Test 1 Review Fall 2012

Student: ___________________________________________________________________________

1. Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash? 
A. Acme washes 500 cars
B. J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed
C. Clean Company, a supplier, sells 50 pounds of soap to ABC Company
D. Sudsey Company, a supplier, goes out of business
E. Acme hires Andrea as a receptionist


2. Internal users of accounting information include: 
A. Shareholders
B. Customers
C. Creditors
D. Government regulators
E. Line Supervisor


3. Which accounting assumption assumes that all accounting information is reported monthly or yearly? 
A. Business entity assumption
B. Monetary unit assumption
C. Value assumption
D. Cost assumption
E. Time period assumption


4. Which of the following accounting principles dictates when expenses are recognized? 
A. Revenue recognition principle
B. Monetary unit principle
C. Business entity principle
D. Matching principle
E. Full disclosure principle


5. Which of the following elements are found on the income statement? 
A. Cash
B. Accounts Receivable
C. Common Stock
D. Retained Earnings
E. Salaries Expense


6. An Asset is: 
A. only acquired with cash
B. something the company owns
C. only contributed by stockholders
D. a company's obligation to pay
E. is also called contributed capital


7. Which of the following elements are found on the Balance Sheet? 
A. Service Revenue
B. Net Income
C. Operating Activities
D. Utilities Expense
E. Retained Earnings


8. Generally Accepted Accounting Principles: 
A. Focus on the review of a situation
B. Does not require financial statements
 Never change

D. Intend to make information on the financial statements relevant, reliable and comparable
E. Oversees Security and Exchange Commission


9. The private board that currently has the authority to establish U.S. generally accepted accounting principles is the: 


10. The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue is the: 
A. Going-concern principle
B. Business entity principle
C. Objectivity principle
D. Cost Principle
E. Monetary unit principle


11. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser's books at: 
A. $95,000
B. $137,000
C. $138,500
D. $140,000
E. $150,000


12. To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the: 
A. Objectivity principle
B. Realization principle
C. Business entity principle
D. Going-concern principle
E. Revenue recognition principle


13. The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash-equivalent given in exchange is the: 
A. Accounting equation
B. Cost principle
C. Going-concern principle
D. Realization principle
E. Business entity principle


14. Recording the items on the financial statements in dollars is: 
A. Objectivity principle
B. Monetary unit principle
C. Revenue recognition principle
D. Going-concern principle
E. Cost principle


15. The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the: 
A. Revenue recognition principle
B. Going-concern principle
C. Objectivity principle
D. Business entity principle
E. Cost principle


16. On December 15, 2008, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2009. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2009 and not 2008? 
A. Monetary unit principle
B. Going-concern principle
C. Cost principle
D. Business entity principle
E. Revenue recognition principle


17. Net Income: 
A. Decreases equity
B. Represents the amount of assets owners put into a business
C. Equals assets minus liabilities
D. Is the excess of revenues over expenses
E. Represents the owners' claims against assets


18. If equity is $300,000 and liabilities are $192,000, then assets equal: 
A. $108,000
B. $192,000
C. $300,000
D. $492,000
E. $792,000


19. The difference between a company's assets and its liabilities or its net assets is: 
A. Net income
B. Expense
C. Equity
D. Revenue
E. Net loss


20. The description of the relation between a company's assets, liabilities and equity, which is expressed as Assets = Liabilities + Equity are known as the: 
A. Income statement equation
B. Accounting equation
C. Business equation
D. Return on equity ratio
E. Net income


21. If assets are $99,000 and liabilities are $32,000, then equity equals: 
A. $32,000
B. $67,000
C. $99,000
D. $131,000
E. $198,000


22. If assets are $365,000 and equity is $120,000, then liabilities are: 
A. $120,000
B. $245,000
C. $365,000
D. $485,000
E. $610,000


23. Which of the following list of events properly reflects the early steps taken in the accounting process? 
A. Record relevant transactions, Post journal information to ledger accounts Analyze each transaction, Prepare and analyze the trial balance
B. Post journal information to ledger accounts, Analyze each transaction, Post journal information to ledger accounts, Prepare and analyze the trial balance
C. Prepare and analyze the trial balance, Analyze each transaction, Post journal information to ledger accounts, Record relevant transactions
D. Analyze each transaction, Post journal information to ledger accounts, Record relevant transactions, Prepare and analyze the trial balance
E. Analyze each transaction, Record relevant transactions, Post journal information to ledger accounts, Prepare and analyze the trial balance


