Question 1

Revenues and expenses are temporary subsets of assets and liabilities, respectively.

Accepted Answer

A) True 
 B)False

Question 2

The purpose of accounting in most cases is to be able to measure net income or profitability.

Accepted Answer

A) True 
 B)False

Question 3

An asset can be created by incurring a liability.

Accepted Answer

A) True 
 B)False

Question 4

A business owns an automobile that has an estimated useful life of five years. What is the effect on the accounting equation of recording the using up of the auto for one year?

Accepted Answer

A)  Assets are decreased and equity is decreased. 
B)  Assets are decreased and liabilities are increased. 
C)  There is no effect, provided the automobile was paid for at the time of purchase. 
D)  Assets are increased and equity is increased. 
A)  Assets are decreased and equity is decreased. 
B)  Assets are decreased and liabilities are increased. 
C)  There is no effect, provided the automobile was paid for at the time of purchase. 
D)  Assets are increased and equity is increased.

Question 5

The Jacob Company keeps its accounts on a calendar-year basis. On January 1, 2019, there is a balance of $2,800 in the Prepaid insurance account. The insurance represented by that amount expires on March 31, 2019, but the business makes no entry to record the expiration of the insurance until its year-end. On April 1, 2019, the Company pays $16,000 for an insurance policy covering the period April 1, 2019 - March 31, 2020. Prepare the journal entry at December 31, 2019, to record the full amount of insurance expense for the year.

Accepted Answer

Note: Expense = $2,800 (prepai

Question 6

Companies may have thousands of customers and thousands of accounts receivable. How do companies use subsidiary accounts to manage their accounts receivable?

Accepted Answer

A)  Subsidiary accounts are used for each subsidiary a company owns. 
B)  It establishes a subsidiary account page for each customer. Totals for all these pages must equal
The control account contained in the company's general ledger. 
C)  It establishes a subsidiary account for each customer that result in a separate balance sheet and
Income statement for each customer. 
D)  Companies record the transactions they have with each individual customer as if no other customers exist. 
A)  Subsidiary accounts are used for each subsidiary a company owns. 
B)  It establishes a subsidiary account page for each customer. Totals for all these pages must equal
The control account contained in the company's general ledger. 
C)  It establishes a subsidiary account for each customer that result in a separate balance sheet and
Income statement for each customer. 
D)  Companies record the transactions they have with each individual customer as if no other customers exist.

Question 7

What assurance do you have if you prepare a trial balance and the sum of the debits equals the sum of the credits?

Accepted Answer

A)  That all journal entries have been posted to the ledger accounts 
B)  That all journal entries have been posted to the correct ledger account 
C)  That both a. and b. have occurred 
D)  You cannot be assured that either a. or b. have occurred. 
A)  That all journal entries have been posted to the ledger accounts 
B)  That all journal entries have been posted to the correct ledger account 
C)  That both a. and b. have occurred 
D)  You cannot be assured that either a. or b. have occurred.

Question 8

After a company closes its books at the end of the year, the revenue and expense accounts are no longer relevant.

Accepted Answer

A) True 
 B)False

Question 9

At the beginning of the year, a business had office supplies on hand in the amount of $35,000. During the year, the business acquired additional supplies in the amount of $27,000. At year-end, in anticipation of preparing financial statements, the business took an inventory of its office supplies and found that the amount on hand was $19,000. What journal must be made to record the business' use of office supplies during the year?

Accepted Answer

A)  Debit office supplies and credit office supplies expense for $19,000. 
B)  Debit office supplies and credit office supplies expense for $43,000. 
C)  Debit office supplies expense and credit office supplies for $43,000. 
D)  Debit office supplies expense and credit office supplies for $8,000. 
A)  Debit office supplies and credit office supplies expense for $19,000. 
B)  Debit office supplies and credit office supplies expense for $43,000. 
C)  Debit office supplies expense and credit office supplies for $43,000. 
D)  Debit office supplies expense and credit office supplies for $8,000.

