Business & Accounts – Financial Accounting Exam

Business & Accounts – Financial Accounting Exam

This financial accounting chapter is about business & accounts, financial accounts, and exam 1 is based on this chapter.

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Question 1

Beginning Assets were $437,600, Beginning Liabilities were $262,560, Common Stock sold during the year totaled $45,000, Revenue for the year was $414,250, Expenses for the year were $280,000, Dividends declared was $22,700, and Ending Liabilities is $350,000.
What is the Ending Equity for the year? 

$331,590 – correct

$612,560

$134,250

$700,160

$175,040


If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have: 

Increased $30,000

Increased $45,000 – correct

Decreased $105,000

Increased $105,000

Decreased $45,000


Photometer Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation? 

Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease

Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase

Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect – correct

Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect

Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase


 An example of an operating activity is

Purchasing office equipment

Paying Wages – correct

Borrowing money from a bank

Paying off a loan

Selling stock


Another name for equity is

Net assets – correct

Net income

Expenses

Revenue

Net loss


Net income:

Represents the owners’ claims against assets

Is the excess of revenues over expenses – correct

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Decreases equity


If equity is $300,000 and liabilities are $192,000, then assets equal:

$492,000 – correct

$108,000

$300,000

$792,000

$192,000


Which of the following elements are found on the income statement?

Cash

Common Stock

Retained Earnings

Salaries Expense – correct

Accounts Receivable


A limited partnership:

Must only have two partners

Includes a general partner with unlimited liability – correct

Is the same as a corporation

Has owners called stockholders

Is subject to double taxation


Businesses can take all of the following forms except:

Sole proprietorship

Corporation

Partnership

Limited liability company

Common stock – correct


The assets of a company total $700,000; the liabilities, $200,000. What are the total claims of the owners?

$500,000 – correct

Itis impossible to determine unles the amout of owners’ investment is known

$200,000

$700,000

$900,000


If Beginning Retained Earnings was $184,300, net income for the period was $200,000 and Ending Retained Earnings was $322,000, what was the total amount of dividend distributed for the period? 

$137,700

$62,300 – correct

$337,700

$306,300

$706,300


The financial statement that describes where a company’s cash came from and where it went during the period is the: 

Income statement

Statement of cash flows – correct

Balance sheet

Statement of financial position

Statement of retained earnings


The major activities of a business include: 

Investing, Making a profit, Financing

Investing, Making a profit, Operating

Making a profit, Investing, Financing

Operating, Investing, Financing – correct

Operating, Investing, Making a profit


The financing functions of a business include: 

Distribution

Selling common stock – correct

Purchasing

Research and development

Marketing


Acme Company had equity of $55,000 at the end of the current year. During the year the company had a $2,000 net loss and investments by owners in exchange for stock of $7,000. Compute equity as of the beginning of the year.

$5,000

$52,000

$50, 000 – correct

$64,000

$46,000


Below is accounting information for Cascade Company for 2019:

Revenue: $416,000

Cash: $120,000

Common Stock $200,000

Expenses: $300,000

Equipment: $240,000

Accounts Receivable: $35,000

Notes Payable: $50,000

Notes Receivable: $62,000

What were the total assets for the year?

$316,000

$116,000

$320,000

$296,000

$457,000 – correct


Which of the following statements regarding account classification is true? 

If employees have not been paid for their work, the company has wages payable – correct

Revenue is anotherterm for profit

Revenue munis expenses equals retained earnings

Retained earnings equal cash which the ocmpan yhas earned and kept

Assets and revenues are the same thing


Beginning Assets were $437,600, Beginning Liabilities were $262,560, Common Stock sold during the year totaled $45,000, Revenue for the year was $414,250, Expenses for the year were $280,000, Dividends declared was $22,700, and Ending Liabilities is $350,000.
What is Net Income for the year? 

$331,590

$175,040

$700,160

$134,250 – correct

$612,560


Which accounting assumption assumes that all accounting information is reported monthly or yearly? 

Cost assumption

Value assumption

Time period assumption – correct

Monitary unit assumption

Business entity assumption


A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what amounts are the accounts under or overstated as a result of this error? 

