Deck 3: The Accounting Information System

Question 1

Some events are not recorded in the accounting information system because

A)the amounts are not material.
B)the service has not been provided yet although the cash has been received.
C)the problems measuring them are too complex.
D)all of these.

Answer 1

C

Question 2

Which of the following criteria must be met before an event or item should be recorded for accounting purposes?

A)The event or item can be measured objectively in financial terms.
B)The event or item is relevant and reliable.
C)The event or item is an element.
D)All of these must be met.

Answer 2

D

Question 3

The income summary account

A)is used only at year-end.
B)is used to record dividends.
C)is used to bring temporary accounts to zero.
D)is best described by (a) and (c).

Answer 3

D

Question 4

An example of a transaction is

A)the receipt of cash from a customer prior to performing the service.
B)the recording of depreciation.
C)the accrual of salaries owed.
D)all of these.

Question 5

Why are certain costs of doing business capitalized when incurred and then amortized over subsequent accounting cycles?

A)To reduce the income tax liability
B)To aid management in cash-flow analysis
C)To match the costs of production with revenues as earned
D)To adhere to the accounting constraint of conservatism

Question 6

A trial balance

A)is a list of accounts at a specific point in time.
B)can be used for the preparation of financial statements.
C)is best described by (a.) and (b.)
D)is none of the above.

Question 7

A trial balance may prove that debits and credits are equal, but

A)an amount could be entered in the wrong account.
B)a transaction could have been entered twice.
C)a transaction could have been omitted.
D)all of these.

Question 8

An accrued expense can best be described as an amount

A)paid and currently matched with earnings.
B)paid and not currently matched with earnings.
C)not paid and not currently matched with earnings.
D)not paid and currently matched with earnings.

Question 9

Which of the following must be considered in estimating depreciation on an asset for an accounting period?

A)The original cost of the asset
B)Its useful life
C)The decline of its fair market value
D)Both the original cost of the asset and its useful life.

Question 10

If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

A)a liability account and an asset account.
B)an asset or contra-asset and an expense account.
C)a liability account and an expense account.
D)a receivable account and a revenue account.

Question 11

A cheque that is issued would most likely be recorded directly in that company's:

A)expense journal.
B)cash disbursements journal.
C)cash receipts journal.
D)none of the above.

Question 12

Adjusting entries are necessary to

A)obtain a proper matching of revenue and expense.
B)achieve an accurate statement of assets and equities.
C)adjust assets and liabilities to their fair market value.
D)both a and b

Question 13

Factors that shape an accounting information system include the

A)nature of the business.
B)size of the firm.
C)volume of data to be handled.
D)all of these.

Question 14

Consider a cheque received in payment for revenues that have not yet been earned. Assuming that company uses the cash-basis of accounting, how would that payment be recorded?

A)it would be recorded as unearned revenue until it is actually earned.
B)the entire amount would be recognized as revenue in the current period.
C)it would be recorded as a prepaid expense.
D)none of the above.

Question 15

Which of the following statements best describes the frequency of when financial statements are issued?

A)financial statements should only be issued at the end of the year.
B)financial statements should only be issued quarterly.
C)financial can be issued anytime during the year.
D)none of the above.

Question 16

The debit and credit analysis of a transaction normally takes place

A)before an entry is recorded in a journal.
B)when the entry is posted to the ledger.
C)when the trial balance is prepared.
D)at some other point in the accounting cycle.

Question 17

A post-closing trial balance.

A)includes temporary accounts only.
B)includes permanent accounts only.
C)includes both temporary and permanent accounts.
D)may include expenses.

Question 18

An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the

A)ledger.
B)account.
C)trial balance.
D)none of these.

Question 19

Which of the following best describes adjustments:

A)adjustments ensure proper matching.
B)they are used to record external events.
C)(a) and (d).
D)they are usually prepared at the end of the accounting period.

Question 20

A payment that is received would most likely be recorded directly in that company's:

A)general ledger.
B)cash disbursements journal.
C)cash receipts journal.
D)trial balance.

Question 21

Penny Resources determines that it has not yet recorded the accrual for 2010 interest revenue to be received in 2011.Assuming the amount to be recorded for 2010 is $8,000, the required adjustment on December 31, 2010 is

A)debit interest receivable and credit interest revenue $8,000.
B)debit interest revenue and credit interest receivable $8,000.
C)debit interest payable and credit interest revenue $8,000.
D)no entry required.

Question 22

Which of the following is a real (permanent) account?

A)Goodwill
B)Sales
C)Accounts Receivable
D)Both Goodwill and Accounts Receivable

Question 23

Breg Company's account balances at December 31, 2010 for Accounts Receivable and the Allowance for Doubtful Accounts are $860,000 debit and $1,200 credit.Sales during 2010 were $3,000,000.It is estimated that 2 percent of sales will be uncollectible.The adjusting entry would include a credit to the allowance account for

A)$17,176
B)$60,000.
C)$17,200.
D)$18,000.

