Response to the following multiple choice questions:
1. As time passes, fixed assets, other than land, lose their capacity to provide useful services. To account for this decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process called
equipment allocation.
depreciation.
accumulation.
matching.
2. Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become __________ over time.
Liabilities
Assets
stockholders' equity
Expenses
3. Accrued revenues would appear on the balance sheet as
assets.
liabilities.
stockholders' equity.
prepaid expenses.
4. The __________ is prepared with various sections, subsections, and captions that aid in its interpretation and analysis.
accounting equation
retained earnings statement
intangible asset section
classified balance sheet
5. Unearned rent, representing rent paid for the next six months' occupancy, would be reported on the landlord's balance sheet as a(n)
asset.
liability.
capital stock.
revenue.
6. Current liabilities are usually due within
one month or less.
one week or less.
one year or less.
more than one year.
7. Updating accrual accounting records prior to preparing financial statements is called
the closing process.
converting to cash basis accounting.
the adjustment process.
going concern adjustments.
8. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M's accounts?
Increase accounts receivable and cash by $1,000,000 each
Increase accounts receivable and revenues by $1,000,000 each
Increase accounts receivable and unearned revenues by $1,000,000 each
No effect at this time
9. On April 1, Tule, Inc. paid $3,600 for an insurance premium on a three-year insurance policy. How does this transaction affect Tule's accounts?
Increase insurance expense and decrease cash by $3,600 each
Increase prepaid insurance and decrease cash by $3,600 each
Increase unearned insurance and decrease cash by $3,600 each
No effect at this time
10. Using accrual accounting, revenue is recorded and reported only
when cash is received without regard to when the services are rendered.
when the services are rendered without regard to when cash is received.
when cash is received at the time services are rendered.
if cash is received after the services are rendered.
11. What method of accounting records transactions when revenue has been earned or the expense has been incurred but no cash has been exchanged?
Earned
Cash
Double-entry
Accrual
12. On April 1, Tule Inc. paid $3,600 for an insurance premium on a three-year insurance policy. At the end of December, Tule's fiscal year end, what should be the balance in the Prepaid Insurance account?
$2,700
$3,600
$2,400
$0
13. Unearned revenue is what type of an account?
Asset
Revenue
Stockholders' equity
Liability
14. An example of an accrued revenue is __________.
interest accrued on a note receivable
interest accrued on a note payable
unearned revenues
salaries owed to employees
15. During July, wages expense of $25,000 was reported on the income statement. If wages payable at July 1st was $2,000, and wages of $20,000 were paid during July, how much was accrued wages payable on July 31st?
$2,000
$1,500
$7,000
$1,000
16. The financial statements are affected by which type(s) of adjustments?
AccrualsDeferrals
Yes Yes
Yes No
No Yes
No No
17. Phil's Lawn Service provides lawn care services to residential customers on a weekly or monthly basis. Occasionally, Phil's Lawn Service will sell some of its used equipment or will rent some of its specialized equipment to other lawn service companies. Which of the following would be reported as "Revenues" on Phil's income statement?
Lawn service revenue.
Rental revenue.
Revenue from sales of equipment.
All of the above are correct.
18. Canyon Candy Co. began operations on January 1, 2011, by purchasing $2,000 of supplies. At the end of its first year of operations, $1,400 of supplies were on hand. Additionally, during the year, the company purchased $900 of supplies. The year-end adjusting entry for Canyon would include a debit to supplies expense for:
$1,500
$2,900
$500
$2,500
19. When reconciling net income to net cash flows from operating activities on the statement of cash flows, a decrease in accounts payable would __________.
be added back
be subtracted
be shown in the financing activities section
be shown in the investing activities section
20. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M's accounts?
If using the accrual method, increase accounts receivable and cash by $1,000,000 each.
If using the accrual method, increase accounts receivable and revenues by $1,000,000 each.
If using the cash method, increase accounts receivable and unearned revenues by $1,000,000 each.
If using the cash method, increase cash and revenues by $1,000,000 each.
Assume the November transactions for Hoover Co. are as follows:
a. Provided services of $15,600 on account.
b. Purchased supplies on account $800.
c. Received cash of $10,900 from clients for services previously billed.
d. Paid $2,400 for a one-year insurance policy.
e. Paid dividends of $1,500 to stockholders.
Record the transactions, using the integrated financial statement framework that follows:
Assets = Liabilities + Stockholders' Equity
21. For transaction A, what is the effect of the transaction on the accounting equation?
Cash is increased $15,600, Accounts Receivable is increased $15,600
Accounts Receivable is increased $15,600, Retained Earnings is increased $15,600
Accounts Payable is increased $15,600, Retained Earnings is increased $15,600
Cash is decreased $15,600, Accounts Receivable is decreased $15,600
22. For transaction B, what is the effect of the transaction on the accounting equation?
Supplies is decreased $800, Note Payable is decreased $800
Cash is decreased $800, Supplies is increased $800
Supplies is increased $800, Accounts Payable is increased $800
Cash is decreased $800, Note Payable is decreased $800
23. For transaction C, what is the effect of the transaction on the accounting equation?
Cash is increased $10,900, Accounts Receivable is decreased $10,900
Cash is increased $10,900, Capital Stock increased $10,900
Cash is increased $10,900, Note Payable is decreased $10,900
Cash is increased $10,900, Retained Earnings is increased $10,900
24. For transaction D, what is the effect of the transaction on the accounting equation?
Cash is increased $2,400, Retained Earnings is decreased $2,400
Cash is decreased $2,400, Prepaid Insurance is increased $2,400
Cash is decreased $2,400, Retained Earnings is increased $2,400
Cash is increased $2,400, Equipment is decreased $2,400
25. For transaction E, what is the effect of the transaction on the accounting equation?
Cash is decreased $1,500, Note Payable is decreased $1,000
Cash is decreased $1,500, Capital Stock is decreased $1,500
Cash is decreased $1,500, Retained Earnings is decreased $1,500
Cash is increased $1,500, Retained Earnings is increased $1,500