Office Equipment, overstated $260; Fees Earned, overstated $130

Office Equipment, understated $130; Fees Earned, overstated $130

Office Equipment, overstated $130; Fees Earned, understated $130

Office Equipment, overstated $260; Fees Earned, understated $130

Office Equipment, overstated $130; Fees Earned, overstated $130 – correct


A credit is used to record:

A decrease in a revenue account

An increase in an expense account

An increase in an asset account

An increase in an unearened revenue account – correct

A decrease to retained earnings


A written promise to pay a definite sum of money on a specific future date is a(n): 

Account receivable

Prepaid expense

Unearned revenue

Credit account

Note payable – correct


On September 30, the Cash account of Value Company had a normal balance of $5,000. During September, the account was debited for a total of $12,200 and credited for a total of $11,500. What was the balance in the Cash account at the beginning of September? 

A $4,300 debit balance – correct

A $5,700 debit balance

A $4,300 credit balance

A $0 balance

A $5,700 credit balance


Accountants at Amalgamated Corporation incorrectly journalized a $50,000 equipment purchase as a debit to Buildings. This error was not discovered before the journal entry was posted. What is the correcting entry? 

Debit Building and Credit Equipment for $100,000 each

Debit Building and Credit Equipment for $50,000 each

Debit Equipment for $100,000 and Credit Buildings for $50,000

Debit Equipment and Credit Buildings for $100,000 each

Debit Equipment and Credit Buildings for $50,000 each – correct


A ledger is:

A collection of documents that decribe transactions and events during the accounting cycle

A list of all accounts with their debit balances at a point in time

A list of all accounts a company uses and includes an identification number assigned to each account

A record containing increases and decreases in a specific asset, liability, equity, revenue or expense item – correct

A journal in which transactions are first recorded


Wisconsin Rentals purchased office supplies on credit. The general journal entry made by Wisconsin Rentals will include a: 

Credit to Accounts Payable – correct

Debit to Accounts Payable

Credit to Retained Earnings

Credit to Cash

Debit to Accounts Receiveable


What would be the account balance in the accounts receivable ledger account after the following transactions?

Performed services and left a bill          $4,200

Performed services and collected immediately     $3,500

Performed service and billed customer     $2,200

Performed services on accounts      $6,000

Received partial payment on account     $1,500

$4,500

$10,900 – correct

$17,400

$2,200

$14,400


The accounting process beings with:

Presentation of financial informatino to decison makers

Summarizing the recorded effects of business transactions

Preparation of the trial balance

Analysis of business transactions and events – correct

preparation of financial statements and other reports


Listed below are two pieces of information. Where is the best place to locate this information, in the journal or the ledger?
Details of a transaction which took place on October 3rd
All of the sales activity which took place during the current month 

1. Ledger 2. Ledger

1. Ledger 2. Journal

1. Journal 2. Journal

1. Journal 2. Ledger – correct

This information is only available on the financial statements


The right side of a T-account is a(n): 

Debit

Decrease

Credit – correct

Account balance

Increase


During the month of February, Hoffer Company had cash receipts of $7,500 and cash disbursements of $8,600. The February 28 cash balance was $1,800. What was the January 31 beginning cash balance? 

$2,900 – correct

$ 4,300

$700

$1,100

$0


What would be the account balance in revenue ledger account after the following transactions?

Performed services and left a bill          $4,200

Performed services and collected immediately     $3,500

Performed service and billed customer     $2,200

Performed services on accounts      $6,000

Received partial payment on account     $1,500

$17,400 Credit

$14,400 Credit

$15,900 Credit – correct

$14,400 Debit

$15,900 Debit


Unearned revenues are:

Increases to retained earnings

Revenues that have been earned and received in cash

revenues that have been earned but not yet collected in cash

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

Recorded as an asset in the accounting records


Jones Hardware, Inc. pays a cash dividend of $6,000, what is the necessary entry to record this transaction? 

Debit Cash, Credit Common Stock

Debit Cash, Credit Retained Earnings

Debit Common Stock, Credit Cash

Debit Dividends, Credit Cash – correct

Debit Cash, Credit Dividend Income


Double entry accounting is an accounting system:

In which the impact of each transaction is recorded in two or more accounts but that could include two debits and no credits

That may only be used if T-accounts are used

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

That insures that errors never occur

That records each transaction twice


Of the following accounts, the one that normally has a credit balance is: 

Sales Salaries Expense

Dividends

Sales Salaries Payable – correct

Cash

Office Equipment


A balance column ledger account is: 

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 – correct

An account entered o the balance sheet

A simple form of account that is widely used in accounting to illustrate the debits and credits required in recording a transaction

An alternate name for the retained earnings account

An account used to record the transfers of assets from a business to its stockholders


What is ending retained earnings for Shiver Ice House?

