Exam 1 Prep

Question 1

The statement of retained earnings accomplishes which of the following?

a. It summarizes income earned and dividends paid over a single period of the business.
b. It accumulates all revenues for the year.
c. It summarizes the balance sheet accounts.
d. It summarizes the capital stock accounts over the life of the business.

Answer 1

a. It summarizes income earned and dividends paid over a single period of the business.

Question 2

Why is the time period assumption required?

a. Inflation exists
b. External users of financial statements want statements that accurately reflect net income or earnings for a
specific time period.
c. The dollar is the monetary unit in the United States.
d. The federal government requires it.

Answer 2

b. External users of financial statements want statements that accurately reflect net income or earnings for a
specific time period.

Question 3

Which one of the following financial statements reports an entity’s financial position at a specific date?

a. Balance sheet
b. Statement of retained earnings
c. Income statement
d. Both the income statement and the balance sheet

Answer 3

a. Balance sheet

Question 4

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee’s total assets doubled to $1,00,000 and its owners’ equity remained the same during the year, what was the amount of its total liabilities at the end of the year?

a. $220,000
b. $680,000
c. $780,000
d. $900,000

Answer 4

a. $680,000

Question 5

All of the following are different expressions for net income except:

a. Capital
b. Excess of revenues over expenses
c. Profits
d. Earnings

Answer 5

a. Capital

Question 6

What is the name of the branch of accounting concerned with providing managers and administrators with information
to facilitate the planning and control of business operations?

a. Financial Accounting
b. Auditing
c. Management Accounting
d. Bookkeeping

Answer 6

Management Accounting

Question 7

Leary Corporation’s end-of-year balance sheet consisted of the following amounts:

Cash $25,000
Accounts receivable $46,000
Property, plant & equipment 69,000
Long-term debt 41,000
Capital stock 107,000
Accounts payable 22,000
Retained earnings ?
Inventory 33,000

What is Leary’s total liabilities balance at the end of the current year?
a. $3,000
b. $110,000
c. $63,000
d. $173,000

Answer 7

c. $63,000

Question 8

Which one of the following items appears on a balance sheet?
a. Accounts payable
b. Sales revenue
c. Utilities expense
d. Cost of goods sold

Answer 8

a. Accounts payable

Question 9

Leary Corporation’s end-of-year balance sheet consisted of the following amounts:

Cash $ 25,000
Accounts receivable $ 46,000
Property, plant, and equipment 69,000
Long-term debt 41,000
Capital stock 107,000
Accounts payable 22,000
Retained earnings ?
Inventory 33,000

What is Leary’s retained earnings balance at the end of the current year?

a. $10,000
b. $3,000
c. $66,000
d. $110,000

Answer 9

b. $3,000

Question 10

Which of the following statements is true?
a. Profits distributed to the creditors are called dividends.
b. The balance sheet shows the assets, liabilities, and profits of a company.
c. Dividends are an expense, and are reported on the income statement as a deduction from net income.
d. The income statement reports the revenues and expenses of a company.

Answer 10

d. The income statement reports the revenues and expenses of a company.

Question 11

Hopper, Inc.
Use the information from Hopper Inc. to answer the following question(s).

2017
Operating revenues $1,900,000
Operating expenses 1,400,000
Income taxes 200,000

2016
Operating revenues $1,600,000
Operating expenses 1,100,000
Income taxes 200,000

1. Read the information about Hopper, Inc. Which of the following statements is the best answer regarding the company’s
   profit margin?

a. The profit margin was 15.8% in 2017.
b. The profit margin was 15.8% in 2016.
c. The profit margin was 31.5% in 2017.
d. The profit margin was 31.5% in 2016.

Answer 11

a. The profit margin was 15.8% in 2017.

Question 12

Seikoson
The 2016 income statement of Seikoson shows operating revenues of $130,800, selling expenses of $37,100, general and
administrative expenses of $34,900, interest expense of $900, and income tax expense of $11,430. Seikoson’s
stockholders’ equity was $280,000 at the beginning of the year and $320,000 at the end of the year. The company has
20,000 shares of stock outstanding at December 31, 2016.

Read the information about Seikoson. What is Seikoson’s net income?

a. $80,000
b. $92,190
c. $130,800
d. $46,470

Answer 12

d. $46,470

Question 13

A company is not required to prepare both a(n)

a. Income statement and statement of stockholders’ equity.
b. Income statement and statement of retained earnings.
c. Statement of stockholders’ equity and statement of retained earnings.
d. Statement of cash flows and statement of retained earnings.

