Deck 4: The Mechanics of Financial Accounting

Question 1

The balance sheet reported supplies of $1,900 at December 31, 2009. On December 31, 2010, the actual supplies on hand amounted to $1,400. During the year, additional supplies costing $1,500 were acquired and debited to the Supplies account. The adjusting entry required at the end of December 31, 2010 is

Answer 1

D

Question 2

An event that affects assets, liabilities, or shareholders' equity is considered to be

A) timely.
B) objectively measured.
C) relevant.
D) capitalized.

Answer 2

C

Question 3

A revenue account

A) is increased with a debit.
B) is not considered to be an item on the income statement.
C) is reported on the balance sheet at the end of the accounting period.
D) when offset with expenses ultimately leads to net income and an increase to retained earnings.

Answer 3

D

Question 4

Providing $4,000 of services to customers on account causes

A) assets and shareholders' equity to decrease by $4,000.
B) assets and shareholders' equity to increase by $4,000.
C) assets and liabilities to increase by $4,000.
D) assets and liabilities to decrease by $4,000.

Question 5

Which one of the following changes describes the receipt of $2,000 from the issuance of common stock?

A) Assets and shareholders' equity increase by $2,000.
B) Assets and shareholders' equity decrease by $2,000.
C) Assets and liabilities increase by $2,000.
D) Assets increase and shareholders' equity decreases by $2,000.

Question 6

The accounting period is the time

A) the Controller decides to close the books.
B) between selling a product to a customer and collecting the cash from the customer.
C) that it usually takes to journalize and post events to the ledger.
D) covered by the income, cash flow, and shareholders' equity statements.

Question 7

Vera Company acquired a new forklift in exchange for signing a 6-month, 10%, $19,000 note dated May 1, 2009. Vera agreed to repay the entire principal at the end of the 6-month period. Vera should:

A) record one month of interest expense only if the forklift runs as intended.
B) record all 6 months of expense when the interest is paid.
C) accrue one month of interest expense at May 31, 2009.
D) record the interest payments as prepaid interest when paid.

Question 8

Alberto Company paid its insurance premiums for a two-year insurance policy on May 1, 2009, and recorded them in a prepaid insurance account. The adjusting entry required at May 31, 2009, to recognize the one-month portion for the month of May will

A) increase an expense account and increase a liability account.
B) increase an expense account and decrease an asset account.
C) increase an asset account and decrease an expense account.
D) increase a revenue account and decrease an asset account.

Question 9

Acacia Company provided landscaping services and received $2,000 from customers immediately. Which of the following occurred?

A) Assets and shareholders' equity increase by $2,000.
B) Assets and shareholders' equity decrease by $2,000.
C) Assets and liabilities increase by $2,000.
D) Assets and liabilities decrease by $2,000.

Question 10

If an event is considered to change assets, liabilities, or shareholders' equity with an appropriate monetary measure, then it is

A) considered a financial changing event.
B) listed on the U.S. stock exchange.
C) considered a debt or payable of a company.
D) recorded in the books of a company.

Question 11

Which of the following changes describes the purchase of $3,000 of equipment financed by the issuance of a long-term note payable?

A) Assets and shareholders' equity increase by $3,000.
B) Assets and shareholders' equity decrease by $3,000.
C) Assets and liabilities decrease by $3,000.
D) Assets and liabilities increase by $3,000.

Question 12

Which of the following changes describes the purchase of $2,000 of inventory through payment on credit?

A) Assets and shareholders' equity increase by $2,000.
B) Assets and shareholders' equity decrease by $2,000.
C) Assets and liabilities increase by $2,000.
D) Assets and liabilities decrease by $2,000.

Question 13

Which one of the following changes describes the payment of $800 for utilities for the current month?

A) Assets and shareholders' equity decrease by $800.
B) Assets and shareholders' equity don't change.
C) Assets and liabilities increase by $800.
D) Assets and liabilities decrease by $800.

Question 14

An event for which an appropriate monetary measure can be derived is considered to be

A) objectively measured.
B) economically viable.
C) relevant.
D) capitalized.

