Acccounting Exam 1 Questions + Answers (2)

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Baylor Company collected $5,000 from a customer on account. What journal entry will Baylor record?
Debit Cash, credit Accounts Receivable.

Which of the following would eventually cause a reduction in retained earnings?
Using up supplies

Company A receives $10,000 in advance in September 2011 for work to be performed in October 2011. For September, the company should:
Debit Cash $10,000 and credit Unearned Revenue $10,000.

Sparkling Pools provides $1,000 of pool maintenance services during July and collects payment in August. The company performs $1,600 of pool maintenance services during July that were paid for in June. The company accepts an order to perform $500 of pool maintenance services in August (that is actually performs in August) and will be paid in the same month. Revenue should be credited for:
$0 in June, $2,600 in July, and $500 in August.

On January 28, 2015, your company bought a 30-second advertisement that aired during the a sporting event at a cost of $1.2 million. It is legally obligated to pay for the ad but has not yet done so. How does the purchase and use of the ad time affect your company's balance sheet on January 28, 2015?
It increases liabilities and decreases stockholders' equity by $1.2 million each.

In October, your company prepays rent of $7,000 for November and December. Which of the following describes the effects of this transaction in October?
There is no change to total assets, liabilities or stockholders' equity.

On January 1, 2014, Ryan Company paid the premium on a three-year insurance policy in the amount of $6,000. At that time, the full amount paid was recorded as prepaid insurance. After recording the adjusting entry for the insurance policy on December 31, 2014, what would be the balance in Ryan Company's prepaid insurance account?
$4,000

Which of the following transactions and events results in a decrease in both total assets and net income?
Adjustment of the prepaid rent account for rent used during the period.

Which of the following does correctly describes an adjusting journal entry that debits depreciation expense and credits accumulated depreciation?
It increases expenses and decreases assets.

On April 1, 2014, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2014 adjusting entry?
Insurance expense will increase $2,250.

On January 1, 2014, the general ledger of Global Corporation included Supplies (an asset account) of $1,000. During 2014, supplies purchased amounted to $5,000, which were added to the Supplies account. A physical count of inventory on hand at December 31, 2014 determined that the amount of supplies on hand was $1,200. How much is the 2014 supplies expense?
$4,800.

On November 1, 2014, Bug Busters collected $6,000 in advance for three months of service to be provided beginning on that date. Bug properly recorded the entire amount as unearned revenue for $6,000 on November 1. The books are adjusted only at year-end. What is the adjusting entry required on December 31, 2014?
Debit Unearned Revenue $4,000, Credit Service Revenue $4,000

Below are two related transactions for Golden Corporation. The annual accounting period ends December 31. The books are adjusted only at year-end.

October 1, 2014: Golden Corporation borrowed $100,000 and signed a note providing for 8% annual interest. The principal and interest are due in one year on September 30, 2015.
December 31, 2014: End of the annual accounting period.
What adjusting entry is required on December 31 if the company adjusts its books once a year, on December 31?
Debit Interest Expense $2,000, Credit Interest Payable $2,000

What type of account is Accumulated Depreciation?
Contra-asset with a normal credit balance

In an accrual accounting system based on GAAP,
a debit entry is recorded on the left-hand side of an account.

If a cost of doing business has been incurred but not yet recorded, then the end-of-period adjusting entry would involve
a liability and an expense account.

The supplies account balance on the balance sheet at the beginning of the period was $6,600. Supplies totaling $12,825 were purchased during the period and recorded as an asset. A physical count shows $3,825 of supplies on hand at the end of the period. The adjusting journal entry at the end of the period
debits Supplies Expense and credits Supplies for $15,600.

In November and December 2015, Bee Company, a newly organized newspaper publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January 2, 2016, issue of the newspaper. How much should Bee report in its 2015 income statement for subscription revenue?
$0

L. Lane received $12,000 from a tenant on December 1 for four months' rent of an office. This rent was for December, January, February, and March. If Lane properly recorded the entire amount as a liability of $12,000 on December 1, what necessary adjustment must be made on December 31?
Unearned Rental Revenue ............. 3,000
Rental Revenue .................... 3,000

At the beginning of January of 2015, Little Mikey's Catering ledger reflected a debit balance of $52,000 for accounts receivable. During January, the company collected $14,800 from customers on account and provided additional services to customers on account totaling $12,500. Additionally, during January one customer paid Mikey $5,000 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be:
$49,700.

he following transactions occurred during July:

Received $900 cash for services provided to a customer during July.
Received $2,200 cash investment from Bob Johnson, the owner of the business.
Received $750 from a customer in partial payment of his account receivable which arose from sales in June.
Provided services to a customer on credit, $375.
Borrowed $6,000 from the bank by signing a promissory note.
Received $1,250 cash from a customer for services to be rendered next year.

What was the amount of revenue for July?
$1,275.

