Deck 3: Review of a Company S Accounting System

Question 1

The last step in the accounting cycle is to prepare the financial statements.

Answer 1

False

Question 2

The another interpretation of the accounting equation is Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Net Income - Dividends + Beginning Accumulated Other Comprehensive Income + Other Comprehensive Income.

Answer 2

True

Question 3

When preparing the financial statements the adjusted trial balance is prepared listing all the accounts and associated balances after the closing entries.

Answer 3

False

Question 4

The worksheet is not a substitute for accounting records or financial statements but it is a helpful tool for external users to use in order to see the detailed information behind the statements.

Question 5

If the trial balance does not balance, the preparer should check to see if the difference is evenly divisible by 9. If so there may be a transposition.

Question 6

Net sales are computed as sales minus sales returns and allowances and purchase discounts.

Question 7

The adjustment necessary to convert cash-basis payments for other operating costs to accrual-basis operating expenses requires the addition of ending prepaid expenses to the beginning prepaid expenses, subtracting the beginning accrued expenses from this amount, and finally adding the ending accrued expenses.

Question 8

The primary purpose of an accounting system is to record, organize. summarize, and report useful information to external financial statement users and stakeholders, as well as to company management, who make operating, investing and financing decisions.

Question 9

The worksheet is an internal tool that assists with the preparation of the adjusting entries and the financial statements.

Question 10

Reversing entries should be made for any adjusting entry that adjusts the ending balance of an existing balance sheet account.

Question 11

The accounting cycle followed each period by a company includes recording transactions, storing the data, organizing the information, summarizing the events and arrangements, adjusting the accounts, reporting the accounting information in financial statements, and then closing the books.

Question 12

Special journals are used to divide accounting tasks, minimize errors, and to keep up-to-date records of customers and suppliers.

Question 13

The general journal has all journal entry transactions listed by account title.

Question 14

The purpose of closing entries is to reduce the balance in the temporary periodic) accounts to zero and to update the Retained Earnings account.

Question 15

Deferrals are transactions, events, or arrangements in which the cash flows occur after the related expenses are incurred or revenues earned.

Question 16

The trial balance does help find some errors but it will not identify errors resulting from transactions that have not
been posted or transactions that were posted twice.

Question 17

An advantage of using the general journal is to prevent errors.

Question 18

In order to prepare the financial statements, the ending balance in each account in the ledger is recomputed to ensure all effects of the adjusting entries have been captured.

Question 19

Companies create subsidiary ledgers to divide accounting tasks and to reduce the size of the general ledger, while keeping up-to-date records of customers and suppliers. This process is also used to minimize errors in recording transactions.

Question 20

Although optional, a reversing entry is usually made for adjusting entries that accrue expenses to be paid in the next accounting period.

Question 21

Which of the following is not a major step necessary to complete the accounting cycle?

A) Prepare and post closing entries
B) Prepare the adjusted trial balance
C) Prepare adjusting entries
D) Record the transactions, events, and arrangements

Question 22

Which of the following is a permanent account?

A) Dividend Revenue
B) Allowance for Doubtful Accounts
C) Interest Expense
D) Sales Revenue

Question 23

Which of the following rules is incorrect?

A) The accounting equation must always remain in balance.
B) Asset accounts are increased by debit entries and decreased by credit entries.
C) Expense accounts normally have debit balances.
D) Common stock accounts are increased by debit entries and decreased by credit entries.

Question 24

Which of the following is not a component of an accounting system?

A) the input source documents
B) the framework for operation of the system
C) the output reports
D) All of the answer choices are components of an accounting system.

Question 25

Which T-account is incorrect?

Question 26

The adjustment to convert cash-basis collections from customers to accrual-basis revenue earned requires adding the ending balance in accounts receivable and subtracting the beginning balance in accounts receivable.

Question 27

Which accounts are increased by using debits?

A) Cost of Goods Sold, Common Stock, Assets
B) Dividends, Revenue, Liabilities
C) Assets, Cost of Goods Sold, Expenses
D) Liabilities, Capital Stock, Revenue

Question 28

When you prepare a journal entry, the standard format is to list all

A) asset accounts first.
B) accounts to be debited first.
C) liability accounts first.
D) accounts to be credited first.

Question 29

In terms of debits and credits, which types of accounts have the same debit or credit) normal balances?