Question 15

Lakesha Corp. purchased $2,000 of supplies on account. The supplies will be used over the next few months. This event causes

A) assets and shareholders' equity to increase by $2,000.
B) assets and shareholders' equity to decrease by $2,000.
C) assets and expenses to decrease by $2,000.
D) assets and liabilities to increase by $2,000.

Question 16

The declaration of dividends

A) increases with a credit.
B) decreases retained earnings.
C) is necessary for proprietorships.
D) is an expense account on the income statement.

Question 17

On May 31, 2009, the physical count of office supplies was $2,300. During June, supplies were acquired at a cost of $1,600 and the company debited the Office Supplies Expense account. At June 30, actual supplies on hand totaled $500. The credit part of the adjusting entry required at the end of June is

A) Office Supplies Expense of $1,800.
B) Office Supplies of $1,800.
C) Office Supplies Expense of $3,300.
D) Office Supplies of $500.

Question 18

Which of the following changes describes the payment of $1,000 for cash dividends?

A) Assets and shareholders' equity increase by $1,000.
B) Assets and shareholders' equity decrease by $1,000.
C) Assets and liabilities increase by $1,000.
D) Assets and liabilities do not change.

Question 19

Which one of the following changes describes the receipt of $3,000 from the issuance of a long-term note payable?

A) Assets and shareholders' equity increase by $3,000.
B) Assets and shareholders' equity decrease by $3,000.
C) Assets and liabilities increase by $3,000.
D) Assets and liabilities decrease by $3,000.

Question 20

Liabilities are $2,000, retained earnings are $1,000, and contributed capital is $4,000. Assets must be
a. $3,000.
b. $7,000.
c. $5,000.
d. $6,000.

Question 21

Which of the following describes the receipt of $5,000 from the issuance of common stock?

A) No entry
B) Debit shareholders' equity and credit assets for $5,000
C) Debit assets and credit shareholders' equity for $5,000
D) Debit liabilities and credit assets for $5,000

Question 22

Favre Company paid for insurance in advance. Which transaction will Favre record?

A) Debit Cash and credit Insurance Expense.
B) Debit Prepaid Insurance and credit Cash.
C) Debit Prepaid Insurance and credit Accounts Payable.
D) Debit Cash and Credit Prepaid Insurance.

Question 23

Which of the following changes describes the payment of $20,000 for a new bulldozer?

A) Assets and shareholders' equity decrease by $20,000.
B) Assets decrease and shareholders' equity increases by $20,000.
C) No net change in total assets.
D) Assets decrease by $20,000.

Question 24

When an adjusting entry that recognizes accrued interest revenue is recorded,

A) assets increase and liabilities increase.
B) shareholders' equity increases and liabilities decrease.
C) assets decrease and liabilities decrease.
D) shareholders' equity and assets increase.

Question 25

Marks Corp. purchased supplies at a cost of $2,400 during 2010. At January 1, 2010, supplies on hand amounted to $800. At December 31, 2010, supplies on hand are $400. Supplies expense for 2010 are

A) $1,200.
B) $3,200.
C) $1,600.
D) $2,800.

Question 26

Which of the following debits and credits describes the payment of interest and principal on a loan?

A) Debit an asset and credit a liability
B) Debit an asset, debit an expense, and debit a liability
C) Credit an asset, debit an expense, and debit a liability
D) Credit an asset and debit a liability

Question 27

A company has a 4-month, 11%, $10,000 Notes Payable account in its general ledger at the end of the year. The note matures two months after the end of the accounting period. Which statement is true?

A) Interest revenue must be accrued at the end of the accounting period.
B) The notes payable could generate a gain if the note is paid off early.
C) The interest was paid when the cash was borrowed.
D) Interest expense must be accrued at the end of the accounting period.

Question 28

An expense account

A) is increased with a credit.
B) ultimately decreases shareholders' equity.
C) appears on the balance sheet at the end of the accounting period.
D) is not an income statement account.