Question 10

When the owner of a company withdraws cash from the company, the journal entry shows a debit to cost of sales and a credit to cash.

Accepted Answer

A) True 
 B)False

Question 11

An income statement or operating statement compares which accounts for the year?

Accepted Answer

A)  Revenues to expenses resulting in net income or loss 
B)  Net income to owner's equity 
C)  Assets to liabilities, and owner's equity 
D)  Assets and liabilities to net income 
A)  Revenues to expenses resulting in net income or loss 
B)  Net income to owner's equity 
C)  Assets to liabilities, and owner's equity 
D)  Assets and liabilities to net income

Question 12

What is the underlying purpose of establishing an allowance for uncollectible accounts?

Accepted Answer

A)  It allows management to reduce the net profit for the year and, therefore, to pay less income tax. 
B)  It provides a means for adjusting the accounts receivable control account to be equal to the total of the individual accounts receivable. 
C)  It enables the expense of bad debts to be matched with the revenues of the year in which the sale was recorded. 
D)  It gives management the ability to manipulate the amount reported as net profit from year to year. 
A)  It allows management to reduce the net profit for the year and, therefore, to pay less income tax. 
B)  It provides a means for adjusting the accounts receivable control account to be equal to the total of the individual accounts receivable. 
C)  It enables the expense of bad debts to be matched with the revenues of the year in which the sale was recorded. 
D)  It gives management the ability to manipulate the amount reported as net profit from year to year.

Question 13

The Cardiel Car Company purchased a passenger van to use to transport customers when they leave their car for repairs. If the van is expected to last 7 years and costs $56,000, what effect would that have on income on the accrual basis each year?

Accepted Answer

A)  The van's cost would need to be amortized/depreciated to recognize an expense equal to $10,000 each year. 
B)  Both the van and depreciation would be reduced by $8,000 each year. 
C)  No effect. 
D)  The van's cost would need to be amortized/depreciated to recognize an expense of $8,000 ($56,000 ÷ 7) in each year. 
A)  The van's cost would need to be amortized/depreciated to recognize an expense equal to $10,000 each year. 
B)  Both the van and depreciation would be reduced by $8,000 each year. 
C)  No effect. 
D)  The van's cost would need to be amortized/depreciated to recognize an expense of $8,000 ($56,000 ÷ 7) in each year.

Question 14

Because of recent E. coli outbreaks at nearby farms, the Flora Brothers Farm decided to purchase product liability insurance. Because they expect that the cost of this insurance to rise dramatically if outbreaks continue, they find an insurer willing to enter into a 10-year contract. Assuming that the Flora Brothers paid cash of $120,000 total in exchange for ten years of insurance, how should the Flora Brothers record this contract and cost?

Accepted Answer

A)  Record prepaid insurance of $120,000 (an asset) and then report a $10,000 expense in each year that the contract covers, reducing the prepaid insurance asset by the same amount. 
B)  Record the entire cost of the contract as a current period expense. 
C)  Record prepaid insurance of $120,000 (an asset) and then charge $12,000 to each year that the
Contract covers, reducing the prepaid insurance asset by the same amount. 
D)  Record insurance cost each year of $12,000. 
A)  Record prepaid insurance of $120,000 (an asset) and then report a $10,000 expense in each year that the contract covers, reducing the prepaid insurance asset by the same amount. 
B)  Record the entire cost of the contract as a current period expense. 
C)  Record prepaid insurance of $120,000 (an asset) and then charge $12,000 to each year that the
Contract covers, reducing the prepaid insurance asset by the same amount. 
D)  Record insurance cost each year of $12,000.

Question 15

Of the four financial statements prepared by companies, which of the following is an accurate statement about the relationship between those statements?