Golddigger Services Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for 6-months services in advance. Golddigger Services' general journal entry to record this transaction on May 1 will include a:
Credit to Unearned Revenue for $60,000.

A credit in a journal entry:
Decreases asset and expense accounts, and increases liability, owner's capital, and revenue accounts.

On January 1, 2015, Miller Corporation had retained earnings of $8,000,000. During 2015, Miller reported net income of $1,500,000, declared dividends of $500,000, and issued common stock for $1,000,000. What were Miller's retained earnings on December 31, 2015?
$9,000,000.

Which of the following would not be reported in the operating activities section of a cash flow statement?
Cash paid for dividends to stockholders.

Which of the following would not be found within the investing activities section of the statement of cash flows?
Cash received from the sale of common stock to stockholders.

On March 1, 2016, the company paid $6,000 rent in advance for a 12-month period. No entries have been made regarding this transaction since March 1, when it was all recorded in an asset account. On December 31, 2016, the company's necessary adjusting entry for this transaction would include:
a $5,000 debit to Rent Expense; a $5,000 credit to Prepaid Rent.

If a business receives $5,000 on account in November 2015 from clients who owed money for services provided and billed in October 2015, what is the effect on the accounting equation of the receipt of the cash in November?
assets remain the same and owner's equity remains the same.

When a company incurs employee salaries but does not pay them, how will the basic accounting equation be affected?
Stockholders' equity decreases.

On September 30, 2015, MFP Co. paid employee salaries of $7,000, including $1,000 it owed to its employees last month for services they rendered last month (August 2015). What are the effects of the payment of the salaries on September 30, 2015?
Assets decreased, liabilities decreased, and expenses increased.

Following are transactions of Brenner Tanners, Inc., a new company, during the month of January:

Issued 10,000 shares of common stock for $15,000 cash.
Purchased land for $12,000, signing a note payable for the full amount.
Purchased office equipment for $1,200 cash.
Received cash of $14,000 for services provided to customers during the month.
Purchased $300 of office supplies on account.
Paid employees $10,000 for their first month's salaries.

What was the total amount of Brenner's liabilities following these six transactions?
$12,300.

Which of the following transactions causes a decrease in stockholders' equity?
Pay dividends to stockholders.

Which of the following transactions would cause a decrease in both assets and stockholders' equity?
Paying for advertising for an advertisement that ran in the current month.

Which of the following statements is true?
The current ratio is used to evaluate a company's ability to pay its current obligations.

Which of the following is a normal closing entry?
Debit Service Revenue, credit Retained Earnings.

The ending balance of Retained Earnings can best be described as:
The amount of net income over the life of the company not paid to owners in the form of dividends.

The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:
A debit to a liability.

The primary difference between accrual-basis and cash-basis accounting is:
The timing of when revenues and expenses are recorded.

A company has the following three events in December, 2015:

December 1 - Pay last month's rent (November), $500.
December 15 - Pay rent for the current month (December), $500.
December 31 - Pay rent for the following year, $6,000.

How much would be recorded as Rent Expense for the month of December using accrual-basis accounting?
$500.

Providing services to a customer on account does not impact net income. T/F
False

When a magazine sells subscriptions to customers, it is an example of an unearned revenue when the cash is received up front T/F
True

Al Dunn Bakery bought a new oven for $1,380. Al paid $300 as a cash down payment and will pay the balance in 30 days. Total assets increased by $1,080. T/F
True

Utilities Expense would be debited when a company receives a bill for utilities that it will pay later. T/F
True

Prepaid expenses, such as prepaid rent and prepaid insurance, represent assets for a business until they are used. T/F
True

After closing entries are posted to the accounts in the general ledger, all revenue and expense accounts have a balance of zero. T/F
True

The income statement is prepared for a period of time such as a month, while the balance sheet is prepared at a specific point in time. T/F
True

The U.S. has made the decision to switch from GAAP to IFRS, effective December 31, 2015, for SEC reporting of publicly traded companies. T/F
False

Unearned revenues are revenues that have been earned but not yet collected in cash. T/F
False

According to the matching principle, salary expense is recognized on the income statement when the salaries are paid rather than when the employee provides the work. T/F
False

Purchasing a six-month insurance policy results in a debit to insurance expense and a credit to cash at the date of purchase. T/F
False

A journal entry can consist of no more than one account to be debited and one account to be credited. T/F
False

Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period. T/F
False

Accumulated Depreciation is presented in the Liabilities section of a balance sheet. T/F
False

Net income includes a deduction for dividend payments made to stockholders. T/F
False

Accrued revenues have been earned but not yet received in cash, such as rent receivable and interest receivable. T/F
True

The balance sheet provides a listing of assets and liabilities at their fair market values. T/F
False

Adjusting entries should be prepared after financial statements are prepared. T/F
False

A trial balance represents a chronological record of all transactions affecting the company. T/F
False

The income statement
reports the amount of revenues earned and expenses incurred during the period.