Question 29

On December 13, 2009, Michael Company received $8,000 in cash as a payment in advance from a customer and credited Unearned Service Revenue. The balance in the Unearned Service Revenue account was $2,000 at the beginning of December. At the end of December, all but $500 had been earned. What adjusting entry is necessary at the end of December?

Question 30

When making adjustments to plant asset accounts,

A) the total dollar amount in the accumulated depreciation account will determine the amount of depreciation expense for the current accounting period.
B) depreciation expense is added to the plant asset account.
C) depreciation expense reduces net income.
D) the current market value of the long-lived asset determines the amount of depreciation expense.
E) the accrual system is ignored.

Question 31

In a trial balance, if total debits do not equal total credits when the accounts are totaled,

A) the bookkeeper must have made an error.
B) the expected inequality is corrected during the normal adjusting process.
C) no change is made because the amount of assets will typically exceed the amount of liabilities.
D) the company will report a loss on its income statement because expenses are greater than revenues.

Question 32

Which of the following changes describes the collection of $6,000 from customers who had charged on account for services preformed during a previous accounting period?

A) Assets and shareholders' equity increase by $6,000.
B) Assets and liabilities increase by $6,000.
C) Assets and liabilities decrease by $6,000.
D) No changes in total assets, liabilities, or shareholders' equity.

Question 33

An asset account

A) has a debit balance.
B) is increased with a credit.
C) is a shareholders' equity account because it has a book value.
D) will have a negative balance if the company's expenses exceed revenues for the period.

Question 34

Gilbert Company purchased equipment financed by the issuance of a 4-year note payable. To record this, Gilbert will

A) debit assets and credit shareholders' equity.
B) debit shareholders' equity and credit liabilities.
C) debit assets and credit liabilities.
D) debit liabilities and credit assets.

Question 35

Employees were paid $8,000 on June 9, 2010 for five days work through Friday, June 3. What adjusting entry was necessary at the company's year end, Tuesday, May 31, 2010, as a result of this?

A) Debit Wages Expense and credit Cash for $8,000
B) Debit Wages Expense and credit Shareholders' equity for $4,800.
C) Debit Wages Payable and credit Wages Expense for $4,800.
D) Debit Wages Expense and credit Wages Payable for $3,200.

Question 36

Which of the following changes describes the distribution of $2,000 of dividends to owners?

A) Assets and net income decrease by $2,000.
B) Assets decreases and net income increases by $2,000.
C) Assets and shareholders' equity decrease by $2,000.
D) Assets and liabilities decrease by $2,000.

Question 37

Goodyear Co. purchased $2,000 of equipment with a $2,000 cash payment. Goodyear Co. should

A) debit one asset and credit another asset for $2,000..
B) debit shareholders' equity and credit assets for $2,000.
C) debit assets and credit liabilities for $2,000.
D) no entry

Question 38

During April, Tempe Corp. paid $4,000 on account for supplies that were purchased, recorded, and used during March. In recording this transaction, Tempe will

A) debit Accounts Payable and credit Cash.
B) debit Shareholders' equity and credit Accounts Payable.
C) debit Supplies Expense and credit Accounts Payable.
D) accrue an expense of $4,000.

Question 39

Buckeye Company received $1,000 from customers for services provided during the current month. Buckeye will

A) debit liabilities and credit revenue for $1,000.
B) debit revenue and credit assets for $1,000.
C) debit assets and credit revenue for $1,000.
D) debit liabilities and credit assets for $1,000.

Question 40

When an adjusting entry for depreciation expense for the accounting period is recorded,

A) assets and shareholders' equity increase.
B) the amount of depreciation expense is subtracted from accumulated depreciation.
C) assets and shareholders' equity decrease.
D) assets increase and shareholders' equity decreases.

Question 41

What effect does recognizing accrued wages expense at the end of the accounting period have on the accounting equation?

A) Assets decrease and shareholders' equity decreases.
B) Liabilities increase and shareholders' equity decreases.
C) Assets decrease and liabilities decrease.
D) Liabilities decrease and shareholders' equity decreases.