A) dividends, expenses, assets
B) assets, capital stock, revenues
C) retained earnings, dividends, liabilities
D) expenses, liabilities, capital stock

Question 30

The accounting cycle is a series of steps that process the accounting information contained in its transactions, events, and arrangements. What are the steps involved in this task?

A) Record, organize, close, report
B) Organize, record, report, analyze
C) Record, organize, summarize, report
D) Analyze, prepare, record, report

Question 31

The basic purpose of a trial balance is to

A) list all of the accounts in the general ledger.
B) list all of the accounts in the general ledger that have a balance.
C) be sure that all journal entries have been recorded.
D) verify that the total credits equal the total debits.

Question 32

Which of the following is the third major step in the accounting cycle?

A) prepare the financial statements
B) record the daily transactions in a journal
C) prepare and post adjusting entries
D) post the journal entries to the accounts in the ledger

Question 33

Which of the following is a temporary account?

A) Retained Earnings
B) Accounts Receivable
C) Purchases Returns and Allowances
D) Accumulated Depreciation

Question 34

Which of the following errors will be detected by a trial balance?

A) posting a credit to Sales instead of to Accounts Payable
B) incorrectly computing the balance of the cash account
C) failure to journalize a sales transaction at all
D) forgetting to post a purchase transaction at all

Question 35

The entire group of accounts for a company is referred to as the

A) general ledger.
B) worksheet.
C) journal.
D) document of original entry.

Question 36

Which of the following is true regarding the general journal?

A) It keeps up to date records of all customers and suppliers.
B) It helps divide up accounting tasks.
C) It helps prevent errors.
D) It helps control the spending of the organization.

Question 37

Which of the following is a major step in completing the accounting cycle?

A) Prepare financial statements
B) Record transactions, events, and arrangements
C) Prepare adjusting entries
D) All of these answer choices are correct.

Question 38

The accounting equation can be expressed as

A) Assets = Liabilities - Shareholders' Equity
B) Assets + Liabilities = Shareholders' Equity
C) Assets - Liabilities = Shareholders' Equity
D) Assets + Shareholders' Equity = Liabilities

Question 39

What relationship exists between the general journal and the general ledger?

A) The general ledger accounts contain the same information as those in the general journal, but it is just in a different format.
B) The balances in the general ledger will always equal those in the general journal.
C) After all postings from the general journal are complete, the debit balances in the general ledger will rarely equal the credit balances.
D) The number of accounts in the general journal will always be larger than the number of accounts in the general ledger.

Question 40

Information related to the Berkley Company for the calendar year 2015 follows: Assuming no capital stock was issued during 2015, the net income earned by the Berkley Company during 2015 was

A) $110
B) $200
C) $260
D) $290

Question 41

An example of a transposition is

A) presenting the cash account at $1,500 instead of $15,000.
B) presenting prepaid insurance at $920 instead of $290.
C) incorrectly posting a credit amount as a debit amount in the general ledger.
D) not journalizing a sales transaction at all.

Question 42

On February 1, 2015, Apollo Company received $24,000 in advance for a three-year rental of land, and credited Rent Revenue for the entire amount. The correct December 31, 2015 adjusting entry would be

A) Unearned Rent 16,667 Rent Revenue 16,667
B) Rent Revenue 16,667 Unearned Rent 16,667
C) Unearned Rent 7,333 Rent Revenue 7,333
D) Rent Revenue 7,333 Unearned Rent 7,333

Question 43

If the trial balance does not balance and the difference between debits and credits is evenly divisible by 9, there is a good chance that

A) a transaction has not been recorded.
B) a transaction has been journalized to the wrong account.
C) a transposition or a slide has occurred.
D) only one side of the transaction has been recorded.

Question 44

On May 1, 2015, Alang Corporation borrowed $3,600 on a two-year, 6% note payable. Interest is due and payable at the end of each six months. Alang makes all interest payments on schedule. The correct December 31, 2016, adjusting entry would be

Question 45

Adjusting journal entries are made

A) at the beginning of the accounting period
B) at the end of the accounting period
C) when revenue is realized or realizable)
D) anytime we need to adjust an account

Question 46

An accrued expense is an expense

A) incurred but neither paid nor recorded.
B) incurred, paid, and recorded.
C) paid and recorded but not incurred.
D) whose amount is subject to estimation.

Question 47

A trial balance does not identify all types of errors. Which of the following are errors that are not identified using the trial balance?

A) incorrectly recording the transaction amount, but the debits still equal the credits
B) incorrectly posting part of a journal entry to the wrong account
C) not recording a transaction
D) All of these answer choices represent errors that are not identified using the trial balance.