The payment of dividends is a financing activity T/F
True

Accounts payable, notes payable and wages payable are examples of liabilities. T/F
True

Contributed Capital (or Common Stock) is an asset on the balance sheet. T/F
False

The stockholders' equity of a company is the difference between assets and liabilities. T/F
True

Which of the following are the three basic elements of the balance sheet?
assets, liabilities, and stockholders' equity.

6. The purpose of a statement of retained earnings is to:
report how the profits of a company have been distributed to stockholders or retained in the business.

7. Cash received from issuing new stock to stockholders are reported as cash flows from ________ activities on the statement of cash flows.
Financing

Which of the following is NOT one of the main financial statements?
Statement of Net Liabilities

If Luverne Company purchases inventory on account for $4,000, then
assets and liabilities both increase by $4,000.

A company was recently formed with $61,200 cash contributed to the company by its owners. The company then borrowed $31,200 from a bank and bought $11,200 of inventory and paid cash for it. The company also purchased $71,200 of equipment by paying $10,000 in cash and issuing a note for the remainder. What is the amount of the total liabilities to be reported on the balance sheet?
$92,400

Which of the following events is not a business transaction?
Hired employees for $9/hour

Gealdo Company purchases $600 of equipment from Mundelein Inc. for cash. The effect on the components of the basic accounting equation of Geraldo Company is
c. no change in total assets.

A company issued stock to investors for cash of $50,000. Choose the TRUE statement.
Cash will increase $50,000 and Common Stock will increase $50,000.

Your company pays back $2 million on a loan it had received earlier from a bank.
Assets decrease by $2 million, liabilities decrease by $2 million, stockholders' equity is unchanged.

Beez & Company was recently formed with a $15,000 investment in the company by stockholders. The company then incurred the following transactions:

borrowed $2,000 from a local bank
purchased $1,000 of supplies on account
purchased $5,000 of equipment by paying $2,000 in cash and signing a promissory note for the balance
After recording these transactions in the accounting system, the company's total assets are:
$21,000.

1. On April 30, Geneva Inc. receives the month's utility bill which is due on May 15. Which of the following statements is true regarding the accounting for April utilities?
d. The expense should be recorded in April by debiting Utilities Expense and crediting Accounts Payable.

2. Which of the following transactions would cause a decrease in the Accounts Receivable account?
a collection of cash from a previous sale

3. Pineapple Café paid employees $95,000 in June for work done that month. What journal entry will Pineapple record in June, assuming Pineapple did not owe any amounts to employees at the end of May?
b. Debit Wages Expense, credit Cash.

The following transactions occurred during November:
a. Received $800 cash for services rendered during November.
b. Received $5,000 from issuance of stock to investors.
c. Received $400 from a customer in payment of accounts receivable from the prior month.
d. Billed customers for services performed in November, $3,500.
e. Borrowed $2,500 from the bank, giving a promissory note in exchange.
f. Received $1,000 from a customer for services to be performed next year.
What is the amount of Revenue for November?
$4,300

In January, Mosby Company prepays rent of $4,300 for February and March. Which of the following describes the
effects of this transaction on Mosby Company in January?
There is no change to total assets, liabilities or stockholders' equity.

A credit is used to record:
A decrease in an asset account.

The balance of an unearned revenue account:
Appears in the liability section of the balance sheet.

Silver Systems sold and delivered modems to White Computers for $330,000 to be paid by White in three equal installments over the next three months. The journal entry made by Silver Systems to record this transaction will include:
A debit to Accounts Receivable for $330,000.

A company started the year with $1,500 of supplies on hand. During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset. At the end of the year the company determined that only $300 of supplies are still on hand. What is the adjusting journal entry to be made at the end of the period?
Debit Supplies Expense and credit Supplies for $2,000

On December 31, the Filling Restaurant paid $27,000 for a full year of rent beginning on January 1. The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts. If financial statements are prepared on January 31, the journal entry to record the adjustment would be:
Debit rent expense and credit prepaid rent for $2,250.

The annual depreciation taken on a vehicle totals $3,400. The vehicle has been in service for three full years and the adjusting entries have been completed for the year. At the end of the third year, the balance in the Depreciation Expense account is $______ and the balance in the Accumulated Depreciation account is $______.
Unearned Revenue for $400 and a credit to Rent Revenue for $400.

Which of the following statements about revenues and expenses is correct?
Expenses decrease the amount of stockholders' equity.

Forest Corp. pays income tax at an average rate of 30 percent. This year its revenue is $106,000 and its expenses are $73,000. The adjusting entry to record the income tax expense will:
decrease stockholders' equity by $9,900.

On June, 30, 2015, a company purchased a two-year insurance policy for $18,000, paying cash and debiting Prepaid Insurance for the entire two-year premium amount. The adjusting entry on December 31, 2015 includes a:
credit to Prepaid Insurance $4,500.