Question 42

Dobson Company sold stock for cash and received cash for services performed during the current month. Which of the following summarizes the income statement impact of these transactions for the current month?

A) Both the sale of stock and the performance of services increased revenues for the company.
B) Only the performance of services caused an increase in revenues.
C) Only the performance of services caused a decrease in revenues.
D) Only the sale of stock caused revenues to increase.

Question 43

A company sold vacant land that it had owned for three years. The difference between the amount of cash receipts and the original cost of land owned by the company

A) is reported as a revenue or expense on the income statement.
B) represents the amount of gain or loss associated with the asset sold.
C) represents the amount of cash associated with the asset sold.
D) should be debited or credited directly to retained earnings.

Question 44

Which one of the following is a required characteristic of accruals and deferrals?

A) An asset or a liability will always be affected.
B) Cash is either increased or decreased as a result of recording an accrual or deferral.
C) Accruals record revenues, and expenses record deferrals.
D) An asset and an expense item will always be affected.

Question 45

The statement of cash flows provides information about

A) operating activities.
B) financing activities.
C) investing activities.
D) all of the above.

Question 46

If the balance sheet is in balance,

A) assets must equal liabilities.
B) assets must exceed liabilities.
C) transactions recorded must be right.
D) errors may still exist.

Question 47

Phoenix Corp. paid rent of $12,000 per month for 3 months in advance on November 1, 2010. Phoenix accounting period ends on December 31, 2010. Which amount will be reported at December 31, 2010?

A) Prepaid Rent of $4,000 on its December 31, 2010 balance sheet
B) Rent Payable of $12,000 on its December 31, 2010 balance sheet
C) Rent Expense of $12,000 on its income statement for the year ending December 31, 2010
D) Rent Expense of $4,000 on its income statement for the year ending December 31, 2010

Question 48

Items and rights that a company acquires through objectively measurable transactions that can be used in the future to generate economic benefits are

A) liabilities.
B) assets.
C) contributing capital.
D) revenues.

Question 49

Which one of the following transactions will ultimately cause a decrease in retained earnings?

A) Payment of the current month's telephone bill
B) Collection of cash from a customer for services provided in the current month
C) Payment of the prior month's account payable balance
D) Receipt of interest on a note receivable

Question 50

Which of the following sets of accounts is closed at the end of an accounting period?

A) Interest Expense, Interest Payable, Interest Receivable
B) Unearned Revenue, Sales Revenue, Interest Revenue
C) Interest Expense, Rent Revenue, Dividends
D) Retained Earnings, Sales Revenue, Unearned Revenue

Question 51

The accounting concepts that underlie the accrual system of accounting are

A) debits and credits.
B) revenue recognition and matching.
C) revenue recognition and debits equal credits.
D) matching and deferrals.

Question 52

Which one of the following is a characteristic of the double entry system?

A) For every debit in every account, there must be a corresponding credit of the same dollar amount in the same account.
B) The total dollar value of debits must equal the total dollar amount of the credits in most of the accounts.
C) For every asset recorded in the accounting records, there must be a corresponding liability of the same dollar amount.
D) The total dollar amount of debits must equal the total dollar amount of the credits.

Question 53

Which one of the following statements is true?

A) Accruals are adjustments that are recorded prior to the associated cash flow taking place.
B) Cash is used in the accrual process.
C) Accrual accounting recognizes revenues and expenses based on current period cash flows.
D) Accrual accounting may use either two asset or two liability accounts.

Question 54

Recognition of a gain or loss may result from

A) the sale of goods to customers on account.
B) the sale of a company's common stock to an investor.
C) the sale of a non-current asset.
D) the revenue recognition process associated with selling products to customers.

Question 55

What effect does recognizing revenue at the end of the accounting period for rent received in advance have on the accounting equation?

A) Revenues increase and liabilities decrease.
B) Assets increase and shareholders' equity increases.
C) Revenues decrease and liabilities decrease.
D) Liabilities increase and revenues decrease.

Question 56

Journal entries are used to indicate how

A) much profit was earned during the accounting period.
B) events affect the retained earnings account.
C) events affect the accounting equation.
D) much dividends were paid to shareholders.

