Problem 1. During December, Francesca was hired. She earned $2,600 for the month. By December 31, $2,000 of these wages had been paid with the remainder to be paid during January. How will this information appear on the balance sheet and income statement at December 31?
a) Balance Sheet Income Statement
$2,600 as a liability $2,000 as an expense
b) Balance Sheet Income Statement
$2,000 as a liability $2,600 as an expense
c) Balance Sheet Income Statement
$600 as a liability $2,600 as an expense
d) Balance Sheet Income Statement
$600 as a liability $2,000 as an expense
Problem 2. Which of the following statements is true?
a) accounts receivable is decreased when sales are made on account
b) accounts receivable is a revenue account
c) individual customer accounts are subsidiary accounts
d) accounts receivable are closed out at the end of the accounting period
Problem 3. Which of the following statements about the accounting cycle is NOT true?
a) the accounting cycle is an eight-step procedure that occurs each accounting period
b) adjusting entries must be prepared before the final closing of the book
c) financial statements are prepared after closing the books for the accounting period
d) the accounting cycle is a repeating process used to record, summarize, and report accounting information
Problem 4. If a firm's depreciation expense doubles, which of the following will decrease (ignore taxes)?
Net Income Cash Flow
(Points : 2)
a) Yes Yes
b) Yes No
c) No Yes
d) No No
Problem 5. The bookkeeper at the Happy Holly Ranch forgot to record the expiration of prepaid insurance during 2007. The result of this error is that
a) 2007 net income is understated, the balance in owners' equity is understated, and assets are understated
b) 2007 net income is overstated, the balance in owners' equity is overstated, and assets are correctly stated
c) 2007 net income is overstated, the balance in owners' equity is overstated, and assets are overstated
d) liabilities are understated
Problem 6. Office supplies of $900 were purchased on account to be used in future months. One part of the accounting entry to record this event in the accounting system would be to
a) increase assets by $900
b) decrease assets by $900
c) increase expenses by $900
d) decrease liabilities by $900
Problem 7. The sale of merchandise on credit requires an entry in which two accounts?
a) cash and sales revenue
b) accounts receivable and sales revenue
c) accounts receivable and cash
d) sales revenue and accounts payable
Problem 8. Which of the following is considered a liability?
a) interest revenue
b) unearned revenue
c) sales revenue
d) rent revenue
Problem 9. Under accrual-basis accounting, sales made to customers on credit are usually reported as
a) liabilities
b) accounts payable
c) cash from operating activities
d) sales revenue
Problem 10. If an adjustment to record the accrual of interest payable is omitted from the accounting system by the accountant, which of the following effects will result?
a) total expenses will be overstated on the income statement
b) net income will be overstated
c) liabilities on the balance sheet will be overstated
d) cash will be overstated
Problem 11. Memory Collectibles purchased $25,000 of inventory on account. Which of the following statements is NOT true?
a) assets and liabilities would increase
b) the transaction would be summarized and reported on the balance sheet
c) when cash payment is made on the account, expenses will increase
d) an entry would be made in both a control account and subsidiary account
Problem 12. An owner invests $100,000 in the business. Which of the following statements is NOT true?
a) the transaction is a financing activity
b) owners' equity would increase
c) total assets would increase
d) the transaction will be reported on the income statement
Problem 13. The cost associated with borrowing money during a fiscal period is
a) rent expense
b) depreciation expense
c) interest expense
d) cost of goods sold
Problem 14. A ledger is a chronological record of an organization's financial transactions.
True
False
Problem 15. Custom Bikes Corporation reports these balances in its accounting system. Determine the balance of the Retained Earnings account.
Accounts payable $ 400 Bonds payable 2,000
Land 200 Supplies inventory 80
Notes payable 160 Owners' investment 2,200
Equipment 2,400 Buildings, net 2,000
Cash 800 Interest payable 40
Accounts receivable 2,200 Retained earnings ?
Inventory 720
a) $3,600
b) $5,800
c) $6,200
d) $7,800
Problem 16. A general ledger is a collection of
a) account balances
b) financial statements
c) subsidiary accounts
d) journal entries
Problem 17. An adjusting entry generally requires entries into
a) two balance sheet accounts
b) the cash account and an income statement account
c) an income statement account and a balance sheet account
d) two income statement accounts
Problem 18. Accrued revenues and expenses result when
a) the end of the year has occurred after the transaction has been completed
b) revenues and expenses are recognized after cash is received or paid
c) revenues and expenses are recognized before cash is received or paid
d) the bookkeeper has made an error
Problem 19. Accrual basis accounting
a) is an attempt to report net income at the earliest possible point in time
b) has the effect of delaying the payment of taxes until the latest point in time possible
c) captures the economic effects of an event in the period when the event occurred
d) leads to higher net income being reported than does cash flow accounting
Problem 20. If a firm fails to record an accrued revenue, its net income and assets will be understated.
True
False