1. Which one of the following items should be reported in a statement of retained earnings for 1989?
a. An earthquake loss that occurred during 1989.
b. A change made in 1989, in the estimated useful lives of plant assets acquired in 1985.
c. A write-off in 1989 of an account receivable that resulted from a credit sale made during 1988.
d. A revenue that was earned during 1988 but was incorrectly omitted from the 1988 income statement.
2. Prior period adjustments are reported
a. In a special section of the income statement.
b. Whenever a company makes a change in an accounting estimate.
c. Immediately after "Dividends declared."
d. In a statement of stockholders' equity.
3. Treasury stock should be reported
a. As a current asset only if it will be sold within the next year or operating cycle, whichever is longer.
b. As a current asset only if it will be sold within the next year or operating cycle, whichever is shorter.
c. In the investments and funds section of the balance sheet.
d. As a deduction in the stockholders' equity section of the balance sheet.
4. In relation to a set of 1989 basic financial statements, a subsequent event is one that
a. Occurs before the 1989 financial statements are issued.
b. Involves uncertainty as to possible gain or loss that will ultimately be resolved in 1990 or later.
c. Occurs after the 1989 financial statements are issued.
d. Requires an appropriate adjusting entry to be made as of the end of 1989.
5. Six of the eleven steps in the accounting cycle are listed below. The listing is not in the correct sequence, however.
(1) Prepare financial statements. (2) Post to ledger accounts.
(3) Prepare reversing entries. (4) Prepare adjusting entries.
(5) Prepare closing entries. (6) Record transactions in journals. The correct sequence is
a. 2, 6, 4, 1, 5, 3.
b. 6, 2, 1, 4, 5, 3.
c. 6, 2, 4, 1, 3, 5.
d. 6, 2, 4, 1, 5, 3.
6. Which one of the following accounts should be closed at the end of every accounting period?
a. Paid-in Capital in Excess of Par Value.
b. Discount on Bonds Payable.
c. Subscriptions Revenue.
d. Unearned Laundry Revenue.
7. Premium on Bonds Payable is an example of a
a. Nominal, adjunct account.
b. Real, adjunct account.
c. Nominal, contra account.
d. Real, contra account.
8. Which one of the following items is an adjunct account that should not be closed at the end of every accounting period?
a. Allowance for Doubtful Accounts.
b. Transportation-in.
c. Discount on Bonds Payable.
d. Premium on Preferred Stock.
9. An unadjusted trial balance
a. Provides information that is helpful when making adjusting entries.
b. Proves that no errors have been made in the accounting records.
c. Usually contains the account balances that should appear in the financial statements.
d. Is a summary taken directly from the general journal.
10. The basic financial statements are listed below.
(1) Balance sheet
(2) Statement of retained earnings
(3) Income statement
(4) Statement of cash flows
In which of the following sequences does the accountant ordinarily prepare the statements?
a. 3, 1, 2, 4.
b. 2, 1, 3, 4.
c. 3, 2, 1, 4.
d. 3, 2, 4, 1.
11. The post-closing trial balance
a. Provides a convenient listing of account balances that can be used to prepare the financial statements.
b. Does not include nominal accounts.
c. Is identical to the balance sheet.
d. Proves that accounts have been closed properly.
12. Which one of the following adjusting entries should definitely not be reversed?
a. Rent Receivable 100
Rent Revenue100
b. Insurance Expense 100
Prepaid Insurance 100
c. Advertising Revenue 100
Unearned Advertising Revenue 100
d. Wages Expense 100
Wages Payable 100
13. Which one of the following adjusting entries may be reversed?
a. Unearned Rent Revenue 100
Accumulated Depreciation 100
c. Prepaid Rent 100
Rent Expense 100
d. Bad Debts Expense 100
Allowance for Doubtful Accounts 100
14. Which of the following is not true of a subsidiary ledger?
a. The purpose of a subsidiary ledger is to store the details of certain general ledger accounts.
b. The sum of the individual balances in a subsidiary ledger should equal the balance in the general ledger control account.
c. Journal entries posted to a subsidiary ledger need not be posted to the general ledger.
d. One benefit of a subsidiary ledger is that the number of general ledger accounts necessary is reduced.