Question 57

Subdivisions of assets, liabilities, and shareholders' equity are called

A) revenues.
B) accounts.
C) contributed capital.
D) journals.

Question 58

Scottsdale Corp. received several invoices in the mail for oil changes performed on its company trucks during the last week of April. The total of the invoices was $800 and all are due on May 13. What entry should Scottsdale make at April 30 as a result of receiving the invoices?

A) Debit Accounts Receivable and credit Cash for $800.
B) Debit Maintenance Expense and credit Accounts Payable for $800.
C) Debit Maintenance Expense and credit Cash for $800.
D) Debit Prepaid Maintenance and credit Cash for $800.

Question 59

All of the following statements are true except:

A) All economic events recorded in financial statements must be relevant.
B) All economic events recorded in financial statements must affect liabilities.
C) All economic events recorded in financial statements must be objectively measurable in monetary terms.
D) All economic events recorded in financial statements must maintain the equality of the accounting equation.

Question 60

Shareholders' equity increases because of two primary reasons, which are the

A) sale of stock and the earning of income.
B) earning of income and the payment of dividends.
C) payment of dividends and payment of expenses.
D) collection of cash from customers and the payment of expenses to creditors.

Question 61

During Bisbee's first year of business, office supplies were purchased for cash in the amount of $4,300 and the amount was debited to supplies expense. At the end of the first year, the physical count indicated that $425 of supplies was unused. How much should be reported on the income statement at year end for office supplies expense?
a. $4,300
b. $3,875
c. $4,725
d. $425

Question 62

Inventory on January 1 and December 31 is $29,500 and $43,000, respectively. During the year, cash paid to suppliers of inventory is $80,000. If all purchases of inventory are for cash, how much is the current year's cost of goods sold?
a. $14,500
b. $66,500
c. $94,500
d. $151,500

Question 63

The main purpose of the adjusting process is

A) to remove the effects of all transactions recorded during the accounting period.
B) to make the account balances reflect the company's true position according to the guidelines of accrual accounting.
C) to get the accounting records ready for a new accounting period.
D) to identify the amount of cash available for dividends to be paid.

Question 64

Able Industries has the following information is related to its adjusting entries at the end of December.
$\bullet$ On December 31, 2010, the insurance expired amounted to $100.
$\bullet$ Of the unearned revenue, $335 of services had been performed.
What is the net effect that the necessary adjusting entries for this information have on net income for Able?
a. $435 increase.
b. $435 decrease.
c. $235 increase.
d. $235 decrease.

Question 65

On August 1, Amy Company borrowed $38,000 from another company on a 6%, one-year note. The journal entry that Amy would record on August 1 would include which of the following?
a. A debit to Notes Receivable for $38,000.
b. A credit to Cash for $38,000.
c. A credit to Notes Payable for $38,000.
d. A debit to Interest Expense for $2,220.

Question 66

On July 1, 2010, Erie Company rented a building from another company for $90,000 for a three-year time period. Erie Company debited the rent expense account when the payment was made. What adjustment for rent is necessary at December 31, 2010?
a. $20,000
b. $40,000
c. $75,000
d. $80,000

Question 67

During Bisbee's first year of business, office supplies were purchased for cash in the amount of $4,300 and the amount was debited to supplies expense. At the end of the first year, the physical count indicated that $425 of supplies was unused. How much should be reported on the balance sheet for office supplies?
a. $4,300
b. $3,875
c. $4,725
d. $425

Question 68

If accounts receivable on January 1 totals $17,375, and during the current year sales revenue is $112,000, and cash receipts from customers is $97,855, then what is the balance in Accounts Receivable on December 31?
a. $14,145
b. $16,375
c. $31,520
d. $2,230

Question 69

On January 1, Wages Payable for Flagstaff Company equals $18,500. By the end of the current year, Wage Expense equals $345,000, and cash payments for wages were $353,200. What is the balance in the T-account, Wages Payable, on December 31?
a. $17,500
b. $8,200
c. $25,700
d. $10,300

Question 70

On August 1, Amy Company borrowed $38,000 from another company on a 6%, one-year note. The journal entry on December 31 would include which of the following?
a. A debit to Notes Payable for $38,000.
b. A debit to Interest Receivable for $950.
c. A credit to Interest Payable for $2,220.
d. A debit to Interest Expense for $950.

