Deck 3: Review of a Companys Accounting System

Question 1

If the trial balance does not balance check to see if the difference is evenly divisible by 9, if so there may be a transposition.

Answer 1

True

Question 2

Companies create subsidiary ledgers to divide accounting tasks and to reduce the size of the general ledge, while keeping up to date records of customers and suppliers. This process is also used to minimize errors in recording transactions.

Answer 2

True

Question 3

In order to prepare the financial statements each account in the ledger is recomputed to ensure all effects of the adjusting entries have been captured.

Answer 3

True

Question 4

Special journals are used to divide accounting tasks, minimize errors, and to keep up to date records of customers and suppliers.

Question 5

In order to compute revenue the ending accounts receivable balance must be added to the collections from customers minus the beginning balance in accounts receivable. This adjustment will convert the cash-basis information to the accrual-basis accounting.

Question 6

Although optional, a reversing entry is usually made for adjusting entries that accrue expenses to be paid in the next accounting period.

Question 7

The primary purpose of an accounting system is to record how the business activities change the company's balance sheet.

Question 8

The last step in the accounting cycle is to prepare the financial statements.

Question 9

The accounting cycle followed each period by a company includes recording transactions, storing the data, organizing the information, summarizing the events and arrangements and then reporting the accounting information.

Question 10

The worksheet is an internal tool that assists with the preparation of the adjusting entries and the financial statements.

Question 11

An advantage of using the general journal is to prevent errors.

Question 12

The worksheet is not a substitute for accounting records or financial statements but it is a tool helpful for external users to see the detailed information behind the statements.

Question 13

Net sales are computed as sales minus sales returns and allowances and purchase discounts.

Question 14

The another interpretation of the accounting equation is Assets = Liabilities + Contributed Capital + Beginning Retained Earnings + Net Income - Dividends + Beginning Accumulated Other Comprehensive Income + Other Comprehensive Income.

Question 15

The trial balance does help find some errors but not if a transaction has not been posted, or if it was posted twice.

Question 16

When preparing the financial statements the adjusted trial balance is prepared listing all the accounts and associated balances after the closing entries.

Question 17

The general journal has all journal entry transactions listed by account title.

Question 18

Reversing entries should be made for any adjusting entry that adjusts the ending balance of an existing balance sheet account.

Question 19

The purpose of closing entries is to reduce the balance in the periodic accounts to zero and to compute net income for the period.

Question 20

Deferrals are transactions, events, or arrangements in which the cash flows occur after the related expenses are incurred or revenues earned.

Question 21

Which of the following is a periodic account?

A) Retained Earnings
B) Accounts Receivable
C) Purchases Returns and Allowances
D) Accumulated Depreciation

Question 22

Which of the following errors will be detected by a trial balance?

A) posting a credit to Sales instead of to Accounts Payable
B) incorrectly computing the balance of the cash account
C) failure to journalize a sales transaction at all
D) forgetting to post a purchase transaction at all

Question 23

Which of the following is a major step in completing the accounting cycle?

A) Prepare financial statements
B) Record transactions, events, and arrangements
C) Prepare adjusting entries
D) All of these choices

Question 24

The basic purpose of a trial balance is to

A) list all of the accounts in the general ledger
B) list all of the accounts in the general ledger that have a balance
C) be sure that all journal entries have been recorded
D) verify that the total credits equal the total debits

Question 25

Which of the following is a permanent account?

A) Dividend Revenue
B) Allowance for Doubtful Accounts
C) Interest Expense
D) Sales Revenue

Question 26

Which of the following is NOT a component of an accounting system?

A) the input source documents
B) the framework for operation of the system
C) the output reports
D) all of the above are components of an accounting system

Question 27

Which T-account is incorrect?

A)

B)

C)

D)

Question 28

In terms of debits and credits, which types of accounts will have the same (debit or credit) normal balances?

A) dividends, expenses, assets
B) assets, capital stock, revenues
C) retained earnings, dividends, liabilities
D) expenses, liabilities, capital stock

Question 29

The accounting cycle is a series of steps in which accounting information is contained in its transactions, events, and arrangements. What are the series of steps involved in this task?

A) Record, organize, close, report
B) Organize, record, report, analyze
C) Record, organize, summarize, report
D) Analyze, prepare, record, report

Question 30

Which of the following rules is incorrect?