Common Stock $120,000Accounts Payable   $25,000
Cash $116,640Accounts Receivable $22,450
Supplies $1,500Office Equipment $23,300
Prepaid Rent $3,200Unearned Revenue $4,152
Revenue $20,000Utilities Expense $422
Retained Earnings $30,000Shaving Equipment $31,640

$23,728

$29,578

$45,000

$19,578

$49,578 – correct


Which of the following is a true statement regarding debits and credits? 

Assets and expenses are both increased with a debit – correct

For a business, debits are better than credits

Liabilities and equity are both increased with a debit

A company’s books are not in balance if they have a current period loss

If a company earned a profit, debits will not equal credits


Which of the following statements is correct? 

Increases and decreases in cash are always recorded in the retained earnings account

An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business

Accrued liabilities include accounts receivable

When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense

Promises of future payment are called accounts payable – correct


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: 

Recorded as a debit to an unearned revenue account

Not recorded in the accounting records until the earnings process is complete

Recorded as a credit to an unearned revenue account – correct

Recorded as a credit to a prepaid expense

Recorded as a debit to a prepaid expense account


A $15 credit to Sales was posted as a $150 credit. By what amount is Sales in error? 

$135 overstated – correct

$150 overstated

$135 understated

$150 understated

$15 understated


.A trial balance taken at year-end showed total credits exceeding total debits by $4,950. This discrepancy could have been caused by: 

An error in the general journal where a $4,950 increase in Accounts Payable was recorded as a decrease in Accounts Payable

The balance of $5,500 in the Office Equipment account being entered on the trial balance as a debit of $550 – correct

A net income of $4,950

The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950

An error in the general journal where a $4,950 increase in Accounts Receivable was recorded as an increase in Cash


On October 31, a company’s Cash account had a normal balance of $7,000. During October, the account was debited for a total of $4,250 and credited for a total of $5,340. What was the balance in the Cash account at the beginning of October? 

$9,590 credit balance

$1,090 debit balance

$0 balance

$2,590 credit balance

$8,090 debit balance – correct


Adjusting entries:

Affect only cash flow statement accounts

Affect both income statement and balance sheet accounts – correct

Affect only balance sheet accounts

Affect only income statement accounts

Affect only equity accounts


The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: 

Accrual basis accounting – correct

The maching principle

The time period assumption

Revenue basis accounting

Cash basis accounting


The accrual basis of accounting

Eliminates the need for adjusting entries at the end of each period

Recognizes revenues when received in cash

Is generally accepted for external reporting since it is more useful for most business decisions – correct

Is flawed because it gives complete information about cash flows

Recognizes expenses when paid in cash


.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: 

$200 difference between the debit and credit columns of the Unadjusted Trial Balance

An error in the financial statements

$200 more in net income

$200 less in net income – correct

$200 of prepaid insurance


Which of the following accounts would not be on the post closing trial balance? 

Common Stock

Accounts Receivable

Accounts Payable

Retained Earnings

Dividends – correct


The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the: 

Contra account

Closing account

Nominal account

Income Summary account – correct

Divident account


Based on the following information, what would be the total on the Credit side of a post closing trial balance, assuming all accounts have a normal balance?

Cash $6,754Dividends $2,000
Accounts receivable $13,733Consulting fees earned $13,718
Office supplies $2,625Rent Expense $3,673
Land $37,153Salaries expense 6,642
Accounts payable 6,463Telephone expense 560
Common stock 54,490Miscellaneous expense 280
Office equipment 14,535Retained Earnings   ???

$81,263

$87,955

$61,516

$74,800 – correct

$74,671


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: 

$425 debit

$750 debit

$325 debit – correct

$325 credit

$750 credit


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: 

An accrued account

Depreciation – correct

Accumulated depreciation

The matching principle

A contra account


Which of the following is true of accrued revenues? 

At the end of one accounting period often result in cash receipts from customers in the next period – correct

Are recorded at the end of an accounting period because cash has already been received for revenues earned

Are listed on the balance sheet as liabilities

At the end of one accounting period often result in cash payments in the next period

Are also called unearned revenues


A post-closing trial balance is prepared 

Immediately after all closing entries have been recorded and posted – correct

Immediately before all closing entries have been recorded and posted

Immediately before a business ceases to exist

Immediately before a business starts operations

At different times in the accounting cycle depending on the nature of the business and the complexity of the accounting records


A company had 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 retained earnings for the end of the period? 

