Deck 2: Understanding the Accounting Cycle

Question 1

The following selected account balances were drawn from the 2012 balance sheet and income statement of Fultz Company: Based on the above information,what is the balance of Common Stock for Fultz Company?

A) $750
B) $1,550
C) $1,050
D) $2,050

Answer 1

C

Question 2

On May 1,2012,Perez Company paid $12,000 rent for a one year lease on equipment it uses in its operations.The adjusting entry at the end of the year

A) decreases assets and stockholders' equity.
B) decreases assets and liabilities.
C) increases an expense and decreases a liability.
D) is not required.

Answer 2

A

Question 3

Bloomfield Company issued stock for $30,000 cash on January 20,2012.During 2012,the company recorded revenue on account of $12,000 and expenses on account of $5,500.Bloomfield received $8,200 cash from accounts receivable and paid $4,500 on the accounts payable.The company also purchased land for $5,000 cash.The beginning cash balance was zero.Based on this information,the amount of cash at the end of the year is:

A) $31,500
B) $22,974
C) $29,100
D) $28,700

Answer 3

D

Question 4

At the end of the accounting period,Sefcik Company made an adjusting entry for supplies consumed.Which of the following choices reflects how this event would affect the company's financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 5

If a company purchases supplies on account,this transaction would cause

A) total assets to decrease.
B) liabilities to increase.
C) equity to decrease.
D) Retained Earnings to increase.

Question 6

Sefcik Company purchased supplies on account.Which of the following choices accurately reflects how this event would affect the company's financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 7

Which of the following transactions involves a deferral?

A) recording the prepayment of three months' rent
B) recording the interest earned (but not received)on a certificate of deposit
C) recording interest accrued on a note payable
D) recording salaries of employees earned but not yet paid

Question 8

Which of the following does not involve a deferral?

A) receipt of advance fees from clients
B) recording salaries of employees earned but not yet paid
C) payment of six months' rent
D) purchase of supplies on account

Question 9

Jaycox Company received $1,000 cash from the issue of stock on January 1,2012.During 2012 the Jaycox Company earned $3,500 of revenue on account.The company collected $2,400 cash from accounts receivable and paid $3,000 cash for operating expenses.Based on this information alone:

A) total assets increased by $1,500.
B) total assets decreased by $3,500.
C) total assets increased by $2,400.
D) total assets did not change.

Question 10

Recording accrued salary expense at the end of an accounting period causes an increase in Salaries Expense and

A) an increase in a liability.
B) a decrease in an asset.
C) an increase in an equity account.
D) none of these.

Question 11

Osborn Company provided services to a customer on account.Which of the following represents the effect of this transaction on the financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 12

ABC Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on ABC's financial statements?

A) earned revenue on account
B) purchased equipment on account
C) provided services to customers for cash
D) recognized accrued salaries owed to employees

Question 13

Nikonowicz Enterprises experienced the following events during 2012,its first year in operation: The business acquired $10,000 cash by issuing common stock to investors.
The business purchased land for $6,000 cash.
Services were provided to customers for $8,000 cash.
Services were provided to customers for $3,000 on account.
Operating expenses of $5,000 were incurred and paid in cash.
Operating expenses of $2,000 were incurred on account.
A dividend of $1,000 was paid to the owners of Nikonowicz Enterprises.
Based on this information,the amount of retained earnings as of December 31,2012,was

A) $1,000.
B) $3,000.
C) $5,000.
D) $11,000.

Question 14

Stahl Company paid $7,800 on May 1,2012 for insurance coverage for a one year period beginning that date.The adjusting entry required to recognize insurance expense on December 31,2012 would have what effect on the financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 15

The Redding Company recorded salaries earned by employees but not yet paid.Which of the following represents the effect of this transaction on the financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 16

The adjustment to record the completion of services for which clients had paid in advance would involve which of the following?

A) a decrease in assets and an increase in equity
B) a decrease in liabilities and an increase in equity
C) an increase in assets and a decrease in liabilities
D) an increase in liabilities and a decrease in equity

Question 17

Which of the following transactions does not involve an accrual?

A) recording revenue that has been earned but not yet received
B) recording interest expense incurred but not yet paid
C) recording salary expense incurred but not yet paid
D) recording the pre-payment of two year's worth of insurance

Question 18

Which of the following events involves an accrual?

A) a cash payment received from a customer before services are provided
B) supplies purchased with cash but not yet used
C) interest earned but not received
D) A and C

Question 19

The term "realization" refers to which of the following?

A) the closing of an account
B) the collection of cash from sale of goods or services
C) the earning of revenue
D) the correction of an error

Question 20

The entry to recognize salary expense incurred but not yet paid involves which of the following?

