Business & Accounts – Financial Accounting Exam
This financial accounting chapter is about business & accounts, financial accounts, and exam 1 is based on this chapter.
.
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:
Selling common stock – correct
Purchasing
Research and development
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 $120,000 | Accounts Payable $25,000 |
| Cash $116,640 | Accounts Receivable $22,450 |
| Supplies $1,500 | Office Equipment $23,300 |
| Prepaid Rent $3,200 | Unearned Revenue $4,152 |
| Revenue $20,000 | Utilities Expense $422 |
| Retained Earnings $30,000 | Shaving 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 $6,754 | Dividends $2,000 |
| Accounts receivable $13,733 | Consulting fees earned $13,718 |
| Office supplies $2,625 | Rent Expense $3,673 |
| Land $37,153 | Salaries expense 6,642 |
| Accounts payable 6,463 | Telephone expense 560 |
| Common stock 54,490 | Miscellaneous expense 280 |
| Office equipment 14,535 | Retained 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 $6,754 | Dividends $2,000 |
| Accounts receivable $13,733 | Consulting fees earned $13,718 |
| Office supplies $2,625 | Rent Expense $3,673 |
| Land $37,153 | Salaries expense 6,642 |
| Accounts payable 6,463 | Telephone expense 560 |
| Common stock 54,490 | Miscellaneous expense 280 |
| Office equipment 14,535 | Retained 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