Answer 13

?

Question 14

Which financial statement reports information helpful in assessing working capital?

a. Income statement
b. Balance sheet
c. Statement of retained earnings
d. Statement of cash flows

Answer 14

b. Balance sheet

Question 15

Which one of the following categories on a statement of cash flows is used to report the cash flow effects of buying and selling property, plant, and equipment?

a. Operating Activities
b. Investing Activities
c. Financing Activities
d. Profit Activities

Answer 15

b. Investing Activities

Question 16

Which of the following statements is true concerning external users of financial information?

a. External users need detailed records of the business to make informed decisions.
b. External users are primarily responsible for the preparation of financial statements.
c. External users rely on the financial statements to help make informed decisions.
d. External users rely on management to tell them whether the company is a good investment.

Answer 16

c. External users rely on the financial statements to help make informed decisions.

Question 17

Which one of the following sections is least likely to be found in a corporate annual report?

a. Notes to the Financial Statements
b. Forecasts of Cash Flows and Earnings
c. Report of the Independent Accountants
d. Management’s Discussion and Analysis

Answer 17

b. Forecasts of Cash Flows and Earnings

Question 18

Which of the following best describes a company’s operating activities?

a. Operating activities focus on the sale of products and services.
b. Operating activities are necessary to provide the money to start a business.
c. Operating activities are needed to provide the valuable assets required to run a business.
d. Operating activities represent the right to receive a benefit in the future.

Answer 18

a. Operating activities focus on the sale of products and services.

Question 19

Jobston, Inc.
The balance sheet of Jobston Inc. includes the following items:

Cash $ 22,400
Accounts receivable 11,700
Inventory 23,300
Prepaid insurance 1,040
Land 80,000
Accounts payable 47,500
Salaries payable 1,200
Capital stock 84,040
Retained earnings 5,700

Read the information about Jobston, Inc. What is Jobston’s working capital?

a. $58,440
b. $89,740
c. $84,040
d. $9,740

Answer 19

d. $9,740

Question 20

Which pair of accounts has the same set of rules for debit and credit entries?

a. Service Revenue and Rent Expense
b. Dividends and Retained Earnings
c. Equipment and Salaries Expense
d. Accounts Receivable and Accounts Payable

Answer 20

c. Equipment and Salaries Expense

Question 21

Hennigan Company
Use the five transactions for Hennigan Company described below to answer the question(s) that follow(s).

Dec 1 Hennigan purchases two new saws on credit at $375 each. The saws are added to
Hennigan’s rental inventory. Payment is due in 30 days.

8 Hennigan accepts advance deposits for tool Company of $75.

15 Hennigan receives a bill from Farmer’s Electric Company for $150. Payment is due
in 30 days.

20 Customers are charged $750 by Hennigan for tool Company. Payment is due from
the customers in 30 days.

31 Hennigan receives $500 in payments from the customers that were billed for
Company on December 20.

Refer to the transactions for Hennigan Rentals.
Based on the October 31 transaction, Hennigan will record which of the following in its accounting records?

a. a credit in Accounts Payable for $500.
b. a credit in Accounts Receivable for $500.
c. a debit in Accounts Payable for $500.
d. a debit in Accounts Receivable for $500.

Answer 21

a. a credit in Accounts Payable for $500.

Question 22

Credit entries are used to

a. increase asset accounts.
b. increase liability accounts.
c. decrease revenue accounts.
d. decrease liability accounts.

Answer 22

b. increase liability accounts.

Question 23

Squidly Products sold and delivered modems to Detail Solutions for $6,600 to be paid by Detail Solutions in three equal installments over the next three months. The journal entry made by Squidly to record this transaction will include:

a. A credit to Cash for $6,600.
b. A debit to Accounts Receivable for $6,600.
c. A debit to Accounts Receivable for $2,200.
d. A debit to Sales Revenue for $6,600.

Answer 23

b. A debit to Accounts Receivable for $6,600.

Question 24

Blake and Ryan each invest $30,000 in a business and are given shares of stock in Jones Industries as evidence of their ownership interests. For this transaction, identify the effect on the accounting equation.

a. Assets increase and liabilities increase.
b. Assets increase and stockholders’ equity increases.
c. Liabilities increase and stockholders’ equity decreases.
d. Liabilities decrease and assets decrease.

Answer 24

b. Assets increase and stockholders’ equity increases.

Question 25

Which of the following entries causes a decrease in assets and in net income?

a. The entry to record the payment of utilities with cash.
b. The entry to record the payment of rent for three months in advance.
c. The entry to record accrued wages payable.
d. The entry to record revenue earned but not yet received.

