandise that customers return to the seller after the sale.

question

A debit to Sales Returns and Allowances and a credit to Accounts Receivable: A. Reflects an increase in amount due from a customer. B. Recognizes that a customer returned merchandise and/or received an allowance. C. Requires a debit memorandum to recognize the customer's return. D. Is recorded when a customer takes a discount. E. Reflects an increase in net sales.

answer

B. Recognizes that a customer returned merchandise and/or received an allowance.

question

Sales less sales discounts less sales returns and allowances equals: A. Net purchases. B. Cost of goods sold. C. Net sales. D. Gross profit. E. Net income.

answer

C. Net sales.

question

Which of the following accounts would be closed with a debit? A. Sales Discounts B. Sales Returns and Allowances C. Cost of Goods Sold D. Operating Expenses E. Sales

answer

E. Sales

question

Which of the following statements is true regarding the closing process of a merchandiser? A. Sales Discounts, Sales Returns and Allowances, and Cost of Goods sold should all be credited during closing B. Sales Discounts, Sales Returns and Allowances, and Cost of Goods sold should all be debited during closing. C. Sales Discounts and Sales Returns and Allowances should be debited; Cost of Goods Sold should be credited during closing. D. Sales Discounts and Sales Returns and Allowances should be credited; Cost of Goods Sold should be debited during closing. E. Sales Discounts and Sales Returns and Allowances are not closed. Cost of Goods Sold should be credited during closing.

answer

A. Sales Discounts, Sales Returns and Allowances, and Cost of Goods sold should all be credited during closing.

question

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a: A. Balanced income statement. B. Single-step income statement. C. Multiple-step income statement. D. Combined income statement. E. Simplified income statement.

answer

B. Single-step income statement.

question

Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called: A. Cost of goods sold. B. Selling expenses. C. Purchasing expenses. D. General and administrative expenses. E. Nonoperating activities.

answer

D. General and administrative expenses.

question

Multiple-step income statements: A. Are required by the FASB. B. Contain more detail than a simple listing of revenues and expenses. C. Are required for the perpetual inventory system. D. List cost of goods sold as an operating expense. E. Can only be used in perpetual inventory systems.

answer

B. Contain more detail than a simple listing of revenues and expenses.

question

An account used in the periodic inventory system that is not used in the perpetual inventory system is: A. Merchandise Inventory B. Sales C. Sales Returns and Allowances D. Accounts Payable E. Purchases

answer

E. Purchases

question

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for merchandise inventory is: A. The ending inventory amount. B. The beginning inventory amount. C. Equal to the cost of goods sold. D. Equal to the cost of goods purchased. E. Equal to the gross profit

answer

B. The beginning inventory amount.

question

( some of chapter 3) A trial balance prepared after the closing entries have been journalized and posted is the: A. Unadjusted trial balance B. Post-closing trial balance C. General ledger D. Adjusted trial balance E. Work sheet

answer

B. Post-closing trial balance

question

An error is indicated if the following account has a balance appearing on the post-closing trial balance: A. Office Equipment B. Accumulated Depreciation-Office Equipment C. Depreciation Expense-Office Equipment D. Common Stock E. Salaries Payable

answer

C. Depreciation Expense-Office Equipment

question

A post-closing trial balance includes: A. All ledger accounts with balances, none of which can be temporary accounts. B. All ledger accounts with balances, none of which can be permanent accounts. C. All ledger accounts with balances, which include some temporary and some permanent accounts. D. Only revenue and expense accounts. E. Only asset accounts.

answer

A. All ledger accounts with balances, none of which can be temporary accounts

question

Which of the following statements is true? A. Retained earnings must be closed each accounting period B. A post-closing trial balance should include only permanent accounts. C. Information on the work sheet can be used in place of preparing financial statements. D. By using a work sheet to prepare adjusting entries, you need not post these entries to the ledger accounts E. Closing entries are only necessary if errors have been made.

answer

B. A post-closing trial balance should include only permanent accounts.

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