A) The accounting equation must always remain in balance.
B) Asset accounts are increased by debit entries and decreased by credit entries.
C) Expense accounts normally have debit balances.
D) Common stock accounts are increased by debit entries and decreased by credit entries.

Question 31

When you prepare a journal entry, the standard format is to list all

A) asset accounts first
B) accounts to be debited first
C) liability accounts first
D) accounts to be credited first

Question 32

The adjustment necessary to convert payments for other operating costs, cash-basis, to operating expenses, accrual-basis, is to add ending prepaid expenses to the beginning prepaid expenses subtract the beginning accrued expenses and add the ending accrued expenses.

Question 33

Which of the following is the third major step in the accounting cycle?

A) prepare the financial statements
B) record the daily transactions in a journal
C) prepare and post adjusting entries
D) post the journal entries to the accounts in the ledger

Question 34

The entire group of accounts for a company is referred to as the

A) general ledger
B) worksheet
C) journal
D) document of original entry

Question 35

Which accounts are increased with debits?

A) Cost of Goods Sold, Common Stock, Assets
B) Dividends, Revenue, Liabilities
C) Assets, Cost of Goods Sold, Expenses
D) Liabilities, Capital Stock, Revenue

Question 36

What relationship exists between the general journal and the general ledger?

A) The general ledger accounts contain the same information as in the general journal, just in a different format.
B) The balances in the general ledger will always equal those in the general journal.
C) After all postings from the general journal are complete, the debit balances in the general ledger will rarely equal the credit balances.
D) The number of accounts in the general journal will always be larger than the number of accounts in the general ledger.

Question 37

Information related to the Berkley Company for the calendar year 2014 follows:
Assuming no capital stock was issued during 2014, the net income earned by the Berkley Company during 2014 was

A) $110
B) $200
C) $260
D) $290

Question 38

Which of the following is true regarding the general journal?

A) It keeps up to date records of all customers and suppliers
B) It helps divide up accounting tasks
C) It helps prevent errors
D) It helps control the spending of the organization

Question 39

The accounting equations is

A) Assets = Liabilities - Shareholders' Equity
B) Assets + Liabilities = Shareholders' Equity
C) Assets-Liabilities = Shareholders' Equity
D) Assets + Shareholders' Equity = Liabilities

Question 40

Which of the following is not a major step necessary to complete the accounting cycle?

A) Prepare and post closing entries
B) Prepare the post adjusted trial balance
C) Prepare adjusting entries
D) Record the transactions, events, and arrangements

Question 41

Which of the following is an accrued expense?

A) depreciation
B) employees' salaries
C) interest revenue
D) rental expense paid three months in advance

Question 42

On May 1, 2013, Alang Corporation borrowed $3,600 on a two-year, 6% note payable. Interest is due and payable at the end of each six months. Alang makes all interest payments on schedule. The correct December 31, 2014, adjusting entry would be

A) Interest Expense 36
Interest Payable 36

B) Interest Payable 144
Cash 144

C) Interest Expense 18
Cash 18

D) Interest Expense 144
Interest Payable 144

Question 43

Posting is the procedure of transferring information from the

A) journal to the ledger
B) trial balance to the worksheet
C) ledger to the journal
D) worksheet to the financial statements

Question 44

A trial balance does not identify all types of errors, which of the following are errors are not identified using the trial balance?

A) incorrectly recorded transaction amount, but debits still equal credits
B) incorrectly posted to the wrong account
C) transaction was not recorded
D) All of these choices

Question 45

On March 31, 2014, the Turi Company purchased a two-year fire insurance policy. Turi recorded the purchase by debiting Prepaid Insurance and crediting Cash for $10,000. Which of the following adjusting entries should Trident prepare at the end of 2014?

A) Prepaid Insurance 3,750
Insurance Expense 3,750

B) Insurance Expense 3,750
Prepaid Insurance 3,750

C) Prepaid Insurance 5,500
Insurance Expense 5,500

D) Insurance Expense 5,000
Prepaid Insurance 5,000

Question 46

When cash is debited for rents that are collected but are not yet earned, the amount credited should be

A) recognized as revenue when collected
B) presented as a liability until earned
C) recorded as an asset until earned
D) presented as a separate item in stockholders' equity

Question 47

An example of a transposition is

A) presenting the cash account at $1,500 instead of $15,000
B) presenting prepaid insurance at $920 instead of $290
C) incorrectly posting a credit amount as a debit amount in the general ledger
D) not journalizing a sales transaction at all

