Accounting Exam

Generally accepted accounting principles requires that companies use the ____ of accounting.
When is the adjusted trial balance prepared?
after adjusting journal entries are posted
The type of account and normal balance of Accumulated Depreciation is
contra asset, credit
The entry to adjust the accounts for wages accrued at the end of the accounting period is
d wages expense
c wages payable
Prepaid expenses are eventually expected to
become expenses when their future economic value expires.
Adjusting entries are
needed to bring accounts up to date and match revenue and expense
Using accrual accounting, revenue is recorded and reported only
when the services are rendered without regard to when cash is received
Using accrual accounting, expenses are recorded and reported only
when they are incurred, whether or not cash is paid
The process of transferring the debits and credits from the journal entries to the ledger accounts is called
The verification that the total dollar amount of the debits equals the total dollar amount of the credits in the ledger is called a
trial balance
The classification and normal balance of the accounts payable account is
liability with a credit balance
The ____ is where a transaction can first be found on the accounting records.
Which of the following is not a correct rule of debits and credits?
Answer. the normal balance for revenues and expenses is a credit
b. assets are decreased by credits and have a normal debit balance
c. liabilities, revenues, and retained earnings are increased by credits
d. assets, expenses, and dividends are increased by debits
How does paying a liability in cash affect the accounting equation?
asset decrease, liability decrease
The assets and liabilities of the company are $175,000 and $40,000, respectively. Stockholders' equity should equal
Which of the following is not an asset?
A. investments
b.Answer stockholders' equity
c. inventory
d. cash
Debts owed by a business are referred to as
Donner Company is selling a piece of land adjacent to their business. An appraisal reported the market value of the land to be $120,000. The Focus Company initially offered to buy the land for $107,000. The companies settled on a purchase price of $115,000. On the same day, another piece of land on the same block sold for $122,000. Under the cost concept, what is the amount that will be used to record this transaction in the accounting records?
Equipment with an estimated market value of $55,000 is offered for sale at $75,000. The equipment is acquired for $20,000 in cash and a note payable of $40,000 due in 30 days. The amount used in the buyer's accounting records to record this acquisition is
For accounting purposes, the business entity should be considered separate from its owners if the entity is
a. a proprietorship
b. a corporation
c. a partnership
d. all of these Answer
The initials GAAP stand for
generally accepted accounting principles
An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a
Countries outside the United States use financial accounting standards issued by the
1. Reports as of a specific date
2. The first statement prepared
3. Has three sections: operating, investing and financing
4. Reports only revenues and expenses
5. The second statement prepared
6. A formal presentation of the accounting equation
7. The connecting link between the income statement and balance sheet
1.? not Re
2. income sm of cash flows
4. IS
5. RE
For the following accounts, please indicate whether their normal balance is on the credit side or the debit side of the T-account.
1. Retained Earnings C
2. Accounts Receivable D
3. Accounts Payable C
4. Interest Earned C
5. Copyrights D
Which one of the fixed asset accounts listed below will not have a related contra asset account?
a. Office Equipment
b. Land Answer
c. Building
d. Delivery Equipment
Accumulated depreciation appears on the
balance sheet in the prop, plant, and equip
Discounts taken by a buyer because of early payment are recorded on the seller's accounting records as a(n)
sales discount
If the physical count of the inventory revealed $72,000 of merchandise on hand and the inventory records reported $73,200, what would be the necessary adjusting entry to record inventory shortage?
a. Cost of Merchandise Sold debit $1,200; Merchandise Inventory credit $1,200.
Which one of the following is not a difference between a retail business and a service business?
a. the inclusion of gross profit in the income statement
b. accounting equation Answer
c. merchandise inventory included in the balance sheet
d. in what is sold
Generally, the revenue account for a merchandising business is entitled
Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
selling expenses
Merchandise inventory is classified on the balance sheet as a
current asset
The inventory system employing accounting records that continuously disclose the amount of inventory is called
Gross profit is equal to:
d. sales less (sales discounts and sales returns and allowances) less cost of merchandise sold
Silver Co. sold merchandise to Bronze Co. on account, $29,367, terms 2/15, net 45. The cost of the merchandise sold is $13,900. Silver Co. issued a credit memorandum for $3,105 for merchandise returned that originally cost $1,159. The Bronze Co. paid the invoice within the discount period. What is amount of net sales from the above transactions?
Which of the following accounts has a normal debit balance?
sales returns and allowances
If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a
credit memo
The arrangements between buyer and seller as to when payments for merchandise are to be made are called
credit terms
Unearned Fees appear on the
balance sheet as a current liab
Current liabilities are those liabilities that
will be paid in less than 1 year
Balance sheet accounts
are called real accts
Which of the following account groups are all considered nominal accounts?
a. Rent Revenue, Fees Earned, Miscellaneous Expense
Closing entries are dated in the journal as of
b. the last day of the accounting period, although they are actually journalized after the end of the accounting period
The proper sequence for the steps in the accounting cycle is a follows
b. analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries and post to the ledger
A fiscal year
c. ordinarily begins on the first day of a month and ends on the last day of the following twelfth month.
During the end-of-period processing, which of the following best describes the logical order of steps?
c. preparation of adjustments, adjusted trial balance, financial statements
the natural business year
b. is a fiscal year that ends when business activities are at its lowest point.
What is the major difference between the unadjusted trial balance and the adjusted trial balance?
d. The adjusted trial balance includes the postings of the adjustments for the period in the balance of the accounts.
what is the nominal balance of the following accts
a. Sales Tax Payable C
b. Merchandise Inventory D
c. Delivery Expense D
d. Cost of Merchandise Sold D
e. Sales Returns and Allowances D
f. Sales Discounts D
g. Sales C
The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is
When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry
D accum deprec, C machinery
A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?