24. Source documents: 
A. Include the ledger
B. Are the sources of accounting information
C. Must be in electronic form
D. Are based on accounting entries
E. Include the chart of accounts


25. For what reason do most sellers require customers to have their receipts in order to exchange or return purchased items? 
A. The receipt contains coded information which the seller needs to prepare and analyze the trial balance.
B. Sellers wish to ensure that the sale in question was rung up on the register in the first place.
C. This is a legal requirement mandated by a federal law.
D. The receipt is serving as a promissory note.
E. To create an environment in which customer's do not want to return items.


26. An account used to record the owner's investments in the business is called: 
A. Dividends
B. Common Stock
C. Revenue
D. Expense
E. Liability


27. A debit is: 
A. An increase in an account
B. The right-hand side of a T-account
 A decrease in an account
 The left-hand side of a T-account
 An increase to a liability account


28. The right side of a T-account is a(n): 
A. Debit
B. Increase
C. Credit
D. Decrease
E. Account balance


29. A simple account form widely used in accounting to illustrate how debits and credits work is called a: 
A. Dividend account
B. Common stock account
C. Drawing account
D. T-account
E. Balance column sheet


30. An account balance is: 
A. The total of the credit side of the account
B. The total of the debit side of the account
 The difference between the total debits and total credits for an account including the beginning balance

D. Assets = liabilities + equity
E. Always a credit


31. A credit entry: 
A. Increases asset and expense accounts and decreases liability, common stock and revenue accounts
B. Is always a decrease in an account
C. Decreases asset and expense accounts and increases liability, common stock and revenue accounts
D. Is recorded on the left side of a T-account
 Is always an increase in an account


32. Robert Haddon contributed $70,000 in cash and some land worth $130,000 to open a new business, RH Consulting. Which of the following general journal entries will RH Consulting make to record this transaction? 


33. Jones Hardware, Inc. pays a cash dividend of $6,000, what is the necessary entry to record this transaction? 
A. Debit Cash, Credit Retained Earnings
B. Debit Dividends, Credit Cash
C. Debit Common Stock, Credit Cash
D. Debit Cash, Credit Common Stock
E. Debit Cash, Credit Dividend Income


34. The process of transferring general journal information to the ledger is: 
A. Double-entry accounting
B. Posting
C. Balancing an account
D. Journalizing
E. Not required unless debits do not equal credits


35. The record in which transactions are first recorded is the: 
A. Account balance
B. Ledger
C. Journal
D. Trial balance
E. Cash account


36. A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters or years is the: 
A. Operating cycle of a business
B. Time period principle
C. Going-concern principle
D. Matching principle
E. Accrual basis of accounting


37. Interim financial statements refer to financial reports: 
A. That cover less than one year, usually spanning one, three or six-month periods
B. That are prepared before any adjustments have been recorded
C. That show the assets above the liabilities and the liabilities above the equity
D. Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid
 Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues


38. Western Company has an annual reporting period that runs from July 1st through June 30th. Based on this information which of the following is a true statement? 
A. Western probably has little seasonal variation in their sales
B. Western has violated the time period principle
C. Western must prepare financial statements as of December 31 each year
D. Western has adopted a fiscal year
E. Western does not have an accountant


39. The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the: 
A. Recognition principle
B. Cost principle
C. Cash basis of accounting
D. Matching principle
E. Time period principle


40. The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called: 
A. Accrual basis accounting
B. Operating cycle accounting
C. Cash basis accounting
D. Revenue recognition accounting
E. Current basis accounting


41. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: 
A. Cash basis accounting
B. The matching principle
 The time period principle

D. Accrual basis accounting
E. Revenue basis accounting


42. The recurring steps performed each accounting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, are referred to as the: 
A. Accounting period
B. Operating cycle
C. Accounting cycle
D. Closing cycle
E. Natural business year


