Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

Accrued items and deferred (unearned or prepaid) items.Generally accepted accounting principles require the use of accruals and deferrals in the determination of income. How is income determined under the accrual-basis of accounting? Include in your answer what constitutes an accrued item and a deferred (prepaid) item, and give appropriate examples of each.

Accepted Answer

Accrual accounting recognizes and reports the effects of transactions and other events in the time periods to which they relate rather than only when cash is received or paid. Accrual accounting attempts to match revenues and the expenses associated with those revenues in order to determine net income for an accounting period.
An accrued item is an item of revenue or expense that has been recognized or incurred during the period, but has not yet been collected or paid in cash. An example of an accrued revenue is rent for the last month of an accounting period that has been recognized by a landlord but not yet paid by the tenant. An example of an accrued expense is salaries incurred for the last week of an accounting period that are not payable until the subsequent accounting period.
A deferred (unearned or prepaid) item is an item of revenue or expense that has been received or paid in cash, but has not yet been recognized or consumed. An example of a deferred revenue is unearned subscription revenue collected in advance of being recognized. An example of a deferred expense is an insurance premium paid at the end of an accounting period which will provide insurance coverage for the first six months of the subsequent period.

Question 3

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

Accepted Answer

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

Question 4

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense.

Accepted Answer

A) True 
 B)False

Question 5

On September 1, 2014, Lowe Co. issued a note payable to National Bank in the amount of $900,000, bearing interest at 9%, and payable in three equal annual principal payments of $300,000. On this date, the bank's prime rate was 8%. The first payment for interest and principal was made on September 1, 2015. At December 31, 2015, Lowe should record accrued interest payable of

Accepted Answer

A)   $27,000.
B)   $24,000.
C)   $18,000.
D)   $16,000.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Nominal accounts are also called

Accepted Answer

A)   temporary accounts.
B)   permanent accounts.
C)   real accounts.
D)   None of these answer choices are correct.

Question 8

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?

Accepted Answer

A)   Expiration of prepaid insurance
B)   Depreciation of fixed assets
C)   Use of supplies
D)   All of these answer choices are correct.

Question 9

Big-Mouth Frog Corporation had revenues of $300,000, expenses of $200,000, and dividends of $45,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a

Accepted Answer

A)   debit of $55,000.
B)   debit of $100,000.
C)   credit of $55,000.
D)   credit of $100,000.

Question 10

Icon International, a software company, incorporated on January 1, 2013 is planning to convert to IFRS. The company decided to present its first IFRS statements for the year ended December 31, 2015. What is the transition date of Icon International?

Accepted Answer

A)   January 1, 2013
B)   January 1, 2015
C)   December 31, 2015
D)   December 31, 2013

Question 11

Brown Company's account balances at December 31, 2014 for Accounts Receivable and the related Allowance for Doubtful Accounts are $920,000 debit and $1,400 credit, respectively. From an aging of accounts receivable, it is estimated that $23,000 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for

Accepted Answer

A)   $23,000.
B)   $24,400.
C)   $21,600.
D)   $1,400.

Question 12

When a corporation pays a note payable and interest,

Accepted Answer

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 13

Adjusting entries.Present, in journal form, the adjustments that would be made on July 31, 2015, the end of the fiscal year, for each of the following.1. The supplies inventory on August 1, 2014 was $9,350. Supplies costing $22,150 were acquired during the year and charged to the supplies inventory. A count on July 31, 2015 indicated supplies on hand of $8,810.2. On April 30, a ten-month, 6% note for $30,000 was received from a customer.3. On May 1, $12,000 was collected as rent for one year and a nominal account was credited.

Accepted Answer

The answer of Adjusting entries.Present, in journal form, the adjustments...

Question 14

When an expense is paid in cash before it is used, it is called a(n)

Accepted Answer

A)   prepaid expense.
B)   accrued expense.
C)   estimated expense.
D)   cash expense.

Question 15

Starr Corporation loaned $450,000 to another corporation on December 1, 2014 and received a 3-month, 8% interest-bearing note with a face value of $450,000. What adjusting entry should Starr make on December 31, 2014?

Accepted Answer

A)   Debit Interest Receivable and credit Interest Revenue, $9,000.
B)   Debit Cash and credit Interest Revenue, $3,000.
C)   Debit Interest Receivable and credit Interest Revenue, $3,000.
D)   Debit Cash and credit Interest Receivable, $9,000.

Question 16

Which of the following is not a principal purpose of an unadjusted trial balance?

Accepted Answer

A)   It proves that debits and credits of equal amounts are in the ledger.
B)   It is the basis for any adjustments to the account balances.
C)   It supplies a listing of open accounts and their balances.
D)   It proves that debits and credits were properly entered in the ledger accounts.

Question 17

The income statement of Dolan Corporation for 2014 included the following items:  The following balances have been excerpted from Dolan Corporation's balance sheets:  The cash paid for insurance premiums during 2014 was

Accepted Answer

A)   $16,000.
B)   $15,200.
C)   $19,000.
D)   $17,400.

Question 18

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

Accepted Answer

A)   To reduce the federal income tax liability
B)   To aid management in cash-flow analysis
C)   To match the costs of production with revenues as recognized
D)   To adhere to the accounting constraint of conservatism

Question 19

Olsen Company paid or collected during 2014 the following items:  The following balances have been excerpted from Olsen's balance sheets:  Salaries and wages expense on the income statement for 2014 was

Accepted Answer

A)   $214,600.
B)   $257,000.
C)   $263,800.
D)   $306,200.

Question 20

The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid.

Accepted Answer

A) True 
 B)False

Exam 3: The Accounting Information System

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

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

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense.

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

Nominal accounts are also called

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?

Big-Mouth Frog Corporation had revenues of $300,000, expenses of $200,000, and dividends of $45,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a

Icon International, a software company, incorporated on January 1, 2013 is planning to convert to IFRS. The company decided to present its first IFRS statements for the year ended December 31, 2015. What is the transition date of Icon International?

When a corporation pays a note payable and interest,

When an expense is paid in cash before it is used, it is called a(n)

Starr Corporation loaned $450,000 to another corporation on December 1, 2014 and received a 3-month, 8% interest-bearing note with a face value of $450,000. What adjusting entry should Starr make on December 31, 2014?

Which of the following is not a principal purpose of an unadjusted trial balance?

The income statement of Dolan Corporation for 2014 included the following items: The following balances have been excerpted from Dolan Corporation's balance sheets: The cash paid for insurance premiums during 2014 was

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

Olsen Company paid or collected during 2014 the following items: The following balances have been excerpted from Olsen's balance sheets: Salaries and wages expense on the income statement for 2014 was

The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid.