Deck 2: Review of the Accounting Process

Question 1

XYZ Corporation receives $100,000 from investors for issuing them shares of its stock.XYZ's journal entry to record this transaction would include a:

A)Debit to investments.
B)Credit to retained earnings.
C)Credit to capital stock.
D)Credit to revenue.

Answer 1

C

Question 2

After an unadjusted trial balance is prepared,the next step in the accounting processing cycle is the preparation of financial statements.

Answer 2

False

Question 3

Examples of internal transactions include all of the following except:

A)Writing off an uncollectible account.
B)Recording the expiration of prepaid insurance.
C)Recording unpaid salaries.
D)Paying salaries to company employees.

Answer 3

D

Question 4

The statement of shareholders' equity discloses the changes in the temporary shareholders' equity accounts.

Question 5

The balance sheet can be considered a change or flow statement.

Question 6

Examples of external transactions include all of the following except:

A)Paying employee salaries.
B)Purchasing equipment.
C)Depreciating equipment.
D)Collecting a receivable.

Question 7

Adjusting journal entries are recorded at the end of any period when financial statements are prepared.

Question 8

The payment of cash to a supplier would be recorded in a purchases journal.

Question 9

Owners' equity can be expressed as assets minus liabilities.

Question 10

Accruals occur when the cash flow precedes either revenue or expense recognition.

Question 11

The post-closing trial balance contains only permanent accounts.

Question 12

Balance sheet accounts are referred to as temporary accounts because their balances are always changing.

Question 13

The income statement summarizes the operating activity of a firm at a particular point in time.

Question 14

The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account.

Question 15

The adjusted trial balance contains only permanent accounts.

Question 16

The accounting equation can be stated as:

A)A + L - OE = 0.
B)A - L + OE = 0.
C)-A + L - OE = 0.
D)A - L - OE = 0.

Question 17

The sale of merchandise on account would be recorded in a sales journal.

Question 18

The statement of cash flows summarizes transactions that caused cash to change during a reporting period.

Question 19

Debits increase asset accounts and decrease liability accounts.

Question 20

A reversing entry at the beginning of a period for salaries would include a debit to salaries expense.

Question 21

Davis Hardware Company uses a perpetual inventory system.How should Davis record the sale of merchandise,costing $620,and sold on account for $960?

Question 22

Accruals occur when cash flows:

A)Occur before expense recognition.
B)Occur after revenue or expense recognition.
C)Are uncertain.
D)May be substituted for goods or services.

Question 23

Hughes Aircraft sold a four-passenger airplane for $380,000,receiving a $50,000 down payment and a 12% note for the balance.The journal entry to record this sale would include a:

A)Credit to cash.
B)Debit to cash discount.
C)Debit to note receivable.
D)Credit to note receivable.

Question 24

Adjusting entries are primarily needed for:

A)Cash basis accounting.
B)Accrual accounting.
C)Current value accounting.
D)Manual accounting systems.

Question 25

Prepayments occur when:

A)Cash flow precedes expense recognition.
B)Sales are delayed pending credit approval.
C)Customers are unable to pay the full amount due when goods are delivered.
D)Manufactured goods await quality control inspections.

Question 26

When a magazine company collects cash for selling a subscription,it is an example of:

A)An accrued liability transaction.
B)An accrued receivable transaction.
C)A prepaid expense transaction.
D)A deferred revenue transaction.

Question 27

On December 31,2015,Coolwear,Inc.had a balance in its prepaid insurance account of $48,400.During 2016,$86,000 was paid for insurance.At the end of 2016,after adjusting entries were recorded,the balance in the prepaid insurance account was 42,000.Insurance expense for 2016 would be:

A)$ 6,400.
B)$134,400.
C)$ 86,000.
D)$ 92,400.

Question 28

Recording revenue that is earned,but not yet collected,is an example of:

A)A prepaid expense transaction.
B)A deferred revenue transaction.
C)An accrued liability transaction.
D)An accrued receivable transaction.

Question 29

Making insurance payments in advance is an example of:

A)An accrued receivable transaction.
B)An accrued liability transaction.
C)A deferred revenue transaction.
D)A prepaid expense transaction.

Question 30

On December 31,2016,the end of Larry's Used Cars' first year of operations,the accounts receivable was $53,600.The company estimates that $1,200 of the year-end receivables will not be collected.Accounts receivable in the 2016 balance sheet will be valued at:

A)$53,600.
B)$54,800.
C)$52,400.
D)$ 1,200.

Question 31

Somerset Leasing received $12,000 for 24 months' rent in advance.How should Somerset record this transaction?

Question 32

A sale on account would be recorded by:

A)Debiting revenue.
B)Crediting assets.
C)Crediting liabilities.
D)Debiting assets.

Question 33

Which of the following is not an adjusting entry?

Question 34

An example of a contra account is:

A)Depreciation expense.
B)Accounts receivable.
C)Sales revenue.
D)Accumulated depreciation.