Question 24

Blue Company's account balances at December 31, 2010 for Accounts Receivable and the related Allowance for Doubtful Accounts are $284,000 debit and $1,000 credit, respectively.From an aging of accounts receivable, it is estimated that $10,000 of the December 31 receivables will be uncollectible.The necessary adjusting entry would include a credit to the allowance account for

A)$8,500.
B)$10,000.
C)$9,000.
D)$1,000.

Question 25

Use the following information for questions
The income statement of Carsen Corporation for 2010 included the following items:

The cash paid for insurance premiums during 2010 was

A)$8,500.
B)$8,100.
C)$10,000.
D)$9,200.

Question 26

An accrued revenue can best be described as an amount

A)collected and currently matched with expenses.
B)collected and not currently matched with expenses.
C)not collected and currently matched with expenses.
D)not collected and not currently matched with expenses.

Question 27

Which of the following items should be journalized?

A)a letter advising an employee of a pay raise.
B)a customer's pending bankruptcy (assuming an adequate allowance for doubtful accounts has already been set up).
C)a customer's pending bankruptcy (assuming an adequate allowance for doubtful accounts has not already been set up).
D)(a) and (b).

Question 28

Use the following information for questions
The income statement of Carsen Corporation for 2010 included the following items:

The cash received for interest during 2010 was

A)$66,400.
B)$73,900.
C)$75,500.
D)$77,100.

Question 29

Below are several statements about the trial balance.Which of these statements is not correct?

A)debits and credits must balance.
B)the equality of credits and debits ensures that no errors were made.
C)the post-closing trial balance includes temporary accounts only.
D)(b) and (c).

Question 30

Adjusting entries that should be reversed include those for prepaid or unearned items that

A)create an asset or a liability account.
B)were originally entered in a revenue or expense account.
C)were originally entered in an asset or liability account.
D)create an asset or a liability account and were originally entered in a revenue or

Question 31

Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?

A)Expiration of prepaid insurance
B)Depreciation of long-lived assets
C)Accrued wages payable
D)All of these

Question 32

Jackson Company made the annual lease payment of $9,000 for its fleet of delivery trucks.The payment was made on September 1, 2010 and covered the period September 1, 2010 to August 31, 2011.Assuming the entire amount had originally been charged to
Lease expense, the required adjustment on December 31, 2010 is

A)debit lease expense and credit prepaid lease $6,000.
B)debit prepaid lease and credit lease expense $6,000.
C)debit prepaid lease and credit lease expense $9,000.
D)debit lease expense and credit prepaid lease $9,000.

Question 33

Perez Corporation received cash of $12,000 on August 1, 2010 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue.The December 31, 2010 adjusting entry is

A)debit Rent Revenue and credit Unearned Rent, $5,000.
B)debit Rent Revenue and credit Unearned Rent, $7,000.
C)debit Unearned Rent and credit Rent Revenue, $5,000.
D)debit Cash and credit Unearned Rent, $7,000.

Question 34

A prepaid expense can best be described as an amount

A)paid and currently matched with revenues.
B)paid and not currently matched with revenues.
C)not paid and currently matched with revenues.
D)not paid and not currently matched with revenues.

Question 35

Use the following information for questions
The income statement of Carsen Corporation for 2010 included the following items:

The cash paid for salaries during 2010 was

A)$69,700.
B)$60,300.
C)$60,800.
D)$73,900.

Question 36

If the inventory account at the end of the year is understated, the effect will be to

A)overstate the gross profit on sales.
B)understate the net purchases.
C)overstate the cost of goods sold.
D)overstate the goods available for sale.

Question 37

An unearned revenue can best be described as an amount

A)collected and currently matched with expenses.
B)collected and not currently matched with expenses.
C)not collected and currently matched with expenses.
D)not collected and not currently matched with expenses.

Question 38

Adjusting entries that should be reversed include

A)all accrued revenues.
B)all accrued expenses.
C)those that debit an asset or credit a liability.
D)all of these.

Question 39

Which of the following is a nominal (temporary) account?

A)Unearned Revenue
B)Salary Expense
C)Inventory
D)Retained Earnings

Question 40

Scott Company purchased equipment on November 1, 2010 and gave a 3-month, 9 percent note with a face value of $50,000.The December 31, 2010 adjusting entry is

A)debit Interest Expense and credit Interest Payable, $4,500.
B)debit Interest Expense and credit Interest Payable, $3,750.
C)debit Interest Expense and credit Cash, $750.
D)debit Interest Expense and credit Interest Payable, $750.

Question 41

Cole Co.pays all salaried employees on a biweekly basis.Overtime pay, however, is paid in the next biweekly period.Cole accrues salaries expense only at its December 31 year end.Data relating to salaries earned in December 2010 are as follows: Last payroll was paid on Dec/26/2010, for the two-week period ended Dec/26/2010.Overtime pay earned in the two-week period ended Dec/26/2010 was $5,000.
Remaining work days in 2010 were December 29, 30, 31, on which days there was no overtime.
The recurring biweekly salaries total $80,000.Assuming a five-day work week, Cole should record a liability at December 31, 2010 for accrued salaries of

A)$24,000.
B)$29,000.
C)$48,000.
D)$53,000.

