Download Exam 1 Review

Exam 1 Review
1. Which amount is least likely to appear in an adjusting journal entry?
a. Cash
b. Interest Receivable
c. Income tax Expense
d. Salaries Payable
2. On December 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How
many accounts will be included in this adjusting entry?
a. None
b. One
c. Two
d. Three
3. An adjusting journal entry to recognize accrued salaries payable would cause which of the following?
a. A decrease in assets and stockholder’s equity
b. A decrease in assets and liabilities
c. An increase in expenses, liabilities, and stockholder’s equity
d. An increase in expenses and liabilities
4. Assume the balance in Prepaid Insurance is $2,500 but it should be $1,500. The adjusting journal entry
should include which of the following?
a. Debit to Prepaid Insurance for $1,000
b. Credit to insurance expense for $1,000
c. Debit to Insurance expense for $1,000
d. Debit to insurance expense for $1,500
5. Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is
not yet recorded at the end of the year, what will the adjusting journal entry include?
a. Debit to Advertising expense of $10,000
b. Credit to advertising expense of $10,000
c. Debit to accrued liabilities of $10,000
d. Need more information to determine
6. Northwest Airlines provided flights this month for customer who paid cash last month for tickets. What
are the effects this month?
a. Revenue has been earned, asset has been used up
b. Revenue has been earned, liability has been fulfilled
c. Expense has been incurred, liability has been fulfilled
d. Expense has been incurred, asset has been acquired
7. Abercrombie received telephone bill for services this month, which must be paid next month. What are
the effects this month?
a. Expense has been incurred, liability has been incurred
b. Expense has been incurred, asset has been used up
c. Revenue has been earned, liability has been incurred
d. Revenue has been earned, asset has been acquired
8. A marketing firm completed work on an advertising campaign this month that will be collected next
month. What are the effects this month?
a. Revenue has been earned, asset has been used up
b. Expense has been incurred, liability as been fulfilled
c. Revenue has been earned, asset has been acquired
d. Revenue has been earned, liability has been fulfilled
9. Which of the following is true?
a. FASB creates SEC
b. GAAP creates FASB
c. SEC creates CPA
d. FASB creates GAAP
10. As a rule accounting rules are called?
a. FASB
b. SEC
c. GAAP
d. CPA
11. Contributed Capital is
a. An asset reported on the balance sheet
b. Revenue reported on the income statement
c. Stockholder’s equity reported on the balance sheet
d. Liability reported on the balance sheet
12. What is the government agency that supervises the work of the FASB and PCAOB?
a. SEC
b. GAAP
c. CPA
d. SOX
13. Buying and selling productive resources with long lives is a(n)
a. Operating activity
b. Investing activity
c. Financing activity
d. Selling activity
14. A company was recently formed with $60,000 cash contributed to the company by stockholders. The
company then borrowed $20,000 from a bank and bought $5,000 supplies on account. The company
also purchased $30,000 of equipment by paying $10,000 and issuing a note for the remainder. What is
the amount of total assets to be report on the balance sheet?
a. $95,000
b. $105,000
c. $110,000
d. None of the above
15. Which account does not have a normal credit balance?
a. Wages Payable
b. Notes Payable
c. Unearned Revenue
d. Prepaid Insurance
16. At the beginning of June, Florida Flippers paid a total of $6,000 cash for insurance for the months of
June, July, and August. What amount of expense should be recognized at the end of June?
a. $6000
b. $4000
c. $2000
d. None
17. In June, Florida Flippers paid $4,000 in wages to employees who worked in June. What amount of
expense should be recognized at the end of June?
a. $2000
b. $4000
c. $0
d. $1000
18. Which of the following accounts is least likely to be debited when revenue is recorded?
a. Revenue
b. Accounts Receivable
c. Cash
d. Unearned Revenue
19. During 2006, PacSun, incurred expenses of $250,000. $50,000 was paid in cash and the balance will be
paid Jan 2007. In addition PacSun signed a $50,000 note payable with a bank (which gave them $50,000
cash) on December 31 to be paid in Feb 2007. What would be the effect on the accounting equation?
