Practice Test 1 – Financial Accounting

Flashcard maker : Lily Taylor
The primary purpose(s) of financial accounting is (are) to:
Both measure and communicate financial information.
Financial accounting:
Provides information primarily for external decision makers.
The accounting equation is defined as:
Assets = Liabilities + Stockholders’ Equity.
Liabilities are best defined as:
Debts or obligations the company owes resulting from past transactions.
Use the following appropriate amounts to calculate net income: Revenues, $12,000; Liabilities, $5,000; Expenses, $4,000; Assets, $19,000; Dividends, $4,000.
$8,000

Revenues ($12,000) ? Expenses ($4,000) = Net Income

The financial statement that represents the accounting equation is the:
Balance sheet.
Which of the following is the correct order for preparing the financial statements?
Income statement, statement of stockholders’ equity, and balance sheet.
Which of the following statements is NOT correct about the financial statements?
A balance sheet reports assets, liabilities, revenues, and expenses.
Retained earnings at the end of the year is calculated using:
Beginning retained earnings, net income, and dividends.
Generally Accepted Accounting Principles (GAAP) are best defined as:
Standards or methods for presenting financial accounting information.
The independent, private-sector group that is primarily responsible for setting financial reporting standards in the United States is the:
FASB.
Financial reporting objectives do not include providing information:
To determine market values, assess profit potential, and evaluate management.
The major underlying assumptions of accounting include all of the following except:
Legal liability.
The assumption that a business will continue to operate into the future is the:
Going concern assumption.
The conceptual framework’s qualitative characteristic of relevance includes:
Predictive value.
Which of the following is not part of measuring external transactions?
Making payments on all amounts owed.
The full set of procedures used to accomplish the FN Measurement/communication process of financial accounting is referred to as the:
Accounting cycle
Which of the following would increase assets and increase liabilities?
Purchase office supplies on account.
A company receives a $50,000 cash deposit from a customer on October 15 but will not provide services until November 20. Which of the following statements is true?
The company records unearned revenue on October 15.
The following amounts are reported in the ledger of Mariah Company:

Assets – $80,000
Liabilities – $36,000
Retained Earnings – $12,000

What is the balance in the Common Stock account?

$32,000
“Record revenue in the period in which it’s earned” is the definition of which principle in accounting?
Revenue recognition
Assume that Sallisaw Sideboards, Inc. had a retained earnings balance of $10,000 on April 1, and that the company had the following transactions during April.

Issued common stock for cash, $5,000.
Provided services to customers on account, $2,000.
Provided services to customers in exchange for cash, $900.
Purchased equipment and paid cash, $4,300.
Paid April rent, $800.
Paid employee salaries for April, $700.

What was Sallisaw’s retained earnings balance at the end of April?

$11,400
Consider the following list of accounts:

Accounts Payable
Cash
Prepaid Rent
Common Stock
Salaries Payable
Equipment
Supplies
Rent Expense

How many of these accounts have a normal credit balance?

Three
Which of the following accounts would normally have a credit balance?
Accounts Payable, Service Revenue, Common Stock
Liabilities normally carry a _______ balance and are shown in the ______________.
Credit; Balance sheet
Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and credit are:
Debit Prepaid Insurance $18,000, credit Cash $18,000
Styleson Inc. performed cleaning services for its customers for cash. These transactions would be recorded as:
Debit Cash, credit Service Revenue
Tomlin & Company provides music for special occasions. On January 14, the Smith family hired Tomlin for an upcoming family wedding for an agreed upon fee of $10,000. The wedding was scheduled for May 23. As part of the agreement, the Smiths paid Tomlin half of the fee at the end of April with the remaining amount due by the end of June. How would Tomlin record the receipt of the final payment in June?
Credit to Accounts Receivable
The Accounts Receivable account has a beginning balance of $10,000 and the company provides services of $50,000 on account during the month. The ending balance was $12,000. How much did the company receive from customers during the month?
$48,000

$10,000 + $50,000 ? $12,000 = $48,000

Posting transactions to T-accounts involve:
Transferring debit and credit information from the journal to the accounts in the general ledger.
Finnish Motors has the following balance sheet accounts:

Land – $150,000
Equipment – $90,000
Salaries Payable – $12,000
Notes Payable – $99,000
Supplies – $10,000
Cash – $25,000
Common Stock – $40,000
Retained Earnings – $100,000
Accounts Payable – ?
Prepaid Rent – ?

If the company has total liabilities and stockholders’ equity of $290,000, what is the balance of the company’s Prepaid Rent account?

$15,000

Total assets ($290,000) = Land ($150,000) + Equipment ($90,000) + Supplies ($10,000) + Cash ($25,000) + Prepaid Rent (?); therefore, Prepaid Rent = $15,000

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