Question 71

On December 31, 2010, immediately after all the adjustments were made to Gilbert Inc.'s accounting records for the 2010 fiscal year, but before the books were closed, the retained earnings account reflected a deficit balance of $80,000. The sum of the pre-closing balances of all of Gilbert's temporary accounts was a net credit balance of $18,000. Gilbert paid no dividends during 2010. On the balance sheet for January 1, 2011, the beginning balance in the retained earnings account will be

A) $0
B) $62,000 debit
C) $80,000 credit
D) $98,000 credit

Question 72

On December 13, 2010, Tucson Corp. paid $24,000 for a two year property insurance policy covering their corporate headquarters for the period December 15, 2010 to December 15, 2012. The payment was charged to insurance expense. What adjusting entry is needed at the end of December?

Question 73

Meadville, Inc. began operations during 2010. During January of 2010, the following transactions occurred:
$\bullet$ Received $80,000 from shareholders as initial investments
$\bullet$ Received cash of $90,000 for services performed during January
$\bullet$ Billed customers an additional $12,300 for services performed during January
$\bullet$ Borrowed $11,500 from Regions Bank Company, and signed a one-year note payable
$\bullet$ Paid rent in the amount of $4,925 for January
$\bullet$ Paid dividends in January amounting to $8,000
$\bullet$ Paid wages equal to $33,220 for January
How much Net Income should Meadville, Inc. report for January?
a. $119,655
b. $64,155
c. $131,155
d. $51,155

Question 74

The biggest distinction between accruals and deferrals is

A) one emphasizes conservatism while the other promotes aggressive accounting positions.
B) how long a company must wait until the collection of cash occurs.
C) with accruals, no record of the activity has been made prior to the adjustment process, and with deferrals, the activity has already been recorded in the accounting records, but the proper amount of revenue or expense has not been recognized.
D) adjustments are necessary for accruals, whereas, adjustments are not necessary for deferrals.

Question 75

Able Industries has the following information is related to its adjusting entries at the end of December.
$\bullet$ Services have been performed for customers that have not yet been billed or paid totaling $100.
$\bullet$ The office equipment computation for 2010 depreciation amounts to $480.
What is the net effect that the necessary adjusting entries for this information have on net income for Able?
a. $380 increase.
b. $380 decrease.
c. $580 increase.
d. $580 decrease.

Question 76

On December 31, 2010, immediately after all the adjustments were made to Kingman Corp's accounting records for the 2010 fiscal year, but before the books were closed, the retained earnings account reflected a balance of $50,000. Kingman Corp's net income for 2010 was $12,000. Kingman paid no dividends during 2010. On the balance sheet for January 1, 2011, the beginning balance in the retained earnings account will be

A) $0
B) $62,000
C) $48,000
D) $50,000

Question 77

A multinational is

A) a company that prepares accruals and deferrals throughout the year as well as yearend.
B) a corporation that has no home country due to operations in several countries.
C) a corporation that has its home in one country but operates under the laws of other countries as well.
D) a type of adjusting entry necessary for companies that trade with corporations in other countries.

Question 78

Closing entries result in net income being transferred to

A) a revenue account.
B) the cash account.
B) the contributed capital account.
D) the retained earnings account.

Question 79

Accounts receivable on January 1 and December 31 is $19,500 and $22,400, respectively. During the year, sales revenue is $223,000. What is the current year's cash received from customers?
a. $3,900
b. $263,900
c. $220,100
d.$226,900

Question 80

Interest receivable on January 1 and December 31 totals $3,780 and $3,450, respectively. During the year, cash received from interest is $11,000. Determine interest revenue for the current year.
a. $3,115
b. $1,330
c. $12,330
d. $10,670