Question 48

On June 1, 2015, Little Corporation received $5,320 in advance for a two-year rental of some land and properly credited Unearned Rent. In the adjusting entry at December 31, 2015, there would be a

A) debit to Unearned Rent for $1,108
B) credit to Rent Revenue for $1,552
C) credit to Unearned Rent for $1,552
D) debit to Unearned Rent for $5,320

Question 49

Posting is the procedure of transferring information from the

A) journal to the ledger
B) trial balance to the worksheet
C) ledger to the journal
D) worksheet to the financial statements

Question 50

Which of the following errors is not identified by using the trial balance?

A) an unposted transaction
B) a transposition
C) a slide
D) recording a debit amount that differs from the credit amount recorded

Question 51

Which of the following is an economic resource that should be depreciated over the accounting periods estimated to be benefited?

A) salaries incurred but unpaid at year-end
B) rent collected in advance for a three-year rental period
C) equipment purchased for use in the business operations
D) interest revenue accrued on investment in bonds

Question 52

The balances in deferred unearned) revenue accounts represent amounts that are

A) I
B) II
C) III
D) IV

Question 53

When cash is debited for rents that are collected but are not yet earned, the amount credited should be

A) recognized as revenue when collected.
B) presented as a liability until earned.
C) recorded as an asset until earned.
D) presented as a separate item in shareholders' equity.

Question 54

Which of the following is an accrued expense?

A) depreciation
B) employees' salaries
C) interest revenue
D) rental expense paid three months in advance

Question 55

A prepaid expense is

A) a payment received by the company in advance for the future sale of inventory or performance of services
B) an item of goods or services purchased by the company for use in its operations but not fully consumed by the end of the accounting period
C) an expense that has been incurred during the accounting period but has been neither paid nor recorded
D) an item that has been earned by the company during the accounting period but has been neither received nor recorded

Question 56

The Oliver Construction Company received $18,000 for six months rental income in advance on November 1, 2015, and credited the Rental Revenue account. The required adjusting entry on December 31, 2015, would include a

A) credit to Rental Revenue for $6,000
B) debit to Rental Revenue for $12,000
C) credit to Rental Receivable for $12,000
D) debit to Rental Revenue for $6,000

Question 57

On April 1, 2015, Miller Company paid $6,280 for a two-year insurance policy. On that date, Miller recorded the purchase by debiting Prepaid Insurance and crediting Cash. The correct December 31, 2015, adjusting entry would be

A) Prepaid Insurance 3,140 Insurance Expense 3,140
B) Insurance Expense 2,355 Prepaid Insurance 2,355
C) Prepaid Insurance 2,355 Insurance Expense 2,355
D) Insurance Expense 3,925 Prepaid Insurance 3,925

Question 58

On August 1, 2015, Yellow Company paid $6,320 for a three-year insurance policy. On that date, an expense account was charged. In the adjusting entry on December 31, 2015, there would be a

A) debit to Insurance Expense for $175.
B) credit to Prepaid Insurance for $2,107.
C) credit to Prepaid Insurance for $527.
D) credit to Insurance Expense for $5,442.

Question 59

On March 31, 2015, the Turi Company purchased a two-year fire insurance policy. Turi recorded the purchase by debiting Prepaid Insurance and crediting Cash for $10,000. Which of the following adjusting entries should Turi prepare at the end of 2015?

A) Prepaid Insurance 3,750 Insurance Expense 3,750
B) Insurance Expense 3,750 Prepaid Insurance 3,750
C) Prepaid Insurance 5,500 Insurance Expense 5,500
D) Insurance Expense 5,000 Prepaid Insurance 5,000

Question 60

Which of the following adjusting entries involves the recognition of an accrued expense?

A) recording depreciation on a long-lived asset
B) writing off the portion of an insurance policy that has expired
C) recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period
D) recognition of bad debt losses that are expected to result from making sales on credit terms

Question 61

The financial statements are the responsibility of the

A) auditors.
B) management.
C) independent certified accountants.
D) Public Accounting Oversight Board.

Question 62

On November 1, 2015, the Morrison Company purchased a two-year umbrella insurance policy for $3,600 and recorded the transaction by debiting Prepaid Insurance and crediting Cash. Which of the following adjusting entries would be used by Morrison to properly account for prepaid insurance on December 31, 2015?