a. Decrease in assets $50,000, increase in liabilities $250,000 and decrease in SE $250,000
b. No effect on assets; increase liabilities $250,000, decrease SE $250,000
c. Decrease assets $100,000; increase liabilities $250,000; decrease equity $250,000
d. Increase assets $100,000; increase liabilities $250,000; decrease equity $150,000
20. At the end of the accounting period Dec 31, 2009 PacSun had $3000 wages expense which had not been
paid or recorded. Therefore, the ’09 adjusting entry should be
a. $3,000 decrease to an expense account and decrease to a liability account
b. $3,000 increase to an expense account and decrease to an asset account
c. $3,000 increase to a liability account and increase to an expense account
d. $1000 increase to a liability account and decrease to an asset account
21. The asset account has a beginning balance of $10,000 and PacSun purchased a new truck for $26,000.
Part of the truck purchase was financed with a loan. If the ending balance of assets was $31,000 much
of the truck did they pay in cash?
a. $10,000
b. $5,000
c. $26,000
d. $36,000
22. Which group of accounts contains only those that normally have debit balance?
a. Retained earnings, cost of sales, wages expense
b. Prepaid expenses, wages payable, and contributed capital
c. Cash, utilities expense, accounts receivable
d. Utilities expense, unearned revenue, prepaid expenses
23. Which of the following transactions would cause retained earnings to increase?
a. Collection of a customer’s account
b. Loan from a bank
c. Sale of service to a customer
d. Wage costs owed to employees
24. The assumption that the long life of a company can be reported in shorter time periods is
a. Unit of Measure principle
b. Continuity assumption
c. Separate-entity assumption
d. Time period assumption
25. Failure to make an adjusting entry to recognize wages expense would cause
a. An understatement of liabilities, and overstatement of net income and stockholder’s equity
b. An overstatement of liabilities and stockholder’s equity and an understatement of net income
c. No effect on assets, liabilities, net income, or stockholder’s equity
d. An overstatement of liabilities, net income, and stockholder’s equity
e. None of the above
26. Which of the following is not a liability
a. Accounts payable
b. Retained earnings
c. Notes payable
d. Unearned revenue
27. Company A bought $200 worth of supplies on account. The effect on the fundamental accounting model
was
a. Assets and stockholder’s equity each increased by $200
b. Assets increased by $200, and Liabilities decreased by $200
c. Assets and Liabilities both increased by $200
d. No effect
28. Company B received $100,000 cash invested by its owners. The effect on the accounting equation
would be
a. Assets and liabilities each increased by $100,000
b. Assets and revenues each increased by $100,000
c. Stockholder’s Equity and revenues each increased by $100,000
d. Stockholder’s Equity and assets each increase by $100,000
29. Which of the following groups has primary responsibility for information contained in the financial
statements?
a. The company’s auditors
b. The company’s investors
c. The SEC
d. The company’s management
30. One of the main disadvantages of a corporation when compared to a partnership is that
a. The stockholders’ have limited liability
b. The stockholder’s are treated as separate legal entity from the corporation
c. The corporation and its stockholder’s are subject to double taxation
d. The corporation must account for the business’s transactions separate and apart from those of
the owners.
31. On November 1, 2006 PacSun paid $6000 for a two-year insurance policy on the building. The
accounting period ends December 31. At the end of 2006, the financial statements should report
a. Prepaid insurance $6,000, Insurance Expense, $0
b. Prepaid Insurance $0, Insurance Expense $6000
c. Prepaid Insurance $21, Insurance Expense $5979
d. Prepaid Insurance $5500, Insurance Expense $500
e. Prepaid Insurance $5875, Insurance Expense $125
32. An example of an investing transaction would be
a. Purchasing equipment for cash
b. Buying inventory from a supplier on credit
c. Selling stock to investors for cash
d. All of the above
33. Revenue is always recognized when
a. Expenses are paid
b. Cash is collected
c. It is earned
d. The end of the period arrives
34. Accumulated Depreciation is a(n)
a. Liability
b. Asset
c. Contra-asset
d. Revenue
35. Prepaid Insurance is an asset account
a. True
b. False
36. Unearned Revenue is a liability account
a. True
b. False
37. Dividends have a normal balance on the credit side
a. True
b. False
38. Asset must always equal Liabilites + Stockholder’s Equity.
a. True
b. False
39. Which is the only financial statement that is reported on a specific date
a. Income Statement
b. Statement of Retained Earnings
c. Balance Sheet
d. Statement of Cash Flows
40. On December 31, 2008, the balance of Accounts Payable was $125,000. During 2008, total debits of
$50,000 and total credits of $80,000 were posted to the account. What was the beginning balance of
Accounts Payable on January 1, 2008?
a. $95,000
b. $65,000
c. $155,000
d. $125,000