Deck 2: Review of the Accounting Process

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Adjusting journal entries are required to comply with the realization and matching principles.

Question 5

The adjusted trial balance contains only permanent accounts.

Question 6

The post-closing trial balance contains only permanent accounts.

Question 7

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

Question 8

Owners' equity can be expressed as assets minus liabilities.

Question 9

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

Question 10

Debits increase asset accounts and decrease liability accounts.

Question 11

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

Question 12

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

Question 13

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 14

Examples of external transactions include all of the following except:

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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.

Question 19

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

Question 20

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 wages.
D)Paying wages to company employees.

Question 21

Adjusting entries are primarily needed for:

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

Question 22

The adjusting entry required when amounts previously recorded as unearned revenues are earned 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 23

Recording revenue earned, but not yet collected, from a customer is an example of:

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

Question 24

An example of a contra account is:

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

Question 25

Which of the following accounts has a debit balance?

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

Question 26

On December 31, 2009, Coolwear, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables were written off during the year. At the end of 2009, Coolwear estimated that $2,100 in receivables would not be collected. Bad debt expense for 2009 would be:

A)$ 0.
B)$46,300.
C)$ 1,050.
D)$ 2,100.

Question 27

A sale on account would be recorded by:

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

Question 28

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 29

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.Supplies purchases: $400,000 + 2,000,000 600,000 = $1,800,000

Question 30

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 does none of these.

Question 31

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 32

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 33

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 34

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 35

Which of the following accounts has a credit balance?

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

Question 36

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 37

Making insurance payments in advance is an example of:

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

Question 38

When an employer 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 39

When a magazine sells subscriptions to customers, it is an example of:

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

Question 40

On December 31, 2009, 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 2009 balance sheet will be valued at:

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

Question 41

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 42

On November 1, 2009, 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 should be the balance of interest payable for the loan as of December 31, 2009?

A)$ 112,500.
B)$ 225,000.
C)$ 450,000.
D)$1,350,000.Accrued interest payable = $30,000,000 9% 2/12 = $450,000

Question 43

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 would be 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.Income tax expense = $400,000 40% = $160,000

Question 44

A future economic benefit owned or controlled by an entity is:

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

Question 45

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 46

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 the net income.
B)An adjustment for bad debts increases the net income.
C)A reduction in prepaid expenses decreases net income.
D)An increase in accrued payables decreases net income.

Question 47

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

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

Question 48

The Hamada Company sales for 2009 totaled $150,000 and purchases totaled $95,000. Selected January 1, 2009, balances were: accounts receivable, $18,000; inventory, $14,000; and accounts payable, $12,000. December 31, 2009, 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.Net cash flows = $152,000 $94,000 = $58,000

Question 49

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 purchased during the year?

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

Question 50

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 51

Cost of goods sold is:

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

Question 52

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 53

Molly's Auto Detailers maintains its records on the cash basis. During 2009, 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 would be:

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

Question 54

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 55

Permanent accounts would not include:

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

Question 56

Permanent accounts would not include:

A)Interest expense.
B)Wages payable.
C)Prepaid rent.
D)Unearned revenues.

Question 57

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 58

Eve's Apples opened business on January 1, 2009, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's prepaid insurance as of December 31, 2009?

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

Question 59

Temporary accounts would not include:

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

Question 60

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 would be:

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

Question 61

-Capital stock

Question 62

-Sold inventory on account.

Question 63

-Short-term notes payable

Question 64

-Cost of goods sold

Question 65

Sold merchandise to a customer in exchange for a promissory note.

Question 66

-Accounts receivable

Question 67

-Supplies expense

Question 68

-Retained earnings

Question 69

-Property taxes payable

Question 70

Allowance for uncollectible accounts

Question 71

Purchased building and equipment for $10,000,000, paying 20% cash and issuing a 30-year note for the balance.

Question 72

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 73

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 74

-Interest revenue

Question 75

-Buildings and equipment (B&E)

Question 76

-Unearned revenues

Question 77

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 cash paid by Castle for insurance premiums during the year?

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

Question 78

Purchased inventory on account.

Question 79

-Inventory

Question 80

Invested idle cash in short-term money market funds.