2000 gain
The formula for depreciable cost is
initial cost - resid value
Expenditures that add to the utility of fixed assets for more than one accounting period are
capital expenditures
A building with an appraisal value of $147,000 is made available at an offer price of $152,000. The purchaser acquires the property for $35,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $65,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is
Which of the following should be included in the acquisition cost of a piece of equipment?
a. installation costs
b. transportation costs
c. testing costs prior to placing the equipment into production
d. all are Correct Answer
Allowance for Doubtful Accounts has a debit balance of $511 at the end of the year (before adjustment), and Bad Debt Expense is estimated at 1% of net credit sales. If net credit sales are $869,514, the amount of the adjusting entry to record the estimate of the uncollectible accounts is
Abbott Company uses the allowance method of accounting for uncollectible accounts. Abbott estimates that 3% of net credit sales will be uncollectible. On January 1, 2010, the Allowance for Doubtful Accounts had a credit balance of $2,400. During 2010, Abbott wrote-off accounts receivable totaling $1,800 and made credit sales of $100,000. There were no Sales Returns or Sales Discounts during the year. After the adjusting entry, the December 31, 2010, balance in the Bad Debt Expense would be
Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $252,000 and credit sales are $1,000,000. An aging of accounts receivable shows that approximately 6% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $1,400 before adjustment?
bad debt exp 13720
allowance for doubtful accts 13720
What is the type of account and normal balance of Allowance for Doubtful Accounts?
contra asset, credit
The two methods of accounting for uncollectible receivables are the allowance method and the
direct write off method
The type of account and normal balance of Petty Cash is a(n)
asset, debit
Accompanying the bank statement was a debit memo for an NSF check received from a customer. What entry is required in the company's accounts?
debit A/R
C Cash
Accompanying the bank statement was a debit memo for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n)
deduction from the balance per companys records
Receipts from cash sales of $7,500 were recorded incorrectly in the cash receipts journal as $5,700. This item would be included on the bank reconciliation as a(n)
addition to the bal per companys recs
the bank reconciliatoin
d. is part of the internal control system
A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement. An example of a credit memo is
promissory note left for colleciton
The debit balance in Cash Short and Over at the end of an accounting period is reported as
an expense on the income statement
Which one of the following below reflects a weak internal control system?
c. a single employee is responsible for collecting and recording of cash
The objectives of internal control are to
b. provide reasonable assurance that operations are managed to achieve goals, financial reports are accurate, and laws and regulations are complied with
If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is
Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and retained earnings?
a. net income is overstated, assets are overstated, retained earnings is overstated
During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is
The inventory costing method that reports the most current prices in ending inventory is
Merchandise is sold for cash. The selling price of the merchandise is $3,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include
a. a credit to Sales Tax Payable for $210
The primary difference between a periodic and perpetual inventory system is that a
b. periodic system determines the inventory on hand only at the end of the accounting period
In the accounting cycle, the last step is
preparing a post closing trial balance
The balance sheet should be prepared
a. after the income statement and the retained earnings statement
The retained earnings statement should be prepared
after income and before balance
The unearned rent account has a balance of $36,000. If $4,000 of the $36,000 is unearned at the end of the accounting period, the amount of the adjusting entry is
What is the proper adjusting entry at April 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $16,000, and unexpired amounts per analysis of policies, $6,000?
c. debit Insurance Expense, $10,000; credit Prepaid Insurance, $10,000
The cash basis of accounting records revenues and expenses when the cash is exchanged while the accrual basis of accounting
a. records revenues and expenses when they are incurred.
a. Cash
b. Wages expense
c. Accounts payable
d. Fees earned
e. Supplies
f. Land
asset liab or RE?
a. Cash A
b. Wages expense RE
c. Accounts payable L
d. Fees earned RE
e. Supplies A
f. Land A
balance sheet appearance?
no expenses or fees earned
Appear on IS?
1. Accounts Receivable no
2. Capital Stock no
3. Cash no
4. Fees Earned yes
5. Land no
6. Supplies no
7. Supplies Expense yes
8. Utilities Expense yes
9. Wages Expense yes
10. Wages Payable no
net income
net income = fees earned - expenses
op act, invest act, financing act?
1. Cash received from fees earned. op
2. Cash paid for expenses. op
3. Cash paid for land. I
4. Cash received from issuing capital stock. Fi
periodic inventory system
the inventory records do not show the amount available for sale or the amount sold during the period. Instead, the cost of merchandise sold and the merchandise on hand are determined at the end of the period by physically counting the inventory
perpetual inventory system
each purchase and sale of merchandise is recorded in the inventory and the cost of merchandise sold accounts. As a result, the amounts of merchandise available for sale and sold are continuously (perpetually) updated in the inventory records. Because many retailers use computerized systems, the perpetual inventory system is widely used.
Net sales
sales - sales returns & allows. - sales discounts
gross profit
net sales - cost of merch sold
cost of merch sold
Merchandise costs consist of all the costs of acquiring the merchandise and readying it for sale, such as purchase and freight costs
income from op
GP - op expenses and admin exp
selling expense
incurred directly in selling things. Examples of selling expenses include sales salaries, store supplies used, depreciation of store equipment, delivery expense, and advertising.
administrative expenses
sometimes called general expenses, are incurred in the administration or general operations of the business. Examples of administrative expenses include office salaries, depreciation of office equipment, and office supplies used.

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