Question 63

Rental receipts for the period July 1, 2015, through June 30, 2016, were collected on June 30, 2015. The effects of these economic events on the 2015 financial statements for unearned revenue and rent revenue are

A) I
B) II
C) III
D) IV

Question 64

The accountant failed to make the adjusting entry to record the amount of interest owed on a note to the bank at the end of the year. This error would cause an overstatement of

A) assets.
B) expenses.
C) liabilities.
D) shareholders' equity.

Question 65

Which of the following is a contra account?

A) Unearned Rental Revenue
B) Sales Discounts Taken
C) Bad Debts Expense
D) Depreciation Expense

Question 66

Which of the following statements regarding a post-closing trial balance is false?

A) Post-closing trial balances only contain permanent accounts.
B) Balances in a post-closing trial balance cannot be used to calculate current income.
C) Post-closing trial balances only contain temporary accounts.
D) A post-closing trial balance verifies that the total of the debit balances equals the total of the credit balances of all permanent accounts in the general ledger.

Question 67

The accountant failed to make the adjusting entry to record the depreciation for the year. This error would cause

A) an overstatement of assets.
B) an overstatement of expenses.
C) an understatement of liabilities.
D) an understatement of shareholders' equity.

Question 68

Which of the following is a purchase return?

A) A company agrees to keep damaged inventory and receives a refund from the supplier.
B) A customer agrees to keep damaged inventory and receives a partial refund of the selling price.
C) A company returns inventory to the supplier and receives a refund of the purchase price.
D) A customer returns inventory to a company and receives a refund of the purchase price.

Question 69

An adjusting entry always affects

A) balance sheet accounts only.
B) income statement accounts only.
C) an income statement account and a balance sheet account.
D) either a balance sheet account or an income statement account but not both.

Question 70

The Nathan's Company rents numerous properties throughout the year. Nathan's pays rents in advance in some cases, and in other cases rents are paid after the rental period expires. The following data are included in Nathan's December 31 balance sheets: During 2016, Nathan paid $200,000 in rentals. In its accrual basis income statement for the year ended December 31, 2016, Nathan should report rent expense of:

A) $145,000
B) $175,000
C) $200,000
D) $225,000

Question 71

Which of the following accounts would not be closed to Income Summary during the year-end closing process?

A) Loss on Sale of Land
B) Prepaid Rent
C) Freight-In
D) Sales Discounts

Question 72

The accountant failed to make the adjusting entry to record the unpaid wages of its employees as of December 31. This error will cause

A) an overstatement of assets, liabilities, and shareholders' equity.
B) an understatement of expenses, liabilities, and shareholders' equity.
C) an understatement of liabilities and an overstatement of shareholders' equity.
D) an understatement of assets and liabilities.

Question 73

Where would the closing entries be found for a particular company?

A) financial statements
B) general journal
C) trial balance
D) journal entries

Question 74

With closing entries, you would expect to find all of the following except

A) debit Unearned Rent; credit Income Summary.
B) debit Sales Revenue; credit Income Summary.
C) debit Retained Earnings; credit Dividends.
D) debit Income Summary; credit Loss on Sale of Land.

Question 75

Operating expenses would not include

A) cost of goods sold.
B) salaries expenses.
C) insurance expenses.
D) depreciation expenses.

Question 76

Which of the following is not a type of adjusting entry?

A) depreciation of long-term physical assets
B) allocation of unearned revenue
C) correction of an error in the general journal
D) recording of accrued revenue

Question 77

Accrued revenues

A) have been earned and collected, but not yet recorded.
B) have been collected, but not yet earned or recorded.
C) have been collected and recorded.
D) have been earned, but not yet collected or recorded.

Question 78

Prior to preparing the organization's financial statements, the accountant prepares

A) a balance sheet.
B) a post-closing trial balance.
C) an adjusted trial balance.
D) a closed trial balance.

Question 79

The Samuel Company uses the straight-line method to depreciate its equipment. On May 1, 2015, the company purchased some equipment for $224,000. The equipment is estimated to have a useful life of ten years and a salvage value of $20,000. On December 31, 2015, how much depreciation expense should Samuel record for the equipment in the adjusting entry?

A) $20,400
B) $18,500
C) $13,600
D) $8,500

Question 80

The purpose of closing entries is to

A) update a periodic inventory account for credit sales.
B) update the retained earnings account on a daily basis.
C) apportion prepaid expenses and unearned revenues to bring the accounts up to date.
D) reduce all temporary accounts to zero.