Deck 3: The Accounting Information System

Question 1

Which of the following is a recordable event or item?

A)Changes in managerial policy
B)The value of human resources
C)Changes in personnel
D)None of these

Answer 1

D

Question 2

All revenues, expenses, and the dividends account are closed through the Income Summary account.

Answer 2

False

Question 3

Which of the following criteria must be met before an event or item should be recorded for accounting purposes?

A)The event or item can be measured objectively in financial terms.
B)The event or item is relevant and reliable.
C)The event or item is an element.
D)All of these must be met.

Answer 3

D

Question 4

Debit always means

A)right side of an account.
B)increase.
C)decrease.
D)none of these.

Question 5

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed.

Question 6

With a perpetual inventory system, a company records purchases and sales directly in the Inventory account as the purchases and sales occur.

Question 7

A ledger is where the company initially records transactions and selected other events.

Question 8

When a corporation pays a note payable and interest,

A)the account notes payable will be increased.
B)the account interest expense will be decreased.
C)they will debit notes payable and interest expense.
D)they will debit cash.

Question 9

Which of the following is not an internal event?

A)Depreciation
B)Using raw materials in the production process
C)Dividend declaration and subsequent payment
D)All of these are internal transactions.

Question 10

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.

Question 11

The book value of any depreciable asset is the difference between its cost and its salvage value.

Question 12

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period.

Question 13

Factors that shape an accounting information system include the

A)nature of the business.
B)size of the firm.
C)volume of data to be handled.
D)all of these.

Question 14

Stockholders' equity is not affected by all

A)cash receipts.
B)dividends.
C)revenues.
D)expenses.

Question 15

The double-entry accounting system means

A)Each transaction is recorded with two journal entries.
B)Each item is recorded in a journal entry, then in a general ledger account.
C)The dual effect of each transaction is recorded with a debit and a credit.
D)More than one of the above.

Question 16

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts.

Question 17

An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the

A)ledger.
B)account.
C)trial balance.
D)none of these.

Question 18

All liability and stockholders' equity accounts are increased on the credit side and decreased on the debit side.

Question 19

Maintaining a set of accounting records is

A)optional.
B)required by the Internal Revenue Service.
C)required by the Foreign Corrupt Practices Act.
D)required by the Internal Revenue Service and the Foreign Corrupt Practices Act.

Question 20

The first step in the accounting cycle is the journalizing of transactions and selected other events.

Question 21

An accrued expense can best be described as an amount

A)paid and currently matched with earnings.
B)paid and not currently matched with earnings.
C)not paid and not currently matched with earnings.
D)not paid and currently matched with earnings.

Question 22

The debit and credit analysis of a transaction normally takes place

A)before an entry is recorded in a journal.
B)when the entry is posted to the ledger.
C)when the trial balance is prepared.
D)at some other point in the accounting cycle.

Question 23

Which of the following must be considered in estimating depreciation on an asset for an accounting period?

A)The original cost of the asset
B)Its useful life
C)The decline of its fair market value
D)Both the original cost of the asset and its useful life.

Question 24

A general journal

A)chronologically lists transactions and other events, expressed in terms of debits and credits.
B)contains one record for each of the asset, liability, stockholders' equity, revenue, and expense accounts.
C)lists all the increases and decreases in each account in one place.
D)contains only adjusting entries.

Question 25

A trial balance

A)proves that debits and credits are equal in the ledger.
B)supplies a listing of open accounts and their balances that are used in preparing financial statements.
C)is normally prepared three times in the accounting cycle.
D)all of these.

Question 26

A journal entry to record a payment on account will include a

A)debit to accounts receivable.
B)credit to accounts receivable.
C)debit to accounts payable.
D)credit to accounts payable.

Question 27

When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue.

A)accrued
B)prepaid
C)unearned
D)cash

Question 28

Nominal accounts are also called

A)temporary accounts.
B)permanent accounts.
C)real accounts.
D)none of these.

Question 29

Which of the following is a nominal (temporary) account?

