Final Exam

Question 1

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Answer 1

Going-concern assumption.

Question 2

The rule that ( 1 ) requires revenue to be recognized at the time it is earned, ( 2 ) allows the inflow of assets associated with revenue to be in a form other than cash, and ( 3 ) measures the amount of revenue as the cash plus the cash equivalent value of any non cash assets received from customers in exchange for goods and services, is called the:

Answer 2

Revenue recognition principle.

Question 3

A partnership:

Answer 3

has unlimited liability for its partners.

Question 4

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Answer 4

Matching principle.

Question 5

Revenue is properly recognized:

Answer 5

upon the completion of the sale or when services have been performed and the business obtains the right to collect the sales price.

Question 6

If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

Answer 6

one asset increases $1,300 and another asset decreases $1,300, causing no effect.

Question 7

If a company receives $12,000 from the stockholders to establish a corporation, the effect on the account equation would be:

Answer 7

assets increase $12,000 and equity increases $12,000.

Question 8

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Answer 8

assets increase $4,500 and liabilities increase $4,500.

Question 9

Net Income:

Answer 9

is the excess of revenues over expenses.

Question 10

If equity is $300,000 and liabilities are $192,000, then assets equal:

Answer 10

$492,000.

Question 11

Resources a company owns or controls that are expected to yield future benefits are:

Answer 11

assets.

Question 12

Increases in equity from a company’s sales of products or services are:

Answer 12

revenues.

Question 13

The difference between a company’s assets and its liabilities, or net assets is:

Answer 13

equity.

Question 14

Creditors’ claims on the assets of a company are called:

Answer 14

liabilities.

Question 15

Distributions of cash or other resources by a business to its stockholders are called:

Answer 15

dividends.

Question 16

The basic financial statements include all of the following:

Answer 16

1. Statement of Cash Flows
2. Statement of Retained Earnings
3. Balance Sheet
4. Income Statement

Question 17

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the:

Answer 17

Income Statement.

Question 18

A balance sheet lists:

Answer 18

the types and amounts of assets, liabilities, and equity of a business as of a specific date.

Question 19

The financial statement that shows the beginning balance of retained earnings; the changes in retained earnings that resulted from, net income (or net loss); dividends; and the ending balance, is the:

Answer 19

Statement of Retained Earnings.

Question 20

Accounts payable appear on which of the following statements?

Answer 20

Balance Sheet.

Question 21

A business’s source documents:

Answer 21

provide objective evidence that a transaction has taken place.

Question 22

A business’s record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):

Answer 22

account.

Question 23

An account used to record the stockholders’ investments in a business is called a(n):

Answer 23

common stock account.

Question 24

Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:

Answer 24

the dividends account.

Question 25

Unearned revenues are generally:

Answer 25

liabilities created when a customer pays in advance for products or services before the revenue is earned.

Question 26

Prepaid expenses are generally:

Answer 26

assets that represent prepayments of future expenses.

Question 27

The record of all accounts and their balances used by a business is called a:

Answer 27

ledger.

Question 28

A company's list of accounts and the identification numbers assigned to each account is called a:

Answer 28

Chart of Accounts.

Question 29

A debit:

Answer 29

is the left-hand side of a T-account.

Question 30

The right side of a T-account is a(n):

Answer 30

credit.

Question 31

Identify the statement below that is incorrect.

Answer 31

The normal balance of an expense account is a credit.

Question 32

A credit is used to record an increase in all of the following accounts except:

Answer 32

wages expense.

Question 33

A debit is used to record an increase in all of the following accounts except:

Answer 33

accounts payable.

Question 34

Identify the account below that is classified as an asset in a company's chart of accounts:

Answer 34

accounts receivable.

Question 35

A business uses a credit to record:

Answer 35

a decrease in an asset account.

Question 36

An account balance is:

Answer 36

the difference between the total debits and total credits for an account including the beginning balance.

Question 37

A debit is used to record which of the following?

Answer 37

an increase in the dividends account.

Question 38

Richard Redden contributed $70,000 in cash and land worth $130,000 to open a new business, RR Consulting, Inc. Which of the following general journal entries will RR Consulting, Inc. make to record this transaction?

Answer 38

Debit Cash $70,000; debit Land $130,000; credit Common Stock, $200,000.

Question 39

Identify the correct formula below used to calculate the debt ratio.

Answer 39

total liabilities/total assets.

Question 40

The process of transferring general journal entry information to the ledger is called:

Answer 40

posting.

Question 41

Which of the following accounts are permanent (real) accounts?

Answer 41

accounts payable

Question 42

Another name for a temporary account is a(n):

Answer 42

nominal account.

Question 43

When closing entries are made:

Answer 43

all temporary accounts are closed but permanent accounts are not closed.

Question 44

Revenues, expenses, and dividends accounts, which are closed at the end of each accounting period are:

Answer 44

temporary accounts.

Question 45

Assets, liabilities, and equity accounts are not closed; these accounts are called:

Answer 45

permanent accounts.

Question 46

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and dividend accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as:

Answer 46

closing entries.

Question 47

The closing process is necessary in order to:

Answer 47

ensure that net income or net loss and dividends for the period are closed into the retained earnings account.

Question 48

The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

Answer 48

accounting cycle.

Question 49

Which of the following is the usual final step in the accounting cycle?

Answer 49

preparing a post-closing trial balance.

Question 50

A classified balance sheet:

Answer 50

organizes assets and liabilities into important subgroups that provide more information.

Question 51

Two common subgroups for liabilities on a classified balance sheet are:

Answer 51

current liabilities and long-term liabilities.

Question 52

Which of the following is classified as current assets?

Answer 52

office supplies

Question 53

The current ratio:

Answer 53

is used to help assess a company's ability to pay its debts in the near future.

Question 54

K. Canopy, the stockholder of Canopy Services, Inc., The company paid $5,700 cash in dividends to the owner (sole stockholder). The entry to close the dividends account at the end of the year is:

Answer 54

Debit Retained Earnings $5,700; credit dividends $5,700.

Question 55

The Income Summary account is used to:

Answer 55

close the revenue and expense accounts.