43. On June 30, 2009, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.
The adjusting entry on December 31, 2009 for Apricot would include: 
A. A debit to an expense for $1,250
B. A debit to a prepaid expense for $1,250
 A credit to an expense for $3,750
 A debit to a prepaid expense for $3,750
 A credit to a liability for $1,250


44. An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n): 
A. Accrued expense
B. Contra account
C. Accrued revenue
D. Intangible asset
E. Adjunct account


45. The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been used in the day to day operations of the business: 
A. Is referred to as depreciation expense
B. Is referred to as accumulated depreciation
 Is shown on the income statement of the final period
 Is only recorded when the asset is disposed of

E. Is referred to as an accrued asset


46. A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year? 
A. $75
B. $125
C. $175
D. $250
E. $325


47. Unearned revenue is reported on the financial statements as: 
A. A revenue on the balance sheet
B. A liability on the balance sheet
 An unearned revenue on the income statement

D. An asset on the balance sheet
 An operating activity on the statement of cash flows


48. Which of the following assets is not depreciated? 
A. Store fixtures
B. Computers
C. Land
D. Buildings
E. Vehicles


49. Unearned revenues are: 
A. Revenues that have been earned and received in cash
B. Revenues that have been earned but not yet collected in cash
C. Liabilities created when a customer pays in advance for products or services before the revenue is earned
D. Recorded as an asset in the accounting records
E. Increases to retained earnings


50. Prepaid expenses are: 
A. Payments made for products and services that do not ever expire
B. Classified as liabilities on the balance sheet
C. Decreases in retained earnings
D. Assets that represent prepayments of future expenses
E. Promises of payments by customers


51. Adjusting entries: 
A. Affect only income statement accounts
B. Affect only balance sheet accounts
C. Affect both income statement and balance sheet accounts
D. Affect only cash flow statement accounts
E. Affect only equity accounts


52. Which of the following accounts would not be impacted by adjusting journal entries? 
A. Accounts Receivable
B. Consulting Fee Earned
C. Unearned Consulting Fees
D. Cash
E. Wages Payable


53. The accrual basis of accounting: 
A. Is generally accepted for external reporting since it is more useful for most business decisions
B. Is flawed because it gives complete information about cash flows
C. Recognizes revenues when received in cash
D. Recognizes expenses when paid in cash
E. Eliminates the need for adjusting entries at the end of each period


54. The asset section of a classified balance sheet usually includes: 
A. Current assets, investments, plant assets and intangible assets
B. Current assets, long-term assets, revenues and intangible assets
C. Current assets, investments, plant assets and equity
D. Current liabilities, investments, plant assets and intangible assets
E. Current assets, liabilities, plant assets and intangible assets


55. Which of the following accounts would be closed at the end of the accounting period? 
A. Accounts Receivable
B. Unearned Consulting Fees
C. Fees Earned
D. Retained Earnings
E. Land


56. Which of the following accounts would not be on the post closing trial balance? 
A. Accounts Payable
B. Accounts Receivable
C. Common Stock
D. Dividends
E. Retained Earnings


57. Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is: 
A. Debit Office Supplies $105 and credit Office Supplies Expense $105
B. Debit Office Supplies Expense $105 and credit Office Supplies $105
C. Debit Office Supplies Expense $254 and credit Office Supplies $254
D. Debit Office Supplies $254 and credit Office Supplies Expense $254
E. Debit Office Supplies $105 and credit Supplies Expense $254


58. The adjusting entry to record the earned but unpaid salaries of employees at the end of an accounting period is: 
A. Debit Unpaid Salaries and credit Salaries Payable
B. Debit Salaries Payable and credit Salaries Expense
C. Debit Salaries Expense and credit Cash
D. Debit Salaries Expense and credit Salaries Payable
E. Debit Cash and credit Salaries Expense


59. A trial balance prepared after adjustments have been recorded is called a(n): 
A. Balance sheet
B. Adjusted trial balance
C. Unadjusted trial balance
D. Classified balance sheet
E. Unclassified balance sheet


60. Financial statements are typically prepared in the following order: 
A. Balance sheet, statement of retained earnings, income statement
B. Statement of retained earnings, balance sheet, income statement
C. Income statement, balance sheet, statement of retained earnings
D. Income statement, statement of retained earnings, balance sheet
E. Balance sheet, income statement, statement of retained earnings