A)Unearned Revenue
B)Salary Expense
C)Inventory
D)Retained Earnings

Question 30

A journal entry to record a receipt of rent revenue in advance will include a

A)debit to rent revenue.
B)credit to rent revenue.
C)credit to cash.
D)credit to unearned rent.

Question 31

Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?

A)Expiration of prepaid insurance
B)Depreciation of fixed assets
C)Accrued wages payable
D)All of these

Question 32

When an item of revenue or expense has been earned or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense.

A)prepaid
B)adjusted
C)estimated
D)none of these

Question 33

If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

A)a liability account and an asset account.
B)an asset or contra asset account and an expense account.
C)a liability account and an expense account.
D)a receivable account and a revenue account.

Question 34

A journal entry to record the sale of inventory on account will include a

A)debit to inventory.
B)debit to accounts receivable.
C)debit to sales.
D)credit to cost of goods sold.

Question 35

Which of the following is a real (permanent) account?

A)Goodwill
B)Sales
C)Accounts Receivable
D)Both Goodwill and Accounts Receivable

Question 36

A trial balance may prove that debits and credits are equal, but

A)an amount could be entered in the wrong account.
B)a transaction could have been entered twice.
C)a transaction could have been omitted.
D)all of these.

Question 37

A prepaid expense can best be described as an amount

A)paid and currently matched with revenues.
B)paid and not currently matched with revenues.
C)not paid and currently matched with revenues.
D)not paid and not currently matched with revenues.

Question 38

Adjustments are often prepared

A)after the balance sheet date, but dated as of the balance sheet date.
B)after the balance sheet date, and dated after the balance sheet date.
C)before the balance sheet date, but dated as of the balance sheet date.
D)before the balance sheet date, and dated after the balance sheet date.

Question 39

External events do not include

A)interaction between an entity and its environment.
B)a change in the price of a good or service that an entity buys or sells, a flood or earthquake.
C)improvement in technology by a competitor.
D)using buildings and machinery in operations.

Question 40

Which of the following would not be a correct form for an adjusting entry?

A)A debit to a revenue and a credit to a liability
B)A debit to an expense and a credit to a liability
C)A debit to a liability and a credit to a revenue
D)A debit to an asset and a credit to a liability

Question 41

Eaton Co.sells major household appliance service contracts for cash.The service contracts are for a one-year, two-year, or three-year period.Cash receipts from contracts are credited to Unearned Service Revenues.This account had a balance of $1,800,000 at December 31, 2007 before year-end adjustment.Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $450,000 at December 31, 2007. Service contracts still outstanding at December 31, 2007 expire as follows: $$\begin{array} { l r } \text { During } 2008 & \$ 380,000 \\\text { During } 2009 & 570,000 \\\text { During } 2010 & 350,000\end{array}$$ What amount should be reported as Unearned Service Revenues in Eaton's December 31, 2007 balance sheet?

A)$1,350,000.
B)$1,300,000.
C)$850,000.
D)$500,000.

Question 42

Mune Company recorded journal entries for the payment of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000.What net effect do these entries have on owners' equity?

A)Decrease of $71,000.
B)Decrease of $39,000.
C)Decrease of $18,000.
D)Increase of $11,000.

Question 43

In November and December 2007, Lane Co., a newly organized magazine publisher, received $90,000 for 1,000 three-year subscriptions at $30 per year, starting with the January 2008 issue.Lane included the entire $90,000 in its 2007 income tax return.What amount should Lane report in its 2007 income statement for subscriptions revenue?

A)$0.
B)$5,000.
C)$30,000.
D)$90,000.

Question 44

Allen Corp.'s liability account balances at June 30, 2007 included a 10% note payable in the amount of $2,400,000.The note is dated October 1, 2005 and is payable in three equal annual payments of $800,000 plus interest.The first interest and principal payment was made on October 1, 2006.In Allen's June 30, 2007 balance sheet, what amount should be reported as accrued interest payable for this note?

A)$180,000.
B)$120,000.
C)$60,000.
D)$40,000.

Question 45

Which type of account is always debited during the closing process?

A)Dividends.
B)Expense.
C)Revenue.
D)Retained earnings.