Question 48

If the trial balance does not balance and the difference between debits and credits is evenly divisible by 9, there is a good chance that

A) a transaction has not been recorded
B) a transaction has been journalized to the wrong account
C) a transposition or slide has occurred
D) only one side of the transaction has been recorded

Question 49

On February 1, 2014, Apollo Company received $24,000 in advance for a three-year rental of land, and credited Rent Revenue. The correct December 31, 2014 adjusting entry would be

A) Unearned Rent 16,667
Rent Revenue 16,667

B) Rent Revenue 16,667
Unearned Rent 16,667

C) Unearned Rent 7,333
Rent Revenue 7,333

D) Rent Revenue 7,333
Unearned Rent 7,333

Question 50

Which of the following errors does a trial balance not identify?

A) Unposted transaction
B) transposition
C) slide
D) recording of a debit amount that differs from the credit amount recorded

Question 51

Which of the following is an economic resource that should be depreciated over the accounting periods estimated to be benefited?

A) salaries incurred but unpaid at year-end
B) rent collected in advance for a three-year rental period
C) equipment purchased for use in the business operations
D) interest revenue accrued on investment in bonds

Question 52

On April 1, 2014, Miller Company paid $6,280 for a two-year insurance policy. On that date, the company charged an asset account. The correct December 31, 2014, adjusting entry would be

A) Prepaid Insurance 3,140
Insurance Expense 3,140

B) Insurance Expense 2,355
Prepaid Insurance 2,355

C) Prepaid Insurance 2,355
Insurance Expense 2,355

D) Insurance Expense 3,925
Prepaid Insurance 3,925

Question 53

On August 1, 2013, Yellow Company paid $6,320 for a three-year insurance policy. On that date, an expense account was charged. In the adjusting entry on December 31, 2013, there would be a

A) debit to Insurance Expense for $175
B) credit to Prepaid Insurance for $2107
C) credit to Prepaid Insurance for $527
D) credit to Insurance Expense for $5,442

Question 54

On June 1, 2014, Little Corporation received $5,320 in advance for a two-year rental of some land and properly credited Unearned Rent. In the adjusting entry at December 31, 2014, there would be a

A) debit to Unearned Rent for $1108
B) credit to Rent Revenue for $1552
C) credit to Unearned Rent for $1552
D) debit to Unearned Rent for $5,320

Question 55

Adjusting journal entries are made

A) at the beginning of the accounting period
B) at the end of the accounting period
C) when revenue is realized (or realizable)
D) anytime we need to adjust an account

Question 56

A prepaid expense is

A) a payment received by the company in advance for the future sale of inventory or performance of services
B) an item of goods or services purchased by the company for use in its operations but not fully consumed by the end of the accounting period
C) an expense that has been incurred during the accounting period but has been neither paid nor recorded
D) an item that has been earned by the company during the accounting period but has been neither received nor recorded

Question 57

The Oliver Construction Company received $18,000 for six months rental income in advance on November 1, 2014, and credited the Rental Revenue account. The required adjusting entry on December 31, 2014, would include a

A) credit to Rental Revenue for $6,000
B) debit to Rental Revenue for $12,000
C) credit to Rental Receivable for $12,000
D) debit to Rental Revenue for $6,000

Question 58

An accrued expense is an expense

A) incurred but neither paid nor recorded
B) incurred, paid, and recorded
C) paid and recorded but not incurred
D) whose amount is subject to estimation

Question 59

Which of the following adjusting entries involves the recognition of an accrued expense?

A) recording depreciation on a long-lived asset
B) writing off the portion of an insurance policy that has expired
C) recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period
D) recognition of bad debt losses that are expected to result from making sales on credit terms

Question 60

Adjusting entries are made

A) to match the consumption of prepaid assets against current revenues
B) to record accrued expenses
C) to record estimated items, such as depreciation
D) for all of these reasons

Question 61

The accountant failed to make the adjusting entry to record the depreciation for the year. This error would cause

A) an overstatement of assets
B) an overstatement of expenses
C) an understatement of liabilities
D) an understatement of owners' equity

Question 62

Which of the following accounts would not be closed to Income Summary during the year-end closing process?

A) Loss on Sale of Land
B) Prepaid Rent
C) Freight-In
D) Sales Discounts

Question 63

Which of the following is not a type of adjusting entry?

