Deck 15: Basic Accounting: Concepts, techniques, and Conventions

Question 1

The main sections of the balance sheet include ________.

A)revenues,assets and liabilities
B)assets,liabilities and expenses
C)expenses,revenues and stockholders' equity
D)assets,liabilities and stockholders' equity

Answer 1

D

Question 2

A transaction is any event that affects the financial position of an organization and requires recording.

Answer 2

True

Question 3

The ownership claim arising from the reinvestment of previous profits is called ________.

A)net assets
B)stockholders' equity
C)investment income
D)retained earnings

Answer 3

D

Question 4

Owners' equity represents the excess cash a company has made.

Question 5

This financial statement discloses the economic resources of the organization and the claims against those resources.

A)income statement
B)statement of cash flows
C)statement of retained earnings
D)balance sheet

Question 6

The balance sheet shows a company's financial status at only one point in time.

Question 7

The ownership claim arising from funds contributed by the owners of the business is called ________.

A)liabilities
B)retained earnings
C)note payable
D)paid-in capital

Question 8

Liabilities are economic resources.

Question 9

Any event that affects the financial position of an organization and requires recording is called a(n)________.

A)transaction
B)account
C)posting
D)recognition principle

Question 10

Economic resources that a company owns and expects to provide future benefits are called ________.

A)stockholders' equity
B)assets
C)liabilities
D)retained earnings

Question 11

An entity's economic obligations to nonowners are called ________.

A)owners' equity
B)liabilities
C)assets
D)retained earnings

Question 12

Accounting information only helps assess past financial performance.

Question 13

For a corporation,the excess of assets over liabilities are called ________.

A)retained earnings
B)paid-in capital
C)common stock
D)stockholders' equity

Question 14

The statement of financial position is also called the ________.

A)income statement
B)statement of cash flows
C)statement of retained earnings
D)balance sheet

Question 15

The income statement summarizes a company's financial performance ________ and the balance sheet shows a company's financial position ________.

A)at a point in time; over a period of time
B)at a point in time; at a point in time
C)over a period of time; over a period of time
D)over a period of time; at a point in time

Question 16

A corporation is not a separate legal entity from its owners.

Question 17

Which of the following statements is FALSE?

A)Assets are economic resources that are expected to provide future benefits.
B)Liabilities are economic obligations or claims against the assets of an organization by nonowners.
C)Assets must always equal the sum of liabilities and owners' equity.
D)Owners' equity equals the sum of assets and liabilities.

Question 18

In a corporation,stockholders' equity has two parts called ________ and ________.

A)dividends; net profit
B)paid in capital; dividends
C)net profit; retained earnings
D)paid-in capital; retained earnings

Question 19

Each item in a financial statement is an account.

Question 20

Amounts owed to vendors for purchases on credit are called ________.Amounts due from customers for credit sales are called ________.

A)accounts payable; notes receivable
B)notes payable; notes receivable
C)accounts payable; accounts receivable
D)debt payable; debt receivable

Question 21

The ________ is the major link between the balance sheet dated December 31,2010 and the balance sheet dated December 31,2011.

A)statement of cash flows
B)statement of changes in stockholders' equity
C)statement of changes in stock options
D)income statement

Question 22

To be recorded,revenue must be ________.

A)earned
B)earned and collected
C)earned and realized
D)earned and realized or realizable

Question 23

Cash collections of Accounts Receivable will increase ________ and decrease ________.

A)Accounts Receivable; Accounts Payable
B)Accounts Payable; Accounts Receivable
C)Cash; Accounts Payable
D)Cash; Accounts Receivable

Question 24

Increases in ownership claims arising from the delivery of goods are called ________.

A)expenses
B)profits
C)assets
D)revenues

Question 25

The acquisition of inventory for cash will ________.

A)increase liabilities and decrease stockholders' equity
B)decrease assets and decrease liabilities
C)increase assets and decrease liabilities
D)have no effect on the amount of total assets

Question 26

For a corporation,assets must equal liabilities plus paid-in capital.

Question 27

A sale of inventory results in a(n)________ in stockholders' equity equal to the selling price of the inventory.A sale of inventory also results in a(n)________ in stockholders' equity equal to the cost of the inventory sold.

A)decrease; increase
B)increase; increase
C)increase; decrease
D)decrease; decrease

Question 28

The acquisition of inventory on account will ________.

A)increase assets and decrease stockholders' equity
B)decrease assets and decrease liabilities
C)increase assets and increase liabilities
D)increase assets and increase stockholders' equity

Question 29

A cash payment on accounts payable will ________.

A)increase assets and increase liabilities
B)increase assets and increase stockholders' equity
C)decrease assets and decrease liabilities
D)decrease assets and increase stockholders' equity

Question 30

On January 1,2010,a company paid $3,000 for rent.The payment covers the period January 1,2010 through June 30,2010.On January 1,2010,what is the effect of this transaction on stockholders' equity?