Accepted Answer

A)  Only revenues and expenses increase the owner's capital account. 
B)  The ending balance in the owner's capital account is used to balance the balance sheet. 
C)  Adjusting journal entries all create contra-asset accounts. 
D)  Net income for the period is taken from the income statement and is used to determine the ending balance for capital assets. 
A)  Only revenues and expenses increase the owner's capital account. 
B)  The ending balance in the owner's capital account is used to balance the balance sheet. 
C)  Adjusting journal entries all create contra-asset accounts. 
D)  Net income for the period is taken from the income statement and is used to determine the ending balance for capital assets.

Question 16

At the end of the month, Samantha's Shoes received a bill for electricity that her business used during the month, but Samantha didn't pay the bill. What is the effect on Samantha's Shoes' assets, liabilities, and equity?

Accepted Answer

A)  Assets increased and liabilities increased. 
B)  Liabilities increased and equity decreased. 
C)  Assets increased and equity decreased. 
D)  Liabilities increased and liabilities decreased. 
A)  Assets increased and liabilities increased. 
B)  Liabilities increased and equity decreased. 
C)  Assets increased and equity decreased. 
D)  Liabilities increased and liabilities decreased.

Question 17

Ricardo's Garage wants to prepare financial statements for his company at the end of the January. But first, his accountant needs to make the following adjusting journal entries:
a. To recognize one month's depreciation on $60,000 of equipment on hand at the
beginning of the month. Ricardo assumes the equipment will have a 10-year life.
b. To recognize estimated bad debts. Ricardo wants to provide for additional bad debts
at the rate of 2% of the month's billings, which were $35,000 in January.
c. To recognize unpaid salaries of $1,200 for the last few days in January.
d. To recognize 3% interest earned for one-month on a $100,000 CD purchased on
December 31.
e. To recognize the expiration of one month's rent from three months' worth of rent of
$12,000 paid at the end of December
 
Required:
Prepare journal entries to record all of the adjustments.

Accepted Answer

None

Question 18

When closing the books, accountants refer to certain accounts as "permanent or real" accounts-assets, liabilities, and equity. Why are they given this label?

Accepted Answer

A)  These accounts record real, permanent assets and liabilities. 
B)  These accounts are useful for evaluating a company's operations for the current year. 
C)  They are called permanent accounts because their balances carry forward from year to year. 
D)  Only these entries are reflected in the owner's equity account. 
A)  These accounts record real, permanent assets and liabilities. 
B)  These accounts are useful for evaluating a company's operations for the current year. 
C)  They are called permanent accounts because their balances carry forward from year to year. 
D)  Only these entries are reflected in the owner's equity account.

Question 19

A company's payroll for the period ended March 15 totaled $12,000. The salaries, however, were subject to federal withholding taxes, so the company withheld $1,500 from the employees' checks. The employees were paid on March 15, but the company was not required to remit the withheld taxes to the government until April 10. What journal entry did the company make on March 15?

Accepted Answer

A)  Debit salaries expense for $10,500 and credit cash for $10,500. 
B)  Debit salaries expense for $12,000 and credit cash for $12,000. 
C)  Debit salaries expense for $12,000, credit cash for $10,500, and credit salaries payable for $1,500. 
D)  Debit salaries expense for $12,000, credit cash for $10,500, and credit withholding taxes payable for $1,500. 
A)  Debit salaries expense for $10,500 and credit cash for $10,500. 
B)  Debit salaries expense for $12,000 and credit cash for $12,000. 
C)  Debit salaries expense for $12,000, credit cash for $10,500, and credit salaries payable for $1,500. 
D)  Debit salaries expense for $12,000, credit cash for $10,500, and credit withholding taxes payable for $1,500.

Question 20

The notion of relating revenues to periods of time is called "matching."

Accepted Answer

A) True 
 B)False

Revenues and expenses are temporary subsets of assets and liabilities, respectively.

The purpose of accounting in most cases is to be able to measure net income or profitability.

An asset can be created by incurring a liability.

A business owns an automobile that has an estimated useful life of five years. What is the effect on the accounting equation of recording the using up of the auto for one year?

