Deck 7: Fraud, Internal Control, and Cash

Question 1

The primary accounting standard-setting body in the United States is the:

A) Securities and Exchange Commission.
B) Internal Revenue Service.
C) Financial Accounting Standards Board.
D) corporate board of directors.

Answer 1

C

Question 2

Tawdry Company debited Prepaid Insurance for $900 on May 1, 2012, for a one-year fire insurance policy. If the company prepares monthly financial statements, failure to make an adjusting entry on May 31, for the amount of insurance that has expired would cause:

A) assets to be overstated by $900 and expenses to be understated by $900.
B) expenses to be overstated by $75 and assets to be understated by $75.
C) assets to be overstated by $75 and expenses to be understated by $75.
D) expenses to be overstated by $900 and assets to be understated by $900.

Answer 2

C

Question 3

An increase in a revenue:

A) decreases net income.
B) decreases assets.
C) increases liabilities.
D) increases stockholders' equity.

Answer 3

D

Question 4

The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is

A) collected.
B) earned.
C) earned and collected.
D) most likely to be collected.

Question 5

Which one of the following accounts is not closed at the end of an accounting period?

A) Retained Earnings account
B) Dividends account
C) Service Revenue account
D) Insurance Expense account

Question 6

The purpose of recording depreciation on a productive assets is to:

A) reflect the decline in the fair value of the assets each period.
B) reduce income when the company has an exceptionally profitable year.
C) be in conformity with the revenue recognition principle.
D) allocate the original cost of a productive asset to expense over its useful life.

Question 7

Posting is the process of:

A) preparing a chart of accounts.
B) adding a column of figures.
C) transferring journal entries to ledger accounts.
D) recording entries in a journal.

Question 8

A corporation with total stockholders' equity of $75,000 paid a $12,000 business debt. As a result of this transaction, total stockholders' equity:

A) did not change.
B) increased by $12,000.
C) decreased by $12,000.
D) decreased to $63,000.

Question 9

The left side of an account is always:

A) the debit side.
B) the credit side.
C) the balance of that account.
D) carried forward to the next accounting period.

Question 10

Gross profit is calculated by

A) subtracting total expenses from total revenues.
B) subtracting cost of goods sold from net sales.
C) subtracting the ending inventory from cost of goods sold.
D) adding cost of goods sold to net sales.