A)increases
B)decreases
C)no effect
D)not enough information to determine

Question 31

Amounts due from customers are called accounts payable.

Question 32

Stockholders' equity is composed of paid-in capital and retained earnings.

Question 33

Decreases in ownership claims arising from the delivery of goods are called ________.

A)revenues
B)profits
C)liabilities
D)expenses

Question 34

The following information was extracted from the accounting records of Plum Company: At December 31,2011,what is the total amount of liabilities?

A)$45,000
B)$150,000
C)$157,000
D)$272,000

Question 35

When a company purchases inventory for cash,the net effect on the amount of total assets is zero.

Question 36

Increases in revenues ________ stockholders' equity.Increases in expenses ________ stockholders' equity.

A)decrease; increase
B)increase; decrease
C)decrease; decrease
D)increase; increase

Question 37

Which of the following statements is FALSE?

A)A transaction can increase the balance in one account and decrease the balance in another account.
B)A transaction can increase the balance in two accounts.
C)A transaction can increase the balance in two accounts and decrease the balance in one account.
D)A transaction must increase and decrease the same number of accounts.

Question 38

How do accountants recognize revenue?

A)by recording it in the accounting records
B)by reporting it on the financial statements
C)by waiting for the collection of cash from the revenue
D)by applying the materiality principle

Question 39

The following information was extracted from the accounting records of Ernest Company: At the beginning of the period,what is the total amount of liabilities?

A)$135,000
B)$155,000
C)$300,000
D)$545,000

Question 40

Liabilities are the entity's economic obligations to owners.

Question 41

The transactions for the Newman Company are below:
1.The owners invested $10,000 cash in the company.
2.The company acquired equipment that cost $8,000.25% was paid in cash and the rest was settled with a note.
3.The company acquired $2,800 of inventory and paid cash.
4.The company acquired $600 of supplies on account.
5.The company sold merchandise for $1,800 on account.The inventory had a cost of $1,000.
6.The company received $400 from Transaction #5.
7.The company paid $300 on accounts payable.
Required:
Prepare an analysis of Newman Company's transactions using the equation approach.

Question 42

The cash basis of accounting recognizes the impact of transactions in the period when ________.

A)revenues and expenses occur
B)cash is received or disbursed
C)the accounting equation changes
D)assets or liabilities change

Question 43

Given below are the daily balances in the accounts of Superior Company.Assume one transaction occurs each day.Explain the nature of each transaction for each day.

Question 44

The activity of Reno Company for the month of April is given below: Using the cash basis of accounting,the total expenses for Reno Company for the month of April are ________.

A)$62,000
B)$67,000
C)$79,000
D)$86,000

Question 45

A deficiency of cash-basis accounting is ________.

A)it omits key revenues and expenses from the balance sheet
B)it fails to match revenues and expenses to measure economic performance
C)it omits key assets and key liabilities from the income statement
D)it fails to provide an income statement

Question 46

A cash payment of accounts payable does not affect stockholders' equity.

Question 47

This transaction will decrease net income under the cash basis,but will not affect net income under the accrual basis.

A)purchase of inventory on account
B)expiration of prepaid rent
C)recording depreciation expense for the year
D)payment of two months rent in advance

Question 48

Gamble Company had the following transactions: 1.The owner started the company by investing $8,000 of cash.
2.The company paid $2,000 for six months of rent.The rent was paid in advance.
3.The company acquired $3,300 in inventory and put one-third of the purchase on account.The company paid $2,200 cash.
4.The company sold inventory costing $1,400 for $2,900 on account.
After all these transactions,what is the balance in the cash account?

A)$1,600
B)$3,800
C)$4,800
D)$6,700

Question 49

Revenues do not affect stockholders' equity.

Question 50

The activity of Spencer Company for the month of April is presented below: Using the accrual basis of accounting,the total expenses for Spencer Company for the month of April is ________.

A)$62,000
B)$78,000
C)$80,000
D)$86,000

Question 51

This transaction will increase net income under the accrual basis,but will not increase net income under the cash basis.

A)recording depreciation expense for the month
B)cash sale of inventory at a sales price in excess of cost
C)sale of inventory on account at a sales price in excess of cost
D)cash payment for rent

Question 52

The balance sheet is not linked to the income statement.

Question 53

Given below are the activities of the Tahoe Company: Using the cash basis of accounting,the total revenues for Tahoe Company are ________.

A)$56,000
B)$90,000
C)$126,000
D)$173,000

Question 54

This transaction will decrease income under both the accrual basis and the cash basis of accounting.