Companies may have thousands of customers and thousands of accounts receivable. How do companies use subsidiary accounts to manage their accounts receivable?

What assurance do you have if you prepare a trial balance and the sum of the debits equals the sum of the credits?

After a company closes its books at the end of the year, the revenue and expense accounts are no longer relevant.

When the owner of a company withdraws cash from the company, the journal entry shows a debit to cost of sales and a credit to cash.

An income statement or operating statement compares which accounts for the year?

What is the underlying purpose of establishing an allowance for uncollectible accounts?

The Cardiel Car Company purchased a passenger van to use to transport customers when they leave their car for repairs. If the van is expected to last 7 years and costs $56,000, what effect would that have on income on the accrual basis each year?

Of the four financial statements prepared by companies, which of the following is an accurate statement about the relationship between those statements?

At the end of the month, Samantha's Shoes received a bill for electricity that her business used during the month, but Samantha didn't pay the bill. What is the effect on Samantha's Shoes' assets, liabilities, and equity?

When closing the books, accountants refer to certain accounts as "permanent or real" accounts-assets, liabilities, and equity. Why are they given this label?

The notion of relating revenues to periods of time is called "matching."

Governmental and Nonprofit Accounting Environment and Characteristics

The Use of Funds in Governmental Accounting

Budgetary Considerations in Governmental Accounting

An Introduction to General and Special Revenue Funds

General and Special Revenue Funds Continued

Capital Projects Funds, Debt Service Funds, and Permanent Funds

Proprietary Type Fundsenterprise and Internal Service Funds

Fiduciary Funds

Reporting Principles and Preparation of Fund Financial Statements

Government-Wide Financial Statements

Analysis of Financial Statements and Financial Condition

Federal Government Accounting and Reporting

Accounting for Nonprofit Organizations

Accounting for Health Care Organizations

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Exam 15: Fundamentals of Accounting

Revenues and expenses are temporary subsets of assets and liabilities, respectively.

The purpose of accounting in most cases is to be able to measure net income or profitability.

An asset can be created by incurring a liability.

A business owns an automobile that has an estimated useful life of five years. What is the effect on the accounting equation of recording the using up of the auto for one year?

Companies may have thousands of customers and thousands of accounts receivable. How do companies use subsidiary accounts to manage their accounts receivable?

What assurance do you have if you prepare a trial balance and the sum of the debits equals the sum of the credits?

After a company closes its books at the end of the year, the revenue and expense accounts are no longer relevant.

When the owner of a company withdraws cash from the company, the journal entry shows a debit to cost of sales and a credit to cash.

An income statement or operating statement compares which accounts for the year?

What is the underlying purpose of establishing an allowance for uncollectible accounts?

The Cardiel Car Company purchased a passenger van to use to transport customers when they leave their car for repairs. If the van is expected to last 7 years and costs $56,000, what effect would that have on income on the accrual basis each year?

Of the four financial statements prepared by companies, which of the following is an accurate statement about the relationship between those statements?

At the end of the month, Samantha's Shoes received a bill for electricity that her business used during the month, but Samantha didn't pay the bill. What is the effect on Samantha's Shoes' assets, liabilities, and equity?

When closing the books, accountants refer to certain accounts as "permanent or real" accounts-assets, liabilities, and equity. Why are they given this label?

The notion of relating revenues to periods of time is called "matching."

Governmental and Nonprofit Accounting Environment and Characteristics

The Use of Funds in Governmental Accounting

Budgetary Considerations in Governmental Accounting

An Introduction to General and Special Revenue Funds

General and Special Revenue Funds Continued

Capital Projects Funds, Debt Service Funds, and Permanent Funds

Proprietary Type Fundsenterprise and Internal Service Funds

Fiduciary Funds

Reporting Principles and Preparation of Fund Financial Statements

Government-Wide Financial Statements

Analysis of Financial Statements and Financial Condition

Federal Government Accounting and Reporting

Accounting for Nonprofit Organizations

Accounting for Health Care Organizations

Filters