Chapter 3

Question 1

Factors that shape an accounting information system include the:

transactions in which the business engages.

informational demands of management.

volume of data to be handled.

all of these answer choices are correct.

Answer 1

all of these answer choices are correct.

Question 2

Real accounts are periodically closed.

True

False

Answer 2

False

Question 3

Which of the following is not transferred to Retained Earnings at the end of the period?

Revenues.

Dividends.

Common stock.

Expenses.

Answer 3

Common stock.

Question 4

Revenue, equity and liability accounts have normal credit balances.

True

False

Answer 4

True

Question 5

When a corporation purchases a computer for cash,

liabilities increase.

stockholders’ equity decreases.

assets increase.

the account Cash will be credited.

Answer 5

the account Cash will be credited.

Question 6

Which of the following is an internal event?

A transaction with another entity.

Using machinery in operations.

A change in the price of a good that an entity buys or sells.

A flood.

Answer 6

Using machinery in operations.

Question 7

A trial balance:

proves that debits and credits are equal in the ledger.

chronologically lists transactions and other events.

proves that a company recorded all transactions.

all of these answer choices are correct.

Answer 7

proves that debits and credits are equal in the ledger.

Question 8

Each general journal entry consists of how many parts?

One.

Two.

Three.

Four.

Answer 8

Four

Each journal entry consists of four parts: (1) the accounts and amounts to be debited; (2) the accounts and amounts to be credited; (3) a date; and (4) an explanation.

Question 9

Depreciation and amortization allocate the cost of long-term assets to the periods which benefit from their use.

True

False

Answer 9

True

Question 10

The difference between the cost of a depreciable asset and its related contra account, Accumulated Depreciation is referred to as the asset’s:

book value.

fair value.

market value.

real value.

Answer 10

Book value

Question 11

The adjusting entry to record an accrued expense includes a debit to:

a liability account and a credit to an expense account.

a liability account and a credit to a revenue account.

an expense account and a credit to a revenue account.

an expense account and a credit to a liability account.

Answer 11

an expense account and a credit to a liability account.

Question 12

Adjustments are often prepared:

after the balance sheet date, but dated as of the balance sheet date.

after the balance sheet date, and dated after the balance sheet date.

before the balance sheet date, but dated as of the balance sheet date.

before the balance sheet date, and dated after the balance sheet date.

Answer 12

after the balance sheet date, but dated as of the balance sheet date.

Question 13

After journalizing and posting all adjusting entries, a company prepares an adjusted trial balance that is the primary basis for preparation of the financial statements.

True

False

Answer 13

True

Question 14

Adjusting entries can be classified as either:

accruals or reversals.

prepayments or accruals.

real or nominal.

internal or external.

Answer 14

prepayments or accruals.

Question 15

All of the following statements about contra asset accounts are true except:

Contra asset accounts have normal credit balances.

Contra asset accounts are permanent accounts.

Contra asset accounts are not reported in the financial statements.

Contra asset accounts are increased with credits.

Answer 15

Contra asset accounts are not reported in the financial statements.

Question 16

Financial statements can be prepared directly from the adjusted trial balance.

True

False

Answer 16

True

Question 17

In the closing process all of the revenue and expense account balances are transferred to the:

Capital account.

Income Summary account.

Retained Earnings account.

Dividends account.

Answer 17

Income Summary account.

Question 18

When a merchandiser prepares closing entries, Cost of Goods Sold is credited and Income Summary is debited.

True

False

Answer 18

True

Question 19

If the balances in both accounts receivable and accounts payable decrease during the year

the decrease in both the accounts receivable and accounts payable balances will result in a decrease in cash for the period.

the decrease in both the accounts receivable and accounts payable balances will result in a increase in cash for the period.

the decrease in the accounts receivable balance would result in an increase in cash for the period.

the decrease in the accounts payable balance would result in a increase in cash for the period.

Answer 19

the decrease in the accounts receivable balance would result in an increase in cash for the period.

Question 20

When a company makes reversing entries, it debits all cash payments of expenses to the related expense account.

True

False

Answer 20

True

Question 21

Which of the following columns is generally found on a worksheet?

Chart of accounts.

Statement of cash flows.

Income statement.

All of these answer choices are correct.

Answer 21

Income Statement

The columns generally found on a worksheet include the trial balance, adjustments, adjusted trial balance, income statement, and balance sheet.