Question 35

Mary Parker Co.invested $15,000 in ABC Corporation and received capital stock in exchange.Mary Parker Co.'s journal entry to record this transaction would include a:

A)Debit to investments.
B)Credit to retained earnings.
C)Credit to capital stock.
D)Debit to expense.

Question 36

The adjusting entry required when amounts previously recorded as deferred revenues are recognized includes:

A)A debit to a liability.
B)A debit to an asset.
C)A credit to a liability.
D)A credit to an asset.

Question 37

Ace Bonding Company purchased merchandise inventory on account.The inventory costs $2,000 and is expected to sell for $3,000.How should Ace record the purchase?

Question 38

Which of the following accounts has a normal debit balance?

A)Accounts payable.
B)Accrued taxes.
C)Accumulated depreciation.
D)Advertising expense.

Question 39

Incurring an expense for advertising on account would be recorded by:

A)Debiting liabilities.
B)Crediting assets.
C)Debiting an expense.
D)Debiting assets.

Question 40

Cal Farms reported supplies expense of $2,000,000 this year.The supplies account decreased by $200,000 during the year to an ending balance of $400,000.What was the cost of supplies the Cal Farms purchased during the year?

A)$1,600,000.
B)$1,800,000.
C)$2,200,000.
D)$2,400,000.

Question 41

In its first year of operations Acme Corp.had income before tax of $400,000.Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%.What is the balance in income tax payable at the end of the year?

A)$160,000 credit.
B)$150,000 credit.
C)$ 10,000 credit.
D)$ 10,000 debit.

Question 42

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

A)Plus revenues,minus liabilities.
B)Plus accruals,minus deferrals.
C)Plus net income,minus dividends.
D)Plus assets,minus liabilities.

Question 43

On September 1,2016,Fortune Magazine sold 600 one-year subscriptions for $81 each.The total amount received was credited to deferred subscriptions revenue.What is the required adjusting entry at December 31,2016?

Question 44

Permanent accounts would not include:

A)Interest expense.
B)Salaries and wages payable.
C)Prepaid rent.
D)Deferred revenues.

Question 45

Dave's Duds reported cost of goods sold of $2,000,000 this year.The inventory account increased by $200,000 during the year to an ending balance of $400,000.What was the cost of merchandise that Dave's purchased during the year?

A)$1,600,000.
B)$1,800,000.
C)$2,200,000.
D)$2,400,000.

Question 46

Carolina Mills purchased $270,000 in supplies this year.The supplies account increased by $10,000 during the year to an ending balance of $66,000.What was supplies expense for Carolina Mills during the year?

A)$300,000.
B)$280,000.
C)$260,000.
D)$240,000.

Question 47

Fink Insurance collected premiums of $18,000,000 from its customers during the current year.The adjusted balance in the Deferred premiums account increased from $6 million to $8 million dollars during the year.What is Fink's revenue from insurance premiums recognized for the current year?

A)$10,000,000.
B)$16,000,000.
C)$18,000,000.
D)$20,000,000.

Question 48

The adjusting entry required to record accrued expenses includes:

A)A credit to cash.
B)A debit to an asset.
C)A credit to an asset.
D)A credit to liability.

Question 49

Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1,2016,and charged the $4,200 premium to Insurance expense.At its December 31,2016,year-end,Yummy Foods would record which of the following adjusting entries?

Question 50

Cost of goods sold is:

A)An asset account.
B)A revenue account.
C)An expense account.
D)A permanent equity account.

Question 51

On September 15,2016,Oliver's Mortuary received a $6,000,nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered.Oliver's has a December 31 year-end.What adjusting entry will the company record on December 31,2016?

Question 52

Which of the following accounts has a normal credit balance?

A)Salary expense.
B)Accrued income taxes payable.
C)Land.
D)Prepaid rent.

Question 53

An economic resource of an entity is:

A)A revenue.
B)An asset.
C)A liability.
D)A contra asset until used.

Question 54

Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1,2016,with principal and interest due on October 31,2017.The company's fiscal year ends June 30,2016.What adjusting entry is necessary on June 30,2016?

Question 55

When a business makes an end-of-period adjusting entry with a debit to supplies expense,the usual credit entry is made to:

A)Accounts payable.
B)Supplies.
C)Cash.
D)Retained earnings.

Question 56

Eve's Apples opened business on January 1,2016,and paid for two insurance policies effective that date.The liability policy was $36,000 for 18 months,and the crop damage policy was $12,000 for a two-year term.What is the balance in Eve's prepaid insurance as of December 31,2016?

A)$ 9,000.
B)$18,000.
C)$30,000.
D)$48,000.

Question 57

On November 1,2016,Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season.The note is for a six-month term and both principal and interest are payable at maturity.What is the balance of interest payable for the loan as of December 31,2016?