Question 46

When a company uses a periodic inventory system, the year-end entry to adjust the inventory account will debit and credit inventory as follows:

Question 47

Pappy Corporation received cash of $13,500 on September 1, 2007 for one year's rent in advance and recorded the transaction with a credit to Unearned Rent.The December 31, 2007 adjusting entry is

A)debit Rent Revenue and credit Unearned Rent, $4,500.
B)debit Rent Revenue and credit Unearned Rent, $9,000.
C)debit Unearned Rent and credit Rent Revenue, $4,500.
D)debit Cash and credit Unearned Rent, $9,000.

Question 48

Colaw Co.pays all salaried employees on a biweekly basis.Overtime pay, however, is paid in the next biweekly period.Colaw accrues salaries expense only at its December 31 year end.Data relating to salaries earned in December 2007 are as follows: Last payroll was paid on 12/26/07, for the 2-week period ended 12/26/07.
Overtime pay earned in the 2-week period ended 12/26/07 was $10,000.
Remaining work days in 2007 were December 29, 30, 31, on which days there was no overtime.
The recurring biweekly salaries total $180,000.
Assuming a five-day work week, Colaw should record a liability at December 31, 2007 for accrued salaries of

A)$54,000.
B)$64,000.
C)$108,000.
D)$118,000.

Question 49

An unearned revenue can best be described as an amount

A)collected and currently matched with expenses.
B)collected and not currently matched with expenses.
C)not collected and currently matched with expenses.
D)not collected and not currently matched with expenses.

Question 50

An adjusted trial balance

A)is prepared after the financial statements are completed.
B)proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
C)is a required financial statement under generally accepted accounting principles.
D)cannot be used to prepare financial statements.

Question 51

An accrued revenue can best be described as an amount

A)collected and currently matched with expenses.
B)collected and not currently matched with expenses.
C)not collected and currently matched with expenses.
D)not collected and not currently matched with expenses.

Question 52

On September 1, 2006, Lowe Co.issued a note payable to National Bank in the amount of $600,000, bearing interest at 12%, and payable in three equal annual principal payments of $200,000.On this date, the bank's prime rate was 11%.The first payment for interest and principal was made on September 1, 2007.At December 31, 2007, Lowe should record accrued interest payable of

A)$24,000.
B)$22,000.
C)$16,000.
D)$14,667.

Question 53

Tolan Corp.'s trademark was licensed to Eddy Co.for royalties of 15% of sales of the trademarked items.Royalties are payable semiannually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year.Tolan received the following royalties from Eddy: $$\begin{array} { c c c } & \text { March } 15 & \text { September } 15 \\2006 & \$ 5,000 & \$ 7,500 \\2007 & 6,000 & 8,500\end{array}$$ Eddy estimated that sales of the trademarked items would total $40,000 for July through December 2007.In Tolan's 2007 income statement, the royalty revenue should be

A)$14,500.
B)$16,000.
C)$20,500.
D)$22,000.

Question 54

On June 1, 2007, Nott Corp.loaned Horn $400,000 on a 12% note, payable in five annual installments of $80,000 beginning January 2, 2008.In connection with this loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account.The amount held in escrow is to be returned to Horn after all principal and interest payments have been made.Interest on the note is payable on the first day of each month beginning July 1, 2007.Horn made timely payments through November 1, 2007.On January 2, 2008, Nott received payment of the first principal installment plus all interest due.At December 31, 2007, Nott's interest receivable on the loan to Horn should be

A)$0.
B)$4,000.
C)$8,000.
D)$12,000.

Question 55

At December 31, 2007, Sue's Boutique had 1,000 gift certificates outstanding, which had been sold to customers during 2007 for $50 each.Sue's operates on a gross margin of 60% of its sales.What amount of revenue pertaining to the 1,000 outstanding gift certificates should be deferred at December 31, 2007?

A)$0.
B)$20,000.
C)$30,000.
D)$50,000.

Question 56

Maso Company recorded journal entries for the issuance of common stock for $40,000, the payment of $13,000 on accounts payable, and the payment of salaries expense of $21,000.What net effect do these entries have on owners' equity?

A)Increase of $40,000.
B)Increase of $27,000.
C)Increase of $19,000.
D)Increase of $6,000.