A) depreciation of long-term physical assets
B) allocation of unearned revenue
C) correction of an error in the general journal
D) recording of accrued revenue

Question 64

The Samuel Company uses the straight-line method to depreciate its equipment. On May 1, 2014, the company purchased some equipment for $224,000. The equipment is estimated to have a useful life of ten years and a salvage value of $20,000. If depreciation is to be recorded for each month the equipment is owned, how much depreciation expense should Samuel record for the equipment in the adjusting entry on December 31, 2014?

A) $20,400
B) $18,500
C) $13,600
D) $ 8,500

Question 65

Operating expenses would include

A) cost of goods sold
B) material but nonextraordinary gains
C) selling expenses
D) dividend revenue

Question 66

The financial statements are the responsibility of the

A) auditors
B) management
C) independent certified accountants
D) Public Accounting Oversight Board

Question 67

The purpose of closing entries is to

A) update a periodic inventory account for credit sales
B) update the retained earnings account on a daily basis
C) apportion prepaid expenses and unearned revenues to bring the accounts up to date
D) reduce all temporary accounts to zero

Question 68

The accountant failed to make the adjusting entry to record the amount of interest owed on a note to the bank at the end of the year. This error would cause an overstatement of

A) assets
B) expenses
C) liabilities
D) owners' equity

Question 69

Where would the closing entries be found for a particular company?

A) financial statements
B) general journal
C) trial balance
D) journal entries

Question 70

An adjusting entry always affects

A) balance sheet accounts only
B) income statement accounts only
C) an income statement account and a balance sheet account
D) balance sheet accounts or income statement accounts only

Question 71

Accrued revenues

A) have been earned and collected, but not yet recorded
B) have been collected, but not yet earned or recorded
C) have been collected and recorded
D) have been earned, but not yet collected or recorded

Question 72

The accountant failed to make the adjusting entry to record the unpaid wages of its employees as of December 31. This error will cause

A) an overstatement of assets, liabilities, and owners' equity
B) an understatement of expenses, liabilities, and owners' equity
C) an understatement of liabilities and an overstatement of owners' equity
D) an understatement of assets and liabilities

Question 73

With closing entries, you would expect to find all of the following except

A) debit Unearned Rent; credit Income Summary
B) debit Sales Revenue; credit Income Summary
C) debit Retained Earnings; credit Dividends
D) debit Income Summary; credit Loss on Sale of Land

Question 74

On November 1, 2015, the Morrison Company purchased a two-year umbrella insurance policy for $3,600 and recorded the transaction by debiting Prepaid Insurance and crediting Cash. Which of the following adjusting entries would be used by Morrison to properly account for prepaid insurance on December 31, 2015?

A) Insurance Expense 300
Prepaid Insurance 300

B) Prepaid Insurance 3,600
Insurance Expense 3,600

C) Insurance Expense 300
Accumulated Amortization
-Insurance 300

D) Prepaid Insurance 1,800
Cash 1,800

Question 75

The balance in deferred (unearned) revenue accounts represents amounts that are

A) I
B) II
C) III
D) IV

Question 76

Rental receipts for the period July 1, 2013, through June 30, 2014, were collected on June 30, 2013. The effects of these economic events on the 2013 financial statements for unearned revenue and rent revenue are

A) I
B) II
C) III
D) IV

Question 77

Which of the following is a contra account?

A) Unearned Rental Revenue
B) Sales Discounts Taken
C) Bad Debts Expense
D) Depreciation Expense

Question 78

Prior to preparing the organization's financial statements, the accountant prepares

A) a balance sheet
B) a post-closing trial balance
C) an adjusted trial balance
D) a closed trial balance

Question 79

The Nathan's Company rents numerous properties throughout the year. Nathan pays rents in advance in some cases, and in others, rents are paid after the rental period expires. The following data are included in Nathan's December 31 balance sheets:
During 2015, Nathan paid $200,000 in rentals. In its accrual basis income statement for the year ended December 31, 2015, Victor should report rent expense of

A) $145,000
B) $175,000
C) $200,000
D) $225,000

Question 80

Which of the following statements regarding a post-closing trial balance is false?

A) Post-closing trial balances only contain permanent accounts.
B) Balances in a post-closing trial balance cannot be used to calculate current income.
C) Post-closing trial balances only contain temporary accounts.
D) A post-closing trial balance verifies that the total of the debit balances equals the total of the credit balances of all permanent accounts in the general ledger.