Answer 25

a. The entry to record the payment of utilities with cash.

Question 26

The system of accounting in which there are at least two accounts affected in every transaction so that the accounting equation stays in balance is a(an)

a. Double-entry system
b. Debit
c. Credit
d. Journalizing

Answer 26

a. Double-entry system

Question 27

The purchase of office equipment on credit has what effect on the accounting equation?

a. Assets increase and liabilities increase
b. Liabilities increase and stockholders’ equity decreases.
c. Assets decrease and stockholders’ equity decreases
d. Assets decrease and liabilities decrease.

Answer 27

a. Assets increase and liabilities increase

Question 28

Which of the following statements is false?

a. Checks and deposit slips are the main source of documents backing up the bank statement.
b. Retailers use cash register tapes to recognize sales.
c. Stock certificates are evidence of being a creditor of the company.
d. Time cards are used as the source of information to record wages.

Answer 28

c. Stock certificates are evidence of being a creditor of the company.

Question 29

When are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?

a. Under the cash basis of accounting
b. Under the accrual basis of accounting
c. Under the adjusting method of accounting
d. Under both the cash and accrual bases of accounting

Answer 29

a. Under the cash basis of accounting

Question 30

Charlie Company had $1,800 of supplies on hand at January 1. During the year, supplies with a cost of $4,000 were purchased. On December 31, the actual supplies on hand amount to $1,300. After the adjustments are recorded and posted on December 31, determine the balances in the Supplies and Supplies Expense accounts.

Supplies | Supplies Expense
a. $1,800 $4,000
b. $1,300 $4,500
c. $5,300 $5,800
d. $1,300 $5,800

Answer 30

a. $1,300 $4,500

Supplies = $1,300

Supplies Expense = $1,800 + $4,000 - $1,300 = $4,500

Question 31

Which of the following concepts is important to accrual accounting?

a. Time period, because accrual accounting divides earnings into time periods
b. Monetary unit, because inflation is a big factor in the environment
c. Cash basis, because if cash is not received, revenue is not accrued
d. Entity concept, because personal transactions must be separated from business transactions

Answer 31

a. Time period, because accrual accounting divides earnings into time periods

Question 32

An adjusting entry could not consist of:

a. A debit to a liability and a credit to revenue.
b. A debit to an expense and a credit to a liability.
c. A debit to an expense and a credit to an asset.
d. A debit to an expense and a credit to revenue.

Answer 32

d. A debit to an expense and a credit to revenue.

Question 33

Expenses can be matched against revenue

a. if the earnings process is not complete.
b. when cash is collected from the sale of products.
c. through allocation to the accounting periods in which the benefits are recognized.
d. when payment is made for costs related to revenue.

Answer 33

c. through allocation to the accounting periods in which the benefits are recognized.

Question 34

Failure to record accrued interest expense would result in which of the following?

a. Assets being overstated
b. Assets being understated
c. Liabilities being overstated
d. Liabilities being understated

Answer 34

d. Liabilities being understated

Question 35

Remaz Corp. purchased equipment at a cost of $220,000 in January, 2015. As of January 1, 2016, depreciation of $160,000 had been recorded on this asset. Depreciation expense for 2016 is $50,000. After the adjustments are recorded and posted at December 31, 2016, what are the balances for the Equipment and Accumulated Depreciation?

Equipment | Accumulated Depreciation
a. $220,000 $210,000
b. $220,000 $ 0
c. $160,000 $ 50,000
d. $120,000 $210,000

Answer 35

a. $220,000 $210,000

Question 36

Which one of the following adjustments decreases net income for the period?

a. Recognition of depreciation on plant assets
b. Recognition of interest on a note receivable
c. Recognition of services that had been provided to customers but the cash has not yet been received
d. Recognition of rent as earned that had been received in advance from customers

Answer 36

a. Recognition of depreciation on plant assets

Question 37

Which account is always carried over from the unadjusted trial balance columns of a work sheet to the balance sheet columns of the work sheet without any adjustment?

a. Accumulated depreciation
b. Depreciation expense
c. Cash
d. All of these are adjusted.

Answer 37

?

Question 38

Place Corp. purchased supplies at a cost of $12,000 during the year. At January 1, supplies on hand were $2,000. At December 31, supplies on hand are $1,000. Determine the amount of supplies expense for the year.

a. $ 10,000
b. $ 12,000
c. $ 13,000
d. $ 14,000

Answer 38

c. $ 13,000