Question 42

Perry Corporation loaned $78,000 to another corporation on December 1, 2010 and received a three-month, 9 percent interest-bearing note with a face value of $78,000.What adjusting entry should Rice make on December 31, 2010?

A)Debit Interest Receivable and credit Interest Revenue, $900.
B)Debit Cash and credit Interest Revenue, $585.
C)Debit Interest Receivable and credit Interest Revenue, $585.
D)Debit Cash and credit Interest Receivable, $1,755.

Question 43

Denny Co.sells major household appliance service contracts for cash.The service contracts are for a one-year, two-year, or three-year period.Cash receipts from contracts are credited to Unearned Service Revenues.This account had a balance of $1,100,000 at December 31, 2010 before year-end adjustment.Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $325,000 at December 31, 2010. What amount should be reported as Unearned Service Revenues in Denny's December 31, 2010 balance sheet?

A)$775,000.
B)$530,000.
C)$250,000.
D)$325,000.

Question 44

At December 31, 2010, Patula Corporation has not yet received its December invoice for utilities.On December 31, 2010 it accrues an estimate of $10,000.On January 15, 2011 Patula receives the invoice in the amount of $11,000.Assuming the accrual had already been reversed, the entry on January 15, 2011 is

A)debit utilities expense and credit cash $11,000.
B)debit cash and credit utilities expense $11,000.
C)debit utilities expense and credit cash $1,000.
D)debit cash and credit utilities expense $1,000.

Question 45

Fischer Consulting paid $18,000 on December 1, 2010 for a three-year insurance policy (December 1, 2010 to November 30, 2013) and recorded the entire amount as prepaid insurance.The December 31, 2010 adjustment should be recorded as follows:

A)debit prepaid insurance and credit insurance expense $500.
B)debit insurance expense and credit prepaid insurance $500.
C)debit insurance expense and credit prepaid insurance $17,500.
D)debit prepaid insurance and credit insurance expense $17,500.

Question 46

Use the following information for questions

The insurance expense on the income statement for 2010 was

A)$9,700.
B)$12,100.
C)$12,700.
D)$15,100.

Question 47

On June 1, 2010, Mays Corp.loaned Farr $500,000 on a 12% note, payable in five annual instalments of $100,000 beginning January 2, 2011.In connection with this loan, Farr was required to deposit $6,000 in a non-interest-bearing escrow account.The amount held in escrow is to be returned to Farr after all principal and interest payments have been made.Interest on the note is payable on the first day of each month beginning July 1, 2010.Farr made timely payments through November 1, 2010.On January 2, 2011, Mays received payment of the first principal instalment plus all interest due.At December 31, 2010, Mays' interest receivable on the loan to Farr should be

A)$0.
B)$5,000.
C)$10,000.
D)$15,000.

Question 48

Use the following information for questions

The salary expense on the income statement for 2010 was

A)$102,300.
B)$123,500.
C)$126,900.
D)$148,100.

Question 49

Digger Oil & Gas has received its invoice in the amount of $85,000 for property taxes for the year 2010.The invoice was received and paid in June 2010 and the entire amount was debited to property tax expense.Assuming Digger does NOT prepare interim financial statements, the required adjustment on December 31, 2010 is

A)debit property tax expense and credit prepaid property tax $49,583.
B)debit prepaid property tax and credit property tax expense $49,583.
C)debit property tax expense and credit prepaid property tax $35,417.
D)no entry required.

Question 50

Moreno Inc.reviews its December 31, 2010 unadjusted trial balance and determines that a sale in the amount of $15,000 had been incorrectly recorded as a debit to sales and a credit to receivables.The adjusting entry at December 31, 2010 is:

A)debit receivables and credit sales $30,000.
B)credit receivables and debit sales $30,000.
C)debit receivables and credit sales $15,000.
D)credit receivables and debit sales $15,000.

Question 51

Meswell Corp.'s trademark was licensed to McCall Co.for royalties of 12 percent of sales of the trademarked items.Royalties are payable semi-annually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year.Meswell received the following royalties from McCall: McCall estimated that sales of the trademarked items would total $75,000 for July through December 2010.In Meswell's 2010 income statement, the royalty revenue should be

A)$18,000.
B)$16,000.
C)$9,000.
D)$20,000.

Question 52

On December 10, 2010 Copeta Inc.received a cheque in the amount of $50,000 from a customer for services that Copeta had yet to perform.By December 31, 2010 it had earned $20,000 of that amount.Assuming the appropriate year end adjustments were made, the 2010 balance in Copeta's unearned revenue account will be

A)$30,000.
B)$20,000.
C)$50,000.
D)Zero.

Question 53

On September 1, 2009 Calmex Corp.issued a note payable to National Bank in the amount of $900,000, bearing interest at 8 percent, and payable in three equal annual principal payments of $300,000.On this date, the bank's prime rate was 7 percent.The first payment for interest and principal was made on September 1, 2010.At December 31, 2010, Calmex should record accrued interest payable of

A)$24,000.
B)$21,000.
C)$16,000.
D)$14,000.

Question 54

Use the following information for questions

The interest revenue on the income statement for 2010 was

A)$19,300.
B)$25,100.
C)$26,700.
D)$32,500.