A) an increase in liabilities
B) an increase in assets
C) a decrease in assets
D) an increase in equity

Question 21

Recognition of revenue may result in which of the following?

A) a decrease in assets.
B) an increase in assets.
C) an increase in liabilities.
D) a decrease in expenses.

Question 22

The following accounts and balances were drawn from the records of Schultz Company: Based on this information,the amount of retained earnings was:

A) $9,500
B) $18,500
C) $15,500
D) $22,500

Question 23

Which of the following accounts would not appear on a balance sheet?

A) Equipment
B) Interest Payable
C) Interest Revenue
D) Retained Earnings

Question 24

Which of the following accounts is a permanent account (an account that is not closed)?

A) Rent Expense
B) Service Revenue
C) Dividends
D) Prepaid Insurance

Question 25

The matching concept refers to the "matching" of:

A) expenses and liabilities
B) expenses and revenues
C) assets and equity
D) assets and liabilities

Question 26

Which of the following would be included in the "cash flows from financing activities" section of the statement of cash flows?

A) Collected cash from accounts receivable.
B) Loaned cash to another company.
C) Paid cash dividend to stockholders.
D) Purchased insurance.

Question 27

The purpose of the accrual basis of accounting is to:

A) report revenue when received.
B) improve the matching of revenue and expense in the proper period.
C) report expenses when cash disbursements are made.
D) improve the company's earnings per share.

Question 28

Grace's net income was:

A) $200.
B) $350.
C) $3,050.
D) $2,900.

Question 29

Total assets on the December 31,2012 balance sheet amounted to

A) $2,650.
B) $3,450.
C) $1,800.
D) $3,150.

Question 30

Grace's cash flow from operating activities was:

A) $200.
B) $300.
C) $350.
D) $2,900.

Question 31

Which of the following would be included in the "cash flows from investing activities" section of the statement of cash flows?

A) Borrowed $10,000 from a local bank.
B) Paid $1,000 of expenses with cash.
C) Sold land for cash.
D) Issued common stock for cash.

Question 32

Expenses that are matched with the period in which they are incurred are frequently called:

A) period costs.
B) matched expenses.
C) market expenses.
D) working costs.

Question 33

What was Nez's cash flow from operating activities for 2012?

A) $3,600
B) $1,500
C) $4,500
D) $600

Question 34

Which of the following accounts is a temporary account?

A) Prepaid Insurance
B) Unearned Subscriptions Revenue
C) Retained Earnings
D) Subscription Revenue

Question 35

What was the amount of Nez's net income for 2012?

A) $1,500
B) $600
C) $4,500
D) $3,600

Question 36

Which of the following lists represents the correct sequence of stages in an accounting cycle?

A) record transactions,prepare statements,adjust accounts,close temporary accounts
B) prepare statements,close temporary accounts,record transactions,adjust accounts
C) close temporary accounts,record transactions,prepare statements,adjust accounts
D) record transactions,adjust accounts,prepare statements,close temporary accounts

Question 37

Which of the following accounts would not be closed at the end of an accounting cycle?

A) Common Stock
B) Revenue
C) Dividends
D) Salaries Expense

Question 38

The result of the matching process is reported on which financial statement?

A) Balance Sheet
B) Income Statement
C) Statement of Changes in Stockholders' Equity
D) Statement of Cash Flows

Question 39

Which of the following financial statement elements is closed at the end of an accounting cycle?

A) Liabilities
B) Equity
C) Revenues
D) Assets

Question 40

The amount of net income shown on the December 31,2012 income statement would amount to:

A) $550.
B) $800.
C) $50.
D) $250.

Question 41

Which of the following transactions is a claims exchange transaction?

A) Paid cash to retire notes payable.
B) Issued common stock for cash.
C) Purchased office equipment for cash.
D) Made adjusting entry to recognize the portion of unearned revenue that has been earned.

Question 42

A transaction that decreases cash and decreases notes payable is a/an

A) claims exchange transaction.
B) asset source transaction.
C) asset use transaction.
D) asset exchange transaction.

Question 43

Which of the following would cause net income on the accrual basis to be different than (either higher or lower than)cash provided by operating activities on the statement of cash flows?

A) acquiring $10,000 cash from the owners
B) incurring operating expenses on account
C) providing services to a customer for cash
D) purchasing land for cash

Question 44

The conservatism principle

A) is primarily concerned with correctly valuing a business's assets.
B) matches assets and liabilities.
C) requires accountants to choose the accounting treatment that minimizes net income.
D) is concerned with matching expenses with revenues.