$204,400 – correct

$250,000

$204,500

$232,100

$222,400


Based on the following information, determine the current ratio, assuming all accounts have a normal balance

Cash $6,754Dividends $2,000
Accounts receivable $13,733Consulting fees earned $13,718
Office supplies $2,625Rent Expense $3,673
Land $37,153Salaries expense 6,642
Accounts payable 6,463Telephone expense 560
Common stock 54,490Miscellaneous expense 280
Office equipment 14,535Retained Earnings   ???

1.23

11.57

1.57

1.23

3.58 – correct


The length of time covered by a set of periodic financial statements is referred to as the: 

Fiscal cycle

Natural business year

Accounting period – correct

Business cycle

Operating cycle


Compute profit margin ratio given the following information.
Cost of Goods Sold $53,000
Net Income 60,000
Gross Profit 800,000 

7.03% – correct

6.2%

88.33%

6.63%

93.8%


On June 30, 2009, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.

A credit to a prepaid expense for $5,000

A debit to cash for $5,000

A debit to a prepaid expense for $5,000 – correct

A debit to a expense for $5,000

A credit to a expense for $5,000


A post-closing trial balance includes: 

All ledger accounts with balances, none of which can be permanant accounts

Only asset accounts

All ledger accounts with balances, none of which can be temporary accounts – correct

All ledger accounts with balances, which include some temporary and some permanantaccounts

Only revenue and expense asccounts


Which of the following statements is incorrect?

Prepaid expenses, depreciation and unearned revenues often require adjusting entries to record the effects of the passage of time

Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded

Adjusting entries affect the cash account – correct

Prepaid expenses, depreciation and unearned revenues involve previously recorded assets and liabilities

Adjusting entries can be used to record both accrued expenses and accrued revenues


On April 30, 2019, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company’s income statement for the year ended December 31, 2019? 

$5,000

$14,000

$18,000

$6,000

$4,000 – correct


Which of the following statements is true?

Retained earnings must be closed each accounting period

A post-closing trial balance should include only permanent accounts – correct

By using a work sheet to prepare adjusting entries you need not post these entries to the ledger accounts

Information on the work sheet can be used in place of preparing financial statements

Closing entries are only necessary if errors have been made


Which of the following errors would cause the Balance Sheet columns of a work sheet to be out of balance? 

Entering a revenue amount in the Balance Sheet Debit column – correct

Entering an expense amount in the Balance Sheet Debit column

Entering an asset amount in the Income Statement Debit column

Entering a liability amount in the Balance Sheet Debit column

Entering a liability amount in the Income Statement Debit column


Due to an oversight, a company made no adjusting entry for accrued and unpaid employee wages of $24,000 on December 31. This oversight would: 

Overstate assets by $24,000

Overstate net income by $24,000 – correct

Have no effect on net income

Understate net income by $24,000

Understate assets by $24,000


Which of the following identifies the proper order of the accounting cycle? 

Analyze, Journalize, Unadjusted Trial Balance

Adjusted Trial Balance, Adjustments, Financial Statements

Unadjusted Trial Balance, Adjusted Trial Balance, Close

Journalize, Post, Adjusted Trial Balance, Close – correct

Analyze, Post, Unadjusted Trial Balance


Which of the following does not require an adjusting entry at year-end? 

Cash investements by stockholders – correct

Accrued interest on notes payable

Expired portion of prepaid insurance

Supplies used duing the period

Accrued wages


A trial balance prepared before any adjustments have been recorded is:

Used to prepare financial statements

An unadjusted trial balance – correct

Only prepared once a year

An adjusted trial balance

Correct with respect to proper balance sheet and income statement amounts


Financial statements are typically prepared in the following order: 

Income statement, balance sheet, statement of retained earnings

Balance sheet, statement of retained earnings, income statement

 Statement of retained earnings, income statement, balance sheet – correct

Income statement, statement of retained earnings, balance sheet

Balance sheet, income statement, statement of retained earnings


The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the: 

Recognition principle

Time period principle

Cost principle

Cash basis of accounting

Matching principle – correct


Expenses incurred but unpaid that are recorded during the adjusting process with a debit to an expense and a credit to a liability are: 

Prepaid expenses

Accrued expenses – correct

Unearned expenses

Net expenses

Intangible expenses


On December 31, the balance in the Prepaid Insurance account was $4,500, which is the remaining balance of a twelve-month policy purchased on October 31 in the current year. How much did this policy originally cost? 

$4,500

$6,000

$4,909

$3,750

$5,400 – correct


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