A)cash purchase of inventory
B)payment of rent for current month
C)the use of office supplies
D)the expiration of prepaid insurance

Question 55

The income statement measures performance over a given amount of time.

Question 56

Revenue and expense accounts are permanent stockholders' equity accounts.

Question 57

This transaction will decrease income under both the accrual basis and the cash basis of accounting.

A)cash purchase of inventory
B)payment of next period's rent
C)payment of current period's rent
D)purchase of inventory on account

Question 58

The excess of revenues over expenses is called a net profit.

Question 59

Nicklaus Company sold inventory costing $1,000 for $1,400 on account.Nicklaus Company operates under the accrual basis.What effect will the transaction have on the liabilities and owners' equity of the company?

A)no effect
B)liabilities will increase $400
C)owners' equity will increase $400
D)owners' equity will increase $1,000

Question 60

The accrual basis of accounting recognizes the impact of transactions on the financial statements in the period when ________.

A)cash is received or disbursed
B)the accounting equation changes
C)revenues are earned and expenses are incurred
D)assets increase

Question 61

Under accrual basis accounting,research and development expenses for new products are recorded as ________.

A)assets and written off systematically over the expected life
B)assets and expensed when paid in cash
C)assets and expensed when the related products are sold
D)expenses immediately

Question 62

On July 1,Gabriel Company paid 6 months' insurance in advance.The policy covers the period of July 1 through December 31.The total payment was $5,400.At the time of the payment,the company set up the Prepaid Insurance account for $5,400.What is the balance in the Prepaid Insurance account on September 30?

A)0
B)$1,800
C)$2,700
D)$3,600

Question 63

On January 1,2010,New Mexico Company acquired a machine for $33,000.Annual depreciation expense equals $3,000.The residual value of the machine is $3,000.What is the book value of the machine on December 31,2010?

A)$3,000
B)$27,000
C)$30,000
D)$33,000

Question 64

Implicit transactions are associated with ________.

A)cash basis accounting
B)nonprofit accounting
C)governmental accounting
D)accrual basis accounting

Question 65

Nonprofit organizations do not use balance sheets.

Question 66

Under accrual basis accounting,unexpired costs are considered to be ________.

A)expenses if cash has been paid
B)expenses if cash has not been paid
C)assets
D)accrued liabilities

Question 67

An example of an implicit transaction is cash received on account.

Question 68

On May 1,San Jose Company paid $36,000 for rent.The rent covers the period May 1 through August 31.San Jose Company recorded Prepaid Rent of $36,000.What is the Rent Expense for the month of May?

A)$0
B)$9,000
C)$18,000
D)$27,000

Question 69

Given below are the activities of the Tucson Company: Using the accrual basis of accounting,the total revenues for Tucson Company are ________.

A)$46,000
B)$90,000
C)$126,000
D)$173,000

Question 70

Source documents are associated with ________.

A)Generally Accepted Accounting Principles
B)implicit transactions
C)explicit transactions
D)compound entries

Question 71

The cash basis of accounting does not match expenses with the revenues they help generate.

Question 72

The accrual basis of accounting recognizes the impact of transactions when cash is received or paid.

Question 73

Depreciation expense is computed on ________.

A)equipment and land
B)land and buildings
C)equipment and buildings
D)equipment,land and building

Question 74

On May 1,San Diego Company paid $36,000 for rent.The rent covers the period May 1 through August 31.San Diego Company recorded Prepaid Rent of $36,000.What is the balance in the Prepaid Rent account on July 1?

A)$0
B)$9,000
C)$18,000
D)$27,000

Question 75

Journal entries for the expiration of unexpired assets are usually made before the related cash flows.

Question 76

Adjusting entries at the end of an accounting period record explicit transactions.

Question 77

On January 1,Laguna Company paid $16,000 for rent.The rent covers the period January 1 through April 30.Laguna Company recorded Prepaid Rent of $16,000.What is the balance in the Prepaid Rent account on March 1?

A)$4,000
B)$8,000
C)$12,000
D)$16,000

Question 78

Oakland Company owns a fixed asset with an original cost of $100,000.The company estimates it will use the fixed asset for 5 years,at which time the fixed asset will be sold for $10,000.The annual depreciation expense is ________.

A)$0
B)$10,000
C)$18,000
D)$20,000

Question 79

An example of an explicit transaction is ________.

A)recording depreciation expense
B)paying cash for three months' rent in advance
C)accruing wages expense at the end of the month
D)accruing interest expense at the end of the year

Question 80

San Francisco Company paid $2,700 for 6 months' insurance,covering the period of April 1 to September 30.At the time of the payment,the entire amount was used to increase the balance in the Prepaid Insurance account.The balance in the Prepaid Insurance account on April 30 is ________.

A)$0
B)$900
C)$1,800
D)$2,250