Question 45

The amount of cash flow from operating activities would be:

A) $1,900.
B) $8,400.
C) $3,100.
D) $5,400.

Question 46

Which of the following is an example of a claims exchange transaction?

A) An asset decreases and an equity account decreases.
B) An asset increases and another asset decreases.
C) A liability increases and an equity account decreases.
D) A liability increases and an equity account also increases.

Question 47

The amounts of revenue that would appear on the 2012 and 2013 income statements would be:

A) $16,000/$16,000.
B) $48,000/$-0-.
C) $5,333/$16,000.
D) $5,833/$29,187.

Question 48

The amount of total liabilities appearing on the December 31,2012 balance sheet would be:

A) $3,600.
B) $4,000.
C) $475.
D) $700.

Question 49

The adjusting entry necessary to record the supplies expense would result in a:

A) $700 increase in assets and liabilities.
B) $700 decrease in assets and equity.
C) $475 decrease in assets and equity.
D) $475 increase in assets and liabilities.

Question 50

Harrison and Sons is a law firm.On September 1,2012,Harrison contracted to provide 12 months of legal services to a client.On that date,Harrison collected a $36,000 retainer and began providing services.How much revenue would Harrison report from that client for the year ending December 31,2012?

A) $36,000
B) $12,000
C) $9,000
D) $15,000

Question 51

The amounts of cash flow that would be on the 2012 and 2013 statements of cash flows would be:

A) $16,000/$16,000.
B) $-0-/$48,000.
C) $11,667/$11,667.
D) $48,000/$-0-

Question 52

Which of the following could describe the effects of a claims exchange transaction on a company's financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 53

The recognition of an expense may be accompanied by which of the following?

A) an increase in assets
B) a decrease in liabilities
C) a decrease in revenue
D) an increase in liabilities

Question 54

Recognition of revenue may result in which of the following?

A) a decrease in a liability
B) an increase in a liability
C) an increase in assets
D) A and C

Question 55

The amount of insurance expense reported on the income statement for 2012 would be:

A) $900.
B) $2,400.
C) $300.
D) $600.

Question 56

A transaction that increases cash and increases notes payable is a/an

A) claims exchange transaction.
B) asset source transaction.
C) asset use transaction.
D) asset exchange transaction.

Question 57

The term "recognition" means to report an economic event in the financial statements.

Question 58

Which of the following is an asset source transaction?

A) Purchased machine by issuing a note payable
B) Paid a cash dividend to stockholders
C) Purchased equipment for cash
D) Collected cash from an account receivable

Question 59

Which of the following is an asset exchange transaction?

A) Borrowed cash from a local bank.
B) Incurred expenses on account.
C) Recognized accrued salaries expense.
D) Paid cash to purchase land.

Question 60

Jones Company started the accounting period with $500 in supplies.During the period the company purchased $1,100 of supplies on account.At the end of the accounting period there were $700 of supplies on hand.Based on this information,the amount of supplies expense appearing on the end-of-period income statement would be

A) $1,600.
B) $1,100.
C) $900.
D) $400.

Question 61

Revenue is the economic benefit derived from operating a business.

Question 62

Revenues and liabilities are temporary accounts that are closed at the end of the accounting period.

Question 63

An accrual may involve an adjusting entry between an expense and a liability.

Question 64

After closing,the only accounts with non-zero balances are assets,liabilities,and equity.

Question 65

Immediately after closing,every temporary account has a balance of $0.

Question 66

An adjusting entry that decreases Unearned Service Revenue and increases Service Revenue is a claims exchange transaction.

Question 67

Providing services to customers on account is an asset source transaction.

Question 68

Accounts that are closed include expenses,dividends,and unearned revenues.

Question 69

Two of the steps in the accounting cycle are adjusting the accounts and closing the accounts.

Question 70

Adjusting entries do not affect a business's Cash account.

Question 71

Significant interrelationships exist among a company's four financial statements for a given accounting period.

Question 72

The matching concept leads accountants to select the recognition alternative that produces the lowest amount of net income.

Question 73

An adjusting entry to accrue salary expense is a claims exchange transaction.

Question 74

The collection of an account receivable is a claims exchange transaction.

Question 75

In the closing process,the amounts in temporary accounts are moved to Retained Earnings,a permanent account.

Question 76

The term "accrual" describes an earnings event that is recognized before cash is paid or received.

Question 77

Companies that use accrual accounting recognize revenues and expenses at the time that cash is paid or received.

Question 78

Assets are listed on the balance sheet in order of amount.

Question 79

Businesses often recognize a revenue or expense,even though the corresponding cash collection or payment did not occur in the same accounting period.

Question 80

Cash-basis accounting often fails to match expenses with revenues.