A)$ 112,500.
B)$ 225,000.
C)$ 450,000.
D)$1,350,000.

Question 58

The employees of Neat Clothes work Monday through Friday.Every other Friday the company issues payroll checks totaling $32,000.The current pay period ends on Friday,July 3.Neat Clothes is now preparing quarterly financial statements for the three months ended June 30.What is the adjusting entry to record accrued salaries at the end of June?

Question 59

In its first year of operations Best Corp.had income before tax of $500,000.Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%.What was Best's net income for the year?

A)$290,000.
B)$294,000.
C)$300,000.
D)$306,000.

Question 60

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:

A)(S)he usually debits cash.
B)(S)he usually debits an expense account.
C)(S)he debits a liability account.
D)(S)he)credits an owners' equity account.

Question 61

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 62

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 63

When the amount of interest receivable decreases during an accounting period:

A)Accrual-basis interest revenues exceed cash collections from borrowers.
B)Accrual-basis net income exceeds cash-basis net income.
C)Accrual-basis interest revenues are less than cash collections from borrowers.
D)Accrual-basis net income is less than cash-basis net income.

Question 64

When converting an income statement from a cash basis to an accrual basis,cash received for services:

A)Exceed service revenue.
B)May exceed or be less than service revenue.
C)Is less than service revenue.
D)Equals service revenue.

Question 65

The Hamada Company sales for 2016 totaled $150,000 and purchases totaled $95,000.Selected January 1,2016,balances were: accounts receivable,$18,000;inventory,$14,000;and accounts payable,$12,000.December 31,2016,balances were: accounts receivable,$16,000;inventory,$15,000;and accounts payable,$13,000.Net cash flows from these activities were:

A)$45,000.
B)$55,000.
C)$58,000.
D)$74,000.

Question 66

The purpose of closing entries is to transfer:

A)Accounts receivable to retained earnings when an account is fully paid.
B)Balances in temporary accounts to a permanent account.
C)Inventory to cost of goods sold when merchandise is sold.
D)Assets and liabilities when operations are discontinued.

Question 67

Molly's Auto Detailers maintains its records on the cash basis.During 2016,Molly's collected $72,000 from customers and paid $21,000 in expenses.Depreciation expense of $5,000 would have been recorded on the accrual basis.Over the course of the year,accounts receivable increased $4,000,prepaid expenses decreased $2,000,and accrued liabilities decreased $1,000.Molly's accrual basis net income was:

A)$38,000.
B)$54,000.
C)$49,000.
D)$42,000.

Question 68

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 69

Compared to the accrual basis of accounting,the cash basis of accounting produces a higher amount of income by the net decrease during the accounting period of:

Question 70

Pat's Custom Tuxedo Shop maintains its records on the cash basis.During this past year Pat's collected $42,000 in tailoring fees,and paid $14,000 in expenses.Depreciation expense totaled $2,000.Accounts receivable increased $1,500,supplies increased $4,000,and accrued liabilities increased $2,500.Pat's accrual basis net income was:

A)$18,000.
B)$34,000.
C)$23,000.
D)$29,000.

Question 71

When converting an income statement from a cash basis to an accrual basis,which of the following is incorrect?

A)An adjustment for depreciation reduces net income.
B)A decrease in salaries payable decreases net income.
C)A reduction in prepaid expenses decreases net income.
D)An increase in accrued payables decreases net income.

Question 72

When Castle Corporation pays insurance premiums,the transaction is recorded as a debit to prepaid insurance.Additional information for the year ended December 31 is as follows:
What was the total amount of cash paid by Castle for insurance premiums during the year?

A)$218,750
B)$166,250
C)$210,000
D)$227,500

Question 73

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 74

On June 1,Royal Corp.began operating a service company with an initial cash investment by shareholders of $2,000,000.The company provided $6,400,000 of services in June and received full payment in July.Royal also incurred expenses of $3,000,000 in June that were paid in August.During June,Royal paid its shareholders cash dividends of $1,000,000.What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting?

Question 75

Temporary accounts would not include:

A)Salaries payable.
B)Depreciation expense.
C)Supplies expense.
D)Cost of goods sold.

Question 76

When converting an income statement from a cash basis to an accrual basis,expenses:

A)Exceed cash payments to suppliers.
B)Equal cash payments to suppliers.
C)Are less than cash payments to suppliers.
D)May exceed or be less than cash payments to suppliers.

Question 77

When the amount of revenue collected in advance decreases during an accounting period:

A)Accrual-basis revenues exceed cash collections from customers.
B)Accrual-basis net income exceeds cash-basis net income.
C)Accrual-basis revenues are less than cash collections from customers.
D)Accrual-basis net income is less than cash-basis net income.

Question 78

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.

Question 79

Permanent accounts would not include:

A)Cost of goods sold.
B)Inventory.
C)Current liabilities.
D)Accumulated depreciation.

Question 80

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the correct term.